Adobe Reports Record Revenue

Q3 Results Include 24 Percent Year-Over-Year Revenue Growth and Record Adobe Document Cloud Net New ARR


SAN JOSE, Calif.--(BUSINESS WIRE)--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.


Contacts

Investor Relations Contact

Mike Saviage
Adobe
408-536-4416
ir@adobe.com

Public Relations Contact

Dan Berthiaume
Adobe
408-536-2584
dberthia@adobe.com