Adobe Reports Strong Q1 Results

  Adobe Reports Strong Q1 Results

Adobe Creative Cloud Adoption Accelerates and Adobe Marketing Cloud Achieves
20 Percent Annual Revenue Growth

Business Wire

SAN JOSE, Calif. -- March 19, 2013

Adobe Systems Incorporated (Nasdaq:ADBE) today reported financial results for
its first quarter of fiscal year 2013 ended March 1, 2013.

Adobe® achieved revenue of $1.008 billion, exceeding its targeted range of
$950 million to $1 billion. During the quarter, the Company continued to
accelerate adoption of Adobe Creative Cloud™ as it migrates to a subscription
model in its Digital Media business. Adobe also achieved strong revenue growth
with Adobe Marketing Cloud solutions in its Digital Marketing business.

First Quarter Financial Highlights

  *Diluted earnings per share were $0.13 on a GAAP-basis, and $0.35 on a
    non-GAAP basis.
  *Operating income was $98.2 million and net income was $65.1 million on a
    GAAP basis. Operating income was $240.7 million and net income was $177.9
    million on a non-GAAP basis.
  *Cash flow from operations was $322.0 million.
  *Deferred revenue grew by $80.5 million to a record $700.0 million.
  *Adobe ended Q1 with 479 thousand paid Creative Cloud members, an increase
    of 153 thousand when compared to the number of members as of the end of Q4
    fiscal year 2012.
  *Adobe Marketing Cloud achieved quarterly revenue of $215.4 million, which
    represents 20 percent year-over-year growth.

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

Executive Quotes

“Creative Cloud is quickly becoming mainstream, with the overwhelming majority
of Creative purchases on now being Creative Cloud subscriptions,”
said Shantanu Narayen, president and chief executive officer, Adobe. “With
Adobe Marketing Cloud, we are the partner of choice for Chief Marketing
Officers as we help our customers migrate their businesses online.”

“Adoption of Creative Cloud accelerated and we achieved strong Digital
Marketing revenue and bookings growth in Q1,” said Mark Garrett, executive
vice president and chief financial officer, Adobe. “We're building a stronger,
more predictable recurring revenue model which will drive higher long-term

Adobe to Webcast Earnings Conference Call

Adobe will webcast its first quarter fiscal year 2013 earnings conference call
today at 2:00 p.m. Pacific Time from its investor relations website: 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, adoption of Creative Cloud, increases in recurring revenue and
long-term revenue growth, 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 Nov. 30, 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 Quarterly Report on Form 10-Q for
our quarter ended March 1, 2013, which Adobe expects to file in March 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,

© 2013 Adobe Systems Incorporated. All rights reserved. Adobe, the Adobe logo,
Adobe Creative Cloud and Adobe Marketing Cloud are either registered
trademarks or trademarks of Adobe Systems Incorporated in the United States
and/or other countries. All other trademarks are the property of their
respective owners.

Condensed Consolidated Statements of Income
(In thousands, except per share data; unaudited)
                                                     Three Months Ended
                                                     March 1,     March 2,
                                                     2013          2012
Products                                             $ 675,789     $ 808,521
Subscription                                         224,266       146,230
Services and support                                 107,818      90,469    
Total revenue                                        1,007,873    1,045,220 
Cost of revenue:
Products                                             51,982        25,668
Subscription                                         62,580        48,780
Services and support                                 42,122       33,817    
Total cost of revenue                                156,684      108,265   
Gross profit                                         851,189       936,955
Operating expenses:
Research and development                             209,638       177,728
Sales and marketing                                  398,033       358,963
General and administrative                           132,853       102,681
Restructuring charges                                2             (2,825    )
Amortization of purchased intangibles                12,439       11,429    
Total operating expenses                             752,965      647,976   
Operating income                                     98,224        288,979
Non-operating income (expense):
Interest and other income (expense), net             1,246         (2,785    )
Interest expense                                     (16,834   )   (16,838   )
Investment gains (losses), net                       848          1,021     
Total non-operating income (expense), net            (14,740   )   (18,602   )
Income before income taxes                           83,484        270,377
Provision for income taxes                           18,367       85,168    
Net income                                           $ 65,117     $ 185,209 
Basic net income per share                           $ 0.13       $ 0.37    
Shares used to compute basic net income per share    498,607      494,016   
Diluted net income per share                         $ 0.13       $ 0.37    
Shares used to compute diluted net income per        507,840      500,378   

Condensed Consolidated Balance Sheets
(In thousands, except par value; unaudited)
                                                March 1,         November 30,
                                                2013             2012
Current assets:
Cash and cash equivalents                       $ 1,306,382      $ 1,425,052
Short-term investments                          2,354,307        2,113,301
Trade receivables, net of allowances for
doubtful accounts of $12,715 and $12,643,       485,801          617,233
Deferred income taxes                           64,930           59,537
Prepaid expenses and other current assets       161,663         116,237     
Total current assets                            4,373,083        4,331,360
Property and equipment, net                     686,014          664,302
Goodwill                                        4,221,487        4,133,259
Purchased and other intangibles, net            580,568          545,036
Investment in lease receivable                  207,239          207,239
Other assets                                    97,320          93,327      
Total assets                                    $ 10,165,711    $ 9,974,523 
Current liabilities:
Trade payables                                  $ 72,725         $ 49,759
Accrued expenses                                505,465          590,140
Capital lease obligations                       22,406           11,217
Accrued restructuring                           6,767            9,287
Income taxes payable                            11,126           49,886
Deferred revenue                                645,834         561,463     
Total current liabilities                       1,264,323        1,271,752
Long-term liabilities:
Debt and capital lease obligations              1,509,003        1,496,938
Deferred revenue                                54,197           58,102
Accrued restructuring                           10,053           12,263
Income taxes payable                            159,859          155,096
Deferred income taxes                           292,770          265,106
Other liabilities                               70,168          50,084      
Total liabilities                               3,360,373        3,309,341
Stockholders' equity:
Preferred stock, $0.0001 par value; 2,000       —                —
shares authorized
Common stock, $0.0001 par value                 61               61
Additional paid-in-capital                      3,116,471        3,038,665
Retained earnings                               6,808,489        7,003,003
Accumulated other comprehensive income          40,110           30,712
Treasury stock, at cost (99,789 and 106,702     (3,159,793   )   (3,407,259  )
shares, respectively), net of re-issuances
Total stockholders' equity                      6,805,338       6,665,182   
Total liabilities and stockholders' equity      $ 10,165,711    $ 9,974,523 

Condensed Consolidated Statements of Cash Flows
(In thousands; unaudited)
                                                   Three Months Ended
                                                   March 1,       March 2,
                                                   2013            2012
Cash flows from operating activities:
Net income                                         $ 65,117        $ 185,209
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion           76,752          69,861
Stock-based compensation expense                   77,282          61,151
Unrealized investment (gains) losses               (418        )   (3,168    )
Changes in deferred revenue                        79,514          16,739
Changes in other operating assets and              23,784         (15,429   )
Net cash provided by operating activities          322,031        314,363   
Cash flows from investing activities:
Purchases, sales and maturities of short-term      (245,775    )   (32,418   )
investments, net
Purchases of property and equipment                (60,190     )   (51,088   )
Purchases of long-term investments, intangibles    (43,793     )   (1,017    )
and other assets, net of sales
Acquisitions, net of cash                          (96,356     )   (353,184  )
Net cash used for investing activities             (446,114    )   (437,707  )
Cash flows from financing activities:
Purchases of treasury stock                        (100,000    )   (80,000   )
Re-issuance of treasury stock                      88,566          13,366
Proceeds from debt and capital lease obligations   25,703          —
Repayment of debt and capital lease obligations    (2,507      )   (2,264    )
Debt issuance costs                                (357        )   (2,297    )
Excess tax benefits from stock-based               —              2,670     
Net cash provided by (used for) financing          11,405         (68,525   )
Effect of exchange rate changes on cash and cash   (5,992      )   3,632     
Net decrease in cash and cash equivalents          (118,670    )   (188,237  )
Cash and cash equivalents at beginning of period   1,425,052      989,500   
Cash and cash equivalents at end of period         $ 1,306,382    $ 801,263 

Non-GAAP Results

(In thousands, except per share data)

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

                                     Three Months Ended
                                      March 1,     March 2,     November 30,
                                      2013          2012          2012
Operating income:
GAAP operating income                 $ 98,224      $ 288,979     $  307,765
Stock-based and deferred              85,086        72,633        76,248
compensation expense
Restructuring charges                 2             (2,825    )   (275       )
Amortization of purchased
intangibles & technology license      57,377       27,864       30,912     
Non-GAAP operating income             $ 240,689    $ 386,651    $  414,650 
Net income:
GAAP net income                       $ 65,117      $ 185,209     $  222,333
Stock-based and deferred              85,086        72,633        76,248
compensation expense
Restructuring charges                 2             (2,825    )   (275       )
Amortization of purchased
intangibles & technology license      57,377        27,864        30,912
Investment (gains) losses             (848      )   (1,021    )   (351       )
Income tax adjustments                (28,840   )   2,647        (20,962    )
Non-GAAP net income                   $ 177,894    $ 284,507    $  307,905 
Diluted net income per share:
GAAP diluted net income per share     $ 0.13        $ 0.37        $  0.44
Stock-based and deferred              0.17          0.15          0.15
compensation expense
Restructuring charges                 —             (0.01     )   —
Amortization of purchased
intangibles & technology license      0.11          0.06          0.06
Income tax adjustments                (0.06     )   —            (0.04      )
Non-GAAP diluted net income per       $ 0.35       $ 0.57       $  0.61    
Shares used in computing diluted      507,840       500,378       502,154
net income per share

                                                                  Three Months
                                                                  March 1,
Effective income tax rate:
GAAP effective income tax rate                                    22.0    %
Stock-based and deferred compensation expense                     (0.6    )
Amortization of purchased intangibles & technology license        (0.4    )
R&D tax benefit for carryover of 2012 tax benefit                 0.5
One-time charge related to acquisition                            (0.5    )
Non-GAAP effective income tax rate                                21.0    %

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 and prior activity in connection with technology license
agreements, 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.


Adobe Systems Incorporated
Mike Saviage, 408-536-4416 (Investor Relations)
Jodi Sorensen, 408-536-2084 (Public Relations)
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