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SEC filingRevenue grew 12% YoY to $6.40B, driven by 13% subscription growth and strong ARR expansion to $26.06B.
Adobe reported total revenue of $6.40B for Q1 FY2026, up 12% YoY from $5.71B. Subscription revenue, which constitutes 97% of total, grew 13% to $6.20B, driven by strong demand across both customer groups. Product revenue declined 5% to $90M, and services & other revenue fell 19% to $110M. Gross margin improved slightly to 89.6% from 89.1%, as cost of revenue grew slower (7%) than revenue. Operating expenses increased 13% to $3.32B, with R&D up 8%, sales & marketing up 14%, and G&A up 26% (including a legal settlement loss contingency). As a result, operating margin contracted by 7 basis points to 37.8%. Net income grew only 4% to $1.89B due to a higher effective tax rate of 22% (vs 17% prior year), primarily from the absence of a prior-year foreign tax asset benefit and increased stock-based compensation taxes.
Adobe now operates as a single reportable segment but manages two customer groups. Creative & Marketing Professionals subscription revenue reached $4.39B, up 12% YoY, supported by Creative Cloud Pro, Adobe Experience Platform, Experience Manager, and GenStudio. Business Professionals & Consumers subscription revenue grew 16% to $1.78B, driven by Acrobat solutions including the Acrobat AI Assistant. Total customer group subscription revenue of $6.17B (up 13%) underpins the overall subscription growth. ARR, a key metric, rose 10.9% to $26.06B, reflecting strong customer retention and new acquisitions across the portfolio, partially offset by a decline in Adobe Stock.
Management did not provide quantitative guidance for upcoming periods but highlighted strategic priorities: focus on AI-powered innovations (Adobe Firefly, GenStudio), expanding go-to-market motions, and deepening customer relationships through data-driven engagement. The pending acquisition of Semrush (expected Q2 FY2026) for ~$1.9B in cash will add brand visibility capabilities. The company expects to finance the deal with cash on hand. Under the new U.S. tax act (2025 U.S. Tax Act), immediate expensing of R&D is restored, which should benefit effective tax rates and cash taxes in fiscal 2026 and beyond. Adobe continues to execute on its stock repurchase program ($3.89B remaining under March 2024 authority) and maintains strong liquidity with $6.33B cash and cash equivalents.
As of February 27, 2026, Adobe held $6.33B in cash and cash equivalents and $0.56B in short-term investments, totaling $6.89B. The company reported total debt of $6.23B, consisting of $0.85B current and $5.38B long-term. Shareholders' equity stood at $11.43B. The current portion of debt increased from $0 to $0.85B due to the reclassification of the 2.15% 2027 notes due in February 2027. No borrowings were outstanding under the $1.5B revolving credit facility or the $3B commercial paper program.
Adobe's most significant commitment is a definitive agreement to acquire Semrush Holdings for approximately $1.9B in cash, expected to close in Q2 FY2026. The company also has $22.22B in remaining performance obligations (RPO), of which approximately 67% is expected to be recognized over the next 12 months. Non-cancellable and non-refundable committed funds from enterprise customers comprise about 4% of total deferred revenue. No other material purchase commitments or contractual obligations were disclosed.
In Q1 FY2026, Adobe repurchased 8.1 million shares for $2.48B, leaving $3.89B remaining under the March 2024 $25B authorization. No new authorization was announced. Capital expenditures were $37M (0.58% of sales). There were no new debt issuances or repayments; debt remained flat with the reclassification of current portion. No dividends were paid or mentioned.
Adobe reports as a single operating segment following a reorganization in Q1 FY2026. Total revenue was $6.40B, up 12% YoY. Subscription revenue accounted for $6.20B, with Creative & Marketing Professionals contributing $4.39B and Business Professionals & Consumers $1.78B. Geographically, Americas generated $3.76B (59%), EMEA $1.74B (27%), and APAC $0.90B (14%). The company does not disclose segment-level operating income or margin.
CFO of $2,958M comfortably exceeded net income of $1,889M, indicating strong cash conversion and high-quality earnings. The primary drivers of the difference were non-cash charges (depreciation and stock-based compensation totaling $683M) and favorable working capital changes, particularly a decrease in trade receivables ($252M) and increases in income taxes payable ($371M) and deferred revenue ($340M). However, prepaid expenses and accrued expenses weighed on cash flow.
Capex was only $37M, representing a minuscule 1.3% of CFO, reflecting Adobe's asset-light business model. This resulted in CFO minus capex of $2,921M, which more than covered share repurchases of $2,478M. The company generated positive free cash flow before investing activities, with net investing cash flow of $474M driven by proceeds from short-term investments ($920M) offset by purchases ($306M) and other investing outflows.
On the financing side, the company allocated $2,478M to share repurchases and $123M to taxes on equity awards, funded by CFO and cash on hand. Debt issuance was absent this quarter, leading to a net decrease in cash of only $901M despite significant capital returns. Overall, the cash flow statement reflects a healthy, cash-generative business with disciplined capital allocation.