Adobe (Nasdaq:ADBE) today reported financial results for its second
quarter fiscal year 2019 ended May 31, 2019.
Q2 FY2019 Financial Highlights
-
Adobe achieved record quarterly revenue of $2.74 billion in its second
quarter of fiscal year 2019, which represents 25 percent
year-over-year growth. Diluted earnings per share was $1.29 on a
GAAP-basis, and $1.83 on a non-GAAP basis. -
Digital Media segment revenue was $1.89 billion, which represents 22
percent year-over-year growth. Creative revenue grew to $1.59 billion
and Document Cloud achieved revenue of $296 million. Digital Media
Annualized Recurring Revenue (“ARR”) grew to $7.47 billion exiting the
quarter, a quarter-over-quarter increase of $406 million. Creative ARR
grew to $6.55 billion, and Document Cloud ARR grew to $921 million. -
Digital Experience segment revenue was $784 million, representing 34
percent year-over-year growth. -
GAAP operating income in the second quarter was $750 million, and
non-GAAP operating income was $1.05 billion. GAAP net income was $633
million, and non-GAAP net income was $901 million. - Cash flow from operations was $1.11 billion.
- Remaining Performance Obligation was $8.37 billion.
- Adobe repurchased approximately 2.5 million shares during the quarter.
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 continued momentum is being fueled by the explosion of
creativity across the globe and the widespread business transformation
agenda to deliver engaging customer experiences,” said Shantanu Narayen,
president and CEO, Adobe. “With an innovative technology platform,
exciting product roadmap and strong ecosystem of partners, we are well
positioned for the second half of FY19 and beyond.”
“Adobe delivered another record quarter in Q2,” said John Murphy,
executive vice president and CFO, Adobe. “Highlights include 25 percent
year-over-year revenue growth, strong net new Digital Media ARR and
operating cash flow of $1.11 billion.”
Adobe Provides Third Quarter Fiscal Year 2019 Financial Targets
The following table summarizes Adobe’s third quarter fiscal year 2019
targets.
| Adobe total Q3 fiscal year 2019 revenue | ~$2.80 billion | |||
| Digital Media segment revenue | ~20% year/year growth | |||
| Digital Experience segment revenue | ~34% year/year growth | |||
| Net new Digital Media annualized recurring revenue (“ARR”) | ~$360 million | |||
| Tax rate | GAAP: ~11% | Non-GAAP: ~11% | ||
| Share count | ~491 million shares | |||
| Earnings per share | GAAP: ~$1.40 | Non-GAAP: ~$1.95 | ||
A reconciliation between GAAP and non-GAAP targets is provided at the
end of this press release.
Adobe to Webcast Earnings Conference Call
Adobe will webcast its second quarter fiscal year 2019 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 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, market trends, customer success, revenue,
operating margin, seasonality, 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 compete
effectively, failure to develop, acquire, market and offer products and
services that meet customer requirements, introduction of new
technology, information security and privacy, potential interruptions or
delays in hosted services provided by us or third parties, risks
associated with cyber-attacks, complex sales cycles, risks related to
the timing of revenue recognition from our subscription offerings,
fluctuations in subscription renewal rates, failure to realize the
anticipated benefits of past or future acquisitions, failure to
effectively manage critical strategic third-party business
relationships, 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 2018 ended November 30, 2018, and Adobe’s
Quarterly Reports on Form 10-Q issued in fiscal year 2019.
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 31, 2019, which Adobe
expects to file in June 2019. 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.
©2019 Adobe Inc. All rights reserved. Adobe, Adobe Document Cloud, Adobe
Experience Cloud, Creative Cloud and the Adobe logo are either
registered trademarks or trademarks of Adobe Inc. (or one of its
subsidiaries) in the United States and/or other countries. All other
trademarks are the property of their respective owners.
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Condensed Consolidated Statements of Income (In thousands, except per share data; unaudited) |
||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| May 31, 2019 (*) | June 1, 2018 | May 31, 2019 (*) | June 1, 2018 | |||||||||||||
| Revenue: | ||||||||||||||||
| Subscription | $ | 2,456,097 | $ | 1,923,131 | $ | 4,761,064 | $ | 3,716,489 | ||||||||
| Product | 152,816 | 150,993 | 323,370 | 322,601 | ||||||||||||
| Services and support | 135,367 | 121,236 | 260,792 | 235,217 | ||||||||||||
| Total revenue | 2,744,280 | 2,195,360 | 5,345,226 | 4,274,307 | ||||||||||||
| Cost of revenue: | ||||||||||||||||
| Subscription | 296,476 | 186,355 | 584,507 | 351,040 | ||||||||||||
| Product | 9,345 | 10,779 | 21,450 | 23,656 | ||||||||||||
| Services and support | 101,667 | 84,210 | 198,817 | 165,550 | ||||||||||||
| Total cost of revenue | 407,488 | 281,344 | 804,774 | 540,246 | ||||||||||||
| Gross profit | 2,336,792 | 1,914,016 | 4,540,452 | 3,734,061 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 475,958 | 374,128 | 940,595 | 722,897 | ||||||||||||
| Sales and marketing | 848,927 | 646,215 | 1,630,445 | 1,227,172 | ||||||||||||
| General and administrative | 219,334 | 178,040 | 435,443 | 348,480 | ||||||||||||
| Amortization of purchased intangibles | 43,026 | 17,149 | 89,592 | 34,295 | ||||||||||||
| Total operating expenses | 1,587,245 | 1,215,532 | 3,096,075 | 2,332,844 | ||||||||||||
| Operating income | 749,547 | 698,484 | 1,444,377 | 1,401,217 | ||||||||||||
| Non-operating income (expense): | ||||||||||||||||
| Interest and other income (expense), net | 2,558 | 11,599 | 6,824 | 28,271 | ||||||||||||
| Interest expense | (40,577 | ) | (20,363 | ) | (81,170 | ) | (40,262 | ) | ||||||||
| Investment gains (losses), net | (756 | ) | 1,079 | 43,075 | 4,075 | |||||||||||
| Total non-operating income (expense), net | (38,775 | ) | (7,685 | ) | (31,271 | ) | (7,916 | ) | ||||||||
| Income before income taxes | 710,772 | 690,799 | 1,413,106 | 1,393,301 | ||||||||||||
| Provision for income taxes | 78,179 | 27,632 | 106,272 | 147,058 | ||||||||||||
| Net income | $ | 632,593 | $ | 663,167 | $ | 1,306,834 | $ | 1,246,243 | ||||||||
| Basic net income per share | $ | 1.30 | $ | 1.35 | $ | 2.68 | $ | 2.53 | ||||||||
| Shares used to compute basic net income per share | 487,535 | 491,914 | 487,795 | 491,993 | ||||||||||||
| Diluted net income per share | $ | 1.29 | $ | 1.33 | $ | 2.65 | $ | 2.50 | ||||||||
| Shares used to compute diluted net income per share | 492,212 | 498,252 | 493,200 | 499,166 | ||||||||||||
_________________________________________
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* |
Adobe adopted ASU No. 2014-09, Revenue from Contracts with |
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|
Condensed Consolidated Balance Sheets (In thousands, except par value; unaudited) |
||||||||
| May 31, 2019 (*) | November 30, 2018 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 2,082,910 | $ | 1,642,775 | ||||
| Short-term investments | 1,396,069 | 1,586,187 | ||||||
|
Trade receivables, net of allowances for doubtful accounts of $12,379 and $14,981, respectively |
1,272,668 | 1,315,578 | ||||||
| Prepaid expenses and other current assets | 590,998 | 312,499 | ||||||
| Total current assets | 5,342,645 | 4,857,039 | ||||||
| Property and equipment, net | 1,205,020 | 1,075,072 | ||||||
| Goodwill | 10,697,874 | 10,581,048 | ||||||
| Purchased and other intangibles, net | 1,917,149 | 2,069,001 | ||||||
| Other assets | 503,221 | 186,522 | ||||||
| Total assets | $ | 19,665,909 | $ | 18,768,682 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Trade payables | $ | 169,101 | $ | 186,258 | ||||
| Accrued expenses | 1,314,998 | 1,163,185 | ||||||
| Debt | 3,145,668 | — | ||||||
| Income taxes payable | 45,778 | 35,709 | ||||||
| Deferred revenue | 3,011,552 | 2,915,974 | ||||||
| Total current liabilities | 7,687,097 | 4,301,126 | ||||||
| Long-term liabilities: | ||||||||
| Debt | 987,938 | 4,124,800 | ||||||
| Deferred revenue | 122,522 | 137,630 | ||||||
| Income taxes payable | 637,733 | 644,101 | ||||||
| Deferred income taxes | 133,886 | 46,702 | ||||||
| Other liabilities | 165,040 | 152,209 | ||||||
| Total liabilities | 9,734,216 | 9,406,568 | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $0.0001 par value; 2,000 shares authorized | — | — | ||||||
| Common stock, $0.0001 par value | 61 | 61 | ||||||
| Additional paid-in-capital | 6,050,800 | 5,685,337 | ||||||
| Retained earnings | 13,183,938 | 11,815,597 | ||||||
| Accumulated other comprehensive income (loss) | (144,364 | ) | (148,130 | ) | ||||
|
Treasury stock, at cost (114,561 and 113,171, respectively), net of reissuances |
(9,158,742 | ) | (7,990,751 | ) | ||||
| Total stockholders’ equity | 9,931,693 | 9,362,114 | ||||||
| Total liabilities and stockholders’ equity | $ | 19,665,909 | $ | 18,768,682 | ||||
_________________________________________
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* |
Adobe adopted ASU No. 2014-09, Revenue from Contracts with |
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Condensed Consolidated Statements of Cash Flows (In thousands; unaudited) |
||||||||
| Three Months Ended | ||||||||
| May 31, 2019 | June 1, 2018 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 632,593 | $ | 663,167 | ||||
|
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation, amortization and accretion | 145,609 | 76,360 | ||||||
| Stock-based compensation | 204,300 | 145,376 | ||||||
| Unrealized investment (gains) losses, net | 1,700 | (573 | ) | |||||
| Changes in deferred revenue | (84,118 | ) | 62,063 | |||||
| Changes in other operating assets and liabilities | 209,242 | 30,013 | ||||||
| Net cash provided by operating activities | 1,109,326 | 976,406 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases, sales and maturities of short-term investments, net | 100,486 | 131,896 | ||||||
| Purchases of property and equipment | (85,492 | ) | (45,316 | ) | ||||
|
Purchases and sales of long-term investments, intangibles and other assets, net |
(4,921 | ) | (4,287 | ) | ||||
| Acquisitions, net of cash acquired | — | (14,614 | ) | |||||
| Net cash provided by investing activities | 10,073 | 67,679 | ||||||
| Cash flows from financing activities: | ||||||||
| Purchases of treasury stock | (750,000 | ) | (700,000 | ) | ||||
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Taxes paid related to net share settlement of equity awards, net of proceeds from treasury stock reissuances |
(21,813 | ) | (16,854 | ) | ||||
| Repayment of capital lease obligations | (288 | ) | (511 | ) | ||||
| Net cash used for financing activities | (772,101 | ) | (717,365 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | (3,234 | ) | (5,715 | ) | ||||
| Net increase in cash and cash equivalents | 344,064 | 321,005 | ||||||
| Cash and cash equivalents at beginning of period | 1,738,846 | 2,666,981 | ||||||
| Cash and cash equivalents at end of period | $ | 2,082,910 | $ | 2,987,986 | ||||
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Non-GAAP Results (In thousands, except per share data)
The following table shows Adobe’s GAAP results reconciled to |
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| Three Months Ended | ||||||||||||
| May 31, 2019 (*) | June 1, 2018 | March 1, 2019 (*) | ||||||||||
| Operating income: | ||||||||||||
| GAAP operating income | $ | 749,547 | $ | 698,484 | $ | 694,830 | ||||||
| Stock-based and deferred compensation expense | 203,673 | 146,773 | 187,115 | |||||||||
| Amortization of purchased intangibles | 96,714 | 32,378 | 102,690 | |||||||||
| Non-GAAP operating income | $ | 1,049,934 | $ | 877,635 | $ | 984,635 | ||||||
| Net income: | ||||||||||||
| GAAP net income | $ | 632,593 | $ | 663,167 | $ | 674,241 | ||||||
| Stock-based and deferred compensation expense | 203,673 | 146,773 | 187,115 | |||||||||
| Amortization of purchased intangibles | 96,714 | 32,378 | 102,690 | |||||||||
| Investment (gains) losses, net | 756 | (1,079 | ) | (43,831 | ) | |||||||
| Income tax adjustments | (33,132 | ) | (15,812 | ) | (76,221 | ) | ||||||
| Non-GAAP net income | $ | 900,604 | $ | 825,427 | $ | 843,994 | ||||||
| Diluted net income per share: | ||||||||||||
| GAAP diluted net income per share | $ | 1.29 | $ | 1.33 | $ | 1.36 | ||||||
| Stock-based and deferred compensation expense | 0.41 | 0.29 | 0.38 | |||||||||
| Amortization of purchased intangibles | 0.20 | 0.06 | 0.21 | |||||||||
| Investment (gains) losses, net | — | — | (0.09 | ) | ||||||||
| Income tax adjustments | (0.07 | ) | (0.02 | ) | (0.15 | ) | ||||||
| Non-GAAP diluted net income per share | $ | 1.83 | $ | 1.66 | $ | 1.71 | ||||||
| Shares used in computing diluted net income per share | 492,212 | 498,252 | 494,188 | |||||||||
_________________________________________
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* |
Adobe adopted ASU No. 2014-09, Revenue from Contracts with |
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Reconciliation of GAAP to Non-GAAP Financial Targets
The following table shows Adobe’s third quarter fiscal year 2019 GAAP
earnings per share target reconciled to the non-GAAP financial target
included in this release.
|
Third Quarter
Fiscal 2019 |
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| Diluted net income per share: | ||||
| GAAP diluted net income per share | $ | 1.40 | ||
| Stock-based and deferred compensation expense | 0.42 | |||
| Amortization of purchased intangibles | 0.20 | |||
| Income tax adjustments | (0.07 | ) | ||
| Non-GAAP diluted net income per share | $ | 1.95 | ||
| Shares used to compute diluted net income per share | 491.0 | |||
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.
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