Adobe Inc.

06/15/2026 | Press release | Distributed by Public on 06/15/2026 04:15

Quarterly Report for Quarter Ending May 29, 2026 (Form 10-Q)

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, including artificial intelligence ("AI") opportunities, customer needs, business and finance strategies, macroeconomic conditions, 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," "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 2025, 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.
"Adobe," "Acrobat," "Photoshop," "Adobe Firefly," "Adobe GenStudio" and other trademarks of ours appearing in this report are our property. All other trademarks are the property of their respective owners.
BUSINESS OVERVIEW
Adobe's mission is to empower everyone to create. We build innovative platforms and tools that unleash creativity, productivity and personalized customer experiences. For over four decades, our innovations have transformed how people everywhere engage across all types of media. Adobe's solutions are the foundation of digital experiences, starting with the first creative spark, to the creation and development of all content and media, to the personalized delivery across every channel. We have operations in the Americas; Europe, Middle East and Africa ("EMEA"); and Asia-Pacific ("APAC").
Our focus revolves around serving our customer audiences: business professionals, consumers, creators, creative professionals and marketing professionals. The massive opportunity and evolving role of creativity across roles and industries have driven Adobe's growth over the past four decades and are expected to continue to drive our growth going forward as we evolve our solutions and routes to market to anticipate the growing needs of our customers. In the AI era, we are harnessing the power of AI across our solutions by bringing together our commercially safe first-party and leading partner AI models best suited for the job; deploying conversational and agentic capabilities across offerings; ensuring ubiquity on all surfaces; delivering trusted and secure solutions; and expanding our global presence.
Adobe's value proposition is to empower creative expression across multiple media types and channels, at scale, in a collaborative and secure environment, with an end-to-end integrated platform spanning ideation, creation, production and activation. We power the entire content workflow with Adobe's AI platform, which offers customers brand safety, compliance, intellectual property protection, and reliability.
In the first quarter of fiscal 2026, we combined our former segments-Digital Media, Digital Experience and Publishing and Advertising-into a single operating and reportable segment due to changes in how management evaluates results and allocates resources, reflecting the Company's shift to unified selling motions and integrated product innovation.
OPERATIONS OVERVIEW
In our second quarter of fiscal 2026, we experienced strong demand across our portfolio of subscription-based solutions, driven by transformative and customer-focused product innovation. As we execute on our long-term growth initiatives, with emphasis on delivering value through AI-powered and highly differentiated solutions to meet the needs of our diverse and expanding customer base, we have continued to experience growth in software-based subscription revenue.
Our offerings help our customers-spanning business professionals, consumers, creators, creative professionals and marketing professionals-to be more creative, productive and successful. We are driving continued business success through audience-specific product innovation and go-to-market strategy focused on two customer groups: Business Professionals & Consumers and Creative & Marketing Professionals.
Creative & Marketing Professionals
Our solutions targeted toward the Creative & Marketing Professionals customer group consist of our customer experience orchestration offerings as well as Creative Cloud flagship apps such as Photoshop, Lightroom, Illustrator and Premiere. Creators, creative professionals and marketing professionals require agile and comprehensive solutions to create high volumes of compelling content, infused with commercially safe AI capabilities. For creators and creative professionals, we offer an end-to-end, ideation-to-creation platform powered by our commercially safe Adobe Firefly models and an expansive partner model ecosystem, offering customers choice and flexibility. For marketing professionals, we unify creative production and marketing execution with content supply chain solutions that deliver end-to-end customer experience orchestration solutions, automate workflows and personalize experiences and engagement at scale across channels. Our customer experience orchestration solutions deliver actionable data, with products such as Adobe Analytics and Adobe Real-Time Customer Data Platform; optimize personalized content delivery, with products such as Adobe Experience Manager, Adobe Commerce and Adobe GenStudio for Performance Marketing; and manage customer journeys, with products such as Adobe Marketo Engage and Adobe Campaign. Adobe Experience Platform is a customer data platform that serves as a foundation in enterprises for digital customer engagement by unifying our comprehensive set of AI-powered apps and agents to build, deliver, and optimize marketing campaigns and customer experiences. Adobe's integrated solutions, such as GenStudio and Firefly Services, bridge the gap between content creation and marketing execution, enabling seamless collaboration and efficiency across the entire content lifecycle spanning content ideation, creation, production and activation. In addition, our acquisition of Semrush in April 2026 enhances our Adobe Experience Manager offerings with search engine optimization and generative engine optimization solutions.
Creative & Marketing Professionals customer group subscription revenue was $4.54 billion in the second quarter of fiscal 2026, up from $4.02 billion in the second quarter of fiscal 2025, representing 13% year-over-year growth.
Business Professionals & Consumers
Our solutions targeted toward the Business Professionals & Consumers customer group consist of Adobe Acrobat offerings and Adobe Express. Business professionals and consumers desire web and mobile apps with easy-to-use AI capabilities that enable them to create, collaborate and derive insights across multiple media types and channels. Our Adobe Acrobat offerings fuel document productivity, enabling users to create, collaborate, review, approve, sign and track documents at home, in the office and across devices. Acrobat AI Assistant provides users with conversational experiences to quickly and accurately derive insights within individual documents, or across documents in PDF Spaces. Adobe Express is our web and mobile app designed to enable a broad spectrum of users, including novice content creators and communicators, to create, edit and customize content quickly and easily with content-first, task-based solutions. Acrobat Studio is an all-in-one platform for productivity and creation that unites Adobe Acrobat, Adobe Express and AI agents to enable users to quickly, easily and intuitively work.
Business Professionals & Consumers customer group subscription revenue was $1.85 billion in the second quarter of fiscal 2026, up from $1.60 billion in the second quarter of fiscal 2025, representing 16% year-over-year growth.
Customer-Focused Strategy
Our success will be achieved through continued acquisition and retention of our customer base by delivering valuable new features and technologies to customers with our latest releases, including generative AI capabilities to enhance creativity, productivity and marketing, and expanding availability of our offerings across an increasing number of surfaces. As part of our customer-focused strategy, we utilize a data-driven operating model and tailored go-to-market motion to raise awareness of our products and drive customer acquisition, engagement and retention. Overall, our strategy is designed to increase our revenue with existing users, continue to attract new customers, and grow our recurring and predictable revenue stream that is recognized ratably. Due to the nature of certain offerings which contain cross-product integrations or benefits, revenue attributable to certain product entitlements may be recognized in either customer group.
The key performance metric used by management to evaluate progress against our customer-focused strategy is Total Adobe Annualized Recurring Revenue ("ARR"), which represents the annual value of subscription contracts in the Creative & Marketing Professionals and Business Professionals & Consumers customer groups. We adjust our reported ARR on an annual basis, primarily 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. Prior year ARR balances are also revalued at the new currency rates for comparative purposes.
Total Adobe ARR grew to $27.10 billion at the end of the second quarter of fiscal 2026, representing 12.5% year-over-year growth, including approximately $480 million from the Semrush acquisition and further driven by strength in Creative Cloud Pro, Acrobat, and Adobe Experience Platform and related apps. Our success in driving growth in ARR has positively
affected our revenue growth. Total customer group subscription revenue grew to $6.39 billion in the second quarter of fiscal 2026, up from $5.61 billion in the second quarter of fiscal 2025, representing 14% 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 the section titled "Risk Factors" in Part II, Item 1A of this report for further discussion of the possible impact of these macroeconomic issues on our business.
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, business combinations 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.
Business Combinations
We allocate the purchase price of acquired companies to tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets. Although we believe the assumptions and estimates we have made are reasonable, they are based in part on historical experience, market conditions and information obtained from management of the acquired companies, and are inherently uncertain. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include, but are not limited to:
•future expected cash flows from software license sales, subscriptions, support agreements, consulting contracts and acquired developed technologies and patents;
•expected costs to develop acquired technologies and patents internally into commercially viable products;
•historical and expected customer attrition rates and anticipated growth in revenue from acquired customers;
•the acquired company's trade name and trademarks as well as assumptions about the period of time the acquired trade name and trademarks will continue to be used in the combined company's product portfolio;
•the expected use of the acquired assets; and
•discount rates.
Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.
There have been no other changes in our critical accounting policies and estimates during the six months ended May 29, 2026, 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 November 28, 2025.
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 Adobe ARR of $27.10 billion as of May 29, 2026 increased by 12.5% from $24.08 billion as of May 30, 2025 revalued using currency rates determined at the beginning of fiscal 2026.
•Total revenue of $6.62 billion during the three months ended May 29, 2026 increased by $745 million, or 13%, compared to the year-ago period.
•Total subscription revenue of $6.42 billion during the three months ended May 29, 2026 increased by $775 million, or 14%, compared to the year-ago period.
•Cost of revenue of $715 million during the three months ended May 29, 2026 increased by $77 million, or 12%, compared to the year-ago period.
•Operating expenses of $3.67 billion during the three months ended May 29, 2026 increased by $539 million, or 17%, compared to the year-ago period.
•Net income of $1.71 billion during the three months ended May 29, 2026 remained relatively flat compared to the year-ago period.
•Cash flows from operations of $5.12 billion during the six months ended May 29, 2026 increased by $450 million, or 10%, compared to the year-ago period.
•Remaining performance obligations of $22.27 billion as of May 29, 2026 increased by 13% from $19.69 billion as of May 30, 2025.
Revenue for the Three and Six Months Ended May 29, 2026 and May 30, 2025
(dollars in millions) Three Months Six Months
2026 2025 % Change 2026 2025 % Change
Subscription $ 6,416 $ 5,641 14 % $ 12,614 $ 11,124 13 %
Percentage of total revenue 97 % 96 % 97 % 96 %
Product 89 88 1 % 179 183 (2) %
Percentage of total revenue 1 % 2 % 1 % 2 %
Services and other 113 144 (22) % 223 280 (20) %
Percentage of total revenue 2 % 2 % 2 % 2 %
Total revenue $ 6,618 $ 5,873 13 % $ 13,016 $ 11,587 12 %
Subscription
Our subscription revenue is comprised primarily of fees we charge for our subscription and hosted service offerings, and also includes subscription-based consulting 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.
Subscription revenue by customer group for the three and six months ended May 29, 2026 and May 30, 2025 were as follows:
(dollars in millions) Three Months Six Months
2026 2025 % Change 2026 2025 % Change
Creative & Marketing Professionals
$ 4,537 $ 4,019 13 % $ 8,926 $ 7,941 12 %
Business Professionals & Consumers
1,853 1,595 16 % 3,635 3,129 16 %
Total customer group subscription revenue
$ 6,390 $ 5,614 14 % $ 12,561 $ 11,070 13 %
Increases in subscription revenue for the Creative & Marketing Professionals customer group were driven by strength in Creative Cloud Pro and other flagship apps, Adobe Experience Platform and related apps, and Adobe Experience Manager. Increases in subscription revenue for the Business Professionals & Consumers customer group were driven by strength in Acrobat.
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 project-based consulting and training, as well as maintenance and support for certain on-premise licenses that are recognized at a point in time and our advertising offerings. We sell our project-based 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.
Geographical Information
Revenue by geographic area for the three and six months ended May 29, 2026 and May 30, 2025 were as follows:
(dollars in millions) Three Months Six Months
2026 2025 % Change 2026 2025 % Change
Americas $ 3,872 $ 3,500 11 % $ 7,627 $ 6,905 10 %
Percentage of total revenue 59 % 60 % 59 % 60 %
EMEA 1,809 1,541 17 % 3,548 3,043 17 %
Percentage of total revenue 27 % 26 % 27 % 26 %
APAC 937 832 13 % 1,841 1,639 12 %
Percentage of total revenue 14 % 14 % 14 % 14 %
Total revenue $ 6,618 $ 5,873 13 % $ 13,016 $ 11,587 12 %
Overall revenue during the three and six months ended May 29, 2026 increased in all geographic regions as compared to the three and six months ended May 30, 2025. Within each geographic region, the fluctuations in revenue were attributable to the factors noted in the customer group subscription revenue information above.
Included in the overall change in revenue were impacts associated with foreign currency which were mitigated in part by our foreign currency hedging program. During the three and six months ended May 29, 2026 as compared to the three and six months ended May 30, 2025, the U.S. Dollar primarily weakened against EMEA currencies, which resulted in a net increase in revenue in U.S. Dollar equivalents of approximately $116 million and $240 million in the respective periods. The foreign currency impacts to revenue were partially offset by net hedging losses from our cash flow hedging program of $22 million and $71 million, respectively, as compared to the year-ago periods.
Cost of Revenue for the Three and Six Months Ended May 29, 2026 and May 30, 2025
(dollars in millions) Three Months Six Months
2026 2025 % Change 2026 2025 % Change
Subscription $ 586 $ 505 16 % $ 1,126 $ 995 13 %
Percentage of total revenue 9 % 9 % 9 % 9 %
Product 5 6 (17) % 11 12 (8) %
Percentage of total revenue * * * *
Services and other 124 127 (2) % 242 253 (4) %
Percentage of total revenue 2 % 2 % 2 % 2 %
Total cost of revenue $ 715 $ 638 12 % $ 1,379 $ 1,260 9 %
_________________________________________
(*) Percentage is less than 1%.
Subscription
Cost of subscription revenue consists primarily of third-party hosting services and data center costs, including expenses related to operating our network infrastructure and AI inferencing costs. Cost of subscription revenue also includes compensation costs associated with network operations, implementation, account management and technical support personnel, royalty fees, software costs and amortization of certain intangible assets.
Cost of subscription revenue increased during the three and six months ended May 29, 2026 as compared to the three and six months ended May 30, 2025 primarily due to the following:
Components of
% Change
2026-2025
QTD
Components of
% Change
2026-2025
YTD
Hosting services and data center costs 16 % 15 %
Compensation costs
5 4
Royalty costs 1 1
Amortization of intangibles (6) (7)
Total change 16 % 13 %
Product
Cost of product revenue is primarily comprised of third-party royalties, localization costs and costs associated with the manufacturing of our products.
Services and Other
Cost of services and other revenue is primarily comprised of compensation and contracted costs incurred to provide consulting services, training and product support, and hosting services and data center costs.
Operating Expenses for the Three and Six Months Ended May 29, 2026 and May 30, 2025
(dollars in millions)
Three Months Six Months
2026 2025 % Change 2026 2025 % Change
Research and development $ 1,198 $ 1,082 11 % $ 2,308 $ 2,108 9 %
Percentage of total revenue 18 % 18 % 18 % 18 %
Sales and marketing 1,884 1,626 16 % 3,592 3,121 15 %
Percentage of total revenue 28 % 28 % 28 % 27 %
General and administrative 546 377 45 % 1,009 744 36 %
Percentage of total revenue 8 % 6 % 8 % 6 %
Amortization of intangibles
37 41 (10) % 72 82 (12) %
Percentage of total revenue 1 % 1 % 1 % 1 %
Total operating expenses $ 3,665 $ 3,126 17 % $ 6,981 $ 6,055 15 %
Research and Development
Research and development expenses consist primarily of compensation and contracted costs associated with software development, third-party hosting services and data center costs including AI training costs, related facilities costs and expenses associated with computer equipment and software used in development activities.
Research and development expenses increased during the three and six months ended May 29, 2026 as compared to the three and six months ended May 30, 2025 primarily due to increases in compensation costs.
Investments in research and development, including the recruiting and hiring of software developers, are critical to remain competitive in the marketplace and are directly related to continued timely development of new and enhanced offerings and solutions. We will continue to focus on long-term opportunities available in our end markets and make significant investments in the development of our subscription and service offerings, apps and tools.
Sales and Marketing
Sales and marketing expenses consist primarily of compensation costs, amortization of contract acquisition costs, including sales commissions, travel expenses and related facilities costs for our sales, marketing, order management and global supply chain management personnel. Sales and marketing expenses also include the costs of programs aimed at increasing revenue, such as advertising, trade shows and events, public relations and other market development programs.
Sales and marketing expenses increased during the three and six months ended May 29, 2026 as compared to the three and six months ended May 30, 2025 primarily due to increases in advertising expenses and, to a lesser extent, compensation costs.
General and Administrative
General and administrative expenses consist primarily of compensation and contracted costs, travel expenses and related facilities costs for our finance, facilities, human resources, legal, information services and executive personnel. General and administrative expenses also include outside legal and accounting fees, expenses associated with computer equipment and software used in the administration of the business, impairment of goodwill, charitable contributions, provision for bad debts and various forms of insurance.
General and administrative expenses increased during the three and six months ended May 29, 2026 as compared to the three and six months ended May 30, 2025 due to the following:
Components of
% Change
2026-2025
QTD
Components of
% Change
2026-2025
YTD
Impairment of goodwill 19 % 10 %
Loss contingency
8 12
Compensation costs
9 7
Software licenses 6 5
Various individually insignificant items 3 2
Total change 45 % 36 %
During the six months ended May 29, 2026, we recorded a goodwill impairment charge related to our Publishing & Advertising reporting unit. During the six months ended May 29, 2026, we also incurred loss contingencies associated with a legal settlement and other legal matters. See Note 13 for further details regarding the legal settlement.
Non-Operating Income (Expense), Net for the Three and Six Months Ended May 29, 2026 and May 30, 2025
(dollars in millions) Three Months Six Months
2026 2025 % Change 2026 2025 % Change
Interest expense $ (65) $ (68) (4) % $ (128) $ (130) (2) %
Investment gains (losses), net 18 2 ** 23 8 **
Other income (expense), net
47 58 (19) % 109 133 (18) %
Total non-operating income (expense), net $ - $ (8) ** $ 4 $ 11 **
_________________________________________
(**) Percentage is not meaningful.
Interest Expense
Interest expense represents interest associated with our debt instruments. Interest on our senior notes is payable semi-annually, in arrears. Floating interest payments on our interest rate swaps are paid quarterly. The fixed-rate interest receivable on the swaps is received semi-annually concurrent with the senior notes interest payments. See Notes 6 and 14 for further details regarding our interest rate swaps and debt, respectively.
Investment Gains (Losses), Net
Investment gains (losses), net consists principally of unrealized holding gains and losses associated with our deferred compensation plan assets.
Other Income (Expense), Net
Other income (expense), net consists primarily of interest earned on cash, cash equivalents and short-term fixed income investments. Other income (expense), net also includes realized gains and losses on fixed income investments and foreign exchange gains and losses.
Other income (expense), net decreased during the three months ended May 29, 2026 as compared to the three months ended May 30, 2025 primarily due to higher foreign exchange losses. Other income (expense), net decreased during the six months ended May 29, 2026 as compared to the six months ended May 30, 2025 primarily due to decreases in interest income driven by lower average overall cash balances and interest rates, as well as higher foreign exchange losses.
Provision for Income Taxes for the Three and Six Months Ended May 29, 2026 and May 30, 2025
(dollars in millions) Three Months Six Months
2026 2025 % Change 2026 2025 % Change
Provision for income taxes $ 526 $ 410 28 % $ 1,059 $ 781 36 %
Effective tax rate 24 % 20 % 23 % 18 %
Our effective tax rate increased by approximately four percentage points for the three months ended May 29, 2026, as compared to the three months ended May 30, 2025, primarily due to a decrease in the net tax benefit from effects of non-U.S. operations, an increase in state taxes, and a goodwill impairment charge which is not deductible for income tax purposes. Our effective tax rate increased by approximately five percentage points for the six months ended May 29, 2026, as compared to the six months ended May 30, 2025, primarily due to an increase in the anticipated benefit from a foreign tax asset in the prior year, and a decrease in the net tax benefit from effects of non-U.S. operations and increase in the net tax expense related to stock-based compensation in the current year.
Our effective tax rates for the three and six months ended May 29, 2026 were higher than the U.S. federal statutory tax rate of 21% primarily due to state taxes and a net tax expense related to stock-based compensation, partially offset by net tax benefits from the effects of non-U.S. operations and the U.S. federal research tax credit.
We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized based on evaluation of all available positive and negative evidence. On the basis of this evaluation, we continue to maintain a valuation allowance to reduce our deferred tax assets to the amount realizable. The total valuation allowance was $862 million as of May 29, 2026, primarily related to certain U.S. state and federal credits and capital loss carryforwards.
We are a U.S.-based multinational company subject to tax in multiple domestic and foreign tax jurisdictions. The current U.S. tax law subjects the earnings of certain foreign subsidiaries to U.S. tax and generally allows an exemption from taxation for distributions from foreign subsidiaries.
In the current global tax policy environment, the domestic and foreign governing bodies continue to consider, and in some cases introduce, changes in regulations applicable to corporate multinationals such as Adobe. As regulations are issued, we account for finalized regulations in the period of enactment.
The Organization for Economic Cooperation and Development introduced an international tax framework that provides for a global minimum tax of 15% for large multinational companies. The framework and guidance do not have a material impact on our effective rates for income taxes or cash taxes paid. We continue to monitor developments and evaluate impacts, if any, of these rules on our results of operations and cash flows.
On July 4, 2025, the One Big Beautiful Bill Act ("2025 U.S. Tax Act") was enacted in the United States. Among the changes, the 2025 U.S. Tax Act restores immediate expensing of domestic research and development costs and modifies certain international provisions effective for us starting in fiscal 2026 and 2027, respectively. We anticipate a reduction to our effective rates for cash taxes paid for fiscal 2026 and beyond.
Accounting for Uncertainty in Income Taxes
The gross liabilities for unrecognized tax benefits excluding interest and penalties were $736 million and $685 million as of May 29, 2026 and May 30, 2025, respectively. If the total unrecognized tax benefits as of May 29, 2026 and May 30, 2025 were recognized, $563 million and $516 million would decrease the respective effective tax rates.
As of May 29, 2026 and May 30, 2025, the combined amounts of accrued interest and penalties included in long-term income taxes payable related to tax positions taken on our tax returns were not material.
The timing of the resolution of income tax examinations is highly uncertain as are the amounts and timing of tax payments that are part of any audit settlement process. These events could cause large fluctuations in the balance sheet classification of our tax assets and liabilities. We believe that within the next 12 months, it is reasonably possible that either certain audits will conclude or statutes of limitations on certain income tax examination periods will expire, or both.
Our future effective tax rates may be materially affected by changes in the tax rates in jurisdictions where our income is earned, changes in jurisdictions in which our profits are determined to be earned and taxed, changes in the valuation of our deferred tax assets and liabilities, changes in or interpretation of tax rules and regulations in the jurisdictions in which we do business, or unexpected changes in business and market conditions that could reduce certain tax benefits.
In addition, tax laws in the United States as well as other countries and jurisdictions in which we conduct business are subject to change as new laws are passed and/or new interpretations are made available. These countries, governmental bodies, such as the European Commission of the European Union, and intergovernmental economic organizations, such as the Organization for Economic Cooperation and Development, have made and/or could make other unprecedented assertions about how taxation is determined and, in some cases, have proposed or enacted new laws that are contrary to the way in which rules and regulations have historically been interpreted and applied. Changes in our operating landscape, such as changes in laws or interpretations of tax rules, have in the past and may in the future adversely affect our effective tax rates and/or cause us to respond by making changes to our business structure, which could adversely affect our operations and financial results.
Moreover, we are subject to the examination of our income tax returns by domestic and foreign tax authorities. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from these examinations. Our policy is to record interest and penalties related to unrecognized tax benefits in income tax expense. While we believe our tax estimates are reasonable, we cannot provide assurance that the final determination of any of these examinations will not have an adverse effect on our financial position and results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Our primary source of cash is receipts from revenue. Other customary sources of cash include proceeds from maturities and sales of short-term investments and issuance of debt instruments. Our primary uses of cash are general business expenses including payroll and related benefits costs, income taxes, marketing and third-party hosting services, as well as our stock repurchase program as described below. Other customary uses of cash include purchases of short-term investments, property and equipment, payments for taxes related to net share settlement of equity awards, repayment of debt instruments and business acquisitions.
This data should be read in conjunction with our condensed consolidated statements of cash flows.
As of
(in millions) May 29, 2026 November 28, 2025
Cash and cash equivalents $ 4,919 $ 5,431
Short-term investments $ 707 $ 1,164
Working capital $ (3,010) $ (37)
Stockholders' equity $ 11,518 $ 11,623
A summary of our cash flows is as follows:
Six Months Ended
(in millions) May 29, 2026 May 30, 2025
Net cash provided by operating activities $ 5,123 $ 4,673
Net cash used for investing activities (1,240) (762)
Net cash used for financing activities (4,399) (6,629)
Effect of foreign currency exchange rates on cash and cash equivalents 4 36
Net change in cash and cash equivalents $ (512) $ (2,682)
Cash Flows from Operating Activities
Net cash provided by operating activities of $5.12 billion for the six months ended May 29, 2026 was primarily comprised of net income adjusted for the net effect of non-cash items. Working capital sources of cash included decreases in trade receivables driven by strong cash collections and increases in deferred revenue due to the timing of billings during the period. The primary working capital uses of cash included increases in prepaid expenses and other assets and decreases in accrued expenses and other liabilities.
Cash Flows from Investing Activities
Net cash used for investing activities of $1.24 billion for the six months ended May 29, 2026 was primarily due to our acquisition of Semrush in the second quarter of fiscal 2026, as well as purchases of short-term investments, partially offset by proceeds from maturities of short-term investments. See Note 3 for further details regarding this acquisition.
Cash Flows from Financing Activities
Net cash used for financing activities of $4.40 billion for the six months ended May 29, 2026 was primarily due to payments for our common stock repurchases and taxes paid related to the net share settlement of equity awards. These uses of cash were offset in part by proceeds from the issuance of commercial paper. See the section titled "Stock Repurchase Program" below.
Liquidity and Capital Resources Considerations
Our existing cash, cash equivalents and investment balances may fluctuate during fiscal 2026 due to changes in our planned cash outlay.
Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, risks detailed in the section titled "Risk Factors" in Part II, Item 1A of this report. Based on our current business plan and revenue prospects, we believe that our existing cash, cash equivalents and short-term investment balances, our anticipated cash flows from operations and our available revolving credit facility will be sufficient to meet our working capital, operating resource expenditure and capital expenditure requirements for the next twelve months and for the foreseeable future.
Our cash equivalent and short-term investment portfolio as of May 29, 2026 consisted of money market funds, corporate debt securities, U.S. Treasury securities, time deposits and other investments.
We expect to continue our investing activities, including short-term and long-term investments, purchases of computer and server hardware to operate our network infrastructure, sales and marketing, product support and administrative staff. Furthermore, cash reserves may be used to repurchase stock under our stock repurchase program and to strategically acquire companies, products or technologies that are complementary to our business.
Revolving Credit Agreement
We have a $1.5 billion senior unsecured revolving credit agreement (the "Revolving Credit Agreement") with a syndicate of lenders, providing for loans to us and certain of our subsidiaries through June 30, 2027. Subject to the agreement of lenders, we may obtain up to an additional $500 million in commitments, for a maximum aggregate commitment of $2 billion. As of May 29, 2026, there were no outstanding borrowings under the Revolving Credit Agreement and the entire $1.5 billion credit line remains available for borrowing. Under the terms of our Revolving Credit Agreement, we are not prohibited from paying cash dividends unless payment would trigger an event of default or if one currently exists.
Commercial Paper Program
We have 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 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 May 29, 2026, the carrying value of our commercial paper was $494 million, net of the related discount.
Senior Notes
We have $6.15 billion of senior notes outstanding, which rank equally with our other unsecured and unsubordinated indebtedness. As of May 29, 2026, the carrying value of our senior notes was $6.15 billion, net of fair value of the interest rate swaps and unamortized discount and debt issuance costs, and our maximum commitment for interest payments was $974 million for the remaining duration of our outstanding senior notes and interest rate swaps. Interest on the notes is payable semi-annually, in arrears, and interest on the swaps is payable quarterly. Our senior notes do not contain any financial covenants. See Note 14 of our notes to condensed consolidated financial statements for further details regarding our debt.
During the six months ended May 29, 2026, we reclassified the senior notes due February 1, 2027 and April 4, 2027 as current debt in our condensed consolidated balance sheets. As of May 29, 2026, the carrying value of the current portion of our senior notes was $1.35 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, subject to market conditions.
Contractual Obligations
Our principal commitments as of May 29, 2026 consisted of purchase obligations resulting from agreements to purchase goods and services in the ordinary course of business and obligations under operating lease arrangements. There have been no material changes in those obligations during the six months ended May 29, 2026.
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 March 2024, our Board of Directors granted authority to repurchase up to $25 billion in our common stock through March 14, 2028. In April 2026, our Board of Directors granted additional authority to repurchase up to $25 billion in our common stock through April 30, 2030. As of May 29, 2026, a total of $26.78 billion remained under our stock repurchase authorities.
During the six months ended May 29, 2026, we entered into stock repurchase arrangements with large financial institutions and made payments totaling $4.59 billion to repurchase shares. See Note 11 of our notes to condensed consolidated financial statements for further details regarding our stock repurchase program.
Indemnifications
In the ordinary course of business, we provide indemnifications of varying scope to our 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.
Adobe Inc. published this content on June 15, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on June 15, 2026 at 10:15 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]