10-QPeriod: Q3 FY1999

ADOBE INC. Quarterly Report for Q3 Ended Sep 3, 1999

Filed October 15, 1999For Securities:ADBE

Summary

Adobe Systems Incorporated reported strong revenue growth for the nine months ended September 3, 1999, with total revenue increasing by 13.2% to $733.7 million compared to the same period in 1998. This growth was primarily driven by a significant 26.7% increase in application products revenue, reaching $230.7 million in the third quarter, fueled by new product releases like Acrobat 4.0, InDesign, and GoLive 4.0, as well as product collection bundles. While application products showed robust performance, licensing revenue experienced a notable decline of 26.1% in the third quarter, attributed to weakness in the monochrome laser printer market and the Japanese economy, alongside a loss of royalty revenue from a major customer. Operationally, Adobe demonstrated improved profitability, with operating income swinging from a loss of $6.1 million in the prior year's third quarter to a healthy $71.9 million in the current quarter. This improvement is partly due to a significant reduction in restructuring and other charges, which fell from $37.9 million in Q3 1998 to $4.4 million in Q3 1999, and a decrease in general and administrative expenses. The company's financial position also strengthened, with cash, cash equivalents, and short-term investments increasing by 76.5% to $481.0 million, reflecting strong operational cash flow and strategic financial management including active share repurchase programs. Adobe's outlook for fiscal year 2000 includes targets for revenue growth and margin expansion, indicating management's confidence in continued performance improvement.

Key Highlights

  • 1Total revenue for the nine months ended September 3, 1999, increased 13.2% to $733.7 million.
  • 2Application products revenue showed strong growth, up 26.7% year-over-year in the third quarter, driven by new product launches and collections.
  • 3Licensing revenue declined 26.1% in the third quarter, impacted by market softness and customer-specific issues.
  • 4Operating income turned positive, reaching $71.9 million in the third quarter of fiscal 1999, a significant improvement from a loss in the prior year's quarter.
  • 5Restructuring and other charges decreased substantially, from $37.9 million in Q3 1998 to $4.4 million in Q3 1999.
  • 6Cash, cash equivalents, and short-term investments grew by 76.5% to $481.0 million, indicating a strong liquidity position.
  • 7The company announced a two-for-one stock split effective October 26, 1999.

Frequently Asked Questions

The primary driver of Adobe's revenue growth is the strong performance of its application products, which saw a 26.7% increase in the third quarter of fiscal 1999 compared to the same period last year. This growth is attributed to the successful launch of new products like Acrobat 4.0 and InDesign, as well as product collections and upgrades.

The decline in licensing revenue is mainly due to ongoing weakness in the monochrome laser printer market and challenging economic conditions in Japan. Additionally, the loss of royalty revenue from Hewlett-Packard's desktop monochrome laser printer division, which began incorporating a clone version of Adobe PostScript, has also contributed to the decrease.

Adobe has shown improved profitability, with operating income shifting from a loss of $6.1 million in the third quarter of fiscal 1998 to a profit of $71.9 million in the third quarter of fiscal 1999. This improvement is a result of increased revenue from application products, a significant reduction in restructuring and other charges, and decreased general and administrative expenses.

Adobe's liquidity has significantly improved. Cash, cash equivalents, and short-term investments increased by 76.5% to $481.0 million as of September 3, 1999. This growth is driven by strong cash flow from operations, proceeds from share repurchases, and the refinancing of lease agreements.