Business Wire | Mar 23, 2021 04:05PM EDT

Adobe Raises Annual Targets on Strong Q1 Results

Mar. 23, 2021

SAN JOSE, Calif.--(BUSINESS WIRE)--Mar. 23, 2021--Adobe (Nasdaq:ADBE) today reported financial results for its first quarter fiscal year 2021 ended March 5, 2021.

First Quarter Fiscal Year 2021 Financial Highlights

* Adobe achieved record quarterly revenue of $3.91 billion in its first quarter of fiscal year 2021, which represents 26 percent year-over-year growth. Diluted earnings per share was $2.61 on a GAAP basis, representing 33 percent year-over-year growth, and $3.14 on a non-GAAP basis, representing 38 percent year-over-year growth. * Digital Media segment revenue was $2.86 billion, which represents 32 percent year-over-year growth. Creative revenue grew to $2.38 billion, representing 31 percent year-over-year growth. Document Cloud revenue was $480 million, representing 37 percent year-over-year growth. * Digital Media Annualized Recurring Revenue ("ARR") increased $435 million quarter-over-quarter to $10.69 billion exiting the quarter. Creative ARR grew to $9.12 billion and Document Cloud ARR grew to $1.57 billion. * Digital Experience segment revenue was $934 million, representing 24 percent year-over-year growth. Digital Experience subscription revenue was $812 million, representing 27 percent year-over-year growth. * GAAP operating income in the first quarter was $1.45 billion, and non-GAAP operating income was $1.83 billion. GAAP net income was $1.26 billion, and non-GAAP net income was $1.52 billion. * Cash flows from operations were $1.77 billion. * Remaining Performance Obligation ("RPO") exiting the quarter was $11.61 billion, representing 17 percent year-over-year growth. * Adobe repurchased approximately 1.9 million shares during the quarter.

Adobe's first quarter fiscal 2021 results benefited from an extra week in the quarter due to the company's 52/53 week financial calendar whereby fiscal 2021 is a 53-week year compared with fiscal 2020, which was a 52-week year.

A reconciliation between GAAP and non-GAAP results is provided at the end of this press release and on Adobe's website.

Executive Quotes

"Adobe drove record Q1 revenue and we are raising our annual targets based on the tremendous opportunity across our business and our continued confidence in our global execution," said Shantanu Narayen, president and CEO, Adobe. "Adobe's Creative Cloud, Document Cloud and Experience Cloud have become mission critical to all customer segments-from students to individuals to large enterprises-across the world."

"Our execution in the first quarter was strong, driving accelerated revenue growth and earnings," said John Murphy, executive vice president and CFO, Adobe. "Adobe is unique in its ability to drive both top-line and bottom-line growth with strong cash flows and margins."

Adobe Provides Second Quarter Financial Targets

The following table summarizes Adobe's second quarter fiscal year 2021 targets:

Total revenue ~$3.72 billion

Digital Media segment revenue ~21 percent year-over-year growth

Digital Media annualized recurring ~$450 million of net new ARRrevenue (ARR)

Digital Experience segment revenue ~18 percent year-over-year growth

Digital Experience subscription revenue ~20 percent year-over-year growth

Tax rate GAAP: ~19.5 Non-GAAP: ~16 percent percent

Share count ~482 million shares

Earnings per share GAAP: ~$2.09 Non-GAAP: ~$2.81

Adobe Provides Updated Fiscal 2021 Annual Targets

Adobe today is providing updated fiscal 2021 annual targets, factoring in the company's strong first quarter business performance and the momentum reflected in the company's second quarter targets.

The following table summarizes Adobe's updated fiscal year 2021 targets:

Total revenue ~$15.45 billion

Digital Media segment revenue ~22 percent year-over-year growth

Digital Media annualized recurring ~$1.8 billion of net new ARRrevenue (ARR)

Digital Experience segment revenue ~20 percent year-over-year growth

Digital Experience subscription revenue ~23 percent year-over-year growth

Tax rate GAAP: ~17.5 Non-GAAP: ~16 percent percent

Share count ~481 million shares

Earnings per share GAAP: ~$9.13 Non-GAAP: ~$11.85

A reconciliation between GAAP and non-GAAP targets is provided at the end of this press release.

Adobe to Webcast First Quarter Earnings Conference Call

Adobe will webcast its first quarter fiscal year 2021 earnings conference call today at 2:00 p.m. Pacific Time from its investor relations website: www.adobe.com/ADBE. Earnings documents, including Adobe management's prepared conference call remarks with slides and an investor datasheet are posted to Adobe's investor relations website in advance of the conference call for reference. A reconciliation between GAAP and non-GAAP earnings results and financial targets is also provided on the website.

Forward-Looking Statements Disclosure

This press release contains forward-looking statements, including those related to business momentum, the financial impacts of the Workfront acquisition, the effects of the COVID-19 pandemic on our business and results of operations, our market opportunity, market trends, current macroeconomic conditions, customer success, revenue, operating margin, seasonality, annualized recurring revenue, tax rate on a GAAP and non-GAAP basis, earnings per share on a GAAP and non-GAAP basis, and share count, all of which involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to: failure to compete effectively, failure to develop, acquire, market and offer products and services that meet customer requirements, introduction of new technology, information security and privacy, potential interruptions or delays in hosted services provided by us or third parties, macroeconomic conditions and economic impact of the COVID-19 pandemic, risks associated with cyber-attacks, complex sales cycles, risks related to the timing of revenue recognition from our subscription offerings, fluctuations in subscription renewal rates, failure to realize the anticipated benefits of past or future acquisitions, failure to effectively manage critical strategic third-party business relationships, changes in accounting principles and tax regulations, uncertainty in the financial markets and economic conditions in the countries where we operate, and other various risks associated with being a multinational corporation. For a discussion of these and other risks and uncertainties, please refer to Adobe's Annual Report on Form 10-K for our fiscal year 2020 ended Nov. 27, 2020, and Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2021.

The financial information set forth in this press release reflects estimates based on information available at this time. These amounts could differ from actual reported amounts stated in Adobe's Quarterly Report on Form 10-Q for our quarter ended March 5, 2021, which Adobe expects to file in late March or early April 2021. Adobe assumes no obligation to, and does not currently intend to, update these forward-looking statements.

About Adobe

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

(c)2021 Adobe. All rights reserved. Adobe, Creative Cloud, Document Cloud and the Adobe logo are either registered trademarks or trademarks of Adobe (or one of its subsidiaries) in the United States and/or other countries. All other trademarks are the property of their respective owners.

Condensed Consolidated Statements of Income

(In millions, except per share data; unaudited)



Three Months Ended

March 5, February 28, 2021 2020

Revenue:

Subscription $ 3,584 $ 2,732

Product 155 143

Services and other 166 216

Total revenue 3,905 3,091



Cost of revenue:

Subscription 324 274

Product 10 7

Services and other 113 171

Total cost of revenue 447 452



Gross profit 3,458 2,639



Operating expenses:

Research and development 620 532

Sales and marketing 1,049 857

General and administrative 290 271

Amortization of intangibles 45 42

Total operating expenses 2,004 1,702



Operating income 1,454 937



Non-operating income (expense):

Interest expense (30 ) (33 )

Investment gains (losses), net 5 (3 )

Other income (expense), net 4 18

Total non-operating income (expense), net (21 ) (18 )

Income before income taxes 1,433 919

Provision for (benefit from) income taxes 172 (36 )

Net income $ 1,261 $ 955

Basic net income per share $ 2.63 $ 1.98

Shares used to compute basic net income per 479 482 share

Diluted net income per share $ 2.61 $ 1.96

Shares used to compute diluted net income per 483 488 share

Condensed Consolidated Balance Sheets

(In millions; unaudited)

March 5, 2021

November 27, 2020

ASSETS

Current assets:

Cash and cash equivalents

$

3,452

$

4,478

Short-term investments

1,511

1,514

Trade receivables, net of allowances for doubtful accounts of $21 for both periods

1,520

1,398

Prepaid expenses and other current assets

901

756

Total current assets

7,384

8,146

Property and equipment, net

1,530

1,517

Operating lease right-of-use assets, net

477

487

Goodwill

11,845

10,742

Other intangibles, net

1,729

1,359

Deferred income taxes

1,262

1,370

Other assets

758

663

Total assets

$

24,985

$

24,284

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Trade payables

$

254

$

306

Accrued expenses

1,243

1,422

Deferred revenue

4,134

3,629

Income taxes payable

81

63

Operating lease liabilities

94

92

Total current liabilities

5,806

5,512

Long-term liabilities:

Debt

4,119

4,117

Deferred revenue

151

130

Income taxes payable

540

529

Deferred income taxes

81

10

Operating lease liabilities

494

499

Other liabilities

248

223

Total liabilities

11,439

11,020

Stockholders' equity:

Preferred stock

-

-

Common stock

-

-

Additional paid-in-capital

7,617

7,357

Retained earnings

20,521

19,611

Accumulated other comprehensive income (loss)

(141

)

(158

)

Treasury stock, at cost

(14,451

)

(13,546

)

Total stockholders' equity

13,546

13,264

Total liabilities and stockholders' equity

$

24,985

$

24,284

Condensed Consolidated Balance Sheets

(In millions; unaudited)

March 5, November 2021 27, 2020

ASSETS



Current assets:

Cash and cash equivalents $ 3,452 $ 4,478

Short-term investments 1,511 1,514

Trade receivables, net of allowances for doubtful 1,520 1,398 accounts of $21 for both periods

Prepaid expenses and other current assets 901 756

Total current assets 7,384 8,146



Property and equipment, net 1,530 1,517

Operating lease right-of-use assets, net 477 487

Goodwill 11,845 10,742

Other intangibles, net 1,729 1,359

Deferred income taxes 1,262 1,370

Other assets 758 663

Total assets $ 24,985 $ 24,284



LIABILITIES AND STOCKHOLDERS' EQUITY



Current liabilities:

Trade payables $ 254 $ 306

Accrued expenses 1,243 1,422

Deferred revenue 4,134 3,629

Income taxes payable 81 63

Operating lease liabilities 94 92

Total current liabilities 5,806 5,512



Long-term liabilities:

Debt 4,119 4,117

Deferred revenue 151 130

Income taxes payable 540 529

Deferred income taxes 81 10

Operating lease liabilities 494 499

Other liabilities 248 223

Total liabilities 11,439 11,020



Stockholders' equity:

Preferred stock - -

Common stock - -

Additional paid-in-capital 7,617 7,357

Retained earnings 20,521 19,611

Accumulated other comprehensive income (loss) (141 ) (158 )

Treasury stock, at cost (14,451 ) (13,546 )

Total stockholders' equity 13,546 13,264

Total liabilities and stockholders' equity $ 24,985 $ 24,284

Condensed Consolidated Statements of Cash Flows

(In millions; unaudited)

Three Months Ended

March 5, 2021

February 28, 2020

Cash flows from operating activities:

Net income

$

1,261

$

955

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, amortization and accretion

196

188

Stock-based compensation

260

217

Unrealized investment (gains) losses, net

-

6

Other non-cash adjustments

138

(70

)

Changes in deferred revenue

471

114

Changes in other operating assets and liabilities

(554

)

(85

)

Net cash provided by operating activities

1,772

1,325

Cash flows from investing activities:

Purchases, sales and maturities of short-term investments, net

(4

)

48

Purchases of property and equipment

(59

)

(94

)

Purchases and sales of long-term investments, intangibles and other assets, net

(25

)

(2

)

Acquisitions, net of cash acquired

(1,470

)

-

Net cash used for investing activities

(1,558

)

(48

)

Cash flows from financing activities:

Repurchases of common stock

(950

)

(850

)

Taxes paid related to net share settlement of equity awards, net of proceeds from treasury stock re-issuances

(304

)

(379

)

Proceeds from issuance of debt

-

3,144

Repayment of debt

-

(3,150

)

Other financing activities, net

10

2

Net cash used for financing activities

(1,244

)

(1,233

)

Effect of exchange rate changes on cash and cash equivalents

4

(6

)

Net increase (decrease) in cash and cash equivalents

(1,026

)

38

Cash and cash equivalents at beginning of period

4,478

2,650

Cash and cash equivalents at end of period

$

3,452

$

2,688

Condensed Consolidated Statements of Cash Flows

(In millions; unaudited)

Three Months Ended

March 5, February 2021 28, 2020

Cash flows from operating activities:

Net income $ 1,261 $ 955

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, amortization and accretion 196 188

Stock-based compensation 260 217

Unrealized investment (gains) losses, net - 6

Other non-cash adjustments 138 (70 )

Changes in deferred revenue 471 114

Changes in other operating assets and liabilities (554 ) (85 )

Net cash provided by operating activities 1,772 1,325



Cash flows from investing activities:

Purchases, sales and maturities of short-term (4 ) 48 investments, net

Purchases of property and equipment (59 ) (94 )

Purchases and sales of long-term investments, (25 ) (2 )intangibles and other assets, net

Acquisitions, net of cash acquired (1,470 ) -

Net cash used for investing activities (1,558 ) (48 )



Cash flows from financing activities:

Repurchases of common stock (950 ) (850 )

Taxes paid related to net share settlement of equityawards, net of proceeds from treasury stock (304 ) (379 )re-issuances

Proceeds from issuance of debt - 3,144

Repayment of debt - (3,150 )

Other financing activities, net 10 2

Net cash used for financing activities (1,244 ) (1,233 )

Effect of exchange rate changes on cash and cash 4 (6 )equivalents

Net increase (decrease) in cash and cash equivalents (1,026 ) 38

Cash and cash equivalents at beginning of period 4,478 2,650

Cash and cash equivalents at end of period $ 3,452 $ 2,688

Non-GAAP Results

(In millions, except per share data)

The following table shows Adobe's GAAP results reconciled to non-GAAP results included in this release.

Three Months Ended

March 5,2021

February 28,2020

November 27,2020

Operating income:

GAAP operating income

$

1,454

$

937

$

1,215

Stock-based and deferred compensation expense

286

214

239

Amortization of intangibles

89

94

84

Non-GAAP operating income

$

1,829

$

1,245

$

1,538

Net income:

GAAP net income

$

1,261

$

955

$

2,250

Stock-based and deferred compensation expense

286

214

239

Amortization of intangibles

89

94

84

Investment (gains) losses, net

(5

)

3

(6

)

Income tax adjustments

(116

)

(159

)

(1,204

)

Non-GAAP net income

$

1,515

$

1,107

$

1,363

Diluted net income per share:

GAAP diluted net income per share

$

2.61

$

1.96

$

4.64

Stock-based and deferred compensation expense

0.59

0.44

0.49

Amortization of intangibles

0.19

0.19

0.17

Investment (gains) losses, net

(0.01

)

0.01

(0.01

)

Income tax adjustments

(0.24

)

(0.33

)

(2.48

)

Non-GAAP diluted net income per share

$

3.14

$

2.27

$

2.81

Shares used in computing diluted net income per share

483

488

484

Non-GAAP Results

(In millions, except per share data)

The following table shows Adobe's GAAP results reconciled to non-GAAP resultsincluded in this release.

Three Months Ended

March 5, February November 2021 28, 27, 2020 2020

Operating income:



GAAP operating income $ 1,454 $ 937 $ 1,215

Stock-based and deferred compensation expense 286 214 239

Amortization of intangibles 89 94 84

Non-GAAP operating income $ 1,829 $ 1,245 $ 1,538



Net income:



GAAP net income $ 1,261 $ 955 $ 2,250

Stock-based and deferred compensation expense 286 214 239

Amortization of intangibles 89 94 84

Investment (gains) losses, net (5 ) 3 (6 )

Income tax adjustments (116 ) (159 ) (1,204 )

Non-GAAP net income $ 1,515 $ 1,107 $ 1,363



Diluted net income per share:



GAAP diluted net income per share $ 2.61 $ 1.96 $ 4.64

Stock-based and deferred compensation expense 0.59 0.44 0.49

Amortization of intangibles 0.19 0.19 0.17

Investment (gains) losses, net (0.01 ) 0.01 (0.01 )

Income tax adjustments (0.24 ) (0.33 ) (2.48 )

Non-GAAP diluted net income per share $ 3.14 $ 2.27 $ 2.81



Shares used in computing diluted net income per 483 488 484 share

The following table shows Adobe's GAAP first quarter fiscal year 2021 tax rate reconciled to the non-GAAP tax rate included in this release.

First QuarterFiscal 2021

Effective income tax rate:

GAAP effective income tax rate

12.0

%

Income tax adjustments

5.5

Stock-based and deferred compensation expense

(1.1

)

Amortization of intangibles

(0.4

)

Non-GAAP effective income tax rate

16.0

%

The following table shows Adobe's GAAP first quarter fiscal year 2021 tax ratereconciled to the non-GAAP tax rate included in this release.

First Quarter Fiscal 2021

Effective income tax rate:



GAAP effective income tax rate 12.0 %

Income tax adjustments 5.5

Stock-based and deferred compensation expense (1.1 )

Amortization of intangibles (0.4 )

Non-GAAP effective income tax rate 16.0 %

Reconciliation of GAAP to Non-GAAP Financial Targets

(Shares in millions)

The following tables show Adobe's second quarter fiscal year 2021 financial targets reconciled to the non-GAAP financial targets included in this release.

Second QuarterFiscal 2021

Diluted net income per share:

GAAP diluted net income per share

$

2.09

Stock-based and deferred compensation expense

0.57

Amortization of intangibles

0.18

Income tax adjustments

(0.03

)

Non-GAAP diluted net income per share

$

2.81

Shares used to compute diluted net income per share

482

Second QuarterFiscal 2021

Effective income tax rate:

GAAP effective income tax rate

19.5

%

Stock-based and deferred compensation expense

(1.4

)

Amortization of intangibles

(0.1

)

Income tax adjustments

(2.0

)

Non-GAAP effective income tax rate

16.0

%

Reconciliation of GAAP to Non-GAAP Financial Targets

(Shares in millions)

The following tables show Adobe's second quarter fiscal year 2021 financialtargets reconciled to the non-GAAP financial targets included in this release.

Second Quarter Fiscal 2021

Diluted net income per share:



GAAP diluted net income per share $ 2.09

Stock-based and deferred compensation expense 0.57

Amortization of intangibles 0.18

Income tax adjustments (0.03 )

Non-GAAP diluted net income per share $ 2.81



Shares used to compute diluted net income per share 482



Second Quarter Fiscal 2021

Effective income tax rate:



GAAP effective income tax rate 19.5 %

Stock-based and deferred compensation expense (1.4 )

Amortization of intangibles (0.1 )

Income tax adjustments (2.0 )

Non-GAAP effective income tax rate 16.0 %

The following tables show Adobe's updated fiscal year 2021 financial targets reconciled to the non-GAAP financial targets included in this release.

Fiscal Year 2021

Diluted net income per share:

GAAP diluted net income per share

$

9.13

Stock-based and deferred compensation expense

2.33

Amortization of intangibles

0.71

Income tax adjustments

(0.32

)

Non-GAAP diluted net income per share

$

11.85

Shares used to compute diluted net income per share

481

Fiscal Year 2021

Effective income tax rate:

GAAP effective income tax rate

17.5

%

Stock-based and deferred compensation expense

(1.4

)

Amortization of intangibles

(0.1

)

Non-GAAP effective income tax rate

16.0

%

Use of Non-GAAP Financial Information

Adobe continues to provide all information required in accordance with GAAP, but believes evaluating its ongoing operating results may not be as useful if an investor is limited to reviewing only GAAP financial measures. Adobe uses non-GAAP financial information to evaluate its ongoing operations and for internal planning and forecasting purposes. Adobe's management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Adobe presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate Adobe's operating results. Adobe believes these non-GAAP financial measures are useful because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making. This allows institutional investors, the analyst community and others to better understand and evaluate our operating results and future prospects in the same manner as management.

Adobe's management believes it is useful for itself and investors to review, as applicable, both GAAP information as well as non-GAAP measures, which may exclude items such as stock-based and deferred compensation expenses, amortization of intangibles, investment gains and losses, the related tax impact of all of these items, income tax adjustments, and the income tax effect of the non-GAAP pre-tax adjustments from the provision for income taxes. Adobe uses these non-GAAP measures in order to assess the performance of Adobe's business and for planning and forecasting in subsequent periods. Whenever such a non-GAAP measure is used, Adobe provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed above.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210323005953/en/

CONTACT: Investor Relations Contact Jonathan Vaas Adobe ir@adobe.com

CONTACT: Public Relations Contact Ashley Levine Adobe aslevine@adobe.com