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Adobe Reports Record Q4 and Fiscal 2023 Revenue

Wednesday, December 13, 2023 04:05 PM

Company achieves first $5 billion revenue quarter with exiting RPO of over $17 billion

Adobe (Nasdaq:ADBE) today reported financial results for its fourth quarter and fiscal year 2023 ended Dec. 1, 2023.

“Adobe drove record revenue of $19.41 billion in FY23 and 17 percent year-over-year EPS growth, with strong momentum across Creative Cloud, Document Cloud and Experience Cloud,” said Shantanu Narayen, chair and CEO, Adobe. “Adobe’s strategy, category leadership, ground-breaking innovation, exceptional talent and global customer base position us well for 2024 and beyond.”

“Adobe’s remarkable performance in FY23 drove world-class margins and operating cash flows of $7.30 billion,” said Dan Durn, executive vice president and CFO, Adobe. “Adobe’s strategy, scale, speed of execution and profitability position the company for years of sustained success.”

Fourth Quarter Fiscal Year 2023 Financial Highlights

  • Adobe achieved revenue of $5.05 billion in its fourth quarter of fiscal year 2023, which represents 12 percent year-over-year growth or 13 percent in constant currency. Diluted earnings per share was $3.23 on a GAAP basis and $4.27 on a non-GAAP basis.
  • GAAP operating income in the fourth quarter was $1.74 billion and non-GAAP operating income was $2.34 billion. GAAP net income was $1.48 billion and non-GAAP net income was $1.96 billion.
  • Cash flows from operations were $1.60 billion.
  • Remaining Performance Obligations (“RPO”) exiting the quarter were $17.22 billion.
  • Adobe repurchased approximately 1.8 million shares during the quarter.

Fourth Quarter Fiscal Year 2023 Business Segment Highlights

  • Digital Media segment revenue was $3.72 billion, which represents 13 percent year-over-year growth or 14 percent in constant currency. Creative revenue grew to $3.00 billion, representing 12 percent year-over-year growth or 14 percent in constant currency. Document Cloud revenue was $721 million, representing 16 percent year-over-year growth or 17 percent in constant currency.
  • Net new Digital Media Annualized Recurring Revenue (“ARR”) was $569 million, exiting the quarter with Digital Media ARR of $15.17 billion. Creative ARR grew to $12.37 billion and Document Cloud ARR grew to $2.81 billion.
  • Digital Experience segment revenue was $1.27 billion, representing 10 percent year-over-year growth or 11 percent in constant currency. Digital Experience subscription revenue was $1.12 billion, representing 12 percent year-over-year growth as reported and in constant currency.

Fiscal Year 2023 Financial Highlights

  • Adobe achieved record revenue of $19.41 billion in fiscal year 2023, which represents 10 percent year-over-year growth or 13 percent in constant currency. Diluted earnings per share was $11.82 on a GAAP basis and $16.07 on a non-GAAP basis.
  • GAAP operating income was $6.65 billion and non-GAAP operating income was $8.92 billion. GAAP net income was $5.43 billion and non-GAAP net income was $7.38 billion.
  • Adobe generated $7.30 billion in operating cash flows during the year.
  • Adobe repurchased approximately 11.5 million shares during the year.

Fiscal Year 2023 Business Segment Highlights

  • Digital Media segment revenue was $14.22 billion, which represents 11 percent year-over-year growth or 14 percent in constant currency. Net new Digital Media ARR was $1.91 billion during the fiscal year.
  • Creative revenue grew to $11.52 billion, representing 10 percent year-over-year growth or 14 percent in constant currency.
  • Document Cloud revenue was $2.70 billion, representing 13 percent year-over-year growth or 15 percent in constant currency.
  • Digital Experience segment revenue was $4.89 billion, representing 11 percent year-over-year growth or 12 percent in constant currency. Digital Experience subscription revenue was $4.33 billion, representing 12 percent year-over-year growth or 13 percent in constant currency.

Financial Targets

Adobe is providing fiscal year 2024 targets, as well as first quarter targets which factor in current expectations for the macroeconomic and foreign exchange environments. As is customary, these targets do not reflect the planned acquisition of Figma.

Changes to foreign exchange rates have resulted in a $160 million upward revaluation to Adobe’s total Digital Media ARR balance entering fiscal 2024. As a reminder, ARR is forecasted annually at currency rates determined in December, and currency rates are held constant through that fiscal year for measurement purposes; end-of-year actual ARR balances are revalued in December at new rates for the next fiscal year.

The following table summarizes Adobe’s fiscal year 2024 targets:

Total revenue

$21.30 billion to $21.50 billion

Digital Media net new ARR

~$1.90 billion

Digital Media segment revenue

$15.75 billion to $15.85 billion

Digital Experience segment revenue

$5.275 billion to $5.375 billion

Digital Experience subscription revenue

$4.75 billion to $4.80 billion

Tax rate

GAAP: ~18.0%

Non-GAAP: ~18.5%

Earnings per share1

GAAP: $13.45 to $13.85

Non-GAAP: $17.60 to $18.00

The following table summarizes Adobe’s first quarter fiscal year 2024 targets:

Total revenue

$5.10 billion to $5.15 billion

Digital Media net new ARR

~$410 million

Digital Media segment revenue

$3.77 billion to $3.80 billion

Digital Experience segment revenue

$1.27 billion to $1.29 billion

Digital Experience subscription revenue

$1.14 billion to $1.16 billion

Tax rate

GAAP: ~18.0%

Non-GAAP: ~18.5%

Earnings per share1

GAAP: $3.35 to $3.40

Non-GAAP: $4.35 to $4.40

  1. Targets assume diluted share count of ~454 million for fiscal year 2024 and ~456 million for first quarter fiscal year 2024.

Adobe to Host Conference Call

Adobe will webcast its fourth quarter and 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

In addition to historical information, this press release contains “forward-looking statements” within the meaning of applicable securities laws, including statements related to our business, strategy, artificial intelligence (“AI”) and innovation momentum; our market opportunity and future growth; market and AI trends; current macroeconomic conditions; fluctuations in foreign currency exchange rates; strategic investments; customer success; revenue; operating margin; operating efficiencies and annualized recurring revenue; tax rate on a GAAP and non-GAAP basis; earnings per share on a GAAP and non-GAAP basis; share count; and industry positioning. Each of the forward-looking statements we make in this press release involves risks, uncertainties and assumptions based on information available to us as of the date of this press release. Such risks and uncertainties, many of which relate to matters beyond our control, could cause actual results to differ materially from these forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to: failure to innovate effectively and meet customer needs; issues relating to development and use of AI; failure to realize the anticipated benefits of investments or acquisitions; failure to compete effectively; damage to our reputation or brands; service interruptions or failures in information technology systems by us or third parties; security incidents; failure to effectively develop, manage and maintain critical third-party business relationships; risks associated with being a multinational corporation and adverse macroeconomic conditions; failure to recruit and retain key personnel; complex sales cycles; changes in, and compliance with, global laws and regulations, including those related to information security and privacy; failure to protect our intellectual property; litigation, regulatory inquiries and intellectual property infringement claims; changes in tax regulations; complex government procurement processes; risks related to fluctuations in or the timing of revenue recognition from our subscription offerings; fluctuations in foreign currency exchange rates; impairment charges; our existing and future debt obligations; catastrophic events; and fluctuations in our stock price. Further information on these and other factors are discussed in the section titled “Risk Factors” in Adobe’s most recently filed Annual Report on Form 10-K and Adobe's most recently filed Quarterly Reports on Form 10-Q. The risks described in this press release and in Adobe’s filings with the U.S. Securities and Exchange Commission should be carefully reviewed.

Undue reliance should not be placed on the financial information set forth in this press release, which reflects estimates based on information available at this time. These amounts could differ from actual reported amounts stated in Adobe’s Annual Report on Form 10-K for our fiscal year ended Dec. 1, 2023, which Adobe expects to file in Jan. 2024. 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 and a statement regarding use of non-GAAP financial information are provided at the end of this press release and on Adobe’s investor relations website.

About Adobe

Adobe is changing the world through personalized 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

Year Ended

 

December 1, 2023

December 2, 2022

December 1, 2023

December 2, 2022

Revenue:

 

 

 

 

Subscription

$

4,763

 

$

4,232

 

$

18,284

 

$

16,388

 

Product

 

114

 

 

115

 

 

460

 

 

532

 

Services and other

 

171

 

 

178

 

 

665

 

 

686

 

Total revenue

 

5,048

 

 

4,525

 

 

19,409

 

 

17,606

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

Subscription

 

505

 

 

430

 

 

1,822

 

 

1,646

 

Product

 

6

 

 

8

 

 

29

 

 

35

 

Services and other

 

123

 

 

130

 

 

503

 

 

484

 

Total cost of revenue

 

634

 

 

568

 

 

2,354

 

 

2,165

 

 

 

 

 

 

Gross profit

 

4,414

 

 

3,957

 

 

17,055

 

 

15,441

 

 

 

 

 

 

Operating expenses:

 

 

 

 

Research and development

 

889

 

 

773

 

 

3,473

 

 

2,987

 

Sales and marketing

 

1,368

 

 

1,297

 

 

5,351

 

 

4,968

 

General and administrative

 

372

 

 

340

 

 

1,413

 

 

1,219

 

Amortization of intangibles

 

42

 

 

42

 

 

168

 

 

169

 

Total operating expenses

 

2,671

 

 

2,452

 

 

10,405

 

 

9,343

 

 

 

 

 

 

Operating income

 

1,743

 

 

1,505

 

 

6,650

 

 

6,098

 

 

 

 

 

 

Non-operating income (expense):

 

 

 

 

Interest expense

 

(28

)

 

(28

)

 

(113

)

 

(112

)

Investment gains (losses), net

 

4

 

 

4

 

 

16

 

 

(19

)

Other income (expense), net

 

89

 

 

36

 

 

246

 

 

41

 

Total non-operating income (expense), net

 

65

 

 

12

 

 

149

 

 

(90

)

Income before income taxes

 

1,808

 

 

1,517

 

 

6,799

 

 

6,008

 

Provision for income taxes

 

325

 

 

341

 

 

1,371

 

 

1,252

 

Net income

$

1,483

 

$

1,176

 

$

5,428

 

$

4,756

 

Basic net income per share

$

3.26

 

$

2.53

 

$

11.87

 

$

10.13

 

Shares used to compute basic net income per share

 

455

 

 

465

 

 

457

 

 

470

 

Diluted net income per share

$

3.23

 

$

2.53

 

$

11.82

 

$

10.10

 

Shares used to compute diluted net income per share

 

459

 

 

466

 

 

459

 

 

471

 

Condensed Consolidated Balance Sheets

(In millions; unaudited)

 

 

December 1, 2023

December 2, 2022

ASSETS

 

 

 

 

 

Current assets:

 

 

Cash and cash equivalents

$

7,141

 

$

4,236

 

Short-term investments

 

701

 

 

1,860

 

Trade receivables, net of allowances for doubtful accounts of $16 and $23, respectively

 

2,224

 

 

2,065

 

Prepaid expenses and other current assets

 

1,018

 

 

835

 

Total current assets

 

11,084

 

 

8,996

 

 

 

 

Property and equipment, net

 

2,030

 

 

1,908

 

Operating lease right-of-use assets, net

 

358

 

 

407

 

Goodwill

 

12,805

 

 

12,787

 

Other intangibles, net

 

1,088

 

 

1,449

 

Deferred income taxes

 

1,191

 

 

777

 

Other assets

 

1,223

 

 

841

 

Total assets

$

29,779

 

$

27,165

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

Trade payables

$

314

 

$

379

 

Accrued expenses

 

1,942

 

 

1,790

 

Debt

 

 

 

500

 

Deferred revenue

 

5,837

 

 

5,297

 

Income taxes payable

 

85

 

 

75

 

Operating lease liabilities

 

73

 

 

87

 

Total current liabilities

 

8,251

 

 

8,128

 

 

 

 

Long-term liabilities:

 

 

Debt

 

3,634

 

 

3,629

 

Deferred revenue

 

113

 

 

117

 

Income taxes payable

 

514

 

 

530

 

Operating lease liabilities

 

373

 

 

417

 

Other liabilities

 

376

 

 

293

 

Total liabilities

 

13,261

 

 

13,114

 

 

 

 

Stockholders’ equity:

 

 

Preferred stock

 

 

 

 

Common stock

 

 

 

 

Additional paid-in-capital

 

11,586

 

 

9,868

 

Retained earnings

 

33,346

 

 

28,319

 

Accumulated other comprehensive income (loss)

 

(285

)

 

(293

)

Treasury stock, at cost

 

(28,129

)

 

(23,843

)

Total stockholders’ equity

 

16,518

 

 

14,051

 

Total liabilities and stockholders’ equity

$

29,779

 

$

27,165

 

Condensed Consolidated Statements of Cash Flows
(In millions; unaudited)

 

 

Three Months Ended

 

December 1, 2023

December 2, 2022

Cash flows from operating activities:

 

 

Net income

$

1,483

 

$

1,176

 

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

 

 

Depreciation, amortization and accretion

 

222

 

 

215

 

Stock-based compensation

 

427

 

 

388

 

Unrealized investment (gains) losses, net

 

(3

)

 

(4

)

Other non-cash adjustments

 

(129

)

 

68

 

Changes in deferred revenue

 

467

 

 

471

 

Changes in other operating assets and liabilities

 

(870

)

 

11

 

Net cash provided by operating activities

 

1,597

 

 

2,325

 

 

 

 

Cash flows from investing activities:

 

 

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

 

219

 

 

29

 

Purchases of property and equipment

 

(47

)

 

(91

)

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

 

(19

)

 

(7

)

Net cash provided by (used for) investing activities

 

153

 

 

(69

)

 

 

 

Cash flows from financing activities:

 

 

Repurchases of common stock

 

(1,000

)

 

(1,750

)

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

 

(202

)

 

(67

)

Other financing activities, net

 

(15

)

 

(94

)

Net cash used for financing activities

 

(1,217

)

 

(1,911

)

Effect of exchange rate changes on cash and cash equivalents

 

7

 

 

21

 

Net change in cash and cash equivalents

 

540

 

 

366

 

Cash and cash equivalents at beginning of period

 

6,601

 

 

3,870

 

Cash and cash equivalents at end of period

$

7,141

 

$

4,236

 

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

Year Ended

 

December 1,
2023

December 2,
2022

September 1,
2023

December 1,
2023

December 2,
2022

Operating income:

 

 

 

 

 

GAAP operating income

$

1,743

 

$

1,505

 

$

1,697

 

$

6,650

 

$

6,098

 

Stock-based and deferred compensation expense

 

431

 

 

392

 

 

448

 

 

1,735

 

 

1,420

 

Amortization of intangibles

 

91

 

 

100

 

 

92

 

 

373

 

 

401

 

Acquisition-related expenses (*)

 

34

 

 

26

 

 

27

 

 

116

 

 

26

 

Loss contingency (**)

 

44

 

 

 

 

 

 

44

 

 

 

Non-GAAP operating income

$

2,343

 

$

2,023

 

$

2,264

 

$

8,918

 

$

7,945

 

 

 

 

 

 

 

Net income:

 

 

 

 

 

 

 

 

 

 

 

GAAP net income

$

1,483

 

$

1,176

 

$

1,403

 

$

5,428

 

$

4,756

 

Stock-based and deferred compensation expense

 

431

 

 

392

 

 

448

 

 

1,735

 

 

1,420

 

Amortization of intangibles

 

91

 

 

100

 

 

92

 

 

373

 

 

401

 

Acquisition-related expenses (*)

 

34

 

 

26

 

 

27

 

 

116

 

 

26

 

Loss contingency (**)

 

44

 

 

 

 

 

 

44

 

 

 

Investment (gains) losses, net

 

(4

)

 

(4

)

 

(6

)

 

(16

)

 

19

 

Income tax adjustments

 

(120

)

 

(15

)

 

(86

)

 

(303

)

 

(165

)

Non-GAAP net income

$

1,959

 

$

1,675

 

$

1,878

 

$

7,377

 

$

6,457

 

 

 

 

 

 

 

Diluted net income per share:

 

 

 

 

 

GAAP diluted net income per share

$

3.23

 

$

2.53

 

$

3.05

 

$

11.82

 

$

10.10

 

Stock-based and deferred compensation expense

 

0.94

 

 

0.84

 

 

0.98

 

 

3.78

 

 

3.02

 

Amortization of intangibles

 

0.20

 

 

0.21

 

 

0.20

 

 

0.81

 

 

0.85

 

Acquisition-related expenses (*)

 

0.07

 

 

0.06

 

 

0.06

 

 

0.25

 

 

0.05

 

Loss contingency (**)

 

0.10

 

 

 

 

 

 

0.10

 

 

 

Investment (gains) losses, net

 

(0.01

)

 

(0.01

)

 

(0.01

)

 

(0.03

)

 

0.04

 

Income tax adjustments

 

(0.26

)

 

(0.03

)

 

(0.19

)

 

(0.66

)

 

(0.35

)

Non-GAAP diluted net income per share

$

4.27

 

$

3.60

 

$

4.09

 

$

16.07

 

$

13.71

 

 

 

 

 

 

 

Shares used in computing diluted net income per share

 

459

 

 

466

 

 

459

 

 

459

 

 

471

 

Non-GAAP Results (continued)
The following table shows Adobe’s fourth quarter fiscal year 2023 GAAP tax rate reconciled to the non-GAAP tax rate included in this release.

 

Fourth Quarter

Fiscal 2023

Effective income tax rate:

 

GAAP effective income tax rate

18.0

 

%

Income tax adjustments

2.5

 

 

Stock-based and deferred compensation expense

(1.5

)

 

Amortization of intangibles

(0.3

)

 

Acquisition-related expenses (*)

(0.1

)

 

Loss contingency (**)

(0.1

)

 

Non-GAAP effective income tax rate (***)

18.5

 

%

 

(*) Includes deal costs and certain professional fees associated with the planned acquisition of Figma
(**) Associated with an IP litigation matter
(***) Represents Adobe’s fixed long-term non-GAAP tax rate based on projections and currently available information through fiscal 2025
Reconciliation of GAAP to Non-GAAP Financial Targets
The following tables show Adobe's annual fiscal year 2024 financial targets reconciled to non-GAAP financial targets included in this release.

 

(Shares in millions)

Fiscal Year 2024

 

Low

High

Diluted net income per share:

 

 

GAAP diluted net income per share

$

13.45

 

$

13.85

 

Stock-based and deferred compensation expense

 

4.33

 

 

4.33

 

Amortization of intangibles

 

0.73

 

 

0.73

 

Acquisition-related expenses (*)

 

0.13

 

 

0.13

 

Income tax adjustments

 

(1.04

)

 

(1.04

)

Non-GAAP diluted net income per share

$

17.60

 

$

18.00

 

 

 

 

Shares used to compute diluted net income per share

454

 

454

 

 

Fiscal Year 2024

Effective income tax rate:

 

GAAP effective income tax rate

18.0

 

%

Stock-based and deferred compensation expense

(1.3

)

 

Amortization of intangibles

(0.2

)

 

Income tax adjustments

2.0

 

 

Non-GAAP effective income tax rate (***)

18.5

 

%

Reconciliation of GAAP to Non-GAAP Financial Targets (continued)
The following tables show Adobe's first quarter fiscal year 2024 financial targets reconciled to non-GAAP financial targets included in this release.

 

(Shares in millions)

First Quarter Fiscal 2024

 

Low

High

Diluted net income per share:

 

 

GAAP diluted net income per share

$

3.35

 

$

3.40

 

Stock-based and deferred compensation expense

 

1.00

 

 

1.00

 

Amortization of intangibles

 

0.18

 

 

0.18

 

Acquisition-related expenses (*)

 

0.07

 

 

0.07

 

Income tax adjustments

 

(0.25

)

 

(0.25

)

Non-GAAP diluted net income per share

$

4.35

 

$

4.40

 

 

 

 

Shares used to compute diluted net income per share

456

 

456

 

 

First Quarter

Fiscal 2024

Effective income tax rate:

 

GAAP effective income tax rate

18.0

 

%

Stock-based and deferred compensation expense

(1.2

)

 

Amortization of intangibles

(0.2

)

 

Acquisition-related expenses (*)

(0.1

)

 

Income tax adjustments

2.0

 

 

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 non-GAAP tax rate based on projections and currently available information through fiscal 2025

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, 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.

Investor Relations Contact
Jonathan Vaas
Adobe
ir@adobe.com

Public Relations Contact
Ashley Levine
Adobe
adobepr@adobe.com

Source: Adobe
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