Summary
Adobe Systems reported FY2011 Q2 results for the quarter ended June 3, 2011. Revenue was $1,023,179,000, up 8.5% from the prior-year quarter. Year-to-date revenue was $2,050,885,000, up 13.8% from the prior-year period. Gross profit was $913,978,000 in the quarter, up 9.4%, and $1,834,045,000 year to date, up 14.3%. Gross margin was 89.3% in the quarter, up 0.8 percentage points, and 89.4% year to date, up 0.4 percentage points. Operating income was $276,724,000 in the quarter, up 21.8%, and $579,058,000 year to date, up 43.3%. Operating margin was 27.0% in the quarter, up 2.9 percentage points, and 28.2% year to date, up 5.8 percentage points. Net income was $229,436,000 in the quarter, up 54.4%, and $464,027,000 year to date, up 68.3%. Diluted EPS was $0.45 in the quarter, up $0.17 or 60.7%, and $0.91 year to date, up $0.39 or 75.0%.
The segment picture was mixed. Creative and Interactive Solutions grew 2% in the quarter and 13% year to date. Digital Media Solutions decreased 2% in the quarter but increased 7% year to date. Knowledge Worker grew 17% in the quarter and 13% year to date. Enterprise grew 34% in the quarter and 33% year to date. Omniture grew 26% in the quarter and 21% year to date. Print and Publishing decreased 5% in the quarter and 3% year to date. Management attributes Enterprise growth to the Day acquisition and customer adoption. Omniture growth came from continued adoption of the Online Marketing Suite. Knowledge Worker growth came from Acrobat X demand. Creative growth came from CS5 adoption and the CS5.5 launch in May 2011. Digital Media weakness came from image editing products that were not updated in the CS5.5 launch. Print and Publishing weakness came from lower Shockwave revenue and Coldfusion release timing. Product, subscription and services and support revenue each increased in both periods, and revenue rose in the Americas, EMEA and Asia.
Cash flow and capital returns were strong. Operating cash flow was $389,331,000 in the quarter, up 55.1%, and $721,433,000 year to date, up 41.2%. Capital expenditures were $37,501,000 in the quarter, down 24.4%, and $69,922,000 year to date, down 7.0%. Deferred revenue was $438,078,000 at June 3, 2011, up 20.8% from the prior-year quarter. The company had no shippable backlog at the end of the first and second quarters of fiscal 2011. During the six months ended June 3, 2011, Adobe entered structured stock repurchase agreements with prepayments of $545.0 million and repurchased approximately 16.3 million shares at an average price of $33.53. Subsequent to June 3, 2011, it entered another structured repurchase agreement with a $150.0 million prepayment, leaving $305.0 million under its time-constrained dollar-based authority. The company had $1.5 billion outstanding under its Notes and the full $1.0 billion credit line available.
Risks center on Japan, foreign exchange and tax. The company said the earthquakes and related events in Japan during the six months ended June 3, 2011 could impact near-term operating results in Japan. Foreign currency movements increased revenue by $35.0 million in the quarter and $29.1 million year to date, with a $0.2 million hedging impact in both periods. Management also flagged uncertainty around income tax examinations, repatriation of foreign earnings and the timing of tax payments. The company completed its annual goodwill impairment test in the second quarter of fiscal 2011 and determined there was no impairment. It also said there is no significant risk of material goodwill impairment in any reporting unit.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2011 | Q1 FY2011 | QoQ | Q2 FY2010 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.02B | $1.03B | -0.4% | $943.0M | +8.5% |
| Gross profit | $914.0M | $920.1M | -0.7% | $835.2M | +9.4% |
| Gross margin | 89.3% | 89.5% | -0.2 pp | 88.6% | +0.8 pp |
| Sales & marketing | $348.7M | $328.1M | +6.3% | $321.0M | +8.6% |
| General & administrative | $95.5M | $101.0M | -5.4% | $90.0M | +6.2% |
| Total operating expenses | $637.3M | $617.7M | +3.2% | $607.9M | +4.8% |
| Operating income (loss) | $276.7M | $302.3M | -8.5% | $227.3M | +21.8% |
| Operating margin | 27.1% | 29.4% | -2.4 pp | 24.1% | +2.9 pp |
| Net income (loss) | $229.4M | $234.6M | -2.2% | $148.6M | +54.4% |
| Net margin | 22.4% | 22.8% | -0.4 pp | 15.8% | +6.7 pp |
| Diluted EPS | $0.45 | $0.46 | -$0.01 | $0.28 | +$0.17 |
Risks
Adobe is implementing a subscription licensing model to augment perpetual licensing, which makes revenue difficult to predict and license revenue may decline more quickly than anticipated. Omniture SaaS agreements are generally one to three years and customers have no obligation to renew, so renewal rate declines could reduce revenues.
Adobe's cloud-based and Omniture services collect and store customer and website visitor data, and privacy law changes or customer noncompliance could lead to liability, regulatory action, and reputational harm. The risk is heightened as the business transitions to more highly regulated cloud and subscription models.
Adobe must extend core technologies into mobile and non-PC devices and anticipate operating system changes; a slowdown in PC purchases or difficulty transitioning products to new Windows and Macintosh operating systems could harm the business.
A significant amount of application product revenue is from one distributor, Ingram Micro, which represented 14% of net revenue for the second quarter of fiscal 2011. Termination of agreements or a prolonged delay in securing a replacement distributor could negatively impact short-term results.
Uncertainty about future economic and political conditions, including the impact of the earthquakes and related events in Japan, could cause customers to delay or reduce technology purchases and advertising spending. MD&A states that Adobe's operating results in Japan could be impacted in the near term.
Adobe completed the Omniture acquisition in October 2009 and the Day acquisition in October 2010, and may not realize the anticipated benefits. Integration risks include retaining key personnel and customers, achieving financial goals, and potential accounting or control issues.
Adobe has $1.5 billion of senior unsecured notes outstanding and a $1.0 billion undrawn revolving credit facility. Debt service reduces cash flow available for other purposes, and interest expense increased 42% for the six months ended June 3, 2011 compared to the prior-year period.
Adobe is subject to an IRS examination of fiscal 2008 and 2009 tax returns focusing on intercompany transfer pricing, and changes in tax rules could adversely affect its effective tax rate. The effective tax rate decreased to 11.5% for the second quarter of fiscal 2011 from 23.5% in the prior-year quarter due to one-time benefits.
Adobe depends on senior management and highly skilled personnel, especially in the San Francisco Bay Area where competition is intense. Accounting rules requiring expensing of equity compensation may impair Adobe's ability to provide incentives and retain key employees.
Adobe must develop and market new products and upgrades that meet customer requirements, and delays in releases such as Creative Suite 5.5 could cause a decline in revenue and harm its competitive position.
Adobe is devoting significant resources to enterprise, government, cloud-based computing, and mobile and non-PC device markets where it has limited operating history. Competitors may have larger presence and deeper experience, and failure to form productive strategic alliances could slow market penetration.
Adobe is subject to intellectual property claims and litigation that could result in significant liabilities, royalty or licensing arrangements on unfavorable terms, injunctions, or indemnification commitments. Software piracy also causes significant lost revenue.
Summary, forecast, risks and KPIs are extracted from ADOBE INC.'s SEC filings for Q2 FY2011 (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.