Adobe Inc (ADBE) 2015 Q1 法說會逐字稿

I would like to welcome you to Adobe Systems' first quarter FY15 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

Thank you.

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 FY15 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 posted PDFs of our earnings call prepared remarks and slides, our financial targets and an updated investor data sheet on Adobe.com.

If you would 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 on this call, particularly our revenue, subscription and operating model targets, and our forward-looking product plans, is based on information as of today, March 17, 2015, 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 data sheet on Adobe's Investor Relations website.

Call participants are advised that the audio of this conference call is being webcast live in 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.

FY15 is off to a strong start.

In Q1 we reported revenue of $1.109 billion and non-GAAP earnings per share of $0.44.

We achieved solid growth across our Creative Cloud and Marketing Cloud businesses, and delivered a new wave of product innovation.

In Digital Media, Creative Cloud continues to be the preeminent destination for creators around the world, enabling them to work seamlessly across desktop and mobile devices.

While the desktop applications continue to be the foundation of Creative Cloud, 50% of Creators are using mobile devices in their creative process.

Over 30 million mobile apps have been downloaded, including capture apps like Adobe Brush and Shape, as well as desktop companion apps for Photoshop CC and Illustrator CC.

Over 5 million new free subscribers were acquired through our Creative Cloud mobile apps since MAX in October.

We celebrated the 25th anniversary of Photoshop last month and were blown away by the tremendous response from customers, partners and the press.

Photoshop is one of the world's most iconic brands and has had a profound impact on every form of design and media, from animation to photography to film to web design.

Through consistent innovation over the span of two and a half decades, Photoshop has stayed fresh and relevant and is now attracting a new generation of fans.

We continue to successfully migrate the Creative Suite installed base, as well as bring new customers into the community.

In Q1, Individual and Team adoption grew by 517,000 to over 3.9 million subscriptions.

This represents 28% year-over-year growth in net new subscriptions.

Creative annualized recurring revenue, or ARR, grew to $1.79 billion exiting Q1.

Delivering on our promise to make Creative Cloud the one-stop shop for Creatives, we closed the acquisition of Fotolia in January.

Stock content is part of an incremental $4 billion of addressable market for Adobe.

93% of stock content sellers and 85% of stock content buyers use our tools.

Work is underway to integrate Fotolia into Creative Cloud, providing current and future Creative Cloud members with the ability to access and purchase over 35 million images and videos within the Creative Cloud experience.

We will also continue to operate Fotolia as a standalone stock service, accessible to anyone.

With seem less integration, we believe we can increase Creative Cloud ARPU over time, as well as grow Adobe's share of the stock content market.

In Document Services, today we announced the Adobe Document Cloud, a modern way to manage documents at home, in the office and across devices.

Adobe Document Cloud will include an all new version of Acrobat called Acrobat DC, which has an intuitive, touch-enabled interface and features revolutionary new mobile capabilities.

For the first time, eSign services, formerly Adobe EchoSign, will be included with every Adobe Document Cloud subscription to enable sending and signing from any device.

Adobe Document Cloud will integrate analytics and capabilities to manage, track and control documents.

Adobe invented PDF and it is the de facto standard in the documents category.

We see a sizeable opportunity ahead of us in the documents space to monetize the millions of existing Acrobat customers and hundreds of millions of Reader and PDF users.

We plan to make Document Cloud available to our customers as both a perpetual and subscription offering within the next 30 days.

It will also be available to our Creative Cloud subscribers as part of the full Creative Cloud offering.

In Q1, we reported Document Services revenue of $193 million and exited the quarter with $297 million of ARR.

Across our Creative and Document Services businesses, total Digital Media ARR grew to $2.09 billion as of the end of Q1.

In Digital Marketing, reported revenue for Adobe Marketing Cloud in Q1 was $311 million, representing 17% year-over-year revenue growth.

Last week, we held our Digital Marketing Summit in Salt Lake City, which has become the premier marketing industry event for marketing, media and publishing professionals around the world.

With over 7,000 attendees, Summit has become the biggest pipeline building event of the year.

We introduced two new Adobe Marketing Cloud solutions, Adobe Primetime, the industry's leading multi-screen TV platform, and Audience Manager, our fast-growing data management platform, as well as new capabilities in Adobe Campaign and Adobe Analytics.

We highlighted advancements in mobile marketing and app development, the extension of marketing intelligence into product design and Internet-of-Things, and the fusion of ad-tech and marketing technology.

Customers from some of the world's top brands joined us on the keynote stage, including executives from Under Armour, Time Warner Cable, Girl Scouts of America, Starwood Hotels and Resorts, and National Australia Bank.

Partners play a significant role in our go-to-market strategy and the ecosystem of companies who recommend, sell and deliver Adobe Marketing Cloud solutions continues to grow.

We announced a new partnership with IBM, which will provide specialized enterprise consulting capabilities for Adobe Marketing Cloud.

We announced an expansion of the alliance with Accenture through the launch of Accenture Customer Engagements, a cloud-based managed service that simplifies the development, execution, and measurement of digital marketing.

We have built two fast growing cloud businesses and are well on our way to building a third.

All three share a common goal of enabling our customers to make, manage, measure, and monetize virtually every type of content.

We are driving the future of digital media and marketing in a way that no other company can, and we're excited about our road map for the year.

Mark.

In the first quarter of FY15, Adobe achieved revenue of $1.109 billion, above the high end of our targeted range.

GAAP diluted earnings per share in Q1 were $0.17 and non-GAAP diluted earnings per share were $0.44.

During the quarter, we closed the acquisition of Fotolia, which contributed $7 million of revenue in Q1 and was not material to non-GAAP earnings per share.

Highlights in our first quarter include delivering revenue above the high end of our targeted revenue range; achieving 28% year-over-year growth in net new subscriptions to Creative Cloud; closing the acquisition of Fotolia, which when combined with other Creative Marketplace services we offer, increases our Creative addressable market by $4 billion; Adobe Marketing Cloud revenue of $311 million; and exiting Q1 with a record 70% recurring revenue.

In Digital Media we achieved revenue of $703 million.

This segment has two major components of revenue, our Creative family of products and our Adobe Document Cloud products.

In our Creative business, we exited Q1 with 3,971,000 Creative Cloud subscriptions.

Net new Creative Cloud subscriptions increased by 517,000 in Q1, consistent with our expectations given Q1 seasonality.

Retention of Creative Cloud subscriptions, including renewals after promotional pricing expiration, continues to track ahead of our initial projections.

Q1 adoption of Creative Cloud for Teams grew substantially on a year-over-year basis, and we are building a healthy Enterprise Term License Agreement, or ETLA, pipeline.

Average revenue per user, or ARPU, within each of our Creative Cloud offerings maintained steady levels consistent with results over the past year.

Blended ARPU across all Creative Cloud offerings declined slightly as a result of mix.

As we discussed last week at the financial analyst briefing at Summit, Creative Cloud Single Apps and the Creative Cloud Photography Plan are expanding our market opportunity through the addition of new customers, and create the potential for higher ARR in the future via ARPU-enhancing services such as Fotolia, and upsell to higher-tiered Creative Cloud offerings.

Consistent with our expectations, Creative ARR grew to $1.79 billion, an increase of $180 million quarter-over-quarter.

As a reminder, we revalued ARR exiting FY14 based on December 2014 currency rates.

With Document Services, in advance of the Adobe Document Cloud launch, we achieved revenue of $193 million.

Document Services ARR grew to $297 million exiting Q1.

This ARR growth was driven by adoption of Acrobat ETLAs, subscriptions, and Document Services including EchoSign.

In our Digital Marketing segment, there are two components.

The first is revenue from our Adobe Marketing Cloud offering, and our momentum as the leader in this market continued.

Last week at Summit we discussed growth with large customer engagements and multi-solution selling.

Our announcements and the pipeline that gets built at our conference should continue this success in 2015.

In Q1, we achieved Adobe Marketing Cloud revenue of $311 million, up 17% year-over-year, and consistent with our expectations.

The second component of our Digital Marketing segment is revenue from the LiveCycle and Connect businesses, which contributed $46 million in Q1 revenue, consistent with our expectations.

Print and Publishing revenue was $49 million in Q1.

Geographically, we experienced stable demand across our major geographies.

From a quarter-over-quarter currency perspective, FX decreased revenue by $17 million.

We had $24 million in hedge gains in Q1 FY15, versus $12 million in hedge gains in Q4 FY14; thus the net sequential currency decrease to revenue considering hedging gains was $5 million.

From a year-over-year currency perspective, FX decreased revenue by $26 million.

Considering the $24 million in hedge gains in Q1 FY15, versus $3 million in hedge gains in Q1 FY14, the net year-over-year currency decrease to revenue considering hedging gains was $5 million.

In Q1, Adobe's effective tax rate was 48% on a GAAP basis and 21% on a non-GAAP basis.

The GAAP rate was higher primarily due to tax costs associated with licensing acquired company assets to Adobe's trading companies.

These one-time costs were partially offset by tax benefits related to the retroactive reinstatement of the US R&D credit in December 2014.

Employees at the end of Q1 totaled 12,698 versus 12,499 at the end of last quarter.

Our trade DSO was 44 days, which compares to 46 days in the year-ago quarter, and 50 days last quarter.

Cash flow from operations was $183 million in the quarter.

The sequential decline from Q4 is consistent with previous first quarters since prior year annual bonuses and commissions are paid in Q1, as well as prepayments of certain employee fringe benefits for the current year.

Deferred revenue grew to $1.18 billion, up 34% year-over-year.

Our ending cash and short-term investment position was $3.18 billion, compared to $3.74 billion at the end of Q4.

The primary driver of this decline was the acquisition of Fotolia which closed during the quarter.

In Q1, we repurchased approximately 2.4 million shares at a cost of $174 million.

In January, our Board of Directors approved a new stock repurchase program granting us the authority to repurchase an additional $2 billion of common stock through the end of FY17.

Now I would like to provide our financial outlook.

In Q2 of FY15, we are targeting a revenue range of $1.125 million to $1.175 million.

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, and Print and Publishing revenue to be relatively flat.

During the quarter, we expect to add more net new Creative Cloud subscriptions and Digital Media ARR than what was achieved in Q1, and we continue to expect both to grow sequentially in the third and fourth quarters.

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

We are targeting net non-operating expense to be between $15 million and $17 million on both a GAAP and non-GAAP basis.

We are targeting a Q2 tax rate of approximately 24% on a GAAP basis and 21% on a non-GAAP basis.

These targets yield a Q2 GAAP earnings per share range of $0.20 to $0.25 per share, and a Q2 non-GAAP earnings per share range of $0.41 to $0.47.

We're pleased with our performance in Q1, and we're off to a great start for the year.

Mike.

Adobe MAX will occur again in Los Angeles this fall during the week of October 5. We will provide registration information later this summer.

More information is available on max.adobe.com.

For those who wish to listen to a playback of today's conference call, a web-based 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 94371293.

Again, the number is 855-859-2056, with ID number 94371293.

International callers should dial 404-537-3406.

The phone playback service will be available beginning at 5 PM Pacific Time today, and ending at 10 AM Pacific Time on Monday, March 23, 2015.

We would now be happy to take your questions.

Operator.

(Operator Instructions)

Your first question comes from the line of Brad Zelnick at Jefferies.

Thank you very much for taking my question.

Mark, you'd said that 517,000 creative sub ads was consistent with your expectations, given Q1 seasonality, though this was very different than last year's Q1 seasonality, if we just look at subs.

But can you maybe frame it for us in the context of total Creative units, since obviously there's a lot less Creative perpetual revenue this year?

Sure, so let me also jump in a little bit on color for the quarter and then Mark can add to that.

I think we've been telling you for a while that Digital Media ARR is really the best health for the business; and as you saw, that grew to $2.09 billion.

One of the things that I think we should also reflect is that we offer customers multiple ways to acquire Acrobat subscriptions.

And depending on the type of customer, this can get reflected in either the Creative subs and ARR, Brad, or the Document ARR.

So when you acquire Acrobat as part of the CC offering, whether it's single app or complete, that's reflected in the Creative ARR; and when you get it as part of the Document Cloud offering, the ARR is then reflected in the Document Cloud.

And this is actually very similar to the way in which we offered the perpetual software when we had Acrobat, as well as Creative Suite.

So one of the things in the quarter was that as we contemplated the Acrobat mix changing, we experimented with driving more Acrobat in conjunction with the Document Cloud launch.

So if you look at the Acrobat subs ratio in Q1, if they were reflected in CC subs, similar to prior quarters, the Creative reported subs would have been significantly higher.

And so I think a number of you probably had the mix different in terms of being overweighted in CC subs and ARR, since you guys were unaware of the experimentation we were doing in conjunction with the Doc Cloud launch.

So when we look at the results that we had in Q1 overall, as it relates to Digital Media ARR and adoption of the Creative Cloud and Acrobat, that's why we said it was very much in line with our targets.

I think the only thing I'd add to that, Brad, is in Q4, we did have holiday promos, especially around Photography, to drive adoption in advance of the holidays.

And in Q1, we really did not have any of that.

So we didn't have much from a promo perspective in Q1 driving units.

That's helpful.

And if I can just slip in one quick follow-up.

Mark, I didn't see it in the release or in your comments, but especially in light of Fotolia closing and the volatility and FX translation and the impact that that has, can you just remind us of your full-year targets?

Thanks.

Yes, let me actually -- since you brought up FX, let me talk about FX for a couple minutes, because it is important.

And there's three considerations that you should consider as it relates to FX.

One is revenue, two is the balance sheet and specifically deferred revenue, and then the third is ARR, because it does impact ARR, as well.

So let me just walk through each of those.

I think I've explained this over the years.

We have a hedging program to hedge a portion of our revenue through a cash flow hedging program.

So we have revenue and expense in euro, pounds and yen, as you know.

And we hedge a large portion of that net position of revenue versus expense in each of those currencies by buying put options.

And we hedge a few quarters out at any point in time.

And we've been doing that for years, and you saw it worked very well in Q1 and Q2 -- or in Q1, I should say.

Because we hedge a few quarters out in a rate dropping environment, there was minimal impact to our revenue after hedging in Q1, and you saw that in the results.

At current rates, I'd also expect minimal impact to revenue after hedging in Q2.

And that's factored into the Q2 guidance that I provided.

And as we learn more about rates going forward for Q3 and Q4, we'll let you know about any potential impacts at that time.

And as is customary for us, we're not going to update our annual targets at this time.

The second piece is the balance sheet.

So deferred revenue balances, the balance on the balance sheet is protected; however, again, in a rate declining environment, since deferred revenue balances are made up of activity from as much as a year ago, the deferred revenue that comes off the balance sheet is at a higher rate than the new deferred revenue going on to the balance sheet.

So the rate drop does have an impact to net new increases to deferred revenue.

And then the last piece is ARR.

So as you know, we report ARR in constant currency from the rates at the start of the year.

And as you know, we revalued our year-ending 2014 ARR based on December 2014 rates.

But when you compare Q1 of 2015 net new ARR to Q1 of 2014 net new ARR, it's a similar situation to deferred, where in the 2014 net new ARR, you'd be building that up at a higher rate and that lowers the reported year-over-year growth.

So this likely had a mid-single digit impact on year-over-year net new ARR growth in Digital Media.

So that's kind of a mouthful, but I know there's going to be a lot of questions on FX, and hopefully that clears it up.

No, that's very helpful.

And just on the full-year targets, and I'll leave it here after this, but $5.9 million Creative subs and I know that's only one piece of a much bigger story, but everybody seems to focus on it, that still stands and you still feel confident in that for the year?

So again, Brad, we customarily do not update annual guidance after Q1, and we're not doing that today.

But as Shantanu said, we're happy with how we did in Q1 and it's consistent with our expectations.

Thank you so much.

And your next question comes from the line of Brent Thill from UBS.

Hello.

Good afternoon.

On the Marketing side, the number continued to do very well.

I'm just curious, when you look at the percentage of the revenue that is perpetual now versus recurring, can you just give us a sense of what you're seeing going forward in that line item?

And I know it was seasonal in Q1 when you called for that, but anything else we should think about as we're modeling that out for the year?

Yes, Brent.

As we said towards the end of last year, we've kind of gotten to the point where the perpetual number is pretty small.

It's going to bounce around a little bit based on customer preference, but it's not a material number anymore.

And it's not going to swing the revenue that much anymore.

So we feel good about the fact that that has transitioned into a more ratable model now.

Okay.

And a follow-up for Shantanu, on the Document Cloud, I know there's pieces of this that you had somewhat of a rebrand.

Can you just give us a sense of maybe what's new at a high level and what opportunity you think this can unlock now.

It seems that you're a little more focused on this than perhaps in the past.

Sure, Brent.

I think the fundamental issue is that the need to manage documents and document work flows is actually increasing rather than decreasing.

And we have this incredible franchise, when we think about both the Reader distribution that we have across virtually every device, the fact that we've distributed over a billion of them, and the fact that PDF has been accepted as the de facto standard for documents.

So when you put that together and you consider the massive shift that's happening from paper to digital, we just think we have a really unique opportunity to convert paper documents to this high quality PDF that you can edit, you can auto populate, you can fill forms, you can send for signatures and more.

And so what we announced today was, as part of the Document Cloud, Acrobat DC, which is a completely reimagined user experience, far more simple, far more intuitive.

We've aligned all of the product offerings from Acrobat to Reader to Standard, all associated with Acrobat DC.

And then the other thing we've done is a huge focus on mobility.

So we've design Acrobat DC to be touch-enabled and work seamlessly across devices.

E-signatures are now part of every subscription of Acrobat DC.

And we think that integrating documents across other systems like Office 365, as well as other storage providers, we've added significant more value.

And so we just feel like this is a large opportunity.

It's ours to win.

And I think when you think about both what's being used within the Document Cloud, as well as, as I mentioned earlier, Acrobat within the Creative Cloud, it just continues to be an opportunity that we focus on.

So as we think about the year for Acrobat, we think we will keep revenue relatively consistent with last year, but we will grow ARR quite a bit.

And so I think we're excited about that.

Thank you.

And your next question comes from the line of Steve Ashley from Robert W. Baird.

Great.

I'd just like to maybe make my first question on the Marketing Cloud.

Just wondering if you had any maybe color around the bookings growth you're seeing there.

Yes, Steve, I think the bookings growth, again, were in line with the targets that we have.

As you know, you were there at Summit.

Summit was an incredibly successful event for us.

It's, as we said in the prepared remarks, the largest pipeline growing event for us.

I think we continue to grow our lead in that particular category and are recognized as that.

So we're pleased with what we did in Q1 and continue to be really bullish about the opportunity that Adobe has in the Marketing space.

And one of the things you guys talked about at the marketing event was some of the core services in the Marketing Cloud that included assets.

And I'm just wondering in terms of the long-term strategy, is there a plan or hope to maybe link that to the Creative Cloud.

And if there is, maybe you could talk about that a little bit.

Sure.

I think the core services that you are alluding to, Steve, for the benefit of others on the call, there are things like what we've introduced with Audience Manager, the ability to run both campaigns and to have them specific to customer segments, whether you're doing that for your media spend, whether you're doing that associated with understanding analytics or targeted campaigns and converting them to paying customers.

With respect to the integration of the clouds -- and today I'll say three clouds -- one of the things that we continue to view is asset management as the core of what you can do between Creative Cloud and Marketing Cloud.

You saw a number of customers talk about how the velocity of content creation is increasing and how the fact that we have integrated the clouds helped them with that.

So the core service, I would say, are the asset management service that's part of the Marketing Cloud, the ability to run campaigns, and over time, you can also look at the audience segmentation.

The other thing I think we showed at Summit was the ability to look at an asset as part of the [sneak] and understand how effective the usage of that asset was, creative asset, across all campaigns.

So I think that also gives some indication of the innovation that we're doing in this space.

Great.

Thanks.

And your next question comes from the line of Brian Weiser at Pivotal Research.

Thanks for taking the questions.

First, I was wondering if you can update us on the unbilled backlog for the overall business.

And separately, I was wondering if there's any characterizations you can offer on the numbers of customers you have in the Marketing Cloud alone?

Hello.

It's Mark.

So on unbilleds, we only disclose that number with the K at the end of each fiscal year.

So obviously, we would expect that to keep growing.

But we don't disclose a number, other than at the K.

And Brian, with respect to the number of Marketing Clouds customers, they are in the thousands.

I think the focus on those customers, as you know, is both with new logo addition, as well as with increased upsell of our existing solutions.

But we don't have an update to that number.

It is clearly in the thousands and growing well.

Okay.

Great.

And if I may, just one brief question around Nielsen and your relationship there.

I'm just wondering if you could update us when you expect to see product in the market, and any current commentary on the relationship and evolution of that product?

Yes, Brian.

The rationale for the partnership that we announced was that every single advertiser and publisher would like to see a consistent cross domain understanding of customers.

And since we are clearly the leaders of what's happening in web analytics and Nielsen is a leader of what's happening on TV, providing a consistent demographic of who is viewing what content across what device is something that the two of us can uniquely provide.

We're working together.

We don't have an update on exactly when that's going to be in market.

But it's been received well by publishers and advertisers, because they do want that currency to cut across multiple TV screens.

Multiple screens.

Great.

Thank you very much.

And your next question comes from the line of Brendan Barnicle with Pacific Crest Securities.

Thanks so much.

Mark, in your prepared remarks, you mentioned that blended ARPU across the Creative Cloud offerings declined slightly as a result of mix.

We've seen that for a while now, as you've had individual product sales.

When do you think that starts to bottom out?

Are you guys modeling a point where that bottoms out?

Yes, actually it's come down this quarter less than it has in recent quarters.

So it was a much smaller decline this quarter.

So it is conceivable that we're starting to see that now, actually.

When we look at it -- maybe I'll just add to that.

We found the ARPU very healthy in the quarter.

The thing to remember, again, is the steady state of the Creative business.

For sure, what we had was both a mix between the full units, as well as individual point units.

And I think we've stated in the past that if you consider it from a revenue point of view, it was approximately a 70/30 towards the Suites.

And if you considered it from a units point of view, it was 50/50.

And when we rolled out the Creative Cloud, as you know, we rolled out the Creative Cloud Complete first, and then added offerings such as the individual app offering for Team, as well as the CCPP offering.

And so all of this is happening in line with our expectations.

We're increasing the market for both of those.

But the revenue that we see today for Creative Cloud Complete as a percentage of the total revenue is higher than what it was with the Creative Suite offering.

So things are playing out in line with our expectations.

And Shantanu, at the marketing company, it's very clear you guys are seeing bigger deals and bigger RFPs.

So you have any commentary on what you're seeing on ARPU over on the Marketing Cloud side of the business?

Well, we don't use the word ARPU there.

But in terms of the large deals and the number of transactions greater than $500,000 or $1 million, we don't have an update right now.

Actually, Brad had some data that he put in that data sheet, so that does reflect the progress that we are making in multi-solution selling.

We're not updating that today, over and above what Brad described at the Marketing Summit, Brendan.

And just for reference, those are in the slides on our IR site.

There's a reference to the Summit slides from last week that you can access that information at.

And then just one last product question, Shantanu, on the Document Cloud.

I was wondering what you guys are seeing with EchoSign and any changes in the competitive landscape there.

Thanks.

That's it for me.

Well, I think with respect to signatures, the demand for signatures, the organic demand for signatures and making that paper-based work flow move digital, I think we're seeing tremendous demand for that.

I think there are a couple of players in that market.

I think today's announcement allows us to enable every Reader on every device to start to participate in the electronic signature work flow, which we think will be a jump start, both for us, as well as other players in that market.

It's going to be a big market, and it's going to take years, by the time we get all of the approvals.

So I think everybody is going to see a significant amount of growth.

And there are other competitors, as you point out.

But we really like what footprint we have right now and the offering that we have in the market.

Great.

Thanks, guys.

And your next question comes from the line of Mark Moerdler at Bernstein.

Thanks.

This is Mark Moerdler from Bernstein.

So quick questions.

Do you believe the FX has had any impact on subscriber adoption in any of these regions?

Do you think you're seeing anything slower, in terms of the mix of subscribers?

And was the FX itself larger impact on Creative than other divisions?

And then I have a quick follow-up.

The net to both of those questions is no.

I don't think it has any impact upon customer adoption.

And the FX is going to be skewed towards where revenue is by currency, and that's not going to be much different for Creative versus other pieces of the business, really.

Mark, just to again clarify, both all of the individual offerings -- Team continued to do well in the quarter.

We had a strong quarter for Team, as it related to Creative Cloud subscriptions.

And again, I do want to repeat that the Acrobat subscriptions in the quarter, virtually every one of them went against the Document Cloud ARR as opposed to the Creative ARR, but it is reflected in the Digital Media ARR.

So is that going to then, is that a long-term impact?

In other words, are we going to see more of those subscribers float over?

I know you've guided to a number in terms of subscribers for the year.

But overall, should we see that as a long-term gain that does pick up some (Inaudible) on the Document side?

No, I think we were experimenting this time, as it related to the Document Cloud launch.

I think we continue to think that there's a tremendous head room in the Creative Cloud installed base that we will continue to drive towards.

And we remain confident about the long-term subscriber numbers, as well, that we will continue to drive in Creative.

But I think this time, we wanted to reflect that you see that strength more on the Document ARR than the Creative ARR.

And that mix, Mark, would have been factored into the 5.9 when we guided.

Oh, okay.

One other quick one.

Does the Document Cloud drive any change in revenue recognition license versus subscription?

Well, we certainly have subscription as an offering right now.

That subscription offering for Acrobat has been there for a while.

We continue to believe that as -- the migration will not happen the way the Creative Cloud migration happened.

So we've said that revenue, we expect to be, in the Document Cloud business, relatively flat for the year, but ARR to grow well.

Thank you very much.

And your next question comes from Jay Vleeschhouwer of Griffin Securities.

Thanks.

Good evening.

Mark, a question for you first, regarding the revenue profile in parts of your business, particularly Marketing Cloud, because that is, you have a mix, in some cases, of platform access revenues, and then you have a large mix, of course, of usage-based or transactional-based revenue.

Could you talk about how you think that mix might evolve, both in the Marketing Cloud side of the business and perhaps in the other sides of the business, Creative Cloud and Doc Services, in terms of platform and usage-based revenue?

Then a follow-up.

Thanks.

If I understand you correctly, Jay, I mean, for the most part, it's all usage-based.

Some of it is specifically tied to usage numbers every single quarter.

Some of it is based on an annual usage number.

But for the most part, it is usage-based revenue oriented.

Okay.

On the Creative Cloud subs ad number, two things.

You mentioned last week at Summit that you had 5 million trial users signed up from all your player downloads.

How are you thinking about converting those to paying subscribers?

And in terms of another potentially very long source of subscriber ad, particularly for PSLR, how are you thinking about converting the old Elements base to subscription?

I would think that the package full of Elements would have, over the years, generated several millions, at least, of nominal users.

So how are you thinking about converting them?

It's a good question, Jay.

I think both the millions of Elements customers that we have, as well as the over 30 million Acrobat units that are out there, both represent an installed base that we will consider moving to the appropriate subscription offering.

So more specifically to your question about elements, the Elements base, certainly we believe, a better migration path for them moving forward is the Creative Cloud Photography.

Both the Elements base, as well as the trial users, we have a very carefully constructed campaign to continue to target them and have them move over from being trial users to being paid subscribers of the Creative Cloud, and we will continue to execute against that opportunity.

All right.

Just one more, if I may, for Mark.

Your Q1 cash flow was relatively low, or lower than Q1 last year, anyway.

In spite of that, just given the revenue stacking of the various subscription businesses and the margin expansion that you'll likely see this year, wouldn't it stand to reason that your operating cash flow should probably meet or beat $2 billion for FY15?

I'm not going to guide to a total number for the year, Jay.

But suffice it to say that this is a low quarter, coming off of Q4, with all the payments that we make in Q1.

And it's going to come back very nicely through the rest of the year.

Thanks, Mark.

And your next question comes from the line of Jennifer Lowe at Morgan Stanley.

Great.

Thank you.

I wanted to touch quickly on the reseller channel.

And in particular, I know in Q3, there was a little bit of an air pocket there, given the pulling out of perpetual.

It seemed like that came back pretty strongly in Q4.

Do you think the reseller channel is now kind of stable, where you'd like to see it, at this point?

Yes, I feel good Jennifer about how the reseller channel is also focused on the Creative Cloud opportunity and how they're executing against it.

They're certainly targeting the installed base and helping them migrate from Creative Suite to Creative Cloud.

So we feel good about it around the world.

Great.

And then just one for Mark.

This is the second quarter in a row where expense growth, operating expense growth, has been less than a percent, which is pretty impressive, especially given how you're investing in the Marketing Cloud.

I guess two questions.

One is how much of that -- or maybe really just one question -- how much of that is efforts that you're proactively making to reign in costs versus something more tactical, like FX?

It's not FX.

We manage the cost structure of the Company very, very carefully.

We've always been very good at that, frankly.

We've got the money we need to invest in the business.

We've got the sales capacity we need to invest in the Digital Marketing business.

That OpEx number, you're going to see it start to grow now as we go through the year.

Don't forget, when you come off of Q4, there's a lot of additional comp expense for sales commissions and things that you have in Q4 that you don't have in Q1.

So that's a big reason for what you see between Q4 and Q1.

But it will ramp as we go through the rest of the year, and you'll see that, based on the guidance for the year that we had provided.

Great.

Thank you.

And your next question comes from the line of Samad Samana from FBR Capital Markets.

Hello.

Thanks for taking my question.

I wanted to touch base on Fotolia, with the acquisition now closed.

Could you remind us how many subscribers they had?

And could you share any data on the overlap between their subscriber base and whose using the Creative Cloud already?

We have not provided their subscriber base numbers.

What we have provided is the overall market available opportunity.

So we've said, when you consider all of services, it's approximately a $4 billion opportunity.

We've also shared that we think over 90% of the people who contribute stock content use our tools, and over 80% of those who buy that stock content use various tools.

And strategically, what you should think about it is that the integration is on track.

We will continue to offer as a standalone service the two models that Fotolia had, namely a on-demand model, as well as a subscription model for stock photos, as well as we will introduce new offerings, which includes Creative Cloud and stock offerings.

So that's conceptually how you should think about it.

When it's introduced into the market, we'll certainly provide more details.

Okay.

And then if I could ask one more on the Creative Cloud side of the business.

Historically, you've provided a mix between point products and full suite numbers.

You didn't break that mix out this quarter.

Could you give us an idea if there was any type of meaningful change directionally between the mix that you've seen over the last few quarters and this quarter?

And that's my last question.

It's Mark.

It's 59% full this quarter.

Okay.

Great.

Thanks for that.

And your next question comes from the line of Walter Pritchard at Citi.

Hello.

Thanks.

Mark, I'm just wondering, as we think about seasonality this year on the subscriber side, you put the line in the prepared remarks saying that you would expect that subscribers would grow each quarter.

So it seemed like the step-up seemed more meaningful during some of these quarters to get to the 5.9.

And I'm wondering, with this experimentation in Q1 that it sounds like should not continue into Q2, should we expect that there is a step back up from Q1 to Q2, with some of the Acrobat stuff coming back into the Creative Cloud line?

So yes, there will be a step up from Q1 to Q2.

It wouldn't even just be from Acrobat.

It would be a natural step up, as we march towards that $5.9 million that we had guided to.

But definitely a step up from Q1 to Q2.

And Walter, the other thing, as you're aware, is as we continue to roll out the innovation road map, that also continues to get people who are on CS6, so prior versions, moved over to the Creative Clouds.

So that will continue, as well.

And then just one follow-up.

Last year, you had three events, with the major launch mid-year.

And then in Q3, you basically cleared (Inaudible) out of the passage product, and then they started selling Team, and that seemed like that was a bit of a shot in the arm for the subscriber growth numbers during the year.

As we look at this year, is there anything like that that we should be aware of that would impact seasonality, other than simply the fact that (Inaudible)?

Well, we're not announcing products.

But Walter, I think to the question that you asked, you can expect that we're going to be coming out with a fair amount of innovation.

And if you look at our historical delivery, delivering something again in a few months would be consistent with what we've done last year, yes.

Okay.

Thank you very much.

Operator, we'll take two more questions.

Thank you.

And your next question then comes from Matt Williams at Evercore ISI.

Hello, guys.

Silting in for Kirk Materne.

Thanks for taking the question.

Just maybe if you could provide a little bit of color on how you're thinking about the reacceleration of Marketing Cloud revenues throughout the remainder of the year, just given that you're lapping the anniversary of deferring more of the Experience Manager and Campaign revenue?

Yes, we had, as you know, we had guided to 25% revenue growth for the year.

We start out the year here with 17%.

It definitely ramps, the growth, from a year-over-year perspective, will ramp pretty much every quarter, as we get up to Q4, to get to that 25%.

Okay.

Great.

And I may have missed this, but did you guys give a bookings growth rate for the Marketing Cloud for this quarter?

No, we did not.

We don't disclose the booking growth rates every quarter.

We just said -- Shantanu had mentioned that we had a good quarter.

Okay.

Fair enough.

Thanks for taking the questions.

And your last question comes from the line of Derrick Wood at Susquehanna International Group.

Thanks.

So last week, you guys talked about the TAM for the Photography market being significantly higher than the traditional Creative products.

And now you've got a more strategic cloud focus on the Document side.

So have you guys done the work to update the total user TAM in the Digital Media segment?

You know, we certainly have a lot of data on what's happened with the Acrobat segment, as well.

And I think to Jay's question earlier, as well, in terms of what the available opportunity is for us to attract customers who previously bought Elements.

That is -- I think at MAX, you can expect us to continue to give you an update on what's available as a total available market.

We're not certainly providing that level of detail on our earnings call, Derrick.

And Derrick, you could also -- our slides from the past have also disclosed some of that.

So I'm happy to follow-up later on, where we discuss the Document Services TAM and the related addressable markets.

Okay.

And then you guys mentioned the ETLA pipelines you're building nicely, and I suspect ETLAs were seasonally softer in Q1, as is typical.

Can you just remind us of what kind of seasonality you typically see throughout the year, and then whether you think the Document Cloud will help drive some incremental strength in the size of ETLA?

So ETLA is typically, as you have seen historically, Q4 tends to be a seasonally very strong quarter.

Q1 does, as you point out, tend to be a weak quarter, and then it starts to build up.

And so we expect to, as Mark also said in the prepared remarks, see a sequential increase.

And to your other question, there's no doubt in our mind that what we are seeing is as we have multiple offerings that are targeting an enterprise, our ability to sell higher into the organization and sell more complete solutions is increasing.

And from that point of view, the availability of the Document offerings will only help the fact that we have Creative offerings, as well as we have Marketing offerings.

So I think all of those, with the announcement of the Document Cloud, should be positive.

Since that's the last question, maybe I'll just recap and say, we're proud of what we accomplished in Q1 and the strong start that we had to FY15.

It was a strong revenue, as well as EPS quarter.

We drove strong Digital Media ARR, and had a very successful Summit that we organized in Utah.

We announced the new Document Cloud this morning and the reception to that has also been extremely positive.

Fotolia integration is on track.

We will make available the Document Cloud to our customers, also, this quarter.

And so we feel like we're in great shape, and we remain focused on driving both product innovation, as well as strong financial results for the rest of FY15, as well as beyond.

Thank you for joining us today.

And this concludes our call.