Form 8-K ADOBE INC. For: Jun 08
ADOBE INC.
FISCAL YEAR 2020 EXECUTIVE ANNUAL INCENTIVE PLAN
(AS AMENDED AND RESTATED ON JUNE 5, 2020)
PURPOSE AND ELIGIBILITY
Purpose
As part of its total compensation program, Adobe Inc. (“Adobe” or the “Company”) has designed an annual cash-based incentive plan for its 2020 fiscal year (the “Performance Period”) for certain executive officers and employees. This Fiscal Year 2020 Executive Annual Incentive Plan (“AIP”) is designed to drive revenue growth, profitability, encourage accountability, drive execution of short-term priorities tied to long-term strategy and annual operating plan objectives, and recognize and reward individuals upon the achievement of our objectives.
Eligibility
Eligible participants designated by the Executive Compensation Committee of the Board of Directors (the “Committee”) in the AIP include (A) executive officers of the Company and (B) employees of the Company who are at the Vice President level and above, and in the case of both clauses (A) and (B), who (i) are employed (full time or part time) during the Performance Period, and (ii) are regular employees of Adobe at the end of the Performance Period (the “Participants”). Participation in the AIP is at the discretion of the Committee, in consultation with Company management. Employees eligible to participate in any other cash-based incentive compensation plan at Adobe (such as a sales compensation plan) are not eligible to participate simultaneously in the AIP.
Target Awards
The Committee will determine Target Awards (as defined below) for each Participant, calculated as a percentage of a Participant’s Base Salary. “Base Salary” means a Participant’s annualized salary rate, calculated before (A) deductions for taxes or benefits and (B) deferrals of compensation pursuant to Company-sponsored plans.
Employment Status
If an employee is hired or becomes eligible to participate in the AIP after the beginning of the Performance Period, the Participant’s Target Award will be prorated based on the number of calendar days in the Performance Period during which the individual was employed at the Vice President level or above. Unless the Committee explicitly determines otherwise, (1) if a Participant’s AIP annual bonus target percentage changes during the Performance Period, the Participant’s Target Award will be prorated as follows: the Target Award will be based on the number of calendar days in the Performance Period with the former AIP annual bonus target percentage and the number of calendar days in the Performance Period with the new AIP annual bonus target percentage, and (2) if a Participant’s Base Salary changes during the Performance Period, the Participant’s Target Award will be prorated as follows: the Target Award will be based on the number of calendar days in the Performance Period with the former Base Salary and the number of calendar days in the Performance Period with the new Base Salary. If a Participant’s employment terminates before the date the Actual Award (as defined below) is paid, the Participant will not be eligible for a bonus payment, or any portion of a bonus payment, except as provided in an applicable severance plan or in an individual retention agreement with the Participant. If a Participant is on a leave of absence for the entire Performance Period, the Participant is not eligible for an AIP bonus payment. If a Participant is on a leave of absence for a portion of the Performance Period, any bonus that the Participant is eligible to earn may be prorated. Personal leaves will be prorated from day one, while all other leaves will be prorated from day 183.
HOW THE AIP WORKS
Summary
Subject to the terms of the AIP, a Participant’s actual earned and payable award (the “Actual Award”) will be determined by multiplying the Participant’s Target Award by a Corporate Performance Result (as set forth below) multiplied by an Individual Performance Result (as set forth below) but in no event will the Participant’s Actual Award be greater than the Maximum Award (as set forth below).
A Participant’s Actual Award is comprised of:
| Actual Award ($)* | = | Corporate Performance Result | x | Individual Performance Result | x | Target Award ($) | ||||||||||||||
* Subject to achievement of the Threshold Goals (as defined below). Cannot exceed Target Award unless the Financial Performance Result (as set forth below) is at least 90%.
Part 1: Determination of Target Award
The “Target Award” equals the product of the annual bonus target percentage (as designated by the Committee) and the Participant’s Base Salary. For example, a Vice President whose annual bonus target percentage is 50% and whose Base Salary is $300,000 has a Target Award of $150,000 ($300,000 x 50%). The Target Award is the amount that would be earned and payable under the AIP upon achievement at the 100% level of both the Corporate Performance Result and the Individual Performance Result (provided the Threshold Goals (as defined below) are attained and employment requirements are satisfied).
The maximum Actual Award a Participant may earn for the Performance Period is the lesser of: (i) 200% of his or her Target Award (regardless of the level of achievement of the Corporate Performance Result and the Individual Performance Result) and (ii) $5 million (the “Maximum Award”).
Part 2: Achievement of Threshold Goal
In order for any Participant to earn any bonus under the AIP, Adobe must first achieve two “Threshold Goals”:
(1)exceed 60% of its annual revenue target for the 2020 fiscal year, determined in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), as set forth in the revised operating plan for the 2020 fiscal year approved by Adobe’s Board of Directors (the “Board”) in June 2020 (the “Operating Plan”), disregarding the effects of any material acquisitions not incorporated into the Operating Plan; and
(2)exceed 80% of its annual Non-GAAP earnings per share target (“EPS”) for the 2020 fiscal year, as set forth in the Operating Plan.
For purposes of clarification, if a material acquisition is incorporated into the Operating Plan, the Threshold Goals will not be decreased.
If the Company achieves the Threshold Goals, the AIP will be funded for all eligible Participants, subject to the metrics below to determine a Participant’s Actual Award. If the Company does not achieve the Threshold Goals, the AIP will not be funded and Participants will earn no bonus under the AIP. The Company is under no obligation to pay out the entire funded or credited amount to Participants.
Part 3: Determination of Actual Award
The Committee will determine the Actual Award based on (i) achievement of certain Company objectives, as reflected by the calculation of the Corporate Performance Result, and (ii) individual performance including, without limitation, achievement of individual performance objectives selected for each Participant, as described below.
Step 1: Calculate Corporate Performance Result
The Corporate Performance Result is based on the company’s financial performance, as adjusted based on a number of goals related to the Company’s strategic corporate priorities, using the following formula:
Corporate Performance Result (%) | = | Financial Performance Result (%)* | +/- | Strategic Performance Adjustment** | ||||||||||
* May range from zero to 110 percent
** Up or down adjustment factor of up to 25 percentage points
Step 1A: Determine Financial Performance. The Company’s financial performance for the Performance Period (“Financial Performance Result”) is determined as set forth on Exhibit A and Exhibit B.
–50% of the Financial Performance Result is based on the Company’s GAAP revenue and Non-GAAP EPS performance against the Operating Plan targets, as shown on the matrix attached as Exhibit A (the “Revenue/EPS Result”).
–The remaining 50% of the Financial Performance Result is based on a “Net New Sales” metric, comprised of the sum of (1) net new annualized recurring revenue in Digital Media and (2) net new subscription bookings in Digital Experience, in both cases as set forth in the Operating Plan. The payout scale for the Company’s Net New Sales performance against the Operating Plan is attached as Exhibit B (the “Net New Sales Result”).
The Financial Performance Result is then calculated by taking the average of the Revenue/EPS Result and the New Net Sales Result:
| Financial Performance Result (%) | = | [Revenue/EPS Result (%) | + | Net New Sales Result (%)] | / 2 | ||||||||||||
The Financial Performance Result percentage is subject to potential adjustment as set forth in Step 1B below. In determining the achievement of the Financial Performance metric, the Committee will disregard the effects of any material acquisitions not incorporated into the Operating Plan; however, the Committee may adjust the Financial Performance metric (either upward or
downward) to include the effects of a material acquisition if the Board determines that such corporate transaction is material to the Company and results in a modification to the Operating Plan.
Step 1B: Strategic Performance Adjustment. The Committee, in its sole discretion, may add to or subtract from the Financial Performance Result up to 25 percentage points based on the Committee’s assessment of the Company’s corporate priorities and objectives for the Performance Period.
Step 1C: Determine Corporate Performance Result. The final Corporate Performance Result will be determined by the formula shown above.
Step 2: Calculate Individual Performance Result
At the outset of the Performance Period, the Committee, in consultation with management, sets individual performance goals for each Participant. Following the Performance Period, the Committee, in consultation with the CEO (other than with respect to his own performance) assesses each Participant’s performance, including, without limitation, achievement of these goals (expressed as a percentage) (the “Individual Performance Result”). The Individual Performance Result is determined independently for each Participant, although the Committee may take the Company’s Financial or Corporate Performance into account in determining payouts.
A Participant’s Individual Performance Result may range from 0% to 150%.
Step 3: Calculate Actual Award
Each Participant’s Actual Award is determined using the formula set forth in the Summary above based on the achievement determinations described in the above steps provided that in no event will a Participant’s Actual Award exceed the Participant’s Target Award if the Financial Performance Result is not at least 90%.
GENERAL
Administration
The Committee is responsible for the general administration and interpretation of the AIP and is authorized to take such actions as it deems necessary or desirable for the proper administration of the AIP. The Committee may delegate specific administrative tasks to Company employees or others as appropriate for proper administration of the AIP. Any rule or decision by the Committee that is not inconsistent with the provisions of the AIP will be conclusive and binding on all persons, and will be given the maximum deference permitted by law.
The Committee reserves the right to interpret and to make changes to or withdraw the AIP at any time, subject to applicable legal requirements. All terms and conditions of the AIP are subject to compliance with applicable law. Notwithstanding any contrary provision of the AIP, the Committee, in its sole discretion, may eliminate or reduce the Actual Award payable to any Participant below that which otherwise would be payable in accordance with the provisions set forth above.
Timing of Payments
Unless appropriately deferred pursuant to a deferral program, Actual Awards are paid on an annual basis approximately 60-75 days after the end of the Performance Period, but in no event after the later of (i) March 15th of the year following the calendar year in which the Actual Award is earned, or (ii) the 15th day of the third month following the fiscal year of the Company in which the Actual Award is earned, and in all cases in compliance with the short term deferral exception of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).
Right to Receive Payment
Each Actual Award under the AIP will be paid solely from the general assets of the Company. Nothing in the AIP will be construed to create a trust or to establish or evidence any Participant’s claim of any right to payment of an Actual Award other than as an unsecured general creditor with respect to any payment to which he or she may be entitled. At no time before the actual distribution of amounts to Participants under the AIP will any Participant accrue any vested interest or right whatsoever under the AIP, except as otherwise stated in the AIP.
Deferrals
The Committee, in its sole discretion, may permit a Participant to defer receipt of the payment of cash that would otherwise be delivered to a Participant under the AIP. Any such deferral elections will be subject to such rules and procedures as will be determined by the Committee in its sole discretion, subject to applicable requirements of Section 409A of the Code.
No Guarantee of Employment
The AIP is intended to provide a financial incentive to Participants and is not intended to confer any rights to continued employment upon Participants whose employment will remain at-will and subject to termination by either the Company or a Participant at any time, with or without cause or notice.
Recoupment
Any amounts paid under the AIP will be subject to recoupment in accordance with any clawback policy that Adobe adopts pursuant to the listing standards of any national securities exchange or association on which Adobe’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law or otherwise is adopted by the Board. In addition, the Committee may impose such other clawback, recovery or recoupment provisions in a Target or Actual Award as the Committee determines necessary or appropriate, including but not limited to a reacquisition right in respect of previously acquired cash upon the occurrence of cause as determined by the Committee. No recovery of compensation under such a clawback policy will be an event giving rise to a right to resign for “good reason” or “constructive termination” (or similar term) under any agreement with Adobe.
Exhibit A
Revenue and Non-GAAP EPS - Payout Scale1
| GAAP Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 60.0% | 62.0% | 64.0% | 66.0% | 68.0% | 70.0% | 72.0% | 74.0% | 76.0% | 78.0% | 80.0% | 82.0% | 84.0% | 86.0% | 88.0% | 90.0% | 92.0% | 94.0% | 96.0% | 98.0% | 100.0% | 100.5% | 101.0% | 101.5% | 102.0% | 102.5% | 103.0% | 103.5% | 104.0% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-GAAP EPS | 80.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 81.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 2% | 9% | 17% | 24% | 26% | 28% | 30% | 32% | 33% | 35% | 37% | 39% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 82.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 5% | 13% | 21% | 28% | 30% | 32% | 34% | 36% | 37% | 39% | 41% | 43% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 83.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 2% | 9% | 17% | 25% | 32% | 34% | 36% | 38% | 40% | 41% | 43% | 45% | 47% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 84.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 6% | 14% | 21% | 29% | 36% | 38% | 40% | 42% | 44% | 45% | 47% | 49% | 51% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 85.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 3% | 10% | 18% | 25% | 33% | 40% | 42% | 44% | 46% | 48% | 49% | 51% | 53% | 55% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 86.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 7% | 14% | 22% | 29% | 37% | 44% | 46% | 48% | 50% | 52% | 53% | 55% | 57% | 59% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 87.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 3% | 11% | 18% | 26% | 33% | 41% | 48% | 50% | 52% | 54% | 56% | 57% | 59% | 61% | 63% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 88.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 7% | 15% | 22% | 30% | 37% | 45% | 52% | 54% | 56% | 58% | 60% | 61% | 63% | 65% | 67% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 89.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 4% | 11% | 19% | 26% | 34% | 41% | 49% | 56% | 58% | 60% | 62% | 64% | 65% | 67% | 69% | 71% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 90.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 8% | 15% | 23% | 30% | 38% | 45% | 53% | 60% | 62% | 64% | 66% | 68% | 69% | 71% | 73% | 75% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 91.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 4% | 12% | 19% | 27% | 34% | 42% | 49% | 57% | 64% | 66% | 68% | 70% | 72% | 73% | 75% | 77% | 79% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 92.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 1% | 8% | 16% | 23% | 31% | 38% | 46% | 53% | 61% | 68% | 70% | 72% | 74% | 76% | 77% | 79% | 81% | 83% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 93.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 5% | 12% | 20% | 27% | 35% | 42% | 50% | 57% | 65% | 72% | 74% | 76% | 78% | 80% | 81% | 83% | 85% | 87% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 94.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 1% | 8% | 16% | 24% | 31% | 39% | 46% | 54% | 61% | 69% | 76% | 78% | 80% | 82% | 84% | 85% | 87% | 89% | 91% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 95.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 5% | 13% | 20% | 28% | 35% | 43% | 50% | 58% | 65% | 73% | 80% | 82% | 84% | 86% | 88% | 89% | 91% | 93% | 95% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 96.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 1% | 9% | 17% | 24% | 32% | 39% | 47% | 54% | 62% | 69% | 77% | 84% | 86% | 88% | 90% | 92% | 93% | 95% | 97% | 99% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 97.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 5% | 13% | 21% | 28% | 36% | 43% | 51% | 58% | 66% | 73% | 81% | 88% | 90% | 92% | 94% | 96% | 97% | 99% | 100% | 100% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 98.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 2% | 10% | 17% | 25% | 32% | 40% | 47% | 55% | 62% | 70% | 77% | 85% | 92% | 94% | 96% | 98% | 100% | 100% | 100% | 100% | 100% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 99.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 6% | 14% | 21% | 29% | 36% | 44% | 51% | 59% | 66% | 74% | 81% | 89% | 96% | 98% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 100.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 2% | 10% | 18% | 25% | 33% | 40% | 48% | 55% | 63% | 70% | 78% | 85% | 93% | 100% | 102% | 104% | 106% | 108% | 109% | 110% | 110% | 110% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 101.0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 6% | 14% | 22% | 29% | 37% | 44% | 52% | 59% | 67% | 74% | 82% | 89% | 97% | 104% | 106% | 108% | 110% | 110% | 110% | 110% | 110% | 110% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 102.0% | 0% | 0% | 0% | 0% | 0% | 0% | 3% | 11% | 18% | 26% | 33% | 41% | 48% | 56% | 63% | 71% | 78% | 86% | 93% | 101% | 108% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 103.0% | 0% | 0% | 0% | 0% | 0% | 0% | 7% | 15% | 22% | 30% | 37% | 45% | 52% | 60% | 67% | 75% | 82% | 90% | 97% | 102% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 104.0% | 0% | 0% | 0% | 0% | 0% | 3% | 11% | 19% | 26% | 34% | 41% | 49% | 56% | 64% | 71% | 79% | 86% | 94% | 101% | 102% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 105.0% | 0% | 0% | 0% | 0% | 0% | 8% | 15% | 23% | 30% | 38% | 45% | 53% | 60% | 68% | 75% | 83% | 90% | 98% | 102% | 102% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 106.0% | 0% | 0% | 0% | 0% | 4% | 12% | 19% | 27% | 34% | 42% | 49% | 57% | 64% | 72% | 79% | 87% | 94% | 102% | 102% | 102% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 107.0% | 0% | 0% | 0% | 1% | 8% | 16% | 23% | 31% | 38% | 46% | 53% | 61% | 68% | 76% | 83% | 91% | 98% | 102% | 102% | 102% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 108.0% | 0% | 0% | 0% | 5% | 12% | 20% | 27% | 35% | 42% | 50% | 57% | 65% | 72% | 80% | 87% | 95% | 102% | 102% | 102% | 102% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 109.0% | 0% | 0% | 1% | 9% | 16% | 24% | 31% | 39% | 46% | 54% | 61% | 69% | 76% | 84% | 91% | 99% | 102% | 102% | 102% | 102% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 110.0% | 0% | 0% | 5% | 13% | 20% | 28% | 35% | 43% | 50% | 58% | 65% | 73% | 80% | 88% | 95% | 102% | 102% | 102% | 102% | 102% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | 110% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1.Actual revenue and EPS % of targets will be determined at and rounded to the nearest tenth of a percentile level.
Exhibit B
Net New Sales - Payout Scale2
| Net New Sales as % of Targets (rounded) | Net New Sales Financial Performance Result (%) | Net New Sales as % of Targets (rounded) | Net New Sales Financial Performance Result (%) | Net New Sales as % of Targets (rounded) | Net New Sales Financial Performance Result (%) | ||||||||||||||||||
| 45.0% | 0% | 71.0% | 67% | 97.0% | 99% | ||||||||||||||||||
| 46.0% | 3% | 72.0% | 69% | 98.0% | 99% | ||||||||||||||||||
| 47.0% | 5% | 73.0% | 72% | 99.0% | 100% | ||||||||||||||||||
| 48.0% | 8% | 74.0% | 75% | 100.0% | 100% | ||||||||||||||||||
| 49.0% | 10% | 75.0% | 77% | 101.0% | 101% | ||||||||||||||||||
| 50.0% | 13% | 76.0% | 80% | 102.0% | 101% | ||||||||||||||||||
| 51.0% | 15% | 77.0% | 82% | 103.0% | 102% | ||||||||||||||||||
| 52.0% | 18% | 78.0% | 85% | 104.0% | 102% | ||||||||||||||||||
| 53.0% | 21% | 79.0% | 87% | 105.0% | 103% | ||||||||||||||||||
| 54.0% | 23% | 80.0% | 90% | 106.0% | 103% | ||||||||||||||||||
| 55.0% | 26% | 81.0% | 91% | 107.0% | 104% | ||||||||||||||||||
| 56.0% | 28% | 82.0% | 91% | 108.0% | 104% | ||||||||||||||||||
| 57.0% | 31% | 83.0% | 92% | 109.0% | 105% | ||||||||||||||||||
| 58.0% | 33% | 84.0% | 92% | 110.0% | 105% | ||||||||||||||||||
| 59.0% | 36% | 85.0% | 93% | 111.0% | 106% | ||||||||||||||||||
| 60.0% | 39% | 86.0% | 93% | 112.0% | 106% | ||||||||||||||||||
| 61.0% | 41% | 87.0% | 94% | 113.0% | 107% | ||||||||||||||||||
| 62.0% | 44% | 88.0% | 94% | 114.0% | 107% | ||||||||||||||||||
| 63.0% | 46% | 89.0% | 95% | 115.0% | 108% | ||||||||||||||||||
| 64.0% | 49% | 90.0% | 95% | 116.0% | 108% | ||||||||||||||||||
| 65.0% | 51% | 91.0% | 96% | 117.0% | 109% | ||||||||||||||||||
| 66.0% | 54% | 92.0% | 96% | 118.0% | 109% | ||||||||||||||||||
| 67.0% | 57% | 93.0% | 97% | 119.0% | 110% | ||||||||||||||||||
| 68.0% | 59% | 94.0% | 97% | 120.0% | 110% | ||||||||||||||||||
| 69.0% | 62% | 95.0% | 98% | ||||||||||||||||||||
| 70.0% | 64% | 96.0% | 98% | ||||||||||||||||||||
2. Actual net new sales % of target will be determined at and rounded to the nearest tenth of a percentile level.
Exhibit 99.1
Investor Relations Contact
Jonathan Vaas
Adobe
ir@adobe.com
Public Relations Contact
Lea Anna Cardwell
Adobe
cardwell@adobe.com
FOR IMMEDIATE RELEASE
Adobe Reports Record Revenue
Strong Demand Across Creative Cloud and Document Cloud Drives Net New Digital Media ARR of $443 Million
SAN JOSE, Calif. - June 11, 2020 - Adobe (Nasdaq:ADBE) today reported financial results for its second quarter fiscal year 2020 ended May 29, 2020.
Second Quarter Fiscal Year 2020 Financial Highlights
•Adobe achieved record quarterly revenue of $3.13 billion in its second quarter of fiscal year 2020, which represents 14 percent year-over-year growth. Diluted earnings per share was $2.27 on a GAAP basis, and $2.45 on a non-GAAP basis.
•Digital Media segment revenue was $2.23 billion, which represents 18 percent year-over-year growth. Creative revenue grew to $1.87 billion and Document Cloud revenue was $360 million. Digital Media Annualized Recurring Revenue (“ARR”) grew to $9.17 billion exiting the quarter, a quarter-over-quarter increase of $443 million. Creative ARR grew to $7.93 billion, and Document Cloud ARR grew to $1.24 billion.
•Digital Experience segment revenue was $826 million, representing 5 percent year-over-year growth. Digital Experience subscription revenue was $707 million, representing 8 percent year-over-year growth. Digital Experience subscription revenue, excluding Advertising Cloud revenue, grew 18 percent year-over-year.
•GAAP operating income in the second quarter was $1.02 billion, and non-GAAP operating income was $1.34 billion. GAAP net income was $1.10 billion, and non-GAAP net income was $1.19 billion.
•Cash flows from operations was $1.18 billion.
•Remaining Performance Obligation exiting the quarter was $9.92 billion.
•Adobe repurchased approximately 2.6 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’s strategy to empower customers to create the world’s content, automate critical document processes and enable enterprises to engage with their customers digitally, drove record revenue in Q2,” said Shantanu Narayen, president and CEO, Adobe. “The tectonic shift towards ‘all things digital’ across all customer segments globally will serve as a tailwind to our growth initiatives as we emerge from this crisis.”
"Adobe delivered another quarter of record revenue and expanding profitability despite the challenging environment, demonstrating the resiliency of our business model," said John Murphy, executive vice president and CFO, Adobe. "We drove record Digital Media net new ARR for a Q2, highlighting how mission-critical creative and document solutions are in engaging remotely.”
Advertising Cloud Update
Adobe also announced that given the macroeconomic environment, it significantly accelerated in Q2 its previously stated strategy of eliminating low-margin Advertising Cloud transaction-driven offerings. The company will continue to offer its Advertising Cloud software solutions. The macroeconomic environment and this strategic shift impacted Advertising Cloud targeted revenue in Q2 by approximately $50 million.
Adobe Provides Third Quarter Financial Targets
Adobe today is providing third quarter financial targets factoring current macroeconomic conditions, continued impacts of the pandemic, typical Q3 summer seasonality and its updated strategy for Advertising Cloud.
The following table summarizes Adobe’s third quarter fiscal year 2020 targets.
| Total revenue | Approximately $3.15 billion | |||||||
| Digital Media segment revenue | Approximately 16 percent year-over-year growth | |||||||
| Digital media annualized recurring revenue (ARR) | Approximately $340 million of net new ARR | |||||||
| Digital Experience segment revenue | Flat year-over-year | |||||||
| Digital Experience subscription revenue | ~5% year-over-year growth | ~14% year-over-year growth (excluding Advertising Cloud) | ||||||
| Tax rate | GAAP: ~10 percent | Non-GAAP: ~10 percent | ||||||
| Share count | ~485 million shares | |||||||
| Earnings per share | GAAP: ~$1.78 | Non-GAAP: ~$2.40 | ||||||
In light of the macroeconomic environment and the strategic shifts for Advertising Cloud, Adobe is withdrawing the annual fiscal 2020 targets provided in December 2019.
A reconciliation between GAAP and non-GAAP targets is provided at the end of this press release.
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Adobe to Webcast Earnings Conference Call
Adobe will webcast its second quarter fiscal year 2020 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, customer success, revenue, profitability, operating margin, seasonality, annualized recurring revenue, non-operating other expense, 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 2019 ended Nov. 29, 2019, and Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2020.
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 May 29, 2020, which Adobe expects to file in June 2020. 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.
###
©2020 Adobe. All rights reserved. Adobe 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.
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Condensed Consolidated Statements of Income
(In millions, except per share data; unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| May 29, 2020 | May 31, 2019 | May 29, 2020 | May 31, 2019 | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Subscription | $ | 2,874 | $ | 2,456 | $ | 5,699 | $ | 4,761 | |||||||||||||||
| Product | 128 | 153 | 271 | 323 | |||||||||||||||||||
| Services and support | 126 | 135 | 249 | 261 | |||||||||||||||||||
| Total revenue | 3,128 | 2,744 | 6,219 | 5,345 | |||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||
| Subscription | 317 | 296 | 672 | 585 | |||||||||||||||||||
| Product | 9 | 9 | 16 | 21 | |||||||||||||||||||
| Services and support | 89 | 102 | 179 | 199 | |||||||||||||||||||
| Total cost of revenue | 415 | 407 | 867 | 805 | |||||||||||||||||||
| Gross profit | 2,713 | 2,337 | 5,352 | 4,540 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | 532 | 476 | 1,064 | 941 | |||||||||||||||||||
| Sales and marketing | 901 | 849 | 1,758 | 1,630 | |||||||||||||||||||
| General and administrative | 224 | 219 | 495 | 435 | |||||||||||||||||||
| Amortization of intangibles | 40 | 43 | 82 | 90 | |||||||||||||||||||
| Total operating expenses | 1,697 | 1,587 | 3,399 | 3,096 | |||||||||||||||||||
| Operating income | 1,016 | 750 | 1,953 | 1,444 | |||||||||||||||||||
| Non-operating income (expense): | |||||||||||||||||||||||
| Interest expense | (28) | (40) | (61) | (81) | |||||||||||||||||||
| Investment gains (losses), net | — | (1) | (3) | 43 | |||||||||||||||||||
| Other income (expense), net | 12 | 2 | 30 | 7 | |||||||||||||||||||
| Total non-operating income (expense), net | (16) | (39) | (34) | (31) | |||||||||||||||||||
| Income before income taxes | 1,000 | 711 | 1,919 | 1,413 | |||||||||||||||||||
| Provision for (benefit from) income taxes | (100) | 78 | (136) | 106 | |||||||||||||||||||
| Net income | $ | 1,100 | $ | 633 | $ | 2,055 | $ | 1,307 | |||||||||||||||
| Basic net income per share | $ | 2.28 | $ | 1.30 | $ | 4.26 | $ | 2.68 | |||||||||||||||
| Shares used to compute basic net income per share | 481 | 488 | 482 | 488 | |||||||||||||||||||
| Diluted net income per share | $ | 2.27 | $ | 1.29 | $ | 4.23 | $ | 2.65 | |||||||||||||||
| Shares used to compute diluted net income per share | 485 | 492 | 486 | 493 | |||||||||||||||||||
4
Condensed Consolidated Balance Sheets
(In millions; unaudited)
| May 29, 2020 | November 29, 2019 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 3,044 | $ | 2,650 | |||||||
| Short-term investments | 1,307 | 1,527 | |||||||||
Trade receivables, net of allowances for doubtful accounts of $22 and $10, respectively | 1,366 | 1,535 | |||||||||
| Prepaid expenses and other current assets | 932 | 783 | |||||||||
| Total current assets | 6,649 | 6,495 | |||||||||
| Property and equipment, net | 1,387 | 1,293 | |||||||||
| Operating lease right-of-use assets, net | 489 | — | |||||||||
| Goodwill | 10,695 | 10,691 | |||||||||
| Other intangibles, net | 1,535 | 1,721 | |||||||||
| Deferred income taxes | 231 | — | |||||||||
| Other assets | 617 | 562 | |||||||||
| Total assets | $ | 21,603 | $ | 20,762 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Trade payables | $ | 289 | $ | 209 | |||||||
| Accrued expenses | 1,303 | 1,399 | |||||||||
| Debt | — | 3,149 | |||||||||
| Deferred revenue | 3,321 | 3,378 | |||||||||
| Income taxes payable | 166 | 56 | |||||||||
| Operating lease liabilities | 85 | — | |||||||||
| Total current liabilities | 5,164 | 8,191 | |||||||||
| Long-term liabilities: | |||||||||||
| Debt | 4,114 | 989 | |||||||||
| Deferred revenue | 140 | 123 | |||||||||
| Income taxes payable | 503 | 616 | |||||||||
| Deferred income taxes | 107 | 140 | |||||||||
| Operating lease liabilities | 498 | — | |||||||||
| Other liabilities | 196 | 173 | |||||||||
| Total liabilities | 10,722 | 10,232 | |||||||||
| Stockholders’ equity: | |||||||||||
| Preferred stock | — | — | |||||||||
| Common stock | — | — | |||||||||
| Additional paid-in-capital | 6,892 | 6,504 | |||||||||
| Retained earnings | 16,428 | 14,829 | |||||||||
| Accumulated other comprehensive income (loss) | (195) | (188) | |||||||||
| Treasury stock, at cost | (12,244) | (10,615) | |||||||||
| Total stockholders’ equity | 10,881 | 10,530 | |||||||||
| Total liabilities and stockholders’ equity | $ | 21,603 | $ | 20,762 | |||||||
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Condensed Consolidated Statements of Cash Flows
(In millions; unaudited)
| Three Months Ended | |||||||||||
| May 29, 2020 | May 31, 2019 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 1,100 | $ | 633 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation, amortization and accretion | 188 | 188 | |||||||||
| Stock-based compensation | 227 | 204 | |||||||||
| Unrealized investment (gains) losses, net | (1) | 2 | |||||||||
| Other non-cash adjustments | (137) | 9 | |||||||||
| Changes in deferred revenue | (154) | (84) | |||||||||
| Changes in other operating assets and liabilities | (39) | 157 | |||||||||
| Net cash provided by operating activities | 1,184 | 1,109 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases, sales and maturities of short-term investments, net | 176 | 100 | |||||||||
| Purchases of property and equipment | (96) | (85) | |||||||||
| Purchases and sales of long-term investments, intangibles and other assets, net | — | (5) | |||||||||
| Net cash provided by investing activities | 80 | 10 | |||||||||
| Cash flows from financing activities: | |||||||||||
| Purchases of treasury stock | (850) | (750) | |||||||||
| Taxes paid related to net share settlement of equity awards, net of proceeds from treasury stock re-issuances | (53) | (22) | |||||||||
| Other financing activities, net | 2 | — | |||||||||
| Net cash used for financing activities | (901) | (772) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (7) | (3) | |||||||||
| Net increase in cash and cash equivalents | 356 | 344 | |||||||||
| Cash and cash equivalents at beginning of period | 2,688 | 1,739 | |||||||||
| Cash and cash equivalents at end of period | $ | 3,044 | $ | 2,083 | |||||||
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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 | |||||||||||||||||
| May 29, 2020 | May 31, 2019 | February 28, 2020 | |||||||||||||||
| Operating income: | |||||||||||||||||
| GAAP operating income | $ | 1,016 | $ | 750 | $ | 937 | |||||||||||
| Stock-based and deferred compensation expense | 227 | 204 | 214 | ||||||||||||||
| Amortization of intangibles | 92 | 96 | 94 | ||||||||||||||
| Non-GAAP operating income | $ | 1,335 | $ | 1,050 | $ | 1,245 | |||||||||||
| Net income: | |||||||||||||||||
| GAAP net income | $ | 1,100 | $ | 633 | $ | 955 | |||||||||||
| Stock-based and deferred compensation expense | 227 | 204 | 214 | ||||||||||||||
| Amortization of intangibles | 92 | 96 | 94 | ||||||||||||||
| Investment (gains) losses, net | — | 1 | 3 | ||||||||||||||
| Income tax adjustments | (232) | (33) | (159) | ||||||||||||||
| Non-GAAP net income | $ | 1,187 | $ | 901 | $ | 1,107 | |||||||||||
| Diluted net income per share: | |||||||||||||||||
| GAAP diluted net income per share | $ | 2.27 | $ | 1.29 | $ | 1.96 | |||||||||||
| Stock-based and deferred compensation expense | 0.47 | 0.41 | 0.44 | ||||||||||||||
| Amortization of intangibles | 0.19 | 0.20 | 0.19 | ||||||||||||||
| Investment (gains) losses, net | — | — | 0.01 | ||||||||||||||
| Income tax adjustments | (0.48) | (0.07) | (0.33) | ||||||||||||||
| Non-GAAP diluted net income per share | $ | 2.45 | $ | 1.83 | $ | 2.27 | |||||||||||
| Shares used in computing diluted net income per share | 485 | 492 | 488 | ||||||||||||||
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Non-GAAP Results (continued)
The following table shows Adobe's second quarter fiscal year 2020 GAAP tax rate reconciled to the non-GAAP tax rate included in this release.
| Second Quarter Fiscal 2020 | |||||||||||
| Effective income tax rate: | |||||||||||
| GAAP effective income tax rate | (10.0) | % | |||||||||
| Trading structure change | 22.5 | ||||||||||
| Income tax adjustments | (1.0) | ||||||||||
| Stock-based and deferred compensation expense | (1.1) | ||||||||||
| Amortization of intangibles | (0.4) | ||||||||||
| Non-GAAP effective income tax rate | 10.0 | % | |||||||||
Reconciliation of GAAP to Non-GAAP Financial Targets
(Shares in millions)
The following table shows Adobe's third quarter fiscal year 2020 GAAP earnings per share target reconciled to the non-GAAP financial target included in this release.
| Third Quarter Fiscal 2020 | |||||||||||
| Diluted net income per share: | |||||||||||
| GAAP diluted net income per share | $ | 1.78 | |||||||||
| Stock-based and deferred compensation expense | 0.50 | ||||||||||
| Amortization of intangibles | 0.19 | ||||||||||
| Income tax adjustments | (0.07) | ||||||||||
| Non-GAAP diluted net income per share | $ | 2.40 | |||||||||
| Shares used to compute diluted net income per share | 485 | ||||||||||
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, restructuring and other charges, 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.
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