Adobe Reports Strong Q1 Results

Adobe Reports Strong Q1 Results

Adobe Creative Cloud Adoption Accelerates and Adobe Marketing Cloud Achieves 20 Percent Annual Revenue Growth


SAN JOSE, Calif.--(BUSINESS WIRE)-- Adobe Systems Incorporated (NAS: ADBE) today reported financial results for its first quarter of fiscal year 2013 ended March 1, 2013.

Adobe® achieved revenue of $1.008 billion, exceeding its targeted range of $950 million to $1 billion. During the quarter, the Company continued to accelerate adoption of Adobe Creative Cloud™ as it migrates to a subscription model in its Digital Media business. Adobe also achieved strong revenue growth with Adobe Marketing Cloud solutions in its Digital Marketing business.

First Quarter Financial Highlights

  • Diluted earnings per share were $0.13 on a GAAP-basis, and $0.35 on a non-GAAP basis.

  • Operating income was $98.2 million and net income was $65.1 million on a GAAP basis. Operating income was $240.7 million and net income was $177.9 million on a non-GAAP basis.

  • Cash flow from operations was $322.0 million.

  • Deferred revenue grew by $80.5 million to a record $700.0 million.

  • Adobe ended Q1 with 479 thousand paid Creative Cloud members, an increase of 153 thousand when compared to the number of members as of the end of Q4 fiscal year 2012.

  • Adobe Marketing Cloud achieved quarterly revenue of $215.4 million, which represents 20 percent year-over-year growth.

A reconciliation between GAAP and non-GAAP results is provided at the end of this press release.

Executive Quotes

"Creative Cloud is quickly becoming mainstream, with the overwhelming majority of Creative purchases on Adobe.com now being Creative Cloud subscriptions," said Shantanu Narayen, president and chief executive officer, Adobe. "With Adobe Marketing Cloud, we are the partner of choice for Chief Marketing Officers as we help our customers migrate their businesses online."

"Adoption of Creative Cloud accelerated and we achieved strong Digital Marketing revenue and bookings growth in Q1," said Mark Garrett, executive vice president and chief financial officer, Adobe. "We're building a stronger, more predictable recurring revenue model which will drive higher long-term growth."

Adobe to Webcast Earnings Conference Call

Adobe will webcast its first quarter fiscal year 2013 earnings conference call today at 2:00 p.m. Pacific Time from its investor relations website: www.adobe.com/ADBE. A copy of Adobe management's prepared remarks, including financial targets and conference call slides, has been posted to Adobe's investor relations website in advance of the conference call for reference.

A reconciliation between GAAP and non-GAAP financial targets is also provided on the website.

Forward-Looking Statements Disclosure

This press release contains forward-looking statements, including those related to the transition of our business as we migrate to a subscription model, adoption of Creative Cloud, increases in recurring revenue and long-term revenue growth, 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, including our increased emphasis on a cloud and subscription strategy, fluctuations in subscription renewal or upgrade rates, continued uncertainty in economic conditions and the financial markets, difficulty in predicting revenue from new businesses and the potential impact on our financial results from changes in our business models, 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 the fiscal year ended Nov. 30, 2012.

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 1, 2013, which Adobe expects to file in March 2013.

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.

© 2013 Adobe Systems Incorporated. All rights reserved. Adobe, the Adobe logo, Adobe Creative Cloud and Adobe Marketing 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

March 1,
2013

March 2,
2012

Revenue:

Products

$

675,789

$

808,521

Subscription

224,266

146,230

Services and support

107,818

90,469

Total revenue

1,007,873

1,045,220

Cost of revenue:

Products

51,982

25,668

Subscription

62,580

48,780

Services and support

42,122

33,817

Total cost of revenue

156,684

108,265

Gross profit

851,189

936,955

Operating expenses:

Research and development

209,638

177,728

Sales and marketing

398,033

358,963

General and administrative

132,853

102,681

Restructuring charges

2

(2,825

)

Amortization of purchased intangibles

12,439

11,429

Total operating expenses

752,965

647,976

Operating income

98,224

288,979

Non-operating income (expense):

Interest and other income (expense), net

1,246

(2,785

)

Interest expense

(16,834

)

(16,838

)

Investment gains (losses), net

848

1,021

Total non-operating income (expense), net

(14,740

)

(18,602

)

Income before income taxes

83,484

270,377

Provision for income taxes

18,367

85,168

Net income

$

65,117

$

185,209

Basic net income per share

$

0.13

$

0.37

Shares used to compute basic net income per share

498,607

494,016

Diluted net income per share

$

0.13

$

0.37

Shares used to compute diluted net income per share

507,840

500,378

Condensed Consolidated Balance Sheets

(In thousands, except par value; unaudited)

March 1,
2013

November 30,
2012

ASSETS

Current assets:

Cash and cash equivalents

$

1,306,382

$

1,425,052

Short-term investments

2,354,307

2,113,301

Trade receivables, net of allowances for doubtful accounts of $12,715 and $12,643, respectively

485,801

617,233

Deferred income taxes

64,930

59,537

Prepaid expenses and other current assets

161,663

116,237

Total current assets

4,373,083

4,331,360

Property and equipment, net

686,014

664,302

Goodwill

4,221,487

4,133,259

Purchased and other intangibles, net

580,568

545,036

Investment in lease receivable

207,239

207,239

Other assets

97,320

93,327

Total assets

$

10,165,711

$

9,974,523

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Trade payables

$

72,725

$

49,759

Accrued expenses

505,465

590,140

Capital lease obligations

22,406

11,217

Accrued restructuring

6,767

9,287

Income taxes payable

11,126

49,886

Deferred revenue

645,834

561,463

Total current liabilities

1,264,323

1,271,752

Long-term liabilities:

Debt and capital lease obligations

1,509,003

1,496,938

Deferred revenue

54,197

58,102

Accrued restructuring

10,053

12,263

Income taxes payable

159,859

155,096

Deferred income taxes

292,770

265,106

Other liabilities

70,168

50,084

Total liabilities

3,360,373

3,309,341

Stockholders' equity:

Preferred stock, $0.0001 par value; 2,000 shares authorized

Common stock, $0.0001 par value

61

61

Additional paid-in-capital

3,116,471

3,038,665

Retained earnings

6,808,489

7,003,003

Accumulated other comprehensive income

40,110

30,712

Treasury stock, at cost (99,789 and 106,702 shares, respectively), net of re-issuances

(3,159,793

)

(3,407,259

)

Total stockholders' equity

6,805,338

6,665,182

Total liabilities and stockholders' equity

$

10,165,711

$

9,974,523

Condensed Consolidated Statements of Cash Flows

(In thousands; unaudited)

Three Months Ended

March 1,
2013

March 2,
2012

Cash flows from operating activities:

Net income

$

65,117

$

185,209

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, amortization and accretion

76,752

69,861

Stock-based compensation expense

77,282

61,151

Unrealized investment (gains) losses

(418

)

(3,168

)

Changes in deferred revenue

79,514

16,739

Changes in other operating assets and liabilities

23,784

(15,429

)

Net cash provided by operating activities

322,031

314,363

Cash flows from investing activities:

Purchases, sales and maturities of short-term investments, net

(245,775

)

(32,418

)

Purchases of property and equipment

(60,190

)

(51,088

)

Purchases of long-term investments, intangibles and other assets, net of sales

(43,793

)

(1,017

)

Acquisitions, net of cash

(96,356

)

(353,184

)

Net cash used for investing activities

(446,114

)

(437,707

)

Cash flows from financing activities:

Purchases of treasury stock

(100,000

)

(80,000

)

Re-issuance of treasury stock

88,566

13,366

Proceeds from debt and capital lease obligations

25,703

Repayment of debt and capital lease obligations

(2,507

)

(2,264

)

Debt issuance costs

(357

)

(2,297

)

Excess tax benefits from stock-based compensation

2,670

Net cash provided by (used for) financing activities

11,405

(68,525

)

Effect of exchange rate changes on cash and cash equivalents

(5,992

)

3,632

Net decrease in cash and cash equivalents

(118,670

)

(188,237

)

Cash and cash equivalents at beginning of period

1,425,052

989,500

Cash and cash equivalents at end of period

$

1,306,382

$

801,263

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 1,
2013

March 2,
2012

November 30,
2012

Operating income:

GAAP operating income

$

98,224

$

288,979

$

307,765

Stock-based and deferred compensation expense

85,086

72,633

76,248

Restructuring charges

2

(2,825

)

(275

)

Amortization of purchased intangibles & technology license arrangements

57,377

27,864

30,912

Non-GAAP operating income

$

240,689

$

386,651

$

414,650

Net income:

GAAP net income

$

65,117

$

185,209

$

222,333

Stock-based and deferred compensation expense

85,086

72,633

76,248

Restructuring charges

2

(2,825

)

(275

)

Amortization of purchased intangibles & technology license arrangements

57,377

27,864

30,912

Investment (gains) losses

(848

)

(1,021

)

(351

)

Income tax adjustments

(28,840

)

2,647

(20,962

)

Non-GAAP net income

$