[September 16, 2014] |
|
Adobe Reports Q3 FY2014 Financial Results
SAN JOSE, Calif. --(Business Wire)--
Adobe (News - Alert) (Nasdaq:ADBE) today reported financial results for its third
quarter of fiscal year 2014 ended Aug. 29, 2014.
Third Quarter Financial Highlights
-
Adobe achieved revenue of $1.005 billion, within its targeted range of
$975 million to $1.025 billion.
-
Adobe exited Q3 with 2 million 810 thousand paid Creative Cloud
subscriptions, an increase of 502 thousand when compared to the number
of subscriptions as of the end of Q2 fiscal year 2014.
-
Creative Annualized Recurring Revenue ("ARR") grew to $1.40 billion,
and total Digital Media ARR grew to $1.62 billion.
-
Adobe Marketing Cloud quarterly revenue was $290 million with strong
bookings growth.
-
Diluted earnings per share were $0.09 on a GAAP-basis, and $0.28 on a
non-GAAP basis.
-
Cash flow from operations was $269 million and deferred revenue grew
to a record $997 million.
-
63 percent of Adobe's Q3 revenue was from recurring sources.
-
The company repurchased approximately 1.9 million shares during the
quarter, returning approximately $133 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
"Adoption of Creative Cloud and Adobe Marketing Cloud continues to
accelerate," said Shantanu Narayen (News - Alert), president and chief executive
officer, Adobe. "We are the leader in both of these high-growth
categories and have a rapidly growing pipeline, setting us up for a
strong finish to the year in Q4."
"In Q3, 63 percent of our revenue was recurring, demonstrating the
continued success of our business model transformation," said Mark
Garrett, executive vice president and chief financial officer, Adobe.
"In addition to momentum with Creative Cloud adoption, our team drove
strong bookings growth with Adobe Marketing Cloud."
Adobe to Webcast Earnings Conference Call
Adobe will webcast its third quarter fiscal year 2014 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 business momentum, the strength of our cloud business and
growth of our revenue, recurring revenue and bookings, 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 distribute products and services that meet customer requirements,
introduction of new products and business models by competitors, failure
to successfully manage transitions to new business models and markets,
fluctuations in subscription renewal rates, risks associated with
cyber-attacks and information security, uncertainty in economic
conditions and the financial markets, 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 2013
ended Nov. 29, 2013 and Adobe's Quarterly Reports on Form 10-Q issued in
fiscal year 2014.
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 Aug. 29, 2014, which Adobe
expects to file in Sept. 2014.
Adobe assumes no obligation to, and does not currently intend to, update
these forward-looking statements.
About Adobe Systems (News - Alert) Incorporated
Adobe is changing the world through digital experiences. For more
information, visit www.adobe.com.
© 2014 Adobe Systems Incorporated. All rights reserved. Adobe, the Adobe
logo, Creative Cloud and Adobe Marketing Cloud 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
|
|
|
August 29, 2014
|
|
August 30, 2013
|
|
August 29, 2014
|
|
August 30, 2013
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
349,151
|
|
|
$
|
582,178
|
|
|
$
|
1,299,852
|
|
|
$
|
1,902,866
|
|
Subscription
|
|
547,373
|
|
|
299,346
|
|
|
1,447,630
|
|
|
778,133
|
|
Services and support
|
|
108,885
|
|
|
113,595
|
|
|
326,255
|
|
|
332,542
|
|
Total revenue
|
|
1,005,409
|
|
|
995,119
|
|
|
3,073,737
|
|
|
3,013,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
23,172
|
|
|
32,564
|
|
|
75,169
|
|
|
111,351
|
|
Subscription
|
|
86,670
|
|
|
71,656
|
|
|
247,549
|
|
|
200,763
|
|
Services and support
|
|
47,882
|
|
|
42,856
|
|
|
138,419
|
|
|
126,927
|
|
Total cost of revenue
|
|
157,724
|
|
|
147,076
|
|
|
461,137
|
|
|
439,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
847,685
|
|
|
848,043
|
|
|
2,612,600
|
|
|
2,574,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
212,049
|
|
|
208,700
|
|
|
630,666
|
|
|
621,435
|
|
Sales and marketing
|
|
406,475
|
|
|
388,673
|
|
|
1,243,446
|
|
|
1,188,914
|
|
General and administrative
|
|
141,676
|
|
|
128,043
|
|
|
409,798
|
|
|
381,766
|
|
Restructuring and other charges
|
|
201
|
|
|
(791
|
)
|
|
498
|
|
|
24,203
|
|
Amortization of purchased intangibles
|
|
13,108
|
|
|
13,064
|
|
|
40,012
|
|
|
38,295
|
|
Total operating expenses
|
|
773,509
|
|
|
737,689
|
|
|
2,324,420
|
|
|
2,254,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
74,176
|
|
|
110,354
|
|
|
288,180
|
|
|
319,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income (expense), net
|
|
1,454
|
|
|
1,732
|
|
|
7,162
|
|
|
4,246
|
|
Interest expense
|
|
(13,361
|
)
|
|
(16,747
|
)
|
|
(47,054
|
)
|
|
(50,786
|
)
|
Investment gains (losses), net
|
|
669
|
|
|
(2,079
|
)
|
|
813
|
|
|
(5,476
|
)
|
Total non-operating income (expense), net
|
|
(11,238
|
)
|
|
(17,094
|
)
|
|
(39,079
|
)
|
|
(52,016
|
)
|
Income before income taxes
|
|
62,938
|
|
|
93,260
|
|
|
249,101
|
|
|
267,871
|
|
Provision for income taxes
|
|
18,252
|
|
|
10,258
|
|
|
68,842
|
|
|
43,206
|
|
Net income
|
|
$
|
44,686
|
|
|
$
|
83,002
|
|
|
$
|
180,259
|
|
|
$
|
224,665
|
|
Basic net income per share
|
|
$
|
0.09
|
|
|
$
|
0.16
|
|
|
$
|
0.36
|
|
|
$
|
0.45
|
|
Shares used to compute basic net income per share
|
|
498,468
|
|
|
504,116
|
|
|
497,782
|
|
|
502,039
|
|
Diluted net income per share
|
|
$
|
0.09
|
|
|
$
|
0.16
|
|
|
$
|
0.35
|
|
|
$
|
0.44
|
|
Shares used to compute diluted net income per share
|
|
507,811
|
|
|
514,058
|
|
|
508,575
|
|
|
513,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheets
(In thousands, except par value; unaudited)
|
|
|
|
|
|
|
|
August 29, 2014
|
|
November 29, 2013
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
903,329
|
|
|
$
|
834,556
|
|
Short-term investments
|
|
2,616,868
|
|
|
2,339,196
|
|
Trade receivables, net of allowances for doubtful accounts of $7,879
and $10,228, respectively
|
|
528,331
|
|
|
599,820
|
|
Deferred income taxes
|
|
79,713
|
|
|
102,247
|
|
Prepaid expenses and other current assets
|
|
151,227
|
|
|
170,110
|
|
Total current assets
|
|
4,279,468
|
|
|
4,045,929
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
785,856
|
|
|
659,774
|
|
Goodwill
|
|
4,746,781
|
|
|
4,771,981
|
|
Purchased and other intangibles, net
|
|
490,839
|
|
|
605,254
|
|
Investment in lease receivable
|
|
80,439
|
|
|
207,239
|
|
Other assets
|
|
110,297
|
|
|
90,121
|
|
Total assets
|
|
$
|
10,493,680
|
|
|
$
|
10,380,298
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Trade payables
|
|
$
|
53,791
|
|
|
$
|
62,096
|
|
Accrued expenses
|
|
630,679
|
|
|
656,939
|
|
Debt and capital lease obligations
|
|
606,426
|
|
|
14,676
|
|
Accrued restructuring
|
|
2,351
|
|
|
6,171
|
|
Income taxes payable
|
|
4,438
|
|
|
10,222
|
|
Deferred revenue
|
|
947,563
|
|
|
775,544
|
|
Total current liabilities
|
|
2,245,248
|
|
|
1,525,648
|
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
Debt and capital lease obligations
|
|
901,830
|
|
|
1,499,297
|
|
Deferred revenue
|
|
48,975
|
|
|
53,268
|
|
Accrued restructuring
|
|
5,776
|
|
|
7,717
|
|
Income taxes payable
|
|
141,473
|
|
|
132,545
|
|
Deferred income taxes
|
|
344,715
|
|
|
375,634
|
|
Other liabilities
|
|
74,403
|
|
|
61,555
|
|
Total liabilities
|
|
3,762,420
|
|
|
3,655,664
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 2,000 shares authorized
|
|
-
|
|
|
-
|
|
Common stock, $0.0001 par value
|
|
61
|
|
|
61
|
|
Additional paid-in-capital
|
|
3,675,629
|
|
|
3,392,696
|
|
Retained earnings
|
|
6,850,790
|
|
|
6,928,964
|
|
Accumulated other comprehensive income
|
|
20,067
|
|
|
46,103
|
|
|
|
|
|
|
|
|
Treasury stock, at cost (102,235 and 104,573 shares, respectively),
net of reissuances
|
|
(3,815,287
|
)
|
|
(3,643,190
|
)
|
Total stockholders' equity
|
|
6,731,260
|
|
|
6,724,634
|
|
Total liabilities and stockholders' equity
|
|
$
|
10,493,680
|
|
|
$
|
10,380,298
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Cash Flows
(In thousands; unaudited)
|
|
|
|
|
|
Three Months Ended
|
|
|
August 29, 2014
|
|
August 30, 2013
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income
|
|
$
|
44,686
|
|
|
$
|
83,002
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
Depreciation, amortization and accretion
|
|
80,154
|
|
|
82,175
|
|
Stock-based compensation expense
|
|
82,986
|
|
|
76,094
|
|
Unrealized investment (gains) losses, net
|
|
(576
|
)
|
|
2,825
|
|
Changes in deferred revenue
|
|
67,934
|
|
|
35,885
|
|
Changes in other operating assets and liabilities
|
|
(6,664
|
)
|
|
(64,456
|
)
|
Net cash provided by operating activities
|
|
268,520
|
|
|
215,525
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Purchases, sales and maturities of short-term investments, net
|
|
(110,346
|
)
|
|
262,478
|
|
Purchases of property and equipment
|
|
(54,966
|
)
|
|
(46,798
|
)
|
Purchases and sales of long-term investments, intangibles and other
assets, net
|
|
(5,082
|
)
|
|
(4,896
|
)
|
Acquisitions, net of cash
|
|
-
|
|
|
(608,019
|
)
|
Net cash used for investing activities
|
|
(170,394
|
)
|
|
(397,235
|
)
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Purchases of treasury stock
|
|
(125,000
|
)
|
|
(400,000
|
)
|
Proceeds from reissuance of treasury stock, net
|
|
91,500
|
|
|
162,663
|
|
Repayment of debt and capital lease obligations
|
|
(3,372
|
)
|
|
(10,034
|
)
|
Excess tax benefits from stock-based compensation
|
|
27,078
|
|
|
-
|
|
Net cash used for financing activities
|
|
(9,794
|
)
|
|
(247,371
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
(2,027
|
)
|
|
1,756
|
|
Net increase (decrease) in cash and cash equivalents
|
|
86,305
|
|
|
(427,325
|
)
|
Cash and cash equivalents at beginning of period
|
|
817,020
|
|
|
1,246,410
|
|
Cash and cash equivalents at end of period
|
|
$
|
903,325
|
|
|
$
|
819,085
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
August 29, 2014
|
|
August 30, 2013
|
|
May 30, 2014
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating income
|
|
$
|
74,176
|
|
|
$
|
110,354
|
|
|
$
|
135,258
|
|
Stock-based and deferred compensation expense
|
|
83,682
|
|
|
81,111
|
|
|
83,600
|
|
Restructuring and other charges
|
|
201
|
|
|
(791
|
)
|
|
(366
|
)
|
Amortization of purchased intangibles
|
|
31,780
|
|
|
32,315
|
|
|
31,835
|
|
Non-GAAP operating income
|
|
$
|
189,839
|
|
|
$
|
222,989
|
|
|
$
|
250,327
|
|
|
|
|
|
|
|
|
|
|
|
Net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net income
|
|
$
|
44,686
|
|
|
$
|
83,002
|
|
|
$
|
88,527
|
|
Stock-based and deferred compensation expense
|
|
83,682
|
|
|
81,111
|
|
|
83,600
|
|
Restructuring and other charges
|
|
201
|
|
|
(791
|
)
|
|
(366
|
)
|
Amortization of purchased intangibles
|
|
31,780
|
|
|
32,315
|
|
|
31,835
|
|
Investment (gains) losses
|
|
(669
|
)
|
|
2,079
|
|
|
(553
|
)
|
Income tax adjustments
|
|
(19,114
|
)
|
|
(33,336
|
)
|
|
(16,771
|
)
|
Non-GAAP net income
|
|
$
|
140,566
|
|
|
$
|
164,380
|
|
|
$
|
186,272
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP diluted net income per share
|
|
$
|
0.09
|
|
|
$
|
0.16
|
|
|
$
|
0.17
|
|
Stock-based and deferred compensation expense
|
|
0.16
|
|
|
0.16
|
|
|
0.16
|
|
Amortization of purchased intangibles
|
|
0.06
|
|
|
0.06
|
|
|
0.06
|
|
Income tax adjustments
|
|
(0.03
|
)
|
|
(0.06
|
)
|
|
(0.02
|
)
|
Non-GAAP diluted net income per share
|
|
$
|
0.28
|
|
|
$
|
0.32
|
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income per share
|
|
507,811
|
|
|
514,058
|
|
|
506,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
August 29, 2014
|
Effective income tax rate:
|
|
|
|
|
|
|
|
GAAP effective income tax rate
|
|
29.0
|
%
|
Stock-based and deferred compensation expense
|
|
(4.5
|
)
|
Amortization of purchased intangibles
|
|
(1.7
|
)
|
Income tax adjustments
|
|
(1.8
|
)
|
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 that may include 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, loss contingencies and the related tax impact of all
of these items, income tax adjustments, the income tax effect of the
non-GAAP pre-tax adjustments from the provision for income taxes, and
the non-GAAP measures that exclude such information in order to assess
the performance of Adobe's business and for planning and forecasting in
subsequent periods. Whenever Adobe uses such a non-GAAP financial
measure, it 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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