Q3 Results Include $1.44 Billion in Operating Cash Flows and
RPO Surpassing $10 Billion
Adobe (Nasdaq:ADBE) today reported financial results for its
third quarter fiscal year 2020 ended Aug. 28, 2020.
Third Quarter Fiscal Year 2020 Financial Highlights
- Adobe achieved record quarterly revenue of $3.23 billion in its
third quarter of fiscal year 2020, which represents 14 percent
year-over-year growth. Diluted earnings per share was $1.97 on a
GAAP basis, representing 22 percent year-over-year growth, and
$2.57 on a non-GAAP basis, representing 25 percent year-over-year
growth.
- Digital Media segment revenue was $2.34 billion, which
represents 19 percent year-over-year growth. Creative revenue grew
to $1.96 billion, representing 19 percent year-over-year growth.
Document Cloud revenue was $375 million, representing 22 percent
year-over-year growth.
- Digital Media Annualized Recurring Revenue (“ARR”) increased
$458 million quarter-over-quarter to $9.63 billion exiting the
quarter, representing 24 percent year-over-year growth on a
constant-currency basis. Creative ARR grew to $8.29 billion, and
Document Cloud ARR grew to $1.34 billion.
- Digital Experience segment revenue was $838 million. Digital
Experience subscription revenue was $729 million, representing 7
percent year-over-year growth. Digital Experience subscription
revenue, excluding Advertising Cloud revenue, grew 14 percent
year-over-year.
- GAAP operating income in the third quarter was $1.07 billion,
and non-GAAP operating income was $1.40 billion. GAAP net income
was $955 million, and non-GAAP net income was $1.25 billion.
- Cash flows from operations were a record $1.44 billion.
- Remaining Performance Obligation (“RPO”) exiting the quarter
was $10.34 billion, representing 18 percent year-over-year
growth.
- Adobe repurchased approximately 1.5 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 delivered the best Q3 in our history in a challenging
macroeconomic environment, demonstrating the global demand for our
innovative solutions,” said Shantanu Narayen, president and CEO,
Adobe. “We are confident that our leadership in the creative,
document and customer experience management categories will drive
continued momentum in 2020 and beyond.”
“Adobe drove outstanding performance in Q3, highlighted by
growth in Creative Cloud and Document Cloud ARR, Digital Experience
subscription revenue and record operating cash flows,” said John
Murphy, executive vice president and CFO, Adobe. “The resilience of
our recurring business model and a strong book of business is
driving sustained long-term growth.”
Adobe Provides Fourth Quarter Financial Targets
Adobe today is providing fourth quarter financial targets,
factoring current macroeconomic conditions, typical year-end
seasonal strength and the strategic shift related to the company’s
Advertising Cloud business.
The following table summarizes Adobe’s fourth quarter fiscal
year 2020 targets.
Total revenue
~$3.35 billion
Digital Media segment revenue
~18 percent year-over-year
growth
Digital media annualized recurring revenue
(ARR)
~$540 million of net new ARR
Digital Experience segment revenue
~ Flat year-over-year
Digital Experience subscription
revenue
~1 percent year-over-year
growth
~12 percent year-over-year growth
(excluding Advertising Cloud)
Tax rate
GAAP: ~(90) percent
Non-GAAP: ~10 percent
Share count
~485 million shares
Earnings per share
GAAP: ~$4.29
Non-GAAP: ~$2.64
A reconciliation between GAAP and non-GAAP targets is provided
at the end of this press release.
Adobe to Webcast Third Quarter Earnings Conference
Call
Adobe will webcast its third 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.
Adobe Announces Fourth Quarter Earnings Call and Financial
Analyst Meeting
Adobe will host its fourth quarter and fiscal year 2020 earnings
conference call and financial analyst meeting online on Dec. 10, at
8:00 a.m. Pacific Time. During the meeting, Adobe will provide an
overview of its strategy and financial targets for fiscal year
2021.
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, current macroeconomic conditions, customer success,
revenue, 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 Aug.
28, 2020, which Adobe expects to file in Sept. 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, Creative Cloud 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
Nine Months Ended
August 28, 2020
August 30, 2019
August 28, 2020
August 30, 2019
Revenue:
Subscription
$
3,000
$
2,547
$
8,699
$
7,308
Product
109
157
380
480
Services and support
116
130
365
391
Total revenue
3,225
2,834
9,444
8,179
Cost of revenue:
Subscription
328
304
1,000
888
Product
10
9
26
31
Services and support
89
103
268
302
Total cost of revenue
427
416
1,294
1,221
Gross profit
2,798
2,418
8,150
6,958
Operating expenses:
Research and development
566
490
1,630
1,430
Sales and marketing
892
812
2,650
2,443
General and administrative
230
219
725
654
Amortization of intangibles
41
43
123
133
Total operating expenses
1,729
1,564
5,128
4,660
Operating income
1,069
854
3,022
2,298
Non-operating income (expense):
Interest expense
(28
)
(40
)
(89
)
(121
)
Investment gains (losses), net
10
4
7
47
Other income (expense), net
9
17
39
24
Total non-operating income (expense),
net
(9
)
(19
)
(43
)
(50
)
Income before income taxes
1,060
835
2,979
2,248
Provision for (benefit from) income
taxes
105
42
(31
)
148
Net income
$
955
$
793
$
3,010
$
2,100
Basic net income per share
$
1.99
$
1.63
$
6.25
$
4.31
Shares used to compute basic net income
per share
480
486
481
487
Diluted net income per share
$
1.97
$
1.61
$
6.20
$
4.26
Shares used to compute diluted net income
per share
485
491
486
492
Condensed Consolidated Balance
Sheets
(In millions; unaudited)
August 28, 2020
November 29, 2019
ASSETS
Current assets:
Cash and cash equivalents
$
3,767
$
2,650
Short-term investments
1,497
1,527
Trade receivables, net of allowances for
doubtful accounts of $34 and $10, respectively
1,318
1,535
Prepaid expenses and other current
assets
805
783
Total current assets
7,387
6,495
Property and equipment, net
1,467
1,293
Operating lease right-of-use assets,
net
507
—
Goodwill
10,739
10,691
Other intangibles, net
1,445
1,721
Deferred income taxes
219
—
Other assets
650
562
Total assets
$
22,414
$
20,762
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Trade payables
$
229
$
209
Accrued expenses
1,317
1,399
Debt
—
3,149
Deferred revenue
3,317
3,378
Income taxes payable
177
56
Operating lease liabilities
90
—
Total current liabilities
5,130
8,191
Long-term liabilities:
Debt
4,116
989
Deferred revenue
131
123
Income taxes payable
507
616
Deferred income taxes
76
140
Operating lease liabilities
520
—
Other liabilities
221
173
Total liabilities
10,701
10,232
Stockholders’ equity:
Preferred stock
—
—
Common stock
—
—
Additional paid-in-capital
7,195
6,504
Retained earnings
17,383
14,829
Accumulated other comprehensive income
(loss)
(153
)
(188
)
Treasury stock, at cost
(12,712
)
(10,615
)
Total stockholders’ equity
11,713
10,530
Total liabilities and stockholders’
equity
$
22,414
$
20,762
Condensed Consolidated Statements of
Cash Flows
(In millions; unaudited)
Three Months Ended
August 28, 2020
August 30, 2019
Cash flows from operating activities:
Net income
$
955
$
793
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and
accretion
191
195
Stock-based compensation
232
196
Unrealized investment (gains) losses,
net
(9
)
(3
)
Other non-cash adjustments
25
9
Changes in deferred revenue
(12
)
122
Changes in other operating assets and
liabilities
54
(389
)
Net cash provided by operating
activities
1,436
923
Cash flows from investing activities:
Purchases, sales and maturities of
short-term investments, net
(191
)
(40
)
Purchases of property and equipment
(126
)
(89
)
Purchases and sales of long-term
investments, intangibles and other assets, net
2
(36
)
Net cash used for investing activities
(315
)
(165
)
Cash flows from financing activities:
Purchases of treasury stock
(500
)
(750
)
Proceeds from treasury stock reissuances,
net of taxes paid related to net share settlement of equity
awards
103
123
Other financing activities, net
(17
)
3
Net cash used for financing activities
(414
)
(624
)
Effect of exchange rate changes on cash
and cash equivalents
16
(8
)
Net increase in cash and cash
equivalents
723
126
Cash and cash equivalents at beginning of
period
3,044
2,083
Cash and cash equivalents at end of
period
$
3,767
$
2,209
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
August 28, 2020
August 30, 2019
May 29, 2020
Operating income:
GAAP operating income
$
1,069
$
854
$
1,016
Stock-based and deferred compensation
expense
244
199
227
Amortization of intangibles
90
100
92
Non-GAAP operating income
$
1,403
$
1,153
$
1,335
Net income:
GAAP net income
$
955
$
793
$
1,100
Stock-based and deferred compensation
expense
244
199
227
Amortization of intangibles
90
100
92
Investment (gains) losses, net
(10
)
(4
)
—
Income tax adjustments
(33
)
(82
)
(232
)
Non-GAAP net income
$
1,246
$
1,006
$
1,187
Diluted net income per share:
GAAP diluted net income per share
$
1.97
$
1.61
$
2.27
Stock-based and deferred compensation
expense
0.50
0.41
0.47
Amortization of intangibles
0.19
0.20
0.19
Investment (gains) losses, net
(0.02
)
(0.01
)
—
Income tax adjustments
(0.07
)
(0.16
)
(0.48
)
Non-GAAP diluted net income per share
$
2.57
$
2.05
$
2.45
Shares used in computing diluted net
income per share
485
491
485
Reconciliation of GAAP to Non-GAAP
Financial Targets
(Shares in millions)
The following tables show Adobe's fourth
quarter fiscal year 2020 financial targets reconciled to the
non-GAAP financial targets included in this release.
Fourth Quarter Fiscal
2020
Diluted net income per share:
GAAP diluted net income per share
$
4.29
Stock-based and deferred compensation
expense
0.50
Amortization of intangibles
0.17
Income tax adjustments
(2.32
)
Non-GAAP diluted net income per share
$
2.64
Shares used to compute diluted net income
per share
485
Fourth Quarter Fiscal
2020
Effective income tax rate:
GAAP effective income tax rate
(90.0
)%
Trading structure change
100.0
Income tax adjustments
1.0
Stock-based and deferred compensation
expense
(0.9
)
Amortization of intangibles
(0.1
)
Non-GAAP effective income tax rate
10.0
%
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 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/20200915006181/en/
Investor Relations Contact Jonathan Vaas Adobe
ir@adobe.com
Public Relations Contact Lea Anna Cardwell Adobe
cardwell@adobe.com
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