Adobe Inc. (ADBE) Earnings Call Transcript & Summary

Good afternoon, and I appreciate everyone being with us today. On the line with me are Shantanu Narayen, Adobe's President and CEO, along with John Murphy, our Executive Vice President and CFO. During today's call, we'll go over Adobe's financial results for the first quarter of fiscal year 2020. You should have received our earnings press release by now — it went out over the wire roughly 1 hour ago. PDFs of our prepared remarks and slides for this earnings call, plus a refreshed investor data sheet, have been posted on adobe.com. Should you want copies of any of those documents, head to Adobe's Investor Relations page, where they appear under Quick Links. Before we begin, we'd like to stress that certain information we'll cover on this call — in particular our revenue and operating model targets and our forward-looking product plans — reflects information as of today, March 12, 2020, and includes forward-looking statements carrying risk and uncertainty. Actual results could differ materially from what those statements set forth; to understand these risks and uncertainties, please look at the forward-looking statements disclosure in the earnings press release we issued today, along with Adobe's SEC filings. During this call, we'll cover both GAAP and non-GAAP financial measures. A reconciliation of the 2 can be found in our earnings release and on Adobe's Investor Relations website. Anyone participating on the call should know that the audio is being webcast live and recorded for playback purposes. An archive of that webcast will remain available on Adobe's Investor Relations website for approximately 45 days and belongs to Adobe. Without prior written permission from Adobe, the call audio and the webcast archive may not be rerecorded or otherwise reproduced or distributed. I'll hand the call over to Shantanu now.

Thanks, Mike, and good afternoon. In Q1 we turned in yet another record quarter, with revenue reaching $3.09 billion — that's 19% growth compared with a year earlier. GAAP earnings per share came to $1.96 for the quarter, while non-GAAP earnings per share were $2.27. Our approach — unleashing creativity for all, accelerating document productivity, and powering digital businesses — keeps driving solid results on both the top and bottom lines. What sets Adobe apart is how we help everyone, from students to creative professionals to small businesses and large enterprises, create and deliver outstanding digital experiences, and that is what makes our customers successful and fuels our business momentum. Through Creative Cloud, Document Cloud, and Experience Cloud, we're expanding across every geography and industry and reaching a wider set of customers than at any point before. Within our Digital Media business, Q1 brought record revenue for both Creative Cloud and Document Cloud. Net new digital media annualized recurring revenue, or ARR, came in at $400 million, and total digital media ARR at the close of Q1 climbed to $8.73 billion. Creative revenue in Q1 was $1.82 billion, up 22% from a year earlier. Everyone shares the desire to craft rich, expressive experiences. Adobe gives all of them — including newer customer segments such as business communicators and social media creators — the inspiration and the tools to tell their story. We take pride in how our flagship digital imaging solutions have shaped culture and creative expression. This year marks Photoshop's 30th birthday. From photography to graphic design, Photoshop has helped expand what's possible across a wide range of creative disciplines; it truly sits at the heart of the creative world, and we keep building a steady stream of innovative new Photoshop capabilities and applications across surfaces. Interest keeps rising in our mobile applications such as Photoshop on iPad, Lightroom, and Photoshop Express. With over 35 million new Adobe IDs added in Q1, mobile is proving a strong pipeline for paid mobile-only subscriptions as well as desktop ones. Film has always carried a remarkable power to bring us together through gripping stories, and Adobe remains the leader in video production software. At the recent Sundance Film Festival, over 80% of the films made relied on Creative Cloud. Now more than ever, we believe every voice deserves to be heard. As part of our work to empower diverse voices and back the next generation of filmmakers, Adobe introduced the inaugural Women at Sundance | Adobe Fellowship and renewed our commitment to the Sundance Ignite program, which supports young filmmakers. This quarter, Adobe Character Animator earned an Emmy for breaking new ground in television animation. That recognition shows our continued ability to build innovative applications and open up new categories. Adobe Spark, our easy-to-use application for creating social graphics, videos, and web pages, is now a top destination for hundreds of basic creative tasks. We're seeing great momentum with Spark, with organic search alone bringing in more than 1 million new registered users each quarter. People who handle business communications and social marketing are increasingly using Spark to connect with their audiences in ways that really capture attention. Creativity matters as a core capability in the digital era, and we're still dedicated to fostering STEAM skills among the next generation. Not long ago, we unveiled a unique collaboration with Teach for America aimed at delivering educator training, workshops and tools that put creativity at the center of the classroom experience. In this initial phase, we're aiming together to connect with 15,000 teachers and 500,000 students throughout the U.S. who currently lack access to creative tools or programs. Our push to boost digital literacy reaches around the world. During a recent trip to India, I got to meet students who had made it to the finals of an Adobe creativity competition. Tied to the 150th anniversary of Mahatma Gandhi's birth, learners from 20,000 schools were invited to show how Gandhi's values could help today's world thrive. I felt truly inspired and touched by the students' messages about humanity and the clever approaches they took to share their stories through Creative Cloud. Turning to Adobe Document Cloud, we're speeding up document productivity and transforming the way individuals handle documents on every kind of device. Document Cloud brought in $351 million in revenue during Q1, and we lifted Document Cloud ARR to $1.15 billion. Strong customer acquisition along with a growing lineup of PDF mobile and web applications is fueling this momentum. Notable wins during the quarter came from Equifax, Gannett, Shell and Cummins. Acrobat remains the benchmark for generating, editing, scanning, signing and distributing digital documents. With more individuals doing work while on the move, usage of our mobile app keeps climbing. Over 600 million people have put Acrobat on their mobile devices. As digital transformation keeps spreading through organizations worldwide, Adobe Sign keeps enabling paper-to-digital workflows throughout every industry, covering most Fortune 100 companies. During this quarter, we broadened Adobe Sign's capabilities through a stronger integration with SharePoint that lets users quickly build and sign digital forms. We just introduced the option to convert to and from PDF with a single click on the web, offering a smooth entry point to PDF services and an Acrobat subscription. We're delivering PDF capabilities via APIs and growing our integrations with partners. Our latest integration with Google Drive provides its more than 1 billion users immediate access to Acrobat's top-tier tools for creating, viewing, annotating, modifying and sharing PDFs right inside Google Drive. Within our Digital Experience segment, we generated $858 million in revenue during Q1, marking 15% growth compared to the prior year; today more than ever, every company spanning B2C and B2B and mid-market through enterprise has to operate as a digital business, creating opportunity for Adobe Experience Cloud. As the most comprehensive solution available in the industry, Adobe Experience Cloud offers innovative applications and services constructed on the Adobe Experience Platform and drawing on Adobe Sensei's AI and machine learning framework. Key wins this quarter featured Intuit, PayPal, Bank of America, CommonSpirit Health, Travelzoo, State of Oklahoma, Kohl's, National Instruments, Toyota Motor and Accenture. Information from trillions of transactions, tens of millions of products and thousands of retailers is something only Adobe possesses, and that provides a one-of-a-kind capacity to evaluate the worldwide digital economy as it happens. We are creating an economic index, extending what we achieved with our yearly Holiday Shopping report, to assist businesses in grasping regional and worldwide patterns more clearly, allowing them to foresee shifts and run their operations well in this ever-changing marketplace. Compelling content is where a great experience begins, and data plus insights shape it. By leveraging Adobe Experience Platform's strength to unite fragmented data throughout the organization, our Customer Journey Analytics service, just made available, delivers to our clients a collection of analytics instruments offering a full view of the customer journey, whether online or off-line. With Adobe Experience Manager for omnichannel content delivery, we keep generating robust results. Adobe Experience Manager as a Cloud Service was introduced by us this quarter, letting brands launch personalized campaigns and experiences across any channel, device or mobile app within days rather than months; it delivers agility and flexibility for enterprises and midsized companies, with Under Armour, Coca-Cola and Morningstar among the first customers. Through Adobe Commerce Cloud, our clients can make each moment personal and every experience shoppable.

Thanks to fresh capabilities that let retailers incorporate premium media content directly into their sites and build tailored suggestions, we generated over 50% growth in bookings compared with a year earlier; for a third straight year, our sector leadership received confirmation in the Gartner Magic Quadrant for Digital Experience Platforms, where we secured the strongest placement in Completeness of Vision. The chance presented by digital experience is enormous, our plan for the future is solid, and we are thrilled that Anil Chakravarthy is heading up this operation. Anil delivers a potent blend of commercial and product expertise, and the effect he is having is already apparent; we take pride in having built a distinctive staff culture that welcomes diversity and inclusion while backing the communities where we reside and work. That dedication has earned Adobe a spot among Fortune's 100 Best Companies for 20 years running. During this quarter, we received recognition for our environmental stewardship by appearing on the CDP A List for climate change for a fourth year in a row, and we earned a place in the Bloomberg Gender Equality Index, which acknowledges our openness in gender reporting and our work to advance women's equality in the workplace. Although Q1 proved to be a reliably solid quarter, I recognize that what occupies everyone's thoughts is managing the effects of COVID-19. Looking after the health of our staff and clients comes first for us; beyond urging workers in affected areas to perform their jobs from home over the coming 2 weeks, we are limiting travel and scrapping face-to-face gatherings. Consistent with that approach, we reached the difficult conclusion to scrap the physical Adobe Summit in Las Vegas and substitute it with a virtual gathering at the close of the month. We are actively connecting with existing clients through digital means to assist their operations and are still generating enterprise pipeline around the world. We are lucky that the firm's revenue and earnings tend to be fairly forecastable thanks to our transition toward a subscription-based business model. We have observed minimal to no effect on adobe.com regarding demand for Creative Cloud and Document Cloud up to now and will keep bringing in and involving customers through digital channels. From my discussions with corporate leaders worldwide. It is clear that spending on digital will stay essential, yet coping with the consequences of COVID-19 represents the pressing concern. Consequently, we anticipate certain enterprises will push back bookings, delay services implementation and cut costs; we will rely on Adobe digital solutions to lessen the fallout and to connect with our clientele. Although the circumstances are worrisome and uncertainty is enormous, the fundamental long-term strengths of our business stay intact. Adobe sits at the heart of 3 enormous market possibilities spanning creativity, digital documents and customer experience management, which will drive expansion in both the near and distant future. Enterprises need to change in order to provide a tailored digital connection with each customer. The shift from paper to digital carries on. Creativity and design have never mattered more; we will keep leading in these areas and run the company with a long-term view as we steer through this climate. During periods such as these, top-tier organizations—Adobe included—keep pushing innovation forward, sharpen their attention, and come out even more robust than they were previously. John?

Thank you, Shantanu. During the first quarter of fiscal 2020, Adobe posted all-time-high revenue of $3.09 billion, reflecting a 19% increase compared with the same period a year earlier. On a GAAP basis, diluted earnings per share for Q1 came to $1.96, while non-GAAP diluted EPS was $2.27 million. Included in our EPS figures is a charge tied to calling off corporate events, among them Adobe Summit, as a result of the COVID-19 situation, and that charge reduced both GAAP and non-GAAP EPS by $0.07 during the quarter. Q1 business and financial highlights encompassed: Digital Media revenue reaching $2.17 billion; net new Digital Media ARR totaling $400 million, a Q1 record; Digital Experience revenue of $858 million; robust cash flow from operations amounting to $1.32 billion; remaining performance obligation, or RPO, climbing to $9.91 billion; and the buyback of 2.4 million shares of our stock over the quarter. In our Digital Media segment, Q1 revenue rose 22% versus the prior-year period. With the $400 million in net new Digital Media ARR added, the total stood at $8.73 billion as we exited the quarter. Inside Digital Media, our Creative business delivered yet another solid quarter. Creative revenue climbed 22% year-over-year, and Creative ARR rose by $329 million. Creative growth drivers in Q1 encompassed robust new user gains, beginning early in the quarter with Cyber Monday and followed by ongoing customer acquisitions across the period; single app adoption as we pursue new users more likely to embrace Creative Cloud via a specialized application, for example Photoshop, Illustrator, Premiere and Acrobat; mobile app subscriptions, among them uptake of Photoshop on the iPad; sustained momentum in creative services, among them Adobe Stock, where revenue once again rose 30% year-over-year; and an ongoing emphasis on engagement and retention. Solid Adobe Document Cloud revenue expansion carried on in Q1. We reached record Document Cloud revenue of $351 million, amounting to 24% growth year-over-year, and we added $71 million of net new Document Cloud ARR over the quarter. Document Cloud's Q1 performance stemmed from consumer uptake of mobile apps, PDF services and Acrobat subscriptions; conversion of free mobile app users into paid subscriptions for offerings like Create PDF Online; robust results with enterprise customers, among them new logos and renewals; and Document Cloud services adoption, among them sustained momentum in Adobe Sign revenue, which rose more than 20% year-over-year in Q1. In Digital Media, the COVID-19 situation had no effect on our overall business on adobe.com in Q1; even so, we did see weakness in China, which is chiefly a channel-based reseller market. In our Digital Experience segment, quarterly revenue reached $858 million, amounting to 15% growth year-over-year in Q1. Subscription revenue for the quarter came to $739 million, up 21% year-over-year, and Digital Experience bookings rose by more than 20% year-over-year. Q1 Digital Experience highlights encompass success with our Content and Commerce solutions, where we generated noteworthy adoption of Adobe Experience Manager and Adobe Commerce Cloud. Over the quarter, we kept our focus on closing Adobe Experience Platform opportunities while expanding the pipeline. The approach we take and the value we deliver kept connecting with clients looking to deepen their digital interactions with their own customers; within Digital Experience, COVID-19's effects during Q1 showed up as a few deals slipping unexpectedly in the final 10 days of that quarter. Looking at currency on a quarter-over-quarter basis, FX lifted revenue by $1 million. Hedge gains totaled $7 million in Q1 FY '20, compared with $12 million of hedge gains in Q4 FY '19. So the net sequential currency hit to revenue, once hedging gains are factored in, came to $4 million. On a year-over-year currency basis, FX cut revenue by $27 million. The $7 million of hedge gains in Q1 FY '20 against the $9 million of hedge gains in Q1 FY '19 produced a net year-over-year currency reduction to revenue, after hedging gains, of $29 million. Adobe's effective tax rate for Q1 stood at minus 4% under GAAP and 10% under non-GAAP. A bigger-than-expected deduction tied to divesting stock-based compensation made both rates come in under target. Lower quarterly tax rates gave GAAP and non-GAAP EPS a benefit of $0.17 and $0.03, respectively, during the quarter. Trade DSO came in at 41 days, versus 46 days in the same quarter a year earlier and 47 days in the prior quarter. Remaining performance obligation, or RPO, rose 22% year-over-year, reaching $9.91 billion as Q1 ended, up from $9.82 billion as Q4 ended. That sequential quarter-over-quarter increase matched typical seasonality. Deferred revenue stood at $3.61 billion as Q1 closed. Our cash and short-term investments at the close of Q1 totaled $4.17 billion, while cash flow from operations for the quarter was $1.32 billion. During Q1, we bought back roughly 2.4 million shares, spending $795 million. Of our $8 billion repurchase authority, which runs through 2021, $4.25 billion is still available. Now to our financial targets. There are 2 areas I want to walk through as you consider how to model the remainder of our fiscal year. First, as I mentioned earlier, our Q1 tax rate landed below plan, and we now expect both our GAAP and non-GAAP rates for the full year to come in under what we initially targeted; we stay focused on controlling costs and refining Adobe's international structure so we can deliver greater value to our customers and investors. We expect to make changes to that international structure in Q2 and Q4 of this year, which will better match ownership of certain intellectual property rights with the way our business runs, while keeping us tax efficient. Our GAAP quarterly tax rates are now projected at minus 10%, 10% and minus 85% for Q2, Q3 and Q4, respectively. Our non-GAAP tax rates are unaffected by these international structure changes, and we expect a non-GAAP quarterly tax rate of 10% in Q2, Q3 and Q4. The next thing I want to talk about is how COVID-19 might affect our business. In setting our Q2 goals, we've already taken into account what we currently know about the global uncertainty stemming from the COVID-19 situation. Our subscription-based model makes revenue and earnings fairly predictable, but we do anticipate some areas where we'll feel an impact: businesses putting off booking choices, postponing consulting services rollouts and cutting back on marketing spending; consumers spending less in nations hit harder by COVID-19; and software license revenue that comes through channel partners. We expect these effects to be most significant in the countries and industries bearing the brunt of the crisis. For Q2 FY '20, our targets are: revenue of about $3.175 billion; Digital Media segment year-over-year revenue growth of roughly 19%; net new Digital Media ARR of roughly $385 million; Digital Experience segment year-over-year revenue growth of roughly 12%; net nonoperating expense of roughly $14 million; tax rate of roughly minus 10% on a GAAP basis and 10% on a non-GAAP basis; share count of roughly 486 million shares; GAAP earnings per share of roughly $2.10; and non-GAAP earnings per share of roughly $2.35. To sum up, we still believe we're well positioned as a market leader in large, growing categories. Running a real-time business and having such a high percentage of recurring revenue lets us monitor and act on how we generate revenue or manage costs, and all of that should let us deliver solid results as the world deals with the COVID-19 situation. Last, I'd like to share some news: Mike Saviage has chosen to retire from Adobe later this year. As the Head of Investor Relations, Mike has been a key advocate of Adobe's growth and transformation story over the past 3 decades. We'll be naming an internal successor, and Mike will stay on for the next few months to help us transition the new leader. I want to thank Mike for everything he has contributed to Adobe and wish him the best in his retirement. I'll now hand the call back to Mike.

Appreciate it, John, and thanks for sharing those thoughts. Last week we made the announcement that Adobe Summit—the Digital Experience user conference we hold each year—is becoming a virtual, online event that begins Tuesday, March 31. Once we get nearer to that date, instructions will be posted at summit.adobe.com explaining how to join the online keynote presentations and educational sessions, and when those will take place. Should you want to hear a playback of this conference call, a webcast archive will be posted to our IR site later on today. Another option is to access a phone replay by dialing (888) 203 to 1112 and entering conference ID #4347041. Those calling from outside the country should use (719) 457 to 0820. This phone playback service starts at 5:00 p.m. Pacific Time today and concludes at 5:00 p.m. Pacific Time on March 19, 2020; at this point we would be glad to take your questions. <<operator_script>> Operator?

Mike, congratulations on 30 years — really glad for you. Shantanu, regarding the Creative segment: lots of people have questions — clearly nobody can predict how long this present circumstance will continue. Yet plenty of folks are essentially wondering how protected you think the Creative segment is. The outlook you gave for the upcoming quarter was upbeat and likely slightly stronger than what most people expected; so please take us through your thinking on that segment across the coming quarters.

Of course, Brent. Obviously, I believe — allow me to begin by noting that all of us would recognize this circumstance is quite without precedent; so when it comes to the Creative segment, perhaps I'll offer you detail covering not only Q1 but in fact the opening days of March too, and I'll address that relative to the customers we serve; and perhaps, once more, as something like a preview of what John discussed, allow me to share a bit about the choices we weighed. I mean, obviously, because of this circumstance, we might have decided to offer no forward-looking guidance; we might have given a range in light of the uncertainty, or what we judged most suitable was, since we enjoy reasonably solid visibility on a direct footing, to guide off a single figure and afterward supply additional detail. Regarding Creative Cloud in particular, Brent, and regarding Document Cloud, within direct-to-consumer at adobe.com, we truly observed barely any effect, or none at all, during Q1 on adobe.com throughout every geography for both Creative and Document Cloud offerings; and so far, with Q2 still young, overall traffic along with conversion behavior have in fact carried on. In China, where our path to market for CC and DC is somewhat more indirect, going via resellers, we recognize that business there is modest, yet we did see a certain effect during Q1; and as you observed, in spite of that, we delivered rather impressive total ARR for Digital Media during Q1. In South Korea, we have in fact witnessed a comparatively steady business in our Digital Media operations as of today. In Italy, what we found was that when conditions deteriorated, we noticed a certain effect on the reseller side, yet we in fact seem to have gained some extra momentum on adobe.com. And the reality that, I suppose, we possess several routes to market in that country somewhat assists in easing that; so to wrap up, we keep watching closely; we believe that undoubtedly, over the long run, the Creative Expression business remains genuinely robust. And specifically, when it comes to Q2, were it not for the COVID circumstance, we would likely once more have seen a sequential rise in Digital Media ARR, whereas we're attempting to account for what we've observed — a bit of uncertainty regarding reseller consequences and enterprise. And on revenue too, we have a small amount of perpetual revenue. I realize that response ran somewhat long, yet I hope it sheds some light on everything that has been done across those 10 days. We have already completed 2 business reviews; and based on what we know right now, even with the uncertainty, that represents our best guess regarding how we expect this to unfold in Q2.

Mike, it's been a real pleasure collaborating with you. Honestly, I believe you're far too young to be stepping away, though that decision is yours to make. Shantanu, I really appreciate you providing that level of detail regarding how all of you are approaching the outlook. It certainly assists investors in grasping your thought process, and that you're building a degree of caution into the guidance given what's happening in the broader environment. I was hoping John could share his perspective on how you're approaching the cost side of things, and how aggressively you'll aim to align expense growth rates with what you're observing out there. Will you be trying to safeguard margins and defend contribution margins within the business as demand shifts up and down?

Absolutely. Appreciate that, Keith. When we consider our capacity to comprehend our business, we possess a strong capability through our DDOM model, meaning our data-driven operating model, to grasp how we can genuinely fuel growth while continuing to widen margins and shielding the company's profitability. That fundamental belief remains unchanged. We continue to be a growth-oriented company, and we do keep our attention on the company's profitability. As a result, we can reallocate our expenses, our spending, and our investments to properly seize the opportunity while simultaneously achieving our targets of growing operating margin, just as we laid out at Analyst Day this year.

Also, Keith, let me tack on a few additional points here. What I'd say is that striking the right balance between revenue and profitability is something we've consistently managed well. It's my firm belief that businesses such as Adobe will in fact come out of this in a stronger position. And what John had already put in place is that we're examining each and every cost tied to this. Without question, certain segments exist where we offer excellent digital tools for our customers and where additional investment will be made. Meanwhile, in other segments, we'll exercise much greater caution regarding the outcome; and John, perhaps you could speak directly to what took place during Q1 regarding that one-time charge, so that it's clear to everyone.

Right. So once we made the call to scrap the face-to-face corporate events, that meant bringing those costs forward into Q1, so the choice was made before Q1 wrapped up. That's why we booked the charge, and it comes to $40 million. Normally a big chunk of that spending would land in Q2 and would actually be covered by the money coming in from registration fees paid by participants, plus sponsorship dollars too. So here's how we handled it: clearly, with the sponsors and the participants, that money isn't coming in, so we moved all of those costs up. So that onetime charge you saw in Q1 tied to this activity, which clearly hit us hard, without it our margin would have come in at 41.6%.

Shantanu, you discussed how the February quarter wrapped up. What I really want to know is what you're projecting for the May quarter. What are the underlying assumptions, particularly regarding the region we're all watching most closely, the one that might get worse because of COVID? For your 2 U.S. businesses, what growth rates are you modeling, and are you assuming a U-shaped or a V-shaped rebound?

Kash, I believe everyone would concur that this situation is changing fast. It was quite a sight to see the 6 or 7 press releases that came out right after 1:00. So obviously, we're attempting to provide the clearest picture we can offer at this moment. I can't say for certain that I — or anyone, really — can forecast what's going to happen. But I believe we shared our perspective on Digital Media: we still anticipate that both creativity and the push for greater document productivity will remain priorities, and where we're engaging directly with customers, they'll keep investing and interacting with us digitally, and we'll keep growing that business, since there's obvious value in it. Similarly, perhaps I can offer a bit of insight regarding the enterprise side. As you're aware, with enterprise sales, the final stretch of the quarter accounts for a substantial portion of business for most companies. While that doesn't affect revenue, and you never anticipate shutting down your whole pipeline, as we mentioned in the prepared remarks too, Kash, we experienced some unexpected slippage toward the end of the quarter. So here's how we've attempted to approach Q2: I've had numerous discussions with CEOs spanning every industry, and 2 themes come through without fail. Theme one: everyone is, above all else, focused on safeguarding their employees' well-being. They're all coping with travel bans. They're all coping with the outbreak. The second point they consistently raise is that this, if anything, will sharpen the imperative to operate digitally — not only within the company, to keep it running, but also on the outside, to connect with clients. Yet with everything happening around travel, we simply anticipate there will be some holdups related to that. We've attempted to account for it; put another way, without any COVID, Digital Experience would definitely have been aimed higher than the target we set. So I think we've made an effort to include it. And just a bit more detail on that, Kash — if you examine the revenue elements of our business, there are 3 parts. There's revenue generated from bookings, bookings converting into revenue. There's usage-based advertising cloud revenue feeding into it. Also, revenue tied to delivery comes in once services get delivered and implemented; our hunch is that those services will slip somewhat. The significance doesn't change. Yet given worries people have about traveling, that could cause a bit of a slowdown; and by industrial vertical, the effect will vary. Certain pieces might rebound right away, while others could be more intricate. So here's what we know: bookings, in our expectation, will likely stretch out somewhat longer; services delivery, we believe, may stretch out a bit too; and the advertising cloud, we sense, could take a hit. All of that is baked into our thinking. Should everything go haywire, that would of course shift things. Still, we'll keep watching it. What nobody has raised to me is any problem with keeping digital at the forefront, since I believe this shows, more than at any prior point, that without a digital way to connect with your customers, you're sunk. So with luck, that's useful.

Shantanu, I'm just wondering whether the COVID-19 situation could affect any upcoming product launches, either in terms of features and functionality, or any adjustments you might have been thinking about in the near term regarding pricing in other regions.

Sterling, not that I know of. I mean, we're thrilled. Our first Digital Summit is coming up, so Anil Chakravarthy is tied up with that. I mean, everything exciting we had planned to reveal face-to-face, the intention is to reveal it virtually instead, very soon. There are a couple of exciting items there. I mean, the Adobe Experience Manager we recently rolled out, which is a cloud-based approach, that once again, I think, as we've mentioned, cuts down dramatically the time it takes for customers to go through self-serve and get new websites and campaigns launched. So on the experience side, it was truly going to be a gathering where we lay out everything that's happening. Now with the creative cloud space too, I mean, I think if any group works more from home and has a more flexible work policy, it's typically the product team; so I think all of us are figuring out what it means when nobody is in offices, Sterling, but I think we're actually as well positioned as anyone to handle it. One more thing I'll bring up is we are actually — for universities, given how many university closures there are, we're making our creative and other tools available to people for this online training. And so I think while the situation is insane, I think there are a whole bunch of our solutions, whether it's all the documents that will be shared right now, whether what's going to happen with signatures, whether what you're going to do with respect to helping people engage digitally. So nothing so far that's changed. It all hinges on how long the situation goes on from my perspective, Sterling.

Mike, congratulations as well. What a remarkable stretch this has been. You've performed really well in the IR role, so congrats, and make the most of your retirement.

Appreciate it, Sterling.

I'd also like to add my congratulations, Mike, on your retirement. Shantanu, perhaps this one's for you — taking a step back for a moment. Could you speak a bit about what it means to add Anil Chakravarthy to the team, and perhaps what his longer-range objectives look like within the Digital Experience business?

Of course, Saket. I'd say we're plainly the recognized front-runner, holding the broadest portfolio when it comes to the digital marketing category — one we actually established. As our attention turned toward what we describe as generational technology platform development, we came to see that being able to build a unified profile, and truly ensuring that your first-party data is being leveraged more fully, opened up 2 enormous opportunities that every enterprise would need to work out how to capitalize on — very much the way Adobe did with our DDOM. Anil's history — what he accomplished at Informatica and before that — combined with the fact that, as CEO, he could survey the whole business, both of those things will matter enormously to us as we keep investing in product; and as we keep concentrating on making certain that the CIO and those who work with data — a space he knows inside and out — remain the people we keep investing in and keep setting our solution apart for; it's early days. Like I mentioned, his impact is already apparent; but what he's truly been doing is getting out and sitting down with a large number of customers. I might need to keep him grounded for a bit at the moment, yet he's also genuinely had the chance to go spend time with all the product folks. So on both the product side and the customer side, simply continuing to ensure we widen our lead and have one unified leader — those were truly the 2 motives behind bringing him aboard.

Let me start with a nearer-term item, Shantanu, and this one's for you too, John. I saw a modest quarter-over-quarter dip in your staffing from Q4, something we haven't witnessed in some time; then again, when I did a fast check this afternoon, it's clear you still have a significantly larger set of unfilled roles that keeps expanding. Compared with the close of fiscal '19, those total openings are now up beyond 60%, and sales roles have more than doubled within that; so perhaps you could address the rationale for keeping — or increasing — such a big pool of vacancies, in terms of where the priorities sit by product or geography and similar. And Michael, what else can I say, working with you has made up a great 2/3 of the time I've covered Adobe, and I hope we'll manage to meet up before your departure. Many thanks.

Thank you, Jay.