Summary
Adobe's fiscal 2015 third quarter, ended August 28, 2015, showed broad GAAP growth. Revenue was $1.22 billion, up 21.1% from the prior-year quarter. Gross profit was $1.03 billion, up 21.1%. Operating income was $246.02 million, up 231.7%. Net income was $174.46 million, up 290.4%. Diluted EPS was $0.34, up $0.25 or 277.8%. Gross margin was 84.3%, flat with the prior-year quarter. Operating margin was 20.2%, up 12.8 percentage points. For the nine months, revenue was $3.49 billion, up 13.5%; net income was $406.85 million, up 125.7%; diluted EPS was $0.80, up $0.45 or 128.6%. The company said net income growth was primarily due to revenue increases, while operating expenses remained relatively stable.
Cash generation also improved. Operating cash flow was $360.49 million in the quarter, up 34.2% from the prior-year quarter. Year-to-date operating cash flow was $1.01 billion, up 14.3%. Capital expenditures were $48.98 million in the quarter, down 10.9%. Year-to-date capital expenditures were $120.26 million, up 7.8%. Deferred revenue, current portion, was $1.26 billion, up 32.9% from the prior-year quarter. The deferred revenue increase reflects more subscriptions for Creative Cloud individual and team offerings and growth in Digital Marketing hosted services, according to management. Those gains were partly offset by lower billings for maintenance and Creative product software upgrade plans.
Operational momentum centered on the subscription transition. Total Creative ARR exiting the third quarter was $2.29 billion, up from $1.61 billion at the end of fiscal 2014. Adobe exited the quarter with 5.334 million paid Creative Cloud subscriptions, up 54% from 3.458 million at the end of fiscal 2014. Net new subscriptions of 684 thousand grew 36% year-over-year. Total Digital Media ARR reached $2.65 billion, up from $1.88 billion at the end of fiscal 2014. Document Cloud ARR was $357.0 million, up from $265.0 million at the end of fiscal 2014. Management said Adobe Marketing Cloud revenue reached a record in the quarter. The company closed the Fotolia acquisition in January 2015 and launched Adobe Stock in June 2015. It also delivered Adobe Document Cloud and Acrobat DC in the second quarter of fiscal 2015. Creative Cloud subscriptions and ARR included favorable adjustments of about 40 thousand net new subscriptions and $7 million in ARR over the period from the fourth quarter of fiscal 2014 through the second quarter of fiscal 2015.
Guidance and risk remain tied to currency and accounting changes. Management expects foreign currency fluctuations to continue to negatively impact reported revenue growth during the remainder of fiscal 2015. In the quarter, foreign currency reduced revenue by $58.4 million, while hedging added back $9.1 million, for a total negative impact of $49.3 million. For the nine months, foreign currency reduced revenue by $131.9 million, hedging added $55.1 million, and the total negative impact was $76.8 million. The U.S. Dollar strengthened against the Euro, British Pound, Japanese Yen, and other Asian currencies. The company said these decreases were partially offset by hedging gains from its Euro, British Pound, and Japanese Yen hedging programs.
Other risks and accounting matters deserve attention. The new revenue recognition standard, ASU 2014-09 as deferred by ASU 2015-14, is effective for Adobe in the first quarter of fiscal 2019. The company has not yet selected a transition method and is still evaluating the effect. Tax examinations are highly uncertain in timing and amount. Critical accounting estimates cover revenue recognition, business combinations, goodwill impairment, and income taxes. The HTEAL loss contingency reversal reduced operating expenses in the quarter. Restructuring plans are substantially complete. Adobe also extended its $1 billion credit agreement maturity to July 27, 2020, and no borrowings were outstanding under that facility as of August 28, 2015.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2015 | Q2 FY2015 | QoQ | Q3 FY2014 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.22B | $1.16B | +4.8% | $1.01B | +21.1% |
| Gross profit | $1.03B | $977.0M | +5.1% | $847.7M | +21.1% |
| Gross margin | 84.3% | 84.1% | +0.3 pp | 84.3% | +0.0 pp |
| Sales & marketing | $422.0M | $427.0M | -1.2% | $406.5M | +3.8% |
| General & administrative | $122.6M | $130.2M | -5.9% | $141.7M | -13.5% |
| Total operating expenses | $780.8M | $783.4M | -0.3% | $773.5M | +0.9% |
| Operating income (loss) | $246.0M | $193.6M | +27.1% | $74.2M | +231.7% |
| Operating margin | 20.2% | 16.7% | +3.5 pp | 7.4% | +12.8 pp |
| Net income (loss) | $174.5M | $147.5M | +18.3% | $44.7M | +290.4% |
| Net margin | 14.3% | 12.7% | +1.6 pp | 4.4% | +9.9 pp |
| Diluted EPS | $0.34 | $0.29 | +$0.05 | $0.09 | +$0.25 |
Risks
Adobe's shift from perpetual licenses to Creative Cloud subscriptions and ETLAs creates execution risk if customers prefer perpetual or point-product subscriptions, if target pricing or renewal rates are missed, or if promotional rates reduce average revenue per user. MD&A notes subscription revenue rose to 68% of total revenue in the quarter from 54% a year earlier, increasing dependence on this model.
A portion of subscription revenue each quarter comes from recognition of deferred revenue from prior subscription agreements, so a decline in new or renewed subscriptions may not immediately appear in reported results and could reduce future revenue. Current deferred revenue was $1.26B, up 32.9% versus the prior-year quarter.
Adobe cannot accurately predict subscription renewal rates, and customers have no obligation to renew and may cancel under certain circumstances. Renewal rates may decline due to satisfaction, uptime, pricing, security perceptions, competitor pricing, or economic downturns, which would reduce revenue.
The strengthening U.S. Dollar reduced revenue by $58.4M in the quarter and $131.9M year to date, and MD&A expects foreign currency fluctuations to continue to negatively impact reported revenue growth for the remainder of fiscal 2015. Hedging only partially offset the impact.
Adobe has previously experienced breaches of its data-security systems and unauthorized access to source code, and cyber-attackers target popular offerings. Such incidents could lead to liability, lost customers, reduced revenue or margins, and reputational harm.
Some businesses rely on Adobe or third-party data centers to host and deliver services, and Adobe does not have redundancy for all systems; many critical applications reside in only one data center. Interruptions or failures could cause customer loss and reputational harm.
Expanding global privacy and data protection laws, including right to be forgotten, could affect Adobe's ability to reach customers, use data, and implement new business models, and noncompliance could lead to class actions, regulatory claims, and reputational harm.
Enterprise offerings such as Adobe Marketing Cloud and Digital Media ETLAs have long and complex sales cycles, with a higher percentage of quarterly sales historically occurring in the final weeks of the quarter. This makes it difficult to predict when a sales cycle will close and can cause uneven results.
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's acquisition of Fotolia and any future acquisitions involve integration risks, including retaining personnel and customers, integrating technology, and incurring amortization or impairment charges. MD&A notes Fotolia contributed to revenue and cost increases, including amortization of intangibles.
Adobe has $1.9B in senior unsecured notes outstanding and a $1B undrawn revolving credit facility, which require cash flow for service and impose covenants. Breach of covenants or credit rating downgrades could restrict financing and increase costs.
Adobe's effective tax rate can be adversely affected by changes in tax laws, interpretations, earnings mix, and tax examinations, including a current IRS examination of fiscal 2010, 2011 and 2012 returns focused on intercompany transfer pricing. MD&A discusses tax rate changes and related one-time costs.
Adobe loses significant revenue to software piracy and has previously had source code accessed by hackers. Unauthorized disclosure could lose trade secret protection, making it easier for third parties to copy functionality and harm revenue and operating margins.
SaaS KPIs
All quarters →Summary, forecast, risks and KPIs are extracted from ADOBE INC.'s SEC filings for Q3 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.