ADBE
$119.67
Adobe Systems
$.74
.62%
Earnings Details
4th Quarter November 2016
Thursday, December 15, 2016 4:05:01 PM
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Summary

Adobe Systems Beats

Adobe Systems (ADBE) reported 4th Quarter November 2016 earnings of $0.97 per share on revenue of $1.6 billion. The consensus earnings estimate was $0.86 per share on revenue of $1.6 billion. The Earnings Whisper number was $0.88 per share. Revenue grew 23.1% on a year-over-year basis.

The company said in its conference call slides it expects first quarter non-GAAP earnings of approximately $0.87 per share on revenue of approximately $1.625 billion and continues to expect fiscal 2017 earnings of approximately $3.75 per share on revenue of approximately $6.95 billion. The current consensus earnings estimate is $0.85 per share on revenue of $1.66 billion for the quarter ending February 28, 2017 and $3.83 per share on revenue of $7.05 billion for the year 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
$0.97
Earnings Whisper
$0.88
Consensus Estimate
$0.86
Reported Revenue
$1.61 Bil
Revenue Estimate
$1.58 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Adobe Reports Record Revenue and Net Income

Adobe (ADBE) today reported financial results for its fourth quarter and fiscal year 2016 ended Dec. 2, 2016.

In its fourth quarter of fiscal year 2016, Adobe achieved record quarterly revenue of $1.61 billion, representing year-over-year growth of 23 percent. In fiscal year 2016, Adobe achieved record annual revenue of $5.85 billion, representing year-over-year growth of 22 percent. The company also achieved record quarterly net income, cash flow and deferred revenue during its fourth quarter.

"Adobe’s market-leading digital media and digital marketing solutions are revolutionizing how customers design and deliver exceptional digital experiences," said Shantanu Narayen, president and chief executive officer of Adobe. "We enter 2017 with significant market momentum and strong technology tailwinds."

"Across our business, Adobe had a strong 2016 as we met or exceeded all of our key financial targets for the year," said Mark Garrett, Adobe executive vice president and chief financial officer. "We are uniquely positioned as a cloud provider to deliver both top line and bottom line growth."

Fourth Quarter Financial Highlights

Adobe achieved record quarterly revenue of $1.61 billion in its fourth quarter of fiscal year 2016, representing 23 percent year-over-year growth.

Diluted earnings per share were $0.80 on a GAAP-basis, and $0.90 on a non-GAAP basis.

Digital Media segment revenue was $1.08 billion, with Creative revenue growing 33 percent year-over-year to $886 million.

Strong Creative Cloud and Document Cloud adoption drove Digital Media Annualized Recurring Revenue ("ARR") to $4.01 billion exiting the quarter, a quarter-over-quarter increase of $316 million.

Adobe Marketing Cloud achieved record revenue of $465 million, representing 32 percent year-over-year growth.

Year-over-year operating income grew 63 percent and net income grew 79 percent on a GAAP-basis; operating income grew 44 percent and net income grew 45 percent on a non-GAAP basis.

-- Cash flow from operations was a record $696 million.

The company repurchased approximately 3.2 million shares during the quarter, returning $331 million of cash to stockholders.

Fiscal Year 2016 Financial Highlights

Adobe achieved record annual revenue of $5.85 billion in fiscal year 2016, representing 22 percent year-over-year growth.

The company reported annual GAAP diluted earnings per share of $2.32 and non-GAAP diluted earnings per share of $3.01.

Adobe grew Digital Media ARR by $1.13 billion during the year and exited the year with $4.01 billion.

Adobe Marketing Cloud achieved $1.63 billion in annual revenue, representing 20 percent year-over-year growth.

-- Adobe generated $2.2 billion in operating cash flow during the year.

Deferred revenue grew to an all-time high of $2.01 billion, and unbilled backlog grew to approximately $3.42 billion.

The company repurchased 10.4 million shares during the year, returning $1.01 billion 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.

Adobe to Webcast Earnings Conference Call

Adobe will webcast its fourth quarter and 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 and technology innovation, business momentum, the impact 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, uncertainty in economic conditions and the financial markets, fluctuations in subscription renewal rates, 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 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 Annual Report on Form 10-K for our year ended Dec. 2, 2016, which Adobe expects to file in January 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) 2016 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
Year Ended
December 2,
November 27,
December 2,
November 27,
2016
2015
2016
2015
Revenue:
Subscription
$ 1,262,273
$ 907,434
$ 4,584,833
$ 3,223,904
Product
221,926
284,496
800,498
1,125,146
Services and support
124,220
114,474
469,099
446,461
Total revenue
1,608,419
1,306,404
5,854,430
4,795,511
Cost of revenue:
Subscription
122,196
106,368
461,860
409,194
Product
17,427
24,320
68,917
90,035
Services and support
76,933
70,673
289,131
245,088
216,556
201,361
819,908
744,317
Total cost of revenue
Gross profit
1,391,863
1,105,043
5,034,522
4,051,194
Operating expenses:
Research and development
257,849
220,514
975,987
862,730
Sales and marketing
495,042
441,472
1,910,197
1,683,242
General and administrative
148,477
134,052
577,710
531,919
Restructuring and other charges
(285 )
521
(1,508 )
1,559
Amortization of purchased intangibles
18,500
18,050
78,534
68,649
Total operating expenses
919,583
814,609
3,540,920
3,148,099
Operating income
472,280
290,434
1,493,602
903,095
Non-operating income (expense):
Interest and other income (expense), net
553
22,399
13,548
33,909
Interest expense
(17,518 )
(16,515 )
(70,442 )
(64,184 )
Investment gains (losses), net
1,385
622
(1,570 )
961
Total non-operating income (expense), net
(15,580 )
6,506
(58,464 )
(29,314 )
Income before income taxes
456,700
296,940
1,435,138
873,781
Provision for income taxes
57,087
74,235
266,356
244,230
Net income
$
399,613
$ 222,705
$ 1,168,782
$
629,551
Basic net income per share
$
0.81
$
0.45
$
2.35
$
1.26
Shares used to compute basic net income per share
495,641
498,384
498,345
498,764
Diluted net income per share
$
0.80
$
0.44
$
2.32
$
1.24
Shares used to compute diluted net income per share
501,176
506,012
504,299
507,164
Condensed Consolidated Balance Sheets
(In thousands, except par value; unaudited)
December 2,
November 27,
2016
2015
ASSETS
Current assets:
Cash and cash equivalents
$
1,011,315
$
876,560
Short-term investments
3,749,985
3,111,524
Trade receivables, net of allowances for doubtful accounts of $6,214
833,033
672,006
and $7,293, respectively
Prepaid expenses and other current assets
245,441
161,802
Total current assets
5,839,774
4,821,892
Property and equipment, net
816,264
787,421
Goodwill
5,406,474
5,366,881
Purchased and other intangibles, net
414,405
510,007
Investment in lease receivable
80,439
80,439
Other assets
149,758
159,832
Total assets
$ 12,707,114
$ 11,726,472
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade payables
$
88,024
$
93,307
Accrued expenses
739,630
679,884
Income taxes payable
38,362
6,165
Deferred revenue
1,945,619
1,434,200
Total current liabilities
2,811,635
2,213,556
Long-term liabilities:
Debt
1,902,068
1,907,231
Deferred revenue
69,131
51,094
Income taxes payable
184,381
256,129
Deferred income taxes
217,660
208,209
Other liabilities
97,404
88,673
Total liabilities
5,282,279
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
4,616,331
4,184,883
Retained earnings
8,114,517
7,253,431
Accumulated other comprehensive income (loss)
(173,602 )
(169,080 )
Treasury stock, at cost (106,580 and 103,025 shares, respectively),
(5,132,472 )
(4,267,715 )
net of reissuances
Total stockholders’ equity
7,424,835
7,001,580
Total liabilities and stockholders’ equity
$ 12,707,114
$ 11,726,472
Condensed Consolidated Statements of Cash Flows
(In thousands; unaudited)
Three Months Ended
December 2,
November 27,
2016
2015
Cash flows from operating activities:
Net income
$
399,613
$ 222,705
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and accretion
81,860
86,359
Stock-based compensation expense
87,530
81,022
Gain on sale of property
--
(21,415 )
Unrealized investment gains, net
(771 )
(662 )
Changes in deferred revenue
216,765
179,265
Changes in other operating assets and liabilities
(89,396 )
(92,759 )
Net cash provided by operating activities
695,601
454,515
Cash flows from investing activities:
Purchases, sales and maturities of short-term investments, net
(97,891 )
(277,566 )
Purchases of property and equipment
(48,633 )
(64,676 )
Proceeds from the sale of property
--
57,779
Purchases and sales of long-term investments, intangibles and other
3,426
(1,524 )
assets, net
Net cash used for investing activities
(143,098 )
(285,987 )
Cash flows from financing activities:
Purchases of treasury stock
(300,000 )
(125,000 )
Proceeds from (costs of) issuance of treasury stock, net
(6,283 )
42
Repayment of capital lease obligations
(22 )
--
Excess tax benefits from stock-based compensation
5,836
9,808
(300,469 )
(115,150 )
Net cash used for financing activities
Effect of exchange rate changes on cash and cash equivalents
(8,391 )
(6,110 )
Net increase in cash and cash equivalents
243,643
47,268
Cash and cash equivalents at beginning of period
767,672
829,292
Cash and cash equivalents at end of period
$ 1,011,315
$ 876,560
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
Year Ended
December 2,
November 27,
September 2,
December 2,
November 27,
2016
2015
2016
2016
2015
Operating income:
GAAP operating income
$ 472,280
$ 290,434
$ 369,325
$ 1,493,602
$
903,095
Stock-based and deferred compensation expense
86,584
81,705
86,070
351,553
338,047
Restructuring and other charges
(285 )
521
(338 )
(1,508 )
1,559
Amortization of purchased intangibles
31,143
37,678
36,082
136,056
152,590
Loss contingency reversal
--
--
--
--
(10,000 )
Non-GAAP operating income
$ 589,722
$ 410,338
$ 491,139
$ 1,979,703
$ 1,385,291
Net income:
GAAP net income
$ 399,613
$ 222,705
$ 270,788
$ 1,168,782
$
629,551
Stock-based and deferred compensation expense
86,584
81,705
86,070
351,553
338,047
Restructuring and other charges
(285 )
521
(338 )
(1,508 )
1,559
Amortization of purchased intangibles
31,143
37,678
36,082
136,056
152,590
Investment (gains) losses, net
(1,385 )
(622 )
(1,532 )
1,570
(961 )
Gain on sale of property assets
--
(21,415 )
--
--
(21,415 )
Loss contingency reversal
--
--
--
--
(10,000 )
Income tax adjustments
(63,118 )
(8,674 )
(14,569 )
(137,350 )
(35,826 )
Non-GAAP net income
$ 452,552
$ 311,898
$ 376,501
$ 1,519,103
$ 1,053,545
Diluted net income per share:
GAAP diluted net income per share
$
0.80
$
0.44
$
0.54
$
2.32
$
1.24
Stock-based and deferred compensation expense
0.17
0.16
0.17
0.70
0.67
Amortization of purchased intangibles
0.06
0.07
0.07
0.27
0.30
Gain on sale of property assets
--
(0.04 )
--
--
(0.04 )
Loss contingency reversal
--
--
--
--
(0.02 )
Income tax adjustments
(0.13 )
(0.01 )
(0.03 )
(0.28 )
(0.07 )
Non-GAAP diluted net income per share
$
0.90
$
0.62
$
0.75
$
3.01
$
2.08
Shares used in computing diluted net income per share
501,176
506,012
503,669
504,299
507,164
Three Months
Ended
December 2,
2016
Effective income tax rate:
GAAP effective income tax rate
12.5
%
Resolution of income tax examinations
10.5
Stock-based and deferred compensation expense
(1.5 )
Amortization of purchased intangibles
(0.5 )
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

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