Cash Flows from Operations Exceed $2 Billion in the
Quarter
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
- Adobe achieved record revenue of $4.39 billion in its second
quarter of fiscal year 2022, which represents 14 percent
year-over-year growth or 15 percent in constant currency. Diluted
earnings per share was $2.49 on a GAAP basis and $3.35 on a
non-GAAP basis.
- GAAP operating income in the second quarter was $1.53 billion,
and non-GAAP operating income was $1.97 billion. GAAP net income
was $1.18 billion, and non-GAAP net income was $1.59 billion.
- Cash flows from operations were $2.04 billion.
- Remaining Performance Obligations (“RPO”) exiting the quarter
were $13.82 billion.
- Adobe repurchased approximately 1.9 million shares during the
quarter.
Second Quarter Fiscal Year 2022 Business Segment
Highlights
- Digital Media segment revenue was $3.20 billion, which
represents 15 percent year-over-year growth or 16 percent in
constant currency. Creative revenue grew to $2.61 billion,
representing 12 percent year-over-year growth or 14 percent in
constant currency. Document Cloud revenue was $595 million,
representing 27 percent year-over-year growth or 28 percent in
constant currency.
- Net New Digital Media Annualized Recurring Revenue (“ARR”) was
$464 million, exiting the quarter with Digital Media ARR of $12.95
billion. Creative ARR grew to $10.82 billion and Document Cloud ARR
grew to $2.13 billion.
- Digital Experience segment revenue was $1.10 billion,
representing 17 percent year-over-year growth or 18 percent in
constant currency. Digital Experience subscription revenue was $961
million, representing 18 percent year-over-year growth.
Financial Targets
Adobe is providing third quarter and updated full fiscal year
2022 targets that factor in the following:
- The increase in effective tax rates resulting from
lower-than-expected tax benefits associated with stock-based
compensation1.
- The impact of the ongoing war in Ukraine, and Adobe’s decision
to cease all new sales in Russia and Belarus2.
- An incremental FX headwind of $175 million across Q3 and Q4
fiscal year 2022 revenue.
- Summer seasonality in Q3 followed by a sequentially strong
Q4.
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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220616005380/en/
Investor Relations Contact Jonathan Vaas Adobe
ir@adobe.com
Public Relations Contact Ashley Levine Adobe
aslevine@adobe.com
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