Achieves 25 Percent Year-Over-Year Growth with Strong
Creative, Adobe Document Cloud and Adobe Experience Cloud
Revenue
Adobe (Nasdaq:ADBE) today reported financial results for its
second quarter fiscal year 2019 ended May 31, 2019.
Q2 FY2019 Financial Highlights
- Adobe achieved record quarterly revenue
of $2.74 billion in its second quarter of fiscal year 2019, which
represents 25 percent year-over-year growth. Diluted earnings per
share was $1.29 on a GAAP-basis, and $1.83 on a non-GAAP
basis.
- Digital Media segment revenue was $1.89
billion, which represents 22 percent year-over-year growth.
Creative revenue grew to $1.59 billion and Document Cloud achieved
revenue of $296 million. Digital Media Annualized Recurring Revenue
(“ARR”) grew to $7.47 billion exiting the quarter, a
quarter-over-quarter increase of $406 million. Creative ARR grew to
$6.55 billion, and Document Cloud ARR grew to $921 million.
- Digital Experience segment revenue was
$784 million, representing 34 percent year-over-year growth.
- GAAP operating income in the second
quarter was $750 million, and non-GAAP operating income was $1.05
billion. GAAP net income was $633 million, and non-GAAP net income
was $901 million.
- Cash flow from operations was $1.11
billion.
- Remaining Performance Obligation was
$8.37 billion.
- Adobe repurchased approximately 2.5
million shares during the quarter.
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 continued momentum is being fueled by the explosion of
creativity across the globe and the widespread business
transformation agenda to deliver engaging customer experiences,"
said Shantanu Narayen, president and CEO, Adobe. "With an
innovative technology platform, exciting product roadmap and strong
ecosystem of partners, we are well positioned for the second half
of FY19 and beyond."
"Adobe delivered another record quarter in Q2," said John
Murphy, executive vice president and CFO, Adobe. "Highlights
include 25 percent year-over-year revenue growth, strong net new
Digital Media ARR and operating cash flow of $1.11 billion."
Adobe Provides Third Quarter Fiscal Year 2019 Financial
Targets
The following table summarizes Adobe’s third quarter fiscal year
2019 targets.
Adobe total Q3 fiscal year 2019 revenue ~$2.80
billion Digital Media segment revenue ~20% year/year growth
Digital Experience segment revenue ~34% year/year growth Net
new Digital Media annualized recurring revenue (“ARR”) ~$360
million Tax rate GAAP: ~11% Non-GAAP: ~11% Share
count ~491 million shares Earnings per share GAAP:
~$1.40 Non-GAAP: ~$1.95
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 second quarter 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, 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 November 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 Quarterly Report on Form 10-Q for our quarter ended May 31,
2019, which Adobe expects to file in June 2019. 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, Adobe Document
Cloud, Adobe Experience Cloud, Creative Cloud 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 Six Months Ended May 31,
2019 (*) June 1, 2018 May 31, 2019 (*)
June 1, 2018 Revenue: Subscription $ 2,456,097 $
1,923,131 $ 4,761,064 $ 3,716,489 Product 152,816 150,993 323,370
322,601 Services and support 135,367 121,236 260,792
235,217 Total revenue 2,744,280 2,195,360
5,345,226 4,274,307 Cost of revenue:
Subscription 296,476 186,355 584,507 351,040 Product 9,345 10,779
21,450 23,656 Services and support 101,667 84,210
198,817 165,550 Total cost of revenue 407,488
281,344 804,774 540,246 Gross profit
2,336,792 1,914,016 4,540,452 3,734,061 Operating expenses:
Research and development 475,958 374,128 940,595 722,897 Sales and
marketing 848,927 646,215 1,630,445 1,227,172 General and
administrative 219,334 178,040 435,443 348,480 Amortization of
purchased intangibles 43,026 17,149 89,592
34,295 Total operating expenses 1,587,245 1,215,532
3,096,075 2,332,844 Operating income
749,547 698,484 1,444,377 1,401,217 Non-operating income
(expense): Interest and other income (expense), net 2,558 11,599
6,824 28,271 Interest expense (40,577 ) (20,363 ) (81,170 ) (40,262
) Investment gains (losses), net (756 ) 1,079 43,075
4,075 Total non-operating income (expense), net (38,775 )
(7,685 ) (31,271 ) (7,916 ) Income before income taxes 710,772
690,799 1,413,106 1,393,301 Provision for income taxes 78,179
27,632 106,272 147,058 Net income $
632,593 $ 663,167 $ 1,306,834 $ 1,246,243
Basic net income per share $ 1.30 $ 1.35 $
2.68 $ 2.53 Shares used to compute basic net income
per share 487,535 491,914 487,795 491,993
Diluted net income per share $ 1.29 $ 1.33 $
2.65 $ 2.50 Shares used to compute diluted net income
per share 492,212 498,252 493,200 499,166
_________________________________________
*
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-Q for the second quarter of fiscal
year 2019 for additional information.
Condensed Consolidated Balance
Sheets
(In thousands, except par value;
unaudited)
May 31, 2019 (*) November 30, 2018 ASSETS
Current assets: Cash and cash equivalents $ 2,082,910 $
1,642,775 Short-term investments 1,396,069 1,586,187 Trade
receivables, net of allowances for doubtful accounts of $12,379 and
$14,981, respectively 1,272,668 1,315,578 Prepaid expenses and
other current assets 590,998 312,499 Total current
assets 5,342,645 4,857,039 Property and equipment, net
1,205,020 1,075,072 Goodwill 10,697,874 10,581,048 Purchased and
other intangibles, net 1,917,149 2,069,001 Other assets 503,221
186,522 Total assets $ 19,665,909 $ 18,768,682
LIABILITIES AND STOCKHOLDERS’ EQUITY Current
liabilities: Trade payables $ 169,101 $ 186,258 Accrued expenses
1,314,998 1,163,185 Debt 3,145,668 — Income taxes payable 45,778
35,709 Deferred revenue 3,011,552 2,915,974 Total
current liabilities 7,687,097 4,301,126 Long-term
liabilities: Debt 987,938 4,124,800 Deferred revenue 122,522
137,630 Income taxes payable 637,733 644,101 Deferred income taxes
133,886 46,702 Other liabilities 165,040 152,209
Total liabilities 9,734,216 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
6,050,800 5,685,337 Retained earnings 13,183,938 11,815,597
Accumulated other comprehensive income (loss) (144,364 ) (148,130 )
Treasury stock, at cost (114,561 and 113,171, respectively), net of
reissuances (9,158,742 ) (7,990,751 ) Total stockholders’ equity
9,931,693 9,362,114 Total liabilities and
stockholders’ equity $ 19,665,909 $ 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-Q for the second quarter of fiscal
year 2019 for additional information.
Condensed Consolidated Statements of
Cash Flows
(In thousands; unaudited)
Three Months Ended May 31, 2019 June
1, 2018 Cash flows from operating activities: Net income $
632,593 $ 663,167 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation, amortization and
accretion 145,609 76,360 Stock-based compensation 204,300 145,376
Unrealized investment (gains) losses, net 1,700 (573 ) Changes in
deferred revenue (84,118 ) 62,063 Changes in other operating assets
and liabilities 209,242 30,013 Net cash provided by
operating activities 1,109,326 976,406 Cash
flows from investing activities: Purchases, sales and maturities of
short-term investments, net 100,486 131,896 Purchases of property
and equipment (85,492 ) (45,316 ) Purchases and sales of long-term
investments, intangibles and other assets, net (4,921 ) (4,287 )
Acquisitions, net of cash acquired — (14,614 ) Net cash
provided by investing activities 10,073 67,679
Cash flows from financing activities: Purchases of treasury stock
(750,000 ) (700,000 ) Taxes paid related to net share settlement of
equity awards, net of proceeds from treasury stock reissuances
(21,813 ) (16,854 ) Repayment of capital lease obligations (288 )
(511 ) Net cash used for financing activities (772,101 ) (717,365 )
Effect of exchange rate changes on cash and cash equivalents (3,234
) (5,715 ) Net increase in cash and cash equivalents 344,064
321,005 Cash and cash equivalents at beginning of period 1,738,846
2,666,981 Cash and cash equivalents at end of period
$ 2,082,910 $ 2,987,986
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 May 31, 2019 (*)
June 1, 2018 March 1, 2019 (*) Operating
income: GAAP operating income $ 749,547 $ 698,484 $ 694,830
Stock-based and deferred compensation expense 203,673 146,773
187,115 Amortization of purchased intangibles 96,714 32,378
102,690 Non-GAAP operating income $ 1,049,934
$ 877,635 $ 984,635 Net income: GAAP
net income $ 632,593 $ 663,167 $ 674,241 Stock-based and deferred
compensation expense 203,673 146,773 187,115 Amortization of
purchased intangibles 96,714 32,378 102,690 Investment (gains)
losses, net 756 (1,079 ) (43,831 ) Income tax adjustments (33,132 )
(15,812 ) (76,221 ) Non-GAAP net income $ 900,604 $ 825,427
$ 843,994 Diluted net income per share:
GAAP diluted net income per share $ 1.29 $ 1.33 $ 1.36 Stock-based
and deferred compensation expense 0.41 0.29 0.38 Amortization of
purchased intangibles 0.20 0.06 0.21 Investment (gains) losses, net
— — (0.09 ) Income tax adjustments (0.07 ) (0.02 ) (0.15 ) Non-GAAP
diluted net income per share $ 1.83 $ 1.66 $ 1.71
Shares used in computing diluted net income per share
492,212 498,252 494,188
_________________________________________
*
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-Q for the second quarter of fiscal
year 2019 for additional information.
Reconciliation of GAAP to Non-GAAP Financial Targets
The following table shows Adobe's third quarter fiscal year 2019
GAAP earnings per share target reconciled to the non-GAAP financial
target included in this release.
Third Quarter
Fiscal 2019
Diluted net income per share: GAAP diluted net income per
share $ 1.40 Stock-based and deferred compensation expense 0.42
Amortization of purchased intangibles 0.20 Income tax adjustments
(0.07 ) Non-GAAP diluted net income per share $ 1.95
Shares used to compute diluted net income per share 491.0
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 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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Investor Relations Contact
Mike SaviageAdobe408-536-4416ir@adobe.com
Public Relations Contact
Dan BerthiaumeAdobe408-536-2584dberthia@adobe.com
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