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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________
 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 29, 2020

 or
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)

(408536-6000
(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
(Do not check if a smaller reporting company)
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 Act). Yes   No
The number of shares outstanding of the registrant’s common stock as of June 19, 2020 was 479,665,239.
 



ADOBE INC.
FORM 10-Q
 
TABLE OF CONTENTS
 
 
 
Page No.

PART I—FINANCIAL INFORMATION
 
Item 1.

 

 

 

 

 

 

Item 2.

Item 3.

Item 4.
 
 
 
 

 PART II—OTHER INFORMATION
 
Item 1.

Item 1A.

Item 2.

Item 4.

Item 5.

Item 6.





 

2

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ADOBE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except par value)
 
May 29,
2020
 
November 29,
2019
 
(Unaudited)
 
(*)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3,044

 
$
2,650

Short-term investments
1,307

 
1,527

Trade receivables, net of allowances for doubtful accounts of $22 and $10, respectively
1,366

 
1,535

Prepaid expenses and other current assets
932

 
783

Total current assets
6,649

 
6,495

Property and equipment, net
1,387

 
1,293

Operating lease right-of-use assets, net
489

 

Goodwill
10,695

 
10,691

Other intangibles, net
1,535

 
1,721

Deferred income taxes
231

 

Other assets
617

 
562

Total assets
$
21,603

 
$
20,762

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 

 
 

Trade payables
$
289

 
$
209

Accrued expenses
1,303

 
1,399

Debt

 
3,149

Deferred revenue
3,321

 
3,378

Income taxes payable
166

 
56

Operating lease liabilities
85

 

Total current liabilities
5,164

 
8,191

Long-term liabilities:
 
 
 

Debt
4,114

 
989

Deferred revenue
140

 
123

Income taxes payable
503

 
616

Deferred income taxes
107

 
140

Operating lease liabilities
498

 

Other liabilities
196

 
173

Total liabilities
10,722

 
10,232

Stockholders’ equity:
 
 
 

Preferred stock, $0.0001 par value; 2 shares authorized, none issued

 

Common stock, $0.0001 par value; 900 shares authorized; 601 shares issued; 
480 and 483 shares outstanding, respectively

 

Additional paid-in-capital
6,892

 
6,504

Retained earnings
16,428

 
14,829

Accumulated other comprehensive income (loss)
(195
)
 
(188
)
Treasury stock, at cost (121 and 118 shares, respectively)
(12,244
)
 
(10,615
)
Total stockholders’ equity
10,881

 
10,530

Total liabilities and stockholders’ equity
$
21,603

 
$
20,762

_________________________________________ 
(*)
The condensed consolidated balance sheet as of November 29, 2019 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.

3

Table of Contents

ADOBE INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
May 29,
2020
 
May 31,
2019
 
May 29,
2020
 
May 31,
2019
Revenue:
 
 
 
 
 
 
 
Subscription
$
2,874

 
$
2,456

 
$
5,699

 
$
4,761

Product
128

 
153

 
271

 
323

Services and support
126

 
135

 
249

 
261

Total revenue
3,128

 
2,744

 
6,219

 
5,345

 
Cost of revenue:
 
 
 
 
 
 
 
Subscription
317

 
296

 
672

 
585

Product
9

 
9

 
16

 
21

Services and support
89

 
102

 
179

 
199

Total cost of revenue
415

 
407

 
867

 
805

Gross profit
2,713

 
2,337

 
5,352

 
4,540

 
Operating expenses:
 
 
 
 
 
 
 
Research and development
532

 
476

 
1,064

 
941

Sales and marketing
901

 
849

 
1,758

 
1,630

General and administrative
224

 
219

 
495

 
435

Amortization of intangibles
40

 
43

 
82

 
90

Total operating expenses
1,697

 
1,587

 
3,399

 
3,096

 Operating income
1,016

 
750

 
1,953

 
1,444

 
Non-operating income (expense):
 
 
 
 
 
 
 
Interest expense
(28
)
 
(40
)
 
(61
)
 
(81
)
Investment gains (losses), net

 
(1
)
 
(3
)
 
43

Other income (expense), net
12

 
2

 
30

 
7

Total non-operating income (expense), net
(16
)
 
(39
)
 
(34
)
 
(31
)
Income before income taxes
1,000

 
711

 
1,919

 
1,413

Provision for (benefit from) income taxes
(100
)
 
78

 
(136
)
 
106

Net income
$
1,100

 
$
633

 
$
2,055

 
$
1,307

Basic net income per share
$
2.28

 
$
1.30

 
$
4.26

 
$
2.68

Shares used to compute basic net income per share
481

 
488

 
482

 
488

Diluted net income per share
$
2.27

 
$
1.29

 
$
4.23

 
$
2.65

Shares used to compute diluted net income per share
485

 
492

 
486

 
493



  See accompanying notes to condensed consolidated financial statements.


4

Table of Contents

ADOBE INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
May 29,
2020
 
May 31,
2019
 
May 29,
2020
 
May 31,
2019
 
Increase/(Decrease)
 
Increase/(Decrease)
Net income
$
1,100

 
$
633

 
$
2,055

 
$
1,307

Other comprehensive income (loss), net of taxes:
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Unrealized gains / losses on available-for-sale securities
2

 
10

 
6

 
23

Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Unrealized gains / losses on derivative instruments
1

 
17

 
2

 
8

Reclassification adjustment for realized gains / losses on derivative instruments
(2
)
 
(9
)
 
(4
)
 
(17
)
Net increase (decrease) from derivatives designated as hedging instruments
(1
)
 
8

 
(2
)
 
(9
)
Foreign currency translation adjustments
(7
)
 
(12
)
 
(11
)
 
(10
)
Other comprehensive income (loss), net of taxes
(6
)
 
6

 
(7
)
 
4

Total comprehensive income, net of taxes
$
1,094

 
$
639

 
$
2,048

 
$
1,311




See accompanying notes to condensed consolidated financial statements.



5

Table of Contents

ADOBE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
(Unaudited)

 
 
Three Months Ended May 29, 2020
 
 
  Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 Treasury Stock
 
 
 
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
Total
Balances at February 28, 2020
 
601

 
$

 
$
6,665

 
$
15,390

 
$
(189
)
 
(118
)
 
$
(11,401
)
 
$
10,465

Net income
 

 

 

 
1,100

 

 

 

 
1,100

Other comprehensive income (loss),
net of taxes
 

 

 

 

 
(6
)
 

 

 
(6
)
Re-issuance of treasury stock under stock compensation plans
 

 

 

 
(62
)
 

 

 
9

 
(53
)
Purchase of treasury stock
 

 

 

 

 

 
(3
)
 
(850
)
 
(850
)
Stock-based compensation
 

 

 
227

 

 

 

 

 
227

Value of shares in deferred compensation plan
 

 

 

 

 

 

 
(2
)
 
(2
)
Balances at May 29, 2020
 
601

 
$

 
$
6,892

 
$
16,428

 
$
(195
)
 
(121
)
 
$
(12,244
)
 
$
10,881





 
 
Three Months Ended May 31, 2019
 
 
  Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 Treasury Stock
 
 
 
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
Total
Balances at March 1, 2019
 
601

 
$

 
$
5,857

 
$
12,579

 
$
(150
)
 
(112
)
 
$
(8,415
)
 
$
9,871

Net income
 

 

 

 
633

 

 

 

 
633

Other comprehensive income (loss),
net of taxes
 

 

 

 

 
6

 

 

 
6

Re-issuance of treasury stock under stock compensation plans
 

 

 

 
(28
)
 

 

 
6

 
(22
)
Purchase of treasury stock
 

 

 

 

 

 
(3
)
 
(750
)
 
(750
)
Stock-based compensation
 

 

 
194

 

 

 

 

 
194

Balances at May 31, 2019
 
601

 
$

 
$
6,051

 
$
13,184

 
$
(144
)
 
(115
)
 
$
(9,159
)
 
$
9,932









6

Table of Contents

ADOBE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
(In millions)
(Unaudited)

 
 
Six Months Ended May 29, 2020
 
 
  Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 Treasury Stock
 
 
 
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
Total
Balances at November 29, 2019
 
601

 
$

 
$
6,504

 
$
14,829

 
$
(188
)
 
(118
)
 
$
(10,615
)
 
$
10,530

Net income
 

 

 

 
2,055

 

 

 

 
2,055

Other comprehensive income (loss),
net of taxes
 

 

 

 

 
(7
)
 

 

 
(7
)
Re-issuance of treasury stock under stock compensation plans
 

 

 
(56
)
 
(456
)
 

 
2

 
81

 
(431
)
Purchase of treasury stock
 

 

 

 

 

 
(5
)
 
(1,700
)
 
(1,700
)
Stock-based compensation
 

 

 
444

 

 

 

 

 
444

Value of shares in deferred compensation plan
 

 

 

 

 

 

 
(10
)
 
(10
)
Balances at May 29, 2020
 
601

 
$

 
$
6,892

 
$
16,428

 
$
(195
)
 
(121
)
 
$
(12,244
)
 
$
10,881





 
 
Six Months Ended May 31, 2019
 
 
  Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 Treasury Stock
 
 
 
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
Total
Balances at November 30, 2018
 
601

 
$

 
$
5,685

 
$
11,816

 
$
(148
)
 
(113
)
 
$
(7,991
)
 
$
9,362

Impacts of adoption of the new revenue standard
 

 

 

 
442

 

 

 

 
442

Net income
 

 

 

 
1,307

 

 

 

 
1,307

Other comprehensive income (loss),
net of taxes
 

 

 

 

 
4

 

 

 
4

Re-issuance of treasury stock under stock compensation plans
 

 

 
(8
)
 
(381
)
 

 
3

 
86

 
(303
)
Purchase of treasury stock
 

 

 

 

 

 
(5
)
 
(1,250
)
 
(1,250
)
Stock-based compensation
 

 

 
374

 

 

 

 

 
374

Value of shares in deferred compensation plan
 

 

 

 

 

 

 
(4
)
 
(4
)
Balances at May 31, 2019
 
601

 
$

 
$
6,051

 
$
13,184

 
$
(144
)
 
(115
)
 
$
(9,159
)
 
$
9,932



See accompanying notes to condensed consolidated financial statements.

7

Table of Contents

ADOBE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Six Months Ended
 
May 29,
2020
 
May 31,
2019
Cash flows from operating activities:
 
 
 
Net income
$
2,055

 
$
1,307

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 
Depreciation, amortization and accretion
376

 
373

Stock-based compensation
444

 
389

Reduction of operating lease right-of-use assets
42

 

Deferred income taxes
(265
)
 
(11
)
Unrealized losses (gains) on investments, net
5

 
(40
)
Other non-cash items
16

 
2

Changes in operating assets and liabilities, net of acquired assets and assumed liabilities:
 
 
 
Trade receivables, net
155

 
86

Prepaid expenses and other assets
(303
)
 
(225
)
Trade payables
80

 
(17
)
Accrued expenses and other liabilities
(58
)
 
117

Income taxes payable
2

 
12

Deferred revenue
(40
)
 
130

Net cash provided by operating activities
2,509

 
2,123

Cash flows from investing activities:
 

 
 

Purchases of short-term investments
(263
)
 
(139
)
Maturities of short-term investments
417

 
321

Proceeds from sales of short-term investments
70

 
29

Acquisitions, net of cash acquired

 
(100
)
Purchases of property and equipment
(190
)
 
(211
)
Purchases of long-term investments, intangibles and other assets
(6
)
 
(24
)
Proceeds from sale of long-term investments and other assets
4

 
2

Net cash provided by (used for) investing activities
32

 
(122
)
Cash flows from financing activities:
 

 
 

Purchases of treasury stock
(1,700
)
 
(1,250
)
Proceeds from re-issuance of treasury stock
89

 
74

Taxes paid related to net share settlement of equity awards
(521
)
 
(377
)
Proceeds from issuance of debt
3,144

 

Repayment of debt
(3,150
)
 

Other financing activities, net
4

 
(3
)
Net cash used for financing activities
(2,134
)
 
(1,556
)
Effect of foreign currency exchange rates on cash and cash equivalents
(13
)
 
(5
)
Net increase in cash and cash equivalents
394

 
440

Cash and cash equivalents at beginning of period
2,650

 
1,643

Cash and cash equivalents at end of period
$
3,044

 
$
2,083

Supplemental disclosures:
 

 
 
Cash paid for income taxes, net of refunds
$
116

 
$
108

Cash paid for interest
$
38

 
$
78



See accompanying notes to condensed consolidated financial statements.

8

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 (“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 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 November 29, 2019 on file with the SEC (our “Annual Report”).
Reclassification
Certain immaterial prior year amounts have been reclassified to conform to current year presentation in the condensed consolidated statements of cash flows and notes to condensed consolidated financial statements.
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. Estimates are used for, but not limited to, sales allowances and programs, bad debts, stock-based compensation, determining the fair value of acquired assets and assumed liabilities, impairment of goodwill and intangible assets, litigation and income taxes. Actual results may differ materially from these estimates.
In March 2020, the World Health Organization declared the outbreak of a disease caused by a novel strain of the coronavirus (COVID-19) to be a pandemic. This pandemic has created and may continue to create significant uncertainty in the macroeconomic environment which, in addition to other unforeseen effects of this pandemic, may adversely impact our results of operations. As a result, most of our estimates and assumptions may require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods.
Recently Adopted Accounting Guidance
On February 24, 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), (“ASC 842”), a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet for all leases with terms greater than twelve months, including for those leases classified as operating leases under the legacy standard (“ASC 840”). Under ASC 842, added disclosures are required as compared to ASC 840 to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. 
On November 30, 2019, the beginning of our fiscal year 2020, we adopted ASC 842 using the alternative modified retrospective transition method provided in ASU 2018-11, Leases (Topic 842): Targeted Improvements. Under this method, we recorded ROU assets and lease liabilities of approximately $519 million and $618 million, respectively, at the adoption date and did not include any retrospective adjustments to comparative periods to reflect the adoption of ASC 842. The lease liabilities reflect the remaining minimum rental payments for our existing leases as of the adoption date, discounted using our incremental borrowing rate for each lease. The standard had no impact on our consolidated net income or cash flows. We elected the package of practical expedients permitted under the transition guidance, which allowed us to carry forward our assessments on whether a contract was or contains a lease, our historical lease classification and our initial direct costs for any leases that existed prior to adoption date. We also elected the practical expedient that allowed us to carry forward our accounting treatment for existing land easements. We did not elect the hindsight practical expedient to determine the lease term for existing leases.

9

Table of Contents

ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

On August 28, 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging, requiring expanded hedge accounting for both non-financial and financial risk components and refining the measurement of hedge results to better reflect an entity’s hedging strategies. The updated standard also amends the presentation and disclosure requirements and changes how entities assess hedge effectiveness. On November 30, 2019, the beginning of our fiscal year 2020, we adopted the accounting requirements of the updated standard utilizing the modified retrospective method of transition. The adoption of this standard did not have a material impact on our condensed consolidated financial statements and related disclosures.
Significant Accounting Policies
Leases
We determine if an arrangement is or contains a lease at contract inception. In certain of our lease arrangements, primarily those related to our data center arrangements, judgment is required in determining if a contract contains a lease. For these arrangements, there is judgment in evaluating if the arrangement involves an identified asset that is physically distinct or whether we have the right to substantially all of the capacity of an identified asset that is not physically distinct. In arrangements that involve an identified asset, there is also judgment in evaluating if we have the right to direct the use of that asset.
We do not have any finance leases. Operating leases are recorded in our condensed consolidated balance sheets. ROU assets and lease liabilities are measured at the lease commencement date based on the present value of the remaining lease payments over the lease term, determined using the discount rate for the lease at the commencement date. Because the rate implicit in our leases is not readily determinable, we use our incremental borrowing rate as the discount rate, which approximates the interest rate at which we could borrow on a collateralized basis with similar terms and payments and in similar economic environments. Our leases have remaining lease terms of up to 12 years, some of which include options to extend the lease for up to 9 years and options to terminate the lease within 1 year. Optional periods to extend the lease, including by not exercising a termination option, are included in the lease term when it is reasonably certain that the option will be exercised. We also have one land lease that expires in 2091. Operating lease expense is recognized on a straight-line basis over the lease term. We account for lease and non-lease components, principally common area maintenance for our facilities leases, as a single lease component for our facilities and data center leases.
There have been no other material changes to our significant accounting policies as compared to the significant accounting policies described in our Annual Report.
Recent Accounting Pronouncements Not Yet Effective
On June 16, 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses, requiring the measurement and recognition of expected credit losses for financial assets held at amortized cost, which include our accounts receivable and contract assets. The standard also requires that we recognize credit impairment losses related to our available-for-sale debt securities through an allowance for credit losses instead of a reduction in the cost basis. The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition with a cumulative effect adjustment recorded to opening retained earnings as of the initial adoption date. The updated standard is effective for us beginning in the first quarter of fiscal 2021 and we do not plan to early adopt. We are currently evaluating the effect that the standard will have on our condensed consolidated financial statements and related disclosures.
With the exception of the new standard discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the six months ended May 29, 2020, as compared to the recent accounting pronouncements described in our Annual Report, that are of significance or potential significance to us.

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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NOTE 2.  REVENUE
Segment Information
Our segment results for the three months ended May 29, 2020 and May 31, 2019 were as follows:
(dollars in millions)
Digital
Media
 
Digital
Experience
 
Publishing
 
Total
Three months ended May 29, 2020
 
 
 
 
 
 
 
Revenue
$
2,232

 
$
826

 
$
70

 
$
3,128

Cost of revenue
84

 
326

 
5

 
415

Gross profit
$
2,148

 
$
500

 
$
65

 
$
2,713

Gross profit as a percentage of revenue
96
%
 
61
%
 
93
%
 
87
%
Three months ended May 31, 2019
 
 
 
 
 
 
 
Revenue
$
1,890

 
$
784

 
$
70

 
$
2,744

Cost of revenue
71

 
331

 
5

 
407

Gross profit
$
1,819

 
$
453

 
$
65

 
$
2,337

Gross profit as a percentage of revenue
96
%
 
58
%
 
93
%
 
85
%

Our segment results for the six months ended May 29, 2020 and May 31, 2019 were as follows:
(dollars in millions)
Digital
Media
 
Digital
Experience
 
Publishing
 
Total
Six months ended May 29, 2020
 
 
 
 
 
 
 
Revenue
$
4,401

 
$
1,684

 
$
134

 
$
6,219

Cost of revenue
171

 
687

 
9

 
867

Gross profit
$
4,230

 
$
997

 
$
125

 
$
5,352

Gross profit as a percentage of revenue
96
%
 
59
%
 
93
%
 
86
%
Six months ended May 31, 2019
 
 
 
 
 
 
 
Revenue
$
3,667

 
$
1,527

 
$
151

 
$
5,345

Cost of revenue
139

 
656

 
10

 
805

Gross profit
$
3,528

 
$
871

 
$
141

 
$
4,540

Gross profit as a percentage of revenue
96
%
 
57
%
 
93
%
 
85
%
Revenue by geographic area for the three and six months ended May 29, 2020 and May 31, 2019 were as follows:
 
Three Months
 
Six Months
(in millions)
2020
 
2019
 
2020
 
2019
Americas
$
1,811

 
$
1,599

 
$
3,608

 
$
3,109

EMEA
825

 
729

 
1,642

 
1,432

APAC
492

 
416

 
969

 
804

Total
$
3,128

 
$
2,744

 
$
6,219

 
$
5,345



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ADOBE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Revenue by major offerings in our Digital Media reportable segment for the three and six months ended May 29, 2020 and May 31, 2019 were as follows:
 
Three Months
 
Six Months
(in millions)
2020
 
2019
 
2020
 
2019
Creative Cloud
$
1,872

 
$
1,594

 
$
3,690

 
$
3,089

Document Cloud
360

 
296

 
711

 
578

Total
$
2,232

 
$
1,890

 
$
4,401

 
$
3,667

Subscription revenue by segment for the three and six months ended May 29, 2020 and May 31, 2019 were as follows:
 
Three Months
 
Six Months
(in millions)
2020
 
2019
 
2020
 
2019
Digital Media
$
2,135

 
$
1,774

 
$
4,193

 
$
3,437

Digital Experience
707

 
654

 
1,446

 
1,266

Publishing
32

 
28

 
60

 
58

Total
$
2,874

 
$
2,456

 
$
5,699

 
$
4,761

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 occurring. As of May 29, 2020, the balance of trade receivables, net of allowances for doubtful accounts, was $1.37 billion, inclusive of unbilled receivables of $96 million. As of November 29, 2019, the balance of trade receivables, net of allowances for doubtful accounts, was $1.53 billion, inclusive of unbilled receivables of $149 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. The allowance for doubtful accounts was $22 million and $10 million as of May 29, 2020 and November 29, 2019, respectively.
A contract asset is recognized when a conditional right to consideration exists and transfer of control has occurred. Contract assets are included in prepaid expenses and other current assets for the current portion and other assets for the long-term portion on the condensed consolidated balance sheets. We regularly review contract asset balances for impairment, considering factors such as historical experience, credit-worthiness, age of the balance and other economic or business factors. Contract asset impairments were not material for the six months ended May 29, 2020. Contract assets were $76 million and $64 million as of May 29, 2020 and November 29, 2019, respectively.
Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from subscription services, including non-cancellable and non-refundable committed funds and refundable customer deposits. Deferred revenue is recognized as revenue when transfer of control to customers has occurred. As of May 29, 2020, the balance of deferred revenue was $3.46 billion, which includes $41 million