Summary
Adobe closed FY2018 Q1 with revenue of $2.08 billion, up 23.6% from the prior-year quarter. Gross profit reached $1.82 billion, up 26.0%, and gross margin expanded to 87.5%, up 1.7 percentage points. Operating income was $702.73 million, up 49.8%, lifting operating margin to 33.8%, up 5.9 percentage points. Net income came in at $583.08 million, up 46.3%, and diluted EPS was $1.17, up 46.2%. The quarter ended March 2, 2018. Revenue growth outpaced expense growth, which helped margins. Management described the results as strong and consistent with its long-term plans for Digital Media and Digital Experience.
Cash generation was strong. Operating cash flow was $989.60 million for the quarter, up 35.5% from the prior-year quarter. The increase was primarily due to higher net income. Capital expenditures were $95.14 million, up 207.9%, a cash outflow shown as a positive amount. Deferred revenue, current portion only, stood at $2.48 billion, up 24.9% from the prior-year quarter. Total deferred revenue increased 3% from December 1, 2017. The increase in deferred revenue came mostly from new contracts and the timing of renewals for Digital Experience hosted services. Management also noted that the decrease in accounts receivable was driven by improved revenue linearity.
Operational momentum centered on Digital Media. Total Digital Media ARR was $5.72 billion at the end of the first quarter of fiscal 2018, up from $5.39 billion at the end of fiscal 2017. That is an increase of $336 million, or 6%. Creative ARR was $5.07 billion, up from $4.77 billion. Document Cloud ARR was $647 million, up from $614 million. Digital Media segment revenue grew 28% year over year. Creative revenue grew 30%, and Adobe Experience Cloud revenue grew 16%. Subscription revenue continued to grow and made up the vast majority of total revenue. Document Cloud revenue increased as the business continues to transition to a subscription-based model. Management said the gains came from strong adoption of Creative Cloud and Document Cloud subscriptions, plus continued adoption of Adobe Experience Manager and Adobe Campaign.
By geography, revenue grew 20% in the Americas, 28% in EMEA, and 30% in APAC. The weaker U.S. dollar lifted revenue, with the euro and British pound contributing most of the foreign exchange benefit. Digital Experience revenue reached a record level and grew 16% year over year. The segment benefited from subscription revenue growth across Marketing Cloud, Analytics Cloud, and Advertising Cloud. The company also moved LiveCycle and Connect from Digital Experience to Publishing to better align the segment with strategic growth opportunities. Management said it will continue to focus on long-term opportunities in its end markets.
Guidance context is limited. The 10-Q does not set numerical revenue or EPS targets for the next quarter or the full fiscal year. Instead, management points to long-term plans for Digital Media and Digital Experience. It expects Creative Cloud to drive sustained long-term revenue growth by adding users and keeping existing customers current. The company also plans to keep investing in research and development, sales and marketing, and facilities. In January 2017, the board approved a $2.5 billion stock repurchase program through the end of fiscal 2019. Subsequent to March 2, 2018, Adobe entered a $700 million structured stock repurchase agreement, leaving $900 million under the current authority.
Risks are familiar. The filing references the risk factors in Part II, Item 1A. Foreign currency swings affected revenue, with the weaker U.S. dollar lifting EMEA and other currencies when measured in U.S. dollars. The Tax Act created a one-time transition tax and changed the U.S. tax system to a territorial model. The filing notes that the Tax Act lowered the statutory corporate tax rate and requires a one-time transition tax on previously untaxed foreign earnings. Adobe recorded provisional estimates for those tax effects and may revise them as more guidance arrives. Other risks include competition, reliance on subscription revenue, and the need to manage costs as headcount and incentive compensation rise. The company believes its cash, investments, and $1 billion credit facility are enough for the next twelve months.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2018 | Q4 FY2017 | QoQ | Q1 FY2017 | YoY |
|---|---|---|---|---|---|
| Revenue | $2.08B | $2.01B | +3.6% | $1.68B | +23.6% |
| Gross profit | $1.82B | $1.74B | +4.9% | $1.44B | +26.0% |
| Gross margin | 87.5% | 86.5% | +1.0 pp | 85.9% | +1.7 pp |
| Sales & marketing | $581.0M | $574.1M | +1.2% | $520.3M | +11.7% |
| General & administrative | $170.4M | $169.6M | +0.5% | $150.8M | +13.0% |
| Total operating expenses | $1.12B | $1.09B | +2.8% | $975.3M | +14.6% |
| Operating income (loss) | $702.7M | $649.3M | +8.2% | $469.0M | +49.8% |
| Operating margin | 33.8% | 32.4% | +1.4 pp | 27.9% | +5.9 pp |
| Net income (loss) | $583.1M | $501.5M | +16.3% | $398.4M | +46.3% |
| Net margin | 28.1% | 25.0% | +3.1 pp | 23.7% | +4.4 pp |
| Diluted EPS | $1.17 | $1.00 | +$0.17 | $0.80 | +$0.37 |
Risks
The Tax Act enacted December 22, 2017 increased Adobe's effective tax rate by three percentage points for the quarter ended March 2, 2018 compared with the quarter ended March 3, 2017. Adobe recorded a provisional transition tax expense of $118 million and long-term income taxes payable of $533 million, with the transition tax payable over eight years beginning in fiscal 2019.
Increasing privacy regulation, including the GDPR, may affect Adobe's ability to reach customers, respond to access, correction, and deletion requests, and implement business models, and may impact innovation in AI and machine learning. Cross-border personal data transfer mechanisms such as Privacy Shield and Model Clauses are contested in Europe.
Security breaches in Adobe-managed or third-party data centers may compromise employee and customer data; Adobe has previously disclosed breaches and misuse of systems to access end users' authentication and payment information. Vulnerabilities in popular products could lead to liability, lost customers, and margin pressure.
Adobe relies on data centers managed by Adobe and third parties, with no redundancy for all systems and many critical applications in only one data center. Interruptions, migration issues, or third-party terminations could impair service delivery and harm reputation.
Some enterprise offerings, including Adobe Experience Cloud and ETLAs in Digital Media, have multi-phased and complex sales cycles, and a higher percentage of a quarter's total sales occur in the final weeks. This makes sales timing difficult to predict and can increase expenses without assurance of purchase.
Subscription revenue is generally recognized ratably over terms of 1 to 36 months, so most subscription revenue reported in a quarter comes from prior agreements. Reductions in new or renewed subscriptions may not be reflected in revenue until later quarters.
Customers have no obligation to renew subscriptions and may renew at lower service levels, seat counts, or durations, and some can cancel early. Adobe's varied customer base and flexible terms complicate renewal rate forecasting.
Markets are characterized by intense competition, limited barriers to entry, disruptive technology, customer price sensitivity, and frequent product introductions, including lower-cost or free alternatives. Competitors with greater resources and industry consolidation could pressure pricing, gross margins, and market share.
Disruptive technology or competing products and operating systems not compatible with Adobe solutions could achieve widespread acceptance and harm operating results. Some products rely on third-party cookies, and increased cookie blocking or ad-blocking could reduce effectiveness.
Past or future investments and acquisitions may not achieve anticipated benefits, with risks including integration difficulties, failure to retain acquired personnel or key customers, and inability to conclude internal controls are effective. Mergers and acquisitions of technology companies are inherently risky.
Adobe depends on senior management and highly skilled personnel, and competition for talent is intense in many locations. Higher compensation costs to retain employees may not be offset by improved productivity or increased sales.
Adobe has $1.9 billion in senior unsecured notes outstanding and a $1 billion undrawn revolving credit agreement. Debt may increase vulnerability to adverse conditions, require cash flow for service, and impose covenants that could restrict flexibility.
Uncertainty about economic and political conditions could cause customers to delay or reduce technology, advertising, or marketing spending, extend sales cycles, and impair collections. Government spending cuts could also reduce revenue from government entities.
Goodwill and amortizable intangible assets are tested for impairment, and declines in stock price, market capitalization, cash flows, or slower industry growth could require a significant charge to earnings.
Adobe's major sites in California, Utah, and India are vulnerable to prolonged droughts due to climate change. A natural disaster disrupting access to clean water or reliable energy could cause business losses and added costs to resume operations.
SaaS KPIs
All quarters →Summary, forecast, risks and KPIs are extracted from ADOBE INC.'s SEC filings for Q1 FY2018 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 12, 2026.