adobe financial analyst briefing adobe financial analyst briefing slides 10-18-2017

© 2017 Adobe Systems Incorporated. All Rights Reserved.

Adobe Financial Analyst BriefingOctober 18, 2017


WelcomeMike Saviage | VP, Investor Relations


Financial Disclaimer

Some of the information discussed today contains forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of the risks and uncertainties, you should review Adobe’s SEC filings, including the annual report on Form 10-K for fiscal year 2016 and the quarterly reports on Form 10-Q filed by the company in 2017. In our presentation, we may discuss non-GAAP financial measures. The GAAP financial measures that correspond to such non-GAAP measures, as well as the reconciliation between the two, are available on our website at http://www.adobe.com/ADBE.

Adobe does not undertake an obligation to update forward-looking statements.


Adobe's Growth OpportunitiesShantanu Narayen | CEO


Through Digital Experiences


TRANSFORMING HOW BUSINESSES COMPETE

EMPOWERINGPEOPLE TO CREATE


Every story, every surface Creativity unleashed Harness the collective IQ


Digital Media Offerings

Adobe Document CloudAdobe Creative Cloud


Digital Media Product Momentum

• Video – HDR/4K/VR, animation, motion graphics

• Adobe Stock – New editorial content and Adobe Sensei-powered search

• Adobe Spark – New paid premium mobile offering

• Flagship product updates

• Hundreds of new features & enhancements year-to-date, including new magic powered by Adobe Sensei

• Desktop – New Adobe Acrobat Pro release

• Mobile – New Adobe Scan mobile app

• Adobe Sign – year-round product updates, 15 new partner integrations, global expansion

• Partnership signed with Microsoft

• Launched digital signature open standards consortium with top digital identity providers

Adobe Document CloudAdobe Creative Cloud


MAX 2017 Highlights

Adobe XD Adobe Dimension

Character Animator

Lightroom Photography Service

Adobe Spark


Creative Cloud Business Momentum

>40%New to

Creative Cloudfranchise1

~66%Creative Cloud

Enterprise seats licensed with services

>10MBehancemembers

>1MAdobe XD beta

downloads

2XY/Y growth in

Adobe Stock ARR2

Source: Adobe, as of Q3 FY20171 Cumulative new subscriptions, excludes Enterprise and Acrobat Single App subscriptions2 Compares Adobe Stock ARR exiting Q3 FY2017 and Q3 FY2016


Adobe Document Cloud Business Momentum

~200B PDFs opened per year in Acrobat & Acrobat Reader

~30% Y/Y growth of

documents signed on mobile devices with Adobe Sign

~19% Y/Y Acrobat unit

growth in Q3 FY17 *

>500M Document Cloud

mobile apps installs

~33% Of subscribers

new to Acrobat franchise

Source: Adobe, as of Q3 FY2017* Acrobat perpetual and subscription units licensed as Single App


Driving Digital Media Growth

CORE MARKET EXPANSION VALUE EXPANSION

• Creative Suite & Acrobat migration to subscriptions

• New user growth & enterprise seat expansion

• New media authoring categories

• Upsell and price optimization

• Photography

• Photo hobbyist growth

• New mobile paid offerings

• Premium Cloud service

• Next generation apps

• Adobe Spark

• Adobe Scan

• Adobe XD

• Adobe Stock

• Adobe Sign

• Training, marketplace & collaboration services

• Creative Cloud enterprise services

• Document Cloud business automation


2020 Adobe Creative Cloud Total Addressable Market

Creative Cloud 2020 TAM

$24.2BTotal Addressable Market


Creative Cloud 2019 TAM

$7.1B$11.4BMarket ExpansionCore Value Expansion

$5.7B

Source: Adobe, October 2017

Current Creative Cloud installed base and ARR, Creative Suite and Acrobat migration, new Creative user growth, education and

enterprise user growth, new media authoring (3D/AR/VR), upsell and price optimization

Photo hobbyist growth, Adobe Lightroom and Photoshop Elements migration, new

paid mobile users, premium photo service, new creative offerings for consumers and creatives at work, online video creators

Adobe Stock, training content and services, collaboration services,

Creative Cloud enterprise services


Document Cloud 2020 TAMDocument Cloud 2019 TAM

2020 Adobe Document Cloud Total Addressable Market



$1.4BValue ExpansionCore

$3.9B


Current Acrobat subscription installed base and ARR, Acrobat migration to subscriptions, PDF creation market,

electronic documents market

Electronic signatures, document protection, form

fill and sign, review and approve markets


• Undisputed market leadership

• Content explosion and mobility trends continue to be a tailwind

• Broader strategy creating larger TAM opportunity

• Multiple drivers of ARR growth

Digital Media Summary


Architect for actionPut art & science to workPeople buy experiences,

not products


Adobe Experience Cloud Offering

ExperienceManager

Campaign PrimetimeTarget AudienceManager

Analytics Media Optimizer Display

Media Optimizer Search

Media Optimizer Video

Marketing Cloud Analytics Cloud

Experience Cloud

Advertising Cloud


Adobe Experience Cloud

Adobe Marketing Cloud

Integrated marketing solutionsDifferentiate brand story, connect with customers on personal level, engage

them in moments that matter

Adobe Analytics Cloud

Intelligence engine for the enterprise Combine digital and offline data to help

brands move from insights to action, smarter and faster

Adobe Advertising Cloud

Industry’s first end-to-end platformManage advertising spanning

traditional TV and all digital formats

ExperienceManager

Campaign PrimetimeTarget AudienceManager

Analytics

• Experience personalization & optimization

• Campaign orchestration & journey management

• Experience management & delivery

• Monetization of video experiences

• Customer journey context

• Meaningful measurement

• Automated audience creation

• Insights into action

• Automated media execution – plan, buy, measure, optimize ad buys

• Cross-channel

• Real-time bidding , private marketplace and curated inventory

• Dynamic creative optimization

Media Optimizer Display

Media Optimizer Search

Media Optimizer Video


Adobe Experience Cloud Business Momentum

3 Based on Q3 FY2017 top 100 estimated ARR customers4 Based on Q3 FY2017 top 500 estimated ARR customers

~70%Of top 500 customershave 3+ solutions 4

155 TrillionAnnual customer data

transactions 1

57%Of analytics transactions from mobile devices 2

Industry analyst leadership

Source: Adobe1 Transactions based on trailing 4 quarters as of Q3 FY20172 % of analytics server calls from mobile devices in Q3 FY2017

$4.9MAverage ARR of

top 100 customers 3


Unified Experiences

Adobe Cloud Platform

CRMCommercePOS Merchandising

Back Office

Front Office

Inventory Mgmt. Store Operations ERP Business Intelligence

Real-time Unified Profile

Transactions

Service Tickets

Location

Preferred Device

Product Use

Content Preferences

Demographics

Subscriptions

Last Purchase

OrchestrationDigital Behavior

Mobile Web Online Ads Email Mailer / Print Call Center Video / TV In Store / Venue IoTSocial

Architecting for the Experience Business


Driving Adobe Experience Cloud Growth

• Demand for omnichannel customer engagement & analytics

• Shift in ad spend to digital

• Account penetration (upsell, cross-sell)

• Geographic & vertical market expansion

• Partner ecosystem for digital transformation implementation

• Microsoft partnership to broaden go-to-market reach and enterprise value proposition

• Data & content platform as foundation for delivering customer experiences

• Adobe Sensei to provide new capabilities and increase competitive advantage

CUSTOMERENGAGEMENT

PARTNERLEVERAGE

PRODUCTDIFFERENTIATION


Experience Cloud 2020 TAMExperience Cloud 2019 TAM

2020 Adobe Experience Cloud Total Addressable Market


$40BTotal Addressable Market

$8.0B$31.5BAdobe Analytics CloudAdobe Marketing Cloud Adobe Advertising Cloud

$13.6B


Experience Manager, Target, Campaign, Primetime, Social

Analytics, Audience Manager Media Optimizer


Adobe Experience Cloud Summary

• Large and growing "Experience Business" opportunity

• Market leader with most complete and integrated offering

• Adobe Cloud Platform provides differentiation and competitive advantage

• Unparalleled scale of content and data accelerates Adobe Sensei benefits

• Investments in innovation, go-to-market and partners fueling long-term growth


Market Leading

Innovation

Broad & Diversified

Customer Base

~$83B



Total Addressable Market


Adobe’s Growth StrategyMark Garrett | EVP & CFO


• Some contract types will change from ratable to upfront revenue recognition (e.g., non-services-enabled Creative Cloud and Document Cloud contracts, on-premise term licenses)

• One-time reduction expected for deferred revenue and unbilled backlog

• Annual revenue expected to remain largely unchanged

• Certain costs related to contract acquisition currently expensed (e.g., sales commissions) may be capitalized

ASC 606 Implementation Update

• Effective for Adobe beginning in FY2019 (starting December 1, 2018)

• Implementation on track

• In process of assessing comprehensive adoption impacts

Context Financial ImplicationsExpected Impact

• Negligible impact expected for Creative Cloud and Document Cloud services-enabled offerings

• Negligible impact expected for fully-hosted products (e.g., Adobe Analytics, Adobe Target, Adobe Sign and managed services offerings of Adobe Experience Manager and Adobe Campaign)

• Some impact expected with enterprises utilizing non-services enabled Creative Cloud and Document Cloud deployments and on-premise term licenses which are currently recognized as subscription revenue (e.g., some Adobe Experience Manager and Adobe Campaign, some Print & Publishing products)

October 18, 2017


Capital Structure

• Strong liquidity position

• $5.4B of cash and short-term investments

• $1.0B unutilized credit facility, remains available until 2020

• Conservative leverage approach

• $1.9B of public debt outstanding

• Rated A by S&P

• Rated A3 by Moody's

• Excess domestic cash returned to stockholders through stock repurchase

Source: Adobe, exiting Q3 FY2017


Reaffirming Q4 FY2017 P&L TargetsOctober 18, 2017

The information discussed on this slide contains forward looking statements that involve risk and uncertainty. Actual results may differ materially. For a discussion of these risks and uncertainties, you should review Adobe’s SEC filings. Please see our investor relations website for a discussion of these targets and a detailed reconciliation between GAAP and non-GAAP targets.

Revenue ~ $1.950 billion

Non-operating expense ~ $13 million

Tax rate GAAP: ~ 24% Non-GAAP: ~ 21%

Earnings per share GAAP: ~ $0.86 Non-GAAP: ~ $1.15

Share count ~ 500 million shares


FY2015 - FY2018 CAGR TargetsOctober 18, 2017

The information discussed on this slide contains forward looking statements that involve risk and uncertainty. Actual results may differ materially. For a discussion of these risks and uncertainties, you should review Adobe’s SEC filings.

CAGR TARGET ESTIMATE

Total Adobe revenue ~20% BEAT

Digital Media segment revenue >20% BEAT

Digital Media ARR >20% BEAT

Experience Cloud revenue >20% ~20%

Non-GAAP EPS ~30% BEAT

Operating Cash Flow ~25% BEAT

Experience Cloud bookings ~30% CHANGED METHODOLOGY


Business MomentumTotal Revenue and Margin

$4.147$4.796

$5.854

~$7.245

~$8.7

10.0%

18.8%

25.5%

0%

10%

20%

30%

40%

50%

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

FY2014 FY2015 FY2016 FY2017E* FY2018E**

GAA

P O

pera

ting

Mar

gin

%

Reve

nue

($B)

Adobe Revenue & GAAP Operating Margin

Revenue GAAP Operating Margin %

Source: Adobe* Based on Q4 FY2017 financial targets** Based on FY18 financial targets


Business MomentumTotal Revenue and Margin

$4.147$4.796

$5.854

~$7.245

~$8.721.8%

28.9%

33.8%

0%

10%

20%

30%

40%

50%

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

FY2014 FY2015 FY2016 FY2017E* FY2018E**

Non

-GAA

P O

pera

ting

Mar

gin

%

Reve

nue

($B)

Adobe Revenue & Non-GAAP Operating Margin

Revenue Non-GAAP Operating Margin %Source: Adobe* Based on Q4 FY2017 financial targets; please see our investor relations website for a reconciliation between GAAP and non-GAAP operating margin** Based on FY18 financial targets


~$4.0B

~$0.2B

~$1.1B

~$0.7B

Business MomentumCreative Cloud Revenue Mix

Perpetual and OEM

SubscriptionService & Support

Subscription

Service & Support

Perpetual and OEM

$1.8B ~$4.2B

Source: Adobe* Based on Q4 FY2017 financial targets

FY2014 Revenue Mix FY2017E* Revenue Mix


Business MomentumCreative Cloud: ARR and Revenue

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

FY2014 FY2015 FY2016 FY2017E*

$Mill

ions

Revenue ARR

Source: Adobe* Based on Q4 FY2017 financial targets; ARR based on December 2016 FX rates held constant through the year


~$0.5B

~$0.3B

Business MomentumDocument Cloud Revenue Mix

~$0.2B

~$0.04B

~$0.6B

Perpetual and OEM

Subscription

Service & Support

Subscription

Service & Support

Perpetual and OEM

$0.8B ~$0.8B

Source: Adobe* Based on Q4 FY2017 financial targets



Business MomentumDocument Cloud: ARR and Revenue

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

FY2014 FY2015 FY2016 FY2017E*

$Mill

ions

Revenue ARR

Source: Adobe* Based on Q4 FY2017 financial targets; ARR based on December 2016 FX rates held constant through the year


~$1.5B

~$0.4B

~$0.1B

Business MomentumAdobe Experience Cloud Revenue Mix

~$0.7B

~$0.3B

~$0.2BPerpetual and OEM

Subscription**

Service & Support

Subscription**

Service & Support

Perpetual and OEM

~$1.2B ~$2.0B

Source: Adobe* Based on Q4 FY2017 financial targets ** Includes revenue from SaaS, managed service and term offerings for Adobe Analytics Cloud and Adobe Marketing Cloud, as well as total revenue for Adobe Advertising Cloud



$0

$500

$1,000

$1,500

$2,000

$2,500

FY2014 FY2015 FY2016 FY2017E* FY2018E*

$Mill

ions

Revenue Subscription Revenue**

Business MomentumExperience Cloud: Revenue and Subscription Revenue

Source: Adobe* Based on Q4 FY2017 financial targets ** Includes revenue from SaaS, managed service and term offerings for Adobe Analytics Cloud and Adobe Marketing Cloud, as well as total revenue for Adobe Advertising Cloud


Business MomentumTotal Adobe: Deferred Revenue and Unbilled Backlog

$829 $1,155 $1,485$2,015

$1,032

$2,188

$2,892

$3,422

$1,860

$3,343

$4,377

$5,437

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

FY2013 FY2014 FY2015 FY2016 FY2017E

$Mill

ions

Deferred Revenue Unbilled Backlog

Source: Adobe


Business MomentumOperating Cash Flow

$1,287

$1,470

$2,201

$1,200

$1,600

$2,000

$2,400

$2,800

FY2014 FY2015 FY2016 FY2017E

$Mill

ions

Source: Adobe


Digital Media Summary

• Content explosion and mobility trends continue to be a tailwind

• Broader strategy creating larger TAM opportunity

• Multiple drivers continue to fuel ARR growth moving forward

• New user acquisition

• Creative Suite and Acrobat migration

• Value expansion via services

• Upsell and pricing optimization

Source: Adobe

2020 MARKET OPPORTUNITY

Core $12.8B

Market Expansion $5.7B

Value Expansion $11.0B

~$30BAddressable Market


Adobe Experience Cloud Summary

• Large and growing "Experience Business“ opportunity

• Market leader with most integrated offering for customers

• Content and data platform provides differentiation and competitive advantage

• Investments in innovation, go-to-market and partners fueling long-term growth potential

Source: Adobe

2020 MARKET OPPORTUNITY

~$53BAddressable Market

Marketing Cloud $31.5B

Analytics Cloud $13.6B

Advertising Cloud $8.0B


FY2018 Preliminary TargetsOctober 18, 2017

1 All Revenue and EPS targets were set based on September 2017 foreign exchange (“FX”) rates forward adjusted to mid-2018, which for current planning purposes are assumed to be constant during fiscal year 2018. 2 Includes revenue from SaaS, managed service and term offerings for Adobe Analytics Cloud and Adobe Marketing Cloud, as well as total revenue for Adobe Advertising Cloud3 Includes annualized subscription value of SaaS, managed service and term offerings under contract for Adobe Analytics Cloud and Adobe Marketing Cloud

The information discussed on this slide contains forward looking statements that involve risk and uncertainty. Actual results may differ materially. For a discussion of these risks and uncertainties, you should review Adobe’s SEC filings. Please see our investor relations website for a reconciliation between GAAP and non-GAAP targets.

Total Adobe revenue1 ~$8.7B (~20% Y/Y)

Digital Media segment revenue ~23% Y/Y

Experience Cloud subscription revenue2 ~20% Y/Y

Experience Cloud total revenue ~15% Y/Y

GAAP EPS ~$4.40

Non-GAAP EPS ~$5.50

Digital Media ARR ~$1B of net new ARRExperience Cloud bookings3 ~20% Y/Y


Growth and Margin at Scale

• Large, expanding opportunity• ~$83B TAM in 2020

• Strong business momentum and market leadership

• Significant top-line and bottom-line growth

adobe financial analyst briefing adobe financial analyst briefing slides 10-18-2017

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