Impact of New U.S. Tax Law Results in Higher Fiscal Year 2018
Earnings Per Share Targets
Adobe (Nasdaq:ADBE) today announced it is updating its financial
targets to include expected financial impacts of the Tax Cuts and
Jobs Act (the “Tax Act”), which was enacted into law during its
first quarter of fiscal year 2018. The updated targets are being
provided in connection with today’s filing of Adobe’s annual report
on Form 10-K for fiscal year 2017 with the U.S. Securities and
Exchange Commission.
Among other provisions, the Tax Act reduces the U.S. corporate
income tax rate from 35 percent to 21 percent and imposes a 15.5
percent tax on accumulated foreign earnings effective Jan. 1, 2018.
Given Adobe’s fiscal year 2018 began Dec. 2, 2017, the company will
have a partial-year impact due to these changes.
Adobe expects its fiscal year 2018 GAAP and non-GAAP effective
tax rates will decline substantially from rates in fiscal year
2017, as shown in the table below. The company also expects fiscal
year 2019 GAAP and non-GAAP effective tax rates to stabilize at a
rate of approximately 18 percent, below its fiscal year 2017 rate
of approximately 21 percent.
“The new Tax Act is lowering Adobe’s effective tax rates,
driving a significant increase in our earnings per share targets,"
said Mark Garrett, executive vice president and CFO, Adobe. “With
ready access to our offshore cash, we will continue to evaluate
investment opportunities to grow our business and we are actively
expanding our campuses in the Bay Area and Utah to accommodate the
growth of our employee base.”
As of the end of its fiscal year 2017, Adobe had approximately
$5.8 billion of cash and cash equivalents on its balance sheet, the
majority of which was held offshore. Adobe estimates its
accumulated foreign earnings tax obligation related to this will be
offset against the company’s previous accrual for the repatriation
of prior year foreign earnings. This amount, plus the amount the
company expects to incur for remeasuring deferred tax assets, will
result in a tax charge of approximately $85 million in Adobe’s
first quarter fiscal year 2018 results and is factored into the
GAAP effective tax rates provided in the table below.
Expected GAAP Effective Tax Rate Expected
Non-GAAP Effective Tax Rate Q1 FY2018
Q2 – Q4 FY2018 Q1
FY2018 Q2 – Q4 FY2018 New
target ~17 percent ~13 percent ~11 percent ~11 percent Previous
target ~9 percent ~23 percent ~21 percent ~21 percent
Adobe’s updated non-GAAP effective tax rate targets exclude a
one-time financial impact of the tax law, consistent with the
company’s long-standing practice of excluding large one-time items
in its non-GAAP results.
Updated Financial Targets
As part of today’s update, Adobe reaffirmed its financial
targets including revenue, annualized recurring revenue (“ARR”) and
bookings targets as applicable for both the first quarter and for
fiscal year 2018. Based on financial impacts of the Tax Act, Adobe
stated it is adjusting its earnings targets as follows:
- In fiscal year 2018, Adobe expects to
achieve diluted earnings per share of approximately $4.72 on a
GAAP-basis, and $6.20 on a non-GAAP basis. The company’s prior
targets were approximately $4.40 on a GAAP-basis, and $5.50 on a
non-GAAP basis.
- In the first quarter of fiscal year
2018, Adobe expects to achieve diluted earnings per share of
approximately $1.05 on a GAAP-basis, and $1.43 on a non-GAAP basis.
The company’s prior targets were approximately $1.15 on a
GAAP-basis, and $1.27 on a non-GAAP basis.
The company’s updated financial targets are summarized in tables
below, and replace targets provided in December 2017.
Fiscal Year 2018 Annual Targets Adobe total revenue
~$8.725 billion Digital Media segment revenue ~23%
year-over-year growth Adobe Experience Cloud subscription revenue1
~20% year-over-year growth Adobe Experience Cloud total
revenue ~15% year-over-year growth Earnings per share
GAAP: ~$4.72 Non-GAAP: ~$6.20 Net new Digital Media
annualized recurring revenue (“ARR”) ~$1.1 billion Adobe
Experience Cloud subscription bookings2 ~20% year-over-year
growth 1 Includes revenue from SaaS, managed service and term
offerings for Adobe Analytics Cloud and Adobe Marketing Cloud, as
well as total revenue for Adobe Advertising Cloud 2 Includes
annualized subscription value of SaaS, managed service and term
offerings under contract for Adobe Analytics Cloud and Adobe
Marketing Cloud
During fiscal year 2018, Adobe expects quarterly revenue,
earnings per share and Digital Media ARR results to follow similar
seasonality as was achieved in fiscal year 2017.
First Quarter Fiscal Year 2018 Targets
Adobe total revenue ~$2.040 billion Digital
Media segment revenue ~25% year-over-year growth Adobe
Experience Cloud total revenue ~15% year-over-year growth
Net non-operating other expense ~$6 million Effective tax
rate GAAP: ~17% Non-GAAP: ~11% Share count
~500 million shares Earnings per share GAAP: ~$1.05
Non-GAAP: ~$1.43 Net new Digital Media annualized recurring revenue
(“ARR”) ~$275 million
A reconciliation between GAAP and non-GAAP targets is provided
at the end of this press release.
Forward-Looking Statements Disclosure
This press release contains forward-looking statements,
including those related to revenue, ARR, bookings, net
non-operating expense, share count, tax rates, and earnings per
share on a GAAP and non-GAAP basis, which involve estimates,
assumptions, and interpretations. The final impact of the Tax Act
may differ from these estimates, possibly materially, due to, among
other things, changes in interpretations and assumptions made,
additional guidance that may be issued, unexpected negative changes
in business and market conditions that could reduce certain tax
benefits, and actions taken by Adobe as a result of the Tax Act.
Many of the tax provisions noted above that become effective in our
fiscal year 2019 will likely increase our effective tax rates.
Further, the percentages above are provisional and based on
estimates that may change as we continue to evaluate the impact of
the Tax Act on our financial results and as we consider any new
guidance the Financial Accounting Standards Board is expected to
issue with regard to the accounting treatment for various new tax
provisions. We anticipate providing additional information during
our earnings call, including the impact to our earnings per share,
when we announce our first quarter of fiscal year 2018 earnings.
Additionally, other risks and uncertainties 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, introduction of new technology,
complex sales cycles, fluctuations in subscription renewal rates,
our ability to predict such renewals and risks related to the
timing of revenue recognition from our subscription offerings,
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, and uncertainty in the financial markets and
economic conditions in the countries we operate as 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.
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.
Reconciliation of GAAP to Non-GAAP
Financial Targets
(In millions, except per share data) The following table shows
Adobe's annual fiscal year 2018 earnings per share target
reconciled to the non-GAAP target included in this document.
Fiscal Year 2018
Diluted net income per share: GAAP diluted net income per
share $ 4.72 Stock-based and deferred compensation expense 1.21
Amortization of purchased intangibles 0.27 Impacts of the Tax Act
0.17 Other income tax adjustments (0.17 ) Non-GAAP diluted net
income per share $ 6.20 Shares used to compute
diluted net income per share 500.0 The following
table shows Adobe's first quarter fiscal year 2018 earnings per
share and tax rate targets reconciled to non-GAAP targets included
in this document.
First
Quarter
Fiscal
2018
Diluted earnings per share: GAAP diluted net income per
share $ 1.05 Stock-based and deferred compensation expense 0.27
Amortization of purchased intangibles 0.07 Impacts of the Tax Act
0.17 Other income tax adjustments (0.13 ) Non-GAAP diluted net
income per share $ 1.43
Shares used to compute diluted net income
per share
500.0 Effective income tax rate:
GAAP effective income tax rate
17.0
% Stock-based and deferred compensation expense (0.8 ) Amortization
of purchased intangibles (0.2 ) Impacts of the Tax Act (13.0 )
Other income tax adjustments 8.0
Non-GAAP effective income tax
rate
11.0 % The following table shows Adobe's second to
fourth quarter fiscal year 2018 tax rate targets reconciled to
non-GAAP targets included in this document.
Second to
Fourth Quarter Fiscal 2018 Effective income tax
rate: GAAP effective income tax rate 13.0 %
Stock-based and deferred compensation expense (0.8 ) Amortization
of purchased intangibles (0.2 ) Other income tax adjustments (1.0 )
Non-GAAP effective income tax
rate
11.0 %
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.
Calculating Annualized Recurring Revenue (“ARR”)
Creative ARR
Annual Value of Creative Cloud
Subscriptions and Services+Annual Digital Publishing Suite Contract
Value+Annual Creative ETLA Contract Value
Document Cloud ARR
Annual Value of Document Cloud
Subscriptions and Services+Annual Document Cloud ETLA Contract
Value
Digital Media ARR
Creative ARR+Document Cloud ARR
Note: ARR targets and results are adjusted for constant currency
based on exchange rates in December each year.
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version on businesswire.com: http://www.businesswire.com/news/home/20180122006533/en/
AdobeInvestor Relations ContactMike Saviage,
408-536-4416ir@adobe.comorPublic
Relations ContactDan Berthiaume, 408-536-2584dberthia@adobe.com
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