Adobe Reports Third Quarter Fiscal 2012 Financial Results

Creative Cloud Subscriptions Accelerate and Digital Marketing Suite Revenue Grows 40 Percent Year-Over-Year

SAN JOSE, Calif. Adobe Systems Incorporated (Nasdaq:ADBE) today reported financial results for its third quarter of fiscal year 2012 ended
Aug. 31, 2012.

Adobe achieved revenue in Q3 FY2012 of $1.081 billion, within its targeted range of $1.075 billion to $1.125 billion.  During the quarter, the Company drove faster adoption of Creative Cloud subscriptions than originally projected. As Adobe customers migrate from a legacy Creative Suite perpetual licensing model to new Creative Cloud subscriptions, revenue is recognized over time as opposed to at the time of purchase.  This overachievement in subscriptions during the third quarter effectively transitioned approximately $29 million more perpetual revenue than expected to Creative Cloud.

In addition, the effect of currency impacted Q3 revenue negatively by approximately $9 million.  Adjusting for these amounts in Adobe’s reported results would have enabled the Company to achieve third quarter revenue towards the high-end of its targeted range.

Other Third Quarter Financial Highlights

  • Diluted earnings per share were $0.40 on a GAAP-basis, and $0.58 on a non-GAAP basis.
  • Operating income was $278.3 million and net income was $201.4 million on a GAAP-basis.  Operating income was $391.8 million and net income was $291.2 million on a non-GAAP basis.
  • Cash flow from operations was $263.3 million.
  • Adobe Creative Cloud paid subscriptions grew to approximately 200,000 in the third quarter.  Adobe added approximately 8,000 Creative Cloud subscriptions per week during the quarter, exceeding the addition of 5,000 subscriptions per week that was assumed in its third quarter financial targets.
  • Digital Marketing Suite achieved record quarterly revenue with 40 percent year-over-year growth.

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

Executive Quotes
“Customers globally are adopting our new Creative Cloud subscription offering more quickly than we projected,” said Shantanu Narayen, president and CEO of Adobe. “We are the leader in the fast-growing Digital Marketing category with 40 percent year-over-year Digital Marketing Suite revenue growth this quarter.”

“We’re on a path to drive millions of subscribers to our Creative Cloud offering, as well as build a billion dollar SaaS business in Digital Marketing,” said Mark Garrett, executive vice president and CFO of Adobe.  “This will drive higher long-term growth and create a large recurring revenue stream.”

Financial Outlook
Adobe provided financial targets for the fourth quarter of fiscal 2012.  These targets reflect the effect of higher migration of customers to Creative Cloud than forecast earlier in the year.

For the fourth quarter of fiscal 2012, Adobe is targeting revenue of $1.075 billion to $1.125 billion.  On a diluted earnings per share basis, the company is targeting a range of $0.34 to $0.39 on a GAAP basis, and $0.53 to $0.58 on a non-GAAP basis.  These targeted ranges factor in the addition of 125,000 new Creative Cloud subscriptions in the quarter, which represents approximately $94 million in Q4 perpetual revenue which would effectively move to subscription and ratable monthly recognition.

Adobe is targeting its Q4 share count to be between 500 million and 502 million shares, and it is targeting non-operating expense between $18 million and $20 million.  Adobe’s tax rate is expected to be approximately 23.5 percent on a GAAP basis and 22.5 percent on a non-GAAP basis.

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

Adobe to Webcast Earnings Conference Call
Adobe will webcast its third quarter fiscal year 2012 earnings conference call today at 2:00 p.m. Pacific Time from its investor relations website:  www.adobe.com/ADBE.  A copy of Adobe management’s prepared remarks has been posted to the website in advance of the call for reference.

Forward-Looking Statements Disclosure
This press release contains forward-looking statements, including those related to revenue, additional Creative Cloud subscriptions and the resulting impact on revenue, growth in our Digital Marketing business, non-operating expense, tax rate, share count, earnings per share, increases in recurring revenue and our ability to execute against our strategy in our key growth 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 Dec. 2, 2011 and its Quarterly Reports on Form 10-Q for the fiscal quarters ended March 2, 2012 and June 1, 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 Aug. 31, 2012, which Adobe expects to file in Oct. 2012.

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