ADBE
$143.81
Adobe Systems
$1.27
.89%
Earnings Details
2nd Quarter May 2017
Tuesday, June 20, 2017 4:05:00 PM
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Summary

Adobe Systems Beats

Adobe Systems (ADBE) reported 2nd Quarter May 2017 earnings of $0.99 per share on revenue of $1.8 billion. The consensus earnings estimate was $0.95 per share on revenue of $1.7 billion. The Earnings Whisper number was $0.98 per share. Revenue grew 26.7% on a year-over-year basis.

The company said in its conference call presentation it expects third quarter non-GAAP earnings of approximately $1.00 per share on revenue of approximately $1.815 billion. The current consensus earnings estimate is $0.97 per share on revenue of $1.80 billion for the quarter ending August 31, 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
$0.99
Earnings Whisper
$0.98
Consensus Estimate
$0.95
Reported Revenue
$1.77 Bil
Revenue Estimate
$1.73 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Adobe Achieves Record Revenue

Adobe (ADBE) today reported financial results for its second quarter fiscal year 2017 ended June 2, 2017.

Financial Highlights

Adobe achieved record quarterly revenue of $1.77 billion in its second quarter of fiscal year 2017.

Diluted earnings per share was $0.75 on a GAAP-basis, and $1.02 on a non-GAAP basis.

Digital Media segment revenue was $1.21 billion, with Creative revenue growing to a record $1.01 billion.

Strong Creative Cloud and Document Cloud adoption and retention drove Digital Media Annualized Recurring Revenue ("ARR") to $4.56 billion exiting the quarter, a quarter-over-quarter increase of $312 million.

Adobe Experience Cloud achieved record revenue of $495 million, which represents 29 percent year-over-year growth.

Operating income grew 46 percent and net income grew 53 percent year-over-year on a GAAP-basis; operating income grew 42 percent and net income grew 43 percent year-over-year on a non-GAAP basis.

Cash flow from operations was $645 million, and deferred revenue grew to approximately $2.07 billion.

The company repurchased approximately 2 million shares during the quarter, returning $266 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

"Digital transformation continues to be the burning agenda for creative professionals, enterprises, governments and educational institutions," said Shantanu Narayen, president and CEO, Adobe. "Adobe is the go-to company for creating world-class digital customer journeys from design to delivery to measurement and monetization."

"Adobe continues to execute well, with another quarter of record revenue and operating profit in Q2," said Mark Garrett, executive vice president and CFO, Adobe. "We’re excited about the strong business momentum we have as we enter the second half of fiscal 2017 and remain confident in our ability to drive strong revenue and earnings growth in the future."

Adobe to Webcast Earnings Conference Call

Adobe will webcast its second 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 relevance of our products to our customers, business momentum, 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, failure to successfully manage transitions to new business models and markets, uncertainty in economic conditions and the financial markets, complex and unpredictable sales cycles for some enterprise offerings, 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 June 2, 2017, which Adobe expects to file in June 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
Six Months Ended
June 2,
June 3,
June 2,
June 3,
2017*
2016
2017*
2016
Revenue:
Subscription
$ 1,483,690
1,083,708
$ 2,867,546
$ 2,153,958
Product
171,545
196,500
354,930
397,612
Services and support
116,955
118,501
231,360
230,474
Total revenue
1,772,190
1,398,709
3,453,836
2,782,044
Cost of revenue:
Subscription
142,734
115,399
283,915
222,674
Product
15,488
15,756
29,821
36,055
Services and support
81,138
70,924
162,961
141,922
Total cost of revenue
239,360
202,079
476,697
400,651
Gross profit
1,532,830
1,196,630
2,977,139
2,381,393
Operating expenses:
Research and development
299,401
232,484
584,478
469,688
Sales and marketing
553,098
462,789
1,073,395
937,680
General and administrative
156,929
138,130
307,737
284,646
Amortization of purchased intangibles
19,320
18,988
38,448
37,382
Total operating expenses
1,028,748
852,391
2,004,058
1,729,396
Operating income
504,082
344,239
973,081
651,997
Non-operating income (expense):
Interest and other income (expense), net
5,154
6,083
12,360
10,270
Interest expense
(18,347 )
(17,174 )
(36,477 )
(35,643 )
Investment gains (losses), net
1,729
(3,318 )
4,286
(4,487 )
Total non-operating income (expense), net
(11,464 )
(14,409 )
(19,831 )
(29,860 )
Income before income taxes
492,618
329,830
953,250
622,137
Provision for income taxes
118,228
85,756
180,414
123,756
Net income
374,390
244,074
$
772,836
$
498,381
Basic net income per share
0.76
0.49
$
1.56
$
1.00
Shares used to compute basic net income per share
494,371
499,974
494,492
499,534
Diluted net income per share
0.75
0.48
$
1.54
$
0.99
Shares used to compute diluted net income per share
500,351
504,725
501,032
505,666
_________________________________________
*
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)
June 2,
December 2,
2017
2016
ASSETS
Current assets:
Cash and cash equivalents
$
1,316,950
$
1,011,315
Short-term investments
3,614,563
3,749,985
Trade receivables, net of allowances for doubtful accounts of $9,201
901,452
833,033
and $6,214, respectively
Prepaid expenses and other current assets
219,232
245,441
Total current assets
6,052,197
5,839,774
Property and equipment, net
924,108
816,264
Goodwill
5,788,703
5,406,474
Purchased and other intangibles, net
453,834
414,405
Investment in lease receivable
--
80,439
Other assets
146,058
139,890
Total assets
$ 13,364,900
$ 12,697,246
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade payables
$
77,905
$
88,024
Accrued expenses
865,385
739,630
Income taxes payable
98,653
38,362
Deferred revenue
2,005,953
1,945,619
Total current liabilities
3,047,896
2,811,635
Long-term liabilities:
Debt
1,888,398
1,892,200
Deferred revenue
69,039
69,131
Income taxes payable
163,624
184,381
Deferred income taxes
279,649
217,660
Other liabilities
112,296
97,404
Total liabilities
5,560,902
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
4,836,786
4,616,331
Retained earnings
8,652,752
8,114,517
Accumulated other comprehensive income (loss)
(146,752 )
(173,602 )
Treasury stock, at cost (107,510 and 106,580 shares, respectively),
(5,538,849 )
(5,132,472 )
net of reissuances
Total stockholders’ equity
7,803,998
7,424,835
Total liabilities and stockholders’ equity
$ 13,364,900
$ 12,697,246
Condensed Consolidated Statements of Cash Flows
(In thousands; unaudited)
Three Months Ended
June 2,
June 3,
2017*
2016
Cash flows from operating activities:
Net income
$
374,390
$ 244,074
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and accretion
81,635
84,461
Stock-based compensation expense
116,049
85,570
Unrealized investment (gains) losses, net
(1,579 )
3,340
Changes in deferred revenue
14,746
68,356
Changes in other operating assets and liabilities
59,586
2,914
Net cash provided by operating activities
644,827
488,715
Cash flows from investing activities:
Purchases, sales and maturities of short-term investments, net
(30,079 )
(148,797 )
Purchases of property and equipment
(55,297 )
(53,759 )
Purchases and sales of long-term investments, intangibles and other
(2,171 )
(522 )
assets, net
Acquisitions, net of cash
--
(48,427 )
Net cash used for investing activities
(87,547 )
(251,505 )
Cash flows from financing activities:
Purchases of treasury stock
(300,000 )
(225,000 )
Taxes paid related to net share settlement of equity awards, net of
(13,788 )
(6,297 )
proceeds from treasury stock reissuances
Repayment of capital lease obligations
(644 )
(21 )
Excess tax benefits from stock-based compensation
--
50,430
Net cash used for financing activities
(314,432 )
(180,888 )
Effect of exchange rate changes on cash and cash equivalents
5,206
(639 )
Net increase in cash and cash equivalents
248,054
55,683
Cash and cash equivalents at beginning of period
1,068,896
830,696
Cash and cash equivalents at end of period
$ 1,316,950
$ 886,379
_________________________________________
*
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
June 2,
June 3,
March 3,
2017
2016
2017
Operating income:
GAAP operating income
$ 504,082
$ 344,239
$ 468,999
Stock-based and deferred compensation expense
118,591
87,209
103,578
Restructuring and other charges
(97 )
(466 )
--
Amortization of purchased intangibles
36,556
32,567
35,464
Non-GAAP operating income
$ 659,132
$ 463,549
$ 608,041
Net income:
GAAP net income*
$ 374,390
$ 244,074
$ 398,446
Stock-based and deferred compensation expense
118,591
87,209
103,578
Restructuring and other charges
(97 )
(466 )
--
Amortization of purchased intangibles
36,556
32,567
35,464
Investment (gains) losses, net
(1,729 )
3,318
(2,557 )
Income tax adjustments
(17,419 )
(9,260 )
(63,209 )
Non-GAAP net income
$ 510,292
$ 357,442
$ 471,722
Diluted net income per share:
GAAP diluted net income per share*
$
0.75
$
0.48
$
0.80
Stock-based and deferred compensation expense
0.23
0.17
0.21
Amortization of purchased intangibles
0.07
0.06
0.07
Investment (gains) losses, net
--
0.01
(0.01 )
Income tax adjustments
(0.03 )
(0.01 )
(0.13 )
Non-GAAP diluted net income per share
$
1.02
$
0.71
$
0.94
Shares used in computing diluted net income per share
500,351
504,725
500,861
Three Months
Ended
June 2,
2017
Effective income tax rate:
GAAP effective income tax rate*
24.0
%
Stock-based and deferred compensation expense
(1.1 )
Amortization of purchased intangibles
(0.4 )
Income tax adjustments
(1.5 )
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 24% 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