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 ~~September~~March 1, ~~2023~~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 ~~September~~March 22, ~~2023, 455.3~~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 ~~September~~ March 1, 202 4 and December 1 , ~~2023 and December 2, 2022~~202 3	3
	Condensed Consolidated Statements of Income Three ~~and~~ ~~Nine~~Months Ended ~~September~~March 1, 202 4 and March 3 , ~~2023 and~~ 202 ~~September 2, 2022~~3	4
	Condensed Consolidated Statements of Comprehensive Income Three ~~and~~ ~~Nine~~Months Ended ~~September~~March 1, 202 4 and March 3 , ~~2023 and~~ 202 S ~~eptember 2, 2022~~3	5
	Condensed Consolidated Statements of Stockholders’ Equity Three ~~and~~ ~~Nine~~Months Ended ~~September~~March 1, 202 4 and March 3 , ~~2023 and~~ 202 ~~September~~ 2 ~~, 2022~~3	6
	Condensed Consolidated Statements of Cash Flows ~~Nine~~Three Months Ended ~~September~~March 1, 202 4 and March 3 , ~~2023 and~~ 202 S ~~eptember 2, 2022~~3	87
	Notes to Condensed Consolidated Financial Statements	98
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2524
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3836
Item 4.	Controls and Procedures	3836

PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	3937
Item 1A.	Risk Factors	3937
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds ~~and Issuer Purchases of Equity Securities~~	5349
~~Item 4.~~	~~Mine Safety Disclosures~~	53
Item 5.	Other Information	5349
Item 6.	Exhibits	5450
Signature		5551
Summary of Trademarks		5652

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ADOBE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except par value)


		September 1, 2023		December 2, 2022			March 1, 2024		December 1, 2023
		(Unaudited)		(*)
	(Unaudited)							(Unaudited)		(*)
ASSETS	ASSETS
Current assets:
Current assets:
Current assets:	Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	6,601	$	4,236
Short-term investments	Short-term investments	915		1,860
Trade receivables, net of allowances for doubtful accounts of $18 and $23, respectively		1,851		2,065
Trade receivables, net of allowances for doubtful accounts of $16 for both periods
Prepaid expenses and other current assets	Prepaid expenses and other current assets	1,043		835
Total current assets	Total current assets	10,410		8,996
Property and equipment, net	Property and equipment, net	2,036		1,908
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	373		407
Goodwill	Goodwill	12,800		12,787
Other intangibles, net	Other intangibles, net	1,167		1,449
Deferred income taxes	Deferred income taxes	1,065		777
Other assets	Other assets	1,239		841
Total assets	Total assets	$	29,090	$	27,165

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current liabilities:
Current liabilities:	Current liabilities:
Trade payables	Trade payables	$	314	$	379
Accrued expenses	Accrued expenses	1,714		1,790
Debt	Debt	—		500
Deferred revenue	Deferred revenue	5,375		5,297
Income taxes payable	Income taxes payable	857		75
Operating lease liabilities	Operating lease liabilities	74		87
Total current liabilities	Total current liabilities	8,334		8,128
Long-term liabilities:	Long-term liabilities:					Long-term liabilities:
Debt	Debt	3,633		3,629
Deferred revenue	Deferred revenue	108		117
Income taxes payable	Income taxes payable	498		530

Operating lease liabilities	Operating lease liabilities	389		417
Operating lease liabilities
Operating lease liabilities
Other liabilities	Other liabilities	352		293
Total liabilities	Total liabilities	13,314		13,114
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, $0.0001 par value; 2 shares authorized; none issued	Preferred stock, $0.0001 par value; 2 shares authorized; none issued	—		—
Common stock, $0.0001 par value; 900 shares authorized; 601 shares issued; 456 and 462 shares outstanding, respectively		—		—
Additional paid-in-capital		11,195		9,868
Common stock, $0.0001 par value; 900 shares authorized; 601 shares issued; 453 and 455 shares outstanding, respectively
Additional paid-in capital
Retained earnings	Retained earnings	32,012		28,319
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(285)		(293)
Treasury stock, at cost (145 and 139 shares, respectively)		(27,146)		(23,843)
Treasury stock, at cost (148 and 146 shares, respectively)
Total stockholders’ equity	Total stockholders’ equity	15,776		14,051
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	29,090	$	27,165

(*) The condensed consolidated balance sheet as of December ~~2, 2022~~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.

Table of Contents

ADOBE INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)

(Unaudited)






		Three Months Ended				Nine Months Ended
		September 1, 2023		September 2, 2022		September 1, 2023		September 2, 2022
Revenue:	Revenue:
Revenue:
Revenue:
Subscription
Subscription
Subscription	Subscription	$	4,631	$	4,128	$	13,521	$	12,156
Product	Product	96		126		346		417
Product
Product
Services and other
Services and other
Services and other	Services and other	163		179		494		508
Total revenue	Total revenue	4,890		4,433		14,361		13,081
Total revenue
Total revenue
Cost of revenue:
Cost of revenue:
Cost of revenue:	Cost of revenue:
Subscription	Subscription	447		413		1,317		1,216
Subscription
Subscription
Product
Product
Product	Product	7		8		23		27
Services and other	Services and other	126		125		380		354
Services and other
Services and other
Total cost of revenue
Total cost of revenue
Total cost of revenue	Total cost of revenue	580		546		1,720		1,597
Gross profit	Gross profit	4,310		3,887		12,641		11,484
Gross profit
Gross profit
Operating expenses:
Operating expenses:
Operating expenses:	Operating expenses:
Research and development	Research and development	881		775		2,584		2,214
Research and development
Research and development
Sales and marketing
Sales and marketing
Sales and marketing	Sales and marketing	1,337		1,266		3,983		3,671
General and administrative	General and administrative	353		319		1,041		879
General and administrative
General and administrative

Acquisition termination fee

Acquisition termination fee

Acquisition termination fee
Amortization of intangibles
Amortization of intangibles
Amortization of intangibles	Amortization of intangibles	42		43		126		127
Total operating expenses	Total operating expenses	2,613		2,403		7,734		6,891
Total operating expenses
Total operating expenses
Operating income
Operating income
Operating income	Operating income	1,697		1,484		4,907		4,593
Non-operating income (expense):	Non-operating income (expense):
Non-operating income (expense):
Non-operating income (expense):
Interest expense
Interest expense
Interest expense	Interest expense	(27)		(28)		(85)		(84)
Investment gains (losses), net	Investment gains (losses), net	6		(6)		12		(23)
Investment gains (losses), net
Investment gains (losses), net
Other income (expense), net
Other income (expense), net
Other income (expense), net	Other income (expense), net	67		6		157		5
Total non-operating income (expense), net	Total non-operating income (expense), net	46		(28)		84		(102)
Total non-operating income (expense), net
Total non-operating income (expense), net
Income before income taxes
Income before income taxes
Income before income taxes	Income before income taxes	1,743		1,456		4,991		4,491
Provision for income taxes	Provision for income taxes	340		320		1,046		911
Provision for income taxes
Provision for income taxes
Net income
Net income
Net income	Net income	$	1,403	$	1,136	$	3,945	$	3,580
Basic net income per share	Basic net income per share	$	3.07	$	2.42	$	8.62	$	7.60
Basic net income per share
Basic net income per share
Shares used to compute basic net income per share
Shares used to compute basic net income per share
Shares used to compute basic net income per share	Shares used to compute basic net income per share	456		469		458		471
Diluted net income per share	Diluted net income per share	$	3.05	$	2.42	$	8.59	$	7.57
Diluted net income per share
Diluted net income per share
Shares used to compute diluted net income per share	Shares used to compute diluted net income per share	459		469		459		473
Shares used to compute diluted net income per share
Shares used to compute diluted net income per share

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ADOBE INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)


		Three Months Ended
		Three Months Ended
		Three Months Ended

		Three Months Ended				Nine Months Ended
		September 1, 2023		September 2, 2022		September 1, 2023		September 2, 2022
		Increase/(Decrease)				Increase/(Decrease)
		Increase/(Decrease)
		Increase/(Decrease)
		Increase/(Decrease)
Net income
Net income
Net income	Net income	$	1,403	$	1,136	$	3,945	$	3,580
Other comprehensive income (loss), net of taxes:	Other comprehensive income (loss), net of taxes:
Other comprehensive income (loss), net of taxes:
Other comprehensive income (loss), net of taxes:
Available-for-sale securities:
Available-for-sale securities:
Available-for-sale securities:	Available-for-sale securities:
Unrealized gains / losses on available-for-sale securities	Unrealized gains / losses on available-for-sale securities	5		(6)		19		(35)
Reclassification adjustment for recognized gains / losses on available-for-sale securities		—		—		5		—
Net increase (decrease) from available-for-sale securities		5		(6)		24		(35)
Unrealized gains / losses on available-for-sale securities
Unrealized gains / losses on available-for-sale securities

Derivatives designated as hedging instruments:

Derivatives designated as hedging instruments:

Derivatives designated as hedging instruments:	Derivatives designated as hedging instruments:
Unrealized gains / losses on derivative instruments	Unrealized gains / losses on derivative instruments	8		107		—		193
Unrealized gains / losses on derivative instruments
Unrealized gains / losses on derivative instruments
Reclassification adjustment for realized gains / losses on derivative instruments
Reclassification adjustment for realized gains / losses on derivative instruments
Reclassification adjustment for realized gains / losses on derivative instruments	Reclassification adjustment for realized gains / losses on derivative instruments	(4)		(47)		(28)		(89)
Net increase (decrease) from derivatives designated as hedging instruments	Net increase (decrease) from derivatives designated as hedging instruments	4		60		(28)		104
Net increase (decrease) from derivatives designated as hedging instruments
Net increase (decrease) from derivatives designated as hedging instruments
Foreign currency translation adjustments
Foreign currency translation adjustments
Foreign currency translation adjustments	Foreign currency translation adjustments	3		(83)		12		(156)
Other comprehensive income (loss), net of taxes	Other comprehensive income (loss), net of taxes	12		(29)		8		(87)
Other comprehensive income (loss), net of taxes
Other comprehensive income (loss), net of taxes
Total comprehensive income, net of taxes	Total comprehensive income, net of taxes	$	1,415	$	1,107	$	3,953	$	3,493
Total comprehensive income, net of taxes
Total comprehensive income, net of taxes

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ADOBE INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions)

(Unaudited)


		Three Months Ended March 1, 2024																													Three Months Ended March 1, 2024
																							Common Stock		Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)		Treasury Stock
			Three Months Ended September 1, 2023																				Shares	Amount				Shares		Amount		Total
			Common Stock			Additional Paid-In Capital				Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Treasury Stock
			Shares	Amount								Shares			Amount		Total
Balances at June 2, 2023			601	$	—			$	10,717				$	30,609	$	(297)	(145)		$	(26,191)	$	14,838
Balances at December 1, 2023
Net income	Net income		—	—		—				1,403			—		—		—		1,403
Other comprehensive income (loss), net of taxes	Other comprehensive income (loss), net of taxes		—	—		—				—			12		—		—		12
Re-issuance of treasury stock under stock compensation plans	Re-issuance of treasury stock under stock compensation plans		—	—		36				—			—		2		48		84
Repurchases of common stock	Repurchases of common stock		—	—		—				—			—		(2)		(1,003)		(1,003)

Stock-based compensation	Stock-based compensation		—	—		442				—			—		—		—		442

Balances at September 1, 2023			601	$	—	$	11,195			$	32,012		$	(285)	(145)		$	(27,146)	$	15,776
Stock-based compensation
Stock-based compensation
Value of shares in deferred compensation plan
Balances at March 1, 2024

Three Months Ended September 2, 2022
Common Stock Additional
Paid-In
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Treasury Stock
Shares Amount Shares Amount Total
Balances at June 3, 2022 601 $ — $ 9,102 $ 26,022 $ (195) (130) $ (20,944) $ 13,985
Net income — — — 1,136 — — — 1,136
Other comprehensive income (loss),
net of taxes — — — — (29) — — (29)
Re-issuance of treasury stock under stock compensation plans — — 68 — — 1 35 103
Repurchases of common stock — — — — — (5) (1,200) (1,200)
Stock-based compensation — — 378 — — — — 378
Balances at September 2, 2022 601 $ — $ 9,548 $ 27,158 $ (224) (134) $ (22,109) $ 14,373

~~Table of Contents~~

~~ADOBE INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~(In millions)~~

~~(Unaudited)~~

Nine Months Ended September 1, 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 — — — 3,945 — — — 3,945
Other comprehensive income (loss),
net of taxes — — — — 8 — — 8
Re-issuance of treasury stock under stock compensation plans — — 36 (252) — 4 103 (113)
Repurchases of common stock — — — — — (10) (3,407) (3,407)
Stock-based compensation — — 1,291 — — — — 1,291
Value of shares in deferred compensation plan — — — — — — 1 1
Balances at September 1, 2023 601 $ — $ 11,195 $ 32,012 $ (285) (145) $ (27,146) $ 15,776


		Three Months Ended March 3, 2023																													Three Months Ended March 3, 2023
																							Common Stock		Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)		Treasury Stock
			Nine Months Ended September 2, 2022																				Shares	Amount				Shares		Amount		Total
			Common Stock			Additional Paid-In Capital				Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Treasury Stock
			Shares	Amount								Shares			Amount		Total
Balances at December 3, 2021			601	$	—			$	8,428				$	23,905	$	(137)	(126)		$	(17,399)	$	14,797
Balances at December 2, 2022
Net income	Net income		—	—		—				3,580			—		—		—		3,580
Other comprehensive income (loss), net of taxes	Other comprehensive income (loss), net of taxes		—	—		—				—			(87)		—		—		(87)
Re-issuance of treasury stock under stock compensation plans	Re-issuance of treasury stock under stock compensation plans		—	—		68				(327)			—		3		86		(173)
Repurchases of common stock	Repurchases of common stock		—	—		—				—			—		(11)		(4,800)		(4,800)

Stock-based compensation	Stock-based compensation		—	—		1,052				—			—		—		—		1,052
Stock-based compensation
Stock-based compensation
Value of shares in deferred compensation plan	Value of shares in deferred compensation plan		—	—		—				—			—		—		4		4
Balances at September 2, 2022			601	$	—	$	9,548			$	27,158		$	(224)	(134)		$	(22,109)	$	14,373
Balances at March 3, 2023

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ADOBE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


		Nine Months Ended					Three Months Ended
		September 1, 2023		September 2, 2022			March 1, 2024	March 3, 2023
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	3,945	$	3,580
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion
Depreciation, amortization and accretion
Depreciation, amortization and accretion	Depreciation, amortization and accretion	650		641
Stock-based compensation	Stock-based compensation	1,291		1,052
Reduction of operating lease right-of-use assets	Reduction of operating lease right-of-use assets	54		63
Deferred income taxes	Deferred income taxes	(276)		282
Unrealized losses (gains) on investments, net	Unrealized losses (gains) on investments, net	(7)		33
Other non-cash items	Other non-cash items	—		8
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:	Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
Trade receivables, net	Trade receivables, net	217		146
Trade receivables, net
Trade receivables, net
Prepaid expenses and other assets	Prepaid expenses and other assets	(787)		(133)
Trade payables	Trade payables	(47)		11
Accrued expenses and other liabilities	Accrued expenses and other liabilities	(153)		(237)
Income taxes payable	Income taxes payable	749		2
Deferred revenue	Deferred revenue	69		65
Net cash provided by operating activities	Net cash provided by operating activities	5,705		5,513
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of short-term investments		—		(703)

Maturities of short-term investments
Maturities of short-term investments
Maturities of short-term investments	Maturities of short-term investments	754		497
Proceeds from sales of short-term investments	Proceeds from sales of short-term investments	215		221
Acquisitions, net of cash acquired		—		(126)

Purchases of property and equipment
Purchases of property and equipment
Purchases of property and equipment	Purchases of property and equipment	(313)		(351)
Purchases of long-term investments, intangibles and other assets	Purchases of long-term investments, intangibles and other assets	(34)		(39)
Proceeds from sale of long-term investments and other assets	Proceeds from sale of long-term investments and other assets	1		—
Net cash provided by (used for) investing activities		623		(501)
Net cash provided by investing activities
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Repurchases of common stock	Repurchases of common stock	(3,400)		(4,800)
Proceeds from re-issuance of treasury stock	Proceeds from re-issuance of treasury stock	314		278
Taxes paid related to net share settlement of equity awards	Taxes paid related to net share settlement of equity awards	(387)		(451)

Repayment of debt	Repayment of debt	(500)		—
Repayment of debt
Repayment of debt
Other financing activities, net	Other financing activities, net	8		59

Net cash used for financing activities
Net cash used for financing activities
Net cash used for financing activities	Net cash used for financing activities	(3,965)		(4,914)
Effect of foreign currency exchange rates on cash and cash equivalents	Effect of foreign currency exchange rates on cash and cash equivalents	2		(72)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	2,365		26
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	4,236		3,844
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	6,601	$	3,870
Supplemental disclosures:	Supplemental disclosures:
Cash paid for income taxes, net of refunds	Cash paid for income taxes, net of refunds	$	590	$	486
Cash paid for income taxes, net of refunds
Cash paid for income taxes, net of refunds
Cash paid for interest	Cash paid for interest	$	103	$	101

See accompanying notes to condensed consolidated financial statements.

Table of Contents

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 ~~generally accepted~~ in the United States ~~of America~~ (“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 ~~2, 2022~~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.

~~Adopted Accounting Guidance and~~Recent Accounting Pronouncements Not Yet Effective

~~There~~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 ~~or recently adopted accounting guidance~~ during the ~~nine~~three months ended ~~September~~March 1, ~~2023~~2024, as compared to the recent accounting pronouncements described in our Annual Report, that are of significance or potential significance to us.

~~NOTE 2. REVENUE~~

~~Segment Information~~

~~Our segment results for the three months ended September 1, 2023 and September 2, 2022 were as follows:~~

(dollars in millions) Digital
Media Digital
Experience Publishing and
Advertising Total
Three months ended September 1, 2023
Revenue $ 3,594 $ 1,229 $ 67 $ 4,890
Cost of revenue 161 397 22 580
Gross profit $ 3,433 $ 832 $ 45 $ 4,310
Gross profit as a percentage of revenue 96 % 68 % 67 % 88 %
Three months ended September 2, 2022
Revenue $ 3,232 $ 1,120 $ 81 $ 4,433
Cost of revenue 136 385 25 546
Gross profit $ 3,096 $ 735 $ 56 $ 3,887
Gross profit as a percentage of revenue 96 % 66 % 69 % 88 %

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(Unaudited)

NOTE 2. REVENUE

Segment Information

Our segment results for the ~~nine~~three months ended ~~September~~March 1, ~~2023~~2024 and ~~September 2, 2022~~March 3, 2023 were as follows:


(dollars in millions)	(dollars in millions)	Digital Media			Digital Experience			Publishing and Advertising			Total			(dollars in millions)	Digital Media		Digital Experience		Publishing and Advertising		Total
Nine months ended September 1, 2023
Three months ended March 1, 2024
Revenue
Revenue
Revenue	Revenue	$	10,500		$	3,627		$	234		$	14,361
Cost of revenue	Cost of revenue	455			1,200			65			1,720
Gross profit	Gross profit	$	10,045		$	2,427		$	169		$	12,641
Gross profit as a percentage of revenue	Gross profit as a percentage of revenue	96		%	67		%	72		%	88		%	Gross profit as a percentage of revenue	96	%	69	%	71	%	89	%
Nine months ended September 2, 2022
Three months ended March 3, 2023
Revenue
Revenue
Revenue	Revenue	$	9,542		$	3,272		$	267		$	13,081
Cost of revenue	Cost of revenue	411			1,111			75			1,597
Gross profit	Gross profit	$	9,131		$	2,161		$	192		$	11,484
Gross profit as a percentage of revenue	Gross profit as a percentage of revenue	96		%	66		%	72		%	88		%	Gross profit as a percentage of revenue	96	%	66	%	74	%	88	%

Revenue by geographic area for the three ~~and nine~~ months ended ~~September~~March 1, ~~2023~~2024 and ~~September 2, 2022~~March 3, 2023 were as follows:


		Three Months				Nine Months
(in millions)	(in millions)	2023		2022		2023		2022

(in millions)

(in millions)
Americas
Americas
Americas	Americas	$	2,943	$	2,600	$	8,601	$	7,570
EMEA	EMEA	1,229		1,143		3,615		3,436
EMEA
EMEA
APAC
APAC
APAC	APAC	718		690		2,145		2,075
Total	Total	$	4,890	$	4,433	$	14,361	$	13,081
Total
Total

Revenue by major offerings in our Digital Media reportable segment for the three ~~and nine~~ months ended ~~September~~March 1, ~~2023~~2024 and ~~September 2, 2022~~March 3, 2023 were as follows:


		Three Months				Nine Months
(in millions)	(in millions)	2023		2022		2023		2022

(in millions)

(in millions)
Creative Cloud
Creative Cloud
Creative Cloud	Creative Cloud	$	2,909	$	2,625	$	8,522	$	7,778
Document Cloud	Document Cloud	685		607		1,978		1,764
Document Cloud
Document Cloud
Total Digital Media revenue	Total Digital Media revenue	$	3,594	$	3,232	$	10,500	$	9,542
Total Digital Media revenue
Total Digital Media revenue

Subscription revenue by segment for the three ~~and nine~~ months ended ~~September~~March 1, ~~2023~~2024 and ~~September 2, 2022~~March 3, 2023 were as follows:


		Three Months				Nine Months
(in millions)	(in millions)	2023		2022		2023		2022

(in millions)

(in millions)
Digital Media
Digital Media
Digital Media	Digital Media	$	3,506	$	3,116	$	10,225	$	9,190
Digital Experience	Digital Experience	1,096		981		3,208		2,874
Digital Experience
Digital Experience
Publishing and Advertising
Publishing and Advertising
Publishing and Advertising	Publishing and Advertising	29		31		88		92
Total subscription revenue	Total subscription revenue	$	4,631	$	4,128	$	13,521	$	12,156
Total subscription revenue
Total subscription revenue

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 ~~September~~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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(Unaudited)

accounts, was $1.85 billion, inclusive of unbilled receivables of $103 million. As of December 2, 2022, the balance of trade receivables, net of allowances for doubtful accounts, was $2.07 billion, inclusive of unbilled receivables of $93 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~~As of March 1, 2024 and December 1, 2023, the allowance for doubtful accounts was ~~$18~~$16 million ~~and $23 million as of September 1, 2023 and December 2, 2022, respectively.~~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 ~~nine~~three months ended ~~September~~March 1, ~~2023.~~2024. Contract assets were ~~$131~~$153 million and ~~$97~~$141 million as of ~~September~~March 1, ~~2023~~2024 and December ~~2, 2022,~~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 ~~September~~March 1, ~~2023,~~2024, the balance of deferred revenue was ~~$5.48~~$6.11 billion, which includes ~~$47~~$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 5%4% of the total deferred revenue.

As of December ~~2, 2022,~~1, 2023, the balance of deferred revenue was ~~$5.41~~$5.95 billion. During the three ~~and nine~~ months ended ~~September~~March 1, ~~2023,~~2024, approximately ~~$983 million and $4.85~~$2.67 billion of revenue ~~respectively,~~ was recognized that was included in the balance of deferred revenue as of December ~~2, 2022.~~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 ~~September~~March 1, ~~2023,~~2024, remaining performance obligations were approximately ~~$15.72~~$17.58 billion. Non-cancellable and non-refundable funds related to some of our enterprise customer agreements referred to ~~in the paragraph~~ above comprised approximately 5%4% of the total remaining performance obligations. Approximately ~~71%~~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 ~~$673~~$707 million and ~~$629~~$656 million as of ~~September~~March 1, ~~2023~~2024 and December ~~2, 2022,~~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 ~~$99~~$107 million and ~~$106~~$111 million as of ~~September~~March 1, 2024 and December 1, 2023, ~~and December 2, 2022,~~ respectively.

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NOTE 3. ACQUISITIONS

Figma

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

On December 17, 2023, we entered into a mutual termination agreement with Figma to customary purchase price adjustments. Approximately 6 million additional restricted stock units will be granted to Figma’s Chief Executive Officer and employees that will vest over four years subsequent to closing. We continue to work toward closingterminate the ~~transaction, subject to obtaining regulatory approvals and satisfying customary closing conditions. We will be required to pay~~proposed merger. In accordance with the terms of the termination agreement, we paid Figma a ~~reverse~~ termination fee of $1 ~~billion if~~billion. The termination fee was recorded in operating expenses in our condensed consolidated statements of income during the ~~transaction fails to receive regulatory clearance, assuming all other closing conditions have been satisfied or waived, or if it fails to close within 18~~three months ~~from September 15, 2022.~~

~~Figma is a privately held company that provides a web-first collaborative product design platform. Following the closing, we intend to integrate Figma into our Digital Media reportable segment~~ended March 1, 2024, and was not tax-deductible for financial ~~reporting~~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 ~~September~~March 1, ~~2023:~~2024:


(in millions)	(in millions)	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		(in millions)	Amortized Cost	Unrealized Gains	Unrealized Losses	Estimated Fair Value
Current assets:	Current assets:									Current assets:
Cash	Cash	$	629	$	—	$	—	$	629
Cash equivalents:	Cash equivalents:

Money market funds	Money market funds	5,972		—		—		5,972

Money market funds

Money market funds

Total cash and cash equivalents

Total cash and cash equivalents

Total cash and cash equivalents	Total cash and cash equivalents	6,601		—		—		6,601
Short-term fixed income securities:	Short-term fixed income securities:
Asset-backed securities	Asset-backed securities	23		—		—		23
Asset-backed securities
Asset-backed securities
Corporate debt securities	Corporate debt securities	559		—		(7)		552

U.S. agency securities

U.S. agency securities

U.S. agency securities	U.S. agency securities	33		—		—		33
U.S. Treasury securities	U.S. Treasury securities	317		—		(10)		307

Total short-term investments	Total short-term investments	932		—		(17)		915

Total short-term investments

Total short-term investments
Total cash, cash equivalents and short-term investments	Total cash, cash equivalents and short-term investments	$	7,533	$	—	$	(17)	$	7,516

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(Unaudited)

Cash, cash equivalents and short-term investments consisted of the following as of December ~~2, 2022:~~1, 2023:


(in millions)	(in millions)	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		(in millions)	Amortized Cost	Unrealized Gains	Unrealized Losses	Estimated Fair Value
Current assets:	Current assets:									Current assets:
Cash	Cash	$	657	$	—	$	—	$	657
Cash equivalents:	Cash equivalents:									Cash equivalents:
Corporate debt securities		39		—		—		39

Money market funds
Money market funds
Money market funds	Money market funds	3,479		—		—		3,479

Time deposits	Time deposits	61		—		—		61
Time deposits
Time deposits

Total cash equivalents
Total cash equivalents
Total cash equivalents	Total cash equivalents	3,579		—		—		3,579
Total cash and cash equivalents	Total cash and cash equivalents	4,236		—		—		4,236
Short-term fixed income securities:	Short-term fixed income securities:									Short-term fixed income securities:
Asset-backed securities	Asset-backed securities	98		—		(1)		97

Corporate debt securities	Corporate debt securities	1,290		—		(24)		1,266
Foreign government securities		5		—		—		5
Municipal securities		24		—		—		24
Corporate debt securities
Corporate debt securities

U.S. agency securities

U.S. agency securities

U.S. agency securities	U.S. agency securities	34		—		—		34
U.S. Treasury securities	U.S. Treasury securities	450		—		(16)		434

Total short-term investments	Total short-term investments	1,901		—		(41)		1,860

Total short-term investments

Total short-term investments
Total cash, cash equivalents and short-term investments	Total cash, cash equivalents and short-term investments	$	6,137	$	—	$	(41)	$	6,096

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 ~~September~~March 1, ~~2023:~~2024:


(in millions)	Estimated Fair Value
Due within one year	$	~~584~~440
Due between one and two years	~~315~~123
Due between two and three years	163

Total	$	~~915~~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 ~~nine~~three months ended ~~September~~March 1, ~~2023~~2024 and ~~September 2, 2022,~~March 3, 2023, we did not recognize an allowance for credit-related losses on any of our investments.

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(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 ~~September~~March 1, ~~2023~~2024 was determined using the following inputs:

(in millions)

Fair Value Measurements at Reporting Date Using

(in millions)

Fair Value Measurements at Reporting Date Using

Quoted Prices
in Active
Markets for
Identical Assets

Significant
Other
Observable
Inputs

Significant
Unobservable
Inputs

Quoted Prices
in Active
Markets for
Identical Assets

Significant
Other
Observable
Inputs

Significant
Unobservable
Inputs

Total

(Level 1)

(Level 2)

(Level 3)

Total

(Level 1)

(Level 2)

(Level 3)

Assets:

Cash equivalents:

Money market funds

5,972

—

Money market funds

Short-term investments:

Asset-backed securities

—

Asset-backed securities

Corporate debt securities

552

—

552

—

U.S. agency securities

—

U.S. Treasury securities

307

—

307

—

Prepaid expenses and other current assets:

Foreign currency derivatives

—

Other assets:

Deferred compensation plan assets

199

—

Total assets

7,168

6,171

997

—

Total assets


Liabilities:	Liabilities:									Liabilities:
Accrued expenses:	Accrued expenses:									Accrued expenses:

Foreign currency derivatives	Foreign currency derivatives	$	8	$	—	$	8	$	—
Foreign currency derivatives
Foreign currency derivatives

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(Unaudited)

The fair value of our financial assets and liabilities at December ~~2, 2022~~1, 2023 was determined using the following inputs:


(in millions)	(in millions)	Fair Value Measurements at Reporting Date Using								(in millions)	Fair Value Measurements at Reporting Date Using
				Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs				Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs	Significant Unobservable Inputs
		Total		(Level 1)		(Level 2)		(Level 3)			Total	(Level 1)	(Level 2)	(Level 3)
Assets:	Assets:									Assets:
Cash equivalents:	Cash equivalents:									Cash equivalents:
Corporate debt securities		$	39	$	—	$	39	$	—

Money market funds
Money market funds
Money market funds	Money market funds	3,479		3,479		—		—

Time deposits	Time deposits	61		61		—		—
Time deposits
Time deposits

Short-term investments:	Short-term investments:
Short-term investments:
Short-term investments:
Asset-backed securities
Asset-backed securities
Asset-backed securities	Asset-backed securities	97		—		97		—
Corporate debt securities	Corporate debt securities	1,266		—		1,266		—
Foreign government securities		5		—		5		—

Municipal securities		24		—		24		—

U.S. agency securities

U.S. agency securities

U.S. agency securities	U.S. agency securities	34		—		34		—
U.S. Treasury securities	U.S. Treasury securities	434		—		434		—
Prepaid expenses and other current assets:	Prepaid expenses and other current assets:									Prepaid expenses and other current assets:
Foreign currency derivatives	Foreign currency derivatives	51		—		51		—
Other assets:	Other assets:									Other assets:
Deferred compensation plan assets	Deferred compensation plan assets	160		160		—		—

Total assets	Total assets	$	5,650	$	3,700	$	1,950	$	—
Total assets
Total assets


Liabilities:	Liabilities:									Liabilities:
Accrued expenses:	Accrued expenses:									Accrued expenses:

Foreign currency derivatives	Foreign currency derivatives	$	15	$	—	$	15	$	—
Foreign currency derivatives
Foreign currency derivatives

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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(Unaudited)

~~Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis~~

~~The fair value of our senior notes was $3.35 billion as of September 1, 2023, based on observable market prices in less active markets and categorized as Level 2.~~ ~~See Note 14 for further details regarding our debt.~~

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.

In June 2019, we entered into Treasury lock agreements with large financial institutions which fixed benchmark U.S. Treasury rates for an aggregate notional amount of $1 billion of our future debt issuance. These derivative instruments hedged the impact of changes in the benchmark interest rate to future interest payments and were settled upon debt issuance in the first quarter of fiscal 2020. We incurred a loss related to the settlement of the instruments which is amortized to interest expense over the term of our debt due February 1, 2030. ~~See Note 14 for further details regarding our debt.~~

As of ~~September~~March 1, ~~2023,~~2024, we had net derivative ~~gains~~losses on our foreign exchange option contracts expected to be recognized within the next 18 months, of which $5$7 million of net ~~gains~~losses are expected to be recognized into revenue ~~within the next 12 months. In addition, we had net derivative losses on our Treasury lock agreements, of which $5 million is expected to be recognized into interest expense~~ 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 ~~September~~March 1, ~~2023~~2024 and December ~~2, 2022~~1, 2023 were as follows:


(in millions)	(in millions)	2023				2022				(in millions)	2024		2023
		Fair Value Asset Derivatives		Fair Value Liability Derivatives		Fair Value Asset Derivatives		Fair Value Liability Derivatives			Fair Value Asset Derivatives	Fair Value Liability Derivatives		Fair Value Asset Derivatives	Fair Value Liability Derivatives
Derivatives designated as hedging instruments:	Derivatives designated as hedging instruments:									Derivatives designated as hedging instruments:
Foreign exchange option contracts	Foreign exchange option contracts	$	79	$	—	$	36	$	—
Foreign exchange forward contracts	Foreign exchange forward contracts	—		—		—		7

Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:

Derivatives not designated as hedging instruments:

Derivatives not designated as hedging instruments:
Foreign exchange forward contracts
Foreign exchange forward contracts
Foreign exchange forward contracts	Foreign exchange forward contracts	3		8		15		8
Total derivatives	Total derivatives	$	82	$	8	$	51	$	15

~~Gains~~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 ~~for~~and the ~~three and nine months ended September 1, 2023 and September 2, 2022~~effects of derivative instruments on our condensed consolidated statements of income were ~~primarily~~immaterial.

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(Unaudited)

associated with our foreign exchange option contracts. For the three and nine months ended September 1, 2023, we recognized $7 million of net gains and $5 million of net losses, respectively, in our condensed consolidated statements of comprehensive income from our foreign exchange option contracts. For the three and nine months ended September 2, 2022, we recognized $107 million and $193 million of net gains, respectively, in our condensed consolidated statements of comprehensive income from our foreign exchange option contracts.

The effects of derivative instruments on our condensed consolidated statements of income for the three and nine months ended September 1, 2023 and September 2, 2022 were primarily associated with foreign exchange option contracts. For the three and nine months ended September 1, 2023, we reclassified $5 million and $36 million of net gains, respectively, from accumulated other comprehensive income into revenue resulting from our foreign exchange option contracts. Comparatively, for the three and nine months ended September 2, 2022, we reclassified $54 million and $105 million of net gains, respectively, from accumulated other comprehensive income into revenue resulting from our foreign exchange option contracts.

NOTE 7. GOODWILL AND OTHER INTANGIBLES

Goodwill as of ~~September~~March 1, ~~2023~~2024 and December ~~2, 2022~~1, 2023 was $12.80 billion and ~~$12.79~~$12.81 billion, respectively. ~~During the second quarter of fiscal 2023, 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 ~~September~~March 1, ~~2023~~2024 and December ~~2, 2022~~1, 2023 were as follows:


(in millions)	(in millions)	2023						2022						(in millions)	2024			2023
		Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net			Gross Carrying Amount	Accumulated Amortization	Net		Gross Carrying Amount	Accumulated Amortization	Net
Customer contracts and relationships	Customer contracts and relationships	$	1,204	$	(588)	$	616	$	1,204	$	(495)	$	709
Purchased technology	Purchased technology	973		(598)		375		1,060		(530)		530
Trademarks	Trademarks	376		(205)		171		375		(172)		203

Other	Other	20		(15)		5		61		(54)		7

Other

Other
Other intangibles, net	Other intangibles, net	$	2,573	$	(1,406)	$	1,167	$	2,700	$	(1,251)	$	1,449

Amortization expense related to other intangibles was ~~$92~~$84 million and ~~$284~~$96 million for the three ~~and nine~~ months ended ~~September~~March 1, ~~2023, respectively. Comparatively, amortization expense related to other intangibles was $101 million~~2024 and ~~$303 million for the three and nine months ended September 2, 2022,~~March 3, 2023, respectively. Of these amounts, ~~$50~~$42 million and ~~$158~~$54 million were included in cost of revenue for the three ~~and nine~~ months ended ~~September~~March 1, ~~2023, respectively,~~2024 and ~~$58 million and $176 million were included in cost of revenue for the three and nine months ended September 2, 2022,~~March 3, 2023, respectively.

As of ~~September~~March 1, ~~2023,~~2024, the estimated aggregate amortization expense in future periods was as follows:


(in millions)	(in millions)
Fiscal Year	Fiscal Year	Other Intangibles (1)
Remainder of 2023		$	93
2024		331
Fiscal Year
Fiscal Year				Other Intangibles (1)
Remainder of 2024
2025	2025	295
2026	2026	142
2027	2027	104
2028
Thereafter	Thereafter	182
Total expected amortization expense	Total expected amortization expense	$	1,147

(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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~~ADOBE INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

NOTE 8. ACCRUED EXPENSES

Accrued expenses as of ~~September~~March 1, ~~2023~~2024 and December ~~2, 2022~~1, 2023 consisted of the following:


(in millions)	(in millions)	2023		2022		(in millions)	2024	2023
Accrued compensation and benefits	Accrued compensation and benefits	$	486	$	485
Accrued bonuses	Accrued bonuses	415		489

Accrued corporate marketing	Accrued corporate marketing	126		154
Accrued corporate marketing
Accrued corporate marketing

Taxes payable		115		117
Sales and use taxes
Sales and use taxes
Sales and use taxes
Refund liabilities	Refund liabilities	99		106

Other	Other	473		439

Other

Other
Accrued expenses	Accrued expenses	$	1,714	$	1,790

Other primarily includes general business accruals, ~~derivative collateral liabilities,~~ accrued hosting fees, royalties payable, and ~~royalties payable.~~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 ~~nine~~three months ended ~~September~~March 1, ~~2023~~2024 was as follows:


		Number of Shares (in millions)	Weighted Average Grant Date Fair Value		Aggregate Fair Value (1) (in millions)
	Number of Shares (in millions)						Number of Shares (in millions)	Weighted Average Grant Date Fair Value	Aggregate Fair Value (1) (in millions)
Beginning outstanding balance	Beginning outstanding balance	7.4	$	449.94
Awarded	Awarded	4.6	$	368.45
Awarded
Awarded
Released	Released	(3.0)	$	430.69
Released
Released
Forfeited
Forfeited
Forfeited	Forfeited	(0.4)	$	441.31

Ending outstanding balance	Ending outstanding balance	8.6	$	413.42	$	4,846

Ending outstanding balance

Ending outstanding balance

Expected to vest	Expected to vest	7.7	$	414.19	$	4,320
Expected to vest
Expected to vest

(1) The aggregate fair value is calculated using the closing stock price as of ~~September~~March 1, ~~2023~~2024 of ~~$563.21.~~$570.93.

The total fair value of restricted stock units vested during the ~~nine~~three months ended ~~September~~March 1, ~~2023~~2024 was ~~$1.20 billion.~~$541 million.

Performance Shares

In the first quarter of fiscal ~~2023,~~2024, the Executive Compensation Committee of our Board of Directors (the “ECC”) approved the ~~2023~~2024 Performance Share Program, the terms of which are similar to the ~~2022~~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 ~~2, 2022.~~1, 2023.

As of ~~September~~March 1, ~~2023,~~2024, the performance shares awarded under our 2024, 2023 ~~2022~~ and ~~2021~~2022 Performance Share Programs remained outstanding and ~~were yet~~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 ~~be earned.~~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.

1817

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

~~Performance share activity for the nine months ended September 1, 2023 was as follows:~~

Number of
Shares
(in millions)
Weighted Average
Grant Date
Fair Value
Aggregate
Fair Value (1)
(in millions)
Beginning outstanding balance 0.4 $ 495.23
Awarded 0.2 $ 437.58
Released (0.1) $ 498.74
Forfeited — $ 492.68
Ending outstanding balance 0.5 $ 465.76 $ 263
Expected to vest 0.4 $ 466.10 $ 232

~~(1)~~ ~~The aggregate fair value is calculated using the closing stock price as of September 1, 2023 of $563.21.~~

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 nine months ended September 1, 2023 resulted from 63% achievement of target for the 2020 Performance Share Program, as certified by the ECC in the first quarter of fiscal 2023.

~~The total fair value of performance shares vested during the nine months ended September 1, 2023 was $39 million.~~

Employee Stock Purchase Plan Shares

Employees purchased ~~1.1~~0.3 million shares at an average price of ~~$286.31~~$299.89 and ~~0.8~~0.2 million shares at an average price of ~~$333.92~~$286.05 for the ~~nine~~three months ended ~~September~~March 1, ~~2023~~2024 and ~~September 2, 2022,~~March 3, 2023, respectively. The intrinsic value of shares purchased during the ~~nine~~three months ended ~~September~~March 1, 2024 and March 3, 2023 ~~and September 2, 2022~~ was ~~$185~~$96 million and ~~$73~~$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 ~~September~~March 1, ~~2023,~~2024, there was ~~$3.17~~$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 ~~2.44~~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 ~~and nine~~ months ended ~~September~~March 1, ~~2023~~2024 and ~~September 2, 2022~~March 3, 2023 were as follows:


		Three Months				Nine Months
(in millions)	(in millions)	2023		2022		2023		2022

(in millions)

(in millions)
Cost of revenue
Cost of revenue
Cost of revenue	Cost of revenue	$	30	$	26	$	88	$	71
Research and development	Research and development	224		189		657		527
Research and development
Research and development
Sales and marketing
Sales and marketing
Sales and marketing	Sales and marketing	130		112		375		305
General and administrative	General and administrative	58		51		171		149
General and administrative
General and administrative
Total	Total	$	442	$	378	$	1,291	$	1,052
Total
Total

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~~ADOBE INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

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)	(in millions)	December 2, 2022		Increase / Decrease		Reclassification Adjustments			September 1, 2023		(in millions)	December 1, 2023	Increase / Decrease	Reclassification Adjustments	March 1, 2024

Net unrealized gains / losses on available-for-sale securities	Net unrealized gains / losses on available-for-sale securities	$	(41)	$	19	$	5	(1)	$	(17)

Net unrealized gains / losses on available-for-sale securities

Net unrealized gains / losses on available-for-sale securities
Net unrealized gains / losses on derivative instruments designated as hedging instruments	Net unrealized gains / losses on derivative instruments designated as hedging instruments	17		—		(28)		(2)	(11)
Cumulative foreign currency translation adjustments	Cumulative foreign currency translation adjustments	(269)		12		—			(257)
Total accumulated other comprehensive income (loss), net of taxes	Total accumulated other comprehensive income (loss), net of taxes	$	(293)	$	31	$	(23)		$	(285)

(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 ~~and nine~~ months ended ~~September~~March 1, ~~2023~~2024 and ~~September 2, 2022~~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 ~~nine~~three months ended ~~September~~March 1, ~~2023~~2024 and ~~September 2, 2022,~~March 3, 2023, we entered into accelerated share repurchase agreements (“ASRs”) with large financial institutions whereupon we provided them with prepayments of ~~$1.4~~$2 billion and ~~$2.4~~$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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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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.

~~During the nine months ended September 1, 2023 and September 2, 2022, we~~We also ~~entered~~enter into structured stock repurchase agreements ~~with large financial institutions whereupon we provided them with prepayments totaling $2 billion and $2.4 billion, respectively. Under the terms of these structured stock repurchase agreements, the~~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 ~~nine~~three months ended ~~September~~March 1, ~~2023,~~2024, we repurchased a total of ~~9.7~~3.1 million shares, including approximately ~~5.7~~0.6 million shares at an average price of ~~$396.43~~$626.68 through a structured repurchase ~~agreements~~agreement entered into during fiscal ~~2022 and the nine months ended September 1,~~ 2023, as well as ~~4.0~~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 ~~$348.46~~$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 ~~nine~~three months ended ~~September 1,~~March 3, 2023. During the nine months ended September 2, 2022, we repurchased a total of 10.7 million shares, including approximately 5.4 million shares at an average price of $429.13 through structured repurchase agreements entered into during fiscal 2021 and the nine months ended September 2, 2022, as well as 5.3 million shares at an average price of $451.55 through the ASR entered into during the nine months ended September 2, 2022.

For the ~~nine~~three months ended ~~September~~March 1, ~~2023,~~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 ~~September~~March 1, ~~2023~~2024 were excluded from the computation of net income per share. As of ~~September~~March 1, ~~2023, $333 million~~2024, a portion of the $2 billion prepayment ~~remained~~ under our outstanding ~~structured~~ASR was evaluated as an unsettled forward contract indexed to our own stock, ~~repurchase agreement.~~

~~Table~~classified within stockholders’ equity. Subsequent to March 1, 2024, the outstanding ASR was settled which resulted in total repurchases of ~~Contents~~

~~ADOBE INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

3.5 million shares at an average price of $578.11.

Subsequent to ~~September~~March 1, ~~2023,~~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 ~~authority,~~authorities, we entered into ~~a structured stock repurchase agreement~~an ASR with a large financial institution whereupon we provided them with a prepayment of ~~$1 billion.~~$2.5 billion and received an initial delivery of 3.6 million shares, which represents approximately 75% of our prepayment. Upon completion of the $1$2.5 billion ~~stock repurchase agreement, $2.15~~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 ~~and nine~~ months ended ~~September~~March 1, ~~2023~~2024 and ~~September 2, 2022:~~March 3, 2023:


		Three Months				Nine Months
(in millions, except per share data)	(in millions, except per share data)	2023		2022		2023		2022

(in millions, except per share data)

(in millions, except per share data)
Net income
Net income
Net income	Net income	$	1,403	$	1,136	$	3,945	$	3,580

Shares used to compute basic net income per share	Shares used to compute basic net income per share	456.4		468.5		457.7		471.1

Shares used to compute basic net income per share

Shares used to compute basic net income per share
Dilutive potential common shares from stock plans and programs
Dilutive potential common shares from stock plans and programs
Dilutive potential common shares from stock plans and programs	Dilutive potential common shares from stock plans and programs	3.1		0.9		1.5		1.6

Shares used to compute diluted net income per share	Shares used to compute diluted net income per share	459.5		469.4		459.2		472.7

Shares used to compute diluted net income per share

Shares used to compute diluted net income per share

Basic net income per share	Basic net income per share	$	3.07	$	2.42	$	8.62	$	7.60

Basic net income per share

Basic net income per share
Diluted net income per share
Diluted net income per share
Diluted net income per share	Diluted net income per share	$	3.05	$	2.42	$	8.59	$	7.57

Anti-dilutive potential common shares	Anti-dilutive potential common shares	0.5		5.0		3.5		3.5

Anti-dilutive potential common shares

Anti-dilutive potential common shares

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

In addition to intellectual property disputes, we are subject to legal proceedings, claims, including claims relating to commercial, employment and other matters, and investigations, including government investigations. 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. Unless otherwise specifically disclosed in this note, we have determined that no provision for liability nor 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.

In connection with our anti-piracy efforts, from time to time we undertake litigation against alleged copyright infringers. Such lawsuits may lead to counter-claims alleging improper use of litigation or violation of other laws. We believe we have valid defenses with respect to such counter-claims; however, it is possible that our consolidated financial position, results of operations or cash flows could be negatively affected in any particular period by the resolution of one or more of these counter-claims.

NOTE 14. DEBT

The carrying value of our borrowings as of ~~September~~March 1, ~~2023~~2024 and December ~~2, 2022~~1, 2023 were as follows:

(dollars in millions) Issuance Date Due Date Effective Interest Rate 2023 2022
1.70% 2023 Notes February 2020 February 2023 1.92% $ — $ 500
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 $ 4,150
Current portion of debt, at par — (500)
Unamortized discount and debt issuance costs (17) (21)
Carrying value of long-term debt $ 3,633 $ 3,629
Carrying value of current debt, net of unamortized discount and debt issuance costs $ — $ 500

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~~ADOBE INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~


(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, ~~2023, $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 ~~of approximately $3.14 billion, net of issuance discount,~~ 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 ~~2023,~~2024, we reclassified the ~~$500 million of~~ senior notes due February 1, ~~2023 became~~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 ~~and were repaid.~~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.

~~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 (the “Term Loan”) of up to $3.5 billion for the purpose of partially funding the purchase price for our acquisition of Figma and the related fees and expenses incurred in connection with the acquisition. The Term Loan is available for funding in a single drawing upon the closing of the Figma acquisition at any time prior to March 15, 2024. The Term Loan will mature two years following the initial funding date and requires no scheduled principal amortization payments prior to maturity. The Term Loan may be prepaid and terminated at our election at any time without premium or penalty. At our election, the Term Loan will bear interest at either (i) term Secured Overnight Financing Rate (“SOFR”), plus a margin, (ii) adjusted daily SOFR, plus a margin, or (iii) base rate, plus a margin. Base rate 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 and adjusted daily SOFR loans is based on our debt ratings, and ranges from 0.750% to 1.250%. The margin for base rate loans is based on our debt ratings, and ranges from 0.000% to 0.250%. In addition, commitment fees determined according to our debt ratings are payable quarterly in an amount ranging from 0.040% to 0.100% per annum until the funding of the Term Loan.

The Term Loan Credit Agreement contains customary representations, warranties, affirmative and negative covenants, events of default and indemnification provisions in favor of the lenders similar to those contained in the Revolving Credit Agreement. As of September 1, 2023, there were no outstanding borrowings under the Term Loan.

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 “Prior Revolving Credit Agreement”).~~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 ~~SOFR,~~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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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

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~~ADOBE INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

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 ~~September~~March 1, ~~2023,~~2024, there were no outstanding borrowings under this Revolving Credit Agreement.

Commercial Paper Program

~~Subsequent to~~In September 1, 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 ~~2022,~~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

~~Founded in 1982,~~ Adobe is ~~one~~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 ~~largest~~world to imagine, create, manage, deliver, measure, optimize and ~~most diversified software companies~~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 ~~the world. We offer a line of~~their hands, and doing so in ways we believe are responsible. Our products and services ~~used by creative professionals, including photographers, video editors, graphic~~help unleash creativity, accelerate document productivity and ~~experience designers and game developers; communicators, including content creators, students, marketers and knowledge workers;~~power businesses of all sizes; and consumers for creating, managing, delivering, measuring, optimizing, engaging and transacting with compelling content and experiences across personal computers, smartphones, other electronic devices andin a digital ~~media formats.~~

We market our products and services directly to enterprise customers through our sales force and local field offices. We license our products to end users through app stores and our own website at www.adobe.com. We offer many of our products via a Software-as-a-Service (“SaaS”) model or a managed services model (both of which are referred to as hosted or cloud-based) as well as through term subscription and pay-per-use models. We also distribute certain products and services through a network of distributors, value-added resellers, systems integrators, independent software vendors, retailers, software developers and original equipment manufacturers (“OEMs”). In addition, we license our technology to hardware manufacturers, software developers and service providers for use in their products and solutions. Our products run on desktop and laptop computers, smartphones, tablets, other devices and the web, depending on the product.world. We have operations in the Americas; Europe, Middle East and Africa (“EMEA”); and Asia-Pacific (“APAC”).

Adobe was originally incorporated in California in October 1983 and was reincorporated in Delaware in May 1997. Our executive offices and principal facilities are located at 345 Park Avenue, San Jose, California 95110-2704. Our telephone number is 408-536-6000 and our website is www.adobe.com. Investors can obtain copies of our SEC filings from our website free of charge, as well as from the SEC website at www.sec.gov. The information posted to our website is not incorporated into this Quarterly Report on Form 10-Q.

OPERATIONS OVERVIEW

For our ~~third~~first quarter of fiscal ~~2023,~~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, ~~and deliver~~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 ~~apps~~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 ~~application~~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. ~~Subsequent to~~In September 1, 2023, we ~~also~~ 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

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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 ~~applications,~~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~~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 ~~third~~first quarter of fiscal ~~2023~~2024 was ~~$11.97~~$12.78 billion, up from ~~$10.98~~$12.49 billion at the end of fiscal ~~2022.~~2023. Document Cloud ARR exiting the ~~third~~first quarter of fiscal ~~2023~~2024 was ~~$2.63~~$2.98 billion, up from ~~$2.28~~$2.84 billion at the end of fiscal ~~2022.~~2023. Total Digital Media ARR grew to ~~$14.60~~$15.76 billion at the end of the ~~third~~first quarter of fiscal ~~2023,~~2024, up from ~~$13.26~~$15.33 billion at the end of fiscal ~~2022.~~2023.

Our success in driving growth in ARR has positively affected our revenue growth. Creative revenue in the ~~third~~first quarter of fiscal ~~2023~~2024 was ~~$2.91~~$3.07 billion, up from ~~$2.63~~$2.76 billion in the ~~third~~first quarter of fiscal ~~2022,~~2023, representing 11% year-over-year growth. Document Cloud revenue in the ~~third~~first quarter of fiscal 2024 was $750 million, up from $634 million in the first quarter of fiscal 2023, ~~was $685 million, up from $607 million in the third quarter of fiscal 2022,~~ representing ~~13%~~18% year-over-year growth. Total Digital Media segment revenue grew to ~~$3.59~~$3.82 billion in the ~~third~~first quarter of fiscal 2024, up from $3.40 billion in the first quarter of fiscal 2023, ~~up from $3.23 billion in the third quarter of fiscal 2022,~~ representing ~~11%~~12% year-over-year growth driven by strong net new user growth.

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Digital Experience

We are a market leader in the fast-growing category addressed by our Digital Experience segment. The Adobe Experience Cloud ~~applications,~~apps and services ~~and platform~~ 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 ~~activation~~audiences. Our ~~solutions,~~products, including Adobe Analytics, ~~Adobe Experience Platform,~~ Customer Journey Analytics, Adobe ~~Audience Manager~~Product Analytics, and our Real-time Customer Data Platform, deliver ~~robust customer profiles and AI-powered analytics across the customer journey~~actionable data in real time to provide ~~timely, relevant~~highly tailored and adaptive experiences across platforms.

•Content and commerce. Our ~~solutions~~products help customers manage, deliver, monetize, and optimize content delivery through Adobe Experience Manager and ~~enable shopping~~build multi-channel commerce experiences ~~that scale from mid-market to enterprise businesses~~for B2B and B2C customers on a single platform with Adobe Commerce.

•Customer journeys. Our ~~solutions~~products help businesses manage, test, target ~~personalize~~ and ~~orchestrate campaigns 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. ~~We offer~~Our products help businesses intelligently measure, optimize, and plan marketing investments through the Adobe ~~Workfront, a~~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 ~~platform directed toward marketers to orchestrate campaign workflows.~~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 ~~$1.23~~$1.29 billion in the ~~third~~first quarter of fiscal ~~2023,~~2024, up from ~~$1.12~~$1.18 billion in the ~~third~~first quarter of fiscal ~~2022,~~2023, representing 10% year-over-year growth. Driving this ~~increase~~growth was the increase in subscription revenue, which grew to ~~$1.10~~$1.16 billion in the ~~third~~first quarter of fiscal ~~2023~~2024 from ~~$981 million~~$1.04 billion in the ~~third~~first quarter of fiscal ~~2022,~~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 and the Russia-Ukraine war.~~regulations. We continuously monitor the direct and indirect impacts of these circumstances on our business and financial results. For example, foreign currency exchange rate fluctuations have negatively impacted our revenue and earnings during the nine months ended September 1, 2023 as compared to the nine months ended September 2, 2022, and may continue to negatively impact our financial results for the remainder of fiscal 2023.

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 ~~generally accepted~~ in the United States ~~of America~~ (“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.

There have been no significant changes in our critical accounting policies and estimates during the ~~nine~~three months ended ~~September~~March 1, ~~2023,~~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 ~~2, 2022.~~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 ~~$14.60~~$15.76 billion as of ~~September~~March 1, ~~2023~~2024 increased by ~~$1.34 billion,~~$432 million, or ~~10%~~3%, from ~~$13.26~~$15.33 billion as of December ~~2, 2022. The change in our Digital Media ARR is primarily due to new user adoption of our Creative Cloud and Document Cloud offerings.~~1, 2023.

•Creative revenue during the three months ended ~~September~~March 1, ~~2023~~2024 of ~~$2.91~~$3.07 billion increased by ~~$284~~$305 million, or 11%, compared to the year-ago period. Document Cloud revenue during the three months ended ~~September~~March 1, ~~2023~~2024 of ~~$685~~$750 million increased by ~~$78~~$116 million, or ~~13%~~18%, compared to the year-ago period. ~~The increases were primarily due to subscription revenue growth associated with our Creative Cloud and Document Cloud offerings.~~

•Digital Experience revenue of ~~$1.23~~$1.29 billion during the three months ended ~~September~~March 1, ~~2023~~2024 increased by ~~$109~~$113 million, or 10%, compared to the year-ago period. ~~The increase was primarily due to subscription revenue growth across our offerings.~~

•Remaining performance obligations of ~~$15.72~~$17.58 billion as of ~~September~~March 1, ~~2023~~2024 increased by ~~$526~~$369 million, or 3%2%, from ~~$15.19~~$17.22 billion as of December ~~2, 2022 primarily due to new contracts and renewals for our Digital Media and Digital Experience offerings.~~1, 2023.

•Cost of revenue of ~~$580~~$590 million during the three months ended ~~September~~March 1, ~~2023~~2024 increased by ~~$34~~$22 million, or 6%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 ~~increases in hosting services and data center costs.~~the $1 billion termination fee which resulted from termination of the Figma transaction.

•~~Operating expenses~~Net income of ~~$2.61 billion~~$620 million during the three months ended ~~September~~March 1, ~~2023 increased~~2024 decreased by ~~$210~~$627 million, or 9%50%, compared to the year-ago ~~period primarily due to increases in base and incentive compensation and related benefits costs, as well as professional fees including costs associated with our planned acquisition of Figma.~~period.

•Cash flows from operations of ~~$5.71~~$1.17 billion during the ~~nine~~three months ended ~~September~~March 1, ~~2023 increased~~2024 decreased by ~~$192~~$519 million, or 3%31%, compared to the year-ago period.

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Revenue for the Three ~~and Nine~~ Months Ended ~~September~~March 1, ~~2023~~2024 and ~~September 2, 2022~~March 3, 2023


(dollars in millions)	(dollars in millions)	Three Months								Nine Months
(dollars in millions)
(dollars in millions)


		2023			2022			% Change		2023			2022			% Change
Subscription	Subscription	$	4,631		$	4,128		12	%	$	13,521		$	12,156		11	%
Subscription
Subscription
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	Percentage of total revenue	95		%	93		%			94		%	93		%
Product	Product	96			126			(24)	%	346			417			(17)	%
Product
Product
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	Percentage of total revenue	2		%	3		%			2		%	3		%
Services and other	Services and other	163			179			(9)	%	494			508			(3)	%
Services and other
Services and other
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	Percentage of total revenue	3		%	4		%			4		%	4		%
Total revenue	Total revenue	$	4,890		$	4,433		10	%	$	14,361		$	13,081		10	%
Total revenue
Total revenue

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 ~~and nine~~ months ended ~~September~~March 1, ~~2023~~2024 and ~~September 2, 2022~~March 3, 2023 is as follows:


(dollars in millions)	(dollars in millions)	Three Months						Nine Months
		2023		2022		% Change		2023		2022		% Change
(dollars in millions)
(dollars in millions)
		2024
		2024
		2024
Digital Media
Digital Media
Digital Media	Digital Media	$	3,506	$	3,116	13	%	$	10,225	$	9,190	11	%
Digital Experience	Digital Experience	1,096		981		12	%	3,208		2,874		12	%
Digital Experience
Digital Experience
Publishing and Advertising
Publishing and Advertising
Publishing and Advertising	Publishing and Advertising	29		31		(6)	%	88		92		(4)	%
Total subscription revenue	Total subscription revenue	$	4,631	$	4,128	12	%	$	13,521	$	12,156	11	%
Total subscription revenue
Total subscription revenue

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 ~~OEM~~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)	(dollars in millions)	Three Months								Nine Months
(dollars in millions)
(dollars in millions)


		2023			2022			% Change		2023			2022			% Change
Digital Media	Digital Media	$	3,594		$	3,232		11	%	$	10,500		$	9,542		10	%
Digital Media
Digital Media
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	Percentage of total revenue	74		%	73		%			73		%	73		%
Digital Experience	Digital Experience	1,229			1,120			10	%	3,627			3,272			11	%
Digital Experience
Digital Experience
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	Percentage of total revenue	25		%	25		%			25		%	25		%
Publishing and Advertising	Publishing and Advertising	67			81			(17)	%	234			267			(12)	%
Publishing and Advertising
Publishing and Advertising
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	Percentage of total revenue	1		%	2		%			2		%	2		%
Total revenue	Total revenue	$	4,890		$	4,433		10	%	$	14,361		$	13,081		10	%
Total revenue
Total revenue

Digital Media

Revenue by major offerings in our Digital Media reportable segment for the three ~~and nine~~ months ended ~~September~~March 1, ~~2023~~2024 and ~~September 2, 2022~~March 3, 2023 were as follows:


(dollars in millions)	(dollars in millions)	Three Months						Nine Months
		2023		2022		% Change		2023		2022		% Change
(dollars in millions)
(dollars in millions)
		2024
		2024
		2024
Creative Cloud
Creative Cloud
Creative Cloud	Creative Cloud	$	2,909	$	2,625	11	%	$	8,522	$	7,778	10	%
Document Cloud	Document Cloud	685		607		13	%	1,978		1,764		12	%
Document Cloud
Document Cloud
Total Digital Media revenue	Total Digital Media revenue	$	3,594	$	3,232	11	%	$	10,500	$	9,542	10	%
Total Digital Media revenue
Total Digital Media revenue

Revenue from Digital Media increased ~~$362 million and $958~~$421 million during the three ~~and nine~~ months ended ~~September~~March 1, ~~2023~~2024 as compared to the three ~~and nine~~ months ended ~~September 2, 2022~~March 3, 2023 driven by increases in revenue associated with our Creative and Document Cloud subscription offerings due to continued demand amid an increasingly digital environment, ~~and~~ strong engagement across customer segments ~~partially offset by the impact of foreign currency exchange rate fluctuations.~~and migrating our customers to higher valued subscription offerings with increased revenue per subscription.

Digital Experience

Revenue from Digital Experience increased ~~$109 million and $355~~$113 million during the three ~~and nine~~ months ended ~~September~~March 1, ~~2023~~2024 as compared to the three ~~and nine~~ months ended ~~September 2, 2022~~March 3, 2023 primarily due to net new additions across our subscription ~~offerings, partially offset by the impact of foreign currency exchange rate fluctuations.~~offerings.

Geographical Information


(dollars in millions)	(dollars in millions)	Three Months								Nine Months
(dollars in millions)
(dollars in millions)


		2023			2022			% Change		2023			2022			% Change
Americas	Americas	$	2,943		$	2,600		13	%	$	8,601		$	7,570		14	%
Americas
Americas
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	Percentage of total revenue	60		%	59		%			60		%	58		%
EMEA	EMEA	1,229			1,143			8	%	3,615			3,436			5	%
EMEA
EMEA
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	Percentage of total revenue	25		%	26		%			25		%	26		%
APAC	APAC	718			690			4	%	2,145			2,075			3	%
APAC
APAC
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	Percentage of total revenue	15		%	15		%			15		%	16		%
Total revenue	Total revenue	$	4,890		$	4,433		10	%	$	14,361		$	13,081		10	%
Total revenue
Total revenue

Overall revenue during the three ~~and nine~~ months ended ~~September~~March 1, ~~2023~~2024 increased in all geographic regions as compared to the three ~~and nine~~ months ended ~~September 2, 2022.~~March 3, 2023. Within each geographic region, the fluctuations in revenue by reportable segment were attributable to the factors noted in the segment information above.

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Included in the overall change in revenue for the three ~~and nine~~ months ended ~~September~~March 1, ~~2023~~2024 as compared to the three ~~and nine~~ months ended ~~September 2, 2022~~March 3, 2023 were impacts associated with foreign currency ~~which were mitigated in part by~~and our foreign currency hedging program. During the three ~~and nine~~ months ended ~~September~~March 1, ~~2023~~2024 as compared to the year-ago ~~periods,~~period, the U.S. Dollar primarily weakened against EMEA foreign currencies and strengthened against APAC foreign currencies, ~~including the Euro and the Japanese Yen,~~ which ~~decreased~~resulted in a net decrease in revenue of approximately $1 million in U.S. Dollar ~~equivalents by $62 million and $367 million, respectively.~~equivalents. For the three ~~and nine~~ months ended ~~September~~March 1, ~~2023, the foreign currency impacts to revenue were offset in part by~~2024, we had net hedging ~~gains~~losses from our cash flow hedging program of ~~$5 million and $36 million, respectively.~~$4 million.

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Cost of Revenue for the Three ~~and Nine~~ Months Ended ~~September~~March 1, ~~2023~~2024 and ~~September 2, 2022~~March 3, 2023


(dollars in millions)	(dollars in millions)	Three Months								Nine Months
(dollars in millions)
(dollars in millions)


		2023			2022			% Change		2023			2022			% Change
Subscription	Subscription	$	447		$	413		8	%	$	1,317		$	1,216		8	%
Subscription
Subscription
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	Percentage of total revenue	9		%	9		%			9		%	9		%
Product	Product	7			8			(13)	%	23			27			(15)	%
Product
Product
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	Percentage of total revenue	*			*					*			*
Services and other	Services and other	126			125			1	%	380			354			7	%
Services and other
Services and other
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	Percentage of total revenue	3		%	3		%			3		%	3		%
Total cost of revenue	Total cost of revenue	$	580		$	546		6	%	$	1,720		$	1,597		8	%
Total cost of revenue
Total cost of revenue

(*) Percentage is less than 1%.

Subscription

Cost of subscription revenue consists of third-party hosting services and data center costs, including expenses related to operating our network infrastructure. 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 nine~~ months ended ~~September~~March 1, ~~2023~~2024 as compared to the three ~~and nine~~ months ended ~~September 2, 2022~~March 3, 2023 due to the following:

Components of
% Change
2023-2022
QTD
Components of
% Change
2023-2022
YTD
Hosting services and data center costs 8 % 7 %
Royalty costs 2 2
Amortization of intangibles (2) (1)
Total change 8 % 8 %


	Components of % Change
Hosting services and data center costs	6	%
Royalty costs	2
Amortization of intangibles	(3)






Total change	5	%

Product

Cost of product revenue is primarily comprised of third-party royalties, localization costs and ~~the~~ 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.

Cost of services and other revenue increased during the three ~~and nine~~ months ended ~~September~~March 1, ~~2023~~2024 as compared to the three ~~and nine~~ months ended ~~September 2, 2022~~March 3, 2023 primarily due to increases in compensation costs, partially offset by decreases in professional and consulting fees.

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Operating Expenses for the Three ~~and Nine~~ Months Ended ~~September~~March 1, ~~2023~~2024 and ~~September 2, 2022~~March 3, 2023


(dollars in millions)	(dollars in millions)	Three Months								Nine Months
(dollars in millions)
(dollars in millions)


		2023			2022			% Change		2023			2022			% Change
Research and development	Research and development	$	881		$	775		14	%	$	2,584		$	2,214		17	%
Research and development
Research and development
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	Percentage of total revenue	18		%	17		%			18		%	17		%
Sales and marketing	Sales and marketing	1,337			1,266			6	%	3,983			3,671			8	%
Sales and marketing
Sales and marketing
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	Percentage of total revenue	27		%	29		%			28		%	28		%
General and administrative	General and administrative	353			319			11	%	1,041			879			18	%
General and administrative
General and administrative
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	Percentage of total revenue	7		%	7		%			7		%	7		%

Acquisition termination fee

Acquisition termination fee

Acquisition termination fee
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue
Amortization of intangibles
Amortization of intangibles
Amortization of intangibles	Amortization of intangibles	42			43			(2)	%	126			127			(1)	%
Percentage of total revenue	Percentage of total revenue	1		%	1		%			1		%	1		%
Percentage of total revenue
Percentage of total revenue
Total operating expenses	Total operating expenses	$	2,613		$	2,403		9	%	$	7,734		$	6,891		12	%
Total operating expenses
Total operating expenses

_________________________________________

(*) Percentage is less than 1%.

(**) Percentage is not meaningful.

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, related facilities costs and expenses associated with computer equipment and software used in development activities.

Research and development expenses increased during the three ~~and nine~~ months ended ~~September~~March 1, ~~2023~~2024 as compared to the three ~~and nine~~ months ended ~~September 2, 2022~~March 3, 2023 due to the following:

Components of
% Change
2023-2022
QTD
Components of
% Change
2023-2022
YTD
Base compensation and related benefits 6 % 6 %
Incentive compensation, cash and stock-based 4 7
Hosting services and data center costs 2 1
Various individually insignificant items 2 3
Total change 14 % 17 %


	Components of % Change
Base compensation and related benefits	4	%
Incentive compensation, cash and stock-based	3
Hosting services and data center costs	4



Various individually insignificant items	3
Total change	14	%

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, ~~applications~~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 nine~~ months ended ~~September~~March 1, ~~2023~~2024 as compared to the three ~~and nine~~ months ended ~~September 2, 2022~~March 3, 2023 primarily due to ~~the following:~~

Components of
% Change
2023-2022
QTD
Components of
% Change
2023-2022
YTD
Base compensation and related benefits 3 % 4 %
Incentive compensation, cash and stock-based 2 3
Professional and consulting fees 1 1
Marketing spend related to campaigns, events and overall marketing efforts (2) (2)
Various individually insignificant items 2 2
Total change 6 % 8 %

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increases in 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, provision for bad debts, expenses associated with computer equipment and software used in the administration of the business, charitable contributions and various forms of insurance.

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General and administrative expenses increased during the three ~~and nine~~ months ended ~~September~~March 1, ~~2023~~2024 as compared to the three ~~and nine~~ months ended ~~September 2, 2022 due to the following:~~

Components of
% Change
2023-2022
QTD
Components of
% Change
2023-2022
YTD
Professional and consulting fees 8 % 10 %
Base compensation and related benefits 4 5
Incentive compensation, cash and stock-based 2 3
Charitable contributions (4) (1)
Various individually insignificant items 1 1
Total change 11 % 18 %

~~Professional and consulting fees increased during the three and nine months ended September 1,~~March 3, 2023 ~~as compared to the three and nine months ended September 2, 2022~~ primarily due to ~~transaction~~increases in compensation costs, ~~associated with our planned acquisition~~partially offset by decreases in professional and consulting fees.

Acquisition Termination Fee

During the three months ended March 1, 2024, we incurred a $1 billion termination fee which resulted from termination of ~~Figma.~~the Figma transaction.

Non-Operating Income (Expense), Net for the Three ~~and Nine~~ Months Ended ~~September~~March 1, ~~2023~~2024 and ~~September 2, 2022~~March 3, 2023


(dollars in millions)	(dollars in millions)	Three Months								Nine Months
(dollars in millions)
(dollars in millions)


		2023			2022			% Change		2023			2022			% Change
Interest expense	Interest expense	$	(27)		$	(28)		(4)	%	$	(85)		$	(84)		1	%
Interest expense
Interest expense
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	Percentage of total revenue	(1)		%	(1)		%			(1)		%	(1)		%
Investment gains (losses), net	Investment gains (losses), net	6			(6)			**		12			(23)			**
Investment gains (losses), net
Investment gains (losses), net
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	Percentage of total revenue	*			*					*			*
Other income (expense), net	Other income (expense), net	67			6			**		157			5			**
Other income (expense), net
Other income (expense), net
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	Percentage of total revenue	1		%	*					1		%	*
Total non-operating income (expense), net	Total non-operating income (expense), net	$	46		$	(28)		**		$	84		$	(102)		**
Total non-operating income (expense), net
Total non-operating income (expense), net

_________________________________________

(*) Percentage is less than 1%.

(**) 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, on February 1 and August 1.

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 increased during the three ~~and nine~~ months ended ~~September~~March 1, ~~2023~~2024 as compared to the three ~~and nine~~ months ended ~~September 2, 2022~~March 3, 2023 primarily due to increases in interest income driven by higher average interest rates.

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Provision for Income Taxes for the Three ~~and Nine~~ Months Ended ~~September~~March 1, ~~2023~~2024 and ~~September 2, 2022~~March 3, 2023


(dollars in millions)	(dollars in millions)	Three Months								Nine Months
(dollars in millions)
(dollars in millions)


		2023			2022			% Change		2023			2022			% Change
Provision for income taxes	Provision for income taxes	$	340		$	320		6	%	$	1,046		$	911		15	%
Provision for income taxes
Provision for income taxes
Percentage of total revenue
Percentage of total revenue
Percentage of total revenue	Percentage of total revenue	7		%	7		%			7		%	7		%
Effective tax rate	Effective tax rate	20		%	22		%			21		%	20		%
Effective tax rate
Effective tax rate

Our effective tax rate ~~decreased~~increased by approximately ~~two~~14 percentage points for the three months ended ~~September~~March 1, ~~2023,~~2024, as compared to the three months ended ~~September 2, 2022,~~March 3, 2023, primarily due to ~~an increase in~~ the ~~net tax benefit from effects of non-U.S. operations~~Figma acquisition termination fee incurred during the three months ended ~~September~~March 1, ~~2023. Our effective~~2024 which was not deductible for financial statement purposes. The increase was partially offset by a net tax ~~rate increased by approximately one percentage point for~~benefit related to stock-based compensation recorded during the ~~nine~~three months ended ~~September~~March 1, ~~2023,~~2024, as compared ~~to the nine months ended September 2, 2022, primarily due~~ to a net tax expense related to stock-based compensation recorded during the ~~nine months ended September 1, 2023, as compared to a net tax benefit related to stock-based compensation recorded during the~~ year-ago ~~period, partially offset by an increase in the net tax benefit from effects of non-U.S. operations during the nine months ended September 1, 2023.~~period.

Our effective tax rate for the three months ended ~~September~~March 1, ~~2023~~2024 was ~~lower~~higher than the U.S. federal statutory tax rate of 21% primarily due to the Figma acquisition termination fee which was not deductible for financial statement purposes and, to a

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lesser extent, from state taxes partially offset by the net tax benefits from ~~effects of~~ non-U.S. operations and the U.S. federal research tax credit, partially offset by state taxes. Our effective tax rate for the nine months ended September 1, 2023 was the same as the U.S. federal statutory tax rate of 21% as the net tax benefits from effects of non-U.S. operations and the U.S. federal research tax credit were largely offset by state taxes.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 ~~$398~~$677 million as of ~~September~~March 1, ~~2023,~~2024, primarily related to certain state ~~credits.~~credits and capital loss carryforwards.

We are a ~~United States-based~~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.

~~Beginning in 2023, under the provisions introduced by~~The provision from the U.S. Tax Act ~~we are required~~which requires us to capitalize and amortize research and development ~~costs.~~costs became effective in fiscal 2023. If the rule is not modified, there will continue to be an adverse impact on our effective rates for income taxes paid, which is partially offset by a benefit to our effective tax rates from the increase in the foreign-derived intangible income ~~deduction, in fiscal 2023 and beyond.~~deduction.

Accounting for Uncertainty in Income Taxes

The gross liabilities for unrecognized tax benefits excluding interest and penalties were ~~$436~~$666 million and ~~$307~~$330 million as of ~~September~~March 1, ~~2023~~2024 and ~~September 2, 2022,~~March 3, 2023, respectively. If the total unrecognized tax benefits as of ~~September~~March 1, ~~2023~~2024 and ~~September 2, 2022~~March 3, 2023 were recognized, ~~$307~~$502 million and ~~$198~~$214 million would decrease the respective effective tax rates.

As of ~~September~~March 1, ~~2023~~2024 and ~~September 2, 2022,~~March 3, 2023, 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 ~~approximately $27 million and $14 million, respectively. These amounts were included in long-term income taxes payable in their respective years.~~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. Although the timing of resolution, settlement and closing of audits is not certain, it is reasonably possible that the underlying unrecognized tax benefits may decrease by up to ~~$30~~$70 million over the next 12 months.

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.

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In addition, tax laws in the United States ~~and~~as well as other countries and jurisdictions in which we conduct business ~~including those covered by governing~~are subject to change as new laws are passed and/or new interpretations are made available. These countries, governmental bodies, ~~that enact tax laws applicable to us,~~ such as the European Commission of the European Union, ~~could make changes to relevant tax, accounting or other laws and interpretations thereof that have a material impact to us. These countries, governmental bodies~~ and intergovernmental economic organizations, such as the Organization for Economic Cooperation and Development, have made or could make 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. ~~In the current global tax policy environment, any~~Changes in our operating landscape, such as changes in laws ~~regulations and~~and/or interpretations of tax rules, could adversely affect our effective tax rates and/or cause us to respond by making changes to our business structure ~~or result in other costs to us~~ 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. WeWhile we believe our tax estimates ~~to be reasonable; however,~~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.

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LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Our primary source of cash is receipts from revenue. 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 sources of cash include proceeds from maturities and sales of short-term investments. Other customary uses of cash include business acquisitions, repayment of maturing senior notes, purchases of property and equipment and payments for taxes related to net share settlement of equity awards.

This data should be read in conjunction with our condensed consolidated statements of cash flows.


		As of
	As of								As of
(in millions)	(in millions)	September 1, 2023		December 2, 2022		(in millions)	March 1, 2024	December 1, 2023
Cash and cash equivalents	Cash and cash equivalents	$	6,601	$	4,236
Short-term investments	Short-term investments	$	915	$	1,860
Working capital	Working capital	$	2,076	$	868
Stockholders’ equity	Stockholders’ equity	$	15,776	$	14,051

A summary of our cash flows is as follows:


		Nine Months Ended					Three Months Ended
(in millions)	(in millions)	September 1, 2023		September 2, 2022		(in millions)	March 1, 2024	March 3, 2023
Net cash provided by operating activities	Net cash provided by operating activities	$	5,705	$	5,513
Net cash provided by (used for) investing activities		623		(501)
Net cash provided by investing activities
Net cash used for financing activities	Net cash used for financing activities	(3,965)		(4,914)
Effect of foreign currency exchange rates on cash and cash equivalents	Effect of foreign currency exchange rates on cash and cash equivalents	2		(72)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	$	2,365	$	26

Cash Flows from Operating Activities

Net cash provided by operating activities of ~~$5.71~~$1.17 billion for the ~~nine~~three months ended ~~September~~March 1, ~~2023~~2024 was primarily comprised of net income adjusted for the net effect of non-cash ~~items~~items. During the three months ended March 1, 2024, the Figma termination fee of $1 billion was paid using cash on hand. This had an adverse impact on net income and, ~~changes in operating assets and liabilities. The primary working capital sources of~~consequently, on our cash were increases in income taxes payable due to the deferral of federal estimated tax payments to the fourth quarter of fiscal 2023 and decreases in trade receivables driven by strong collections, partially offset by increases in short term prepaid expenses.flows from operations.

Cash Flows from Investing Activities

Net cash provided by investing activities of ~~$623~~$66 million for the ~~nine~~three months ended ~~September~~March 1, ~~2023~~2024 was primarily due to maturities and sales of short-term investments partially offset by ongoing capital ~~expenditures.~~

~~Table~~expenditures and investments of ~~Contents~~

certain deferred compensation.

Cash Flows from Financing Activities

Net cash used for financing activities of ~~$3.97~~$2.13 billion for the ~~nine~~three months ended ~~September~~March 1, ~~2023~~2024 was primarily due to payments for our common stock repurchases ~~the repayment of our 2023 Notes~~ and taxes paid related to the net share settlement of equity awards. The above uses of cash were offset in part by proceeds from re-issuance of treasury stock related to our employee stock purchase plan. 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 ~~2023~~2024 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 titled 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 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.

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Our cash equivalent and short-term investment portfolio as of ~~September~~March 1, ~~2023~~2024 consisted of asset-backed securities, corporate debt securities, money market funds, U.S. agency securities and U.S. Treasury securities. We use professional investment management firms to manage a large portion of our invested cash.

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, and facilities expansion. 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.

On September 15, 2022, we entered into a definitive agreement under which we intend to acquire Figma, Inc. (“Figma”) for approximately $20 billion, comprised of approximately half cash and half stock, subject to customary purchase price adjustments. Approximately 6 million additional restricted stock units will be granted to Figma’s Chief Executive Officer and employees that will vest over four years subsequent to closing. We continue to work toward closing the transaction, subject to obtaining regulatory approvals and satisfying customary closing conditions. We will be required to pay Figma a reverse termination fee of $1 billion if the transaction fails to receive regulatory clearance, assuming all other closing conditions have been satisfied or waived, or if it fails to close within 18 months from September 15, 2022. We expect to finance the cash portion of the consideration using cash on hand and debt instruments. While the transaction is pending, at a minimum we expect to maintain share repurchases sufficient to offset the dilution of equity issuances to our employees.

~~Term Loan Credit Agreement~~

In January 2023, we entered into a delayed draw credit agreement, providing for a senior unsecured term loan (the “Term Loan”) of up to $3.5 billion for the purpose of partially funding the purchase price and related fees for our acquisition of Figma. The Term Loan is available for funding in a single drawing upon the closing of the Figma acquisition at any time prior to March 15, 2024 and will mature two years following the initial funding date. As of September 1, 2023, there were no outstanding borrowings under the Term Loan.

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 ~~September~~March 1, ~~2023,~~2024, 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. We do not anticipate paying any cash dividends in the foreseeable future.

~~Senior Notes~~

We have $3.65 billion senior notes outstanding, which rank equally with our other unsecured and unsubordinated indebtedness. As of September 1, 2023, the carrying value of our senior notes was $3.63 billion and our maximum commitment for interest payments was $321 million for the remaining duration of our outstanding senior notes. Interest is payable semi-annually, in arrears, on February 1 and August 1. 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.~~

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Commercial Paper Program

Senior Notes

We have $3.65 billion senior notes outstanding, which rank equally with our other unsecured and unsubordinated indebtedness. As of March 1, 2024, the carrying value of our senior notes was $3.64 billion and our maximum commitment for interest payments was $276 million for the remaining duration of our outstanding senior notes. Interest is payable semi-annually, in arrears, on February 1 and August 1. 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 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.

Contractual Obligations

Our principal commitments as of ~~September~~March 1, ~~2023~~2024 consisted of purchase obligations resulting from agreements to purchase goods and services in the ordinary course of business and obligations under operating lease arrangements. During the first quarter of fiscal 2024, we executed agreements associated with certain of our long-term supplier commitments that increased our minimum purchase obligations by $2.3 billion through December 2028. There have been no other material changes in those obligations during the ~~nine~~three months ended ~~September~~March 1, ~~2023.~~

~~Other~~

Beginning in 2023, under the provisions introduced by the U.S. Tax Act, we are required to capitalize and amortize research and development costs. If the rule is not modified, there will continue to be an adverse impact on our effective rates for income taxes paid, which is partially offset by a benefit from the increase in the foreign-derived intangible income deduction, in fiscal 2023 and beyond.

The recent U.S. Internal Revenue Service disaster-area tax relief allows for deferral of our federal estimated tax payments to the fourth quarter of fiscal 2023. As of the third quarter of fiscal 2023, we have deferred approximately $830 million of fiscal 2023 federal estimated tax payments.

The Inflation Reduction Act enacted in 2022 introduced new provisions including a corporate book minimum tax effective for us beginning in fiscal 2024 and an excise tax on net stock repurchases made after December 31, 2022. We continue to monitor developments and evaluate impacts, if any, of these provisions on our results of operations and cash flows.2024.

Stock Repurchase Program

During the ~~nine~~three months ended ~~September~~March 1, ~~2023,~~2024, we ~~repurchased a total of 9.7 million shares, including approximately 5.7 million shares at an average price of $396.43 through structured repurchase agreements~~ entered into ~~during fiscal 2022 and the nine months ended September 1, 2023, as well as 4.0 million shares at an average purchase price of $348.46 through~~ an accelerated share repurchase agreement ~~entered into during the first quarter of fiscal 2023.~~

~~During the third quarter of fiscal 2023, we entered into a structured stock repurchase agreement~~(“ASR”) with a large financial institution whereupon we provided them with a prepayment of ~~$1 billion. As~~$2 billion and received an initial delivery of ~~September~~2.5 million shares of our common stock. Subsequent to March 1, 2024, the ASR was settled which resulted in total repurchases of 3.5 million shares at an average price of $578.11.

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, ~~$333~~as well as 2.5 million shares from the initial delivery of the ~~prepayment remained under our outstanding structured stock repurchase agreement.~~ASR.

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See Note 11 of our notes to condensed consolidated financial statements for further details regarding our stock repurchase program.

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Indemnifications

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk exposures for the ~~nine~~three months ended ~~September~~March 1, ~~2023,~~2024, as compared to those discussed in our Annual Report on Form 10-K for the fiscal year ended December ~~2, 2022.~~1, 2023.

ITEM 4. CONTROLS AND PROCEDURES

Based on their evaluation as of ~~September~~March 1, ~~2023,~~2024, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective at the reasonable assurance level to ensure that the information required to be disclosed by us in this Quarterly Report on Form 10-Q was (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting during the quarter ended ~~September~~March 1, ~~2023~~2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Adobe have been detected.

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 13 of our notes to condensed consolidated financial statements for information regarding our legal proceedings.

ITEM 1A. RISK FACTORS

As previously discussed, our actual results could differ materially from our forward-looking statements. Below we discuss some of the factors that could cause these differences. ~~These~~The occurrence of these and many other factors described in this report, and factors that we do not presently know or that we currently believe to be immaterial, could materially and adversely affect our operations, performance and financial condition. Many factors affect more than one category and the factors are not in order of significance or probability of occurrence because they have been grouped by categories.

Risks Related to Our Ability to Grow Our Business

~~The markets~~We may be unsuccessful at innovating in ~~which we participate are intensely competitive, and if we cannot continue~~response to ~~develop, acquire, market and offer new products and services or enhancements~~rapid technological changes to ~~existing products and services that~~ meet customer ~~requirements,~~needs, which could cause our operating results ~~could~~to suffer.

~~The~~We operate in rapidly evolving markets ~~for our~~and expect the pace of innovation to continue to accelerate. We must continually introduce new, and enhance existing, products, services and ~~services are characterized by intense competition, new industry standards, evolving distribution models, limited barriers~~solutions to ~~entry, new technology developments, short product life cycles, customer price sensitivity, global market conditions~~retain customers and frequent product introductions (including alternatives with limited functionality available at lower costs or free of charge). Any of these factors could create downward pressure on pricing and gross margins and could adversely affect our renewal and upsell and cross-sell rates, as well as our ability to attract new customers.

~~Our future success will depend on our continued ability to enhance and integrate our existing products and services, introduce~~ Developing new products is complex and may not be profitable, and our investments in new technologies are speculative and may not yield the expected business or financial benefits. The commercial success of new or enhanced products, services inand solutions depends on a number of factors, including timely and ~~cost-effective manner, meet changing customer expectations~~successful development; effective distribution and ~~needs, extend our core technology into new applications,~~marketing; market acceptance; compatibility with existing and ~~anticipate~~ emerging standards, ~~business models,~~platforms, software delivery methods and technologies; accurately predicting and anticipating customer needs and expectations and the direction of technological change; identifying and innovating in the right technologies; and differentiation from other ~~technological developments. For example, consumers continue to migrate from personal computers to tablet~~products, services and mobile devices and from desktop to the web. While we offer our products on a variety of platforms, if we cannot continue adapting our products to tablet and mobile devices or the web, or if our competitors can adapt their products more quickly than us, our business could be harmed. In addition, releases of new devices or operating systems may make it more difficult for our products to perform or may require significant cost to adapt our solutions. ~~The potential costs and delays incurred as a result could harm our business.~~ If we fail to anticipate or ~~misjudge customers’ rapidly changing needs and expectations~~identify technological trends or fail to devote appropriate resources to adapt to ~~emerging technological~~such trends, our ~~market share~~business could be harmed. For example, generative artificial intelligence technologies provide new ways of marketing, creating content and ~~results of operations~~interacting with documents that could ~~suffer.~~

Furthermore, some of our competitors and potential competitors enjoy competitive advantages such as greater financial, technical, sales, marketing and other resources, broader brand awareness and access to larger customer bases. As a result of these advantages, potential and current customers might select the products and services of our competitors, causing a loss of our market share. Our competitors, including large enterprises, may develop products, features or services that are similar to ours or that achieve greater acceptance, may undertake more far-reaching and successful product development efforts or marketing campaigns, or may adopt more aggressive pricing policies.

~~For additional information regarding our competition and the risks arising out of the competitive environment~~disrupt industries in which we operate, ~~see~~and our business may be harmed if we fail to invest or adapt. While we have released new generative artificial intelligence products, such as Adobe Firefly, and are focused on enhancing the ~~section titled “Competition” contained in Part I, Item 1~~artificial intelligence (“AI”) capabilities of such products and incorporating AI into existing products, services and solutions, there can be no assurance that our ~~Annual Report on Form 10-K.~~

~~Introduction~~products will be successful or that we will innovate effectively to keep pace with the rapid evolution of ~~new technology could harm~~AI across our Creative Cloud, Document Cloud and Experience Cloud. If we do not successfully innovate, adapt to rapid technological changes and meet customer needs, our business and our financial results ~~of operations.~~

The expectations and needs of technology consumers are constantly evolving. As new technology is developed, integration of our products and services with one another and other companies’ offerings creates an increasingly complex ecosystem that is also partly reliant on third parties. If any disruptive technology, or competing products, services or operating systems that are not compatible with our solutions, achieve widespread acceptance, our operating results could suffer and our business couldmay be harmed.

~~The introduction of, or limitations on, certain technologies may reduce~~Issues relating to the effectiveness of our products and our business operations. For example, some of our products and services, including those marketed or licensed through adobe.com, rely on tracking, third-party cookies or other identifiers to help our customers more effectively advertise and detect and prevent fraudulent activity. However, consumers can, with increasing ease, implement technologies to limit the ability to collectdevelopment and use ~~data~~of AI, including generative AI, in our offerings may result in reputational harm, liability and adverse financial results.

Social and ethical issues relating to ~~deliver or advertise services. Increased use of methods to control~~ the use of ~~these~~AI, including generative AI, in our offerings may result in reputational harm, liability and additional costs. We are increasingly incorporating AI technologies ~~through customers’ browsers, operating~~into many of our offerings. If our AI development, deployment, content labeling or governance is ineffective or inadequate, it may result in incidents that impair the public acceptance of AI solutions or cause harm to individuals, customers or society, or result in our offerings not working as intended or producing unexpected outcomes.

Around the world, AI regulation is in the nascent stages of development. The evolving AI regulatory environment may increase our research and development costs, increase our liability related to the use of AI by our customers or users that are beyond our control and result in inconsistencies in evolving legal frameworks across jurisdictions. While we have taken a responsible approach to the development and use of AI in our offerings, there can be no guarantee that future AI regulations will not adversely impact us or conflict with our approach to AI, including affecting our ability to make our AI offerings available without costly changes, requiring us to change our AI development practices, monetization strategies and/or indemnity protections and subjecting us to additional compliance requirements, regulatory action, competitive harm or legal liability. In addition, new competition regulation on AI development and deployment could impose new requirements on our markets that could impact our business and financial results.

Uncertainty around new and evolving AI use, including generative AI, may require additional investment to develop responsible use frameworks, develop or license proprietary datasets and machine learning models and develop new approaches and processes to attribute or compensate content creators, which could be costly. Developing, testing and deploying AI systems ~~device settings or “ad-blocking” software or applications~~ may ~~harm~~also increase the cost of our ~~business.~~offerings, including due to the nature of the computing costs involved in such systems. These costs could adversely impact our margins as we continue to add AI capabilities to our offerings and scale our AI offerings

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Wewithout assurance that our customers and users will adopt them. Further, as with any new offerings based on new technologies, consumer reception and monetization pathways are uncertain, our strategies may not ~~realize the anticipated benefits of past or future investments or acquisitions,~~be successful and ~~integration of acquisitions may disrupt~~ our business and ~~management.~~financial results could be adversely impacted. New AI offerings and technologies could disrupt workforce needs, result in negative publicity about AI and have the potential to affect demand for our existing products, services and solutions, all of which could adversely impact our business.

We may not realize the anticipated benefits of ~~an investment~~investments or ~~acquisition of a company, division, product or technology, each~~acquisitions, and they may disrupt our business and divert management’s attention.

Investments and acquisitions involve numerous risks and uncertainties, the occurrence of which ~~involves numerous risks.~~may have an adverse effect on our business. These risks and uncertainties include:

•inability to achieve the financial and strategic goals ~~for~~of the ~~acquired and combined businesses;~~investment or acquisition;

•difficulty in ~~and the cost of,~~ effectively integrating the operations, technologies, products, or services, ~~and~~solutions, culture or personnel of the acquired business;

•disruption of our ongoing business and distraction of our management and other personnel;

•challenges to completing or failure to complete an announced investment or acquisition related to the failure to obtain regulatory approval, or the need to satisfy certain conditions precedent to closing such transaction (such as divestitures, ownership or operational restrictions or other structural or behavioral remedies) that could limit the anticipated benefits of the transaction;

•entry into markets in which we have minimal prior experience and where competitors in such markets have stronger market positions;

•inability to retain personnel, key customers, distributors, vendors and other business partners of the acquired business;

•delay in customer and distributor purchasing decisions due to uncertainty about the direction of our product and service offerings;

•incurring higher than anticipated costs to effectively integrate an acquired business, to bring an acquired company into compliance with applicable laws and regulations, additional compensation issued or assumed in connection with an acquisition, to divest products, services or solutions acquired in unsuccessful investments or acquisitions, to amortize costs for acquired intangible assets or because of our inability to take advantage of anticipated tax benefits;

•increased collection times, elevated delinquency or bad debt write-offs related to receivables of an acquired business we assume;

•difficulty in maintaining controls, procedures and policies during the transition and integration and inability to conclude that our internal controls over financial reporting are effective;

•potential identified or unknown security vulnerabilities in acquired products that expose us to additional security risks or delay our ability to integrate the product into our offerings;

•~~entry into markets in which we have minimal prior experience and where competitors in such markets have stronger market positions;~~

•~~disruption of our ongoing business and distraction of our management and other employees from other opportunities and challenges;~~

•~~inability to retain personnel of the acquired business;~~

•~~inability to retain key customers, distributors, vendors and other business partners of the acquired business;~~

•~~inability to take advantage of anticipated tax benefits;~~

•~~incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results;~~

•~~elevated delinquency or bad debt write-offs related to receivables of the acquired business we assume;~~

•~~additional costs of bringing acquired companies into compliance with laws and regulations applicable to a multinational corporation;~~

•~~difficulty in maintaining controls, procedures and policies during the transition and integration;~~

•~~impairment of our relationships with employees, customers, partners, distributors or third-party providers of our technologies, products or services;~~

•~~failure of our due diligence processes to identify significant problems, liabilities or other challenges of an acquired company or technology;~~

•exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of, an ~~acquisition, such as claims from terminated employees, customers, former stockholders or other third parties;~~acquisition;

•~~incurring significant exit charges if products or services acquired in business combinations are unsuccessful;~~

•~~inability~~incurrence of additional debt to ~~conclude that our internal controls over financial reporting are effective;~~

•~~inability to obtain, or obtain in a timely manner, approvals from governmental authorities, which could delay, prevent or impose conditions on such acquisitions;~~

•~~the failure of strategic investments to perform as expected or to meet financial projections;~~

•~~delay in customer and distributor purchasing decisions due to uncertainty about the direction of our product and service offerings;~~

•~~additional stock-based compensation issued or assumed in connection with~~finance an acquisition, ~~including the impact on stockholder dilution~~which will increase our interest expense and ~~our results~~leverage, and/or issuance of ~~operations;~~

•~~increased accounts receivables collection times~~equity securities to finance acquisitions, which will dilute current shareholders’ percentage ownership and ~~working capital requirements associated with acquired business models;~~earnings per share; and

•~~incompatibility of business cultures.~~

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~~Mergers and acquisitions of technology companies are inherently risky. If we do not complete an announced acquisition transaction, including the pending acquisition of Figma, Inc.,~~failure to identify significant problems, liabilities or integrate an acquired business successfully and in a timely manner, we may not realize the benefits of the acquisition to the extent anticipated, and in certain circumstances an acquisition could harm our financial position.other challenges during due diligence.

Our ability to acquire other businesses or technologies, make strategic investments or integrate acquired businesses effectively may also be impaired by adverse economic and political events, including trade tensions, and increased global scrutiny of acquisitions and strategic investments. A number of countries, including the United States and countries in Europe and the Asia-Pacific region, are considering or have adopted more stringent restrictions onor guidelines for such ~~transactions, particularly in the technology sector.~~transactions. Governments may continue to adopt or tighten restrictions of this nature, and such restrictions or government actions could negatively impact our business and financial results. Further, if we are not able to complete an announced acquisition or investment, or we do not achieve the financial and strategic goals of an acquisition or investment, we may not realize the

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anticipated benefits of such acquisition or investment or we may incur additional costs, which may negatively impact our business and financial results.

We participate in rapidly evolving and intensely competitive markets, and, if we do not compete effectively, our operating results could suffer.

The ~~success of some~~markets for our products, services and solutions are rapidly evolving and intensely competitive. We expect competition to continue to intensify. Our competitors range in size from diversified global companies with significant sales and research and development resources, broad brand awareness, long operating histories or access to large customer bases to small, specialized companies whose narrow focuses may allow them to be more effective in deploying technical, marketing and financial resources. Our competitors may develop products, services or solutions that are similar to ours or that achieve greater acceptance, may undertake more far-reaching and successful product development efforts or marketing campaigns, or may adopt more aggressive pricing policies. As a result, current and potential customers may select the products, services or solutions of our ~~product and service offerings~~competitors. Further, our future success depends on our continued ability to ~~continue~~effectively appeal to ~~attract~~businesses and ~~retain customers~~consumers. New industry standards, evolving distribution models, limited barriers to entry, short product life cycles, customer price sensitivity, global market conditions and the frequent entry of new products or competitors may create downward pressure on pricing and ~~contributors to~~gross margins and adversely affect our ~~online marketplaces for creative content.~~

~~The success of some of our product~~renewal, upsell and ~~service offerings, such~~cross-sell rates as ~~Adobe Stock, depends on~~well as our ability to ~~continue to retain existing and~~ attract new ~~customers~~customers. In addition, we expect to face more competition as AI continues to be integrated into the markets in which we compete. Our competitors or other third parties may incorporate AI into their offerings more successfully than we do and ~~contributors~~achieve greater and faster adoption, which could impair our ability to ~~these online marketplaces for creative content. An increase in paying customers has generally resulted in more content from contributors, which increases the size of our collection~~compete effectively and in turn attracts new paying customers. We rely on the functionality and features of our online marketplaces, the size and content of our collection and the effectiveness of our marketing efforts to attract new customers and contributors and retain existing ones. New technologies may render the features of our online marketplaces obsolete, our collection may fail to grow as anticipated or our marketing efforts may be unsuccessful, any of which may adversely affect our ~~results~~business and financial results. Further, we expect the markets for standalone AI offerings to be highly competitive and rapidly evolving. For example, we face increasing competition from companies offering text-to-image generative AI technology that may compete directly with our own creative offerings. If we are not able to provide products, services and solutions that compete effectively, we could experience reduced sales and our business could be adversely affected. For additional information regarding our competition and the risks arising out of ~~operations.~~the competitive environment in which we operate, see the section titled “Competition” contained in Part I, Item 1 of our Annual Report on Form 10-K.

If our ~~products~~reputation or ~~platforms~~our brands are ~~used to create or disseminate objectionable content, particularly misleading content intended to manipulate public opinion, our brand reputation may be~~ damaged, ~~and~~ our business and financial results may be ~~harmed.~~adversely affected.

We believe ~~that~~ our reputation and brands have ~~significantly contributed~~been, and we expect them to the success of our business. Maintaining and enhancing the brands within Adobe increases our ability to enter new categories, launch new and innovative products to better serve our customers and expand our customer base. Our brands may be negatively affected by the use of our products or services to create or disseminate newsworthy content that is deemedcontinue to be, ~~misleading, deceptive or intended~~important to ~~manipulate public opinion (e.g., “DeepFakes”), by the use of~~ our ~~products or services for illicit, objectionable or illegal ends, or by our failure to respond appropriately~~business and expeditiously to such uses of our products and services. Such uses of our products and services may also cause us to face claims related to defamation, rights of publicity and privacy, illegal content, intellectual property infringement, misinformation and personal injury torts.financial results. Maintaining and enhancing our brands may require us to make substantial investments and these investments may not be successful. There are numerous ways that our reputation or brands could be damaged, including, among other things, introduction of new products, features or services that do not meet customer expectations, our position on or approach to new and evolving technologies, backlash from customers, government entities or other stakeholders that disagree with our product offering decisions or public policy positions, significant litigation or regulatory actions that negatively reflect on our business practices, our action or inaction or actual or perceived failure to meet our commitments on environmental, social and governance, ethical or political issues, public scrutiny regarding our handling of user privacy, data practices or content, data security breaches or compliance failures, or our approach to AI. Further, our brands may be negatively affected by uses of our products, services or solutions, particularly our AI offerings, in ways that are out of our control, such as to create or disseminate content that is deemed to be misleading, deceptive or intended to manipulate public opinion, or for illicit, objectionable or illegal ends, or by our failure to respond appropriately and in a timely manner to such uses. Such uses may result in controversy or claims related to defamation, rights of publicity, illegal content, intellectual property infringement, harmful content, misinformation and disinformation, harmful bias, misappropriation, data privacy, derivative uses of third-party AI and personal injury torts. If we fail to appropriately respond to objectionable content created using our products, services or ~~services~~solutions or shared on our platforms, our users may lose confidence in our brands. Entry into markets with weaker protection of brands ~~and~~or changes in the legal systems in countries in which we operate may also impact our ability to protect our brands. If we fail to maintain, enhance or protect our brands, or if we incur excessive expenses in our efforts to do so, our business and financial results may be adversely affected. ~~In addition, government regulation designed to address misleading content could adversely impact our product offerings.~~

~~Social and ethical issues relating to the use of new and evolving technologies, such as AI, in our offerings may result in reputational harm and liability.~~

Social and ethical issues relating to the use of new and evolving technologies such as artificial intelligence (“AI”) in our offerings, may result in reputational harm and liability, and may cause us to incur additional research and development costs to resolve such issues. We are increasingly building AI into many of our offerings, including generative AI such as with our recent announcement of Adobe Firefly. As with many innovations, AI presents risks and challenges that could affect its adoption, and therefore our business. If we enable or offer solutions that draw controversy due to their perceived or actual impact on society, we may experience brand or reputational harm, competitive harm or legal liability. Potential government regulation related to AI use and ethics may also increase the burden and cost of research and development in this area, and failure to properly remediate such issues may cause public confidence in AI to be undermined, which could slow adoption of AI in our products and services. The rapid evolution of AI will require the application of resources to develop, test and maintain our products and services to help ensure that AI is implemented ethically in order to minimize unintended, harmful impact. Uncertainty around new and emerging AI applications such as generative AI content creation may require additional investment in the development of proprietary datasets and machine learning models, development of new approaches and processes to provide attribution or remuneration to content creators and building systems that enable creatives to have greater control over the use of their work in the development of AI, which may be costly and could impact our profit margin if we decide to expand generative AI into all our product offerings. Developing, testing and deploying AI systems may also increase the cost profile of our offerings due to the nature of the computing costs involved in such systems.

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Risks Related to the Operation of Our Business

~~Security breaches in data centers we manage,~~Service interruptions or ~~third parties manage on~~failures of our ~~behalf,~~or third-party information technology systems may ~~compromise~~impair the ~~confidentiality, integrity or~~ availability of ~~employee~~our products, services and ~~customer data,~~solutions, which ~~could~~may expose us to liability, ~~and adversely affect~~damage our reputation and ~~business.~~

We process and store significant amounts of employee and customer data, a large volume of which is hosted by third-party service providers. A security incident impacting our own data centers or those controlled by our service providers may compromise the confidentiality, integrity or availability of this data. Unauthorized access to or loss or disclosure of data stored by Adobe or our service providers may occur through physical break-ins, breaches of a secure network by an unauthorized party, software vulnerabilities or coding errors, employee mistakes, theft or misuse or other misconduct. It is also possible that unauthorized access to or disclosure of employee or customer data may occur through inadequate use of security controls by customers, service providers or employees. The compromise of personal, confidential or proprietary information could cause a loss of data, disrupt our operations, damage our reputation, give rise to remediation or other expenses and subject us to claims or other liabilities, regulatory investigations or fines. Adobe maintains insurance to cover operational risks, such as cyber risk and technology outages, but this insurance may not cover all costs associated with the consequences of personal, confidential or proprietary information being compromised. Further, such perceived or actual unauthorized loss or disclosure of the information we collect, process or store, or breach of our security could damage our reputation, result in the loss of customers and harm our ~~business.~~

We rely on data centers managed both by Adobe and third parties to host and deliver our services, as well as access, collect, process, use, transmit and store data, and any interruptions or delays in these hosted services, or failures in data collection or transmission could expose us to liability and harm our business and reputation.future financial results.

Much of our business, ~~relies on hardware and services that are hosted, managed and controlled directly by Adobe or third-party service providers,~~ including our online store at adobe.com and our Creative Cloud, Document Cloud and Experience Cloud ~~solutions.~~solutions, relies on hardware and services that are hosted, managed and controlled directly by us or third-party service providers to be available to customers and users without disruption. We do not have redundancy for all of our systems, many of our critical applications (“apps”) reside in only one of our data centers, and our disaster recovery planning may not account for all eventualities. If ~~our business relationship with a~~any critical third-party service provider of hosting or content delivery services is negatively affected or ~~if one~~

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becomes unavailable to ~~terminate its agreement with~~ us ~~without adequate notice,~~for any reason, we ~~might~~may not be able to deliver the corresponding ~~hosted offerings~~products, services or solutions to our customers ~~which~~and users. Failure of our systems or those of our third-party service providers could disrupt our business operations and those of our customers, subject us to reputational harm, require costly and time-intensive ~~notification requirements,~~notifications, and cause us to lose customers, users and future business. ~~Supply chain disruptions stemming from the Russia-Ukraine war may harm our customers and suppliers and further complicate existing supply chain constraints.~~ Occasionally, we migrate data among data centers and to third-party hosted environments. If a transition among data centers or to third-party service providers encounters unexpected interruptions, unforeseen complexity or unplanned disruptions despite precautions undertaken during the process, this may impair our delivery of products, services and ~~services~~solutions to customers and result in increased costs and liabilities, which may harm our operating results, reputation and our business.

It is also possible that hardware or software failures or errors in our systems (or those of our third-party service providers) could result in data loss or corruption, cause the information that we collect or maintain to be incomplete or contain inaccuracies that our customers regard as significant, or cause us to fail to meet committed service levels or comply with applicable notification ~~requirements.~~requirements or other relevant contractual obligations to our customers. Furthermore, our ability to collect and report data may be delayed or interrupted by a number of factors, including access to the internet, the failure of our network or software systems, security breaches or significant variability in visitor traffic on customer websites. In addition, the loss of data resulting from computer viruses, worms, ransomware or other malware may harm our systems could expose us to litigation or regulatory investigation, and costly and time-intensive notification requirements.

We may also find, on occasion, that we cannot deliver data and reports to our customers in near ~~real time~~real-time due to factors such as significant spikes in customer activity on their websites or failures of our network or software (or that of a third-party service provider). If we fail to plan infrastructure capacity appropriately and expand it proportionally with the needs of our customer and user base, and we experience a rapid and significant demand on the capacity of our data centers or those of third parties, service outages or performance issues could occur, which ~~would~~may impact our customers. Such a strain on our infrastructure capacity ~~could~~may subject us to regulatory and customer notification requirements, violations of service level agreement commitments or financial liabilities and result in customer dissatisfaction or harm our business. If we supply materially inaccurate information or experience significant interruptions in our systems, our reputation could be harmed, we could lose customers and we could be found liable for damages or incur other losses.

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Security ~~vulnerabilities in our products and systems,~~incidents, improper access to or ~~in our supply chain, could lead to reduced revenue or to liability claims.~~

~~Maintaining the security~~disclosure of our customers’ data or other cyber incidents may harm our reputation and materially and adversely affect our business.

Our products, services and solutions collect, store, manage and otherwise process third-party data, including our customers’ data and our own data. Such products, services ~~is a critical issue for~~and solutions as well as our technologies, systems and networks have been subject to, and may in the future be subject to, cyberattacks, computer viruses, ransomware or other malware, fraud, worms, social engineering, denial-of-service attacks, malicious software programs, insider threats and other cybersecurity incidents that have in the past, and may in the future, result in the unauthorized access, disclosure, acquisition, use, loss or destruction of sensitive personal or business data belonging to us and our customers. ~~Cyberthreats are constantly evolving~~

Cybersecurity incidents can be caused by human error from our workforce or that of our third-party service providers, by malicious third parties, acting alone or in groups, or by more sophisticated organizations, including nation-states and ~~becoming increasingly sophisticated and complex, making it increasingly difficult to detect and successfully defend against them.~~state-sponsored organizations. Such risks may be elevated in connection with geopolitical tensions, including the Russia-Ukraine war. Certain unauthorized parties have in the past managed, and may ~~again~~ in the future manage, to ~~gain access to~~overcome our security measures and ~~misuse some of our systems and software, or that~~those of our third-party service providers ~~in order~~ to access ~~the authentication, payment~~ and ~~personal information of our end users~~misuse systems and employees. In addition, cyber-attackers (which may include individuals or groups, as well as sophisticated groups with significant resources, such as nation-state and state-sponsored attackers) also develop and deploy viruses, worms, credential stuffing attack tools and other malicious software programs, some of which may be specifically designed to attack our products, services, information systems or networks. The frequency and sophistication of such threats continues to increase and often becomes further heightened in connection with geopolitical tensions. Hardware, software and operating system applications that we develop or procure from third parties have contained and may containby exploiting defects in design or manufacture, including bugs, vulnerabilities and other problems that ~~could~~ unexpectedly compromise the security or operation of ~~the system~~a product or impair a customer’s ability to operate or use our products. Like other global companies, we face an increasingly difficult challenge to attract and retain highly qualified security personnel to assist us in combating these security threats. The costs to prevent, eliminate, mitigate or alleviate cyber or other security problems, bugs, viruses, worms,system. Further, malicious software programs and security vulnerabilities are significant, and our efforts to address these problems, including notifying affected parties, may not be successful or may be delayed and could result in interruptions, delays, cessation of service and loss of existing or potential customers. It is impossible to predict the extent, frequency or impact these problems may have on us.

~~Outside~~third parties have in the past attempted, and may in the future attempt, to fraudulently induce our employees or users of our products, services or ~~services~~solutions to disclose sensitive, personal or confidential information via illegal electronic spamming, phishing or other ~~tactics. This existing~~tactics, and this risk is ~~compounded given the~~heightened in our current hybrid model ~~work environment, where a large portion~~working environment. Malicious actors may engage in fraudulent or abusive activities through our products, services and solutions, including unauthorized use of accounts through stolen credentials, use of stolen credit cards or other payment vehicles, failure to pay for services accessed, or other activities that violate our ~~workforce spends a portion~~terms of ~~their time working~~service. While we actively combat such fraudulent activities, we have experienced, and may in the future experience, impacts to our ~~offices and a portion of their time working~~revenue from ~~home. Unauthorized~~such activities. Further, unauthorized parties may also ~~attempt to~~ gain physical access to our facilities ~~in order to~~and infiltrate our information systems or attempt to gain logical access to our products, services or information systems ~~for the purpose of exfiltrating~~to access content and data. ~~These actual~~The loss of or unauthorized access to data, such as resulting from computer viruses, worms, ransomware or other malware may harm our systems, expose us to litigation or regulatory investigation and subject us to costly and time-intensive notification requirements.

We devote significant resources to address security vulnerabilities through engineering more secure products, enhancing security and reliability features in our products and systems, code hardening, conducting rigorous penetration tests, deploying updates to address security vulnerabilities, regularly reviewing our service providers’ security controls, reviewing and auditing our products, services and solutions against information security control frameworks, providing resources, such as security training, to our workforce, and continually assessing and improving, as appropriate, our incident response process. Despite our preventative efforts, there is no assurance that our security measures will provide full effective protection from such events. The costs to prevent, eliminate, mitigate or remediate cybersecurity or other security problems and vulnerabilities are significant and

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may reduce our operating margins. Further, our efforts to address these problems, including notifying affected third parties when appropriate, have in the past been, and may in the future be, unsuccessful or delayed, which could result in business interruptions, cessation of service and loss of existing or potential ~~breaches~~customers.

Maintaining the security of our products, services and solutions is a critical issue for us and our customers. It is impossible to predict the extent, frequency or impact cybersecurity issues may have on us. Breaches of our security measures and the accidental loss, inadvertent disclosure or unauthorized dissemination of proprietary information or sensitive, personal or confidential data about us, our employees, our customers or their end users, including the potential loss or disclosure of such information or data could expose us, our employees, our customers or other individuals affected to a risk of loss or misuse of this information. ~~This~~Actual or perceived security vulnerabilities or incidents may result in claims or litigation and liability or fines (and have in the past led to such claims), costly and time-intensive notice requirements, governmental inquiry or oversight or a loss of customer confidence, any of which could harm our business orand damage our brand and ~~reputation, thereby requiring time~~reputation. Our customers may also adopt security measures to protect their computer systems and ~~resources~~their instances of our software from attack and may suffer a cybersecurity attack on their own systems, unrelated to ~~mitigate these impacts.~~our systems. Even if such breach is unrelated to our security systems, solutions or programs, such breach could cause us reputational harm and require us to incur significant economic and operational consequences to adequately assess and respond to their breach, and to implement additional safeguards designed to protect against future breaches.

While we maintain insurance to cover operational risks, such as cyber risk and technology outages, our insurance may not be sufficient to cover all liability described herein. These risks will likely increase as we expand our hosted offerings, integrate our products, services and ~~services~~solutions and store and process more data.

These issues affect our products and services in particular because cyber-attackers tend to focus their efforts on popular offerings with a large user base, and we expect them to continue to do so. From time to time we have identified, and in the future we may identify other, vulnerabilities in some of our applications and services and those of our third-party service providers. In some cases, such vulnerabilities may not be immediately detected, which may make it difficult to recover critical services and lead to damaged assets. We continuously monitor and develop our information technology networks and infrastructure in an effort to prevent, detect, address and mitigate the risk of threats to our data, systems and networks, including malware and computer virus attacks, ransomware, unauthorized access, business email compromise, misuse, denial-of-service attacks, system failures and disruptions. These continued enhancements and changes, as well as changes designed to update and enhance our protective measures to address new threats, may increase the risk of a system or process failure or the creation of a gap in the associated security measures. Any such failure or gap could materially and adversely affect our business, results of operations and financial results. We devote significant resources to address security vulnerabilities through engineering more secure products, enhancing security and reliability features in our products and systems, code hardening, conducting rigorous penetration tests, deploying updates to address security vulnerabilities, regularly reviewing our service providers’ security controls, reviewing and auditing our hosted services against independent security control frameworks (such as ISO 27001, SOC 2 and PCI), providing resources, such as mandatory security training, for our workforce and improving our incident response time, but security vulnerabilities cannot be totally eliminated. The cost of undertaking these efforts could reduce our operating margins, and we may be unable to implement these measures quickly enough to prevent unauthorized access into our systems and products in all circumstances. Despite our preventative efforts, there is no assurance that our security measures will provide full effective protection from such events, and actual or perceived security vulnerabilities in our products and systems may harm our reputation or lead to claims against us (and have in the past led to such claims) and could lead some customers to stop using certain products or services or to reduce or delay future purchases. If we do not make the appropriate level of investment in our technology systems and we are not able to deliver the quality of data security and privacy our customers require or that

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meet our independent security control certification requirements, our business could be adversely affected. Customers may also adopt security measures designed to protect their existing computer systems from attack, which could delay adoption of new technologies. Moreover, delayed sales, lower margins or lost customers resulting from disruptions caused by ~~cyber-attacks,~~cyberattacks, overly burdensome preventative security measures or failure to fully meet ~~independent~~information security control certification requirements could materially and adversely affect our financial results, stock price and reputation.

~~Some~~If we are unable to develop, manage and maintain critical third-party relationships, such as our sales, partner and distribution channels, suppliers and service providers, our revenue and business may be adversely affected.

We contract with a number of software distributors and other third parties to distribute our products, services and solutions, none of which are individually responsible for a material amount of our ~~enterprise offerings have extended~~total net revenue in any recent period. Successfully managing our distribution channels and sales partners to reach various customers for our products, services and solutions is a complex ~~sales cycles, which can make our sales cycles unpredictable.~~

~~Sales cycles for some~~and global process. If an agreement with one of our ~~enterprise offerings, including our Adobe Experience Cloud and Adobe Experience Platform solutions and Enterprise Term License Agreements (“ETLAs”)~~distributors or partners was terminated, any prolonged delay in ~~our Digital Media business, are multi-phased and complex, which also makes it difficult to predict when~~securing a ~~given sales cycle will close. The complexity in these sales cycles is due to several factors, including:~~

•~~the need for our sales representatives to educate customers about the use and benefit of large-scale deployments of our products and services;~~

•the desire of organizations to undertake significant evaluation processes to determine their technology requirements prior to making information technology expenditures and the need for our representatives to spend a significant amount of time assisting with such evaluations;

•~~intensifying competition within the industry;~~

•~~the negotiation of large, complex, enterprise-wide contracts;~~

•~~the need for our customers to obtain requisition approvals from various decision makers within their organizations due to the complexity of our solutions touching multiple departments; and~~

•~~customer budget constraints, economic conditions and unplanned administrative delays.~~

We spend substantial time and expense on our sales efforts without assurance that potential customers will ultimately purchase our solutions. As we target our sales efforts at larger enterprise customers, these trends are expected to continue andreplacement distributor or partner could have a ~~greater~~negative impact on our results of operations. We also face legal risk and potential reputational harm from the activities of these independent third parties including, but not limited to, export control violations, workplace conditions, corruption and anti-competitive behavior.

If our partner and distribution channels are not effective or if we stop or change our partner or distribution channels, we may lose sales opportunities, customers and revenue. We rely on third-party distribution platforms and are subject to changes in pricing structure, terms of service, privacy practices and other policies at the discretion of the platform provider. Any adverse changes to the terms with such third-party distribution platforms which we rely on to distribute our products, services and solutions may adversely affect our financial results. Additionally, our ~~enterprise~~distribution channels may not continue to market or sell our products, services and solutions effectively and may favor products, services and solutions of other companies.

We sell many products, services and solutions through our direct sales ~~pattern has historically been uneven, where a higher percentage~~force. Risks associated with this sales channel include challenges related to hiring, retaining and motivating our direct sales force, and substantial amounts of ~~a quarter’s total~~ongoing training for sales ~~occur during the final weeks of each quarter, which is common in our industry.~~

representatives. Our business could be harmed if our direct sales expansion efforts do not generate the corresponding efficiencies and revenue we anticipated from such investment. In addition, the loss of key sales employees could impact our customer relationships and future ability to sell to certain accounts covered by such employees.

We rely on third-party service providers and technologies to deliver our products, services and business operations and to operate critical business systems, such as cloud-based infrastructure, data center facilities, encryption and authentication technology and company email, communications with customers. If such third parties are negatively affected, if we fail to effectively develop, manage ~~critical strategic third-party business relationships.~~

~~As our offerings expand~~ and ~~our customer base grows,~~maintain our relationships with ~~strategic partners become increasingly valuable. If our contractual relationships with these~~such third parties, ~~were to terminate,~~ or if we ~~were~~are unable to renew our agreements with them on favorable terms or at all, our ~~business~~expenses could be harmed. This is especially the case when the third party’s offerings are integrated with our products and services, or where the third party’s offerings are difficult to substitute or replace. Alternative arrangements for such products and services may not be available to us on commercially reasonable terms,significantly increase, and we and our customers may experience ~~business interruptions upon a transition~~service interruptions. Any disruption or damage to, ~~an alternative partner. The~~or failure of ~~third parties to provide acceptable products and services or to update their technology may~~our systems generally, including the systems of our third-party platform providers, could result in ~~a disruption to~~interruptions in our ~~business operations~~services and ~~those of~~harm our ~~customers, which~~business. Further, interruptions in our services caused by us or our third-party service providers may ~~reduce our revenues and profits,~~ cause us to ~~lose~~issue credits or pay penalties, cause customers to make warranty or other claims against us or to terminate their subscriptions or contracts, and ~~damage~~adversely affect our ~~reputation.~~

~~We increasingly utilize third-party distribution platforms, such as Apple’s App Store~~attrition rates and ~~Google’s Play Store, for the distribution of certain of~~ our ~~product offerings. Although we benefit from the strong brand recognition and large user base of these distribution platforms~~ability to attract new customers, ~~the platform owners have wide discretion to change the pricing structure, terms~~all of ~~service and other policies with respect to us and other developers, and~~which may ~~offer or promote products that compete with our product offerings. Adverse changes by these third parties could~~ adversely affect our financial results.

~~Failure of our third-party customer service and technical support providers to adequately address customers’ requests could harm our~~ Our business and ~~adversely affect our financial results.~~

Our customers rely on our customer service support organization to resolve issues with our products and services. We depend heavily, and expect to continue to rely heavily, on third-party customer service and technical support representatives to provide such services. This strategy presents risks to our business since we may notreputation would also be ~~able to influence the quality of support as directly as~~harmed if our own employees performed these activities. Our customers may react negatively to providing information to, and receiving support from, third-party organizations, especially if these third-party organizations are based overseas. If we encounter problems with our third-party customer service and technical support providers, our reputation may be harmed, our ability to sell our offerings could be adversely affected, and we could lose customers and ~~associated revenue.~~potential customers believe our services are unreliable.

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We face various risks associated with our operating as a multinational corporation, and global adverse economic conditions may harm our business and financial condition.

We derive a large portion of our total revenue from, and have significant operations, outside of the United States. As a multinational corporation, we are subject to a number of risks, including from global adverse economic conditions, that are uncertain and beyond our control and that make forecasting operating results and decisions about future investments difficult, such as:

•inflation and actions taken by central banks to counter inflation, including increasing interest rates;

•international and regional economic, political and labor conditions, including any instability or security concerns abroad, such as uncertainty caused by economic sanctions, downturns and recessions, trade disputes, armed conflicts and wars;

•tax laws (including U.S. taxes on foreign subsidiaries);

•increased financial accounting and reporting burdens and complexities;

•changes in, or impositions of, legislative or regulatory requirements, including antitrust and competition regulations;

•changes in laws governing the free flow of data across international borders;

•inadequate local infrastructure and difficulties in managing and staffing international operations;

•costs, potential liability, delays or loss of sales resulting from trade restrictions imposed by the United States and other countries, as well as trade laws, including but not limited to economic sanctions and export controls;

•costs and delays associated with developing products in multiple languages; and

•operating in locations with a higher rate of corruption and fraudulent business practices.

Additionally, third parties we do business with and our customers have international operations and are also subject to the above risks. Adverse changes in global economic conditions have in the past resulted and may in the future result in our customers’ and business partners’ insolvency, inability to obtain credit to finance or purchase our products, services and solutions, or a delay in paying or an inability to pay their obligations to us. Other third parties, such as our service providers, suppliers and distributors, may be unable to deliver or be delayed in delivering critical services, products or technologies that we rely on, and our business and reputation may be harmed. Our customers’ spending rate and demand for our products, services and solutions may also be adversely affected by the above risks. If our global sales are reduced, delayed or canceled because of any of the above risks, our revenue may decline.

Further, a disruption in global financial markets could impair our banking partners, on which we rely for operating cash management, capital market transactions and derivative programs. Such disruption could also negatively impact our customers’ ability to pay us due to delays or inability to access their existing cash.

As of March 1, 2024, our investment portfolio consisted of asset-backed securities, corporate debt securities, money market funds, U.S. agency securities and U.S. Treasury securities. These investments are subject to credit, liquidity, market, and interest rate risks as well as economic downturns or events that affect global or regional financial markets that may cause the value of our investments to decline, requiring impairment charges, which could adversely affect our financial condition.

If we are unable to recruit and retain key personnel, our business may be harmed, and our ~~attempts to operate under a~~ hybrid work model may ~~not be successful and~~present challenges, which could adversely impact our business.

Much of our future success depends on the continued service, availability and performance of our senior management and ~~highly-skilled~~highly skilled personnel across all levels of our organization. Our senior management has acquired specialized knowledge and skills with respect to our business, and the loss of any of these individuals could harm our business, especially if we are not successful in developing adequate succession plans. Our efforts to attract, develop, integrate and retain highly skilled employees ~~with appropriate qualifications~~ may be compounded by intensified restrictions on travel, immigration or the availability of work visas. ~~Competition for experienced personnel in the information~~The technology industry is ~~intense~~often subject to substantial and ~~has recently intensified further due to industry trends in many areas where our employees~~continuous competition for talent, particularly with cybersecurity and AI backgrounds, and demand for cutting-edge or unique skill sets can be highly competitive, both of which are ~~located. Further,~~heightened with the increased availability of hybrid or remote working ~~arrangements has expanded the pool of companies that can compete for our employees~~arrangements. We face an increasingly difficult challenge to attract and ~~employment candidates.~~retain highly qualified security personnel to assist us in combating security threats. We may experience higher compensation costs to retain and recruit senior management and ~~experienced~~highly skilled personnel that may not be offset by improved productivity or increased sales. A

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Our hybrid work environment may also present operational ~~cybersecurity~~ and workplace culture ~~challenges. If we are unable~~challenges, which could negatively affect our ability to ~~continue to successfully attract~~execute against our business objectives and retain ~~highly skilled personnel~~ and ~~maintain our corporate culture in a hybrid work environment, our business may be harmed.~~recruit personnel.

We continue to hire personnel in countries where exceptional technical knowledge and other expertise are offered at lower costs, which increases the efficiency of our global workforce structure and reduces our ~~personnel related~~personnel-related expenditures. Nonetheless, as globalization continues, competition for ~~employees~~talent in ~~these~~those countries has increased, which may impact our ability to retain these employees and increase our compensation-related expenses. We may continue to expand our international operations and international sales and marketing activities, which would require significant management attention and resources. We may be unable to scale our infrastructure effectively or as quickly as our competitors in these markets, and our revenue may not increase sufficiently to offset these expected increases in costs, causing our results to suffer.

We believe that a critical contributor to our success to date has been our corporate culture, which we have built to foster innovation, teamwork and employee satisfaction. As we grow, including from the integration of employees and businesses acquired in connection with previous or future acquisitions, we may find it difficult to maintain important aspects of our corporate culture, which could negatively affect our ability to retain and recruit personnel who are essential to our future success.

~~Failure to manage our sales, partner and distribution channels effectively could result in a loss of revenue and harm our business.~~

We contract with a number of software distributors and other strategic partners, none of which are individually responsible for a material amount of our total net revenue in any recent period. Nonetheless, if an agreement with one of our distributors were terminated, any prolonged delay in securing a replacement distributor could have a negative impact on our results of operations.

Successfully managing our indirect distribution channel efforts to reach various customer segments for our products and services is a complex process across the broad range of geographies where we do business or plan to do business. Our distributors and other channel partners are independent businesses that we do not control. Notwithstanding the independence of our channel partners, we face legal risk and potential reputational harm from the activities of these third parties including, but not limited to, export control violations, workplace conditions, corruption and anti-competitive behavior.

We cannot be certain that our distribution channel will continue to market or sell our products and services effectively. If our partner and distribution channels are not successful, we may lose sales opportunities, customers and revenue. If our distributors favor our competitors’ products or services for any reason, they may fail to market our products or services effectively, which would cause our results to suffer. If our OEMs through which we distribute products and services decide not to bundle our applications on their devices, our results could suffer. Further, the financial health of our distributors and partners and our continuing relationships with them are important to our success. Some of these distributors and partners may be unable to withstand adverse changes in economic conditions, which could result in insolvency, the inability of such distributors and partners to obtain credit to finance access to or purchases of our products and services, or a delay in paying their obligations to us.

We also sell some of our products and services through our direct sales force. Risks associated with this sales channel include more extended sales and collection cycles, challenges related to hiring, retaining and motivating our direct sales force, and substantial amounts of ongoing training for sales representatives. Moreover, recent hires may not be as productive as we would like, as in most cases it takes significant time for them to achieve full productivity. Our business could be seriously harmed if our expansion efforts of our direct sales do not generate a corresponding significant increase in revenue and we are unable to achieve the efficiencies we anticipate. In addition, the loss of key sales employees could impact our customer relationships and future ability to sell to certain accounts covered by such employees.

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~~We face various risks associated with our operating as a multinational corporation.~~

~~As a global business that generates approximately 40% of our total revenue from sales to customers outside of the Americas, we are subject to a number of risks, including:~~

•~~inflation and actions taken by central banks to counter inflation;~~

•~~foreign currency fluctuations and controls;~~

•~~tax laws (including U.S. taxes on foreign subsidiaries);~~

•~~increased financial accounting and reporting burdens and complexities;~~

•~~changes in, or impositions of, legislative or regulatory requirements;~~

•~~changes in laws governing the free flow of data across international borders;~~

•~~failure of laws to protect our intellectual property rights adequately;~~

•~~inadequate local infrastructure and difficulties in managing and staffing international operations;~~

•~~delays resulting from difficulty in obtaining export licenses for certain technology, tariffs, quotas and other trade barriers;~~

•~~the imposition of governmental economic sanctions on countries in which we do business or where we plan to expand our business;~~

•~~costs and delays associated with developing products in multiple languages;~~

•~~operating in locations with a higher incidence of corruption and fraudulent business practices; and~~

•~~other factors beyond our control, such as terrorism, war, natural disasters, climate change and pandemics, including the COVID-19 pandemic.~~

Some of our ~~third-party~~enterprise offerings have extended and complex sales cycles, which may increase our costs and make our sales cycles unpredictable.

As we continue to target large enterprise customers for certain of our offerings, including Adobe Experience Cloud in our Digital Experience business ~~partners~~and our Enterprise Term License Agreements in our Digital Media business, we may face increased costs, longer sales cycles, greater competition and less predictability in completing our sales. For our enterprise customers, the evaluation process may be longer and more involved, and require us to invest more in educating our customers about our products, services and solutions, particularly because the decision to use our products, services and solutions is often an enterprise-wide decision. We may be required to submit more robust proposals, participate in extended proof-of-concept evaluation cycles and engage in more extensive contract negotiations. In addition, our enterprise customers often demand more complex configurations and additional integration services and product features. Adverse macroeconomic conditions have ~~international operations~~caused, and ~~are also subject~~may cause in the future, delays in our enterprise customers’ purchasing decisions. Due to these ~~risks,~~factors, we often must devote greater sales support to certain enterprise customers, which increases our costs and time required to complete a sale, without assurance that potential customers will ultimately purchase our ~~business~~solutions. We also may be ~~harmed if such partners~~required to devote more services resources to implementation, which increases our costs, without assurance that customers receiving these services will renew or renew at the same level. Since the sales cycles for our enterprise offerings are ~~unable to appropriately manage these risks. If~~multi-phased and complex, it is often unpredictable when a given sales ~~to any~~cycle will close. Our revenue from enterprise customers may be affected by longer-than-expected sales and implementation cycles, extended collection cycles, potential deferral of revenue and alternative licensing arrangements. Additionally, our ~~customers outside~~enterprise sales pattern has historically been uneven, where a higher percentage of a quarter’s total sales occur during the ~~Americas are reduced, delayed or canceled because~~final weeks of ~~any of the above factors,~~each quarter, which is common in our ~~revenue may decline.~~industry.

Risks Related to Laws and Regulations

We are subject to risks associated with compliance with laws and regulations globally, which may harm our business.

We are a global company subject to varied and complex laws, regulations and customs, both domestically and internationally. These laws and regulations relate to a number of aspects of our business, including trade ~~protection,~~compliance, import and export control, anti-boycott, economic sanctions and embargoes, data and transaction processing security, payment card industry data security standards, consumer protection, records management, user-generated content hosted on websites we operate, privacy practices, data residency, corporate governance, antitrust and competition, employee and third-party complaints, anti-corruption, gift policies, conflicts of interest, securities regulations and other regulatory requirements affecting trade and investment. The application of these laws and regulations to our business is often unclear and may at times conflict. For example, we are subject to the U.S. Foreign Corrupt Practices Act and other anti-corruption and anti-bribery laws, but in ~~many~~other foreign countries, particularly in those with developing economies, it is common to engage in ~~business~~ practices that ~~are~~would be prohibited ~~by U.S. regulations applicable to us, including the Foreign Corrupt Practices Act.~~under such acts. We cannot provide assurance that our employees, contractors, agents, ~~and~~ business partners and vendors will not take actions in violation of our internal policies, U.S. laws or ~~U.S.~~other applicable international laws. Compliance with these laws and regulations may involve significant costs or require changes in our business practices that result in reduced revenue and profitability. Non-compliance could also result in fines, damages, criminal sanctions against us, our officers or our employees, prohibitions on the conduct of our business and damage to our reputation.

In addition, approximately 50% of our employees are located outside the United States. Accordingly, we are exposed to changes in laws governing our employee relationships in various U.S. and foreign jurisdictions, including laws and regulations regarding wage and hour requirements, fair labor standards, employee data privacy, unemployment tax rates, workers’ compensation rates, citizenship requirements and payroll and other taxes, which likely would have a direct impact on our operating costs.

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Increasing regulatory focus on privacy and security issues and expanding laws and regulatory requirements could impact our business models and expose us to increased liability.

~~As a global company, Adobe is~~We are subject to global data protection, privacy and security laws, regulations and codes of conduct that ~~apply~~relate to our various business units and data processing ~~activities.~~activities, which may include sensitive, confidential, and personal information. These laws, regulations and codes are inconsistent across jurisdictions and are subject to evolving and differing (sometimes conflicting) interpretations. Government officials and regulators, privacy advocates and class action attorneys are increasingly

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scrutinizing how companies collect, process, use, store, share and transmit personal data. This ~~increased~~ scrutiny ~~may~~can result in new and shifting interpretations of existing laws, thereby further impacting ~~Adobe’s~~our business. ~~Globally, laws such as~~For example, the General Data Protection Regulation (“GDPR”) in ~~Europe~~the European Economic Area, and the United Kingdom continues to be interpreted by European and UK courts in novel ways leading to shifting requirements, country specific differences in application and uncertain enforcement priorities. More recently enacted laws, such as the Personal Information Protection Law ~~(“PIPL”)~~ in China, and new and emerging state laws in the United States on privacy, data and related technologies, such as the California Consumer Privacy Act, the California Privacy Rights Act, the Colorado Privacy Act and the Virginia Consumer Data Protection Act, as well as industry self-regulatory codes and regulatory requirements, create new privacy and security compliance obligations and expand the scope of potential liability, either jointly or severally with our customers and suppliers. As a security example, pursuant to the U.S. Securities and Exchange Commission’s Rules on Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure we are required to make certain disclosures related to material cybersecurity incidents and the reasonably likely impact of such an incident on Form 8-K and will be required to make certain other cybersecurity disclosures on Form 10-K. Determining whether a cybersecurity incident is notifiable or reportable may not be straightforward and any such mandatory disclosures could be costly and lead to negative publicity, loss of customer confidence in the effectiveness of our security measures, diversion of management’s attention and governmental investigations.

While we have invested in readiness to comply with applicable requirements, the dynamic and evolving nature of these laws, regulations and codes, as well as their interpretation by regulators and courts, may affect our ability (and our enterprise customers’ ability) to reach current and prospective customers, to respond to both enterprise and individual customer requests under the laws (such as individual rights of access, correction and deletion of their personal information) ~~and~~, to implement our business models ~~effectively.~~effectively and to adequately address disclosure requirements. These laws, regulations and codes may also impact our innovation and business drivers in developing new and emerging technologies ~~(e.g., artificial intelligence~~(for example, AI and machine learning)~~. These requirements, among others,~~ and may impact demand for our offerings and force us to bear the burden of more onerous obligations in our contracts. Perception of our practices, products, services or ~~services,~~solutions, even if unfounded, as a violation of individual privacy, data protection rights or cybersecurity requirements, subjects us to public criticism, lawsuits, investigations, claims and other proceedings by regulators, industry groups or other third parties, all of which could disrupt or adversely impact our business and reputation and expose us to increased ~~liability.~~liability, fines and other punitive measures including prohibition on sales of our products, services or solutions, restrictive judicial orders and disgorgement of data. Additionally, we collect and store information on behalf of our business customers and if our customers fail to comply with contractual obligations or applicable laws, it could result in litigation or reputational harm to us.

Transferring personal information across international borders is complex and subject to legal and regulatory requirements as well as active litigation and enforcement in a number of jurisdictions around the world, each of which could have an adverse impact on our ability to process and transfer personal data as part of our business operations. For example, European data transfers outside the European Economic Area are highly regulated and litigated. The mechanisms that we and many other companies rely upon for European data transfers ~~(e.g.,~~(for example, Standard Contractual ~~Clauses)~~Clauses and the EU - US Data Privacy Framework) are the subject of legal challenge, regulatory interpretation and judicial decisions by the Court of Justice of the European Union. The suitability of Standard Contractual Clauses for data transfer in some scenarios has recently been the subject of legal challenge, and while the United States and the European Union reached agreement on the EU - US Data Privacy Framework, there are legal challenges to that data transfer mechanism as well. We continue to closely monitor for developments related to valid transfer mechanisms available for transferring personal data outside the European Economic Area (including the ~~Trans-Atlantic~~EU - US Data Privacy Framework) and other countries that have similar trans-border data flow requirements and ~~adjusting~~adjust our practices accordingly. The open judicial questions and regulatory interpretations related to the validity of transfers using Standard Contractual Clauses have resulted in some changes in the obligations required to provide our services in the European Union and could expose us to potential sanctions and fines for non-compliance. Several other countries, including China, Australia, New Zealand, Brazil, Hong Kong and Japan, have also established specific legal requirements for cross-border transfers of personal information and certain countries have also established specific legal requirements for data localization ~~(i.e.,~~(such as where personal data must remain stored in the country). If other countries implement more restrictive regulations for cross-border data transfers or do not permit data to leave the country of origin, such developments could adversely impact our business and our enterprise customers’ business, our financial condition and our results of operations in those jurisdictions.

Our intellectual property portfolio is a valuable asset and we may not be able to protect our intellectual property rights, including our source code, from infringement or unauthorized copying, use or disclosure.

Our ~~intellectual property portfolio is a valuable asset. Infringement or misappropriation of our~~ patents, trademarks, trade secrets, copyrights and other intellectual property ~~rights~~are valuable assets to us. Infringement or misappropriation of such intellectual property could result in lost revenues and ultimately reduce their value. ~~Preventing~~We protect our intellectual property by relying on federal, state and common law rights in the United States and internationally, as well as a variety of administrative procedures and contractual restrictions. Despite our efforts, protecting our intellectual property rights and preventing unauthorized use ~~or infringement~~ of our intellectual property ~~rights is~~are inherently difficult. WeFor instance, we actively combat software

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piracy, ~~as we enforce our intellectual property rights,~~ but we ~~nonetheless~~continue to lose ~~significant~~ revenue due to illegal use of our software. ~~If piracy activities continue at historical levels or increase, they~~Third parties may ~~further harm~~illegally copy and sell counterfeit versions of our ~~business.~~products. To the extent counterfeit installations and sales replace otherwise legitimate ones, our operating results could be adversely affected. We apply for patents in the United States and ~~internationally~~in foreign countries, but we are not always successful in obtaining patent protection or in obtaining such protection timely to meet our business needs. Our patents may be invalidated or circumvented. Moreover, due to challenges in detecting patent infringement pertaining to generative AI technologies, it may be more difficult to protect our ~~newly created technology~~generative AI and related innovations with patents. Additionally, if we ~~are unable~~use generative AI in the creation of our source code, we may not be able to ~~obtain patent protection for~~rely on copyright to protect such intellectual property. Further, the technology described in our pending patent applications, or if the patents are not obtained timely, this could result in revenue loss, or have other adverse effects on operations and harm our business. We offer our products and services inlaws of some foreign countries ~~and we may seek intellectual property protection from those foreign legal systems. Some of those foreign countries may~~do not ~~have as robust or comprehensive~~provide the same level of intellectual property protection as U.S. laws and ~~schemes as those offered in the United States,~~courts and ~~the mechanisms~~could fail to ~~enforce~~adequately protect our intellectual property ~~rights may be inadequate to protect our technology, which could harm our business. We also seek to protect our confidential information and trade secrets through the use of non-~~

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disclosure agreements with our customers, contractors, vendors and partners. However, there is a risk that our confidential information and trade secrets may be disclosed or published without our authorization, and in these situations, enforcing our rights may be difficult or costly.

rights. If unauthorized disclosure of our source code occurs through security breach, cyber-attack or otherwise, we could lose future trade secret protection for that source code. Such loss could make it easier for third parties to compete with our products by copying functionality, which could cause us to lose customers and could adversely affect our revenue and operating margins. If we cannot protect our intellectual property against unauthorized copying, use, or other misappropriation, our business could be harmed.

We are, and may ~~incur substantial costs defending against third parties alleging that we infringe their proprietary rights.~~in the future become, subject to litigation, regulatory inquiries and intellectual property infringement claims, which could result in an unfavorable outcome and have an adverse effect on our business, financial condition, results of operation and cash flows.

We ~~have been,~~are subject to various legal proceedings (including class action lawsuits), claims and regulatory inquiries that are not yet resolved and additional claims, enforcement actions and inquiries may arise in the future. Any proceedings, actions, claims or inquiries initiated by or against us, whether successful or not, may be time consuming; result in costly litigation, damage awards, consent decrees, injunctive relief or increased costs of business; require us to change our business practices or products; result in negative publicity; require significant amounts of management time; result in the diversion of significant operational resources, or otherwise harm our business and financial results.

Additionally, we are currently, and may in the future be subject to claims, negotiations and complex, protracted litigation relating to disputes regarding the validity or alleged infringement of third-party intellectual property rights, including patent rights. Intellectual property disputes and litigation are typically costly and can be disruptive to our business operations by diverting the attention of management and key personnel. ~~We may not prevail in every lawsuit or dispute.~~ Third-party intellectual property disputes, including those initiated by patent assertion entities, could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from offering certain products, services or ~~services,~~solutions, subject us to injunctions restricting our sales, 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. In addition, we have incurred, and may in the future incur, significant costs in acquiring the necessary third-party intellectual property rights for use in our products, in some cases to fulfill contractual obligations with our customers. Any of these occurrences could significantly harm our business.

~~Changes in accounting principles, or interpretations thereof, could~~We have ~~a significant impact on our financial position~~not prevailed, and ~~results of operations.~~

~~We prepare our consolidated financial statements in accordance with accounting principles generally accepted~~may not in the ~~United States of America (“GAAP”). These principles are subject to interpretation by the SEC~~future prevail, in every lawsuit or dispute. For further information about specific litigation and various bodies formed to interpret and create appropriate accounting principles. A change in these principles, how the principles are interpreted, or the adoption of new accounting standards can have a significant effect on our reported results, could retroactively affect previously reported transactions, and may require that we make significant changes to our systems, processes and controls.

Changes resulting from these new standards may result in materially different financial results and may require that we change how we process, analyze and report financial information and that we change financial reporting controls. ~~For additional information regarding new standards that may have significant impact to our condensed consolidated financial statements,~~proceedings, see the section titled ~~“Adopted Accounting Guidance and Accounting Pronouncements Not Yet Effective”~~“Legal Proceedings” contained in Part I, Item 1, Note 113 of our ~~notes~~Notes to ~~condensed consolidated financial statements.~~

~~Such changes in accounting principles may have an adverse effect on our business, financial position and results~~Consolidated Financial Statements of ~~operations, or cause an adverse deviation from our revenue and profitability targets, which may negatively impact our financial results.~~this report.

Changes in tax rules and regulations or interpretations thereof may adversely affect our effective tax rates.

We are a ~~United States-based~~U.S.-based multinational company subject to tax in multiple domestic and foreign tax jurisdictions. Significant judgment is required in determining our current provision for income taxes and deferred tax assets or liabilities. Tax laws in the United States as well as other countries and jurisdictions in ~~foreign tax jurisdictions~~which we conduct business are ~~dynamic and~~ subject to change as new laws are passed ~~and~~and/or new interpretations are ~~issued. The applicability~~made available, which may have a material impact on our business. These countries, governmental bodies, such as the European Commission of the European Union, and ~~impact of~~intergovernmental economic organizations, such as the Organization for Economic Cooperation and Development, have made or could make 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 ~~laws and interpretations thereof~~rules, could adversely affect our effective ~~income tax rate and cash flows in future years.~~

~~Unanticipated changes in our~~ tax rates and/or cause us to respond by making changes to our business structure, which could adversely affect our ~~future results of operations.~~operations and financial results. Our future effective tax rates are likely to be unfavorably 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 negative changes in business and market conditions that could reduce certain tax benefits.

~~In addition, the United States and other countries and jurisdictions~~ An increase in ~~which we conduct business, including those covered by governing bodies that enact~~our effective tax laws applicable to us, such as the European Commission of the European Union, could make changes to relevant tax, accounting or other laws and interpretations thereof that have a material impact to us. These countries, governmental bodies and intergovernmental economic organizations such as the Organization for Economic Cooperation and Development, have or could make 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 beenrate would reduce our profitability.

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interpreted and applied. In the current global tax policy environment, any changes in laws, regulations and interpretations could adversely affect our effective tax rates, cause us to respond by making changes to our business structure, or result in other costs to us 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. WeWhile we believe our tax estimates ~~to be reasonable; however,~~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.

Contracting with government entities exposes us to additional risks inherent in the government procurement process.

We provide products, services and ~~services,~~solutions, directly and indirectly, to a variety of domestic and foreign government entities, which introduces certain risks ~~including extended sales~~ and ~~collection cycles,~~challenges not present in private commercial agreements, including varying governmental budgeting processes, fluctuations due to government spending cuts and shutdowns, highly competitive and lengthy bidding process that may be subject to political influence and adherence to complex procurement regulations and other government-specific contractual requirements. We incur significant up-front time and costs without any assurance that we will win a contract. Operating within a highly regulated industry, we have been ~~are currently~~ and may in the future be subject to audits and investigations relating to our government contracts and any violations could result in termination of contracts and various civil and criminal penalties and administrative sanctions, including ~~termination of contracts,~~ payment of fines and suspension or debarment from future government business, as well as harm to our reputation and financial results. We have made, and may continue to make, significant investments to support future sales opportunities in various government sectors, including to obtain various security authorizations and certifications. Such processes are complex, lengthy and can often be delayed. Furthermore, requirements may change, or we may be unable to achieve or sustain one or more government authorizations or certifications, which could affect our ability to sell to government entities until we meet any revised requirements.

Risks Related to Financial Performance

If there is a change in subscriptions or renewals in a reporting period, this could cause our ~~customers fail~~financial results to ~~renew subscriptions~~suffer and may not be immediately reflected in ~~accordance with~~ our ~~expectations, our future~~ revenue and ~~operating~~financial results ~~could suffer, and our~~for that period because we recognize revenue over the subscription ~~offerings may create additional risk related to the timing of revenue recognition.~~term.

Our offerings are typically subscription-based, pursuant to product and service agreements. Since our customers have no obligation to renew their subscriptions for our services after the expiration of their initial subscription period, which typically ranges from 1 to 36 months, our customers may not renew their subscriptions at the same or a higher level of service, for the same number of seats or for the same duration of time, if at all. Our varied customer base and flexible duration complicates our ability to precisely forecast renewal rates. Our customers’ renewal rates may decline or fluctuate as a result of a number of factors, including their level of satisfaction with our services, our ability to continue enhancing features and functionality, the reliability (including uptime) of our subscription offerings, the prices of offerings and competitors’ offerings, the actual or perceived information security of our systems and services, decreases in the size of our customer base, reductions in our customers’ spending levels or declines in customer activity as a result of general economic conditions or uncertainty in financial markets, including as a result of a global health crisis and geopolitical conflict, which has affected and may continue to affect certain sectors of the economy disproportionately. If our customers do not renew their subscriptions or if they renew on terms less favorable to us, our revenue may decline.

We generally recognize revenue from our subscription offerings ratably over the terms of their subscription ~~agreements.~~agreements, which typically range from 1 to 36 months. As a result, most of the subscription revenue we report in each quarter is the result of subscription agreements entered into during previous quarters. ~~Any reduction in new or renewed subscriptions in a quarter may not be reflected in our revenue results until a later quarter and may decrease our revenue in future quarters.~~ Lower sales and subscriptions, reduced demand for our products, services and ~~services,~~solutions, and increases in our attrition rate in any given period may not be fully reflected in our results of operations until future periods. Our subscription model could also make it difficult for us to rapidly increase our revenue from subscription-based or hosted services through additional sales in any period, as revenue from new customers will be recognized over the applicable subscription term.

~~Additionally, in connection with our sales efforts to enterprise customers,~~ Our renewal rates may decline or fluctuate as a result of a number of factors, ~~could~~including our customers’ level of satisfaction, our ability to continue enhancing features and functionality, reliability of our offerings, prices of ours and competitors’ offerings, the actual or perceived information security of our systems and services, decreases in the size of our customer base, changes as a result of regulatory or legal requirements, changes in the composition of our customer base and reductions in our customers’ spending levels or declines in customer activity. If our customers do not renew their subscriptions or if they renew on terms less favorable to us, our revenue may decline. Further, such impact on our revenue may not be immediately reflected in our financial results in the period in which our renewal rates changed and may adversely affect our ~~revenue, including longer-than-expected sales and implementation cycles, potential deferral of revenue and alternative licensing arrangements.~~financial results in future periods. If any of our assumptions about revenue from our subscription-based offerings prove incorrect, our actual results may suffer and vary ~~materially~~ from those anticipated.

We ~~may incur losses associated with~~are subject to fluctuations in foreign currency ~~fluctuations~~exchange rates and may not be able to effectively hedge our exposure.

Our operating results and performance metrics are subject to fluctuations in foreign currency exchange rates due to the global scope of our business. Geopolitical and economic events, including war, trade disputes, economic sanctions and emerging market volatility, and associated uncertainty have caused, and may in the future cause, currencies to fluctuate. Accordingly, amounts reported as annualized recurring revenue, a performance metric which we measure at currency rates that are set at the beginning of each fiscal year and held constant throughout the year, may vary from actual revenue recognized in accordance with generally accepted accounting principles in the United States.

We attempt to mitigate a portion of these foreign currency exchange risks to our operating results through foreign currency hedging based on our judgment of the appropriate trade-offs among risk, opportunity and expense. We regularly review our hedging program and make adjustments that we believe are appropriate. Our hedging activities have not, and may not in the future, offset more than a portion of the adverse financial impact, including on our actual revenue recognized, resulting from unfavorable movement in foreign currency exchange rates, which could adversely affect our financial condition, business performance or results of operations.

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If our goodwill or ~~amortizable~~ intangible assets become impaired, then we could be required to record a significant charge to earnings.

~~GAAP requires us to~~We test goodwill for ~~goodwill~~ impairment at least annually. ~~In addition, we~~We review our goodwill and ~~amortizable~~ intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable, including declines in stock price, market capitalization or reduced future cash ~~flows,~~flow estimates and slower growth rates in our industry. Depending on the results of our review, we ~~could~~may be required to record a significant charge to earnings in our consolidated financial statements during the period in which any impairment of our goodwill or ~~amortizable~~ intangible assets was determined, negatively impacting our results of operations.

~~We have issued $3.65 billion of notes in~~Our existing and future debt ~~offerings and may incur other debt in the future, which~~obligations may adversely affect our financial condition and future financial results.

~~We have~~As of March 1, 2024, we had $3.65 billion in senior unsecured notes ~~outstanding. We have~~outstanding and a $3 billion commercial paper program with no amounts ~~outstanding as of September 27, 2023.~~outstanding. We also ~~have~~had a $1.5 billion senior unsecured revolving credit agreement, ~~and a $3.5 billion delayed draw term loan agreement (together, “Credit Agreements”), both of~~ which ~~are currently~~was undrawn. This debt or future additional indebtedness may adversely affect our financial condition and future financial results by, among other things:

•~~increasing our vulnerability to adverse changes in general economic and industry conditions;~~

•requiring the dedication of a portion of our expected cash flows from operations to service our debt, thereby reducing the amount of expected cash flows available for other purposes, including capital expenditures and acquisitions;

•increasing our vulnerability to adverse changes in our business and general economic and industry conditions; and

•limiting our ~~flexibility in planning~~ability to obtain future financing for working capital, capital expenditures, future acquisitions, general corporate or ~~reacting~~other purposes, which may also impact our ability to ~~changes in our business~~service and ~~our industry.~~repay outstanding indebtedness as it becomes due.

Our senior unsecured notes, commercial paper program and ~~our Credit Agreements~~revolving credit agreement impose restrictions on us and require us to maintain compliance with specified covenants. Our ability to comply with these covenants may be affected by events beyond our control. If we breach any of the covenants and do not obtain a waiver from the noteholders or lenders, then, subject to applicable cure periods, any outstanding debt may be declared immediately due and payable.

In addition, changes by any rating agency to our credit rating may negatively impact the value and liquidity of both our debt and equity securities, as well as the potential costs associated with a refinancing of our debt. Under certain circumstances, if our credit ratings are downgraded or other negative action is taken, the interest rate payable by us under our ~~Credit Agreements~~revolving credit agreement could increase. Downgrades in our credit ratings could also restrict our ability to obtain additional financing in the future and affect the terms of any such financing.

~~Our investment portfolio may become impaired by deterioration of the financial markets.~~

Our cash equivalent and short-term investment portfolio as of September 1, 2023 consisted of asset-backed securities, corporate debt securities, money market funds, U.S. agency securities and U.S. Treasury securities. We follow an established investment policy and set of guidelines to monitor and help mitigate our exposure to interest rate and credit risk. The policy sets forth credit quality standards and limits our exposure to any one issuer, as well as our maximum exposure to various asset classes.

Should financial market conditions worsen in the future, including from impacts of inflationary pressures and rising interest rates or as a result of other geopolitical pressures, such as the Russia-Ukraine war, investments in some financial instruments may pose risks arising from market liquidity and credit concerns. In addition, any deterioration of the capital markets could cause our other income and expense to vary from expectations. As of September 1, 2023, we had no material impairment charges associated with our short-term investment portfolio, and although we believe our current investment portfolio has little risk of material impairment, we cannot predict future market conditions, market liquidity or credit availability, and we can provide no assurance that our investment portfolio will remain materially unimpaired.

General Risk Factors

Catastrophic events, including ~~global pandemics such as the COVID-19 pandemic,~~events associated with climate change, may disrupt our business and adversely affect our financial condition and results of operations.

~~We are a highly automated~~Our business ~~and rely~~relies on our network infrastructure and enterprise ~~applications,~~apps, internal technology systems and website for our development, marketing, operations, support, hosted services and sales activities. In addition, some of our businesses rely on third-party hosted services, and we do not control the operation of third-party data

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~~center facilities serving our customers from around the world, which increases our vulnerability.~~websites. A disruption, infiltration or failure of ~~these~~our systems, data centers or operations, or those of our third-party ~~hosted services in the event of~~service providers due to a major earthquake, ~~fire, flood, tsunami~~other natural disasters, including climate-related events (such as drought, water security, heat waves, cold waves, wildfires and poor air quality), power shutoff or ~~other weather event, power~~ loss, telecommunications failure, ~~software or hardware malfunctions, pandemics (including the COVID-19 pandemic), cyber-attack,~~epidemic, pandemic, war, terrorist attack or other catastrophic event, ~~that our disaster recovery plans do not adequately address,~~ could cause ~~system~~ interruptions ~~reputational harm,~~to our systems and business operations, damage to critical infrastructure, loss of intellectual property, ~~delays in our product development, lengthy interruptions in our services, breaches of~~ data security breaches and loss of critical data. Any of these events could prevent us from providing our products and services or could negatively impact a country or region in which we sell our products, which could in turn decrease that country’s or region’s demand for our products and services.data loss. Our corporate headquarters, a significant ~~portion of our~~ research and development ~~activities,~~activity, certain of our data centers and ~~certain~~ other critical business operations are ~~located~~ in the San Francisco Bay Area and ~~additional facilities where we conduct significant operations are located in~~ the Salt Lake Valley Area, both of which are near major earthquake faults. A catastrophic event, particularly one that ~~results in the destruction or disruption of any of~~may disrupt our data centers or our critical ~~business or information technology systems~~activities, could ~~severely affect our ability to conduct~~prevent us from conducting normal business operations and ~~as a result,~~providing our ~~future operating results~~products, services and solutions, which could be adversely ~~affected. The adverse effects of any such~~affect our business. A catastrophic event ~~would~~could negatively impact a country or region in which we sell and, in turn, decrease demand for our products, services and solutions, which could negatively impact our business. Climate-related catastrophic events that may harm our business are also increasing in frequency and severity. We may be ~~exacerbated if experienced at the same time as another adverse event.~~subject to additional climate-related regulations and reporting requirements and changing market dynamics and stakeholder expectations regarding climate change and our environmental impacts, all of which may impact our business, financial condition and results of operations.

The occurrence of ~~regional epidemics~~an epidemic or a ~~global~~ pandemic, such as the COVID-19 pandemic, ~~have~~has had and may continue to have an adverse effect on ~~how we and our customers are operating our businesses and~~ our operating results. Our operations have also been and may in the future be negatively affected by a range of external factors related to the pandemic that are not within our control, including the emergence and spread of more transmissible variants. The extent to which ~~global~~epidemics and pandemics ~~such as the COVID-19 pandemic,~~ impact our financial condition or results of operations will depend on many factors ~~such as the duration~~outside of our control and ~~scope of the pandemic, as well as~~ whether there is a material impact on the businesses or productivity of our customers, ~~partners, employee,~~employees, suppliers and other partners. ~~To the extent that an epidemic or~~A global pandemic ~~harms our business and results of operations, many of~~may also intensify the other risks described in this Part ~~II,~~I, Item 1A of this ~~report may be heightened.~~

~~Climate change may have a long-term impact on our business.~~

While we aim to mitigate risks associated with climate change and seek to partner with organizations that do the same, we recognize that there are inherent risks wherever business is conducted. Access to clean water and reliable energy in the communities where we conduct our business, whether for our offices, data centers, customers, vendors or employees, is a priority. Our major sites in California, Utah and India are vulnerable to climate-related events. While these events have a low-assessed risk of disrupting normal business operations, they have the potential to impact employees’ abilities to commute to and from work, stay connected effectively and access safe and healthy air quality. Climate-related events, including the increasing frequency and severity of weather events and their physical impact on U.S., India and other major regions’ critical infrastructure, have the potential to disrupt our business, our third-party suppliers, and/or the business of our customers, and may cause us to experience higher attrition, losses and additional costs to maintain or resume operations. Regulatory developments, changing market dynamics and stakeholder expectations regarding climate change may impact our business, financial condition and results of operations. To inform our actions and disclosures, Adobe is aligned with the guidelines of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures recommendations and the Sustainability Accounting Standards Board and the Global Reporting Initiative environmental metrics.

Uncertainty about current and future economic conditions and other adverse changes in general political conditions in any of the major countries in which we do business could adversely affect our operating results.

As our business has grown, we have become increasingly subject to the risks arising from adverse changes in economic and political conditions, both domestically and globally, including trends toward protectionism and nationalism, other unfavorable changes in economic conditions, such as inflation, rising interest rates, fluctuations in foreign currency exchange rates or a recession, and other events beyond our control, such as economic sanctions, natural disasters, pandemics, including the COVID-19 pandemic, epidemics, political instability, armed conflicts and wars, including the Russia-Ukraine war. Worsening economic conditions have had and may continue to have an adverse impact on the businesses and financial health of many of our customers and hurt their creditworthiness. As a result, current or potential customers may be unable to fund software purchases, which could cause them to delay, decrease or cancel purchases of our products and services. Uncertainty about the effects of current and future economic and political conditions on us, our customers, suppliers and partners makes it difficult for us to forecast operating results and to make decisions about future investments. If economic growth in countries where we do business slows, customers may delay or reduce technology purchases, advertising spending or marketing spending. This could result in reductions in sales of our products and services, more extended sales cycles, slower adoption of new technologies and increased price competition. Among our customers are government entities, including the U.S. federal government, and our revenue could decline if spending cuts impact the government’s ability to purchase our products and services. Deterioration in economic conditions in any of the countries in which we do business could also cause slower or impaired collections on accounts receivable, which may adversely impact our liquidity and financial condition. A disruption in financial markets could impair our banking partners, on which we rely for operating cash management and derivative programs.report.

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~~Furthermore, if our customers are negatively impacted by these disruptions, such as being unable to access their existing cash to fulfill their payment obligations to us, our business~~Our stock price may be ~~negatively impacted. The occurrence~~volatile and your investment could lose value.

Our stock price has been and may continue to be volatile and subject to fluctuations. All factors described in this Part I, Item 1A of ~~any~~this report, some of ~~these events could harm~~which are beyond our ~~business, financial condition and results of operations.~~

~~Revenue, margin or earnings shortfalls or the volatility of the market generally~~control, may ~~cause the market price of~~affect our stock ~~to decline.~~

~~In the past, the market~~ price, ~~for our common stock experienced significant fluctuations and it may do so in the future. A number of factors may affect the market price for our common stock, such as:~~including:

•shortfalls in or changes into estimates, recommendations or expectations about our revenue, margins, earnings, ~~Annualized Recurring Revenue (“ARR”), sales of our Digital Experience offerings,~~annualized recurring revenue or other key performance ~~metrics;~~metrics set forth in guidance we provide or provided by financial analysts;

•changes in ~~estimates or recommendations by securities analysts;~~investor and analyst valuation models for our stock;

•~~whether our results meet analysts’ expectations;~~changes in unearned revenue, remaining performance obligations and revenue recognized at a point in time, all of which may impact implied growth rates;

•~~compression or expansion of multiples used by investors and analysts~~developments related to ~~value high technology SaaS companies;~~

•~~the announcement of new~~ products or services, ~~product enhancements, service introductions,~~technological advancements, strategic alliances, acquisitions or significant ~~agreements~~transactions by us or our competitors;

•changes in the amounts or frequency of stock repurchases;

•the loss of large customers or our inability to retain or increase sales to existing ~~customers, retain~~ customers or attract new customers;

•changes to our management team, including recruitment or departure of key personnel;

•variations in our or our competitors’ results of operations, changes in the competitive landscape generally and developments in our industry;

•general ~~socio-economic,~~economic, political or market conditions;

•~~macroeconomic conditions and the economic impact of the COVID-19 pandemic, inflation and rising interest rates and global conflicts, including the Russia-Ukraine war;~~ and

•~~unusual~~other events, such as significant ~~acquisitions by us or our competitors, divestitures,~~ litigation and regulatory ~~actions and other factors, including factors unrelated to our operating performance.~~actions.

In addition, the market for technology stocks or the stock market in general has experienced, and may in the future experience, ~~uneven investor confidence,~~extreme fluctuations, which has caused, and may in the future cause, ~~the market~~our stock price ~~for our common stock~~ to decline for reasons unrelated to our ~~operating~~financial performance. Volatility in our stock price has increased, and in the ~~market price of a company’s securities for a period of time~~future may increase, ~~the company’s~~our susceptibility to securities class action ~~litigation. Oftentimes, this type of~~ litigation, ~~is expensive~~which could result in substantial costs and ~~diverts~~divert management’s attention and resources, which may adversely affect our business.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ~~AND ISSUER PURCHASES OF EQUITY SECURITIES~~

Below is a summary of stock repurchases for the three months ended ~~September~~March 1, ~~2023.~~2024. See Note 11 of our notes to condensed consolidated financial statements for information regarding our stock repurchase program.


Period	Period	Total Number of Shares Repurchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Approximate Dollar Value that May Yet be Purchased Under the Plans (1)
		(in millions, except average price per share)


Beginning repurchase authority
Beginning repurchase authority
Beginning repurchase authority	Beginning repurchase authority					$	4,483

June 3—June 30, 2023
December 2, 2023—December 29, 2023

December 2, 2023—December 29, 2023

December 2, 2023—December 29, 2023
Accelerated share repurchase
Accelerated share repurchase
Accelerated share repurchase									2.5	$	—	2.5	$	(2,000)	(2)
Other shares repurchased
December 30, 2023—January 26, 2024
December 30, 2023—January 26, 2024
December 30, 2023—January 26, 2024
Shares repurchased	Shares repurchased	0.8	$	444.16	0.8	$	(333)
July 1—July 28, 2023
Shares repurchased	Shares repurchased	0.7	$	491.66	0.7	$	(333)	(2)
July 29—September 1, 2023
Shares repurchased
January 27, 2024—March 1, 2024
January 27, 2024—March 1, 2024
January 27, 2024—March 1, 2024
Shares repurchased
Shares repurchased
Shares repurchased	Shares repurchased	0.6	$	518.16	0.6	$	(334)	(2)

Total	Total	2.1			2.1	$	3,483

Total

Total

(1)In December 2020, the Board of Directors granted authority to repurchase up to $15 billion in our common stock through the end of fiscal 2024.

(2)In ~~June~~December 2023, we entered into ~~a structured stock~~an accelerated share repurchase agreement with a large financial institution whereupon we provided them with a prepayment of ~~$1 billion. As~~$2 billion and received an initial delivery of ~~September~~2.5 million shares of our common stock. Subsequent to March 1, ~~2023, approximately $333~~2024, the accelerated share repurchase agreement was settled which resulted in total repurchases of 3.5 million shares at an average price of ~~the prepayment remained under this agreement.~~$578.11.

~~ITEM 4. MINE SAFETY DISCLOSURES~~

~~Not applicable.~~

ITEM 5. OTHER INFORMATION

~~None.~~Rule 10b5-1 Trading Plans

The following table shows the trading arrangements intended to satisfy the affirmative defense of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, adopted by our Section 16 officers during the three months ended March 1, 2024.

Name and Position

Adoption Date

Total Number of Shares to be Sold

Expiration Date

Anil Chakravarthy

1/22/2024

Up to 13,386

4/14/2025

President, Digital Experience

Scott Belsky

2/1/2024

Up to 18,380 (1)

1/31/2025

Chief Strategy Officer and Executive Vice President, Design & Emerging Products

Mark Garfield

2/2/2024

Up to 5,023 (1)

1/8/2025

Senior Vice President and Chief Accounting Officer

(1)The aggregate number of shares to be sold pursuant to this trading arrangement includes shares from outstanding restricted stock units that are subject to applicable service-based vesting conditions. The actual number of shares that will be released pursuant to the restricted stock units and sold under the trading arrangement will be net of the number of shares withheld by the Company to satisfy tax withholding obligations and is not yet determinable.

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ITEM 6. EXHIBITS

INDEX TO EXHIBITS

Incorporated by Reference
Exhibit
Number Exhibit Description Form Filing Date Exhibit Number SEC File No. Filed
Herewith
3.1
Restated Certificate of Incorporation of Adobe
8-K 4/26/11 3.3 000-15175
3.2
Certificate of Amendment to Restated Certificate of Adobe
8-K 10/9/18 3.1 000-15175
3.3
Amended and Restated Bylaws
8-K 1/18/22 3.1 000-15175
31.1
Certification of Chief Executive Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934
X
31.2
Certification of Chief Financial Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934
X
32.1
Certification of Chief Executive Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934†
X
32.2
Certification of Chief Financial Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934†
X
101.INS Inline XBRL Instance - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. X
101.SCH Inline XBRL Taxonomy Extension Schema X
101.CAL Inline XBRL Taxonomy Extension Calculation X
101.LAB Inline XBRL Taxonomy Extension Labels X
101.PRE Inline XBRL Taxonomy Extension Presentation X
101.DEF Inline XBRL Taxonomy Extension Definition X
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

Filing Date

Exhibit Number

SEC File No.

Filed
Herewith

3.1

Restated Certificate of Incorporation of Adobe

8-K

4/26/11

3.3

000-15175

3.2

Certificate of Amendment to Restated Certificate of Adobe

8-K

10/9/18

3.1

000-15175

3.3

Amended and Restated Bylaws

8-K

1/18/22

3.1

000-15175

10.1

A dobe Inc. 2023 Executive Severance Plan in the Event of a Change of Control*

8-K

12/13/23

10.1

000-15175

10.2

Termination Agreement, dated as of December 17, 2023, by and among Adobe Inc., Saratoga Merger Sub I, Inc., Saratoga Merger Sub II, LLC and Figma, Inc.

8-K

12/18/23

10.1

000-15175

10.3

2 024 Performance Share Program*

8-K

1/26/24

10.2

000-15175

10.4

Form of 2024 Performance Share Award Grant Notice and Award Agreement pursuant to 2024 Performance Share Program*

8-K

1/26/24

10.3

000-15175

10.5

2 024 Executive Annual Incentive Plan*

8-K

1/26/24

10.4

000-15175

10.6

Form of Restricted Stock Unit Grant Notice and Award Agreement pursuant to 2019 Equity Incentive Plan (for awards granted on or after January 24, 202 4 )*

10.7

2 019 Executive Incentive Plan, as amended*

31.1

Certification of Chief Executive Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934

31.2

Certification of Chief Financial Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934

32.1

Certification of Chief Executive Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934†

32.2

Certification of Chief Financial Officer, as required by Rule 13a-14(b) of the Securities Exchange Act of 1934†

101.INS

Inline XBRL Instance - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema

101.CAL

Inline XBRL Taxonomy Extension Calculation

101.LAB

Inline XBRL Taxonomy Extension Labels

101.PRE

Inline XBRL Taxonomy Extension Presentation

101.DEF

Inline XBRL Taxonomy Extension Definition

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

___________________________

Management contract or compensatory plan or arrangement

†

The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Adobe Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

5450

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


			ADOBE INC.

			By:			/s/ DANIEL DURN
						Daniel Durn
						Chief Financial Officer and
						Executive Vice President, ~~and~~Finance,
						~~Chief Financial Officer~~Technology Services and Operations
						(Principal Financial Officer)

Date: ~~September~~March 27, ~~2023~~2024

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SUMMARY OF TRADEMARKS

The following trademarks of Adobe Inc. or its subsidiaries, which may be registered in the United States and/or other countries, are referenced in this Form 10-Q:

Acrobat

Acrobat Sign

Adobe

Adobe Analytics

Adobe ~~Audience Manager~~

~~Adobe~~ Campaign

Adobe Commerce

Adobe Experience Cloud

Adobe Express

Adobe Firefly

Adobe GenStudio

Adobe Mix Modeler

Adobe Scan

Adobe Stock

Adobe Target

Behance

Creative Cloud

Document Cloud

Journey Optimizer

Marketo

Marketo Engage

Photoshop

Workfront

All other trademarks are the property of their respective owners.

5652


	Three Months Ended September 2, 2022
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock
	Shares	Amount								Shares	Amount		Total
Balances at June 3, 2022	601	$	—	$	9,102	$	26,022	$	(195)	(130)	$	(20,944)	$	13,985
Net income	—	—		—		1,136		—		—	—		1,136
Other comprehensive income (loss), net of taxes	—	—		—		—		(29)		—	—		(29)
Re-issuance of treasury stock under stock compensation plans	—	—		68		—		—		1	35		103
Repurchases of common stock	—	—		—		—		—		(5)	(1,200)		(1,200)

Stock-based compensation	—	—		378		—		—		—	—		378

Balances at September 2, 2022	601	$	—	$	9,548	$	27,158	$	(224)	(134)	$	(22,109)	$	14,373


	Components of % Change 2023-2022 QTD		Components of % Change 2023-2022 YTD
Hosting services and data center costs	8	%	7	%
Royalty costs	2		2
Amortization of intangibles	(2)		(1)






Total change	8	%	8	%


	Components of % Change 2023-2022 QTD		Components of % Change 2023-2022 YTD
Professional and consulting fees	8	%	10	%
Base compensation and related benefits	4		5
Incentive compensation, cash and stock-based	2		3
Charitable contributions	(4)		(1)







Various individually insignificant items	1		1
Total change	11	%	18	%