Summary
Adobe reported FY2015 Q2 revenue of $1.16 billion, up 8.8% from the prior-year quarter. Gross profit was $977.0 million, up 7.0%. Operating income rose 43.1% to $193.6 million. Net income increased 66.6% to $147.5 million. Diluted EPS was $0.29, up 70.6%. Gross margin slipped to 84.1%, down 1.4 percentage points. Operating margin expanded to 16.7%, up 4.0 percentage points. For the first six months, revenue was $2.27 billion, up 9.8%. YTD net income was $232.4 million, up 71.4%. YTD diluted EPS was $0.46, up 70.4%. YTD gross margin was 84.5%, down 0.8 percentage points. YTD operating margin was 16.1%, up 5.8 percentage points.
The subscription transition continues to reshape the business. Creative ARR exiting the second quarter was $2.02 billion, up from $1.61 billion at the end of fiscal 2014. Paid Creative Cloud subscriptions reached 4.610 million, up 33% from 3.454 million at the end of fiscal 2014. Net new subscriptions of 639 thousand grew 38% year over year. Document Cloud ARR was $329.0 million, up from $265.0 million at the end of fiscal 2014. Total Digital Media ARR reached $2.35 billion, up from $1.88 billion at the end of fiscal 2014. That was an increase of $474 million, or 25%. Subscription revenue as a percentage of total revenue increased to 67% from 45% in the year-ago period. The company closed the Fotolia acquisition in January 2015 and launched Adobe Stock in June 2015. It also released Adobe Document Cloud and Acrobat DC in the quarter.
Cash generation remained solid. Operating cash flow was $471.5 million in the quarter, up 28.3% from the prior-year quarter. For the first six months, operating cash flow was $654.5 million, up 5.7%. Capital expenditures were $35.7 million in the quarter, up 31.4%. Current deferred revenue was $1.18 billion, up 33.7% from the prior-year quarter. The company issued $1 billion of 3.25% senior notes due 2025 and used $600 million of the proceeds to repay the 2015 notes. It also prepaid $400 million for stock repurchases during the first six months and entered a $100 million structured repurchase agreement after May 29, 2015. As of May 29, 2015, senior notes outstanding were $1.9 billion, including $900 million of 4.75% notes due 2020 and $1 billion of 3.25% notes due 2025. The company had no borrowings under its $1 billion credit line.
Management expects foreign currency fluctuations to continue to negatively impact reported revenue growth during the remainder of fiscal 2015. In the quarter, foreign exchange reduced revenue by $47.6 million before hedging, while hedging added back $22.2 million, for a net negative impact of $25.4 million. The shift away from perpetual licensing continues, and perpetual revenue for older Creative products was immaterial in the first half of fiscal 2015. The company expects subscription revenue to keep increasing as it invests in SaaS and subscription models. It also expects strong demand for Marketing Cloud solutions to benefit revenue growth in future quarters. Risks include currency volatility, the ongoing subscription transition, and the need to manage costs as the business mix changes.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2015 | Q1 FY2015 | QoQ | Q2 FY2014 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.16B | $1.11B | +4.8% | $1.07B | +8.8% |
| Gross profit | $977.0M | $942.4M | +3.7% | $913.3M | +7.0% |
| Gross margin | 84.1% | 85.0% | -0.9 pp | 85.5% | -1.4 pp |
| Sales & marketing | $427.0M | $392.7M | +8.7% | $426.8M | +0.0% |
| General & administrative | $130.2M | $145.1M | -10.3% | $129.1M | +0.8% |
| Total operating expenses | $783.4M | $769.4M | +1.8% | $778.0M | +0.7% |
| Operating income (loss) | $193.6M | $173.0M | +11.9% | $135.3M | +43.1% |
| Operating margin | 16.7% | 15.6% | +1.1 pp | 12.7% | +4.0 pp |
| Net income (loss) | $147.5M | $84.9M | +73.8% | $88.5M | +66.6% |
| Net margin | 12.7% | 7.7% | +5.0 pp | 8.3% | +4.4 pp |
| Diluted EPS | $0.29 | $0.17 | +$0.12 | $0.17 | +$0.12 |
Risks
Adobe's shift from perpetual licenses to Creative Cloud, Document Cloud, and ETLAs remains central; MD&A reports total Digital Media ARR grew to $2.35 billion at the end of Q2 FY2015 from $1.88 billion at the end of fiscal 2014, but risk factors warn that customers may prefer perpetual licenses or point product subscriptions, promotional pricing may reduce average revenue per user, and cloud operations costs may exceed forecasts.
Subscription and ETLA offerings create timing risks because a portion of reported subscription revenue comes from recognition of deferred revenue from prior quarters; a decline in new or renewed subscriptions may not immediately show in reported results but could reduce future revenue. Deferred revenue current portion was $1.18 billion at May 29, 2015, up 33.7% from the prior-year quarter.
Adobe cannot accurately predict subscription renewal rates; customers have no obligation to renew after the initial term, and some can cancel early. Renewal declines could result from satisfaction, uptime, pricing, security perceptions, competitor pricing, or economic downturns, and would reduce revenues.
MD&A states the strengthening U.S. Dollar reduced revenue in EMEA and APAC and that foreign currency fluctuations are expected to continue to negatively impact reported revenue growth during the remainder of fiscal 2015; hedging only partially offsets exposure.
Risk factors state that certain parties have in the past breached Adobe data-security systems and hackers have accessed certain source code; continued attacks on popular offerings could lead to liability, lost customers, and margin pressure.
Adobe closed the Fotolia acquisition in January 2015 and launched Adobe Stock in June 2015; risk factors list integration, retention, and accounting risks, and MD&A attributes higher cost of revenue and amortization of purchased intangibles to Fotolia. Gross margin declined 1.4 pp in Q2 FY2015 compared with the prior-year quarter.
MD&A reports the effective tax rate increased for the six months ended May 29, 2015 compared with the prior-year period due to one-time tax costs from licensing acquired company assets, and Adobe faces an IRS examination of fiscal 2010 through 2012 tax returns focused on intercompany transfer pricing; changes in tax rules could adversely affect the effective tax rate.
Enterprise offerings including Adobe Marketing Cloud and Digital Media ETLAs have long and complex sales cycles, with a higher percentage of quarterly sales often occurring in the final weeks; this makes it difficult to predict when a sales cycle will close and can cause revenue unevenness.
Markets are characterized by intense competition, evolving standards, disruptive technology, price sensitivity, and new products including lower-cost or free alternatives; digital application marketplaces with exclusive distribution and competitor consolidation could harm Adobe's competitive position and margins.
Adobe has $1.9 billion in senior unsecured notes outstanding and a $1 billion undrawn revolving credit facility; debt service and covenants may limit flexibility, and credit rating changes could increase costs or restrict financing.
SaaS KPIs
All quarters →Document Cloud ARR
Total Digital Media ARR
Paid Creative Cloud Subscriptions
Total Creative ARR
Summary, forecast, risks and KPIs are extracted from ADOBE INC.'s SEC filings for Q2 FY2015 (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.