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 Adobe Achieves Record Revenue
   Tuesday, June 20, 2017 4:05:00 PM ET

Adobe (ADBE ) today reported financial results for its second quarter fiscal year 2017 ended June 2, 2017.

Financial Highlights

-- Adobe achieved record quarterly revenue of $1.77 billion in its second quarter of fiscal year 2017.

-- Diluted earnings per share was $0.75 on a GAAP-basis, and $1.02 on a non-GAAP basis.

-- Digital Media segment revenue was $1.21 billion, with Creative revenue growing to a record $1.01 billion.

-- Strong Creative Cloud and Document Cloud adoption and retention drove Digital Media Annualized Recurring Revenue ("ARR") to $4.56 billion exiting the quarter, a quarter-over-quarter increase of $312 million.

-- Adobe Experience Cloud achieved record revenue of $495 million, which represents 29 percent year-over-year growth.

-- Operating income grew 46 percent and net income grew 53 percent year-over-year on a GAAP-basis; operating income grew 42 percent and net income grew 43 percent year-over-year on a non-GAAP basis.

-- Cash flow from operations was $645 million, and deferred revenue grew to approximately $2.07 billion.

-- The company repurchased approximately 2 million shares during the quarter, returning $266 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

"Digital transformation continues to be the burning agenda for creative professionals, enterprises, governments and educational institutions," said Shantanu Narayen, president and CEO, Adobe. "Adobe is the go-to company for creating world-class digital customer journeys from design to delivery to measurement and monetization."

"Adobe continues to execute well, with another quarter of record revenue and operating profit in Q2," said Mark Garrett, executive vice president and CFO, Adobe. "We’re excited about the strong business momentum we have as we enter the second half of fiscal 2017 and remain confident in our ability to drive strong revenue and earnings growth in the future."

Adobe to Webcast Earnings Conference Call

Adobe will webcast its second quarter fiscal year 2017 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 the relevance of our products to our customers, business momentum, 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, market and offer products and services that meet customer requirements, introduction of new products, services and business models by competitors, fluctuations in subscription renewal rates, failure to successfully manage transitions to new business models and markets, uncertainty in economic conditions and the financial markets, complex and unpredictable sales cycles for some enterprise offerings, risks associated with cyber-attacks and information security, potential interruptions or delays in hosted services provided by us or third parties, changes in accounting principles, and failure to realize the anticipated benefits of past or future acquisitions. For a discussion of these and other risks and uncertainties, please refer to Adobe’s Annual Report on Form 10-K for our fiscal year 2016 ended Dec. 2, 2016, and Adobe’s Quarterly Reports on Form 10-Q issued in fiscal year 2017.

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 June 2, 2017, which Adobe expects to file in June 2017.

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

About Adobe Systems Incorporated

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

(C) 2017 Adobe Systems Incorporated. All rights reserved. Adobe and the Adobe logo are either registered trademarks or trademarks of Adobe Systems Incorporated in the United States and/or other countries. All other trademarks are the property of their respective owners.

                                                                                                                                               
Condensed Consolidated Statements of Income
(In thousands, except per share data; unaudited)
                                                                                                                                                                                       
                                                                                                            Three Months Ended                                                                            Six Months Ended
                                                                         ------------------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------
                                                                                        June 2,                            June 3,                                                June 2,                                June 3,
                                                                                         2017*                                                 2016                                                   2017*                                                     2016
                                                                         ---------------------------------                        -----------------------------                       ---------------------------------                        -----------------------------------
Revenue:
   Subscription                                                             $ 1,483,690                                           1,083,708                                              $ 2,867,546                                                $ 2,153,958
   Product                                                                      171,545                                             196,500                                                  354,930                                                    397,612
   Services and support                                                         116,955                          118,501                               231,360                                 230,474  
                                                                         -----------------------------------                      --------- --------------------                      -----------------------------------                      -------------------------------------
      Total revenue                                                           1,772,190                        1,398,709                             3,453,836            2,782,044  
                                                                         -----------------------------------                      --------- --------------------                      ----------------------------------- -------------------- -------------------------------------
                                                                                                                                                                                                                                                
Cost of revenue:
   Subscription                                                                 142,734                                             115,399                                                  283,915                                                    222,674
   Product                                                                       15,488                                              15,756                                                   29,821                                                     36,055
   Services and support                                                          81,138                           70,924                               162,961                                 141,922  
                                                                         -----------------------------------                      --------- --------------------                      -----------------------------------                      -------------------------------------
      Total cost of revenue                                                     239,360                          202,079                               476,697              400,651  
                                                                         -----------------------------------                      --------- --------------------                      ----------------------------------- -------------------- -------------------------------------
                                                                                                                                                                                                                                                
Gross profit                                                                  1,532,830                                           1,196,630                                                2,977,139                                                  2,381,393
                                                                                                                                                                                                                                                
Operating expenses:
   Research and development                                                     299,401                                             232,484                                                  584,478                                                    469,688
   Sales and marketing                                                          553,098                                             462,789                                                1,073,395                                                    937,680
   General and administrative                                                   156,929                                             138,130                                                  307,737                                                    284,646
   Amortization of purchased intangibles                                         19,320                           18,988                                38,448                                  37,382  
                                                                         -----------------------------------                      --------- --------------------                      -----------------------------------                      -------------------------------------
      Total operating expenses                                                1,028,748                          852,391                             2,004,058                               1,729,396  
                                                                         -----------------------------------                      --------- --------------------                      -----------------------------------                      -------------------------------------
                                                                                                                                                                                                                                                
Operating income                                                                504,082                                             344,239                                                  973,081                                                    651,997
                                                                                                                                                                                                                                                
Non-operating income (expense):
   Interest and other income (expense), net                                       5,154                                               6,083                                                   12,360                                                     10,270
   Interest expense                                                             (18,347 )                                           (17,174 )                                                (36,477 )                                                  (35,643 )
   Investment gains (losses), net                                                 1,729                           (3,318 )                                                  4,286                                  (4,487 )
                                                                         -----------------------------------                      --------- --------------------                      -----------------------------------                      -------------------------------------
      Total non-operating income (expense), net                                 (11,464 )                                           (14,409 )                                                (19,831 )                                                  (29,860 )
                                                                         -----------------------------------                      --------- --------------------                      -----------------------------------                      -------------------------------------
Income before income taxes                                                      492,618                                             329,830                                                  953,250                                                    622,137
Provision for income taxes                                                      118,228                           85,756                               180,414                                 123,756  
                                                                         -----------------------------------                      --------- --------------------                      -----------------------------------                      -------------------------------------
Net income                                                                      374,390                          244,074                           $   772,836                             $   498,381  
                                                                         ===================================                      ========= ====================                      ==== ========= ====================                      ====== ========= ====================
Basic net income per share                                                         0.76                             0.49                           $      1.56                             $      1.00  
                                                                         ===================================                      ========= ====================                      ==== ========= ====================                      ====== ========= ====================
Shares used to compute basic net income per share                               494,371                          499,974                               494,492                                 499,534  
                                                                         ===================================                      ========= ====================                      ===================================                      =====================================
Diluted net income per share                                                       0.75                             0.48                           $      1.54                             $      0.99  
                                                                         ===================================                      ========= ====================                      ==== ========= ====================                      ====== ========= ====================
Shares used to compute diluted net income per share                             500,351                          504,725                               501,032                                 505,666  
                                                                         ===================================                      ========= ====================                      ===================================                      =====================================
_________________________________________
*
   We early adopted ASU No. 2016-09, Improvements to Employee
   Share-Based Payment Accounting, during the first quarter of
   fiscal 2017. As required by the standard, excess tax benefits
   recognized on stock-based compensation expense were reflected in
   our provision for income taxes rather than paid-in capital on a
   prospective basis. We recorded excess tax benefits within our
   provision for income taxes, rather than paid-in capital, starting
   the first quarter of fiscal 2017.
                                                                                                                       
Condensed Consolidated Balance Sheets
(In thousands, except par value; unaudited)
                                                                                                                                                               
                                                                                                                  June 2,                                                    December 2,
                                                                                                                   2017                                                         2016
                                                                                                 -------------------------------------                        -------------------------------------
                                   ASSETS
                                                                                                                                                               
Current assets:
   Cash and cash equivalents                                                                           $  1,316,950                                                 $  1,011,315
   Short-term investments                                                                                 3,614,563                                                    3,749,985
   Trade receivables, net of allowances for doubtful accounts of $9,201                                     901,452                                                      833,033
   and $6,214, respectively
   Prepaid expenses and other current assets                                                                219,232                                   245,441  
                                                                                                 ---------------------------------------                      ---------------------------------------
      Total current assets                                                                                6,052,197                                                    5,839,774
                                                                                                                                                               
Property and equipment, net                                                                                 924,108                                                      816,264
Goodwill                                                                                                  5,788,703                                                    5,406,474
Purchased and other intangibles, net                                                                        453,834                                                      414,405
Investment in lease receivable                                                                       --                                                       80,439
Other assets                                                                                                146,058                                   139,890  
                                                                                                 ---------------------------------------                      ---------------------------------------
      Total assets                                                                                     $ 13,364,900                              $ 12,697,246  
                                                                                                 ======= ========== ====================                      ======= ========== ====================
                                                                                                                                                               
       LIABILITIES AND STOCKHOLDERS’ EQUITY
                                                                                                                                                               
Current liabilities:
   Trade payables                                                                                      $     77,905                                                 $     88,024
   Accrued expenses                                                                                         865,385                                                      739,630
   Income taxes payable                                                                                      98,653                                                       38,362
   Deferred revenue                                                                                       2,005,953                                 1,945,619  
                                                                                                 ---------------------------------------                      ---------------------------------------
      Total current liabilities                                                                           3,047,896                                                    2,811,635
                                                                                                                                                               
Long-term liabilities:
   Debt                                                                                                   1,888,398                                                    1,892,200
   Deferred revenue                                                                                          69,039                                                       69,131
   Income taxes payable                                                                                     163,624                                                      184,381
   Deferred income taxes                                                                                    279,649                                                      217,660
   Other liabilities                                                                                        112,296                                    97,404  
                                                                                                 ---------------------------------------                      ---------------------------------------
      Total liabilities                                                                                   5,560,902                                                    5,272,411
                                                                                                                                                               
Stockholders’ equity:
   Preferred stock, $0.0001 par value; 2,000 shares authorized                                       --                                               --
   Common stock, $0.0001 par value                                                                               61                                                           61
   Additional paid-in-capital                                                                             4,836,786                                                    4,616,331
   Retained earnings                                                                                      8,652,752                                                    8,114,517
   Accumulated other comprehensive income (loss)                                                           (146,752 )                                                   (173,602 )
   Treasury stock, at cost (107,510 and 106,580 shares, respectively),                                   (5,538,849 )                                                 (5,132,472 )
   net of reissuances
                                                                                                 -----------------  --------------------                      -----------------  --------------------
      Total stockholders’ equity                                               7,803,998                                 7,424,835  
                                                                                                 ---------------------------------------                      ---------------------------------------
      Total liabilities and stockholders’ equity                            $ 13,364,900                              $ 12,697,246  
                                                                                                 ======= ========== ====================                      ======= ========== ====================
                                                                        
Condensed Consolidated Statements of Cash Flows
(In thousands; unaudited)
                                                                                             
                                                                                                                                   Three Months Ended
                                                                                            ------------------------------------------------------------------------------------------------
                                                                                                            June 2,                                 June 3,
                                                                                                             2017*                                                      2016
                                                                                            ------------------------------------                        ---------------------------------
Cash flows from operating activities:
   Net income                                                                                     $   374,390                                                $ 244,074
   Adjustments to reconcile net income to net cash provided by
   operating activities:
      Depreciation, amortization and accretion                                                         81,635                                                   84,461
      Stock-based compensation expense                                                                116,049                                                   85,570
      Unrealized investment (gains) losses, net                                                        (1,579 )                                                  3,340
      Changes in deferred revenue                                                                      14,746                                                   68,356
      Changes in other operating assets and liabilities                                                59,586                                 2,914  
                                                                                            --------------------------------------                      -----------------------------------
         Net cash provided by operating activities                                                    644,827                               488,715  
                                                                                            --------------------------------------                      -----------------------------------
                                                                                                                                                         
Cash flows from investing activities:
   Purchases, sales and maturities of short-term investments, net                                     (30,079 )                                               (148,797 )
   Purchases of property and equipment                                                                (55,297 )                                                (53,759 )
   Purchases and sales of long-term investments, intangibles and other                                 (2,171 )                                                   (522 )
   assets, net
   Acquisitions, net of cash                                                                   --                               (48,427 )
                                                                                            --------------------------------------                      -----------------------------------
         Net cash used for investing activities                                                       (87,547 )                                               (251,505 )
                                                                                            --------------------------------------                      -----------------------------------
                                                                                                                                                         
Cash flows from financing activities:
   Purchases of treasury stock                                                                       (300,000 )                                               (225,000 )
   Taxes paid related to net share settlement of equity awards, net of                                (13,788 )                                                 (6,297 )
   proceeds from treasury stock reissuances
   Repayment of capital lease obligations                                                                (644 )                                                    (21 )
   Excess tax benefits from stock-based compensation                                           --                                50,430  
                                                                                            --------------------------------------                      -----------------------------------
      Net cash used for financing activities                                                         (314,432 )                                               (180,888 )
                                                                                            --------------------------------------                      -----------------------------------
Effect of exchange rate changes on cash and cash equivalents                                            5,206                                  (639 )
                                                                                            --------------------------------------                      -----------------------------------
Net increase in cash and cash equivalents                                                             248,054                                                   55,683
Cash and cash equivalents at beginning of period                                                    1,068,896                               830,696  
                                                                                            --------------------------------------                      -----------------------------------
Cash and cash equivalents at end of period                                                        $ 1,316,950                             $ 886,379  
                                                                                            ======= ========= ====================                      ====== ======= ====================
_________________________________________
*
   We early adopted ASU No. 2016-09, Improvements to Employee
   Share-Based Payment Accounting, during the first quarter of
   fiscal 2017. As required by the standard, excess tax benefits
   recognized on stock-based compensation expense were reflected in
   our provision for income taxes rather than paid-in capital on a
   prospective basis. We also elected to prospectively apply the
   change in presentation of excess tax benefits wherein excess tax
   benefits recognized on stock-based compensation expense were
   classified as operating activities in our condensed consolidated
   statements of cash flows starting the first quarter of fiscal
   2017. Prior period classification of cash flows related to excess
   tax benefits was not adjusted.
                                                       
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
                                                                           ------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          June 2,                               June 3,                             March 3,
                                                                                           2017                                                     2016                                                    2017
                                                                           ----------------------------------                        -------------------------------                        ----------------------------------
Operating income:
                                                                                                                                                                                             
GAAP operating income                                                            $ 504,082                                              $ 344,239                                                 $ 468,999
Stock-based and deferred compensation expense                                      118,591                                                 87,209                                                   103,578
Restructuring and other charges                                                        (97 )                                                 (466 )                                          --
Amortization of purchased intangibles                                               36,556                              32,567                                 35,464  
                                                                           ------------------------------------                      ---------------------------------                      ------------------------------------
Non-GAAP operating income                                                        $ 659,132                           $ 463,549                              $ 608,041  
                                                                           ======= ======= ====================                      ==== ======= ====================                      ======= ======= ====================
                                                                                                                                                                                             
Net income:
                                                                                                                                                                                             
GAAP net income*                                                                 $ 374,390                                              $ 244,074                                                 $ 398,446
Stock-based and deferred compensation expense                                      118,591                                                 87,209                                                   103,578
Restructuring and other charges                                                        (97 )                                                 (466 )                                          --
Amortization of purchased intangibles                                               36,556                                                 32,567                                                    35,464
Investment (gains) losses, net                                                      (1,729 )                                                3,318                                                    (2,557 )
Income tax adjustments                                                             (17,419 )                                               (9,260 )                                                 (63,209 )
                                                                           ------------------------------------                      ---------------------------------                      ------------------------------------
Non-GAAP net income                                                              $ 510,292                           $ 357,442                              $ 471,722  
                                                                           ======= ======= ====================                      ==== ======= ====================                      ======= ======= ====================
                                                                                                                                                                                             
Diluted net income per share:
                                                                                                                                                                                             
GAAP diluted net income per share*                                               $    0.75                                              $    0.48                                                 $    0.80
Stock-based and deferred compensation expense                                         0.23                                                   0.17                                                      0.21
Amortization of purchased intangibles                                                 0.07                                                   0.06                                                      0.07
Investment (gains) losses, net                                              --                                                   0.01                                                     (0.01 )
Income tax adjustments                                                               (0.03 )                                                (0.01 )                                                   (0.13 )
                                                                           ------------------------------------                      ---------------------------------                      ------------------------------------
Non-GAAP diluted net income per share                                            $    1.02                           $    0.71                              $    0.94  
                                                                           ======= ======= ====================                      ==== ======= ====================                      ======= ======= ====================
                                                                                                                                                                                             
Shares used in computing diluted net income per share                              500,351                                                504,725                                                   500,861
                                               
                                                                       Three Months
                                                                           Ended
                                                                   -------------------
                                                                          June 2,
                                                                           2017
                                                                   -------------------
Effective income tax rate:
                                                                    
GAAP effective income tax rate*                                          24.0         %
Stock-based and deferred compensation expense                            (1.1 )
Amortization of purchased intangibles                                    (0.4 )
Income tax adjustments                                                   (1.5 )
                                                                   ---------- ---------
Non-GAAP effective income tax rate**                                     21.0         %
                                                                   ========== =========
_________________________________________
*
    We early adopted ASU No. 2016-09, Improvements to Employee
    Share-Based Payment Accounting, during the first quarter of
    fiscal 2017. As required by the standard, excess tax benefits
    recognized on stock-based compensation expense were reflected in
    our provision for income taxes rather than paid-in capital on a
    prospective basis. We recorded excess tax benefits within our
    provision for income taxes, rather than paid-in capital, starting
    the first quarter of fiscal 2017.
    
**  Our non-GAAP effective income tax rate of 21% is an annualized rate
    based on estimates for the entire fiscal year, whereas the GAAP
    effective income tax rate of 24% 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.

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20170620006436r1&sid=cmtx6&distro=nx&

View source version on businesswire.com: http://www.businesswire.com/news/home/20170620006436/en/

SOURCE: Adobe

Investor Relations Contact 
Adobe 
Mike Saviage, 408-536-4416 
ir@adobe.com 
or 
Public Relations Contact 
Adobe 
Dan Berthiaume, 408-536-2584 
dberthia@adobe.com


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