EX-99.1 2 adbeex991q116.htm EXHIBIT 99.1 Exhibit

Exhibit 99.1
Investor Relations Contact
Mike Saviage
Adobe
408-536-4416
ir@adobe.com
Public Relations Contact
Colleen Rodriguez
Adobe
408-536-6803
corodrig@adobe.com




FOR IMMEDIATE RELEASE
Adobe Reports Record Revenue
Strong Cloud Product Adoption in Q1 FY2016 Fuels 25 Percent Year-over-year Revenue Growth

SAN JOSE, Calif. - Mar. 17, 2016 - Adobe (Nasdaq:ADBE) today reported financial results for its first quarter fiscal year 2016 ended Mar. 4, 2016.
First Quarter Financial Highlights
•
Adobe achieved record quarterly revenue of $1.38 billion, representing year-over-year growth of 25 percent.
•
Diluted earnings per share were $0.50 on a GAAP-basis, and $0.66 on a non-GAAP basis.
•
Digital Media segment revenue grew by 33 percent year-over-year to a record $932 million, with Creative revenue growing 44 percent year-over-year to a record $733 million.
•
Strong Creative Cloud adoption drove Digital Media Annualized Recurring Revenue (“ARR”) to $3.13 billion exiting the quarter, an increase of $246 million.
•
Adobe Marketing Cloud achieved strong bookings growth, and record revenue of $377 million that represents year-over-year growth of 21 percent.
•
Year-over-year operating income grew 78 percent and net income grew 200 percent on a GAAP-basis; operating income and net income both grew 48 percent on a non-GAAP basis.
•
Cash flow from operations was $498 million, and deferred revenue grew to $1.61 billion.
•
The company repurchased approximately 1.5 million shares during the quarter, returning $133 million of cash to stockholders.
A reconciliation between GAAP and non-GAAP results is provided at the end of this press release and on Adobe’s website.
Executive Quotes
“Every day, more brands, government agencies and educational institutions globally are choosing to base their digital strategies on Adobe’s content and data platforms,” said Shantanu Narayen, Adobe president and chief executive officer. “Our exceptional performance in Q1 is an indicator of the strong momentum we are seeing across our cloud businesses as we drive the experience economy.”
“We are pleased to report another record quarter with 25 percent year-over-year revenue growth. Strong Cloud adoption drove record Creative and Marketing Cloud revenue in Q1, and better-than-expected Digital Media ARR," said Mark Garrett, Adobe executive vice president and chief financial officer. “Based on our strong Q1 results and business momentum, we are increasing our annual revenue and earnings targets for the year.”




Adobe to Webcast Earnings Conference Call
Adobe will webcast its first quarter fiscal year 2016 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, financial targets 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 product adoption and innovation, momentum in our cloud businesses, revenue, profit, annualized recurring revenue, bookings, earnings per share and operating cash flow, 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 develop, market and offer products and services that meet customer requirements, introduction of new products, services and business models by competitors, failure to successfully manage transitions to new business models and markets, risks associated with the timing of revenue recognition, uncertainty in economic conditions and the financial markets, risks associated with an increased emphasis on a cloud strategy, fluctuations in subscription renewal rates, risks associated with cyber-attacks and information security, potential interruptions or delays in hosted services provided by us or third parties, 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 our fiscal year 2015 ended Nov. 27, 2015, and Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2016.
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 Mar. 4, 2016, which Adobe expects to file in Mar. 2016.
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.
###
© 2016 Adobe Systems Incorporated. All rights reserved. Adobe, the Adobe logo and Creative 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.








2


Condensed Consolidated Statements of Income
(In thousands, except per share data; unaudited)
 
Three Months Ended
 
March 4,
2016
 
February 27,
2015
Revenue:
 
 
 
Subscription
$
1,070,250

 
$
713,442

Product
201,112

 
290,774

Services and support
111,973

 
104,965

Total revenue
1,383,335

 
1,109,181

 
 
 
 
Cost of revenue:
 
 
 
Subscription
107,275

 
95,527

Product
20,299

 
19,703

Services and support
70,998

 
51,568

Total cost of revenue
198,572

 
166,798

 
 
 
 
Gross profit
1,184,763

 
942,383

 
 
 
 
Operating expenses:
 
 
 
Research and development
237,204

 
215,509

Sales and marketing
474,891

 
392,741

General and administrative
146,935

 
145,081

Restructuring and other charges
(419
)
 
1,755

Amortization of purchased intangibles
18,394

 
14,272

Total operating expenses
877,005

 
769,358

 
 
 
 
Operating income
307,758

 
173,025

 
 
 
 
Non-operating income (expense):


 
 
Interest and other income (expense), net
4,187

 
3,338

Interest expense
(18,469
)
 
(14,545
)
Investment gains (losses), net
(1,169
)
 
1,430

Total non-operating income (expense), net
(15,451
)
 
(9,777
)
Income before income taxes
292,307

 
163,248

Provision for income taxes
38,000

 
78,360

Net income
$
254,307

 
$
84,888

Basic net income per share
$
0.51

 
$
0.17

Shares used to compute basic net income per share
499,125

 
498,754

Diluted net income per share
$
0.50

 
$
0.17

Shares used to compute diluted net income per share
505,676

 
507,526


3


Condensed Consolidated Balance Sheets
(In thousands, except par value; unaudited)
 
March 4,
2016
 
November 27,
2015
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
830,696

 
$
876,560

Short-term investments
3,267,192

 
3,111,524

Trade receivables, net of allowances for doubtful accounts of $5,359 and $7,293, respectively
599,207

 
672,006

Prepaid expenses and other current assets
238,295

 
161,802

Total current assets
4,935,390

 
4,821,892

 
 
 
 
Property and equipment, net
794,876

 
787,421

Goodwill
5,389,000

 
5,366,881

Purchased and other intangibles, net
518,686

 
510,007

Investment in lease receivable
80,439

 
80,439

Other assets
178,291

 
159,832

Total assets
$
11,896,682

 
$
11,726,472

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
Trade payables
$
71,706

 
$
93,307

Accrued expenses
591,821

 
679,884

Income taxes payable
4,458

 
6,165

Deferred revenue
1,563,821

 
1,434,200

Total current liabilities
2,231,806

 
2,213,556

 
 
 
 
Long-term liabilities:
 
 
 
Debt
1,916,831

 
1,907,231

Deferred revenue
44,839

 
51,094

Income taxes payable
261,305

 
256,129

Deferred income taxes
265,748

 
208,209

Other liabilities
94,951

 
88,673

Total liabilities
4,815,480

 
4,724,892

 
 
 
 
Stockholders' equity:
 
 
 
Preferred stock, $0.0001 par value; 2,000 shares authorized
—

 
—

Common stock, $0.0001 par value
61

 
61

Additional paid-in-capital
4,292,486

 
4,184,883

Retained earnings
7,221,083

 
7,253,431

Accumulated other comprehensive income (loss)
(151,679
)
 
(169,080
)
Treasury stock, at cost (100,141 and 103,025 shares, respectively), net of reissuances
(4,280,749
)
 
(4,267,715
)
Total stockholders' equity
7,081,202

 
7,001,580

Total liabilities and stockholders' equity
$
11,896,682

 
$
11,726,472



4


Condensed Consolidated Statements of Cash Flows
(In thousands; unaudited)
 
Three Months Ended
 
March 4,
2016
 
February 27,
2015
Cash flows from operating activities:
 
 
 
Net income
$
254,307

 
$
84,888

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion
81,200

 
79,635

Stock-based compensation expense
92,306

 
84,193

Unrealized investment (gains) losses, net
2,047

 
(9,687
)
Changes in deferred revenue
123,366

 
19,044

Changes in other operating assets and liabilities
(55,699
)
 
(75,058
)
Net cash provided by operating activities
497,527

 
183,015

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases, sales and maturities of short-term investments, net
(160,856
)
 
152,402

Purchases of property and equipment
(46,200
)
 
(35,546
)
Purchases and sales of long-term investments, intangibles and other assets, net
(51,786
)
 
(14,885
)
Acquisitions, net of cash
—

 
(800,342
)
Net cash used for investing activities
(258,842
)
 
(698,371
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Purchases of treasury stock
(150,000
)
 
(200,000
)
Cost of issuance of treasury stock, net
(149,251
)
 
(93,697
)
Proceeds from debt
—

 
989,280

Repayment of debt and capital lease obligations
—

 
(602,189
)
Debt issuance costs
—

 
(7,718
)
Excess tax benefits from stock-based compensation
14,859

 
33,599

Net cash provided by (used for) financing activities
(284,392
)
 
119,275

Effect of exchange rate changes on cash and cash equivalents
(157
)
 
(8,435
)
Net decrease in cash and cash equivalents
(45,864
)
 
(404,516
)
Cash and cash equivalents at beginning of period
876,560

 
1,117,400

Cash and cash equivalents at end of period
$
830,696

 
$
712,884


5


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 4,
2016
 
February 27,
2015
 
November 27,
2015
Operating income:
 
 
 
 
 
 
 
 
 
 
 
GAAP operating income
$
307,758

 
$
173,025

 
$
290,434

Stock-based and deferred compensation expense
91,690

 
86,597

 
81,705

Restructuring and other charges
(419
)
 
1,755

 
521

Amortization of purchased intangibles and technology license
arrangements
36,264

 
33,791

 
37,678

Non-GAAP operating income
$
435,293

 
$
295,168

 
$
410,338

 
 
 
 
 
 
Net income:
 
 
 
 
 
 
 
 
 
 
 
GAAP net income
$
254,307

 
$
84,888

 
$
222,705

Stock-based and deferred compensation expense
91,690

 
86,597

 
81,705

Restructuring and other charges
(419
)
 
1,755

 
521

Amortization of purchased intangibles and technology license
arrangements
36,264

 
33,791

 
37,678

Investment (gains) losses, net
1,169

 
(1,430
)
 
(622
)
Gain on sale of property assets
—

 
—

 
(21,415
)
Income tax adjustments
(50,403
)
 
18,728

 
(8,674
)
Non-GAAP net income
$
332,608

 
$
224,329

 
$
311,898

 
 
 
 
 
 
Diluted net income per share:
 
 
 
 
 
 
 
 
 
 
 
GAAP diluted net income per share
$
0.50

 
$
0.17

 
$
0.44

Stock-based and deferred compensation expense
0.18

 
0.17

 
0.16

Amortization of purchased intangibles and technology license
arrangements
0.07

 
0.07

 
0.07

Gain on sale of property assets
—

 
—

 
(0.04
)
Income tax adjustments
(0.09
)
 
0.03

 
(0.01
)
Non-GAAP diluted net income per share
$
0.66

 
$
0.44

 
$
0.62

 
 
 
 
 
 
Shares used in computing diluted net income per share
505,676

 
507,526

 
506,012






6


Non-GAAP Results (continued)


 
Three Months
Ended
 
March 4,
2016
Effective income tax rate:
 
 
 
GAAP effective income tax rate
13.0
 %
Stock-based and deferred compensation expense
(2.1
)%
Amortization of purchased intangibles and technology license arrangements
(0.9
)%
Retroactive reinstatement of 2015 R&D tax credit
9.0
 %
Resolution of income tax examinations
2.0
 %
Non-GAAP effective income tax rate
21.0
 %


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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