ADBE Adobe Inc

Adobe (Nasdaq:ADBE) today reported financial results for its fourth quarter and fiscal year 2015 ended Nov. 27, 2015.

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Fourth Quarter Financial Highlights

• Adobe achieved record quarterly revenue of $1.31 billion, representing year-over-year growth of 22 percent.
• Diluted earnings per share were $0.44 on a GAAP-basis, and $0.62 on a non-GAAP basis.
• Digital Media Annualized Recurring Revenue (“ARR”) grew to $2.99 billion exiting the quarter, an increase of $350 million. Creative ARR grew to $2.60 billion, an increase of $310 million driven by enterprise adoption and the addition of 833 thousand net new individual and team Creative Cloud subscriptions.
• Adobe Marketing Cloud achieved revenue of $352 million with strong bookings growth and a stronger-than-expected shift in customer adoption to SaaS-based solutions.
• Year-over-year operating income grew 133 percent and net income grew 153 percent on a GAAP-basis; operating income grew 58 percent and net income grew 59 percent on a non-GAAP basis.
• Cash flow from operations was $455 million, and deferred revenue grew to a record $1.49 billion.
• The company repurchased approximately 1.4 million shares during the quarter, returning $122 million of cash to stockholders.

Fiscal Year 2015 Financial Highlights

• Adobe achieved record revenue of $4.80 billion in fiscal year 2015, representing year-over-year growth of 16 percent.
• The company reported annual GAAP diluted earnings per share of $1.24 and non-GAAP diluted earnings per share of $2.08.
• Adobe grew Digital Media ARR by approximately $1.12 billion during the year and exited the year with $2.99 billion. Net new Creative Cloud individual and team subscriptions grew by more than 2.71 million during fiscal year 2015 to 6.17 million.
• Adobe Marketing Cloud achieved a record $1.36 billion in annual revenue and its goal of approximately 30 percent annual bookings growth.
• Adobe generated $1.47 billion in operating cash flow during the year.
• The company repurchased 8.1 million shares during the year, returning approximately $627 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 is driving digital experiences that are fundamental to the transformation of every global brand, government and educational institution,” said Shantanu Narayen, president and chief executive officer, Adobe. “Our record revenue and strong momentum are a reflection of our industry-leading content and data solutions in Digital Media and Digital Marketing.”

“Strong growth across key financial metrics reflect the amazing performance we've achieved in fiscal 2015," said Mark Garrett, executive vice president and chief financial officer, Adobe. "Our long-term financial targets, including a 20% revenue CAGR through fiscal 2018, show that the benefits of our move to the cloud are just beginning."

Adobe to Webcast Earnings Conference Call

Adobe will webcast its fourth quarter and fiscal year 2015 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, product adoption and innovation, 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 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, potential interruptions or delays in hosted services provided by us or third parties, 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 2014 ended Nov. 28, 2014, and Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2015.

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 Nov. 27, 2015, which Adobe expects to file in Jan. 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.

© 2015 Adobe Systems Incorporated. All rights reserved. Adobe, the Adobe logo and Creative 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 Year Ended November 27, 2015   November 28, 2014 November 27, 2015   November 28, 2014 Revenue: Subscription $ 907,434 $ 628,954 $ 3,223,904 $ 2,076,584 Product 284,496 327,951 1,125,146 1,627,803 Services and support 114,474   116,423   446,461   442,678   Total revenue 1,306,404   1,073,328   4,795,511   4,147,065     Cost of revenue: Subscription 106,368 87,883 409,194 335,432 Product 24,320 21,930 90,035 97,099 Services and support 70,673   51,130   245,088   189,549   Total cost of revenue 201,361   160,943   744,317   622,080     Gross profit 1,105,043 912,385 4,051,194 3,524,985   Operating expenses: Research and development 220,514 213,687 862,730 844,353 Sales and marketing 441,472 408,862 1,683,242 1,652,308 General and administrative 134,052 133,534 531,919 543,332 Restructuring and other charges 521 19,385 1,559 19,883 Amortization of purchased intangibles 18,050   12,412   68,649   52,424   Total operating expenses 814,609   787,880   3,148,099   3,112,300     Operating income 290,434 124,505 903,095 412,685   Non-operating income (expense): Interest and other income (expense), net 22,399 105 33,909 7,267 Interest expense (16,515 ) (12,678 ) (64,184 ) (59,732 ) Investment gains (losses), net 622   343   961   1,156   Total non-operating income (expense), net 6,506   (12,230 ) (29,314 ) (51,309 ) Income before income taxes 296,940 112,275 873,781 361,376 Provision for income taxes 74,235   24,139   244,230   92,981   Net income $ 222,705   $ 88,136   $ 629,551   $ 268,395   Basic net income per share $ 0.45   $ 0.18   $ 1.26   $ 0.54   Shares used to compute basic net income per share 498,384   498,124   498,764   497,867   Diluted net income per share $ 0.44   $ 0.17   $ 1.24   $ 0.53   Shares used to compute diluted net income per share 506,012   507,451   507,164   508,480        

Condensed Consolidated Balance Sheets

(In thousands, except par value; unaudited)

 

November 27, 2015 (*)

November 28, 2014 ASSETS   Current assets: Cash and cash equivalents $ 876,560 $ 1,117,400 Short-term investments 3,111,524 2,622,091 Trade receivables, net of allowances for doubtful accounts of $7,293 and $7,867, respectively 672,006 591,800 Deferred income taxes — 95,279 Prepaid expenses and other current assets 161,802   175,758   Total current assets 4,821,892 4,602,328   Property and equipment, net 787,421 785,123 Goodwill 5,366,881 4,721,962 Purchased and other intangibles, net 510,007 469,662 Investment in lease receivable 80,439 80,439 Other assets 159,832   126,315   Total assets $ 11,726,472   $ 10,785,829     LIABILITIES AND STOCKHOLDERS' EQUITY   Current liabilities: Trade payables $ 93,307 $ 68,377 Accrued expenses 678,364 683,866 Debt and capital lease obligations — 603,229 Accrued restructuring 1,520 17,120 Income taxes payable 6,165 23,920 Deferred revenue 1,434,200   1,097,923  

Total current liabilities

2,213,556 2,494,435   Long-term liabilities: Debt 1,907,231 911,086 Deferred revenue 51,094 57,401 Accrued restructuring 3,214 5,194 Income taxes payable 256,129 125,746 Deferred income taxes 208,209 342,315 Other liabilities 85,459   73,747   Total liabilities 4,724,892 4,009,924   Stockholders' equity: Preferred stock, $0.0001 par value; 2,000 shares authorized — — Common stock, $0.0001 par value 61 61 Additional paid-in-capital 4,184,883 3,778,495 Retained earnings 7,253,431 6,924,294 Accumulated other comprehensive income (loss) (169,080 ) (8,094 ) Treasury stock, at cost (103,025 and 103,350 shares, respectively), net of reissuances (4,267,715 ) (3,918,851 ) Total stockholders' equity 7,001,580   6,775,905   Total liabilities and stockholders' equity $ 11,726,472   $ 10,785,829  

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(*) During the fourth quarter of fiscal 2015, we early-adopted Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes. This standard requires that all deferred tax assets and liabilities, and any related valuation allowance, be classified as noncurrent on the balance sheets. As of November 27, 2015, our deferred tax assets were netted against non-current deferred income tax liabilities.

 

Condensed Consolidated Statements of Cash Flows

(In thousands; unaudited)

  Three Months Ended November 27, 2015   November 28, 2014 Cash flows from operating activities: Net income $ 222,705 $ 88,136 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion 86,359 78,147 Stock-based compensation expense 81,022 84,950 Gain on sale of property (21,415 ) — Unrealized investment gains, net (662 ) (121 ) Changes in deferred revenue 179,265 158,712 Changes in other operating assets and liabilities (92,759 ) (10,071 ) Net cash provided by operating activities 454,515   399,753     Cash flows from investing activities: Purchases, sales and maturities of short-term investments, net (277,566 ) (8,474 ) Purchases of property and equipment (64,676 ) (36,775 ) Proceeds from the sale of property 57,779 — Purchases and sales of long-term investments, intangibles and other assets, net (1,524 ) (2,908 ) Acquisitions, net of cash —   (29,802 ) Net cash used for investing activities (285,987 ) (77,959 )   Cash flows from financing activities: Purchases of treasury stock (125,000 ) (125,000 ) Proceeds from reissuance of treasury stock, net 42 3,618 Repayment of debt and capital lease obligations — (3,253 ) Excess tax benefits from stock-based compensation 9,808   21,282   Net cash used for financing activities (115,150 ) (103,353 ) Effect of exchange rate changes on cash and cash equivalents (6,110 ) (4,370 ) Net increase in cash and cash equivalents 47,268 214,071 Cash and cash equivalents at beginning of period 829,292   903,329   Cash and cash equivalents at end of period $ 876,560   $ 1,117,400        

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 November 27, 2015   November 28, 2014   August 28, 2015 November 27, 2015   November 28, 2014 Operating income:   GAAP operating income $ 290,434 $ 124,505 $ 246,019 $ 903,095 $ 412,685 Stock-based and deferred compensation expense 81,705 85,025 84,371 338,047 335,856 Restructuring and other charges 521 19,385 (751 ) 1,559 19,883 Amortization of purchased intangibles 37,678 31,331 41,041 152,590 127,000 Loss contingency (reversal) —   —   (10,000 ) (10,000 ) 10,000   Non-GAAP operating income $ 410,338   $ 260,246   $ 360,680   $ 1,385,291   $ 905,424     Net income:   GAAP net income $ 222,705 $ 88,136 $ 174,465 $ 629,551 $ 268,395   Stock-based and deferred compensation expense 81,705 85,025 84,371 338,047 335,856 Restructuring and other charges 521 19,385 (751 ) 1,559 19,883 Amortization of purchased intangibles 37,678 31,331 41,041 152,590 127,000 Investment (gains) losses (622 ) (343 ) 1,314 (961 ) (1,156 ) Gain on sale of property assets (21,415 ) — — (21,415 ) — Loss contingency (reversal) — — (10,000 ) (10,000 ) 10,000 Income tax adjustments (8,674 ) (27,872 ) (15,051 ) (35,826 ) (86,140 ) Non-GAAP net income $ 311,898   $ 195,662   $ 275,389   $ 1,053,545   $ 673,838     Diluted net income per share:   GAAP diluted net income per share $ 0.44 $ 0.17 $ 0.34 $ 1.24 $ 0.53 Stock-based and deferred compensation expense 0.16 0.17 0.17 0.67 0.65 Restructuring and other charges — 0.04 — — 0.04 Amortization of purchased intangibles 0.07 0.06 0.08 0.30 0.24 Gain on sale of property assets (0.04 ) — — (0.04 ) — Loss contingency (reversal) — — (0.02 ) (0.02 ) 0.02 Income tax adjustments (0.01 ) (0.05 ) (0.03 ) (0.07 ) (0.15 ) Non-GAAP diluted net income per share $ 0.62   $ 0.39   $ 0.54   $ 2.08   $ 1.33     Shares used in computing diluted net income per share 506,012 507,451 505,809 507,164 508,480     Three MonthsEnded November 27, 2015 Effective income tax rate:   GAAP effective income tax rate 25.0 % Stock-based and deferred compensation expense (1.0 ) Amortization of purchased intangibles (0.5 ) Income tax adjustments (2.5 ) 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 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 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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Investor Relations ContactAdobeMike Saviage, 408-536-4416ir@adobe.comorPublic Relations ContactAdobeEdie Kissko, 408-536-3034kissko@adobe.com