10-QPeriod: Q2 FY2016

ADOBE INC. Quarterly Report for Q2 Ended Mar 4, 2016

Filed March 30, 2016For Securities:ADBE

Summary

Adobe Systems Incorporated's (ADBE) first quarter fiscal year 2016 report shows robust growth driven by a continued shift to its subscription-based model. Total revenue increased by 25% year-over-year, primarily fueled by a significant 50% surge in subscription revenue, which now constitutes 77% of total revenue, up from 64% in the prior year. The Digital Media segment, led by Adobe Creative Cloud, saw revenue growth of 33%, with its Annualized Recurring Revenue (ARR) reaching $3.13 billion. The Digital Marketing segment also performed strongly, with Marketing Cloud revenue growing 21% year-over-year. Net income more than doubled to $254.3 million, a 200% increase from the prior year, reflecting the strong top-line growth and improved operational efficiency. The company's cash flow from operations also saw a substantial increase of 172%. Adobe continues to return value to shareholders through its stock repurchase program, having repurchased approximately 1.5 million shares during the quarter. The company maintains a strong liquidity position with over $4 billion in cash and short-term investments.

Financial Highlights

55 data points
Beta

Revenue

$1.38B

85.6% Gross Margin

Net Income

$254.31M

18.4% Net Margin

EPS (Diluted)

$0.50

Total Assets

$11.90B

Cash & Equivalents

$830.70M

Free Cash Flow

$451.33M

Financial Statements
Beta
Revenue$1.38B
Cost of Revenue$198.57M
Gross Profit$1.18B
Operating Expenses$877.00M
Operating Income$307.76M
Interest Expense$18.47M
Net Income$254.31M
EPS (Basic)$0.51
EPS (Diluted)$0.50
Shares Outstanding (Basic)499.13M
Shares Outstanding (Diluted)505.68M

Key Highlights

  • 1Total revenue increased by 25% year-over-year to $1.38 billion.
  • 2Subscription revenue grew by 50% to $1.07 billion, representing 77% of total revenue.
  • 3Digital Media segment revenue increased by 33% to $931.7 million, driven by Creative Cloud subscriptions.
  • 4Digital Marketing segment revenue grew by 14% to $406.2 million, with Marketing Cloud revenue up 21%.
  • 5Net income surged by 200% to $254.3 million.
  • 6Net cash from operating activities increased by 172% to $497.5 million.
  • 7Total Digital Media ARR reached $3.13 billion, an increase of 9%.

Frequently Asked Questions

The primary driver of Adobe's revenue growth is the successful transition to its subscription-based model, particularly with Adobe Creative Cloud. Subscription revenue has grown significantly and now represents the largest portion of total revenue.

The shift to a subscription model is positively impacting Adobe's financial performance by increasing recurring revenue, leading to higher overall revenue growth, substantial increases in net income, and improved cash flow from operations. It also contributes to a more predictable revenue stream.

Adobe continues to return capital to shareholders through its stock repurchase program. The company repurchased approximately 1.5 million shares during the quarter and has an ongoing authorization to repurchase up to $2 billion in common stock through fiscal 2017.

Adobe maintains a strong liquidity position with $830.7 million in cash and cash equivalents and $3.27 billion in short-term investments, totaling over $4.1 billion in readily available funds. The company also has an undrawn $1 billion credit facility.