Strong Demand Across Creative Cloud and Document Cloud Drives
Net New Digital Media ARR of $443 Million
Adobe (Nasdaq:ADBE) today reported financial results for its
second quarter fiscal year 2020 ended May 29, 2020.
Second Quarter Fiscal Year 2020 Financial Highlights
- Adobe achieved record quarterly revenue of $3.13 billion in its
second quarter of fiscal year 2020, which represents 14 percent
year-over-year growth. Diluted earnings per share was $2.27 on a
GAAP basis, and $2.45 on a non-GAAP basis.
- Digital Media segment revenue was $2.23 billion, which
represents 18 percent year-over-year growth. Creative revenue grew
to $1.87 billion and Document Cloud revenue was $360 million.
Digital Media Annualized Recurring Revenue (“ARR”) grew to $9.17
billion exiting the quarter, a quarter-over-quarter increase of
$443 million. Creative ARR grew to $7.93 billion, and Document
Cloud ARR grew to $1.24 billion.
- Digital Experience segment revenue was $826 million,
representing 5 percent year-over-year growth. Digital Experience
subscription revenue was $707 million, representing 8 percent
year-over-year growth. Digital Experience subscription revenue,
excluding Advertising Cloud revenue, grew 18 percent
year-over-year.
- GAAP operating income in the second quarter was $1.02 billion,
and non-GAAP operating income was $1.34 billion. GAAP net income
was $1.10 billion, and non-GAAP net income was $1.19 billion.
- Cash flows from operations was $1.18 billion.
- Remaining Performance Obligation exiting the quarter was $9.92
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
“Adobe’s strategy to empower customers to create the world’s
content, automate critical document processes and enable
enterprises to engage with their customers digitally, drove record
revenue in Q2,” said Shantanu Narayen, president and CEO, Adobe.
“The tectonic shift towards ‘all things digital’ across all
customer segments globally will serve as a tailwind to our growth
initiatives as we emerge from this crisis.”
"Adobe delivered another quarter of record revenue and expanding
profitability despite the challenging environment, demonstrating
the resiliency of our business model," said John Murphy, executive
vice president and CFO, Adobe. “We drove record Digital Media net
new ARR for Q2, highlighting how mission-critical creative and
document solutions are in engaging remotely.”
Advertising Cloud Update
Adobe also announced that given the macroeconomic environment,
it significantly accelerated in Q2 its previously stated strategy
of eliminating low-margin Advertising Cloud transaction-driven
offerings. The company will continue to offer its Advertising Cloud
software solutions. The macroeconomic environment and this
strategic shift impacted Advertising Cloud targeted revenue in Q2
by approximately $50 million.
Adobe Provides Third Quarter Financial Targets
Adobe today is providing third quarter financial targets
factoring current macroeconomic conditions, continued impacts of
the pandemic, typical Q3 summer seasonality and its updated
strategy for Advertising Cloud.
The following table summarizes Adobe’s third quarter fiscal year
2020 targets.
Total revenue
Approximately $3.15 billion
Digital Media segment revenue
Approximately 16 percent
year-over-year growth
Digital Media annualized recurring revenue
(ARR)
Approximately $340 million of net
new ARR
Digital Experience segment revenue
Flat year-over-year
Digital Experience subscription
revenue
~5% year-over-year growth
~14% year-over-year growth
(excluding Advertising Cloud)
Tax rate
GAAP: ~10 percent
Non-GAAP: ~10 percent
Share count
~485 million shares
Earnings per share
GAAP: ~$1.78
Non-GAAP: ~$2.40
In light of the macroeconomic environment and the strategic
shifts for Advertising Cloud, Adobe is withdrawing the annual
fiscal 2020 targets provided in December 2019.
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 second quarter fiscal year 2020 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, the effects of the
COVID-19 pandemic on our business and results of operations, market
trends, customer success, revenue, profitability, operating margin,
seasonality, 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, macroeconomic conditions and economic impact of the
COVID-19 pandemic, 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 2019 ended Nov. 29, 2019, and Adobe's Quarterly
Reports on Form 10-Q issued in fiscal year 2020.
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 May 29,
2020, which Adobe expects to file in June 2020. 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.
©2020 Adobe. All rights reserved. Adobe and the Adobe logo are
either registered trademarks or trademarks of Adobe (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 millions, except per share data;
unaudited)
Three Months Ended
Six Months Ended
May 29, 2020
May 31, 2019
May 29, 2020
May 31, 2019
Revenue:
Subscription
$
2,874
$
2,456
$
5,699
$
4,761
Product
128
153
271
323
Services and support
126
135
249
261
Total revenue
3,128
2,744
6,219
5,345
Cost of revenue:
Subscription
317
296
672
585
Product
9
9
16
21
Services and support
89
102
179
199
Total cost of revenue
415
407
867
805
Gross profit
2,713
2,337
5,352
4,540
Operating expenses:
Research and development
532
476
1,064
941
Sales and marketing
901
849
1,758
1,630
General and administrative
224
219
495
435
Amortization of intangibles
40
43
82
90
Total operating expenses
1,697
1,587
3,399
3,096
Operating income
1,016
750
1,953
1,444
Non-operating income (expense):
Interest expense
(28
)
(40
)
(61
)
(81
)
Investment gains (losses), net
—
(1
)
(3
)
43
Other income (expense), net
12
2
30
7
Total non-operating income (expense),
net
(16
)
(39
)
(34
)
(31
)
Income before income taxes
1,000
711
1,919
1,413
Provision for (benefit from) income
taxes
(100
)
78
(136
)
106
Net income
$
1,100
$
633
$
2,055
$
1,307
Basic net income per share
$
2.28
$
1.30
$
4.26
$
2.68
Shares used to compute basic net income
per share
481
488
482
488
Diluted net income per share
$
2.27
$
1.29
$
4.23
$
2.65
Shares used to compute diluted net income
per share
485
492
486
493
Condensed Consolidated Balance
Sheets
(In millions; unaudited)
May 29, 2020
November 29, 2019
ASSETS
Current assets:
Cash and cash equivalents
$
3,044
$
2,650
Short-term investments
1,307
1,527
Trade receivables, net of allowances for
doubtful accounts of $22 and $10, respectively
1,366
1,535
Prepaid expenses and other current
assets
932
783
Total current assets
6,649
6,495
Property and equipment, net
1,387
1,293
Operating lease right-of-use assets,
net
489
—
Goodwill
10,695
10,691
Other intangibles, net
1,535
1,721
Deferred income taxes
231
—
Other assets
617
562
Total assets
$
21,603
$
20,762
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Trade payables
$
289
$
209
Accrued expenses
1,303
1,399
Debt
—
3,149
Deferred revenue
3,321
3,378
Income taxes payable
166
56
Operating lease liabilities
85
—
Total current liabilities
5,164
8,191
Long-term liabilities:
Debt
4,114
989
Deferred revenue
140
123
Income taxes payable
503
616
Deferred income taxes
107
140
Operating lease liabilities
498
—
Other liabilities
196
173
Total liabilities
10,722
10,232
Stockholders’ equity:
Preferred stock
—
—
Common stock
—
—
Additional paid-in-capital
6,892
6,504
Retained earnings
16,428
14,829
Accumulated other comprehensive income
(loss)
(195
)
(188
)
Treasury stock, at cost
(12,244
)
(10,615
)
Total stockholders’ equity
10,881
10,530
Total liabilities and stockholders’
equity
$
21,603
$
20,762
Condensed Consolidated Statements of
Cash Flows
(In millions; unaudited)
Three Months Ended
May 29, 2020
May 31, 2019
Cash flows from operating activities:
Net income
$
1,100
$
633
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and
accretion
188
188
Stock-based compensation
227
204
Unrealized investment (gains) losses,
net
(1
)
2
Other non-cash adjustments
(137
)
9
Changes in deferred revenue
(154
)
(84
)
Changes in other operating assets and
liabilities
(39
)
157
Net cash provided by operating
activities
1,184
1,109
Cash flows from investing activities:
Purchases, sales and maturities of
short-term investments, net
176
100
Purchases of property and equipment
(96
)
(85
)
Purchases and sales of long-term
investments, intangibles and other assets, net
—
(5
)
Net cash provided by investing
activities
80
10
Cash flows from financing activities:
Purchases of treasury stock
(850
)
(750
)
Taxes paid related to net share settlement
of equity awards, net of proceeds from treasury stock
re-issuances
(53
)
(22
)
Other financing activities, net
2
—
Net cash used for financing activities
(901
)
(772
)
Effect of exchange rate changes on cash
and cash equivalents
(7
)
(3
)
Net increase in cash and cash
equivalents
356
344
Cash and cash equivalents at beginning of
period
2,688
1,739
Cash and cash equivalents at end of
period
$
3,044
$
2,083
Non-GAAP Results
(In millions, except per share data)
The following table shows Adobe’s GAAP
results reconciled to non-GAAP results included in this
release.
Three Months Ended
May 29, 2020
May 31, 2019
February 28, 2020
Operating income:
GAAP operating income
$
1,016
$
750
$
937
Stock-based and deferred compensation
expense
227
204
214
Amortization of intangibles
92
96
94
Non-GAAP operating income
$
1,335
$
1,050
$
1,245
Net income:
GAAP net income
$
1,100
$
633
$
955
Stock-based and deferred compensation
expense
227
204
214
Amortization of intangibles
92
96
94
Investment (gains) losses, net
—
1
3
Income tax adjustments
(232
)
(33
)
(159
)
Non-GAAP net income
$
1,187
$
901
$
1,107
Diluted net income per share:
GAAP diluted net income per share
$
2.27
$
1.29
$
1.96
Stock-based and deferred compensation
expense
0.47
0.41
0.44
Amortization of intangibles
0.19
0.20
0.19
Investment (gains) losses, net
—
—
0.01
Income tax adjustments
(0.48
)
(0.07
)
(0.33
)
Non-GAAP diluted net income per share
$
2.45
$
1.83
$
2.27
Shares used in computing diluted net
income per share
485
492
488
The following table shows Adobe's second quarter fiscal year
2020 GAAP tax rate reconciled to the non-GAAP tax rate included in
this release.
Second Quarter Fiscal
2020
Effective income tax rate:
GAAP effective income tax rate
(10.0
)
%
Trading structure change
22.5
Income tax adjustments
(1.0
)
Stock-based and deferred compensation
expense
(1.1
)
Amortization of intangibles
(0.4
)
Non-GAAP effective income tax rate
10.0
%
Reconciliation of GAAP to Non-GAAP Financial Targets
(Shares in millions)
The following table shows Adobe's third quarter fiscal year 2020
GAAP earnings per share target reconciled to the non-GAAP financial
target included in this release.
Third Quarter Fiscal
2020
Diluted net income per share:
GAAP diluted net income per share
$
1.78
Stock-based and deferred compensation
expense
0.50
Amortization of intangibles
0.19
Income tax adjustments
(0.07
)
Non-GAAP diluted net income per share
$
2.40
Shares used to compute diluted net income
per share
485
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 intangibles, 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200611005773/en/
Investor Relations Contact Jonathan Vaas Adobe
ir@adobe.com
Public Relations Contact Lea Anna Cardwell Adobe
cardwell@adobe.com
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