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Adobe Reports Strong Q1 Results

Stocks in this article: ADBE

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.

© 2013 Adobe Systems Incorporated. All rights reserved. Adobe, the Adobe logo, Adobe Creative Cloud and Adobe Marketing 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.

Condensed Consolidated Statements of Income

(In thousands, except per share data; unaudited)

 
 
Three Months Ended
March 1, 2013   March 2, 2012
Revenue:
Products $ 675,789 $ 808,521
Subscription 224,266 146,230
Services and support 107,818   90,469  
Total revenue 1,007,873   1,045,220  
 
Cost of revenue:
Products 51,982 25,668
Subscription 62,580 48,780
Services and support 42,122   33,817  
Total cost of revenue 156,684   108,265  
 
Gross profit 851,189 936,955
 
Operating expenses:
Research and development 209,638 177,728
Sales and marketing 398,033 358,963
General and administrative 132,853 102,681
Restructuring charges 2 (2,825 )
Amortization of purchased intangibles 12,439   11,429  
Total operating expenses 752,965   647,976  
 
Operating income 98,224 288,979
 
Non-operating income (expense):
Interest and other income (expense), net 1,246 (2,785 )
Interest expense (16,834 ) (16,838 )
Investment gains (losses), net 848   1,021  
Total non-operating income (expense), net (14,740 ) (18,602 )
Income before income taxes 83,484 270,377
Provision for income taxes 18,367   85,168  
Net income $ 65,117   $ 185,209  
Basic net income per share $ 0.13   $ 0.37  
Shares used to compute basic net income per share 498,607   494,016  
Diluted net income per share $ 0.13   $ 0.37  
Shares used to compute diluted net income per share 507,840   500,378  
 

Condensed Consolidated Balance Sheets

(In thousands, except par value; unaudited)

   
 
March 1, 2013

November 30, 2012

ASSETS
 
Current assets:
Cash and cash equivalents $ 1,306,382 $ 1,425,052
Short-term investments 2,354,307 2,113,301
Trade receivables, net of allowances for doubtful accounts of $12,715 and $12,643, respectively 485,801 617,233
Deferred income taxes 64,930 59,537
Prepaid expenses and other current assets 161,663   116,237  
Total current assets 4,373,083 4,331,360
 
Property and equipment, net 686,014 664,302
Goodwill 4,221,487 4,133,259
Purchased and other intangibles, net 580,568 545,036
Investment in lease receivable 207,239 207,239
Other assets 97,320   93,327  
Total assets $ 10,165,711   $ 9,974,523  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Trade payables $ 72,725 $ 49,759
Accrued expenses 505,465 590,140
Capital lease obligations 22,406 11,217
Accrued restructuring 6,767 9,287
Income taxes payable 11,126 49,886
Deferred revenue 645,834   561,463  
Total current liabilities 1,264,323 1,271,752
 
Long-term liabilities:
Debt and capital lease obligations 1,509,003 1,496,938
Deferred revenue 54,197 58,102
Accrued restructuring 10,053 12,263
Income taxes payable 159,859 155,096
Deferred income taxes 292,770 265,106
Other liabilities 70,168   50,084  
Total liabilities 3,360,373 3,309,341
 
Stockholders' equity:
Preferred stock, $0.0001 par value; 2,000 shares authorized
Common stock, $0.0001 par value 61 61
Additional paid-in-capital 3,116,471 3,038,665
Retained earnings 6,808,489 7,003,003
Accumulated other comprehensive income 40,110 30,712
Treasury stock, at cost (99,789 and 106,702 shares, respectively), net of re-issuances (3,159,793 ) (3,407,259 )
Total stockholders' equity 6,805,338   6,665,182  
Total liabilities and stockholders' equity $ 10,165,711   $ 9,974,523  
 

Condensed Consolidated Statements of Cash Flows

(In thousands; unaudited)

 
 
Three Months Ended
March 1, 2013   March 2, 2012
Cash flows from operating activities:
Net income $ 65,117 $ 185,209
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion 76,752 69,861
Stock-based compensation expense 77,282 61,151
Unrealized investment (gains) losses (418 ) (3,168 )
Changes in deferred revenue 79,514 16,739
Changes in other operating assets and liabilities 23,784   (15,429 )
Net cash provided by operating activities 322,031   314,363  
 
Cash flows from investing activities:
Purchases, sales and maturities of short-term investments, net (245,775 ) (32,418 )
Purchases of property and equipment (60,190 ) (51,088 )
Purchases of long-term investments, intangibles and other assets, net of sales (43,793 ) (1,017 )
Acquisitions, net of cash (96,356 ) (353,184 )
Net cash used for investing activities (446,114 ) (437,707 )
 
Cash flows from financing activities:
Purchases of treasury stock (100,000 ) (80,000 )
Re-issuance of treasury stock 88,566 13,366
Proceeds from debt and capital lease obligations 25,703
Repayment of debt and capital lease obligations (2,507 ) (2,264 )
Debt issuance costs (357 ) (2,297 )
Excess tax benefits from stock-based compensation   2,670  
Net cash provided by (used for) financing activities 11,405   (68,525 )
Effect of exchange rate changes on cash and cash equivalents (5,992 ) 3,632  
Net decrease in cash and cash equivalents (118,670 ) (188,237 )
Cash and cash equivalents at beginning of period 1,425,052   989,500  
Cash and cash equivalents at end of period $ 1,306,382   $ 801,263  
 

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 1, 2013   March 2, 2012  

November 30, 2012

Operating income:
 
GAAP operating income $ 98,224 $ 288,979 $ 307,765
Stock-based and deferred compensation expense 85,086 72,633 76,248
Restructuring charges 2 (2,825 ) (275 )
Amortization of purchased intangibles & technology license arrangements 57,377   27,864   30,912  
Non-GAAP operating income $ 240,689   $ 386,651   $ 414,650  
 
Net income:
 
GAAP net income $ 65,117 $ 185,209 $ 222,333
Stock-based and deferred compensation expense 85,086 72,633 76,248
Restructuring charges 2 (2,825 ) (275 )
Amortization of purchased intangibles & technology license arrangements 57,377 27,864 30,912
Investment (gains) losses (848 ) (1,021 ) (351 )
Income tax adjustments (28,840 ) 2,647   (20,962 )
Non-GAAP net income $ 177,894   $ 284,507   $ 307,905  
 
Diluted net income per share:
 
GAAP diluted net income per share $ 0.13 $ 0.37 $ 0.44
Stock-based and deferred compensation expense 0.17 0.15 0.15
Restructuring charges (0.01 )
Amortization of purchased intangibles & technology license arrangements 0.11 0.06 0.06
Income tax adjustments (0.06 )   (0.04 )
Non-GAAP diluted net income per share $ 0.35   $ 0.57   $ 0.61  
 
Shares used in computing diluted net income per share 507,840 500,378 502,154
 
  Three Months

Ended

March 1, 2013
Effective income tax rate:
 
GAAP effective income tax rate 22.0 %
Stock-based and deferred compensation expense (0.6 )
Amortization of purchased intangibles & technology license arrangements (0.4 )
R&D tax benefit for carryover of 2012 tax benefit 0.5
One-time charge related to acquisition (0.5 )
Non-GAAP effective income tax rate 21.0 %

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. Accordingly, 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 in a manner that focuses on what Adobe believes to be its ongoing business operations. Adobe's management believes it is useful for itself and investors to review, as applicable, both GAAP information that includes the stock-based and deferred compensation expenses, restructuring charges, amortization of purchased intangibles and prior activity in connection with technology license agreements, investment gains and losses and the related tax impact of all of these items, income tax adjustments, the income tax effect of the non-GAAP pre-tax adjustments from the provision for income taxes, and the non-GAAP measures that exclude such information in order to assess the performance of Adobe's business and for planning and forecasting in subsequent periods. Whenever Adobe uses such a non-GAAP financial measure, it 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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