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Adobe Investor Presentation March, 2018
•AdobeRemix
Lauro Samblas
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Investor Relations Contact
Mike Saviage Adobe 408-536-4416 [email protected]
Public Relations Contact
Dan Berthiaume Adobe 408-536-2584 [email protected]
FOR IMMEDIATE RELEASE
Adobe Achieves Record Revenue Creative ARR Exceeds $5 Billion in Q1 FY2018 SAN JOSE, Calif. — March 15, 2018 — Adobe (Nasdaq:ADBE) today reported strong financial results for its first quarter fiscal year 2018 ended March 2, 2018.
Financial Highlights
• Adobe achieved record quarterly revenue of $2.08 billion in its first quarter of fiscal year 2018, which represents 24 percent year-over-year revenue growth.
• Diluted earnings per share was $1.17 on a GAAP-basis, and $1.55 on a non-GAAP basis.
• Digital Media segment revenue was $1.46 billion, with Creative revenue growing to $1.23 billion and Document Cloud achieving revenue of $231 million.
• Digital Media Annualized Recurring Revenue (“ARR”) grew to $5.72 billion exiting the quarter, a quarter-over-quarter increase of $336 million. Creative ARR grew to $5.07 billion, and Document Cloud ARR grew to $647 million.
• Digital Experience segment revenue was $554 million, which represents 16 percent year-over-year growth.
• Operating income grew 50 percent and net income grew 46 percent year-over-year on a GAAP-basis; operating income grew 43 percent and net income grew 64 percent year-over-year on a non-GAAP basis.
• Cash flow from operations was $990 million, and deferred revenue grew 25 percent year-over-year to approximately $2.57 billion.
• Adobe repurchased approximately 1.6 million shares during the quarter, returning $301 million 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.
Executive Quotes
“Adobe’s outstanding growth is driven by enabling our customers to be more creative, work smarter and transform their businesses
through our relentless focus on delivering innovation and intelligence across our solutions,” said Shantanu Narayen, president and
CEO, Adobe.
“Our leadership in the large addressable markets we created, combined with Adobe’s leveraged operating model, contributed to
another record quarter in Q1," said Mark Garrett, executive vice president and CFO, Adobe.
Page 2 of 7 ADOBE ACHIEVES RECORD REVENUE
Adobe to Webcast Earnings Conference Call
Adobe will webcast its first quarter fiscal year 2018 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 customer success, product innovation, business momentum, our addressable market, revenue, 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 develop, acquire, market and offer products and services that meet customer requirements, failure to compete effectively, introduction of new technology, complex sales cycles, risks related to the timing of revenue recognition from our subscription offerings, fluctuations in subscription renewal rates, potential interruptions or delays in hosted services provided by us or third parties, risks associated with cyber-attacks, information security and privacy, failure to realize the anticipated benefits of past or future acquisitions, 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 2017 ended Dec. 1, 2017, and Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2018.
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, 2018, which Adobe expects to file in March 2018.
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.
###
© 2018 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.
Page 3 of 7 ADOBE ACHIEVES RECORD REVENUE
Condensed Consolidated Statements of Income (In thousands, except per share data; unaudited) Three Months Ended
March 2,
2018 March 3,
2017
Revenue: Subscription ......................................................................................................................................................................................................................... $ 1,793,358 $ 1,383,856
Product .................................................................................................................................................................................................................................... 171,608 183,385
Services and support .................................................................................................................................................................................................... 113,981 114,405
Total revenue ..................................................................................................................................................................................................................... 2,078,947 1,681,646
Cost of revenue:
Subscription ......................................................................................................................................................................................................................... 164,685 141,181
Product .................................................................................................................................................................................................................................... 12,877 14,333
Services and support .................................................................................................................................................................................................... 81,340 81,823
Total cost of revenue ................................................................................................................................................................................................... 258,902 237,337
Gross profit ........................................................................................................................................................................................................................... 1,820,045 1,444,309
Operating expenses:
Research and development ................................................................................................................................................................................... 348,769 285,077
Sales and marketing ..................................................................................................................................................................................................... 580,957 520,297
General and administrative .................................................................................................................................................................................... 170,440 150,808
Amortization of purchased intangibles ........................................................................................................................................................ 17,146 19,128
Total operating expenses......................................................................................................................................................................................... 1,117,312 975,310
Operating income........................................................................................................................................................................................................... 702,733 468,999
Non-operating income (expense):
Interest and other income (expense), net .................................................................................................................................................. 16,672 7,206
Interest expense ............................................................................................................................................................................................................... (19,899 ) (18,130 )
Investment gains (losses), net .............................................................................................................................................................................. 2,996 2,557
Total non-operating income (expense), net ............................................................................................................................................ (231 ) (8,367 )
Income before income taxes ................................................................................................................................................................................. 702,502 460,632 Provision for income taxes ...................................................................................................................................................................................... 119,426 62,186
Net income ........................................................................................................................................................................................................................... $ 583,076 $ 398,446
Basic net income per share .................................................................................................................................................................................... $ 1.18 $ 0.81
Shares used to compute basic net income per share....................................................................................................................... 492,061 494,612
Diluted net income per share ............................................................................................................................................................................... $ 1.17 $ 0.80
Shares used to compute diluted net income per share.................................................................................................................. 499,433 500,861
Page 4 of 7 ADOBE ACHIEVES RECORD REVENUE
Condensed Consolidated Balance Sheets (In thousands, except par value; unaudited)
March 2,
2018 December 1,
2017 ASSETS
Current assets: Cash and cash equivalents ...................................................................................................................................................................................... $ 2,666,981 $ 2,306,072
Short-term investments............................................................................................................................................................................................. 3,480,989 3,513,702
Trade receivables, net of allowances for doubtful accounts of $9,284 and $9,151, respectively ................... 1,062,690 1,217,968
Prepaid expenses and other current assets .............................................................................................................................................. 270,154 210,071
Total current assets ....................................................................................................................................................................................................... 7,480,814 7,247,813
Property and equipment, net................................................................................................................................................................................ 991,674 936,976
Goodwill ................................................................................................................................................................................................................................. 5,843,899 5,821,561
Purchased and other intangibles, net ............................................................................................................................................................ 353,740 385,658
Deferred income taxes................................................................................................................................................................................................ 149,710 —
Other assets ......................................................................................................................................................................................................................... 153,648 143,548
Total assets .......................................................................................................................................................................................................................... $ 14,973,485 $ 14,535,556
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities: Trade payables .................................................................................................................................................................................................................. $ 131,090 $ 113,538
Accrued expenses ........................................................................................................................................................................................................... 911,044 993,773
Income taxes payable ................................................................................................................................................................................................. 10,591 14,196
Deferred revenue ............................................................................................................................................................................................................ 2,483,744 2,405,950
Total current liabilities ................................................................................................................................................................................................ 3,536,469 3,527,457
Long-term liabilities:
Debt ............................................................................................................................................................................................................................................ 1,874,794 1,881,421
Deferred revenue ............................................................................................................................................................................................................ 88,460 88,592
Income taxes payable ................................................................................................................................................................................................. 690,468 173,088
Deferred income taxes ............................................................................................................................................................................................... — 279,941
Other liabilities .................................................................................................................................................................................................................. 149,266 125,188
Total liabilities ................................................................................................................................................................................................................... 6,339,457 6,075,687
Stockholders’ equity:
Preferred stock, $0.0001 par value; 2,000 shares authorized ..................................................................................................... — —
Common stock, $0.0001 par value ................................................................................................................................................................... 61 61
Additional paid-in-capital ........................................................................................................................................................................................ 5,208,588 5,082,195
Retained earnings........................................................................................................................................................................................................... 9,830,399 9,573,870
Accumulated other comprehensive income (loss) ............................................................................................................................ (109,939 ) (111,821 )
Treasury stock, at cost (107,954 and 109,572, respectively), net of reissuances........................................................... (6,295,081 ) (6,084,436 )
Total stockholders’ equity ....................................................................................................................................................................................... 8,634,028 8,459,869
Total liabilities and stockholders’ equity ..................................................................................................................................................... $ 14,973,485 $ 14,535,556
Page 5 of 7 ADOBE ACHIEVES RECORD REVENUE
Condensed Consolidated Statements of Cash Flows (In thousands; unaudited)
Three Months Ended
March 2,
2018
March 3, 2017
Cash flows from operating activities: Net income ........................................................................................................................................................................................................................... $ 583,076 $ 398,446 Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion.................................................................................................................................................. 76,522 80,809
Stock-based compensation expense .............................................................................................................................................................. 130,488 98,310
Unrealized investment (gains) losses, net.................................................................................................................................................. (929 ) (1,021 )
Changes in deferred revenue................................................................................................................................................................................ 77,662 40,832
Changes in other operating assets and liabilities ................................................................................................................................. 122,782 112,994
Net cash provided by operating activities.................................................................................................................................................. 989,601 730,370
Cash flows from investing activities:
Purchases, sales and maturities of short-term investments, net ............................................................................................. 7,894 169,320
Purchases of property and equipment ......................................................................................................................................................... (95,142 ) (30,903 )
Purchases and sales of long-term investments, intangibles and other assets, net .................................................. (6,514 ) (17,673 )
Acquisitions, net of cash ............................................................................................................................................................................................ — (459,626 )
Net cash used for investing activities ............................................................................................................................................................. (93,762 ) (338,882 )
Cash flows from financing activities:
Purchases of treasury stock .................................................................................................................................................................................... (300,000 ) (200,000 ) Taxes paid related to net share settlement of equity awards, net of proceeds from treasury stock reissuances ........................................................................................................................................................................................................................... (240,969 ) (131,227 )
Repayment of capital lease obligations ....................................................................................................................................................... (304 ) (268 )
Net cash used for financing activities ............................................................................................................................................................ (541,273 ) (331,495 )
Effect of exchange rate changes on cash and cash equivalents .............................................................................................. 6,343 (2,412 )
Net increase in cash and cash equivalents ................................................................................................................................................ 360,909 57,581
Cash and cash equivalents at beginning of period ............................................................................................................................. 2,306,072 1,011,315
Cash and cash equivalents at end of period ............................................................................................................................................. $ 2,666,981 $ 1,068,896
Page 6 of 7 ADOBE ACHIEVES RECORD REVENUE
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
March 2,
2018 March 3,
2017 December 1,
2017
Operating income: GAAP operating income ................................................................................................................................................................ $ 702,733 $ 468,999 $ 649,340
Stock-based and deferred compensation expense ................................................................................................. 136,414 103,578 122,180
Restructuring and other charges ............................................................................................................................................. — — (359 )
Amortization of purchased intangibles.............................................................................................................................. 31,704 35,464 34,817
Non-GAAP operating income .................................................................................................................................................... $ 870,851 $ 608,041 $ 805,978
Net income:
GAAP net income ................................................................................................................................................................................ $ 583,076 $ 398,446 $ 501,549
Stock-based and deferred compensation expense ................................................................................................. 136,414 103,578 122,180
Restructuring and other charges ............................................................................................................................................. — — (359 )
Amortization of purchased intangibles.............................................................................................................................. 31,704 35,464 34,817
Investment (gains) losses, net ................................................................................................................................................... (2,996 ) (2,557 ) (2,292 )
Income tax adjustments* .............................................................................................................................................................. 23,987 (63,209 ) (25,982 )
Non-GAAP net income .................................................................................................................................................................... $ 772,185 $ 471,722 $ 629,913
Diluted net income per share:
GAAP diluted net income per share..................................................................................................................................... $ 1.17 $ 0.80 $ 1.00
Stock-based and deferred compensation expense ................................................................................................. 0.27 0.21 0.24
Amortization of purchased intangibles.............................................................................................................................. 0.06 0.07 0.07
Investment (gains) losses, net ................................................................................................................................................... — (0.01 ) —
Income tax adjustments* .............................................................................................................................................................. 0.05 (0.13 ) (0.05 )
Non-GAAP diluted net income per share ........................................................................................................................ $ 1.55 $ 0.94 $ 1.26
Shares used in computing diluted net income per share .................................................................................. 499,433 500,861
500,060
_________________________________________
* During the first quarter of fiscal 2018, the $24 million GAAP to non-GAAP income tax adjustment includes a provisional tax charge relating to the enactment of the Tax Cuts and Jobs Act that was excluded from non-GAAP earnings. The Company has recorded a provisional tax expense of $118 million, which is comprised of $86 million for fiscal year 2018 plus other ancillary effects recorded in the first fiscal quarter, related to the U.S. mandatory one-time transition tax on accumulated non-U.S. earnings. The company also recorded $10 million related to the remeasurement of
deferred taxes. The amounts are provisional based on the Securities and Exchange Commission Staff Accounting Bulletin No. 118. The remaining $104 million was related to other tax matters that are included in the annual non-GAAP tax rate.
Page 7 of 7 ADOBE ACHIEVES RECORD REVENUE
Non-GAAP Results (continued)
Three Months
Ended
March 2,
2018 Effective income tax rate: GAAP effective income tax rate .................................................................................................................................................................................................................................. 17.0 % Resolution of income tax examinations .............................................................................................................................................................................................................. 2.0 Income tax adjustments ................................................................................................................................................................................................................................................... 9.0 Impacts of the Tax Act ........................................................................................................................................................................................................................................................ (17.0 ) Non-GAAP effective income tax rate** ................................................................................................................................................................................................................ 11.0 %
_________________________________________
** The GAAP effective income tax rate of 17% is the rate for the quarter based on tax events within the quarter. Income tax adjustments, which are included in both GAAP and non-GAAP earnings, will fluctuate from quarter-to-quarter but will normalize over the fiscal year due to the timing of tax events including the timing of recognition of excess tax benefits within each quarter.
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.
Adobe Q1 FY2018 Earnings Call Script March 15, 2018
Page 1 of 14
MIKE SAVIAGE
Good afternoon and thank you for joining us today. Joining me on the call are Adobe’s President and
CEO, Shantanu Narayen; and Mark Garrett, Executive Vice President and CFO.
In our call today, we will discuss Adobe’s first quarter fiscal year 2018 financial results. By now, you
should have a copy of our earnings press release which crossed the wire approximately one hour ago.
We’ve also posted PDFs of our earnings call prepared remarks and slides, financial targets and an
updated investor datasheet on Adobe.com. If you would like a copy of these documents, you can go to
Adobe’s Investor Relations page and find them listed under Quick Links.
Adobe Q1 FY2018 Earnings Call Script March 15, 2018
Page 2 of 14
Before we get started, we want to emphasize that some of the information discussed in this call,
particularly our revenue and operating model targets, and our forward-looking product plans, is based
on information as of today, March 15th, 2018, and contains forward-looking statements that involve risk
and uncertainty. Actual results may differ materially from those set forth in such statements. For a
discussion of these risks and uncertainties, you should review the Forward-Looking Statements
Disclosure in the earnings press release we issued today, as well as Adobe’s SEC filings.
During this call, we will discuss GAAP and non-GAAP financial measures. A reconciliation between the
two is available in our earnings release and in our updated investor datasheet on Adobe’s Investor
Relations website.
Call participants are advised that the audio of this conference call is being webcast live in Adobe
Connect, and is also being recorded for playback purposes. An archive of the webcast will be made
available on Adobe’s Investor Relations website for approximately 45 days, and is the property of Adobe.
The call audio and the webcast archive may not be re-recorded, or otherwise reproduced or distributed
without prior written permission from Adobe.
I will now turn the call over to Shantanu.
Adobe Q1 FY2018 Earnings Call Script March 15, 2018
Page 3 of 14
SHANTANU NARAYEN
Thanks, Mike and good afternoon.
FY2018 is off to a strong start for Adobe as we continue to successfully execute against our strategy. In Q1
we delivered record revenue of $2.08 billion dollars, which represents 24% year-over-year growth. GAAP
earnings per share in Q1 was $1.17, and non-GAAP earnings per share was $1.55.
Our strategy to empower people to create and transform how businesses compete is working. Our
relentless focus on delivering innovation to our customers is continuing to drive our outstanding
performance.
Across the globe, individuals and companies now recognize that great experiences have become the
basis of differentiation in an increasingly competitive and complex world. With the world’s best digital
media and digital experience cloud-based solutions, Adobe has become the go-to company for helping
customers develop and deliver transformative digital experiences.
Adobe Q1 FY2018 Earnings Call Script March 15, 2018
Page 4 of 14
In our Digital Media business, we achieved strong growth in both Creative revenue and Document Cloud
revenue for Q1, achieving net new Annualized Recurring Revenue, or “ARR” growth of $336 million. We
exited Q1 with Creative ARR of $5.07 billion, marking the first time Creative ARR has surpassed $5 billion.
Across our individual, team and enterprise offerings, we continue to acquire new subscribers through
Creative Cloud single app and all app offerings. We focus on retention by driving customer engagement
through products, services and community. In addition to strength in our major geographies, emerging
markets such as Korea, China and Southeast Asia are beginning to contribute to subscriber growth.
Creative Cloud remains the gold standard for creativity and design. We deliver ongoing value to our
subscribers through major feature enhancements in our existing flagship applications across desktop
and mobile devices. In addition, we are attracting a broader set of consumers and creative professionals
through innovative new applications like Adobe Character Animator, Spark, Lightroom CC, Dimension
and XD.
Adobe XD is an innovative new app for designing experiences across multiple screens. In addition to
graphic, mobile and website designers, product managers are adopting this all-in-one solution that
combines design, prototyping and collaboration capabilities. We recently delivered workflow
enhancements, tighter integration with Photoshop and deeper support for new modalities such as pen
and touch. Major companies including Wipro have standardized on XD as their core design product.
Video continues to be an explosive category, and our editing and production products including Adobe
Premiere Pro and After Effects, continue to gain momentum among large production houses as well as
independent film makers. More than half of the films at the recent Sundance Film Festival were edited
Adobe Q1 FY2018 Earnings Call Script March 15, 2018
Page 5 of 14
with Premiere Pro, as were the majority of virtual reality projects.
Adobe Spark makes it easy for everyday communicators to transform their ideas into beautiful visual
stories that make an impact with graphics, videos and web pages. Starting next month, Adobe Spark
Premium will be accessible to every student globally, and we’re already beginning to see strong
adoption across school districts in areas like Anaheim in California, Roanoke in Virginia, Burnsville in
Minnesota and Deer Park in Texas.
In addition to the world’s best desktop and mobile tools, we continue to focus on community and
services to provide inspiration and accelerate the creative process. Adobe Stock now has a library of
more than 80 million images, videos and creative assets. Last month we announced a partnership with
the Pantone Color Institute to curate a collection of Adobe Stock Premium images inspired by the top
colors in fashion, as well as a gallery of Adobe Stock images that captures the essence of Pantone’s
always highly-anticipated “Color of the Year.” It’s Pantone:18-3838 Ultra Violet, for those of you who are
curious. Adobe Stock achieved record revenue in the quarter, with greater than 20% year-over-year
growth.
Adobe Document Cloud is the world’s leading digital document service, enabling individuals and
businesses to automate inefficient paper-based processes. Acrobat performance across Creative Cloud
and Document Cloud was particularly strong in Q1. Document Cloud subscriptions and Acrobat
perpetual licensing drove 18% year-over-year revenue growth, and $33 million in net new ARR.
Adobe Q1 FY2018 Earnings Call Script March 15, 2018
Page 6 of 14
As worldwide PDF adoption continues, we are focused on delivering new services including Adobe Scan
and Adobe Sign. Adobe Scan, our mobile PDF application that leverages Adobe Sensei to capture and
create intelligent PDFs, has been downloaded more than 7 million times. Adobe Sign is now the
preferred e-signature solution in Office 365, and we closed our first set of joint customers in the quarter.
Digital transformation and the ability to deliver immersive, intelligent and impactful customer
experiences is a strategic imperative for businesses and governments worldwide. To drive customer
engagement and growth, you need to be an experience business and the Adobe Experience Cloud is the
industry’s most complete and integrated offering.
We achieved Experience Cloud revenue of $554 million in Q1, and strong bookings across Adobe
Marketing Cloud, Adobe Analytics Cloud and Adobe Advertising Cloud. Key customer deals included
Braun, City National Bank, Expedia, Ford, the NFL, Rakuten, Samsung and T. Rowe Price.
In Q1, Adobe was once again recognized as a leader by industry analyst firms, achieving top scores
among evaluated vendors in “The Forrester Wave: Enterprise Marketing Software Suites” and “The
Forrester Wave: Cross Channel Campaign Management” reports. Adobe was positioned as a “Major
Player” in IDC’s “Marketscape Worldwide AI in Enterprise Marketing Clouds Vendor Assessment”, with
Adobe Sensei ranking highest in capabilities. In the competitive category of Digital Experiences, Adobe
was recognized as a leader in the “Gartner Magic Quadrant for Digital Experience Platforms.”
Adobe Q1 FY2018 Earnings Call Script March 15, 2018
Page 7 of 14
We are in a world where businesses are challenged to reach, engage and influence their customers
across multiple digital touch points and new interfaces including voice, augmented reality and virtual
reality. Our goal is to be a mission-critical partner to governments and enterprises as they undergo this
essential digital transformation. Our success is a result of our comprehensive offering, our deep
investment in technology and a rich ecosystem of partners.
In two weeks we will be hosting Summit, our annual digital experience conference that brings together
the world’s biggest brands, agencies, consulting firms and media companies. Leaders from Coca-Cola,
the NFL, Mercedes Benz, Tourism Australia, Marriott and more will share how they’re tackling digital
transformation and capitalizing on new opportunities in the experience era. We plan to unveil a
spectrum of new Experience Cloud capabilities, including new Sensei-powered features that will use new
algorithms to simplify complex tasks.
We’ve long recognized that our Experience Cloud customers need more than just innovative products –
they need a partner, who can help them navigate the many challenges involved in digital
transformation. Adobe has always prided itself on being that trusted partner, and at Summit we will
introduce a broad spectrum of programs that champion and enable our customers.
We have made great strides in delivering new magic through Adobe Sensei, our artificial intelligence and
machine learning framework across Creative Cloud, Document Cloud and Experience Cloud. Last month
we were recognized by Fast Company as one of the Most Innovative Companies in Artificial Intelligence.
Adobe Q1 FY2018 Earnings Call Script March 15, 2018
Page 8 of 14
We are keenly aware that our continued growth as a company is made possible by an innovative and
exceptional team of employees around the world.
We were recently recognized by FORTUNE as one of the World’s Most Admired Software Companies.
FORTUNE also named Adobe one of its 100 Best Companies To Work For, the 18th year we’ve been
honored with that designation.
Adobe continues to have the right strategy, products and people in place to drive future growth. And
we’re fortunate to go to market with the industry’s best partners and serve the world’s most innovative
customers – across all industries and geographies. 2018 is off to an outstanding start and we look
forward to building on this momentum.
Mark.
Adobe Q1 FY2018 Earnings Call Script March 15, 2018
Page 9 of 14
MARK GARRETT
Thanks, Shantanu.
In the first quarter of FY18, Adobe’s momentum continued with record revenue of $2.08 billion, which
represents 24% year-over-year growth. GAAP diluted earnings per share in Q1 was $1.17 and non-GAAP
diluted earnings per share was $1.55. We drove strong performance across our product offerings and
geographies during the quarter.
Highlights in Q1 included:
• Record Digital Media revenue, including Creative revenue of $1.23 billion and Adobe Document
Cloud revenue of $231 million;
• Record Adobe Experience Cloud revenue of $554 million;
• Net new Digital Media ARR of $336 million, and exiting Q1 with more than $5 billion of Creative ARR;
• Deferred revenue growth of 25% year-over-year;
Adobe Q1 FY2018 Earnings Call Script March 15, 2018
Page 10 of 14
• Record cash flow from operations of $990 million;
• Returning over $300 million of cash to our stockholders through stock buyback;
• And a record 88% of our revenue in Q1 was from recurring sources.
In Digital Media, we grew segment revenue by 28% year-over-year. The addition of $336 million net
new Digital Media ARR during the quarter grew the total to $5.72 billion exiting Q1.
Within Digital Media, Creative revenue grew 30% year-over-year in Q1 and we increased Creative ARR
by $303 million. Several key factors helped drive this growth, including:
• Strong net new subscriptions across user segments and geographies, spanning creative professionals
to consumers and students;
• And quarter-over-quarter growth in ARPU across all product categories.
In addition, services are helping to grow Creative ARR and revenue. Adobe Stock had a strong quarter,
and Stock and collaboration services helped grow Creative Cloud enterprise ARR. 86% of creative
enterprise agreements signed during Q1 included services, which helps expand the use of Creative Cloud
within companies and makes it more mission critical to content workflows.
During Q1, we finalized a transition on Adobe.com from using US dollar estimates from our third-party
ecommerce platform in certain emerging markets, to using transactional level data denominated in local
currencies. This transition resulted in a one-time catch-up of approximately $20 million to our ending
ARR balance, and is reflected in the Q1 ARR increase.
Adobe Q1 FY2018 Earnings Call Script March 15, 2018
Page 11 of 14
With Document Cloud, we achieved strong revenue with 18% year-over-year growth. The performance
in Q1 was driven by continued strength with Acrobat subscription adoption, and perpetual licensing of
Acrobat through the channel. Acrobat year-over-year unit growth across Creative Cloud and Document
Cloud again exceeded 20%, and Adobe Sign contributed with another solid quarter of revenue and ARR
growth.
In our Digital Experience segment, we achieved Adobe Experience Cloud revenue of $554 million, which
represents 16% year-over-year revenue growth. Subscription revenue grew 22% year-over year.
Experience Cloud performance in Q1 was driven by success across our Analytics Cloud, Marketing Cloud
and Advertising Cloud offerings, with emerging solutions such as Audience Manager, Campaign, Target
and Media Optimizer solutions achieving strong results.
Adobe Q1 FY2018 Earnings Call Script March 15, 2018
Page 12 of 14
From a quarter-over-quarter currency perspective, FX increased revenue by $12.2 million. We had
$1 million in hedge gains in Q1 FY18, versus $1 million in hedge gains in Q4 FY17; thus, the net sequential
currency increase to revenue considering hedging gains was $12.2 million.
From a year-over-year currency perspective, FX increased revenue by $35.6 million. We had $1 million in
hedge gains in Q1 FY18, versus $18.3 million in hedge gains in Q1 FY17; thus, the net year-over-year
currency increase to revenue considering hedging gains was $18.3 million.
In Q1, Adobe’s effective tax rate was 17% on a GAAP-basis and 11% on a non-GAAP basis. These rates are
consistent with the updated tax rate targets we provided in January which reflect the impact of the new
Tax Act.
Our trade DSO was 47 days, which compares to 46 days in the year-ago quarter, and 55 days last quarter.
Deferred revenue grew to a record $2.57 billion, up 25% year-over-year.
Our ending cash and short-term investment position exiting Q1 was $6.15 billion.
Cash flow from operations was a record $990 million in the quarter.
Adobe Q1 FY2018 Earnings Call Script March 15, 2018
Page 13 of 14
In Q1 FY18 we repurchased 1.6 million shares at a cost of $301 million, which lowered our diluted share
count to less than 500 million shares. We have approximately $1.6 billion remaining of our $2.5 billion
stock repurchase authority granted in January 2017.
Now I will provide our financial outlook. In Q2 FY18, we are targeting:
• Revenue of approximately 2 billion 150 million dollars;
• Digital Media segment year-over-year revenue growth of approximately 25%;
• Digital Experience segment year-over-year revenue growth of approximately 15%;
• Tax rate of approximately 13% on a GAAP basis, and 11% on a non-GAAP basis;
• Share count of approximately 499 million shares;
• GAAP earnings per share of approximately $1.16;
• Non-GAAP earnings per share of approximately $1.53; and
• Net new Digital Media ARR of approximately $330 million.
We expect revenue, earnings per share and Digital Media ARR results in Q3 and Q4 to follow similar
seasonality as was achieved in FY17.
Our leadership in the large addressable markets we created, combined with Adobe’s leveraged
operating model, contributed to another record quarter in Q1. We look forward to seeing you at Summit.
Mike.
Adobe Q1 FY2018 Earnings Call Script March 15, 2018
Page 14 of 14
MIKE SAVIAGE
Thanks, Mark.
Day One of Adobe Summit – the world’s largest digital experience conference is Tuesday March 27th. An
invitation with registration and discounted pricing information to attend Summit in Las Vegas was sent
out in January to our investor and analyst email list. We will host an informal Q&A session with financial
analyst attendees and Adobe management on the afternoon of the 27th. Attendees can also attend
educational sessions, meet with customers and partners, and learn more about our solutions at the
conference. More details about Summit are available at summit.adobe.com.
If you wish to listen to a playback of today’s conference call, a web-based archive of the call will be
available on our IR site later today. Alternatively, you can listen to a phone replay by calling 855-859-
2056; use conference ID #6388567. International callers should dial 404-537-3406. The phone playback
service will be available beginning at 5pm Pacific Time today, and ending at 5pm Pacific Time on March
21st, 2018.
We would now be happy to take your questions, and we ask that you limit your questions to one per
person. Operator.
Last Updated: March 15, 2018
Description Q1`16 Q2`16 Q3`16 Q4`16 FY2016 Q1`17 Q2`17 Q3`17 Q4`17 FY2017 Q1`18Revenue ($Millions) Total Revenue 1,383.3 1,398.7 1,464.0 1,608.4 5,854.4 1,681.6 1,772.2 1,841.1 2,006.6 7,301.5 2,078.9
Digital Media 931.7 943.1 990.0 1,076.2 3,941.0 1,138.1 1,212.0 1,270.2 1,390.3 5,010.6 1,460.5
Digital Experience 377.3 385.4 404.0 464.7 1,631.4 477.3 495.4 507.8 549.9 2,030.4 554.1
Publishing 74.3 70.2 70.0 67.5 282.0 66.2 64.8 63.1 66.4 260.5 64.3
Digital Media 68% 67% 68% 67% 67% 68% 68% 69% 69% 69% 70%
Digital Experience 27% 28% 27% 29% 28% 28% 28% 28% 28% 28% 27%
Publishing 5% 5% 5% 4% 5% 4% 4% 3% 3% 3% 3%
Creative Revenue ($Millions) 732.9 754.9 802.7 885.6 3,176.1 942.2 1,012.1 1,063.9 1,155.7 4,173.9 1,229.5
Creative ARR1,2 ($Millions) - Updated for December 2015 Currency Rates 2,735 2,998 3,256 3,539 - - - - - - -
Creative ARR1,2 ($Millions) - Updated for December 2016 Currency Rates - - - 3,515 - 3,759 4,044 4,316 4,631 - -
Creative ARR1,2 ($Millions) - Updated for December 2017 Currency Rates - - - - - - - - 4,771 - 5,074
Document Cloud Revenue ($Millions) 198.8 188.2 187.3 190.6 764.9 195.9 199.9 206.3 234.6 836.7 231.0
Document Cloud ARR2,3 ($Millions) - Updated for December 2015 Currency Rates 393 415 442 475 - - - - - - -
Document Cloud ARR2,3 ($Millions) - Updated for December 2016 Currency Rates - - - 472 - 493 520 556 600 - -
Document Cloud ARR2,3 ($Millions) - Updated for December 2017 Currency Rates - - - - - - - - 614 - 647
Total Digital Media ARR2 ($Millions) - Updated for December 2015 Currency Rates 3,128 3,413 3,698 4,014 - - - - - - -
Total Digital Media ARR2 ($Millions) - Updated for December 2016 Currency Rates - - - 3,987 - 4,252 4,564 4,872 5,231 - -
Total Digital Media ARR2 ($Millions) - Updated for December 2017 Currency Rates - - - - - - - - 5,385 - 5,721
Experience Cloud Subscription Revenue4 ($Millions) 265.8 264.0 287.2 306.2 1,123.2 352.9 377.1 395.2 427.3 1,552.5 430.9
Americas 806.5 820.0 851.9 921.7 3,400.1 975.8 1,026.7 1,063.1 1,151.0 4,216.6 1,170.7
EMEA 385.6 380.6 400.2 452.7 1,619.1 459.1 475.9 500.8 549.2 1,985.0 587.2
Asia 191.2 198.1 211.9 234.0 835.2 246.7 269.6 277.2 306.4 1,099.9 321.0
Americas 58% 59% 58% 57% 58% 58% 58% 58% 58% 58% 56%
EMEA 28% 27% 27% 28% 28% 27% 27% 27% 27% 27% 28%
Asia 14% 14% 15% 15% 14% 15% 15% 15% 15% 15% 16%
Digital Media 54.6 58.2 56.8 61.6 231.1 55.0 58.4 69.5 57.1 240.0 55.5
Digital Experience 136.4 136.4 139.2 147.9 559.9 176.8 175.1 187.6 207.5 747.0 198.8
Publishing 7.6 7.5 6.7 7.1 28.9 5.5 5.9 5.8 6.3 23.5 4.6
Total 198.6 202.1 202.7 216.6 819.9 237.3 239.4 262.9 270.9 1,010.5 258.9
Direct Costs 5.5 5.3 5.0 5.3 21.1 7.4 8.7 8.3 8.9 33.3 9.7
Research & Development 32.8 30.2 30.6 30.9 124.5 38.6 48.0 48.4 50.9 185.9 60.0
Sales & Marketing 33.6 33.0 32.2 32.2 131.0 37.7 40.8 41.0 40.6 160.1 44.4
General & Administrative 19.8 18.7 18.3 18.2 75.0 19.9 21.1 20.3 21.8 83.1 22.3
Total 91.7 87.2 86.1 86.6 351.6 103.6 118.6 118.0 122.2 462.4 136.4
Worldwide Employees 14,154 14,844 15,381 15,706 - 16,637 17,322 17,788 17,973 - 18,133
Days Sales Outstanding - Trade Receivables 42 43 45 47 - 46 46 50 55 - 47
Diluted Shares Outstanding 505.7 504.7 503.7 501.2 504.3 500.9 500.4 500.4 500.1 501.1 499.4
Digital Media
Adobe Systems Investor Relations Data Sheet
Digital Experience
Supplementary Segment Data
4 Includes revenue from SaaS, managed service and term offerings for Adobe Analytics Cloud and Adobe Marketing Cloud, as well as total revenue for Adobe Advertising Cloud
Stock-Based and Deferred
Compensation Expenses
($Millions)
Other Data
Revenue by Segment ($Millions)
Revenue by Segment
(as % of total revenue)
Revenue by Geography
($Millions)
Revenue by Geography
(as % of total revenue)
1 Creative Annualized Recurring Revenue ("ARR") = Annual Value of Creative Cloud Subscriptions and Services + Annual Value of Creative ETLA Contracts + Annual Value of Digital Publishing Suite ("DPS") Contracts2 ARR is forecasted annually at December currency rates, and currency rates are held constant through that fiscal year for measurement purposes; end-of-year actual ARR balances are revalued at new December rates for the next fiscal year3 Document Cloud Annualized Recurring Revenue ("ARR") = Annual Value of Document Cloud Subscriptions and Services + Annual Value of Acrobat ETLA Contracts
Supplementary Cost of Revenue
Data ($Millions)
Adobe provides this information as of the modification date above and makes no commitment to update the information subsequently.For a full explanation of this data, you are encouraged to review Adobe's Form 10-K and 10-Q SEC filings.
Income Statement - Reconciliation of GAAP to Non-GAAPLast Updated: March 15, 2018
Description Q1`16 Q2`16 Q3`16 Q4`16 FY2016 Q1`17 Q2`17 Q3`17 Q4`17 FY2017 Q1`18Revenue 1,383.3 1,398.7 1,464.0 1,608.4 5,854.4 1,681.6 1,772.2 1,841.1 2,006.6 7,301.5 2,078.9 Cost of revenue 198.6 202.1 202.7 216.5 819.9 237.3 239.4 262.9 270.9 1,010.5 258.9Gross profit 1,184.8 1,196.6 1,261.3 1,391.9 5,034.5 1,444.3 1,532.8 1,578.2 1,735.7 6,291.0 1,820.0
Operating expenses 877.0 852.4 891.9 919.6 3,540.9 975.3 1,028.7 1,032.5 1,086.4 4,122.9 1,117.3
Operating income 307.8 344.2 369.3 472.3 1,493.6 469.0 504.1 545.7 649.3 2,168.1 702.7
Non-operating income (expense) (15.5) (14.4) (13.0) (15.6) (58.5) (8.4) (11.5) (4.3) (6.3) (30.5) (0.2)
Income before income taxes 292.3 329.8 356.3 456.7 1,435.1 460.6 492.6 541.4 643.0 2,137.6 702.5Provision for income taxes 38.0 85.7 85.5 57.1 266.3 62.2 118.2 121.8 141.5 443.7 119.4
Net income 254.3 244.1 270.8 399.6 1,168.8 398.4 374.4 419.6 501.5 1,693.9 583.1
Diluted earnings per share 0.50$ 0.48$ 0.54$ 0.80$ 2.32$ 0.80$ 0.75$ 0.84$ 1.00$ 3.38$ 1.17$
Cost of revenueStock-based and deferred compensation (5.5) (5.3) (5.0) (5.3) (21.1) (7.4) (8.7) (8.3) (8.9) (33.2) (9.7) Amortization of purchased intangibles and
technology license arrangements (17.9) (13.6) (13.4) (12.6) (57.5) (16.3) (17.2) (17.2) (16.1) (66.9) (14.6) Total adjustments to cost
of revenue (23.4) (18.9) (18.4) (17.9) (78.7) (23.7) (26.0) (25.5) (25.0) (100.2) (24.3)
Operating expensesStock-based and deferred compensation (86.2) (81.9) (81.1) (81.3) (330.4) (96.2) (109.9) (109.7) (113.3) (429.1) (126.7) Restructuring and other charges 0.4 0.5 0.3 0.3 1.5 - 0.1 - 0.4 0.5 - Amortization of purchased intangibles and
technology license arrangements (18.4) (19.0) (22.7) (18.5) (78.5) (19.1) (19.3) (19.4) (18.7) (76.6) (17.1) Total adjustments to
operating expenses (104.2) (100.4) (103.5) (99.5) (407.4) (115.4) (129.1) (129.1) (131.6) (505.2) (143.8)
Non-operating income (expense) 1.2 3.3 (1.5) (1.4) 1.6 (2.6) (1.7) (1.0) (2.3) (7.6) (3.0)
Taxes 50.4 9.3 14.6 63.1 137.4 63.2 17.4 24.1 26.0 130.7 (24.0)
Revenue 1,383.3 1,398.7 1,464.0 1,608.4 5,854.4 1,681.6 1,772.2 1,841.1 2,006.6 7,301.5 2,078.9 Cost of revenue 175.2 183.2 184.3 198.6 741.2 213.7 213.4 237.4 245.9 910.4 234.6Gross profit 1,208.1 1,215.5 1,279.7 1,409.8 5,113.2 1,468.0 1,558.8 1,603.7 1,760.7 6,391.2 1,844.3
Operating expenses 772.8 752.0 788.5 820.1 3,133.5 859.9 899.7 903.4 954.7 3,617.7 973.5
Operating income 435.3 463.5 491.1 589.7 1,979.7 608.0 659.1 700.3 806.0 2,773.4 870.9
Non-operating income (expense) (14.3) (11.1) (14.6) (16.9) (56.9) (10.9) (13.2) (5.3) (8.6) (38.0) (3.2)
Income before income taxes 421.0 452.4 476.6 572.8 1,922.8 597.1 645.9 695.0 797.4 2,735.4 867.6Provision for income taxes 88.4 95.0 100.1 120.2 403.7 125.4 135.6 146.0 167.4 574.4 95.4
Net income 332.6 357.4 376.5 452.6 1,519.1 471.7 510.3 549.1 629.9 2,161.0 772.2
Diluted earnings per share 0.66$ 0.71$ 0.75$ 0.90$ 3.01$ 0.94$ 1.02$ 1.10$ 1.26$ 4.31$ 1.55$
Shares Diluted shares outstanding 505.7 504.7 503.7 501.2 504.3 500.9 500.4 500.4 500.1 501.1 499.4
GAAP diluted earnings per share 0.50 0.48 0.54 0.80 2.32 0.80 0.75 0.84 1.00 3.38 1.17 Stock-based and deferred compensation 0.18 0.17 0.17 0.17 0.70 0.21 0.23 0.24 0.24 0.92 0.27 Amortization of purchased intangibles and
technology license arrangements 0.07 0.06 0.07 0.06 0.27 0.07 0.07 0.07 0.07 0.29 0.06Non-operating income (expense) - 0.01 - - - (0.01) - - - (0.02) - Income tax adjustments (0.09) (0.01) (0.03) (0.13) (0.28) (0.13) (0.03) (0.05) (0.05) (0.26) 0.05 Non-GAAP diluted earnings per share 0.66$ 0.71$ 0.75$ 0.90$ 3.01$ 0.94$ 1.02$ 1.10$ 1.26$ 4.31$ 1.55$
GAAP operating margin 22.2% 24.6% 25.2% 29.4% 25.5% 27.9% 28.4% 29.6% 32.4% 29.7% 33.8%Stock-based and deferred compensation 6.6% 6.2% 5.9% 5.4% 6.0% 6.2% 6.7% 6.4% 6.1% 6.3% 6.6%Amortization of purchased intangibles and
technology license arrangements 2.7% 2.3% 2.4% 1.9% 2.3% 2.1% 2.1% 2.0% 1.7% 2.0% 1.5%Non-GAAP operating margin 31.5% 33.1% 33.5% 36.7% 33.8% 36.2% 37.2% 38.0% 40.2% 38.0% 41.9%
Reconciliation of Diluted Earnings Per
Share ($)
Reconciliation of GAAP to Non-GAAP
Operating Margin
GAAP ($Millions, except EPS)
Adjustments to Reconcile to Non-GAAP
($Millions)
Non-GAAP ($Millions, except EPS)
Adobe Systems Investor Relations Data Sheet
The above results are supplied to provide meaningful supplemental information regarding Adobe’s core operating results because such information excludes amounts that are not necessarily related to its core operating results. Adobe uses this non-GAAP financial information in assessing the performance of the Company’s ongoing operations, and for planning and forecasting in future
periods. This non-GAAP information should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.
Last Updated: March 15, 2018
Creative Cloud Creative Cloud Desktop Apps Creative Cloud Mobile Apps
Creative Cloud for individuals Acrobat Pro DC Behance
Creative Cloud for students and teachers After Effects Capture
Creative Cloud for teams Animate Comp
Creative Cloud for enterprises Audition XD (Experience Design)
Creative Cloud for education Bridge Illustrator Draw
Creative Cloud Photography plan Character Animator Photo Editor by Aviary
Dimension Photoshop Express
Services Dreamweaver Photoshop Fix
AIR/Flash Player XD (Experience Design) Photoshop Lightroom for mobile
Aviary Fireworks CS6 Photoshop Mix
Behance Fuse (Beta) Photoshop Sketch
Creative SDK Illustrator Portfolio
Digital Publishing Suite InCopy Prelude Live Logger
Extendscript Toolkit InDesign Premiere Clip
Extension Manager Ink & Slide Preview
Flash Builder Media Encoder Scout
Gaming SDK Muse Spark Page
PhoneGap Build Photoshop Spark Post
Portfolio Photoshop Lightroom Spark Video
Stock Prelude
Story Plus Premiere Pro Consumer Products
Talent Scout Photoshop Elements
Typekit Story Premiere Elements
Acrobat Pro DC Document Cloud ExportPDF Scan
Acrobat Standard DC Document Cloud Send Sign
Reader DC PDF Pack
Adobe Marketing Cloud Adobe Analytics Cloud
Adobe Experience Manager Adobe Target Adobe Analytics
Assets Targeting & Personalization Standard
Communities Search & Merchandising Premium
Forms Mobile App Targeting & Optimization Video
Livefyre Mobile Apps
Mobile Adobe Primetime
Sites PayTV Pass Adobe Audience Manager
TV SDKs (Player, DRM, Packaging) Audience Manager
Adobe Campaign Ad Insertion, Ad Decisioning
Campaign Adobe Advertising Cloud
Adobe Social Adobe Media Optimizer
Social Media Optimizer Search
Media Optimizer DSP (TubeMogul)
Media Optimizer DCO
Authorware eLearning Suite PostScript
Captivate Font Folio Robohelp
ColdFusion FrameMaker Shockwave Player
Connect JRun Technical Communication Suite
Contribute LiveCycle Type
Director PageMaker
FY2018 Business Segment Classifications
Products
Digital Media
Digital Experience
Adobe Experience Cloud
Publishing
Creative
Document Cloud
Adobe provides this information as of the modification date above and makes no commitment to update the information subsequently. For a full explanation of this data, you are encouraged to review Adobe's Form 10-K and 10-Q SEC filings.
Adobe Financial Targets March 15, 2018
Page 1 of 3
This document summarizes financial targets and target commentary provided by Adobe, and reconciles GAAP to non-GAAP targets.
Q2 Fiscal Year 2018 Targets
The following second quarter fiscal year 2018 targets were provided by Adobe on March 15, 2018.
Adobe total revenue ~$2.150 billion
Digital Media segment revenue ~25% year-over-year growth
Digital Experience segment revenue ~15% year-over-year growth
Net non-operating other expense ~$3 million
Tax rate GAAP: ~13% Non-GAAP: ~11%
Share count ~499 million shares
Earnings per share GAAP: ~$1.16 Non-GAAP: ~$1.53
Net new Digital Media annualized recurring revenue (“ARR”) ~$330 million
Adobe expects quarterly revenue, earnings per share and Digital Media ARR results in Q3 and Q4 to follow similar seasonality as was achieved in fiscal year 2017.
Calculating Annualized Recurring Revenue (“ARR”)
Creative ARR
Annual Value of Creative Cloud Subscriptions and Services +
Annual Digital Publishing Suite Contract Value +
Annual Creative ETLA Contract Value
Document Cloud ARR
Annual Value of Document Cloud Subscriptions and Services
+ Annual Document Cloud ETLA Contract Value
Digital Media ARR Creative ARR
+ Document Cloud ARR
Note: ARR targets and results are adjusted for constant currency based on exchange rates in December each year.
Adobe Financial Targets March 15, 2018
Page 2 of 3
Reconciliation of GAAP to Non-GAAP Financial Targets (In millions, except per share data)
The following tables show Adobe's second quarter fiscal year 2018 financial targets reconciled to non-GAAP financial targets included in this document.
Second Quarter Fiscal 2018
Diluted net income per share: GAAP diluted net income per share............................................................................................................................... 1.16 Stock-based and deferred compensation expense ............................................................................................. 0.32 Amortization of purchased intangibles ....................................................................................................................... 0.07 Income tax adjustments.......................................................................................................................................................... (0.02 ) Non-GAAP diluted net income per share .................................................................................................................. 1.53
Shares used to compute diluted net income per share ................................................................................... 499.0
Second Quarter
Fiscal 2018
Effective income tax rate:
GAAP effective income tax rate ......................................................................................................................................... 13.0 %
Stock-based and deferred compensation expense ............................................................................................. (0.8 )
Amortization of purchased intangibles ....................................................................................................................... (0.2 )
Income tax adjustments.......................................................................................................................................................... (2.0 )
Impact of Tax Act .......................................................................................................................................................................... 1.0
Non-GAAP effective income tax rate ............................................................................................................................ 11.0 %
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.
Adobe Financial Targets March 15, 2018
Page 3 of 3
Forward-Looking Statements Disclosure
Our financial targets contain forward-looking statements and projections, including those related to revenue, earnings per share on a GAAP and non-GAAP basis, annualized recurring revenue, share count, non-operating other expense, and tax rate on a GAAP and non-GAAP basis, 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, acquire, market and offer products and services that meet customer requirements, failure to compete effectively, introduction of new technology, complex sales cycles, risks related to the timing of revenue recognition from our subscription offerings, fluctuations in subscription renewal rates, potential interruptions or delays in hosted services provided by us or third parties, risks associated with cyber-attacks, information security and privacy, failure to realize the anticipated benefits of past or future acquisitions, 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 2017 ended Dec. 1, 2017, and Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2018.
Adobe Financial Targets January 22, 2018
Page 1 of 2
This document summarizes financial targets and target commentary provided by Adobe, and reconciles GAAP to non-GAAP targets.
Fiscal Year 2018 Annual Targets
The following annual FY2018 targets and target commentary were provided by Adobe on January 22, 2018.
Adobe total revenue ~$8.725 billion
Digital Media segment revenue ~23% year-over-year growth
Adobe Experience Cloud subscription revenue1 ~20% year-over-year growth
Adobe Experience Cloud total revenue ~15% year-over-year growth
Earnings per share GAAP: ~$4.72 Non-GAAP: ~$6.20
Net new Digital Media annualized recurring revenue (“ARR”) ~$1.1 billion
Adobe Experience Cloud subscription bookings2 ~20% year-over-year growth
1 Includes revenue from SaaS, managed service and term offerings for Adobe Analytics Cloud and Adobe Marketing Cloud, as well as total revenue for Adobe Advertising Cloud
2 Includes annualized subscription value of SaaS, managed service and term offerings under contract for Adobe Analytics Cloud and Adobe Marketing Cloud
During fiscal year 2018, Adobe expects quarterly revenue, earnings per share and Digital Media ARR results to follow similar seasonality as was achieved in fiscal year 2017.
Calculating Annualized Recurring Revenue (“ARR”)
Creative ARR
Annual Value of Creative Cloud Subscriptions and Services +
Annual Digital Publishing Suite Contract Value +
Annual Creative ETLA Contract Value
Document Cloud ARR
Annual Value of Document Cloud Subscriptions and Services
+ Annual Document Cloud ETLA Contract Value
Digital Media ARR Creative ARR
+ Document Cloud ARR
Note: ARR targets and results are adjusted for constant currency based on exchange rates in December each year.
Adobe Financial Targets January 22, 2018
Page 2 of 2
Reconciliation of GAAP to Non-GAAP Financial Targets (In millions, except per share data)
The following table shows Adobe's annual fiscal year 2018 earnings per share target reconciled to the non-GAAP financial target included in this document.
Fiscal Year 2018
Diluted net income per share: GAAP diluted net income per share............................................................................................................................... $ 4.72 Stock-based and deferred compensation expense ............................................................................................. 1.21 Amortization of purchased intangibles ....................................................................................................................... 0.27 Impacts of the Tax Act ................................................................................................................................................................................. 0.17 Income tax adjustments.......................................................................................................................................................... (0.17 ) Non-GAAP diluted net income per share .................................................................................................................. $ 6.20
Shares used to compute diluted net income per share ................................................................................... 500.0
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.
Forward-Looking Statements Disclosure
Our financial targets contain forward-looking statements and projections, including those related to revenue, earnings per share on a GAAP and non-GAAP basis, annualized recurring revenue, subscription bookings, share count, non-operating other expense, and tax rate on a GAAP and non-GAAP basis, 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, acquire, market and offer products and services that meet customer requirements, failure to compete effectively, introduction of new technology, complex sales cycles, risks related to the timing of revenue recognition from our subscription offerings, fluctuations in subscription renewal rates, potential interruptions or delays in hosted services provided by us or third parties, risks associated with cyber-attacks, information security and privacy, failure to realize the anticipated benefits of past or future acquisitions, 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 2017 ended Dec. 1, 2017, and Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2018.
Investor Relations Contact
Mike Saviage Adobe 408-536-4416 [email protected]
Public Relations Contact
Dan Berthiaume Adobe 408-536-2584 [email protected]
FOR IMMEDIATE RELEASE
Adobe Updates Q1 and Fiscal Year 2018 Financial Targets Impact of New U.S. Tax Law Results in Higher Fiscal Year 2018 Earnings Per Share Targets SAN JOSE, Calif. — Jan. 22, 2018 — Adobe (Nasdaq:ADBE) today announced it is updating its financial targets to include expected financial impacts of the Tax Cuts and Jobs Act (the “Tax Act”), which was enacted into law during its first quarter of fiscal year 2018. The updated targets are being provided in connection with today’s filing of Adobe’s annual report on Form 10-K for fiscal year 2017 with the U.S. Securities and Exchange Commission.
Among other provisions, the Tax Act reduces the U.S. corporate income tax rate from 35 percent to 21 percent and imposes a 15.5 percent tax on accumulated foreign earnings effective Jan. 1, 2018. Given Adobe’s fiscal year 2018 began Dec. 2, 2017, the company will have a partial-year impact due to these changes.
Adobe expects its fiscal year 2018 GAAP and non-GAAP effective tax rates will decline substantially from rates in fiscal year 2017, as shown in the table below. The company also expects fiscal year 2019 GAAP and non-GAAP effective tax rates to stabilize at a rate of approximately 18 percent, below its fiscal year 2017 rate of approximately 21 percent.
“The new Tax Act is lowering Adobe’s effective tax rates, driving a significant increase in our earnings per share targets," said Mark Garrett, executive vice president and CFO, Adobe. “With ready access to our offshore cash, we will continue to evaluate investment opportunities to grow our business and we are actively expanding our campuses in the Bay Area and Utah to accommodate the growth of our employee base.”
As of the end of its fiscal year 2017, Adobe had approximately $5.8 billion of cash and cash equivalents on its balance sheet, the majority of which was held offshore. Adobe estimates its accumulated foreign earnings tax obligation related to this will be offset against the company’s previous accrual for the repatriation of prior year foreign earnings. This amount, plus the amount the company expects to incur for remeasuring deferred tax assets, will result in a tax charge of approximately $85 million in Adobe’s first quarter fiscal year 2018 results and is factored into the GAAP effective tax rates provided in the table below.
Expected GAAP Effective Tax Rate Expected Non-GAAP Effective Tax Rate Q1 FY2018 Q2 – Q4 FY2018 Q1 FY2018 Q2 – Q4 FY2018
New target ~17 percent ~13 percent ~11 percent ~11 percent
Previous target ~9 percent ~23 percent ~21 percent ~21 percent
Adobe’s updated non-GAAP effective tax rate targets exclude a one-time financial impact of the tax law, consistent with the company’s long-standing practice of excluding large one-time items in its non-GAAP results.
Page 2 of 5 Adobe Updates Q1 and Fiscal Year 2018 Financial Targets
Updated Financial Targets
As part of today’s update, Adobe reaffirmed its financial targets including