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
Subscription224,266146,230
Services and support107,818 90,469 
Total revenue1,007,873 1,045,220 
 
Cost of revenue:
Products51,98225,668
Subscription62,58048,780
Services and support42,122 33,817 
Total cost of revenue156,684 108,265 
 
Gross profit851,189936,955
 
Operating expenses:
Research and development209,638177,728
Sales and marketing398,033358,963
General and administrative132,853102,681
Restructuring charges2(2,825)
Amortization of purchased intangibles12,439 11,429 
Total operating expenses752,965 647,976 
 
Operating income98,224288,979
 
Non-operating income (expense):
Interest and other income (expense), net1,246(2,785)
Interest expense(16,834)(16,838)
Investment gains (losses), net848 1,021 
Total non-operating income (expense), net(14,740)(18,602)
Income before income taxes83,484270,377
Provision for income taxes18,367 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 share498,607 494,016 
Diluted net income per share$0.13 $0.37 
Shares used to compute diluted net income per share507,840 500,378 
 

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 investments2,354,3072,113,301
Trade receivables, net of allowances for doubtful accounts of $12,715 and $12,643, respectively485,801617,233
Deferred income taxes64,93059,537
Prepaid expenses and other current assets161,663 116,237 
Total current assets4,373,0834,331,360
 
Property and equipment, net686,014664,302
Goodwill4,221,4874,133,259
Purchased and other intangibles, net580,568545,036
Investment in lease receivable207,239207,239
Other assets97,320 93,327 
Total assets$10,165,711 $9,974,523 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Trade payables$72,725$49,759
Accrued expenses505,465590,140
Capital lease obligations22,40611,217
Accrued restructuring6,7679,287
Income taxes payable11,12649,886
Deferred revenue645,834 561,463 
Total current liabilities1,264,3231,271,752
 
Long-term liabilities:
Debt and capital lease obligations1,509,0031,496,938
Deferred revenue54,19758,102
Accrued restructuring10,05312,263
Income taxes payable159,859155,096
Deferred income taxes292,770265,106
Other liabilities70,168 50,084 
Total liabilities3,360,3733,309,341
 
Stockholders' equity:
Preferred stock, $0.0001 par value; 2,000 shares authorized
Common stock, $0.0001 par value6161
Additional paid-in-capital3,116,4713,038,665
Retained earnings6,808,4897,003,003
Accumulated other comprehensive income40,11030,712
Treasury stock, at cost (99,789 and 106,702 shares, respectively), net of re-issuances(3,159,793)(3,407,259)
Total stockholders' equity6,805,338 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 accretion76,75269,861
Stock-based compensation expense77,28261,151
Unrealized investment (gains) losses(418)(3,168)
Changes in deferred revenue79,51416,739
Changes in other operating assets and liabilities23,784 (15,429)
Net cash provided by operating activities322,031 314,363 
 
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 stock88,56613,366
Proceeds from debt and capital lease obligations25,703
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 activities11,405 (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 period1,425,052 989,500 
Cash and cash equivalents at end of period$1,306,382 $801,263 
 
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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 expense85,08672,63376,248
Restructuring charges2(2,825)(275)
Amortization of purchased intangibles & technology license arrangements57,377 27,864 30,912 
Non-GAAP operating income$240,689 $386,651 $414,650 
 
Net income:
 
GAAP net income$65,117$185,209$222,333
Stock-based and deferred compensation expense85,08672,63376,248
Restructuring charges2(2,825)(275)
Amortization of purchased intangibles & technology license arrangements57,37727,86430,912
Investment (gains) losses(848)(1,021)(351)
Income tax adjustments(28,840)2,647 (20,962)
Non-GAAP net income$