EX-99.1 2 adbeex991q416.htm EXHIBIT 99.1 Exhibit

Exhibit 99.1
graphica03a01a01a06.jpg
Investor Relations Contact
Mike Saviage
Adobe
408-536-4416
ir@adobe.com
Public Relations Contact
Dan Berthiaume
Adobe
408-536-2584
dberthia@adobe.com





FOR IMMEDIATE RELEASE
Adobe Reports Record Revenue and Net Income
Company Achieves 22 Percent Year-Over-Year Annual Revenue Growth in Fiscal 2016

SAN JOSE, Calif. - Dec. 15, 2016 - Adobe (Nasdaq:ADBE) today reported financial results for its fourth quarter and fiscal year 2016 ended Dec. 2, 2016.
In its fourth quarter of fiscal year 2016, Adobe achieved record quarterly revenue of $1.61 billion, representing year-over-year growth of 23 percent. In fiscal year 2016, Adobe achieved record annual revenue of $5.85 billion, representing year-over-year growth of 22 percent. The company also achieved record quarterly net income, cash flow and deferred revenue during its fourth quarter.
“Adobe’s market-leading digital media and digital marketing solutions are revolutionizing how customers design and deliver exceptional digital experiences,” said Shantanu Narayen, president and chief executive officer of Adobe. “We enter 2017 with significant market momentum and strong technology tailwinds.”
“Across our business, Adobe had a strong 2016 as we met or exceeded all of our key financial targets for the year,” said Mark Garrett, Adobe executive vice president and chief financial officer. “We are uniquely positioned as a cloud provider to deliver both top line and bottom line growth.”
Fourth Quarter Financial Highlights
•
Adobe achieved record quarterly revenue of $1.61 billion in its fourth quarter of fiscal year 2016, representing 23 percent year-over-year growth.
•
Diluted earnings per share were $0.80 on a GAAP-basis, and $0.90 on a non-GAAP basis.
•
Digital Media segment revenue was $1.08 billion, with Creative revenue growing 33 percent year-over-year to $886 million.
•
Strong Creative Cloud and Document Cloud adoption drove Digital Media Annualized Recurring Revenue (“ARR”) to $4.01 billion exiting the quarter, a quarter-over-quarter increase of $316 million.
•
Adobe Marketing Cloud achieved record revenue of $465 million, representing 32 percent year-over-year growth.
•
Year-over-year operating income grew 63 percent and net income grew 79 percent on a GAAP-basis; operating income grew 44 percent and net income grew 45 percent on a non-GAAP basis.
•
Cash flow from operations was a record $696 million.
•
The company repurchased approximately 3.2 million shares during the quarter, returning $331 million of cash to stockholders.



Fiscal Year 2016 Financial Highlights
•
Adobe achieved record annual revenue of $5.85 billion in fiscal year 2016, representing 22 percent year-over-year growth.
•
The company reported annual GAAP diluted earnings per share of $2.32 and non-GAAP diluted earnings per share of $3.01.
•
Adobe grew Digital Media ARR by $1.13 billion during the year and exited the year with $4.01 billion.
•
Adobe Marketing Cloud achieved $1.63 billion in annual revenue, representing 20 percent year-over-year growth.
•
Adobe generated $2.2 billion in operating cash flow during the year.
•
Deferred revenue grew to an all-time high of $2.01 billion, and unbilled backlog grew to approximately $3.42 billion.
•
The company repurchased 10.4 million shares during the year, returning $1.01 billion of cash to stockholders.
A reconciliation between GAAP and non-GAAP results is provided at the end of this press release and on Adobe’s website.
Adobe to Webcast Earnings Conference Call
Adobe will webcast its fourth quarter and fiscal year 2016 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, financial targets 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 product and technology innovation, business momentum, the impact of our products and services to our customers, revenue, annualized recurring revenue, bookings, earnings per share and operating cash flow, 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 develop, market and offer products and services that meet customer requirements, introduction of new products, services and business models by competitors, failure to successfully manage transitions to new business models and markets, uncertainty in economic conditions and the financial markets, fluctuations in subscription renewal rates, complex and unpredictable sales cycles for some enterprise offerings, risks associated with cyber-attacks and information security, potential interruptions or delays in hosted services provided by us or third parties, changes in accounting principles, and failure to realize the anticipated benefits of past or future acquisitions. 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 2015 ended Nov. 27, 2015, and Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2016.
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 Annual Report on Form 10-K for our year ended Dec. 2, 2016, which Adobe expects to file in Jan. 2017.
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.
###
© 2016 Adobe Systems Incorporated. All rights reserved. Adobe, the Adobe logo and Creative 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
 
Year Ended
 
December 2,
2016
 
November 27,
2015
 
December 2,
2016
 
November 27,
2015
Revenue:
 
 
 
 
 
 
 
Subscription
$
1,262,273

 
$
907,434

 
$
4,584,833

 
$
3,223,904

Product
221,926

 
284,496

 
800,498

 
1,125,146

Services and support
124,220

 
114,474

 
469,099

 
446,461

Total revenue
1,608,419

 
1,306,404

 
5,854,430

 
4,795,511

 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
Subscription
122,196

 
106,368

 
461,860

 
409,194

Product
17,427

 
24,320

 
68,917

 
90,035

Services and support
76,933

 
70,673

 
289,131

 
245,088

Total cost of revenue
216,556

 
201,361

 
819,908

 
744,317

 
 
 
 
 
 
 
 
Gross profit
1,391,863

 
1,105,043

 
5,034,522

 
4,051,194

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Research and development
257,849

 
220,514

 
975,987

 
862,730

Sales and marketing
495,042

 
441,472

 
1,910,197

 
1,683,242

General and administrative
148,477

 
134,052

 
577,710

 
531,919

Restructuring and other charges
(285
)
 
521

 
(1,508
)
 
1,559

Amortization of purchased intangibles
18,500

 
18,050

 
78,534

 
68,649

Total operating expenses
919,583

 
814,609

 
3,540,920

 
3,148,099

 
 
 
 
 
 
 
 
Operating income
472,280

 
290,434

 
1,493,602

 
903,095

 
 
 
 
 
 
 
 
Non-operating income (expense):
 
 
 
 
 
 
 
Interest and other income (expense), net
553

 
22,399

 
13,548

 
33,909

Interest expense
(17,518
)
 
(16,515
)
 
(70,442
)
 
(64,184
)
Investment gains (losses), net
1,385

 
622

 
(1,570
)
 
961

Total non-operating income (expense), net
(15,580
)
 
6,506

 
(58,464
)
 
(29,314
)
Income before income taxes
456,700

 
296,940

 
1,435,138

 
873,781

Provision for income taxes
57,087

 
74,235

 
266,356

 
244,230

Net income
$
399,613

 
$
222,705

 
$
1,168,782

 
$
629,551

Basic net income per share
$
0.81

 
$
0.45

 
$
2.35

 
$
1.26

Shares used to compute basic net income per share
495,641

 
498,384

 
498,345

 
498,764

Diluted net income per share
$
0.80

 
$
0.44

 
$
2.32

 
$
1.24

Shares used to compute diluted net income per share
501,176

 
506,012

 
504,299

 
507,164


3


Condensed Consolidated Balance Sheets
(In thousands, except par value; unaudited)
 
December 2,
2016
 
November 27,
2015
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,011,315

 
$
876,560

Short-term investments
3,749,985

 
3,111,524

Trade receivables, net of allowances for doubtful accounts of $6,214 and $7,293, respectively
833,033

 
672,006

Prepaid expenses and other current assets
245,441

 
161,802

Total current assets
5,839,774

 
4,821,892

 
 
 
 
Property and equipment, net
816,264

 
787,421

Goodwill
5,406,474

 
5,366,881

Purchased and other intangibles, net
414,405

 
510,007

Investment in lease receivable
80,439

 
80,439

Other assets
149,758

 
159,832

Total assets
$
12,707,114

 
$
11,726,472

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
Trade payables
$
88,024

 
$
93,307

Accrued expenses
739,630

 
679,884

Income taxes payable
38,362

 
6,165

Deferred revenue
1,945,619

 
1,434,200

Total current liabilities
2,811,635

 
2,213,556

 
 
 
 
Long-term liabilities:
 
 
 
Debt
1,902,068

 
1,907,231

Deferred revenue
69,131

 
51,094

Income taxes payable
184,381

 
256,129

Deferred income taxes
217,660

 
208,209

Other liabilities
97,404

 
88,673

Total liabilities
5,282,279

 
4,724,892

 
 
 
 
Stockholders' equity:
 
 
 
Preferred stock, $0.0001 par value; 2,000 shares authorized
—

 
—

Common stock, $0.0001 par value
61

 
61

Additional paid-in-capital
4,616,331

 
4,184,883

Retained earnings
8,114,517

 
7,253,431

Accumulated other comprehensive income (loss)
(173,602
)
 
(169,080
)
Treasury stock, at cost (106,580 and 103,025 shares, respectively), net of reissuances
(5,132,472
)
 
(4,267,715
)
Total stockholders' equity
7,424,835

 
7,001,580

Total liabilities and stockholders' equity
$
12,707,114

 
$
11,726,472



4


Condensed Consolidated Statements of Cash Flows
(In thousands; unaudited)
 
Three Months Ended
 
December 2,
2016
 
November 27,
2015
Cash flows from operating activities:
 
 
 
Net income
$
399,613

 
$
222,705

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion
81,860

 
86,359

Stock-based compensation expense
87,530

 
81,022

Gain on sale of property
—

 
(21,415
)
Unrealized investment gains, net
(771
)
 
(662
)
Changes in deferred revenue
216,765

 
179,265

Changes in other operating assets and liabilities
(89,396
)
 
(92,759
)
Net cash provided by operating activities
695,601

 
454,515

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases, sales and maturities of short-term investments, net
(97,891
)
 
(277,566
)
Purchases of property and equipment
(48,633
)
 
(64,676
)
Proceeds from the sale of property
—

 
57,779

Purchases and sales of long-term investments, intangibles and other assets, net
3,426

 
(1,524
)
Net cash used for investing activities
(143,098
)
 
(285,987
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Purchases of treasury stock
(300,000
)
 
(125,000
)
Proceeds from (costs of) issuance of treasury stock, net
(6,283
)
 
42

Repayment of capital lease obligations
(22
)
 
—

Excess tax benefits from stock-based compensation
5,836

 
9,808

Net cash used for financing activities
(300,469
)
 
(115,150
)
Effect of exchange rate changes on cash and cash equivalents
(8,391
)
 
(6,110
)
Net increase in cash and cash equivalents
243,643

 
47,268

Cash and cash equivalents at beginning of period
767,672

 
829,292

Cash and cash equivalents at end of period
$
1,011,315

 
$
876,560


5


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
 
Year Ended
 
December 2,
2016
 
November 27,
2015
 
September 2,
2016
 
December 2,
2016
 
November 27,
2015
Operating income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP operating income
$
472,280

 
$
290,434

 
$
369,325

 
$
1,493,602

 
$
903,095

Stock-based and deferred compensation expense
86,584

 
81,705

 
86,070

 
351,553

 
338,047

Restructuring and other charges
(285
)
 
521

 
(338
)
 
(1,508
)
 
1,559

Amortization of purchased intangibles
31,143

 
37,678

 
36,082

 
136,056

 
152,590

Loss contingency reversal
—

 
—

 
—

 
—

 
(10,000
)
Non-GAAP operating income
$
589,722

 
$
410,338

 
$
491,139

 
$
1,979,703

 
$
1,385,291

 
 
 
 
 
 
 
 
 
 
Net income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net income
$
399,613

 
$
222,705

 
$
270,788

 
$
1,168,782

 
$
629,551

Stock-based and deferred compensation expense
86,584

 
81,705

 
86,070

 
351,553

 
338,047

Restructuring and other charges
(285
)
 
521

 
(338
)
 
(1,508
)
 
1,559

Amortization of purchased intangibles
31,143

 
37,678

 
36,082

 
136,056

 
152,590

Investment (gains) losses, net
(1,385
)
 
(622
)
 
(1,532
)
 
1,570

 
(961
)
Gain on sale of property assets
—

 
(21,415
)
 
—

 
—

 
(21,415
)
Loss contingency reversal
—

 
—

 
—

 
—

 
(10,000
)
Income tax adjustments
(63,118
)
 
(8,674
)
 
(14,569
)
 
(137,350
)
 
(35,826
)
Non-GAAP net income
$
452,552

 
$
311,898

 
$
376,501

 
$
1,519,103

 
$
1,053,545

 
 
 
 
 
 
 
 
 
 
Diluted net income per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP diluted net income per share
$
0.80

 
$
0.44

 
$
0.54

 
$
2.32

 
$
1.24

Stock-based and deferred compensation expense
0.17

 
0.16

 
0.17

 
0.70

 
0.67

Amortization of purchased intangibles
0.06

 
0.07

 
0.07

 
0.27

 
0.30

Gain on sale of property assets
—

 
(0.04
)
 
—

 
—

 
(0.04
)
Loss contingency reversal
—

 
—

 
—

 
—

 
(0.02
)
Income tax adjustments
(0.13
)
 
(0.01
)
 
(0.03
)
 
(0.28
)
 
(0.07
)
Non-GAAP diluted net income per share
$
0.90

 
$
0.62

 
$
0.75

 
$
3.01

 
$
2.08

 
 
 
 
 
 
 
 
 
 
Shares used in computing diluted net income per share
501,176

 
506,012

 
503,669

 
504,299

 
507,164






6


Non-GAAP Results (continued)


 
Three Months
Ended
 
December 2,
2016
Effective income tax rate:
 
 
 
GAAP effective income tax rate
12.5
 %
Resolution of income tax examinations
10.5

Stock-based and deferred compensation expense
(1.5
)
Amortization of purchased intangibles
(0.5
)
Non-GAAP effective income tax rate
21.0
 %


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 purchased intangibles and certain activity in connection with technology license arrangements, 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.









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