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Adobe Beats - Guides Down

June 17, 2022

Adobe reported financial results for its second quarter fiscal year 2022 ended June 3, 2022.

The firm had earnings of $3.35 per share, adjusted with only $3.31 per share expected. As to revenue, $4.39 billion came in with $4.34 billion expected.

Adobe lowered FY 2022 guidance. It now is looking for $13.50 in adjusted earnings per share on $17.65 billion in revenue. Investors had expected $13.66 in adjusted EPS and revenue of $17.85 billion. In December, Adobe guided for the 2022 fiscal year at $13.70 in adjusted earnings per share and $17.90 billion in revenue.

“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

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