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Classified in: Science and technology, Business, Covid-19 virus
Subjects: EARNINGS, Conference Call, Webcast

Adobe Reports Record Revenue in Q2 Fiscal 2022


Adobe (Nasdaq:ADBE) today reported financial results for its second quarter fiscal year 2022 ended June 3, 2022.

"Adobe achieved record Q2 revenue with strong demand across Creative Cloud, Document Cloud and Experience Cloud," said Shantanu Narayen, chairman and CEO, Adobe. "We are winning in our established businesses and seeing significant momentum in new categories from content authoring for a broad base of creators to PDF functionality on the web to the leading real-time customer data platform for global enterprises."

"We delivered another quarter of strong financial results, with greater than $2 billion in operating cash flows demonstrating the strength of Adobe's growing revenue streams and financial discipline," said Dan Durn, executive vice president and CFO, Adobe. "Our operating model continues to fuel consistent growth, enabling the company to invest in category-leading cloud solutions and emerging innovations that are gaining traction in the marketplace."

Second Quarter Fiscal Year 2022 Financial Highlights

Second Quarter Fiscal Year 2022 Business Segment Highlights

Financial Targets

Adobe is providing third quarter and updated full fiscal year 2022 targets that factor in the following:

The following table summarizes Adobe's third quarter fiscal year 2022 targets:

Total revenue

~$4.43 billion

Digital Media annualized recurring revenue (ARR)

~$430 million of net new ARR

Digital Media segment revenue (Y/Y growth)

~13%

~16% (constant currency)

Digital Experience segment revenue (Y/Y growth)

~12%

~14% (constant currency)

Digital Experience subscription revenue (Y/Y growth)

~13%

~15% (constant currency)

Tax rate

GAAP: ~22.5%

Non-GAAP: ~18.5%

Earnings per share3

GAAP: ~$2.35

Non-GAAP: ~$3.33

The following table summarizes Adobe's updated fiscal year 2022 targets:

Total revenue

~$17.65 billion

Digital Media annualized recurring revenue (ARR)

~$1.90 billion of net new ARR

Digital Media segment revenue (Y/Y growth)

~12%

~17% (adjusted4)

Digital Experience segment revenue (Y/Y growth)

~14%

~17% (adjusted4)

Digital Experience subscription revenue (Y/Y growth)

~15%

~19% (adjusted4)

Tax rate

GAAP: ~21%

Non-GAAP: ~18.5%

Earnings per share5

GAAP: ~$9.95

Non-GAAP: ~$13.50

Adobe to Webcast Earnings Conference Call

Adobe will webcast its second quarter fiscal year 2022 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, the effects of the COVID-19 pandemic on our business and results of operations, our market opportunity, market trends, current macroeconomic conditions, fluctuations in foreign currency exchange rates, 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, information security and privacy, potential interruptions or delays in hosted services provided by us or third parties, geopolitical and macroeconomic conditions, the Russia-Ukraine war, the economic impact of the COVID-19 pandemic, risks associated with cyber-attacks, complex sales cycles, risks related to the timing of revenue recognition from our subscription offerings, fluctuations in subscription renewal rates, failure to realize the anticipated benefits of past or future acquisitions, failure to effectively manage critical strategic third-party business relationships, changes in accounting principles and tax regulations, uncertainty in the financial markets and economic conditions in the countries where we operate, 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 2021 ended Dec. 3, 2021, and Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2022.

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 3, 2022, which Adobe expects to file in June 2022. 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.

1 In March 2022, the company disclosed an increase in effective tax rates resulting from lower-than-expected tax benefits associated with stock-based compensation.
2 In March 2022, the company disclosed an expected impact of $75 million to fiscal year 2022 Digital Media revenue from these events.
3 Targets assume share count of ~470 million for third quarter fiscal year 2022.
4 Adjusted to account for the extra week in first quarter fiscal year 2021 and to show growth rates in constant currency.
5 Targets assume share count of ~471 million for fiscal year 2022.

About Adobe

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

©2022 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

 

June 3, 2022

June 4, 2021

Revenue:

 

 

Subscription

$

4,070

 

$

3,520

 

Product

 

146

 

 

153

 

Services and other

 

170

 

 

162

 

Total revenue

 

4,386

 

 

3,835

 

 

 

 

Cost of revenue:

 

 

Subscription

 

410

 

 

328

 

Product

 

9

 

 

9

 

Services and other

 

120

 

 

107

 

Total cost of revenue

 

539

 

 

444

 

 

 

 

Gross profit

 

3,847

 

 

3,391

 

 

 

 

Operating expenses:

 

 

Research and development

 

738

 

 

612

 

Sales and marketing

 

1,247

 

 

1,073

 

General and administrative

 

291

 

 

256

 

Amortization of intangibles

 

42

 

 

44

 

Total operating expenses

 

2,318

 

 

1,985

 

 

 

 

Operating income

 

1,529

 

 

1,406

 

 

 

 

Non-operating income (expense):

 

 

Interest expense

 

(28

)

 

(28

)

Investment gains (losses), net

 

(8

)

 

8

 

Other income (expense), net

 

(1

)

 

?

 

Total non-operating income (expense), net

 

(37

)

 

(20

)

Income before income taxes

 

1,492

 

 

1,386

 

Provision for income taxes

 

314

 

 

270

 

Net income

$

1,178

 

$

1,116

 

Basic net income per share

$

2.50

 

$

2.34

 

Shares used to compute basic net income per share

 

472

 

 

478

 

Diluted net income per share

$

2.49

 

$

2.32

 

Shares used to compute diluted net income per share

 

473

 

 

481

 

Condensed Consolidated Balance Sheets

(In millions; unaudited)

June 3, 2022

December 3, 2021

ASSETS

Current assets:

Cash and cash equivalents

$

3,365

$

3,844

Short-term investments

 

1,934

 

1,954

Trade receivables, net of allowances for doubtful accounts of $19 and $16, respectively

 

1,588

 

1,878

Prepaid expenses and other current assets

 

1,021

 

993

Total current assets

 

7,908

 

8,669

 

 

 

Property and equipment, net

 

1,790

 

1,673

Operating lease right-of-use assets, net

 

430

 

443

Goodwill

 

12,801

 

12,668

Other intangibles, net

 

1,650

 

1,820

Deferred income taxes

 

882

 

1,085

Other assets

 

865

 

883

Total assets

$

26,326

$

27,241

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current liabilities:

Trade payables

$

366

$

312

Accrued expenses

 

1,615

 

1,736

Debt

 

499

 

?

Deferred revenue

 

4,753

 

4,733

Income taxes payable

 

62

 

54

Operating lease liabilities

 

90

 

97

Total current liabilities

 

7,385

 

6,932

 

 

 

Long-term liabilities:

 

 

Debt

 

3,627

 

4,123

Deferred revenue

 

123

 

145

Income taxes payable

 

503

 

534

Deferred income taxes

 

4

 

5

Operating lease liabilities

 

442

 

453

Other liabilities

 

257

 

252

Total liabilities

 

12,341

 

12,444

Stockholders' equity:

Preferred stock

 

?

 

 

?

 

Common stock

 

?

 

 

?

 

Additional paid-in-capital

 

9,102

 

 

8,428

 

Retained earnings

 

26,022

 

 

23,905

 

Accumulated other comprehensive income (loss)

 

(195

)

 

(137

)

Treasury stock, at cost

 

(20,944

)

 

(17,399

)

Total stockholders' equity

 

13,985

 

 

14,797

 

Total liabilities and stockholders' equity

$

26,326

 

$

27,241

 

Condensed Consolidated Statements of Cash Flows

(In millions; unaudited)

Three Months Ended

 

June 3, 2022

June 4, 2021

Cash flows from operating activities:

 

 

Net income

$

1,178

 

$

1,116

 

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

 

 

Depreciation, amortization and accretion

 

212

 

 

194

 

Stock-based compensation

 

352

 

 

260

 

Unrealized investment (gains) losses, net

 

10

 

 

(7

)

Other non-cash adjustments

 

88

 

 

110

 

Changes in deferred revenue

 

(143

)

 

(2

)

Changes in other operating assets and liabilities

 

343

 

 

317

 

Net cash provided by operating activities

 

2,040

 

 

1,988

 

Cash flows from investing activities:

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

10

 

(10

)

Purchases of property and equipment

(126

)

(95

)

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

(2

)

(2

)

Acquisitions, net of cash acquired

(20

)

?

 

Net cash used for investing activities

(138

)

(107

)

 
Cash flows from financing activities:
Repurchases of common stock

 

(1,200

)

 

(1,000

)

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

 

(101

)

 

(89

)

Other financing activities, net

 

51

 

 

9

 

Net cash used for financing activities

 

(1,250

)

 

(1,080

)

Effect of exchange rate changes on cash and cash equivalents

 

(26

)

 

(3

)

Net change in cash and cash equivalents

 

626

 

 

798

 

Cash and cash equivalents at beginning of period

 

2,739

 

 

3,452

 

Cash and cash equivalents at end of period

$

3,365

 

$

4,250

 

Non-GAAP Results

The following table shows Adobe's second quarter fiscal year 2022 GAAP revenue growth rates reconciled to adjusted revenue growth rates included in this release.

Second Quarter Fiscal 2022

Total
revenue

Digital Media
segment revenue

Creative Cloud
revenue

Document Cloud
revenue

Digital Experience
segment revenue

Digital Experience
subscription revenue

 

(Y/Y growth)

(Y/Y growth)

(Y/Y growth)

(Y/Y growth)

(Y/Y growth)

(Y/Y growth)

GAAP revenue growth rates

14

%

15

%

12

%

27

%

17

%

18

%

Constant currency impact

1

 

1

 

2

 

1

 

1

 

0

 

Adjusted revenue growth rates

15

%

16

%

14

%

28

%

18

%

18

%

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

Three Months Ended

June 3,
2022

June 4,
2021

March 4,
2022

Operating income:

GAAP operating income

$

 

1,529

 

$

 

1,406

 

$

 

1,580

 

Stock-based and deferred compensation expense

 

345

 

 

269

 

 

312

 

Amortization of intangibles

 

100

 

 

87

 

 

101

 

Non-GAAP operating income.

$

1,974

 

$

1,762

 

$

 

1,993

 

 

 

 

 

 

Net income:

 

 

 

 

 

 

 

GAAP net income

$

1,178

 

$

1,116

 

$

1,266

 

Stock-based and deferred compensation expense

 

345

 

 

269

 

 

312

 

Amortization of intangibles

 

100

 

 

87

 

 

101

 

Investment (gains) losses, net

 

8

 

 

(8

)

 

9

 

Income tax adjustments

 

(46

)

 

(8

)

 

(86

)

Non-GAAP net income

$

1,585

 

$

1,456

 

$

1,602

 

 

 

 

 

Diluted net income per share:

 

 

 

 

 

 

 

GAAP diluted net income per share

$

2.49

 

$

2.32

 

$

2.66

 

Stock-based and deferred compensation expense

 

0.73

 

 

0.56

 

 

0.66

 

Amortization of intangibles

 

0.21

 

 

0.18

 

 

0.21

 

Investment (gains) losses, net

 

0.02

 

 

(0.02

)

 

0.02

 

Income tax adjustments

 

(0.10

)

 

(0.01

)

 

(0.18

)

Non-GAAP diluted net income per share

$

3.35

 

$

3.03

 

$

3.37

 

 

 

 

 

Shares used to compute diluted net income per share

 

473

 

 

481

 

 

475

 

Non-GAAP Results (continued)

The following table shows Adobe's second quarter fiscal year 2022 GAAP tax rate reconciled to the non-GAAP tax rate included in this release.

Second Quarter
Fiscal 2022

Effective income tax rate:

 
GAAP effective income tax rate

21.0

%

Income tax adjustments

(1.0

)

Stock-based and deferred compensation expense

(1.1

)

Amortization of intangibles

(0.4

)

Non-GAAP effective income tax rate

18.5

%

Reconciliation of GAAP to Non-GAAP Financial Targets

The following tables show Adobe's third quarter fiscal year 2022 financial targets reconciled to non-GAAP financial targets included in this release.

Third Quarter Fiscal 2022

Digital Media
segment revenue

Digital Experience
segment revenue

Digital Experience
subscription revenue

(Y/Y growth)

(Y/Y growth)

(Y/Y growth)

GAAP target revenue growth rates

13

%

12

%

13

%

Constant currency impact

3

 

2

 

2

 

Constant currency target revenue growth rates

16

%

14

%

15

%

(Shares in millions)

Third Quarter
Fiscal 2022

Diluted net income per share:

GAAP diluted net income per share

$

2.35

 

Stock-based and deferred compensation expense 0.84
Amortization of intangibles 0.21
Income tax adjustments (0.7

)

Non-GAAP diluted net income per share

$

3.33
 
Shares used to compute diluted net income per share 470

Third Quarter
Fiscal 2022

Effective income tax rate:

GAAP effective income tax rate

22.5

%

Stock-based and deferred compensation expense

(1.4

)

Amortization of intangibles

(0.1

)

Income tax adjustments

(2.5

)

Non-GAAP effective income tax rate

18.5

%

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

The following tables show Adobe's updated fiscal year 2022 financial targets reconciled to non-GAAP financial targets included in this release.

Fiscal Year 2022

Digital Media
segment revenue

Digital Experience
segment revenue

Digital Experience
subscription revenue

 

(Y/Y growth)

(Y/Y growth)

(Y/Y growth)

GAAP target revenue growth rates

12

%

14

%

 

15

%

Impact of extra week in fiscal year 2021

2

 

2

 

 

2

 

Constant currency impact

3

 

1

 

 

2

 

Adjusted target revenue growth rates

17

%

17

%

 

19

%

 

(Shares in millions)

Fiscal Year 2022

Diluted net income per share:

 

GAAP diluted net income per share

$

9.95

 

Stock-based and deferred compensation expense

 

3.13

 

Amortization of intangibles

 

0.85

 

Income tax adjustments

 

(0.43

)

Non-GAAP diluted net income per share

$

13.50

 

 

 

Shares used to compute diluted net income per share

 

471

 

 

Fiscal Year 2022

Effective income tax rate:

 

GAAP effective income tax rate

 

21.0

%

Stock-based and deferred compensation expense

 

(1.4

)

Amortization of intangibles

 

(0.1

)

Income tax adjustments

 

(1.0

)

Non-GAAP effective income tax rate

 

18.5

%

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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