adbe-20210617

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (date of earliest event reported): June 17, 2021 (June 17, 2021)

ADOBE INC.

(Exact name of Registrant as specified in its charter)

Delaware

0-15175

77-0019522

(State or other jurisdiction of incorporation)

(Commission File Number)

(I.R.S. Employer Identification No.)

345 Park Avenue

San Jose, California 95110-2704

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (408) 536-6000

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value per share	ADBE	NASDAQ Global Select Market

Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Item 2.02. Results of Operations and Financial Condition.

On June 17, 2021, Adobe Inc. (“Adobe”) issued a press release announcing financial results for its second quarter fiscal year 2021 ended June 4, 2021. A copy of this press release is furnished and attached hereto as Exhibit 99.1 and is incorporated herein by reference.

The information in this report and the exhibit attached hereto are being furnished and shall not be deemed filed for purposes of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly stated by specific reference in such filing.

The attached press release includes non-GAAP operating income, non-GAAP net income, non-GAAP diluted net income per share (earnings per share) and non-GAAP tax rate.

These non-GAAP measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. We believe that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures.

For our internal budgeting and resource allocation process, we use non-GAAP financial measures which exclude: (A) stock-based and deferred compensation expense; (B) amortization of intangibles; (C) investment gains and losses; (D) income tax adjustments; and (E) the income tax effect of the non-GAAP pre-tax adjustments from the provision for income taxes.

We use these non-GAAP financial measures in making operating decisions because we believe the measures provide meaningful supplemental information regarding our operational performance and give us a better understanding of how we should invest in research and development and fund infrastructure and go-to-market strategies. We use these measures to help us make budgeting decisions, for example, as between product development expenses and research and development, sales and marketing and general and administrative expenses and to facilitate our internal comparisons to our historical operating results. In addition, we believe 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 and to compare operating results across accounting periods and to those of our peer companies.

As described above, we exclude the following items from one or more of our non-GAAP measures:

A. Stock-based and deferred compensation expenses. Stock-based compensation expense consists of charges for employee restricted stock units, performance shares and employee stock purchases in accordance with current GAAP including stock-based compensation expense associated with any unvested options and restricted stock units assumed in connection with our acquisitions. We believe that it is useful to investors to understand the impact of the application of accounting standards pertaining to stock-based compensation to our operational performance, liquidity and our ability to invest in research and development and fund acquisitions and capital expenditures. Deferred compensation expense consists of charges associated with movements in our deferred compensation plan liability. Although stock-based compensation and deferred compensation expenses constitute ongoing and recurring expenses, such expenses are excluded from non-GAAP results because they are not expenses that typically require current cash settlement by us and because such expenses are not used by us to assess the core profitability of our business operations. We further believe these measures are useful to investors in that they allow for greater transparency to certain line items in our financial statements. In addition, excluding these items from various non-GAAP measures facilitates comparisons to our competitors’ operating results.

B. Amortization of intangibles. We recognize amortization expense of intangibles in connection with our acquisitions. Intangibles include (i) purchased technology, (ii) trademarks, (iii) customer contracts and relationships, and (iv) other intangible assets. In accordance with GAAP, we amortize the fair value of the intangibles based on the pattern in which we expect the economic benefits of the intangibles will be consumed as revenue is generated. Although the intangibles generate revenue for us, we exclude this item because the expense is non-cash in nature and because we believe the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding our operational performance, liquidity and our ability to invest in research and development, fund acquisitions and capital expenditures. In addition, excluding this item from various non-GAAP measures facilitates our internal comparisons to our historical operating results and comparisons to our competitors’ operating results.

C. Investment gains and losses. We recognize investment gains and losses principally from realized gains or losses from the sale and exchange of marketable equity investments, other-than-temporary declines in the value of marketable and non-marketable equity securities, unrealized holding gains and losses associated with our available-for-sale securities and deferred compensation plan assets (classified as trading securities), gains and losses on the sale of equity securities held indirectly through investment partnerships and gains and losses associated with the recording of equity or cost method investments to fair value upon obtaining control through a business combination, as required by GAAP. We do not actively trade publicly held securities nor do we rely on these securities positions for funding our ongoing operations. We exclude investment gains and losses on these equity securities because these items are unrelated to our ongoing business and operating results.

D. Income tax adjustments. Our income tax expense is based on our GAAP taxable income and actual tax rates in effect, which can differ significantly from the non-GAAP tax rate applied to our non-GAAP financial results. In arriving at our non-GAAP tax rate, certain non-recurring and period-specific income tax adjustments, such as a one-time tax charge in connection with an acquisition, resolution of certain income tax audits and any significant financial impacts and certain indirect effects resulting from tax legislation or changes to our trading structure are made to help us assess the core profitability of our business operations. This non-GAAP tax rate could be subject to change for several reasons, including significant changes in our geographic earnings mix or fundamental tax law changes in major jurisdictions in which we operate. In addition, excluding this item from various non-GAAP measures facilitates our internal comparisons to our historical operating results.

E. Income tax effect of the non-GAAP pre-tax adjustments from the provision for income taxes. Excluding the income tax effect of the non-GAAP pre-tax adjustments from the provision for income taxes assists investors in understanding the tax provision associated with those adjustments and the effective tax rate related to our ongoing operations.

We believe that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our financial results as determined in accordance with GAAP and that these measures should only be used to evaluate our financial results in conjunction with the corresponding GAAP measures and that is why we qualify the use of non-GAAP financial information in a statement when non-GAAP information is presented.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits


Exhibit Number						Exhibit Description

99.1						Press release issued on June 17, 2021 entitled “Adobe Reports Outstanding Second Quarter Results”

104						Cover Page Interactive Data File (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


			ADOBE INC.

			By:			/s/ JOHN MURPHY
						John Murphy
						Executive Vice President and Chief Financial Officer

Date: June 17, 2021

Exhibit 99.1

Investor Relations Contact

Jonathan Vaas

Adobe

[email protected]

Public Relations Contact

Ashley Levine

Adobe

[email protected]

FOR IMMEDIATE RELEASE

Adobe Reports Outstanding Second Quarter Results

Revenue Growth of 23% Year Over Year Drives Record $1.99 Billion Cash Flows from Operations

SAN JOSE, Calif. - June 17, 2021 - Adobe (Nasdaq:ADBE) today reported financial results for its second quarter fiscal year 2021 ended June 4, 2021.

Second Quarter Fiscal Year 2021 Financial Highlights

•Adobe achieved quarterly revenue of $3.84 billion in its second quarter of fiscal year 2021, which represents 23 percent year-over-year growth. Diluted earnings per share was $2.32 on a GAAP basis and $3.03 on a non-GAAP basis.

•Digital Media segment revenue was $2.79 billion, which represents 25 percent year-over-year growth. Creative revenue grew to $2.32 billion, representing 24 percent year-over-year growth. Document Cloud revenue was $469 million, representing 30 percent year-over-year growth.

•Digital Media Annualized Recurring Revenue (“ARR”) increased $518 million quarter-over-quarter to $11.21 billion exiting the quarter. Creative ARR grew to $9.53 billion and Document Cloud ARR grew to $1.68 billion.

•Digital Experience segment revenue was $938 million, representing 21 percent year-over-year growth. Digital Experience subscription revenue was $817 million, representing 25 percent year-over-year growth.

•GAAP operating income in the second quarter was $1.41 billion, and non-GAAP operating income was $1.76 billion. GAAP net income was $1.12 billion, and non-GAAP net income was $1.46 billion.

•Cash flows from operations were a record $1.99 billion.

•Remaining Performance Obligations (“RPO”) exiting the quarter were $12.23 billion, representing 23 percent year-over-year growth.

•Adobe repurchased approximately 2.1 million shares during the quarter.

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

Executive Quotes

“Adobe had an outstanding second quarter as Creative Cloud, Document Cloud and Experience Cloud continue to transform work, learn and play in a digital-first world,” said Shantanu Narayen, president and CEO, Adobe. “Our innovative product roadmap and unparalleled leadership in creativity, digital documents and customer experience management position us for continued success in 2021 and beyond.”

“Adobe delivered strong Digital Media annualized recurring revenue and Digital Experience bookings, as well as record cash flows from operations in Q2,” said John Murphy, executive vice president and CFO, Adobe. “The large market opportunity and momentum we are seeing across our creative, document and customer experience management businesses position us well to deliver another record year.”

Adobe Provides Third Quarter Financial Targets

Adobe today is providing third quarter financial targets factoring current macroeconomic conditions and expected return of summer seasonality associated with the months of June, July and August.

The following table summarizes Adobe’s third quarter fiscal year 2021 targets:


Total revenue	~$3.88 billion
Digital Media segment revenue	~22 percent year-over-year growth
Digital Media annualized recurring revenue (ARR)	~$440 million of net new ARR
Digital Experience segment revenue	~21 percent year-over-year growth
Digital Experience subscription revenue	~25 percent year-over-year growth
Tax rate	GAAP: ~19 percent	Non-GAAP: ~16 percent
Share count	~480 million shares
Earnings per share	GAAP: ~$2.27	Non-GAAP: ~$3.00

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

Adobe to Webcast Second Quarter Earnings Conference Call

Adobe will webcast its second quarter fiscal year 2021 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 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 effects of the COVID-19 pandemic on our business and results of operations, market trends, current macroeconomic conditions, customer success, revenue, operating margin, seasonality, annualized recurring revenue, tax rate on a GAAP and non-GAAP basis, earnings per share on a GAAP and non-GAAP basis, and share count, 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 compete effectively, failure to develop, acquire, market and offer products and services that meet customer requirements, introduction of new technology, information security and privacy, potential interruptions or delays in hosted services provided by us or third parties, macroeconomic conditions and economic impact of the COVID-19 pandemic, risks associated with cyber-attacks, complex sales cycles, risks related to the timing of revenue recognition from our subscription offerings, fluctuations in subscription renewal rates, failure to realize the anticipated benefits of past or future acquisitions, failure to effectively manage critical strategic third-party business relationships, changes in accounting principles and tax regulations, uncertainty in the financial markets and economic conditions in the countries where we operate, and other various risks associated with being a multinational corporation. 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 2020 ended Nov. 27, 2020, and Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2021.

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 June 4, 2021, which Adobe expects to file in late June 2021. Adobe assumes no obligation to, and does not currently intend to, update these forward-looking statements.

About Adobe

Adobe is changing the world through digital experiences. For more information, visit www.adobe.com.

###

©2021 Adobe. All rights reserved. Adobe, Creative Cloud, Document Cloud and the Adobe logo are either registered trademarks or trademarks of Adobe (or one of its subsidiaries) in the United States and/or other countries. All other trademarks are the property of their respective owners.

Condensed Consolidated Statements of Income

(In millions, except per share data; unaudited)


	Three Months Ended				Six Months Ended
	June 4, 2021		May 29, 2020		June 4, 2021		May 29, 2020
Revenue:
Subscription	$	3,520	$	2,831	$	7,104	$	5,563
Product	153		128		308		271
Services and other	162		169		328		385
Total revenue	3,835		3,128		7,740		6,219

Cost of revenue:
Subscription	328		269		652		543
Product	9		9		19		16
Services and other	107		137		220		308
Total cost of revenue	444		415		891		867

Gross profit	3,391		2,713		6,849		5,352

Operating expenses:
Research and development	612		532		1,232		1,064
Sales and marketing	1,073		901		2,122		1,758
General and administrative	256		224		546		495

Amortization of intangibles	44		40		89		82
Total operating expenses	1,985		1,697		3,989		3,399

Operating income	1,406		1,016		2,860		1,953

Non-operating income (expense):
Interest expense	(28)		(28)		(58)		(61)
Investment gains (losses), net	8		—		13		(3)
Other income (expense), net	—		12		4		30
Total non-operating income (expense), net	(20)		(16)		(41)		(34)
Income before income taxes	1,386		1,000		2,819		1,919
Provision for (benefit from) income taxes	270		(100)		442		(136)
Net income	$	1,116	$	1,100	$	2,377	$	2,055
Basic net income per share	$	2.34	$	2.28	$	4.97	$	4.26
Shares used to compute basic net income per share	478		481		478		482
Diluted net income per share	$	2.32	$	2.27	$	4.93	$	4.23
Shares used to compute diluted net income per share	481		485		482		486

Condensed Consolidated Balance Sheets

(In millions; unaudited)


	June 4, 2021		November 27, 2020
ASSETS

Current assets:
Cash and cash equivalents	$	4,250	$	4,478
Short-term investments	1,518		1,514
Trade receivables, net of allowances for doubtful accounts of $19 and $21, respectively	1,477		1,398
Prepaid expenses and other current assets	833		756
Total current assets	8,078		8,146

Property and equipment, net	1,573		1,517
Operating lease right-of-use assets, net	458		487
Goodwill	11,859		10,742
Other intangibles, net	1,641		1,359

Deferred income taxes	1,168		1,370
Other assets	805		663
Total assets	$	25,582	$	24,284

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Trade payables	$	312	$	306
Accrued expenses	1,538		1,422

Deferred revenue	4,144		3,629
Income taxes payable	55		63
Operating lease liabilities	96		92
Total current liabilities	6,145		5,512

Long-term liabilities:
Debt	4,120		4,117
Deferred revenue	139		130
Income taxes payable	510		529
Deferred income taxes	80		10
Operating lease liabilities	477		499
Other liabilities	259		223
Total liabilities	11,730		11,020

Stockholders’ equity:
Preferred stock	—		—
Common stock	—		—
Additional paid-in-capital	7,877		7,357
Retained earnings	21,538		19,611
Accumulated other comprehensive income (loss)	(121)		(158)
Treasury stock, at cost	(15,442)		(13,546)
Total stockholders’ equity	13,852		13,264
Total liabilities and stockholders’ equity	$	25,582	$	24,284

Condensed Consolidated Statements of Cash Flows

(In millions; unaudited)


	Three Months Ended
	June 4, 2021		May 29, 2020
Cash flows from operating activities:
Net income	$	1,116	$	1,100
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	194		188
Stock-based compensation	260		227

Unrealized investment (gains) losses, net	(7)		(1)
Other non-cash adjustments	110		(137)
Changes in deferred revenue	(2)		(154)
Changes in other operating assets and liabilities	317		(39)
Net cash provided by operating activities	1,988		1,184

Cash flows from investing activities:
Purchases, sales and maturities of short-term investments, net	(10)		176
Purchases of property and equipment	(95)		(96)

Purchases and sales of long-term investments, intangibles and other assets, net	(2)		—

Net cash provided by (used for) investing activities	(107)		80

Cash flows from financing activities:
Repurchases of common stock	(1,000)		(850)
Taxes paid related to net share settlement of equity awards, net of proceeds from treasury stock re-issuances	(89)		(53)


Other financing activities, net	9		2


Net cash used for financing activities	(1,080)		(901)
Effect of exchange rate changes on cash and cash equivalents	(3)		(7)
Net increase in cash and cash equivalents	798		356
Cash and cash equivalents at beginning of period	3,452		2,688
Cash and cash equivalents at end of period	$	4,250	$	3,044

Non-GAAP Results

(In millions, except per share data)

The following table shows Adobe’s GAAP results reconciled to non-GAAP results included in this release.


	Three Months Ended
	June 4, 2021		May 29, 2020		March 5, 2021
Operating income:

GAAP operating income	$	1,406	$	1,016	$	1,454
Stock-based and deferred compensation expense	269		227		286

Amortization of intangibles	87		92		89

Non-GAAP operating income	$	1,762	$	1,335	$	1,829

Net income:

GAAP net income	$	1,116	$	1,100	$	1,261
Stock-based and deferred compensation expense	269		227		286

Amortization of intangibles	87		92		89
Investment (gains) losses, net	(8)		—		(5)

Income tax adjustments	(8)		(232)		(116)
Non-GAAP net income	$	1,456	$	1,187	$	1,515

Diluted net income per share:

GAAP diluted net income per share	$	2.32	$	2.27	$	2.61
Stock-based and deferred compensation expense	0.56		0.47		0.59

Amortization of intangibles	0.18		0.19		0.19
Investment (gains) losses, net	(0.02)		—		(0.01)

Income tax adjustments	(0.01)		(0.48)		(0.24)
Non-GAAP diluted net income per share	$	3.03	$	2.45	$	3.14

Shares used in computing diluted net income per share	481		485		483

The following table shows Adobe’s GAAP second quarter fiscal year 2021 tax rate reconciled to the non-GAAP tax rate included in this release.


	Second Quarter Fiscal 2021
Effective income tax rate:

GAAP effective income tax rate		19.5	%
Income tax adjustments		(2.0)
Stock-based and deferred compensation expense		(1.1)
Amortization of intangibles		(0.4)
Non-GAAP effective income tax rate		16.0	%

Reconciliation of GAAP to Non-GAAP Financial Targets

(Shares in millions)

The following tables show Adobe's third quarter fiscal year 2021 financial targets reconciled to the non-GAAP financial targets included in this release.


	Third Quarter Fiscal 2021
Diluted net income per share:

GAAP diluted net income per share	$	2.27
Stock-based and deferred compensation expense		0.60
Amortization of intangibles		0.17
Income tax adjustments		(0.04)
Non-GAAP diluted net income per share	$	3.00

Shares used to compute diluted net income per share	480


	Third Quarter Fiscal 2021
Effective income tax rate:

GAAP effective income tax rate		19.0	%
Stock-based and deferred compensation expense		(1.4)
Amortization of intangibles		(0.1)
Income tax adjustments		(1.5)
Non-GAAP effective income tax rate		16.0	%

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 as well as non-GAAP measures, which may exclude items such as stock-based and deferred compensation expenses, amortization of intangibles, investment gains and losses, the related tax impact of all of these items, income tax adjustments, and the income tax effect of the non-GAAP pre-tax adjustments from the provision for income taxes. Adobe uses these non-GAAP measures in order to assess the performance of Adobe's business and for planning and forecasting in subsequent periods. Whenever such a non-GAAP measure is used, Adobe 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.