adbe-20240531

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 May 31, 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 June 21, 2024, 443.4 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 Ma y 3 1, 2024 and December 1, 2023	3
	Condensed Consolidated Statements of Income Three and Six Months Ended Ma y 3 1, 2024 and June 2 , 2023	4
	Condensed Consolidated Statements of Comprehensive Income Three and Six Months Ended Ma y 3 1, 2024 and June 2 , 2023	5
	Condensed Consolidated Statements of Stockholders’ Equity Three and Six Months Ended Ma y 3 1, 2024 and June 2 , 2023	6
	Condensed Consolidated Statements of Cash Flows Six Months Ended Ma y 3 1, 2024 and June 2 , 2023	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38
Item 4.	Controls and Procedures	38

PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51

Item 5.	Other Information	51
Item 6.	Exhibits	52
Signature		53
Summary of Trademarks		54

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ADOBE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except par value)


	May 31, 2024		December 1, 2023
	(Unaudited)		(*)
ASSETS
Current assets:
Cash and cash equivalents	$	7,660	$	7,141
Short-term investments	405		701
Trade receivables, net of allowances for doubtful accounts of $19 and $16, respectively	1,612		2,224
Prepaid expenses and other current assets	1,346		1,018
Total current assets	11,023		11,084
Property and equipment, net	1,969		2,030
Operating lease right-of-use assets, net	381		358
Goodwill	12,803		12,805
Other intangibles, net	933		1,088
Deferred income taxes	1,436		1,191
Other assets	1,462		1,223
Total assets	$	30,007	$	29,779

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade payables	$	357	$	314
Accrued expenses	1,899		1,942
Debt	1,498		—
Deferred revenue	5,558		5,837
Income taxes payable	95		85
Operating lease liabilities	67		73
Total current liabilities	9,474		8,251
Long-term liabilities:
Debt	4,127		3,634
Deferred revenue	128		113
Income taxes payable	591		514

Operating lease liabilities	398		373
Other liabilities	446		376
Total liabilities	15,164		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; 449 and 455 shares outstanding, respectively	—		—
Additional paid-in capital	12,504		11,586
Retained earnings	35,227		33,346
Accumulated other comprehensive income (loss)	(276)		(285)
Treasury stock, at cost (152 and 146 shares, respectively)	(32,612)		(28,129)
Total stockholders’ equity	14,843		16,518
Total liabilities and stockholders’ equity	$	30,007	$	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				Six Months Ended
	May 31, 2024		June 2, 2023		May 31, 2024		June 2, 2023
Revenue:
Subscription	$	5,060	$	4,517	$	9,976	$	8,890
Product	104		130		223		250
Services and other	145		169		292		331
Total revenue	5,309		4,816		10,491		9,471
Cost of revenue:
Subscription	456		436		911		870
Product	8		8		13		16
Services and other	134		128		264		254
Total cost of revenue	598		572		1,188		1,140
Gross profit	4,711		4,244		9,303		8,331
Operating expenses:
Research and development	984		876		1,923		1,703
Sales and marketing	1,445		1,345		2,797		2,646
General and administrative	355		357		707		688

Acquisition termination fee	—		—		1,000		—
Amortization of intangibles	42		42		84		84
Total operating expenses	2,826		2,620		6,511		5,121
Operating income	1,885		1,624		2,792		3,210
Non-operating income (expense):
Interest expense	(41)		(26)		(68)		(58)
Investment gains (losses), net	4		5		22		6
Other income (expense), net	82		47		152		90
Total non-operating income (expense), net	45		26		106		38
Income before income taxes	1,930		1,650		2,898		3,248
Provision for income taxes	357		355		705		706
Net income	$	1,573	$	1,295	$	2,193	$	2,542
Basic net income per share	$	3.50	$	2.83	$	4.86	$	5.55
Shares used to compute basic net income per share	449		458		451		458
Diluted net income per share	$	3.49	$	2.82	$	4.83	$	5.54
Shares used to compute diluted net income per share	451		459		454		459

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				Six Months Ended
	May 31, 2024		June 2, 2023		May 31, 2024		June 2, 2023

	Increase/(Decrease)				Increase/(Decrease)
Net income	$	1,573	$	1,295	$	2,193	$	2,542
Other comprehensive income (loss), net of taxes:
Available-for-sale securities:
Unrealized gains / losses on available-for-sale securities	3		6		7		14
Reclassification adjustment for recognized gains / losses on available-for-sale securities	—		5		—		5
Net increase (decrease) from available-for-sale securities	3		11		7		19
Derivatives designated as hedging instruments:
Unrealized gains / losses on derivative instruments	(2)		—		1		(9)
Reclassification adjustment for realized gains / losses on derivative instruments	4		(7)		8		(24)
Net increase (decrease) from derivatives designated as hedging instruments	2		(7)		9		(33)
Foreign currency translation adjustments	(4)		6		(7)		10
Other comprehensive income (loss), net of taxes	1		10		9		(4)
Total comprehensive income, net of taxes	$	1,574	$	1,305	$	2,202	$	2,538

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 May 31, 2024
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock
	Shares	Amount								Shares	Amount		Total
Balances at March 1, 2024	601	$	—	$	12,037	$	33,809	$	(277)	(148)	$	(30,109)	$	15,460
Net income	—	—		—		1,573		—		—	—		1,573
Other comprehensive income (loss), net of taxes	—	—		—		—		1		—	—		1
Re-issuance of treasury stock under stock compensation plans	—	—		—		(155)		—		1	20		(135)
Repurchases of common stock	—	—		—		—		—		(5)	(2,521)		(2,521)

Stock-based compensation	—	—		467		—		—		—	—		467
Value of shares in deferred compensation plan	—	—		—		—		—		—	(2)		(2)
Balances at May 31, 2024	601	$	—	$	12,504	$	35,227	$	(276)	(152)	$	(32,612)	$	14,843


	Three Months Ended June 2, 2023
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock
	Shares	Amount								Shares	Amount		Total
Balances at March 3, 2023	601	$	—	$	10,284	$	29,435	$	(307)	(142)	$	(25,206)	$	14,206
Net income	—	—		—		1,295		—		—	—		1,295
Other comprehensive income (loss), net of taxes	—	—		—		—		10		—	—		10
Re-issuance of treasury stock under stock compensation plans	—	—		—		(121)		—		—	19		(102)
Repurchases of common stock	—	—		—		—		—		(3)	(1,004)		(1,004)

Stock-based compensation	—	—		433		—		—		—	—		433

Balances at June 2, 2023	601	$	—	$	10,717	$	30,609	$	(297)	(145)	$	(26,191)	$	14,838

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ADOBE INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions)

(Unaudited)


	Six Months Ended May 31, 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	—	—		—		2,193		—		—	—		2,193
Other comprehensive income (loss), net of taxes	—	—		—		—		9		—	—		9
Re-issuance of treasury stock under stock compensation plans	—	—		—		(312)		—		2	52		(260)
Repurchases of common stock	—	—		—		—		—		(8)	(4,534)		(4,534)

Stock-based compensation	—	—		918		—		—		—	—		918
Value of shares in deferred compensation plan	—	—		—		—		—		—	(1)		(1)
Balances at May 31, 2024	601	$	—	$	12,504	$	35,227	$	(276)	(152)	$	(32,612)	$	14,843


	Six Months Ended June 2, 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	—	—		—		2,542		—		—	—		2,542
Other comprehensive income (loss), net of taxes	—	—		—		—		(4)		—	—		(4)
Re-issuance of treasury stock under stock compensation plans	—	—		—		(252)		—		2	55		(197)
Repurchases of common stock	—	—		—		—		—		(8)	(2,404)		(2,404)

Stock-based compensation	—	—		849		—		—		—	—		849
Value of shares in deferred compensation plan	—	—		—		—		—		—	1		1
Balances at June 2, 2023	601	$	—	$	10,717	$	30,609	$	(297)	(145)	$	(26,191)	$	14,838

See accompanying notes to condensed consolidated financial statements.

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ADOBE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


	Six Months Ended
	May 31, 2024		June 2, 2023
Cash flows from operating activities:
Net income	$	2,193	$	2,542
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	426		432
Stock-based compensation	918		849
Reduction of operating lease right-of-use assets	37		36
Deferred income taxes	(238)		(168)
Unrealized losses (gains) on investments, net	(14)		(2)
Other non-cash items	6		(3)
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
Trade receivables, net	604		385
Prepaid expenses and other assets	(641)		(562)
Trade payables	45		(29)
Accrued expenses and other liabilities	(45)		(36)
Income taxes payable	87		421
Deferred revenue	(264)		(33)
Net cash provided by operating activities	3,114		3,832
Cash flows from investing activities:

Maturities of short-term investments	295		538
Proceeds from sales of short-term investments	7		195

Purchases of property and equipment	(78)		(222)
Purchases of long-term investments, intangibles and other assets	(49)		(34)
Proceeds from sale of long-term investments and other assets	2		1
Net cash provided by investing activities	177		478
Cash flows from financing activities:
Repurchases of common stock	(4,500)		(2,400)
Proceeds from re-issuance of treasury stock	97		70
Taxes paid related to net share settlement of equity awards	(357)		(267)
Proceeds from issuance of debt	1,997		—
Repayment of debt	—		(500)
Other financing activities, net	(7)		3

Net cash used for financing activities	(2,770)		(3,094)
Effect of foreign currency exchange rates on cash and cash equivalents	(2)		4
Net change in cash and cash equivalents	519		1,220
Cash and cash equivalents at beginning of period	7,141		4,236
Cash and cash equivalents at end of period	$	7,660	$	5,456
Supplemental disclosures:
Cash paid for income taxes, net of refunds	$	901	$	435
Cash paid for interest	$	48	$	56

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 six months ended May 31, 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 May 31, 2024 and June 2, 2023 were as follows:


(dollars in millions)	Digital Media			Digital Experience			Publishing and Advertising			Total
Three months ended May 31, 2024
Revenue	$	3,908		$	1,327		$	74		$	5,309
Cost of revenue	181			395			22			598
Gross profit	$	3,727		$	932		$	52		$	4,711
Gross profit as a percentage of revenue	95		%	70		%	70		%	89		%
Three months ended June 2, 2023
Revenue	$	3,511		$	1,222		$	83		$	4,816
Cost of revenue	152			399			21			572
Gross profit	$	3,359		$	823		$	62		$	4,244
Gross profit as a percentage of revenue	96		%	67		%	75		%	88		%

Our segment results for the six months ended May 31, 2024 and June 2, 2023 were as follows:


(dollars in millions)	Digital Media			Digital Experience			Publishing and Advertising			Total
Six months ended May 31, 2024
Revenue	$	7,724		$	2,616		$	151		$	10,491
Cost of revenue	352			792			44			1,188
Gross profit	$	7,372		$	1,824		$	107		$	9,303
Gross profit as a percentage of revenue	95		%	70		%	71		%	89		%
Six months ended June 2, 2023
Revenue	$	6,906		$	2,398		$	167		$	9,471
Cost of revenue	294			803			43			1,140
Gross profit	$	6,612		$	1,595		$	124		$	8,331
Gross profit as a percentage of revenue	96		%	67		%	74		%	88		%

Revenue by geographic area for the three and six months ended May 31, 2024 and June 2, 2023 were as follows:


	Three Months				Six Months
(in millions)	2024		2023		2024		2023
Americas	$	3,188	$	2,879	$	6,298	$	5,658
EMEA	1,361		1,213		2,680		2,386
APAC	760		724		1,513		1,427
Total	$	5,309	$	4,816	$	10,491	$	9,471

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Revenue by major offerings in our Digital Media reportable segment for the three and six months ended May 31, 2024 and June 2, 2023 were as follows:


	Three Months				Six Months
(in millions)	2024		2023		2024		2023
Creative Cloud	$	3,126	$	2,852	$	6,192	$	5,613
Document Cloud	782		659		1,532		1,293
Total Digital Media revenue	$	3,908	$	3,511	$	7,724	$	6,906

Subscription revenue by segment for the three and six months ended May 31, 2024 and June 2, 2023 were as follows:


	Three Months				Six Months
(in millions)	2024		2023		2024		2023
Digital Media	$	3,828	$	3,418	$	7,553	$	6,719
Digital Experience	1,204		1,070		2,368		2,112
Publishing and Advertising	28		29		55		59
Total subscription revenue	$	5,060	$	4,517	$	9,976	$	8,890

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 May 31, 2024, the balance of trade receivables, net of allowances for doubtful accounts, was $1.61 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.

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. The allowance for doubtful accounts was $19 million and $16 million as of May 31, 2024 and December 1, 2023, respectively.

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 six months ended May 31, 2024. Contract assets were $193 million and $141 million as of May 31, 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 May 31, 2024, the balance of deferred revenue was $5.69 billion, which includes $55 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 and six months ended May 31, 2024, approximately $1.69 billion and $4.36 billion of revenue, respectively, was recognized that was included in the balance of deferred revenue as of December 1, 2023.

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 May 31, 2024, remaining performance obligations were approximately $17.86 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 $716 million and $656 million as of May 31, 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 $105 million and $111 million as of May 31, 2024 and December 1, 2023, respectively.

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 six months ended May 31, 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.

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Cash, cash equivalents and short-term investments consisted of the following as of May 31, 2024:


(in millions)	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Current assets:
Cash	$	564	$	—	$	—	$	564
Cash equivalents:

Money market funds	7,012		—		—		7,012

Time deposits	84		—		—		84


Total cash equivalents	7,096		—		—		7,096
Total cash and cash equivalents	7,660		—		—		7,660
Short-term fixed income securities:
Asset-backed securities	8		—		—		8
Corporate debt securities	202		—		(1)		201


U.S. agency securities	13		—		—		13
U.S. Treasury securities	187		—		(4)		183
Total short-term investments	410		—		(5)		405
Total cash, cash equivalents and short-term investments	$	8,070	$	—	$	(5)	$	8,065

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.

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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 May 31, 2024:


(in millions)	Estimated Fair Value
Due within one year	$	342
Due between one and two years	60
Due between two and three years	3

Total	$	405

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 six months ended May 31, 2024 and June 2, 2023, we did not recognize an allowance for credit-related losses on any of our investments.

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 May 31, 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	$	7,012	$	7,012	$	—	$	—

Time deposits	84		84		—		—


Short-term investments:
Asset-backed securities	8		—		8		—
Corporate debt securities	201		—		201		—




U.S. agency securities	13		—		13		—
U.S. Treasury securities	183		—		183		—
Prepaid expenses and other current assets:
Foreign currency derivatives	51		—		51		—

Other assets:
Deferred compensation plan assets	251		251		—		—

Total assets	$	7,803	$	7,347	$	456	$	—


Liabilities:
Accrued expenses:

Foreign currency derivatives	$	4	$	—	$	4	$	—

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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 $5.39 billion as of May 31, 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 24 months.

As of May 31, 2024, we had net derivative losses on our foreign currency cash flow hedges expected to be recognized within the next 36 months, of which $4 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 May 31, 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	3		—		1		—


Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	4		4		9		4
Total derivatives	$	51	$	4	$	52	$	4

For the three and six months ended May 31, 2024 and June 2, 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 May 31, 2024 and December 1, 2023 was $12.80 billion and $12.81 billion, respectively. During the second quarter of fiscal 2024, we completed our annual goodwill impairment test associated with our reporting units and determined there was no impairment of goodwill.

Other intangible assets subject to amortization as of May 31, 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	$	(681)	$	523	$	1,204	$	(619)	$	585
Purchased technology	884		(630)		254		984		(647)		337
Trademarks	376		(239)		137		376		(217)		159


Other	28		(9)		19		22		(15)		7
Other intangibles, net	$	2,492	$	(1,559)	$	933	$	2,586	$	(1,498)	$	1,088

Amortization expense related to other intangibles was $84 million and $168 million for the three and six months ended May 31, 2024, respectively. Comparatively, amortization expense related to other intangibles was $96 million and $192 million for the three and six months ended June 2, 2023, respectively. Of these amounts, $42 million and $84 million were included in cost of revenue for the three and six months ended May 31, 2024, respectively, and $54 million and $108 million were included in cost of revenue for the three and six months ended June 2, 2023, respectively.

As of May 31, 2024, the estimated aggregate amortization expense in future periods was as follows:


(in millions)
Fiscal Year	Other Intangibles (1)
Remainder of 2024	$	166
2025	301
2026	149
2027	107
2028	65
Thereafter	125
Total expected amortization expense	$	913

_________________________________________

(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.

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NOTE 8. ACCRUED EXPENSES

Accrued expenses as of May 31, 2024 and December 1, 2023 consisted of the following:


(in millions)	2024		2023
Accrued compensation and benefits	$	744	$	535
Accrued bonuses	305		547

Accrued corporate marketing	125		132

Sales and use taxes	105		122
Refund liabilities	105		111




Other	515		495
Accrued expenses	$	1,899	$	1,942

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

NOTE 9. STOCK-BASED COMPENSATION

Restricted Stock Units

Restricted stock unit activity for the six months ended May 31, 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	2.6	$	590.97
Released	(1.8)	$	431.10
Forfeited	(0.2)	$	442.98

Ending outstanding balance	8.4	$	468.88	$	3,734

Expected to vest	7.7	$	467.98	$	3,435

_________________________________________

(1) The aggregate fair value is calculated using the closing stock price as of May 31, 2024 of $444.76.

The total fair value of restricted stock units vested during the six months ended May 31, 2024 was $953 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 May 31, 2024, the performance shares awarded under our 2024, 2023 and 2022 Performance Share Programs remained outstanding and unvested.

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(Unaudited)

Performance share activity for the six months ended May 31, 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)	$	455.65
Forfeited	(0.1)	$	474.70
Ending outstanding balance	0.5	$	536.56	$	238

Expected to vest	0.5	$	534.33	$