ADOBE INC. - FORM 8-K - EX-99.1 - EXHIBIT

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8-K - 8-K - ADOBE INC.	adbe8kq414.htm
EX-10.1 - EXHIBIT - ADOBE INC.	adbeex101executiveseveranc.htm
EX-10.2 - EXHIBIT - ADOBE INC.	adbeex102ceoretentionagree.htm

Exhibit 99.1

Investor Relations Contact

Mike Saviage

Adobe

408-536-4416

ir@adobe.com

Public Relations Contact

Colleen Rodriguez

Adobe

408-536-6803

corodrig@adobe.com

FOR IMMEDIATE RELEASE

Adobe Reports Strong Q4 and Fiscal 2014 Financial Results

Momentum Continues with Accelerated Creative Cloud and Adobe Marketing Cloud Adoption

SAN JOSE, Calif. - Dec. 11, 2014 - Adobe (Nasdaq:ADBE) today reported financial results for its fourth quarter and fiscal year 2014 ended Nov. 28, 2014.

Fourth Quarter Financial Highlights


•	Adobe achieved revenue of $1.073 billion, near the high end of the targeted range of $1.025 billion to $1.075 billion.


•	Adobe added 644 thousand net new Creative Cloud subscriptions in the quarter.


•	Creative Annualized Recurring Revenue (“ARR”) grew to $1.676 billion, and total Digital Media ARR grew to $1.947 billion.


•	Adobe Marketing Cloud revenue was $330 million with record bookings in the quarter.


•	Diluted earnings per share were $0.14 on a GAAP-basis, and $0.36 on a non-GAAP basis.


•	Cash flow from operations was $400 million.


•	Deferred revenue grew to a record $1.155 billion, and unbilled backlog grew to approximately $1.7 billion.


•	66 percent of Adobe’s Q4 revenue was from recurring sources, compared to 44 percent of Q4 revenue in fiscal 2013.


•	The company repurchased approximately 1.8 million shares during the quarter, returning $127 million of cash to stockholders.

Fiscal Year 2014 Financial Highlights


•	Adobe achieved revenue of $4.147 billion and generated $1.288 billion in operating cash flow during the year.


•	The company reported annual GAAP earnings per share of $0.50 and non-GAAP earnings per share of $1.29.


•	Creative Cloud subscriptions grew by more than two million to 3.454 million. In addition, Adobe grew net new Digital Media ARR by more than $1 billion during the year.


•	Adobe Marketing Cloud achieved a record $1.170 billion in annual revenue, with record annual bookings that is above the company’s target of 30 percent.


•	The company repurchased 10.9 million shares during the year, returning approximately $689 million of cash to stockholders.

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

Adobe to Acquire Fotolia

Adobe today announced it has entered into a definitive agreement to acquire privately-held Fotolia, a leading marketplace for stock content. Fotolia will be integrated into Adobe Creative Cloud, providing current and future Creative Cloud members with the ability to access and purchase over 34 million images and videos, significantly simplifying and accelerating the design process. The acquisition of Fotolia cements Creative Cloud’s role as a vibrant marketplace for creatives to buy and sell assets and services as well as showcase their talent to a worldwide audience. Adobe also plans to continue to operate Fotolia as a standalone stock service, accessible to anyone. Additional information is available in a separate press release.

Executive Quotes

"Adobe had an outstanding 2014. Creative Cloud adoption outpaced expectations and the acquisition of Fotolia will add a vibrant marketplace for our customers. Adobe Marketing Cloud, the leader in the explosive digital marketing category, continued to drive strong bookings at the world's biggest brands, agencies and media companies,” said Shantanu Narayen, Adobe president and chief executive officer.

“2014 was a pivotal year for Adobe as we completed our business model transition,” said Mark Garrett, Adobe executive vice president and chief financial officer. “In 2015 we expect revenue and earnings to grow sequentially every quarter during the year.”

Adobe to Webcast Earnings Conference Call

Adobe will webcast its fourth quarter and fiscal year 2014 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, financial targets 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 strength of our cloud business and growth of our bookings, revenue and earnings, and our ability to complete and integrate the acquisition of Fotolia, 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 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, fluctuations in subscription renewal rates, risks associated with cyber-attacks and information security, potential interruptions or delays in hosted services provided by us or third parties, uncertainty in economic conditions and the financial markets, 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 our fiscal year 2013 ended Nov. 29, 2013 and Adobe’s Quarterly Reports on Form 10-Q issued in fiscal year 2014.

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. 28, 2014, which Adobe expects to file in Jan. 2015.

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.

###

© 2014 Adobe Systems Incorporated. All rights reserved. Adobe, the Adobe logo, 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						Year Ended
	November 28, 2014			November 29, 2013			November 28, 2014			November 29, 2013
Revenue:
Products	$	327,951		$	567,232		$	1,627,803		$	2,470,098
Subscription	628,954			359,723			2,076,584			1,137,856
Services and support	116,423			114,744			442,678			447,286
Total revenue	1,073,328			1,041,699			4,147,065			4,055,240

Cost of revenue:
Products	21,930			26,803			97,099			138,154
Subscription	87,883			77,314			335,432			278,077
Services and support	51,130			43,399			189,549			170,326
Total cost of revenue	160,943			147,516			622,080			586,557

Gross profit	912,385			894,183			3,524,985			3,468,683

Operating expenses:
Research and development	213,687			205,196			844,353			826,631
Sales and marketing	428,362			431,540			1,671,808			1,620,454
General and administrative	133,534			138,358			543,332			520,124
Restructuring and other charges	19,385			2,294			19,883			26,497
Amortization of purchased intangibles	12,412			13,959			52,424			52,254
Total operating expenses	807,380			791,347			3,131,800			3,045,960

Operating income	105,005			102,836			393,185			422,723

Non-operating income (expense):
Interest and other income (expense), net	105			695			7,267			4,941
Interest expense	(12,678		)	(16,722		)	(59,732		)	(67,508		)
Investment gains (losses), net	343			1,461			1,156			(4,015		)
Total non-operating income (expense), net	(12,230		)	(14,566		)	(51,309		)	(66,582		)
Income before income taxes	92,775			88,270			341,876			356,141
Provision for income taxes	19,483			22,950			88,325			66,156
Net income	$	73,292		$	65,320		$	253,551		$	289,985
Basic net income per share	$	0.15		$	0.13		$	0.51		$	0.58
Shares used to compute basic net income per share	498,124			499,363			497,867			501,372
Diluted net income per share	$	0.14		$	0.13		$	0.50		$	0.56
Shares used to compute diluted net income per share	507,451			511,082			508,480			513,476

Condensed Consolidated Balance Sheets

(In thousands, except par value; unaudited)



	November 28, 2014			November 29, 2013
ASSETS

Current assets:
Cash and cash equivalents	$	1,117,400		$	834,556
Short-term investments	2,622,091			2,339,196
Trade receivables, net of allowances for doubtful accounts of $7,867 and $10,228, respectively	591,800			599,820
Deferred income taxes	95,586			102,247
Prepaid expenses and other current assets	175,758			170,110
Total current assets	4,602,635			4,045,929

Property and equipment, net	785,123			659,774
Goodwill	4,721,962			4,771,981
Purchased and other intangibles, net	469,662			605,254
Investment in lease receivable	80,439			207,239
Other assets	126,315			90,121
Total assets	$	10,786,136		$	10,380,298

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Trade payables	$	68,377		$	62,096
Accrued expenses	703,365			656,939
Debt and capital lease obligations	603,229			14,676
Accrued restructuring	17,120			6,171
Income taxes payable	20,456			10,222
Deferred revenue	1,097,923			775,544
Total current liabilities	2,510,470			1,525,648

Long-term liabilities:
Debt and capital lease obligations	911,086			1,499,297
Deferred revenue	57,401			53,268
Accrued restructuring	5,194			7,717
Income taxes payable	125,746			132,545
Deferred income taxes	341,610			375,634
Other liabilities	73,748			61,555
Total liabilities	4,025,255			3,655,664

Stockholders' equity:
Preferred stock, $0.0001 par value; 2,000 shares authorized	—			—
Common stock, $0.0001 par value	61			61
Additional paid-in-capital	3,778,314			3,392,696
Retained earnings	6,909,451			6,928,964
Accumulated other comprehensive income (loss)	(8,094		)	46,103
Treasury stock, at cost (103,350 and 104,573 shares, respectively), net of reissuances	(3,918,851		)	(3,643,190		)
Total stockholders' equity	6,760,881			6,724,634
Total liabilities and stockholders' equity	$	10,786,136		$	10,380,298

Condensed Consolidated Statements of Cash Flows

(In thousands; unaudited)



	Three Months Ended
	November 28, 2014			November 29, 2013
Cash flows from operating activities:
Net income	$	73,292		$	65,320
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	78,147			81,350
Stock-based compensation expense	84,949			86,754
Unrealized investment gains, net	(121		)	(1,741		)
Changes in deferred revenue	158,712			94,737
Changes in other operating assets and liabilities	4,953			(11,438		)
Net cash provided by operating activities	399,932			314,982

Cash flows from investing activities:
Purchases, sales and maturities of short-term investments, net	(8,474		)	11,140
Purchases of property and equipment	(36,775		)	(35,121		)
Proceeds from the sale of property and equipment	—			24,260
Purchases and sales of long-term investments, intangibles and other assets, net	(2,908		)	(294		)
Acquisitions, net of cash	(29,802		)	—
Net cash used for investing activities	(77,959		)	(15		)

Cash flows from financing activities:
Purchases of treasury stock	(125,000		)	(400,000		)
Proceeds from reissuance of treasury stock, net	3,619			64,892
Repayment of debt and capital lease obligations	(3,253		)	(6,041		)
Excess tax benefits from stock-based compensation	21,102			40,619
Net cash used for financing activities	(103,532		)	(300,530		)
Effect of exchange rate changes on cash and cash equivalents	(4,370		)	1,034
Net increase in cash and cash equivalents	214,071			15,471
Cash and cash equivalents at beginning of period	903,329			819,085
Cash and cash equivalents at end of period	$	1,117,400		$	834,556

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 28, 2014			November 29, 2013			August 29, 2014			November 28, 2014			November 29, 2013
Operating income:

GAAP operating income	$	105,005		$	102,836		$	74,176		$	393,185		$	422,723
Stock-based and deferred compensation expense	85,025			86,468			83,682			335,856			332,289
Restructuring and other charges	19,385			2,294			201			19,883			26,497
Amortization of purchased intangibles & technology license arrangements	31,331			32,789			31,780			127,000			153,840
Loss contingency	—			—			—			10,000			—
Non-GAAP operating income	$	240,746		$	224,387		$	189,839		$	885,924		$	935,349

Net income:

GAAP net income	$	73,292		$	65,320		$	44,686		$	253,551		$	289,985
Stock-based and deferred compensation expense	85,025			86,468			83,682			335,856			332,289
Restructuring and other charges	19,385			2,294			201			19,883			26,497
Amortization of purchased intangibles & technology license arrangements	31,331			32,789			31,780			127,000			153,840
Investment (gains) losses	(343		)	(1,461		)	(669		)	(1,156		)	4,015
Loss contingency	—			—			—			10,000			—
Income tax adjustments	(28,433		)	(20,806		)	(19,114		)	(86,701		)	(116,897		)
Non-GAAP net income	$	180,257		$	164,604		$	140,566		$	658,433		$	689,729

Diluted net income per share:

GAAP diluted net income per share	$	0.14		$	0.13		$	0.09		$	0.50		$	0.56
Stock-based and deferred compensation expense	0.17			0.17			0.16			0.66			0.65
Restructuring and other charges	0.04			—			—			0.04			0.05
Amortization of purchased intangibles & technology license arrangements	0.06			0.06			0.06			0.25			0.30
Investment (gains) losses	—			—			—			—			0.01
Loss contingency	—			—			—			0.02			—
Income tax adjustments	(0.05		)	(0.04		)	(0.03		)	(0.18		)	(0.23		)
Non-GAAP diluted net income per share	$	0.36		$	0.32		$	0.28		$	1.29		$	1.34

Shares used in computing diluted net income per share	507,451			511,082			507,811			508,480			513,476

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 that may include items such as stock-based and deferred compensation expenses, restructuring and other charges, amortization of purchased intangibles and certain activity in connection with technology license arrangements, investment gains and losses, loss contingencies 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.

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