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 |
FOR IMMEDIATE RELEASE
Adobe Reports Strong Q3 Financial Results
Revenue and Earnings Performance Driven by Record Acrobat and LiveCycle Revenue
SAN JOSE, Calif. – September 16, 2008 – Adobe Systems Incorporated (Nasdaq:ADBE) today reported financial results for its third quarter ended August 29, 2008.
In the third quarter of fiscal 2008, Adobe achieved revenue of $887.3 million, compared to $851.7 million reported for the third quarter of fiscal 2007 and $886.9 million reported in the second quarter of fiscal 2008. Adobe’s third quarter revenue target range was $855 to $885 million.
“Our strong performance in Q3 was driven by record revenue for our Acrobat and LiveCycle products, as well as the overall diversity of our business,” said Shantanu Narayen, president and chief executive officer. “We continue to execute exceptionally well against our strategy, and we look forward to the launch of our flagship Creative Suite 4 product family next week.”
Third Quarter GAAP Results
Adobe’s GAAP diluted earnings per share for the third quarter of fiscal 2008 were $0.35, based on 541.3 million weighted average shares. This compares with GAAP diluted earnings per share of $0.34 reported in the third quarter of fiscal 2007 based on 597.3 million weighted average shares, and GAAP diluted earnings per share of $0.40 reported in the second quarter of fiscal 2008 based on 542.4 million weighted average shares. Adobe’s third quarter GAAP earnings per share target range was $0.34 to $0.36.
GAAP operating income was $219.5 million in the third quarter of fiscal 2008, compared to $255.0 million in the third quarter of fiscal 2007 and $260.2 million in the second quarter of fiscal 2008. As a percent of revenue, GAAP operating income in the third quarter of fiscal 2008 was 24.7 percent, compared to 29.9 percent in the third quarter of fiscal 2007 and 29.3 percent in the second quarter of fiscal 2008.
GAAP net income was $191.6 million for the third quarter of fiscal 2008, compared to $205.2 million reported in the third quarter of fiscal 2007 and $214.9 million in the second quarter of fiscal 2008.
Third Quarter Non-GAAP Results
Non-GAAP diluted earnings per share for the third quarter of fiscal 2008 were $0.50. This compares with non-GAAP diluted earnings per share of $0.45 reported in the third quarter of fiscal 2007 and non-GAAP diluted earnings per share of $0.50 reported in the second quarter of fiscal 2008. Adobe’s third quarter non-GAAP earnings per share target range was $0.45 to $0.47.
Adobe’s non-GAAP operating income was $351.9 million in the third quarter of fiscal 2008, compared to $340.9 million in the third quarter of fiscal 2007 and $349.6 million in the second quarter of fiscal 2008. As a percent of revenue, non-GAAP operating income in the third quarter of fiscal 2008 was 39.7 percent, compared to 40.0 percent in the third quarter of fiscal 2007 and 39.4 percent in the second quarter of fiscal 2008.
Non-GAAP net income was $269.1 million for the third quarter of fiscal 2008, compared to $269.4 million in the third quarter of fiscal 2007, and $272.7 million in the second quarter of fiscal 2008.
A reconciliation between GAAP and non-GAAP results is provided at the end of this press release.
Adobe Provides Fourth Quarter Financial Targets
For the fourth quarter of fiscal 2008, Adobe announced it is targeting revenue of $925 million to $955 million. The Company also stated it is targeting an operating margin of approximately 30.5 percent on a GAAP basis, and an operating margin of approximately 39.5 percent on a non-GAAP basis.
In addition, Adobe is targeting its share count to be between 544 million and 548 million shares in the fourth quarter. The Company also is targeting GAAP and non-GAAP non-operating income to be between
2
$6 million and $7 million. Adobe’s GAAP and non-GAAP tax rates are expected to be approximately 25 percent.
These targets lead to a fourth quarter diluted earnings per share target range of $0.39 to $0.41 on a GAAP basis, and an earnings per share target range of $0.51 to $0.53 on a non-GAAP basis.
A reconciliation between these GAAP and non-GAAP financial targets is provided at the end of this press release.
Forward-Looking Statements Disclosure
This press release contains forward-looking statements, including those related to revenue, operating margin, non-operating income, tax rate, share count, earnings per share, and business momentum 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: delays in development or shipment of Adobe’s new products or major new versions of existing products, introduction of new products and business models by existing and new competitors, failure to successfully manage transitions to new business models and markets, failure to anticipate and develop new products and services in response to changes in demand for application software and software delivery, computers, printers, or other non PC-devices, adverse changes in general economic or political conditions in any of the major countries in which Adobe does business, difficulty in predicting revenue from new businesses, costs related to intellectual property acquisitions, disputes and litigation, inability to protect Adobe’s intellectual property from third-party infringers, use, disclosure or malicious attack, failure to realize the anticipated benefits of past or future acquisitions and difficulty in integrating such acquisitions, failure to manage Adobe’s sales and distribution channels effectively, disruption of Adobe’s business due to catastrophic events, risks associated with international operations, fluctuations in foreign currency exchange rates, changes in, or interpretations of, accounting principles, impairment of Adobe’s goodwill or intangible assets, unanticipated changes in, or interpretations of, tax rules and regulations, Adobe’s inability to attract and retain key personnel, impairment of Adobe’s investment portfolio due to further deterioration of the capital markets, market risks associated with Adobe’s equity investments, and interruptions or terminations in Adobe’s relationships with turnkey assemblers. For further discussion of these and other risks and uncertainties, individuals should refer to Adobe’s SEC filings.
3
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 the third quarter ended August 29, 2008, which the Company expects to file in October 2008. Adobe does not undertake an obligation to update forward-looking statements.
About Adobe Systems Incorporated
Adobe revolutionizes how the world engages with ideas and information – anytime, anywhere and through any medium. For more information, visit www.adobe.com.
###
© 2008 Adobe Systems Incorporated. All rights reserved. Adobe, Acrobat, Creative Suite, LiveCycle, 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.
4
Condensed Consolidated Statements of Income
(In thousands, except per share data; unaudited)
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| August 29, |
| August 31, |
| August 29, |
| August 31, |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Revenue: |
|
|
|
|
|
|
|
|
| ||||
Products |
| $ | 838,813 |
| $ | 813,382 |
| $ | 2,532,076 |
| $ | 2,147,149 |
|
Services and support |
| 48,444 |
| 38,304 |
| 132,512 |
| 99,521 |
| ||||
Total revenue |
| 887,257 |
| 851,686 |
| 2,664,588 |
| 2,246,670 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total cost of revenue: |
|
|
|
|
|
|
|
|
| ||||
Products |
| 84,623 |
| 69,002 |
| 202,657 |
| 193,532 |
| ||||
Services and support |
| 26,228 |
| 23,619 |
| 73,535 |
| 62,566 |
| ||||
Total cost of revenue |
| 110,851 |
| 92,621 |
| 276,192 |
| 256,098 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Gross profit |
| 776,406 |
| 759,065 |
| 2,388,396 |
| 1,990,572 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
| ||||
Research and development |
| 170,124 |
| 163,217 |
| 508,909 |
| 450,395 |
| ||||
Sales and marketing |
| 271,439 |
| 251,243 |
| 813,399 |
| 702,323 |
| ||||
General and administrative |
| 97,156 |
| 71,132 |
| 257,163 |
| 201,004 |
| ||||
Restructuring and other charges |
| 1,194 |
| 555 |
| 2,625 |
| 555 |
| ||||
Amortization of purchased intangibles and incomplete technology |
| 17,024 |
| 17,893 |
| 51,222 |
| 54,542 |
| ||||
Total operating expenses |
| 556,937 |
| 504,040 |
| 1,633,318 |
| 1,408,819 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating income |
| 219,469 |
| 255,025 |
| 755,078 |
| 581,753 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Non-operating income (expense): |
|
|
|
|
|
|
|
|
| ||||
Interest and other income, net |
| 9,338 |
| 22,733 |
| 34,778 |
| 65,866 |
| ||||
Interest expense |
| (2,390 | ) | (69 | ) | (8,027 | ) | (175 | ) | ||||
Investment gains (loss) |
| 2,097 |
| (694 | ) | 20,335 |
| 9,069 |
| ||||
Total non-operating income, net |
| 9,045 |
| 21,970 |
| 47,086 |
| 74,760 |
| ||||
Income before income taxes |
| 228,514 |
| 276,995 |
| 802,164 |
| 656,513 |
| ||||
Provision for income taxes |
| 36,906 |
| 71,752 |
| 176,267 |
| 154,914 |
| ||||
Net income |
| $ | 191,608 |
| $ | 205,243 |
| $ | 625,897 |
| $ | 501,599 |
|
Basic net income per share |
| $ | 0.36 |
| $ | 0.35 |
| $ | 1.15 |
| $ | 0.85 |
|
Shares used in computing basic net income per share |
| 531,060 |
| 583,670 |
| 542,624 |
| 587,141 |
| ||||
Diluted net income per share |
| $ | 0.35 |
| $ | 0.34 |
| $ | 1.13 |
| $ | 0.83 |
|
Shares used in computing diluted net income per share |
| 541,311 |
| 597,334 |
| 552,739 |
| 602,263 |
|
5
Condensed Consolidated Balance Sheets
(In thousands, except per share data; unaudited)
|
| August 29, |
| November 30, |
| ||
|
| 2008 |
| 2007 |
| ||
|
|
|
|
|
| ||
ASSETS |
|
|
|
|
| ||
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 1,134,263 |
| $ | 946,422 |
|
Short-term investments |
| 866,641 |
| 1,047,432 |
| ||
Trade receivables, net of allowances for doubtful accounts of $6,264 and $4,398, respectively |
| 327,970 |
| 318,145 |
| ||
Other receivables |
| 33,687 |
| 44,666 |
| ||
Deferred income taxes |
| 94,500 |
| 171,472 |
| ||
Prepaid expenses and other assets |
| 60,059 |
| 44,714 |
| ||
Total current assets |
| 2,517,120 |
| 2,572,851 |
| ||
|
|
|
|
|
| ||
Property and equipment, net |
| 317,071 |
| 289,758 |
| ||
Goodwill |
| 2,134,032 |
| 2,148,102 |
| ||
Purchased and other intangibles, net |
| 246,401 |
| 367,644 |
| ||
Investment in lease receivable |
| 207,239 |
| 207,239 |
| ||
Other assets |
| 216,887 |
| 128,085 |
| ||
|
| $ | 5,638,750 |
| $ | 5,713,679 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Trade and other payables |
| $ | 56,254 |
| $ | 66,867 |
|
Accrued expenses |
| 356,408 |
| 383,436 |
| ||
Accrued restructuring |
| 6,862 |
| 3,731 |
| ||
Income taxes payable |
| 37,546 |
| 215,058 |
| ||
Deferred revenue |
| 204,593 |
| 183,318 |
| ||
Total current liabilities |
| 661,663 |
| 852,410 |
| ||
|
|
|
|
|
| ||
Long-term liabilities: |
|
|
|
|
| ||
Debt |
| 350,000 |
| — |
| ||
Deferred revenue |
| 27,838 |
| 25,950 |
| ||
Accrued restructuring |
| 8,096 |
| 13,987 |
| ||
Income taxes payable |
| 99,636 |
| — |
| ||
Deferred income taxes |
| 96,827 |
| 148,943 |
| ||
Other liabilities |
| 23,248 |
| 22,407 |
| ||
Total liabilities |
| 1,267,308 |
| 1,063,697 |
| ||
|
|
|
|
|
| ||
Stockholders’ equity: |
|
|
|
|
| ||
Preferred stock, $0.0001 par value; 2,000 shares authorized |
| — |
| — |
| ||
Common stock, $0.0001 par value |
| 61 |
| 61 |
| ||
Additional paid-in-capital |
| 2,369,689 |
| 2,340,969 |
| ||
Retained earnings |
| 4,667,489 |
| 4,041,592 |
| ||
Accumulated other comprehensive income |
| 23,439 |
| 27,948 |
| ||
Treasury stock, at cost (69,359 and 29,425 shares, respectively), net of reissuances |
| (2,689,236 | ) | (1,760,588 | ) | ||
Total stockholders’ equity |
| 4,371,442 |
| 4,649,982 |
| ||
|
| $ | 5,638,750 |
| $ | 5,713,679 |
|
6
Condensed Consolidated Statements of Cash Flows
(In thousands; unaudited)
|
| Three Months Ended |
| ||||
|
| August 29, |
| August 31, |
| ||
Cash flows from operating activities: |
|
|
|
|
| ||
Net income |
| $ | 191,608 |
| $ | 205,243 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation, amortization and accretion |
| 62,679 |
| 81,727 |
| ||
Stock-based compensation expense, net of tax |
| 106,297 |
| 45,490 |
| ||
Net investment gains |
| (1,111 | ) | (911 | ) | ||
Changes in deferred revenue |
| 16,018 |
| (16,834 | ) | ||
Changes in operating assets and liabilities |
| (163,720 | ) | 109,959 |
| ||
|
|
|
|
|
| ||
Net cash provided by operating activities |
| 211,771 |
| 424,674 |
| ||
|
|
|
|
|
| ||
Cash flows from investing activities: |
|
|
|
|
| ||
Purchases of short-term investments, net of sales and maturities |
| (168,586 | ) | 29,356 |
| ||
Purchases of property and equipment |
| (39,810 | ) | (32,160 | ) | ||
Purchases of long term investments and other assets, net of sales |
| (56,792 | ) | (52,738 | ) | ||
Cash received from acquisitions |
| — |
| 639 |
| ||
|
|
|
|
|
| ||
Net cash used for investing activities |
| (265,188 | ) | (54,903 | ) | ||
|
|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
| ||
Purchases of treasury stock |
| (122,552 | ) | (850,044 | ) | ||
Reissuances of treasury stock |
| 138,987 |
| 122,713 |
| ||
Excess tax benefits from stock-based compensation |
| 14,306 |
| 16,974 |
| ||
|
|
|
|
|
| ||
Net cash provided by (used for) financing activities |
| 30,741 |
| (710,357 | ) | ||
|
|
|
|
|
| ||
Effect of exchange rate changes on cash and cash equivalents |
| (5,514 | ) | (1,748 | ) | ||
Net decrease in cash and cash equivalents |
| (28,190 | ) | (342,334 | ) | ||
Cash and cash equivalents at beginning of period |
| 1,162,453 |
| 901,617 |
| ||
Cash and cash equivalents at end of period |
| $ | 1,134,263 |
| $ | 559,283 |
|
7
Non-GAAP Results
(In thousands, except per share data)
The following tables show the Company’s non-GAAP results reconciled to GAAP results included in this release for the quarters ended August 29, 2008, August 31, 2007 and May 30, 2008.
|
| Three Months Ended |
| |||||||
|
| August 29, |
| August 31, |
| May 30, |
| |||
|
|
|
|
|
|
|
| |||
Operating income: |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
GAAP operating income |
| $ | 219,469 |
| $ | 255,025 |
| $ | 260,178 |
|
Stock-based compensation |
| 48,260 |
| 38,707 |
| 48,388 |
| |||
Restructuring and other charges |
| 1,194 |
| 555 |
| — |
| |||
Amortization of purchased intangibles, technology license arrangements and incomplete technology |
| 82,996 |
| 46,570 |
| 41,071 |
| |||
Non-GAAP operating income |
| $ | 351,919 |
| $ | 340,857 |
| $ | 349,637 |
|
|
|
|
|
|
|
|
| |||
Net income: |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
GAAP net income |
| $ | 191,608 |
| $ | 205,243 |
| $ | 214,910 |
|
Stock-based compensation, net of tax |
| 36,339 |
| 28,680 |
| 34,998 |
| |||
Restructuring and other charges, net of tax |
| 899 |
| 411 |
| — |
| |||
Amortization of purchased intangibles, technology license arrangements and incomplete technology, net of tax |
| 61,829 |
| 34,521 |
| 29,705 |
| |||
Resolution of an income tax audit |
| (20,712 | ) | — |
| — |
| |||
Investment (gain) loss, net of tax |
| (913 | ) | 514 |
| (6,875 | ) | |||
Non-GAAP net income |
| $ | 269,050 |
| $ | 269,369 |
| $ | 272,738 |
|
|
|
|
|
|
|
|
| |||
Diluted net income per share: |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
GAAP net income |
| $ | 0.35 |
| $ | 0.34 |
| $ | 0.40 |
|
Stock-based compensation, net of tax |
| 0.08 |
| 0.05 |
| 0.07 |
| |||
Restructuring and other charges, net of tax |
| — |
| — |
| — |
| |||
Amortization of purchased intangibles, technology license arrangements and incomplete technology, net of tax |
| 0.11 |
| 0.06 |
| 0.05 |
| |||
Resolution of an income tax audit |
| (0.04 | ) | — |
| — |
| |||
Investment gain, net of tax |
| — |
| — |
| (0.02 | ) | |||
Non-GAAP net income |
| $ | 0.50 |
| $ | 0.45 |
| $ | 0.50 |
|
|
|
|
|
|
|
|
| |||
Shares used computing diluted net income per share |
| 541,311 |
| 597,334 |
| 542,376 |
|
8
|
| Three Months |
|
|
| ||||
|
| August 29, |
| May 30, |
|
|
| ||
Operating expenses: |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| ||
GAAP operating expenses |
| $ | 556,937 |
| $ | 543,842 |
|
|
|
Stock-based compensation |
| (46,841 | ) | (47,200 | ) |
|
| ||
Restructuring and other charges |
| (1,194 | ) | — |
|
|
| ||
Amortization of purchased intangibles, technology license arrangements and incomplete technology |
| (33,802 | ) | (17,099 | ) |
|
| ||
Non-GAAP operating expenses |
| $ | 475,100 |
| $ | 479,543 |
|
|
|
|
| Three Months |
| ||||
|
| August 29, |
| August 31, |
| May 30, |
|
|
|
|
|
|
|
|
|
Operating margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating margin |
| 24.7 | % | 29.9 | % | 29.3 | % |
Stock-based compensation |
| 5.4 |
| 4.6 |
| 5.5 |
|
Restructuring and other charges |
| 0.1 |
| 0.1 |
| — |
|
Amortization of purchased intangibles, technology license arrangements and incomplete technology |
| 9.5 |
| 5.4 |
| 4.6 |
|
Non-GAAP operating margin |
| 39.7 | % | 40.0 | % | 39.4 | % |
|
| Three |
|
|
|
|
|
|
| August 29, |
|
|
|
|
|
Effective income tax rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP effective income tax rate |
| 16.2 | % |
|
|
|
|
Stock-based compensation |
| 0.1 |
|
|
|
|
|
Amortization of purchased intangibles, technology license arrangements and incomplete technology |
| 0.1 |
|
|
|
|
|
Resolution of an income tax audit |
| 8.6 |
|
|
|
|
|
Non-GAAP effective income tax rate |
| 25.0 | % |
|
|
|
|
9
Fourth Quarter Fiscal Year 2008 Non-GAAP Financial Targets
(In millions, except per share data)
The following tables show the Company’s fourth quarter fiscal year 2008 non-GAAP financial targets reconciled to GAAP financial targets included in this release.
|
| Fourth |
|
|
| |
|
|
|
|
|
| |
Operating margin: |
|
|
|
|
| |
|
|
|
|
|
|
|
GAAP operating margin |
| 30.5 | % |
|
| |
Stock-based compensation |
| 4.7 |
|
|
| |
Amortization of purchased intangibles and incomplete technology |
| 4.3 |
|
|
|
|
Non-GAAP operating margin |
| 39.5 | % |
|
|
|
| Fourth Quarter |
| ||||
|
| Low |
| High |
| ||
Diluted net income per share: |
|
|
|
|
| ||
|
|
|
|
|
| ||
GAAP net income per share |
| $ | 0.39 |
| $ | 0.41 |
|
Stock-based compensation, net of tax |
| 0.07 |
| 0.07 |
| ||
Amortization of purchased intangibles and incomplete technology, net of tax |
| 0.05 |
| 0.05 |
| ||
Non-GAAP net income per share |
| $ | 0.51 |
| $ | 0.53 |
|
|
|
|
|
|
| ||
Shares used in computing diluted net income per share |
| 548.0 |
| 544.0 |
|
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 compensation impact of SFAS 123R, restructuring and other charges, amortization of purchased intangibles, technology license arrangements and incomplete technology, investment gains and losses and the related tax impact
10
of these items, the resolution of an income tax audit, 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.
11