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Press release from Business Wire

Adobe Reports Q1 FY2012 Financial Results

Monday, March 19, 2012

Adobe Reports Q1 FY2012 Financial Results16:05 EDT Monday, March 19, 2012 SAN JOSE, Calif. (Business Wire) -- Adobe Systems Incorporated (Nasdaq:ADBE) today reported financial results for its first quarter of fiscal year 2012 ended March 2, 2012. First Quarter Financial Highlights Revenue in Q1 FY2012 was $1.045 billion, which included $9.6 million of revenue from the acquisition of Efficient Frontier which closed in January 2012. Diluted earnings per share were $0.37 on a GAAP-basis, and $0.57 on a non-GAAP basis. Operating income was $289.0 million and net income was $185.2 million on a GAAP-basis. Operating income was $386.7 million and net income was $284.5 million on a non-GAAP basis. Deferred revenue grew by $17.3 million quarter-over-quarter to a total of $549.0 million. Cash flow from operations was $314.4 million. A reconciliation between GAAP and non-GAAP results is provided at the end of this press release. Executive Quotes “Our strategy is to be the leader in Digital Media and Digital Marketing. With the upcoming release of our Creative Suite and Creative Cloud offerings, and with the momentum we have in Digital Marketing, we remain confident about our ability to drive strong revenue and earnings growth,” said Shantanu Narayen, president and chief executive officer, Adobe. “We delivered solid earnings in Q1, achieved revenue within our targeted range and began to build excitement for our upcoming creative product release,” said Mark Garrett, executive vice president and chief financial officer, Adobe. “We are raising our fiscal year revenue and non-GAAP earnings growth targets due to the addition of Efficient Frontier.” Financial Outlook For the second quarter of fiscal 2012, Adobe is targeting revenue of $1.090 billion to $1.140 billion. On a diluted earnings per share basis, the company is targeting a range of $0.37 to $0.43 on a GAAP basis, and $0.57 to $0.61 on a non-GAAP basis. Adobe is targeting its Q2 share count to be between 502 million and 504 million shares, and it is targeting non-operating expense between $19 million and $21 million. Adobe's tax rate is expected to be approximately 23.5 percent on a GAAP basis and 22.5 percent on a non-GAAP basis. For fiscal year 2012, Adobe adjusted its annual financial targets due to the acquisition of Efficient Frontier. The company increased its annual revenue growth target to a range of six to eight percent, versus its prior target range of four to six percent. Adobe also adjusted its diluted earnings per share target range to $1.63 to $1.73 on a GAAP basis, and $2.38 to $2.48 on a non-GAAP basis. A reconciliation between 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, non-operating expense, tax rate, share count, earnings per share and the success of upcoming product releases, 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 distribute new products and services or upgrades or enhancements to existing products and services that meet customer requirements, introduction of new products, services and business models by existing and new competitors, failure to successfully manage transitions to new business models and markets, including our increased emphasis on a cloud strategy, fluctuations in subscription renewal or upgrade rates, continued uncertainty in economic conditions and the financial markets and other adverse changes in general political or economic conditions in any of the major countries in which Adobe does business, difficulty in predicting revenue from new businesses, failure to realize the anticipated benefits of past or future acquisitions, and difficulty in integrating such acquisitions, costs related to intellectual property acquisitions, disputes and litigation, inability to protect Adobe's intellectual property from third-party infringers, or unauthorized copying, use or disclosure, increasing regulatory focus on privacy issues, security vulnerabilities in our products and systems, interruptions or delays in our service or service from third-party service providers that host or deliver services, security or privacy breaches, or failure in data collection, failure to manage Adobe's sales and distribution channels and third-party customer service and technical support providers effectively, disruption of Adobe's business due to catastrophic events, risks associated with global operations, Adobe's ability to comply with new laws and regulations globally, and costs associated with such compliance, currency fluctuations, risks associated with our debt service obligations, changes in, or interpretations of, accounting principles, impairment of Adobe's goodwill or amortizable intangible assets, changes in, or interpretations of, tax rules and regulations, Adobe's inability to attract and retain key personnel, and impairment of Adobe's investment portfolio due to deterioration of the capital markets. For further discussion of these and other risks and uncertainties, individuals should refer to Adobe's SEC filings. 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 March 2, 2012, which Adobe expects to file later in March 2012. Adobe does not undertake an obligation to update forward-looking statements. About Adobe Systems Incorporated Adobe is changing the world through digital experiences. For more information, visit www.adobe.com. © 2012 Adobe Systems Incorporated. All rights reserved. Adobe 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.   Condensed Consolidated Statements of Income (In thousands, except per share data; unaudited)   Three Months EndedMarch 2, 2012       March 4, 2011   Revenue: Products $ 808,521 $ 842,689 Subscription 146,230 106,171 Services and support   90,469     78,846   Total revenue   1,045,220     1,027,706     Cost of revenue: Products 25,668 30,717 Subscription 48,780 47,878 Services and support   33,817     29,044   Total cost of revenue   108,265     107,639     Gross profit 936,955 920,067   Operating expenses: Research and development 177,728 178,400 Sales and marketing 358,963 328,078 General and administrative 102,681 100,979 Restructuring charges (2,825 ) 41 Amortization of purchased intangibles   11,429     10,235   Total operating expenses   647,976     617,733     Operating income 288,979 302,334   Non-operating income (expense): Interest and other income (expense), net (2,785 ) (817 ) Interest expense (16,838 ) (17,020 ) Investment gains (losses), net   1,021     1,590   Total non-operating income (expense), net   (18,602 )   (16,247 ) Income before income taxes 270,377 286,087 Provision for income taxes   85,168     51,496   Net income $ 185,209   $ 234,591   Basic net income per share $ 0.37   $ 0.47   Shares used to compute basic net income per share   494,016     504,134   Diluted net income per share $ 0.37   $ 0.46   Shares used to compute diluted net income per share   500,378     511,345           Condensed Consolidated Balance Sheets (In thousands, except par value; unaudited)   March 2,December 2,   2012     2011     ASSETS   Current assets: Cash and cash equivalents $ 801,263 $ 989,500 Short-term investments 1,964,855 1,922,192 Trade receivables, net of allowances for doubtful accounts of $15,296 and $15,080, respectively 512,211 634,373 Deferred income taxes 77,514 91,963 Prepaid expenses and other current assets   149,812     133,423   Total current assets 3,505,655 3,771,451   Property and equipment, net 549,780 527,828 Goodwill 4,138,077 3,849,217 Purchased and other intangibles, net 637,825 545,526 Investment in lease receivable 207,239 207,239 Other assets   94,132     89,922   Total assets $ 9,132,708   $ 8,991,183     LIABILITIES AND STOCKHOLDERS' EQUITY   Current liabilities: Trade payables $ 70,100 $ 86,660 Accrued expenses 476,140 554,941 Capital lease obligations 9,318 9,212 Accrued restructuring 36,370 80,930 Income taxes payable 30,549 42,634 Deferred revenue   492,545     476,402   Total current liabilities 1,115,022 1,250,779   Long-term liabilities: Debt and capital lease obligations 1,502,893 1,505,096 Deferred revenue 56,419 55,303 Accrued restructuring 12,803 7,449 Income taxes payable 150,137 156,958 Deferred income taxes 254,193 181,602 Other liabilities   54,939     50,883   Total liabilities 3,146,406 3,208,070   Stockholders' equity: Preferred stock, $0.0001 par value; 2,000 shares authorized — — Common stock, $0.0001 par value 61 61 Additional paid-in-capital 2,821,712 2,753,896 Retained earnings 6,497,070 6,528,735 Accumulated other comprehensive income 46,748 29,950 Treasury stock, at cost (104,906 and 109,294 shares, respectively), net of re-issuances   (3,379,289 )   (3,529,529 ) Total stockholders' equity   5,986,302     5,783,113   Total liabilities and stockholders' equity $ 9,132,708   $ 8,991,183     Condensed Consolidated Statements of Cash Flows (In thousands; unaudited)   Three Months EndedMarch 2, 2012       March 4, 2011 Cash flows from operating activities: Net income $ 185,209 $ 234,591 Adjustments to reconcile net income to net cash provided by operating activities:     Depreciation, amortization and accretion 69,861 66,286 Stock-based compensation expense 61,151 70,992 Unrealized investment gains (3,168 ) (1,330 ) Changes in deferred revenue 16,739 13,721 Changes in other operating assets and liabilities   (15,429 )   (52,158 )   Net cash provided by operating activities   314,363     332,102     Cash flows from investing activities: Purchases of short-term investments, net of sales and maturities (32,418 ) (23,374 ) Purchases of property and equipment (51,088 ) (32,421 ) Purchases of long-term investments, intangibles and other assets, net (1,017 ) (2,758 ) Business acquisitions, net of cash   (353,184 )   (36,572 )   Net cash used for investing activities   (437,707 )   (95,125 )   Cash flows from financing activities: Purchases of treasury stock (80,000 ) (125,000 ) Re-issuance of treasury stock 13,366 40,651 Repayment of debt and capital lease obligations (2,264 ) (2,169 ) Debt issuance costs (2,297 ) — Excess tax benefits from stock-based compensation   2,670     —     Net cash used for financing activities   (68,525 )   (86,518 )   Effect of exchange rate changes on cash and cash equivalents   3,632     (194 ) Net (decrease) increase in cash and cash equivalents (188,237 ) 150,265 Cash and cash equivalents at beginning of period   989,500     749,891   Cash and cash equivalents at end of period $ 801,263   $ 900,156     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 EndedMarch 2,2012   March 4,2011   December 2,2011   Operating income:   GAAP operating income $ 288,979 $ 302,334 $ 246,131 Stock-based and deferred compensation expense 72,633 71,614 75,450 Restructuring and other charges (2,825 ) 41 94,502 Amortization of purchased intangibles   27,864     26,086     28,444   Non-GAAP operating income $ 386,651   $ 400,075   $ 444,527     Net income:   GAAP net income $ 185,209 $ 234,591 $ 173,719 Stock-based and deferred compensation expense 72,633 71,614 75,450 Restructuring and other charges (2,825 ) 41 94,502 Amortization of purchased intangibles 27,864 26,086 28,444 Investment (gains) losses (1,021 ) (1,590 ) (5,174 ) Income tax adjustments   2,647     (32,596 )   (34,347 ) Non-GAAP net income $ 284,507   $ 298,146   $ 332,594     Diluted net income per share:   GAAP diluted net income per share $ 0.37 $ 0.46 $ 0.35 Stock-based and deferred compensation expense 0.15 0.14 0.15 Restructuring and other charges (0.01 ) — 0.19 Amortization of purchased intangibles 0.06 0.05 0.06 Investment (gain) loss — — (0.01 ) Income tax adjustments   —     (0.07 )   (0.07 ) Non-GAAP diluted net income per share $ 0.57   $ 0.58   $ 0.67     Shares used in computing diluted net income per share 500,378 511,345 496,288   Non-GAAP Results (In thousands, except percentages)   Three Months EndedMarch 2,2012   March 4,2011   December 2,2011   Operating expenses:   GAAP operating expenses $ 647,976 $ 617,733 $ 789,651 Stock-based and deferred compensation expense (68,102 ) (67,931 ) (71,435 ) Restructuring and other charges 2,825 (41 ) (94,502 ) Amortization of purchased intangibles (11,429 )   (10,235 )   (11,830 ) Non-GAAP operating expenses $ 571,270   $ 539,526   $ 611,884     Three Months EndedMarch 2,2012 Effective income tax rate:   GAAP effective income tax rate 31.5% One-time charge related to acquisition (9.0) Non-GAAP effective income tax rate 22.5%   Non-GAAP Financial Targets(In millions, except per share data)The following tables show Adobe's second quarter and fiscal year 2012 GAAPfinancial targets reconciled to non-GAAP financial targets included in thisrelease.   Second QuarterFiscal 2012LowHigh Diluted net income per share:   GAAP diluted net income per share $ 0.37 $ 0.43 Stock-based and deferred compensation expense 0.18 0.16 Restructuring charges 0.01 0.01 Amortization of purchased intangibles 0.06 0.06 Income tax adjustments   (0.05 )   (0.05 ) Non-GAAP diluted net income per share $ 0.57   $ 0.61     Shares used to compute diluted net income per share   504.0     502.0       Fiscal 2012LowHigh Diluted net income per share:   GAAP diluted net income per share $ 1.63 $ 1.73 Stock-based and deferred compensation expense 0.65 0.64 Amortization of purchased intangibles 0.24 0.24 Income tax adjustments   (0.14 )   (0.13 ) Non-GAAP diluted net income per share $ 2.38   $ 2.48     Shares used to compute diluted net income per share   504.0     502.0     Three Months EndedJune 1,2012 Effective income tax rate:   GAAP effective income tax rate 23.5% Stock-based and deferred compensation expense (1.0) Non-GAAP effective income tax rate 22.5%   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 and other charges, amortization of purchased intangibles, 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. Adobe Systems IncorporatedMike Saviage, 408-536-4416 (Investor Relations)ir@adobe.comJodi Sorensen, 408-536-2084 (Public Relations)jsorensen@adobe.com