10-QPeriod: Q2 FY2019

ADOBE INC. Quarterly Report for Q2 Ended Mar 1, 2019

Filed March 27, 2019For Securities:ADBE

Summary

Adobe Inc. (ADBE) reported strong financial results for the quarter ending February 28, 2019. Total revenue grew 25% year-over-year to $2.60 billion, primarily driven by a 29% increase in subscription revenue, which now constitutes 88% of total revenue. The Digital Media segment saw a 22% increase in revenue, fueled by growth in Creative Cloud and Document Cloud subscriptions. The Digital Experience segment demonstrated even more robust growth, with revenue up 34% driven by acquisitions and strong subscription uptake. Net income increased by 16% to $674.2 million, or $1.36 per diluted share. The company's adoption of the new revenue recognition standard (ASC 606) had a notable impact, particularly on the capitalization of contract acquisition costs and revenue timing, with a net impact of a decrease in reported net income for the quarter. Adobe also continues to actively return capital to shareholders through its stock repurchase program, repurchasing approximately 2.1 million shares during the quarter.

Financial Highlights

56 data points
Beta

Revenue

$2.60B

84.7% Gross Margin

Net Income

$674.00M

25.9% Net Margin

EPS (Diluted)

$1.36

Total Assets

$19.67B

Cash & Equivalents

$2.08B

Free Cash Flow

$948.00M

Financial Statements
Beta
Revenue$2.60B
Cost of Revenue$407.00M
Gross Profit$2.20B
Operating Expenses$1.59B
Operating Income$750.00M
Interest Expense$40.00M
Net Income$674.00M
EPS (Basic)$1.38
EPS (Diluted)$1.36
Shares Outstanding (Basic)487.50M
Shares Outstanding (Diluted)492.20M

Key Highlights

  • 1Total revenue increased 25% year-over-year to $2.60 billion.
  • 2Subscription revenue grew 29% to $2.31 billion, representing 88% of total revenue.
  • 3Digital Media segment revenue grew 22% to $1.78 billion, driven by Creative Cloud and Document Cloud.
  • 4Digital Experience segment revenue surged 34% to $743.3 million, boosted by recent acquisitions (Marketo, Magento) and subscription growth.
  • 5Net income rose 16% to $674.2 million, with diluted EPS of $1.36.
  • 6Cash flow from operations remained strong at $1.01 billion.
  • 7The company repurchased approximately $500 million of its common stock during the quarter.

Frequently Asked Questions

Adobe adopted ASC 606 on a modified retrospective basis starting fiscal year 2019. The adoption led to capitalization of contract acquisition costs (e.g., sales commissions) and changes in revenue timing. For the quarter ended March 1, 2019, ASC 606 adoption resulted in a net decrease of $21.4 million in revenue and $29.1 million in net income compared to what would have been reported under the old standard.

The acquisitions of Marketo and Magento, completed in fiscal year 2018, significantly contributed to the 34% year-over-year revenue growth in the Digital Experience segment. Subscription revenue within this segment grew by 42%, largely driven by these acquisitions and continued adoption of Adobe Experience Manager.

Adobe actively engages in stock repurchases. During the three months ended March 1, 2019, the company repurchased approximately 2.1 million shares for $500 million. Adobe has an $8 billion stock repurchase program authorized through fiscal year 2021.

As of March 1, 2019, Adobe had $2.25 billion in Term Loans and $1.88 billion in senior notes outstanding. The company also has a $1 billion revolving credit facility, which was undrawn. Despite a working capital deficit primarily due to the reclassification of long-term debt to current liabilities, Adobe generated strong operating cash flow of $1.01 billion and expressed confidence in its ability to meet its financial obligations over the next twelve months.