Adobe Reports Record Quarterly and Annual Revenue

  Adobe Reports Record Quarterly and Annual Revenue

Company Drives Strong Adobe Creative Cloud and Adobe Marketing Cloud Adoption
in Fiscal 2012

Business Wire

SAN JOSE, Calif. -- December 13, 2012

Adobe Systems Incorporated (Nasdaq:ADBE) today reported financial results for
its fourth quarter and fiscal year ended Nov. 30, 2012.

Adobe achieved revenue in Q4 FY2012 of $1.153 billion, exceeding its targeted
range of $1.075 billion to $1.125 billion. During the quarter, the Company
continued to accelerate adoption of Adobe® Creative Cloud™ as it migrates to a
subscription model. Adobe also achieved record Adobe Marketing Cloud and
Document Services revenue during the fourth quarter.

For fiscal year 2012, Adobe achieved record revenue of $4.4 billion.

Fourth Quarter Financial Highlights

  *Diluted earnings per share were $0.44 on a GAAP-basis, and $0.61 on a
    non-GAAP basis.
  *Operating income was $307.8 million and net income was $222.3 million on a
    GAAP basis. Operating income was $414.7 million and net income was $307.9
    million on a non-GAAP basis.
  *Cash flow from operations was $473.7 million.
  *Deferred revenue grew by $59.3 million to a record $619.6 million.
  *Adobe added approximately 10,000 Creative Cloud subscriptions per week
    during the quarter, versus the addition of 8,000 subscriptions per week in
    the third quarter.
  *In Document Services, which includes the Adobe Acrobat® product family,
    Adobe also achieved record revenue of $210.2 million during the quarter.
  *Adobe Marketing Cloud achieved record quarterly revenue of $220.4 million,
    which represents 32 percent year-over-year growth.

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

Fiscal Year 2012 Financial Highlights

  *Adobe achieved record revenue of $4.404 billion. Annual GAAP diluted
    earnings per share for fiscal 2012 were $1.66, and annual non-GAAP diluted
    earnings per share were $2.35.
  *Annual operating income was $1.180 billion and net income was $833 million
    on a GAAP basis. Annual operating income was $1.597 billion and net income
    was $1.183 billion on a non-GAAP basis.
  *Adobe generated $1.5 billion in cash flow during the year.
  *Creative Cloud paid subscriptions grew to 326,000 as of the end of the
    year, with exiting annualized recurring revenue of $153 million for the
    Creative business.
  *Document Services achieved record annual revenue of $786 million.
  *Adobe Marketing Cloud achieved a record $777 million in reported annual
    revenue, representing 35 percent year-over-year growth.
  *The company repurchased 11.5 million shares during the year, returning
    approximately $372 million of cash to stockholders.

Executive Quotes

“We beat our Creative Cloud subscription goals and established Adobe Marketing
Cloud as the leader in the exploding category of Digital Marketing during
fiscal 2012,” said Shantanu Narayen, president and chief executive officer,
Adobe. “In fiscal 2013 we intend to accelerate our pace of innovation, and
drive integration between Creative Cloud and Adobe Marketing Cloud.”

“We're driving migration to a subscription model in our Creative business
faster than we predicted a year ago, and we are confident fiscal 2013 will be
the pivotal year for the transition,” said Mark Garrett, executive vice
president and chief financial officer, Adobe. “This will yield a stronger,
more predictable recurring revenue model with higher long-term revenue
growth.”

Adobe to Webcast Earnings Conference Call

Adobe will webcast its fourth quarter and fiscal year 2012 earnings conference
call today at 2:00 p.m. Pacific Time from its investor relations website:
www.adobe.com/ADBE. The company will discuss financial targets for the first
quarter of fiscal 2013 as well as fiscal year 2013 on its Q4 and FY2012
earnings call. A copy of Adobe management’s prepared remarks, including
financial targets and conference call slides, has been posted to Adobe’s
investor relations website in advance of the conference call for reference.

A reconciliation between GAAP and non-GAAP financial targets is also provided
on the website.

Forward-Looking Statements Disclosure

This press release contains forward-looking statements, including those
related to the transition of our business as we migrate to a subscription
model, increases in recurring revenue, long-term revenue growth and our
ability to continue to innovate and execute against our strategy in our key
growth areas and drive integration between those areas, 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, including our increased emphasis on a cloud
and subscription strategy, fluctuations in subscription renewal or upgrade
rates, continued uncertainty in economic conditions and the financial markets,
difficulty in predicting revenue from new businesses and the potential impact
on our financial results from changes in our business models, 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 the fiscal year ended December 2, 2011
and its Quarterly Reports on Form 10-Q for the fiscal quarters ended March 2,
2012, June 1, 2012 and Aug. 31, 2012.

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. 30, 2012, which Adobe expects to file in Jan. 2013.

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.

© 2012 Adobe Systems Incorporated. All rights reserved. Adobe, the Adobe logo,
Creative Cloud and Acrobat 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 30,  December 2,   November 30,   December 2,
                    2012           2011          2012            2011
Revenue:
Products            $  852,843     $ 931,895     $ 3,342,843     $ 3,416,483
Subscription        194,537        128,437       673,206         458,634
Services and        106,048       91,829       387,628        341,141     
support
Total revenue       1,153,428     1,152,161    4,403,677      4,216,258   
                                                                 
Cost of revenue:
Products            28,687         34,048        121,663         125,640
Subscription        59,308         51,334        219,102         194,033
Services and        36,983        30,997       143,017        118,200     
support
Total cost of       124,978       116,379      483,782        437,873     
revenue
                                                                 
Gross profit        1,028,450      1,035,782     3,919,895       3,778,385
                                                                 
Operating
expenses:
Research and        195,047        195,403       742,823         738,053
development
Sales and           402,181        368,330       1,516,159       1,385,822
marketing
General and         111,449        119,586       434,982         414,605
administrative
Restructuring and
other related       (275       )   94,502        (2,917      )   97,773
charges
Amortization of
purchased           12,283        11,830       48,657         42,833      
intangibles
Total operating     720,685       789,651      2,739,704      2,679,086   
expenses
                                                                 
Operating income    307,765        246,131       1,180,191       1,099,299
                                                                 
Non-operating
income (expense):
Interest and
other income        (718       )   (1,351    )   (3,414      )   (2,974      )
(expense), net
Interest expense    (16,767    )   (16,774   )   (67,487     )   (66,952     )
Investment gains    351           5,174        9,504          5,857       
(losses), net
Total
non-operating       (17,134    )   (12,951   )   (61,397     )   (64,069     )
income (expense),
net
Income before       290,631        233,180       1,118,794       1,035,230
income taxes
Provision for       68,298        59,461       286,019        202,383     
income taxes
Net income          $  222,333    $ 173,719    $ 832,775      $ 832,847   
Basic net income    $  0.45       $ 0.35       $ 1.68         $ 1.67      
per share
Shares used to
compute basic net   494,906       491,523      494,731        497,469     
income per share
Diluted net         $  0.44       $ 0.35       $ 1.66         $ 1.65      
income per share
Shares used to
compute diluted     502,154       496,288      502,721        503,921     
net income per
share
                                                                             

Condensed Consolidated Balance Sheets

(In thousands, except par value; unaudited)
                                                              
                                                 November 30,    December 2,
                                                 2012            2011
ASSETS
                                                                 
Current assets:
Cash and cash equivalents                        $ 1,425,052     $ 989,500
Short-term investments                           2,113,301       1,922,192
Trade receivables, net of allowances for
doubtful accounts of $12,643 and $15,080,        617,233         634,373
respectively
Deferred income taxes                            59,537          91,963
Prepaid expenses and other current assets        116,237        133,423     
Total current assets                             4,331,360       3,771,451
                                                                 
Property and equipment, net                      664,302         527,828
Goodwill                                         4,133,259       3,849,217
Purchased and other intangibles, net             545,036         545,526
Investment in lease receivable                   207,239         207,239
Other assets                                     93,327         89,922      
Total assets                                     $ 9,974,523    $ 8,991,183 
                                                                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                 
Current liabilities:
Trade payables                                   $ 49,759        $ 86,660
Accrued expenses                                 590,140         554,941
Capital lease obligations                        11,217          9,212
Accrued restructuring                            9,287           80,930
Income taxes payable                             49,886          42,634
Deferred revenue                                 561,463        476,402     
Total current liabilities                        1,271,752       1,250,779
                                                                 
Long-term liabilities:
Debt and capital lease obligations               1,496,938       1,505,096
Deferred revenue                                 58,102          55,303
Accrued restructuring                            12,263          7,449
Income taxes payable                             155,096         156,958
Deferred income taxes                            265,106         181,602
Other liabilities                                50,084         50,883      
Total liabilities                                3,309,341       3,208,070
                                                                 
Stockholders' equity:
Preferred stock, $0.0001 par value; 2,000        —               —
shares authorized
Common stock, $0.0001 par value                  61              61
Additional paid-in-capital                       3,038,665       2,753,896
Retained earnings                                7,003,003       6,528,735
Accumulated other comprehensive income           30,712          29,950
Treasury stock, at cost (106,702 and 109,294     (3,407,259  )   (3,529,529  )
shares, respectively), net of reissuances
Total stockholders' equity                       6,665,182      5,783,113   
Total liabilities and stockholders' equity       $ 9,974,523    $ 8,991,183 
                                                                             

Condensed Consolidated Statements of Cash Flows

(In thousands; unaudited)
                                                 
                                                   Three Months Ended
                                                   November 30,   December 2,
                                                   2012            2011
Cash flows from operating activities:
Net income                                         $ 222,333       $ 173,719
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion           78,621          73,290
Stock-based compensation expense                   73,535          72,527
Unrealized investment gains                        (281        )   (5,811    )
Changes in deferred revenue                        59,232          47,399
Changes in other operating assets and              40,219         135,629   
liabilities
Net cash provided by operating activities          473,659        496,753   
                                                                   
Cash flows from investing activities:
Purchases, sales and maturities of short-term      (33,250     )   18,826
investments, net
Purchases of property and equipment                (81,789     )   (74,897   )
Purchases of long-term investments, intangibles    (14,436     )   (51,684   )
and other assets, net of sales
Acquisitions, net of cash                          —              (151,925  )
Net cash used for investing activities             (129,475    )   (259,680  )
                                                                   
Cash flows from financing activities:
Purchases of treasury stock                        (100,000    )   —
Reissuance of treasury stock                       19,089          1,191
Repayment of debt and capital lease obligations    (2,985      )   (2,243    )
Excess tax benefits from stock-based               3,477          853       
compensation
Net cash used for financing activities             (80,419     )   (199      )
Effect of exchange rate changes on cash and cash   (1,093      )   (16,586   )
equivalents
Net increase in cash and cash equivalents          262,672         220,288
Cash and cash equivalents at beginning of period   1,162,380      769,212   
Cash and cash equivalents at end of period         $ 1,425,052    $ 989,500 
                                                                             

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      December 2,   August 31,    November 30,    December 2,
                30,          2011         2012          2012           2011
                2012
Operating
income:
                                                                          
GAAP
operating       $ 307,765     $ 246,131     $ 278,304     $ 1,180,191     $ 1,099,299
income
Stock-based
and deferred      76,248        75,450        80,682        300,277         286,048
compensation
expense
Restructuring
and other         (275    )     94,502        2,374         (2,917    )     97,773
related
charges
Amortization
of purchased     30,912      28,444      30,410      119,890       104,005   
intangibles
Non-GAAP
operating       $ 414,650    $ 444,527    $ 391,770    $ 1,597,441    $ 1,587,125 
income
                                                                          
Net income:
                                                                          
GAAP net        $ 222,333     $ 173,719     $ 201,357     $ 832,775       $ 832,847
income
Stock-based
and deferred      76,248        75,450        80,682        300,277         286,048
compensation
expense
Restructuring
and other         (275    )     94,502        2,374         (2,917    )     97,773
related
charges
Amortization
of purchased      30,912        28,444        30,410        119,890         104,005
intangibles
Investment
(gains)           (351    )     (5,174  )     (944    )     (9,504    )     (5,857    )
losses
Income tax       (20,962 )    (34,347 )    (22,685 )    (57,290   )    (131,400  )
adjustments
Non-GAAP net    $ 307,905    $ 332,594    $ 291,194    $ 1,183,231    $ 1,183,416 
income
                                                                          
Diluted net
income per
share:
                                                                          
GAAP diluted
net income      $ 0.44        $ 0.35        $ 0.40        $ 1.66          $ 1.65
per share
Stock-based
and deferred      0.15          0.15          0.16          0.60            0.57
compensation
expense
Restructuring
and other         —             0.19          —             (0.01     )     0.19
related
charges
Amortization
of purchased      0.06          0.06          0.06          0.24            0.21
intangibles
Investment
(gains)           —             (0.01   )     —             (0.02     )     (0.01     )
losses
Income tax       (0.04   )    (0.07   )    (0.04   )    (0.12     )    (0.26     )
adjustments
Non-GAAP
diluted net     $ 0.61       $ 0.67       $ 0.58       $ 2.35         $ 2.35      
income per
share
                                                                          
Shares used
in computing
diluted net       502,154       496,288       499,757       502,721         503,921
income per
share
                                                                          
Operating                     
expenses:
                                                                          
GAAP
operating       $ 720,685     $ 789,651     $ 682,655     $ 2,739,704     $ 2,679,086
expenses
Stock-based
and deferred      (70,658 )     (71,435 )     (75,762 )     (280,746  )     (270,268  )
compensation
expense
Restructuring
and other         275           (94,502 )     (2,374  )     2,917           (97,773   )
related
charges
Amortization
of purchased     (12,283 )    (11,830 )    (12,331 )    (48,657   )    (42,833   )
intangibles
Non-GAAP
operating       $ 638,019    $ 611,884    $ 592,188    $ 2,413,218    $ 2,268,212 
expenses
                                                                          

                                               Three Months
                                                Ended
                                                November 30,
                                                2012
Effective income tax rate:
                                                
GAAP effective income tax rate                  23.5    %
Stock-based and deferred compensation expense   (0.7    )
Amortization of purchased intangibles           (0.3    )
Non-GAAP effective income tax rate              22.5    %
                                                        

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. Accordingly,
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 in a manner that
focuses on what Adobe believes to be its ongoing business operations. Adobe's
management believes it is useful for itself and investors to review, as
applicable, both GAAP information that includes the stock-based and deferred
compensation expenses, restructuring charges, amortization of purchased
intangibles, investment gains and losses 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.

Contact:

Adobe Systems Incorporated
Mike Saviage, 408-536-4416 (Investor Relations)
ir@adobe.com
Jodi Sorensen, 408-536-2084 (Public Relations)
jsorensen@adobe.com
 
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