Summary
Adobe's fiscal 2009 second quarter revenue was $704.7 million, down 20.5% from the prior-year quarter. Year-to-date revenue was $1.49 billion, down 16.1% from the prior-year period. Gross profit for the quarter was $632.66 million, down 21.3%. Gross margin was 89.8%, down 0.9 percentage points. Operating income was $161.35 million, down 38.0%, and operating margin was 22.9%, down 6.4 percentage points. Net income was $126.07 million, down 41.3%. Diluted EPS was $0.24, down $0.16 or 40.0%. For the first six months, net income was $282.51 million, down 34.9%, and diluted EPS was $0.53, down $0.25 or 32.1%. The revenue decline was broad, and the profit decline was steeper than the top line drop.
The top line suffered from weak demand across most products. Management said the worldwide business continued to be impacted by the generally weak macro-economic environment. The U.S. business stabilized since the first fiscal quarter, but overall end-user demand for Creative Suite and Acrobat remained weaker than in fiscal 2008. Creative Solutions revenue for CS4 continued to fall behind the equivalent CS3 products. Knowledge Worker revenue declined on reduced corporate spending. Enterprise revenue declined sequentially but was essentially flat year over year and performed better than the overall business. Platform revenue declined on lower Flash Lite licensing by mobile handset OEMs and consumer electronics manufacturers. The Open Screen Project is expected to substantially reduce mobile and device revenue this fiscal year. Print and Publishing was also affected by demand weakness. Revenue in the Americas, EMEA, and Asia all decreased. EMEA was hurt by the strong U.S. dollar against the Euro, though hedging mitigated part of the impact. Asia benefited from the strength of the Yen against the U.S. dollar. Success with LiveCycle, part of Enterprise, offset some of the decline in other businesses. Management does not expect the market environment for creative products to improve materially in the near term. It also does not expect the market environment for knowledge worker products to improve materially in the near term. It expects end-user demand weakness in Print and Publishing to continue in the near term.
Cost controls helped protect profitability. Management said it proactively controlled costs to deliver earnings per share and profit margin results within the target ranges it publicly provided at the outset of the quarter. Operating expenses fell, driven by lower compensation, profit sharing, and bonuses, plus headcount reductions. Research and development, sales and marketing, and general and administrative expenses all decreased. Cost of services and support revenue also fell due to headcount reductions. The company continued a restructuring program initiated in the fourth quarter of fiscal 2008, with workforce reductions and facility consolidation. Despite these actions, operating margin fell 6.4 percentage points because revenue declined faster than expenses. Gross margin remained high at 89.8% but slipped 0.9 percentage points. Net income fell 41.3% in the quarter. The company said it will continue to invest in research and development to remain competitive and develop new products.
Cash generation remained positive but lower. Operating cash flow for the first six months was $627.27 million, down 14.2% from the prior-year period. Capital expenditures were $26.23 million, down 46.1%. Deferred revenue, current portion, was $185.19 million at quarter end. Management said cash flow from operations was hurt by decreases in deferred revenue, accrued expenses, accrued restructuring, and trade payables. The company expects to continue investing in short-term and long-term investments, venture capital, facilities, and computer systems. It also plans to repurchase stock and may acquire software companies, products, or technologies. The company believes its existing cash, cash equivalents and investment balances, anticipated cash flows from operations, and available credit facility will be sufficient to meet working capital and operating resource expenditure requirements for the next twelve months. Risks include a further weakening of the economy, foreign currency fluctuations, credit facility covenants, tax uncertainties, and indemnification obligations. Backlog was approximately 4% of second quarter fiscal 2009 revenue.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2009 | Q1 FY2009 | QoQ | Q2 FY2008 | YoY |
|---|---|---|---|---|---|
| Revenue | $704.7M | — | — | — | — |
| Gross profit | $632.7M | — | — | — | — |
| Gross margin | 89.8% | — | — | — | — |
| Sales & marketing | $243.2M | — | — | — | — |
| General & administrative | $70.8M | — | — | — | — |
| Total operating expenses | $471.3M | — | — | — | — |
| Operating income (loss) | $161.4M | — | — | — | — |
| Operating margin | 22.9% | — | — | — | — |
| Net income (loss) | $126.1M | — | — | — | — |
| Net margin | 17.9% | — | — | — | — |
| Diluted EPS | $0.24 | — | — | — | — |
Risks
MD&A states worldwide business continued to be impacted by weak macro-economic environment; overall end-user demand for Creative Suite and Acrobat remains weaker than fiscal 2008, and Adobe does not expect market environment for creative products to improve materially near term. Total revenue for FY2009 Q2 was $704.67M, down 20.5% vs prior-year quarter, and net income was $126.07M, down 41.3%.
Risk factors highlight Microsoft Windows Vista XPS competing with Adobe PDF, Microsoft Office 2007 PDF save, Microsoft Expression Studio competing with Creative Suite, and Microsoft Silverlight, Google Gears, Sun JavaFX, and HTML5 competing with Flash and AIR. SaaS and open source models could also pressure pricing and gross margins.
Open Screen Project removes license fees on next major releases of Flash Player and AIR for devices; Platform segment revenue declined sequentially and year over year, and risk factors state revenue from this segment has begun to decrease. If future revenue or forecasts for Platform do not meet expectations, Adobe may record a goodwill or intangible asset impairment charge.
Two distributors, Ingram Micro and Tech Data, represented 13% and 8% of net revenue for Q2 FY2009, respectively. Their financial health and credit access are important; insolvency or delayed payments could increase credit risk and harm distribution.
Adobe is devoting significant resources to enterprise, government, and mobile and device markets where it has limited operating history; revenue may be less predictable due to longer sales and implementation cycles, potential deferral from multiple-element arrangements, and open source initiatives. MD&A notes transition to new business models and markets.
Over 50% of total revenue comes from outside the Americas, and approximately 45% of employees are outside the U.S. MD&A notes EMEA revenue was hurt by the stronger U.S. dollar against the Euro, and hedging did not fully offset the impact.
Risk factors state recent significant adverse volatility in Adobe's stock price has resulted in many employees' stock option exercise prices exceeding market value and deterioration in RSU value, lessening retention effectiveness. Expensing equity compensation may impair ability to provide incentives.
Cash equivalent and short-term investment portfolio as of May 29, 2009 included US treasury securities, government agency bonds, foreign government obligations, corporate bonds, and money market funds. Although no material impairment charges were recorded as of May 29, 2009, adverse market liquidity and credit conditions could impair the portfolio.
Adobe is subject to IRS examination for fiscal 2005, 2006 and 2007 tax returns, expected to focus on intercompany transfer pricing. Unfavorable tax rule changes or examination outcomes could adversely affect effective tax rate.
Summary, forecast, risks and KPIs are extracted from ADOBE INC.'s SEC filings for Q2 FY2009 (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 8, 2026.