Adobe Systems Renders a Record Quarter

By Markets Fool.com

Image source: Adobe Systems Incorporated.

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Adobe Systems Incorporated(NASDAQ: ADBE)announced strong fiscal third-quarter 2016 results Tuesday after the market closed, and the company boosted its previously raised full-year financial targets. With Adobe stock up around 5% in after-hours trading as of this writing, let's dig a little deeper into the creative software specialist's latest quarter.

Adobe Systems results: The raw numbers

Metric

Fiscal Q3 2016 Actuals

Fiscal Q3 2015 Actuals

Growth (YOY)

Revenue

$1.46 billion

$1.22 billion

20.2%

GAAP net income

$270.8 million

$174.5 million

55.2%

GAAP earnings per share (diluted)

$0.54

$0.35

54.3%

DATA SOURCE: ADOBE SYSTEMS INCORPORATED.

What happened with Adobe Systems this quarter?

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  • Excluding one-time items such as stock-based compensation, amortization of intangibles, and restructuring charges, adjusted (non-GAAP) net income grew 36.7% year over year, to $376.5 million, or $0.75 per diluted share.
  • Both the top and bottom lines were above the midpoints of Adobe's guidance, which called forrevenue of $1.42 billion to $1.47 billion, GAAP earnings per share of $0.46 to $0.52, and adjusted EPS of $0.69 to $0.75.
  • Digital media segment revenue ncreased 29% year over year, to a company record $990 million, including 39% growth in creative revenue, to $803 million.
  • Digital media annualized recurring revenue increased $285 million from last quarter, to $3.7 billion exiting the quarter, once again driven by strong adoption of both creative cloud and document cloud.
  • Adobe marketing cloud revenue grew 10% year over year, to $404 million, above expectations.
  • Cash flow from operations was $518 million, another company record.
  • Deferred revenue increased to a company record $1.80 billion, up from $1.68 billion last quarter.
  • Adobe repurchased 3.5 million shares for $344 million during the quarter, leaving roughly $800 million remaining under its current repurchase authorization.

What management had to say

"We drove strong revenue and earnings performance in Q3, further distancing ourselves from our competitors," added Adobe CEO Shantanu Narayen. "Our leadership in cloud-based content and data platforms make us a mission critical partner to the world's biggest brands as they transform how they engage with their customers."

Adobe CFO Mark Garrett stated: "Fiscal 2016 is shaping up to be another great year and Adobe's record results in Q3 reflect both our market leadership and strong execution. We are expecting another record quarter in Q4, and the leverage in our operating model is reflected in our increase to earnings targets for the year."

Looking forward

More specifically,for the current fiscal fourth quarter of 2016, Adobe expects revenue of $1.55 billion to $1.60 billion, GAAP earnings per share of $0.60 to $0.66, and adjusted EPS of $0.83 to $0.89. By contrast -- and though we don't typically pay much attention to Wall Street's short-term demands -- analysts' consensus estimates predicted that Adobe would deliver fiscal fourth-quarter revenue of $1.57 billion and adjusted earnings of only $0.78 per share.

Finally, Adobe continues to expect digital-media annual recurring revenue of $4 billion exiting fiscal 2016. But it also now expects full fiscal-year revenue of $5.80 billion to $5.85 billion, up from previous guidance for $5.8 billion; GAAP net income per share of $2.12 to $2.18, up from $2.00 per share previously; and adjusted net income per share of $2.94 to $3.00, up from $2.80 per share previously.

As it stands, this was a straightforward beat-and-raise from Adobe, as it continues to effectively execute its transition to a cloud-based model. Given its relative outperformance and encouraging outlook, it's no surprise to see Adobe stock trading significantly higher today.

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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Adobe Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.