Q3 Results Include 24 Percent Year-Over-Year Revenue Growth
and Record Adobe Document Cloud Net New ARR
Adobe (Nasdaq:ADBE) today reported financial results for its
third quarter fiscal year 2019 ended Aug. 30, 2019.
Q3 FY2019 Financial Highlights
- Adobe achieved record quarterly revenue of $2.83 billion in its
third quarter of fiscal year 2019, which represents 24 percent
year-over-year growth. Diluted earnings per share was $1.61 on a
GAAP-basis, and $2.05 on a non-GAAP basis.
- Digital Media segment revenue was $1.96 billion, which
represents 22 percent year-over-year growth. Creative revenue grew
to $1.65 billion and Document Cloud achieved revenue of $307
million. Digital Media Annualized Recurring Revenue (“ARR”) grew to
$7.86 billion exiting the quarter, a quarter-over-quarter increase
of $386 million. Creative ARR grew to $6.87 billion, and Document
Cloud ARR grew to $993 million.
- Digital Experience segment revenue was $821 million,
representing 34 percent year-over-year growth.
- GAAP operating income in the third quarter was $854 million,
and non-GAAP operating income was $1.15 billion. GAAP net income
was $793 million, and non-GAAP net income was $1.01 billion.
- Cash flow from operations was $922 million.
- Remaining Performance Obligation was $8.77 billion.
- Adobe repurchased approximately 2.6 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
"Customers across every industry continue to rely on Adobe to
run their businesses, transform how they work, and bring their
creative ideas to life as reflected in our record Q3 results," said
Shantanu Narayen, president and CEO, Adobe. "We're excited for the
opportunities in front of us and confident in our ability to drive
strong top-line and bottom-line growth."
"Adobe delivered another quarter of record revenue in Q3," said
John Murphy, executive vice president and CFO, Adobe. "Highlights
include 24 percent year-over-year total revenue growth, strong
subscription revenue performance and operating margin
expansion."
Adobe Provides Fourth Quarter Fiscal Year 2019 Financial
Targets
The following table summarizes Adobe’s fourth quarter fiscal
year 2019 targets.
Adobe total Q4 fiscal year 2019
revenue
~$2.97 billion
Digital Media segment revenue
~20% year/year growth
Digital Experience segment revenue
~23% year/year growth
Net new Digital Media annualized recurring
revenue (“ARR”)
~$450 million
Tax rate
GAAP: ~11%
Non-GAAP: ~11%
Share count
~490 million shares
Earnings per share
GAAP: ~$1.68
Non-GAAP: ~$2.25
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 third 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, customer success,
revenue, operating margin, 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 Nov. 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 Aug.
30, 2019, which Adobe expects to file in Sept. 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 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.
Condensed Consolidated Statements of
Income
(In thousands, except per share data;
unaudited)
Three Months Ended
Nine Months Ended
August 30, 2019 (*)
August 31, 2018
August 30, 2019 (*)
August 31, 2018
Revenue:
Subscription
$
2,546,571
$
2,021,505
$
7,307,635
$
5,737,994
Product
157,321
149,127
480,691
471,728
Services and support
130,234
120,444
391,026
355,661
Total revenue
2,834,126
2,291,076
8,179,352
6,565,383
Cost of revenue:
Subscription
303,885
199,157
888,392
550,197
Product
9,146
11,454
30,596
35,110
Services and support
102,932
84,881
301,749
250,431
Total cost of revenue
415,963
295,492
1,220,737
835,738
Gross profit
2,418,163
1,995,584
6,958,615
5,729,645
Operating expenses:
Research and development
489,827
398,957
1,430,422
1,121,854
Sales and marketing
812,314
670,084
2,442,759
1,897,256
General and administrative
219,256
184,063
654,699
532,543
Amortization of purchased intangibles
42,954
23,874
132,546
58,169
Total operating expenses
1,564,351
1,276,978
4,660,426
3,609,822
Operating income
853,812
718,606
2,298,189
2,119,823
Non-operating income (expense):
Interest and other income (expense),
net
16,552
1,608
23,376
29,879
Interest expense
(39,529
)
(21,107
)
(120,699
)
(61,369
)
Investment gains (losses), net
3,653
2,251
46,728
6,326
Total non-operating income (expense),
net
(19,324
)
(17,248
)
(50,595
)
(25,164
)
Income before income taxes
834,488
701,358
2,247,594
2,094,659
Provision for income taxes
41,725
35,067
147,997
182,125
Net income
$
792,763
$
666,291
$
2,099,597
$
1,912,534
Basic net income per share
$
1.63
$
1.36
$
4.31
$
3.89
Shares used to compute basic net income
per share
485,848
490,025
487,145
491,336
Diluted net income per share
$
1.61
$
1.34
$
4.26
$
3.84
Shares used to compute diluted net income
per share
491,042
496,866
492,480
498,587
_________________________________________
*
Adobe adopted ASU No. 2014-09, Revenue from Contracts with
Customers, using the modified retrospective method during the first
quarter of fiscal 2019. Prior period results have not been restated
to reflect this change in accounting standards. Refer to our Form
10-Q for the third quarter of fiscal year 2019 for additional
information.
Condensed Consolidated Balance
Sheets
(In thousands, except par value;
unaudited)
August 30, 2019 (*)
November 30, 2018
ASSETS
Current assets:
Cash and cash equivalents
$
2,209,047
$
1,642,775
Short-term investments
1,441,741
1,586,187
Trade receivables, net of allowances for
doubtful accounts of $11,778 and $14,981, respectively
1,371,697
1,315,578
Prepaid expenses and other current
assets
727,611
312,499
Total current assets
5,750,096
4,857,039
Property and equipment, net
1,244,011
1,075,072
Goodwill
10,688,068
10,581,048
Purchased and other intangibles, net
1,815,625
2,069,001
Other assets
557,080
186,522
Total assets
$
20,054,880
$
18,768,682
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Trade payables
$
186,999
$
186,258
Accrued expenses
1,302,753
1,163,185
Debt
3,148,587
—
Deferred revenue
3,120,186
2,915,974
Income taxes payable
44,441
35,709
Total current liabilities
7,802,966
4,301,126
Long-term liabilities:
Debt
988,429
4,124,800
Deferred revenue
135,750
137,630
Income taxes payable
585,774
644,101
Deferred income taxes
129,401
46,702
Other liabilities
169,787
152,209
Total liabilities
9,812,107
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
6,334,612
5,685,337
Retained earnings
13,976,701
11,815,597
Accumulated other comprehensive income
(loss)
(193,949
)
(148,130
)
Treasury stock, at cost (115,931 and
113,171, respectively), net of reissuances
(9,874,652
)
(7,990,751
)
Total stockholders’ equity
10,242,773
9,362,114
Total liabilities and stockholders’
equity
$
20,054,880
$
18,768,682
_________________________________________
*
Adobe adopted ASU No. 2014-09, Revenue
from Contracts with Customers, using the modified retrospective
method during the first quarter of fiscal 2019. Prior period
results have not been restated to reflect this change in accounting
standards. Refer to our Form 10-Q for the third quarter of fiscal
year 2019 for additional information.
Condensed Consolidated Statements of
Cash Flows
(In thousands; unaudited)
Three Months Ended
August 30, 2019
August 31, 2018
Cash flows from operating activities:
Net income
$
792,763
$
666,291
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and
accretion
150,549
86,890
Stock-based compensation
195,513
159,039
Unrealized investment (gains) losses,
net
(3,478
)
(1,613
)
Changes in deferred revenue
121,862
33,525
Changes in other operating assets and
liabilities
(335,069
)
11,172
Net cash provided by operating
activities
922,140
955,304
Cash flows from investing activities:
Purchases, sales and maturities of
short-term investments, net
(39,510
)
163,229
Purchases of property and equipment
(89,125
)
(63,558
)
Purchases and sales of long-term
investments, intangibles and other assets, net
(36,196
)
(1,578
)
Acquisitions, net of cash acquired
—
(1,618,427
)
Net cash used for investing activities
(164,831
)
(1,520,334
)
Cash flows from financing activities:
Purchases of treasury stock
(750,000
)
(750,000
)
Proceeds from (cost of) Treasury Stock
reissuances, net of taxes paid related to net share settlement of
equity awards
123,036
78,656
Other financing activities, net
2,593
(317
)
Net cash used for financing activities
(624,371
)
(671,661
)
Effect of exchange rate changes on cash
and cash equivalents
(6,801
)
(4,151
)
Net increase (decrease) in cash and cash
equivalents
126,137
(1,240,842
)
Cash and cash equivalents at beginning of
period
2,082,910
2,987,986
Cash and cash equivalents at end of
period
$
2,209,047
$
1,747,144
Non-GAAP Results
(In thousands, except per share data)
The following table shows Adobe's GAAP
results reconciled to non-GAAP results included in this
release.
Three Months Ended
August 30, 2019 (*)
August 31, 2018
May 31, 2019 (*)
Operating income:
GAAP operating income
$
853,812
$
718,606
$
749,547
Stock-based and deferred compensation
expense
199,321
161,094
203,673
Amortization of purchased intangibles
100,139
44,815
96,714
Non-GAAP operating income
$
1,153,272
$
924,515
$
1,049,934
Net income:
GAAP net income
$
792,763
$
666,291
$
632,593
Stock-based and deferred compensation
expense
199,321
161,094
203,673
Amortization of purchased intangibles
100,139
44,815
96,714
Investment (gains) losses, net
(3,653
)
(2,251
)
756
Income tax adjustments
(82,607
)
(10,185
)
(33,132
)
Non-GAAP net income
$
1,005,963
$
859,764
$
900,604
Diluted net income per share:
GAAP diluted net income per share
$
1.61
$
1.34
$
1.29
Stock-based and deferred compensation
expense
0.41
0.32
0.41
Amortization of purchased intangibles
0.20
0.09
0.20
Investment (gains) losses, net
(0.01
)
—
—
Income tax adjustments
(0.16
)
(0.02
)
(0.07
)
Non-GAAP diluted net income per share
$
2.05
$
1.73
$
1.83
Shares used in computing diluted net
income per share
491,042
496,866
492,212
_________________________________________
*
Adobe adopted ASU No. 2014-09, Revenue from Contracts with
Customers, using the modified retrospective method during the first
quarter of fiscal 2019. Prior period results have not been restated
to reflect this change in accounting standards. Refer to our Form
10-Q for the third quarter of fiscal year 2019 for additional
information.
Third Quarter Fiscal
2019
Effective income tax rate:
GAAP effective income tax rate
5.0
%
Income tax adjustments
6.0
Resolution of income tax examination
2.0
Stock-based and deferred compensation
expense
(1.3
)
Amortization of purchased intangibles
(0.7
)
Non-GAAP effective income tax rate
11.0
%
Reconciliation of GAAP to Non-GAAP Financial Targets
The following table shows Adobe's fourth quarter fiscal year
2019 GAAP earnings per share target reconciled to the non-GAAP
financial target included in this release.
Fourth Quarter Fiscal
2019
Diluted net income per share:
GAAP diluted net income per share
$
1.68
Stock-based and deferred compensation
expense
0.44
Amortization of purchased intangibles
0.20
Income tax adjustments
(0.07
)
Non-GAAP diluted net income per share
$
2.25
Shares used to compute diluted net income
per share
490.0
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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version on businesswire.com: https://www.businesswire.com/news/home/20190917006017/en/
Investor Relations Contact
Mike Saviage Adobe 408-536-4416 ir@adobe.com
Public Relations Contact
Dan Berthiaume Adobe 408-536-2584 dberthia@adobe.com
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