Q3 2021 Adobe Inc Earnings Call
[music].
Okay.
Okay.
Hum.
[music].
I, just love having to check in online and having to do it again on the mobile App and I'm going to do it again in person are there any other ways. If I have to check in I don't know, but we're working on it.
[music].
I've only ever Blackbird seed from this website, but they're recommending captured I think we need it.
So we'll watch it carefully.
Oh.
Lenny Keating.
[music].
We're completely out of flower I'm trying to order more so.
So bad I, usually just heightened flower 100 times in <unk>, what a great idea.
This is Greg.
[music].
Good day and welcome to the Q3 FY 'twenty one Adobe earnings Conference call. Today's call is being recorded at this time I turn the conference over to Jonathan Ross VP of Investor Relations. Please go ahead.
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, which is being recorded we will discuss Adobe third quarter fiscal year 2021 financial results you can find our Q3 press release as well as pdfs of our prepared remarks.
<unk> and financial results on Adobe's Investor Relations website.
The information discussed in this call, including our financial targets and product plans is as of today September 21 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 factors discussed in today's press release and in Adobe's SEC filings.
On this call, we will discuss GAAP and non-GAAP financial measures.
Reconciliations between the two are available in our earnings release and on Adobe's Investor Relations website, I will now turn the call over to Sean to Neil.
Thanks, Jonathan Good afternoon, I hope, you're all staying safe and healthy.
Adobe had another outstanding quarter as people across the globe continue to embrace new ways of storytelling learning and customer engagement in our digital first environment.
This quarter, we delivered significant new product innovations announced the exciting acquisition of framed art Io and continue to increase customer engagement across an ever expanding customer base.
We're executing on our strategy of unleashing creativity for all accelerating document productivity and powering digital businesses as reflected in our strong performance.
In Q3, Adobe achieved 394 billion in revenue, representing 22% year over year growth.
GAAP earnings per share for the quarter was $2.52 and non-GAAP earnings per share was $14.0
In Q3, we drove record performance in our digital media business, achieving 287 billion in revenue, representing 23% year over year growth.
Net new digital media annualized recurring revenue or a R. R was 455 million and total digital media <unk> exiting Q3 grew to 11 six 7 billion.
Creativity has always played a central role in the human experience.
Over the last year, we have all witnessed the way creativity has sustained us.
We've shared photographs with loved ones on different continents taught our classes to students at their kitchen tables, and launched an entirely new businesses online.
Building on decades of leadership Adobe continues to pave the way and core creative categories, including photography and design, while pushing the boundaries across a wide range of emerging categories, such as a R. <unk> D.
Whether it's the latest binge worthy streaming plus series, a social media video that Sparks, a movement or a corporate video.
Creation and consumption of video is experiencing explosive growth.
In August we announced an agreement to acquire framed art Io, a leading cloud based video collaboration platform.
Video editing is rarely a solo activity and it's traditionally been highly inefficient framed.
Framed art I O streamlines, the video production process by enabling editors and key projects stakeholders to seamlessly collaborate using cloud first workflows.
The combination of our leading video editing offerings, including Photoshop premiere pro and after effects.
With framed art Iowa's cloud based review and approval functionality will radically accelerate the creative process and deliver an end to end video platform.
The addition of framed at Io creates an opportunity for Adobe in conjunction with our partner ecosystem to expand beyond video editors to a broader set of customers teams and enterprises.
We hope to close the framed art Io transaction in Q4 and look forward to welcoming the team to Adobe.
Next month, we'll host Adobe Max the world's largest creativity conference Max.
<unk> has always been the place to be inspired connect with the creative community and experience the latest creative cloud innovations.
Programming will feature iconic speakers, including Oscar winning writer director producer employee Shao actress Tilda Swinton.
And SNL Star and executive producer Kenan Thompson.
This year's fully digital experience allows us to expand our reach and engage with more people across our global creative community than ever before.
Max will be hosted on Adobe is custom digital event platform built on Adobe experience cloud.
In Q3, we achieved creative revenue of $2 $10.0 billion with strong new user acquisition engagement and renewal across all creative products and geographies with particular strength in our creative cloud for teams offering.
Q3 creative cloud highlights include.
Innovative enhancements to our photography offerings, including new services, and AI driven capabilities and lightroom.
<unk> cloud applications now running natively on Apple's new silicon and one chip delivering a boost in performance.
The release of Adobe substance three D collection, a suite of interoperable tools and services that support <unk> creativity.
Partnerships, such as the great Untold with Netflix, enabling nextgen creators to tell their stories.
Key customer wins at the department of Education of the Philippines, Facebook, Nike Rutgers University and the U S Department of the interior.
Document cloud is accelerating document productivity by powering the paper to digital Revolution, and enabling all document actions to be frictionless across web desktop and mobile.
From complex legal documents to sales contracts to employee welcome kits documents are at the core of work.
Using the power of AI with Adobe Sensei document cloud is automating workflows, and adding new value across all document verbs.
In Q3 document cloud achieved record revenue of 493 million growing 31% year over year.
Driving this performance was increased unit demand for acrobat subscriptions globally and strength in the SMB segment.
Q3 document cloud highlights include <unk>.
Continued adoption of Adobe sign and acrobat with transactions growing over 10 X in the last three years.
Growth across acrobat web and frictionless, PDF, which optimize the customer journey and capture organic search driven demand.
Increased adoption and usage of mobile applications, including acrobat scan and sign with over 100 million monthly active users.
Proliferation of liquid mode, and adaptive and responsive mobile experience with over 300 million PDF files re flowed in the last year.
Key customer wins at Daimler AG Fuji film Micron and Pwc.
Businesses of every size across every category are investing in customer experience management.
Adobe experience cloud is powering CSM for B to B and B to C companies with applications focused on customer journey management data insights and audiences content and personalization commerce and marketing workflows.
Adobe experience cloud empowers companies to deliver predictive personalized real time digital experiences across every touch point of the customer lifecycle.
In the digital economy companies are relying on digital presence and commerce is the dominant channels to drive business growth.
According to the Adobe digital economy Index U S. Consumers spent over $541 billion in E Commerce from January through August <unk>.
58% more than what we saw two years ago.
In Q3, we delivered experience cloud revenue of $985 million driven by strong performance across both subscription and professional services.
Q3 subscription revenue was $864 million, representing 29% year over year growth.
As businesses reopen around the world interest in Adobe <unk> XM solutions as an enterprise priority is resulting in increasing spend in both software and services.
Q3 experience cloud highlights include.
Product innovations, including new personalization capabilities in Adobe experience cloud to help customers move from third party cookies to first party data strategies.
Warfront momentum, reflecting the need for workflow and collaboration to deliver global campaigns and growing customer interest in our pioneering marketing system of record.
Key partnerships and commerce with Walmart to integrate their omnichannel fulfillment technologies and with Paypal do offer a robust secure an integrated payment solution for companies of all sizes.
Continued industry analyst recognition, including being recognized as a leader in the Forrester wave digital experience platforms and achieving the highest score of all participating vendors for current offering.
Adobe was also named a leader in the 2021, Gartner Magic quadrant for personalization engines and a leader in the Gartner Magic quadrant for digital Commerce.
Strong customer adoption of Adobe sensei powered capabilities in Adobe experience cloud is over 80% of customers now rely on our AI powered capabilities to drive data insights and optimizations.
Key customer wins at Accor, the Australian government Bertelsmann capital, one Cvs pharmacy, Daimler AG Facebook Ford Motor Company Fidelity brokerage services, Honeywell real Madrid, and the GAAP.
Adobe strength has always come from our most important asset our people I want to thank our 25000 plus employees for their dedication and resilience our customers and partners for their trust as we continue to navigate a dynamic external environment.
I am proud of the continued industry recognition, we receive is a great and equitable place to work.
This quarter Adobe received a 100% score on the disability equality index for best places to work for disability inclusion.
And we were named two people magazine's companies that care list for the fifth consecutive year.
Last week, we held our Adobe for all virtual conference designed to bring employees together around our shared values of diversity.
Equity and inclusion.
As part of that event, we reaffirmed pay parity.
We continue to pioneer opportunity parity to ensure that employees are offered equal career development and growth across all demographic groups.
As part of our ongoing efforts to bring in more diverse talent Adobe has established partnerships with historically black colleges and universities and Hispanic serving institutions.
This new program offers a million dollar donation to schools scholarships internships and career readiness programs.
Our goal with these deep focused partnerships is to provide opportunities for students to learn technology and creative skills.
The health and safety of our employees remain our top priority. Our officers are slowly reopening to fully vaccinated employees on a voluntary basis.
As we look ahead to the future of work into Adobe, We will remain hybrid and flexible and continue to do what's best for our employees and our business.
I am confident that Adobe is culture of innovation category defining products strong brands and the unwavering dedication of our employees will drive our continued business success and a strong close to the fiscal year.
John.
Thanks, Anthony our financial results featured strong growth across revenue digital media <unk> digital experience subscription revenue <unk> and EPS, demonstrating the power of our category defining offerings and.
In a digital first world Adobe is market opportunity is larger than ever and we are investing for sustained growth through product innovation and by driving awareness and demand for our products with customers of all sizes.
With our data driven operating model or <unk>, we continue to leverage our experience cloud technology to create personalized experiences for our customers in real time, driving traffic to Adobe Dot com and app stores to acquire new customers.
As a result in.
In Q3, Adobe achieved record revenue of $97.0 billion, which represents 22% year over year growth.
Business and financial highlights included GAAP diluted earnings per share of $54.0
Non-GAAP diluted earnings per share of $14.0
Digital media revenue of $89.0 billion net new digital media <unk> of $455 million digital experience revenue of $985 million cash flows from operations of $43.0 billion RP O of $12 six 3 billion exiting the quarter and repurchasing approximately one 7 million shares.
Where stocks during the quarter.
In our digital media segment, we achieved 23% year over year growth in Q3, and we exited the quarter with $78.0 billion of digital media AOR.
As anticipated with regions beginning to reopen across the globe. We saw pronounced summer seasonality in Q3. This is consistent with the experience of businesses across industries as evidenced by data from the Adobe Digital index, which showed the June July marked the highest consumer travel season in two years.
This correlated with lower web traffic, while individuals' enjoy their summer holidays.
We do see continued recovery in the SMB segment associated with the reopening.
We achieved creative revenue of $2 $10.0 billion, which represents 21% year over year growth and we added $348 million of net new creative AOR.
Our strong Q3 results demonstrate continued demand for our offerings and execution driven by our <unk> insights.
Third quarter creative growth drivers included strong engagement retention and renewal across all creative products and customer segments.
New user acquisition for creative cloud, all apps that driven by global marketing campaigns.
Recovery in the SMB segment with our creative cloud for teams offering including through a reseller channel driving subscriptions for our flagship products, including our photography and video applications on both desktop and mobile and adoption of our <unk> and immersive applications, including Adobe substance.
Adobe achieved document cloud revenue of 493 million, which represents 31% year over year growth and we added $107 million of net new document cloud <unk> in the quarter.
Digital documents are essential to the changing nature of work and we saw the paper to digital transformation continue in Q3 as document cloud remained our fastest growing business.
Third quarter document cloud growth drivers included adoption.
Driven by the increased need to collaborate in a hybrid work environment, increasing unit demand for acrobat subscriptions globally.
<unk>, new licensing and renewal for acrobat for teams offering in the SMB segment and continued adoption of our acrobat web and acrobat mobile offerings.
Turning to our digital experience segment in Q3, we achieved revenue of $985 million, which represents 26% year over year growth digital experience subscription revenue was $864 million, representing 29% year over year growth. We continued to see subscription revenue acceleration in digital experience as large and midsize enterprises increase their investments in <unk>.
Our experienced management.
Business performance in digital experience during the quarter was driven by strong deal volume, including several large adobe experience platform deals momentum in Adobe Commerce with strong revenue growth and new customer acquisition merchant services growth through new strategic partnerships, increasing adoption of our work front end customer journey management offerings strong customer retention as we focus a relentless.
Lee on value realization for our customers and demand for Adobe as professional services.
Operating expenses increased in Q3, as we continued to make strategic investments and increased head count we began to reopen our facilities and returned to moderate levels of business travel.
Majority of our employees continue to work from home, while the return to business travel is expected to ramp slowly and.
And we expect to further ramp our hiring in Q4.
From a quarter over quarter currency perspective, the impact of FX net of accounting for hedging activities caused a sequential currency increase to revenue of $10 million from a year over year currency perspective, the impact of FX net of accounting for hedging activities caused a currency increase to revenue of $80 million.
Adobe's effective tax rate in Q3 was 14, 5% on a GAAP basis, and 16% on a non-GAAP basis, the sequential reduction in our GAAP tax rate is primarily due to a decrease in U S tax accrued on foreign earnings and tax benefits associated with share based payments.
Our trade DSO was 36 days, which compares to 37 days in the year ago quarter, and 35 days last quarter <unk> grew by 22% year over year to $12 six 3 billion exiting Q3 benefiting from strong enterprise licensing during the quarter.
Our ending cash and short term investment position exiting Q3 was $6 one 6 billion cash.
Cash flows from operations in Q3 were 142 billion sequentially down from Q2 due to increases in prepaid expenses income tax payments and a decrease in accrued expenses.
We repurchased approximately one 7 million shares in the quarter at a cost of $1 billion.
We currently have $15.0 billion remaining of our $15 billion authority granted in December 2020, which goes through 2024.
The following Q4 targets factor current macroeconomic conditions and typical year end seasonal strength, including an expected increase in back to school spending and year end enterprise licensing strength.
Total Adobe revenue of approximately $11.0 billion digital media segment revenue growth of approximately 20% year over year net new digital media <unk> of approximately $550 million digital experience segment revenue growth of approximately 22% year over year digital experience subscription revenue growth of approximately 26% year over year.
<unk> <unk>.
Tax rate of approximately 17% on a GAAP basis, and 16% on a non-GAAP basis.
Share count of approximately 480 million shares.
GAAP earnings per share of approximately $54.0
And non-GAAP earnings per share of approximately $21.0
Given adobe is year to date performance and our Q4 targets. We are clearly on track to exceed our updated annual targets for fiscal 2021 provided in March with the massive opportunities across creativity digital documents and customer experience management, we continue to invest and drive strong business results.
I will now turn the call over to the operator to take your questions.
Thank you, ladies and gentlemen, if you'd like to ask a question you may do so by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment. We do ask that you. Please limit yourself to one question. You May then reenter the queue by pressing star one after your initial question has been answered.
Again, Please press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
We will take our first question from Alex Zukin with Wolfe Research. Please go ahead.
Hey, guys. Thanks for taking the question.
Maybe just can we double click on the seasonality commentary in the quarter because if we look at the beat versus guidance on kind of net new digital media <unk> look at the same time, you had kind of the weakest beat but then the strongest guide in the last three years, which kind of speaks to and confirmed some of those seasonal.
All of the comments that you made but can we just dive in to get a better sense of exactly what drove that for the creative cloud business and then separately what <unk>.
Youre seeing in the enterprise adoption, particularly around AEP on the CDP front, that's driving some of the really strong guidance there.
Happy to do that Alex So first on your <unk> question as it related to the E. R. R.
We were really pleased and I think.
It really speaks to the strength of our Ddos and the insights that we get associated with the business.
Going into the quarter, we had expected that the.
The consumer with a little bit more return to normalcy as whats happening in the environment. Now this may have been a lender prior to the Delta variant that we expected in our travel to increase and therefore as a result as summer seasonality in summer holidays was really sort of a two year.
Time off from what they had to do so.
As expected, we saw a little bit off.
Unless web traffic on that particular frac.
SMB was a highlight for us the SMB, which was impacted a little bit more we're continuing to see strength associated with the SMB.
And to your point about the guide I mean, I think our optimism in the relevant so far products and what's happening with digital as a as a tailwind really leads us to guide as you pointed out to 550, which would be the.
Largest ever guide that we've given for Q4, and if you take a step back relative to the approximately <unk> hundred 50, <unk>. Our guide that we had given at the beginning of the year or the $9.0 billion that we had given in March we're going to exceed easily all of those numbers. So as it relates.
Two individual categories.
Imaging continues to do really well video continues to do well the acrobat business, which is reflected both in the creative cloud and the document cloud is doing well Max is going to be an exciting. So net net I would say that the.
The growth prospects for that particular business and the growth drivers remain intact, but again very much in line and this is what we feel good about the insights that we're getting on the business. So that said to answer your question on <unk>.
And again remember we have a seasonally strong quarter in Q4 for the enterprise.
Price deals tend to be a Q4, we also see education.
Start to ramp up in Q4, so that hopefully gives you some color as to what happened in Q3, and what we expect in Q4 and on the Dx side to your second question.
Really pleased with what we saw in the adoption of the Adobe experience platform and the applications on top of that the Adobe journey optimize the customer journey analytics.
Continue to see strength I think were very unique and differentiated in the platform that we have the real time nature of what we're doing with personalization and again there I think if last year. There was a lot of interest in that particular digital transformation and customer experience management I think people recognize that this needs.
B in enterprise.
Spend priority for all of the businesses irrespective of size, which is why both in terms of the Q3 performance as well as the Q4 targets. We continue to think that digital experience will also do well. So hopefully that gives you a color on bolt Alex.
It does thanks, Thanks, a lot Jonathan.
We'll take our next question from Kirk maternal with Evercore ISI. Please go ahead.
Hi, yes, thanks, very much and congrats on the quarter, a Saturday and I was wondering if you can expand a little bit more in a couple of the bigger experienced platform wins that you had with these existing customers.
Competitive.
If you had to step back whats, helping you all when these kind of larger deals. Yeah. I was also impressed with 80% of your clients seem to be using some of the AI powered capabilities, which seems to be really high uptake rate or take rate. So we'll just kind of curious if you expand on some of those larger enterprises experienced platform deals yet this quarter. Thanks.
Sure Kurt.
At the end of the day I think the macro trend that everybody is finding is that a digital presence and commerce and data and insights and analytics is absolutely sort of table Stakes for anybody doing business and so I think everybody has started with a website everybody started with the analytics, but I think where we've delivered.
The Adobe experience platform and what we're talking about our personalization I think that's a key differentiator and whether you are a <unk> company or a <unk> company.
You just have to invest in this particular business and.
I think the team has done a particularly good job board of messaging in different industries. The healthcare industry. For example continues to do well and there's more interest associated with that the consumer businesses are starting to see a little bit of a cut.
Come back as.
There is a little bit more normalcy in so.
A lot of them were going after existing customers, we're going after new logos and selling more but I would say, it's the strength of the experience platform. The ability to have these profiles the behavioral data that we're collecting in real time, the marketing message associated with sterling them that they really need to focus.
On getting their first party data to be an asset that they could put on their balance sheet and the nature of what's happening with digital commerce I think all of those are trends and then we win.
The deals because of the strength of our offering and the fact that we're a really pure play of marketing.
That is a cigna.
Significantly differentiated relative to anybody else.
Thank you.
We will take our next question from Gregg Moskowitz with Mizuho. Please go ahead.
Okay. Thank you very much for taking the question. It sounds to me I know that you only have three quarters that data, thus far but it's work fund draw.
Driving larger average deal sizes and <unk> is that something that's already are already showing through.
Hi, It's a great question, Greg and then maybe as I had responded to Kurt as well I should have talked about the big thing that we're hearing from our customers in that space. Greg is they have more and more campaigns. They wanted to agility of the campaigns. These are global and how do they not only have an integrated suite of products, but how.
Do they get the workflow to be more efficient, especially as you're all working in a hybrid or working from home environment. So what front is definitely helping us helping us with existing customers, it's helping us with deal sizes and in many ways. It's the glue bolts to enable.
You'll have people technology and processes is helping with the processes park, but the promise of what we've also said there in terms of this pioneering marketing system of record. That's another area for the interest and I think this was always a great company I think they were looking to become more general purpose I think what our Netherlands.
<unk> has done are really focusing on marketing workflows and solving it for all of the different personas, that's definitely resonating, but all of the large deals that we do warfront is definitely a part of the interest and a part of.
The bill of materials associated with that.
Very helpful. Thank you very much.
Thanks, Craig.
We will take our next question from Keith Weiss with Morgan Stanley. Please go ahead.
Excellent. Thank you guys for taking the question and very nice quarter, maybe digging in a little bit more on the M&A side of the equation. We've definitely heard really good things about work front are getting into a lot of deals upfront, perhaps can you characterize the performance of warfront versus your expectations and kind of the.
Contribution youre seeing in the quarter SEC.
Secondarily with frame Io.
Just for clarification is that any forward guidance. So is that included in the $55.0 for Q4, and then perhaps more broadly just not.
M&A strategy.
Last two big deals seem to have a common thread in terms of collaboration is that just a sell side analyst putting together two data points and draw a trend line or is that sort of a particular area of focus for adobe in terms of adding to the portfolio on a go forward basis. Thank you guys.
So Keith I actually think there were three questions in there so let me.
Past each one of them firstly I think as it relates to work front.
No, we're very clearly targeting a need that exists and then.
We had originally I think said something like waterfront will do a 140 or 150 in revenue for FY 'twenty. One and then I think we've said that it's on track to significantly beat that and that continues to be the case as we do these larger deals Keith we don't breakout of upfront and so.
Thats the way, we think of the business, but warfront is definitely appealing to that your second question as it relates to a framed art I Oh no. It is not in var guide I mean, clearly until we close the deal we would not and so when that happens as we said we expect that to happen in Q4 will certainly.
Update you on what that happens.
As it relates to frame, but we're excited about that and your third question as it relates to collaboration as a team. It's part of what we've been talking about for a while if you remember what we have done with XD in terms of being able to do live editing I think what we've done with the multi surface applications, where our applications run.
On mobile devices are.
Ipads or tablets as well as desktops is just one of those teams that people are working from different locations people are increasingly working with people and so I think we have the ability to really provide value for our existing customers and attract new customers I think with frame in particular, we're excited.
Good because it expands dramatically the potential of the number of people who will become.
Participants in the video workflow and if they become I hope you like the videos that we placed at the beginning of the.
Our earnings call and it's all of that stuff is being done remotely.
And so we're pleased and as you know, we're always portfolio Keith about the acquisitions and making sure. It's a case, where we can bring significant value both to our shareholders and to our customers.
Sandy thanks for the color guys.
Thank you.
We will take our next question from Michael <unk> with Wells Fargo Securities. Please go ahead.
Hey, there good afternoon. Thanks for taking the question on margin in the year to date margins are now above 46% I think you've previously referenced a potential for more of a second half step down there. So just how should we think about the margin profile here and are there benefits you'd point to that that could normalize assuming more of a return to normal.
John do you want to start and then I can add.
Yeah, that'd be great Yeah, Youre right the margins at 46% this quarter, we had indicated.
With a more of a reopening across different regions, we would start to see our facilities come online.
This was travel come back and certainly and you're hiring a ramp with the delta Darrin, probably slowed that down a little bit and so that contributed to margin expansion you saw in Q3, but overall was an outstanding quarter for all of our businesses.
So the long road the path to margin expansion really through revenue growth given the leverage in our model and after the contributions from the revenue performance in the quarter continued expense savings or Theyre, just talked about that contributed overall to the performance with respect to the closer to come back in a phased reentry now maybe a little slower than we originally thought when we talked about the second half.
But that being said when I think about our original targets in December it implied margin expansion.
We did our updated targets in Q1, it was even larger margin expansion from what we saw.
We are executing against these huge market opportunities and we'll continue to do that with an eye on our continued top line growth.
Such as Aerie, but Charles you touched on which is.
<unk> and immersive.
Adobe experience platform signed stock mobile all of that.
Well said, John and maybe the only other thing I would add is that you know.
Certainly I think when you look at some of the <unk> facility is expenses Thats a little artificial.
In terms of what's happening on expenses, but are are baked position is when you have a 100 and plus billion dollar addressable market I think driving profitable growth is where we are focused on which is why I think John also referred to we continue to be in the market to hire talent to make sure that we can.
Continue to address all the market opportunities that we have and so we're focused on driving profitable growth.
Thank you.
We'll take our next question from Jay Wash hour with Griffin Securities. Please go ahead.
Thank you good evening Shelton with John John Croteau for you first.
As I'm sure you recall over the last number of years, particularly at a conference like Max.
We've talked about the integration in many ways a unique integration that you have between digital media and Dx business, you'll recall, it's gone by a certain acronym overtime.
Question is.
Can you quantify or in some way describe the business effect of of that combination even going back to the old PPS days.
How does this mutuality does in fact help you drive business.
Through the integration across the two.
Two segments.
Relatedly with.
With regard to <unk> specifically.
You'll recall that over the last number of years. The company is often referred to your having about four dozen or so use cases that you were targeting.
<unk> that was a number of years ago. So perhaps you could talk about how the number of targeted use cases.
Hedge increased por for Dx in the last.
Number of years, particularly now with the introduction of payment services.
Other new capabilities.
Sure Jay first I think as it relates to your question around the integration between the cloud as you know.
First let's even talk about acrobat right because so much of the acrobat.
Business is reflected both in creative cloud and document cloud and so.
That's one very tangible example of how we've integrated the clouds I think taking a step back the area that I would say is of the most interest to customers right. Now is what we have referred to in the past also as content velocity.
As people are creating more digital assets. They are spending more on content and holiday both ensure that all of that content seamlessly as distributed whether it's a marketing campaign, whether it's something that goes on a mobile application, whether it's something that goes on the website and so.
I think that's the hard problems that we've been able to help facilitate for our customers, which is creating all of this content and making sure that it's the.
The delivery has accelerated through marketing campaigns is an area of real integration between <unk> as well as Dx and where that shows up also in the revenue is the continued growth of a M.
M assets, specifically, because that's where the assets are really flowing between these two solution. So hopefully that gives you a little bit of a flavor I think to the earlier questions that.
Greg and others had.
And Curt had asked I mean, it also on the workflow. That's when people are looking at it and saying Wow. If my freelancers have created content how has that now being reflected in the <unk>. So that's what I would answer your first question I think as it relates to the Dx use cases, and we should certainly.
Do an update each increased very dramatically and the ones that I would say maybe is highlight is the <unk> use cases, the number of large <unk> companies that are coming to us and saying Hey, we recognize that whether it's for lead generation, whether it's for identification of customers, whether it's for even doing commerce that is.
In a fairly big driver I would say regulated industries, which.
If the original push around customer experience management was b to C.
And consumer based companies.
I think youre seeing way more of those workflows and use cases and in regulated industries. So that's another one that I would do I would say the global aspect of this which is you have companies, whether you're an automotive company or you're a fast food company and you want to do this globally I think that's a use case that we've seen a fairly.
Dramatic increase but so hopefully that gives you one and then this is where the partner ecosystem candidly also is driving so much more and so the partner ecosystem is also building a lot of their value added solutions on top of our horizontal platform. So.
Net I would say it doesn't matter what business you are what size you are.
Now part of Dx is relevant to what you need to do in order to engage with your customers.
Thank you very much.
Okay.
We'll take our next question from <unk> <unk> with Barclays. Please go ahead.
Okay, Great Hey, guys. Thanks for taking my question here.
John maybe for you just to maybe just to switch gears a bit I was wondering if you could just talk about seasonality in the document cloud business specifically.
The net new <unk> there has.
Historically sort of been up into the right.
Kind of through the year I guess the question is are we getting to a point in that business, where the seasonality could start to look a little bit more like creative or are there any things to maybe consider for <unk>.
Document cloud AOR seasonal seasonality of this quarter.
Okay.
Yes, and when we look think about it.
The situation we've been in in the pandemic and the need for border paper to digital transformation, that's impacting not just enterprises and institutions that have obviously, you've seen great growth with individuals as well as they're engaging with.
The services that they use.
As we said you know I think when you look at the individual.
Offerings that we have across creative and.
Document cloud, we just saw a little bit lower but traffic there, but thats associated where we believe with individuals during the holidays and it was pretty indicative of using our own Adobe digital index data that showed that.
Jim has a lot of the hottest travel months.
In two years, so that seasonality is getting a little bit but again, we've got such a strong presence in both institutions education, all the governments and enterprises on document cloud that we still see great great growth and strengthening its demonstrated in just the continued growth of that business, which is our fastest growing business right now.
Very helpful. Thanks.
You bet Thanks, Brian.
We'll take our next question from Ken Wong with Guggenheim Securities. Please go ahead.
Great. Thank you for taking my question.
One for you Sean.
You guys have a history of bringing in your professional tools down down to the consumer as you had light addition, Jeff mobile additions I think in your prepared remarks, you mentioned, the addition of frame Io, creating additional opportunities.
And.
Sort of across the customer base teams and enterprises I guess do you envision this as a platform that can be brought down to consumers pro simmers or is this still mainly going to be in that professional bucket.
Ken It's a very important area of expansion for us I mean, I think the creative has always been a segment that looks to us to deliver mission critical products that enable them to make a livelihood, but the halo effect of that.
When you look at what we talked about at our analyst meetings and you know how big are communicated business already is as well as the.
The outreach of that even into the consumer business, but stay tuned on that front I think as we talk about our product roadmap and the excitement that we have to fulfill this vision of creativity for all and target a broader and broader and broader set of customers with some great solutions using <unk>.
Our artificial intelligence and sensor technology, we have some very exciting things underway that will.
Start to you know.
So two customers so very excited about that opportunity its a big opportunity, it's already a big business for us I mean, when we talk about the fact that we're adding.
Over half a billion of net new layout, our as our expectation for Q4.
A significant portion of that is also going to what you would call communicators of protium, <unk> and we're going to be delivering more and more a really phenomenal products targeted at that customer segment.
Got it fantastic looking forward the Max Thanks, guys.
Thank you.
We'll take our next question from Kash Rangan with Goldman.
Goldman Sachs. Please go ahead.
Thank you very much congratulations John.
Thanks, asking quarter, Shanghai, I remember I think it was.
Baxter those 19.
We talked about video and how that could be as big of an opportunity.
Photos.
I'm curious to get your thoughts on the total available market that is new and incremental to adobe's creative business as a result of the acquisitions that you've made a frame.
And particularly you used the word dramatically expands the scope of what you can do.
Collaborators. In addition to content creators can you just talk about.
What you meant by that if you could just put a finer point.
We ended the greater Tam.
Larger than what Wall Street thinks we're just always been the case for the past 10 years and SEC.
Not that it's a negative but yes.
With the seasonal pattern and some are showing some sign of activity where people went on vacation et cetera is there at all any risk that digital transformation takes a bit of a back seat as we go shopping.
Online go to stores, therefore, ecommerce activity might actually start out on it but the secular guidance to pretty solid in terms of adjustment or reinforce some sort of adjustment or maybe not but I just wanted to get your thoughts. Thank you so much.
Thanks, Kash I mean as it relates to your first question around video I think we've been signaling for a while that video is really one of the exciting.
Expansion opportunities for us and that's really played out it's played out from the products that we deliver premier and after effects continuing to be the leaders in that category, certainly photoshop and illustrator used a lot, but if you look at what's happening with all of these streaming plus services right I mean, there isn't a company that.
Isn't delivering.
Streaming plus service and so I think the insatiable demand for video among consumers is only requiring more and more companies to have these streaming services and deliver more genre as it relates to video.
All of that work right now I mean, we talked a little bit of what we're doing is our partnership with Netflix as well all of that is happening now with people in different locations through a collaborative process. So anytime you can take a creative idea and make that happen quicker faster to the right audience, that's only going to be.
Incredibly valuable to our customers and so I think that trend is only going to continue.
So we feel really good about what's happening in that particular space with video frame, we used to use frame a bunch in the production of our own videos and it's been exciting as we've talked to different people, who after the acquisition of frame F comments had hey, Adobe that's such a great product, but we think we can.
Do more with it so I think that gives us a lot of optimism around.
Whether it's the script <unk>, whether it's the reviewer of that whether it's a creative agency just being able to are all the corporate videos, that's being done and so certainly I think as you add that as enterprise product as well.
You can certainly get.
A lot more camera associated with that we will update our time's cash as we typically do you know I think Jonathan referred or we'll talk about you know how we do our Q4 as well as our 2022 and we will talk to you about <unk> on that front, but really excited about that I think the external partnerships that exist for frame and <unk>.
It's plugged in not just to the Adobe solutions, but other solutions is also an area of strength.
And I think to your second question around shopping and online when we look at our Dx business and the success that we had in Q3 I mean, a big part of that is more and more companies are certainly doing the.
Multichannel omnichannel whatever they want to call it and I think that's only going to continue to be a driver of our digital experience solutions because today that stable Stakes and so we just look at it and say you know whether you're shopping in store or whether you're shopping online you need a solution that treat you like a customer that we know off and so.
I think that's going to only be an imperative for companies I mean, one thing we should have probably talked about also is if you look at our Q3 results I mean, there were stronger than what we had said there were a couple of nonrecurring items as part of that and some of that actually has to do with usage in commerce and so we are seeing that.
Usage also a ramp up so I just wanted to get that also out there as we talk about the shopping online and shopping.
In our store and in terms of the demand for our <unk> solutions.
We expect as our as we said the seasonal Q4 will be the strength.
As education comes back and as more and more end of quarter activity not just within Adobe, but all companies that's going to lead to increased demand and acceleration.
Fantastic. Thank you so much.
Thanks, guys.
We'll take our next question from Derrick Wood with Cowen <unk> Company. Please go ahead.
Thanks for taking my question, John I wanted to come back to the document cloud business because it looks perhaps to me that there were some outsized strength from licensed products that may have been in lieu of revenue coming from our products and I think you can see this with total document cloud revenue growth actually accelerating even though.
Total AOR growth decelerated. So is that is that the right assessment and we'd be looking at total revenue not <unk> and I guess.
So is there any reason for mix shift towards more licensed products in and as you look into Q4, given it's a big GLA.
Quarter should we expect that to continue.
Yeah, No I mean, certainly yes.
The strength in L. A is it starts out slow growth in terms of Q4 <unk> expansion.
In Q3, as well, but we're still migrating our base of customers as well.
<unk> is still very important for us and where you want to drive more <unk> I think it will strengthen our growth frankly over the last.
Over a year really hasn't really.
Impressive, it's always going to give us.
This opportunity to drive healthy subscription growth, but you.
We're not going to do.
Give us outsized revenue in Q4, it's going to be.
Sizable contribution, but we're driving subscription that's just.
And we do still have customers by perpetual and so there'll be some fluctuation in demand.
Yeah got it okay. Thanks.
You bet.
We'll take our next question from Parker Lane with Stifel. Please go ahead.
Yeah, Hi, Thanks for taking my question, Sean I was wondering if you could talk about the nature of creative wins in the public sector with organizations like the department of interior. What are these type of organizations historically relied upon for creative needs and how fully are they embracing the features of the creative cloud versus using maybe a particular application like photoshop or a distinct.
Set of applications.
Okay.
To your point I think public sector has always been an important part, but I think it's just the amount of content that people are creating is increasing and when the amount of content that people are creating that content management becomes an important issue workflow becomes an important issue and standardization of the products and one of them.
The things we did really well is what we called our named user deployment and how you know when we have these enterprise.
Licensing agreements, we offer enterprises the ability to.
Download and distribute within the companies and the more we do training and evangelism of the products that leads to adoption. So I would say.
There is an element of standardization, there's an element of more content I mean, even if you're a public sector company right now I mean, what you transact online is becoming dramatically greater than it's ever been because the physical presence is.
Seeing a cutback as a result of what's happened in the pandemic. So I think all of those are macro trends that are going to continue but we've also done a really good job of actively making sure. We evangelize what the solutions are good fall, we do more training within these enterprises. We allow these named user deployment as I said.
Which then leads to true ups and the ability to get them into higher band. So I think the execution on the sales front associated with going into these enterprises.
That's getting better and better.
Great feedback thank you.
Greater we're coming up on the top of the hour we have time for two more questions.
Thank you.
We'll take our second to last question from Brad Sills Bank of America Securities.
Oh, great. Thanks, guys for taking my question here.
With your view across the broader marketing stack here with experience cloud.
I'm curious what you're observing with regard to these customer 360 initiatives or are you finding customers are taking a more multi product deals here to get that view across multiple channels here ecommerce marketing automation CNS, we got workflow automation and there are there any combination of any of that that youre seeing.
Trending more recently than in the past. Thank you so much.
It clearly has been a push for us Brad in terms of you know what we are doing which is how do we sell the entire suite offering and I think every year. We give you an update on how that is actually indeed, how we are selling it and so.
From our perspective, the marketing stack.
Its completely unique about us is the data and insights that we're getting the ability to do commerce and the digital presence I think as it relates to customer 360 waiver unique and I think we're years ahead of any other large company that has a space is this real time nature of what we have delivered its scalable we've got billions of profiles and so.
I think a lot of other companies are talking about how they take something that may be.
In our records somewhere and do.
Do things with it but for US it's the activation of that data and that's where I think most people are really excited about what adobe has to offer and the other thing that I think has really happened is people recognize that they have to get control of their first party data I think a lot of interest used to exist about customer acquisition and third party <unk>.
Data, but I think right now it's about do we have even control of our first party data do we have control of our behavioral and what is happening on multiple channels and the fact that that can be very easily answered as it relates to what we have done with the adobe experience platform and last but not least I mean remember we're the only company.
That can go in and say Hey, we have a b to b business and our <unk> business and when we talk about how we are using this in terms of the playbook on Adobe Dot com.
I think that really opens up a lot of peoples.
Ideas as to how they can.
Can use this and utilize it and so I think the playbook that we delivered for <unk> earlier this year and how we talk about what they can do I think thats, what that really resonates with customers.
That's great to hear thanks Johnson.
Thank you.
We will take our final question from Brent Thill with Jefferies.
Go ahead.
China the extra accelerated from Q2 can you just walk through the drivers of what what Youre seeing in terms of that acceleration and maybe for John.
Just as it relates to seasonality.
With Magenta and Congress in the Q4 anything to keep in mind, there or do you just feel like this you keep powering through these tougher comps given given the gift and someone's youre seeing in that business. Thanks.
Yeah, Brian I think what really drove that revenue was both subscription as well as.
You know the services and as you know for the services.
Again really reliant on a large partner ecosystem, but if over the last 18 months as we've always talked about the interest is high how they're all implementing it and so you know as they continue to implement it and as they continue to say we need to invest in these solutions I think that's driving it in.
I think to your point, if you take a step back we I think guided to something like 19% revenue at the beginning of the year and 22% and subscriptions. We had increased that in March to 2020 three respectively, and we just posted a 26% and 29 and so you know and if you look at it for Q4.
As well as you point out with the large comps.
We continue to be excited about that opportunity. So I think this is front and center, it's an enterprise priority and.
Since people are saying, we've got to deal with this new reality. There is no time to waste in terms of implementing it again there were as we said a couple of nonrecurring items. Some of those had to do with usage in commerce and that actually is also indicative that may be a little bit more.
<unk> on the quarter, but.
It's up into the right as far as we're concerned in terms of the business opportunity in the.
And the business.
Thank you.
And Brian is that real.
Okay.
No go ahead, I'm, sorry, John I didn't hear you.
Yeah, No problem I was just going to call them over the top or let them on Ben's question on seasonality relative Congress of course, Q4 is a strong <unk> quarter any way of getting the holidays are spending time. So yeah. We're excited about the opportunity there as well. It's just you know a restructure clubs up into the right I think we have a global network.
And overall since that was the last question I mean again I think we were really pleased with our performance in Q3, we do expect a strong end of year for our business as you saw from our targets, it's clear that out your windows unique position that we have three large.
Growth opportunities ahead of us and we're executing well against all three of those and the innovation and the roadmap that exists across all three of those clouds. Just gives us continued optimism that we will serve our customers well and we feel fortunate.
I think the future of work and the fact that it's more hybrid will only continue to emphasize digital as a priority for companies of every size and so whether that's an increase in content for personalization, whether that's more automation of digital documents and whether that's every business, saying, we need to understand how to do customer <unk>.
<unk> management I believe Adobe is very uniquely positioned to drive those particular macroeconomic trends.
Thank you for joining us today, we look forward to Max.
As well as the Q4 earnings call and with that I will turn it back over to Jonathan.
Thanks, Shawn and thanks, everyone for joining us on our call today as we mentioned in the press release today, we look forward to connecting with you again on Thursday December 16th for our Q4 earnings and virtual financial Analyst day, we will be sending out more details in the coming weeks and if you have any question feel free to contact us at IR at Adobe Dot Com I look forward to speaking with many of.
You soon and we appreciate your interest in Adobe. This concludes the call.
Yeah.
Okay.