Q1 2020 Earnings Call
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Yeah.
Sure.
First quarter fiscal year <unk> earnings conference call.
Today's call is being recorded.
A question answer session.
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No.
Mr. Mike Savage.
Other Investor Relations. Please go ahead.
Good afternoon. Thank you for joining us today, joining me on the color Davies, President and CEO, Sean afternoon, Ryan and John Murphy Executive Vice President and CFO.
And our call today, we will discuss Adobes first quarter fiscal year 2020 financial results.
No you should have a copy of our earnings press release, which crossed the wire approximately one hour ago.
We've also posted pediatrics <unk> earnings call prepared remarks on slides and an update investor Datasheet on TV Dot com.
If you like a copy. These documents you can go to Adobe's Investor Relations page and find them listed under quickly.
Before we get started we want to emphasize that some of the information discussed on this call, particularly our revenues and operating model targets and our forward looking product plans is based on information as of today March 12 2020.
It contains forward looking statements involve risk and uncertainty.
Actual results may differ materially no set forth in such statements.
Some of these risks and uncertainties.
Should give you the forward looking statements disclosure in the earnings press release, we issued today.
It was adobes FCC filings.
On this call will discuss GAAP and non-GAAP financial measures.
A reconciliation between the two is available in our earnings release and on Adobe's Investor Relations website.
Call participants are advised that the RT. This conference call is being webcast live it's also being recorded for playback purposes.
An archive of the webcast will be made available on Adobe's Investor Relations website for approximately 45 days it was the property of Adobe.
The call audio and the webcast archive.
Not be recorded or otherwise reproduced or distributed without prior written permission from Adobe.
I'll now turn the call over to shopping.
Thanks, Mike and good afternoon.
We delivered another record quarter in Q1, achieving $3.9 billion in revenue, representing 19% year over year growth.
GAAP earnings per share for the quarter was dollar 96, and non-GAAP earnings per share, which grew 27.
I'll try to do you have unleashing creativity for all accelerating document productivity empowering digital businesses continues to drive strong top and bottom line performance.
Adobe is unique advantage of enabling everyone from students to creative professionals to small businesses in large enterprises.
To create and deliver exceptional digital experiences is enabling our customers success and fueling our business momentum.
With creative cloud document cloud and experience cloud.
Going across all geographies and industries and appealing to a broader set of customers than ever before.
You know digital media business, we achieved record revenue in both creative cloud and document cloud in Q1.
Net new digital media annualized recurring revenue or a our AR was 400 million.
Total digital media ARR exiting Q1 grew 8.73 billion.
Q1, creative revenue was 1.82 billion, which represents 22% year over year girls.
The desire to create rich an expressive experiences is universal.
Adobe is giving everybody, including new a customer segments like business communicators in social media create does the inspiration and tools to tell that story.
We're proud of the impact of flagship digital imaging solutions I've had in shaping culture and creative expression.
This year Photoshop guns 30 years old.
Well the sharpest helped push the limits of creativity across a broad range of creative disciplines from photography graphic design.
It is truly the heart of the creative World and we continue to develop a steady stream of innovative new photoshop capabilities and applications across surfaces.
Demand for our mobile applications like Photoshop, and I Bad Lightroom, and Photoshop Express continues to grow.
More than 35 million, new Adobe ideas in Q1 mobile is proving to be a strong pipeline prepaid mobile only as well as desktop subscriptions.
Film has always had incredible power to connect us too compelling stories and Adobe continues to be the leader in video production software.
The reason Sundance film Festival more than 80% of the film's created use creative cloud.
Now more than ever we believe every voice needs to be hard.
It's part of our efforts to empower devotes voices and support the next generation of filmmakers Adobe launched the inaugural women at Sundance Adobe Fellowship and renewed commitment to the Sundance Ignite program, which supports young filmmakers.
This quarter Adobe Gotta ground, a major took woman any for breaking new ground in television animation.
This recognition reflects our continued ability to create innovative applications and establish new categories.
Adobe Spark are easy to use application for creating social graph fakes 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 contributing more than 1 million new registered users per quarter.
Business communicators, and social market does I increasingly turning to spark to help them engage with their audiences and compelling ways.
Pre liberty's a fundamental Scotland, the digital age and we remain committed to building steam skills for the next generation.
We recently announced a wonderful kind partnership would teach for America to provide educator training workshops and tools to put creativity front and center in the classroom.
Together in this first phase our goal is to reach 15000 teachers and 500000 students in the U.S., who otherwise wouldn't have access to creative tools or programs.
Our efforts to improve digital literacy extend across the globe when visiting India recently I had the opportunity to meet with students who a finalist and then Adobe creative a de competition.
In conjunction with 100 and Fiftyth anniversary of Mahatma Gandhi has been students from 20000 schools were encouraged to depict Oh Gandhi's values can help on Martin will prosper.
I was inspired and move by students messages of humanity and the brilliant ways. They chose to tell their stories using creative cloud.
With Adobe document cloud Reaccelerating document productivity modernizing how people work were documents across all devices.
Document cloud revenue in Q1 was 351 million and we grew document cloud ARR to 1.15 billion.
This momentum is being driven by strong customer acquisition and the expanding portfolio of P.D. of mobile and web applications key wins in the quarter included Equifax and that shell and Commons.
I cannot continues to be the gold standard for creating editing scanning signing and sharing digital documents as more people are working on the bill I'm overlap usage continues to rise.
More than 600 million people have installed acrobat on their mobile devices.
As digital transformation continues it organizations across the globe Adobe sign continues to power paper to digital workflows across all industries, including the majority of Fortune 100 companies.
This quarter, we extended the reach of Adobe sign with an enhanced integration would share point that enables people to easily create and sign digital forms.
We recently launched the ability to convert to and from P.D.S. via of one click access on the web providing a seamless onramp to PDF services, and then acrobat subscriptions.
We're providing PDF functionality to Apiay is an expanding integrations with partners.
Our recent integration with Google drive gives its more than 1 billion users instant access to acrobats best in class schools to create view annotate modify and share pediatrics without leaving Google drive.
You know digital experience business, which had revenue of 858 million in Q1, which represents 15% year over year growth.
Now more than ever every business across B to C. N b to B and Midmarket to enterprise must be a digital business driving opportunity for Adobe experience cloud.
The industry's most comprehensive offering adobe experience cloud features innovative applications and services built on the Adobe experience platform and leveraging Adobe senses, AI and machine learning framework.
Key wins this quarter included Intuit pay Pal Bank of America common spurred held travelzoos stage of Oklahoma goals National instruments to your automotive and Accenture.
Only adobe has data from trillions of transactions tens of millions of products and thousands of retailers, which gives us the unique ability to assess the global digital economy in real time.
Building on the success of our annual holiday shopping report, we're developing an economic index to help companies get a better understanding of local and global trends. So they can anticipate changes and manage their businesses effectively in this dynamic mark.
A great expedient starts with compelling content and is informed by data and insights harnessing the power of Adobe experience platform to stitch together silo data across the enterprise. Our recently released customer journey analytics service gives our customers a set of analytics tools that provides a complete picture of the customer journey.
Online and offline.
Well continuing to drive strong performance with Adobe experience manager for omni channel content delivery.
This quarter, we launched Adobe experience manager is a cloud service, enabling brands to go live with personalized campaigns and experiences across any channel device or mobile app in days instead of months.
It provides agility and flexibility for enterprises in mid sized companies with brands like under armour, Coca Cola and Morningstar, becoming early customers.
There will be commerce cloud enables our customers to make every moment personnel and every experienced shoppable.
With new functionality that enables buttons for natively add high quality media assets through their web sites and create personalized recommendations, we drilled more than 50% year over year bookings growth.
For the third consecutive year I industry leadership was validated in the dark no magic quadrant for digital experience platforms and achieved the strongest position in completeness of vision.
The digital experience opportunity is immense our road map is robust and were excited to have I need to talk about the lead this business.
Our Neal brings a powerful combination of business and product leadership and its impact is already being fast.
We're proud to have created a unique employee culture that embraces diversity and inclusion and supports the communities in which we live and work. This commitment has made Adobe Oneh Fortune's 100 best companies for the past 20 years.
This quarter, we will honored for our sustainability efforts on the CDP E list for climate change for the fourth consecutive year and we've included in the Bloomberg gender equality index, recognizing on transparency engender boarding and advancing women's he quality in the workplace.
Why Q1 was it typically strong quarter I know what is top of mind for all of US is navigating the impact of gold at 19, the wellbeing of our employees and customers is our number one priority.
In addition to encouraging employees and impacted regions to work from home for the next two weeks, where restricting travel and canceling in person events.
In keeping with that strategy, we made the tough decision to cancel the in person Adobe summit in Las Vegas, and replace it with the digital event at the end of the month.
We are proactively engaging digitally with our current customers to support their businesses and continuing to drive enterprise pipeline globally.
We're fortunate that the company's revenue and earnings are relatively predictable as a result of our move to a subscription based business model.
We have seen little to no impact on Adobe dotcom.
Creative cloud and document cloud demand, thus far and we'll continue to acquire and engage customers digitally.
In my conversations with business leaders across the globe. It is evident that investments in digital will continue to be critical.
The dealing with the implications of go over 19 is the immediate priority.
As a result, we expect some enterprises will delay bookings postpone services implementation and reduce expenses.
We will be using Adobe digital solutions to mitigate impact and to engage with our customers.
Well the situation is concerned and this tremendous uncertainty the long term fundamentals of our business remain undiminished.
It will be is at the center of fee massive market opportunities across creativity digital documents and customer experience management, which will fuel growth in the near and long term.
Businesses must transform to deliver personalized digital relationship with every customer.
The people digital Revolution continues.
Creativity and design have never been more relevant.
We will continue to lead in these categories and manage the company for the long Rob why do we navigate through this environment.
At times like this the best companies like Adobe continue to innovate drive increased focus and emerge stronger than ever before.
John.
Thanks talk to the first quarter of quite 20, Adobe achieved record revenue of 3.09 billion, which represents 19% year over year gross.
GAAP diluted earnings per share in Q1 was dollar 96, and non-GAAP diluted earnings per share it was to 27.
Earnings per share results include a charge related to the cancellation of corporate events, including Adobe summit due to the cobot 19 situation, which lowered both GAAP and non-GAAP EPS by seven cents on the quarter.
There's a some financial highlights in Q1 included digital media revenue of 2.17 billion net new digital media ARR of 400 million a record for too long.
Digital experience revenue of 858 million.
Generating strong cash flow from operations of 1.32 billion.
Growing remaining performs obligation or arpino to 9.91 billion and repurchasing 2.4 million shares of our stock during the quarter.
In our digital media segment, we achieved 22% year over year revenue growth in Q1. The addition of 400 million net new digital media ARR grew the total exiting the quarter to 8.73 billion.
But then digital media, we achieved another strong quarter with our creative business.
Creative revenue grew 22% year over year, and we increased creative ARR by 329 million.
Q1 creative growth drivers included strong user growth starting early in the quarter with cyber Monday, followed by continued customer acquisition throughout the quarter.
Thanks, a lot of adoption as we target new users who are more inclined to adopt creative cloud. So the use of a specialized application such as photoshop illustrator Premier acrobat.
Mobile app subscriptions, including adoption or Photoshop on the I pad continued momentum with creative services, including Adobe stock, where revenue again grew by 30% year over year and continued focus on engagement and retention.
Strong Adobe document cloud revenue growth continued in Q1, we achieved record document cloud revenue were 351 million, which represents 24% year over year growth and we added 71 million of net new document cloud ARR during the quarter.
Document cloud performance during Q1 was driven by consumer adoption of mobile apps PDF services and acrobat subscriptions conversion of free mobile app users to paid subscriptions for services such as creep PDF online.
Strong performance with enterprise customers, including new logos and renewals.
Document cloud services adoption, including continued momentum with Adobe sign revenue, which grew greater than 20% year over year in Q1.
In digital media, the Cobot 19 situation did not impact or overall business on Adobe Dot com in Q1. However, we did experience weakness in China, which was primarily a channel based reseller market.
And our digital experience segment, we achieved quarterly revenue of 858 million, which represents 15% year over year growth in Q1.
Subscription revenue for the quarter was 739 million growing 21% year over year, and we grew our digital experience bookings by greater than 20% year over year.
Q1's digital experience highlights include success with our content and Commerce solutions, where we drove noble adoption of Adobe experience manager and Adobe Commerce cloud.
During the quarter, we continue to focus on closing Adobe experience possible opportunities, while growing the pipeline our strategy and value proposition continued to resonate with customers, who wish to increase their digital engagement with their customers.
And just those variance the impacts of the cobot 19 situation in Q1 with some unanticipated deal slippage during the last 10 days of the quarter.
From a quarter over quarter currency perspective, FX increased revenue by 1 million, we had 7 million in hedge gains in Q1, if I was wondering versus 12 million in hedge gains in Q4 in 2019, thus the net sequential currency decreased revenue considering hedging gains was 4 million.
From a year over year cars in perspective, FX decreased revenue by 27 million the 7 million hedge gains in Q1 of my 20 versus the 9 million hedge gains in Q1 appoint 19 resulted in a net year over year currency decreased revenue considering hedging gains of 29 million.
Adobes effective tax rate in Q1 was minus 4% on a GAAP basis, and 10% on a non-GAAP basis, both rigs were lower than targeted due to a larger than expected production associated with the vesting of stock based compensation.
The reduction on a quarterly tax rates benefiting GAAP and non-GAAP EPS by 17 cents and three cents respectively in the quarter.
Our trade you. So it was 41 days, which compares to 46 days on the ergo quarter and 47 days last quarter.
Remaining performance obligation or IPO grew by 22% year over year to 9.91 billion exiting Q1, which compares to 9.82 billion exiting Q4.
The sequential quarter over quarter growth was consistent with normal seasonality.
Third revenue exiting Q1 was 3.61 billion.
Our ending cash and short term investment position exiting Q1 was 4.17 billion cash flow from operations was 1.32 billion in the quarter.
In Q1, we repurchased approximately 2.4 million shares at a cost of 795 million.
We currently have 4.25 billion or many of our 8 billion repurchase authority, which goes through 2021.
Turning to our financial targets I'd like to review two areas as you think about modeling the rest of our fiscal year.
First our Q1 tax rates came in lower than planned as I discussed earlier, and we now anticipate both our GAAP and non-GAAP rates to be lower than we originally targeted for the full year.
We continue to focus on managing costs, and optimizing adobes international structure to deliver more value to our customers investors, we anticipate making changes to our international structure. During Q2 and Q4. This year that will better align ownership of certain intellectual property rights with how our business operation, while allowing us to remain tax sufficient.
We now anticipate our GAAP quarterly tax rates to be minus 10%.
10% and minus 85% in Q2 Q3 in Q4, respectively.
The changes were international structure do not impact our non-GAAP tax rate and we expect our non-GAAP quarterly tax rate to be 10% in Q2 Q3 in Q4.
The secondary as a consideration of business impacts, we can see because of cobot 19.
We have factored into our Q2 targets the expected impacts of the global uncertainty caused by the cobot 19 situation as we understand it to date.
Our revenue and earnings are relatively predictable as a result of our subscription based business model, we do expect to be impacted in the following areas.
Enterprises, deferring bookings decisions delaying consulting services implementations and reducing marketing spend.
Consumers, reducing spending countries more adversely impacted by the Cobra 19 situation and software license revenue driven by channel partners.
These impacts are expected to be more prominent in countries and industry is most affected by the crisis.
In Q2 up by 20, we are targeting revenue of approximately 3.175 billion.
Digital media segment year over year revenue growth of approximately 19% net new digital media ARR of approximately 385 million.
Digital experience segment year over year revenue growth of approximately 12% net non operating expense of approximately 14 million tax rate of approximately of minus 10% on a GAAP basis and 10% on a non-GAAP basis.
Sure counts of approximately 486 million shares GAAP earnings per share of approximately $2 in 10 cents and non-GAAP earnings per share of approximately $2 a 35 cents.
In summary, we continue to believe we are well positioned as a market leader in large growing categories. The benefits of running a real time business on a high percentage of our revenue that as recurring enables us to monitor and take action, how we drive revenue or control costs, all of which should enable us to deliver solid results as the world navigates the cobot 19 situation.
Finally, I will share with you the news that Mike Savage has decided to retire from Adobe later this year.
As a head of Investor Relations, Mike has been an important champion of Adobes growth and transformation story over the past three decades.
We will be appointing and internal replacements and Mike will be onboard for the next few months to help us transitioned the new leader I want to thank Mike for his many contributions to derby and wish him well in his retirement.
I'll now turn the call back over to Mike.
Thanks, John and thank you for those comments.
As we announced last week, we have shifted Adobe summit, our annual digital experience user conference to be an online event and virtual conference starting on Tuesday March 30 Onest.
As the event draws closer we will provide instructions on the summit that Adobe that come website for how to access our land keynote presentations and educational sessions, along with the timing of them.
If you wish to listen to a playback of today's conference call a webcast archive of the call will be available on our IR site later today.
Alternatively, you can listen to a phone replay by calling 8882 03111 too.
This conference I'd number for three 470 for one.
International callers should dial 7194, or 570 820.
The phone playback service will be available beginning at five PM Pacific time today, and then they get five PM Pacific time on March 19th 2020.
We'll now be happy to take your questions.
Ask that you limit your questions to one per person operator.
Thank you if you'd like to ask a question on today's call. Please press star one on your telephone.
If you listened Jayson speakerphone, please pick up your handset before pressing the corresponding digits. Once again. Please press star one at this time to ask a question.
Well take our first question from Brentsville with Jefferies. Please go ahead.
Thanks, Good afternoon, Mike Congrats on three neck, and very happy for you.
Shiny just on that created business. There are many questions around obviously no one knows how long. The current situation is going to last then NIM here kind of asking how inflating deeply integrated businesses.
Guidance for this next quarter was encouraging.
And probably a little bit better and then the thought so if you could just kowalke true.
How you're thinking about that business over the next several quarters.
Sure Brian.
Clearly I think let me start out by saying, we would all acknowledge that the situation thats pretty unprecedented and so as it relates to the creative business, maybe I'll give you called out not just for Q1, but also actually for the first few days of March and I'll talk about that in the context of the customers that we serve.
And maybe again as sort of a preview to what John talked about let me just.
Tell you a little bit about the options that we consider it I mean clearly given the situation we could have sort of chosen to give no forward looking guidance.
We could have provided a range given the uncertainty are what we talked was most appropriate was given we have fairly good visibility on a direct basis to guide based on a number and then provide more color.
On creative cloud, specifically, Brian and on document cloud in the direct to consumer on Adobe Dot com.
We saw actually little to no impact on Q1 under Adobe Dot com across all geographies for both creative and document cloud products.
And thus far it's early in Q2, the overall traffic and conversion back on have actually continue.
In China, where we have a little bit more of the indirect route to market for CCN DC, which is through resellers. We know that the business is small, but we saw some impact in Q1 and as you saw despite that we had pretty awesome overall payout our for digital media and Q1.
In South Korea, we've actually seen relatively stable business in our digital media business today.
In Italy, what we saw was that as the situation worse than we saw some impact and the reseller business.
But we actually appear to have seen some additional spent on adobe dot com and the fact that I guess, we have multiple routes to market that sort of helps ameliorate dot. So I mean in sort of conclusion, we were continuing to monitor we think that you know clearly long term the creative expression of business continues to be.
Really strong and specifically as it relates to Q2 absent the goal that situation. We would have probably again had a sequential increase to digital media ARR, what we're trying to factor what we've seen a little bit of the uncertainty.
In the reseller impact on enterprise and even in revenue we have a little perpetual revenue. So I know that was a little bit of a long answer, but hopefully that gives color in terms of all of the work that is gone and over the last 10 days, we've already done a couple of business reviews and this is as off what we know today, while there's onto.
Certainly that's our best estimate of how we think Thats plays out in Q2.
Thanks, Phil or color.
Well take our next question Keith Weiss with Morgan Stanley. Please go ahead.
Excellent. Thank you guys. Thanks for taking the question.
Mike has been great working with you.
Got you retiring but thats your business.
Shocking you. Thank you so much for kind of given that detail on how you guys again about the outlet I think it definitely helps investors to understand how you're thinking about it in that you are in partying some conservatism into the guidance for kind of what's going on out there.
Hoping to get some different John on how you get to thinking about the extent cited equation, how aggressively that you'll sort of look to match.
<unk> expense growth rates since that's kind of what you're seeing environment.
There.
Are you looking at kind of protect the margins and protect the contribution margin in the business.
At the demand fluctuates.
Sure. Thanks, Keith as we think about our ability to understand our business. We've got a great ability with through our detail model or data drum operating model to understand how we can actually drive growth, while still expanding margins on protecting the profitability of the company and that thesis doesn't change. We are we're still a growth company and we do focus on.
The profitability of the company. So we're able to shift our expenses that are spending in our investments to appropriately captured the opportunity, but at the same time to be able to.
Hit our goals of expanding operating margins, we set out at analyst day this year.
And Keith maybe I'll add a couple of more things I mean, I think we've always done a good job of balancing.
You know the topline and bottom line I have no doubt that companies like Adobe actually will emerge stronger as a result of this and what John has already instituted is we're looking at every expense associated with that there's certainly some areas, where we have great online solutions to help our customers.
We'll be investing more and that other areas, where we will be far more prudent as it relates to what happens and maybe John you can also specifically comment on what happened in Q1 as it relates to that onetime charges. So that everybody understands that yes, it wouldn't be decided to cancel the in person corporate events that caused us to pull.
In the expenses into Q1 sort of made that decision before we we finished Q1. So we took a charge is $40 million associated with that.
The typically much of that expense will be in Q2 and would be offset actually by revenue we would get through.
Registration fees from participants as well as sponsorship dollars as well so the way that we've approached of is obviously the sponsors and with the participants were we will not be taking that money and so we pulled all that expense forward. So that the onetime charge that you had in Q1.
Associated with this.
Activity.
It was obviously a significant impact on our margin would have been 41.6% otherwise have not had to take that charge.
That's super helpful. Thanks, so much as.
Well take our next question from Kash Rangan with Bank of America. Please.
Hi, Thank you very much for all the details I'll tell you talked about how things finish up in February of quarter I'm more curious about your guidance for the mid quarter, what are the assumptions, especially as it relates to the geography that we're all most concerned about that could potentially worsen.
Perspective, what's kind of postpaid said, what kind of U shaped obvious shaped recovery are you assuming for.
Two businesses and the U.S.. Thank you, so much and stay safe and body.
Well gosh I think you know I, we'd all agree that the situation is rapidly evolving it was interesting just even watching off the one o'clock the six or seven announcements that went out and so clearly we're trying to give you the best color that we have as of today.
I'm not sure that I can predict or anybody can accurately predict what happens, but I think we give you color and digital media, which is we continue to expect to see.
The notion of both creativity and accelerating document productivity and where there's a direct engagement with customers to.
To continue to invest in engaging with them digitally and continuing to drive our business because there is clear value associated with that I think maybe just similarly I can give you a little color on the enterprise I mean.
As you know with enterprise selling the end of the quarter represents a fairly large chunk of business for most people and while that does not have impact on revenue.
And you never expect to close your entire pipeline I think as we said in the prepared remarks as well cash we saw some on anticipate an unanticipated slippage at the end of the quarter and so the way we've tried to think about it for Q2.
I'm not a ton of conversations from Ceos across all industries and I think that do themes that are absolutely consistent the first theme as everybody is first and foremost.
Making sure that they take out of the well being off their employees, they're all dealing with travel restrictions that all dealing with the outbreak. The second thing that they all telling me is that hey, this if anything will accentuated the need to engage digitally not just internal to the cooperation to keep the cooperation going.
Externally in order to engage with customers, but given what's happening with travel we just expect that.
It is going to be some delays associated with that we've tried to factor that in and the way I would describe that is absent any covert we would have certainly seen digital.
Experience being targeted higher than what we targeted so I think we've tried to factor. It and then maybe just a little bit more color on that cash when you look at the revenue components for our business that three components. There is the revenue that comes off off.
Bookings bookings translating into revenue.
There's a usage based advertising cloud revenue that goes into that and then delivery based revenue and services are delivered and implemented we suspect that the services will go out a little bit.
The importance remains but as people are concerned about people traveling that will perhaps slowed down a little bit and depending on the industrial vertical that will be different did you know some of it may be more immediate in terms of the bounced back some of it maybe a little bit more detail and so what do we know is that we expect bookings will probably take a little longer.
We think services delivery may go a little bit longer we feel like the advertising cloud might be impacted those are all factored into how we talk about it.
If the World falls apart that could certainly change, but we will continue to monitor what I have not heard from anybody is.
Any issue associated with keeping digital front and center because I think this demonstrates more than ever before if you've gotten engage with your customers digitally youre dead in the water. So hopefully that helps.
Absolutely. Thank you so much.
Well take our next question comes Sterling Auty with JP Morgan. Please go ahead.
Yes, thanks, guys.
No I'm just curious if anything.
Can you would actually impact any new product introduction.
Your functionality for any changes that may be considered in the near term pricing.
Geography.
Hi, selling not not to the best I mean, we are excited you know we'll be doing as far as digital summits. On these are covered IP as busy I mean, all the exciting things that we were going to announce in person you. Another plan is to announce it.
Actually.
Virtually coming up a couple of exciting things there I mean, the Adobe experience manager that we just introduced which is a cloud based approach that's significantly again I think as we said reduces the time for people to do through self serve and get.
New web sites and campaigns up and running so on the expedient side. It was really going to be a and event, where we describe everything that's on a with the creative cloud space as well I mean, I think if there's one group that books more from home and has a more flexible work policy it tends to be the product.
Team. So I think you know, we're all navigating what it means for nobody to be in offices Sterling, but I think were actually you know as well placed as anybody in terms of doing it and one other thing I've mentioned as we are actually for universities, given how much universities closure that there is were making available our creative.
And other tools available for people for this online training and so you know I I think while the situation is is.
Crazy I think there a whole bunch of our solutions, whether it's all the documents that I'm going to be shed right now with what's going to happen with signatures, whether what you're going to do with respect to helping people engaged digitally.
So nothing yet that's change it all depends on how long the situation continues from my perspective stolen.
And Mike Congratulations just one follow up.
Great job.
Congratulations.
[music].
Thanks Sara.
Your next question.
Oh, yes with Barclays. Please go ahead.
Hey, guys. Thanks for taking my question here and I Echo my congrats to use while Mike on your retirement.
Sean maybe for you just thinking a little higher level can you just talk a little bit about bringing anil Chuck or roughly on the team and needed but some of his longer term goals are.
In the digital experience business.
Sure Saket I mean, I think we are clearly the undisputed leader and have the most comprehensive offering as it relates to and we created the digital marketing category I think as we.
Focused on or what we call as generational technology platform development, we recognize that the ability to create this unified profile.
And to really make sure that your first party data you're taking more advantage. If it were two massive opportunity is that every enterprise was going to have to figure out how to take advantage of much like Adobe did with Needham on those background as it relates to what he had done both that informatica and prior to that and.
The fact that as CEO he had the ability to look across the entire business.
Both of those are going to be extremely important for us as we continue to invest in product and as we continue to you know focused on ensuring that the CIO and the people who engage with data which is an area that he is completely familiar with our ones that we continue to invest and differentiate us solution.
It's only as I said his presence is already being felt.
But what he has been really up do is going and meeting with a number of customers I may have to ground and put on the divided right now, but he also actually had the ability to go meet with all the product people. So I think both on the product on the customer stuff just continuing to make sure that we extend our lead and have a unified leader those were really the two reasons.
For having him on board.
Great. Thanks.
Thank you.
Well take our next question from James Please.
Greetings Securities. Please go ahead.
Thank you good evening, a shorter term question, Sean to known for you John as well.
Notice that you had a small sequential decrease from Q4 in your head count countries not seeing while on the other hand, a quick spot check. This afternoon shows that you continue to have a growing number.
Open positions by rather substantial amount.
Since the end fiscal 19 or total open positions up over 60%.
Including a more than doubling in sales positions. So maybe talk about that.
Thinking is behind maintaining or growing.
That large number of open positions.
In terms of priorities insight.
Product of Geo and so forth and.
And Michael.
Can I say, it's been a great two thirds of like Adobe coverage to have worked with you and.
We'll hope to get together before you obviously Lee thank you very much.
Thanks, Jay well first Jay I would say you know apart from the recent covert but we'd all be talking about is we've got that 128 billion addressable market opportunity. We have tailwinds, we have growth in three areas. I think what you saw was really concerted effort again by John to rationalize as we.
Don These M&A is into you know make sure that were not duplicating functions and so I think as part of every annual planning process. We first pruned to make sure that we're investing in the right areas.
And I think we did a really good job of looking at that so.
For somebody like you, who follows us and sees that sort of ebb and flow. It's just a continuous process that we do we have opportunities I mean, we're going to continue I think again based on the question that I think ethos will be prudent about how we look at this stuff, but even if you look at our targets for Q2.
I think you'll see that we're one of the company's that's best position in the entire industry to continue to make sure there where cash flow. So we have great exciting opportunities and we're going to continue into higher but we'll be prudent and we'll continue to monitor this.
That's helpful.
Well take our next question from mature with Evercore ISI. Please go ahead.
Yeah, Thanks very much.
At the outset I'd say, thanks very much.
Co bed in it.
Sure moving quickly, but even just the color you've given that example, mr. helpful. Thank goodness.
All my questions Shantanu would be experienced cloud obviously year later.
Yes, you integrate acquisitions, we weren't talking about Kobe right now.
How does your feeling about just sort of the integration of the products and set up for that business as we head into calendar 2020.
Yeah, I think Clark, what we would have said apps and covered was.
Good Q1.
Greater than 20% increase in the book of business revenue growing nicely highlighting the progress that we would have made I think you know I shared a number of customers. We've had the experienced platform customers go live I would have talked about cloud am I think we touched on a adobe commerce and that's only because I wouldn't have had time to talk about.
We are doing with B to B and beat to see how we've integrated marketo into that and so I think that fundamental customer demand for digital and for engagement nothing changes and so that's what I would have said if it one for the situation.
With the Q1 I mean in effect, what we would have been John and I would have been here talking about record performance. In Q1 continued momentum from Q4, a robust cash flow strong EPS performance and I think all of you guys would have been saying why Andy raising targets I had one full Kobe then so I think you know I can do you.
Due to feel good about the long term opportunity.
That's great Thanks, and congrats on your retirement.
Thanks Kurt.
Our next question from Zelnick with Credit Suisse. Please go ahead.
Great. Thank you so much and Mike I got to Echo My Congrats I always thought maybe I will be able to retire before you, but not with how the markets have been performing the last few weeks for sure I think I'm going to be work in a long time.
But but anyway shopping. Thank you so much rather color you provided on digital media, so far but just wanted to understand its resiliency because realistically if we think about your end markets.
It includes a lot of small businesses and hobbyists, where there may be more stress or not thought of as much as the as a top of wallet item are you maybe able to share what that represents as a percentage of the overall air or even ballpark if you can.
Leading indicators are that you see through your de Dom being able to see things like engagement renewal rates, maybe even pay skew as as it relates to the second or the market. Thanks.
You're right Brad in that you know the real blessing of that business is how broad and how diverse it is and how our tools whether they'd be on the creative side or whether they'd be on the documents side are as pervasive end market leaders as they are we tried to give you know the Carla Eva.
During this.
Current situation and the impact and as we said on Adobe Dot Com, there's been little to no impact we have become really good at how we engage with these customers and you know the thing that also gives us long term confidence in that Brad is that different price points and so you have to think about it with respect to the different price points that.
We haven't we've got really good understanding where the mobile offerings need to be with all these people are being at home and they will have to do some things and hopefully you know expressing their creativity. We just have to continue to help them do that and so.
No.
We're not saying that we're completely are going to be up unimpacted, but so far and you know just looking at what we've seen thus far these tools and creativity and the importance of design nothing that's happened in the last few weeks diminishes the importance of that.
Thanks, very much shantanu and be healthy everyone. Thanks.
Thanks, Brett.
Your next question from Jennifer Lowe with Cowen. Please go ahead.
Great. Thank you and I would like to echo the congrats to Mike on a well deserved retirement after pretty impressive Brian.
So just looking at at the foot deals that were discussed in the call. Obviously, it's an unprecedented times underlie moving pieces there, but it certainly true commonality two deals that seem to slip in terms of size, whether those were new versus up sell transaction, whether they were.
Hi.
So just logistical issues that cropped up I'm, just trying to get a better sense of where it's just tougher to get this is done at this point. Thanks.
No one really any patterns, Jennifer I mean, I think there was a couple of Ah if people wonder at home and you know you expect that do you know have people in the office Duke knows so just some examples of in certain countries, where people were maybe not at work I mean, you followed enterprise software for a long time, the number of stakeholders that required.
We do use adobe signature to close them, but I I would say, it's a little bit more of just getting the stakeholders involved and I would actually attribute it to a large degree to the preoccupation correctly of dealing with employees and employees wellbeing I'm not I'm sure. This is a true off a your company as well everybody is just dealing.
With our employees safe, how do we make sure all of that so I would attribute it more to that and we'll just have to continue to monitor what happens, but the conversations that I'm, having and we are so one of the things. We're doing is actually proactively reaching out to every single customer of what is the right way to engage with them digitally.
In terms of saying here's how we can help I think all if you are probably seeing more communication I should acknowledge that a number of the deals that slipped actually did close in the time that was.
Hi, Scott, but it's uncertain times, so hopefully that gives you some color into what we were observing.
Okay. Thank you.
As a reminder that star one if you ask the question on today's call will hear next from Walter Pritchard with please go ahead.
Hi, Thanks, two questions. One just on sign you talk pretty positively about this business for a number quarters I Wonder if you could update us on what are the strongest demand drivers. There are they kind of direct deals out selling as part of larger engagements or is it more transactional attached to the acrobat and especially in the mid market low end.
I think we'll do it's actually all across the map, we had a good quarter as it related to assign revenue and make no mistake, the reader distribution and wanting to do stuff with PDF and workflows associated with PDF that so a big part of that business. We've talked about how we are going to make those eight the eyes available as well.
So that people can embedded or we talked a little bit about the integration with Google, but it's a it's all across I mean, as a ingredients service or of love as we talk about it sinus certainly part of the solution across all those segments as a complete offering with respect to what we have with PDF across acrobat and.
In the enterprise and with a Adobe experience manager, but it really is across across the board and I think you're going to see more demand for those services right now because physical signatures I'm going to be a less easy to manage than electronic signatures.
Got it and then just John I'm not sure if you're breaking this out but I guess, we're getting this question quite a bit on the on the Dxi business with the transactional piece, where you where you broke out those three pieces anyway to give us let us know if that's the smallest of the piece or any any range in terms of revenue exposure from from transactional in the actually helpful.
Yeah, I know if you go back to the analyst meeting we broke out each of those three components for you and so you can see that is actually a roughly 20% of the business 20, 25% of the told Dx business in terms of cloud and professional services fees.
And that hasn't changed.
No.
Okay. Thank you very much.
Operator, we're coming up on the top of the Arrow, we'll take one more question. Please.
Thank you we'll take your last question Keith Bachman with BMO. Please go ahead.
Hi, Thank you very much.
To revisit a little bit on that experience revenue.
You are guiding the current quarter, the second quarter, rather to 12% year over year growth.
Back in December you talked about growth potential for 20, being plus or minus 16%.
How should we think about.
The rest of the year in the digital experience segment.
Even macros really trop tough in the covert virus, obviously is making a challenging but also including.
Any kind of competitive comments that you want to make surrounding it. Thanks.
Yeah, I think what we see frankly right now is the color associated with what's happening in Q2 as you know in December we provide targets based on the product road map and from my perspective, Q1 execution and performance was terrific and why we're giving you as much color as we know for Q2 as of today.
Given the unprecedented times, where we're really not going to comment on the second half we will continue to monitor.
None of this changes long term trends and so that's that's how we think about or.
Maybe just to add in there because we did give a lot of commentary in the prepared remarks around updating tax rates for the here because of the fluctuation.
And I know in terms of modeling.
We had been asking or what are we thinking about beyond that point 20, and so as we said at the analyst meeting we expected an increase in 21 and so.
Based on these changes that I highlighted in my prepared remarks on the tax rates you can kind of expect up by 21 to be roughly 17%.
Non-GAAP worried about 19% on a GAAP basis.
And since that was the last question. Let me also Echo I think you know all look feel sentiments, which is thank Mike Flores outstanding contributions to Adobe a I've certainly observe first hand his passion for the business and his eye. Our leadership has been invaluable to me as a partner as we.
Transform the company I told them that we've been doing this call together since 2001.
And I will certainly a miss him and wish him well, but with his help a we will make sure that we have a smooth transition. So thank you Mike.
As it relates to the business Q1 was strong we will continue to execute on our strategy and focus on the three large opportunities ahead of us unleashing creativity accelerating document productivity and powering digital businesses and I don't think that the recent situation changes the relevance or importance of any of this.
For our customers and it will only magnified the need to.
To go digital with more urgency.
Given the situation is fluid we tried to give you as much insight into what's happening in our business.
The demand for creative document and enterprises strong, but the impact as we said of coal would will probably be felt a little bit more in the short term in the enterprise business, but again, we believe there we're better positioned than most to continue to innovate.
To drive both top and bottom line and a much stronger and more mission critical we'd only hope you guys will join us for our digital summit and much like a number of you have said stay safe and thank you for joining us today.
Thank you this concludes our call.
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