10-QPeriod: Q3 FY2020

ADOBE INC. Quarterly Report for Q3 Ended Aug 28, 2020

Filed September 23, 2020For Securities:ADBE

Summary

Adobe Inc. (ADBE) reported strong financial performance for the third quarter and first nine months of fiscal year 2020, ending August 28, 2020. Total revenue grew by 14% year-over-year to $3.23 billion for the quarter and 15% for the nine-month period to $9.44 billion. This growth was primarily driven by the Digital Media segment, which saw a 19% increase in revenue to $2.34 billion for the quarter, fueled by strong subscription growth in Creative Cloud and Document Cloud. The company also saw a significant increase in Annualized Recurring Revenue (ARR) for its Digital Media segment, reaching $9.63 billion. The Digital Experience segment experienced a more modest 2% revenue growth to $838 million for the quarter, impacted by the wind-down of transaction-driven Advertising Cloud offerings. However, subscription revenue within this segment grew 7%, or 14% excluding Advertising Cloud. Adobe's robust operating cash flow of $3.95 billion for the nine-month period underscores its strong financial health. The company ended the period with a healthy cash and cash equivalents balance of $3.77 billion, demonstrating solid liquidity.

Financial Highlights

56 data points
Beta

Revenue

$3.23B

86.8% Gross Margin

Net Income

$955.00M

29.6% Net Margin

EPS (Diluted)

$1.97

Total Assets

$22.41B

Cash & Equivalents

$3.77B

Free Cash Flow

$1.31B

Financial Statements
Beta
Revenue$3.23B
Cost of Revenue$427.00M
Gross Profit$2.80B
Operating Expenses$1.73B
Operating Income$1.07B
Interest Expense$28.00M
Net Income$955.00M
EPS (Basic)$1.99
EPS (Diluted)$1.97
Shares Outstanding (Basic)480.20M
Shares Outstanding (Diluted)484.90M

Key Highlights

  • 1Total revenue increased by 14% year-over-year to $3.23 billion in Q3 FY2020.
  • 2Digital Media segment revenue grew 19% year-over-year to $2.34 billion in Q3 FY2020, driven by strong subscription adoption in Creative Cloud and Document Cloud.
  • 3Digital Media ARR reached $9.63 billion, indicating sustained recurring revenue growth.
  • 4Digital Experience revenue grew 2% year-over-year to $838 million, with subscription revenue up 7% (or 14% excluding Advertising Cloud).
  • 5Net income increased by 20% year-over-year to $955 million in Q3 FY2020.
  • 6Operating cash flow for the nine months ended August 28, 2020, was strong at $3.95 billion, a 30% increase year-over-year.
  • 7The company maintained a strong liquidity position with $3.77 billion in cash and cash equivalents at the end of the period.

Frequently Asked Questions

The primary driver of Adobe's revenue growth was the Digital Media segment, which saw a 19% year-over-year increase. This growth was propelled by strong subscription adoption in its Creative Cloud and Document Cloud offerings, reflecting increased demand amidst a work-from-home environment and ongoing digital engagement.

The company is continuing to wind down its transaction-driven Advertising Cloud offerings. This strategic shift is expected to negatively impact overall revenue growth for the Digital Experience segment in the short term. However, excluding these offerings, the subscription revenue within Digital Experience grew by 14% year-over-year, indicating underlying strength in other areas of the segment.

Adobe ended the quarter with a robust $3.77 billion in cash and cash equivalents, alongside $1.50 billion in short-term investments, demonstrating a strong liquidity position. The company generated $3.95 billion in operating cash flow for the nine-month period. Cash is being utilized for ongoing operations, strategic investments in R&D, capital expenditures, and stock repurchases under its ongoing program.

While the pandemic created uncertainty, Adobe's subscription-based model provided resilience. The shift to remote work benefited demand for Digital Media products like Creative Cloud and Document Cloud. The company experienced some impacts from delays in enterprise transactions and weakness in certain commercial segments, but overall revenue growth remained strong. Adobe's liquidity and capital resources were not negatively impacted to date, although future effects remain uncertain.