10-QPeriod: Q1 FY2015

ADOBE INC. Quarterly Report for Q1 Ended Feb 27, 2015

Filed March 25, 2015For Securities:ADBE

Summary

Adobe Systems Incorporated reported its financial results for the fiscal quarter ended February 27, 2015. The company demonstrated strong revenue growth, with total revenue increasing by 11% year-over-year to $1.11 billion. This growth was primarily driven by a significant surge in subscription revenue, which jumped 68% to $713.4 million, now representing 64% of total revenue, up from 42% in the prior year. This shift highlights Adobe's successful transition to a recurring revenue model, particularly through its Creative Cloud offerings. The company also saw robust growth in its Digital Marketing segment. Net income more than doubled year-over-year to $84.9 million, reflecting the positive impact of the subscription model and efficient cost management, with operating expenses remaining relatively stable.

Financial Highlights

55 data points
Beta

Revenue

$1.11B

85.0% Gross Margin

Net Income

$84.89M

7.7% Net Margin

EPS (Diluted)

$0.17

Total Assets

$11.01B

Cash & Equivalents

$712.88M

Free Cash Flow

$147.47M

Financial Statements
Beta
Revenue$1.11B
Cost of Revenue$166.80M
Gross Profit$942.38M
Operating Expenses$769.36M
Operating Income$173.03M
Interest Expense$14.54M
Net Income$84.89M
EPS (Basic)$0.17
EPS (Diluted)$0.17
Shares Outstanding (Basic)498.75M
Shares Outstanding (Diluted)507.53M

Key Highlights

  • 1Total revenue increased 11% year-over-year to $1.11 billion.
  • 2Subscription revenue grew 68% to $713.4 million, now comprising 64% of total revenue, indicating a successful shift to a recurring revenue model.
  • 3Creative Cloud subscriptions reached 3.97 million, a 15% increase from the end of fiscal 2014.
  • 4Total Digital Media Annualized Recurring Revenue (ARR) grew 11% to $2.09 billion.
  • 5Digital Marketing revenue increased 14% to $357.2 million, driven by Adobe Marketing Cloud adoption.
  • 6Net income more than doubled to $84.9 million compared to the prior year's $47.0 million.
  • 7The acquisition of Fotolia was completed in January 2015, with its financial impact not deemed material to the consolidated financial statements at this preliminary stage.

Frequently Asked Questions

The primary driver of Adobe's revenue growth is the significant increase in subscription revenue, which surged by 68% year-over-year. This is a direct result of the company's successful transition to a subscription-based model, particularly with its Creative Cloud offerings.

The shift to a subscription model is positively impacting Adobe's financial performance by creating a more predictable and recurring revenue stream. This is evident in the substantial growth of subscription revenue and Annualized Recurring Revenue (ARR), which are contributing to higher overall revenue and net income growth.

Adobe completed the acquisition of Fotolia on January 27, 2015. While the acquisition added goodwill and intangible assets, its impact on the Condensed Consolidated Financial Statements was not material during this reporting period, according to the preliminary purchase price allocation.

Adobe managed its expenses effectively, with total operating expenses remaining relatively stable compared to the prior year's period. This disciplined approach to expense management, combined with revenue growth, contributed to the significant increase in net income.