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Adobe Reports Record Revenue in Q2 Fiscal 2023

Company raises annual targets for revenue, EPS and Digital Media net new ARR

Adobe (Nasdaq:ADBE) today reported financial results for its second quarter fiscal year 2023 ended June 2, 2023.

“Adobe achieved record Q2 revenue demonstrating strong demand across Creative Cloud, Document Cloud and Experience Cloud,” said Shantanu Narayen, chair and CEO, Adobe. “Adobe’s ground-breaking innovation positions us to lead the new era of generative AI given our rich datasets, foundation models and ubiquitous product interfaces.”

“Adobe delivered outstanding net new ARR and profitability in Q2, positioning us to raise our annual targets,” said Dan Durn, executive vice president and CFO, Adobe. “Our unique ability to deliver top- and bottom-line growth while investing in groundbreaking innovation sets us up to capitalize on our massive $200+ billion market opportunity.”

Second Quarter Fiscal Year 2023 Financial Highlights

  • Adobe achieved revenue of $4.82 billion in its second quarter of fiscal year 2023, which represents 10 percent year-over-year growth or 13 percent in constant currency. Diluted earnings per share was $2.82 on a GAAP basis and $3.91 on a non-GAAP basis.
  • GAAP operating income in the second quarter was $1.62 billion and non-GAAP operating income was $2.18 billion. GAAP net income was $1.30 billion and non-GAAP net income was $1.79 billion.
  • Cash flows from operations were $2.14 billion.
  • Remaining Performance Obligations (“RPO”) exiting the quarter were $15.22 billion.
  • Adobe repurchased approximately 2.7 million shares during the quarter.

Second Quarter Fiscal Year 2023 Business Segment Highlights

  • Digital Media segment revenue was $3.51 billion, which represents 10 percent year-over-year growth or 14 percent in constant currency. Creative revenue grew to $2.85 billion, representing 9 percent year-over-year growth or 14 percent in constant currency. Document Cloud revenue was $659 million, representing 11 percent year-over-year growth or 14 percent in constant currency.
  • Net new Digital Media Annualized Recurring Revenue (“ARR”) was $470 million, exiting the quarter with Digital Media ARR of $14.14 billion. Creative ARR grew to $11.64 billion and Document Cloud ARR grew to $2.50 billion.
  • Digital Experience segment revenue was $1.22 billion, representing 12 percent year-over-year growth or 14 percent in constant currency. Digital Experience subscription revenue was $1.07 billion, representing 11 percent year-over-year growth or 14 percent in constant currency.

Financial Targets

Adobe is providing third quarter targets and updated fiscal year 2023 targets. These targets factor in current expectations for the macroeconomic environment and summer seasonality.

The following table summarizes Adobe’s third quarter fiscal year 2023 targets:

Total revenue

$4.83 billion to $4.87 billion

Digital Media net new ARR

~$410 million

Digital Media segment revenue

$3.55 billion to $3.57 billion

Digital Experience segment revenue

$1.21 billion to $1.23 billion

Digital Experience subscription revenue

$1.08 billion to $1.10 billion

Tax rate

GAAP: ~21.5%

Non-GAAP: ~18.5%

Earnings per share1

GAAP: $2.82 to $2.88

Non-GAAP: $3.95 to $4.00

The following table summarizes Adobe’s updated fiscal year 2023 targets:

Total revenue

$19.25 billion to $19.35 billion

Digital Media net new ARR

~$1.75 billion

Digital Media segment revenue

$14.10 billion to $14.15 billion

Digital Experience segment revenue

$4.85 billion to $4.90 billion

Digital Experience subscription revenue

$4.30 billion to $4.35 billion

Tax rate

GAAP: ~21.5%

Non-GAAP: ~18.5%

Earnings per share1

GAAP: $11.15 to $11.25

Non-GAAP: $15.65 to $15.75

 

1 Targets assume share count of ~458 million for third quarter and fiscal year 2023.

Adobe to Host Conference Call

Adobe will webcast its second quarter fiscal year 2023 earnings conference call today at 2:00 p.m. Pacific Time from its investor relations website: www.adobe.com/ADBE. Earnings documents, including Adobe management’s prepared conference call remarks with slides and an investor datasheet are posted to Adobe’s investor relations website in advance of the conference call for reference.

Forward-Looking Statements, Non-GAAP and Other Disclosures

This press release contains forward-looking statements, including those related to business momentum, our market opportunity, market trends, current macroeconomic conditions, fluctuations in foreign currency exchange rates, strategic investments, customer success, revenue, operating margin, seasonality, annualized recurring revenue, tax rate on a GAAP and non-GAAP basis, earnings per share on a GAAP and non-GAAP basis, and share count, all of which involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to: failure to compete effectively; failure to develop, acquire, market and offer products and services that meet customer requirements; introduction of new technology; failure to realize the anticipated benefits of past or future acquisitions; information security and privacy; potential interruptions or delays in hosted services provided by us or third parties; risks associated with cyber-attacks; complex sales cycles; failure to effectively manage critical strategic third-party business relationships; changes in accounting principles and tax regulations; fluctuations in subscription renewal rates; risks related to the timing of revenue recognition from our subscription offerings; uncertainty in the financial markets and economic conditions in the countries where we operate; geopolitical and macroeconomic conditions, including the Russia-Ukraine war; and other various risks associated with being a multinational corporation. For a discussion of these and other risks and uncertainties, please refer to Adobe’s Annual Report on Form 10-K for our fiscal year 2022 ended Dec. 2, 2022, and Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2023.

The financial information set forth in this press release reflects estimates based on information available at this time. These amounts could differ from actual reported amounts stated in Adobe’s Quarterly Report on Form 10-Q for our fiscal quarter ended June 2, 2023, which Adobe expects to file in late June 2023. Adobe assumes no obligation to, and does not currently intend to, update these forward-looking statements.

A reconciliation between GAAP and non-GAAP earnings results and financial targets is provided at the end of this press release and on Adobe’s investor relations website.

About Adobe

Adobe is changing the world through digital experiences. For more information, visit www.adobe.com.

©2023 Adobe. All rights reserved. Adobe, Creative Cloud, Document Cloud and the Adobe logo are either registered trademarks or trademarks of Adobe (or one of its subsidiaries) in the United States and/or other countries. All other trademarks are the property of their respective owners.

Condensed Consolidated Statements of Income

(In millions, except per share data; unaudited)

 

 

Three Months Ended

 

Six Months Ended

 

June 2, 2023

 

June 3, 2022

 

June 2, 2023

 

June 3, 2022

Revenue:

 

 

 

 

 

 

 

Subscription

$

4,517

 

 

$

4,070

 

 

$

8,890

 

 

$

8,028

 

Product

 

130

 

 

 

146

 

 

 

250

 

 

 

291

 

Services and other

 

169

 

 

 

170

 

 

 

331

 

 

 

329

 

Total revenue

 

4,816

 

 

 

4,386

 

 

 

9,471

 

 

 

8,648

 

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

Subscription

 

436

 

 

 

410

 

 

 

870

 

 

 

803

 

Product

 

8

 

 

 

9

 

 

 

16

 

 

 

19

 

Services and other

 

128

 

 

 

120

 

 

 

254

 

 

 

229

 

Total cost of revenue

 

572

 

 

 

539

 

 

 

1,140

 

 

 

1,051

 

 

 

 

 

 

 

 

 

Gross profit

 

4,244

 

 

 

3,847

 

 

 

8,331

 

 

 

7,597

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

876

 

 

 

738

 

 

 

1,703

 

 

 

1,439

 

Sales and marketing

 

1,345

 

 

 

1,247

 

 

 

2,646

 

 

 

2,405

 

General and administrative

 

357

 

 

 

291

 

 

 

688

 

 

 

560

 

Amortization of intangibles

 

42

 

 

 

42

 

 

 

84

 

 

 

84

 

Total operating expenses

 

2,620

 

 

 

2,318

 

 

 

5,121

 

 

 

4,488

 

 

 

 

 

 

 

 

 

Operating income

 

1,624

 

 

 

1,529

 

 

 

3,210

 

 

 

3,109

 

 

 

 

 

 

 

 

 

Non-operating income (expense):

 

 

 

 

 

 

 

Interest expense

 

(26

)

 

 

(28

)

 

 

(58

)

 

 

(56

)

Investment gains (losses), net

 

5

 

 

 

(8

)

 

 

6

 

 

 

(17

)

Other income (expense), net

 

47

 

 

 

(1

)

 

 

90

 

 

 

(1

)

Total non-operating income (expense), net

 

26

 

 

 

(37

)

 

 

38

 

 

 

(74

)

Income before income taxes

 

1,650

 

 

 

1,492

 

 

 

3,248

 

 

 

3,035

 

Provision for income taxes

 

355

 

 

 

314

 

 

 

706

 

 

 

591

 

Net income

$

1,295

 

 

$

1,178

 

 

$

2,542

 

 

$

2,444

 

Basic net income per share

$

2.83

 

 

$

2.50

 

 

$

5.55

 

 

$

5.17

 

Shares used to compute basic net income per share

 

458

 

 

 

472

 

 

 

458

 

 

 

472

 

Diluted net income per share

$

2.82

 

 

$

2.49

 

 

$

5.54

 

 

$

5.15

 

Shares used to compute diluted net income per share

 

459

 

 

 

473

 

 

 

459

 

 

 

474

 

 

Condensed Consolidated Balance Sheets

(In millions; unaudited)

 

 

June 2, 2023

 

December 2, 2022

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

5,456

 

 

$

4,236

 

Short-term investments

 

1,145

 

 

 

1,860

 

Trade receivables, net of allowances for doubtful accounts of $17 and $23, respectively

 

1,685

 

 

 

2,065

 

Prepaid expenses and other current assets

 

988

 

 

 

835

 

Total current assets

 

9,274

 

 

 

8,996

 

 

 

 

 

Property and equipment, net

 

2,032

 

 

 

1,908

 

Operating lease right-of-use assets, net

 

389

 

 

 

407

 

Goodwill

 

12,796

 

 

 

12,787

 

Other intangibles, net

 

1,258

 

 

 

1,449

 

Deferred income taxes

 

964

 

 

 

777

 

Other assets

 

1,125

 

 

 

841

 

Total assets

$

27,838

 

 

$

27,165

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

Trade payables

$

346

 

 

$

379

 

Accrued expenses

 

1,786

 

 

 

1,790

 

Debt

 

 

 

 

500

 

Deferred revenue

 

5,265

 

 

 

5,297

 

Income taxes payable

 

548

 

 

 

75

 

Operating lease liabilities

 

74

 

 

 

87

 

Total current liabilities

 

8,019

 

 

 

8,128

 

 

 

 

 

Long-term liabilities:

 

 

 

Debt

 

3,631

 

 

 

3,629

 

Deferred revenue

 

116

 

 

 

117

 

Income taxes payable

 

479

 

 

 

530

 

Operating lease liabilities

 

408

 

 

 

417

 

Other liabilities

 

347

 

 

 

293

 

Total liabilities

 

13,000

 

 

 

13,114

 

 

 

 

 

Stockholders’ equity:

 

 

 

Preferred stock

 

 

 

 

 

Common stock

 

 

 

 

 

Additional paid-in-capital

 

10,717

 

 

 

9,868

 

Retained earnings

 

30,609

 

 

 

28,319

 

Accumulated other comprehensive income (loss)

 

(297

)

 

 

(293

)

Treasury stock, at cost

 

(26,191

)

 

 

(23,843

)

Total stockholders’ equity

 

14,838

 

 

 

14,051

 

Total liabilities and stockholders’ equity

$

27,838

 

 

$

27,165

 

 

Condensed Consolidated Statements of Cash Flows

(In millions; unaudited)

 

 

Three Months Ended

 

June 2, 2023

 

June 3, 2022

Cash flows from operating activities:

 

 

 

Net income

$

1,295

 

 

$

1,178

 

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

 

 

 

Depreciation, amortization and accretion

 

220

 

 

 

212

 

Stock-based compensation

 

433

 

 

 

352

 

Unrealized investment (gains) losses, net

 

(5

)

 

 

10

 

Other non-cash adjustments

 

(102

)

 

 

88

 

Changes in deferred revenue

 

(96

)

 

 

(143

)

Changes in other operating assets and liabilities

 

394

 

 

 

343

 

Net cash provided by operating activities

 

2,139

 

 

 

2,040

 

 

 

 

 

Cash flows from investing activities:

 

 

 

Purchases, sales and maturities of short-term investments, net

 

446

 

 

 

10

 

Purchases of property and equipment

 

(121

)

 

 

(126

)

Purchases and sales of long-term investments, intangibles and other assets, net

 

(3

)

 

 

(2

)

Acquisitions, net of cash acquired

 

 

 

 

(20

)

Net cash provided by (used for) investing activities

 

322

 

 

 

(138

)

 

 

 

 

Cash flows from financing activities:

 

 

 

Repurchases of common stock

 

(1,000

)

 

 

(1,200

)

Taxes paid related to net share settlement of equity awards, net of proceeds from treasury stock re-issuances

 

(102

)

 

 

(101

)

Other financing activities, net

 

22

 

 

 

51

 

Net cash used for financing activities

 

(1,080

)

 

 

(1,250

)

Effect of exchange rate changes on cash and cash equivalents

 

3

 

 

 

(26

)

Net change in cash and cash equivalents

 

1,384

 

 

 

626

 

Cash and cash equivalents at beginning of period

 

4,072

 

 

 

2,739

 

Cash and cash equivalents at end of period

$

5,456

 

 

$

3,365

 

 

Non-GAAP Results

The following table shows Adobe’s GAAP results reconciled to non-GAAP results included in this release.

(In millions, except per share data)

Three Months Ended

 

June 2,

2023

 

June 3,

2022

 

March 3,

2023

Operating income:

 

 

 

 

 

 

 

 

 

 

 

GAAP operating income

$

1,624

��

 

$

1,529

 

 

$

1,586

 

Stock-based and deferred compensation expense

 

439

 

 

 

345

 

 

 

417

 

Amortization of intangibles

 

95

 

 

 

100

 

 

 

95

 

Acquisition-related expenses (*)

 

22

 

 

 

 

 

 

33

 

Non-GAAP operating income

$

2,180

 

 

$

1,974

 

 

$

2,131

 

 

 

 

 

 

 

Net income:

 

 

 

 

 

 

 

 

 

 

 

GAAP net income

$

1,295

 

 

$

1,178

 

 

$

1,247

 

Stock-based and deferred compensation expense

 

439

 

 

 

345

 

 

 

417

 

Amortization of intangibles

 

95

 

 

 

100

 

 

 

95

 

Acquisition-related expenses (*)

 

22

 

 

 

 

 

 

33

 

Investment (gains) losses, net

 

(5

)

 

 

8

 

 

 

(1

)

Income tax adjustments

 

(52

)

 

 

(46

)

 

 

(45

)

Non-GAAP net income

$

1,794

 

 

$

1,585

 

 

$

1,746

 

 

 

 

 

 

 

Diluted net income per share:

 

 

 

 

 

 

 

 

 

 

 

GAAP diluted net income per share

$

2.82

 

 

$

2.49

 

 

$

2.71

 

Stock-based and deferred compensation expense

 

0.96

 

 

 

0.73

 

 

 

0.91

 

Amortization of intangibles

 

0.21

 

 

 

0.21

 

 

 

0.21

 

Acquisition-related expenses (*)

 

0.05

 

 

 

 

 

 

0.07

 

Investment (gains) losses, net

 

(0.01

)

 

 

0.02

 

 

 

 

Income tax adjustments

 

(0.12

)

 

 

(0.10

)

 

 

(0.10

)

Non-GAAP diluted net income per share

$

3.91

 

 

$

3.35

 

 

$

3.80

 

 

 

 

 

 

 

Shares used in computing diluted net income per share.

 

459

 

 

 

473

 

 

 

460

 

The following table shows Adobe’s second quarter fiscal year 2023 GAAP tax rate reconciled to the non-GAAP tax rate included in this release.

 

Second Quarter

Fiscal 2023

Effective income tax rate:

 

 

 

GAAP effective income tax rate

 

21.5

%

Stock-based and deferred compensation expense

 

(2.4)

 

Amortization of intangibles

 

(0.5)

 

Acquisition-related expenses (*)

 

(0.1)

 

Non-GAAP effective income tax rate (**)

 

18.5

%

(*) Includes deal costs and certain professional fees associated with the planned acquisition of Figma

(**) Represents Adobe’s fixed long-term non-GAAP tax rate based on three-year projections and currently available information

Reconciliation of GAAP to Non-GAAP Financial Targets

The following tables show Adobe's third quarter fiscal year 2023 financial targets reconciled to non-GAAP financial targets included in this release.

(Shares in millions)

Third Quarter Fiscal 2023

 

Low

 

High

Diluted net income per share:

 

 

 

 

 

 

 

GAAP diluted net income per share

$

2.82

 

 

$

2.88

 

Stock-based and deferred compensation expense

 

1.00

 

 

 

0.99

 

Amortization of intangibles

 

0.20

 

 

 

0.20

 

Acquisition-related expenses (*)

 

0.05

 

 

 

0.05

 

Income tax adjustments

 

(0.12)

 

 

 

(0.12)

 

Non-GAAP diluted net income per share

$

3.95

 

 

$

4.00

 

 

 

 

 

Shares used to compute diluted net income per share

458

 

 

458

 

 

Third Quarter

Fiscal 2023

Effective income tax rate:

 

 

 

GAAP effective income tax rate

 

21.5

%

Stock-based and deferred compensation expense

 

(2.4)

 

Amortization of intangibles

 

(0.5)

 

Acquisition-related expenses (*)

 

(0.1)

 

Non-GAAP effective income tax rate (**)

 

18.5

%

(*) Includes deal costs and certain professional fees associated with the planned acquisition of Figma

(**) Represents Adobe’s fixed long-term projected non-GAAP tax rate based on three-year projections and currently available information

Reconciliation of GAAP to Non-GAAP Financial Targets (continued)

The following tables show Adobe's updated annual fiscal year 2023 financial targets reconciled to non-GAAP financial targets included in this release.

(Shares in millions)

Fiscal Year 2023

 

Low

 

High

Diluted net income per share:

 

 

 

 

 

 

 

GAAP diluted net income per share

$

11.15

 

 

$

11.25

 

Stock-based and deferred compensation expense

 

3.84

 

 

 

3.83

 

Amortization of intangibles

 

0.81

 

 

 

0.81

 

Acquisition-related expenses (*)

 

0.33

 

 

 

0.33

 

Income tax adjustments

 

(0.48)

 

 

 

(0.47)

 

Non-GAAP diluted net income per share

$

15.65

 

 

$

15.75

 

 

 

 

 

Shares used to compute diluted net income per share

458

 

 

458

 

 

Fiscal Year 2023

Effective income tax rate:

 

 

 

GAAP effective income tax rate

 

21.5

%

Stock-based and deferred compensation expense

 

(2.3)

 

Amortization of intangibles

 

(0.5)

 

Acquisition-related expenses (*)

 

(0.2)

 

Non-GAAP effective income tax rate (**)

 

18.5

%

(*) Includes deal costs and certain professional fees associated with the planned acquisition of Figma

(**) Represents Adobe’s fixed long-term projected non-GAAP tax rate based on three-year projections and currently available information

Use of Non-GAAP Financial Information

Adobe continues to provide all information required in accordance with GAAP, but believes evaluating its ongoing operating results may not be as useful if an investor is limited to reviewing only GAAP financial measures. Adobe uses non-GAAP financial information to evaluate its ongoing operations and for internal planning and forecasting purposes. Adobe's management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Adobe presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate Adobe's operating results. Adobe believes these non-GAAP financial measures are useful because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making. This allows institutional investors, the analyst community and others to better understand and evaluate our operating results and future prospects in the same manner as management.

Adobe's management believes it is useful for itself and investors to review, as applicable, both GAAP information as well as non-GAAP measures, which may exclude items such as stock-based and deferred compensation expenses, amortization of intangibles, investment gains and losses, the related tax impact of all of these items, income tax adjustments, and the income tax effect of the non-GAAP pre-tax adjustments from the provision for income taxes. Adobe uses these non-GAAP measures in order to assess the performance of Adobe's business and for planning and forecasting in subsequent periods. Whenever such a non-GAAP measure is used, Adobe provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed above.

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