Exhibit 99.1
Investor Relations Contact:
Mike Saviage
Adobe Systems Incorporated
408-536-4416
ir@adobe.com
Public Relations Contact:
Holly Campbell
Adobe Systems Incorporated
408-536-6401
campbell@adobe.com
Adobe Systems Reports Strong Q3 Financial Results
Creative Suite and Acrobat Adoption Drive 21 Percent Year-Over-Year Revenue Growth
SAN JOSE, Calif. — September 15, 2005 — Adobe Systems Incorporated (Nasdaq:ADBE) today reported financial results for its third quarter ended September 2, 2005.
In the third quarter of fiscal 2005, Adobe achieved revenue of $487.0 million, compared to $403.7 million reported for the third quarter of fiscal 2004, and $496.0 million reported in the second quarter of fiscal 2005. On a year-over-year basis, this represents 21 percent revenue growth. Adobe’s third quarter revenue target range was $470 to $490 million.
“Solid execution drove another outstanding quarter of double digit growth in Q3,” said Bruce Chizen, Adobe chief executive officer. “These results reflect the overall strength of our business which, when combined with our pending acquisition of Macromedia, will position us for even greater success in the future.”
GAAP diluted earnings per share for the third quarter of fiscal 2005 were $0.29. Non-GAAP diluted earnings per share, which excludes investment losses, also were $0.29.
GAAP net income was $144.9 million for the third quarter of fiscal 2005, compared to $104.5 million reported in the third quarter of fiscal 2004, and $149.8 million in the second quarter of fiscal 2005. Non-GAAP net income, which excludes, as applicable, the net tax impact of the planned repatriation of certain foreign earnings, and investment losses, was $146.4 million for the third quarter of fiscal 2005, compared to $105.6 million in the third quarter of fiscal 2004, and $142.9 million in the second quarter of fiscal 2005.
GAAP diluted earnings per share for the third quarter of fiscal 2005 were $0.29 based on 507.8 million weighted average shares. This compares with GAAP diluted earnings per share of $0.21 reported in the third quarter of fiscal 2004, based on 494.2 million weighted average shares, and GAAP diluted earnings per share of $0.29 reported in the second quarter of fiscal 2005, based on 508.2 million weighted average shares.
Adobe’s GAAP and non-GAAP operating income was $183.6 million in the third quarter of fiscal 2005, compared to $140.3 million in the third quarter of fiscal 2004 and $182.2 million in the second quarter of fiscal 2005. On a year-over-year basis, this represents 31 percent GAAP and non-GAAP operating income growth. As a percent of revenue, GAAP and non-GAAP operating income in the third quarter of fiscal 2005 were 37.7 percent, compared to 34.8 percent in the third quarter of fiscal 2004 and 36.7 percent in the second quarter of fiscal 2005.
Adobe Gives Update on Status of Macromedia Acquisition
On August 24, 2005, Adobe and Macromedia stockholders overwhelmingly voted in favor of Adobe’s proposed acquisition of Macromedia. Adobe commented today that the integration planning process between the two companies continues to go well, and anticipates the transaction will close in Fall 2005, subject to appropriate regulatory approvals and the satisfaction of other closing conditions.
Adobe is maintaining a Website as an ongoing source of information regarding the Macromedia acquisition at http://www.adobe.com/aboutadobe/invrelations/adobeandmacromedia.html.
Adobe Provides Fourth Quarter Financial Targets
For the fourth quarter of fiscal 2005, Adobe announced it is targeting revenue of $490 million to $510 million, which represents approximately 14 to 19 percent year-over-year growth. The Company also is targeting gross margin of approximately 94 percent, and GAAP and non-GAAP operating margin ranges of approximately 35 to 36 percent.
As a percent of revenue, Adobe is targeting fourth quarter expenses as follows:
Research & Development – approximately 20 percent
Sales & Marketing – approximately 29 to 30 percent
General & Administrative – approximately 9 percent
In addition, Adobe is targeting its share count range to be between 509 million and 511 million shares in the fourth quarter of fiscal 2005. The Company also is targeting other income in its fourth quarter to be approximately $11 million to $12 million, and a tax rate of 25 percent. These targets lead to fourth quarter GAAP and non-GAAP earnings per share target ranges of $0.27 to $0.29.
Adobe currently believes targeted non-GAAP earnings per share and non-GAAP operating margin results will not differ materially from targeted GAAP results.
These targets do not factor in the pending acquisition of Macromedia.
2
Forward Looking Statements Disclosure
This press release contains forward looking statements, including those related to revenue, product releases, gross margin, operating expenses, operating margin, other income, tax rate, share count, earnings per share, and timing of the Macromedia acquisition and related integration, 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: adverse changes in general economic or political conditions in any of the major countries in which Adobe does business, delays in development or shipment of the Company’s new products or major new versions of existing products, introduction of new products by existing and new competitors, failure to successfully manage transitions to new business models or markets, failure to anticipate and develop new products in response to changes in demand for application software, computers and printers, intellectual property disputes and litigation, failure to realize the anticipated benefits of past or future acquisitions and difficulty in integrating such acquisitions, changes to the Company’s distribution channel, the impact of malicious code, such as worms and viruses, on the Company’s computer network and applications, interruptions or terminations in the Company’s relationships with turnkey assemblers, risks associated with international operations, fluctuations in foreign currency exchange rates, changes in accounting rules and regulations, unanticipated changes in tax rates, market risks associated with the Company’s equity investments, and the Company’s inability to attract and retain key personnel. For further discussion of these and other risks and uncertainties, individuals should refer to the Company’s SEC filings, including the 2004 annual report on Form 10-K and quarterly reports on Form 10-Q filed in 2005. The Company does not undertake an obligation to update forward looking statements.
About Adobe Systems Incorporated
Adobe is the world’s leading provider of software solutions to create, manage and deliver high-impact, reliable digital content. For more information, visit www.adobe.com.
###
© 2005 Adobe Systems Incorporated. All rights reserved. Adobe, Adobe Creative Suite, Adobe Acrobat, and the Adobe logo 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.
3
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 2, 2005 |
| September 3, 2004 |
| September 2, 2005 |
| September 3, 2004 |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
| ||||
Products |
| $ | 476, 054 |
| $ | 395,450 |
| $ | 1,424,821 |
| $ | 1,213,755 |
|
Services and support |
| 10,985 |
| 8,263 |
| 31,129 |
| 23,324 |
| ||||
Total revenue |
| 487,039 |
| 403,713 |
| 1,455,950 |
| 1,237,079 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total cost of revenue: |
|
|
|
|
|
|
|
|
| ||||
Products |
| 21,593 |
| 19,035 |
| 65,222 |
| 62,685 |
| ||||
Services and support |
| 5,887 |
| 4,534 |
| 16,661 |
| 12,321 |
| ||||
Total cost of revenue |
| 27,480 |
| 23,569 |
| 81,883 |
| 75,006 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Gross profit |
| 459,559 |
| 380,144 |
| 1,374,067 |
| 1,162,073 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating Expenses: |
|
|
|
|
|
|
|
|
| ||||
Research and development |
| 94,586 |
| 80,072 |
| 270,681 |
| 231,196 |
| ||||
Sales and marketing |
| 143,748 |
| 122,939 |
| 446,094 |
| 380,854 |
| ||||
General and administrative |
| 37,637 |
| 36,819 |
| 120,788 |
| 104,608 |
| ||||
Total operating expenses |
| 275,971 |
| 239,830 |
| 837,563 |
| 716,658 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating income |
| 183,588 |
| 140,314 |
| 536,504 |
| 445,415 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Non-operating income: |
|
|
|
|
|
|
|
|
| ||||
Investment loss, net |
| (2,044 | ) | (1,494 | ) | (6,299 | ) | (1,652 | ) | ||||
Interest and other income |
| 12,420 |
| 2,343 |
| 28,352 |
| 11,502 |
| ||||
Total non-operating income |
| 10,376 |
| 849 |
| 22,053 |
| 9,850 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income before income taxes |
| 193,964 |
| 141,163 |
| 558,557 |
| 455,265 |
| ||||
Provision for income taxes |
| 49,048 |
| 36,702 |
| 111,969 |
| 118,368 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 144,916 |
| $ | 104,461 |
| $ | 446,588 |
| $ | 336,897 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic net income per share |
| $ | 0.29 |
| $ | 0.22 |
| $ | 0.91 |
| $ | 0.71 |
|
|
|
|
|
|
|
|
|
|
| ||||
Shares used in computing basic net income per share |
| 491,710 |
| 476,942 |
| 489,017 |
| 476,982 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Diluted net income per share |
| $ | 0.29 |
| $ | 0.21 |
| $ | 0.88 |
| $ | 0.68 |
|
|
|
|
|
|
|
|
|
|
| ||||
Shares used in computing diluted net income per share |
| 507,821 |
| 494,226 |
| 507,860 |
| 493,498 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Cash dividends declared per share |
| $ | — |
| $ | 0.00625 |
| $ | 0.00625 |
| $ | 0.01875 |
|
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
|
| September 2, 2005 |
| December 3, 2004 |
| ||
|
|
|
|
|
| ||
ASSETS |
|
|
|
|
| ||
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 454,168 |
| $ | 259,061 |
|
Short-term investments |
| 1,438,617 |
| 1,054,160 |
| ||
Trade receivables, net |
| 157,236 |
| 141,945 |
| ||
Other receivables |
| 39,889 |
| 25,495 |
| ||
Deferred income taxes |
| 55,018 |
| 51,751 |
| ||
Prepaid expenses and other current assets |
| 35,751 |
| 18,617 |
| ||
|
|
|
|
|
| ||
Total current assets |
| 2,180,679 |
| 1,551,029 |
| ||
|
|
|
|
|
| ||
Property and equipment, net |
| 103,663 |
| 99,675 |
| ||
Goodwill |
| 118,683 |
| 110,287 |
| ||
Purchased and other intangibles, net |
| 16,804 |
| 15,513 |
| ||
Investment in lease receivable |
| 126,800 |
| 126,800 |
| ||
Other assets |
| 58,966 |
| 55,328 |
| ||
|
|
|
|
|
| ||
Total assets |
| $ | 2,605,595 |
| $ | 1,958,632 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Trade and other payables |
| $ | 37,428 |
| $ | 43,192 |
|
Accrued expenses |
| 207,355 |
| 202,762 |
| ||
Income taxes payable |
| 174,292 |
| 145,913 |
| ||
Deferred revenue |
| 60,010 |
| 59,541 |
| ||
|
|
|
|
|
| ||
Total current liabilities |
| 479,085 |
| 451,408 |
| ||
|
|
|
|
|
| ||
Other long-term liabilities |
| 4,476 |
| 4,838 |
| ||
Deferred income taxes |
| 41,883 |
| 78,909 |
| ||
|
|
|
|
|
| ||
Stockholders’ equity: |
|
|
|
|
| ||
Common stock, $0.0001 par value |
| 29,600 |
| 29,576 |
| ||
Additional paid-in-capital |
| 1,290,905 |
| 1,164,643 |
| ||
Retained earnings |
| 2,682,315 |
| 2,238,807 |
| ||
Accumulated other comprehensive loss |
| (2,811 | ) | (2,289 | ) | ||
Treasury stock at cost, net of re-issuances |
| (1,919,858 | ) | (2,007,260 | ) | ||
|
|
|
|
|
| ||
Total stockholders’ equity |
| 2,080,151 |
| 1,423,477 |
| ||
|
|
|
|
|
| ||
Total liabilities and stockholders’ equity |
| $ | 2,605,595 |
| $ | 1,958,632 |
|
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
| Three Months Ended |
| ||||
|
| September 2, 2005 |
| September 3, 2004 |
| ||
Cash flows from operating activities: |
|
|
|
|
| ||
Net income |
| $ | 144,916 |
| $ | 104,461 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
| 17,800 |
| 14,828 |
| ||
Stock compensation expense |
| 110 |
| 47 |
| ||
Deferred income taxes |
| 15,156 |
| 10,243 |
| ||
Provision for (recovery of) losses on receivables |
| (449 | ) | 190 |
| ||
Tax benefit from employee stock option plans |
| 16,260 |
| 11,545 |
| ||
Net losses on sales and impairments of investments |
| 2,061 |
| 2,043 |
| ||
Retirements of property and equipment |
| 1,041 |
| — |
| ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Receivables |
| 11,963 |
| 6,254 |
| ||
Other current assets |
| 2,961 |
| 1,006 |
| ||
Trade and other payables |
| (1,289 | ) | 3,528 |
| ||
Accrued expenses |
| (8,433 | ) | (18,510 | ) | ||
Income taxes payable |
| (28,127 | ) | 22,443 |
| ||
Deferred revenue |
| (1,023 | ) | 2,368 |
| ||
|
|
|
|
|
| ||
Net cash provided by operating activities |
| 172,947 |
| 160,446 |
| ||
|
|
|
|
|
| ||
Cash flows from investing activities: |
|
|
|
|
| ||
Purchases of short-term investments |
| (441,279 | ) | (518,914 | ) | ||
Maturities of short-term investments |
| 115,445 |
| 632,087 |
| ||
Sales of short-term investments |
| 323,248 |
| 7,229 |
| ||
Acquisitions of property and equipment |
| (17,396 | ) | (14,417 | ) | ||
Purchases of long-term investments and other assets |
| (7,454 | ) | (7,954 | ) | ||
Investment in lease receivable |
| — |
| (126,800 | ) | ||
Proceeds from sale of equity securities |
| 1,084 |
| — |
| ||
|
|
|
|
|
| ||
Net cash used for investing activities |
| (26,352 | ) | (28,769 | ) | ||
|
|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
| ||
Purchases of treasury stock |
| (46 | ) | (222,683 | ) | ||
Proceeds from issuance of treasury stock |
| 52,344 |
| 69,247 |
| ||
Payment of dividends |
| — |
| (2,991 | ) | ||
|
|
|
|
|
| ||
Net cash provided by (used for) financing activities |
| 52,298 |
| (156,427 | ) | ||
|
|
|
|
|
| ||
Effect of foreign currency exchange rates on cash and cash equivalents |
| 1,973 |
| (13 | ) | ||
|
|
|
|
|
| ||
Net increase (decrease) in cash and cash equivalents |
| 200,866 |
| (24,763 | ) | ||
|
|
|
|
|
| ||
Cash and cash equivalents at beginning of period |
| 253,302 |
| 169,164 |
| ||
|
|
|
|
|
| ||
Cash and cash equivalents at end of period |
| $ | 454,168 |
| $ | 144,401 |
|
Non-GAAP Results
(In thousands, except per share data)
The following table shows Adobe’s non-GAAP results reconciled to GAAP results included in this release.
|
| Three Months Ended |
| |||||||
|
| September 2, 2005 |
| September 3, 2004 |
| June 3, 2005 |
| |||
|
|
|
|
|
|
|
| |||
GAAP net income |
| 144,916 |
| $ | 104,461 |
| $ | 149,778 |
| |
Investment loss, net of tax |
| 1,527 |
| 1,106 |
| 2,035 |
| |||
Net tax impact on foreign earnings repatriation |
| — |
| — |
| (8,931 | ) | |||
Non-GAAP net income |
| $ | 146,443 |
| $ | 105,567 |
| $ | 142,882 |
|
|
|
|
|
|
|
|
| |||
Diluted net income per share: |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
GAAP net income |
| $ | 0.29 |
| $ | 0.21 |
| $ | 0.29 |
|
Investment loss, net of tax |
| 0.00 |
| 0.00 |
| 0.01 |
| |||
Net tax impact on foreign earnings repatriation |
| — |
| — |
| (0.02 | ) | |||
Non-GAAP net income |
| $ | 0.29 |
| $ | 0.21 |
| $ | 0.28 |
|
|
|
|
|
|
|
|
| |||
Shares used in computing diluted net income per share |
| 507,821 |
| 494,226 |
| 508,156 |
|
Adobe continues to provide all information required in accordance with GAAP, but it believes that 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 both GAAP information that includes the investment gains and losses and the net tax impact of the planned repatriation of certain foreign earnings discussed below, 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.
In accordance with GAAP, Adobe incurs investment gains and losses from its venture program. These charges are otherwise unrelated to Adobe’s ongoing business operations and are excluded from its non-GAAP financial information.
Also, in accordance with GAAP, Adobe included the net tax impact of the planned repatriation of certain foreign earnings. This tax impact is not indicative of Adobe’s ongoing business operations and thus is excluded from its non-GAAP financial information.