EX-99.1 2 adbeex991q219.htm EXHIBIT 99.1 Exhibit
Exhibit 99.1
graphica03a01a01a08.jpg
Investor Relations Contact
Mike Saviage
Adobe
408-536-4416
ir@adobe.com
Public Relations Contact
Dan Berthiaume
Adobe
408-536-2584
dberthia@adobe.com


FOR IMMEDIATE RELEASE

Adobe Reports Record Q2 Revenue
Achieves 25 Percent Year-Over-Year Growth with Strong Creative, Adobe Document Cloud and Adobe Experience Cloud Revenue

SAN JOSE, Calif. - June 18, 2019 - Adobe (Nasdaq:ADBE) today reported financial results for its second quarter fiscal year 2019 ended May 31, 2019.

Q2 FY2019 Financial Highlights
•
Adobe achieved record quarterly revenue of $2.74 billion in its second quarter of fiscal year 2019, which represents 25 percent year-over-year growth. Diluted earnings per share was $1.29 on a GAAP-basis, and $1.83 on a non-GAAP basis.
•
Digital Media segment revenue was $1.89 billion, which represents 22 percent year-over year growth. Creative revenue grew to $1.59 billion and Document Cloud achieved revenue of $296 million. Digital Media Annualized Recurring Revenue (“ARR”) grew to $7.47 billion exiting the quarter, a quarter-over-quarter increase of $406 million. Creative ARR grew to $6.55 billion, and Document Cloud ARR grew to $921 million.
•
Digital Experience segment revenue was $784 million, representing 34 percent year-over-year growth.
•
GAAP operating income in the second quarter was $750 million, and non-GAAP operating income was $1.05 billion. GAAP net income was $633 million, and non-GAAP net income was $901 million.
•
Cash flow from operations was $1.11 billion.
•
Remaining Performance Obligation was $8.37 billion.
•
Adobe repurchased approximately 2.5 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

"Adobe's continued momentum is being fueled by the explosion of creativity across the globe and the widespread business transformation agenda to deliver engaging customer experiences," said Shantanu Narayen, president and CEO, Adobe. "With an innovative technology platform, exciting product roadmap and strong ecosystem of partners, we are well positioned for the second half of FY19 and beyond.”

"Adobe delivered another record quarter in Q2," said John Murphy, executive vice president and CFO, Adobe. "Highlights include 25 percent year-over-year revenue growth, strong net new Digital Media ARR and operating cash flow of $1.11 billion."


1

Adobe Provides Third Quarter Fiscal Year 2019 Financial Targets

The following table summarizes Adobe’s third quarter fiscal year 2019 targets.

Adobe total Q3 fiscal year 2019 revenue
~$2.80 billion
     Digital Media segment revenue
~20% year/year growth
     Digital Experience segment revenue
~34% year/year growth
Net new Digital Media annualized recurring revenue (“ARR”)
~$360 million
Tax rate
GAAP: ~11%
Non-GAAP: ~11%
Share count
~491 million shares
Earnings per share
GAAP: ~$1.40
Non-GAAP: ~$1.95
 
A reconciliation between GAAP and non-GAAP targets is provided at the end of this press release.


2


Adobe to Webcast Earnings Conference Call
Adobe will webcast its second 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, market trends, customer success, revenue, operating margin, seasonality, 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 November 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 May 31, 2019, which Adobe expects to file in June 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, Adobe Experience Cloud, Creative 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.












3


Condensed Consolidated Statements of Income
(In thousands, except per share data; unaudited)
 
Three Months Ended
 
Six Months Ended
 
May 31, 2019 (*)
 
June 1, 2018
 
May 31, 2019 (*)
 
June 1, 2018
Revenue:
 
 
 
 
 
 
 
Subscription
$
2,456,097

 
$
1,923,131

 
$
4,761,064

 
$
3,716,489

Product
152,816

 
150,993

 
323,370

 
322,601

Services and support
135,367

 
121,236

 
260,792

 
235,217

Total revenue
2,744,280

 
2,195,360

 
5,345,226

 
4,274,307

 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
Subscription
296,476

 
186,355

 
584,507

 
351,040

Product
9,345

 
10,779

 
21,450

 
23,656

Services and support
101,667

 
84,210

 
198,817

 
165,550

Total cost of revenue
407,488

 
281,344

 
804,774

 
540,246

 
 
 
 
 
 
 
 
Gross profit
2,336,792

 
1,914,016

 
4,540,452

 
3,734,061

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Research and development
475,958

 
374,128

 
940,595

 
722,897

Sales and marketing
848,927

 
646,215

 
1,630,445

 
1,227,172

General and administrative
219,334

 
178,040

 
435,443

 
348,480

Amortization of purchased intangibles
43,026

 
17,149

 
89,592

 
34,295

Total operating expenses
1,587,245

 
1,215,532

 
3,096,075

 
2,332,844

 
 
 
 
 
 
 
 
Operating income
749,547

 
698,484

 
1,444,377

 
1,401,217

 
 
 
 
 
 
 
 
Non-operating income (expense):
 
 
 
 
 
 
 
Interest and other income (expense), net
2,558

 
11,599

 
6,824

 
28,271

Interest expense
(40,577
)
 
(20,363
)
 
(81,170
)
 
(40,262
)
Investment gains (losses), net
(756
)
 
1,079

 
43,075

 
4,075

Total non-operating income (expense), net
(38,775
)
 
(7,685
)
 
(31,271
)
 
(7,916
)
Income before income taxes
710,772

 
690,799

 
1,413,106

 
1,393,301

Provision for income taxes
78,179

 
27,632

 
106,272

 
147,058

Net income
$
632,593

 
$
663,167

 
$
1,306,834

 
$
1,246,243

Basic net income per share
$
1.30

 
$
1.35

 
$
2.68

 
$
2.53

Shares used to compute basic net income per share
487,535

 
491,914

 
487,795

 
491,993

Diluted net income per share
$
1.29

 
$
1.33

 
$
2.65

 
$
2.50

Shares used to compute diluted net income per share
492,212

 
498,252

 
493,200

 
499,166

_________________________________________ 
* 
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 second quarter of fiscal year 2019 for additional information.

4


Condensed Consolidated Balance Sheets
(In thousands, except par value; unaudited)
 
May 31, 2019 (*)
 
November 30, 2018
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2,082,910

 
$
1,642,775

Short-term investments
1,396,069

 
1,586,187

Trade receivables, net of allowances for doubtful accounts of $12,379 and $14,981, respectively
1,272,668

 
1,315,578

Prepaid expenses and other current assets
590,998

 
312,499

Total current assets
5,342,645

 
4,857,039

 
 
 
 
Property and equipment, net
1,205,020

 
1,075,072

Goodwill
10,697,874

 
10,581,048

Purchased and other intangibles, net
1,917,149

 
2,069,001

Other assets
503,221

 
186,522

Total assets
$
19,665,909

 
$
18,768,682

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
Trade payables
$
169,101

 
$
186,258

Accrued expenses
1,314,998

 
1,163,185

Debt
3,145,668

 
—

Income taxes payable
45,778

 
35,709

Deferred revenue
3,011,552

 
2,915,974

Total current liabilities
7,687,097

 
4,301,126

 
 
 
 
Long-term liabilities:
 
 
 
Debt
987,938

 
4,124,800

Deferred revenue
122,522

 
137,630

Income taxes payable
637,733

 
644,101

Deferred income taxes
133,886

 
46,702

Other liabilities
165,040

 
152,209

Total liabilities
9,734,216

 
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
6,050,800

 
5,685,337

Retained earnings
13,183,938

 
11,815,597

Accumulated other comprehensive income (loss)
(144,364
)
 
(148,130
)
Treasury stock, at cost (114,561 and 113,171, respectively), net of reissuances
(9,158,742
)
 
(7,990,751
)
Total stockholders’ equity
9,931,693

 
9,362,114

Total liabilities and stockholders’ equity
$
19,665,909

 
$
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 second quarter of fiscal year 2019 for additional information.

5


Condensed Consolidated Statements of Cash Flows
(In thousands; unaudited)
 
Three Months Ended
 
May 31, 2019
 
June 1, 2018
Cash flows from operating activities:
 
 
 
Net income
$
632,593

 
$
663,167

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion
145,609

 
76,360

Stock-based compensation
204,300

 
145,376

Unrealized investment (gains) losses, net
1,700

 
(573
)
Changes in deferred revenue
(84,118
)
 
62,063

Changes in other operating assets and liabilities
209,242

 
30,013

Net cash provided by operating activities
1,109,326

 
976,406

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases, sales and maturities of short-term investments, net
100,486

 
131,896

Purchases of property and equipment
(85,492
)
 
(45,316
)
Purchases and sales of long-term investments, intangibles and other assets, net
(4,921
)
 
(4,287
)
Acquisitions, net of cash acquired
—

 
(14,614
)
Net cash provided by investing activities
10,073

 
67,679

 
 
 
 
Cash flows from financing activities:
 
 
 
Purchases of treasury stock
(750,000
)
 
(700,000
)
Taxes paid related to net share settlement of equity awards, net of proceeds from treasury stock reissuances
(21,813
)
 
(16,854
)
Repayment of capital lease obligations
(288
)
 
(511
)
Net cash used for financing activities
(772,101
)
 
(717,365
)
Effect of exchange rate changes on cash and cash equivalents
(3,234
)
 
(5,715
)
Net increase in cash and cash equivalents
344,064

 
321,005

Cash and cash equivalents at beginning of period
1,738,846

 
2,666,981

Cash and cash equivalents at end of period
$
2,082,910

 
$
2,987,986





6


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
 
May 31, 2019 (*)
 
June 1, 2018
 
March 1, 2019 (*)
Operating income:
 
 
 
 
 
 
 
 
 
 
 
GAAP operating income
$
749,547

 
$
698,484

 
$
694,830

Stock-based and deferred compensation expense
203,673


146,773

 
187,115

Amortization of purchased intangibles
96,714


32,378

 
102,690

Non-GAAP operating income
$
1,049,934

 
$
877,635

 
$
984,635

 
 
 
 
 
 
Net income:
 
 
 
 
 
 
 
 
 
 
 
GAAP net income
$
632,593

 
$
663,167

 
$
674,241

Stock-based and deferred compensation expense
203,673

 
146,773

 
187,115

Amortization of purchased intangibles
96,714

 
32,378

 
102,690

Investment (gains) losses, net
756

 
(1,079
)
 
(43,831
)
Income tax adjustments
(33,132
)
 
(15,812
)
 
(76,221
)
Non-GAAP net income
$
900,604

 
$
825,427

 
$
843,994

 
 
 
 
 
 
Diluted net income per share:
 
 
 
 
 
 
 
 
 
 
 
GAAP diluted net income per share
$
1.29

 
$
1.33

 
$
1.36

Stock-based and deferred compensation expense
0.41

 
0.29

 
0.38

Amortization of purchased intangibles
0.20

 
0.06

 
0.21

Investment (gains) losses, net
—

 
—

 
(0.09
)
Income tax adjustments
(0.07
)
 
(0.02
)
 
(0.15
)
Non-GAAP diluted net income per share
$
1.83

 
$
1.66

 
$
1.71

 
 
 
 
 
 
Shares used in computing diluted net income per share
492,212

 
498,252

 
494,188


_________________________________________ 
* 
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 second quarter of fiscal year 2019 for additional information.















7


 
Reconciliation of GAAP to Non-GAAP Financial Targets

The following table shows Adobe's third quarter fiscal year 2019 GAAP earnings per share target reconciled to the non-GAAP financial target included in this release.

 
Third Quarter
Fiscal 2019
Diluted net income per share:
 
 
 
GAAP diluted net income per share
$
1.40

 
Stock-based and deferred compensation expense
 
0.42

 
Amortization of purchased intangibles
 
0.20

 
Income tax adjustments
 
(0.07
)
 
Non-GAAP diluted net income per share
$
1.95

 
 
 
Shares used to compute diluted net income per share
491.0
 
 


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.

8