Summary
Adobe Inc. opened fiscal 2020 with strong growth across its major financial lines. Revenue for the first quarter ended February 28, 2020 was $3.091 billion, up 18.8% from the prior-year quarter. Gross profit rose to $2.639 billion, up 19.7%. Operating income climbed to $937 million, up 34.8%. Net income reached $955 million, up 41.7%. Diluted earnings per share were $1.96, up 44.1%. Gross margin expanded to 85.4%, up 0.6 percentage points. Operating margin improved to 30.3%, up 3.6 percentage points. These results reflect the company's subscription-based model and continued execution in Digital Media and Digital Experience.
Digital Media annualized recurring revenue, or ARR, is the key performance metric management uses to assess the health of that segment. Total Digital Media ARR was $8.73 billion at the end of the first quarter, up from $8.33 billion at the end of fiscal 2019. Creative ARR exited the quarter at $7.58 billion, up from $7.25 billion. Document Cloud ARR was $1.15 billion, up from $1.08 billion. The company said the ARR growth came primarily from new user adoption of Creative Cloud and Adobe Document Cloud offerings. The Digital Experience segment also grew, with subscription revenue increasing across its offerings. Adobe continued to build out its Experience Cloud platform for data and insights, content and commerce, customer journey management, and advertising.
Cash generation remained a bright spot. Operating cash flow for the quarter was $1.325 billion, up 30.8% from the prior-year quarter. Capital expenditures were $94 million, up 44.6%. Deferred revenue stood at $3.61 billion, up 12.1% from the prior-year quarter. Remaining performance obligations, or RPO, were $9.91 billion, up 21.9%. The balance sheet showed working capital of $1.23 billion as of February 28, 2020, compared with a working capital deficit of $1.70 billion as of November 29, 2019. The company refinanced its term loan and 2020 notes during the quarter, issuing new senior notes. It also repurchased about 2.4 million shares at an average price of $332.59 under its stock repurchase program. Subsequent to quarter end, Adobe entered into a structured repurchase agreement with a prepayment of $850 million, leaving $3.4 billion under its May 2018 authority. Adobe has a $1 billion senior unsecured revolving credit agreement with no outstanding borrowings as of February 28, 2020.
The quarter's results came with a clear warning about the future. Adobe canceled the in-person 2020 Adobe Summit and replaced it with a digital event at the end of March 2020 because of COVID-19. Management said the broader implications of the pandemic remain uncertain. The company may see enterprises defer booking decisions, delay consulting services implementations, and reduce marketing spend. Consumers could cut spending in countries more adversely impacted by the virus. Software license revenue could also decline because of channel partners. While revenue and earnings are relatively predictable due to the subscription model, the effect of COVID-19 will not be fully reflected until future periods. Adobe also flagged tax risks. Changes to its international trading structure could adversely affect its effective income tax rate and cash flows beyond fiscal 2020. The company faces ongoing tax examinations and potential changes in tax laws in various jurisdictions.
Operating expenses grew during the quarter, driven by base compensation, benefits, and stock-based compensation from headcount growth. Charges from canceled corporate events also added to the increase. Cost of revenue rose on higher hosting services and data center costs. Net income benefited from a tax benefit in the current quarter, which helped offset the expense increases. The company continues to invest in research and development, sales and marketing, and general and administrative functions to support its long-term growth plans.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2020 | Q4 FY2019 | QoQ | Q1 FY2019 | YoY |
|---|---|---|---|---|---|
| Revenue | $3.09B | $2.99B | +3.3% | $2.60B | +18.8% |
| Gross profit | $2.64B | $2.54B | +3.9% | $2.20B | +19.8% |
| Gross margin | 85.4% | 84.9% | +0.5 pp | 84.7% | +0.6 pp |
| Sales & marketing | $857.0M | $801.6M | +6.9% | $781.5M | +9.7% |
| General & administrative | $271.0M | $225.9M | +19.9% | $216.1M | +25.4% |
| Total operating expenses | $1.70B | $1.57B | +8.4% | $1.51B | +12.8% |
| Operating income (loss) | $937.0M | $969.9M | -3.4% | $694.8M | +34.9% |
| Operating margin | 30.3% | 32.4% | -2.1 pp | 26.7% | +3.6 pp |
| Net income (loss) | $955.0M | $851.9M | +12.1% | $674.2M | +41.6% |
| Net margin | 30.9% | 28.5% | +2.4 pp | 25.9% | +5.0 pp |
| Diluted EPS | $1.96 | $1.73 | +$0.23 | $1.36 | +$0.60 |
Risks
The COVID-19 pandemic has materially affected how Adobe and its customers operate, with offices temporarily closed in the United States, United Kingdom, Europe and other locations, travel restrictions, and the in-person 2020 Adobe Summit canceled and replaced by a digital event. MD&A states Adobe may experience enterprises deferring bookings decisions, delaying consulting services implementations, reducing marketing spend, consumers reducing spending in more affected countries, and decreases in software license revenue driven by channel partners.
Some enterprise offerings, including Adobe Experience Cloud, Adobe Experience Platform and Enterprise Term License Agreements, have multi-phased and complex sales cycles, and COVID-19 restrictions could result in an inability to negotiate in person. Adobe also notes enterprise sales are historically uneven, with a higher percentage of a quarter's total sales occurring in the final weeks, making the timing of closings difficult to predict.
Increasing global regulatory focus on privacy and security, including GDPR, NISD, the California Consumer Privacy Act and cross-border data transfer rules, may affect Adobe's ability to reach customers, respond to individual data requests and implement business models. European data transfer mechanisms such as Privacy Shield and Model Clauses are being contested, and countries including India are considering data localization requirements.
Adobe has previously disclosed that unauthorized parties gained access to and misused some systems and software to access end users' authentication, payment and personal information. Security vulnerabilities in Adobe products, systems or supply chain could lead to reduced revenue, liability claims, costly notification requirements and operating margin pressure.
Adobe faces intense competition, new industry standards, limited barriers to entry, short product life cycles, customer price sensitivity and alternatives with limited functionality available at lower costs or free of charge. These factors could create downward pressure on pricing and gross margins and adversely affect renewal, upsell and cross-sell rates.
Adobe depends on senior management and highly skilled personnel, and competition for information technology talent is intense in many locations where its employees work. COVID-19 travel restrictions, immigration limits and work visa availability may compound efforts to attract, develop, integrate and retain employees, and higher compensation costs may not be offset by improved productivity or increased sales.
Adobe anticipates making changes to its international trading structure that, under current rules, would record a tax benefit in the fiscal 2020 effective income tax rate but are anticipated to adversely affect its effective income tax rate and cash flows in years beyond fiscal 2020. The Q1 fiscal 2020 effective tax rate decreased by approximately 8 percentage points versus the year-ago quarter, primarily due to additional U.S. tax accrued on foreign earnings in the prior period.
Adobe Experience Cloud, Creative Cloud and Document Cloud customers have no obligation to renew after the initial subscription period and may renew at lower service levels, seat counts or durations, or cancel under certain circumstances. Renewal rates may decline due to satisfaction, competition, security perceptions, customer spending reductions or economic downturns, and revenue is generally recognized ratably so declines may not appear until later periods.
SaaS KPIs
All quarters →Creative ARR
Document Cloud ARR
Total Digital Media ARR
Summary, forecast, risks and KPIs are extracted from ADOBE INC.'s SEC filings for Q1 FY2020 (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.