Adobe Document Cloud Achieves Year-Over-Year Growth of 22
Percent
Adobe (Nasdaq:ADBE) today reported strong financial results for
its second quarter fiscal year 2018 ended June 1, 2018.
Financial Highlights
- Adobe achieved record quarterly revenue
of $2.20 billion in its second quarter of fiscal year 2018, which
represents 24 percent year-over-year revenue growth.
- Diluted earnings per share was $1.33 on
a GAAP-basis, and $1.66 on a non-GAAP basis.
- Digital Media segment revenue was $1.55
billion, with Creative revenue growing to $1.30 billion and
Document Cloud achieving record revenue of $243 million, which
represents 22 percent year-over-year growth.
- Digital Media Annualized Recurring
Revenue (“ARR”) grew to $6.06 billion exiting the quarter, a
quarter-over-quarter increase of $343 million. Creative ARR grew to
$5.37 billion, and Document Cloud ARR grew to $694 million.
- Digital Experience segment revenue was
$586 million, which represents 18 percent year-over-year
growth.
- Operating income grew 39 percent and
net income grew 77 percent year-over-year on a GAAP-basis;
operating income grew 33 percent and net income grew 62 percent
year-over-year on a non-GAAP basis.
- Cash flow from operations was $976
million, and deferred revenue grew 27 percent year-over-year to
approximately $2.63 billion.
- Adobe repurchased approximately 2.6
million shares during the quarter, returning $589 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 delivers all the capabilities to enable transformative
digital experiences, including content creation and management,
predictive analytics and commerce," said Shantanu Narayen,
president and CEO, Adobe. "Our record results in Q2 reflect
continued execution against this significant opportunity where
Adobe is the clear market leader."
“Adobe delivered record revenue with strong earnings and cash
flow, and we expect our momentum to continue in the second half of
fiscal 2018," said John Murphy, executive vice president and CFO,
Adobe.
Adobe to Webcast Earnings Conference Call
Adobe will webcast its second quarter fiscal year 2018 earnings
conference call today at 2 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 business momentum, our market
opportunity, 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 June 1,
2018, which Adobe expects to file in June 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,
Adobe Document Cloud 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 June 1, 2018 June 2,
2017 June 1, 2018 June 2,
2017 Revenue: Subscription $ 1,923,131 $ 1,483,690 $
3,716,489 $ 2,867,546 Product 150,993 171,545 322,601 354,930
Services and support 121,236 116,955 235,217
231,360 Total revenue 2,195,360 1,772,190
4,274,307 3,453,836 Cost of revenue:
Subscription 186,355 142,734 351,040 283,915 Product 10,779 15,488
23,656 29,821 Services and support 84,210 81,138
165,550 162,961 Total cost of revenue 281,344
239,360 540,246 476,697 Gross profit
1,914,016 1,532,830 3,734,061 2,977,139 Operating expenses:
Research and development 374,128 299,401 722,897 584,478 Sales and
marketing 646,215 553,098 1,227,172 1,073,395 General and
administrative 178,040 156,929 348,480 307,737 Amortization of
purchased intangibles 17,149 19,320 34,295
38,448 Total operating expenses 1,215,532 1,028,748
2,332,844 2,004,058 Operating income
698,484 504,082 1,401,217 973,081 Non-operating income
(expense): Interest and other income (expense), net 11,599 5,154
28,271 12,360 Interest expense (20,363 ) (18,347 ) (40,262 )
(36,477 ) Investment gains (losses), net 1,079 1,729
4,075 4,286 Total non-operating income (expense), net
(7,685 ) (11,464 ) (7,916 ) (19,831 ) Income before income taxes
690,799 492,618 1,393,301 953,250 Provision for income taxes 27,632
118,228 147,058 180,414 Net income $
663,167 $ 374,390 $ 1,246,243 $ 772,836
Basic net income per share $ 1.35 $ 0.76 $ 2.53
$ 1.56 Shares used to compute basic net income per
share 491,914 494,371 491,993 494,492
Diluted net income per share $ 1.33 $ 0.75 $ 2.50
$ 1.54 Shares used to compute diluted net income per
share 498,252 500,351 499,166 501,032
Condensed Consolidated Balance
Sheets
(In thousands, except par value;
unaudited)
June 1, 2018 December 1, 2017
ASSETS Current assets: Cash and cash equivalents $ 2,987,986
$ 2,306,072 Short-term investments 3,346,078 3,513,702 Trade
receivables, net of allowances for doubtful accounts of $9,869 and
$9,151, respectively 1,074,877 1,217,968 Prepaid expenses and other
current assets 332,503 210,071 Total current assets
7,741,444 7,247,813 Property and equipment, net 993,486
936,976 Goodwill 5,823,792 5,821,561 Purchased and other
intangibles, net 320,478 385,658 Deferred income taxes 117,970 —
Other assets 166,234 143,548 Total assets $
15,163,404 $ 14,535,556 LIABILITIES AND
STOCKHOLDERS’ EQUITY Current liabilities: Trade payables $
117,194 $ 113,538 Accrued expenses 1,030,367 993,773 Income taxes
payable 37,933 14,196 Deferred revenue 2,543,462 2,405,950
Total current liabilities 3,728,956 3,527,457
Long-term liabilities: Debt 1,874,057 1,881,421 Deferred revenue
90,805 88,592 Income taxes payable 611,509 173,088 Deferred income
taxes — 279,941 Other liabilities 152,494 125,188
Total liabilities 6,457,821 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
5,354,175 5,082,195 Retained earnings 10,471,066 9,573,870
Accumulated other comprehensive income (loss) (129,230 ) (111,821 )
Treasury stock, at cost (110,399 and 109,572, respectively), net of
reissuances (6,990,489 ) (6,084,436 ) Total stockholders’ equity
8,705,583 8,459,869 Total liabilities and
stockholders’ equity $ 15,163,404 $ 14,535,556
Condensed Consolidated Statements of
Cash Flows
(In thousands; unaudited)
Three Months Ended June 1, 2018
June 2, 2017 Cash flows from operating activities:
Net income $ 663,167 $ 374,390 Adjustments to reconcile net income
to net cash provided by operating activities: Depreciation,
amortization and accretion 76,360 81,635 Stock-based compensation
144,322 116,049 Unrealized investment (gains) losses, net (573 )
(1,579 ) Changes in deferred revenue 62,063 14,746 Changes in other
operating assets and liabilities 31,067 59,586 Net
cash provided by operating activities 976,406 644,827
Cash flows from investing activities: Purchases, sales and
maturities of short-term investments, net 131,896 (30,079 )
Purchases of property and equipment (45,316 ) (55,297 ) Purchases
and sales of long-term investments, intangibles and other assets,
net (4,287 ) (2,171 ) Acquisitions, net of cash (14,614 ) —
Net cash provided by (used for) investing activities 67,679
(87,547 ) Cash flows from financing activities: Purchases of
treasury stock (700,000 ) (300,000 ) Taxes paid related to net
share settlement of equity awards, net of proceeds from treasury
stock reissuances (16,854 ) (13,788 ) Repayment of capital lease
obligations (511 ) (644 ) Net cash used for financing activities
(717,365 ) (314,432 ) Effect of exchange rate changes on cash and
cash equivalents (5,715 ) 5,206 Net increase in cash and
cash equivalents 321,005 248,054 Cash and cash equivalents at
beginning of period 2,666,981 1,068,896 Cash and cash
equivalents at end of period $ 2,987,986 $ 1,316,950
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 June 1, 2018
June 2, 2017 March 2, 2018
Operating income: GAAP operating income $ 698,484 $ 504,082
$ 702,733 Stock-based and deferred compensation expense 146,773
118,591 136,414 Restructuring and other charges — (97 ) —
Amortization of purchased intangibles 32,378 36,556
31,704 Non-GAAP operating income $ 877,635 $ 659,132
$ 870,851 Net income: GAAP net income $
663,167 $ 374,390 $ 583,076 Stock-based and deferred compensation
expense 146,773 118,591 136,414 Restructuring and other charges —
(97 ) — Amortization of purchased intangibles 32,378 36,556 31,704
Investment (gains) losses, net (1,079 ) (1,729 ) (2,996 ) Income
tax adjustments (15,812 ) (17,419 ) 23,987 Non-GAAP net
income $ 825,427 $ 510,292 $ 772,185
Diluted net income per share: GAAP diluted net income per
share $ 1.33 $ 0.75 $ 1.17 Stock-based and deferred compensation
expense 0.29 0.23 0.27 Amortization of purchased intangibles 0.06
0.07 0.06 Income tax adjustments (0.02 ) (0.03 ) 0.05
Non-GAAP diluted net income per share $ 1.66 $ 1.02 $
1.55 Shares used in computing diluted net income per
share 498,252 500,351 499,433
Three Months Ended June 1, 2018
Effective income tax rate: GAAP effective income tax rate
4.0 % Trading structure change 6.0 Impacts of the Tax Act (3.0 )
Income tax adjustments (2.0 ) Non-GAAP effective income tax rate*
5.0 %
_________________________________________
* The GAAP effective income tax rate of 4% 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.
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version on businesswire.com: https://www.businesswire.com/news/home/20180614006075/en/
AdobeInvestor Relations ContactMike Saviage,
408-536-4416ir@adobe.comorPublic
Relations ContactDan Berthiaume, 408-536-2584dberthia@adobe.com
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