adbe-20240301

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 1, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-15175

ADOBE INC.

(Exact name of registrant as specified in its charter)

________________________________


Delaware			77-0019522
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

345 Park Avenue, San Jose, California 95110-2704

(Address of principal executive offices and zip code)

(408) 536-6000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	ADBE	NASDAQ

________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of March 22, 2024, 448.0 million shares of the registrant’s common stock, $0.0001 par value per share, were issued and outstanding.

ADOBE INC.

FORM 10-Q

TABLE OF CONTENTS


		Page No.
PART I—FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements:	3
	Condensed Consolidated Balance Sheets March 1, 202 4 and December 1 , 202 3	3
	Condensed Consolidated Statements of Income Three Months Ended March 1, 202 4 and March 3 , 202 3	4
	Condensed Consolidated Statements of Comprehensive Income Three Months Ended March 1, 202 4 and March 3 , 202 3	5
	Condensed Consolidated Statements of Stockholders’ Equity Three Months Ended March 1, 202 4 and March 3 , 202 3	6
	Condensed Consolidated Statements of Cash Flows Three Months Ended March 1, 202 4 and March 3 , 202 3	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36
Item 4.	Controls and Procedures	36

PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49

Item 5.	Other Information	49
Item 6.	Exhibits	50
Signature		51
Summary of Trademarks		52

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ADOBE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except par value)


	March 1, 2024		December 1, 2023
	(Unaudited)		(*)
ASSETS
Current assets:
Cash and cash equivalents	$	6,254	$	7,141
Short-term investments	566		701
Trade receivables, net of allowances for doubtful accounts of $16 for both periods	2,057		2,224
Prepaid expenses and other current assets	1,131		1,018
Total current assets	10,008		11,084
Property and equipment, net	1,988		2,030
Operating lease right-of-use assets, net	366		358
Goodwill	12,803		12,805
Other intangibles, net	1,011		1,088
Deferred income taxes	1,310		1,191
Other assets	1,265		1,223
Total assets	$	28,751	$	29,779

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade payables	$	300	$	314
Accrued expenses	1,569		1,942
Debt	1,497		—
Deferred revenue	5,975		5,837
Income taxes payable	123		85
Operating lease liabilities	73		73
Total current liabilities	9,537		8,251
Long-term liabilities:
Debt	2,138		3,634
Deferred revenue	135		113
Income taxes payable	668		514

Operating lease liabilities	378		373
Other liabilities	435		376
Total liabilities	13,291		13,261
Stockholders’ equity:
Preferred stock, $0.0001 par value; 2 shares authorized; none issued	—		—
Common stock, $0.0001 par value; 900 shares authorized; 601 shares issued; 453 and 455 shares outstanding, respectively	—		—
Additional paid-in capital	12,037		11,586
Retained earnings	33,809		33,346
Accumulated other comprehensive income (loss)	(277)		(285)
Treasury stock, at cost (148 and 146 shares, respectively)	(30,109)		(28,129)
Total stockholders’ equity	15,460		16,518
Total liabilities and stockholders’ equity	$	28,751	$	29,779

_________________________________________

(*) The condensed consolidated balance sheet as of December 1, 2023 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

See accompanying notes to condensed consolidated financial statements.

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ADOBE INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)

(Unaudited)


	Three Months Ended
	March 1, 2024		March 3, 2023
Revenue:
Subscription	$	4,916	$	4,373
Product	119		120
Services and other	147		162
Total revenue	5,182		4,655
Cost of revenue:
Subscription	455		434
Product	5		8
Services and other	130		126
Total cost of revenue	590		568
Gross profit	4,592		4,087
Operating expenses:
Research and development	939		827
Sales and marketing	1,352		1,301
General and administrative	352		331

Acquisition termination fee	1,000		—
Amortization of intangibles	42		42
Total operating expenses	3,685		2,501
Operating income	907		1,586
Non-operating income (expense):
Interest expense	(27)		(32)
Investment gains (losses), net	18		1
Other income (expense), net	70		43
Total non-operating income (expense), net	61		12
Income before income taxes	968		1,598
Provision for income taxes	348		351
Net income	$	620	$	1,247
Basic net income per share	$	1.37	$	2.72
Shares used to compute basic net income per share	453		459
Diluted net income per share	$	1.36	$	2.71
Shares used to compute diluted net income per share	456		460

See accompanying notes to condensed consolidated financial statements.

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ADOBE INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)


	Three Months Ended
	March 1, 2024		March 3, 2023
	Increase/(Decrease)
Net income	$	620	$	1,247
Other comprehensive income (loss), net of taxes:
Available-for-sale securities:
Unrealized gains / losses on available-for-sale securities	4		7


Derivatives designated as hedging instruments:
Unrealized gains / losses on derivative instruments	3		(9)
Reclassification adjustment for realized gains / losses on derivative instruments	4		(16)
Net increase (decrease) from derivatives designated as hedging instruments	7		(25)
Foreign currency translation adjustments	(3)		4
Other comprehensive income (loss), net of taxes	8		(14)
Total comprehensive income, net of taxes	$	628	$	1,233

See accompanying notes to condensed consolidated financial statements.

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ADOBE INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions)

(Unaudited)


	Three Months Ended March 1, 2024
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock
	Shares	Amount								Shares	Amount		Total
Balances at December 1, 2023	601	$	—	$	11,586	$	33,346	$	(285)	(146)	$	(28,129)	$	16,518
Net income	—	—		—		620		—		—	—		620
Other comprehensive income (loss), net of taxes	—	—		—		—		8		—	—		8
Re-issuance of treasury stock under stock compensation plans	—	—		—		(157)		—		1	32		(125)
Repurchases of common stock	—	—		—		—		—		(3)	(2,013)		(2,013)

Stock-based compensation	—	—		451		—		—		—	—		451
Value of shares in deferred compensation plan	—	—		—		—		—		—	1		1
Balances at March 1, 2024	601	$	—	$	12,037	$	33,809	$	(277)	(148)	$	(30,109)	$	15,460


	Three Months Ended March 3, 2023
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock
	Shares	Amount								Shares	Amount		Total
Balances at December 2, 2022	601	$	—	$	9,868	$	28,319	$	(293)	(139)	$	(23,843)	$	14,051
Net income	—	—		—		1,247		—		—	—		1,247
Other comprehensive income (loss), net of taxes	—	—		—		—		(14)		—	—		(14)
Re-issuance of treasury stock under stock compensation plans	—	—		—		(131)		—		2	36		(95)
Repurchases of common stock	—	—		—		—		—		(5)	(1,400)		(1,400)

Stock-based compensation	—	—		416		—		—		—	—		416
Value of shares in deferred compensation plan	—	—		—		—		—		—	1		1
Balances at March 3, 2023	601	$	—	$	10,284	$	29,435	$	(307)	(142)	$	(25,206)	$	14,206

See accompanying notes to condensed consolidated financial statements.

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ADOBE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


	Three Months Ended
	March 1, 2024		March 3, 2023
Cash flows from operating activities:
Net income	$	620	$	1,247
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	212		212
Stock-based compensation	451		416
Reduction of operating lease right-of-use assets	18		21
Deferred income taxes	(116)		(49)
Unrealized losses (gains) on investments, net	(13)		3
Other non-cash items	1		(5)
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
Trade receivables, net	166		269
Prepaid expenses and other assets	(173)		(258)
Trade payables	(12)		(55)
Accrued expenses and other liabilities	(332)		(323)
Income taxes payable	192		152
Deferred revenue	160		63
Net cash provided by operating activities	1,174		1,693
Cash flows from investing activities:

Maturities of short-term investments	135		254
Proceeds from sales of short-term investments	4		33

Purchases of property and equipment	(37)		(101)
Purchases of long-term investments, intangibles and other assets	(38)		(30)
Proceeds from sale of long-term investments and other assets	2		—
Net cash provided by investing activities	66		156
Cash flows from financing activities:
Repurchases of common stock	(2,000)		(1,400)
Proceeds from re-issuance of treasury stock	97		69
Taxes paid related to net share settlement of equity awards	(222)		(164)

Repayment of debt	—		(500)
Other financing activities, net	(3)		(19)

Net cash used for financing activities	(2,128)		(2,014)
Effect of foreign currency exchange rates on cash and cash equivalents	1		1
Net change in cash and cash equivalents	(887)		(164)
Cash and cash equivalents at beginning of period	7,141		4,236
Cash and cash equivalents at end of period	$	6,254	$	4,072
Supplemental disclosures:
Cash paid for income taxes, net of refunds	$	205	$	214
Cash paid for interest	$	47	$	55

See accompanying notes to condensed consolidated financial statements.

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We have prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Pursuant to these rules and regulations, we have condensed or omitted certain information and footnote disclosures we normally include in our annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). In management’s opinion, we have made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary to fairly present our financial position, results of operations and cash flows. Our interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 1, 2023 on file with the SEC (our “Annual Report”).

Use of Estimates

In preparing the condensed consolidated financial statements and related disclosures in conformity with GAAP and pursuant to the rules and regulations of the SEC, we must make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ materially from these estimates.

Significant Accounting Policies

There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our Annual Report.

Recent Accounting Pronouncements Not Yet Effective

In November 2023, the Financial Accounting Standards Board (“the FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The updated standard is effective for our annual periods beginning in fiscal 2025 and interim periods beginning in the first quarter of fiscal 2026. Early adoption is permitted. We are currently evaluating the impact that the updated standard will have on our financial statement disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes, which prescribes standardized categories and disaggregation of information in the reconciliation of provision for income taxes, requires disclosure of disaggregated income taxes paid, and modifies other income tax-related disclosure requirements. The updated standard is effective for us beginning with our fiscal year 2026 annual reporting period. Early adoption is permitted. We are currently evaluating the impact that the updated standard will have on our financial statement disclosures.

With the exception of the new standards discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the three months ended March 1, 2024, as compared to the recent accounting pronouncements described in our Annual Report, that are of significance or potential significance to us.

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 2. REVENUE

Segment Information

Our segment results for the three months ended March 1, 2024 and March 3, 2023 were as follows:


(dollars in millions)	Digital Media			Digital Experience			Publishing and Advertising			Total
Three months ended March 1, 2024
Revenue	$	3,816		$	1,289		$	77		$	5,182
Cost of revenue	171			397			22			590
Gross profit	$	3,645		$	892		$	55		$	4,592
Gross profit as a percentage of revenue	96		%	69		%	71		%	89		%
Three months ended March 3, 2023
Revenue	$	3,395		$	1,176		$	84		$	4,655
Cost of revenue	142			404			22			568
Gross profit	$	3,253		$	772		$	62		$	4,087
Gross profit as a percentage of revenue	96		%	66		%	74		%	88		%

Revenue by geographic area for the three months ended March 1, 2024 and March 3, 2023 were as follows:



(in millions)	2024		2023
Americas	$	3,110	$	2,779
EMEA	1,319		1,173
APAC	753		703
Total	$	5,182	$	4,655

Revenue by major offerings in our Digital Media reportable segment for the three months ended March 1, 2024 and March 3, 2023 were as follows:



(in millions)	2024		2023
Creative Cloud	$	3,066	$	2,761
Document Cloud	750		634
Total Digital Media revenue	$	3,816	$	3,395

Subscription revenue by segment for the three months ended March 1, 2024 and March 3, 2023 were as follows:



(in millions)	2024		2023
Digital Media	$	3,725	$	3,301
Digital Experience	1,164		1,042
Publishing and Advertising	27		30
Total subscription revenue	$	4,916	$	4,373

Contract Balances

A receivable is recorded when an unconditional right to invoice and receive payment exists, such that only the passage of time is required before payment of consideration is due. Included in trade receivables on the condensed consolidated balance sheets are unbilled receivable balances which have not yet been invoiced, and are typically related to license revenue or services which are delivered prior to invoicing. As of March 1, 2024, the balance of trade receivables, net of allowances for doubtful accounts, was $2.06 billion, inclusive of unbilled receivables of $99 million. As of December 1, 2023, the balance of trade receivables, net of allowances for doubtful accounts, was $2.22 billion, inclusive of unbilled receivables of $80 million.

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

We maintain an allowance for doubtful accounts which reflects our best estimate of potentially uncollectible trade receivables and is based on both specific and general reserves. We maintain general reserves on a collective basis by considering factors such as historical experience, credit-worthiness, the age of the trade receivable balances, current economic conditions and a reasonable and supportable forecast of future economic conditions. As of March 1, 2024 and December 1, 2023, the allowance for doubtful accounts was $16 million for both periods.

A contract asset is recognized when a conditional right to consideration exists and transfer of control has occurred. Contract assets are included in prepaid expenses and other current assets for the current portion and other assets for the long-term portion on the condensed consolidated balance sheets. We regularly review contract asset balances for impairment, considering factors such as historical experience, credit-worthiness, age of the balance, current economic conditions and a reasonable and supportable forecast of future economic conditions. Contract asset impairments were not material for the three months ended March 1, 2024. Contract assets were $153 million and $141 million as of March 1, 2024 and December 1, 2023, respectively.

Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from subscription services, including non-cancellable and non-refundable committed funds and refundable customer deposits. Deferred revenue is recognized as revenue when transfer of control to customers has occurred. As of March 1, 2024, the balance of deferred revenue was $6.11 billion, which includes $87 million of refundable customer deposits. Arrangements with some of our enterprise customers with non-cancellable and non-refundable committed funds provide options to either renew monthly on-premise term-based licenses or use some or all funds to purchase other Adobe products or services. Non-cancellable and non-refundable committed funds related to these agreements comprised approximately 4% of the total deferred revenue.

As of December 1, 2023, the balance of deferred revenue was $5.95 billion. During the three months ended March 1, 2024, approximately $2.67 billion of revenue was recognized that was included in the balance of deferred revenue as of December 1, 2023.

Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and unbilled amounts that will be recognized as revenue in future periods. As of March 1, 2024, remaining performance obligations were approximately $17.58 billion. Non-cancellable and non-refundable funds related to some of our enterprise customer agreements referred to above comprised approximately 4% of the total remaining performance obligations. Approximately 68% of the remaining performance obligations, excluding the aforementioned enterprise customer agreements, are expected to be recognized over the next 12 months with the remainder recognized thereafter.

Incremental costs of obtaining a contract with a customer are capitalized if we expect the benefit of those costs to be longer than one year and primarily relate to sales commissions paid to our sales force personnel. Capitalized contract acquisition costs are included in prepaid expenses and other current assets for the current portion and other assets for the long-term portion on the condensed consolidated balance sheets. Capitalized contract acquisition costs were $707 million and $656 million as of March 1, 2024 and December 1, 2023, respectively.

We record refund liabilities for amounts that may be subject to future refunds, which include sales returns reserves and customer rebates and credits. Refund liabilities are included in accrued expenses on the condensed consolidated balance sheets. Refund liabilities were $107 million and $111 million as of March 1, 2024 and December 1, 2023, respectively.

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 3. ACQUISITIONS

Figma

On September 15, 2022, we entered into a definitive merger agreement under which we intended to acquire Figma, Inc. (“Figma”) for approximately $20 billion, comprised of approximately half cash and half stock.

On December 17, 2023, we entered into a mutual termination agreement with Figma to terminate the proposed merger. In accordance with the terms of the termination agreement, we paid Figma a termination fee of $1 billion. The termination fee was recorded in operating expenses in our condensed consolidated statements of income during the three months ended March 1, 2024, and was not tax-deductible for financial statement purposes.

NOTE 4. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Cash equivalents consist of highly liquid marketable securities with remaining maturities of three months or less at the date of purchase. We classify our investments in marketable debt securities as “available-for-sale.” We carry these investments at fair value, based on quoted market prices or other readily available market information. Unrealized gains and unrealized non-credit-related losses of marketable debt securities are included in accumulated other comprehensive income, net of taxes, in our condensed consolidated balance sheets. Unrealized credit-related losses are recorded to other income (expense), net in our condensed consolidated statements of income with a corresponding allowance for credit-related losses in our condensed consolidated balance sheets. Gains and losses are determined using the specific identification method and recognized when realized in our condensed consolidated statements of income.

Cash, cash equivalents and short-term investments consisted of the following as of March 1, 2024:


(in millions)	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Current assets:
Cash	$	612	$	—	$	—	$	612
Cash equivalents:

Money market funds	5,642		—		—		5,642





Total cash and cash equivalents	6,254		—		—		6,254
Short-term fixed income securities:
Asset-backed securities	11		—		—		11
Corporate debt securities	337		—		(2)		335


U.S. agency securities	13		—		(1)		12
U.S. Treasury securities	213		—		(5)		208


Total short-term investments	574		—		(8)		566
Total cash, cash equivalents and short-term investments	$	6,828	$	—	$	(8)	$	6,820

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Cash, cash equivalents and short-term investments consisted of the following as of December 1, 2023:


(in millions)	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Current assets:
Cash	$	618	$	—	$	—	$	618
Cash equivalents:

Money market funds	6,498		—		—		6,498

Time deposits	25		—		—		25

Total cash equivalents	6,523		—		—		6,523
Total cash and cash equivalents	7,141		—		—		7,141
Short-term fixed income securities:
Asset-backed securities	15		—		—		15

Corporate debt securities	438		—		(4)		434


U.S. agency securities	13		—		(1)		12
U.S. Treasury securities	247		—		(7)		240


Total short-term investments	713		—		(12)		701
Total cash, cash equivalents and short-term investments	$	7,854	$	—	$	(12)	$	7,842

See Note 5 for further information regarding the fair value of our financial instruments.

The following table summarizes the estimated fair value of short-term fixed income debt securities classified as short-term investments based on stated effective maturities as of March 1, 2024:


(in millions)	Estimated Fair Value
Due within one year	$	440
Due between one and two years	123
Due between two and three years	3

Total	$	566

We review our debt securities classified as short-term investments on a regular basis for impairment. For debt securities in unrealized loss positions, we determine whether any portion of the decline in fair value below the amortized cost basis is due to credit-related factors if we neither intend to sell nor anticipate that it is more likely than not that we will be required to sell prior to recovery of the amortized cost basis. We consider factors such as the extent to which the market value has been less than the cost, any noted failure of the issuer to make scheduled payments, changes to the rating of the security and other relevant credit-related factors in determining whether or not a credit loss exists. During the three months ended March 1, 2024 and March 3, 2023, we did not recognize an allowance for credit-related losses on any of our investments.

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 5. FAIR VALUE MEASUREMENTS

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

The fair value of our financial assets and liabilities at March 1, 2024 was determined using the following inputs:


(in millions)	Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents:


Money market funds	$	5,642	$	5,642	$	—	$	—




Short-term investments:
Asset-backed securities	11		—		11		—
Corporate debt securities	335		—		335		—




U.S. agency securities	12		—		12		—
U.S. Treasury securities	208		—		208		—
Prepaid expenses and other current assets:
Foreign currency derivatives	52		—		52		—

Other assets:
Deferred compensation plan assets	246		246		—		—

Total assets	$	6,506	$	5,888	$	618	$	—


Liabilities:
Accrued expenses:

Foreign currency derivatives	$	4	$	—	$	4	$	—

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The fair value of our financial assets and liabilities at December 1, 2023 was determined using the following inputs:


(in millions)	Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents:

Money market funds	$	6,498	$	6,498	$	—	$	—

Time deposits	25		25		—		—

Short-term investments:
Asset-backed securities	15		—		15		—
Corporate debt securities	434		—		434		—



U.S. agency securities	12		—		12		—
U.S. Treasury securities	240		—		240		—
Prepaid expenses and other current assets:
Foreign currency derivatives	52		—		52		—
Other assets:
Deferred compensation plan assets	206		206		—		—

Total assets	$	7,482	$	6,729	$	753	$	—


Liabilities:
Accrued expenses:

Foreign currency derivatives	$	4	$	—	$	4	$	—

See Note 4 for further information regarding the fair value of our financial instruments.

Our fixed income available-for-sale debt securities consist of high quality, investment grade securities from diverse issuers with a weighted average credit rating of AA-. We value these securities based on pricing from independent pricing vendors who use matrix pricing valuation techniques including market approach methodologies that model information generated by market transactions involving identical or comparable assets, as well as discounted cash flow methodologies. Inputs include quoted prices in active markets for identical assets or inputs other than quoted prices that are observable either directly or indirectly in determining fair value, including benchmark yields, issuer spreads off benchmark yields, interest rates and U.S. Treasury or swap curves. We therefore classify all of our fixed income available-for-sale securities as Level 2. We perform routine procedures such as comparing prices obtained from multiple independent sources to ensure that appropriate fair values are recorded.

The fair values of our money market funds, time deposits and deferred compensation plan assets, which consist of money market and other mutual funds, are based on quoted prices in active markets at the measurement date.

Our over-the-counter foreign currency derivatives are valued using pricing models and discounted cash flow methodologies based on observable foreign exchange and interest rate data at the measurement date.

Our other current financial assets and current financial liabilities have fair values that approximate their carrying values.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The fair value of our senior notes was $3.40 billion as of March 1, 2024, based on observable market prices in less active markets and categorized as Level 2. See Note 14 for further details regarding our debt.

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NOTE 6. DERIVATIVE FINANCIAL INSTRUMENTS

We may use derivatives to partially offset our business exposure to foreign currency and interest rate risk on expected future cash flows and certain existing assets and liabilities. We do not use any of our derivative instruments for trading purposes.

We enter into master netting arrangements to mitigate credit risk in derivative transactions by permitting net settlement of transactions with the same counterparty. We do not offset fair value amounts recognized for derivative instruments under master netting arrangements. We also enter into collateral security agreements with certain of our counterparties to exchange cash collateral when the net fair value of certain derivative instruments fluctuates from contractually established thresholds.

Cash Flow Hedges

In countries outside the United States, we transact business in U.S. Dollars and in various other currencies. We may use foreign exchange option contracts and forward contracts to hedge a portion of our forecasted foreign currency denominated revenue and expenses. These foreign exchange contracts, carried at fair value, have maturities of up to 12 months.

As of March 1, 2024, we had net derivative losses on our foreign exchange option contracts expected to be recognized within the next 18 months, of which $7 million of net losses are expected to be recognized into revenue within the next 12 months.

Non-Designated Hedges

Our derivatives not designated as hedging instruments consist of foreign currency forward contracts that we primarily use to hedge monetary assets and liabilities denominated in non-functional currencies.

Fair value asset derivatives are included in prepaid expenses and other current assets and fair value liability derivatives are included in accrued expenses on our condensed consolidated balance sheets. The fair value of derivative instruments as of March 1, 2024 and December 1, 2023 were as follows:


(in millions)	2024				2023
	Fair Value Asset Derivatives		Fair Value Liability Derivatives		Fair Value Asset Derivatives		Fair Value Liability Derivatives
Derivatives designated as hedging instruments:
Foreign exchange option contracts	$	44	$	—	$	42	$	—
Foreign exchange forward contracts	4		—		1		—


Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	4		4		9		4
Total derivatives	$	52	$	4	$	52	$	4

For the three months ended March 1, 2024 and March 3, 2023, gains and losses on derivative instruments, net of tax, recognized in our condensed consolidated statements of comprehensive income and the effects of derivative instruments on our condensed consolidated statements of income were immaterial.

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NOTE 7. GOODWILL AND OTHER INTANGIBLES

Goodwill as of March 1, 2024 and December 1, 2023 was $12.80 billion and $12.81 billion, respectively.

Other intangible assets subject to amortization as of March 1, 2024 and December 1, 2023 were as follows:


(in millions)	2024						2023
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Customer contracts and relationships	$	1,204	$	(650)	$	554	$	1,204	$	(619)	$	585
Purchased technology	884		(589)		295		984		(647)		337
Trademarks	376		(228)		148		376		(217)		159


Other	23		(9)		14		22		(15)		7
Other intangibles, net	$	2,487	$	(1,476)	$	1,011	$	2,586	$	(1,498)	$	1,088

Amortization expense related to other intangibles was $84 million and $96 million for the three months ended March 1, 2024 and March 3, 2023, respectively. Of these amounts, $42 million and $54 million were included in cost of revenue for the three months ended March 1, 2024 and March 3, 2023, respectively.

As of March 1, 2024, the estimated aggregate amortization expense in future periods was as follows:


(in millions)
Fiscal Year	Other Intangibles (1)
Remainder of 2024	$	250
2025	300
2026	147
2027	106
2028	63
Thereafter	125
Total expected amortization expense	$	991

_________________________________________

(1)Excludes capitalized in-process research and development which is considered indefinite lived until the completion or abandonment of the associated research and development efforts.

NOTE 8. ACCRUED EXPENSES

Accrued expenses as of March 1, 2024 and December 1, 2023 consisted of the following:


(in millions)	2024		2023
Accrued compensation and benefits	$	592	$	535
Accrued bonuses	158		547

Accrued corporate marketing	125		132

Sales and use taxes	116		122
Refund liabilities	107		111




Other	471		495
Accrued expenses	$	1,569	$	1,942

Other primarily includes general business accruals, accrued hosting fees, royalties payable, and derivative collateral liabilities.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 9. STOCK-BASED COMPENSATION

Restricted Stock Units

Restricted stock unit activity for the three months ended March 1, 2024 was as follows:


	Number of Shares (in millions)	Weighted Average Grant Date Fair Value		Aggregate Fair Value (1) (in millions)
Beginning outstanding balance	7.8	$	418.63
Awarded	2.3	$	605.02
Released	(0.9)	$	415.19
Forfeited	(0.1)	$	442.35

Ending outstanding balance	9.1	$	466.10	$	5,191

Expected to vest	8.3	$	465.10	$	4,753

_________________________________________

(1) The aggregate fair value is calculated using the closing stock price as of March 1, 2024 of $570.93.

The total fair value of restricted stock units vested during the three months ended March 1, 2024 was $541 million.

Performance Shares

In the first quarter of fiscal 2024, the Executive Compensation Committee of our Board of Directors (the “ECC”) approved the 2024 Performance Share Program, the terms of which are similar to the 2023 Performance Share Program that is still outstanding. For information regarding our outstanding Performance Share Programs, including the terms, see “Note 12. Stock-Based Compensation” of our Annual Report on Form 10-K for the fiscal year ended December 1, 2023.

As of March 1, 2024, the performance shares awarded under our 2024, 2023 and 2022 Performance Share Programs remained outstanding and unvested.

Performance share activity for the three months ended March 1, 2024 was as follows:


	Number of Shares (in millions)	Weighted Average Grant Date Fair Value		Aggregate Fair Value (1) (in millions)
Beginning outstanding balance	0.5	$	465.71
Awarded	0.2	$	645.40
Released	(0.1)	$	463.22
Forfeited	(0.1)	$	471.87
Ending outstanding balance	0.5	$	534.65	$	307

Expected to vest	0.5	$	532.23	$	274

_________________________________________

(1) The aggregate fair value is calculated using the closing stock price as of March 1, 2024 of $570.93.

Under our Performance Share Programs, participants generally have the ability to receive up to 200% of the target number of shares originally granted. Shares released during the three months ended March 1, 2024 resulted from 83% achievement of target for the 2021 Performance Share Program, as certified by the ECC in the first quarter of fiscal 2024.

The total fair value of performance shares vested during the three months ended March 1, 2024 was $63 million.

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Employee Stock Purchase Plan Shares

Employees purchased 0.3 million shares at an average price of $299.89 and 0.2 million shares at an average price of $286.05 for the three months ended March 1, 2024 and March 3, 2023, respectively. The intrinsic value of shares purchased during the three months ended March 1, 2024 and March 3, 2023 was $96 million and $12 million, respectively. The intrinsic value is calculated as the difference between the market value on the date of purchase and the purchase price of the shares.

Compensation Costs

As of March 1, 2024, there was $3.90 billion of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based awards and purchase rights which will be recognized over a weighted average period of 2.50 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

Total stock-based compensation costs included in our condensed consolidated statements of income for the three months ended March 1, 2024 and March 3, 2023 were as follows:



(in millions)	2024		2023
Cost of revenue	$	29	$	29
Research and development	229		209
Sales and marketing	129		122
General and administrative	64		56
Total	$	451	$	416

NOTE 10. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The components of accumulated other comprehensive income (loss) and activity, net of related taxes, were as follows:


(in millions)	December 1, 2023		Increase / Decrease		Reclassification Adjustments			March 1, 2024



Net unrealized gains / losses on available-for-sale securities	$	(12)	$	4	$	—	(1)	$	(8)
Net unrealized gains / losses on derivative instruments designated as hedging instruments	(26)		3		4		(2)	(19)
Cumulative foreign currency translation adjustments	(247)		(3)		—			(250)
Total accumulated other comprehensive income (loss), net of taxes	$	(285)	$	4	$	4		$	(277)

_________________________________________

(1)Reclassification adjustments for gains / losses on available-for-sale securities are classified in other income (expense), net.

(2)Reclassification adjustments for gains / losses on foreign currency hedges are classified in revenue or operating expenses, depending on the nature of the underlying transaction, and reclassification adjustments for gains / losses on Treasury lock hedges are classified in interest expense.

Taxes related to each component of other comprehensive income (loss) for the three months ended March 1, 2024 and March 3, 2023 were immaterial.

NOTE 11. STOCK REPURCHASE PROGRAM

To facilitate our stock repurchase program, designed to return value to our stockholders and minimize dilution from stock issuances, we may repurchase our shares in the open market or enter into structured repurchase agreements with third parties. In December 2020, our Board of Directors granted authority to repurchase up to $15 billion in our common stock through the end of fiscal 2024.

During the three months ended March 1, 2024 and March 3, 2023, we entered into accelerated share repurchase agreements (“ASRs”) with large financial institutions whereupon we provided them with prepayments of $2 billion and $1.4 billion, respectively. Under the terms of our ASRs, the financial institutions agree to deliver a portion of shares to us at contract

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inception and the remaining shares at settlement. The total number of shares delivered and average purchase price paid per share are determined upon settlement based on the Volume Weighted Average Price (“VWAP”) over the term of the ASR, less an agreed upon discount.

We also enter into structured stock repurchase agreements in which financial institutions agree to deliver shares to us at monthly intervals during the respective contract terms, and the number of shares delivered each month are determined based on the total notional amount of the contracts, the number of trading days in the intervals and the VWAP during the intervals, less an agreed upon discount.

During the three months ended March 1, 2024, we repurchased a total of 3.1 million shares, including approximately 0.6 million shares at an average price of $626.68 through a structured repurchase agreement entered into during fiscal 2023, as well as 2.5 million shares from the initial delivery of the ASR entered into during the three months ended March 1, 2024. During the three months ended March 3, 2023, we repurchased a total of 5.0 million shares, including approximately 1.8 million shares at an average price of $330.52 through a structured repurchase agreement entered into during fiscal 2022, as well as 3.2 million shares from the initial delivery of the ASR entered into during the three months ended March 3, 2023.

For the three months ended March 1, 2024, the prepayments were classified as treasury stock, a component of stockholders’ equity on our condensed consolidated balance sheets, at the payment date, though only shares physically delivered to us by March 1, 2024 were excluded from the computation of net income per share. As of March 1, 2024, a portion of the $2 billion prepayment under our outstanding ASR was evaluated as an unsettled forward contract indexed to our own stock, classified within stockholders’ equity. Subsequent to March 1, 2024, the outstanding ASR was settled which resulted in total repurchases of 3.5 million shares at an average price of $578.11.

Subsequent to March 1, 2024, our Board of Directors granted us additional authority to repurchase up to $25 billion in our common stock through March 14, 2028. Thereafter, as part of both the December 2020 and March 2024 stock repurchase authorities, we entered into an ASR with a large financial institution whereupon we provided them with a prepayment of $2.5 billion and received an initial delivery of 3.6 million shares, which represents approximately 75% of our prepayment. Upon completion of the $2.5 billion ASR, $22.65 billion remains under our March 2024 authority and there is no remaining balance under our December 2020 authority.

NOTE 12. NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share for the three months ended March 1, 2024 and March 3, 2023:



(in millions, except per share data)	2024		2023
Net income	$	620	$	1,247

Shares used to compute basic net income per share	452.8		459.0
Dilutive potential common shares from stock plans and programs	3.5		0.5


Shares used to compute diluted net income per share	456.3		459.5

Basic net income per share	$	1.37	$	2.72
Diluted net income per share	$	1.36	$	2.71

Anti-dilutive potential common shares	0.9		6.2

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NOTE 13. COMMITMENTS AND CONTINGENCIES

Indemnifications

In the ordinary course of business, we provide indemnifications of varying scope to customers and channel partners against claims of intellectual property infringement made by third parties arising from the use of our products and from time to time, we are subject to claims by our customers under these indemnification provisions. Historically, costs related to these indemnification provisions have not been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations.

To the extent permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the officer’s or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

Legal Proceedings

We are subject to legal proceedings, claims, including claims relating to intellectual property, commercial, employment and other matters, and investigations, including government investigations, that arise in the ordinary course of our business. Some of these disputes, legal proceedings and investigations may include speculative claims for substantial or indeterminate amounts of damages. We consider all claims on a quarterly basis in accordance with GAAP and based on known facts assess whether potential losses are considered reasonably possible or probable and estimable. Based upon this assessment, we then evaluate disclosure requirements and whether to accrue for such claims in our financial statements. This determination is then reviewed and discussed with the Audit Committee of the Board of Directors.

We make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. As of March 1, 2024, we accrued provisions for legal liabilities that were probable and estimable, which were not material to our financial statements. Unless otherwise specifically disclosed in this note, we have determined that no disclosure is required related to any claim against us because: (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim; (b) a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial.

All legal costs associated with litigation are expensed as incurred. Litigation is inherently unpredictable. However, we believe that we have valid defenses with respect to the legal matters pending against us. It is possible, nevertheless, that our consolidated financial position, results of operations or cash flows could be negatively affected by an unfavorable resolution of one or more of such proceedings, claims or investigations.

Since June 2022, we have been cooperating with the Federal Trade Commission (the “FTC”) staff in response to a Civil Investigative Demand seeking information regarding our disclosure and subscription cancellation practices relative to the Restore Online Shoppers’ Confidence Act. In November 2023, the FTC staff asserted that they had the authority to enter into consent negotiations to determine if a settlement regarding their investigation of these issues could be reached. Since then, we have attempted to engage constructively with the FTC to resolve this matter. On March 20, 2024, we were informed that the FTC had voted to authorize a filing of the case. It is not clear whether a settlement may be in reach, and we intend to continue seeking to engage constructively with the FTC. The defense or resolution of this matter could involve significant monetary costs or penalties and have a significant impact on our financial results and operations. There can be no assurance that we will be successful in negotiating a favorable settlement or in litigation. Any remedies or compliance requirements could adversely affect our ability to operate our business or have a materially adverse impact on our financial results. At this stage, we are unable to estimate a reasonably possible financial loss or range of any potential financial loss, if any, as a result of this investigation.

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On October 20, 2023, a securities class action captioned Pembroke Pines Firefighters & Police Officers Pension Fund et al v. Adobe, Inc. et al, Case No. 1:23-cv-09260, was filed in the U.S. District Court for the Southern District of New York (the “Securities Action”) naming Adobe and certain of our current and former officers as defendants. The Securities Action purports to be brought on behalf of purchasers of the Company’s stock between July 23, 2021 and September 22, 2022 (the “Class Period”). The complaint, which was amended on February 23, 2024, alleges that certain public statements made by Adobe during the Class Period related to competition from Figma and the adequacy of Adobe’s existing offerings to counter harms Adobe may have faced due to Figma’s growing market position were materially false and misleading. The Securities Action seeks unspecified compensatory damages, attorneys’ fees and costs, and extraordinary equitable and/or injunctive relief.

On November 16, 2023, a shareholder derivative action captioned Shah v. Narayen et al, Case No. 1:23-cv-01315, was filed in the U.S. District Court for the District of Delaware (the “Shah Action”), purportedly on behalf of Adobe. On January 3, 2024, a second shareholder derivative action captioned Gervat v. Narayen et al, Case No. 1:24-cv-00006, was filed in the U.S. District Court for the District of Delaware (the “Gervat Action”), purportedly on behalf of Adobe. On January 24, 2024, the Court consolidated the Shah and Gervat Actions (together, the “Consolidated Derivative Action”). On January 18, 2024, a shareholder derivative action captioned Sbriglio v. Narayen et al., Case No. 24-cv-429458, was filed in California Superior Court (the “Sbriglio Action”), purportedly on behalf of Adobe. On January 29, 2024, a shareholder derivative action captioned Roy v. Narayen et al., No. 1:24-cv-00633, was filed in the U.S. District Court for the Southern District of New York, (the “Roy Action,” and together with the Consolidated Derivative Action and the Sbriglio Action, the “Derivative Actions”), purportedly on behalf of Adobe. The Derivative Actions are based largely on the same alleged facts and circumstances as the Securities Action, and name certain of our current and former officers and members of our Board of Directors as defendants and Adobe as a nominal defendant. The Derivative Actions together allege claims for breach of fiduciary duty and/or aiding and abetting breach of fiduciary duties, unjust enrichment, waste of corporate assets, abuse of control, and violations of Section 10(b) (and Rule 10b-5 promulgated thereunder), Section 20(a), and/or Section 21D of the Securities Exchange Act of 1934, as amended, and seek recovery of unspecified damages, restitution, and attorney’s fees and costs, as well as disgorgement of profits and certain payments and benefits, in the case of the Gervat Action, and improvements to Adobe’s corporate governance and internal procedures, in the case of the Shah Action, on behalf of Adobe.

We dispute the allegations of wrongdoing in the Securities Action and the Derivative Actions and intend to vigorously defend ourselves in these matters. In view of the complexity and ongoing and uncertain nature of the outstanding proceedings and inquiries, at this time we are unable to estimate a reasonably possible financial loss or range of financial loss, if any, that we may incur to resolve or settle the Securities Action and the Derivative Actions.

In connection with disputes relating to the validity or alleged infringement of third-party intellectual property rights, including patent rights, we have been, are currently and may in the future be subject to claims, negotiations or complex, protracted litigation. Intellectual property disputes and litigation may be very costly and can be disruptive to our business operations by diverting the attention and energies of management and key technical personnel. Although we have successfully defended or resolved past litigation and disputes, we may not prevail in any ongoing or future litigation and disputes. Third-party intellectual property disputes could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from licensing certain of our products or offering certain of our services, subject us to injunctions restricting our sale of products or services, cause severe disruptions to our operations or the markets in which we compete, or require us to satisfy indemnification commitments with our customers including contractual provisions under various license arrangements and service agreements.

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NOTE 14. DEBT

The carrying value of our borrowings as of March 1, 2024 and December 1, 2023 were as follows:


(dollars in millions)	Issuance Date	Due Date	Effective Interest Rate	2024		2023
1.90% 2025 Notes	February 2020	February 2025	2.07%	$	500	$	500
3.25% 2025 Notes	January 2015	February 2025	3.67%	1,000		1,000
2.15% 2027 Notes	February 2020	February 2027	2.26%	850		850
2.30% 2030 Notes	February 2020	February 2030	2.69%	1,300		1,300
Total debt outstanding, at par				$	3,650	$	3,650
Less: Current portion of debt, at par				(1,500)		—
Unamortized discount and debt issuance costs				(12)		(16)
Carrying value of long-term debt				$	2,138	$	3,634

Current portion of debt, at par				$	1,500	$	—
Unamortized discount and debt issuance costs				(3)		—
Carrying value of current debt				$	1,497	$	—

Senior Notes

In January 2015, we issued $1 billion of senior notes due February 1, 2025. The related discount and issuance costs are amortized to interest expense over the term of the notes using the effective interest method. Interest is payable semi-annually, in arrears, on February 1 and August 1.

In February 2020, we issued $500 million of senior notes due February 1, 2025, $850 million of senior notes due February 1, 2027 and $1.30 billion of senior notes due February 1, 2030. Our total proceeds were used for general corporate purposes including repayment of debt instruments due in fiscal 2020. The related discount and issuance costs are amortized to interest expense over the respective terms of the notes using the effective interest method. Interest is payable semi-annually, in arrears, on February 1 and August 1.

During the first quarter of fiscal 2024, we reclassified the senior notes due February 1, 2025 as current debt in our condensed consolidated balance sheets. As of March 1, 2024, the carrying value of our current debt was $1.50 billion, net of the related discount and issuance costs. We intend to refinance the current portion of our debt on or before the due date.

Our senior notes rank equally with our other unsecured and unsubordinated indebtedness. We may redeem the notes at any time, subject to a make-whole premium. In addition, upon the occurrence of certain change of control triggering events, we may be required to repurchase the notes, at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase. The notes do not contain financial covenants but include covenants that limit our ability to grant liens on assets and to enter into sale and leaseback transactions, subject to significant allowances.

Revolving Credit Agreement

In June 2022, we entered into a credit agreement (“Revolving Credit Agreement”), providing for a five-year $1.5 billion senior unsecured revolving credit facility, which replaced our previous five-year $1 billion senior unsecured revolving credit agreement entered into in October 2018. The Revolving Credit Agreement provides for loans to Adobe and certain of its subsidiaries that may be designated from time to time as additional borrowers. Pursuant to the terms of the Revolving Credit Agreement, we may, subject to the agreement of lenders to provide additional commitments, obtain up to an additional $500 million in commitments, for a maximum aggregate commitment of $2 billion. At our election, loans under the Revolving Credit Agreement will bear interest at either (i) term Secured Overnight Financing Rate (“SOFR”), plus a margin, (ii) adjusted daily SOFR, plus a margin, (iii) alternative currency rate, plus a margin, or (iv) base rate, which is defined as the highest of (a) the federal funds rate plus 0.50%, (b) the agent’s prime rate, or (c) term SOFR plus 1.00%. The margin for term SOFR, adjusted

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daily SOFR and alternative currency rate loans is based on our debt ratings, and ranges from 0.460% to 0.900%. In addition, facility fees determined according to our debt ratings are payable on the aggregate commitments, regardless of usage, quarterly in an amount ranging from 0.040% to 0.100% per annum. We are permitted to permanently reduce the aggregate commitment under the Revolving Credit Agreement at any time. Subject to certain conditions stated in the Revolving Credit Agreement, Adobe and any of its subsidiaries designated as additional borrowers may borrow, prepay and re-borrow amounts at any time during the term of the Revolving Credit Agreement.

The Revolving Credit Agreement contains customary representations, warranties, affirmative and negative covenants, including events of default and indemnification provisions in favor of the lenders. The negative covenants include restrictions regarding the incurrence of liens and indebtedness, certain merger transactions, dispositions and other matters, all subject to certain exceptions.

The facility will terminate and all amounts owing thereunder will be due and payable on the maturity date unless (a) the commitments are terminated earlier upon the occurrence of certain events, including an event of default, or (b) the maturity date is further extended upon our request, subject to the agreement of the lenders.

As of March 1, 2024, there were no outstanding borrowings under this Revolving Credit Agreement.

Commercial Paper Program

In September 2023, we established a commercial paper program under which we may issue unsecured commercial paper up to a total of $3 billion outstanding at any time, with maturities of up to 397 days from the date of issue. The net proceeds from the issuance of commercial paper are expected to be used for general corporate purposes, which may include working capital, capital expenditures, acquisitions, stock repurchases, refinancing indebtedness or any other general corporate purposes. As of March 1, 2024, there were no outstanding borrowings under the commercial paper program.

Term Loan Credit Agreement

In January 2023, we entered into a delayed draw term loan credit agreement (the “Term Loan Credit Agreement”), providing for a senior unsecured term loan of up to $3.5 billion for the purpose of partially funding the purchase price for our intended acquisition of Figma and the related fees and expenses. During the three months ended March 1, 2024, we entered into a mutual termination agreement with Figma to terminate the previously announced merger agreement. Consequently, the Term Loan Credit Agreement was terminated. There were no outstanding borrowings under the Term Loan Credit Agreement at the time of termination.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto.

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements, including statements regarding product plans, future growth, market opportunities, fluctuations in foreign currency exchange rates, strategic investments, industry positioning, customer acquisition and retention, the amount of annualized recurring revenue and revenue growth. In addition, when used in this report, the words “will,” “expects,” “could,” “would,” “may,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “targets,” “estimates,” “looks for,” “looks to,” “continues” and similar expressions, as well as statements regarding our focus for the future, are generally intended to identify forward-looking statements. Each of the forward-looking statements we make in this report involves risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” in Part II, Item 1A of this report. The risks described herein and in other documents we file from time to time with the U.S. Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for fiscal 2023, should be carefully reviewed. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document, except as required by law.

BUSINESS OVERVIEW

Adobe is a global technology company with a mission to change the world through personalized digital experiences. For over four decades, Adobe’s innovations have transformed how individuals, teams, businesses, enterprises, institutions, and governments engage and interact across all types of media. Our products, services and solutions are used around the world to imagine, create, manage, deliver, measure, optimize and engage with content across surfaces and fuel digital experiences. We have a diverse user base that includes consumers, communicators, creative professionals, developers, students, small and medium businesses and enterprises. We are also empowering creators by putting the power of artificial intelligence (“AI”) in their hands, and doing so in ways we believe are responsible. Our products and services help unleash creativity, accelerate document productivity and power businesses in a digital world. We have operations in the Americas; Europe, Middle East and Africa (“EMEA”); and Asia-Pacific (“APAC”).

OPERATIONS OVERVIEW

For our first quarter of fiscal 2024, we experienced strong demand across our Digital Media and Digital Experience offerings, driven by our innovative product roadmap. As we execute on our long-term growth initiatives, with focus on delivering product innovation and driving adoption and usage of our AI-powered solutions, we have continued to experience growth in software-based subscription revenue across our portfolio of offerings.

Digital Media

In our Digital Media segment, we are a market leader with Creative Cloud, our subscription-based offering which provides desktop tools, mobile applications (“apps”) and cloud-based services for designing, creating and publishing rich content and immersive 3D experiences. Creative Cloud includes Adobe Express, a web and mobile app designed to enable a broad spectrum of users, including novice content creators, communicators and creative professionals, to create, edit and customize content quickly and easily with content-first, task-based solutions. In September 2023, we released Adobe Firefly, a group of creative generative AI models designed to generate high quality images and text effects. Adobe Firefly-powered generative AI features are also available across Creative Cloud apps including Adobe Photoshop and Adobe Express. Creative Cloud delivers value with deep, cross-product integration, frequent product updates and feature enhancements, cloud-enabled services including storage and syncing of files across users’ devices, machine learning and artificial intelligence, access to marketplace, social and community-based features with our Adobe Stock and Behance services, app creation capabilities, tools which assist with enterprise deployments and team collaboration, and affordable pricing for cost-sensitive customers.

We offer Creative Cloud for individuals, students, teams and enterprises. We expect Creative Cloud will drive sustained long-term revenue growth through a continued expansion of our customer base by attracting new users with new features and products like Adobe Express and Adobe Firefly that make creative tools accessible to first-time creators and communicators, and delivering new features and technologies to existing customers with our latest releases such as share for review and generative AI capabilities. We have also built out a marketplace for Creative Cloud subscribers to enable the delivery and purchase of stock content in our Adobe Stock service. Overall, our strategy with Creative Cloud is designed to enable us to

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increase our revenue with existing users, continue to attract new customers, and grow our recurring and predictable revenue stream that is recognized ratably.

We continue to implement strategies that are designed to accelerate awareness, consideration and purchase of subscriptions to our Creative Cloud offerings. These strategies include increasing the value Creative Cloud users receive, such as offering new and enhanced desktop, web and mobile apps, as well as targeted promotions and offers that attract past customers and potential users to experience and ultimately subscribe to Creative Cloud. Because of the shift towards Creative Cloud subscriptions and Enterprise Term License Agreements (“ETLAs”), revenue from perpetual licensing of our Creative products has been immaterial to our business.

We are also a market leader with our Document Cloud offerings built around our Adobe Acrobat family of products, with a set of integrated mobile apps and cloud-based document services which enable users to create, collaborate, review, approve, sign and track documents regardless of platform or application source type. Document Cloud, which enhances the way people manage critical documents at home, in the office and across devices, includes Adobe Acrobat, Adobe Acrobat Sign and Adobe Scan. Adobe Acrobat is offered both through subscription and perpetual licenses, and is also included in our Creative Cloud All Apps subscription offering.

As part of our Creative Cloud and Document Cloud strategies, we utilize a data-driven operating model (“DDOM”) and our Adobe Experience Cloud solutions to raise awareness of our products, drive new customer acquisition, engagement and retention, and optimize customer journeys, which continue to contribute strong product-led growth in the business.

Annualized Recurring Revenue (“ARR”) is currently the key performance metric our management uses to assess the health and trajectory of our overall Digital Media segment. ARR should be viewed independently of revenue, deferred revenue and remaining performance obligations as ARR is a performance metric and is not intended to be combined with any of these items. We adjust our reported ARR on an annual basis to reflect any exchange rate changes. Our reported ARR results in the current fiscal year are based on currency rates set at the beginning of the year and held constant throughout the year for measurement purposes. We calculate ARR as follows:


Creative ARR			Annual Value of Creative Cloud Subscriptions and Services + Annual Creative ETLA Contract Value
Document Cloud ARR			Annual Value of Document Cloud Subscriptions and Services + Annual Document Cloud ETLA Contract Value
Digital Media ARR			Creative ARR + Document Cloud ARR

Creative ARR exiting the first quarter of fiscal 2024 was $12.78 billion, up from $12.49 billion at the end of fiscal 2023. Document Cloud ARR exiting the first quarter of fiscal 2024 was $2.98 billion, up from $2.84 billion at the end of fiscal 2023. Total Digital Media ARR grew to $15.76 billion at the end of the first quarter of fiscal 2024, up from $15.33 billion at the end of fiscal 2023.

Our success in driving growth in ARR has positively affected our revenue growth. Creative revenue in the first quarter of fiscal 2024 was $3.07 billion, up from $2.76 billion in the first quarter of fiscal 2023, representing 11% year-over-year growth. Document Cloud revenue in the first quarter of fiscal 2024 was $750 million, up from $634 million in the first quarter of fiscal 2023, representing 18% year-over-year growth. Total Digital Media segment revenue grew to $3.82 billion in the first quarter of fiscal 2024, up from $3.40 billion in the first quarter of fiscal 2023, representing 12% year-over-year growth driven by strong net new user growth.

Digital Experience

We are a market leader in the fast-growing category addressed by our Digital Experience segment. The Adobe Experience Cloud apps and services are designed to manage customer journeys, enable personalized experiences at scale and deliver intelligence for businesses of any size in any industry. Our differentiation and competitive advantage are strengthened by our ability to use the Adobe Experience Platform to integrate our comprehensive set of solutions.

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Adobe Experience Cloud delivers solutions for our customers across the following strategic growth pillars:

•Data insights and audiences. Our products, including Adobe Analytics, Customer Journey Analytics, Adobe Product Analytics, and our Real-time Customer Data Platform, deliver actionable data in real time to provide highly tailored and adaptive experiences across platforms.

•Content and commerce. Our products help customers manage, deliver, monetize, and optimize content delivery through Adobe Experience Manager and build multi-channel commerce experiences for B2B and B2C customers on a single platform with Adobe Commerce.

•Customer journeys. Our products help businesses manage, test, target and personalize customer journeys delivered as campaigns across B2B and B2C use cases, including through Adobe Marketo Engage, Adobe Campaign, Adobe Target and Adobe Journey Optimizer.

•Marketing planning and workflow. Our products help businesses intelligently measure, optimize, and plan marketing investments through the Adobe Mix Modeler, and allow businesses to strategically plan, manage, collaborate, and execute on workflows for marketing campaigns and other projects at speed and scale with our enterprise work management app, Adobe Workfront.

In addition to chief marketing officers, chief revenue officers and digital marketers, users of our Digital Experience solutions include advertisers, campaign managers, publishers, data analysts, content managers, social marketers, marketing executives and information management and technology executives. These customers often are involved in workflows that integrate other Adobe products, such as our Digital Media offerings. By combining the creativity of our Digital Media business with the science of our Digital Experience business, such as with our new Adobe GenStudio solution, we help our customers to more efficiently and effectively make, manage, measure and monetize their content across every channel with an end-to-end workflow and feedback loop.

We utilize a direct sales force to market and license our Digital Experience solutions, as well as an extensive ecosystem of partners, including marketing agencies, systems integrators and independent software vendors that help license and deploy our solutions to their customers. We have made significant investments to broaden the scale and size of all of these routes to market, and our recent financial results reflect the success of these investments and our experience-led growth strategy.

Digital Experience revenue was $1.29 billion in the first quarter of fiscal 2024, up from $1.18 billion in the first quarter of fiscal 2023, representing 10% year-over-year growth. Driving this growth was the increase in subscription revenue, which grew to $1.16 billion in the first quarter of fiscal 2024 from $1.04 billion in the first quarter of fiscal 2023, representing 12% year-over-year growth.

Macroeconomic Conditions

As a corporation with an extensive global footprint, we are subject to risks and exposures from the evolving macroeconomic environment, including the effects of increased global inflationary pressures and interest rates, fluctuations in foreign currency exchange rates, potential economic slowdowns or recessions and geopolitical pressures, including the unknown impacts of current and future trade regulations. We continuously monitor the direct and indirect impacts of these circumstances on our business and financial results.

While our revenue and earnings are relatively predictable as a result of our subscription-based business model, the broader implications of these macroeconomic events on our business, results of operations and overall financial position, particularly in the long term, remain uncertain. See Risk Factors for further discussion of the possible impact of these macroeconomic issues on our business.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In preparing our condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the SEC, we make assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. We evaluate our assumptions, judgments and estimates on a regular basis. We also discuss our critical accounting policies and estimates with the Audit Committee of the Board of Directors.

We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition and income taxes have the greatest potential impact on our condensed consolidated financial statements. These areas are key components of our results of operations and are based on complex rules requiring us to make judgments and estimates, and consequently, we consider these to be our critical accounting policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results.

There have been no significant changes in our critical accounting policies and estimates during the three months ended March 1, 2024, as compared to the critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 1, 2023.

Recent Accounting Pronouncements

See Note 1 of our notes to condensed consolidated financial statements for information regarding recent accounting pronouncements that are of significance or potential significance to us.

RESULTS OF OPERATIONS

Financial Performance Summary

•Total Digital Media ARR of approximately $15.76 billion as of March 1, 2024 increased by $432 million, or 3%, from $15.33 billion as of December 1, 2023.

•Creative revenue during the three months ended March 1, 2024 of $3.07 billion increased by $305 million, or 11%, compared to the year-ago period. Document Cloud revenue during the three months ended March 1, 2024 of $750 million increased by $116 million, or 18%, compared to the year-ago period.

•Digital Experience revenue of $1.29 billion during the three months ended March 1, 2024 increased by $113 million, or 10%, compared to the year-ago period.

•Remaining performance obligations of $17.58 billion as of March 1, 2024 increased by $369 million, or 2%, from $17.22 billion as of December 1, 2023.

•Cost of revenue of $590 million during the three months ended March 1, 2024 increased by $22 million, or 4%, compared to the year-ago period.

•Operating expenses of $3.69 billion during the three months ended March 1, 2024 increased by $1.18 billion, or 47%, compared to the year-ago period primarily due to the $1 billion termination fee which resulted from termination of the Figma transaction.

•Net income of $620 million during the three months ended March 1, 2024 decreased by $627 million, or 50%, compared to the year-ago period.

•Cash flows from operations of $1.17 billion during the three months ended March 1, 2024 decreased by $519 million, or 31%, compared to the year-ago period.

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Revenue for the Three Months Ended March 1, 2024 and March 3, 2023


(dollars in millions)	Three Months
	2024			2023			% Change
Subscription	$	4,916		$	4,373		12	%
Percentage of total revenue	95		%	94		%
Product	119			120			(1)	%
Percentage of total revenue	2		%	3		%
Services and other	147			162			(9)	%
Percentage of total revenue	3		%	3		%
Total revenue	$	5,182		$	4,655		11	%

Subscription

Our subscription revenue is comprised primarily of fees we charge for our subscription and hosted service offerings, and related support, including Creative Cloud and certain of our Adobe Experience Cloud and Document Cloud services. We primarily recognize subscription revenue ratably over the term of agreements with our customers, beginning with commencement of service. Subscription revenue related to certain offerings, where fees are based on a number of transactions and invoicing is aligned to the pattern of performance, customer benefit and consumption, are recognized on a usage basis.

We have the following reportable segments: Digital Media, Digital Experience, and Publishing and Advertising. Subscription revenue by reportable segment for the three months ended March 1, 2024 and March 3, 2023 is as follows:


(dollars in millions)	Three Months
	2024		2023		% Change
Digital Media	$	3,725	$	3,301	13	%
Digital Experience	1,164		1,042		12	%
Publishing and Advertising	27		30		(10)	%
Total subscription revenue	$	4,916	$	4,373	12	%

Product

Our product revenue is comprised primarily of fees related to licenses for on-premise software purchased on a perpetual basis, for a fixed period of time or based on usage for certain of our original equipment manufacturer and royalty agreements. We primarily recognize product revenue at the point in time the software is available to the customer, provided all other revenue recognition criteria are met.

Services and Other

Our services and other revenue is comprised primarily of fees related to consulting, training, maintenance and support for certain on-premise licenses that are recognized at a point in time and our advertising offerings. We typically sell our consulting contracts on a time-and-materials or fixed-fee basis. These revenues are recognized as the services are performed for time-and-materials contracts and on a relative performance basis for fixed-fee contracts. Training revenues are recognized as the services are performed. Our maintenance and support offerings, which entitle customers, partners and developers to receive desktop product upgrades and enhancements or technical support, depending on the offering, are generally recognized ratably over the term of the arrangement. Transaction-based advertising revenue is recognized on a usage basis as we satisfy the performance obligations to our customers.

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Segment Information


(dollars in millions)	Three Months
	2024			2023			% Change
Digital Media	$	3,816		$	3,395		12	%
Percentage of total revenue	74		%	73		%
Digital Experience	1,289			1,176			10	%
Percentage of total revenue	25		%	25		%
Publishing and Advertising	77			84			(8)	%
Percentage of total revenue	1		%	2		%
Total revenue	$	5,182		$	4,655		11	%

Digital Media

Revenue by major offerings in our Digital Media reportable segment for the three months ended March 1, 2024 and March 3, 2023 were as follows:


(dollars in millions)	Three Months
	2024		2023		% Change
Creative Cloud	$	3,066	$	2,761	11	%
Document Cloud	750		634		18	%
Total Digital Media revenue	$	3,816	$	3,395	12	%

Rev