Strong Q2 FY2015 Profit Growth Driven by Cloud Momentum;
Creative ARR Tops $2 Billion
Adobe (Nasdaq:ADBE) today reported financial results for its
second quarter fiscal year 2015 ended May 29, 2015.
Quarterly Financial Highlights
- Adobe achieved record quarterly revenue
of $1.16 billion.
- Digital Media Annualized Recurring
Revenue (“ARR”) grew to $2.35 billion exiting the quarter, driven
by an increase in Creative ARR of $230 million to $2.02
billion.
- Adobe Marketing Cloud achieved revenue
of $327 million.
- Diluted earnings per share were $0.29
on a GAAP-basis, and $0.48 on a non-GAAP basis.
- Year-over-year, operating income grew
43 percent and net income grew 67 percent on a GAAP-basis;
operating income grew 28 percent and net income grew 30 percent on
a non-GAAP basis.
- Cash flow from operations was $471
million, and deferred revenue grew to an all-time high of $1.23
billion.
- The company repurchased approximately
2.6 million shares during the quarter, returning $200 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
"Strong execution against our Creative Cloud, Document Cloud and
Marketing Cloud businesses drove record revenue," said Shantanu
Narayen, Adobe president and chief executive officer. "We are
accelerating the pace of innovation in our Cloud offerings and are
thrilled to be launching our best Creative Cloud release to date,
which includes Adobe Stock – our new stock content service."
“With our business model transition largely behind us, the
positive financial benefits are now reflected in our P&L,” said
Mark Garrett, Adobe executive vice president and chief financial
officer. “We are driving more profit, earnings per share, cash flow
and deferred revenue and unbilled backlog.”
Adobe to Webcast Earnings Conference Call
Adobe will webcast its second quarter 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 innovation,
the success of our new stock image service, Adobe Stock, and
capabilities and the strength of our cloud business and growth of
our revenue, earnings, cash flow, deferred revenue and unbilled
backlog, 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 Quarterly Report on Form 10-Q for our quarter ended May 29,
2015, which Adobe expects to file in June 2015.
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 Six Months Ended May 29,
2015 May 30, 2014 May 29, 2015
May 30, 2014 Revenue: Subscription $ 773,963 $ 476,694 $
1,487,405 $ 900,257 Products 274,538 479,247 565,312 950,701
Services and support 113,657 112,267 218,622
217,370 Total revenue 1,162,158 1,068,208
2,271,339 2,068,328 Cost of revenue:
Subscription 103,694 84,147 199,221 160,879 Products 21,467 24,499
41,170 51,997 Services and support 60,012 46,258
111,580 90,537 Total cost of revenue 185,173
154,904 351,971 303,413 Gross profit
976,985 913,304 1,919,368 1,764,915 Operating expenses:
Research and development 208,047 209,092 423,556 418,617 Sales and
marketing 426,998 426,830 819,739 836,971 General and
administrative 130,208 129,138 275,289 268,122 Restructuring and
other charges 34 (366 ) 1,789 297 Amortization of purchased
intangibles 18,081 13,352 32,353 26,904
Total operating expenses 783,368 778,046 1,552,726
1,550,911 Operating income 193,617 135,258
366,642 214,004 Non-operating income (expense): Interest and
other income (expense), net 3,739 2,563 7,077 5,708 Interest
expense (16,605 ) (17,103 ) (31,150 ) (33,693 ) Investment gains
(losses), net 223 553 1,653 144 Total
non-operating income (expense), net (12,643 ) (13,987 ) (22,420 )
(27,841 ) Income before income taxes 180,974 121,271 344,222
186,163 Provision for income taxes 33,481 32,744
111,841 50,590 Net income $ 147,493 $ 88,527
$ 232,381 $ 135,573 Basic net income per share
$ 0.30 $ 0.18 $ 0.47 $ 0.27 Shares used
to compute basic net income per share 499,290 497,931
499,022 497,439 Diluted net income per share $ 0.29
$ 0.17 $ 0.46 $ 0.27 Shares used to
compute diluted net income per share 505,582 506,687
507,061 508,227
Condensed Consolidated Balance
Sheets
(In thousands, except par value;
unaudited)
May 29,
2015
November 28, 2014 ASSETS Current assets: Cash and
cash equivalents $ 956,147 $ 1,117,400 Short-term investments
2,457,101 2,622,091 Trade receivables, net of allowances for
doubtful accounts of $7,226 and $7,867, respectively 502,617
591,800 Deferred income taxes 71,218 95,279 Prepaid expenses and
other current assets 191,314 175,758 Total current
assets 4,178,397 4,602,328 Property and equipment, net
785,199 785,123 Goodwill 5,388,971 4,721,962 Purchased and other
intangibles, net 583,198 469,662 Investment in lease receivable
80,439 80,439 Other assets 149,179 126,315 Total
assets $ 11,165,383 $ 10,785,829 LIABILITIES
AND STOCKHOLDERS' EQUITY Current liabilities: Trade payables
$ 56,539 $ 68,377 Accrued expenses 647,784 683,866 Debt and capital
lease obligations — 603,229 Accrued restructuring 1,695 17,120
Income taxes payable 55,473 23,920 Deferred revenue 1,175,542
1,097,923 Total current liabilities 1,937,033
2,494,435 Long-term liabilities: Debt 1,904,376 911,086
Deferred revenue 52,613 57,401 Accrued restructuring 4,347 5,194
Income taxes payable 244,799 125,746 Deferred income taxes 326,922
342,315 Other liabilities 85,190 73,747 Total
liabilities 4,555,280 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
3,994,652 3,778,495 Retained earnings 6,879,444 6,924,294
Accumulated other comprehensive income (loss) (129,473 ) (8,094 )
Treasury stock, at cost (102,558 and 103,350 shares, respectively),
net of reissuances (4,134,581 ) (3,918,851 ) Total stockholders'
equity 6,610,103 6,775,905 Total liabilities and
stockholders' equity $ 11,165,383 $ 10,785,829
Condensed Consolidated Statements of
Cash Flows
(In thousands; unaudited)
Three Months Ended May 29, 2015 May
30, 2014 Cash flows from operating activities: Net income $
147,493 $ 88,527 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation, amortization and
accretion 85,929 77,653 Stock-based compensation expense 84,649
83,005 Unrealized investment gains, net (276 ) (352 ) Changes in
deferred revenue 44,772 47,517 Changes in other operating assets
and liabilities 108,917 71,186 Net cash provided by
operating activities 471,484 367,536 Cash
flows from investing activities: Purchases, sales and maturities of
short-term investments, net 3,541 (117,967 ) Purchases of property
and equipment (35,730 ) (27,198 ) Purchases and sales of long-term
investments, intangibles and other assets, net (1,083 ) (2,767 )
Acquisitions, net of cash (5,637 ) — Net cash used for
investing activities (38,909 ) (147,932 ) Cash flows from
financing activities: Purchases of treasury stock (200,000 )
(150,000 ) Proceeds of reissuance of treasury stock, net 2,911
12,824 Repayment of capital lease obligations — (3,626 ) Debt
issuance costs (153 ) — Excess tax benefits from stock-based
compensation 11,140 4,875 Net cash used for financing
activities (186,102 ) (135,927 ) Effect of exchange rate changes on
cash and cash equivalents (3,210 ) (573 ) Net increase in cash and
cash equivalents 243,263 83,104 Cash and cash equivalents at
beginning of period 712,884 733,916 Cash and cash
equivalents at end of period $ 956,147 $ 817,020
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 May 29, 2015 May
30, 2014 February 27, 2015 Operating income:
GAAP operating income $ 193,617 $ 135,258 $ 173,025
Stock-based and deferred compensation expense 85,374 83,600 86,597
Restructuring and other charges 34 (366 ) 1,755 Amortization of
purchased intangibles 40,080 31,835 33,791
Non-GAAP operating income $ 319,105 $ 250,327 $
295,168 Net income: GAAP net income $ 147,493
$ 88,527 $ 84,888 Stock-based and deferred compensation expense
85,374 83,600 86,597 Restructuring and other charges 34 (366 )
1,755 Amortization of purchased intangibles 40,080 31,835 33,791
Investment (gains) losses (223 ) (553 ) (1,430 ) Income tax
adjustments (30,829 ) (16,771 ) 18,728 Non-GAAP net income $
241,929 $ 186,272 $ 224,329 Diluted net
income per share: GAAP diluted net income per share $ 0.29 $
0.17 $ 0.17 Stock-based and deferred compensation expense 0.17 0.16
0.17 Amortization of purchased intangibles 0.08 0.06 0.07 Income
tax adjustments (0.06 ) (0.02 ) 0.03 Non-GAAP diluted net
income per share $ 0.48 $ 0.37 $ 0.44
Shares used in computing diluted net income per share 505,582
506,687 507,526
Non-GAAP Results
Three Months
Ended
May 29, 2015 Effective income tax rate: GAAP
effective income tax rate 18.5 % Resolution of income tax
examinations 6.0 Amortization of purchased intangibles, stock-based
and deferred compensation expense (2.5 ) Income tax adjustments
(1.0 ) 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150616006620/en/
Investor Relations ContactAdobeMike Saviage,
408-536-4416ir@adobe.comorPublic
Relations ContactAdobeEdie Kissko,
408-536-3034kissko@adobe.com
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