Why is there such a large gap between GAAP and non-GAAP EPS?

Non-GAAP EPS excludes stock-based and deferred compensation (about $1.04 per share in Q2), amortization of intangibles ($0.19), investment gains and losses, and income tax adjustments. Adobe excludes stock-based compensation because it is non-cash and recurring but not used to assess core profitability. Investors should review both measures, since stock compensation is a real economic cost.

Did Adobe's Q2 results include any Figma-related charges?

No. The Q2 quarter shows no acquisition-related expenses in the reconciliation. The Figma acquisition termination fee of $1.0 billion was recorded in the six-month period, which is why year-to-date GAAP operating income of $2.79 billion is far below the Q2 figure of $1.89 billion. Q1 GAAP EPS was $1.36 for the same reason.

What did Adobe change in its fiscal 2024 outlook?

Adobe raised its annual targets. Revenue is now $21.40–21.50 billion, Digital Media net new ARR is about $1.95 billion, and non-GAAP EPS is $18.00–18.20. GAAP EPS targets are $11.80–12.00, a range that reflects the acquisition-related charges in the year. Q3 guidance calls for revenue of $5.33–5.38 billion and non-GAAP EPS of $4.50–4.55.

How is Adobe funding its share repurchases, and is its balance sheet still strong?

In Q2, Adobe spent $2.5 billion on buybacks and issued about $2.0 billion of new debt. Total debt rose to roughly $5.6 billion ($1.50 billion current and $4.13 billion long-term), while cash and equivalents were $7.66 billion. Operating cash flow of $1.94 billion covered part of the spending. Investors may want to watch whether buybacks continue to be financed with borrowing.

What do the ARR and RPO figures tell investors about future revenue?

Digital Media ARR of $16.25 billion and remaining performance obligations of $17.86 billion point to a large, recurring subscription base that supports near-term revenue visibility. Net new Digital Media ARR of $487 million in Q2 is the key metric to track against the full-year target of about $1.95 billion, and the Q3 target of about $460 million.

ADBE 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed June 13, 2024. Cited figures are marked; the original filing is the authoritative source.

Adobe reported record Q2 fiscal 2024 revenue of $5.31 billion^a for the quarter ended May 31, 2024, up 10% year over year (11% in constant currency).

Subscription revenue was $5.06 billion^b. GAAP diluted EPS was $3.49 and non-GAAP diluted EPS was $4.48. GAAP operating income was $1.89 billion, versus $2.44 billion on a non-GAAP basis.

Operating cash flow was $1.94 billion^c, and remaining performance obligations ended the quarter at $17.86 billion. Digital Media ARR reached $16.25 billion after $487 million of net new ARR. Digital Experience subscription revenue grew 13% to $1.20 billion.

Management raised its fiscal 2024 targets, now calling for total revenue of $21.40 to $21.50 billion^d, Digital Media net new ARR of about $1.95 billion, and non-GAAP EPS of $18.00 to $18.20 (GAAP EPS of $11.80 to $12.00). The GAAP-to-non-GAAP gap in the annual EPS targets is driven largely by stock-based compensation and the Figma-related acquisition expenses, including the $1.0 billion termination fee recorded in the first quarter. The Q2 quarter itself carried no acquisition-related expenses, so its GAAP results are cleaner than the six-month figures.

Q3 targets were also issued: revenue of $5.33 to $5.38 billion and non-GAAP EPS of $4.50 to $4.55. Balance-sheet activity was heavy. Adobe repurchased about 4.6 million shares, spending $2.5 billion on buybacks in the quarter, and issued roughly $2.0 billion of new debt.

Total debt rose to about $5.6 billion, while cash and equivalents were $7.66 billion. Investors should weigh the strong top-line and margin execution against the reliance on non-GAAP metrics, the substantial one-time charges embedded in the year-to-date GAAP results, and the shift toward leverage-funded capital returns.

02—Key points

Key Highlights

Record Q2 FY2024 revenue of $5.31 billion, up 10% year over year (11% in constant currency), with subscription revenue of $5.06 billion.
GAAP diluted EPS of $3.49 versus $4.48 non-GAAP; GAAP operating income of $1.89 billion versus $2.44 billion non-GAAP.
Digital Media ARR reached $16.25 billion, with $487 million of net new ARR in the quarter; Creative ARR was $13.11 billion and Document Cloud ARR was $3.15 billion.
Digital Experience subscription revenue rose 13% to $1.20 billion, and total remaining performance obligations were $17.86 billion.
Fiscal 2024 targets raised: revenue of $21.40–21.50 billion, Digital Media net new ARR of about $1.95 billion, and non-GAAP EPS of $18.00–18.20.
Capital returns were significant: about 4.6 million shares repurchased and $2.5 billion in buybacks in Q2, funded partly by roughly $2.0 billion of new debt.
Year-to-date GAAP results include a $1.0 billion Figma-related acquisition termination fee recorded in Q1 fiscal 2024, which is excluded from non-GAAP results.

03—Questions

Frequently Asked Questions

Why is there such a large gap between GAAP and non-GAAP EPS?
Non-GAAP EPS excludes stock-based and deferred compensation (about $1.04 per share in Q2), amortization of intangibles ($0.19), investment gains and losses, and income tax adjustments. Adobe excludes stock-based compensation because it is non-cash and recurring but not used to assess core profitability. Investors should review both measures, since stock compensation is a real economic cost.
Did Adobe's Q2 results include any Figma-related charges?
No. The Q2 quarter shows no acquisition-related expenses in the reconciliation. The Figma acquisition termination fee of $1.0 billion was recorded in the six-month period, which is why year-to-date GAAP operating income of $2.79 billion is far below the Q2 figure of $1.89 billion. Q1 GAAP EPS was $1.36 for the same reason.
What did Adobe change in its fiscal 2024 outlook?
Adobe raised its annual targets. Revenue is now $21.40–21.50 billion, Digital Media net new ARR is about $1.95 billion, and non-GAAP EPS is $18.00–18.20. GAAP EPS targets are $11.80–12.00, a range that reflects the acquisition-related charges in the year. Q3 guidance calls for revenue of $5.33–5.38 billion and non-GAAP EPS of $4.50–4.55.
How is Adobe funding its share repurchases, and is its balance sheet still strong?
In Q2, Adobe spent $2.5 billion on buybacks and issued about $2.0 billion of new debt. Total debt rose to roughly $5.6 billion ($1.50 billion current and $4.13 billion long-term), while cash and equivalents were $7.66 billion. Operating cash flow of $1.94 billion covered part of the spending. Investors may want to watch whether buybacks continue to be financed with borrowing.
What do the ARR and RPO figures tell investors about future revenue?
Digital Media ARR of $16.25 billion and remaining performance obligations of $17.86 billion point to a large, recurring subscription base that supports near-term revenue visibility. Net new Digital Media ARR of $487 million in Q2 is the key metric to track against the full-year target of about $1.95 billion, and the Q3 target of about $460 million.

04—Continue

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