10-QPeriod: Q3 FY2016

ADOBE INC. Quarterly Report for Q3 Ended Jun 3, 2016

Filed June 29, 2016For Securities:ADBE

Summary

Adobe Systems Incorporated (ADBE) reported its financial results for the fiscal quarter ending June 3, 2016. The company demonstrated robust revenue growth, with total revenue increasing by 20% year-over-year to $1.4 billion. This growth was primarily driven by a significant surge in subscription revenue, which rose by 40% to $1.08 billion, now representing 78% of total revenue. This reflects Adobe's successful transition to a subscription-based business model, particularly with its Creative Cloud and Document Cloud offerings. Operating income saw a substantial increase of 68% to $344.2 million, and net income grew by 65% to $244.1 million. The company also generated strong cash flow from operations, with $986.2 million for the six months ended June 3, 2016, up 51% from the prior year. Adobe continued its commitment to shareholder returns through a significant stock repurchase program. The company's strategic focus on Digital Media and Digital Marketing segments continues to yield positive financial results, indicating a healthy business trajectory.

Financial Highlights

55 data points
Beta

Revenue

$1.40B

85.6% Gross Margin

Net Income

$244.07M

17.4% Net Margin

EPS (Diluted)

$0.48

Total Assets

$12.22B

Cash & Equivalents

$886.38M

Free Cash Flow

$434.96M

Financial Statements
Beta
Revenue$1.40B
Cost of Revenue$202.08M
Gross Profit$1.20B
Operating Expenses$852.39M
Operating Income$344.24M
Interest Expense$17.17M
Net Income$244.07M
EPS (Basic)$0.49
EPS (Diluted)$0.48
Shares Outstanding (Basic)499.97M
Shares Outstanding (Diluted)504.73M

Key Highlights

  • 1Total revenue increased by 20% year-over-year to $1.4 billion for the three months ended June 3, 2016.
  • 2Subscription revenue grew by 40% to $1.08 billion, comprising 78% of total revenue, indicating a successful business model shift.
  • 3Net income rose by 65% to $244.1 million, demonstrating strong profitability.
  • 4Operating income significantly increased by 68% to $344.2 million.
  • 5Net cash provided by operating activities was $986.2 million for the six months ended June 3, 2016, a 51% increase year-over-year.
  • 6Digital Media segment revenue grew 26% year-over-year, driven by Creative Cloud subscriptions.
  • 7Adobe Marketing Cloud revenue increased 18% year-over-year, indicating continued growth in the digital marketing space.

Frequently Asked Questions

Adobe's primary revenue driver in this period is subscription revenue, which includes fees from Creative Cloud, Document Cloud, and Adobe Marketing Cloud services. Subscription revenue saw a substantial 40% increase, now making up 78% of total revenue.

Adobe generated strong operating cash flow of $986.2 million for the six months ended June 3, 2016. The company maintained a healthy cash and cash equivalents balance of $886.4 million and had significant short-term investments totaling $3.43 billion. Adobe also continues to actively manage its capital through a stock repurchase program.

Adobe's strategic growth areas, Digital Media and Digital Marketing, are performing well. The Digital Media segment, driven by Creative Cloud, saw a 26% year-over-year revenue increase. The Digital Marketing segment also showed strong performance with an 18% year-over-year revenue growth, highlighting Adobe's successful pivot to subscription-based software and cloud services.

Operating expenses increased by 9% to $852.4 million, primarily due to increased costs associated with compensation and benefits resulting from higher headcount. Research and development and sales and marketing expenses also saw increases to support ongoing product development and market expansion.