Adobe Inc. Form 10-Q Summary
Business Context and Reporting Period
Adobe Inc. filed an unaudited quarterly report for the three and nine months ended August 28, 2026, compared with August 29, 2025. Adobe provides cloud-enabled creative, document productivity, marketing, customer-experience and AI-enabled software solutions. Beginning in fiscal 2026, Adobe combined its former operating segments into one reportable segment.
Key Financial Metrics
| Metric | Q3 FY2026 | Q3 FY2025 | 9M FY2026 | 9M FY2025 |
|---|---|---|---|---|
| Total revenue | $6.760 billion | $5.988 billion | $19.776 billion | $17.575 billion |
| Subscription revenue | $6.582 billion | $5.791 billion | $19.196 billion | $16.915 billion |
| Gross profit | $5.997 billion | $5.346 billion | $17.634 billion | $15.673 billion |
| Operating income | $2.354 billion | $2.173 billion | $7.010 billion | $6.445 billion |
| Net income | $1.827 billion | $1.772 billion | $5.428 billion | $5.274 billion |
| Diluted EPS | $4.62 | $4.18 | $13.47 | $12.26 |
| Operating cash flow | Not separately provided | Not separately provided | $7.646 billion | $6.871 billion |
Q3 revenue increased 13%, subscription revenue increased 14%, operating income increased 8% and net income increased 3%. The gross margin was approximately 88.7%, compared with 89.3% in the prior-year quarter; operating margin was approximately 34.8%, compared with 36.3%; and net margin was approximately 27.0%, compared with 29.6%. The nine-month gross and operating margins were approximately 89.2% and 35.4%, respectively.
- Creative & Marketing Professionals subscription revenue rose 13% to $4.651 billion in Q3.
- Business Professionals & Consumers subscription revenue rose 16% to $1.905 billion.
- Total Adobe annualized recurring revenue increased 11.2% year over year to $27.50 billion.
- Remaining performance obligations increased 8% year over year to approximately $22.16 billion.
- Cash and cash equivalents were $4.359 billion, and short-term investments were $1.280 billion at August 28, 2026.
- Working capital was negative $2.730 billion, primarily reflecting $7.204 billion of deferred revenue and current debt.
Debt, Liquidity and Capital Allocation
- Senior notes totaled $6.150 billion at par, with $1.350 billion classified as current and $4.766 billion classified as long-term carrying value.
- Commercial paper outstanding was $250 million, with a carrying value of $248 million.
- The $1.5 billion revolving credit facility was undrawn and fully available; the facility expires June 30, 2027.
- Adobe used $6.821 billion for share repurchases during the first nine months and repurchased 26.1 million shares.
- A new $25 billion repurchase authorization was approved in April 2026, with $24.55 billion remaining at quarter end.
- Net cash used in investing activities was $1.908 billion, including $1.560 billion for acquisitions. Net cash used in financing activities was $6.814 billion.
Material Changes Versus the Prior Comparable Period
- Revenue growth remained subscription-led, while product and services revenue declined. Subscription revenue represented 97% of Q3 revenue, compared with 97% in the prior-year quarter.
- Cost of revenue increased 19% in Q3, outpacing revenue growth, largely due to hosting, data-center and AI inferencing costs.
- Operating expenses increased 15%, including higher research and development, sales and marketing, and general and administrative spending.
- The effective tax rate rose to approximately 22% in Q3 from 19% and to approximately 23% for the first nine months from 18%.
- Average diluted shares declined to 395.5 million in Q3 from 424.1 million, primarily reflecting share repurchases.
- Adobe completed the $1.87 billion cash acquisition of Semrush on April 28, 2026. The transaction added approximately $1.251 billion of goodwill and $582 million of identifiable intangible assets.
- Adobe recorded a $70 million goodwill impairment charge related to its Publishing & Advertising reporting unit and $92 million of loss contingencies during the first nine months.
- Cash from operations increased 11%, while cash and cash equivalents declined by $1.072 billion from November 28, 2025 due largely to repurchases, acquisitions and other financing uses.
Guidance, Outlook, Commentary and Risks
The filing does not provide explicit quarterly or annual revenue, earnings or ARR guidance. Management reported strong demand across subscription offerings and expects continued investment in AI-powered products, research and development, infrastructure and customer acquisition. Management believes existing cash, investments, expected operating cash flows and available borrowing capacity will fund requirements for the next twelve months and foreseeable future.
- Adobe agreed to acquire Topaz Labs for approximately $340 million, primarily in cash, subject to regulatory approvals and customary closing conditions. Closing is expected in the fourth quarter of fiscal 2026.
- Management expects to refinance the $1.35 billion current portion of senior notes on or before maturity, subject to market conditions.
- Key risks include rapid AI innovation and competition, uncertain AI monetization and regulatory requirements, cybersecurity and service interruptions, privacy and data-transfer regulation, foreign-exchange volatility, macroeconomic and geopolitical conditions, acquisition integration, intellectual-property litigation and tax-law changes.
- The Department of Justice consumer-protection action concerning subscription disclosures and cancellation practices was settled in March 2026. Securities and derivative litigation related to Figma disclosures remains unresolved; Adobe stated that it cannot estimate a reasonably possible loss range.
- Legal liabilities accrued as of August 28, 2026 were not material, but unfavorable outcomes in ongoing proceedings could adversely affect financial condition, results or cash flows.
- Disclosure controls and procedures were effective at the reasonable assurance level, and no material changes to internal control over financial reporting were reported.
Important Facts for Investors to Verify
- Whether ARR growth and subscription growth are sustained as AI competition intensifies and pricing, renewal and customer-acquisition trends evolve.
- The effect of AI hosting and inferencing costs on gross margins and the extent to which new AI features are monetized.
- Integration progress, financial contribution and impairment risk associated with Semrush, as well as the closing and funding of the proposed Topaz Labs acquisition.
- Refinancing terms and market access for the $1.35 billion of senior notes due in fiscal 2027.
- Future share-repurchase pace, remaining authorization and its effect on cash balances, leverage and diluted share count.
- Developments in the outstanding securities and derivative litigation and any additional costs from the DOJ settlement or other legal matters.
- Changes in effective tax rates, unrecognized tax benefits, international tax rules and the potential cash-tax effects of the 2025 U.S. Tax Act.