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Adobe Reports Record Revenue in Q1 Fiscal 2023

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Company raises Digital Media net new ARR and EPS annual targets

SAN JOSE, Calif.–(BUSINESS WIRE)–Adobe (Nasdaq:ADBE) today reported financial results for its first quarter fiscal year 2023 ended March 3, 2023.

Adobe drove record Q1 revenue and we are raising our annual targets based on the tremendous market opportunity and continued confidence in our execution,” said Shantanu Narayen, chairman and CEO, Adobe. “Creative Cloud, Document Cloud and Experience Cloud are mission-critical in fueling the global digital economy.”

Our strong engine of innovation combined with world-class operational rigor drove profitable growth in Q1, setting us up to deliver another strong fiscal year,” said Dan Durn, executive vice president and CFO, Adobe. “Adobe is better positioned today than we’ve ever been to serve our customers globally.”

First Quarter Fiscal Year 2023 Financial Highlights

  • Adobe achieved revenue of $4.66 billion in its first quarter of fiscal year 2023, which represents 9 percent year-over-year growth or 13 percent in constant currency. Diluted earnings per share was $2.71 on a GAAP basis and $3.80 on a non-GAAP basis.
  • GAAP operating income in the first quarter was $1.59 billion and non-GAAP operating income was $2.13 billion. GAAP net income was $1.25 billion and non-GAAP net income was $1.75 billion.
  • Cash flows from operations were $1.69 billion.
  • Remaining Performance Obligations (“RPO”) exiting the quarter were $15.21 billion.
  • Adobe repurchased approximately 5.0 million shares during the quarter.

First Quarter Fiscal Year 2023 Business Segment Highlights

  • Digital Media segment revenue was $3.40 billion, which represents 9 percent year-over-year growth or 14 percent in constant currency. Creative revenue grew to $2.76 billion, representing 8 percent year-over-year growth or 13 percent in constant currency. Document Cloud revenue was $634 million, representing 13 percent year-over-year growth or 16 percent in constant currency.
  • Net new Digital Media Annualized Recurring Revenue (“ARR”) was $410 million, exiting the quarter with Digital Media ARR of $13.67 billion. Creative ARR grew to $11.28 billion and Document Cloud ARR grew to $2.39 billion.
  • Digital Experience segment revenue was $1.18 billion, representing 11 percent year-over-year growth or 14 percent in constant currency. Digital Experience subscription revenue was $1.04 billion, representing 12 percent year-over-year growth or 14 percent in constant currency.

Financial Targets

Adobe is providing second quarter targets and updated fiscal year 2023 targets for Digital Media net new ARR and earnings per share. These targets factor in current expectations for the macroeconomic and foreign exchange environments.

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

Digital Media net new ARR

~$1.70 billion

Earnings per share1

GAAP: $10.85 to $11.15

Non-GAAP: $15.30 to $15.60

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

Total revenue

$4.75 billion to $4.78 billion

Digital Media net new ARR

~$420 million

Digital Media segment revenue

$3.45 billion to $3.47 billion

Digital Experience segment revenue

$1.21 billion to $1.23 billion

Digital Experience subscription revenue

$1.06 billion to $1.08 billion

Tax rate

GAAP: ~21.5%

Non-GAAP: ~18.5%

Earnings per share1

GAAP: $2.65 to $2.70

Non-GAAP: $3.75 to $3.80

1 Targets assume share count of ~458 million for second quarter fiscal year 2023 and ~456 million for fiscal year 2023.

Adobe to Host Conference Call

Adobe will webcast its first 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, 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 March 3, 2023, which Adobe expects to file in late March or early April 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

 

March 3, 2023

March 4, 2022

Revenue:

 

 

Subscription

$

4,373

$

3,958

 

Product

 

120

 

 

145

 

Services and other

 

162

 

 

159

 

Total revenue

 

4,655

 

 

4,262

 

 

 

 

Cost of revenue:

 

 

Subscription

 

434

 

 

393

 

Product

 

8

 

 

10

 

Services and other

 

126

 

 

109

 

Total cost of revenue

 

568

 

 

512

 

 

 

Gross profit

 

4,087

 

 

3,750

 

 

 

 

Operating expenses:

 

 

Research and development

 

827

 

 

701

 

Sales and marketing

 

1,301

 

 

1,158

 

General and administrative

 

331

 

 

269

 

Amortization of intangibles

 

42

 

 

42

 

Total operating expenses

 

2,501

 

 

2,170

 

 

 

 

Operating income

 

1,586

 

 

1,580

 

 

 

 

Non-operating income (expense):

 

 

Interest expense

 

(32

)

 

(28

)

Investment gains (losses), net

 

1

 

 

(9

)

Other income (expense), net

 

43

 

 

 

Total non-operating income (expense), net

 

12

 

 

(37

)

Income before income taxes

 

1,598

 

 

1,543

 

Provision for income taxes

 

351

 

 

277

 

Net income

$

1,247

 

$

1,266

 

Basic net income per share

$

2.72

 

$

2.68

 

Shares used to compute basic net income per share

 

459

 

 

473

 

Diluted net income per share

$

2.71

 

$

2.66

 

Shares used to compute diluted net income per share

 

460

 

 

475

 

Condensed Consolidated Balance Sheets

(In millions; unaudited)

March 3, 2023

December 2, 2022

ASSETS

Current assets:

Cash and cash equivalents

$

4,072

 

$

4,236

 

Short-term investments

 

1,581

 

 

1,860

 

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

 

1,801

 

 

2,065

 

Prepaid expenses and other current assets

 

888

 

 

835

 

Total current assets

 

8,342

 

 

8,996

 

 

 

 

Property and equipment, net

 

1,967

 

 

1,908

 

Operating lease right-of-use assets, net

 

402

 

 

407

 

Goodwill

 

12,792

 

 

12,787

 

Other intangibles, net

 

1,354

 

 

1,449

 

Deferred income taxes

 

826

 

 

777

 

Other assets

 

984

 

 

841

 

Total assets

$

26,667

 

$

27,165

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

Trade payables

$

308

 

$

379

 

Accrued expenses

 

1,469

 

 

1,790

 

Debt

 

 

 

500

 

Deferred revenue

 

5,357

 

 

5,297

 

Income taxes payable

 

222

 

 

75

 

Operating lease liabilities

 

81

 

 

87

 

Total current liabilities

 

7,437

 

 

8,128

 

 

 

 

Long-term liabilities:

 

 

Debt

 

3,630

 

 

3,629

 

Deferred revenue

 

120

 

 

117

 

Income taxes payable

 

536

 

 

530

 

Operating lease liabilities

 

415

 

 

417

 

Other liabilities

 

323

 

 

293

 

Total liabilities

 

12,461

 

 

13,114

 

 

 

 

Stockholders’ equity:

 

 

Preferred stock

 

 

 

 

Common stock

 

 

 

 

Additional paid-in-capital

 

10,284

 

 

9,868

 

Retained earnings

 

29,435

 

 

28,319

 

Accumulated other comprehensive income (loss)

 

(307

)

 

(293

)

Treasury stock, at cost

 

(25,206

)

 

(23,843

)

Total stockholders’ equity

 

14,206

 

 

14,051

 

Total liabilities and stockholders’ equity

$

26,667

 

$

27,165

Condensed Consolidated Statements of Cash Flows

(In millions; unaudited)

Three Months Ended

 

March 3, 2023

March 4, 2022

Cash flows from operating activities:

 

 

Net income

$

1,247

 

$

1,266

 

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

 

 

Depreciation, amortization and accretion

 

212

 

 

213

 

Stock-based compensation

 

416

 

 

322

 

Unrealized investment (gains) losses, net

 

3

 

 

17

 

Other non-cash adjustments

 

(33

)

 

153

 

Changes in deferred revenue

 

63

 

 

141

 

Changes in other operating assets and liabilities

 

(215

)

 

(343

)

Net cash provided by operating activities

 

1,693

 

 

1,769

 

 

Cash flows from investing activities:

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

 

287

 

 

(26

)

Purchases of property and equipment

 

(101

)

 

(100

)

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

 

(30

)

 

(28

)

Acquisitions, net of cash acquired

 

 

 

(106

)

Net cash provided by (used for) investing activities

 

156

 

 

(260

)

 

 

 

Cash flows from financing activities:
Repurchases of common stock

 

(1,400

)

 

(2,400

)

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

 

(95

)

 

(175

)

Other financing activities, net

 

(19

)

 

(29

)

Net cash used for financing activities

 

(2,014

)

 

(2,604

)

Effect of exchange rate changes on cash and cash equivalents

 

1

 

 

(10

)

Net change in cash and cash equivalents

 

(164

)

 

(1,105

)

Cash and cash equivalents at beginning of period

 

4,236

 

 

3,844

 

Cash and cash equivalents at end of period

$

4,072

 

$

2,739

 

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

 

 

March 3,

2023

 

March 4,

2022

 

December 2,

2022

Operating income:

 

 

 

 

 

 

 

GAAP operating income

 

$

1,586

 

 

$

1,580

 

 

$

1,505

 

Stock-based and deferred compensation expense

 

417

 

 

312

 

 

392

 

Amortization of intangibles

 

95

 

 

101

 

 

100

 

Acquisition-related expenses(*)

 

33

 

 

 

 

26

 

Non-GAAP operating income

$

2,131

 

$

1,993

 

$

2,023

 

 

Net income:

 
GAAP net income

$

1,247

 

$

1,266

 

$

1,176

 

Stock-based and deferred compensation expense

 

417

 

 

312

 

 

392

 

Amortization of intangibles

 

95

 

 

101

 

 

100

 

Acquisition-related expenses(*)

 

33

 

 

 

 

26

 

Investment (gains) losses, net

 

(1

)

 

9

 

 

(4

)

Income tax adjustments

 

(45

)

 

(86

)

 

(15

)

Non-GAAP net income

$

1,746

 

$

1,602

 

$

1,675

 

 

Diluted net income per share:

 
GAAP diluted net income per share

$

2.71

 

$

2.66

 

$

2.53

 

Stock-based and deferred compensation expense

 

0.91

 

 

0.66

 

 

0.84

 

Amortization of intangibles

 

0.21

 

 

0.21

 

 

0.21

 

Acquisition-related expenses(*)

 

 

0.07

 

 

 

 

 

 

0.06

 

Investment (gains) losses, net

 

 

 

0.02

 

 

(0.01

)

Income tax adjustments

 

(0.10

)

 

(0.18

)

 

(0.03

)

Non-GAAP diluted net income per share

$

3.80

 

$

3.37

 

$

3.60

 

 
Shares used in computing diluted net income per share

 

460

 

 

475

 

 

466

 

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

First Quarter Fiscal 2023

Effective income tax rate:

 

GAAP effective income tax rate

22.0

%

Income tax adjustments

0.5

 

Stock-based and deferred compensation expense

(3.0

)

Amortization of intangibles

(0.7

)

Acquisition-related expenses (*)

(0.3

)

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 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

$

10.85

 

$

11.15

 

Stock-based and deferred compensation expense

 

3.96

 

 

3.94

 

Amortization of intangibles

 

0.82

 

 

0.82

 

Acquisition-related expenses (*)

0.15

 

 

0.15

 

Income tax adjustments

(0.48

)

(0.46

)

Non-GAAP diluted net income per share

$

15.30

 

$

15.60

 

 

Shares used to compute diluted net income per share

456

 

456

 

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

(Shares in millions)

 

Second Quarter Fiscal 2023

Low

High

Diluted net income per share:

 

 

 

 

GAAP diluted net income per share

$

2.65

 

$

2.70

 

Stock-based and deferred compensation expense

 

0.97

 

 

0.96

 

Amortization of intangibles

 

0.21

 

 

0.21

 

Acquisition-related expenses (*)

 

0.05

 

 

0.05

 

Income tax adjustments

 

(0.13

)

 

(0.12

)

Non-GAAP diluted net income per share

$

3.75

 

$

3.80

 

 

Shares used to compute diluted net income per share

458

 

458

 

 

 

Second Quarter Fiscal 2023

Effective income tax rate:

 

 

 

 

 

GAAP effective income tax rate

 

21.5

%

Stock-based and deferred compensation expense

 

(3.1

)

Amortization of intangibles

 

(0.7

)

Acquisition-related expenses (*)

(0.2

)

Income tax adjustments

1.0

 

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.

Contacts

Investor Relations Contact
Jonathan Vaas

Adobe

ir@adobe.com

Public Relations Contact
Ashley Levine

Adobe

adobepr@adobe.com