Q2 2021 Adobe Inc Earnings Call
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Good day, everyone and welcome to the second quarter of fiscal year 'twenty, 1 Adobe earnings Conference call. Today's call is being recorded at this time I would like to turn the conference over to Jonathan Boss VP of Investor Relations. Please go ahead.
Sure.
Good afternoon, and thank you for joining us with me on the call today are shortening Orion Adobe as President and CEO, and John Murphy Executive Vice President and CFO.
On this call, we will discuss Adobe second quarter fiscal year 2021 financial results.
By now you should have a copy of the press release, which crossed the wire approximately 1 hour ago.
We've also posted pdfs of our prepared remarks in financial results on Adobe's Investor Relations website.
Before we get started I want to emphasize that some of the information discussed on this call, including our financial targets and product plans is based on information as of today June 17th and contains forward looking statements that involve risks uncertainty and assumptions.
Actual results may differ materially from those set forth in these statements.
For a discussion of these risks you should review the forward looking statements disclosure in the press release, we issued today as well as Adobe's SEC filings.
On this call, we will discuss GAAP and non-GAAP financial measures.
Conciliations between the 2 are available in our earnings release and on Adobe's Investor Relations website.
Call participants are advised that the audio of this conference call is being webcast live and is also being recorded for playback purposes, an archive of the webcast will be made available on Adobe Dot com for approximately 45 days.
The call audio and the webcast may not be rerecorded, or otherwise reproduced or distributed without adobe as prior written permission.
I will now turn the call over to Sean O'neill.
Thanks, Jonathan.
Adobe had another outstanding quarter as the shift to a digital first world continues to accelerate.
From students to creative professionals to small businesses to the world's largest global enterprises digital is transforming how we work learn and play.
Adobe is mission to change the world through digital experiences has never been more relevant.
Our strategy to unleash creativity for all accelerate document productivity and power digital businesses is working.
Fueled by our groundbreaking innovation.
Proven capability to create and lead categories, and our expansive global customer base, our opportunity and momentum has never been greater.
In Q2, Adobe achieved $384 billion in revenue, representing 23% year over year growth.
GAAP earnings per share for the quarter was $2.32 and non-GAAP earnings per share was $3 <unk>.
In our digital media business, we drove strong revenue growth in Q2 in both creative cloud and document cloud achieving $2.79 billion in revenue, representing 25% year over year growth.
Net new digital media annualized recurring revenue or <unk> was $518 million and total digital media <unk> exiting Q2 grew to 11.21 billion.
Over the last year, we have seen the critical role creativity has played in the world.
Creative cloud is empowering everyone from the most demanding professional to the high school student to the next generation of social media creators to tell their stories.
Adobe is the leader in core creative categories, such as imaging design video and illustration.
And we're expanding our leadership in exciting new media types, including screen design and prototyping 3 D N a R.
In a world of requires anyone to be able to create from anywhere we're building products and services for every surface and platform.
Our vibrant creative communities continue to be a tremendous source of inspiration and our goal remains to provide access to our larger and increasingly diverse set of creators and design teams furthering our strategy of unleashing creativity for all.
Q2, creative cloud performance was strong with net new creative cloud <unk> of $405 million and revenue of $2, 3.2 billion, representing 24% year over year growth.
Q2 highlights include.
New product innovations, including updates to lightroom, and Photoshop and illustrator that deliver enhanced creation and collaboration capabilities and greater speed and performance next week, we will unveil new innovations for substance <unk> solution designed to improve the creation process with new tools to help assemble style and Scott.
Increasing engagement and retention across offerings, including greater customer uptake of training participation in community events and continuous product enhancements derived from insights about customer usage and value.
Momentum in our creative cloud teams offering globally.
Enforcing the growth and adoption of creative cloud within small and medium businesses.
Strong customer acquisition and core creative in emerging categories, especially photography and video supported by exciting marketing campaigns globally for Photoshop and Premier.
And accelerating demand for <unk> in key verticals, such as gaming automotive fashion and E Commerce.
Continued growth of mobile traffic, leading to new customer acquisition on mobile offerings like lightroom mobile in Photoshop Express and a strong funnel for desktop applications.
Strong growth for Adobe stock with an increasingly robust content library and growing submissions that provides sustained earnings for our contributors.
Global momentum with accelerated demand in EMEA and Asia Pacific.
Key customer wins, including buy Downs, Netflix, Microsoft and unity and.
And new partnerships to inspire the next generation of creators, including 1 with Netflix that gives emerging creators access to tools resources and mentorship to bring their stories to life and another with Conoco me designed to provide details and students in underserved communities with access to digital tools.
And learning resources.
In this digital first business environment seamless document workflows across every device and platform are more important than ever for the modern workforce to collaborate and be productive.
Document cloud is accelerating document productivity by powering the paper to digital transformation and enabling all document actions, including editing sharing scanning and signing to be frictionless across web desktop and mobile applications.
We delivered strong document cloud revenue in Q2 with net new document cloud <unk> of $113 million and outstanding revenue of $469 million, representing 30% year over year growth.
Q2 highlights include new product innovation, including new features in acrobat liquid mode that further improve accessibility on mobile devices, new Adobe scan functionality that enables users to combine sales and store scans more efficiently and new sign capabilities in acrobat to help small and medium sized businesses improve their digital.
Footprint with easily embed able forms and digital payments.
Strength in acrobat across all routes to market and offerings with enterprise bookings growth up over 60% year over year.
Accelerated demand for sign with new signed customers doubling year over year, and an increasing share of acrobat users leveraging <unk> capabilities.
Explosive growth in acrobat web services, driven by significant improvements in <unk> for a new set of customers. In Q2, we drove 30 million visits to frictionless PDF pages and now offer capabilities for over 20 different document verbs.
Continued growth of mobile traffic, including over 110 million mobile downloads of Adobe scan and 1 billion scans to date and a greater than 20% year over year increase in acrobat mobile app adoption.
Momentum across all geographies with accelerated demand in Europe, Latin America, Australia, and New Zealand, and key customer wins, including ADP, Astrazeneca or Glaxosmithkline, Toyota and Wells Fargo.
I'm thrilled to welcome back David Wadhwani, who has rejoined Adobe as executive Vice President and Chief business Officer of our digital media business is.
As impressive track record and passion for Adobe and our customers make him the ideal person to lead our digital media business through its next phase of growth.
Digital transformation has become an imperative for businesses of every size and every industry.
According to a recent Adobe digital economy Index E. Commerce spending is projected to be 4.2 trillion globally. This year and reach 1 trillion in the U S alone in 2022.
We predict that U S online spending on the upcoming Prime day will surpass the $10.9 billion Mark that cyber Monday reached in 2020.
Across both B to C and B to B companies around the globe by investing in digital to deliver personalized and engaging customer experiences.
Experience cloud is the most comprehensive solution for content and commerce data insights and audiences customer journeys and marketing workflow.
With unified customer profiles, and an open and extensible architecture Adobe experience platform is the clear platform of choice for enterprises to deliver real time personalization at scale powering more than 17 trillion audience segment evaluations every day.
Experience cloud revenue was $938 million in Q2, representing 21% year over year growth and subscription revenue was $817 million, representing 25% year over year growth.
In April we held our annual digital experience conference Adobe summit virtually.
We drove an unprecedented 20 million views of summit content from individuals around the globe underscoring the significant interest and demand for customer experience management.
Highlights of product announcements include Adobe journey, Optimizer, which helps marketers optimize the customer journey across outbound and inbound customer touch points.
Adobe customer journey analytics, which enables brands to integrate and standardize their online and offline data and is years ahead of any competitive offering.
The next generation of Adobe is real time customer data platform to help brands optimize their acquisition and engagement strategies in our first party data world.
A preview of our pioneering marketing system of record built on work from technology designed to manage complex marketing workflows for greater efficiency and agility.
Our new intelligent commerce capabilities, and our strategic partnership with Fedex that will allow every small and medium business to offer expedited shipping capabilities as part of their commerce platform.
Beyond summit Q2 accomplishments include strength in core offerings, including explosive bookings growth for Adobe experience platform and associated services like customer journey analytics, and real time, CDP, which combined blew past the $100 million book of business Mark in Q2.
Success with large multi solution deals and transformational accounts and improving close rates across geographies customer segments and product pillars.
Building, the future workforce by offering college instructors and students globally free access.
And curriculum for Adobe analytics, the industry, leading customer data analytics platform.
Continued industry analyst recognition across all customer experience management segments, including being named a leader in the Forrester wave for enterprise marketing software suites, achieving the top spot each of the 5 times. The report has been published and leadership in the Gartner multichannel marketing hubs magic quadrant for the fourth year in a row and key.
Customer wins with brands like Nike Natwest, NTT, Docomo and T mobile.
We're proud of the tremendous results and momentum across our business.
As we plan for a post pandemic world, we will remain flexible as different regions recover at different times.
While offices in Australia, and parts of Asia have been open for some time and conditions in the U S and parts of Europe are improving we will continue to support our employees in places like India, and Brazil, where the situation remains challenging.
Over the last year, we've been building a blueprint for the future of work at Adobe, which will be hybrid and flexible in.
In the U S. We will be piloting a return to our San Jose office, starting with a small group of fully vaccinated employees in July.
We are committed to leveraging the best of in person and digital interactions to harness what makes Adobe special our creativity innovation and culture driven by our most important asset people.
I want to thank all of our employees for their dedication and resilience during a year that was not only mark by the pandemic, but by violence and racial injustice.
I am proud of the progress we have made in advancing our efforts around diversity equity and inclusion.
We have made strides in our strategy to accelerate the representation growth and advancement of the black community.
But as Juneteenth approaches later this week.
We have so much left to do.
As we celebrate pride month in June, we're honoring and spotlighting, our LGBTQ plus communities, both inside and outside of Adobe.
These efforts represent Adobe is long standing commitment to supporting our diverse employee base and making an impact in the communities, where we live and work.
Our principal our co founders, John Warnock and Chuck Gaskey instilled in us.
In Q2, we lost our beloved co founder Chuck Gaskey.
Mark left an indelible mark on Adobe the technology industry and the world.
While we miss him tremendously.
It gives me great comfort knowing that Chuck was so proud of the company that Adobe has become.
Adobe strong culture revered brand innovative product roadmap and the world's best employees customers and partners position us for continued success in 2021 and beyond.
John.
Thanks, Sean.
Q2 was an excellent quarter for Adobe.
With strong revenue growth enterprise bookings and digital experience.
<unk> and digital media showing how our solutions are resonating with customers of all types in an increasingly digital world.
With our data driven operating model or <unk>, we continue to utilize our own experience cloud technology to optimize customer journeys driving increasing amounts of traffic to adobe dot com to acquire new customers and raise awareness of our products. We continue to invest for growth in sales and marketing while also increasing head count in Q2 to drive product innovation.
As a result in Q2 Adobe achieved revenue of $3.84 billion, which represents 23% year over year growth.
Business from financial highlights included GAAP diluted earnings per share of $2.32.
And non-GAAP diluted earnings per share of $3 <unk>.
Digital media revenue of $2.79 billion net new digital media <unk> of 518, no digital experience revenue of $938 million record cash flows from operations of $1.99 billion.
<unk> of $12.2.3 billion exiting the quarter and repurchasing approximately 2.1 million shares of our stock during the quarter.
In our digital media segment, we achieved 25% year over year revenue growth in Q2, and we exited the quarter with $11.2 1 billion of digital media <unk>.
We achieved creative revenue of $2.32 billion, which represents 24% year over year growth and we added $405 million of net new creative AOR.
Second quarter creative growth drivers included strong retention and renewal across all creative products from customer segments, New user acquisition, driven by global marketing campaigns utilizing our ddos insights.
Accelerated recovery in the SMB segment with our creative cloud for teams offering.
Successful enterprise licensing driven by account expansion and renewal momentum with our Adobe stock business, which continues to outpace the industry peers in terms of revenue growth.
Driving subscriptions in the education segment, both with individuals and institutions and generating net new <unk> through App store sales of our mobile and iPad applications Adobe achieved document cloud revenue of $469 million, which represents 30% year over year growth and we added $113 million of net new document cloud <unk> in the quarter.
Second quarter of document cloud growth drivers included.
Increasing unit demand for aircraft subscriptions across all Geos.
Strong subscription licensing of our team offering in the SMB segment.
Success in enterprise licensing with broad seat expansion across enterprise accounts accelerated adoption of acrobat web offering and driving top of funnel awareness and conversion to paid subscriptions.
Continued strength with Adobe sign, which grew <unk> greater than 40% year over year exiting the quarter and driving improved conversion on Adobe Dot com.
Turning to our digital experience segment in Q2, we achieved revenue of $938 million, which represents 21% year over year growth.
Digital experience subscription revenue was $817 million, representing 25% year over year growth.
On the heels of Adobe Summit, we had success in Q2 generating pipeline and closing strategic customer deals across our portfolio of customer experience management or <unk> solutions.
Volume was sustained throughout the quarter with several large transactions closing earlier in the quarter contributing to our revenue performance from Q2.
We continue to see broad macroeconomic recovery, including in the commercial segment and enterprises of all sizes are investing in digital transformation.
Business performance in digital experience during the quarter was driven by strong bookings for Adobe experience platform or AEP and native applications built on AEP, including real time, CDP and customer journey analytics, which continued to build momentum.
Recent innovations and partnerships driving awareness and adoption of our analytics Commerce and campaign solutions continued success with our work from offering as we realize the value of combining our best in class workflow solution with our <unk> offerings to create an industry, leading marketing system of record momentum.
Momentum selling of transformational multi solution engagements with enterprise customers across geographies and strengthening customer renewal and expansion rates.
Savings from Teeny and site operations are continuing as our employees work from home we are investing in our facilities as we re imagine the future work and many of our employees return to offices in business travel during Q3.
From a quarter over quarter currency perspective, FX increased revenue by $10 million of both before and after applying the net impacts from hedging.
From a year over year currency perspective, FX increased revenue by $94 million net of impacts from hedging the year over year currency increase to revenue was $78 million.
Adobe is effective tax rate in Q2 was 19, 5% on a GAAP basis, and 16% on a non-GAAP basis in line with our expectations for the quarter. Our trade DSO was 35 days, which compares to 40 days in the year ago quarter, and 38 days last quarter.
<unk> grew by 23% year over year to $12.3 billion exiting Q2 benefiting from strong enterprise licensing during the quarter.
<unk> revenue exiting the quarter was $4.8 billion growing 24% year over year.
Our ending cash and short term investment position exiting Q2 was $5.77 billion cash flows from operations in Q2 were a record $1.99 billion, we repurchased approximately $2.1 million shares in the quarter at a cost of $983 million. We currently have $15.1 billion in remaining authority of which $100 million.
Granted in May 2018, and $15 billion was granted in December 2020.
The following Q3 targets factor current macroeconomic conditions and expected return of summer seasonality associated with the months of June July and August total Adobe revenue of approximately $3.88 billion digital media segment revenue growth of approximately 22% year over year net new digital media <unk> of approximately 404.
$40 million digital experience segment revenue growth of approximately 21% year over year digital experience subscription revenue growth of approximately 25% year over year tax rate of approximately 19% on a GAAP basis and 16% on a non-GAAP basis.
Share count of approximately 480 million shares.
GAAP earnings per share of approximately $2.27.
And non-GAAP earnings per share of approximately $3.
We are pleased with our first half performance and we expect the momentum to continue with typical Q4 strength.
With the momentum we're seeing across creativity digital documents and customer experience management. We're on track for another record year with a strong first half already in the books few companies of our scale can boast, 20% plus revenue growth World class operating margins in a recurring revenue model built for long term growth and profitability.
I will now turn the call over to the operator to take your questions.
Thank you if you'd like to ask a question at this time. Please press star followed by the number 1 on your telephone keypad, if you're calling from a speaker phone. Please make sure. Your mute function is off to ensure your signal can reach adequate name again star 1 to ask a question.
First we'll go to Keith Weiss from Morgan Stanley. Your line is open.
Outstanding. Thank you guys for taking the question and really nice quarter I think it's pretty remarkable in a quarter, where you have a lot of investors are worried about.
Comp net new AOR growth actually accelerated in the quarter and was hoping you could dig into that a little bit. It's obvious you guys are are building momentum, there's a broader base of customers that are coming into the digital media fold.
Chuck talked about a little bit about who that is and kind of where you're seeing the most success and in sort of broadening that scope and enabling that that that building momentum within this business, which is already quite large and well gorilla.
Thanks, Keith as you said it wasn't really a great quarter, and we actually saw great linearity associated with the digital media ad or throughout the quarter as well and as you know we have this incredible data driven operating model that allows us to deal with all tax on all aspects of the customer funnel.
From discover which is done through our marketing attribution all the way through usage and engagement in terms of the new customers who are.
Coming onto the platform.
Mobile and you know our communicators as the way, we define that Keith or a significant portion of the new customer base.
Specialists on the other hand as it relates to <unk> Ni acrobat as we also mentioned had a very strong offering and so I would say the photography and video offerings are really targeting everybody from creative professionals to communicators to consumers as is acrobat, but then we're also seeing.
Some really good adoption.
Acrobat across the spectrum.
And in our prepared remarks, the last thing I'd say is we also talked about a revival of the team's business and as we all know the small and medium business segment. I think was most impacted last year. So.
Really pleased with that Kate so across product offerings across geographies and across some of the new businesses and services as you said we saw.
Good strength in Q2.
Got it and if I could sneak 1 in for John on the guide into Q3.
Net new Air our guide is about down 15% sequentially I think that's more than we've seen seasonally is there anything we should be aware of in terms of either kind of 1 time items. If you will in Q2 or something we should be looking out for in Q3 that explains that that broader then or is it a bigger than normal seasonality and a seasonal decline into Q3.
Yeah. Thanks, Steve you know when I look at the guide for Q3.
Largest god, we've done for <unk> into Q3, as we will talk about a couple of quarters. You know last year was kind of a.
Really strange here right, we didn't see the seasonality, we typically saw because of the pandemic and everybody locked down as things are starting to open up we're anticipating kind of a return to some of that seasonality that we saw in the past and so we factored that into the guide, but we're really excited.
Can actually target the highest IRR guide.
In Q3, so overall great performance.
The momentum is still in the business.
Outstanding Great job guys.
Thank you.
And next well go to Alex Zukin from Wolfe Research Your line is open.
Hey, guys. Thanks for taking the question so I'll take the other side of the business on the digital experience side I mean again every indicator whether it was RPM.
It was the digital experience.
Revenue and subscription revenue was strong can you talk to what you saw in the quarter, what's changed since the pandemic and maybe some of the pipelines and how we should think about that business from here from a growth perspective.
As you point out Alex It was a strong quarter and right through the pandemic, we've been talking about how the interest in our digital experience solutions and the belief when I have conversations with Ceos across every single.
Vertical is that the only way to engage with customers is going to be digital and I think people are starting to recognize that that investment is an investment that they have to pay it. So first I think from a macro perspective, it's clear that digital transformation and within digital transformation customer experience management is front and center.
As something that they want to spend money on the second thing I would say as you know the execution against our new experience platform and both John and I touched on customer journey analytics and the other services that we're building on top of that are those are clearly resonating with customers because whether youll be to be over the year of <unk>.
See you have to have the ability right now to deliver the personalized experience. So I think the second thing I would say is that the innovation that we're delivering and the fact that we had summit and the ability to engage with these customers certainly I think was an accelerant for the business.
The third thing I would say is the ecosystem and the ability of the ecosystem to very quickly ensure that these customers derive value from the investment that we're making I think that helps us both in terms of converting bookings to revenue, but it also helps in terms of growing the book of business with enterprises. So.
I would speak to all 3 of them I think if you look at our targets as well in terms of you know the over 20% revenue growth close to 25% subscription revenue growth that we're seeing in that business. I think we continue to be optimistic that we have the right product that clearly meets the customer need and you know the execution and the company against that business.
This has been strong.
Got it and maybe just to squeeze in quick 1 in for John on cash flow well ahead of our estimates here for the second quarter, what's the right way to whats driving that is that just as simple as strong collections on on larger deals.
And thinking through the year, obviously, we're not guiding or updating guidance, but just anything to think through and a net new ways to look at the free cash flow margin of the business and the growth of free cash flow.
Yeah sure Yeah, we certainly were.
Delivery numbers like that we had from you.
Some timing of payments for sharing as you saw our DSO really dropped pretty significantly.
During the quarter. So all of that really contributed to it as well as the timing of some large payments.
As well as a part.
Let me add from.
Placements as well so it was really the overall just great performance from our company and sometimes you'll see a little bit of a shift quarter to quarter, but we're certainly get them the.
The capability of the company and the operating leverage in the model, where we are generating a lot of cash anymore.
Got it thank you guys.
Yes.
And next we'll go to the second clear from Barclays. Your line is open.
Hi, guys. Thanks for taking my question here.
Sharpening maybe for you to go back to the creative business can you just anecdotally talk about any difference in product mix, specifically I guess, it's more potential users got back to work, including creative professionals did you see any change in the mix of single apps versus all App subscriptions.
Yes.
Second I think we saw strength across all of the businesses I would say that a single lab business. As you know is a really great initial funnel for us to drive the business and so we continue to see new adoption as it relates to the single App and then.
From a revenue perspective think of it as you know the single lapses, probably half the business in the quarter and then we.
Use that as a funnel to drive to the all apps. So I wouldn't say there was really a dramatic difference between.
Q1, and Q2 I think we just continue to see the trend of attracting new customers and then from a revenue point of view certainly.
We believe that the creative cloud all apps is where we are both derive value for our customers and drive more <unk> for us long term.
Got it very helpful. Thanks, guys.
Thank you.
And next we'll go to Tyler Radke from Citi. Your line is open.
Hey, Thanks for taking my question I wanted to ask you about the digital experience side of the business I think if you you know.
Depending on your assumption for work front, and you kind of normalize for the extra week in the quarter last.
A quarter.
It showed a nice kind of reacceleration in that business could you just help us understand how you're expecting that pace of reacceleration to play out throughout the rest of the year and then you know kind of where your longer term aspirational targets on where you'd like to see that growth rate of the business.
Well Tyler the way I would first start off by answering that question is by talking about the time, where I think we keep talking about how big Tam that is.
For the entire business and so when you have the kind of 80 plus billion dollar Tam that we have from we just continue to be really optimistic about that business and.
From my perspective.
The largest de lever that we had and if you look at the Dx business.
It's about focus on transformational accounts across all deal bands as well as <unk>.
A different segmentation of the market, we tend to think of the.
Corporate Mark at commercial market in the strategic markets, we're seeing strength across those particular businesses and as I mentioned earlier to a previous question the ability to convert bookings into revenue and to upsell them to more what we've done with the experience platform and the ability to have all of the new <unk>.
Services built on that it's really very unique in the industry, because that's sort of how we look at it and so you should expect to see again Q4 be a you know.
1 of the strongest are close that typically happens in enterprise software and.
We're clearly on track to exceed the target for Dx for the entire year. When you look at our performance in the first half and our guide for Q3, and John's comment about expecting Q4 to be seasonally strong.
Great and if I can just.
And another question I wanted to ask you just broadly I know.
You haven't raised price in a while and you are obviously pretty sensitive to that during the pandemic, but just as you think.
Things reopening and obviously some concerns around there.
In an inflationary environment, just curious how your conversations regarding prices evolved over the last 3 months. Thank you.
From our perspective, what is most exciting about the creative cloud and the document cloud business, assuming Tyler there to your question is about those 2 parts of the business is it's really new customer acquisition that's really.
The driver of that entire business and we're doing that across different offerings, we're doing that across different geographies.
I think the value that we provide to customers it doesn't matter, whether it's an inflationary economy or not we continue to believe that we are driving tremendous value for our customers and so the conversations that happened around adobe are around the product roadmap and innovation and attracting new customers way more than trying to.
At this point look at our price optimization and so we have a massive Tam ahead of us that's really the focus.
Thank you.
And next we'll go to Brent Thill from Jefferies. Your line is open.
Hi, Sean you on the digital experience business. Many of your Si partners have been commenting that there are capacity constrained that their utilization rates are in their words through the roof. I am curious if youre running into constraints on the implementation side, what youre seeing to to offset that and is that is that more of a random data points.
Or are you seeing seen that across the board from some of the Si partners.
I would say Bryan that clearly you know the demand for our solutions and expertise, whether it's on content and commerce, whether its around data and insights whether it's around the new workflow stuff that we've done what's exciting for us is that there's a lot of demand on the ecosystem to have have us help them with training.
I think you are periodically see you know some of them feel like they are capacity constrained and that's a little bit more as a result of the war for talent, but overall I think we will continue to help support.
To support them in any way and I think net net it's a good sign for the business on the product side, we are going to really make sure that we continue to make it easier to provision and easier to use easier to get value and we have been seeing some good customer.
Sentiment associated with our work on that front so.
Hopefully that's an isolated incident as it relates to that Si partners ability to get it but it's certainly true as it relates to the overall market and the ability and the interest in our solution. So I think that part is certainly true.
Quick follow up for John just on that second half margins as things reopen how are you thinking about this I mean, your this quarter about a point away from your all time quarterly high in op margin.
Do things have to come back in a little bit over time, given day, and reinvest in the opening world or or or not.
Yeah. Thanks, Mike Yeah, we definitely think.
Come down slightly in Q3 and Q4 as we open up I mean, we're continuing to invest as we talked about hiring.
In R&D, but definitely vessel sales and variable marketing to really drive the business and execute against those huge Tam that we have across all 3 businesses. So.
With the momentum that we have in the business want to make sure that we.
We will capitalize on that momentum and invest to be able to capture it but certainly things are opening up both from close expenses come back online.
Were more people it'll be a phased in.
Our approach for us through Q3, and Q4, but simple business travel will start to pick up as well.
And Bryan maybe I'll just add when we look at some of the key new categories that we're continuing to invest in and Youre seeing the results associated with it.
To your question about the real time, CDP and the associated services sign stock mobile and our mobile offerings.
Mark also about <unk> specialist offerings associated with that and so it really behooves us to continue to as we always have judiciously invest in marketing to continue to attract new customers to the platform, which will again as John said.
Be seen on the sales and marketing expense, but net net I mean, we're really excited about the growth that we're seeing.
Yeah, and just to close that out starting from year over year margin expansion.
Even above what our original targets were.
Thanks.
And next we'll go to the cash Roger from Goldman Sachs. Your line is open.
Hi, Thank you very much congratulations to the Adobe team on spectacular results shrunk and I wanted to just go back to creative time, just the topic, but there continues to fascinate, maybe 7.8 years into the transition the creative business is as big as it can be $10 billion nearly it's andre from growing 23, 24%.
As you as you unfold the layers of the creative market. What are you finding that might have surprised you and where could we see the tampa creative as the business unfolds, even larger than your original expectations and also as a sub subtext to that you think could address video and how video is shaping up and I remember once you said that video could be as large as.
That photo oriented business any thoughts there would be great.
So if you have any thoughts on what might be David.
Our involvement with the creative business and should we expect to see any refinements enhancements modifications of the strategy on the digital media front with David coming back and well. Thank you so much congrats.
Thanks, cash and I love the way all of you. So far have been when we say 1 question you know putting in a 3 part quest.
Question, but cash I think you can take anyone.
No. It's okay, I mean theyre all good questions and so I think first cash under 40 plus billion dollar Tam as you know we have clearly transitioned the business from a creative cloud focused customer.
Just being creative.
Creative cloud the communicators the services that we've added associated with stock photography, and Syn <unk>.
I think we continue to have very exciting opportunities in terms of continuing to expand that Tam.
And I think it all stems from design and creativity has never been more important right. We talk about it how it's the golden age of design and creativity, but for you as a consumer whether you're interacting with a screen at a terminal or in a retail store or how you order something I mean, it's all about content creation and when you think about.
How much content, we have all consumed in the pandemic at home, it's just gone through the roof, and we announced the partnership with Netflix in.
What we're doing with Khan Academy to make sure our content creation is as seamless and productive so I think thats driving it and people love to say, we want to be in the content and design business to personalize it as well as the Korea. So I would say that's the first thing that we are certainly seeing international expansion, we have talked a.
About how we continue to focus on international markets and you know.
It originally started with dealing with piracy, but.
Across the small and medium business down as those companies are also creating a marketplace for themselves with our content management solutions are commerce solutions.
Content velocity is is critical there. So I think all of those are clearly tail winds for the ever increasing Tam I think we increased it from $31 billion to $41 billion. When we talked about it at the next day meeting and we'll certainly update that when we have our next I think as it relates to David I'm really excited as I said David played.
Significant role in the introduction of creative cloud when he was here and I think the fact that we were able to excite them and recruit them back just I think speaks to the tremendous opportunity that he also sees for the business and from my point of view, we have all of these unicorns within the creative cloud and I am looking to <unk>.
Partner with David whether it's expanding on our enterprise footprint, whether it's continuing to make sure that we get the opportunity around Sam around sin addressed what we are doing associated with the mobile offerings. I mean, each 1 of these is a large business by them by itself and having somebody of his caliber.
To continue to work with Scott on the product side and <unk> on the document cloud side, it's great to have that kind of bench. When we have the kind of opportunity that we have so hopefully that answers the question around David as well cash.
Thank you so much.
And next we'll go to Sterling Auty from Jpmorgan. Your line is open.
Yeah. Thanks, Hi, guys sharpening I thought your comments about Chuck cash you were spot on I am sure you would be very proud to see the performance of the company and Directionally, where it is headed I'm kind of curious on the digital experience side in.
In terms of the product roadmap and changes and improvements that you made last year, how those have been resonating with customers currently.
And are there any key new innovation milestones that we should be looking for that could further improve the growth in that business over the coming couple of quarters.
Thanks for your comments on chalk Steve.
Selling a.
A number of you I know have written demand, which I appreciate the impact that each 1 of you also.
Felt when you interacted with Chuck So I really have appreciated all of those comments.
As it relates to.
The customer experience management question Sterling I think we are indeed really early innings, we have some tremendous ideas ahead of us and with Aneel talked Robert I'll I'll touch on a couple I mean, the real time customer data platform is just really the infrastructure for every engagement that a customer has.
As we can.
First on the journey Optimizer, which as you know think about optimizing the customer journey across outbound and inbound customer touch points.
Both in physical and electronic I mean, I'll ask just a massive opportunity in terms of communicating whether it's via E mail, whether it's SMS, whether it's any of these new platforms that emerge.
The customer journey analytics my perspective on customer journey analytics as we used to do the fantastic job on web analytics, but this is increasingly becoming what is the analytics across all of the different online and offline data and it's the way you run a business and we are living proof of when we.
Talk about our Ddos, how we can use that so I think the customer journey analytics is also in terms of the ideas that we have on its infancy and maybe the last 1 I'll touch on is what we've been previewing in terms of this marketing system of record and workflow trillions are being spent in marketing and the process associated with.
We're rolling out those campaigns understanding the efficacy of those campaigns, making those campaigns international.
I think that all of that is really really.
Ahead of us in terms of what we can do so we're very excited and for all of these companies.
As they have to transition with what's happening in browsers and dealing with the first party data world are dealing with privacy concerns all of that frankly is opportunities for us because we step up and enable them to engage with their customers and focus on their product offering rather than all of this other stuff because we know how to do that well.
That makes sense. Thank you.
And 1 last thing maybe on that as the B to B you know I think we've always most people talk about this and think about the <unk> business still languages, yes, they understand travel and hospitality they understand retail they understand banking, but this is now happening where it doesn't matter what business you're in the ability to drive.
From leads to revenue for our <unk> business is also digital I mean, if you're a company in the pharma industry and you are not able to go visit doctors and talk to them about the innovation that youre doing.
Move digital so I think there's just so much on that particular front.
Thank you.
And next we have Brad sales from Bank of America Securities. Your line is open.
Oh, great. Thanks, guys for taking my question and congratulations on a nice quarter here I.
I just wanted to ask a question on reopening as you look towards as we look towards reopening and you.
The us and North America, and Europe, what impact do you think that's going to have on the digital media business as an accelerant do you think.
Or.
Also with digital experience what are your what are your thoughts on that thank you.
I think they are really tied to the macroeconomic environments and I think youre seeing that the return to work the macroeconomic environment is coming back stronger than it's been across all of the customer segments and for US We don't view ourselves as.
In terms of the solutions, we are providing these digital or not a stay at home auto book.
Kind of solution. They are just a mission critical irrespective of which you have and so what I think we will see is that as people come back to work the small and medium businesses will recognize that it's an opportunity for them to engage so I think you'll see more investment there I think youll see certainly as Europe and other parts of those economy.
Our battle.
Help I think Japan the level of vaccination is lower so I think as they come back to work Thats only going to lead to more optimism and so I think when you think about consumer confidence and you think about businesses want to invest I think both of those are only going to be helped by a return to normalcy in our return to work that sort of my perspective.
Thank you so much confidence.
Thank you.
And next we have Jay <unk> from Griffin Securities. Your line is open.
Alright, Thank you and good evening shunting or you mentioned some it and it was clear from the conference that there were multiple internal initiatives youre working on that which seem very likely to have important implications for you over the next number of years since you didn't refer to them directly perhaps you could comment on on some of those including.
For example, what we've referred to as your quote future creative stack.
Additionally project Firefly about your API strategy.
Very interesting references to your.
Adobe Commerce merchant services, including payments and some other things Youre working on and then lastly, the build out a day Yam is a cloud service globally for targeted for this year. So those are some pretty interesting things from the conference with perhaps you could talk about and then for the follow up.
And the answer from earlier question, you referred to quote war for talent.
And in your case, you've had a V shaped recovery in terms of your own job openings, who added.
An unusually large number of people in a non acquisition quarter.
John you could talk about whether you're thinking you could or should.
<unk> continued to increase your head count at the same pace as from Q2.
Thanks for the question Jay as you know I can.
<unk> eloquent about product stuff for a long time, but let me touch on at least the 2 ones that you did I think as it relates to the cloud based content management.
Intent is very straightforward, which is how do you transition anybody who wishes to self provision a cloud based content offering and think about it if you're a small and medium business or if you're a large company you're trying to do a product campaign you need to get a website you need to get a localized you need to get it up and running you need to be able to do commerce and so the fact that we.
We've got this easy to provision cloud based content management, which.
Is.
The leader in the category, but in addition to that as you mentioned the API is now so people can actually embed. This apis that we have for our content management solution.
Directly and so we're very excited about that we mentioned last quarter that it saw a significant adoption and so I think that will continue to be a driver for the business.
I think as it relates to your other question around.
What we are doing on the content stack.
You've always mentioned that for us content and data are the 2 areas, where we differentiate ourselves the asset management problem is still a problem, where we have a significant amount of innovation that we're continuing to deliver and so we're really excited I mean net net I think our Netherlands product team on that.
<unk> side have outlined a number of initiatives you know other companies talk about a lot of this stuff, but they don't have their products integrated they don't have the ability to seamlessly provision and so I think that's where we're going to continue to focus and maybe an underappreciated area Jay.
<unk> is how easy these are now to set up in provision and for practitioners of this business to be really able to do it I think the second question is a very interesting 1 which is youre absolutely right. The merchant services ecosystem that magenta has we've actually done a really good job.
We're building that out I mean, certainly companies like Paypal that we've talked about we've talked about what we can do with Fedex more recently there are a number of other such initiatives that are underway some of which we are not at liberty to talk about <unk>, yet, but I think you know.
Dealing with payments dealing with shipping dealing with working capital a lot of interesting ideas, where were very well position to both deliver value as well as to monetize it.
And on.
From a head count.
On the head count calling schedule. So I mean, we certainly have a number of positions open.
Actively recruiting against but we're committed to investing to be able to capture the large opportunities that we're going to continue to hire for innovation.
Moving to invest in sales head count as well as leverage our ability with durable marketing to really drive performance. So I don't think this is the time to pull back given the momentum in the business.
Okay. Thanks, Scott Thanks, John.
Yeah. Thanks, Jeff.
And next we'll go to Keith Bachman from Bank of Montreal. Your line is open.
Hi, many thanks first I wanted to ask a clarification.
And then a question John can you give us the contribution of work from this quarter.
And then secondly for Sean I wanted to go back to the experience cloud.
And feedback.
Feedback that we've recently gotten is very positive on the real time, CDP and the customer journey analytics as you mentioned.
And I'm trying to go back to what's the potential growth rate here. So.
Was the experience cloud you think impacted more during COVID-19 and other parts of the business because I'm trying to understand whether there might be a harder snapback and then b. When you think about the growth potential here Gardner comes out with some numbers that areas in experience cloud are growing 15% your own Tam analysis.
That you put out suggests that the market in 'twenty 3 growth is more like 25%. How do you think about the business between those 2 potential growth rates.
Yes, the way I would answer the question first on the waterfront stuff I mean, it becomes you know we are.
I think do a great job of talking to you about how it's going on the integration and it's going really well, we don't break it out after a while because it's part of so many of these.
Large transformational deals as well as integrated into other solutions, so but work from is going really well it's the basis.
Or a lot of the workflow that we're doing across each of our solutions and we are on track to meet the targets that we gave for bulk front. So I do wanted to say that that went well I think as it relates to the overall.
Tam, which was your second question.
We look at it as it's 80 plus billion. So there's plenty of available and I think a lot of legacy software is going to get rolled out and so for us. It's not just about what the growth rate is in that market people are going to recognize that having a modern architecture for dealing with consumer engagement is going to become a bigger and bigger.
And better than frankly, the smart companies are opening up their budgets to start to invest in it sooner rather than later as we said on <unk>. So we're really pleased with the 20% plus growth that we're seeing 25 points of subscription revenue growth. We think is really good we want to continue to focus on.
<unk> revenue is the true measure of that business and I think as we continue to add.
Deliver on the innovation and product roadmap I think.
We would hope to continue to see those growth rates, even as the business grows much larger.
Okay. Thank you Sean.
Thank you.
Operator, we're coming up on the top of the hour, we'll take 1 more question. Please.
Thank you our last question comes from Gregg Moskowitz from Mizuho. Your line is open.
Great. Thank you for taking the questions Sean today.
Document cloud enterprise bookings growth up more than 60% year over year, obviously really impressive what would you primarily attribute that to and then just for John quickly following another upside quarter with an accelerated recovery in F&B would you say that you have returned to pre pandemic levels.
I think as it relates to your first question around document cloud I mean, yes, there isn't a business that is not saying hey, how do we help automate inefficient paper based processes and so the value proposition of the PDF file format the value proposition of acrobat as an essential productivity tool for knowledge.
Workers.
Availability of sign what we are doing with forms and embedded payments I think it's the combination of all of that but they are again somebody trying to deliver vaccines for employees of somebody trying to create a new travel authorization or expense documents are the fundamental currency.
Modern business and automating that only has value and I think our team has done a good job. We don't go to market, saying, Here's a document cloud solution. He is an experienced cloud solution, we go and saying here's the use case for if youre in travel and hospitality or retail or financial services pharma and I would say governor.
And health care have also become larger.
Customers of these kinds of solutions because of the necessity for regulated industries, who previously may have relied on paper to say you know what we need to get into the modern era and deal with electronic documents. So I would say those are all the reasons and good execution clearly on the part of our team as we are.
Selling increasingly at a much higher level and all of these companies I'll, let John speak and then I'll come for <unk>.
The clause given this is the last question.
Alright, thanks, Mark Thanks.
Yeah, we've been kind of talking about the last couple of quarters.
Gradual recovery of the F&B segment, which was.
So severely volume dependent.
The pandemic had last year and we saw that continue here in Q2, and I'm really kind of reached the pre pandemic level of conversion and retention.
For sure in the U S.
Tons of opportunity now as the rest of the world begins to open up as well from that to continue to improve.
Very helpful. Thank you.
Okay.
And thank you all for joining us I think from my perspective, I'm really pleased with our performance in Q2. It was an outstanding quarter and to the question that was asked earlier with many parts of the world returning to some sense of normalcy that should only be good for our business because digital is this incredible tailwind where.
It's just a 1 way street in terms of people wanting to invest.
We do expect therefore, a slight seasonality associated with our business, but we definitely have an expectation of a strong finish and if you look at our first half performance. If you look at our targets for Q3 and the belief in the seasonally strong Q4 finish it's going to be another outstanding year, where we are going to exceed a law.
Of the targets that we talked about.
If not all at the beginning of the year.
We're driving bookings were driving revenue performance from bookings as a result of making sure people get value for it we're driving a lot of new businesses that have become material in the company and so the breadth of our portfolio is impressive because digital is not just a nice to have it's become supercritical and as I've always said.
Having 3 areas of <unk>.
Explosive growth puts us in really rarified atmosphere, and growing 20% plus on the top line growing the bottom line as impressively as we have with strong cash flow.
I think really demonstrates how we are driving value for our customers and value for our shareholders. So.
Thank you for joining us today and have a great summer and with that I'll pass it back to Jonathan.
Thanks, Jonathan and thank you everyone for joining this now concludes the call.
Okay.
And that does conclude our call for today. Thank you for your participation you may now disconnect.
Hum.
Yeah.