Adobe Updates Earnings Targets Due to Tax Law

 

SAN JOSE — Adobe is updating its financial targets to include expected financial impacts of the Tax Cuts and Jobs Act (the “Tax Act”), which was enacted into law during its first quarter of fiscal year 2018.

Among other provisions, the Tax Act reduces the U.S. corporate income tax rate from 35 percent to 21 percent and imposes a 15.5 percent tax on accumulated foreign earnings effective Jan. 1, 2018. Given Adobe’s fiscal year 2018 began Dec. 2, 2017, the company will have a partial-year impact due to these changes.

Adobe expects its fiscal year 2018 GAAP and non-GAAP effective tax rates will decline substantially from rates in fiscal year 2017, as shown in the table below. The company also expects fiscal year 2019 GAAP and non-GAAP effective tax rates to stabilize at a rate of approximately 18 percent, below its fiscal year 2017 rate of approximately 21 percent.

“The new Tax Act is lowering Adobe’s effective tax rates, driving a significant increase in our earnings per share targets,” said Mark Garrett, executive vice president and CFO, Adobe. “With ready access to our offshore cash, we will continue to evaluate investment opportunities to grow our business and we are actively expanding our campuses in the Bay Area and Utah to accommodate the growth of our employee base.”

As of the end of its fiscal year 2017, Adobe had approximately $5.8 billion of cash and cash equivalents on its balance sheet, the majority of which was held offshore. Adobe estimates its accumulated foreign earnings tax obligation related to this will be offset against the company’s previous accrual for the repatriation of prior year foreign earnings.

Adobe reaffirmed its financial targets including revenue, annualized recurring revenue (“ARR”) and bookings targets as applicable for both the first quarter and for fiscal year 2018. Based on financial impacts of the Tax Act, Adobe stated it is adjusting its earnings targets as follows:

  • In fiscal year 2018, Adobe expects to achieve diluted earnings per share of approximately $4.72 on a GAAP-basis, and $6.20 on a non-GAAP basis. The company’s prior targets were approximately $4.40 on a GAAP-basis, and $5.50 on a non-GAAP basis.
  • In the first quarter of fiscal year 2018, Adobe expects to achieve diluted earnings per share of approximately $1.05 on a GAAP-basis, and $1.43 on a non-GAAP basis. The company’s prior targets were approximately $1.15 on a GAAP-basis, and $1.27 on a non-GAAP basis.

The company’s updated financial targets are summarized in tables below, and replace targets provided in December 2017.

Fiscal Year 2018 Annual Targets
Adobe total revenue ~$8.725 billion
Digital Media segment revenue ~23% year-over-year growth
Adobe Experience Cloud subscription revenue1 ~20% year-over-year growth
Adobe Experience Cloud total revenue ~15% year-over-year growth
Earnings per share GAAP: ~$4.72 Non-GAAP: ~$6.20
Net new Digital Media annualized recurring revenue (“ARR”) ~$1.1 billion
Adobe Experience Cloud subscription bookings2 ~20% year-over-year growth
1 Includes revenue from SaaS, managed service and term offerings for Adobe Analytics Cloud and Adobe Marketing Cloud, as well as total revenue for Adobe Advertising Cloud
2 Includes annualized subscription value of SaaS, managed service and term offerings under contract for Adobe Analytics Cloud and Adobe Marketing Cloud

During fiscal year 2018, Adobe expects quarterly revenue, earnings per share and Digital Media ARR results to follow similar seasonality as was achieved in fiscal year 2017.

First Quarter Fiscal Year 2018 Targets
Adobe total revenue ~$2.040 billion
Digital Media segment revenue ~25% year-over-year growth
Adobe Experience Cloud total revenue ~15% year-over-year growth
Net non-operating other expense ~$6 million
Effective tax rate GAAP: ~17% Non-GAAP: ~11%
Share count ~500 million shares
Earnings per share GAAP: ~$1.05 Non-GAAP: ~$1.43
Net new Digital Media annualized recurring revenue (“ARR”) ~$275 million

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