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Revenue (Notes) | 6 Months Ended
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May 31, 2019
Revenue [Abstract] |
Revenue | REVENUE Revenue for the three and six months ended May 31, 2019 presented below is in accordance with a new revenue standard that was adopted under the modified retrospective method. Prior period revenue has not been restated. Our segment results for the three months ended May 31, 2019 and June 1, 2018 were as follows (dollars in thousands):
| Digital Media |  | Digital Experience |  | Publishing |  | Total
Three months ended May 31, 2019 |  |  |  |  |  |  |
Revenue | $ | 1,890,151 |  |  | $ | 783,542 |  |  | $ | 70,587 |  |  | $ | 2,744,280 |
Cost of revenue | 70,734 |  |  | 331,675 |  |  | 5,079 |  |  | 407,488 |
Gross profit | $ | 1,819,417 |  |  | $ | 451,867 |  |  | $ | 65,508 |  |  | $ | 2,336,792 |
Gross profit as a percentage of revenue | 96 | % |  | 58 | % |  | 93 | % |  | 85 | %
Three months ended June 1, 2018 |  |  |  |  |  |  |
Revenue | $ | 1,546,424 |  |  | $ | 585,952 |  |  | $ | 62,984 |  |  | $ | 2,195,360 |
Cost of revenue | 54,760 |  |  | 220,696 |  |  | 5,888 |  |  | 281,344 |
Gross profit | $ | 1,491,664 |  |  | $ | 365,256 |  |  | $ | 57,096 |  |  | $ | 1,914,016 |
Gross profit as a percentage of revenue | 96 | % |  | 62 | % |  | 91 | % |  | 87 | %
Our segment results for the six months ended May 31, 2019 and June 1, 2018 were as follows (dollars in thousands):
| Digital Media |  | Digital Experience |  | Publishing |  | Total
Six months ended May 31, 2019 |  |  |  |  |  |  |
Revenue | $ | 3,666,794 |  |  | $ | 1,526,818 |  |  | $ | 151,614 |  |  | $ | 5,345,226 |
Cost of revenue | 138,929 |  |  | 655,383 |  |  | 10,462 |  |  | 804,774 |
Gross profit | $ | 3,527,865 |  |  | $ | 871,435 |  |  | $ | 141,152 |  |  | $ | 4,540,452 |
Gross profit as a percentage of revenue | 96 | % |  | 57 | % |  | 93 | % |  | 85 | %
Six months ended June 1, 2018 |  |  |  |  |  |  |
Revenue | $ | 3,006,985 |  |  | $ | 1,140,059 |  |  | $ | 127,263 |  |  | $ | 4,274,307 |
Cost of revenue | 110,229 |  |  | 419,488 |  |  | 10,529 |  |  | 540,246 |
Gross profit | $ | 2,896,756 |  |  | $ | 720,571 |  |  | $ | 116,734 |  |  | $ | 3,734,061 |
Gross profit as a percentage of revenue | 96 | % |  | 63 | % |  | 92 | % |  | 87 | %
Revenue by geographic area for the three and six months ended May 31, 2019 and June 1, 2018 were as follows (in thousands):
| Three Months |  | Six Months
| 2019 |  | 2018 |  | 2019 |  | 2018
Americas | $ | 1,599,176 |  |  | $ | 1,239,553 |  |  | $ | 3,109,071 |  |  | $ | 2,410,234 |
EMEA | 729,342 |  |  | 621,796 |  |  | 1,432,303 |  |  | 1,209,064 |
APAC | 415,762 |  |  | 334,011 |  |  | 803,852 |  |  | 655,009 |
Total | $ | 2,744,280 |  |  | $ | 2,195,360 |  |  | $ | 5,345,226 |  |  | $ | 4,274,307 |
Revenue by major offerings in our Digital Media reportable segment for the three and six months ended May 31, 2019 and June 1, 2018 were as follows (in thousands):
| Three Months |  | Six Months
| 2019 |  | 2018 |  | 2019 |  | 2018
Creative Cloud | $ | 1,594,019 |  |  | $ | 1,303,463 |  |  | $ | 3,088,907 |  |  | $ | 2,532,958 |
Document Cloud | 296,132 |  |  | 242,961 |  |  | 577,887 |  |  | 474,027 |
Total | $ | 1,890,151 |  |  | $ | 1,546,424 |  |  | $ | 3,666,794 |  |  | $ | 3,006,985 |
Subscription revenue by segment for the three and six months ended May 31, 2019 and June 1, 2018 were as follows (in thousands):
| Three Months |  | Six Months
| 2019 |  | 2018 |  | 2019 |  | 2018
Digital Media | $ | 1,773,669 |  |  | $ | 1,425,919 |  |  | $ | 3,437,308 |  |  | $ | 2,760,578 |
Digital Experience | 654,048 |  |  | 469,406 |  |  | 1,265,976 |  |  | 900,273 |
Publishing | 28,380 |  |  | 27,806 |  |  | 57,780 |  |  | 55,638 |
Total | $ | 2,456,097 |  |  | $ | 1,923,131 |  |  | $ | 4,761,064 |  |  | $ | 3,716,489 |
Contract Balances Trade Receivables 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. Timing of revenue recognition may differ from the timing of invoicing to customers. Certain performance obligations may require payment before delivery of the license or service to the customer. 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. The opening balance of trade receivables, net of allowances for doubtful accounts, as of December 1, 2018 was $1.36 billion, inclusive of unbilled receivables of $105.8 million. As of May 31, 2019, the balance of trade receivables, net of allowances for doubtful accounts, was $1.27 billion, inclusive of unbilled receivables of $118.6 million. Allowance for Doubtful Accounts We maintain an allowance for doubtful accounts which reflects our best estimate of potentially uncollectible trade receivables. The allowance is based on both specific and general reserves. We regularly review our trade receivables allowance by considering such factors as historical experience, credit-worthiness, the age of the trade receivable balances and current economic conditions that may affect a customer’s ability to pay and we specifically reserve for those deemed uncollectible. The opening balance of allowance for doubtful accounts as of December 1, 2018 was $15.0 million. As of May 31, 2019, the balance of allowance for doubtful accounts was $12.4 million. Contract Assets A contract asset is recognized when a conditional right to consideration exists and transfer of control has occurred. Contract assets are typically related to subscription and hosted service contracts where the transaction price allocated to the satisfied performance obligations exceeds the value of billings to date. 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. The opening balance of contract assets as of December 1, 2018 was $46.4 million. As of May 31, 2019, the balance of contract assets was $41.5 million. Deferred Revenue and Remaining Performance Obligations 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 deposits. Deferred revenue is recognized as revenue when transfer of control to customers has occurred. Customers are typically invoiced for these agreements in regular installments and revenue is recognized ratably over the contractual subscription period. The deferred revenue balance is influenced by several factors, including seasonality, the compounding effects of renewals, invoice duration, invoice timing, size and new business linearity within the quarter. Deferred revenue does not represent the total contract value of annual or multi-year non-cancellable subscription agreements. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, such as invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period, and not to receive financing from our customers. Any potential financing fees are considered insignificant in the context of our contracts. The adjusted opening balance of deferred revenue as of December 1, 2018 was $3.00 billion. As of May 31, 2019, the balance of deferred revenue was $3.13 billion, inclusive of $222.2 million of non-cancellable and non-refundable committed funds and $47.0 million of refundable customer deposits. Arrangements with non-cancellable and non-refundable committed funds provide our customers options to either renew monthly on-premise term-based licenses or use some or all funds to purchase other Adobe products or services. Refundable customer deposits represent arrangements in which the customer has a unilateral cancellation right for which we are obligated to refund amounts paid related to products or services not yet delivered or provided at the time of cancellation on a prorated basis. Significant movements in the deferred revenue balance during the period consisted of increases due to payments received prior to transfer of control of the underlying performance obligations to the customer and deferred revenue assumed through business combinations, which were offset by decreases due to revenue recognized in the period. During the three and six months ended May 31, 2019, approximately $0.8 billion and $2.2 billion of revenue, respectively, was recognized that was included in the adjusted opening balance of deferred revenue as of December 1, 2018. 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. Transaction price allocated to the remaining performance obligation is influenced by several factors, including the timing of renewals and average contract terms. We applied practical expedients to exclude amounts related to performance obligations that are billed and recognized as they are delivered, optional purchases that do not represent material rights, sales- and usage-based royalties not yet consumed and any estimated amounts of variable consideration that are subject to constraint in accordance with the new revenue standard. Remaining performance obligations were approximately $8.37 billion as of May 31, 2019, which includes $574.5 million of non-cancellable and non-refundable committed funds related to some of our enterprise customer agreements. Approximately 74% 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. Contract Acquisition Costs We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be capitalized. The costs capitalized under the new revenue standard are primarily sales commissions paid to our sales force personnel. Capitalized costs may also include portions of fringe benefits and payroll taxes associated with compensation for incremental costs to acquire customer contracts and incentive payments to partners. Capitalized costs to obtain a contract are amortized over the expected period of benefit, which we have determined, based on analysis, to be 5 years. Amortization of capitalized costs are included in our sales and marketing expense in our condensed consolidated statements of income. The opening balance of capitalized contract acquisition costs as of December 1, 2018 was $413.2 million. As of May 31, 2019, the balance of capitalized contract acquisition costs was $455.1 million, of which $302.5 million was long-term and included in other assets in the condensed consolidated balance sheets. The remaining balance of the capitalized costs to obtain contracts were current and included in prepaid expenses and other current assets. Refund Liabilities As part of our revenue reserves, 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. The opening balance of refund liabilities as of December 1, 2018 was $75.3 million. As of May 31, 2019, the balance of refund liabilities was $85.2 million.

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI http://asc.fasb.org/topic&trid=49130388 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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