Summary
Adobe's second quarter of fiscal 2022 produced record revenue of $4.39 billion, up 14 percent from the prior-year quarter. Constant-currency growth was 15 percent. First-half revenue was $8.65 billion, up 11.7 percent. The company continued to lean on recurring revenue, and Digital Media ARR ended the period at $12.95 billion. Creative ARR was $10.82 billion, while Document Cloud ARR was $2.13 billion. Net new Digital Media ARR reached $464 million in the quarter. Those KPIs show the base still expanding, even after Adobe absorbed an $87 million ARR reduction tied to the Russia-Ukraine war. That reduction included $75 million for Russia and Belarus and $12 million for Ukraine.
Profitability did not keep pace with the top line. GAAP gross profit was $3.85 billion, up 13.4 percent. GAAP operating income was $1.53 billion, up 8.7 percent. GAAP net income was $1.18 billion, up 5.6 percent. GAAP diluted EPS was $2.49, up 7.3 percent. Gross margin slipped to 87.7%, down 0.7 percentage points from the prior-year quarter. Operating margin was 34.9%, down 1.8 percentage points. The margin compression suggests cost growth and mix shifts are real. Non-GAAP operating income was $1.97 billion, non-GAAP net income was $1.59 billion, and non-GAAP diluted EPS was $3.35. Those measures exclude stock-based and deferred compensation expense, amortization of intangibles, investment gains and losses, and related tax adjustments.
Cash generation was solid but not spectacular. Operating cash flow was $2.04 billion in the quarter, up 2.6 percent. For the first six months, operating cash flow was $3.81 billion, up 1.3 percent. Capital expenditures were $126 million in the quarter, up 32.6 percent. Deferred revenue was $4.88 billion at quarter end, up 14.0 percent from the prior-year quarter. Remaining performance obligations were $13.82 billion, up 13.0 percent. Adobe also repurchased approximately 1.9 million shares during the quarter.
Guidance for the third quarter of fiscal 2022 calls for non-GAAP diluted EPS of $3.33 and $430 million of net new Digital Media ARR. For the full fiscal year 2022, Adobe targets non-GAAP diluted EPS of $13.50 and $1.90 billion of net new Digital Media ARR. Management said the third-quarter and full-year targets factor in an incremental foreign-exchange headwind of $175 million across the third and fourth quarters of fiscal 2022. They also reflect lower-than-expected tax benefits from stock-based compensation, the impact of the war in Ukraine, Adobe's decision to cease all new sales in Russia and Belarus, and summer seasonality in the third quarter followed by a sequentially strong fourth quarter.
Risks are straightforward. The MD&A warns that foreign currency exchange rate fluctuations may continue to negatively impact revenue and earnings in the second half of fiscal 2022. Adobe also faces competition, information security and privacy risks, potential interruptions in hosted services, complex sales cycles, subscription renewal rates, changes in tax regulations, and broader macroeconomic uncertainty. During the second quarter, Adobe restructured certain long-term supplier commitments and increased minimum purchase obligations by $4.75 billion through May 2029. That is a large commitment, and it raises the stakes on executing the subscription growth plan. The company also ended the quarter with no borrowings under its $1 billion revolving credit facility.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2022 | Q1 FY2022 | QoQ | Q2 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $4.39B | $4.26B | +2.9% | $3.83B | +14.4% |
| Gross profit | $3.85B | $3.75B | +2.6% | $3.39B | +13.4% |
| Gross margin | 87.7% | 88.0% | -0.3 pp | 88.4% | -0.7 pp |
| Sales & marketing | $1.25B | $1.16B | +7.7% | $1.07B | +16.2% |
| General & administrative | $291.0M | $269.0M | +8.2% | $256.0M | +13.7% |
| Total operating expenses | $2.32B | $2.17B | +6.8% | $1.99B | +16.8% |
| Operating income (loss) | $1.53B | $1.58B | -3.2% | $1.41B | +8.7% |
| Operating margin | 34.9% | 37.1% | -2.2 pp | 36.7% | -1.8 pp |
| Net income (loss) | $1.18B | $1.27B | -7.0% | $1.12B | +5.6% |
| Net margin | 26.9% | 29.7% | -2.8 pp | 29.1% | -2.2 pp |
| Diluted EPS | $2.49 | $2.66 | -$0.17 | $2.32 | +$0.17 |
Risks
In response to the Russia-Ukraine war, Adobe halted all new sales in Russia and Belarus and reduced Digital Media ARR by $75 million, plus $12 million for Ukraine, totaling an $87 million ARR reduction. The MD&A states the broader implications of these macroeconomic events remain uncertain.
Risk factors cite uncertainty about economic conditions, inflation, central bank actions, armed conflicts including the Russia-Ukraine war, and a global decline in advertising spend. MD&A notes broader macroeconomic implications remain uncertain and could affect future results.
For the three and six months ended June 3, 2022, the U.S. Dollar strengthened against foreign currencies including the Euro and Japanese Yen, decreasing revenue in U.S. Dollar equivalents by $84 million and $117 million, respectively. MD&A says foreign currency exchange rate fluctuations may continue to negatively impact revenue and earnings in the second half of fiscal 2022.
During the second quarter of fiscal 2022, Adobe restructured certain long-term supplier commitments, increasing minimum purchase obligations by $4.75 billion through May 2029. This raises fixed cash commitments and could pressure liquidity if demand slows.
Adobe is increasingly building AI into offerings, and risk factors warn that social and ethical issues, plus potential government regulation of AI ethics, may cause reputational harm, liability, and additional R&D costs. This is a newer and evolving risk.
Risk factors state competition for technology talent is intense and has recently intensified further, which may require higher compensation costs. MD&A shows R&D expenses rose 21% and sales and marketing expenses rose 16% in the quarter, partly due to base and incentive compensation.
Some enterprise offerings, including Adobe Experience Cloud and Enterprise Term License Agreements, have extended and complex sales cycles, and a higher percentage of a quarter's total sales occur in the final weeks. Risk factors note customer budget constraints and economic conditions may further delay purchases.
Remaining performance obligations of $13.82 billion as of June 3, 2022 decreased by $176 million, or 1%, from $13.99 billion as of December 3, 2021, as revenue recognition exceeded additions from new business and renewals. Foreign currency fluctuations also contributed to the decrease.
Adobe faces expanding global privacy and data protection laws, including GDPR, China's PIPL, and new U.S. state laws, plus cross-border data transfer restrictions. Non-compliance may cause fines, litigation, and forced changes to business models.
Risk factors describe intense competition, evolving distribution models, customer price sensitivity, and alternatives with limited functionality at lower cost or free. Consolidation among competitors may increase competitive pressures and harm results.
MD&A reports the effective tax rate increased to 21% for the quarter and 19% year to date, and the U.S. Tax Act will require capitalizing and amortizing R&D expenditures starting fiscal 2023, anticipated to adversely impact effective tax rates if not modified.
SaaS KPIs
All quarters →Remaining Performance Obligations (RPO)
Digital Media Annualized Recurring Revenue (ARR)
Net New Digital Media Annualized Recurring Revenue (ARR)
Summary, forecast, risks and KPIs are extracted from ADOBE INC.'s SEC filings for Q2 FY2022 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.