Category: Uncategorized
- Published: 29 November -0001
News Release: Adobe Reports Solid Third Quarter Financial Results; Company Achieves 24 Percent Year-Over-Year Revenue Growth
Adobe Systems Incorporated (Nasdaq:ADBE) today reported financial results for its third quarter ended September 1, 2006. The Company's Q3 results reflect the acquisition of Macromedia in December, 2005, and are compared to pre-acquisition results of prior fiscal periods as applicable.
In the third quarter of fiscal 2006, Adobe achieved revenue of $602.2 million, compared to $487.0 million reported for the third quarter of fiscal 2005 and $635.5 million reported in the second quarter of fiscal 2006. On a year-over-year basis, this represents 24 percent revenue growth. Adobe's third quarter revenue target range was $580 to $610 million. "Q3 was a solid quarter for Adobe with revenue and earnings near or above the high end of our financial target ranges," said Bruce R. Chizen, Adobe chief executive officer. "With new products launching this quarter, our outlook for the remainder of the year remains positive."
GAAP diluted earnings per share for the third quarter of fiscal 2006 were $0.16. Adobe's third quarter GAAP EPS target range was $0.13 to $0.16.
Non-GAAP diluted earnings per share, which excludes amortization of purchased intangibles, amortization of Macromedia deferred compensation, restructuring charges related to the Macromedia acquisition, a charge for incomplete technology related to a small acquisition, SFAS 123R stock-based compensation, tax differences due to the timing and deductibility of the Macromedia acquisition-related charges and SFAS 123R stock-based compensation, and investment losses, were $0.29. Adobe's third quarter non-GAAP EPS target range was $0.25 to $0.27.
GAAP net income was $94.4 million for the third quarter of fiscal 2006, compared to $144.9 million reported in the third quarter of fiscal 2005, and $123.1 million in the second quarter of fiscal 2006. Non-GAAP net income, which excludes, as applicable, amortization of purchased intangibles, amortization of Macromedia deferred compensation, restructuring charges related to the Macromedia acquisition, a charge for incomplete technology related to a small acquisition, SFAS 123R stock-based compensation, tax differences due to the timing and deductibility of the Macromedia acquisition-related charges and SFAS 123R stock-based compensation, and investment gains and losses, was $171.5 million for the third quarter of fiscal 2006, compared to $146.4 million in the third quarter of fiscal 2005, and $189.4 million in the second quarter of fiscal 2006.
GAAP diluted earnings per share for the third quarter of fiscal 2006 were $0.16 based on 600.9 million weighted average shares. This compares with GAAP diluted earnings per share of $0.29 reported in the third quarter of fiscal 2005, based on 507.8 million weighted average shares, and GAAP diluted earnings per share of $0.20 reported in the second quarter of fiscal 2006, based on 613.8 million weighted average shares.
Adobe's GAAP operating income was $110.0 million in the third quarter of fiscal 2006, compared to $183.6 million in the third quarter of fiscal 2005 and $147.9 million in the second quarter of fiscal 2006. As a percent of revenue, GAAP operating income in the third quarter of fiscal 2006 was 18.3 percent, compared to 37.7 percent in the third quarter of fiscal 2005 and 23.3 percent in the second quarter of fiscal 2006.
Adobe's non-GAAP operating income, which excludes, as applicable, amortization of purchased intangibles, amortization of Macromedia deferred compensation, restructuring charges related to the Macromedia acquisition, a charge for incomplete technology related to a small acquisition, and SFAS 123R stock-based compensation was $207.2 million in the third quarter of fiscal 2006, compared to $183.6 million in the third quarter of fiscal 2005 and $243.1 million in the second quarter of fiscal 2006. As a percent of revenue, non-GAAP operating income in the third quarter of fiscal 2006 was 34.4 percent, compared to 37.7 percent in the third quarter of fiscal 2005 and 38.3 percent in the second quarter of fiscal 2006.
Adobe Provides Fourth Quarter FY2006 Financial Targets
For the fourth quarter of fiscal 2006, Adobe announced it is targeting revenue of $655 million to $685 million. The Company also is targeting a GAAP operating margin of approximately 21 to 24 percent in the fourth quarter. On a non-GAAP basis, which excludes acquisition-related costs and SFAS 123R stock-based compensation, the Company is targeting a fourth quarter operating margin of approximately 37 to 38 percent.
In addition, Adobe is targeting its share count to be between 600 million and 602 million shares in the fourth quarter of fiscal 2006. The Company also is targeting other income in its fourth quarter to be approximately $16 million to $18 million, with a GAAP and non-GAAP tax rate of approximately 26 percent.
These targets lead to a fourth quarter GAAP earnings per share target range of approximately $0.19 to $0.22. On a non-GAAP basis, which excludes acquisition-related costs, SFAS 123R stock-based compensation, and tax differences related to the timing and deductibility of the Macromedia acquisition-related charges and SFAS 123R stock-based compensation, the Company is targeting earnings per share of approximately $0.32 to $0.34.
Forward Looking Statements Disclosure
This press release contains forward looking statements, including those related to planned product releases, revenue, operating margin, other income, tax rate, share count and earnings per share, 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: adverse changes in general economic or political conditions in any of the major countries in which Adobe does business, delays in development or shipment of Adobe's new products or major new versions of existing products, introduction of new products by existing and new competitors, failure to successfully manage transitions to new business models and markets, difficulty in predicting revenue from new businesses, failure to anticipate and develop new products in response to changes in demand for application software, computers and printers, intellectual property disputes and litigation, inability to protect Adobe's intellectual property from unauthorized copying, use, disclosure or malicious attack, failure to realize the anticipated benefits of past or future acquisitions and difficulty in integrating such acquisitions, changes to Adobe's distribution channel, disruption of Adobe's business due to catastrophic events, interruptions or terminations in Adobe's relationships with turnkey assemblers, risks associated with international operations, fluctuations in foreign currency exchange rates, changes in, or interpretations of, accounting rules and regulations, impairment of Adobe's goodwill or intangible assets, unanticipated changes in tax rates, Adobe's inability to attract and retain key personnel, and market risks associated with Adobe's equity investments. For further discussion of these and other risks and uncertainties, individuals should refer to Adobe's SEC filings. Adobe does not undertake an obligation to update forward looking statements.
About Adobe Systems Incorporated
Adobe revolutionizes how the world engages with ideas and information -- anytime, anywhere, and through any medium. For more information, visit www.adobe.com.
(C) 2006 Adobe Systems Incorporated. All rights reserved. Adobe, Macromedia, 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 Nine Months Ended
------------------- -----------------------
September September September September
1, 2, 1, 2,
2006 2005 2006 2005
--------- --------- ----------- -----------
Revenue:
Products $579,185 $476,054 $1,830,905 $1,424,821
Services and support 23,006 10,985 62,220 31,129
-------- -------- ---------- ----------
Total revenue 602,191 487,039 1,893,125 1,455,950
-------- -------- ---------- ----------
Total cost of revenue:
Products 53,308 21,593 165,426 65,222
Services and support 16,171 5,887 47,406 16,661
-------- -------- ---------- ----------
Total cost of revenue 69,479 27,480 212,832 81,883
-------- -------- ---------- ----------
Gross profit 532,712 459,559 1,680,293 1,374,067
Operating Expenses:
Research and development 130,440 94,586 401,268 270,681
Sales and marketing 217,203 143,748 641,418 446,094
General and administrative 57,311 37,637 177,324 120,788
Restructuring and other
charges 32 -- 20,251 --
Amortization of
purchased intangibles 17,693 -- 52,111 --
-------- -------- ---------- ----------
Total operating
expenses 422,679 275,971 1,292,372 837,563
-------- -------- ---------- ----------
Operating income 110,033 183,588 387,921 536,504
Non-operating income:
Investment loss, net (5,113) (2,044) (3,718) (6,299)
Interest and other income 18,092 12,420 47,563 28,352
-------- -------- ---------- ----------
Total non-operating
income 12,979 10,376 43,845 22,053
-------- -------- ---------- ----------
Income before income taxes 123,012 193,964 431,766 558,557
Provision for income taxes 28,616 49,048 109,201 111,969
-------- -------- ---------- ----------
Net income $ 94,396 $144,916 $ 322,565 $ 446,588
======== ======== ========== ==========
Basic net income per share $ 0.16 $ 0.29 $ 0.54 $ 0.91
======== ======== ========== ==========
Shares used in computing
basic net income per share 586,433 491,710 594,023 489,017
======== ======== ========== ==========
Diluted net income
per share $ 0.16 $ 0.29 $ 0.53 $ 0.88
======== ======== ========== ==========
Shares used in computing
diluted net income per
share 600,882 507,821 612,791 507,860
======== ======== ========== ==========
Cash dividends declared
per share $ -- $ -- $ -- $ 0.00625
======== ======== ========== ==========
Condensed Consolidated Balance Sheets
(In thousands, except per share data; unaudited)
September December
1, 2,
2006 2005
---------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 644,754 $ 420,818
Short-term investments 1,341,698 1,280,016
Trade receivables, net 284,586 173,245
Other receivables 46,105 31,504
Deferred income taxes 138,504 58,710
Prepaid expenses and other current assets 40,907 44,285
---------- -----------
Total current assets 2,496,554 2,008,578
---------- -----------
Property and equipment, net 212,875 103,549
Goodwill 2,147,557 118,683
Purchased and other intangibles, net 541,542 16,477
Investment in lease receivable 126,800 126,800
Other assets 95,457 66,228
---------- -----------
Total assets $5,620,785 $ 2,440,315
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade and other payables $ 38,624 $ 41,042
Accrued expenses 253,389 226,915
Accrued restructuring 12,618 70
Income taxes payable 149,557 154,529
Deferred revenue 103,509 57,839
---------- -----------
Total current liabilities 557,697 480,395
---------- -----------
Other long-term liabilities
Deferred revenue 21,282 9,731
Deferred income taxes 95,565 78,800
Accrued restructuring 24,218 -
Other long-term liabilities 8,204 7,063
---------- -----------
Total liabilities 706,966 575,989
Stockholders' equity:
Common stock, $0.0001 par value 56 54
Additional paid-in-capital 2,437,694 1,350,692
Retained earnings 3,161,131 2,838,566
Accumulated other comprehensive
income (loss) 1,762 (914)
Treasury stock at cost, net of re-
issuances (686,824) (2,324,072)
---------- -----------
Total stockholders' equity 4,913,819 1,864,326
---------- -----------
Total liabilities and stockholders' equity $5,620,785 $ 2,440,315
========== ===========
Condensed Consolidated Statements of Cash Flows
(In thousands; unaudited)
Three Months Ended
-----------------------
September September
1, 2,
2006 2005
---------- ----------
Cash flows from operating activities:
Net income $ 94,396 $ 144,916
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 70,449 17,800
Stock compensation expense 46,020 110
Deferred income taxes (26,192) 15,156
Recovery of losses on receivables (564) (449)
Tax benefits from employee stock
option plans -- 16,260
Excess tax benefits from stock-based
compensation (35,435) --
Net losses on sales and impairments of
investments 5,259 2,061
Retirements of property and equipment -- 1,041
Changes in operating assets and liabilities,
net of acquired assets and liabilities:
Receivables 2,060 11,963
Other current assets 2,265 2,961
Trade and other payables (10,857) (1,289)
Accrued expenses (27,155) (8,433)
Accrued restructuring (6,002) --
Income taxes payable 47,126 (28,127)
Deferred revenue 23,171 (1,023)
--------- ---------
Net cash provided by operating activities 184,541 172,947
--------- ---------
Cash flows from investing activities:
Purchases of short-term investments (142,525) (441,279)
Maturities of short-term investments 98,030 115,445
Sales of short-term investments 106,219 323,248
Acquisitions of property and equipment (18,852) (17,396)
Purchases of long-term investments and
other assets (8,215) (7,454)
Proceeds from sale of equity securities -- 1,084
--------- ---------
Net cash provided by (used for) investing
activities 34,657 (26,352)
--------- ---------
Cash flows from financing activities:
Purchases of treasury stock (100,147) (46)
Proceeds from issuance of treasury stock 64,856 52,344
Excess tax benefits from stock-based
compensation 35,435 --
--------- ---------
Net cash provided by financing activities 144 52,298
--------- ---------
Effect of foreign currency exchange rates on
cash and cash equivalents 20 1,973
--------- ---------
Net increase in cash and cash equivalents 219,362 200,866
Cash and cash equivalents at beginning
of period 425,392 253,302
--------- ---------
Cash and cash equivalents at end of period $ 644,754 $ 454,168
========= =========
Non-GAAP Results
(In thousands, except per share data)
The following table shows Adobe's non-GAAP results reconciled to GAAP
results included in this release.
September September June
1, 2, 2,
2006 2005 2006
--------- --------- ---------
GAAP operating income $110,033 $183,558 $147,908
SFAS 123R stock-based compensation(a) 27,186 -- 26,622
Amortization of Macromedia deferred
compensation(a) 15,471 -- 15,259
Restructuring and other charges 32 -- 1,235
Amortization of purchased intangibles and
incomplete technology(a) 54,527 -- 52,041
-------- -------- --------
Non-GAAP operating income $207,249 $183,588 $243,065
======== ======== ========
GAAP net income $ 94,396 $144,916 $123,097
SFAS 123R stock -based compensation,
net of tax 20,487 -- 19,085
Amortization of Macromedia deferred
compensation, net of tax 11,659 -- 10,939
Restructuring and other charges,
net of tax 24 -- 885
Amortization of purchased intangibles and
incomplete technology, net of tax 41,092 -- 37,308
Investment (gain)loss, net of tax 3,831 1,527 (1,909)
-------- -------- --------
Non-GAAP net income $171,489 $146,443 $189,405
======== ======== ========
Diluted net income per share:
GAAP net income $ 0.16 $ 0.29 $ 0.20
SFAS 123R stock-based compensation,
net of tax 0.03 -- 0.03
Amortization of Macromedia deferred
compensation, net of tax 0.02 -- 0.02
Restructuring and other charges,
net of tax 0.00 -- 0.00
Amortization of purchased intangibles and
incomplete technology, net of tax 0.07 -- 0.06
Investment (gain)loss, net of tax 0.01 0.00 0.00
-------- -------- --------
Non-GAAP net income $ 0.29 $ 0.29 $ 0.31
======== ======== ========
Shares used computing diluted net income
per share 600,882 507,821 613,804
======== ======== ========
(a) See table below for classification on the Consolidated Statements
of Income.
The following table shows the Company's classification of SFAS 123R
stock-based compensation, amortization of Macromedia deferred
compensation, and amortization of purchased intangibles and incomplete
technology on the Consolidated Statements of Income for the quarter
ended September 1, 2006.
Total Stock-based
Compensation
-------------------------
Income Statement SFAS Amortization of Amortization of
Classifications 123R Macromedia Purchased
Deferred Intangibles and
Compensation Incomplete
(b) Technology
-------- --------------- ------------
Cost of revenue - products $ -- $ -- $34,534 (b)
Cost of revenue - services
and support 569 249
Research and development 11,983 802 2,300 (c)
Sales and marketing 8,979 14,104 --
General and administrative 5,655 316 --
Amortization of purchased
intangibles -- -- 17,693 (b)
------- ------- -------
Total $27,186 $15,471 $54,527
======= ======= =======
(b) Relates to Macromedia acquisition
(c) Charge for incomplete technology related to a small acquisition
The following table shows the Company's reconciliation of non-GAAP to
GAAP operating expenses as a percent of revenue and effective tax rate
for the quarter ended September 1, 2006.
Operating Expense as a Percent
of Revenue
-------------------------------------- ---------
Research Sales General Effective
and and and Tax Rate
Development Marketing Administrative
------------ --------- --------------- ---------
GAAP 21.7% 36.1% 9.5% 23.3%
SFAS 123R stock-based
compensation (2.0%) (1.6%) (0.9%) (0.7%)
Amortization of
Macromedia deferred
compensation (0.1%) (2.3%) (0.1%) 1.0%
Amortization of
purchased intangibles
and incomplete
technology (0.4%) -- -- 0.3%
------------ --------- --------------- ---------
Non-GAAP 19.2% 32.2% 8.5% 23.9%
============ ========= =============== =========
The following table shows the Company's reconciliation of non-GAAP to
GAAP operating expenses for the quarter ended September 1, 2006.
Operating
Expenses
------------
GAAP $ 422,679
SFAS 123R stock-based compensation (26,617)
Amortization of Macromedia deferred
compensation (15,222)
Restructuring and other charges (32)
Amortization of purchased intangibles and
incomplete technology (19,993)
----------
Non-GAAP $ 360,815
==========
The following table shows the Company's reconciliation of non-GAAP to
GAAP gross margin for the quarter ended September 1, 2006.
Gross
Margin
------------
GAAP 88.5%
SFAS 123R stock -based compensation 0.1%
Amortization of Macromedia deferred
compensation 0.0%
Amortization of purchased intangibles and
incomplete technology 5.7%
-----------
Non-GAAP 94.3%
===========
Fourth Quarter Fiscal Year 2006 Non-GAAP Financial Targets
The following table shows Adobe's non-GAAP financial targets
reconciled to GAAP financial targets included in this release.
Fourth Quarter
Fiscal 2006
------------------
Low High
-------- ---------
GAAP operating margin 21% 24%
Amortization of purchased technology 5 5
Amortization of purchased intangibles 3 2
SFAS 123R stock-based compensation 6 6
Amortization of Macromedia deferred
compensation 2 1
------ ------
Non-GAAP operating margin 37% 38%
====== ======
Diluted net income per share:
GAAP net income per share $ 0.19 $ 0.22
Amortization of purchased technology,
net of tax 0.04 0.04
Amortization of purchased intangibles,
net of tax 0.02 0.02
SFAS 123R stock-based compensation,
net of tax 0.06 0.05
Amortization of Macromedia deferred
compensation, net of tax 0.01 0.01
------ ------
Non-GAAP net income per share $ 0.32 $ 0.34
====== ======
Shares used in computing diluted net
income per share 602.0 600.0
====== ======
Adobe continues to provide all information required in accordance with GAAP, but it believes that 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 compensation impact of SFAS 123R, restructuring and other charges, amortization of purchased intangibles and incomplete technology, amortization of Macromedia deferred compensation, investment gains and losses, tax differences related to the timing and deductibility of the Macromedia acquisition-related charges and SFAS 123R stock-based compensation, 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.
For all fiscal 2006 periods presented, Adobe's GAAP financial information and targets include the stock compensation impact of SFAS 123R, restructuring and other charges, amortization of purchased intangibles and incomplete technology, amortization of Macromedia deferred compensation, and tax differences related to the timing and deductibility of the Macromedia acquisition-related charges and SFAS 123R stock-based compensation. Also, in accordance with GAAP, Adobe incurs investment gains and losses from its venture program. These charges are otherwise unrelated to Adobe's ongoing business operations and are excluded from its non-GAAP financial information and targets.
SOURCE: Adobe Systems Incorporated
Adobe Systems Incorporated Mike Saviage, 408-536-4416 (Investor Relations) This email address is being protected from spambots. You need JavaScript enabled to view it. Holly Campbell, 408-536-6401 (Public Relations) This email address is being protected from spambots. You need JavaScript enabled to view it.
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