Adobe Inc (ADBE) 2014 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen.

I would like to welcome you to the Adobe Systems quarter fiscal year 2014 earnings call.

(Operator Instructions)

I would like to now turn the call over to Mr. Mike Saviage, Vice President of Investor Relations.

Please go ahead, sir.

Good afternoon and thank you for joining us today.

Joining me on the call are Adobe's President and CEO, Shantanu Narayen, as well as Mark Garrett, Executive Vice President and CFO.

In the call today we will discuss Adobe's first quarter FY2014 financial results.

By now you should have a copy of our earnings press release, which crossed the wire approximately one hour ago.

We've also posed PDFs of our earnings call prepared remarks and slides, our financial targets, and an updated investor data sheet on adobe.com.

If you'd like a copy of these documents, you can go to the Investor Relations page and find them listed under Quick Links.

Before we get started, we want to emphasize that some of the information discussed in this call, particularly our revenue, subscription, and operating level targets, and our forward-looking product plans, is based on information as of today, March 18, 2014, and contains forward-looking statements that involve risk and uncertainty.

Actual results may differ materially from those set forth in such statements.

For a discussion of these risks and uncertainties, you should review the forward-looking statements disclosure in the earnings press release we issued today, as well as Adobe's SEC filings.

During this call we will discuss GAAP and non-GAAP financial measures.

A reconciliation between the two is available in our financial targets document and in our updated investor datasheet on Adobe's Investor Relations website.

Call participants are advised that the audio of this conference call is being broadcast live on Adobe Connect, and is also being recorded for playback purposes.

An archive of the webcast will be made available on Adobe's Investor Relations website for approximately 45 days, and is the property of Adobe.

The call audio and the webcast archive may not be rerecorded or otherwise reproduced or distributed without prior written permission from Adobe.

I will now turn the call over to Shantanu.

Thanks, Mike.

And good afternoon.

Adobe is redefining the creative and digital marketing categories with our industry-leading cloud offerings.

Through a steady stream of innovation, we will expand adoption of Creative Cloud, grow multi-solution sales of Adobe Marketing Cloud, and drive integration across our cloud offerings.

We made progress on all fronts this quarter.

In Q1 we achieved $1 billion in revenue with non-GAAP earnings per share of $0.30.

We drove strong performance across key growth metrics, including Creative Cloud subscriptions, annualized recurring revenue, or ARR, and Adobe Marketing Cloud bookings.

In Digital Media, Creative Cloud momentum continued.

Creative Cloud ARR grew to just under $1 billion in Q1, and we exited with over 1.8 million subscriptions.

Driving that customer adoption and satisfaction is the ongoing flow of innovation in the Creative Cloud platform.

Coming off our delivery of more than 500 new features and capabilities last year to Creative Cloud subscribers and enterprise users.

In Q1 we delivered numerous updates including major features in Photoshop, Illustrator, and InDesign.

We're excited about the amazing innovation we will deliver in a major update to Creative Cloud in the next few months.

Our digital publishing business continues its momentum where we are building on our success with publishers in the corporate market like General Motors and Disney.

Last month we announced the integration of Digital Publishing Suite and Adobe Experience Manager, part of the of Adobe Marketing Cloud.

This integration enables publishers and brands to create, deliver and measure experiences across the web, and content-rich apps like digital magazines using one set of assets.

This enables a faster and more efficient publishing process.

In Document Services, Acrobat continued to achieve solid performance with online Document Services continuing their momentum.

EchoSign adoption continues with brands including Citrix, Electronic Arts, Kia, NEC Financial Services and UC Berkeley using our e-signature platform.

Combined with Acrobat ETLAs, Document Services ARR grew to $164 million exiting Q1.

Between our Creative and Document Services businesses total Digital Media ARR grew to $1.15 billion at the end of Q1.

In Digital Marketing, Adobe Marketing Cloud achieved 24% year-over-year revenue growth in Q1.

We continue to have the most comprehensive offering in the market for chief marketing officers, chief revenue officers, advertising agencies, publishing executives and digital marketers.

To create even more impact for our marketing customers we are focused on integrating our six Adobe Marketing Cloud solutions.

In January we announced the integration of Adobe Campaign and Adobe Experience Manager.

This will allow marketers to use a single digital asset management repository, and integrate data from anonymous visitors and identified customers to create personalized customer experiences.

Campaign is off to a strong start as it addresses marketers' challenge to manage communications with their customers across multiple channels.

Examples of customers licensing multiple Adobe Marketing Cloud solutions in Q1 included GMC, Kohls, MGM, NBC Universal, and Under Armour.

Last month we had an exciting event when NBC Sports used Adobe Primetime to deliver the Sochi Olympics to desktops, tablets and other mobile devices.

Millions of viewers were able to access events live and on demand.

NBC was able to use Primetime's analytics, authentication, ad delivery and media playback capabilities to stream video across screens.

With more than 10.2 million video stream starts, the men's hockey game between the US and Canada stood out as the biggest authenticated online event in history.

Next week we will hold our Digital Marketing Summit in Salt Lake City with over 5,500 attendees.

Summit has become a premier industry venue where we engage with current and prospective customers, as well as an ever-growing list of global partners.

We have a number of significant announcements on the docket as well as an amazing speaker line up, including senior marketing executives from brands like Audi, FedEx, REI and Sephora.

I'm proud to share we donated over $300 million of software and training to the White House's ConnectED initiative.

The goal of ConnectED is to advance digital learning among our youth.

And we're excited about enabling 15,000 schools across the country to help students express their creativity and build skills for future success.

We delivered another strong quarter and continue to make great progress against our goals in both digital media and digital marketing.

Next week at Summit we will walk you through more details about where we're headed.

We hope to see you there.

Now I'll turn it over to Mark.

Thanks, Shantanu.

In the first quarter of FY14, Adobe achieved revenue of $1 billion, at the high end of our targeted range.

GAAP diluted earnings per share in Q1 were $0.09.

Non-GAAP diluted earnings per share were $0.30.

Highlights in the quarter included: adding more than 405,000 net new Creative Cloud subscriptions; Creative subscription reported revenue exceeding perpetual licensing revenue for the first time; growing Digital Media ARR by over $200 million to a quarter-ending total of $1.15 billion; driving 24% Adobe Marketing Cloud year-over-year revenue growth; increasing deferred revenue by $52 million to a record $881 million; and exiting Q1 with 52% of our $1 billion of Q1 revenue as being recurring.

This is truly a major milestone in the Company's transformation.

In Digital Media we achieved revenue of $641 million.

This segment has two major components of revenue -- our Creative family of products and our Document Services products.

In our Creative business, customer adoption of Creative Cloud grew quarter over quarter.

We exited Q1 with 1,844,000 paid Creative Cloud individual and team subscriptions.

With this achievement we hit a milestone where Q1 reported Creative revenue from subscriptions and ETLAs exceeded reported revenue from perpetual licensing for the first time.

Our success with subscriptions, ETLAs and Digital Publishing Suite adoption helped to drive Creative ARR to a total of $987 million exiting Q1, an increase of $186 million quarter over quarter.

As of the end of Q1, 96% of Creative Cloud subscriptions were annual plans.

The percentage of single app subscriptions grew as a percentage of total subscriptions as a result of our successful Photoshop Lightroom bundle, which is expanding our overall market opportunity.

We are making good progress migrating individual, team and enterprise customers to Creative Cloud.

In addition, we are offering incentives to accelerate migration of Creative Suite customers, acquire new Creative customers, and further expand in the photography market.

Retention and renewal rates after promotions expire continue to track ahead of our internal projections.

The resulting average revenue per user, or ARPU, was lower in Q1, as expected.

As a result of Creative Cloud's success across teams and enterprises, we will soon end general availability of CS6 perpetual licensing in the channel.

This decision is consistent with our comments last December when we stated we expected no material revenue from perpetual licensing of CS6 in the second half of fiscal 2014.

We anticipate this change will align channel resellers to exclusively focus on Creative Cloud for team subscriptions.

In Document Services we achieved revenue of $194 million in Q1.

Our success in this category is being driven by continued adoption of Acrobat, Acrobat ETLAs, Acrobat cloud services, and our EchoSign e-signing solution.

Document Services ARR grew from $143 million exiting Q4 to $164 million exiting Q1.

Total Document Services subscriptions spanning EchoSign, Create PDF Online, and related services grew to nearly 1.8 million.

In our Digital Marketing segment there are two components.

The first is revenue from our Adobe Marketing Cloud offering.

And in Q1 we achieved Adobe Marketing Cloud revenue of $267 million, representing year-over-year growth of 24%, and ahead of our target of 20% growth in FY14.

We drove strong bookings in the quarter which puts us on pace to achieve our target of 30% bookings growth this year.

Total transactions managed by all our Marketing Cloud solutions grew to more than 5.4 trillion in Q1.

Mobile device use continues to be a driver in our Digital Marketing business.

Mobile transactions increased to 36% of total Adobe Analytics transactions, up from 33% last quarter.

Next week at Summit we are hosting a financial analyst briefing and we intend to update you on numerous metrics which reflect our leadership and momentum in our Digital Marketing business.

The second component of our Digital Marketing segment is revenue from the LiveCycle and Connect businesses which contributed $47 million in Q1 revenue.

As a reminder, late last year we introduced a path for LiveCycle customers to migrate to our Adobe Experience Manager offering.

As a result, we expect LiveCycle revenue will continue to decline while Connect revenue will remain relatively flat.

Print and Publishing segment revenue was $45 million in Q1.

Geographically we experienced stable demand across our major geographies.

From a quarter-over-quarter perspective, FX decreased revenue by $0.7 million.

We had $2.8 million in hedge gains in Q1 FY14 versus $3.1 million in hedge gains in Q4 FY13, thus the net sequential currency decrease to revenue was $1 million.

From a year-over-year currency perspective, FX decreased revenue by $10.9 million.

Comparing the $2.8 million in hedge gains in Q1 FY14 to the $7.1 million in hedge gains in Q1 FY13, the net year-over-year currency decrease to revenue considering hedging gains was $15.2 million.

In Q4 Adobe's effective tax rate was 27.5% on a GAAP basis and 21% on a non-GAAP basis.

The GAAP rate was higher primarily due to stronger than forecasted profits in the US.

Employees at the end of Q4 totaled 11,802 versus 11,847 at the end of last quarter.

Our trade DSO was 46 days, which compares to 44 days in the year ago quarter and 52 days last quarter.

Cash flow from operations was $252 million in the quarter.

And our ending cash and short-term investment position was $3.13 billion compared to $3.17 billion at the end of Q4.

In Q1 we repurchased approximately 4.5 million shares at a total cost of $263 million.

Now I would like to go over our financial outlook.

In Q2 of FY14 we are targeting a revenue range of $1 billion to $1.05 billion.

Assuming the midpoint of our Q2 revenue range, we are targeting total Digital Media and Adobe Marketing Cloud revenue to grow sequentially.

We also expect LiveCycle and Connect revenue to decline sequentially.

And we are targeting Print and Publishing revenue to be relatively flat.

During the quarter we expect to add approximately the same number of Creative Cloud subscriptions and amount of Digital Media ARR as what was achieved in Q1.

We are targeting our Q2 share count to be 508 million to 510 million shares.

We are targeting net nonoperating expense to be between $16 million and $18 million on both a GAAP and non-GAAP basis.

We are targeting a Q2 tax rate of 28% to 29% on a GAAP and 21% on a non-GAAP basis.

These targets yield a Q2 GAAP earnings per share range of $0.06 to $0.12 per share and a Q2 non-GAAP earnings per share range of $0.26 to $0.32.

Looking to the second half of the year, in the coming months we are planning a major launch of our Creative products and the removal of legacy CS6 products from the channel.

We expect both of these will cause channel partners and our customers to increase their focus on Creative Cloud adoption.

Finally, based on this roadmap, and factoring our Q1 performance and our Q2 targets, we expect we will meet or exceed all of the annual FY14 targets we provided in December.

These targets are available in the financial targets document on our Investor Relations website.

I'll now turn the call back over to Mike.

Thanks, Mark.

We look forward to hosting everyone that has signed up to attend Summit next week.

The opening keynote session is on Tuesday morning March 25.

We'll be hosting a brief financial analyst meeting with presentations by Adobe management and a Q&A session at the event on Tuesday afternoon starting at 3:00 PM Mountain Time.

It's not too late to sign up.

Contact Adobe Investor Relations for registration information and discounted pricing for professional financial analysts and investors.

Keynote sessions and the audio of the financial analyst meeting will be webcast for those unable to attend.

We remind everyone that Adobe increasingly utilizes blogs and social channels as a primary means to disclose important information.

Investors and analysts who want to stay current on the latest Adobe news are encouraged to follow Adobe on Twitter, Facebook and YouTube, and to frequently check Adobe's corporate blogs on blogs.adobe.com.

In addition, TV.adobe.com is a great resource to learn more about Adobe's products and solutions and find new customer case studies.

Our Investor Relations website provides easy access to these resources.

For those who wish to listen to a playback of today's conference call, a web-based Adobe Connect archive of the call will be available on our IR site later today.

Alternatively, you can listen to a phone replay by calling 855-859-2056.

Use conference ID number 541-0066.

Again the number is 855-859-2056 with ID number 541-0066.

International callers should dial 404-537-3406.

The phone playback service will be available beginning at 4:00 PM Pacific Time today and ending at 4:00 PM Pacific Time on Friday March 21, 2014.

We will now be happy to take your questions.

Operator?

(Operator Instructions)

Brent Thill, UBS.

On the Adobe Marketing Cloud, it was a little shy of what I think our estimate in the Street was at.

I was just curious if you could walk through the dynamics there.

I realize you're still guiding to 20%-plus growth.

Can you just maybe walk through where you see the lowest hanging fruit in that business and the dynamics in the market?

Thanks.

Sure.

I'll take that, Brent.

When we look at the prospects for the Marketing Cloud, we continue to be very optimistic.

The bookings were strong during the quarter.

As you know, in the enterprise business, you have a seasonally weak Q1 after what was an extremely strong Q4.

But when we look at it big picture, we just continue to see great awareness, good traction with all of our solutions -- people adopting the new solutions rather than point products.

And I'm sure you'll get a lot more information next week at Summit.

And Campaign was off to a strong start, so, that adds to another solution that we have now as part of the offerings.

So, we continue to be very excited about the prospects for the Marketing Cloud.

And just a quick follow-up: In terms of the duration of some of the contracts customers are signing, can you just give us a sense of what the general trend you're seeing there?

Yes.

I think people are still continuing to sign contracts.

I would say the average is probably 18 months, Brent, but you have multiple that are three years.

And retention continues to be fairly high in that space.

Thank you.

Walter Pritchard, Citigroup.

This is Ken Wong for Walter.

Just a quick question on the point products.

You noted that that was driving some of the subscriber adds this quarter.

I think the last time you guys updated us on the mix, it was about 80% were on the full Creative.

How should we think about the mix going forward?

Does that trend closer to roughly two-thirds being on a full suite that you guys had when it was a desktop product?

I would think, Ken, that overall we would continue to have a higher mix for the entire Creative Cloud when we think about the Creative Cloud offering, as opposed to the equivalent comparison with the Creative Suite product.

And when we think about what happened in Q1 -- overall unit demand for the Creative products continued to be really strong.

I think you'll see mix changes during the quarter, as long as we continue to have the perpetual option.

The other thing I would say is we saw a lot of strength with new customer acquisition in the Photoshop and Lightroom bundle that was quite well received.

But overall, I would say that we continue to expect that overall mix in the Creative Cloud will continue to be towards the entire offering.

(multiple speakers)

I was just going to add to that -- this is Mark -- that, like I mentioned, we have this major launch coming with a big marketing campaign.

And as we said, we're going to take CLP and TLP out of the channel.

And those two actions together are going to help drive Creative adoption and ARR in the second half of the year.

Got you.

And then, Mark, you mentioned raising -- you guys would beat the financial guidance you guys laid out there for FY14.

Does that also include the 3 million Creative Cloud subs?

Yes, all the targets we laid out we feel good about meeting or exceeding.

I would, again, continue to impress, like I think we have for investors, that the annualized recurring revenue is really the right long-term way to look at the health of the Business.

We're off to a strong Q1.

And, again, as Mark said, that gives us confidence for us to expect to continue to beat the targets that we have.

We're just not updating the guidance every quarter -- annual guidance.

Got you.

Thanks a lot, guys.

Brendan Barnicle, Pacific Crest Securities.

Shantanu, I was interested in where you guys might be seeing leverage between the Creative Cloud and the Marketing Cloud?

I'm guessing it's something we'll see more of next week.

But do you have any commentary on that, or how we might start to think about the TAM or new opportunities that you're seeing as those two products increasingly get used together?

We're seeing actually more and more, Brendan.

That's a good question.

I'll give you some customer examples.

The publishing industry, certainly, they want a single asset repository and workflow to create content once and re-purpose it across web, mobile applications, and video.

We're seeing in retail, actually a number of innovative customers are looking to accelerate the entire time to market.

So, they have their design done with hopefully an enterprise version of the Creative Cloud ETLA.

And then they are actually providing that design directly through manufacturing through the workflow that we have.

So, instead of using traditional product databases, they're actually using our content repository system.

We're seeing marketers accelerate campaigns by having their content assets directly flow into the marketing platform.

And in video, I think you're seeing creation, delivery, and ad insertion also all done through a single system like Primetime.

The two products that we have specifically in that space, the digital asset management that's represented within the Adobe Experience Manager, and also we have the integration right now between DPS and AEM.

So, hopefully that gives you some color of how customers are actually aggressively wanting us to further integrate, both within the clouds and across clouds.

Great, thanks.

And, Mark, just a quick one.

Any reason to assume Creative Cloud subscribers would decline sequentially at any point through the second half of the year?

Not based on what we see coming with the launch, and, like I said, the removal of CLP and TLP from the channel.

We're feeling good about subscribers and growing them in the back half of the year.

Great.

Thanks a lot, guys.

Jennifer Lowe, Morgan Stanley.

I wanted to ask about the Creative Cloud mix in the quarter, in particular, any color around demand from individuals or team versus ETLA.

Jennifer, I think demand from individuals continues to be strong.

I think the ETLA pipeline -- again, you traditionally have a strong close to Q4, and then we start building up the pipeline in Q1.

And so, ETLA -- we will see a sequential seasonal decline between Q4 and Q1.

And team continues to get stronger every quarter, as we see both CS6 being longer in the tooth as it relates to channel fulfilling demand from the customers, as well as people looking at the value-added innovation that's available through the Creative Cloud.

Team continues to get stronger.

So, that hopefully gives you color.

And if you look at the individual application mix versus the overall, you'll also see that Photoshop/Lightroom combination did well.

As we've done survey on those customers, we're definitely seeing market expansion and attracting new customers to the platform.

Great.

And just a quick follow-up clarification question, Mark, to your answer earlier to Brendan.

You said that you expect Creative Cloud subscribers to continue to grow throughout the year.

Should we expect the rate of subscriber adds to grow throughout the year?

I just wanted to clarify that.

I didn't get that specific.

But, again, with the launch and the removal of CLP/TLP in the back half of the year, we would expect subscribers to grow.

I'd leave it at that for now.

Thank you.

Ross MacMillan, Jefferies.

Congratulations.

Mark, you mentioned that the Creative subscription revenue was greater than perpetual licenses for the first time.

Is there any more color you could provide around that approximate mix between the two in Q1?

I don't know as that we want to get that specific.

Like I said on the call, it's really pleasing to see more than half of our total revenue in the quarter coming from ratable sources now.

And more of the Creative revenue coming from recognized subscription revenue than from perpetual revenue.

We did say a couple times now that perpetual revenue really falls off dramatically in the back half of the year, again, even more so now with the CLP/TLP coming out of the channel.

I think it gets fairly de minimis, like we talked about, in the back half of the year.

And just on that removal of the Creative Suite from the channel, did that apply also to direct sales, as well -- so, from Adobe.com or through other mechanisms?

In other words, will it be basically impossible to get your hands on Creative Suite in the second half of the year?

No, Ross.

The way we're looking at it, we first feel that the offering that will be coming out later this year is going to be so strong; CS6 is definitely going to look longer in the tooth.

We have created all of the appropriate training with the channel partners, as well as making sure the two licensing programs that we had, CLP and TLP, both of them will still be available.

We will, in certain markets, continue to offer the licensing.

Again, that would be de minimis in the second quarter.

And then, electronic software download -- you will continue to see us offer that.

But even today, honestly, on Adobe.com, the vast, vast majority of all purchases is clearly the subscription.

So, Adobe.com has already made that transition.

The direct enterprise businesses all driving ETLAs.

The channel mix is slightly different.

But we feel so confident that we now have the product offering, we have the appropriate way for both the channels to resell our products, as well as for people who are acquiring it within enterprises to have an admin console.

And all of that just leads us to make sure that we have a unified story about what the right product is for all of our customers.

That's really helpful.

Maybe one last one, just on ARPU.

Obviously, it was lower as you expected in Q1 as a result of the Photoshop/Lightroom shift.

Given the changes that are coming here in the second half, would you expect ARPU to actually begin to increase given, I think, the changes are going to drive more traditional suite users to move to the full Creative Cloud?

I'm just curious for that ARPU trend that you see this year.

Yes.

I mentioned this in the script, Ross.

But, again, the best measure of the business we still believe is ARR because that incorporates everything obviously.

And as we looked at the segmented offerings with individual, team and enterprise, ARPU is relatively flat quarter over quarter across each of those offerings.

But in aggregate, it was down due to mix, and still remains in the mid-30s, which we feel good about.

And like we've said, over the longer term, we feel that there's plenty of opportunity to drive that ARPU up.

Right now we want to drive subscriber adoption, and we're going to do things that are prudent to do that.

But again, ARPU remains in the mid-30s, and it was affected by mix this quarter more than anything else.

And directionally, Ross, if you actually look at the ARPU, when you take out the Photoshop/Lightroom bundle, it was actually up slightly.

And so, again, completely on strategy in terms of execution.

When we get Creative Cloud, we get people to renew at the upper price.

All of that's working well.

We continue to see an expansion opportunity with Photoshop/Lightroom.

But if you remove the SLR from the mix, ARPU was actually slightly up.

That's very helpful.

Thank you.

Kash Rangan, Merrill Lynch.

Nice about the new sub adds.

Mark, can you talk about the 12.8 million subscriber base that you disclosed at the analyst day back in May?

And what percentage of that is roughly the breakup between commercial versus education, government?

And do you think that ARPU of mid-30s can sustain even if you were to go back to a mix, your subscription base for CC, as you had a cumulative CS base of 12.8 million.

That's it for me.

Thank you.

Kash, to be honest, we're not going to be updating that install base migration, at least not on the call here.

That's something that we would do maybe down the road at an analyst day or something.

But, like we said, we continue to see good adoption from people that are both perpetual users, as well as new users on Creative Cloud.

So, is it possible, then, to give us some feel for when you have more of a normal mix of education versus commercial in your Creative Cloud subscriber base?

How do we expect the ARPU to shape up or ASP to shape up (inaudible) result being flat?

How do you feel about the integrated pricing in the so-called non-commercial markets?

Thank you.

In the non-commercial markets, I think when we think about education, Kash, it will continue to be a seeding strategy in order to get people.

And it will probably be a lower ARPU, much like the ARPU was lower when we think about what we had with the Creative Suite.

We also continue to offer ETLAs within educational institutions, which is doing well.

So, the direct sales force has moved to educational institutions.

When we think about the education markets specifically, think of it as individuals within the education, whether they are students, whether they are administrators, or whether they're faculty, they will have the ability to get Creative Cloud at a lower price point.

You will have the equivalent of team for deployment within labs.

That product is also going to get updated, as we talked about.

And at the higher end for enterprises.

But it's a great seeding strategy.

And it allows us to continue to have people embrace our products as the products of choice, as they embark on a Creative career.

Steve Ashley, Robert W. Baird.

I was just going to inquire about the dichotomy between your performance in geographies with your Asia-Pacific market being down 22% year over year.

Just wondering if you could give us a little color on that.

Does that have to do anything with the adoption of Creative Suite there, and how that might have performed versus your expectation?

Clearly, Creative Suite started off strong in the US, and we're rolling it out around the world.

It's like anything else: It seems to move from the US to Europe to Asia.

So, Asia has probably got the biggest opportunity in terms of Creative Cloud adoption moving forward.

I don't think there was anything we saw, Steve, around the world from a demand perspective that was troubling.

Like I said, we saw stable demand across all the geographies, so it was nothing unusual in the numbers.

And there's definitely upside on Creative Cloud adoption in Asia.

And when we talk, Steve, about digital marketing, I think we've made it explicit about our focus on developed economies as the first area of focus.

And so, as the percentage of digital marketing revenue in our overall revenue mix grows, that will also show up more disproportionately in both the US as well as in Europe.

That's helpful.

Maybe one last thing, Mark.

In the past, you've been able to give us the ETLA AAR as a metric.

I was wondering if we could get that this time.

We actually have not split that out in the past.

It's fairly straightforward.

If you take the ARPU in the mid-30s, times the number of users that we told you about in the quarter, you can back into an enterprise ETLA ARR number.

We've never really broken it out, to be honest, Steve.

Okay.

Thank you.

Jay Vleeschhouwer, Griffin Securities.

I'd like to ask first about businesses where you get paid, in effect, or at least in part, based on customer activity.

Shantanu, you've alluded to DPS.

I was wondering if you could update us a bit more on how that's progressing.

And another business where you, in effect, get paid according to customers' activity, such as Media Optimizer.

And whether there were any other opportunities like those two where you could be on the meter in terms of revenue, like the first two I mentioned.

Then a follow-up.

Sure, Jay.

I think with DPS we might have mentioned that we had about 150 million downloads.

I think if we update that, it would be closer to 170 million right now.

And so, that traction continues.

What's exciting about DPS is that actually a lot of the new business is in commercial accounts, as I think we mentioned.

So, that all goes well for us as we see deployment within enterprises.

Media Optimizer continues to do well, grow year over year in terms of the annualized marketing spend that we have.

But I would actually say that all of Marketing Cloud is really transaction based.

And when you look at what's happening with mobile and the move towards mobile devices and mobile traffic, that is driving -- whether it is the number of multi-channel messages that are communicated, whether that's the amount of advertising spend that we do, whether it's the amount of targeted offers that are going out on behalf of our customers.

The good thing about the Marketing Cloud is that, as transaction volume increases, with mobile clearly driving adoption, that actually all goes well for all of Marketing Cloud.

Okay.

The second question has to do with your services and support revenue.

You mentioned a quarter ago during Q&A that customers don't want to do their own integration as far as digital marketing is concerned and your various solutions.

And you alluded to the same this evening.

But we noticed that your services revenue was down sequentially and year over year.

Is that a function of older maintenance running off an older LiveCycle and Connect services revenue running off, but underneath it all you're seeing growing engagements in services revenue for Marketing Cloud more than anything else?

I'll let Mark answer that specifically.

I think big picture, as it relates to people adopting Creative Cloud, you're seeing more and more partners in the ecosystem who are standardizing on the Adobe Marketing Cloud.

And, again, I think you'll see some exciting announcements next week about how more and more people are creating digital practices on our marketing platform.

And so, our strategy continues to be: How do we engage those partners?

How do we educate those partners?

And for some of the key customers, we will certainly be prime, but we want the entire ecosystem to evolve.

And then, Jay, you're right.

On the services line, to the extent that we have more and more customers adopting ETLAs, which is consistent with our strategy, and where the sales force is really performing very well, you will see maintenance fall off on the old model and move into more of an ETLA model for Creative.

One quick clarification regarding Adobe.com where you said the vast majority of Creative Cloud subs activity is occurring.

Is the total amount of Adobe.com revenue now larger than it would have been two years ago before you began the transition, when you were still relying largely on perpetual business going to the site?

Honestly, I'd have to look at that, Jay.

I don't know about the recognized subscription revenue specifically from Adobe.com versus perpetual from Adobe.com.

I would think that if it's not there already, it's certainly going to get there.

But I don't know if it's there yet.

Thanks a lot.

Heather Bellini, Goldman Sachs.

I apologize because I've been juggling between a couple different calls tonight.

But I was wondering: You talked a lot, and a year ago, if we go back to the marketing summit that you had, you talked about how you're integrating your products.

One of the things we hear from looking at the salesforce's and the Facebook's and the Google's of the world is people would like one dashboard to manage all their different marketing offerings.

I think you guys are obviously in the pole position to offer that.

I'm just wondering if you could share with us the current experiences of some of the customers that you've been winning as a result of that, and what the common themes are.

And what you think the opportunity is to increase that penetration into your install base.

Sure, Heather.

As you know, we announced at the last marketing summit that we'd be moving all of the 20 or 30 products that we had into essentially 5 solutions that then got expanded when we made the Neolane acquisition into Adobe Campaign.

If I look at our results for Q1, the vast majority of that revenue is now coming from solutions.

So, it's clear that people are buying the solutions, as opposed to the individual point products.

And some of those solutions, again, have multiple point products of the past.

So, that's one really positive data set.

The second one is: As we delivered Adobe Campaign, which was off to a strong start, it comes with the same user experience.

So, we have already built a single dashboard that allows people to, in a unified way, use all of our different solutions.

I think there are two other things maybe I'll leave you with.

The first is managed services.

When we have an Adobe Experience Manager solution, it provides us with a great opportunity to not just have the Adobe Experience Manager solution as part of the installation, but to actually have all of the solutions ready to go.

And all that a customer has to do is to turn it on, rather than to explicitly have to contract with us.

And, finally, I think one of the things that is exciting for us is: A lot of the CMOs are now looking at it and saying, whether it's their spend across multiple channels, whether it's their communication across multiple channels, the entire media mix and attribution, we're uniquely qualified to solve that for CMOs across their entire marketing spend.

And so, stay tuned for some exciting announcements on that front, as well.

Thank you so much.

(Operator Instructions)

Phil Winslow, Credit Suisse.

Thanks.

This is Siti Panigrahi for Phil Winslow.

Could you touch on the competitive environment in marketing given the continued consolidation in the space?

And also, I wanted to ask about the integration of Neolane -- any initial feedback from customer?

And how should we look for Neolane to be more integrated into Marketing Cloud?

I'll do the second one first.

It's already integrated.

It's Adobe Campaign.

We mentioned in the prepared remarks that it's off to a strong start.

And so, having that multi-channel orchestration capabilities across all of our offerings, across all channels, is a very strong add already to the Marketing Cloud.

I think in terms of what's happening in the competitive landscape, you're right.

There is more activity because it's probably the most explosive new enterprise software category.

I think our DNA about creativity and marketers continue to give us a lot of optimism about how we're going to perform in this.

We are the leaders.

And we are going to continue to differentiate, honestly, by integrating entire content delivery into this platform.

So, hopefully that gives you some indication.

But, yes, there's more competition.

I think it's just raising awareness of the entire category.

And if you look at the industry analyst reports, we continue to be the leader, not just in the entire platform but also in individual solutions.

That's helpful.

Thanks.

Derric Wood, Susquehanna Financial Group.

Shantanu, you just mentioned that customers are shifting to solution deployments in the Marketing Cloud.

I'm just curious if there's any general metric you could provide in terms of the ASP uplift from this change?

I think you're going to hear some of that next week.

You do know we're doing an FA summit there, as well, Derric.

So, we'll leave some information for you to come listen to, both the announcements, as well as an update on the Business.

Okay.

Just to follow-up on the Marketing Cloud, given the publicity from the breach at Target, I know that's more on the point-of-sale side of things, but I'm just curious if that's having any impact in spending trends in the eCommerce vertical.

No.

I think customer behavior is really driving more eCommerce across every single device.

I don't know of a single customer or partner who doesn't believe that the move towards online digital eCommerce is going to diminish.

It's just going to increase.

Thank you.

Rob Breza, Sterne Agee.

Mark, maybe just a quick question.

I know it was asked a little bit beforehand.

But as you think about the geographical mix, I noticed Asia was around 16% for the last quarters here.

Is that a trend?

Or should we expect it to return back to that normal 20%?

Thanks.

I think over the right period of time, you'll see Asia come back to where it was.

There's no reason to believe that it wouldn't.

Like both I and Shantanu said, they're going to be a little bit behind on Creative Cloud adoption.

They are certainly behind on Digital Marketing adoption.

And as perpetual falls off more and more, that changes the mix.

But there's no reason to believe that those mixes shouldn't come back to where they were over the longer period.

(multiple speakers)

Thank you, nice quarter.

Thank you again for joining us.

We are executing well against the strategy, and feel really great about the progress we've made.

When we look at it, we think Q1 was a strong start in both our growth initiatives.

In Digital Marketing, we do have the most comprehensive marketing platform, strong year-over-year bookings growth.

And we will share more details on the road map, as well as industry partnerships that we're signing to accelerate that Business.

And in Digital Media, the strength of Q1, coupled with the innovation that we are on track to deliver later this Summer, leads us to expect to exceed the annual target that we had provided.

We look forward to seeing you at Summit.

Thank you.

This concludes our call.

Thanks for joining us today.

This concludes today's conference call.