Adobe Inc.

Good afternoon, ladies and gentlemen. I would like to welcome you to Adobe's first quarter fiscal year 2019 earnings conference call. All lines have been placed on mute to prevent any background noise. And I would like now to turn the call over to Mr. Mike Savage, 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 Narayan, and John Murphy, Executive Vice President and CFO. In our call today, we will discuss Adobe's first quarter fiscal year 2019 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 and an updated investor data sheet on Adobe.com. If you'd like a copy of these documents, you can go to Adobe's 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 and operating model targets and our forward-looking product plans, is based on information as of today, March 14th, 2019, 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. On our Q4 FY18 call in December, we provided targets for fiscal year 2019 and for Q1 FY19 based on revenue accounting standard ASC605. As required, we have adopted ASC606 for FY19, and today are reporting our results based on ASC606. We're applicable We will call out differences in our results between ASC 605 and ASC 606 for comparison purposes against our prior ASC 605-based targets. On this call, we will discuss GAAP and non-GAAP financial measures. Reconciliation between the two is available in our earnings release and on Adobe's Investor Relations website. Call participants are advised that the audio of this conference call is being webcast live 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 re-recorded or otherwise reproduced or distributed without prior written permission from Adobe. I'll now turn the call over to Shantanu.

Thanks, Mike, and good afternoon. Fiscal 2019 is off to a strong start for Adobe as we delivered another record quarter in Q1. We achieved 2.6 billion in revenue representing 25% year-over-year growth. Gap earnings per share for the quarter was $1.36 and non-gap earnings per share was $1.71. Adobe empowers people to create and transforms how businesses compete, a highly differentiated strategy that we continue to execute well on in Q1. Across all industries and geographies, We're helping customers large and small transform themselves and their businesses with Adobe Creative Cloud, Document Cloud, and Experience Cloud. In our digital media business, we achieve strong revenue in both Creative Cloud and Document Cloud in Q1. Net new digital media annualized recurring revenue, or ARR, was 357 million And total digital media ARR exiting Q1 grew to $7.07 billion. Q1 creative revenue was $1.49 billion, which represents 22% year-over-year growth. Adobe Creative Cloud is democratizing creativity by delivering innovative new ways for everyone, from businesses to students to creative professionals to hobbyists, to tell their story. Our flagship digital imaging and video solutions, including Photoshop, Premiere Pro, and After Effects, have long been the go-to tools for indie and feature filmmakers and editors. At this year's Academy Awards, both Adobe Photoshop and After Effects received scientific and engineering awards for their contributions to the filmmaking industry. It's a tremendous honor for Adobe, and we're very proud of the product and engineering teams who contribute to the development and ongoing innovation in these iconic products. Most recently, Photoshop was used in the making of Spider- Into the Spider-Verse, which won this year's Oscar for Best Animated Film. Our photography business, including mobile usage, continues to show strong momentum. The number of Lightroom CC mobile subscribers has increased by more than 400% over the past year. Beyond film and photography, Adobe is pushing the boundaries of creativity onto new canvases and broadening the appeal of Creative Cloud to entirely new segments of users. New media types, including 3D, video, and augmented reality continue to emerge, which will enable more immersive and engaging digital experiences. In January, we acquired Algorithmic, the industry standard in tools for 3D material and texture creation for gaming and entertainment. The addition of algorithmic further expands Creative Cloud into interactive content design and allows us to better equip video game creators, visual effects artists working in film and television, designers and marketers to deliver the next generation of immersive experiences. Premier Rush CC, our popular video editing app for social media creators, is expanding its footprint to Android and was recently showcased at Samsung's Galaxy S10 event. We continue to innovate with Adobe XD, our solution for designing and prototyping websites and apps, adding expanded collaboration, prototyping and voice capabilities, all supported by a growing ecosystem of plugins and integrations with companies like Microsoft, Slack and Atlassian. We feel passionately that creative skills are a critical component for success across K-12 and higher education classrooms. We recently announced a partnership with the Royal Shakespeare Company in England. Together, we'll make new creative teaching resources and tools, including Creative Cloud and Adobe Spark, available to teachers and to millions of students learning the works of Shakespeare in schools throughout the U.K. This quarter, we partnered with the California State University System to give students and staff at 21 campuses access to our full suite of Creative Cloud tools. Since Adobe launched Spark for Education in April 2018, over seven million licenses have been provided to students and teachers worldwide. With Adobe Document Cloud, we're reinventing how people create, scan, edit, collaborate, sign, and share documents and leading the paper to digital revolution. Document Cloud revenue in Q1 was a record 282 million, and we grew Document Cloud ARR to 856 million. Overall momentum for Acrobat is fueled by strong demand for Adobe PDF among individuals and businesses worldwide. Our mobile footprint continues to grow. Adobe Reader and Adobe Scan downloads have now surpassed 600 million and our partnership with Samsung contributed significantly to downloads of Adobe Scan in Q1. In addition, Adobe Reader is now available in the Made for Samsung section of the Galaxy App Store, increasing our potential reach to millions of Samsung smartphone users. We recently launched the PDF Like a Boss global advertising campaign to drive further awareness for new Document Cloud, Acrobat, and Adobe PDF capabilities. Last month, we announced a partnership with the PGA Tour, which will feature our new campaign and TV coverage for 10 tournaments this year. Adobe Sign has strong momentum and has become the e-signature solution of choice for organizations across all industries. We continue to enable resellers such as Nintex, to sell Adobe Sign to thousands of partners, public, private, and government organizations on their platforms. In our digital experience business, we achieved experience cloud revenue of $743 million for the quarter, which represents 34% year-over-year growth. The success of our digital experience business is bolstered by several industry tailwinds. The mandate for enterprises and organizations to digitally transform their businesses and the need to deliver the world-class end-to-end customer experiences consumers have come to expect. More and more businesses are choosing Adobe Experience Cloud, the industry's only end-to-end solution for marketing, advertising, analytics, and commerce, serving both B2C and B2B customers. Key Experience Cloud customer wins in the quarter included HSBC, NBCUniversal, Bass Pro Shops, and WebMD. Delivering exceptional experiences requires a lot more than tapping into a customer database to deliver a personalized email. Businesses need a full range of capabilities from creation through commerce and acquisition through renewal. For today's digital businesses, it's not enough to have data. You need the right data, behavioral, transactional, and operational, to understand your customer and the intelligence to act on it in context. With our Adobe Experience platform and breadth of Adobe Experience Cloud solutions, Adobe is enabling enterprises to achieve a unified real-time view of their customers and harness these insights to deliver engaging digital experiences. Last year, we made several significant investments to further expand the range of capabilities we offer to Experience Cloud customers with the acquisitions of Magento with its best-in-class e-commerce capabilities and Marketo, the leader in B2B marketing engagement. We're off to a strong start with both Magento and Marketo, and we're successfully integrating them into Adobe Experience Cloud. This is creating an unmatched value proposition for customers and growing Adobe's addressable opportunity in the customer experience management category. We're focused on product integration while driving acceleration of the Magento and Marketo businesses, leveraging Adobe's brand enterprise sales and go-to-market organization, while maintaining a strong global footprint in the mid-market. With Magento, we're driving momentum by cross-selling our commerce offering to existing Adobe Experience Manager customers. With Marketo, we delivered our first integrated deployment of Adobe Experience Platform Launch, our tag management system. We're seeing strong interest from strategic Adobe accounts, many of which are B2C, who have significant B2B operations as part of a broader digital transformation strategy. Industry analysts continue to recognize Adobe Experience Cloud as the market leader. This quarter, Adobe Experience Cloud was named a leader in the Gartner Magic Quadrant for digital experience platforms, and once again achieved the strongest position in the quadrant out of 17 vendors for completeness of vision. Our upcoming summit in Las Vegas will be our largest to date, And we will welcome the Marketo Marketing Nation community to the event. We're excited to share our customer experience management vision, strategy, and technology roadmap with our customers and partners. At Adobe, our employees are our greatest asset, and we're proud to have a brand that continues to be recognized for its innovation, progressive workplace practices, and commitment to the communities in which we do business. For the third consecutive year, we were named one of Fast Company's most innovative companies. Forbes recently recognized Adobe as one of its best employers for diversity. And Fortune included Adobe on its annual Most Admired Companies in Software list again this year. Adobe is the clear leader in empowering people to create and helping businesses transform to deliver the customer experiences needed to compete and win in today's competitive climate. These two tremendous market opportunities are fueling our business. With the world's best employees, customers, and partners, we are well positioned for further growth and continued success in 2019.