What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-01-13 compared with 2024-01-17 · 116 added, 118 removed, 293 unchanged (44% of the section changed)

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In preparing our Consolidated Financial Statements in accordance with 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.

In preparing our Consolidated Financial Statements in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the SEC, we make assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities.

We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances.

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Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year.

In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards.

Significant judgment is required in determining our current provision for income taxes and deferred tax assets or liabilities.

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For our fiscal 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 product innovation, we have continued to experience growth in software-based subscription revenue across our portfolio of offerings.

As we execute on our long-term growth initiatives, 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 and cloud-based services for designing, creating and publishing rich content and immersive 3D experiences.

Creative Cloud includes Adobe Express, a web and mobile 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.

In September 2023, we released Adobe Firefly, a group of creative generative AI models designed to generate high quality images and text effects.

In our Digital Media segment, we are a market leader with Creative Cloud, our subscription-based offering which provides desktop tools, mobile applications (“apps”) and cloud-based services for designing, creating and publishing rich content and immersive 3D experiences.

Creative Cloud offers Adobe Acrobat Pro, our comprehensive PDF solution, integral to creative workflows and used by creators worldwide as part of our Creative Cloud All Apps subscription and on a standalone basis.

In addition, Adobe Express is our web and mobile 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.

Creative Cloud also includes 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.

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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.

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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 subscription offering.

Document Cloud, which enhances the way people manage critical documents at home, in the office and across devices, includes subscriptions to Adobe Acrobat Pro and Standard, Adobe Acrobat Sign and Adobe Scan.

Certain Adobe Acrobat products are also offered as perpetual licenses which are immaterial to our business.

In April 2024, we introduced Acrobat AI Assistant, a generative AI-powered product designed to deliver insights and enhance productivity through interactive document experiences, which is available as an add-on subscription to our Adobe Acrobat Pro and Standard and Adobe Acrobat Reader products.

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.

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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.

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:

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Total Digital Media ARR grew to $17.33 billion at the end of fiscal 2024, up from $15.33 billion at the end of fiscal 2023.

Revaluing our ending ARR for fiscal 2023 using currency rates determined at the beginning of fiscal 2024, our Digital Media ARR at the end of fiscal 2023 would be $15.33 billion or approximately $160 million higher than the ARR reported above.

Revaluing our ending ARR for fiscal 2024 using currency rates determined at the beginning of fiscal 2025, our Digital Media ARR at the end of fiscal 2024 would be $17.22 billion or approximately $117 million lower than the ARR reported above.

Our success in driving growth in ARR has positively affected our revenue growth.

Creative revenue in fiscal 2023 was $11.52 billion, up from $10.46 billion in fiscal 2022 and representing 10% year-over-year growth.

Document Cloud revenue in fiscal 2023 was $2.70 billion, up from $2.38 billion in fiscal 2022 and representing 13% year-over-year growth.

Total Digital Media segment revenue grew to $14.22 billion in fiscal 2023, up from $12.84 billion in fiscal 2022 and representing 11% year-over-year growth driven by strong net new user growth.

Creative revenue in fiscal 2024 was $12.68 billion, up from $11.52 billion in fiscal 2023, representing 10% year-over-year growth.

Document Cloud revenue in fiscal 2024 was $3.18 billion, up from $2.70 billion in fiscal 2023, representing 18% year-over-year growth.

Total Digital Media segment revenue grew to $15.86 billion in fiscal 2024, up from $14.22 billion in fiscal 2023, representing 12% year-over-year growth.

Digital Experience

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The Adobe Experience Cloud apps and services 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.

Our differentiation and competitive advantage are strengthened by our ability to use the Adobe Experience Platform to integrate our comprehensive set of solutions and our ability to embed AI into our product portfolio, such as with our new Adobe Experience Platform AI Assistant, a generative AI-powered conversational interface designed to help customers automate workflows and generate new audiences and journeys.

Adobe Experience Cloud delivers solutions for our customers across the following strategic growth pillars:

• Data insights and audiences .

Our products, including Adobe Analytics, Customer Journey Analytics, Adobe Product Analytics, and our Real-time Customer Data Platform, deliver actionable data in real time to provide highly tailored and adaptive experiences across platforms.

• Content and commerce .

Our products help customers manage, deliver, monetize, and optimize content delivery through Adobe Experience Manager and build multi-channel commerce experiences for B2B and B2C customers on a single platform with Adobe Commerce.

Our products deliver actionable data to our customers in real time to enable highly tailored and adaptive experiences across platforms through Adobe Analytics, Adobe Customer Journey Analytics, Adobe Product Analytics, Adobe Mix Modeler, and Adobe Real-time Customer Data Platform.

• Content, commerce and workflows .

Our products help our customers manage, deliver, personalize, and optimize content delivery through Adobe Experience Manager;

build multi-channel commerce experiences for B2B and B2C customers with Adobe Commerce;

strategically plan, manage, collaborate and execute on workflows for marketing campaigns and other projects at speed and scale with our enterprise work management App, Adobe Workfront;

and leverage self-serve capabilities to deliver on-brand content powered by generative AI in Adobe GenStudio for Performance Marketing.

• Customer journeys .

Our products help businesses manage, test, target 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 .

Our products help businesses intelligently measure, optimize, and plan marketing investments through the Adobe 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 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.

By combining the creativity of our Digital Media business

with the science of our Digital Experience business, such as with our 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 $4.89 billion in fiscal 2023, up from $4.42 billion in fiscal 2022 which represents 11% year-over-year growth.

Driving this growth was the increase in subscription revenue, which grew to $4.33 billion in fiscal 2023 from $3.88 billion in fiscal 2022, representing 12% year-over-year growth.

Digital Experience revenue was $5.37 billion in fiscal 2024, up from $4.89 billion in fiscal 2023, representing 10% year-over-year growth.

Subscription revenue grew to $4.86 billion in fiscal 2024, up from $4.33 billion in fiscal 2023, representing 12% year-over-year growth.

Macroeconomic Conditions

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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 fiscal 2023, and may continue to negatively impact our financial results in fiscal 2024.

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.

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Financial Performance Summary for Fiscal 2024

• Total Digital Media ARR of approximately $15.17 billion as of December 1, 2023 increased by $1.91 billion, or 14%, from $13.26 billion as of December 2, 2022.

• Creative revenue of $11.52 billion increased by $1.06 billion, or 10%, during fiscal 2023, from $10.46 billion in fiscal 2022.

Document Cloud revenue of $2.70 billion increased by $316 million, or 13%, during fiscal 2023, from $2.38 billion in fiscal 2022.

• Digital Experience revenue of $4.89 billion increased by $471 million, or 11%, during fiscal 2023, from $4.42 billion in fiscal 2022.

• Remaining performance obligations of $17.22 billion as of December 1, 2023 increased by $2.02 billion, or 13%, from $15.19 billion as of December 2, 2022.

• Cost of revenue of $2.35 billion increased by $189 million, or 9%, during fiscal 2023, from $2.17 billion in fiscal 2022.

• Operating expenses of $10.41 billion increased by $1.06 billion, or 11%, during fiscal 2023, from $9.34 billion in fiscal 2022.

• Net income of $5.43 billion increased by $672 million, or 14%, during fiscal 2023, from $4.76 billion in fiscal 2022.

• Cash flows from operations of $7.30 billion during fiscal 2023 decreased by $536 million, or 7%, from $7.84 billion in fiscal 2022.

Revenue for fiscal 2021 benefited from an extra week in the first quarter of fiscal 2021 due to our 52/53 week financial calendar whereby fiscal 2021 was a 53-week year compared with fiscal 2023 and 2022 which were 52-week years.

• Total Digital Media ARR of approximately $17.33 billion as of November 29, 2024 increased by $2.00 billion, or 13%, from $15.33 billion as of December 1, 2023.

• Creative revenue of $12.68 billion during fiscal 2024 increased by $1.17 billion, or 10%, from $11.52 billion in fiscal 2023.

Document Cloud revenue of $3.18 billion during fiscal 2024 increased by $483 million, or 18%, from $2.70 billion in fiscal 2023.

• Digital Experience revenue of $5.37 billion during fiscal 2024 increased by $473 million, or 10%, from $4.89 billion in fiscal 2023.

• Cost of revenue of $2.36 billion during fiscal 2024 remained relatively flat compared to fiscal 2023.

• Operating expenses of $12.41 billion during fiscal 2024 increased by $2.00 billion, or 19%, from $10.41 billion in fiscal 2023 primarily due to the $1 billion Figma termination fee incurred in fiscal 2024.

• Net income of $5.56 billion during fiscal 2024 increased by $132 million, or 2%, from $5.43 billion in fiscal 2023.

• Cash flows from operations of $8.06 billion during fiscal 2024 increased by $754 million, or 10%, from $7.30 billion in fiscal 2023.

• Remaining performance obligations of $19.96 billion as of November 29, 2024 increased by $2.75 billion, or 16%, from $17.22 billion as of December 1, 2023.

(dollars in millions) 2024 2023 2022 % Change

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• Digital Media —Our Digital Media segment provides products and services that enable individuals, teams, businesses, and enterprises to create, publish and promote their content anywhere and accelerate their productivity by transforming how they view, share, engage with and collaborate on documents and creative content.

Our customers include creative professionals, including photographers, video editors, graphic and experience designers

and game developers;

Our customers include creative professionals, including photographers, video editors, graphic and experience designers and game developers;

communicators, including content creators, students, marketers and knowledge workers;

and consumers.

• Digital Experience —Our Digital Experience segment provides an integrated platform and set of products, services and solutions that enable businesses to create, manage, execute, measure, monetize and optimize customer experiences that span from analytics to commerce.

experiences that span from analytics to commerce.

Our customers include marketers, advertisers, agencies, publishers, merchandisers, merchants, web analysts, data scientists, developers and executives across the C-suite.

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Total Digital Media revenue $ 15,864 $ 14,216 $ 12,842 12 %

Revenue from Digital Media increased $1.37 billion during fiscal 2023 as compared to fiscal 2022, driven by increases in revenue associated with our Creative and Document Cloud subscription offerings due to continued demand amid an increasingly digital environment, strong engagement across customer segments and migrating our customers to higher valued subscription offerings with increased revenue per subscription, partially offset by the impact of foreign currency exchange rate fluctuations.

Revenue from Digital Media increased $1.65 billion during fiscal 2024 as compared to fiscal 2023, driven by increases in revenue associated with our Creative and Document Cloud subscription offerings due to continued demand amid an increasingly digital environment, strong engagement across customer segments and migrating our customers to higher valued subscription offerings with increased revenue per subscription.

Digital Experience

Revenue from Digital Experience increased $471 million during fiscal 2023 as compared to fiscal 2022 primarily due to net new additions across our subscription offerings, partially offset by the impact of foreign currency exchange rate fluctuations.

Revenue from Digital Experience increased $473 million during fiscal 2024 as compared to fiscal 2023 driven by subscription revenue growth across our offerings.

Geographical Information

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Within each geographic region, the fluctuations in revenue by reportable segment were attributable to the factors noted in the segment information above.

Included in the overall change in revenue for fiscal 2023 as compared to fiscal 2022 were impacts associated with foreign currency which were mitigated in part by our foreign currency hedging program.

Included in the overall change in revenue for fiscal 2024 as compared to fiscal 2023 were impacts associated with foreign currency and our foreign currency hedging program.

During fiscal 2024, the U.S.

Dollar primarily strengthened against EMEA and APAC foreign currencies as compared to fiscal 2022, which decreased revenue in U.S.

Dollar equivalents by approximately $371 million.

During fiscal 2023, the foreign currency impacts to revenue were offset in part by net hedging gains from our cash flow hedging program of $41 million.

Dollar primarily strengthened against APAC foreign currencies and weakened against EMEA foreign currencies as compared to fiscal 2023, which resulted in a net decrease in revenue in U.S.

Dollar equivalents of approximately $45 million.

During fiscal 2024, we had net hedging losses from our cash flow hedging program of $20 million.

See Note 2 of our Notes to Consolidated Financial Statements for additional details of revenue by geography.

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(*) Percentage is less than 1%.

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 consists of third-party hosting services and data center costs, including expenses related to operating our network infrastructure and AI inferencing costs.

Cost of subscription revenue also includes compensation costs associated with network operations, implementation, account management and technical support personnel, royalty fees, software costs and amortization of certain intangible assets.

Cost of subscription revenue increased due to the following:

Cost of subscription revenue decreased due to the following:

Components of

Hosting services and data center costs 7 %

Loss contingency

Royalty costs 2

Amortization of intangibles (2)

Hosting services and data center costs

Various individually insignificant items 2

Total change (1) %

Cost of subscription revenue during fiscal 2023 included a loss contingency associated with an IP litigation matter.

Cost of subscription revenue during fiscal 2024 included the reversal of a loss contingency incurred in fiscal 2023 associated with an IP litigation matter.

Cost of product revenue is primarily comprised of third-party royalties, localization costs and costs associated with the manufacturing of our products.

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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 fiscal 2023 as compared to fiscal 2022 primarily due to increases in compensation costs partially offset by decreases in professional and consulting fees.

Cost of services and other revenue increased during fiscal 2024 as compared to fiscal 2023 primarily due to increases in compensation costs and professional fees.

Operating Expenses

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Percentage of total revenue 7 % 7 % 7 %

Acquisition termination fee

Percentage of total revenue 5 % * *

Amortization of intangibles 169 168 169 1 %

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Total operating expenses $ 12,406 $ 10,405 $ 9,343 19 %

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(*) 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 consist primarily of compensation and contracted costs associated with software development, third-party hosting services and data center costs including AI training costs, related facilities costs and expenses associated with computer equipment and software used in development activities.

Research and development expenses increased due to the following:

Components of

Incentive compensation, cash and stock-based 6 %

Base compensation and related benefits 6

Compensation costs

Hosting services and data center costs

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Components of

Base compensation and related benefits 3 %

Incentive compensation, cash and stock-based 3

Compensation costs

Marketing spend related to campaigns, events and overall marketing efforts 2

Various individually insignificant items 2

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Components of

Lease-related asset impairments and other charges

Compensation costs

Professional and consulting fees

Base compensation and related benefits 5

Incentive compensation, cash and stock-based 3

Various individually insignificant items 2

Total change 8 %

Professional and consulting fees increased from fiscal 2023 as compared to fiscal 2022 primarily due to transaction costs associated with our intended acquisition of Figma.

General and administrative expenses during fiscal 2024 included costs associated with the optimization of our leased facilities, primarily consisting of impairment charges for certain operating lease right-of-use assets and leasehold improvements.

Acquisition Termination Fee

During fiscal 2024, we incurred a $1 billion termination fee which resulted from termination of the Figma transaction.

Non-Operating Income (Expense), Net

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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.

Interest on our senior notes is payable semi-annually, in arrears.

Interest expense increased during fiscal 2024 as compared to fiscal 2023 due to the senior notes issued in April 2024.

See Note 1 7 for further details regarding our debt.

Investment Gains (Losses), Net

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Other income (expense), net also includes realized gains and losses on fixed income investments and foreign exchange gains and losses.

Other income (expense), increased during fiscal 2023 as compared to fiscal 2022 primarily due to increases in interest income driven by higher average interest rates and cash equivalent balances.

Other income (expense), net increased during fiscal 2024 as compared to fiscal 2023 primarily due to increases in interest income driven by higher average cash equivalent balances and interest rates.

Provision for Income Taxes

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Effective tax rate 20 % 20 % 21 %

Our effective tax rate decreased by approximately one percentage point during fiscal 2023 as compared to fiscal 2022, primarily due to an increase in the net tax benefit from effects of non-U.S.

operations in fiscal 2023.

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(*) Percentage is less than 1%.

Our effective tax rate for fiscal 2024 remained relatively flat compared to fiscal 2023, as the impact of the Figma acquisition termination fee, which was not deductible for financial statement purposes, was largely offset by increases in the net tax benefits from effects of non-U.S.

operations and stock-based compensation in fiscal 2024.

Our effective tax rate for fiscal 2024 was lower than the U.S.

federal statutory tax rate of 21% primarily due to the tax benefits from the U.S.

federal research tax credit and non-U.S.

operations, partially offset by state taxes.

federal statutory tax rate of 21% primarily due to the net tax benefits from effects of non-U.S.

operations and the U.S.

federal research tax credit, partially offset by the impacts of the Figma acquisition termination fee and state taxes.

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 $405 million as of December 1, 2023, primarily related to certain state credits.

The total valuation allowance was $725 million as of November 29, 2024, primarily related to certain state credits and federal capital loss carryforwards.

We are a U.S.-based multinational company subject to tax in multiple domestic and foreign tax jurisdictions.

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As regulations are issued, we account for finalized regulations in the period of enactment.

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 to our effective tax rates from the increase in the foreign-derived intangible income deduction.

The provision from the U.S.

Tax Act which requires us to capitalize and amortize research and development costs became effective in fiscal 2023.

This requirement continues to have 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.

Several countries have enacted, or have committed to enact, the Organization for Economic Cooperation and Development’s 15% global minimum tax regime effective for our fiscal 2025.

The currently enacted legislation is not expected to have a material impact on our provision for income taxes, however we continue to monitor developments and evaluate impacts, if any, of these provisions on our results of operations and cash flows.

See Note 10 of our Notes to Consolidated Financial Statements for further information regarding our provision for income taxes.

Accounting for Uncertainty in Income Taxes

The gross liabilities for unrecognized tax benefits excluding interest and penalties were $501 million, $321 million and $289 million at the end of fiscal 2023, 2022 and 2021, respectively.

If the total unrecognized tax benefits as of December 1, 2023, December 2, 2022 and December 3, 2021 were recognized, $356 million, $203 million and $199 million would decrease the respective effective tax rates.

As of December 1, 2023 and December 2, 2022, the combined amounts of accrued interest and penalties included in long-term income taxes payable related to tax positions taken on our tax returns were not material.

The gross liabilities for unrecognized tax benefits excluding interest and penalties were $683 million and $501 million at the end of fiscal 2024 and 2023, respectively.

If the total unrecognized tax benefits as of November 29, 2024 and December 1, 2023 were recognized, $519 million and $356 million would decrease the respective effective tax rates.

As of November 29, 2024 and December 1, 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 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.

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Our primary source of cash is receipts from revenue.

Our primary uses of cash are general business expenses including payroll, 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 the 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.

Other customary sources of cash include proceeds from maturities and sales of short-term investments.

Our primary uses of cash are general business expenses including payroll and related benefits costs, income taxes, marketing and third-party hosting services, as well as our stock repurchase program as described below.

Other customary uses of cash include purchases of property and equipment and payments for taxes related to net share settlement of equity awards.

This data should be read in conjunction with our Consolidated Statements of Cash Flows.

(in millions) December 1, 2023 December 2, 2022

(in millions) November 29, 2024 December 1, 2023

Cash and cash equivalents $ 7,613 $ 7,141

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For fiscal 2024, net cash provided by operating activities of $8.06 billion was primarily comprised of net income adjusted for the net effect of non-cash items.

Beginning in 2023, under the provisions introduced by the U.S.

Tax Act, we are required to capitalize and amortize research and development costs.

This had an adverse impact on our effective rate for income taxes paid and, consequently, on our cash flows from operations.

In addition, the primary working capital uses of cash were increases in prepaid expenses attributable to the timing of billings.

These impacts were partially offset by working capital sources of cash driven by increases in deferred revenue from our Digital Media and Digital Experience offerings.

Payment of the $1 billion Figma termination fee during fiscal 2024 had an adverse impact on net income and cash flows from operations.

Cash Flows from Investing Activities

For fiscal 2023, net cash provided by investing activities of $776 million was primarily due to maturities and sales of short-term investments partially offset by ongoing capital expenditures.

For fiscal 2024, net cash provided by investing activities of $149 million was primarily due to maturities of short-term investments, partially offset by ongoing capital expenditures and purchases of long-term and short-term investments.

Cash Flows from Financing Activities

For fiscal 2023, net cash used for financing activities of $5.18 billion was primarily due to payments for our common stock repurchases, taxes paid related to the net share settlement of equity awards and the repayment of our 2023 Notes.

These uses of cash were offset in part by proceeds from re-issuance of treasury stock mainly for our employee stock purchase plan.

See the section titled “Stock Repurchase Program” below.

For fiscal 2024, net cash used for financing activities of $7.72 billion was primarily due to payments for our common stock repurchases, partially offset by proceeds from the issuance of senior notes.

See the sections titled “Senior Notes” and “Stock Repurchase Program” below.

Liquidity and Capital Resources Considerations

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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 credit facility will be sufficient to meet our working capital, operating resource expenditure and capital expenditure requirements for the next twelve months and for the foreseeable future.

Our cash equivalent and short-term investment portfolio as of December 1, 2023 consisted of asset-backed securities, corporate debt securities, money market funds, time deposits, U.S.

agency securities and U.S.

Treasury securities.

Our cash equivalent and short-term investment portfolio as of November 29, 2024 consisted of money market funds, corporate debt securities, U.S.

Treasury securities, time deposits, U.S.

agency securities and asset-backed 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 merger agreement under which we intended to acquire Figma, Inc.

(“Figma”) for approximately $20 billion, comprised of approximately half cash and half stock.

On December 17, 2023, we entered into a mutual termination agreement with Figma to terminate the proposed merger.

In accordance with the terms of the termination agreement, on December 20, 2023, we paid Figma a termination fee of $1 billion using cash on hand.

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.

As of December 1, 2023, there were no outstanding borrowings under the Term Loan.

Subsequent to December 1, 2023, following execution of the mutual termination agreement with Figma discussed above, the delayed draw term loan agreement was terminated.

Revolving Credit Agreement

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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 December 1, 2023, there were no outstanding borrowings under the Revolving Credit Agreement and the entire $1.5 billion credit line remains available for borrowing.

As of November 29, 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.

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Commercial Paper Program

In September 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.

We have a commercial paper program under which we may issue unsecured commercial paper up to a total of $3 billion outstanding at any time, with maturities of up to 397 days from the date of issue.

The net proceeds from the issuance of commercial paper are 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 December 1, 2023, there were no outstanding borrowings under the commercial paper program.

We have $3.65 billion senior notes outstanding, which rank equally with our other unsecured and unsubordinated indebtedness.

As of December 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.

As of November 29, 2024, there were no outstanding borrowings under the commercial paper program.

In April 2024, we issued $500 million of senior notes due April 4, 2027, $750 million of senior notes due April 4, 2029 and $750 million of senior notes due April 4, 2034.

In total, we have $5.65 billion of senior notes outstanding, which rank equally with our other unsecured and unsubordinated indebtedness.

As of November 29, 2024, the carrying value of our senior notes was $5.63 billion and our maximum commitment for interest payments was $806 million for the remaining duration of our outstanding senior notes.

Interest is payable semi-annually, in arrears.

Our senior notes do not contain any financial covenants.

See Note 17 of our Notes to 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 Consolidated Balance Sheets.

As of November 29, 2024, the carrying value of our current debt was $1.50 billion, net of the related discount and issuance costs.

Though we intend to refinance the current portion of our debt on or before the due date, the timing of the refinancing may be impacted by market conditions.

Contractual Obligations

Our purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business.

As of December 1, 2023, the value of our non-cancellable unconditional purchase obligations was $4.93 billion, primarily relating to contracts with vendors for third-party hosting and data center services.

Subsequent to December 1, 2023, 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.

Our principal commitments consist of purchase obligations resulting from agreements to purchase goods and services in the ordinary course of business.

As of November 29, 2024, the value of our non-cancellable unconditional purchase obligations was $5.79 billion, primarily relating to contracts with vendors for third-party hosting and data center services.

See Note 16 of our Notes to Consolidated Financial Statements for additional information regarding our purchase obligations.

We lease certain facilities and data centers under non-cancellable operating lease arrangements that expire at various dates through 2034.

As of December 1, 2023, the value of our obligations under operating leases was $484 million.

As of November 29, 2024, the value of our obligations under operating leases was $463 million.

S ee Note 18 of our Notes to Consolidated Financial Statements for additional information regarding our lease obligations .

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 to our effective rates for income taxes paid, which is partially offset by a benefit from the increase in the foreign-derived intangible income deduction.

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 fiscal 2023, we repurchased a total of 11.5 million shares, including approximately 7.5 million shares at an average price of $429.65 through structured repurchase agreements, as well as 4.0 million shares at an average purchase price of $348.46 through an accelerated share repurchase agreement.

During the fourth quarter of fiscal 2023, we entered into a structured stock repurchase agreement with a large financial institution whereupon we provided them with a prepayment of $1 billion.

As of December 1, 2023, $354 million of prepayment remained under our outstanding structured stock repurchase agreement.

Subsequent to December 1, 2023, as part of the December 2020 stock repurchase authority, we entered into an accelerated share repurchase agreement with a large financial institution whereupon we provided them with a prepayment of $2 billion and received an initial delivery of 2.5 million shares, which represents approximately 75% of our prepayment.

Upon completion of the $2 billion accelerated share repurchase agreement, $150 million remains under our December 2020 authority.

See section titled “ Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ” in Part II, Item 5 of this report for stock repurchases during the quarter ended December 1, 2023 and Note 14 of our Notes to Consolidated Financial Statements for further details regarding our stock repurchase program.

In December 2020, our Board of Directors granted authority to repurchase up to $15 billion in our common stock, which became fully utilized during fiscal 2024.

In March 2024, our Board of Directors granted additional authority to repurchase up to $25 billion in our common stock through March 14, 2028.

During fiscal 2024, we entered into accelerated share repurchase agreements (“ASRs”) with large financial institutions whereupon we provided them with prepayments totaling $9.5 billion.

Subsequent to November 29, 2024, as part of the March 2024 stock repurchase authority, we entered into stock repurchase arrangements with a large financial institution which totaled $3.25 billion, including a $2.75 billion ASR and a trading plan under which we may execute up to $500 million in open market repurchases.

See section titled “ Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ” in Part II, Item 5 of this report for stock repurchases during the quarter ended November 29, 2024 and Note 14 of our Notes to Consolidated Financial Statements for further details regarding our stock repurchase program.

Indemnifications

In the ordinary course of business, we provide indemnifications of varying scope to 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.

In the ordinary course of business, we provide indemnifications of varying scope to our customers and channel partners against claims of intellectual property infringement made by third parties arising from the use of our products and from time to time, we are subject to claims by our customers under these indemnification provisions.

Historically, costs related to these indemnification provisions have not been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations.

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What changed 10-K

Item 7. Management’s Discussion and Analysis