Creative ARR Exceeds $5 Billion in Q1 FY2018
Adobe (Nasdaq:ADBE) today reported strong financial results for
its first quarter fiscal year 2018 ended March 2, 2018.
Financial Highlights
- Adobe achieved record quarterly revenue
of $2.08 billion in its first quarter of fiscal year 2018, which
represents 24 percent year-over-year revenue growth.
- Diluted earnings per share was $1.17 on
a GAAP-basis, and $1.55 on a non-GAAP basis.
- Digital Media segment revenue was $1.46
billion, with Creative revenue growing to $1.23 billion and
Document Cloud achieving revenue of $231 million.
- Digital Media Annualized Recurring
Revenue (“ARR”) grew to $5.72 billion exiting the quarter, a
quarter-over-quarter increase of $336 million. Creative ARR grew to
$5.07 billion, and Document Cloud ARR grew to $647 million.
- Digital Experience segment revenue was
$554 million, which represents 16 percent year-over-year
growth.
- Operating income grew 50 percent and
net income grew 46 percent year-over-year on a GAAP-basis;
operating income grew 43 percent and net income grew 64 percent
year-over-year on a non-GAAP basis.
- Cash flow from operations was $990
million, and deferred revenue grew 25 percent year-over-year to
approximately $2.57 billion.
- Adobe repurchased approximately 1.6
million shares during the quarter, returning $301 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’s outstanding growth is driven by enabling our customers
to be more creative, work smarter and transform their businesses
through our relentless focus on delivering innovation and
intelligence across our solutions,” said Shantanu Narayen,
president and CEO, Adobe.
“Our leadership in the large addressable markets we created,
combined with Adobe’s leveraged operating model, contributed to
another record quarter in Q1," said Mark Garrett, executive vice
president and CFO, Adobe.
Adobe to Webcast Earnings Conference Call
Adobe will webcast its first quarter fiscal year 2018 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 customer success, product innovation,
business momentum, our addressable market, revenue, annualized
recurring revenue, non-operating other expense, tax rate on a GAAP
and non-GAAP basis, earnings per share on a GAAP and non-GAAP
basis, and share count, 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, acquire, market and
offer products and services that meet customer requirements,
failure to compete effectively, introduction of new technology,
complex sales cycles, risks related to the timing of revenue
recognition from our subscription offerings, fluctuations in
subscription renewal rates, potential interruptions or delays in
hosted services provided by us or third parties, risks associated
with cyber-attacks, information security and privacy, failure to
realize the anticipated benefits of past or future acquisitions,
changes in accounting principles and tax regulations, uncertainty
in the financial markets and economic conditions in the countries
where we operate, and other various risks associated with being a
multinational corporation. 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 2017 ended Dec. 1, 2017, and Adobe's
Quarterly Reports on Form 10-Q issued in fiscal year 2018.
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 March
2, 2018, which Adobe expects to file in March 2018.
Adobe assumes no obligation to, and does not currently intend
to, update these forward-looking statements.
About Adobe
Adobe is changing the world through digital experiences. For
more information, visit www.adobe.com.
© 2018 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 March 2, 2018
March 3, 2017 Revenue: Subscription $ 1,793,358 $
1,383,856 Product 171,608 183,385 Services and support 113,981
114,405 Total revenue 2,078,947 1,681,646
Cost of revenue: Subscription 164,685 141,181 Product
12,877 14,333 Services and support 81,340 81,823
Total cost of revenue 258,902 237,337 Gross
profit 1,820,045 1,444,309 Operating expenses: Research and
development 348,769 285,077 Sales and marketing 580,957 520,297
General and administrative 170,440 150,808 Amortization of
purchased intangibles 17,146 19,128 Total operating
expenses 1,117,312 975,310 Operating income
702,733 468,999 Non-operating income (expense): Interest and
other income (expense), net 16,672 7,206 Interest expense (19,899 )
(18,130 ) Investment gains (losses), net 2,996 2,557
Total non-operating income (expense), net (231 ) (8,367 ) Income
before income taxes 702,502 460,632 Provision for income taxes
119,426 62,186 Net income $ 583,076 $ 398,446
Basic net income per share $ 1.18 $ 0.81
Shares used to compute basic net income per share 492,061
494,612 Diluted net income per share $ 1.17 $ 0.80
Shares used to compute diluted net income per share 499,433
500,861
Condensed Consolidated Balance
Sheets
(In thousands, except par value;
unaudited)
March 2, 2018 December 1, 2017 ASSETS
Current assets: Cash and cash equivalents $ 2,666,981 $
2,306,072 Short-term investments 3,480,989 3,513,702 Trade
receivables, net of allowances for doubtful accounts of $9,284 and
$9,151, respectively 1,062,690 1,217,968 Prepaid expenses and other
current assets 270,154 210,071 Total current assets
7,480,814 7,247,813 Property and equipment, net 991,674
936,976 Goodwill 5,843,899 5,821,561 Purchased and other
intangibles, net 353,740 385,658 Deferred income taxes 149,710 —
Other assets 153,648 143,548 Total assets $
14,973,485 $ 14,535,556 LIABILITIES AND
STOCKHOLDERS’ EQUITY Current liabilities: Trade payables $
131,090 $ 113,538 Accrued expenses 911,044 993,773 Income taxes
payable 10,591 14,196 Deferred revenue 2,483,744 2,405,950
Total current liabilities 3,536,469 3,527,457
Long-term liabilities: Debt 1,874,794 1,881,421 Deferred revenue
88,460 88,592 Income taxes payable 690,468 173,088 Deferred income
taxes — 279,941 Other liabilities 149,266 125,188
Total liabilities 6,339,457 6,075,687 Stockholders’ equity:
Preferred stock, $0.0001 par value; 2,000 shares authorized — —
Common stock, $0.0001 par value 61 61 Additional paid-in-capital
5,208,588 5,082,195 Retained earnings 9,830,399 9,573,870
Accumulated other comprehensive income (loss) (109,939 ) (111,821 )
Treasury stock, at cost (107,954 and 109,572, respectively), net of
reissuances (6,295,081 ) (6,084,436 ) Total stockholders’ equity
8,634,028 8,459,869 Total liabilities and
stockholders’ equity $ 14,973,485 $ 14,535,556
Condensed Consolidated Statements of
Cash Flows
(In thousands; unaudited)
Three Months Ended March 2, 2018
March 3, 2017 Cash flows from operating activities:
Net income $ 583,076 $ 398,446 Adjustments to reconcile net income
to net cash provided by operating activities: Depreciation,
amortization and accretion 76,522 80,809 Stock-based compensation
expense 130,488 98,310 Unrealized investment (gains) losses, net
(929 ) (1,021 ) Changes in deferred revenue 77,662 40,832 Changes
in other operating assets and liabilities 122,782 112,994
Net cash provided by operating activities 989,601
730,370 Cash flows from investing activities:
Purchases, sales and maturities of short-term investments, net
7,894 169,320 Purchases of property and equipment (95,142 ) (30,903
) Purchases and sales of long-term investments, intangibles and
other assets, net (6,514 ) (17,673 ) Acquisitions, net of cash —
(459,626 ) Net cash used for investing activities (93,762 )
(338,882 ) Cash flows from financing activities: Purchases
of treasury stock (300,000 ) (200,000 ) Taxes paid related to net
share settlement of equity awards, net of proceeds from treasury
stock reissuances (240,969 ) (131,227 ) Repayment of capital lease
obligations (304 ) (268 ) Net cash used for financing activities
(541,273 ) (331,495 ) Effect of exchange rate changes on cash and
cash equivalents 6,343 (2,412 ) Net increase in cash and
cash equivalents 360,909 57,581 Cash and cash equivalents at
beginning of period 2,306,072 1,011,315 Cash and cash
equivalents at end of period $ 2,666,981 $ 1,068,896
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 March 2, 2018
March 3, 2017 December 1, 2017
Operating income: GAAP operating income $ 702,733 $ 468,999
$ 649,340 Stock-based and deferred compensation expense 136,414
103,578 122,180 Restructuring and other charges — — (359 )
Amortization of purchased intangibles 31,704 35,464
34,817 Non-GAAP operating income $ 870,851 $ 608,041
$ 805,978 Net income: GAAP net income $
583,076 $ 398,446 $ 501,549 Stock-based and deferred compensation
expense 136,414 103,578 122,180 Restructuring and other charges — —
(359 ) Amortization of purchased intangibles 31,704 35,464 34,817
Investment (gains) losses, net (2,996 ) (2,557 ) (2,292 ) Income
tax adjustments* 23,987 (63,209 ) (25,982 ) Non-GAAP net
income $ 772,185 $ 471,722 $ 629,913
Diluted net income per share: GAAP diluted net income per
share $ 1.17 $ 0.80 $ 1.00 Stock-based and deferred compensation
expense 0.27 0.21 0.24 Amortization of purchased intangibles 0.06
0.07 0.07 Investment (gains) losses, net — (0.01 ) — Income tax
adjustments* 0.05 (0.13 ) (0.05 ) Non-GAAP diluted net
income per share $ 1.55 $ 0.94 $ 1.26
Shares used in computing diluted net income per share 499,433
500,861 500,060
_________________________________________
* During the first quarter of fiscal 2018,
the $24 million GAAP to non-GAAP income tax adjustment includes a
provisional tax charge relating to the enactment of the Tax Cuts
and Jobs Act that was excluded from non-GAAP earnings. The Company
has recorded a provisional tax expense of $118 million, which is
comprised of $86 million for fiscal year 2018 plus other ancillary
effects recorded in the first fiscal quarter, related to the U.S.
mandatory one-time transition tax on accumulated non-U.S. earnings.
The company also recorded $10 million related to the remeasurement
of deferred taxes. The amounts are provisional based on the
Securities and Exchange Commission Staff Accounting Bulletin No.
118. The remaining $104 million was related to other tax matters
that are included in the annual non-GAAP tax rate.
Three Months Ended March
2, 2018 Effective income tax rate: GAAP effective
income tax rate 17.0 % Resolution of income tax examinations 2.0
Income tax adjustments 9.0 Impacts of the Tax Act (17.0 ) Non-GAAP
effective income tax rate** 11.0 %
_________________________________________
** The GAAP effective income tax rate of 17%
is the rate for the quarter based on tax events within the quarter.
Income tax adjustments, which are included in both GAAP and
non-GAAP earnings, will fluctuate from quarter-to-quarter but will
normalize over the fiscal year due to the timing of tax events
including the timing of recognition of excess tax benefits within
each quarter.
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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180315006274/en/
AdobeInvestor Relations ContactMike Saviage,
408-536-4416ir@adobe.comorPublic
Relations ContactDan Berthiaume, 408-536-2584dberthia@adobe.com
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