ADOBE INC. - Quarter Report: 2025 February (Form 10-Q)

See accompanying notes to condensed consolidated financial statements.

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ADOBE INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions)

(Unaudited)

Three Months Ended February 28, 2025

Common Stock

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Treasury Stock

Amount

Total

Balances at November 29, 2024

()

Net income

—

Other comprehensive income (loss),

net of taxes

—

Re-issuance of treasury stock under stock compensation plans

—

()

—

()

Repurchases of common stock

—

()

Stock-based compensation

—

Value of shares in deferred compensation plan

—

Balances at February 28, 2025

()

Three Months Ended March 1, 2024

Common Stock

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Treasury Stock

Amount

Total

Balances at December 1, 2023

()

Net income

—

Other comprehensive income (loss),
net of taxes

—

Re-issuance of treasury stock under stock compensation plans

—

()

—

()

Repurchases of common stock

—

()

See accompanying notes to condensed consolidated financial statements.

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1.

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 2.

$ $ $ Cost of revenue Gross profit$ $ $ $ Gross profit as a percentage of revenue % % % %

Three months ended March 1, 2024

Revenue$ $ $ $ Cost of revenue Gross profit$ $ $ $ Gross profit as a percentage of revenue % % % %

Revenue by geographic area for the three months ended February 28, 2025 and March 1, 2024 were as follows:


(in millions)	2025	2024
Americas	$	$
EMEA
APAC
Total	$	$

Subscription revenue by segment for the three months ended February 28, 2025 and March 1, 2024 were as follows:


(in millions)	2025	2024
Digital Media	$	$
Digital Experience
Publishing and Advertising
Total subscription revenue	$	$

Digital Media and Digital Experience subscription revenue by customer group for the three months ended February 28, 2025 and March 1, 2024 were as follows:


(in millions)	2025	2024
Creative and Marketing Professionals	$	$
Business Professionals and Consumers
Total Digital Media and Digital Experience subscription revenue	$	$

Contract Balances

A receivable is recorded when an unconditional right to invoice and receive payment exists, such that only the passage of time is required before payment of consideration is due. Included in trade receivables on the condensed consolidated balance sheets are unbilled receivable balances which have not yet been invoiced, and are typically related to license revenue or services which are delivered prior to invoicing. As of February 28, 2025, the balance of trade receivables, net of allowances for doubtful

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

billion, inclusive of unbilled receivables of $ million. As of November 29, 2024, the balance of trade receivables, net of allowances for doubtful accounts, was $ billion, inclusive of unbilled receivables of $ million.

We maintain an allowance for doubtful accounts which reflects our best estimate of potentially uncollectible trade receivables and is based on both specific and general reserves. We maintain general reserves on a collective basis by considering factors such as historical experience, credit-worthiness, the age of the trade receivable balances, current economic conditions and a reasonable and supportable forecast of future economic conditions. The allowance for doubtful accounts was $ million and $ million as of February 28, 2025 and November 29, 2024, respectively.

A contract asset is recognized when a conditional right to consideration exists and transfer of control has occurred. Contract assets are included in prepaid expenses and other current assets for the current portion and other assets for the long-term portion on the condensed consolidated balance sheets. We regularly review contract asset balances for impairment, considering factors such as historical experience, credit-worthiness, age of the balance, current economic conditions and a reasonable and supportable forecast of future economic conditions. Contract asset impairments were not material for the three months ended February 28, 2025. Contract assets were $ million and $ million as of February 28, 2025 and November 29, 2024, respectively.

Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from subscription services, including non-cancellable and non-refundable committed funds and refundable customer deposits. Deferred revenue is recognized as revenue when transfer of control to customers has occurred. As of February 28, 2025, the balance of deferred revenue was $ billion, which includes $ million of refundable customer deposits. Arrangements with some of our enterprise customers with non-cancellable and non-refundable committed funds provide options to either renew monthly on-premise term-based licenses or use some or all funds to purchase other Adobe products or services. Non-cancellable and non-refundable committed funds related to these agreements comprised approximately % of the total deferred revenue.

As of November 29, 2024, the balance of deferred revenue was $ billion. During the three months ended February 28, 2025, approximately $ billion of revenue, respectively, was recognized that was included in the balance of deferred revenue as of November 29, 2024.

Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and unbilled amounts that will be recognized as revenue in future periods. As of February 28, 2025, remaining performance obligations were approximately $ billion. Non-cancellable and non-refundable funds related to some of our enterprise customer agreements referred to above comprised approximately % of the total remaining performance obligations. Approximately % of the remaining performance obligations, excluding the aforementioned enterprise customer agreements, are expected to be recognized over the next 12 months with the remainder recognized thereafter.

Incremental costs of obtaining a contract with a customer are capitalized if we expect the benefit of those costs to be longer than one year and primarily relate to sales commissions paid to our sales force personnel. Capitalized contract acquisition costs are included in prepaid expenses and other current assets for the current portion and other assets for the long-term portion on the condensed consolidated balance sheets. Capitalized contract acquisition costs were $ million and $ million as of February 28, 2025 and November 29, 2024, respectively.

We record refund liabilities for amounts that may be subject to future refunds, which include sales returns reserves and customer rebates and credits. Refund liabilities are included in accrued expenses and other current liabilities on the condensed consolidated balance sheets. Refund liabilities were $ million and $ million as of February 28, 2025 and November 29, 2024, respectively.

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 3.

$ $ $ Cash equivalents:Corporate debt securities Money market funds Time deposits U.S. Treasury securities Total cash equivalents Total cash and cash equivalents Short-term fixed income securities:Asset-backed securities Corporate debt securities U.S. agency securities U.S. Treasury securities Total short-term investments Total cash, cash equivalents and short-term investments$ $ $ $

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

$ $ $ Cash equivalents: Corporate debt securities Money market funds Time deposits U.S. Treasury securities Total cash equivalents Total cash and cash equivalents Short-term fixed income securities: Asset-backed securities Corporate debt securities U.S. agency securities U.S. Treasury securities ()

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 4.

$ $ $ Money market funds Time deposits U.S. Treasury securities Short-term investments:Asset-backed securities Corporate debt securities U.S. agency securities U.S. Treasury securities Prepaid expenses and other current assets: Foreign currency derivatives Interest rate swap derivatives Other assets: Deferred compensation plan assets Foreign currency derivatives Interest rate swap derivatives Total assets$ $ $ $

Liabilities:

Accrued expenses and other current liabilities:

Foreign currency derivatives

Other liabilities:

Foreign currency derivatives

Total liabilities

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

$ $ $ Money market funds Time deposits U.S. Treasury securities Short-term investments: Asset-backed securities Corporate debt securities U.S. agency securities U.S. Treasury securities Prepaid expenses and other current assets: Foreign currency derivatives Other assets: Deferred compensation plan assets

Foreign currency derivatives

Total assets$ $ $ $

Liabilities:

Accrued expenses and other current liabilities:

Foreign currency derivatives

Other liabilities:

Foreign currency derivatives

Total liabilities

See Note 3 for further information regarding the fair value of our financial instruments.

Our fixed income available-for-sale debt securities consist of high quality, investment grade securities from diverse issuers with a weighted average credit rating of AA. We value these securities based on pricing from independent pricing vendors who use matrix pricing valuation techniques including market approach methodologies that model information generated by market transactions involving identical or comparable assets, as well as discounted cash flow methodologies. Inputs include quoted prices in active markets for identical assets or inputs other than quoted prices that are observable either directly or indirectly in determining fair value, including benchmark yields, issuer spreads off benchmark yields, interest rates and U.S. Treasury or swap curves. We therefore categorize all of our fixed income available-for-sale securities as Level 2. We perform routine procedures such as comparing prices obtained from multiple independent sources to ensure that appropriate fair values are recorded.

The fair values of our money market funds, time deposits and deferred compensation plan assets, which consist of money market and other mutual funds, are based on quoted prices in active markets at the measurement date.

Our over-the-counter foreign currency and interest rate swap derivatives are valued using pricing models and discounted cash flow methodologies based on observable foreign exchange and interest rate data at the measurement date.

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

billion as of February 28, 2025, excluding the associated interest rate swaps, based on observable market prices in less active markets and categorized as Level 2. See Note 1 3 for further details regarding our debt.

NOTE 5.

months. As of February 28, 2025 and November 29, 2024, total notional amounts of outstanding cash flow hedges were $ billion and $ billion, respectively, hedging exposures denominated in Euros, Japanese Yen, British Pounds, Australian Dollars, Indian Rupees and Canadian Dollars.

As of February 28, 2025, we had net derivative gains on our foreign currency cash flow hedges expected to be recognized within the next months, of which $ million of net gains are expected to be recognized into revenue within the next 12 months.

Fair Value Hedges

During the three months ended February 28, 2025, we entered into interest rate swaps related to certain of our senior notes. The interest rate swaps effectively convert the fixed interest rates on the notes to floating interest rates based on the Secured Overnight Financing Rate Overnight Index Swap Rate (“SOFR OIS”). Under the terms of the swaps, we will pay quarterly interest at the daily compounded SOFR OIS plus a fixed number of basis points on the $ billion notional amount through the respective par call dates for the notes. In exchange, we will receive the fixed rate interest on the notes from the swap counterparties on a semi-annual basis. See Note 1 3 for further details regarding our debt.

The interest rate swaps are designated as fair value hedges. We record changes in fair value on the swaps associated with the hedged risk in interest expense in our condensed consolidated statements of income with a corresponding offset to the value of the senior notes being hedged.

Non-Designated Hedges

Our derivatives not designated as hedging instruments consist of foreign currency forward contracts that we primarily use to hedge monetary assets and liabilities denominated in non-functional currencies. As of February 28, 2025, total notional amounts of outstanding contracts were $ million, primarily hedging exposures denominated in Australian Dollars, Indian Rupees, Japanese Yen, and Euros. As of November 29, 2024, total notional amounts of outstanding foreign currency forward contracts hedging monetary assets and liabilities were $ million, primarily hedging exposures denominated in Indian Rupees, Australian Dollars, British Pounds and Euros.

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

$ $ $

Interest rate swaps

Derivatives not designated as hedging instruments:

Foreign exchange contracts

Total derivatives$ $ $ $

Gains and losses on derivative instruments, net of tax, recognized in our condensed consolidated statements of comprehensive income for the three months ended February 28, 2025 were primarily associated with our foreign exchange contracts, for which we recognized $ million of net gains. Gains and losses on derivative instruments, net of tax, for the three months ended March 1, 2024 were .

For the three months ended February 28, 2025 and March 1, 2024, the effects of derivative instruments on our condensed consolidated statements of income were immaterial.

NOTE 6.

billion and $ billion, respectively. $()$ $ $()$ Purchased technology () () Trademarks () () Other () ()

Other intangibles, net

$ $()$ $ $()$

Amortization expense related to other intangibles was $ million and $ million for the three months ended February 28, 2025 and March 1, 2024, respectively. Of these amounts, $ million and $ million were included in cost of revenue for the three months ended February 28, 2025 and March 1, 2024, respectively.

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

2026 2027 2028 2029 Thereafter Total expected amortization expense$

NOTE 7.

$ Accrued corporate marketing Derivative collateral liabilities

Sales and use taxes

Refund liabilities Accrued hosting fees Other

Accrued expenses and other current liabilities

$ $

Other primarily includes general business accruals, royalties payable and accrued interest expense.

NOTE 8.

$ Awarded $ Released()$ Forfeited()$ Ending outstanding balance $ $ Expected to vest $ $

The total fair value of restricted stock units vested during the three months ended February 28, 2025 was $ million.

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

$ Awarded $ Released()$ Forfeited()$ Ending outstanding balance $ $ Expected to vest $ $

Under our Performance Share Programs, participants generally have the ability to receive up to % of the target number of shares originally granted. Shares released during the three months ended February 28, 2025 resulted from overall payout at % of target for the 2022 Performance Share Program, as certified by the ECC in the first quarter of fiscal 2025.

The total fair value of performance shares vested during the three months ended February 28, 2025 was $ million.

Employee Stock Purchase Plan Shares

Employees purchased million shares at an average price of $ and million shares at an average price of $ for the three months ended February 28, 2025 and March 1, 2024, respectively. The intrinsic value of shares purchased during the three months ended February 28, 2025 and March 1, 2024 was $ million and $ million, respectively. The intrinsic value is calculated as the difference between the market value on the date of purchase and the purchase price of the shares.

Compensation Costs

As of February 28, 2025, there was $ billion of unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested stock-based awards and purchase rights which will be recognized over a weighted average period of years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

$ Research and development Sales and marketing General and administrative Total$ $

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 9.

)$ $

(1)

Net unrealized gains / losses on derivative instruments designated as hedging instruments

()

(2)

Cumulative foreign currency translation adjustments()() ()

Total accumulated other comprehensive income (loss), net of taxes

$()$ $()$()

_________________________________________

(1)Reclassification adjustments for gains / losses on available-for-sale securities are classified in other income (expense), net.

(2)Reclassification adjustments for gains / losses on foreign currency hedges are classified in revenue or operating expenses, depending on the nature of the underlying transaction, and reclassification adjustments for gains / losses on Treasury lock hedges are classified in interest expense.

Taxes related to each component of other comprehensive income (loss) for the three months ended February 28, 2025 and March 1, 2024 were immaterial.

NOTE 10.

billion in our common stock through March 14, 2028. $

Open market repurchases

Total

Three months ended March 1, 2024

ASRs

Other structured stock repurchases

(2)

Total $

_________________________________________

(1) Shares delivered during the three months ended February 28, 2025, include the initial delivery of shares under a $ billion accelerated share repurchase agreement (“ASR”) entered into in December 2024, which remained outstanding as of February 28, 2025. Subsequent to February 28, 2025, the outstanding ASR was settled which resulted in total repurchases of million shares.

(2) During the three months ended March 1, 2024, we received the final delivery of shares under a structured stock repurchase agreement entered into in fiscal 2023.

Prepayments for stock repurchases are classified as treasury stock, a component of stockholders’ equity on our condensed consolidated balance sheets, at the payment date, though only shares physically delivered to us by the end of the respective period are excluded from the computation of net income per share. As of February 28, 2025, a portion of the $ billion prepayment under the ASR entered into in December 2024 was evaluated as an unsettled forward contract indexed to our own stock, classified within stockholders’ equity.

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

billion and received an initial delivery of million shares, which represents approximately % of our prepayment. Upon completion of this $ billion ASR, $ billion remains under our March 2024 stock repurchase authority.

NOTE 11.

$ Shares used to compute basic net income per share Dilutive potential common shares from stock plans and programs Shares used to compute diluted net income per share Basic net income per share$ $ Diluted net income per share$ $ Anti-dilutive potential common shares

) ) )

Senior Notes

In January 2025, we issued $ million of senior notes due January 17, 2028, $ million of senior notes due January 17, 2030 and $ million of senior notes due January 17, 2035. Our total proceeds were approximately $ billion, net of an issuance discount of $ million and total issuance costs of $ million.

In February 2025, $ billion of senior notes became due and were repaid.

Discounts and issuance costs on our senior notes are amortized to interest expense over the terms of the respective notes using the effective interest method. Interest on the notes issued in February 2020 is payable semi-annually, in arrears, on February 1 and August 1. Interest on the notes issued in April 2024 is payable semi-annually, in arrears, on April 4 and October 4. Interest on the notes issued in January 2025 is payable semi-annually, in arrears, on January 17 and July 17.

During the three months ended February 28, 2025, we entered into interest rate swaps related to certain of our senior notes. The interest rate swaps effectively convert the fixed interest rates on the notes to floating interest rates based on the SOFR OIS. Under the terms of the swaps, we will pay quarterly interest at the daily compounded SOFR OIS plus a fixed number of basis points on the notional amount through the respective par call dates for the notes. In exchange, we will receive the fixed rate interest on the notes from the swap counterparties on a semi-annual basis. The fair value of the interest rate swaps is included in the carrying value of our debt in the condensed consolidated balance sheets. See Note 5 for further details regarding our interest rate swap derivatives .

Our senior notes rank equally with our other unsecured and unsubordinated indebtedness, and do not contain financial covenants. We may redeem the notes at any time, subject to a make-whole premium.

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

% of their principal amount, plus accrued and unpaid interest to the date of repurchase. In addition, these notes include covenants that limit our ability to grant liens on assets and to enter into sale and leaseback transactions, subject to significant allowances.

Revolving Credit Agreement

In June 2022, we entered into a credit agreement (the “Revolving Credit Agreement”), providing for a $ billion senior unsecured revolving credit facility. The Revolving Credit Agreement provides for loans to Adobe and certain of its subsidiaries that may be designated from time to time as additional borrowers. Pursuant to the terms of the Revolving Credit Agreement, we may, subject to the agreement of lenders to provide additional commitments, obtain up to an additional $ million in commitments, for a maximum aggregate commitment of $ billion. As of February 28, 2025, there were outstanding borrowings under this Revolving Credit Agreement.

Commercial Paper Program

In September 2023, we established a commercial paper program under which we may issue unsecured commercial paper up to a total of $ billion outstanding at any time, with maturities of up to days from the date of issue. The net proceeds from the issuance of commercial paper are expected to be used for general corporate purposes, which may include working capital, capital expenditures, acquisitions, stock repurchases, refinancing indebtedness or any other general corporate purposes. As of February 28, 2025, there were outstanding borrowings under the commercial paper program.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto.

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements, including statements regarding product plans, future growth, market opportunities, fluctuations in foreign currency exchange rates, strategic investments, industry positioning, customer acquisition and retention, the amount of annualized recurring revenue and revenue growth. In addition, when used in this report, the words “will,” “expects,” “could,” “would,” “may,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “targets,” “estimates,” “looks for,” “looks to,” “continues” and similar expressions, as well as statements regarding our focus for the future, are generally intended to identify forward-looking statements. Each of the forward-looking statements we make in this report involves risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” in Part II, Item 1A of this report. The risks described herein and in other documents we file from time to time with the U.S. Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for fiscal 2024, should be carefully reviewed. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document, except as required by law.

BUSINESS OVERVIEW

Adobe is a global technology company with a mission to change the world through personalized digital experiences. For over four decades, Adobe’s innovations have transformed how individuals, teams, businesses, enterprises, institutions, and governments engage and interact across all types of media. Our products, services and solutions are used around the world to imagine, create, manage, deliver, measure, optimize and engage with content across surfaces and fuel digital experiences. We have a diverse user base that includes consumers, communicators, creative professionals, developers, students, small and medium businesses and enterprises. We are also empowering creators by putting the power of artificial intelligence (“AI”) in their hands, and doing so in ways we believe are responsible. Our products and services help unleash creativity, accelerate document productivity and power businesses in a digital world. We have operations in the Americas; Europe, Middle East and Africa (“EMEA”); and Asia-Pacific (“APAC”).

OPERATIONS OVERVIEW

For our first quarter of fiscal 2025, we experienced strong demand across our Digital Media and Digital Experience offerings, driven by customer-focused product innovation. As we execute on our long-term growth initiatives, with emphasis on delivering value through AI-powered and highly differentiated solutions to meet the needs of our diverse and expanding customer base, we have continued to experience growth in software-based subscription revenue across our portfolio of offerings.

Digital Media

Our Digital Media products, services and solutions help users create, design and publish rich content and 3D experiences, and improve productivity by transforming how they view, share and collaborate on documents and content. These offerings include our Creative Cloud flagship applications (“apps”) such as Adobe Photoshop, Adobe Illustrator, Adobe Lightroom, Adobe Premiere Pro and Adobe Stock; as well as Adobe Acrobat, Adobe Express, Adobe Firefly and many more products, which are available across surfaces and platforms as desktop tools, web and mobile apps and cloud-based services. Adobe Express is our web and mobile app designed to enable a broad spectrum of users, including novice content creators and communicators, to create, edit and customize content quickly and easily with content first, task-based solutions. In addition, Adobe Firefly-powered generative AI features are available across Digital Media apps including Adobe Photoshop and Adobe Express. Our Adobe Acrobat offerings, with a set of integrated mobile apps and cloud-based document services, enable users to create, collaborate, review, approve, sign and track documents regardless of platform or application source type. These Acrobat offerings enhance the way people manage critical documents at home, in the office and across devices. Last year, we introduced Acrobat AI Assistant, a generative AI-powered product designed to deliver insights and enhance productivity through interactive document experiences, which is available as an add-on subscription to our Adobe Acrobat Pro and Standard and Adobe Acrobat Reader products. Our Digital Media customers include business professionals, consumers, creative professionals, creators and marketers.

Annualized Recurring Revenue (“ARR”) is currently the key performance metric our management uses to assess the health and trajectory of our overall Digital Media segment. ARR should be viewed independently of revenue, deferred revenue

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and remaining performance obligations as ARR is a performance metric and is not intended to be combined with any of these items. Digital Media ARR continues to be calculated as the sum of the annual value of Digital Media subscriptions and services and the annual value of Digital Media Enterprise Term License Agreements. We adjust our reported ARR on an annual basis to reflect any exchange rate changes. Our reported ARR results in the current fiscal year are based on currency rates set at the beginning of the year and held constant throughout the year for measurement purposes. Prior year ARR balances are also revalued at the new currency rates for comparative purposes.

Digital Media ARR grew to $17.63 billion at the end of the first quarter of fiscal 2025, representing 12.6% year-over-year growth. Our success in driving growth in ARR has positively affected our revenue growth. Digital Media segment revenue grew to $4.23 billion in the first quarter of fiscal 2025, up from $3.82 billion in the first quarter of fiscal 2024, representing 11% year-over-year growth.

Digital Experience

Our Digital Experience apps and services are designed to manage customer journeys, enable personalized experiences at scale and supply intelligence for businesses of any size in any industry. Digital Experience is comprised of solutions to deliver actionable data, with products such as Adobe Analytics and Adobe Real-Time Customer Data Platform; optimize content delivery, with products such as Adobe Experience Manager, Adobe Commerce and Adobe GenStudio for Performance Marketing; and manage customer journeys, with products such as Adobe Marketo Engage and Adobe Campaign. Our differentiation and competitive advantage are strengthened by our ability to use the Adobe Experience Platform to integrate our comprehensive set of solutions and our ability to embed AI into our product portfolio, such as with our Adobe Experience Platform AI Assistant, a generative AI-powered conversational interface designed to help customers automate workflows and generate new audiences and journeys. Our Digital Experience customers include marketing professionals such as brand managers, channel marketers and campaign strategists.

Digital Experience revenue was $1.41 billion in the first quarter of fiscal 2025, up from $1.29 billion in the first quarter of fiscal 2024, representing 10% year-over-year growth. Subscription revenue grew to $1.30 billion in the first quarter of fiscal 2025, up from $1.16 billion in the first quarter of fiscal 2024, representing 11% year-over-year growth.

Customer-Focused Strategy

Our customers often are involved in workflows that integrate multiple Adobe products across both segments. By combining the creativity of our Digital Media business with the science of our Digital Experience business, such as with our Adobe GenStudio solutions, we help our customers to more efficiently and effectively make, manage, measure and monetize their content across every channel with an end-to-end workflow and feedback loop.

Spanning both our Digital Media and Digital Experience segments, we are driving continued business success through audience-specific product innovation and go-to-market strategy focused on the following two customer groups:

•Business Professionals and Consumers require all-in-one web and mobile apps with easy-to-use AI capabilities, and are increasingly benefiting from deep integration between Adobe Acrobat and Adobe Express. Revenue associated with the Business Professionals and Consumers customer group consists of Adobe Acrobat offerings and Adobe Express, all of which are part of Digital Media.

•Creative and Marketing Professionals require agile and comprehensive solutions to create high volumes of compelling content, infused with commercially safe AI capabilities; and are benefiting from investments in powerful, integrated workflows through offerings such as Adobe Firefly and Adobe GenStudio. Revenue associated with the Creative and Marketing Professionals customer group consists of Digital Experience offerings as well as Creative Cloud flagship apps such as Photoshop, Lightroom and Illustrator within Digital Media.

By viewing the Digital Media and Digital Experience segments through this additional lens, we can more effectively execute on our long-term growth strategies. Our success will be achieved though continued acquisition and retention of our customer base by delivering valuable new features and technologies to customers with our latest releases, including generative AI capabilities to enhance creativity, productivity and marketing, and expanding availability of our offerings across an increasing number of surfaces.

As part of our customer-focused strategy, we utilize a data-driven operating model and tailored go-to-market motion to raise awareness of our products and drive customer acquisition, engagement and retention. Overall, our strategy is designed to increase our revenue with existing users, continue to attract new customers, and grow our recurring and predictable revenue stream that is recognized ratably.

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Macroeconomic Conditions

As a corporation with an extensive global footprint, we are subject to risks and exposures from the evolving macroeconomic environment, including the effects of increased global inflationary pressures and interest rates, fluctuations in foreign currency exchange rates, potential economic slowdowns or recessions and geopolitical pressures, including the unknown impacts of current and future trade regulations. We continuously monitor the direct and indirect impacts of these circumstances on our business and financial results.

While our revenue and earnings are relatively predictable as a result of our subscription-based business model, the broader implications of these macroeconomic events on our business, results of operations and overall financial position, particularly in the long term, remain uncertain. See the sec tion titled “Risk Factors ” in Part II, Item IA of this report for further discussion of the possible impact of these macroeconomic issues on our business.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In preparing our condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the SEC, we make assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. We evaluate our assumptions, judgments and estimates on a regular basis. We also discuss our critical accounting policies and estimates with the Audit Committee of the Board of Directors.

We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition and income taxes have the greatest potential impact on our condensed consolidated financial statements. These areas are key components of our results of operations and are based on complex rules requiring us to make judgments and estimates, and consequently, we consider these to be our critical accounting policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results.

There have been no significant changes in our critical accounting policies and estimates during the three months ended February 28, 2025, as compared to the critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended November 29, 2024.

Recent Accounting Pronouncements

See Note 1 of our notes to condensed consolidated financial statements for information regarding recent accounting pronouncements that are of significance or potential significance to us.

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RESULTS OF OPERATIONS

Financial Performance Summary

•Digital Media ARR of approximately $17.63 billion as of February 28, 2025 increased by 12.6% from $15.66 billion as of March 1, 2024 revalued using currency rates determined at the beginning of fiscal 2025.

•Digital Media revenue of $4.23 billion during the three months ended February 28, 2025 increased by $411 million, or 11%, compared to the year-ago period.

•Digital Experience revenue of $1.41 billion during the three months ended February 28, 2025 increased by $125 million, or 10%, compared to the year-ago period.

•Cost of revenue of $622 million during the three months ended February 28, 2025 increased by $32 million, or 5%, compared to the year-ago period.

•Operating expenses of $2.93 billion during the three months ended February 28, 2025 decreased by $756 million, or 21%, compared to the year-ago period, primarily due to the $1 billion Figma termination fee incurred during the first quarter of fiscal 2024.

•Net income of $1.81 billion during the three months ended February 28, 2025 increased by $1.19 billion, or 192%, compared to the year-ago period.

•Cash flows from operations of $2.48 billion during the three months ended February 28, 2025 increased by $1.31 billion, or 111%, compared to the year-ago period.

•Remaining performance obligations of $19.69 billion as of February 28, 2025 increased by 12% from $17.58 billion as of March 1, 2024.

Revenue for the Three Months Ended February 28, 2025 and March 1, 2024


(dollars in millions)	Three Months
	2025			2024			% Change
Subscription	$	5,483		$	4,916		12	%
Percentage of total revenue	96		%	95		%
Product	95			119			(20)	%
Percentage of total revenue	2		%	2		%
Services and other	136			147			(7)	%
Percentage of total revenue	2		%	3		%
Total revenue	$	5,714		$	5,182		10	%

Subscription

Our subscription revenue is comprised primarily of fees we charge for our subscription and hosted service offerings, and related support. We primarily recognize subscription revenue ratably over the term of agreements with our customers, beginning with commencement of service. Subscription revenue related to certain offerings, where fees are based on a number of transactions and invoicing is aligned to the pattern of performance, customer benefit and consumption, are recognized on a usage basis.

Product

Our product revenue is comprised primarily of fees related to licenses for on-premise software purchased on a perpetual basis, for a fixed period of time, or based on usage for certain of our original equipment manufacturer and royalty agreements. We primarily recognize product revenue at the point in time the software is available to the customer, provided all other revenue recognition criteria are met.

Services and Other

Our services and other revenue is comprised primarily of fees related to consulting, training, maintenance and support for certain on-premise licenses that are recognized at a point in time and our advertising offerings. We typically sell our consulting

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contracts on a time-and-materials or fixed-fee basis. These revenues are recognized as the services are performed for time-and-materials contracts and on a relative performance basis for fixed-fee contracts. Training revenues are recognized as the services are performed. Our maintenance and support offerings, which entitle customers, partners and developers to receive desktop product upgrades and enhancements or technical support, depending on the offering, are generally recognized ratably over the term of the arrangement. Transaction-based advertising revenue is recognized on a usage basis as we satisfy the performance obligations to our customers.

Segment Information

We have the following reportable segments: Digital Media, Digital Experience, and Publishing and Advertising. Total revenue by reportable segment for the three months ended February 28, 2025 and March 1, 2024 were as follows:


(dollars in millions)	Three Months
	2025			2024			% Change
Digital Media	$	4,227		$	3,816		11	%
Percentage of total revenue	74		%	74		%
Digital Experience	1,414			1,289			10	%
Percentage of total revenue	25		%	25		%
Publishing and Advertising	73			77			(5)	%
Percentage of total revenue	1		%	1		%
Total revenue	$	5,714		$	5,182		10	%

Revenue from Digital Media increased $411 million and revenue from Digital Experience increased $125 million during the three months ended February 28, 2025 as compared to the three months ended March 1, 2024 due to subscription revenue growth across our offerings.

Subscription revenue by reportable segment for the three months ended February 28, 2025 and March 1, 2024 were as follows:


(dollars in millions)	Three Months
	2025		2024		% Change
Digital Media	$	4,159	$	3,725	12	%
Digital Experience	1,297		1,164		11	%
Publishing and Advertising	27		27		—	%
Total subscription revenue	$	5,483	$	4,916	12	%

Increases in subscription revenue for the Digital Media segment were driven by strength in Creative Cloud flagship apps and Acrobat across all routes to market and geographies. Increases in subscription revenue for the Digital Experience segment were driven by strength in Adobe Experience Platform and related apps.

Digital Media and Digital Experience subscription revenue by customer group for the three months ended February 28, 2025 and March 1, 2024 were as follows:


(dollars in millions)	Three Months
	2025		2024		% Change
Creative and Marketing Professionals	$	3,922	$	3,550	10	%
Business Professionals and Consumers	1,534		1,339		15	%
Total Digital Media and Digital Experience subscription revenue	$	5,456	$	4,889	12	%

Increases in subscription revenue for the Creative and Marketing Professionals customer group were driven by strength in Creative Cloud flagship apps and Adobe Experience Platform and related apps. Increases in subscription revenue for the Business Professionals and Consumers customer group were driven by strength in Acrobat.

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Geographical Information


(dollars in millions)	Three Months
	2025			2024			% Change
Americas	$	3,405		$	3,110		9	%
Percentage of total revenue	60		%	60		%
EMEA	1,502			1,319			14	%
Percentage of total revenue	26		%	25		%
APAC	807			753			7	%
Percentage of total revenue	14		%	15		%
Total revenue	$	5,714		$	5,182		10	%

Overall revenue during the three months ended February 28, 2025 increased in all geographic regions as compared to the three months ended March 1, 2024. Within each geographic region, the fluctuations in revenue were attributable to the factors noted in the segment information above.

Included in the overall change in revenue for the three months ended February 28, 2025 as compared to the three months ended March 1, 2024 were impacts associated with foreign currency and our foreign currency hedging program. During the three months ended February 28, 2025, the U.S. Dollar primarily strengthened against APAC and EMEA foreign currencies as compared to the year-ago period, which resulted in a net decrease in revenue in U.S. Dollar equivalents of approximately $74 million. For the three months ended February 28, 2025, we had net hedging gains from our cash flow hedging program of $26 million.

Cost of Revenue for the Three Months Ended February 28, 2025 and March 1, 2024


(dollars in millions)	Three Months
	2025			2024			% Change
Subscription	$	490		$	455		8	%
Percentage of total revenue	9		%	9		%
Product	6			5			20	%
Percentage of total revenue	*			*
Services and other	126			130			(3)	%
Percentage of total revenue	2		%	3		%
Total cost of revenue	$	622		$	590		5	%

_________________________________________

(*) Percentage is less than 1%.

Subscription

Cost of subscription revenue consists primarily of third-party hosting services and data center costs, including expenses related to operating our network infrastructure and AI inferencing costs. Cost of subscription revenue also includes compensation costs associated with network operations, implementation, account management and technical support personnel, royalty fees, software costs and amortization of certain intangible assets.

Cost of subscription revenue increased during the three months ended February 28, 2025 as compared to the three months ended March 1, 2024 primarily due to increases in hosting services and data center costs, royalty fees, and compensation costs.

Product

Cost of product revenue is primarily comprised of third-party royalties, localization costs and costs associated with the manufacturing of our products.

Services and Other

Cost of services and other revenue is primarily comprised of compensation and contracted costs incurred to provide consulting services, training and product support, and hosting services and data center costs.

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Operating Expenses for the Three Months Ended February 28, 2025 and March 1, 2024


(dollars in millions)	Three Months
	2025			2024			% Change
Research and development	$	1,026		$	939		9	%
Percentage of total revenue	18		%	18		%
Sales and marketing	1,495			1,352			11	%
Percentage of total revenue	26		%	26		%
General and administrative	367			352			4	%
Percentage of total revenue	6		%	7		%


Acquisition termination fee	—			1,000			**
Percentage of total revenue	*			19		%
Amortization of intangibles	41			42			(2)	%
Percentage of total revenue	1		%	1		%
Total operating expenses	$	2,929		$	3,685		(21)	%

_________________________________________

(*) Percentage is less than 1%.

(**) Percentage is not meaningful.

Research and Development

Research and development expenses consist primarily of compensation and contracted costs associated with software development, third-party hosting services and data center costs including AI training costs, related facilities costs and expenses associated with computer equipment and software used in development activities.

Research and development expenses increased during the three months ended February 28, 2025 as compared to the three months ended March 1, 2024 primarily due to increases in compensation costs and hosting services and data center costs.

Investments in research and development, including the recruiting and hiring of software developers, are critical to remain competitive in the marketplace and are directly related to continued timely development of new and enhanced offerings and solutions. We will continue to focus on long-term opportunities available in our end markets and make significant investments in the development of our subscription and service offerings, apps and tools.

Sales and Marketing

Sales and marketing expenses consist primarily of compensation costs, amortization of contract acquisition costs, including sales commissions, travel expenses and related facilities costs for our sales, marketing, order management and global supply chain management personnel. Sales and marketing expenses also include the costs of programs aimed at increasing revenue, such as advertising, trade shows and events, public relations and other market development programs.

Sales and marketing expenses increased during the three months ended February 28, 2025 as compared to the three months ended March 1, 2024 primarily due to increases in marketing spend and compensation costs.

General and Administrative

General and administrative expenses consist primarily of compensation and contracted costs, travel expenses and related facilities costs for our finance, facilities, human resources, legal, information services and executive personnel. General and administrative expenses also include outside legal and accounting fees, provision for bad debts, expenses associated with computer equipment and software used in the administration of the business, charitable contributions and various forms of insurance.

Acquisition Termination Fee

During the three months ended March 1, 2024, we incurred a $1 billion termination fee which resulted from termination of the Figma transaction.

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Non-Operating Income (Expense), Net for the Three Months Ended February 28, 2025 and March 1, 2024


(dollars in millions)	Three Months
	2025		2024		% Change
Interest expense	$	(62)	$	(27)	130	%

Investment gains (losses), net	6		18		**

Other income (expense), net	75		70		**

Total non-operating income (expense), net	$	19	$	61	**

_________________________________________

(**) Percentage is not meaningful.

Interest Expense

Interest expense represents interest associated with our debt instruments. Interest on our senior notes is payable semi-annually, in arrears. Floating interest payments on the interest rate swaps are paid quarterly. The fixed-rate interest receivable on the swaps is received semi-annually concurrent with the senior notes interest payments.

Interest expense increased during the three months ended February 28, 2025 as compared to the three months ended March 1, 2024 due to the senior notes issued in April 2024 and January 2025. See Not e s 5 and 1 3 for further details regarding our interest rate swaps and debt , respectively.

Investment Gains (Losses), Net

Investment gains (losses), net consists principally of unrealized holding gains and losses associated with our deferred compensation plan assets.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest earned on cash, cash equivalents and short-term fixed income investments. Other income (expense), net also includes realized gains and losses on fixed income investments and foreign exchange gains and losses.

Provision for Income Taxes for the Three Months Ended February 28, 2025 and March 1, 2024


(dollars in millions)	Three Months
	2025			2024			% Change
Provision for income taxes	$	371		$	348		7	%

Effective tax rate	17		%	36		%

17,650 (2,750)

(3)

14,400

_________________________________________

(1)In March 2024, our Board of Directors granted authority to repurchase up to $25 billion in our common stock through March 14, 2028.

(2)In September 2024, we entered into an accelerated share repurchase agreement (“ASR”) with a large financial institution whereupon we provided them with a prepayment of $2.5 billion and received an initial delivery of shares at contract inception representing a portion of the prepayment. Upon final settlement of this ASR in December 2024, we received an incremental delivery of 1.4 million shares of our common stock. Under this ASR, we repurchased a total of 5.0 million shares at an average price of $501.37.

(3)In December 2024, we entered into an ASR with a large financial institution whereupon we provided them with a prepayment of $2.75 billion and received an initial delivery of 4.5 million shares of our common stock at contract inception, representing a portion of the prepayment. Subsequent to February 28, 2025, this ASR was settled which resulted in total repurchases of 6.3 million shares at an average price of $433.84.

ITEM 5. OTHER INFORMATION

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ITEM 6. EXHIBITS

INDEX TO EXHIBITS

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

Filing Date

Exhibit Number

SEC File No.

Filed
Herewith

3.1

Restated Certificate of Incorporation of Adobe

8-K

4/26/11

3.3

000-15175

3.2

Certificate of Amendment to Restated Certificate of Adobe

8-K

10/9/18

3.1

000-15175

3.3

Amended and Restated Bylaws

8-K

1/18/22

3.1

000-15175

4.1

I ndenture, dated January 17, 2025, between Adobe Inc. and Computershare Trust Company, N.A., as trustee

8-K

1/17/25

4.1

000-15175

4.2

Forms of Global Note for Adobe Inc.’s 4.750% Notes due 2028, 4.950% Notes due 2030, and 5.300% Notes due 2035, together with an Officer’s Certificate setting forth the terms of the Notes

8-K

1/17/25

4.2

000-15175

10.1

Form of Restricted Stock Unit Grant Notice and Award Agreement pursuant to 2019 Equity Incentive Plan, as amended*

10-K

1/13/25

10.2H

000-15175

10.2

Form of Non-Employee Director Grant Restricted Stock Unit Grant Notice and Award Agreement pursuant to 2019 Equity Incentive Plan, as amended*

10-K

1/13/25

10.2I

000-15175

10.3

2025 Performance Share Program*

8-K

1/30/25

10.1

000-15175

10.4

Form of 2025 Performance Share Award Grant Notice and Award Agreement pursuant to 2025 Performance Share Program*

8-K

1/30/25

10.2

000-15175

10.5

2023 Performance Share Program, as amended and restated*

8-K

1/30/25

10.3

000-15175

10.6

2024 Performance Share Program, as amended and restated*

8-K

1/30/25

10.4

000-15175

10.7

2025 Executive Annual Incentive Plan*

8-K

1/30/25

10.5

000-15175

10.8

2019 Equity Incentive Plan, as amended*

31.1

Certification of Chief Executive Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934

31.2

Certification of Chief Financial Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934

32.1

Certification of Chief Executive Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934†

32.2

Certification of Chief Financial Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934†

101.INS

Inline XBRL Instance - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema

101.CAL

Inline XBRL Taxonomy Extension Calculation

101.LAB

Inline XBRL Taxonomy Extension Labels

101.PRE

Inline XBRL Taxonomy Extension Presentation

101.DEF

Inline XBRL Taxonomy Extension Definition

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

___________________________

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Management contract or compensatory plan or arrangement.

†

The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Adobe Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


			ADOBE INC.

			By:			/s/ DANIEL DURN
						Daniel Durn
						Chief Financial Officer and
						Executive Vice President, Finance,
						Technology, Security and Operations
						(Principal Financial Officer)

Date: March 26, 2025

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SUMMARY OF TRADEMARKS

The following trademarks of Adobe Inc. or its subsidiaries, which may be registered in the United States and/or other countries, are referenced in this Form 10-Q:

Acrobat

Acrobat AI Assistant

Acrobat Reader

Adobe

Adobe Analytics

Adobe Campaign

Adobe Commerce

Adobe Experience Cloud

Adobe Express

Adobe Firefly

Adobe GenStudio

Adobe Stock

Creative Cloud

Illustrator

Lightroom

Marketo Engage

Photoshop

Premiere Pro

All other trademarks are the property of their respective owners.

ADOBE INC. - Quarter Report: 2025 February (Form 10-Q)

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