Good afternoon. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to Adobe's Q4 Fiscal Year 20 13 Earnings Release 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.
Thank you. I would now like to hand 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. To turn the call over to our next call are Adobe's President and CEO, Shantanu Narayan as well as Mark Garrett, Executive Vice President and CFO. To turn the call over
to our operator. In the
call today, we will discuss Adobe's 4th quarter fiscal year 2013 financial results. By now, you should have a copy of our earnings press release, to discuss the wire approximately 1 hour ago. We've also posted PDFs of our earnings call prepared remarks and slides, our financial targets to turn the call over to Steve and answer session. Thank you, and good afternoon everyone. Thank you, and good afternoon everyone.
Thank you, Steve. Thank you, Steve. Before we get started, we want to emphasize that some of the information discussed in this call, particularly our revenue, subscription and operating model targets to turn the call over to Mr. President and Mr. President.
Thank you, Mr. President and Mr. President. Thank you, Mr. President and Mr.
President. To ask questions. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you to review the forward looking statements disclosure in the earnings press release we issued today as well as Adobe's SEC filings. To turn the call over to our financial targets.
During this call, we will discuss GAAP and non GAAP financial measures. A reconciliation between the two is available in our financial targets document to turn the call over to our operator and answer session. Call participants are advised that the audio of this conference call is being webcast live to thank you 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 Shankh.
To turn the call over to Eric. Thanks, Mike, and good afternoon. Our objective in fiscal year 2013 was to establish leadership to turn the call over to Steve.
Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve.
Thank you, Steve.
Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve.
Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve.
Good morning, Steve. Good morning, everyone. To turn the call over to our customers. Thank you. Thank you.
Thank you. Thank you. Thank you. Thank you. Thank you.
Thank you. Thank you. Thank you. To take your questions and proceed $1,000,000,000 in Adobe Marketing Cloud Revenue. More importantly, we have set the stage with our market leading offerings to thank you for joining us today.
In Q4, we delivered revenue of $1,040,000,000 contributing to total revenue of more than 4,000,000,000 to turn the call over to our Investor Relations team in fiscal 2013. In Digital Media, we continue to make great progress with our Creative Cloud Service. As of the end of Q4, Creative Cloud adoption grew
to over
1,400,000 subscriptions, exceeding our original target of 1,250,000 for the year. Creative Cloud members are receiving a constant stream of new features, products and services each month and customer satisfaction is high based on our surveys. In addition to paid members, we currently have millions of customers in the pipeline who are trying out the service. In addition to success with Creative Cloud for individuals, Creative Cloud for Teams and Enterprise Term Based Licensing to call our ETLAs also had strong results in Q4. Teams of creatives are realizing the benefits of collaboration to turn the call over
to Eric. And enterprises are increasing
their adoption due to simplified licensing models and integration with Adobe Marketing Cloud's
introduce our financial results.
As a result of the strong subscription uptake and increased enterprise adoption, to turn the call over to our operator. Total Creative annualized recurring revenue or ARR grew by $219,000,000 in Q4. The Creative Cloud offering continues to evolve to ensure that we are satisfying our existing subscribers and attracting new members. To turn the call over to Bob. In September, we introduced the Photoshop photography program, providing Photoshop and Lightroom via Creative Cloud to professional photographers and hobbyists at an affordable monthly price.
Update on this offer has been strong and we believe adding these users to turn the call over to our long term goals. We continue to build momentum with our digital publishing business with more than 150,000,000 digital editions to deliver to consumers through app stores. This week, we announced that we will be publishing the technical specification to thank our colleagues for our Dotfolio format, which will further accelerate digital publication adoption. Having established leadership with major publishers, sales enablement and company magazines and brochures. In our Document Services business, to turn the call over to our operator.
Thank you. Acrobat continued to perform well with our online document services continuing their strong momentum.
We have
now surpassed 1,600,000 document services subscriptions. EchoSign adoption continues with brands including Volvo, Mary Kay to turn the call over to Craig and discuss our financial results. Thank you, Jim. Thank you, Jim. Thank you, Jim.
Thank you, Jim.
Thank you, Jim. Thank you, Jim.
Thank you, Jim. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone.
Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone.
Good morning, everyone. Total Digital Media ARR grew to $911,000,000 as we exited the year, to turn the call over to Eric. Surpassing our original and most recent targets of $800,000,000 $875,000,000 respectively. In our digital marketing business, we achieved 38% year over year revenue growth with Adobe Marketing Cloud in Q4, to turn the call over to our operator for the Q1 of 2019. We continue to have the most comprehensive offering in the market to thank our Chief Marketing Officers, Chief Revenue Officers, Advertising Agencies, Publishing Executives and Digital Marketers.
To turn the call over to Eric. Our growth is coming from new logos as well as increased adoption of our 6 solutions, which is increasing our revenue per customer. To turn the call over
to our operator.
We continue to deliver significant innovation to Adobe Marketing Cloud customers during Q4, to turn the call over to our operator. Thank you, sir. Thank you, sir. Thank you, sir. To turn the call over to
our operator. We made progress in
our integration of Adobe Campaign, our cross channel campaign management solution that came through our acquisition of NeoLane. To turn the call over to Eric. Thank you, Eric. Thank you, Eric. Thank you, Eric.
Thank you, Eric. To turn the call over to Eric. Thank you. Thank you. Thank you.
Thank you. Thank you. Our next question comes from the line of to rehearse the same themes. They are challenged by the growth in the amount of digital content that needs to be created, published and personalized. To take a moment to reflect the need to re platform their web infrastructure to support mobile devices and social platforms and the complexity of managing campaigns effectively to take a look at the progress we made in the quarter.
We know that customers don't want to be burdened with stringing together point solutions with the most complete integrated digital marketing offering to turn the call over to John. In a long history serving marketers, publishers and agencies, we believe Adobe is in the best position in this space.
To turn the call over to Mark.
To turn the call over to John. Thanks, Shantanu. Our earnings report today covers both Q4 fiscal year 2013 results. To spend some time discussing targets for next year and beyond. In FY achieve revenue of $4,055,000,000 We had an amazing year in transitioning our creative business to a subscription model to turn the call over to Steve for closing remarks.
Key financial highlights from the year included Exiting the year with Digital Media ARR of $911,000,000 surpassing $1,000,000,000 in Adobe Marketing Cloud Revenue, to growing deferred revenue to a record $829,000,000 returning $1,000,000,000 in cash to stockholders through our stock repurchase program and building a more predictable revenue stream. In Q4, to turn the call over to Eric. Approximately 44% of our revenue was recurring, up from approximately 27% in Q4 of last year. To turn the call over to Eric. In the Q4 of FY twenty thirteen, Adobe achieved revenue of $1,040,000,000 to turn the call over to our operator.
GAAP diluted earnings per share in Q4 were $0.13 Non GAAP diluted earnings per share were $0.32 to turn the call over to Eric. Thanks, Eric. Thanks, Eric. Thanks, Eric. Thanks, Eric.
Thanks, Eric. Discuss year over year revenue growth and increasing deferred revenue by $95,000,000 to a record 829,000,000 In Digital Media, we achieved revenue of $631,000,000 This segment has 2 major components of revenue, our Creative family of products and our Document Services products. In our Creative business, customer adoption of Creative Cloud accelerated. To turn the call over to Eric. We exited Q4 with 1,439,000 Paid Creative Cloud Individual and Team Subscriptions.
This performance was driven by continued strong adoption of Creative Cloud for individuals and from Creative Cloud for Team subscriptions, to. In addition to the overwhelming majority of individual subscriptions being transacted on our website, to turn the call over to David.com. Creative Cloud ETLA momentum accelerated in Q4. In the year, we close more than 1,000 creative ETLA contracts of greater than $100,000 with more than 80 contracts to turn the call over $1,000,000 As a reminder, ETLAs are generally 3 year contracts. Combined, our success with subscription and ETLA adoption helped to drive Creative ARR to a total of to turn the call over to Kevin.
Thanks, Bill. Thanks, Bill. Thanks, Bill. Thanks, Bill. Thanks, Bill.
Thanks, Bill. Good morning, Bill. Good morning, Bill. Good morning, Bill. Good morning, Bill.
Good morning, Bill. Good morning, Bill. Good morning, everyone.
To turn the call over
to David. Our strategic goal continues to be to accelerate adoption of Creative Cloud and we are focusing all of our innovation there. To
turn the call over
to the operator. We added over 500 new
and enhanced features to Creative Cloud in FY2013, which is driving higher customer satisfaction. In addition to promoting the value of Creative Cloud, we are using a variety of targeted promotions to drive awareness, consideration and purchase. To provide our strong subscription and ARR results during the year. In Q4, overall monthly average revenue per user or ARPU declined slightly from prior quarters, to turn the call over to our operator. Thank you, sir.
Thank you, sir. Thank you, sir.
Thank you, sir. Thank you, sir. Thank you, sir. Thank you, sir.
Our first question comes from the line of to continue to deliver enhanced value and new services, which will help grow ARPU over time. To continue to renew as their introductory pricing expires and overall Creative Cloud retention continues to be above the rate we to be modeled. As of the end of Q4, 96% of Creative Cloud subscriptions are annual plans versus month to month. Single app subscriptions to grow slightly. In document services, we achieved revenue of $198,000,000 in Q4.
Our success in this category is being driven by continued adoption of Acrobat, Acrobat ETLAs, to thank you for joining us today. Document Services ARR grew from 100 and $6,000,000 exiting Q3 to $143,000,000 exiting Q4.
To turn the call over to Eric. In our digital marketing segment, there are 2 components.
The first is revenue from our Adobe Marketing Cloud offering. To turn the call over to Eric. And in Q4, we achieved Adobe Marketing Cloud revenue of $316,000,000 representing year over year growth of 38%. To turn the call
over to our Q4. Our Marketing Cloud solutions grew to
more than $5,000,000,000,000 in Q4. Mobile device use continues to be a driver in our digital marketing business. Mobile transactions increased to 33% of total Adobe Analytics transactions, up from 28% last quarter. Our focus on solution selling and digital marketing has been a big catalyst for the business this year. To turn the call over to Steve.
Thank you, Steve. Thank you, Steve. Thank you, Steve. Good morning, everyone. To turn the call over to our call.
In FY2013, we closed more than 70 contracts of greater than $1,000,000 to turn the call
over to Eric. The second component
of our digital marketing segment is revenue from the LiveCycle and Connect businesses, which contributed $48,000,000 in Q4 revenue. To introduce a path for lifecycle customers to migrate to our Adobe Experience Manager offering. Print and Publishing segment revenue was flat quarter over quarter consistent with our expectations. To turn the call over to Eric. Quarter over quarter FX rate changes had a $4,600,000 positive impact on reported revenue.
To turn the call over to Page 13. Thus, the net sequential quarterly currency decrease to revenue considering hedging gains was 2,800,000 Year over year, FX rate changes had an $11,800,000 negative impact on reported revenue. To turn the call over to Tom. Comparing the $3,100,000 in Q4 FY2013 hedging gains to the $2,000,000 of hedging gains in Q4 FY 2012, the net year over year currency decrease to revenue considering hedging gains was 10,700,000 In Q4, Adobe's effective tax rate was 26% on a GAAP basis and 21% on a non GAAP basis. To
turn the call over to Eric. The GAAP rate was higher primarily due to
taxes accrued as a result of the completion of certain income tax examinations during the quarter. Employees at the end of Q4 totaled 11,847 versus 12,035 at the end of last quarter. To turn the call over to Eric. The decline was primarily due to summer interns returning to school. Our trade DSO was 52 days, to turn the call over to the operator.
Cash flow from operations was $315,000,000 in the quarter to turn the call over
to Eric. And our ending cash
and short term investment position was $3,170,000,000 compared to $3,160,000,000 at the end of Q3. To turn the call over to Eric. In Q4, we repurchased approximately 7,900,000 shares at a total cost of 405,000,000 now I would like to go over our financial outlook. Before discussing our targets in fiscal 2014, to provide additional color around our long term growth rates and earnings potential. We are thrilled with the success to date in transitioning our business to a model that includes more recurring revenue and predictability and at the same time to reiterate that our creative business to a growth oriented subscription model, discuss our financial results.
In our Digital Media segment, customer adoption of Creative Cloud is proceeding more quickly than we anticipated. To turn the call over to Eric. As such, we are targeting an annual digital media revenue compound annual growth rate of 20% to turn the call over to the operator to discuss the financial results between FY 2014 and FY 2016 using FY 2014 as the base year. This is higher than our most recent target, to turn the call over to Steve, which was 15% or greater revenue growth in just the creative part of the Digital Media segment for the same period of time. In our digital marketing segment, we are increasing our targeted annual revenue and bookings growth rates for Adobe Marketing Cloud.
To turn the call over to the operator. Between FY 2014 and FY 2016, we now believe we can achieve a 25% revenue CAGR, to turn the call over to our Q1 earnings call. Our confidence in increasing these targets is based on our strong execution, our increased investments in the business and the large addressable markets we are focused on with our Adobe Marketing Cloud solutions. These increased growth rates in digital media and digital marketing are enabling us to target total Adobe revenue growth of 20 to drive this substantial growth, we will continue to invest in the business. During the transition, while reported revenue has declined, the operator to discuss our financial results.
Based on this, we expect non GAAP earnings per share of approximately to discuss fiscal year 2014 in more detail. Within our Digital Media segment, to turn the call over to Eric. Our digital publishing suite revenue and bookings grew substantially in FY 2013 with exiting ARR of 33,000,000 to turn the call over to Eric. We expect ARR in
this business to double next
year and we will include DPS ARR as part of our creative ARR starting in to turn the call over to FY 2014. Given the transition to subscription with Creative Cloud has gone more quickly than anticipated, to turn the call over to Eric.
We expect more ARR and less perpetual revenue in
FY 2014 than we last forecast. To turn the call over to Eric. We now expect FY 2014 will be the last year of any meaningful creative perpetual revenue and creative to note that our reported revenue will decline year over year as we grow Creative ARR to 1,600,000,000 to
turn the call over to David. Our Creative ARR
target is based on growing
Creative Cloud subscriptions to 3,000,000 by year end and includes DPS. To overachieve the $4,000,000 subscription target we had originally set for the end of FY 2015. We expect Document Services ARR to continue to grow in FY 2014, driven by Acrobat ETLA adoption and growth in our cloud based services, including EchoZone. Factoring the move to a more ratable model, to more than $250,000,000 by fiscal year end. Combining Creative ARR with Document Services ARR, to exit FY 2014 with total Digital Media ARR of 1,850,000,000 to turn the call over to Eric.
We expect total Digital
Media reported revenue of approximately $2,500,000,000 in FY 2014 to turn the call over to Steve. Thank you, Steve. In our digital marketing segment, we expect reported Adobe Marketing Cloud annual revenue growth of 20% in FY 2014, to turn the call over to Eric to discuss our financial results. Thank you, Eric. Thank you, Eric.
Thank you, Eric. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone.
Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone.
Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone.
To turn the call over to Eric. In FY2013, the substantial majority of revenue for these two solutions was recognized upfront on a perpetual basis. If we were to maintain the FY 'twenty 13 mix of perpetual versus subscription revenue for these two solutions in FY 'fourteen, to turn the call over to our next question.
Our Adobe Marketing Cloud annual revenue growth
target for FY 2014 would have been more than 25%. Finally, as I mentioned earlier, we expect total lifecycle revenue to decline in FY 2014. To
turn the call over to Eric. As a result, we
expect LiveCycle and Connect revenue to decline by approximately 25% year over year.
To turn the call over to Eric. Thank you, Eric. Thank you, Eric. Thank you, Eric. Thank you, Eric.
Thank you, Eric. Thank you, Eric.
Thank you, Eric. Thank you, Eric.
Thank you, Eric. Thank you, Eric. Thank you, Eric.
Thank you, Eric. Thank you, Eric. Thank you, Eric.
Thank you, Eric. Thank you, Eric. Good morning, everyone. Good morning, everyone. To turn the call
over to David. We expect total Adobe revenue to be relatively flat year over year in fiscal 2014. To turn the call over to Eric. We expect
FY 2014 GAAP earnings per share to
be approximately $0.27 and non GAAP earnings per share to be approximately to turn the call over to the operator for the call over to the operator for the call over to the operator for the call over to the operator for the call over to the operator for the call over to the operator for the call over to the operator for the call over to the operator for the call over to the operator for the call over to the operator for the call. Thank you, to turn the call over to Eric. We expect to grow non GAAP earnings from this FY 2014 target to approximately $2 in FY 2015 to at least $3 in FY 2016. In Q1 of FY 2014, to add approximately $200,000,000 of digital media ARR. Given normal seasonality, to discuss what was achieved in Q4.
Assuming the midpoint of our Q1 revenue range, to turn the call over to Steve. We are targeting total digital media revenue to decline sequentially in both Creative and Document Services.
To turn the call over to
our operator. And we are targeting Adobe Marketing Cloud year over year revenue growth of approximately 25%. We are targeting our Q1 share count to be 511,000,000 to 513,000,000 shares. We are targeting net non operating expense to be between $18,000,000 $20,000,000 on both a GAAP and non GAAP basis. To turn the call over to Eric.
Thank you, Eric. We are targeting a Q1 tax rate of 26% on a GAAP and 21% on a non GAAP basis. To turn the call over to Eric. These targets yield a Q1 GAAP earnings per share range of
to turn the call over to $0.22 to $0.28
We feel great about our progress against the strategy we laid out 2 years ago. To turn the call back over to Shantanu. To turn the call back over to Shantanu.
Thanks, Mark. FY 2014 is going to be an exciting year. To turn the call over to David. Creative Cloud has become the preeminent creative offering and we expect to exit 2014 with 3,000,000 subscriptions to turn the call over to our operator and 1 point $85,000,000,000 in digital media ARR. Adobe Marketing Cloud crossed the $1,000,000,000 threshold in 2013 to turn the call over to Eric.
With the most comprehensive offering in the digital marketing space and tremendous customer momentum, we expect to grow our Adobe Marketing Cloud bookings 30% in FY 2014. At the heart of this successful reinvention
are our employees.
To thank all these accomplishments possible. To thank you for joining us today. Now I'll turn the call back over to Mike.
Thanks, Shantanu. We recently sent out an invitation for Adobe Summit, our annual digital marketing conference in Salt Lake City. This year, the conference will be held during the week of March 24, with the opening keynote on Tuesday, March 25. As in past years, we're offering discounted pricing for professional financial analysts and investors to attend. To turn the call over to Eric.
We will also host a short financial analyst meeting with presentations by Adobe Management and a Q and A session at the event to turn the call over to our operator for questions. Thank you, to thank our employees for their support and support. Investors and analysts 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 to turn the call
over to our operator. On blogs.
Adobe.com. In addition, tv. Adobe.com is a great resource to learn more about Adobe's products and solutions to 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
to
turn the call over to the operator for questions. Again, the number is 8558592056 to begin with ID number 15,242,607. International callers should dial 404 to turn the call over to Bob. The phone playback service will be available beginning at 4 pm Pacific Time today
to begin the call
and ending at 4 pm Pacific Time on Tuesday, December 17, 2013. We will now be happy to take your questions. Operator?
The first question comes from the line of Brent Thill with UBS. Your line is open.
Good afternoon. Shany, if you could just talk a little bit about the halo impact to hear from the Marketing Cloud on the Creative Cloud and vice versa. And maybe just give us a sense of what you look at in terms of penetration into the Creative Cloud with the work that you're doing there. And I had a quick follow-up for Mark. Sure.
So Brent, we are definitely seeing that as People are thinking about all of their creative applications, the content that they want to deliver across all of these devices. We're definitely seeing more penetration, especially I would say in the enterprise between the creative offerings and the marketing to I think the two areas where we see the most synergy right now is the first in our digital publishing suite and the Adobe Experience Manager. Like That's why we've been that's why we decided to actually provide the DPS ARR as well. And the second, I would say, is in the digital to take a look at the asset management space where people are using the new version of the Creative Cloud to store assets in the digital asset to thank you for joining us today.
And I would say the field
has become a lot better honestly about presenting the entire Adobe story to all of these customers.
Great. Mark, your 2016 guidance implies operating margins, I believe, are back into the mid-30s. Can you just to talk a little bit about your confidence in giving that number this far out. And also, why choose to let that go as high Is that given the market that we're in still emerging, at least in the digital marketing side, is there potentially a thought of maybe even pushing a little bit harder on the expenses to continue your lead.
Yes. Thanks, Brent. Actually, we think that the $2 a to take a look at the share in 2015 and the $3 a share in 2016 gives us the opportunity to invest in the business to to have this growth that we've laid out be realistic. We think that gives us the room that we need to drive the business in both digital media and digital marketing. And you're right, the margin would imply in 2016 something in the 30s as you do your modeling.
But again, we feel like that gives us enough opportunity to invest and do the land grab that we think is there in front of us.
Thank you.
The next question comes from Ross MacMillan with Jefferies. Your line is open. Thanks a lot. Mark, I had a question on ARPU. You commented it was down slightly.
And I think we understand that it's a mix of more products, including the Photoshop photography program, offset by strength the team and also customers renewing as they and coming off promotion. I was just curious, how do you expect that ARPU number to trend in fiscal 2014 and when do you think it could I guess I'm curious about that trend and when it could actually start to increase on an aggregate basis again. Thanks.
Yes. The way we're looking at it right now, we've said this, I think several times, is that we're trying to drive growth in ARR and we're thrilled with the $910,000,000 we did against our original target of 800. We're driving more growth promotions are clearly a part of that and are going to continue to be a part of that. But we're growing the business if you look at ARR and revenue combined. And we really
want to focus on that ARR number right now.
And to remind and we really want to focus on that ARR number right now, not just on ARPU. It is down slightly. You're right. It's going to move around with product to make sure that we're in the right direction. But it continues to be more than what we got under the old perpetual model.
And right now, we're focused on moving the base and driving new users. And we do think there's a significant opportunity to raise ARPU over the longer term.
Yes. Ross, maybe just adding a couple of things. We're certainly seeing a lot of new customers being attracted to this platform. And the Real benefits of the subscription model are the more customers we can get into the Creative Cloud offering. We're pretty confident, as Mark said, with new value to continue to monetize that particular opportunity.
The enterprise was off to a really Strong start. I think you see that in the numbers with Q4. And so as we continue to drive people accepting Creative Cloud, We're confident that we have a lot of things on the road map that will help us continue to drive further ARPU gains over time.
That's great. And maybe just
a quick follow-up for you, Shantanu. I'm curious about your profile versus CPM pricing in the digital marketing side of the business. Can you just maybe help us understand what sort of economic dynamic that could play for customers versus to disclose the status quo. Thanks.
That's a good question, Ross. And fundamentally, as we look at the Marketing Cloud, our strategy has been to make sure that we are providing to the Chief Marketing Officer in all of these marketing enterprises the complete dashboard. And as we think about the complete dashboard and the profile of everything that they're doing across multiple channels, The orchestration has less to do with the traffic on one channel and honestly has more to do with across all of these channels, How many users do they have and how are they providing a consistent way to have interactions with all of those customers. So I think it is fairly innovative pricing that we've introduced. I think we have the ability to rethink the right model for marketers.
And we continue to believe that as those customers drive more profiles that we will benefit from it. So it's different from the existing model. I think it comes to strength in a multichannel offering and our ability to really with our content play and our analytics play up and
the next question comes from Walter Pritchard with Citigroup. Your line is open.
Hi. For Mark, just two questions, pretty numbers focused here. But just on we're trying to get a sense of the 20% figure you gave on the Digital Media business. Like Impressive growth rates, but I guess if we look at fiscal 2016 where that would put you for digital media revenue, We go back and look at fiscal 2011 before the transition started. If we take the 20%, we're looking at a CAGR of about 4% for that 5 years, which feels a little low to us.
Like it feels like 2016 is the year you're through the transition and 2011 was the year before you started the transition. So those should be somewhat apples to apples and We're at a 4% CAGR for that period. Could you help us understand, is that a fair compare to look at? And why shouldn't that number be higher?
Yes. I don't think that's a fair compare to look at. And I might have to do this with you offline, Walter. But We do believe that as you look at the growth in the creative business, as we get into those out years, it's significantly above the growth that we would have had to turn the perpetual model back in the 2007, certainly 2007 to 2012 timeframe.
And then just one follow-up on
the fiscal 2014. Would you be able to provide for us the you said by 2015 all the perpetual revenue should be gone. Can you give us some to what kind of perpetual revenue you're still expecting in fiscal 2014 to help us sort of calibrate the model there?
So we haven't broken it out. One way to look at There's still the great majority of revenue in 2013 is coming from perpetual and the great majority of revenue in 2014 will be coming from to turn the call back to the operator for the Q4. It's a complete shift from one to the other. The other thing I'd add is the back half of twenty fourteen to ask very little perpetual revenue left in it. I mean, we really are for the most part out of the perpetual side of the revenue stream from a creative perspective after the Q2.
Okay, great. Thank you very much.
The next question comes from Kash Rangan with Merrill Lynch. Your line is open.
Hi. Thank you very much. Two parts to the question. 1, Mark, when you look at the Creative ARR guidance of 1,600,000,000 to measure that against the Creative Cloud subscription guidance of $3,000,000 I'm wondering, my math would to suggest that you should probably do even higher in creative ARR using your old ASP assumptions. To And I'm wondering if you have any discounting of ARPU that is built into your forecast that explains why the Craterwood revenue could not be even greater than you're forecasting.
And then secondly, your time continues to expand pretty significantly even with your perpetual model declining. The cumulative base of folks that have bought the license at this point is probably in the name of it of 14000000, 15000000 seats. I'm wondering when we reached the tipping point where those folks realized that granted that you have advanced your goal to get to 4,000,000 Kratos Cloud subscribers, at what point do these folks realize that they're sitting on outdated versions? And when do you get that big flood of to take the questions into your business. That's for me.
Thank you.
Let me take the second question first, Kash, which is like We certainly are finding that we are differentiating our current creative cloud offering from as you point out the last version of CS6. And so I think all our conversations with customers, I think they're seeing more and more innovation only on the cloud. Like And that's why we continue to be confident about our ability to attract new subscribers, whether that turns into a steady stream of continued subscriptions as we modeled or we have a further inflection quicker. We'll see. I think we're focused on driving innovation.
To focus on driving why the Creative Cloud is a better offering. And as you know, Kash having followed us for many years, we are taking these targets very seriously. So, is there upside as we continue to provide innovation? You're right. I mean, we want to take the entire installed base and have them move over into the Creative Cloud Platform offering, but we just have to play it out.
I mean, we're pretty early in this transition in the grand scheme of things. I think the good news is like It's gone better than we've expected and I think people are seeing the value and customer satisfaction.
I was going to say something similar, Kash, to the point to turn the call back over to the operator. I mean, we're early in this transition. We've done, I think, a phenomenal job over the past 2 years of modeling this out. We've just given you a lot of data for the next few years. We're trying to be prudent with what that guidance looks like.
There's nothing unusual that we see from a discounting perspective that's going to happen in FY 2014 that we haven't seen already in FY2013.
Well, thank you very much. It looks like you guys will
end up being one of the
largest subscription revenue companies in tech. Thank you.
Thanks, Jeff.
The next question comes from Jennifer Lowe with Morgan Stanley. Your line is open.
Great. Thank you. Like maybe sort of asking Kash questions a slightly different way. As you think about your existing installed base, you've got a little more than 10% now on Creative Cloud. But as you think about getting to that remaining 90%, how many of those customers Do you think are going to be comfortable at the price points where Teams and Enterprise and Individual are now?
How many do you think you're Need to use more targeted offerings slice of photography solution to get them over. How many will just weigh and eventually suck I guess I'm just trying to get a feel for we're seeing the first 10% migrate. How many more are going to follow at these types of price points versus you having to be a little bit more tactical and targeted with solutions like the photography suite.
Well, the
first thing I'd say, Jennifer, is as you look at the installed base, I think it's important to remember in terms of the numbers that we provide what's reflected to note that is also included in the ETLA part of the revenue that we provide. And so when we provide the number of people who are on the perpetual to version of the product. We do include the numbers that have chosen in the prior a version to do licensing business with us, which is now reflected in the ETLA portion. So when you think about the 10%, when you think about the 10%, it's actually higher because there's a lot of people who are actually choosing to do ETLA business with us. So I think that's important to remember.
It's not in the 3,000,000 number that we give. In other words, the enterprise number of units is not represented within the 3,000,000. I wanted to just clarify that. I think people are finding more comfort with this creative offering. And I think honestly, our job as a company is to continue to demonstrate why this is the best offering.
And that's what we to focus on we have an attractive road map. I think in the middle of the year, you'll continue to see new innovations. And it is our job trying to not only move the entire installed base, but also to really look at the new customer acquisition, which continues to be attractive opportunity for us.
Great. And just one quick question on the digital marketing business. You mentioned the 70 deals over 1,000,000 which is a pretty phenomenal number. What and obviously that's going to focus getting higher price points with some of the new suite solutions. How does that compare to maybe a year ago what you were seeing in terms of wins over $1,000,000 Is that a pretty is it a doubling?
How should we to think about that number in the context of where you've been historically in digital marketing.
It's a sizable increase, Jennifer. And the way I would describe it is like For each of the different product areas, as you know, we had about 20 product areas, which moved to 6 solutions. For those who had originally to turn the call back over to Chris. I think the upsell opportunity is still all headroom. For all of the new deals that we are providing, we're clearly messaging and trying to market the entire Creative Cloud offering.
And that's where we are seeing to know these fairly sizable deals, some deals significantly higher than that. So continue to think there's big opportunity in the Marketing Cloud, Which is why we've talked about the 30% bookings. And it's a significant increase. I don't have the exact number year over year, But both the ETLA adoption by enterprises as well as the $1,000,000 plus deals in digital marketing to thank
you for joining us today.
Thank you.
The next question to turn the call over to Heather Bellini with Goldman Sachs. Your line is open.
Great. Thank you very much. I just had a question. I wanted to focus on the marketing business a little bit. And I was just wondering, it seems like that space has gotten very crowded and there's a lot of point solutions to be in the space right now.
I'm just wondering how you're selling versus what some might claim are best of breed solutions and what benefit Are you seeing in your win rate as a result of having being one of the few vendors that actually has an integrated offering?
Heather, I think when I look at all of the different like RFPs that we're participating in or all of the different deals that are in the pipeline, I can say with a lot of conviction that we seeing one particular competitor in a number of the deals. So I think it's very clear that we are very uniquely positioned. And I think our biggest differentiation to take a look at the next question. Honestly in that space is both the lead that we have with the web experience management or the Adobe Experience Manager to and the fact that we're the clear undisputed leaders with Adobe Analytics. As we've added all of the other solutions, it just I think adds to the lead and differentiation that we have.
And we do see some of the point product solutions, but again, we like to like every other aspect of enterprise software, this is going to get consolidated and we're the clear leaders in that particular space. And marketers are not going to stand for being the people who integrate all of these point product solutions.
Thank you.
The next question comes from Brad Zelnick with Macquarie. Your line is open.
Thank you very much. I'm going to ask a question I think that was already asked, but perhaps a little bit differently. If I think in the context of your strategic goals and now expecting to overachieve the original $4,000,000 sub target for fiscal 2015. Can you talk about what needs to happen for that number to be more like $5,000,000 or $6,000,000 And how do you think about the trade off of pricing for units? And what are the lower bounds for ARPU in your model?
Well, Brett, I think you know I Maybe from a few of the questions, if the question is are we being a little conservative about the number that we have. I mean, I think we're being, as Mark said, prudent about the number. I think the real goals on our part are to continue to make sure that across all of the geographies, the experience associated with people migrating from the perpetual or a licensing version of the product to the cloud is as seamless as possible and people continue to see the benefits. We're systematically dealing with all of the concerns to thank our customers for new customers. We're showing the value.
And so I just think again in the overall context, this is so early in the space. I think we're very pleased with what we have. We have very high ambitions for how we continue to grow this business. But when to We give our targets. We give it based on what we are seeing so far.
I appreciate it. Just a follow-up, another variation on the question Kash and Jennifer had both sort of asked about the market opportunity. Such a tremendous opportunity ahead of you. And if you think about that base to take a look at the numbers of perpetual product that's still out there, all of which seem to be candidates to bring over to Creative Cloud. If you segment that by to this huge opportunity by product version, geography, demographic, all the different ways in which you look at the market, where are you seeing outsized success which segments are proving more difficult to penetrate?
Well, when we look at the various offerings, I think the individual offering was the first one that we And I think it's fair to say that the most developed Internet savvy countries are where we are seeing the greatest So North America is doing really well with it. The other places that you might expect like the U. K. Continue to do well. On the individual side, I would say it's sort of following the level of Internet sophistication that to and infrastructure frankly in each of these different places.
Enterprise is doing very well right now. I think the enterprise customers to see the benefits of all being on the same version of the product. And again, I would say while North America leads the pack, we're seeing more success in the enterprise space around the world. Teams did really well. I think that was the 3rd offering that we introduced and Teams also continuing to do.
So I would say international continues to be an area of opportunity upside for us and the developed
the next question comes from Steve Ashley with Robert W. Baird. Your line is open.
Hi. This is Chetan Yarmada for Steve Ashley. Like As you mentioned earlier, the enterprise ETLA numbers are not included in the subscription count. So if you can just help us sort of understand What proportion of the total base is being covered by those ETLA numbers? And I You mentioned that it's been a little more than what you had expected.
That'd be helpful.
Yes. Hi, it's Mark. Yes, We don't break out the enterprise ECLA portion in terms of customer numbers. Some of those deals are frankly a little complicated in terms of the number of users to see how enterprises might count them. So we don't look at it quite that way.
I mean, you see the success in the enterprise ETLAs through the to take your questions. Okay. And then, I'll turn it over
to Andrew. Thank you. Thank you. Thank you. Thank you.
Thank you.
Thank you. Thank you. Thank you.
Thank you. Thank you. Thank you. Thank you.
Thank you. Thank you. Thank you. Thank you. Thank you.
Thank you.
Thank you. Thank you. Thank you. Thank you. Thank you.
Thank you. Thank you.
Thank you. Thank you.
To hear from you guys.
Okay. I guess I was just looking for very high level color on eventually or maybe 2, 3 years, what you might expect the proportion to be if you can help us. Is it 10%? Is it 40%? Or is the ARR representative Where do we think it should be?
Well, we've said in the past that if you look at the licensing component of the perpetual business, 30%, 40% to sort of with different products that was the nature of the percentage of what was being sold into the enterprise. I think we've also told you that some people who do what may have been considered team are now doing enterprise. But that hopefully gives you a ballpark estimate to know what the overall opportunity is.
No, that's very helpful. Thank you.
The next question comes from the line of Mark Mark Marzler with Sanford Bernstein. Your line is open. Thank you. Appreciate it. Two quick questions on it.
Mark, can you give us a to make a sense of the growth in revenue from existing digital marketing clients, year over year any way of looking at how much more you're able to sell to the existing clients and how that's changed over time? And then I'll give you a second question.
Yes, sure, Mark. I mean, we're clearly selling more into the installed base. I mean, we've said that we have the opportunity to drive more products per customer through the adoption to now the 6 solutions that we have and that's been a big focus of ours. So there's still a very big opportunity to drive more usage of our 6 solutions within the install
base and then continue to grow
the install base as well. But to continue to grow the install base as well. But I mean, there's a lot of headroom left to just sell into the existing install base.
But no sense yet of numbers or any data to give us a sense of how successful it's been so far?
Not yet, Mark.
Okay. And then the second question is, you mentioned on the team versions going to ETLAs to take a bit. Can you give a little more sense of how we should think about that? Is that going faster than you expected? There are a lot of them moving over that we're historically team opportunities going to ETLAs.
Do you think that's going to get bigger going forward?
I would say Small in the grand scheme of things, Mark. And I think if you look at the targets that Mark provided with respect to the 3,000,000 subscriptions by the end of fiscal 2014 and what we had as $1,850,000,000 in ARR. Again, you can back into what we currently have in terms of expectations of those 2 separate customer segments.
Okay. Thank you. I appreciate it. The next question comes from Jay Vleeschhouwer with Griffin Securities. Your line is open.
Thanks. Good evening. Shantanu Marc, I'd like to ask first about your thoughts on the outlook for dock services ARR and BPS They are. With respect to the Acrobat part of it, when you look at it historically, the cumulative base for Acrobat was some fairly large multiple of the creative base, perhaps 5 to 6 times as large. And even taking into account the much lower ASPs for Acrobat historically versus the creative products.
If you had some reasonable attach rate, let's say, of subscription within the Acrobat base, Is there a case to be made that the ARR could become nearly equivalent or similar to the creative ARR? And then similarly On DPS, which you're now including over the last year, you saw the download volume going through DPS to grow by about 100,000,000 digital additions or about 2,000,000 a week. How are you thinking about that in volume in terms of your forecast to improve DPS ARR and then one quick follow-up.
Let me take those, Jay. I mean, I think with respect to DOTS Services, If you look at the installed base, you're right. The installed base of people who bought Acrobat over the years is to Clearly very high. I think we've always mentioned that the document services customer segment is probably going to to have the balance of I mean the ratio of perpetual to subscription continue to be lower Then it will be for the Creative segment. And so I think that's what we're continuing to model.
We're pleased with the new document services that we're providing, service like EchoSign as well as services like the ability for people to actually do things like create PDF or export PDF online. To ARR, I think it's very healthy. We continue to focus on it. But I think it will be a slower ramp in that particular space relative to creative. When you look at the DPS side, DPS is doing well.
And we saw the initial customer segment be the media and publisher segment. We're really focus a lot more on corporate. That was what we were trying to say in the prepared remarks. And the use cases for the corporate segment are So much more diverse and varied, again, whether it's corporate magazines, catalogs, brochures, training share some of the details on the For download basis, it's just the ability for them to have a server based environment for their entire enterprise. So there we're not tracking as much of the digital downloads as we would for the traditional media and publishing customers.
Okay. My follow-up is with regard to the digital marketing bookings expectations of 30% or more. How much of that is or the higher than previous forecast is specifically attributable to Neolang? And what kind of upside momentum are you seeing in CQ? What was today?
Well, the Adobe Experience Manager solution continues to do to thank you for your time. I think the replatforming of the web phenomenon is only accelerating and that everybody realizes they need a to turn the call over to the operator. So, Adobe Experience Manager continues to do really well. With respect to the acceleration that we expect to see, I think a large part of that is driven by having the most comprehensive to see the integrated offering and I think that's where you're going to see Adobe place most of its emphasis on the marketing side. To The new lane Adobe campaign now helps fill another void and helps us upsell within the enterprise to the Chief Marketing Officer.
But I think to thank our confidence is based on having the most comprehensive integrated offering.
Thanks, Jonathan.
Operator, we're coming up in
an hour. Why don't we do 2 more questions, please?
Certainly. The next question comes to
turn the call over to Phil Winslow with Credit Suisse.
Your line is open. Hi, guys. Congrats on a great quarter. Just wanted to focus on some of the last few Excited. I guess my question is sort of how far you want to continue to extend the marketing cloud.
Just this morning, We saw marketing competitor buy kind of somewhat into the commerce space, at least on the edges. And we've seen SAP do the same with HIBOR Oracle at ATG. How much from, I guess, towards the back office, the back end, considering that commerce bridges the gap between the back end and The finance marketing, do you want to go considering that some of your competitors are doing the same? Thanks.
Thanks, Will, first for your comments to I think as it relates to the marketing emphasis that we have, you're right, multiple people are coming at it to take a look at the IT point of view from the advertiser as well as from the marketer. And we feel actually very good about what we have with respect to our current marketing offering. We will continue to also look at partnerships as a way to extend it. You mentioned SAP with Hybris. We have a great partnership with them.
We think HANA is great technology that allows us to also integrate. But at this point, we feel like our offering is really very comprehensive. We have 2 new initiatives that we also have done. We've announced an audience manager, which is people enabling to start to think about what might happen to take a look at the next question from the line of Alex. A media mix solution to think about what the optimal marketing spend So I think there's so many areas for us to continue to extend our current offering, extending into what would to be more traditional IT led areas or is not really an area of focus for us just given how much expansion to and the ability to partner with companies like SAP.
Got it. That's good to hear. I keep focusing on the CMO versus the back office. Thanks, guys.
Thank you.
The next question comes from Brendon Parnikal with Pacific Crest Securities. Your line is open.
Thanks so much for fitting me in guys. I wanted to follow-up on the prior questions about NeoLane. And I was curious whether to introduce the new campaign manager with the new Alain addition, if new Alain is seeing any change in its competitive success rate now that it's part of the to hear of Marketing Cloud.
Again, I would say it's early. Yes, certainly, I think there's no question that the brand of Adobe to put behind great technology like what Neolane had now part of Adobe campaign is going to enhance their opportunity. I think there's no question around that. We are with some disruptive pricing that we've introduced. I think we're going to to have a unique opportunity to upend it with the orchestration.
So yes, we are in more RFPs than I think New Line would have ever been. New to thank you for joining us today. Thank you. Thank you. Thank you.
Thank you. Thank you. Thank you. Thank you. Thank you.
Thank you. Thank you. Thank you. Our to thank our existing customer base, the Bluetooth list for all of our other solutions now represent a pipeline for us to go in. And So I think there is upside with respect to that opportunity for us.
Great. And Mark just one last one to you both you and Shantanu made comments about the new users that you're attracting with the move to the cloud. Is there any way to as we look to subscribe the new subscribers you're adding to get sort of a ballpark of what percent are coming from the installed base versus what percent are new?
Like The truth is it's hard to get that data specifically because we don't survey people to bog down the sign up process. We're confident we're attracting new users, but it's very hard to quantify exactly what that is, but we are very confident we're attracting new users.
Well, thank you all again. Great. Thanks, Saket. Okay. Thanks.
And thank you all for joining us on the call. I think there's no question that Adobe is in to take a look at the Q4 of 2018 based on the execution that we demonstrated last year. It's nice to see that we're ahead of the metrics we announced Not just the annual numbers we provided last year, but the analyst meeting in November 11 as well when we started this transition. And we reflect that no company has gone through a transition of this magnitude. And for us to be ahead of our goals, I think demonstrates the value we're providing to our customers.
To thank you for joining us today. Thank
you,
to thank you for joining us today.
And this concludes our call. Thanks for joining us.