Revenue

6 Months Ended

Jun. 02, 2023

Revenue [Abstract]

REVENUE

REVENUE

Segment Information

Our segment results for the three months ended June 2, 2023 and June 3, 2022 were as follows:

(dollars in millions)	Digital Media			Digital Experience			Publishing and Advertising			Total
Three months ended June 2, 2023
Revenue	$	3,511		$	1,222		$	83		$	4,816
Cost of revenue	152			399			21			572
Gross profit	$	3,359		$	823		$	62		$	4,244
Gross profit as a percentage of revenue	96		%	67		%	75		%	88		%
Three months ended June 3, 2022
Revenue	$	3,200		$	1,095		$	91		$	4,386
Cost of revenue	141			374			24			539
Gross profit	$	3,059		$	721		$	67		$	3,847
Gross profit as a percentage of revenue	96		%	66		%	74		%	88		%

Our segment results for the six months ended June 2, 2023 and June 3, 2022 were as follows:

(dollars in millions)	Digital Media			Digital Experience			Publishing and Advertising			Total
Six months ended June 2, 2023
Revenue	$	6,906		$	2,398		$	167		$	9,471
Cost of revenue	294			803			43			1,140
Gross profit	$	6,612		$	1,595		$	124		$	8,331
Gross profit as a percentage of revenue	96		%	67		%	74		%	88		%
Six months ended June 3, 2022
Revenue	$	6,310		$	2,152		$	186		$	8,648
Cost of revenue	275			726			50			1,051
Gross profit	$	6,035		$	1,426		$	136		$	7,597
Gross profit as a percentage of revenue	96		%	66		%	73		%	88		%

Revenue by geographic area for the three and six months ended June 2, 2023 and June 3, 2022 were as follows:

	Three Months				Six Months
(in millions)	2023		2022		2023		2022
Americas	$	2,879	$	2,524	$	5,658	$	4,970
EMEA	1,213		1,157		2,386		2,293
APAC	724		705		1,427		1,385
Total	$	4,816	$	4,386	$	9,471	$	8,648

Revenue by major offerings in our Digital Media reportable segment for the three and six months ended June 2, 2023 and June 3, 2022 were as follows:

	Three Months				Six Months
(in millions)	2023		2022		2023		2022
Creative Cloud	$	2,852	$	2,605	$	5,613	$	5,153
Document Cloud	659		595		1,293		1,157
Total Digital Media revenue	$	3,511	$	3,200	$	6,906	$	6,310

Subscription revenue by segment for the three and six months ended June 2, 2023 and June 3, 2022 were as follows:

	Three Months				Six Months
(in millions)	2023		2022		2023		2022
Digital Media	$	3,418	$	3,079	$	6,719	$	6,074
Digital Experience	1,070		961		2,112		1,893
Publishing and Advertising	29		30		59		61
Total subscription revenue	$	4,517	$	4,070	$	8,890	$	8,028

Contract Balances

A receivable is recorded when an unconditional right to invoice and receive payment exists, such that only the passage of time is required before payment of consideration is due. Included in trade receivables on the condensed consolidated balance sheets are unbilled receivable balances which have not yet been invoiced, and are typically related to license revenue or services which are delivered prior to invoicing. As of June 2, 2023, the balance of trade receivables, net of allowances for doubtful accounts, was $1.69 billion, inclusive of unbilled receivables of $101 million. As of December 2, 2022, the balance of trade receivables, net of allowances for doubtful accounts, was $2.07 billion, inclusive of unbilled receivables of $93 million.

We maintain an allowance for doubtful accounts which reflects our best estimate of potentially uncollectible trade receivables and is based on both specific and general reserves. We maintain general reserves on a collective basis by considering factors such as historical experience, credit-worthiness, the age of the trade receivable balances, current economic conditions and a reasonable and supportable forecast of future economic conditions. The allowance for doubtful accounts was $17 million and $23 million as of June 2, 2023 and December 2, 2022, respectively.

A contract asset is recognized when a conditional right to consideration exists and transfer of control has occurred. Contract assets are included in prepaid expenses and other current assets for the current portion and other assets for the long-term portion on the condensed consolidated balance sheets. We regularly review contract asset balances for impairment, considering factors such as historical experience, credit-worthiness, age of the balance, current economic conditions and a reasonable and supportable forecast of future economic conditions. Contract asset impairments were not material for the six months ended June 2, 2023. Contract assets were $119 million and $97 million as of June 2, 2023 and December 2, 2022, respectively.

Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from subscription services, including non-cancellable and non-refundable committed funds and refundable customer deposits. Deferred revenue is recognized as revenue when transfer of control to customers has occurred. As of June 2, 2023, the balance of deferred revenue was $5.38 billion, which includes $52 million of refundable customer deposits. Arrangements with some of our enterprise customers with non-cancellable and non-refundable committed funds provide options to either renew monthly on-premise term-based licenses or use some or all funds to purchase other Adobe products or services. Non-cancellable and non-refundable committed funds related to these agreements comprised approximately 5% of the total deferred revenue.

As of December 2, 2022, the balance of deferred revenue was $5.41 billion. During the three and six months ended June 2, 2023, approximately $1.56 billion and $3.86 billion of revenue, respectively, was recognized that was included in the balance of deferred revenue as of December 2, 2022.

Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and unbilled amounts that will be recognized as revenue in future periods. As of June 2, 2023, remaining performance obligations were approximately $15.22 billion. Non-cancellable and non-refundable funds related to some of our enterprise customer agreements referred to in the paragraph above comprised approximately 5% of the total remaining performance obligations. Approximately 72% of the remaining performance obligations, excluding the aforementioned enterprise customer agreements, are expected to be recognized over the next 12 months with the remainder recognized thereafter.

Incremental costs of obtaining a contract with a customer are capitalized if we expect the benefit of those costs to be longer than one year and primarily relate to sales commissions paid to our sales force personnel. Capitalized contract acquisition costs are included in prepaid expenses and other current assets for the current portion and other assets for the long-term portion on the condensed consolidated balance sheets. Capitalized contract acquisition costs were $668 million and $629 million as of June 2, 2023 and December 2, 2022, respectively.

We record refund liabilities for amounts that may be subject to future refunds, which include sales returns reserves and customer rebates and credits. Refund liabilities are included in accrued expenses on the condensed consolidated balance sheets. Refund liabilities were $85 million and $106 million as of June 2, 2023 and December 2, 2022, respectively.