Adobe Inc. (ADBE) Earnings Call Transcript & Summary

Good afternoon, and thanks for being with us today. Joining me are Adobe's President and CEO, Shantanu Narayen, along with Executive Vice President and CFO John Murphy. During this call, we'll go over Adobe's financial results for the first quarter of fiscal year 2021. You should have received the press release by now — it went out over the wire roughly one hour ago. PDFs of our prepared remarks and financial results have also been posted to Adobe's Investor Relations website. Before we begin, I'd like to stress that certain information we'll cover today, including our financial targets and product plans, reflects information as of today, March 23, and includes forward-looking statements that carry risk, uncertainty, and assumptions. Actual results could differ materially from what those statements set forth. For a discussion of these risks, please review the Forward-Looking Statements Disclosure in the press release we issued today, along with Adobe's SEC filings. Today we'll be discussing both GAAP and non-GAAP financial measures. Reconciliations between the two can be found in our earnings release and on Adobe's Investor Relations website. Anyone participating on this call should know that the audio is being webcast live and recorded for playback. An archive of the webcast will be available on Adobe's Investor Relations website for approximately 45 days. The call audio and webcast may not be re-recorded or otherwise reproduced or distributed without Adobe's prior written permission. I'll now hand the call over to Shantanu.

Jonathan, thank you. Hello, everyone, and I trust you're well and staying safe. It's hard to believe that over a year has gone by since the pandemic began and permanently reshaped the world. During this remarkable stretch, we went from living in a world that included digital to one in which digital leads the way. For making every aspect of our lives workable, digital experiences have been crucial — whether connecting families and colleagues, opening up fresh ways to learn, driving digital commerce, or keeping vital business operations running smoothly. It seemed to happen in a single night: we entered a worldwide digital economy. Changing the world through digital experiences is Adobe's mission. On this call, Adobe is doing its part to push the digital economy ahead. That comes from continuous innovation, a wide-ranging and diverse set of customers and partners worldwide, and the unique expertise we've built by running our own digital transformation. Our strategy—unleashing creativity, accelerating document productivity, and powering digital businesses—is mission-critical, and it's driving growth in both our top and bottom line. Adobe had an excellent first quarter, with strong performance across Creative Cloud, Document Cloud, and Experience Cloud; Q1 revenue reached $3.91 billion, up 26% year over year. On a GAAP basis, quarterly EPS was $2.61, up 33% from a year earlier, and non-GAAP EPS came in at $3.14, up 38% year over year. Within Digital Media, Q1 brought robust top-line gains for both Creative Cloud and Document Cloud, with revenue hitting $2.86 billion, a 32% increase versus the prior-year period. Net new Digital Media ARR, or annualized recurring revenue, totaled $435 million, and Digital Media ARR overall stood at $10.69 billion as Q1 ended; looking back across the last twelve months, we've seen just how enormously powerful creativity can be in inspiring us, connecting us, and entertaining us. Take a student turning in a video project, or a social media influencer pushing for change, or a small business owner putting together her first website — each one of them has a story worth sharing. In the core creative categories — imaging, design, video, screen design and illustration — Creative Cloud is still the market leader, and we're carrying that leadership into newer media types such as 3D and AR. There's an explosion happening in both creation and consumption on phones, tablets and desktops. We're creating solutions for every surface and platform, so customers at any skill level can create whenever and wherever inspiration strikes. Behance, our community, now stands at 25 million people, and programs such as Adobe Live give creatives ongoing forums where they can engage as a global community. During November, our yearly creativity gathering, Adobe MAX, was transformed into a worldwide online occasion that drew 10 million livestream views at its peak. The world's creative engine is now genuinely Creative Cloud, and boundless possibilities lie ahead for us. Creative Cloud's first-quarter results were solid, delivering $337 million in net new ARR alongside $2.38 billion in revenue. For the first quarter, the standout points are these: we saw strength in what we offer students, which lets the next generation of creators share their stories even as remote learning happens on a scale never seen before; our Teams product gained momentum, showing that demand for ways to collaborate has risen around the world; we grew in our main creative areas, such as imaging, with Photoshop and Lightroom out front; Premiere Pro drew strong demand as the video space explodes, and for a third straight year it was the runaway favorite at Sundance, where 68% of films relied on it; our creative apps for mobile grew substantially, among them Lightroom mobile and Photoshop Express; more people sought Creative Cloud services such as Adobe Stock, which helped offset the gap left when in-person photo and video shoots could not go forward; and together these produced record visits to Adobe.com, our premier acquisition and growth engine and the center where customers engage with us on every surface. We keep rolling out pioneering product innovation, among it Neural Filters and Super Resolution in Photoshop, which tap AI and machine learning to make complicated workflows simpler and improve images within seconds, while we bring our apps to more surfaces via Illustrator on the iPad and Fresco on the iPhone, and we add collaborative tools through Creative Cloud libraries. Backing our dedication to digital citizenship, we head the Content Authenticity Initiative, which now counts more than 150 members, aiming to establish the benchmark for transparency and attribution throughout the content ecosystem; not long ago we launched the Coalition for Content Provenance and Authenticity so that content authenticity standards gain wide acceptance. Over the last twelve months, it became obvious just how critical digital documents are for operating a contemporary company, whatever its scale; once work has to be done from wherever and with whomever, digital workflows now act as the essential underpinning that fuels output and effectiveness for teams across the globe. Through Document Cloud, we're accelerating document productivity and transforming how individuals view, edit, share, scan and sign documents on desktops, the web, mobile and through frictionless PDF services. Our document services unlock the PDF ecosystem by way of APIs, enabling outside developers to customize the digital document experience. Document Cloud kicked off the year with an outstanding first quarter. The unit brought in $98 million in net new Document Cloud ARR, and revenue hit a record $480 million. For the first quarter, the standout points are: exceptional expansion of Acrobat through every channel; notable rises in visits to our Acrobat Web offering, which provides the capacity to reliably carry out PDF functions right inside a browser, fueled by top-tier search engine optimization; robust fresh Acrobat features that let users convert, safeguard, and combine PDFs within the browser, advancing our aim of a seamless PDF journey across every device and platform; appetite for our Acrobat Mobile and Adobe Scan applications; solid traction for Adobe Sign, which powers essential e-signature processes at companies and government bodies worldwide; rollout of a better PDF reading experience via Acrobat Liquid Mode, which taps Adobe Sensei to instantly restructure PDFs so they are fast and simple to consume; plus major client victories, among them Amazon, Aon Services, Bank of America, Federal Aviation Administration, Merck and National Australia Bank. The pandemic sped up the requirement for digital transformation at organizations of every size spanning B2C and B2B alike. Smaller and midsized firms needed to rapidly launch digital storefronts, large enterprises that had previously held off on major digital spending finally committed, and those already possessing considerable digital operations pushed even harder. With the world starting to reopen, digital-first companies are going to come out ahead. Just those businesses that truly grasp what their customers want and can tailor interactions throughout each phase of the customer journey will endure and prosper. Adobe established the customer experience management space a decade ago, and we remain its leader. Experience Cloud is built on a next-gen open platform, and it represents our most complete offering across content and commerce, data insights and audiences, customer journeys, and—just added recently—marketing workflow. With the Workfront acquisition, Adobe gets a unique opportunity to create one unified marketing system of record, bringing workflow management plus gains in efficiency and productivity to marketing organizations that have been held back by disconnected applications. Over a 1,000 shared customers are already realizing benefits from the integration and the synergies between Experience Cloud and Workfront. In Q1, Experience Cloud revenue came in at $934 million, and subscription revenue was $812 million, representing 27% growth year over year.

Turning to Q1, some of the standout items: Adobe Experience Platform keeps building momentum as the go-to option for large organizations wanting real-time personalization at scale, and we're seeing stronger appetite for our commerce products. According to the Adobe Digital Index, online spending has gotten a permanent 20% lift because of the pandemic, and 2022 is set to become the first year e-commerce hits $1 trillion. Workfront put up a strong showing, which speaks to how much a single, unified marketing workflow solution is needed to boost productivity for teams spread around the world. We also rolled out improvements to Customer Journey Analytics — advanced anomaly detection, contribution analysis and intelligent alerts that surface hidden data patterns, so customer behavior can be understood with greater precision. Meanwhile, we're fueling digital modernization for government agencies at the state, county and city levels throughout all 50 U.S. states. These governments are overhauling their online presence — making websites and apps simpler to navigate, keeping content personalized and refreshed in real time, and building intuitive forms that function on any device. Notable customer wins came from Abbott Labs, Deutsche Post, Coca-Cola, FedEx, Kaiser Permanente, Mondelez, State of Illinois and Sydney Water Corporation. On the analyst side, we were recognized in the Gartner Magic Quadrant for Digital Experience Platforms and the Forrester Agile Content Management Systems Wave report — marking the fourth straight year Adobe has been named a leader in the DXP Magic Quadrant, and the sixth time in a row Forrester has acknowledged Adobe's industry leadership in its CMS-focused Wave reports. Our yearly digital experience conference, Adobe Summit, will take place virtually at the end of April, reaching audiences worldwide. Along with revealing exciting new technology innovation in Experience Cloud, we'll feature customers and inspirational leaders from companies that have operated on the front lines, among them Albert Bourla, CEO of Pfizer, and Rajesh Subramaniam, President and COO of FedEx. Adobe's strength comes from an unwavering commitment to our employees, pathbreaking innovation and our purpose — harnessing the best of Adobe to make a significant impact in the world. Here at Adobe, what we do matters, but so does how we do it. I take pride in the ongoing recognition our industry gives us, such as appearing on multiple lists that celebrate Adobe as a great and equitable place to work for all, plus being named to Fast Company's Most Innovative Companies List, Fortune's Most Admired Companies List and the CDP's Climate Change A-list. I'm particularly grateful to our 23,000 employees worldwide, whose dedication and talents produced extraordinary results in every dimension of our business throughout these unprecedented times. Q1 was a record quarter for Adobe. Given our outstanding performance, the tremendous opportunity across our business and continued confidence in our global execution, we are raising our annual targets. John?

Thanks, Shantanu. Adobe's first quarter launched the year on an outstanding note, with strong results across all of our business segments. Top-line growth accelerated, profitability improved, and we continued building interest in our offerings, which are clearly resonating with companies and consumers alike in a landscape where digital has become standard. Leveraging the strength of data, we keep applying our data-driven operating model, DDOM, to push traffic toward Adobe.com, create demand for what we sell, bring in new customers, and boost engagement; we are putting money into enormous market opportunities, rolling out innovations across what we offer, and Workfront enjoyed an excellent first quarter as a member of the Adobe family. Consequently, Adobe posted record revenue of $3.91 billion in Q1, reflecting 26% growth compared with a year earlier. Keep in mind that for us, Q1 spanned 14 weeks rather than the usual 13 weeks. On the business and financial front, several items stood out. We posted GAAP diluted EPS of $2.61, while non-GAAP diluted EPS came in at $3.14. Digital Media brought in $2.86 billion in revenue, and we added $435 million in net new Digital Media ARR. Digital Experience revenue reached $934 million. Operating cash flows totaled $1.77 billion, and as the quarter ended, our Remaining Performance Obligation stood at $11.61 billion. We also repurchased about 1.9 million shares during the quarter. Through Q1, conditions for business kept getting better in the U.S. and abroad, particularly for small and medium businesses, which contributed to the strong financial results we delivered for the quarter. Within our Digital Media segment, revenue in Q1 climbed 32% versus the prior year, and we finished the quarter holding $10.69 billion in Digital Media ARR. Creative revenue came in at $2.38 billion, marking 31% growth compared with a year ago, and we added $337 million in net new Creative ARR. Several factors fueled our Creative growth in Q1: powerful consumer appetite for our Creative offerings on Adobe.com; enhancements in usage, retention, and engagement throughout our products; expansion in our mobile business via app store subscriptions and top-of-funnel awareness; further recovery in the SMB segment, which we serve through our Creative Cloud for Teams offering; and spending on focused campaigns and promotions to build awareness and bring in new users, including within emerging markets. Adobe Document Cloud turned in yet another quarter of faster revenue growth. Document Cloud revenue reached $480 million, amounting to 37% growth year over year, and we added $98 million in net new Document Cloud ARR. In business, documents function as the medium of exchange, and the urgency to go digital has never been greater. During Q1, our Document Cloud expansion was driven by growing demand for Acrobat subscriptions worldwide; strong enterprise term licensing deals with organizations; using DDOM insights to improve conversion rates on Adobe.com; success in the reseller channel for both subscriptions and our perpetual offering, which included seat growth in the SMB segment; and momentum in Adobe Sign, with revenue for that quarter climbing over 50% versus the prior year. Turning now to our Digital Experience segment, Q1 revenue was $934 million, which represents 24% growth compared with the same period last year. Subscription revenue for Digital Experience came in at $812 million, which works out to 27% growth compared to a year ago. The results we posted in Q1 keep confirming how strong our Customer Experience Management, or CXM, offerings are — we're the leader in that space. Big enterprises spanning many industries and regions are making Adobe their standard for handling customer interactions, getting useful insights they can act on, and bringing their customer data together through Adobe Experience Platform. Over in our Commerce business, we kept closing significant agreements with new clients and generating upsells when renewals came up, helping all kinds of businesses sell online. For enterprises, getting customer journeys right across every channel in a world that's digital-first matters a great deal, and we're seeing momentum as bigger customers take up our full Experience Cloud suite to deliver omni-channel personalization at scale; we're pushing the CXM mission worldwide across B2B and B2C, serving everyone from large enterprises down to midsized companies, in a range of verticals. Among recent wins, we broadened our footprint in the public sector, where we support essential services that constituents rely on, and we saw midmarket uptake of our new AEM Cloud Service, Adobe Commerce and Marketo Engage. To wrap up, we've hit the ground running when it comes to integrating Workfront and pushing forward the strategic rationale for combining best-in-class workflow software with Adobe's leading CXM and Creative products. Following purchase accounting adjustments to deferred revenue, Workfront contributed $38 million of revenue in Q1. Because our employees are working from home, we continue to realize savings in travel and entertainment, along with facilities operations. We're ramping up our investment in hiring globally, particularly in R&D and sales and marketing roles, so we can capitalize on our large addressable markets. Turning to currency on a quarter-over-quarter basis, FX lifted revenue by $37 million. Once hedging impacts are taken into account, the sequential currency benefit to revenue was $34 million. When we compare against the prior year's currency rates, FX added $62 million to revenue. Once hedging effects are factored in, the currency benefit to revenue year over year was $44 million. For Q1, Adobe's effective tax rate came in at 12% under GAAP and 16% under non-GAAP. That rate was lower than we'd expected, largely due to a favorable tax ruling this quarter that allowed us to reduce withholding taxes and recover refunds on some earlier payments, and to a lesser extent, larger-than-expected tax benefits related to share-based payments, plus favorable outcomes on other income tax matters. Our trade DSO was 38 days, versus 41 days in the same quarter a year ago and 37 days in the prior quarter. Remaining Performance Obligation climbed 17% year-over-year, reaching $11.61 billion as we exited Q1. Deferred Revenue at quarter's end was $4.29 billion, up 19% year-over-year. Our closing cash and short-term investment position as we exited Q1 totaled $4.96 billion, which is down on a sequential basis from the prior quarter because of the Workfront acquisition. Cash flows from operations during Q1 amounted to $1.77 billion. We bought back roughly 1.9 million shares this quarter, spending $888 million. At present, $1.1 billion is left of the $8 billion repurchase authority we were granted in May 2018, and we anticipate using it up before this fiscal year ends. Back in December 2020, we let everyone know our Board had approved another $15 billion for buying back stock, running through fiscal year 2024, and that future cash flow generation would provide the funding. Looking ahead to the second quarter, here's what we're projecting: total Adobe revenue of approximately $3.72 billion. For Digital Media, we expect revenue growth of about 21% compared to last year, along with net new ARR in that segment of roughly $450 million. Digital Experience should see revenue growth of around 18%, with subscription revenue for that segment up about 20%. On taxes, we're looking at a rate near 19.5% on a GAAP basis and 16% on a non-GAAP basis. We're assuming a share count of approximately 482 million shares. That gives us GAAP earnings per share of roughly $2.09 and non-GAAP earnings per share of about $2.81. Because of how well Adobe did in Q1 and the momentum these second quarter targets show, we're lifting our full-year targets for fiscal 2021. For the full year, we're aiming for total Adobe revenue of about $15.45 billion. Digital Media should grow around 22% compared with last year, with net new ARR in that segment of roughly $1.8 billion. Digital Experience revenue is expected to rise approximately 20%, while subscription revenue for Digital Experience should increase by about 23%. On taxes, we're projecting a GAAP rate near 17.5% and a non-GAAP rate of 16%. We expect roughly 481 million shares. GAAP earnings per share should come in around $9.13, and non-GAAP earnings per share around $11.85. Looking at ARR for Digital Media, we think the summer months will behave the way they did before COVID, which means Q3 could see a sequential decline in net new ARR, with Q4 then picking up strength toward the end of the year. From Q2 to Q3, we'd expect operating margin to stay roughly level, before easing a bit in Q4 as travel resumes and we once again occupy our facilities. All told, Q1 got us off to a strong start, and we're looking at fiscal 2021 as yet another record-setting year. With our customer acquisition and engagement momentum, our industry-leading technologies, and our talented workforce, Adobe is positioned to keep delivering the kind of impressive top- and bottom-line growth we've shown before. Finally, as we shared in the press release that went out today, I've let it be known that I plan to step down this year. This was not an easy call to make, given how much I care about Adobe. Why choose this moment, you might wonder? Throughout my career I've been extremely lucky, and I still feel driven and energized enough to devote myself completely to philanthropy while also putting family and friends first. We made our way through the pandemic remarkably effectively, and the results from Q1 along with the higher guidance demonstrate that this business rests on a firm foundation, so I'm at ease believing now is the appropriate moment for me. The people leading our finance and operations groups have been with us a long time and are truly excellent. As the company begins looking for the person who will take my place, I intend to assist Shantanu throughout a period of transition. At this point, I'll hand things back over to Shantanu.

I'm extremely thankful for the vital part John has played in Adobe's impressive results. With an unwavering commitment to shareholder value, John and the whole finance and operations team have contributed to growth on both the top and bottom lines. Beyond what he has achieved as CFO, John reflects Adobe's values, consistently acting with the utmost integrity and ethical standards. John is going to collaborate with me to guarantee a seamless transition, and I'm glad that he'll now have time to devote to his family and to philanthropy, and I wish him nothing but the best. Adobe's worldwide brand, innovation that has no equal, a wide range of customers and partners, and committed staff give us a competitive edge that cannot be matched. I continue to be optimistic that technology will keep reshaping how we work, learn and play, bringing about a better future for everyone. At this point I'll hand the call to the operator so your questions can be taken.

Hi there. Thanks so much, and well done on an amazing quarter. Shantanu, my question, once more, persistently and irritatingly, concerns Creative TAM. You have stayed extremely consistent when describing just how big the TAM for Creative is. I believe it traces back to 10 years earlier. Could you speak — and you said on today's call that it appears limitless when it comes to the opportunity. Could you say more about that? What makes that true? There's a perspective, not one I hold, that when the economy reopens, creative people will head out, enjoy their summer vacations, and do less creative work, so we'd take a slight step back on digital transformation. I'm not sure how you see it, but if you could just address that tactical reopening of the economy and whether it might slow digital transformation or perhaps not, and then discuss why your confidence in the TAM of Creative is even stronger than it was, let's say, five years ago? Thanks a lot.

Glad to, Kash, and it's nice to have you back on our calls now at Goldman. So first, let me simply say that, when you consider content and design, there's no doubt that it's driving the global economy and how we divide our business as we think about what we're doing for Creative pros, what we're doing for communicators, and what we're doing for consumers. And first, to, I think, just share a few numbers tied to that, I think we've stated there are 49 million Creative professionals who use our products to earn a living. There are 700 million communicators, and roughly 4 billion consumers. And so when you consider the TAM, whether that's $20 billion for the Creative pros, $15 billion for communicators, or $6 billion for consumers in 2023, I mean, that amounts to a $41 billion addressable market opportunity given how important design is. So it's a huge opportunity. What gives us confidence? I think when we consider strategically what we're attempting to do, certainly, the first thing we're attempting to do is advance every Creative category. And I'll just give you a single example, Kash. I mean, what's taking place with immersive media and when you consider 3D to 2D and being able to carry out all these virtual shoots as the amount of content, that's an emerging business. I had a truly excellent quarter that builds on what we'd said about video being one of the growth initiatives for us. So, I think the new media types and advancing it is certainly critical. When it comes to multi-surface systems, one thing we can focus on is making certain that mobile — which has proven to be a tremendous growth opportunity for us — is covered; and our perspective on that is that it stems from the funnel it creates for mobile as well as desktop, plus it functions within a system, meaning users can create at any time they like. So regardless of whether they're heading out during summer, as you mentioned, they'll be able to reach all of our Creative tools no matter where they are. The third item I'd mention involves our efforts around collaboration, the team, and all the work tied to enabling people to work together. On services — I mean, Stock delivered yet another fantastic quarter; we expanded that business by roughly 30% year-over-year, and the idea of simply keeping at ensuring we deliver creativity for all — I believe the world will reach a point where Creative expression governs everything connected to education and productivity; so all of this provides us with very strong confidence regarding the opportunity and how we execute. Then, considering Q1 briefly, Q1 was a record-setting quarter. We kept witnessing tremendous demand on the web tied to what's taking place, and absolute ARR was robust once more; and this occurs, as you noted, even though the recovery is fully complete. So we simply sense that we're sitting in an ideal position when it comes to what individuals wish to accomplish with our tools and services.

Thank you very much. Congratulations.

Thanks, Kash.

Thanks, that's helpful. I wanted to pick up on what you said about recovery. The SMB strength you showed this quarter really caught my attention. So I have two questions there. First, when it comes to SMB momentum, would you say you're now at pre-COVID levels, or is there still room to gain? Second, on Experience Cloud specifically, I recall that even before COVID you were running into some execution challenges in the SMB space. So have those challenges been completely resolved, and are the more mid-market oriented products you've acquired now performing the way you'd want them to? That's all from me. Thanks.

Yes, first, on the SMB segment, as we said, in both Document Cloud and Creative Cloud, and on your specific question about Experience Cloud, we saw momentum and growth continue. So I still believe that, given what's happening around the world, things are not fully back to normal yet, and we remain in a pandemic situation of sorts. So I definitely see upside. Each day brings good news in some geographies and, unfortunately, less good news elsewhere. That bodes well for us as we think about our business going forward. But taking a broad view of Experience Cloud, which was the second part of your question, and of digital transformation, from my conversations with all the CEOs I speak with, those who already made digital investments are certainly doubling down, since they see this as the path to greater differentiation; and those who haven't are plainly putting money into people, technology and processes to compete in this market, whether that means transformational accounts at the enterprise level that Anil discussed at the Financial Analyst Meeting, or the small and medium business side, your question about what we can do to help them get a digital storefront, which is essential for doing business now. Interest and demand are strong in both. I know many of you, based on the reports I read, the checks you're running, are picking up the interest in our solutions, and the talk from customers and partners alike is high; so demand for this will grow. We had a good quarter. Looking at how we're targeting DX, we clearly expect revenue acceleration with and without Workfront, Q3 over Q2 and Q4 over Q3; so we're very excited and I think we sit in the sweet spot across all three of our growth areas.

Great. Thank you.

Thanks a lot, and nice work on the quarter and a strong beginning to the year. John, you'll be missed, though we totally get wanting more time for family and philanthropy. So take pleasure in it. A couple of quarters back, you highlighted a stronger push toward lifting Experience Cloud margins. Could you update us on your progress in that effort? And do you have any view on what margins might look like over the long run for Experience Cloud as it stands now compared with what's ahead? Thank you.

Mark, I'll also give John a chance to explain his choice afterward. But regarding the move to pull back on revenue from transaction-based ads — when you consider all the developments in that area, other players do compete there. The approach we took with the Experience platform struck me as the right one. Now that Anil is on board, handling that whole P&L and business opportunity end to end, he has managed to bring things into alignment, make them simpler, and boost performance. You know, hitting the margin levels we reached this year doesn't happen unless every part of the company is locked in. Our leverage model is really strong, but that's not the whole story. Take Digital Experience — we're still in a phase where revenue keeps climbing; our goal for the full year is 20%, and in Q1 subscription revenue came in at 27%. So this is definitely one of those places where there's room to grow, and eventually that's going to show up in the bottom line. John, maybe you can jump in here too.

Yeah, no, for sure. I believe keeping a strong emphasis on both gross margin and operating margin within the businesses is essential. And Mark, I appreciate the kind words. I'm certainly going to miss you all too, but I'll still be around for some time as the transition happens. You can imagine this wasn't an easy call to make. You mull over these things for a while. But I made up my mind even last year amid the pandemic, and you sort of re-prioritize certain things; so I feel truly lucky for the wonderful career I've enjoyed and grateful to Shantanu and Adobe for giving me this chance to chase my passions.

Thanks. I’m grateful for that, and congratulations.

Thanks.

Good afternoon, Shantanu. A couple of years back at Summit, you described the customer data platform architecture as revolutionary, saying it would open up some truly interesting opportunities for Adobe; now it sounds like a number of those customers are beginning to go live. So I'm just curious to hear your view on where things stand in that journey and what you're starting to observe in Experience Cloud as CDP comes online?

Brent, we've seen some — a fair amount of success. I believe we have some genuinely blue chip customers we've discussed — the conversations I'm having with each one of them. And people bring up Customer 360. When it comes to genuine real-time personalization on a large scale, no other big player has anything comparable in the market. Billions of profiles are already moving through our system. Our client roster is unquestionably top-tier — spanning financial services, other digital sectors such as retail, and the work we're doing with telecommunications. On top of all that, it has genuinely acted as the bedrock for our customer journey analytics efforts. When you pull back and look at the major categories we discussed—content, commerce, data insights, and audiences, which is such a crucial piece—I believe that's becoming even more vital considering what's going on in the spooky world, so you're able to get at all your first-party data and profiles. So I think choosing to put money into that was the right call. The wins we're experiencing in the marketplace and the leadership, I think, puts us in a fantastic spot, Brent. And you'll definitely hear much more on that at Summit. From my perspective, bringing Workfront into the fold gave us a rare chance to strengthen our existing offerings while layering in workflow capabilities and the attribution that comes with them, so my confidence is high. Likewise, I'm very encouraged by what we've built around CDP infrastructure. We've shifted much more emphasis toward real-time personalization, treating that as our core point of difference, and we've landed some excellent customer wins as well.

A quick second question for John. Regarding the 20% growth that you're guiding to now, going back to what Jen asked. Does that factor in a complete rebound for SMB, or does it still envision some further gains you might extract from that part of the market?

Thanks, Brent. Yes, no, certainly it truly mirrors an ongoing rebound. But it's not — we don't anticipate returning to pre-COVID levels. I think as we observed when we left FY '20, that momentum and sort of recovery was simply steady and ongoing improvement. And now we're reaping the rewards of that.

Brent, you've been covering us for quite a while now. We aren't counting on any big shifts happening; we focus on the demand in front of us and the trends we're seeing today; macroeconomics isn't our area of expertise. So if the recovery picks up further, fine, but we're not betting on that. Let me be clear about it.

Thank you, sirs.

Hello, many thanks. Shantanu, I found myself simply wondering. Now that we're emerging from the pandemic, your company has performed remarkably well. Still, are there certain segments that stand to gain from once again meeting customers face to face? Specifically, I have the Experience Cloud operation in mind. Clearly, you've managed to deliver strongly within a virtual environment; yet I can't help asking whether some areas — be it Experience Cloud, possibly the education sector, things of that nature — might truly profit from resuming direct conversations with clients. I merely wondered whether you had any perspective on this.

Indeed, I do. What I'd say is the whole planet has accomplished something quite remarkable by shifting to remote work and extracting whatever is possible from it. I've made the point before that reaching customers everywhere on earth minus any flying represents, in numerous respects, a genuine capacity to scale; however, I'm also someone convinced that standing before clients, bringing our partners collectively, speeding up deployment, exchanging top methods, plus that human connection — all of it can only assist. My view isn't that everyone will return to office life, yet I am confident this will serve as an accelerator. Since the wish among people to put in more resources as economic conditions get better can only act as one more favorable force for us. Consequently, we've achieved something fairly extraordinary. I refer to our figures when saying so; nevertheless, doubt doesn't enter my thoughts at all. What I mean is, assuming we're able to fly out, assuming we're able to sit down with those clients and make it happen, nothing but gains come with it.

Kirk Materne asked a quick follow-up. Shantanu Narayen replied that what they see is their own capability — apologies — meaning both what they themselves are able to deliver and the customers' own assurance about steadily growing what they spend.

Appreciate it. Then perhaps a fast question for John. John, regarding Workfront, the revenue landed somewhat above what you first anticipated. Was that mostly tied to deferred accounting? I understand you likely adopted a rather cautious stance on it since the acquisition had to be finalized, and you spoke with us back in December. Yet it seems you're off to a solid beginning. Could there be some lift perhaps in bookings or revenue simply from the combination, or does that mostly just stem from an accounting factor? Thank you.