Adobe Reports Strong Q2 FY2013 Financial Results

Tue Jun 18, 2013 4:05pm EDT

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Adobe Reports Strong Q2 FY2013 Financial Results

Creative Cloud Subscriptions Hit 700 Thousand; Adobe Marketing Cloud Bookings Grow Over 25 Percent

Adobe Systems Incorporated (Nasdaq:ADBE) today reported financial results for its second quarter of fiscal year 2013 ended May 31, 2013.

Second Quarter Financial Highlights

  • Adobe® achieved revenue of $1.011 billion, within its targeted range of $975 million to $1.025 billion.
  • Diluted earnings per share were $0.15 on a GAAP-basis, and $0.36 on a non-GAAP basis.
  • Operating income was $111.3 million and net income was $76.5 million on a GAAP basis. Operating income was
    $247.3 million and net income was $182.9 million on a non-GAAP basis.
  • Adobe ended Q2 with 700 thousand paid Creative Cloud™ subscriptions, an increase of 221 thousand when compared to the number of subscriptions as of the end of Q1 fiscal year 2013.
  • Adobe Marketing Cloud quarterly revenue was $229.6 million, with bookings growth of greater than 25 percent.

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

Executive Quotes

“Our Q2 results reflect our leadership position in Digital Media and Digital Marketing,” said Shantanu Narayen, president and chief executive officer, Adobe. “Creative Cloud is revolutionizing the creative process, and Adobe Marketing Cloud is quickly becoming the platform of choice for the world's leading brands, advertising agencies and media companies.”

“Adoption of Creative Cloud continued to accelerate and we drove strong Adobe Marketing Cloud bookings growth in Q2,” said Mark Garrett, executive vice president and chief financial officer, Adobe.

Adobe to Webcast Earnings Conference Call

Adobe will webcast its second 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 and growth in revenue and bookings for Adobe Marketing Cloud solutions in our Digital Marketing business, 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 May 31, 2013, which Adobe expects to file in June 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 Six Months Ended

May 31,
2013

      June 1,
2012
May 31,
2013
      June 1,
2012
Revenue:
Products $ 644,899 $ 871,022 $ 1,320,688 $ 1,679,543
Subscription 254,521 159,519 478,787 305,749
Services and support 111,129   93,908   218,947   184,377  
Total revenue 1,010,549   1,124,449   2,018,422   2,169,669  
 
Cost of revenue:
Products 26,805 40,074 78,787 65,742
Subscription 66,527 54,823 129,107 103,603
Services and support 41,949   36,021   84,071   69,838  
Total cost of revenue 135,281   130,918   291,965   239,183  
 
Gross profit 875,268 993,531 1,726,457 1,930,486
 
Operating expenses:
Research and development 203,097 180,903 412,735 358,631
Sales and marketing 402,208 386,459 800,241 745,422
General and administrative 120,870 110,603 253,723 213,284
Restructuring and other charges 24,992 (2,191 ) 24,994 (5,016 )
Amortization of purchased intangibles 12,792   12,614   25,231   24,043  
Total operating expenses 763,959   688,388   1,516,924   1,336,364  
 
Operating income 111,309 305,143 209,533 594,122
 
Non-operating income (expense):
Interest and other income (expense), net 1,268 (1,128 ) 2,514 (3,913 )
Interest expense (17,205 ) (16,629 ) (34,039 ) (33,467 )
Investment gains (losses), net (4,245 ) 7,188   (3,397 ) 8,209  
Total non-operating income (expense), net (20,182 ) (10,569 ) (34,922 ) (29,171 )
Income before income taxes 91,127 294,574 174,611 564,951
Provision for income taxes 14,581   70,698   32,948   155,866  
Net income $ 76,546   $ 223,876   $ 141,663   $ 409,085  
Basic net income per share $ 0.15   $ 0.45   $ 0.28   $ 0.83  
Shares used to compute basic net income per share 503,384   495,950   500,996   494,983  
Diluted net income per share $ 0.15   $ 0.45   $ 0.28   $ 0.81  
Shares used to compute diluted net income per share 512,446   501,377   511,535   502,154  
         
 

Condensed Consolidated Balance Sheets

(In thousands, except par value; unaudited)

 
 

May 31,
2013

November 30,
2012

ASSETS
 
Current assets:
Cash and cash equivalents $ 1,246,410 $ 1,425,052
Short-term investments 2,619,298 2,113,301
Trade receivables, net of allowances for doubtful accounts of $10,908 and $12,643, respectively 470,052 617,233
Deferred income taxes 54,525 59,537
Prepaid expenses and other current assets 143,799 116,237
Assets held for sale 23,573    
Total current assets 4,557,657 4,331,360
 
Property and equipment, net 645,865 664,302
Goodwill 4,225,169 4,133,259
Purchased and other intangibles, net 551,265 545,036
Investment in lease receivable 207,239 207,239
Other assets 93,174   93,327  
Total assets $ 10,280,369   $ 9,974,523  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Trade payables $ 53,685 $ 49,759
Accrued expenses 538,402 590,140
Capital lease obligations 20,083 11,217
Accrued restructuring 6,671 9,287
Income taxes payable 7,129 49,886
Deferred revenue 638,885   561,463  
Total current liabilities 1,264,855 1,271,752
 
Long-term liabilities:
Debt and capital lease obligations 1,505,560 1,496,938
Deferred revenue 52,376 58,102
Accrued restructuring 8,790 12,263
Income taxes payable 161,937 155,096
Deferred income taxes 286,104 265,106
Other liabilities 73,445   50,084  
Total liabilities 3,353,067 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 3,189,883 3,038,665
Retained earnings 6,855,463 7,003,003
Accumulated other comprehensive income 27,461 30,712
Treasury stock, at cost (97,782 and 106,702 shares, respectively), net of re-issuances (3,145,566 ) (3,407,259 )
Total stockholders' equity 6,927,302   6,665,182  
Total liabilities and stockholders' equity $ 10,280,369   $ 9,974,523  
     
 

Condensed Consolidated Statements of Cash Flows

(In thousands; unaudited)

 
 
Three Months Ended
May 31,
2013
        June 1,
2012
Cash flows from operating activities:
Net income $ 76,546 $ 223,876
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion 80,950 77,174
Stock-based compensation expense 73,528 62,959
Write-down of assets held for sale 23,838
Unrealized investment (gains) losses 4,312 (4,235 )
Changes in deferred revenue (8,770 ) 43,814
Changes in other operating assets and liabilities 48,744   44,630  
Net cash provided by operating activities 299,148   448,218  
 
Cash flows from investing activities:
Purchases, sales and maturities of short-term investments, net (275,455 ) (106,627 )
Purchases of property and equipment (46,249 ) (60,767 )
Purchases of long-term investments, intangibles and other assets, net of sales (12,735 ) 19,195
Acquisitions, net of cash   (61 )
Net cash used for investing activities (334,439 ) (148,260 )
 
Cash flows from financing activities:
Purchases of treasury stock (200,000 ) (225,000 )
Re-issuance of treasury stock 184,655 75,871
Repayment of debt and capital lease obligations (7,297 ) (2,290 )
Excess tax benefits from stock-based compensation   2,684  
Net cash used for financing activities (22,642 ) (148,735 )
Effect of exchange rate changes on cash and cash equivalents (2,039 ) (1,248 )
Net (decrease) increase in cash and cash equivalents (59,972 ) 149,975
Cash and cash equivalents at beginning of period 1,306,382   801,263  
Cash and cash equivalents at end of period $ 1,246,410   $ 951,238  
   
 

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
May 31,
2013
      June 1,
2012
      March 1,
2013
Operating income:
 
GAAP operating income $ 111,309 $ 305,143 $ 98,224
Stock-based and deferred compensation expense 79,624 70,714 85,086
Restructuring and other charges 24,992 (2,191 ) 2
Amortization of purchased intangibles & technology license arrangements 31,359   30,704   57,377  
Non-GAAP operating income $ 247,284   $ 404,370   $ 240,689  
 
Net income:
 
GAAP net income $ 76,546 $ 223,876 $ 65,117
Stock-based and deferred compensation expense 79,624 70,714 85,086
Restructuring and other charges 24,992 (2,191 ) 2
Amortization of purchased intangibles & technology license arrangements 31,359 30,704 57,377
Investment (gains) losses 4,245 (7,188 ) (848 )
Income tax adjustments (33,915 ) (16,290 ) (28,840 )
Non-GAAP net income $ 182,851   $ 299,625   $ 177,894  
 
Diluted net income per share:
 
GAAP diluted net income per share $ 0.15 $ 0.45 $ 0.13
Stock-based and deferred compensation expense 0.16 0.14 0.17
Restructuring and other charges 0.05
Amortization of purchased intangibles & technology license arrangements 0.06 0.06 0.11
Investment (gains) losses 0.01 (0.01 )
Income tax adjustments (0.07 ) (0.04 ) (0.06 )
Non-GAAP diluted net income per share $ 0.36   $ 0.60   $ 0.35  
 
Shares used in computing diluted net income per share 512,446 501,377 507,840
         
 
Three Months

Ended

May 31,
2013
Effective income tax rate:
 
GAAP effective income tax rate 16.0 %
Stock-based and deferred compensation expense 2.5
Restructuring and other charges 1.5
Amortization of purchased intangibles & technology license arrangements 1.0  
Non-GAAP effective income tax rate 21.0 %
 
 

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. Accordingly, 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 in a manner that focuses on what Adobe believes to be its ongoing business operations. Adobe's management believes it is useful for itself and investors to review, as applicable, both GAAP information that includes the stock-based and deferred compensation expenses, restructuring and other charges, amortization of purchased intangibles and prior activity in connection with technology license agreements, investment gains and losses and the related tax impact of all of these items, income tax adjustments, the income tax effect of the non-GAAP pre-tax adjustments from the provision for income taxes, and the non-GAAP measures that exclude such information in order to assess the performance of Adobe's business and for planning and forecasting in subsequent periods. Whenever Adobe uses such a non-GAAP financial measure, it 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.

Adobe Systems Incorporated
Investor Relations
Mike Saviage, 408-536-4416
ir@adobe.com
or
Adobe Systems Incorporated
Public Relations
Jodi Sorensen, 408-536-2084
jsorensen@adobe.com