Adobe(ADBE) - 2025 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION This part provides Adobe's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the reported periods Item 1. Condensed Consolidated Financial Statements This section presents Adobe Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of income, comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items for the periods ended August 29, 2025, and August 30, 2024 (or November 29, 2024 for balance sheet) Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity as of August 29, 2025, and November 29, 2024 | (In millions) | August 29, 2025 | November 29, 2024 | | :-------------------------------- | :---------------- | :------------------ | | ASSETS | | | | Cash and cash equivalents | $4,982 | $7,613 | | Short-term investments | 958 | 273 | | Trade receivables, net | 2,093 | 2,072 | | Prepaid expenses and other current assets | 1,379 | 1,274 | | Total current assets | 9,412 | 11,232 | | Property and equipment, net | 1,908 | 1,936 | | Operating lease right-of-use assets, net | 307 | 281 | | Goodwill | 12,862 | 12,788 | | Other intangibles, net | 555 | 782 | | Deferred income taxes | 2,092 | 1,657 | | Other assets | 1,618 | 1,554 | | Total assets | $28,754 | $30,230 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Current liabilities: | | | | Trade payables | $337 | $361 | | Accrued expenses and other current liabilities | 2,289 | 2,336 | | Debt | — | 1,499 | | Deferred revenue | 6,385 | 6,131 | | Income taxes payable | 154 | 119 | | Operating lease liabilities | 74 | 75 | | Total current liabilities | 9,239 | 10,521 | | Long-term liabilities: | | | | Debt | 6,200 | 4,129 | | Deferred revenue | 149 | 128 | | Income taxes payable | 502 | 548 | | Operating lease liabilities | 362 | 353 | | Other liabilities | 532 | 446 | | Total liabilities | 16,984 | 16,125 | | Stockholders' equity: | | | | Additional paid-in capital | 14,968 | 13,419 | | Retained earnings | 43,516 | 38,470 | | Accumulated other comprehensive income (loss) | (341) | (201) | | Treasury stock, at cost | (46,373) | (37,583) | | Total stockholders' equity | 11,770 | 14,105 | | Total liabilities and stockholders' equity | $28,754 | $30,230 | Condensed Consolidated Statements of Income This statement presents the company's financial performance, detailing revenues, costs, operating expenses, and net income for the three and nine months ended August 29, 2025, and August 30, 2024 | (In millions, except per share data) | Three Months Ended August 29, 2025 | Three Months Ended August 30, 2024 | Nine Months Ended August 29, 2025 | Nine Months Ended August 30, 2024 | | :----------------------------------- | :--------------------------------- | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Revenue: | | | | | | Subscription | $5,791 | $5,180 | $16,915 | $15,156 | | Product | 68 | 82 | 251 | 305 | | Services and other | 129 | 146 | 409 | 438 | | Total revenue | 5,988 | 5,408 | 17,575 | 15,899 | | Cost of revenue: | | | | | | Subscription | 510 | 413 | 1,505 | 1,324 | | Product | 5 | 6 | 17 | 19 | | Services and other | 127 | 135 | 380 | 399 | | Total cost of revenue | 642 | 554 | 1,902 | 1,742 | | Gross profit | 5,346 | 4,854 | 15,673 | 14,157 | | Operating expenses: | | | | | | Research and development | 1,088 | 1,022 | 3,196 | 2,945 | | Sales and marketing | 1,639 | 1,431 | 4,760 | 4,228 | | General and administrative | 408 | 366 | 1,152 | 1,073 | | Acquisition termination fee | — | — | — | 1,000 | | Amortization of intangibles | 38 | 43 | 120 | 127 | | Total operating expenses | 3,173 | 2,862 | 9,228 | 9,373 | | Operating income | 2,173 | 1,992 | 6,445 | 4,784 | | Non-operating income (expense): | | | | | | Interest expense | (67) | (51) | (197) | (119) | | Investment gains (losses), net | 23 | 12 | 31 | 34 | | Other income (expense), net | 58 | 89 | 191 | 241 | | Total non-operating income (expense), net | 14 | 50 | 25 | 156 | | Income before income taxes | 2,187 | 2,042 | 6,470 | 4,940 | | Provision for income taxes | 415 | 358 | 1,196 | 1,063 | | Net income | $1,772 | $1,684 | $5,274 | $3,877 | | Basic net income per share | $4.18 | $3.78 | $12.28 | $8.63 | | Diluted net income per share | $4.18 | $3.76 | $12.26 | $8.58 | Condensed Consolidated Statements of Comprehensive Income This statement details the company's comprehensive income, including net income and other comprehensive income (loss) components, for the three and nine months ended August 29, 2025, and August 30, 2024 | (In millions) | Three Months Ended August 29, 2025 | Three Months Ended August 30, 2024 | Nine Months Ended August 29, 2025 | Nine Months Ended August 30, 2024 | | :------------------------------------------------ | :--------------------------------- | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $1,772 | $1,684 | $5,274 | $3,877 | | Other comprehensive income (loss), net of taxes: | | | | | | Unrealized gains / losses on available-for-sale securities | — | 3 | 1 | 10 | | Net increase (decrease) from derivatives designated as hedging instruments | (29) | (59) | (239) | (50) | | Foreign currency translation adjustments | 21 | 23 | 98 | 16 | | Other comprehensive income (loss), net of taxes | (8) | (33) | (140) | (24) | | Total comprehensive income, net of taxes | $1,764 | $1,651 | $5,134 | $3,853 | Condensed Consolidated Statements of Stockholders' Equity This statement outlines changes in stockholders' equity, including net income, other comprehensive income, stock repurchases, and stock-based compensation, from November 29, 2024, to August 29, 2025 | (In millions) | 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 | Balances at August 29, 2025 | | :-------------------------------- | :---------------------------- | :--------- | :-------------------------------------------- | :---------------------------------------------------------- | :-------------------------- | :----------------------- | :-------------------------- | | Common Stock (Shares) | 601 | — | — | — | — | — | 601 | | Common Stock (Amount) | $— | $— | $— | $— | $— | $— | $— | | Additional Paid-In Capital | 13,419 | — | — | 96 | — | 1,453 | 14,968 | | Retained Earnings | 38,470 | 5,274 | — | (228) | — | — | 43,516 | | Accumulated Other Comprehensive Income (Loss) | (201) | — | (140) | — | — | — | (341) | | Treasury Stock (Shares) | (160) | — | — | 3 | (24) | — | (181) | | Treasury Stock (Amount) | $(37,583) | — | — | 99 | (8,889) | — | $(46,373) | | Total | $14,105 | $5,274 | $(140) | $(33) | $(8,889) | $1,453 | $11,770 | Condensed Consolidated Statements of Cash Flows This statement summarizes the company's cash inflows and outflows from operating, investing, and financing activities for the nine months ended August 29, 2025, and August 30, 2024 | (In millions) | Nine Months Ended August 29, 2025 | Nine Months Ended August 30, 2024 | | :---------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Cash flows from operating activities: | | | | Net income | $5,274 | $3,877 | | Adjustments to reconcile net income to net cash provided by operating activities | 1,705 | 1,258 | | Changes in operating assets and liabilities, net | (195) | (999) | | Net cash provided by operating activities | 6,871 | 5,135 | | Cash flows from investing activities: | | | | Purchases of short-term investments | (1,351) | — | | Maturities of short-term investments | 681 | 379 | | Proceeds from sales of short-term investments | 4 | 9 | | Acquisitions, net of cash acquired | (17) | — | | Purchases of property and equipment | (145) | (135) | | Purchases of long-term investments, intangibles and other assets | (216) | (125) | | Proceeds from sale of long-term investments and other assets | 3 | 2 | | Net cash provided by (used for) investing activities | (1,041) | 130 | | Cash flows from financing activities: | | | | Repurchases of common stock | (8,807) | (7,000) | | Proceeds from re-issuance of treasury stock | 348 | 361 | | Taxes paid related to net share settlement of equity awards | (381) | (525) | | Proceeds from issuance of debt | 1,997 | 1,997 | | Repayment of debt | (1,500) | — | | Other financing activities, net | (162) | (56) | | Net cash used for financing activities | (8,505) | (5,223) | | Effect of foreign currency exchange rates on cash and cash equivalents | 44 | 10 | | Net change in cash and cash equivalents | (2,631) | 52 | | Cash and cash equivalents at beginning of period | 7,613 | 7,141 | | Cash and cash equivalents at end of period | $4,982 | $7,193 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies, revenue, cash, debt, and contingencies NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the basis for preparing the unaudited condensed consolidated financial statements in accordance with SEC rules and GAAP, confirming that all necessary adjustments have been made. It also states that there have been no material changes to significant accounting policies and discusses recent accounting pronouncements (ASU 2023-07, 2023-09, 2024-03) that are not yet effective but are being evaluated for potential impact on future disclosures - The financial statements are prepared in accordance with GAAP and SEC rules, with all necessary adjustments made[34] - No material changes to significant accounting policies have occurred[37] - New accounting standards (ASU 2023-07, 2023-09, 2024-03) are being evaluated for future impact, with adoption dates ranging from fiscal 2025 to 2029[38][39][40] NOTE 2. REVENUE This note provides a detailed breakdown of revenue by segment (Digital Media, Digital Experience, Publishing and Advertising) and geographic area, highlighting the significant contribution of subscription revenue. It also details contract balances, including trade receivables, contract assets, deferred revenue, and remaining performance obligations, and discusses the accounting for capitalized contract acquisition costs and refund liabilities Revenue by Segment (Three Months Ended) | (dollars in millions) | August 29, 2025 | August 30, 2024 | | :-------------------- | :---------------- | :---------------- | | Digital Media | $4,459 | $3,995 | | Digital Experience | 1,476 | 1,354 | | Publishing and Advertising | 53 | 59 | | Total Revenue | $5,988 | $5,408 | Subscription Revenue by Segment (Nine Months Ended) | (in millions) | August 29, 2025 | August 30, 2024 | | :----------------------- | :---------------- | :---------------- | | Digital Media | $12,836 | $11,474 | | Digital Experience | 3,999 | 3,599 | | Publishing and Advertising | 80 | 83 | | Total subscription revenue | $16,915 | $15,156 | - Total remaining performance obligations were approximately $20.44 billion as of August 29, 2025, with about 67% expected to be recognized over the next 12 months[55] - Deferred revenue increased to $6.53 billion as of August 29, 2025, from $6.26 billion as of November 29, 2024[51][54] NOTE 3. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS This note details the composition of cash, cash equivalents, and short-term investments, which are classified as available-for-sale and carried at fair value. It provides a breakdown of these assets by type and confirms that no credit-related losses were recognized during the reported periods Cash, Cash Equivalents and Short-Term Investments (August 29, 2025) | (in millions) | Amortized Cost | Fair Value | | :--------------------------------------- | :------------- | :--------- | | Cash | $940 | $940 | | Cash equivalents | 4,042 | 4,042 | | Short-term fixed income securities | 958 | 958 | | Total cash, cash equivalents and short-term investments | $5,940 | $5,940 | - All short-term fixed income debt securities had stated effective maturities within one year as of August 29, 2025[62] - No allowance for credit-related losses on investments was recognized during the nine months ended August 29, 2025, or August 30, 2024[66] NOTE 4. FAIR VALUE MEASUREMENTS This note outlines the fair value measurements for financial assets and liabilities, categorizing them into Level 1, Level 2, and Level 3 inputs. It specifies that fixed income available-for-sale debt securities are classified as Level 2, while money market funds, time deposits, and deferred compensation plan assets are Level 1. Derivative instruments are valued using pricing models based on observable data Fair Value Measurements (August 29, 2025) | (in millions) | Total Fair Value | Level 1 | Level 2 | Level 3 | | :-------------------------------- | :--------------- | :------ | :------ | :------ | | Assets: | | | | | | Cash equivalents | $4,042 | $3,435 | $607 | $— | | Short-term investments | 958 | — | 958 | — | | Prepaid expenses and other current assets (derivatives) | 21 | — | 21 | — | | Other assets (deferred comp, derivatives) | 425 | 329 | 96 | — | | Total assets | $5,446 | $3,764 | $1,682 | $— | | Liabilities: | | | | | | Accrued expenses and other current liabilities (derivatives) | $170 | $— | $170 | $— | | Other liabilities (derivatives) | 31 | — | 31 | — | | Total liabilities | $201 | $— | $201 | $— | - Fixed income available-for-sale debt securities are classified as Level 2, valued using matrix pricing and discounted cash flow methodologies[71] - Money market funds, time deposits, and deferred compensation plan assets are based on quoted prices in active markets (Level 1)[72] NOTE 5. DERIVATIVE FINANCIAL INSTRUMENTS This note details Adobe's use of derivative instruments to manage foreign currency and interest rate risks, explicitly stating they are not used for trading. It covers cash flow hedges (foreign exchange contracts), fair value hedges (interest rate swaps converting fixed to floating rates on senior notes), and non-designated hedges (foreign currency forward contracts) - Adobe uses derivatives to offset foreign currency and interest rate risk, not for trading purposes[77] - Gross notional amounts of outstanding cash flow hedges were $5.48 billion as of August 29, 2025, primarily hedging Euros, Japanese Yen, and British Pounds[79] - Interest rate swaps, designated as fair value hedges, convert fixed interest rates on $2.70 billion notional amount of senior notes to floating rates based on SOFR OIS[81] Fair Value of Derivative Instruments (August 29, 2025) | (in millions) | Fair Value Asset Derivatives | Fair Value Liability Derivatives | | :---------------------------------------- | :--------------------------- | :----------------------------- | | Derivatives designated as hedging instruments: | | | | Foreign exchange contracts | $20 | $181 | | Interest rate swaps | 97 | 19 | | Derivatives not designated as hedging instruments: | | | | Foreign exchange contracts | — | 1 | | Total derivatives | $117 | $201 | NOTE 6. GOODWILL AND OTHER INTANGIBLES This note provides details on goodwill and other intangible assets. Goodwill was $12.86 billion as of August 29, 2025, with no impairment identified during the annual test. Other intangible assets, primarily customer contracts and relationships, purchased technology, and trademarks, totaled $555 million net, with estimated future amortization expense provided - Goodwill was $12.86 billion as of August 29, 2025, and no impairment was found during the annual test in Q2 fiscal 2025[88] Other Intangibles, Net (August 29, 2025) | (in millions) | Gross Carrying Amount | Accumulated Amortization | Net | | :------------------------------ | :-------------------- | :----------------------- | :---- | | Customer contracts and relationships | $1,208 | $(832) | $376 | | Purchased technology | 881 | (830) | 51 | | Trademarks | 372 | (290) | 82 | | Other | 59 | (13) | 46 | | Other intangibles, net | $2,520 | $(1,965) | $555 | - Amortization expense for other intangibles was $81 million for the three months and $248 million for the nine months ended August 29, 2025[88] Estimated Aggregate Amortization Expense (August 29, 2025) | Fiscal Year | Other Intangibles (in millions) | | :---------- | :------------------------------ | | Remainder of 2025 | $62 | | 2026 | 160 | | 2027 | 118 | | 2028 | 73 | | 2029 | 69 | | Thereafter | 73 | | Total expected amortization expense | $555 | NOTE 7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES This note itemizes the components of accrued expenses and other current liabilities, which totaled $2.29 billion as of August 29, 2025. Key components include accrued compensation costs, accrued corporate marketing, refund liabilities, and the fair value of derivative liabilities Accrued Expenses and Other Current Liabilities (August 29, 2025) | (in millions) | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Accrued compensation costs | $1,074 | $1,221 | | Accrued corporate marketing | 191 | 176 | | Refund liabilities | 124 | 141 | | Sales and use taxes | 123 | 121 | | Fair value of derivative liabilities | 170 | 9 | | Derivative collateral liability | 88 | 168 | | Other | 519 | 500 | | Accrued expenses and other current liabilities | $2,289 | $2,336 | NOTE 8. STOCK-BASED COMPENSATION This note details stock-based compensation activities, including restricted stock units (RSUs), performance shares, and employee stock purchase plan (ESPP) shares. It provides data on awards, releases, forfeitures, and the total unrecognized compensation cost, along with the breakdown of stock-based compensation expenses across cost of revenue and operating expenses Restricted Stock Unit Activity (Nine Months Ended August 29, 2025) | | Number of Shares (in millions) | Weighted Average Grant Date Fair Value | | :-------------------------- | :----------------------------- | :----------------------------------- | | Beginning outstanding balance | 7.0 | $473.28 | | Awarded | 4.2 | $423.98 | | Released | (2.7) | $462.83 | | Forfeited | (0.5) | $465.06 | | Ending outstanding balance | 8.0 | $451.36 | - Total unrecognized compensation cost related to stock-based awards was $3.47 billion as of August 29, 2025, to be recognized over a weighted average period of 2.27 years[100] Total Stock-Based Compensation Costs (Nine Months Ended) | (in millions) | August 29, 2025 | August 30, 2024 | | :-------------------------- | :---------------- | :---------------- | | Cost of revenue | $93 | $90 | | Research and development | 748 | 704 | | Sales and marketing | 423 | 403 | | General and administrative | 189 | 195 | | Total | $1,453 | $1,392 | NOTE 9. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) This note details the components and changes in accumulated other comprehensive income (loss), which totaled $(341) million as of August 29, 2025. The primary components include net unrealized gains/losses on derivative instruments designated as hedging instruments and cumulative foreign currency translation adjustments Components of Accumulated Other Comprehensive Income (Loss) (August 29, 2025) | (in millions) | November 29, 2024 | Increase / Decrease | Reclassification Adjustments | August 29, 2025 | | :---------------------------------------------------------------- | :------------------ | :------------------ | :--------------------------- | :---------------- | | Net unrealized gains / losses on available-for-sale securities | $(1) | $1 | $— | $— | | Net unrealized gains / losses on derivative instruments designated as hedging instruments | 80 | (231) | (8) | (159) | | Cumulative foreign currency translation adjustments | (280) | 98 | — | (182) | | Total accumulated other comprehensive income (loss), net of taxes | $(201) | $(132) | $(8) | $(341) | - Taxes related to each component of other comprehensive income (loss) were immaterial for the reported periods[104] NOTE 10. STOCK REPURCHASE PROGRAM This note outlines Adobe's stock repurchase program, authorized by the Board of Directors for up to $25 billion through March 2028. During the nine months ended August 29, 2025, the company repurchased $8.81 billion in common stock, primarily through accelerated share repurchase agreements and open market repurchases, leaving $8.40 billion remaining under the current authority - Board of Directors authorized a $25 billion stock repurchase program through March 14, 2028[105] Share Repurchase Activity (Nine Months Ended August 29, 2025) | (in millions) | Number of Shares Delivered | Amount Paid | | :------------------------------ | :------------------------- | :---------- | | Accelerated share repurchase agreements | 16.8 | $6,250 | | Open market repurchases | 6.8 | 2,556 | | Total | 23.6 | $8,806 | - $8.40 billion remains under the March 2024 stock repurchase authority as of August 29, 2025[105] NOTE 11. NET INCOME PER SHARE This note provides the computation of basic and diluted net income per share, detailing the shares used in each calculation. It also lists anti-dilutive potential common shares that were excluded from the diluted EPS calculation Net Income Per Share Computation (Nine Months Ended) | (in millions, except per share data) | August 29, 2025 | August 30, 2024 | | :----------------------------------- | :---------------- | :---------------- | | Net income | $5,274 | $3,877 | | Shares used to compute basic net income per share | 429.3 | 449.1 | | Dilutive potential common shares from stock plans and programs | 0.9 | 2.7 | | Shares used to compute diluted net income per share | 430.2 | 451.8 | | Basic net income per share | $12.28 | $8.63 | | Diluted net income per share | $4.18 | $3.76 | | Anti-dilutive potential common shares | 5.0 | 1.8 | NOTE 12. COMMITMENTS AND CONTINGENCIES This note addresses Adobe's commitments and contingencies, including indemnifications for intellectual property infringement and officer/director liability. It details ongoing legal proceedings, such as the FTC investigation into subscription practices, a securities class action related to Figma competition, and several shareholder derivative actions, noting the company's intent to vigorously defend itself and the inability to estimate potential financial losses at this stage - Adobe provides indemnifications for intellectual property infringement and officer/director liability, with estimated fair value of officer/director indemnification in excess of insurance coverage being minimal[112][113] - The FTC filed a civil complaint in June 2024 alleging violations of ROSCA and the FTC Act regarding disclosure and subscription cancellation practices; Adobe's motion to dismiss was denied in May 2025, and the discovery phase is ongoing[119] - A securities class action (In Re Adobe Inc. Securities Litigation) alleging misleading statements about Figma competition was dismissed in March 2025, with the plaintiff seeking to amend the complaint[120] - Multiple shareholder derivative actions (Consolidated Derivative Action, Roy Action, Daniel Action) based on similar allegations as the Securities Action are presently stayed[121][124] - Adobe disputes all allegations of wrongdoing and is unable to estimate a reasonably possible financial loss for the ongoing litigation[125] NOTE 13. DEBT This note details Adobe's debt structure, primarily consisting of senior notes totaling $6.15 billion outstanding as of August 29, 2025. It covers new issuances, repayments, and the use of interest rate swaps to convert fixed rates to floating rates. The note also mentions the $1.5 billion revolving credit agreement and $3 billion commercial paper program, both of which had no outstanding borrowings Debt Outstanding (August 29, 2025) | (dollars in millions) | Due Date | Effective Interest Rate | 2025 Carrying Value | | :-------------------- | :--------- | :---------------------- | :------------------ | | 2.15% 2027 Notes | February 2027 | 2.26% | $850 | | 4.85% 2027 Notes | April 2027 | 5.03% | 500 | | 4.75% 2028 Notes | January 2028 | 4.93% | 800 | | 4.80% 2029 Notes | April 2029 | 4.93% | 750 | | 4.95% 2030 Notes | January 2030 | 5.09% | 700 | | 2.30% 2030 Notes | February 2030 | 2.69% | 1,300 | | 4.95% 2034 Notes | April 2034 | 5.03% | 750 | | 5.30% 2035 Notes | January 2035 | 5.40% | 500 | | Total debt outstanding, at par | | | $6,150 | | Fair value of interest rate swaps | | | 78 | | Unamortized discount and debt issuance costs | | | (28) | | Carrying value of long-term debt | | | $6,200 | - In January 2025, Adobe issued $2.0 billion in new senior notes and repaid $1.5 billion of senior notes that became due in February 2025[130] - Interest rate swaps were entered into during the nine months ended August 29, 2025, converting fixed interest rates on certain senior notes to floating rates based on SOFR OIS[132] - Adobe has a $1.5 billion revolving credit facility and a $3 billion commercial paper program, both with no outstanding borrowings as of August 29, 2025[137][138] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a comprehensive discussion and analysis of Adobe's financial condition and results of operations, including an overview of its business, operational highlights, critical accounting policies, detailed financial performance by segment and geography, and an assessment of liquidity and capital resources. It emphasizes strong demand in Digital Media and Digital Experience, driven by AI-powered innovations, and details revenue growth, expense changes, and cash flow activities BUSINESS OVERVIEW Adobe is a global technology company focused on personalized digital experiences, leveraging AI to empower creators and accelerate document productivity. Its products and services span creative content, document management, and digital experience orchestration, serving a diverse global user base across the Americas, EMEA, and APAC - Adobe's mission is to change the world through personalized digital experiences, with innovations transforming engagement across media[142] - The company empowers creators by integrating AI, focusing on responsible development, to unleash creativity, accelerate document productivity, and power businesses[142] - Adobe serves a diverse user base including consumers, creative professionals, developers, students, and businesses across Americas, EMEA, and APAC[142] OPERATIONS OVERVIEW Adobe experienced strong demand in its Digital Media and Digital Experience segments in Q3 fiscal 2025, driven by AI-powered product innovation. Digital Media ARR grew 11.7% year-over-year to $18.59 billion, with segment revenue up 12% to $4.46 billion. Digital Experience revenue increased 9% to $1.48 billion. The company's customer-focused strategy, emphasizing AI capabilities and integrated workflows, aims to increase revenue and customer retention, while continuously monitoring macroeconomic conditions - Strong demand across Digital Media and Digital Experience offerings in Q3 fiscal 2025, driven by transformative and customer-focused product innovation[144] - Digital Media Annualized Recurring Revenue (ARR) grew to $18.59 billion, representing 11.7% year-over-year growth[148] Segment Revenue Growth (Q3 Fiscal 2025 vs. Q3 Fiscal 2024) | Segment | Q3 FY25 Revenue (in billions) | Q3 FY24 Revenue (in billions) | YoY Growth | | :----------------- | :---------------------------- | :---------------------------- | :--------- | | Digital Media | $4.46 | $4.00 | 12% | | Digital Experience | $1.48 | $1.35 | 9% | - Customer-focused strategy includes audience-specific product innovation and go-to-market for Creative and Marketing Professionals (e.g., Firefly, GenStudio) and Business Professionals and Consumers (e.g., Acrobat, Express), with generative AI capabilities[152][154] - The company monitors macroeconomic conditions, including inflation, interest rates, foreign currency fluctuations, and geopolitical pressures, which could impact business and financial results[155] CRITICAL ACCOUNTING POLICIES AND ESTIMATES Adobe's critical accounting policies and estimates, primarily revenue recognition and income taxes, involve significant assumptions and judgments that could materially affect financial statements. The company regularly evaluates these estimates and discusses them with the Audit Committee, noting no significant changes during the nine months ended August 29, 2025 - Critical accounting policies and estimates, including revenue recognition and income taxes, have the greatest potential impact on condensed consolidated financial statements[159] - No significant changes in critical accounting policies and estimates occurred during the nine months ended August 29, 2025[160] RESULTS OF OPERATIONS Adobe reported an 11% increase in total revenue for both the three and nine months ended August 29, 2025, driven primarily by subscription revenue growth in Digital Media and Digital Experience. Operating expenses increased due to higher compensation and advertising costs, while net income rose 5% for the three months and 36% for the nine months, significantly impacted by the prior year's Figma termination fee. The effective tax rate decreased for the nine-month period due to the Figma fee and foreign tax assets Financial Performance Summary (Three and Nine Months Ended August 29, 2025) | Metric | Three Months Ended Aug 29, 2025 | YoY Change | Nine Months Ended Aug 29, 2025 | YoY Change | | :-------------------------------- | :------------------------------ | :--------- | :----------------------------- | :--------- | | Total Revenue | $5,988 million | 11% | $17,575 million | 11% | | Subscription Revenue | $5,791 million | 12% | $16,915 million | 12% | | Digital Media Revenue | $4,459 million | 12% | $13,031 million | 11% | | Digital Experience Revenue | $1,476 million | 9% | $4,347 million | 9% | | Cost of Revenue | $642 million | 16% | $1,902 million | 9% | | Operating Expenses | $3,173 million | 11% | $9,228 million | (2)% | | Net Income | $1,772 million | 5% | $5,274 million | 36% | | Cash flows from operations (9 months) | N/A | N/A | $6,871 million | 34% | | Remaining performance obligations | N/A | N/A | $20,440 million | 13% | - Subscription revenue growth in Digital Media was driven by Creative Cloud flagship apps and Acrobat, while Digital Experience growth came from Adobe Experience Platform and Experience Manager[171] - Operating expenses increased primarily due to higher compensation costs (R&D, G&A) and advertising expenses (Sales & Marketing)[183][186][188] - The nine-month effective tax rate decreased by four percentage points, primarily due to the non-deductible Figma acquisition termination fee in the prior year and an anticipated benefit from a foreign tax asset in the current year[196] LIQUIDITY AND CAPITAL RESOURCES Adobe's liquidity is primarily driven by revenue receipts and supplemented by investments and debt issuances. Cash and cash equivalents decreased to $4.98 billion as of August 29, 2025, from $7.61 billion at November 29, 2024, largely due to significant cash used for common stock repurchases ($8.81 billion) and debt repayment ($1.5 billion), partially offset by proceeds from new senior notes ($1.99 billion). The company believes existing cash, anticipated operating cash flows, and available credit facilities are sufficient for future needs - Primary cash sources are revenue receipts, maturities/sales of short-term investments, and debt issuance[211] Cash and Working Capital (in millions) | Metric | August 29, 2025 | November 29, 2024 | | :-------------------- | :---------------- | :------------------ | | Cash and cash equivalents | $4,982 | $7,613 | | Short-term investments | $958 | $273 | | Working capital | $173 | $711 | Net Cash Flows (Nine Months Ended) | (in millions) | August 29, 2025 | August 30, 2024 | | :---------------------------------------- | :---------------- | :---------------- | | Net cash provided by operating activities | $6,871 | $5,135 | | Net cash provided by (used for) investing activities | $(1,041) | $130 | | Net cash used for financing activities | $(8,505) | $(5,223) | - Net cash used for financing activities was $8.51 billion, primarily due to $8.81 billion in common stock repurchases and $1.5 billion in debt repayment, partially offset by $1.99 billion from new senior notes[216] - Adobe believes its existing cash, anticipated operating cash flows, and available $1.5 billion revolving credit facility are sufficient to meet working capital, operating, and capital expenditure requirements for the foreseeable future[218][221] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses Adobe's market risk exposures, specifically focusing on interest rate risk related to its senior notes. Through interest rate swaps, $2.70 billion of fixed-rate debt has been converted to floating rates. The company assesses that a hypothetical 50 basis point change in market interest rates would not significantly impact its results of operations, and no other material changes in market risk exposures were noted - Adobe uses interest rate swaps to convert $2.70 billion of fixed-rate senior notes to floating interest rates based on SOFR OIS, managing interest rate risk[229] - A hypothetical 50 basis point increase or decrease in market interest rates would not have a significant impact on results of operations as of August 29, 2025[229] - No other material changes in market risk exposures were identified for the nine months ended August 29, 2025[230] Item 4. Controls and Procedures Adobe's CEO and CFO concluded that disclosure controls and procedures were effective at a reasonable assurance level as of August 29, 2025. No material changes in internal control over financial reporting occurred during the quarter. Management acknowledges that control systems provide reasonable, not absolute, assurance against all errors and fraud - Disclosure controls and procedures were effective at the reasonable assurance level as of August 29, 2025[231] - No material changes in internal control over financial reporting occurred during the quarter ended August 29, 2025[232] - Management emphasizes that control systems provide reasonable, not absolute, assurance against all errors and fraud due to inherent limitations[233] PART II—OTHER INFORMATION This part addresses legal proceedings, risk factors, equity security sales, and other required disclosures for the company Item 1. Legal Proceedings This section refers to Note 12 of the condensed consolidated financial statements for detailed information regarding Adobe's legal proceedings, claims, and investigations - Details on legal proceedings are provided in Note 12 of the condensed consolidated financial statements[235] Item 1A. Risk Factors This section outlines various risks that could materially and adversely affect Adobe's operations and financial condition. Key risks include the inability to innovate and adapt to rapid technological changes (especially AI), intense market competition, potential reputational damage, challenges in integrating acquisitions, operational risks like service interruptions and cybersecurity incidents, reliance on third-party relationships, global economic and geopolitical uncertainties, extended sales cycles for enterprise offerings, and difficulties in recruiting and retaining key personnel. Financial risks include fluctuations in foreign currency, goodwill impairment, and debt obligations. General risks cover catastrophic events and stock price volatility - Failure to innovate and adapt to rapid technological changes, particularly in AI, could harm operating results and business[237] - Social, ethical, and operational issues related to AI use in offerings may result in reputational harm, liability, and increased costs[238][241] - Intense competition in rapidly evolving markets, including from AI-integrated offerings, could adversely affect sales and financial results[242] - Service interruptions, cybersecurity incidents, or improper access to customer data could damage reputation, expose to liability, and harm financial results[248][250] - Operating as a multinational corporation exposes Adobe to global adverse economic conditions, geopolitical risks, and foreign currency fluctuations[261][262][288] - Extended and complex sales cycles for enterprise offerings can increase costs and unpredictability[265][268] - Inability to recruit and retain key personnel, especially with AI and cybersecurity backgrounds, or challenges from the hybrid work model, could harm the business[269] - Subject to litigation, regulatory inquiries (e.g., antitrust, data privacy, consumer protection), and compliance risks with global laws and regulations, which could result in significant costs, fines, or business disruption[271][276][278] - Changes in tax rules, regulations, or interpretations globally may adversely affect effective tax rates and profitability[282][283] - Existing and future debt obligations may adversely affect financial condition and future financial results by dedicating cash flows to debt service and increasing vulnerability to adverse conditions[293] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section summarizes Adobe's common stock repurchases for the three months ended August 29, 2025. The company repurchased 8.0 million shares, with $8.84 billion remaining under the March 2024 stock repurchase authority. This includes shares acquired through accelerated share repurchase agreements and other open market repurchases Stock Repurchases (Three Months Ended August 29, 2025) | Period | Total Number of Shares Repurchased (in millions) | Average Price Paid Per Share | Approximate Dollar Value that May Yet be Purchased Under the Plans (in millions) | | :-------------------- | :--------------------------------------------- | :--------------------------- | :---------------------------------------------------------------------------- | | Beginning repurchase authority | N/A | N/A | $10,900 | | May 31—June 27, 2025 | 3.1 | $382.56 (for other shares) | $(282) | | June 28—July 25, 2025 | 2.0 | $373.60 | $(766) | | July 26—August 29, 2025 | 2.9 | $353.26 | $(1,008) | | Total | 8.0 | N/A | $8,844 | - In March 2024, the Board authorized up to $25 billion in common stock repurchases through March 14, 2028[304] - An accelerated share repurchase agreement (ASR) initiated in March 2025 for $3.50 billion was settled in June 2025, resulting in the repurchase of 9.1 million shares at an average price of $383.14[304] Item 5. Other Information This section states that there is no other information to report Item 6. Exhibits This section provides an index of exhibits filed with the Form 10-Q, including corporate governance documents, certifications from the CEO and CFO, and Inline XBRL taxonomy files - Exhibits include Restated Certificate of Incorporation, Amended and Restated Bylaws, and certifications from the CEO and CFO (Rule 13a-14(a) and 13a-14(b))[308] - Inline XBRL documents (Instance, Schema, Calculation, Labels, Presentation, Definition) are also filed as exhibits[308] Signature This section contains the signature of Daniel Durn, Chief Financial Officer and Executive Vice President, Finance, Technology, Security and Operations, certifying the filing of the report on behalf of Adobe Inc. on September 24, 2025 - The report is signed by Daniel Durn, Chief Financial Officer and Executive Vice President, Finance, Technology, Security and Operations, on September 24, 2025[312] Summary of Trademarks This section lists key trademarks of Adobe Inc. or its subsidiaries referenced in the Form 10-Q, such as Acrobat, Adobe Analytics, Creative Cloud, Photoshop, and Firefly, noting that all other trademarks belong to their respective owners - Key trademarks referenced in the Form 10-Q include Acrobat, Adobe Analytics, Adobe Express, Adobe Firefly, Creative Cloud, Photoshop, and Illustrator[314]