Summary
Adobe Systems closed fiscal 2010 with record revenue. Fourth-quarter revenue was $1.01 billion, up 33.1% from the prior-year quarter. Full-year revenue was $3.80 billion, up 29.0%. Gross profit was $900.73 million in the quarter, up 33.4%, and $3.40 billion for the year, up 28.2%. Gross margin was 89.4% in the fourth quarter, up 0.2 percentage points from the prior-year quarter. For the full year, gross margin was 89.4%, down 0.5 percentage points. The quarter was a record for revenue. Management credited broad adoption of CS5, which has grown approximately 21% since release compared with a comparable period for CS4. Omniture user transactions reached 5.07 trillion in fiscal 2010, up 12%. Creative Solutions grew 21% for the year, Knowledge Worker grew 17%, and Enterprise grew 18%. Platform declined 1%, while Print and Publishing grew 9%. The company also completed the Day acquisition in October 2010 and integrated it into the Enterprise segment. The company said the revenue growth was driven by continued adoption of CS5, which began shipping in the second quarter of fiscal 2010, and by strength in other key segments.
Profitability expanded faster than sales. Fourth-quarter operating income was $286.94 million, up 86.8% from the prior-year quarter. Operating margin was 28.5%, up 8.2 percentage points. For fiscal 2010, operating income was $993.07 million, up 43.8%, and operating margin was 26.1%, up 2.7 percentage points. Net income was $268.85 million in the fourth quarter, a swing to profit from the prior-year quarter. Diluted earnings per share were $0.53, up from the prior-year quarter. For the full year, net income was $774.68 million, up 100.4%, and diluted earnings per share were $1.47, up 101.4%. The profit gains came as Knowledge Worker and Enterprise grew, while Platform declined slightly and Print and Publishing grew. The company also benefited from an extra week in the first quarter of fiscal 2010 because fiscal 2010 was a 53-week year compared with a 52-week year in fiscal 2009. That extra week flattered the full-year comparisons.
Cash flow and deferred revenue showed mixed trends. Fourth-quarter operating cash flow was $310.63 million, up 22.4% from the prior-year quarter. For the full year, operating cash flow was $1.11 billion, flat with a decline of 0.4%. Capital expenditures were $55.43 million in the fourth quarter, up 58.7%, and $169.64 million for the year, up 41.9%. Deferred revenue, current portion only, was $380.75 million at quarter end, up 35.2% from the prior-year quarter. The company said cash flow benefited from net income and increases in accrued expenses and deferred revenue, while trade receivables rose on Acrobat X shipments and slower Omniture collections. The full-year operating cash flow was roughly level with the prior year despite the revenue growth. The company also issued $600.0 million of 3.25% senior notes due 2015 and $900.0 million of 4.75% senior notes due 2020 in February 2010, which increased interest expense.
Guidance and risks. Management expects the December 2010 extension of the federal research and development tax credit to produce a discrete tax benefit in the first quarter of fiscal 2011. That benefit should reduce the effective tax rate for the quarter and, to a lesser extent, the effective annual tax rate. The company believes its existing cash, investments, and credit facility are sufficient for the next twelve months. Risks include foreign currency swings, channel inventory, product returns, and price protection estimates. The IRS is examining fiscal 2008 and 2009 returns, focusing on intercompany transfer pricing. Restructuring plans remain active, and the company continues to integrate recent acquisitions. The fourth-quarter profit swing also followed a prior-year loss, so comparisons will get tougher. The company repurchased 31.2 million shares at an average price of $29.19 in fiscal 2010, returning cash to shareholders. The company also faces competition and the need to execute on new product releases.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2010 | Q3 FY2010 | QoQ | Q4 FY2009 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.01B | $990.3M | +1.8% | $757.3M | +33.1% |
| Gross profit | $900.7M | $891.2M | +1.1% | $675.0M | +33.4% |
| Gross margin | 89.4% | 90.0% | -0.6 pp | 89.1% | +0.2 pp |
| Sales & marketing | $322.7M | $303.2M | +6.4% | $257.9M | +25.1% |
| General & administrative | $100.3M | $102.2M | -1.8% | $74.3M | +35.0% |
| Total operating expenses | $613.8M | $589.2M | +4.2% | $521.3M | +17.7% |
| Operating income (loss) | $286.9M | $302.0M | -5.0% | $153.6M | +86.8% |
| Operating margin | 28.5% | 30.5% | -2.0 pp | 20.3% | +8.2 pp |
| Net income (loss) | $268.9M | $230.1M | +16.9% | -$32.0M | +939.0% |
| Net margin | 26.7% | 23.2% | +3.4 pp | -4.2% | +30.9 pp |
| Diluted EPS | $0.51 | $0.44 | +$0.07 | -$0.06 | +$0.57 |
Risks
Adobe is transitioning to subscription licensing and SaaS/on-demand offerings, including Omniture, with limited operating history. MD&A highlights subscription revenue growth and new revenue recognition guidance, and failure to manage this transition could negatively impact results.
SaaS agreements in the Omniture business are generally one to three years and customers may not renew or may cancel. Renewal rates may decline due to satisfaction, pricing, competitor offerings, or economic downturns, making revenue less predictable.
Omniture and hosted services collect and store customer data. A security incident or privacy breach could lead to liability, reputational harm, and loss of customers, and privacy laws may restrict data collection and use.
Adobe completed the Day acquisition in October 2010 for approximately $248.3 million and the Omniture acquisition in October 2009 for approximately $1.8 billion. Integration risks include retaining key personnel and customers, achieving financial goals, and potential impairment.
Ingram Micro represented 15% of net revenue for fiscal 2010. Termination of distributor agreements or a prolonged delay in securing a replacement distributor could negatively impact short-term results.
Adobe issued $1.5 billion of senior notes in the first quarter of fiscal 2010 and has a $1.0 billion undrawn revolving credit facility. Debt covenants and interest obligations may limit flexibility and adversely affect financial condition.
The IRS is examining Adobe's fiscal 2008 and 2009 tax returns, focusing on intercompany transfer pricing. An adverse resolution could affect operating results and financial position.
Direct sales and enterprise/government markets involve longer sales cycles, and recent hires and acquired sales personnel may take significant time to reach full productivity. Expansion efforts may not generate a corresponding increase in revenues.
Uncertainty about economic and political conditions could cause customers to delay or reduce technology, advertising, or marketing spending, leading to longer sales cycles and increased price competition.
Over 50% of total revenue comes from outside the Americas. Currency fluctuations and hedging that may offset only a portion of adverse movements could negatively impact revenue.
Intense competition, evolving standards, disruptive technologies, price cutting, and consolidation could harm Adobe's competitive position and gross margins.
Adobe has significant goodwill and amortizable intangibles from acquisitions. If market conditions or cash flows decline, impairment charges could impact earnings, though MD&A states no impairment in fiscal 2010 and no significant risk currently.
SaaS KPIs
All quarters →Summary, forecast, risks and KPIs are extracted from ADOBE INC.'s SEC filings for Q4 FY2010 (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.