Adobe Creative Cloud Surpasses One Million Subscriptions in Q3

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Adobe Creative Cloud Surpasses One Million Subscriptions in Q3

Adobe Marketing Cloud Achieves Year-Over-Year Revenue Growth of 28 Percent

SAN JOSE, Calif.--(BUSINESS WIRE)-- Adobe (NAS: ADBE) today reported financial results for its third quarter of fiscal year 2013 ended Aug. 30, 2013.


Third Quarter Financial Highlights

  • Adobe achieved revenue of $995.1 million, within its targeted range of $975 million to $1.025 billion. The acquisition of Neolane during the quarter contributed approximately $6 million of revenue to third quarter results.
  • Diluted earnings per share were $0.16 on a GAAP-basis, and $0.32 on a non-GAAP basis.
  • Operating income was $110.4 million and net income was $83.0 million on a GAAP basis. Operating income was $223.0 million and net income was $164.4 million on a non-GAAP basis.
  • Cash flow from operations was $215.5 million.
  • Deferred revenue grew by $42.7 million to a record $734.0 million.
  • Adobe exited Q3 with 1 million 31 thousand paid Creative Cloud subscriptions, an increase of 331 thousand when compared to the number of subscriptions as of the end of Q2 fiscal year 2013, and enterprise adoption of Creative Cloud was stronger than expected.
  • Creative Annualized Recurring Revenue ("ARR") grew to $546 million, and total Digital Media ARR grew to $655 million.
  • Including revenue from Neolane, Adobe Marketing Cloud quarterly revenue was $254.9 million, representing 28 percent year-over-year growth. Excluding revenue from Neolane, Adobe Marketing Cloud year-over-year growth was 25 percent.

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

Executive Quotes

"We exceeded one million subscriptions during Q3, demonstrating that the transition to Creative Cloud is happening sooner than expected," said Shantanu Narayen, president and chief executive officer, Adobe. "We successfully completed the acquisition of Neolane, adding a critical cross-channel campaign management solution to the Adobe Marketing Cloud, which will further extend our leadership position in digital marketing."

"Our customers are overwhelmingly choosing subscriptions instead of perpetual model licenses which is accelerating our business model transition," said Mark Garrett, executive vice president and chief financial officer, Adobe. "During Q3, 41 percent of our revenue was recurring and we exited the quarter with record deferred revenue on our balance sheet. These results are building a stronger, more predictable revenue model for Adobe which will drive higher long-term growth."

Adobe to Webcast Earnings Conference Call

Adobe will webcast its third 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, growth in annualized recurring revenue and Adobe Marketing Cloud 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 fiscal year 2012, and Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2013.

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 Aug. 30, 2013, which Adobe expects to file in Sept. 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, 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 Nine Months Ended

August 30,
2013

 

August 31,
2012

August 30,
2013
 August 31,
2012
Revenue:
Products$582,178$810,457$1,902,866$2,490,000
Subscription299,346172,920778,133478,669
Services and support113,595 97,203 332,542 281,580 
Total revenue995,119 1,080,580 3,013,541 3,250,249 
 
Cost of revenue:
Products32,56427,234111,35192,976
Subscription71,65656,191200,763159,794
Services and support42,856 36,196 126,927 106,034 
Total cost of revenue147,076 119,621 439,041 358,804 
 
Gross profit848,043960,9592,574,5002,891,445
 
Operating expenses:
Research and development208,700189,145621,435547,776
Sales and marketing388,673368,5561,188,9141,113,978
General and administrative128,043110,249381,766323,533
Restructuring and other charges(791)2,37424,203(2,642)
Amortization of purchased intangibles13,064 12,331 38,295 36,374 
Total operating expenses737,689 682,655 2,254,613 2,019,019 
 
Operating income110,354278,304319,887872,426
 
Non-operating income (expense):
Interest and other income (expense), net1,7321,2174,246(2,696)
Interest expense(16,747)(17,253)(50,786)(50,720)
Investment gains (losses), net(2,079)944 (5,476)9,153 
Total non-operating income (expense), net(17,094)(15,092)(52,016)(44,263)
Income before income taxes93,260263,212267,871828,163
Provision for income taxes10,258 61,855 43,206 217,721 
Net income$83,002 $201,357 $224,665 $610,442 
Basic net income per share$0.16 $0.41 $0.45 $1.23 
Shares used to compute basic net income per share504,116 494,051 502,039 494,672 
Diluted net income per share$0.16 $0.40 $0.44 $1.22 
Shares used to compute diluted net income per share514,058 499,757 513,155 502,167 
 

Condensed Consolidated Balance Sheets

(In thousands, except par value; unaudited)

 
 August 30,
2013
 November 30,
2012
ASSETS
 
Current assets:
Cash and cash equivalents$819,085$1,425,052
Short-term investments2,344,8522,113,301
Trade receivables, net of allowances for doubtful accounts of $10,481 and $12,643, respectively522,409617,233
Deferred income taxes47,71059,537
Prepaid expenses and other current assets128,495116,237
Assets held for sale23,573  
Total current assets3,886,1244,331,360
 
Property and equipment, net659,747664,302
Goodwill4,752,3154,133,259
Purchased and other intangibles, net637,957545,036
Investment in lease receivable207,239207,239
Other assets90,774 93,327 
Total assets$10,234,156 $9,974,523 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Trade payables$71,070$49,759
Accrued expenses547,997590,140
Capital lease obligations17,46211,217
Accrued restructuring4,8419,287
Income taxes payable4,60449,886
Deferred revenue683,143 561,463 
Total current liabilities1,329,1171,271,752
 
Long-term liabilities:
Debt and capital lease obligations1,502,3691,496,938
Deferred revenue50,93258,102
Accrued restructuring7,24212,263
Income taxes payable120,525155,096
Deferred income taxes328,310265,106
Other liabilities60,902 50,084 
Total liabilities3,399,3973,309,341
 
Stockholders' equity:
Preferred stock, $0.0001 par value; 2,000 shares authorized
Common stock, $0.0001 par value6161
Additional paid-in-capital3,266,1703,038,665
Retained earnings6,878,2167,003,003
Accumulated other comprehensive income12,96630,712
Treasury stock, at cost (99,028 and 106,702 shares, respectively), net of re-issuances(3,322,654)(3,407,259)
Total stockholders' equity6,834,759 6,665,182 
Total liabilities and stockholders' equity$10,234,156 $9,974,523 
 

Condensed Consolidated Statements of Cash Flows

(In thousands; unaudited)

 
 Three Months Ended
August 30,
2013
 August 31,
2012
Cash flows from operating activities:
Net income$83,002$201,357
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion82,17574,110
Stock-based compensation expense76,09474,013
Unrealized investment (gains) losses2,825(851)
Changes in deferred revenue35,885(32,445)
Changes in other operating assets and liabilities(64,456)(52,844)
Net cash provided by operating activities215,525 263,340 
 
Cash flows from investing activities:
Purchases, sales and maturities of short-term investments, net262,478(37,426)
Purchases of property and equipment(46,798)(77,432)
Purchases of long-term investments, intangibles and other assets, net of sales(4,896)(4,362)
Acquisitions, net of cash(608,019) 
Net cash used for investing activities(397,235)(119,220)
 
Cash flows from financing activities:
Purchases of treasury stock(400,000)
Re-issuance of treasury stock162,66360,948
Proceeds from debt and capital lease obligations3,152
Repayment of debt and capital lease obligations(10,034)(2,316)
Excess tax benefits from stock-based compensation 1,172 
Net cash (used for) provided by financing activities(247,371)62,956 
Effect of exchange rate changes on cash and cash equivalents1,756 4,066 
Net (decrease) increase in cash and cash equivalents(427,325)211,142
Cash and cash equivalents at beginning of period1,246,410 951,238 
Cash and cash equivalents at end of period$ Read Full Story

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