ADBE
$182.34
Adobe Systems
$.10
.05%
Earnings Details
3rd Quarter August 2017
Tuesday, September 19, 2017 4:05:00 PM
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Summary

Adobe Systems Beats

Adobe Systems (ADBE) reported 3rd Quarter August 2017 earnings of $1.09 per share on revenue of $1.8 billion. The consensus earnings estimate was $1.01 per share on revenue of $1.8 billion. The Earnings Whisper number was $1.05 per share. Revenue grew 25.8% on a year-over-year basis.

The company said in its earnings presentation it expects fourth quarter non-GAAP earnings of approximately $1.15 per share on revenue of approximately $1.95 billion. The current consensus earnings estimate is $1.10 per share on revenue of $1.94 billion for the quarter ending November 30, 2017.

Adobe Systems Inc offers a line of software and services used by creative professionals, marketers, developers, enterprises and consumers for creating, managing, delivering, measuring, optimizing and engaging with compelling operating systems.

Results
Reported Earnings
$1.09
Earnings Whisper
$1.05
Consensus Estimate
$1.01
Reported Revenue
$1.84 Bil
Revenue Estimate
$1.81 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Adobe Reports Record Revenue

Adobe (ADBE) today reported financial results for its third quarter fiscal year 2017 ended Sept. 1, 2017.

Financial Highlights

Adobe achieved record quarterly revenue of $1.84 billion in its third quarter of fiscal year 2017, which represents 26 percent year-over-year revenue growth.

Diluted earnings per share was $0.84 on a GAAP-basis, and $1.10 on a non-GAAP basis.

Digital Media segment revenue was $1.27 billion, with Creative revenue growing to $1.06 billion.

Digital Media Annualized Recurring Revenue ("ARR") grew to $4.87 billion exiting the quarter, a quarter-over-quarter increase of $308 million.

Adobe Experience Cloud achieved revenue of $508 million, which represents 26 percent year-over-year growth.

Operating income grew 48 percent and net income grew 55 percent year-over-year on a GAAP-basis; operating income grew 43 percent and net income grew 46 percent year-over-year on a non-GAAP basis.

Cash flow from operations was $704 million, and deferred revenue grew to approximately $2.20 billion.

The company repurchased approximately 2.1 million shares during the quarter, returning $298 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 delivered another record quarter with stellar year-over-year revenue growth of 26 percent," said Shantanu Narayen, president and CEO, Adobe. "The imperative to deliver intelligent, intuitive and effective customer experiences is key to the C-suite agenda of digital transformation, and Adobe’s cloud offerings are critical to that business mandate."

"Our results in Q3 once again reflect the leverage of our financial model, with record revenue driven by our cloud-based subscription offerings, strong earnings and cash flow from operations," said Mark Garrett, executive vice president and CFO, Adobe.

Adobe to Webcast Earnings Conference Call

Adobe will webcast its third quarter fiscal year 2017 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 the importance of our products to our customers, product adoption, 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, market and offer products and services that meet customer requirements, introduction of new products, services and business models by competitors, fluctuations in subscription renewal rates, our ability to predict such renewals and risks related to the timing of revenue recognition from our subscription offerings and ETLAs, complex and unpredictable sales cycles for some enterprise offerings, failure to successfully manage transitions to new business models and markets, uncertainty in economic conditions and the financial markets, risks associated with cyber-attacks and information security, potential interruptions or delays in hosted services provided by us or third parties, changes in accounting principles, and failure to realize the anticipated benefits of past or future acquisitions. 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 2016 ended Dec. 2, 2016, and Adobe’s Quarterly Reports on Form 10-Q issued in fiscal year 2017.

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 Sept. 1, 2017, which Adobe expects to file in Sept. 2017.

Adobe assumes no obligation to, and does not currently intend to, update these forward-looking statements.

About Adobe Systems Incorporated

Adobe is changing the world through digital experiences. For more information, visit www.adobe.com.

(C) 2017 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
Nine Months Ended
September 1,
September 2,
September 1,
September 2,
2017*
2016
2017*
2016
Revenue:
Subscription
$ 1,570,336
$ 1,168,602
$ 4,437,882
$ 3,322,560
Product
158,961
180,960
513,891
578,572
Services and support
111,777
114,405
343,137
344,879
Total revenue
1,841,074
1,463,967
5,294,910
4,246,011
Cost of revenue:
Subscription
168,915
116,990
452,830
339,664
Product
11,709
15,435
41,530
51,490
Services and support
82,298
70,276
245,259
212,198
Total cost of revenue
262,922
202,701
739,619
603,352
Gross profit
1,578,152
1,261,266
4,555,291
3,642,659
Operating expenses:
Research and development
315,555
248,450
900,033
718,138
Sales and marketing
550,093
477,475
1,623,488
1,415,155
General and administrative
147,402
143,364
455,139
428,010
Amortization of purchased intangibles
19,428
22,652
57,876
60,034
Total operating expenses
1,032,478
891,941
3,036,536
2,621,337
Operating income
545,674
369,325
1,518,755
1,021,322
Non-operating income (expense):
Interest and other income (expense), net
13,539
2,725
25,899
12,995
Interest expense
(18,809 )
(17,281 )
(55,286 )
(52,924 )
Investment gains (losses), net
975
1,532
5,261
(2,955 )
Total non-operating income (expense), net
(4,295 )
(13,024 )
(24,126 )
(42,884 )
Income before income taxes
541,379
356,301
1,494,629
978,438
Provision for income taxes
121,810
85,513
302,224
209,269
Net income
$
419,569
$
270,788
$ 1,192,405
$
769,169
Basic net income per share
$
0.85
$
0.54
$
2.41
$
1.54
Shares used to compute basic net income per share
493,426
498,584
494,138
499,224
Diluted net income per share
$
0.84
$
0.54
$
2.38
$
1.52
Shares used to compute diluted net income per share
500,398
503,669
501,060
505,135
____________________
*
We early adopted ASU No. 2016-09, Improvements to Employee
Share-Based Payment Accounting, during the first quarter of
fiscal 2017. As required by the standard, excess tax benefits
recognized on stock-based compensation expense were reflected in
our provision for income taxes rather than paid-in capital on a
prospective basis. We recorded excess tax benefits within our
provision for income taxes, rather than paid-in capital, starting
the first quarter of fiscal 2017.
Condensed Consolidated Balance Sheets
(In thousands, except par value; unaudited)
September 1,
December 2,
2017
2016
ASSETS
Current assets:
Cash and cash equivalents
$
1,774,550
$
1,011,315
Short-term investments
3,593,936
3,749,985
Trade receivables, net of allowances for doubtful accounts of $9,112
1,006,187
833,033
and $6,214, respectively
Prepaid expenses and other current assets
206,384
245,441
Total current assets
6,581,057
5,839,774
Property and equipment, net
939,809
816,264
Goodwill
5,820,656
5,406,474
Purchased and other intangibles, net
420,667
414,405
Investment in lease receivable
--
80,439
Other assets
144,626
139,890
Total assets
$ 13,906,815
$ 12,697,246
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade payables
$
90,327
$
88,024
Accrued expenses
932,292
739,630
Income taxes payable
56,754
38,362
Deferred revenue
2,136,771
1,945,619
Total current liabilities
3,216,144
2,811,635
Long-term liabilities:
Debt
1,889,218
1,892,200
Deferred revenue
68,093
69,131
Income taxes payable
173,023
184,381
Deferred income taxes
276,271
217,660
Other liabilities
113,632
97,404
Total liabilities
5,736,381
5,272,411
Stockholders’ equity:
Preferred stock, $0.0001 par value; 2,000 shares authorized
--
--
Common stock, $0.0001 par value
61
61
Additional paid-in-capital
4,988,491
4,616,331
Retained earnings
9,072,321
8,114,517
Accumulated other comprehensive income (loss)
(98,630 )
(173,602 )
Treasury stock, at cost (107,960 and 106,580 shares, respectively),
(5,791,809 )
(5,132,472 )
net of reissuances
Total stockholders’ equity
8,170,434
7,424,835
Total liabilities and stockholders’ equity
$ 13,906,815
$ 12,697,246
Condensed Consolidated Statements of Cash Flows
(In thousands; unaudited)
Three Months Ended
September 1,
September 2,
2017*
2016
Cash flows from operating activities:
Net income
$
419,569
$ 270,788
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and accretion
82,319
84,014
Stock-based compensation expense
117,042
84,503
Unrealized investment (gains) losses, net
(643 )
(1,471 )
Changes in deferred revenue
129,872
116,353
Changes in other operating assets and liabilities
(43,723 )
(36,302 )
Net cash provided by operating activities
704,436
517,885
Cash flows from investing activities:
Purchases, sales and maturities of short-term investments, net
21,215
(247,601 )
Purchases of property and equipment
(54,238 )
(55,213 )
Purchases and sales of long-term investments, intangibles and other
(3,791 )
(3,774 )
assets, net
Net cash used for investing activities
(36,814 )
(306,588 )
Cash flows from financing activities:
Purchases of treasury stock
(300,000 )
(400,000 )
Proceeds from treasury stock reissuances, net of taxes paid related
82,117
71,128
to net share settlement of equity awards
Repayment of capital lease obligations
(416 )
(65 )
Excess tax benefits from stock-based compensation
--
3,980
Net cash used for financing activities
(218,299 )
(324,957 )
Effect of exchange rate changes on cash and cash equivalents
8,277
(5,047 )
Net increase (decrease) in cash and cash equivalents
457,600
(118,707 )
Cash and cash equivalents at beginning of period
1,316,950
886,379
Cash and cash equivalents at end of period
$ 1,774,550
$ 767,672
____________________
*
We early adopted ASU No. 2016-09, Improvements to Employee
Share-Based Payment Accounting, during the first quarter of
fiscal 2017. As required by the standard, excess tax benefits
recognized on stock-based compensation expense were reflected in
our provision for income taxes rather than paid-in capital on a
prospective basis. We also elected to prospectively apply the
change in presentation of excess tax benefits wherein excess tax
benefits recognized on stock-based compensation expense were
classified as operating activities in our condensed consolidated
statements of cash flows starting the first quarter of fiscal
2017. Prior period classification of cash flows related to excess
tax benefits was not adjusted.
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
September 1,
September 2,
June 2,
2017
2016
2017
Operating income:
GAAP operating income
$ 545,674
$ 369,325
$ 504,082
Stock-based and deferred compensation expense
117,968
86,070
118,591
Restructuring and other charges
--
(338 )
(97 )
Amortization of purchased intangibles
36,655
36,082
36,556
Non-GAAP operating income
$ 700,297
$ 491,139
$ 659,132
Net income:
GAAP net income*
$ 419,569
$ 270,788
$ 374,390
Stock-based and deferred compensation expense
117,968
86,070
118,591
Restructuring and other charges
--
(338 )
(97 )
Amortization of purchased intangibles
36,655
36,082
36,556
Investment (gains) losses, net
(975 )
(1,532 )
(1,729 )
Income tax adjustments
(24,146 )
(14,569 )
(17,419 )
Non-GAAP net income
$ 549,071
$ 376,501
$ 510,292
Diluted net income per share:
GAAP diluted net income per share*
$
0.84
$
0.54
$
0.75
Stock-based and deferred compensation expense
0.24
0.17
0.23
Amortization of purchased intangibles
0.07
0.07
0.07
Income tax adjustments
(0.05 )
(0.03 )
(0.03 )
Non-GAAP diluted net income per share
$
1.10
$
0.75
$
1.02
Shares used in computing diluted net income per share
500,398
503,669
500,351
Three Months
Ended
September 1,
2017
Effective income tax rate:
GAAP effective income tax rate*
22.5 %
Stock-based and deferred compensation expense
(0.4 )
Amortization of purchased intangibles
(0.1 )
Income tax adjustments
(1.0 )
Non-GAAP effective income tax rate**
21.0 %
____________________
*
We early adopted ASU No. 2016-09, Improvements to Employee
Share-Based Payment Accounting, during the first quarter of
fiscal 2017. As required by the standard, excess tax benefits
recognized on stock-based compensation expense were reflected in
our provision for income taxes rather than paid-in capital on a
prospective basis. We recorded excess tax benefits within our
provision for income taxes, rather than paid-in capital, starting
the first quarter of fiscal 2017.
**
Our non-GAAP effective income tax rate of 21% is an annualized rate
based on estimates for the entire fiscal year, whereas the GAAP
effective income tax rate of 22.5% 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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SOURCE: Adobe

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