10-QPeriod: Q2 FY2018

ADOBE INC. Quarterly Report for Q2 Ended Mar 2, 2018

Filed March 28, 2018For Securities:ADBE

Summary

Adobe Inc.'s (ADBE) Q1 2018 10-Q filing demonstrates robust financial performance driven by its strategic shift towards subscription-based software models. The company reported significant year-over-year revenue growth of 24%, reaching $2.08 billion, with subscription revenue being the primary driver, accounting for 86% of total revenue. This strong performance is further evidenced by a substantial increase in net income, up 46% to $583.1 million, and a healthy increase in operating cash flow. Key highlights include the continued growth in Annualized Recurring Revenue (ARR) for both Digital Media and Digital Experience segments, signaling the success of Adobe's SaaS strategy. The company also continues its commitment to returning value to shareholders through a significant stock repurchase program.

Financial Highlights

54 data points
Beta

Revenue

$2.08B

87.5% Gross Margin

Net Income

$583.08M

28.0% Net Margin

EPS (Diluted)

$1.17

Total Assets

$14.97B

Cash & Equivalents

$2.67B

Free Cash Flow

$894.46M

Financial Statements
Beta
Revenue$2.08B
Cost of Revenue$258.90M
Gross Profit$1.82B
Operating Expenses$1.12B
Operating Income$702.73M
Interest Expense$19.90M
Net Income$583.08M
EPS (Basic)$1.18
EPS (Diluted)$1.17
Shares Outstanding (Basic)492.06M
Shares Outstanding (Diluted)499.43M

Key Highlights

  • 1Total revenue increased by 24% year-over-year to $2.08 billion.
  • 2Subscription revenue grew by 30% year-over-year, now representing 86% of total revenue.
  • 3Net income surged by 46% year-over-year to $583.1 million.
  • 4Digital Media ARR reached $5.72 billion, up 6% from the prior quarter.
  • 5Digital Experience revenue grew 16% year-over-year to $554.1 million.
  • 6Operating cash flow increased by 35% year-over-year to $989.6 million.
  • 7Adobe continues its stock repurchase program, with $1.7 billion remaining under its authorized plan as of March 2, 2018.

Frequently Asked Questions

The primary driver of Adobe's revenue growth is its successful transition to and expansion of its subscription-based software offerings, particularly within the Digital Media segment (Creative Cloud and Document Cloud) and the Digital Experience segment. Subscription revenue increased by 30% year-over-year.

The TCJA, enacted in December 2017, has influenced Adobe's financial results, primarily through a reduction in the U.S. federal statutory tax rate and a one-time transition tax on deferred foreign earnings. Adobe recorded a provisional transition tax expense of $118 million and continues to analyze the full impact of the act.

Adobe's capital allocation strategy includes continued investment in research and development, potential strategic acquisitions, and returning value to shareholders. The company actively engages in stock repurchases, with a significant amount remaining under its authorized repurchase program, and returned value through treasury stock repurchases during the quarter.

The Digital Experience segment continues to show strong performance, with revenue growing 16% year-over-year to $554.1 million. This growth is attributed to increased subscription revenue across its Marketing Cloud, Analytics Cloud, and Advertising Cloud offerings.