Summary
Adobe Systems reported a strong fiscal 2017 third quarter. Revenue was $1.84 billion, up 25.8% from the prior-year quarter. Gross profit was $1.58 billion, up 25.1%. Operating income was $545.67 million, up 47.7%. Net income was $419.57 million, up 54.9%. Diluted EPS was $0.84, up $0.30 or 55.6%. Operating cash flow was $704.44 million, up 36.0%. Capital expenditures were $54.24 million, down 1.8%. Deferred revenue, current portion, was $2.14 billion, up 22.4%. Gross margin was 85.7%, down 0.4 percentage points. Operating margin was 29.6%, up 4.4 percentage points.
Year-to-date results also improved. Revenue for the nine months ended September 1, 2017 was $5.29 billion, up 24.7% from the prior-year period. Net income was $1.19 billion, up 55.0%. Operating cash flow was $2.08 billion, up 38.3%. Gross profit was $4.56 billion, up 25.1%. Operating income was $1.52 billion, up 48.7%. Diluted EPS was $2.38, up $0.86 or 56.6%. Gross margin for the nine months was 86.0%, up 0.2 percentage points. Operating margin for the nine months was 28.7%, up 4.6 percentage points.
Digital Media annualized recurring revenue was the operational highlight. Creative ARR exiting the third quarter was $4.32 billion, up from $3.52 billion at the end of fiscal 2016. Document Cloud ARR was $556 million, up from $472 million. Total Digital Media ARR grew to $4.87 billion, up from $3.99 billion. Management said ARR is the key metric it uses to assess the health and trajectory of the Digital Media segment. The company pointed to strong adoption of Creative Cloud and Document Cloud subscription offerings as the main driver of ARR growth. It also noted that Creative Cloud and Document Cloud are central to its long-term plan for recurring revenue. The company said it adjusts reported ARR annually to reflect material exchange rate changes. The third-quarter ARR figures use currency rates set at the start of fiscal 2017 and held constant throughout the year.
The 10-Q flags some pressure on future growth. Management observed pressures on the pace of future growth of Adobe Experience Cloud revenue. Larger deal sizes and longer sales cycles contributed to those pressures. Foreign currency also weighed on results. The relative strength of the U.S. Dollar against EMEA currencies reduced revenue by $11.3 million in the quarter, while hedging added $0.2 million, for a total negative impact of $11.1 million. Tax matters remain uncertain. The gross liability for unrecognized tax benefits was $175.7 million, and $138.3 million of that would decrease the effective tax rate if recognized. Accrued interest and penalties were $22.0 million. The company said the potential decrease in unrecognized tax benefits could range from $0 to approximately $40.0 million. It also noted a significant amount of foreign earnings upon which U.S. income taxes have not been provided. The filing frames future growth around product plans, market opportunities, strategic initiatives, and customer acquisition. The company also said the timing of resolution of income tax examinations is highly uncertain. It believes that within the next twelve months, certain audits may conclude or statutes of limitations may expire, or both. A significant portion of foreign earnings for the current fiscal year were earned by Irish subsidiaries.
Cash flow and capital returns remain a focus. Capital expenditures for the nine months were $140.44 million, down 9.5%. The company repurchased approximately 6.3 million shares at an average price of $126.58 during the nine months. It also entered into a structured stock repurchase agreement after the quarter with a $300 million prepayment. The board's current authority allows up to $2.5 billion in repurchases through the end of fiscal 2019. After the new $300 million agreement, $1.9 billion remains under that authority. The company had no outstanding borrowings under its $1 billion credit facility as of September 1, 2017. It also had $1.9 billion outstanding under its senior notes, made up of $900 million of 4.75% senior notes due February 1, 2020 and $1 billion of 3.25% senior notes due February 1, 2025. Management said it expects existing cash, investments, and cash flows to meet working capital and operating needs for the next twelve months.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2017 | Q2 FY2017 | QoQ | Q3 FY2016 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.84B | $1.77B | +3.9% | $1.46B | +25.8% |
| Gross profit | $1.58B | $1.53B | +3.0% | $1.26B | +25.1% |
| Gross margin | 85.7% | 86.5% | -0.8 pp | 86.2% | -0.4 pp |
| Sales & marketing | $550.1M | $553.1M | -0.5% | $477.5M | +15.2% |
| General & administrative | $147.4M | $156.9M | -6.1% | $143.7M | +2.6% |
| Total operating expenses | $1.03B | $1.03B | +0.4% | $891.9M | +15.8% |
| Operating income (loss) | $545.7M | $504.1M | +8.3% | $369.3M | +47.7% |
| Operating margin | 29.6% | 28.4% | +1.2 pp | 25.2% | +4.4 pp |
| Net income (loss) | $419.6M | $374.4M | +12.1% | $270.8M | +54.9% |
| Net margin | 22.8% | 21.1% | +1.7 pp | 18.5% | +4.3 pp |
| Diluted EPS | $0.84 | $0.75 | +$0.09 | $0.54 | +$0.30 |
Risks
MD&A states that during the quarter Adobe observed pressures on the pace of future growth of Adobe Experience Cloud revenue, driven by larger deal sizes and longer sales cycles. Risk Factors also note extended and complex enterprise sales cycles for Experience Cloud and ETLAs, with a higher percentage of quarterly sales occurring in the final weeks.
Risk Factors state that certain parties have in the past breached Adobe data security systems and misused systems and software to access end users' authentication and payment information. Actual or perceived vulnerabilities may lead to claims, customer loss, and additional expenditures.
Risk Factors highlight increasing privacy regulation, including the EU General Data Protection Regulation, and disclose that in the last year at least one EU regulator determined Adobe did not implement appropriate means quickly enough for a small number of vendors processing EU employee data, resulting in a small fine. Cross-border data transfer mechanisms remain contested.
Adobe acquired TubeMogul in the first quarter of fiscal 2017; MD&A attributes increases in Advertising Cloud revenue and media costs to it, and Risk Factors detail integration, key personnel retention, customer retention, and accounting risks from acquisitions.
Risk Factors emphasize that Adobe cannot predict subscription renewal rates and that a portion of quarterly subscription revenue comes from recognition of deferred revenue from prior agreements, so downturns in new or renewed subscriptions may not immediately appear in reported results. Total deferred revenue was $2.20 billion as of September 1, 2017, up $190.1 million or 9% from $2.01 billion as of December 2, 2016.
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 Q3 FY2017 (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.