10-QPeriod: Q3 FY2010

ADOBE INC. Quarterly Report for Q3 Ended Jun 4, 2010

Filed July 2, 2010For Securities:ADBE

Summary

Adobe Systems Inc. (ADBE) reported strong financial performance for the quarter ending June 4, 2010, driven by robust sales of its flagship Adobe Creative Suite 5 (CS5) and a stable economic environment. Total revenue saw a significant increase of 34% year-over-year for the quarter, reaching $943 million, boosted by the successful launch of CS5 and continued demand for its Acrobat product family. The acquisition of Omniture in the previous fiscal year is also contributing positively, creating a new reportable segment and enhancing revenue streams, particularly in subscription-based services. The company maintained healthy gross profit margins and managed operating expenses effectively, leading to strong operating income. Adobe's balance sheet remains solid, with a substantial increase in cash and cash equivalents and short-term investments, providing ample liquidity. The company also demonstrated a strong commitment to returning value to shareholders through share repurchases and a robust stock-based compensation program, reflecting confidence in future growth.

Financial Highlights

54 data points
Beta

Revenue

$943.03M

88.6% Gross Margin

Net Income

$148.61M

15.8% Net Margin

EPS (Diluted)

$0.28

Total Assets

$8.01B

Cash & Equivalents

$1.14B

Free Cash Flow

$201.46M

Financial Statements
Beta
Revenue$943.03M
Cost of Revenue$107.83M
Gross Profit$835.20M
Operating Expenses$607.92M
Operating Income$227.28M
Interest Expense$16.08M
Net Income$148.61M
EPS (Basic)$0.28
EPS (Diluted)$0.28
Shares Outstanding (Basic)526.15M
Shares Outstanding (Diluted)533.26M

Key Highlights

  • 1Total revenue increased by 34% year-over-year to $943.0 million for the three months ended June 4, 2010.
  • 2Adobe Creative Suite 5 (CS5) launch drove strong revenue performance in the Creative Solutions segment, with CS5 revenue up 15% year-to-date compared to CS4.
  • 3Knowledge Worker segment revenue grew 13% year-over-year, driven by solid demand for Acrobat products.
  • 4The acquisition of Omniture is contributing positively, with its segment generating $83.5 million in revenue for the quarter.
  • 5Cash and cash equivalents increased to $1.14 billion, and total cash, cash equivalents, and short-term investments reached $2.64 billion, indicating strong liquidity.
  • 6Diluted net income per share was $0.28 for the quarter, an increase from $0.24 in the prior year period.
  • 7The company successfully managed its debt, issuing $1.5 billion in senior notes and repaying its $1.0 billion credit facility.

Frequently Asked Questions

The primary driver of Adobe's revenue growth was the successful launch and strong sales of its new flagship product, Adobe Creative Suite 5 (CS5). Continued demand for the Acrobat product family also contributed significantly.

The acquisition of Omniture, completed in October 2009, is contributing positively by creating a new reportable segment. This segment generated $83.5 million in revenue for the quarter, primarily from subscription-based services related to web analytics and online business optimization.

Adobe's financial health and liquidity are strong. Cash and cash equivalents increased to $1.14 billion, and total cash, cash equivalents, and short-term investments stood at $2.64 billion. The company also successfully issued $1.5 billion in senior notes and repaid its $1.0 billion credit facility, demonstrating sound financial management.

Adobe is involved in several legal proceedings, including patent infringement lawsuits and class-action lawsuits related to past acquisitions. However, as of the filing date, the company stated that it believes it has valid defenses and has not accrued any amounts as a loss is not probable or estimable for these matters.