ADBE
$103.36
Adobe Systems
$1.81
1.78%
Earnings Details
3rd Quarter August 2016
Tuesday, September 20, 2016 4:05:00 PM
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Summary

Adobe Systems Reports In-line

Adobe Systems (ADBE) reported 3rd Quarter August 2016 earnings of $0.74 per share on revenue of $1.5 billion. The consensus earnings estimate was $0.72 per share on revenue of $1.5 billion. The Earnings Whisper number was $0.74 per share. Revenue grew 20.2% on a year-over-year basis.

The company said in its conference call slides it expects fourth quarter non-GAAP earnings of $0.83 to $0.89 per share on revenue of $155.0 billion to $160.0 billion. The current consensus earnings estimate is $0.78 per share on revenue of $1.58 billion for the quarter ending November 30, 2016.

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
$0.74
Earnings Whisper
$0.74
Consensus Estimate
$0.72
Reported Revenue
$1.46 Bil
Revenue Estimate
$1.45 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 2016 ended Sept. 2, 2016.

Third Quarter Financial Highlights

Adobe achieved record quarterly revenue of $1.46 billion, representing year-over-year growth of 20 percent.

Diluted earnings per share were $0.54 on a GAAP-basis, and $0.75 on a non-GAAP basis.

Digital Media segment revenue was a record $990 million, with Creative revenue growing 39 percent year-over-year to a record $803 million.

Strong Creative Cloud and Document Cloud adoption drove Digital Media Annualized Recurring Revenue ("ARR") to $3.70 billion exiting the quarter, a quarter-over-quarter increase of $285 million.

-- Adobe Marketing Cloud achieved record revenue of $404 million.

Year-over-year operating income grew 50 percent and net income grew 55 percent on a GAAP-basis; operating income grew 36 percent and net income grew 37 percent on a non-GAAP basis.

Cash flow from operations was a record $518 million, and deferred revenue grew to a record $1.80 billion.

The company repurchased approximately 3.5 million shares during the quarter, returning $344 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

"We drove strong revenue and earnings performance in Q3, further distancing ourselves from our competitors," said Shantanu Narayen, Adobe president and chief executive officer. "Our leadership in cloud-based content and data platforms make us a mission critical partner to the world’s biggest brands as they transform how they engage with their customers."

"Fiscal 2016 is shaping up to be another great year and Adobe’s record results in Q3 reflect both our market leadership and strong execution," said Mark Garrett, Adobe executive vice president and chief financial officer. "We are expecting another record quarter in Q4, and the leverage in our operating model is reflected in our increase to earnings targets for the year."

Adobe to Webcast Earnings Conference Call

Adobe will webcast its third quarter fiscal year 2016 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 product adoption and innovation, business momentum, the importance of our products and services to our customers, revenue, annualized recurring revenue, bookings, earnings per share and operating cash flow, 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, failure to successfully manage transitions to new business models and markets, risks associated with the timing of revenue recognition, uncertainty in economic conditions and the financial markets, risks associated with our cloud strategy, fluctuations in subscription renewal rates, risks associated with cyber-attacks and information security, potential interruptions or delays in hosted services provided by us or third parties, 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 2015 ended Nov. 27, 2015, and Adobe’s Quarterly Reports on Form 10-Q issued in fiscal year 2016.

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. 2, 2016, which Adobe expects to file in Sept. 2016.

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) 2016 Adobe Systems Incorporated. All rights reserved. Adobe, Creative 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
Nine Months Ended
September 2,
August 28,
September 2,
August 28,
2016
2015
2016
2015
Revenue:
Subscription
$ 1,168,602
$ 829,065
$ 3,322,560
$ 2,316,470
Product
180,960
275,338
578,572
840,650
Services and support
114,405
113,365
344,879
331,987
Total revenue
1,463,967
1,217,768
4,246,011
3,489,107
Cost of revenue:
Subscription
116,990
103,605
339,664
302,826
Product
15,435
24,545
51,490
65,715
Services and support
70,276
62,835
212,198
174,415
Total cost of revenue
202,701
190,985
603,352
542,956
Gross profit
1,261,266
1,026,783
3,642,659
2,946,151
Operating expenses:
Research and development
248,450
218,660
718,138
642,216
Sales and marketing
477,475
422,031
1,415,155
1,241,770
General and administrative
143,702
122,578
429,233
397,867
Restructuring and other charges
(338 )
(751 )
(1,223 )
1,038
Amortization of purchased intangibles
22,652
18,246
60,034
50,599
Total operating expenses
891,941
780,764
2,621,337
2,333,490
Operating income
369,325
246,019
1,021,322
612,661
Non-operating income (expense):
Interest and other income (expense), net
2,725
4,433
12,995
11,510
Interest expense
(17,281 )
(16,519 )
(52,924 )
(47,669 )
Investment gains (losses), net
1,532
(1,314 )
(2,955 )
339
Total non-operating income (expense), net
(13,024 )
(13,400 )
(42,884 )
(35,820 )
Income before income taxes
356,301
232,619
978,438
576,841
Provision for income taxes
85,513
58,154
209,269
169,995
Net income
$
270,788
$ 174,465
$
769,169
$
406,846
Basic net income per share
$
0.54
$
0.35
$
1.54
$
0.82
Shares used to compute basic net income per share
498,584
498,630
499,224
498,891
Diluted net income per share
$
0.54
$
0.34
$
1.52
$
0.80
Shares used to compute diluted net income per share
503,669
505,809
505,135
507,124
Condensed Consolidated Balance Sheets
(In thousands, except par value; unaudited)
September 2,
November 27,
2016
2015
ASSETS
Current assets:
Cash and cash equivalents
$
767,672
$
876,560
Short-term investments
3,678,726
3,111,524
Trade receivables, net of allowances for doubtful accounts of $6,066
731,166
672,006
and $7,293, respectively
Prepaid expenses and other current assets
241,146
161,802
Total current assets
5,418,710
4,821,892
Property and equipment, net
811,524
787,421
Goodwill
5,433,180
5,366,881
Purchased and other intangibles, net
454,230
510,007
Investment in lease receivable
80,439
80,439
Other assets
169,358
159,832
Total assets
$ 12,367,441
$ 11,726,472
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade payables
$
83,444
$
93,307
Accrued expenses
666,278
679,884
Income taxes payable
10,662
6,165
Deferred revenue
1,745,282
1,434,200
Total current liabilities
2,505,666
2,213,556
Long-term liabilities:
Debt
1,916,591
1,907,231
Deferred revenue
52,703
51,094
Income taxes payable
276,131
256,129
Deferred income taxes
238,459
208,209
Other liabilities
99,945
88,673
Total liabilities
5,089,495
4,724,892
Stockholders’ equity:
Preferred stock, $0.0001 par value; 2,000 shares authorized
--
--
Common stock, $0.0001 par value
61
61
Additional paid-in-capital
4,541,798
4,184,883
Retained earnings
7,714,904
7,253,431
Accumulated other comprehensive income (loss)
(134,111 )
(169,080 )
Treasury stock, at cost (103,809 and 103,025 shares, respectively),
(4,844,706 )
(4,267,715 )
net of reissuances
Total stockholders’ equity
7,277,946
7,001,580
Total liabilities and stockholders’ equity
$ 12,367,441
$ 11,726,472
Condensed Consolidated Statements of Cash Flows
(In thousands; unaudited)
Three Months Ended
September 2,
August 28,
2016
2015
Cash flows from operating activities:
Net income
$ 270,788
$ 174,465
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and accretion
84,014
87,550
Stock-based compensation expense
84,503
85,975
Unrealized investment losses (gains), net
(1,471 )
1,415
Changes in deferred revenue
116,353
77,720
Changes in other operating assets and liabilities
(36,302 )
(66,637 )
Net cash provided by operating activities
517,885
360,488
Cash flows from investing activities:
Purchases, sales and maturities of short-term investments, net
(247,601 )
(394,944 )
Purchases of property and equipment
(55,213 )
(48,984 )
Purchases and sales of long-term investments, intangibles and other
(3,774 )
(1,138 )
assets, net
Acquisitions, net of cash
--
(20,025 )
Net cash used for investing activities
(306,588 )
(465,091 )
Cash flows from financing activities:
Purchases of treasury stock
(400,000 )
(100,000 )
Proceeds from issuance of treasury stock, net
71,128
68,641
Repayment of capital lease obligations
(65 )
--
Debt issuance costs
--
(957 )
Excess tax benefits from stock-based compensation
3,980
13,606
Net cash used for financing activities
(324,957 )
(18,710 )
Effect of exchange rate changes on cash and cash equivalents
(5,047 )
(3,542 )
Net decrease in cash and cash equivalents
(118,707 )
(126,855 )
Cash and cash equivalents at beginning of period
886,379
956,147
Cash and cash equivalents at end of period
$ 767,672
$ 829,292
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 2,
August 28,
June 3,
2016
2015
2016
Operating income:
GAAP operating income
$ 369,325
$ 246,019
$ 344,239
Stock-based and deferred compensation expense
86,070
84,371
87,209
Restructuring and other charges
(338 )
(751 )
(466 )
Amortization of purchased intangibles
36,082
41,041
32,567
Loss contingency reversal
--
(10,000 )
--
Non-GAAP operating income
$ 491,139
$ 360,680
$ 463,549
Net income:
GAAP net income
$ 270,788
$ 174,465
$ 244,074
Stock-based and deferred compensation expense
86,070
84,371
87,209
Restructuring and other charges
(338 )
(751 )
(466 )
Amortization of purchased intangibles
36,082
41,041
32,567
Investment (gains) losses, net
(1,532 )
1,314
3,318
Loss contingency reversal
--
(10,000 )
--
Income tax adjustments
(14,569 )
(15,051 )
(9,260 )
Non-GAAP net income
$ 376,501
$ 275,389
$ 357,442
Diluted net income per share:
GAAP diluted net income per share
$
0.54
$
0.34
$
0.48
Stock-based and deferred compensation expense
0.17
0.17
0.17
Amortization of purchased intangibles
0.07
0.08
0.06
Investment (gains) losses, net
--
--
0.01
Loss contingency reversal
--
(0.02 )
--
Income tax adjustments
(0.03 )
(0.03 )
(0.01 )
Non-GAAP diluted net income per share
$
0.75
$
0.54
$
0.71
Shares used in computing diluted net income per share
503,669
505,809
504,725
Three Months Ended
September 2,
2016
Effective income tax rate:
GAAP effective income tax rate
24.0 %
Stock-based and deferred compensation expense
(2.1 )
Amortization of purchased intangibles
(0.9 )
Non-GAAP effective income tax rate
21.0 %

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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SOURCE: Adobe

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