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 Adobe Reports Strong Q4 and Fiscal 2014 Financial Results
   Thursday, December 11, 2014 4:05:25 PM ET

Adobe (ADBE ) today reported financial results for its fourth quarter and fiscal year 2014 ended Nov. 28, 2014.

Fourth Quarter Financial Highlights

-- Adobe achieved revenue of $1.073 billion, near the high end of the targeted range of $1.025 billion to $1.075 billion.

-- Adobe added 644 thousand net new Creative Cloud subscriptions in the quarter.

-- Creative Annualized Recurring Revenue ("ARR") grew to $1.676 billion, and total Digital Media ARR grew to $1.947 billion.

-- Adobe Marketing Cloud revenue was $330 million with record bookings in the quarter.

-- Diluted earnings per share were $0.14 on a GAAP-basis, and $0.36 on a non-GAAP basis.

-- Cash flow from operations was $400 million.

-- Deferred revenue grew to a record $1.155 billion, and unbilled backlog grew to approximately $1.7 billion.

-- 66 percent of Adobe’s Q4 revenue was from recurring sources, compared to 44 percent of Q4 revenue in fiscal 2013.

-- The company repurchased approximately 1.8 million shares during the quarter, returning $127 million of cash to stockholders.

Fiscal Year 2014 Financial Highlights

-- Adobe achieved revenue of $4.147 billion and generated $1.288 billion in operating cash flow during the year.

-- The company reported annual GAAP earnings per share of $0.50 and non-GAAP earnings per share of $1.29.

-- Creative Cloud subscriptions grew by more than two million to 3.454 million. In addition, Adobe grew net new Digital Media ARR by more than $1 billion during the year.

-- Adobe Marketing Cloud achieved a record $1.170 billion in annual revenue, with record annual bookings that is above the company’s target of 30 percent.

-- The company repurchased 10.9 million shares during the year, returning approximately $689 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.

Adobe to Acquire Fotolia

Adobe today announced it has entered into a definitive agreement to acquire privately-held Fotolia, a leading marketplace for stock content. Fotolia will be integrated into Adobe Creative Cloud, providing current and future Creative Cloud members with the ability to access and purchase over 34 million images and videos, significantly simplifying and accelerating the design process. The acquisition of Fotolia cements Creative Cloud’s role as a vibrant marketplace for creatives to buy and sell assets and services as well as showcase their talent to a worldwide audience. Adobe also plans to continue to operate Fotolia as a standalone stock service, accessible to anyone. Additional information is available in a separate press release.

Executive Quotes

"Adobe had an outstanding 2014. Creative Cloud adoption outpaced expectations and the acquisition of Fotolia will add a vibrant marketplace for our customers. Adobe Marketing Cloud, the leader in the explosive digital marketing category, continued to drive strong bookings at the world’s biggest brands, agencies and media companies," said Shantanu Narayen, Adobe president and chief executive officer.

"2014 was a pivotal year for Adobe as we completed our business model transition," said Mark Garrett, Adobe executive vice president and chief financial officer. "In 2015 we expect revenue and earnings to grow sequentially every quarter during the year."

Adobe to Webcast Earnings Conference Call

Adobe will webcast its fourth quarter and fiscal year 2014 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 business momentum, the strength of our cloud business and growth of our bookings, revenue and earnings, and our ability to complete and integrate the acquisition of Fotolia, all of which involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to: failure to develop, market and distribute products and services that meet customer requirements, introduction of new products and business models by competitors, failure to successfully manage transitions to new business models and markets, fluctuations in subscription renewal rates, risks associated with cyber-attacks and information security, potential interruptions or delays in hosted services provided by us or third parties, uncertainty in economic conditions and the financial markets, and failure to realize the anticipated benefits of past or future acquisitions.

For a discussion of these and other risks and uncertainties, please refer to Adobe’s Annual Report on Form 10-K for our fiscal year 2013 ended Nov. 29, 2013 and Adobe’s Quarterly Reports on Form 10-Q issued in fiscal year 2014.

The financial information set forth in this press release reflects estimates based on information available at this time. These amounts could differ from actual reported amounts stated in Adobe’s Annual Report on Form 10-K for our year ended Nov. 28, 2014, which Adobe expects to file in Jan. 2015.

Adobe assumes no obligation to, and does not currently intend to, update these forward-looking statements.

About Adobe Systems Incorporated

Adobe is changing the world through digital experiences. For more information, visit www.adobe.com.

(C) 2014 Adobe Systems Incorporated. All rights reserved. Adobe, the Adobe logo, Creative Cloud and Adobe Marketing Cloud are either registered trademarks or trademarks of Adobe Systems Incorporated in the United States and/or other countries. All other trademarks are the property of their respective owners.

 
Condensed Consolidated Statements of Income
(In thousands, except per share data; unaudited)
                                                                                                                                                
                                                                                                            Three Months Ended                                                                                                  Year Ended
                                                                         -----------------------------------------------------------------------------------------                     ---------------------------------------------------------------------------------------------
                                                                                    November 28,                        November 29,                                            November 28,                          November 29,
                                                                                        2014                                                   2013                                                    2014                                                     2013
                                                                         -------------------------------                        -------------------------------                        ---------------------------------                        ---------------------------------
Revenue:
  Products                                                                  $ 327,951                                              $ 567,232                                              $ 1,627,803                                              $ 2,470,098
  Subscription                                                                628,954                                                359,723                                                2,076,584                                                1,137,856
  Services and support                                                        116,423                             114,744                               442,678                               447,286  
                                                                         ---------------------------------                      ---------------------------------                      -----------------------------------                      -----------------------------------
    Total revenue                                                           1,073,328                           1,041,699                             4,147,065                             4,055,240  
                                                                         ---------------------------------                      ---------------------------------                      -----------------------------------                      -----------------------------------
                                                                                                                                                                                                                                                                
Cost of revenue:
  Products                                                                     21,930                                                 26,803                                                   97,099                                                  138,154
  Subscription                                                                 87,883                                                 77,314                                                  335,432                                                  278,077
  Services and support                                                         51,130                              43,399                               189,549                               170,326  
                                                                         ---------------------------------                      ---------------------------------                      -----------------------------------                      -----------------------------------
    Total cost of revenue                                                     160,943                             147,516                               622,080                               586,557  
                                                                         ---------------------------------                      ---------------------------------                      -----------------------------------                      -----------------------------------
                                                                                                                                                                                                                                                                
Gross profit                                                                  912,385                                                894,183                                                3,524,985                                                3,468,683
                                                                                                                                                                                                                                                                
Operating expenses:
  Research and development                                                    213,687                                                205,196                                                  844,353                                                  826,631
  Sales and marketing                                                         428,362                                                431,540                                                1,671,808                                                1,620,454
  General and administrative                                                  133,534                                                138,358                                                  543,332                                                  520,124
  Restructuring and other charges                                              19,385                                                  2,294                                                   19,883                                                   26,497
  Amortization of purchased intangibles                                        12,412                              13,959                                52,424                                52,254  
                                                                         ---------------------------------                      ---------------------------------                      -----------------------------------                      -----------------------------------
    Total operating expenses                                                  807,380                             791,347                             3,131,800                             3,045,960  
                                                                         ---------------------------------                      ---------------------------------                      -----------------------------------                      -----------------------------------
                                                                                                                                                                                                                                                                
Operating income                                                              105,005                                                102,836                                                  393,185                                                  422,723
                                                                                                                                                                                                                                                                
Non-operating income (expense):
  Interest and other income (expense), net                                        105                                                    695                                                    7,267                                                    4,941
  Interest expense                                                            (12,678 )                                              (16,722 )                                                (59,732 )                                                (67,508 )
  Investment gains (losses), net                                                  343                               1,461                                 1,156                                (4,015 )
                                                                         ---------------------------------                      ---------------------------------                      -----------------------------------                      -----------------------------------
    Total non-operating income (expense), net                                 (12,230 )                                              (14,566 )                                                (51,309 )                                                (66,582 )
                                                                         ---------------------------------                      ---------------------------------                      -----------------------------------                      -----------------------------------
Income before income taxes                                                     92,775                                                 88,270                                                  341,876                                                  356,141
Provision for income taxes                                                     19,483                              22,950                                88,325                                66,156  
                                                                         ---------------------------------                      ---------------------------------                      -----------------------------------                      -----------------------------------
Net income                                                                  $  73,292                           $  65,320                           $   253,551                           $   289,985  
                                                                         ==== ======= ====================                      ==== ======= ====================                      ==== ========= ====================                      ==== ========= ====================
Basic net income per share                                                  $    0.15                           $    0.13                           $      0.51                           $      0.58  
                                                                         ==== ======= ====================                      ==== ======= ====================                      ==== ========= ====================                      ==== ========= ====================
Shares used to compute basic net income per share                             498,124                             499,363                               497,867                               501,372  
                                                                         =================================                      =================================                      ===================================                      ===================================
Diluted net income per share                                                $    0.14                           $    0.13                           $      0.50                           $      0.56  
                                                                         ==== ======= ====================                      ==== ======= ====================                      ==== ========= ====================                      ==== ========= ====================
Shares used to compute diluted net income per share                           507,451                             511,082                               508,480                               513,476  
                                                                         =================================                      =================================                      ===================================                      ===================================
                                                                                                                                                                                                                                                                
Condensed Consolidated Balance Sheets
(In thousands, except par value; unaudited)
                                                                                                                  
                                                                                                          November 28,                                                 November 29,
                                                                                                              2014                                                         2013
                                                                                            -------------------------------------                        -------------------------------------
                                ASSETS
                                                                                                                                                                             
Current assets:
  Cash and cash equivalents                                                                       $  1,117,400                                                 $    834,556
  Short-term investments                                                                             2,622,091                                                    2,339,196
  Trade receivables, net of allowances for doubtful accounts of $7,867                                 591,800                                                      599,820
  and $10,228, respectively
  Deferred income taxes                                                                                 95,586                                                      102,247
  Prepaid expenses and other current assets                                                            175,758                                   170,110  
                                                                                            ---------------------------------------                      ---------------------------------------
    Total current assets                                                                             4,602,635                                                    4,045,929
                                                                                                                                                                             
Property and equipment, net                                                                            785,123                                                      659,774
Goodwill                                                                                             4,721,962                                                    4,771,981
Purchased and other intangibles, net                                                                   469,662                                                      605,254
Investment in lease receivable                                                                          80,439                                                      207,239
Other assets                                                                                           126,315                                    90,121  
                                                                                            ---------------------------------------                      ---------------------------------------
    Total assets                                                                                  $ 10,786,136                              $ 10,380,298  
                                                                                            ======= ========== ====================                      ======= ========== ====================
                                                                                                                                                                             
                 LIABILITIES AND STOCKHOLDERS’ EQUITY
                                                                                                                                                                             
Current liabilities:
  Trade payables                                                                                  $     68,377                                                 $     62,096
  Accrued expenses                                                                                     703,365                                                      656,939
  Debt and capital lease obligations                                                                   603,229                                                       14,676
  Accrued restructuring                                                                                 17,120                                                        6,171
  Income taxes payable                                                                                  20,456                                                       10,222
  Deferred revenue                                                                                   1,097,923                                   775,544  
                                                                                            ---------------------------------------                      ---------------------------------------
    Total current liabilities                                                                        2,510,470                                                    1,525,648
                                                                                                                                                                             
Long-term liabilities:
  Debt and capital lease obligations                                                                   911,086                                                    1,499,297
  Deferred revenue                                                                                      57,401                                                       53,268
  Accrued restructuring                                                                                  5,194                                                        7,717
  Income taxes payable                                                                                 125,746                                                      132,545
  Deferred income taxes                                                                                341,610                                                      375,634
  Other liabilities                                                                                     73,748                                    61,555  
                                                                                            ---------------------------------------                      ---------------------------------------
    Total liabilities                                                                                4,025,255                                                    3,655,664
                                                                                                                                                                             
Stockholders’ equity:
  Preferred stock, $0.0001 par value; 2,000 shares authorized                                   --                                               --
  Common stock, $0.0001 par value                                                                           61                                                           61
  Additional paid-in-capital                                                                         3,778,314                                                    3,392,696
  Retained earnings                                                                                  6,909,451                                                    6,928,964
  Accumulated other comprehensive income (loss)                                                         (8,094 )                                                     46,103
  Treasury stock, at cost (103,350 and 104,573 shares, respectively),                               (3,918,851 )                                                 (3,643,190 )
  net of reissuances
                                                                                            -----------------  --------------------                      -----------------  --------------------
    Total stockholders’ equity                                                                       6,760,881                                 6,724,634  
                                                                                            ---------------------------------------                      ---------------------------------------
    Total liabilities and stockholders’ equity                                                    $ 10,786,136                              $ 10,380,298  
                                                                                            ======= ========== ====================                      ======= ========== ====================
                                                                                                                                                                             
Condensed Consolidated Statements of Cash Flows
(In thousands; unaudited)
                                                                       
                                                                                                                                  Three Months Ended
                                                                                           -------------------------------------------------------------------------------------------------
                                                                                                        November 28,                            November 29,
                                                                                                            2014                                                       2013
                                                                                           ------------------------------------                        ----------------------------------
Cash flows from operating activities:
  Net income                                                                                     $    73,292                                                 $  65,320
  Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation, amortization and accretion                                                            78,147                                                    81,350
  Stock-based compensation expense                                                                    84,949                                                    86,754
  Unrealized investment gains, net                                                                      (121 )                                                  (1,741 )
  Changes in deferred revenue                                                                        158,712                                                    94,737
  Changes in other operating assets and liabilities                                                    4,953                                (11,438 )
                                                                                           --------------------------------------                      ------------------------------------
    Net cash provided by operating activities                                                        399,932                                314,982  
                                                                                           --------------------------------------                      ------------------------------------
                                                                                                                                                                        
Cash flows from investing activities:
  Purchases, sales and maturities of short-term investments, net                                      (8,474 )                                                  11,140
  Purchases of property and equipment                                                                (36,775 )                                                 (35,121 )
  Proceeds from the sale of property and equipment                                            --                                                    24,260
  Purchases and sales of long-term investments, intangibles and other                                 (2,908 )                                                    (294 )
  assets, net
  Acquisitions, net of cash                                                                          (29,802 )                                          --  
                                                                                           --------------------------------------                      ------------------------------------
    Net cash used for investing activities                                                           (77,959 )                                                     (15 )
                                                                                           --------------------------------------                      ------------------------------------
                                                                                                                                                                        
Cash flows from financing activities:
  Purchases of treasury stock                                                                       (125,000 )                                                (400,000 )
  Proceeds from reissuance of treasury stock, net                                                      3,619                                                    64,892
  Repayment of debt and capital lease obligations                                                     (3,253 )                                                  (6,041 )
  Excess tax benefits from stock-based compensation                                                   21,102                                 40,619  
                                                                                           --------------------------------------                      ------------------------------------
    Net cash used for financing activities                                                          (103,532 )                                                (300,530 )
                                                                                           --------------------------------------                      ------------------------------------
Effect of exchange rate changes on cash and cash equivalents                                          (4,370 )                                                   1,034  
                                                                                           --------------------------------------                      ------------------------------------
Net increase in cash and cash equivalents                                                            214,071                                                    15,471
Cash and cash equivalents at beginning of period                                                     903,329                                819,085  
                                                                                           --------------------------------------                      ------------------------------------
Cash and cash equivalents at end of period                                                       $ 1,117,400                              $ 834,556  
                                                                                           ======= ========= ====================                      ======= ======= ====================
                                                                                                                                                                        
Non-GAAP Results
(In thousands, except per share data)
The following tables show Adobe’s GAAP results reconciled to
non-GAAP results included in this release.
                                                                                                                                                                                                                       
                                                                                                                                                   Three Months Ended                                                                                                                                   Year Ended
                                                                                ---------------------------------------------------------------------------------------------------------------------------------------------------------                     -----------------------------------------------------------------------------------------------
                                                                                            November 28,                           November 29,                            August 29,                                               November 28,                           November 29,
                                                                                                2014                                                      2013                                                      2014                                                      2014                                                      2013
                                                                                ----------------------------------                        ----------------------------------                        ----------------------------------                        ----------------------------------                        ----------------------------------
Operating income:
                                                                                                                                                                                                                                                                                                                                         
GAAP operating income                                                                 $ 105,005                                                 $ 102,836                                                 $  74,176                                                 $ 393,185                                                 $ 422,723
Stock-based and deferred compensation expense                                            85,025                                                    86,468                                                    83,682                                                   335,856                                                   332,289
Restructuring and other charges                                                          19,385                                                     2,294                                                       201                                                    19,883                                                    26,497
Amortization of purchased intangibles & technology license                               31,331                                                    32,789                                                    31,780                                                   127,000                                                   153,840
arrangements
Loss contingency                                                                 --                         --                         --                                 10,000                         --  
                                                                                ------------------------------------                      ------------------------------------                      ------------------------------------                      ------------------------------------                      ------------------------------------
Non-GAAP operating income                                                             $ 240,746                              $ 224,387                              $ 189,839                              $ 885,924                              $ 935,349  
                                                                                ======= ======= ====================                      ======= ======= ====================                      ======= ======= ====================                      ======= ======= ====================                      ======= ======= ====================
                                                                                                                                                                                                                                                                                                                                         
Net income:
                                                                                                                                                                                                                                                                                                                                         
GAAP net income                                                                       $  73,292                                                 $  65,320                                                 $  44,686                                                 $ 253,551                                                 $ 289,985
Stock-based and deferred compensation expense                                            85,025                                                    86,468                                                    83,682                                                   335,856                                                   332,289
Restructuring and other charges                                                          19,385                                                     2,294                                                       201                                                    19,883                                                    26,497
Amortization of purchased intangibles & technology license                               31,331                                                    32,789                                                    31,780                                                   127,000                                                   153,840
arrangements
Investment (gains) losses                                                                  (343 )                                                  (1,461 )                                                    (669 )                                                  (1,156 )                                                   4,015
Loss contingency                                                                 --                                            --                                            --                                                    10,000                                            --
Income tax adjustments                                                                  (28,433 )                                                 (20,806 )                                                 (19,114 )                                                 (86,701 )                                                (116,897 )
                                                                                ------------------------------------                      ------------------------------------                      ------------------------------------                      ------------------------------------                      ------------------------------------
Non-GAAP net income                                                                   $ 180,257                              $ 164,604                              $ 140,566                              $ 658,433                              $ 689,729  
                                                                                ======= ======= ====================                      ======= ======= ====================                      ======= ======= ====================                      ======= ======= ====================                      ======= ======= ====================
                                                                                                                                                                                                                                                                                                                                         
Diluted net income per share:
                                                                                                                                                                                                                                                                                                                                         
GAAP diluted net income per share                                                     $    0.14                                                 $    0.13                                                 $    0.09                                                 $    0.50                                                 $    0.56
Stock-based and deferred compensation expense                                              0.17                                                      0.17                                                      0.16                                                      0.66                                                      0.65
Restructuring and other charges                                                            0.04                                            --                                            --                                                      0.04                                                      0.05
Amortization of purchased intangibles & technology license                                 0.06                                                      0.06                                                      0.06                                                      0.25                                                      0.30
arrangements
Investment (gains) losses                                                        --                                            --                                            --                                            --                                                      0.01
Loss contingency                                                                 --                                            --                                            --                                                      0.02                                            --
Income tax adjustments                                                                    (0.05 )                                                   (0.04 )                                                   (0.03 )                                                   (0.18 )                                                   (0.23 )
                                                                                ------------------------------------                      ------------------------------------                      ------------------------------------                      ------------------------------------                      ------------------------------------
Non-GAAP diluted net income per share                                                 $    0.36                              $    0.32                              $    0.28                              $    1.29                              $    1.34  
                                                                                ======= ======= ====================                      ======= ======= ====================                      ======= ======= ====================                      ======= ======= ====================                      ======= ======= ====================
                                                                                                                                                                                                                                                                                                                                         
Shares used in computing diluted net income per share                                   507,451                                                   511,082                                                   507,811                                                   508,480                                                   513,476
                                                                                                                                                                                                                                                                                                                                         

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 that may include 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, loss contingencies and the related tax impact of all of these items, income tax adjustments, the income tax effect of the non-GAAP pre-tax adjustments from the provision for income taxes, and the non-GAAP measures that exclude such information in order to assess the performance of Adobe’s business and for planning and forecasting in subsequent periods. Whenever Adobe uses such a non-GAAP financial measure, it provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed above.

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20141211006323r1&sid=cmtx6&distro=nx&lang=en

SOURCE: Adobe Systems Incorporated

Investor Relations Contact 
Adobe 
Mike Saviage, 408-536-4416 
ir@adobe.com 
or 
Public Relations Contact 
Adobe 
Colleen Rodriguez, 408-536-6803 
corodrig@adobe.com


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