Adobe Investor Presentation - June 2017 · This quarter, we were also included on Forbes’ “Best Large Employers” list and LinkedIn’s Top Global Companies List, and received

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Adobe Q2 FY2017 Earnings Call Script June 20, 2017

Page 1 of 15

MIKE SAVIAGE

Good afternoon and thank you for joining us today. Joining me on the call are Adobe’s President and

CEO, Shantanu Narayen; and Mark Garrett, Executive Vice President and CFO.

In our call today, we will discuss Adobe’s second quarter fiscal year 2017 financial results. By now, you

should have a copy of our earnings press release which crossed the wire approximately one hour ago.

We’ve also posted PDFs of our earnings call prepared remarks and slides, financial targets and an

updated investor datasheet on Adobe.com. If you would like a copy of these documents, you can go to

Adobe’s Investor Relations page and find them listed under Quick Links.


Page 2 of 15

Before we get started, we want to emphasize that some of the information discussed in this call,

particularly our revenue and operating model targets, and our forward-looking product plans, is based

on information as of today, June 20th, 2017, and 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 these risks and uncertainties, you should review the Forward-Looking Statements

Disclosure in the earnings press release we issued today, as well as Adobe’s SEC filings.

During this call, we will discuss GAAP and non-GAAP financial measures. A reconciliation between the

two is available in our earnings release and in our updated investor datasheet on Adobe’s Investor

Relations website.

Call participants are advised that the audio of this conference call is being webcast live in Adobe

Connect, and is also being recorded for playback purposes. An archive of the webcast will be made

available on Adobe’s Investor Relations website for approximately 45 days, and is the property of Adobe.

The call audio and the webcast archive may not be re-recorded, or otherwise reproduced or distributed

without prior written permission from Adobe.

I will now turn the call over to Shantanu.


Page 3 of 15

SHANTANU NARAYEN

Thanks, Mike and good afternoon.

Adobe had a record quarter with revenue of $1.77 billion, representing 27 percent year-over-year growth.

GAAP earnings per share in Q2 was 75 cents, and non-GAAP earnings per share was $1.02. We are

executing on our strategy of enabling our customers to design and deliver best-in-class digital

experiences.

Digital transformation continues to be the burning agenda for creative professionals, enterprises,

governments and educational institutions. Adobe is now the go-to company for creating world-class

digital customer journeys from design to delivery to measurement and monetization.

At the core of our ability to drive transformative change across all customer segments is Adobe Sensei,

our artificial intelligence and machine learning framework, which is being deployed across all Adobe

solutions to solve our customers’ greatest experience challenges.

Central to our strong performance this quarter was record revenue in our Digital Media business. We

achieved $1.21 billion in Digital Media revenue in Q2, a 29 percent increase year-over-year. We exited

the quarter with over $4.56 billion of Digital Media Annualized Recurring Revenue, or ARR. The net ARR

increase in Q2 was $312 million, and was driven by continued strength in our Creative Cloud and

Document Cloud businesses.


Page 4 of 15

Creative Cloud is the one-stop shop for millions of creative people globally and we continue to

successfully migrate CS customers, acquire new customers, expand into new market segments, and add

value through new services. In Q2, we exceeded the $1 billion mark for Creative product revenue for the

first time, an increase of 34% year-over-year. Creative Cloud growth was driven by healthy net-new

subscription adoption, strong retention and positive trends in our average revenue per user or ARPU.

Our Adobe Stock business continues to accelerate, driven by customer demand for powerful visual

content. Last week, we introduced Aesthetic Filters, a next-gen search capability leveraging Adobe

Sensei, to streamline one of the most cumbersome, time-consuming tasks for creatives – finding the

perfect image or video for creative projects.

With nearly 90 million assets, Adobe Stock is becoming the most comprehensive marketplace for digital

assets, and this week we announced the availability of new collections from Reuters and Stocksy, with

USA TODAY Sports coming soon.

In our video business, Premiere Pro continues to be the leader in the category, with 49% year-over-year

growth in single-app subscriptions. At NAB, we unveiled a major update to Premiere Pro, which will

help filmmakers and video producers create, deliver and monetize their video assets faster than ever

before. This latest update delivers new features for graphics and titling, animation, polishing audio and

sharing assets; support for the latest video formats, such as HDR, VR and 4K; and new integrations with

Adobe Stock.


Page 5 of 15

Our leadership in video applications is attracting a new set of Creatives to our platform. With flagship

applications like Photoshop, Illustrator and After Effects, and innovative new apps like Character

Animator, we have the most comprehensive video authoring solution. New customers buying single

apps like Premiere Pro will be a great base to convert over time to a full Creative Cloud subscription.

In addition to video, we continue to innovate in new categories like Experience Design, 3D, and mobile

apps, including Adobe Spark, which greatly simplifies the process of designing social graphics, web

stories and animated videos. These offerings will expand our footprint and bring new customers to

Creative Cloud.

The world’s leading digital document service, Adobe Document Cloud is addressing growing customer

demand for more efficient digital processes. In Q2, Document Cloud revenue was $200 million and we

grew Document Cloud ARR to $520 million exiting the quarter. Acrobat units across Creative Cloud and

Adobe Document Cloud combined grew double-digits year-over-year, fueled by a record number of new

subscriptions in the quarter.

Adobe is focused on delivering innovative capabilities to enable PDF creation in the mobile era. We

recently introduced a new app called Adobe Scan, which turns a smartphone or tablet into a PDF

creation tool that can do both scanning and intelligent text-recognition through integration with

Document Cloud. In its first 12 days, the Adobe Scan app had over 750 thousand downloads across iOS

and Android.


Page 6 of 15

Adobe is recognized as the leader in the Digital Marketing category, and we have expanded our

ambition to solve enterprises’ broader customer experience mandate. At Adobe Summit in March, we

unveiled Adobe Experience Cloud, a comprehensive set of cloud services designed to give enterprises

everything they need to deliver exceptional customer experiences. Adobe Experience Cloud includes:

• Adobe Marketing Cloud, an integrated set of industry-leading solutions to help marketers

differentiate their brands and engage their customers.

• Adobe Advertising Cloud, the industry’s first end-to-end platform for managing advertising across

traditional TV and digital formats.

• And Adobe Analytics Cloud, the core system of data and intelligence for the enterprise.

We drove a record $495 million in Adobe Experience Cloud revenue in Q2, representing 29% year-over-

year revenue growth. We managed more than 135 trillion data transactions on behalf of our customers

over the past four quarters across our solutions. This massive volume of data feeds Adobe Sensei,

enabling our Experience Cloud solutions to better understand, predict and personalize customer

interactions.

We announced the availability of our first set of joint solutions with Microsoft to help enterprises

transform cross-channel experiences and campaign orchestration using Adobe Experience Cloud and

Microsoft Azure, Dynamics 365 and Power BI. In addition, we will collaborate on an industry standard to

create semantic data models that will define language for marketing, sales and services which will

accelerate the delivery of digital experiences at scale across the entire enterprise.


Page 7 of 15

Adobe’s ad tech momentum continues to build. We have now integrated Adobe Audience Manager into

Adobe Advertising Cloud, enabling advertisers to identify high-performing segments and do automated,

data-driven media planning and buying across all channels, including linear TV.

Adobe Experience Cloud continues to be the leader across multiple industry analyst categories.

Forrester Research named Adobe as the only leader in Digital Intelligence Platforms, an emerging

market segment bringing together digital data management, digital analytics, and customer

engagement optimization technologies.

They also recognized Adobe Advertising Cloud as a leader in the Omnichannel Demand-Side Platforms

and Adobe Audience Manager as a leader in Data Management Platforms. Gartner recognized Adobe as

a leader in its Magic Quadrant for Multichannel Campaign Management, where they placed Adobe

furthest in the Leaders quadrant for completeness of vision out of 22 vendors evaluated in the report.

Interest in Adobe Experience Cloud continues to be strong. We had record attendance at our US and

EMEA Summits as well as at our symposia in New York, London, Mumbai, Toronto and Sydney. Major

customer wins this quarter included Best Buy, Cisco, Morgan Stanley and Verizon.

Last week, Adobe joined the Fortune 500 list for the first time, an exciting milestone for our company.

This quarter, we were also included on Forbes’ “Best Large Employers” list and LinkedIn’s Top Global

Companies List, and received Great Places to Work recognition in the UK and Germany. People are our

greatest asset at Adobe and we continue to invest in creating an innovative culture and exciting work

environment to attract and retain the best talent in the industry.


Page 8 of 15

With the introduction of Adobe Experience Cloud, we have expanded our vision and our market

opportunity. Our brand, coupled with our deep technology platforms, are further distancing us from the

competition. We have the world’s best customers, partners and employees, and we look forward to a

strong second half.

Mark.


Page 9 of 15

MARK GARRETT

Thanks, Shantanu.

In the second quarter of FY17, Adobe achieved record revenue of 1.77 billion dollars, which represents

27% year-over-year growth. GAAP diluted earnings per share in Q2 was 75 cents and non-GAAP diluted

earnings per share was $1.02.

Highlights in Q2 included:

• Our first billion-dollar quarter of Creative revenue;

• Achieving strong net new Digital Media ARR of $312 million;

• Record Adobe Experience Cloud revenue of $495 million;

• Strong year-over-year growth in operating profit and net income;

• Record deferred revenue with strong cash flow from operations;

• And 86% of Q2 revenue came from recurring sources.


Page 10 of 15

In Digital Media, we grew segment revenue by 29% year-over-year. The addition of $312 million net

new Digital Media ARR during the quarter grew total Digital Media ARR to $4.56 billion exiting Q2.

Within Digital Media, we delivered Creative revenue of $1.01 billion which represents 34% year-over-year

growth. In addition, we increased Creative ARR by $285 million during Q2 and exited the quarter with

$4.04 billion of Creative ARR.

Driving the momentum with our Creative business was continued solid demand for Creative Cloud

across all segments, including individual, team and enterprise. We saw particular strength on

Adobe.com and in the education market. International adoption of Creative Cloud was notable,

particularly in Germany and Japan. Q2 ARR performance was also driven by solid retention, as well as

quarter-over-quarter ARPU growth across all key offerings.

Adobe Stock contributed to this performance with another quarter of record revenue. We are also

pleased to see the growing subscription base for Adobe Stock adding to overall ARR.


Page 11 of 15

With Document Cloud, we achieved revenue of $200 million, and Document Cloud ARR grew to

$520 million exiting Q2. Across Creative Cloud and Document Cloud, Acrobat unit growth accelerated

when compared to last quarter and again achieved double digit year-over-year growth. In addition,

Adobe Sign growth continues and we expect the recent Document Cloud launch with new Acrobat, Sign

and Scan functionality to contribute to the overall Document Cloud performance moving forward.

In Digital Marketing, we achieved record Adobe Experience Cloud revenue of $495 million, which

represents 29% year-over-year growth.

We are hard at work integrating TubeMogul into our new Advertising Cloud solution, and Q2

performance with the TubeMogul business continues to track as we outlined earlier this year.

TubeMogul gross revenue recognized in the quarter was de-minimus, as forecasted.

Mobile remains a key driver for our Experience Cloud business; mobile data transactions grew to 57% of

total Adobe Analytics transactions in the quarter.


Page 12 of 15

Experience Cloud success is fueled by a large ecosystem of partners including systems integrators and

digital agencies. They are working with us and our joint customers to create digital strategies, plan and

execute implementations, and achieve value-realization. In Q2, partners were involved in approximately

50% of our bookings.

From a quarter-over-quarter currency perspective, FX increased revenue by $0.4 million. We had $13.3

million in hedge gains in Q2 FY17, versus $18.3 million in hedge gains in Q1 FY17; thus, the net sequential

currency decrease to revenue considering hedging gains was $4.6 million.

From a year-over-year currency perspective, FX decreased revenue by $19.2 million. We had $13.3

million in hedge gains in Q2 FY17, versus $3.6 million in hedge gains in Q2 FY16; thus, the net year-over-

year currency decrease to revenue considering hedging gains was $9.5 million.

We experienced stable demand across all major geographies during the quarter.

In Q2, Adobe’s effective tax rate was 24% on a GAAP-basis and 21% on a non-GAAP basis.


Page 13 of 15

Our trade DSO was 46 days, which compares to 43 days in the year-ago quarter, and 46 days last

quarter.

Deferred revenue grew to a record $2.07 billion, up 23% year-over-year. Our ending cash and short-term

investment position exiting Q2 was $4.93 billion.

Cash flow from operations was $645 million in the quarter.

In Q2, we repurchased approximately 2 million shares at a cost of $266 million, and we exhausted our

$2 billion authority granted in January 2015. In Q3 we will begin utilizing our new $2.5 billion authority

granted in January 2017.

Now I will provide our financial outlook. In Q317, we are targeting:

• Revenue of approximately $1.815 billion;

• Net new Digital Media ARR of approximately $300 million;

• Digital Media segment year-over-year revenue growth of approximately 26%;

• Adobe Experience Cloud year-over-year revenue growth of approximately 25%;

• Share count of approximately 501 million shares;

• Net non-operating expense of approximately $14 million on both a GAAP and non-GAAP basis;

• Tax rate of approximately 24% on a GAAP basis and 21% on a non-GAAP basis;

• GAAP earnings per share of approximately 72 cents, and non-GAAP earnings per share of

approximately $1.00.


Page 14 of 15

Given our business momentum, we continue to expect total Adobe revenue, Digital Media ARR and

earnings per share to all grow sequentially from Q3 to Q4. When modeling segment and total revenue

estimates for Q417 it is important to factor the material amount of perpetual revenue reported in our

digital marketing business in Q416 which we do not expect to reoccur in Q4 of this year. Considering

this and our strong performance year to date, we now expect total full-year Adobe revenue year-over-

year growth to be approximately 23%, an increase from our prior target.

In summary, our record Q2 achievement demonstrates we are executing well against a large growth

opportunity. We remain excited about our prospects for the rest of the year and beyond.

Mike.


Page 15 of 15

MIKE SAVIAGE

Thanks, Mark.

Adobe MAX is scheduled this fall during the week of October 16th. Day One of our conference is

Wednesday October 18th, and Adobe management will have a meeting with financial analysts and

investors that afternoon. An invitation with registration information will go out within the next month,

and more details about the conference is available at max.adobe.com.

If you wish to listen to a playback of today’s conference call, a web-based archive of the call will be

available on our IR site later today. Alternatively, you can listen to a phone replay by calling 855-859-

2056; use conference ID #28928378. International callers should dial 404-537-3406. The phone playback

service will be available beginning at 5pm Pacific Time today, and ending at 5pm Pacific Time on June

27th, 2017.

We would now be happy to take your questions, and we ask that you limit your questions to one per

person. Operator.

Investor Relations Contact

Mike Saviage Adobe 408-536-4416 [email protected]

Public Relations Contact

Dan Berthiaume Adobe 408-536-2584 [email protected]

FOR IMMEDIATE RELEASE

Adobe Achieves Record Revenue Adobe Creative Revenue Exceeds $1 Billion in Q2 SAN JOSE, Calif. — June 20, 2017 — Adobe (Nasdaq:ADBE) today reported financial results for its second quarter fiscal year 2017 ended June 2, 2017.

Financial Highlights

• Adobe achieved record quarterly revenue of $1.77 billion in its second quarter of fiscal year 2017.

• Diluted earnings per share was $0.75 on a GAAP-basis, and $1.02 on a non-GAAP basis.

• Digital Media segment revenue was $1.21 billion, with Creative revenue growing to a record $1.01 billion.

• Strong Creative Cloud and Document Cloud adoption and retention drove Digital Media Annualized Recurring Revenue (“ARR”)

to $4.56 billion exiting the quarter, a quarter-over-quarter increase of $312 million.

• Adobe Experience Cloud achieved record revenue of $495 million, which represents 29 percent year-over-year growth.

• Operating income grew 46 percent and net income grew 53 percent year-over-year on a GAAP-basis; operating income grew

42 percent and net income grew 43 percent year-over-year on a non-GAAP basis.

• Cash flow from operations was $645 million, and deferred revenue grew to approximately $2.07 billion.

• The company repurchased approximately 2 million shares during the quarter, returning $266 million of cash to stockholders.

A reconciliation between GAAP and non-GAAP results is provided at the end of this press release and on Adobe’s website.

Executive Quotes

“Digital transformation continues to be the burning agenda for creative professionals, enterprises, governments and educational

institutions,” said Shantanu Narayen, president and CEO, Adobe. “Adobe is the go-to company for creating world-class digital

customer journeys from design to delivery to measurement and monetization.”

“Adobe continues to execute well, with another quarter of record revenue and operating profit in Q2," said Mark Garrett, executive vice

president and CFO, Adobe. “We're excited about the strong business momentum we have as we enter the second half of fiscal 2017

and remain confident in our ability to drive strong revenue and earnings growth in the future.”

of 7 Adobe Achieves Record Revenue

Adobe to Webcast Earnings Conference Call

Adobe will webcast its second quarter fiscal year 2017 earnings conference call today at 2:00 p.m. Pacific Time from its investor relations website: www.adobe.com/ADBE. Earnings documents, including Adobe management’s prepared conference call remarks with slides, financial targets and an investor datasheet are posted to Adobe’s investor relations website in advance of the conference call for reference. A reconciliation between GAAP and non-GAAP earnings results and financial targets is also provided on the website.

Forward-Looking Statements Disclosure

This press release contains forward-looking statements, including those related to the relevance of our products to our customers, business momentum, revenue, annualized recurring revenue, non-operating other expense, tax rate on a GAAP and non-GAAP basis, earnings per share on a GAAP and non-GAAP basis, and share count, all of which involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to: failure to develop, market and offer products and services that meet customer requirements, introduction of new products, services and business models by competitors, fluctuations in subscription renewal rates, failure to successfully manage transitions to new business models and markets, uncertainty in economic conditions and the financial markets, complex and unpredictable sales cycles for some enterprise offerings, risks associated with cyber-attacks and information security, potential interruptions or delays in hosted services provided by us or third parties, changes in accounting principles, and failure to realize the anticipated benefits of past or future acquisitions. For a discussion of these and other risks and uncertainties, please refer to Adobe’s Annual Report on Form 10-K for our fiscal year 2016 ended Dec. 2, 2016, and Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2017.

The financial information set forth in this press release reflects estimates based on information available at this time. These amounts could differ from actual reported amounts stated in Adobe’s Quarterly Report on Form 10-Q for our quarter ended June 2, 2017, which Adobe expects to file in June 2017.

Adobe assumes no obligation to, and does not currently intend to, update these forward-looking statements.

About Adobe Systems Incorporated

Adobe is changing the world through digital experiences. For more information, visit www.adobe.com.

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© 2017 Adobe Systems Incorporated. All rights reserved. Adobe and the Adobe logo are either registered trademarks or trademarks of Adobe Systems Incorporated in the United States and/or other countries. All other trademarks are the property of their respective owners.

http://www.adobe.com/ADBEhttp://www.adobe.com/


Condensed Consolidated Statements of Income (In thousands, except per share data; unaudited)

Three Months Ended Six Months Ended

June 2, 2017*

June 3, 2016

June 2, 2017*

June 3, 2016

Revenue: Subscription ......................................................................................... $ 1,483,690 1,083,708 $ 2,867,546 $ 2,153,958 Product .................................................................................................... 171,545 196,500 354,930 397,612 Services and support ..................................................................... 116,955 118,501 231,360 230,474

Total revenue ............................................................................... 1,772,190 1,398,709 3,453,836 2,782,044

Cost of revenue:

Subscription ......................................................................................... 142,734 115,399 283,915 222,674 Product .................................................................................................... 15,488 15,756 29,821 36,055 Services and support ..................................................................... 81,138 70,924 162,961 141,922

Total cost of revenue .............................................................. 239,360 202,079 476,697 400,651

Gross profit ............................................................................................... 1,532,830 1,196,630 2,977,139 2,381,393

Operating expenses:

Research and development ..................................................... 299,401 232,484 584,478 469,688 Sales and marketing....................................................................... 553,098 462,789 1,073,395 937,680 General and administrative ...................................................... 156,929 138,130 307,737 284,646 Amortization of purchased intangibles ........................... 19,320 18,988 38,448 37,382

Total operating expenses .................................................... 1,028,748 852,391 2,004,058 1,729,396

Operating income ............................................................................... 504,082 344,239 973,081 651,997

Non-operating income (expense):

Interest and other income (expense), net ..................... 5,154 6,083 12,360 10,270 Interest expense ................................................................................ (18,347 ) (17,174 ) (36,477 ) (35,643 ) Investment gains (losses), net ................................................ 1,729 (3,318 ) 4,286 (4,487 )

Total non-operating income (expense), net ......... (11,464 ) (14,409 ) (19,831 ) (29,860 ) Income before income taxes ...................................................... 492,618 329,830 953,250 622,137 Provision for income taxes ........................................................... 118,228 85,756 180,414 123,756 Net income ............................................................................................... 374,390 244,074 $ 772,836 $ 498,381 Basic net income per share .......................................................... 0.76 0.49 $ 1.56 $ 1.00

Shares used to compute basic net income per share .............................................................................................................. 494,371

499,974

494,492

499,534

Diluted net income per share ..................................................... 0.75 0.48 $ 1.54 $ 0.99 Shares used to compute diluted net income per share .............................................................................................................. 500,351

504,725

501,032

505,666

_________________________________________

* We early adopted ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, during the first quarter of fiscal 2017. As required by the standard, excess tax benefits recognized on stock-based compensation expense were reflected in our provision for income taxes rather than paid-in capital on a prospective basis. We recorded excess tax benefits within our provision for income taxes, rather than paid-in capital, starting the first quarter of fiscal 2017.


Condensed Consolidated Balance Sheets (In thousands, except par value; unaudited)

June 2, 2017

December 2, 2016

ASSETS Current assets:

Cash and cash equivalents ................................................................................................................................................ $ 1,316,950 $ 1,011,315 Short-term investments ...................................................................................................................................................... 3,614,563 3,749,985 Trade receivables, net of allowances for doubtful accounts of $9,201 and $6,214, respectively .................................................................................................................................................................................. 901,452

833,033

Prepaid expenses and other current assets .......................................................................................................... 219,232 245,441 Total current assets .......................................................................................................................................................... 6,052,197 5,839,774

Property and equipment, net ............................................................................................................................................. 924,108 816,264 Goodwill ............................................................................................................................................................................................. 5,788,703 5,406,474 Purchased and other intangibles, net ........................................................................................................................... 453,834 414,405 Investment in lease receivable .......................................................................................................................................... — 80,439 Other assets ..................................................................................................................................................................................... 146,058 139,890

Total assets ............................................................................................................................................................................ $ 13,364,900 $ 12,697,246

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities: Trade payables ........................................................................................................................................................................... $ 77,905 $ 88,024 Accrued expenses .................................................................................................................................................................... 865,385 739,630 Income taxes payable ........................................................................................................................................................... 98,653 38,362 Deferred revenue ..................................................................................................................................................................... 2,005,953 1,945,619

Total current liabilities ................................................................................................................................................... 3,047,896 2,811,635 Long-term liabilities:

Debt .................................................................................................................................................................................................... 1,888,398 1,892,200 Deferred revenue ..................................................................................................................................................................... 69,039 69,131 Income taxes payable ........................................................................................................................................................... 163,624 184,381 Deferred income taxes ......................................................................................................................................................... 279,649 217,660 Other liabilities ........................................................................................................................................................................... 112,296 97,404

Total liabilities ...................................................................................................................................................................... 5,560,902 5,272,411 Stockholders’ equity:

Preferred stock, $0.0001 par value; 2,000 shares authorized................................................................... — — Common stock, $0.0001 par value .............................................................................................................................. 61 61 Additional paid-in-capital .................................................................................................................................................. 4,836,786 4,616,331 Retained earnings .................................................................................................................................................................... 8,652,752 8,114,517 Accumulated other comprehensive income (loss) ......................................................................................... (146,752 ) (173,602 )

Treasury stock, at cost (107,510 and 106,580 shares, respectively), net of reissuances ........ (5,538,849 ) (5,132,472 )

Total stockholders’ equity ........................................................................................................................................... 7,803,998 7,424,835 Total liabilities and stockholders’ equity .......................................................................................................... $ 13,364,900 $ 12,697,246


Condensed Consolidated Statements of Cash Flows (In thousands; unaudited)

Three Months Ended

June 2, 2017*

June 3, 2016

Cash flows from operating activities: Net income .................................................................................................................................................................................... $ 374,390 $ 244,074 Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, amortization and accretion .......................................................................................................... 81,635 84,461 Stock-based compensation expense ...................................................................................................................... 116,049 85,570 Unrealized investment (gains) losses, net .......................................................................................................... (1,579 ) 3,340 Changes in deferred revenue ....................................................................................................................................... 14,746 68,356 Changes in other operating assets and liabilities .......................................................................................... 59,586 2,914

Net cash provided by operating activities ................................................................................................... 644,827 488,715

Cash flows from investing activities:

Purchases, sales and maturities of short-term investments, net ........................................................... (30,079 ) (148,797 ) Purchases of property and equipment ..................................................................................................................... (55,297 ) (53,759 ) Purchases and sales of long-term investments, intangibles and other assets, net .................. (2,171 ) (522 ) Acquisitions, net of cash ...................................................................................................................................................... — (48,427 )

Net cash used for investing activities .............................................................................................................. (87,547 ) (251,505 )

Cash flows from financing activities:

Purchases of treasury stock .............................................................................................................................................. (300,000 ) (225,000 ) Taxes paid related to net share settlement of equity awards, net of proceeds from treasury stock reissuances ................................................................................................................................................. (13,788 ) (6,297 ) Repayment of capital lease obligations ................................................................................................................... (644 ) (21 ) Excess tax benefits from stock-based compensation .................................................................................... — 50,430

Net cash used for financing activities .............................................................................................................. (314,432 ) (180,888 ) Effect of exchange rate changes on cash and cash equivalents ................................................................ 5,206 (639 ) Net increase in cash and cash equivalents................................................................................................................ 248,054 55,683 Cash and cash equivalents at beginning of period .............................................................................................. 1,068,896 830,696 Cash and cash equivalents at end of period ............................................................................................................ $ 1,316,950 $ 886,379

_________________________________________

* We early adopted ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, during the first quarter of fiscal 2017. As required by the standard, excess tax benefits recognized on stock-based compensation expense were reflected in our provision for income taxes rather than paid-in capital on a prospective basis. We also elected to prospectively apply the change in presentation of excess tax benefits wherein excess tax benefits recognized on stock-based compensation expense were classified as operating activities in our condensed consolidated statements of cash flows starting the first quarter of fiscal 2017. Prior period classification of cash flows related to excess tax benefits was not adjusted.


Non-GAAP Results (In thousands, except per share data)

The following tables show Adobe's GAAP results reconciled to non-GAAP results included in this release.

Three Months Ended

June 2, 2017

June 3, 2016

March 3, 2017

Operating income: GAAP operating income ............................................................................................................................. $ 504,082 $ 344,239 $ 468,999 Stock-based and deferred compensation expense ................................................................ 118,591 87,209 103,578 Restructuring and other charges .......................................................................................................... (97 ) (466 ) — Amortization of purchased intangibles ........................................................................................... 36,556 32,567 35,464

Non-GAAP operating income ................................................................................................................ $ 659,132 $ 463,549 $ 608,041

Net income: GAAP net income* .......................................................................................................................................... $ 374,390 $ 244,074 $ 398,446 Stock-based and deferred compensation expense ................................................................ 118,591 87,209 103,578 Restructuring and other charges .......................................................................................................... (97 ) (466 ) — Amortization of purchased intangibles ........................................................................................... 36,556 32,567 35,464 Investment (gains) losses, net ............................................................................................................... (1,729 ) 3,318 (2,557 ) Income tax adjustments ............................................................................................................................. (17,419 ) (9,260 ) (63,209 ) Non-GAAP net income ................................................................................................................................ $ 510,292 $ 357,442 $ 471,722

Diluted net income per share: GAAP diluted net income per share* ................................................................................................ $ 0.75 $ 0.48 $ 0.80 Stock-based and deferred compensation expense ................................................................ 0.23 0.17 0.21 Amortization of purchased intangibles ........................................................................................... 0.07 0.06 0.07 Investment (gains) losses, net ............................................................................................................... — 0.01 (0.01 ) Income tax adjustments ............................................................................................................................. (0.03 ) (0.01 ) (0.13 ) Non-GAAP diluted net income per share ...................................................................................... $ 1.02 $ 0.71 $ 0.94

Shares used in computing diluted net income per share .................................................. 500,351 504,725

500,861


Non-GAAP Results (continued)

Three Months

Ended

June 2, 2017

Effective income tax rate: GAAP effective income tax rate* ....................................................................................................................................................................... 24.0 % Stock-based and deferred compensation expense.............................................................................................................................. (1.1 ) Amortization of purchased intangibles ......................................................................................................................................................... (0.4 ) Income tax adjustments ........................................................................................................................................................................................... (1.5 ) Non-GAAP effective income tax rate** ......................................................................................................................................................... 21.0 % _________________________________________

* We early adopted ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, during the first quarter of fiscal 2017. As required by the standard, excess tax benefits recognized on stock-based compensation expense were reflected in our provision for income taxes rather than paid-in capital on a prospective basis. We recorded excess tax benefits within our provision for income taxes, rather than paid-in capital, starting the first quarter of fiscal 2017.

** Our non-GAAP effective income tax rate of 21% is an annualized rate based on estimates for the entire fiscal year, whereas the GAAP effective income tax rate of 24% is the rate for the quarter based on tax events within the quarter. Income tax adjustments, which are included in both GAAP and non-GAAP earnings, will fluctuate from quarter-to-quarter but will normalize over the fiscal year due to the timing of tax events including the timing of recognition of excess tax benefits within each quarter.

Use of Non-GAAP Financial Information

Adobe continues to provide all information required in accordance with GAAP, but believes evaluating its ongoing operating results may not be as useful if an investor is limited to reviewing only GAAP financial measures. Adobe uses non-GAAP financial information to evaluate its ongoing operations and for internal planning and forecasting purposes. Adobe's management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Adobe presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate Adobe's operating results. Adobe believes these non-GAAP financial measures are useful because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making. This allows institutional investors, the analyst community and others to better understand and evaluate our operating results and future prospects in the same manner as management.

Adobe's management believes it is useful for itself and investors to review, as applicable, both GAAP information as well as non-GAAP measures, which may exclude items such as stock-based and deferred compensation expenses, restructuring and other charges, amortization of purchased intangibles and certain activity in connection with technology license arrangements, investment gains and losses, the related tax impact of all of these items, income tax adjustments, and the income tax effect of the non-GAAP pre-tax adjustments from the provision for income taxes. Adobe uses these non-GAAP measures in order to assess the performance of Adobe's business and for planning and forecasting in subsequent periods. Whenever such a non-GAAP measure is used, Adobe provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed above.

Last Updated: June 20, 2017

Description Q1`15 Q2`15 Q3`15 Q4`15 FY2015 Q1`16 Q2`16 Q3`16 Q4`16 FY2016 Q1`17 Q2`17FY2017

YTDRevenue ($Millions) Total Revenue 1,109.2 1,162.2 1,217.8 1,306.4 4,795.5 1,383.3 1,398.7 1,464.0 1,608.4 5,854.4 1,681.6 1,772.2 3,453.8

Digital Media 702.8 747.5 769.7 875.3 3,095.2 931.7 943.1 990.0 1,076.2 3,941.0 1,138.1 1,212.0 2,350.1

Digital Marketing 357.2 366.5 402.5 382.7 1,508.9 406.2 412.2 429.6 488.5 1,736.5 501.1 516.7 1,017.8

Print & Publishing 49.2 48.2 45.6 48.4 191.4 45.4 43.4 44.4 43.7 176.9 42.4 43.5 85.9

Digital Media 63% 64% 63% 67% 65% 68% 67% 68% 67% 67% 68% 68% 68%

Digital Marketing 32% 32% 33% 29% 32% 29% 30% 29% 30% 30% 30% 29% 29%

Print & Publishing 5% 4% 4% 4% 3% 3% 3% 3% 3% 3% 2% 3% 3%

Creative Revenue ($Millions) 509.4 550.9 576.1 666.6 2,302.9 732.9 754.9 802.7 885.6 3,176.1 942.2 1,012.1 1,954.3

Creative ARR1,2,3

($Millions) 1,795 2,027 2,289 2,599 - - - - - - - - -

Creative ARR1,3

($Millions) - Updated for December 2015 Currency Rates - - - 2,497 - 2,735 2,998 3,256 3,539 - - - -

Creative ARR1,3 ($Millions) - Updated for December 2016 Currency Rates - - - - - - - - 3,515 - 3,759 4,044 -

Document Cloud Revenue ($Millions) 193.4 196.6 193.6 208.7 792.3 198.8 188.2 187.3 190.6 764.9 195.9 199.9 395.8

Document Cloud ARR3,4

($Millions) 297 329 357 397 - - - - - - - - -

Document Cloud ARR3,4

($Millions) - Updated for December 2015 Currency Rates - - - 385 - 393 415 442 475 - - - -

Document Cloud ARR3,4 ($Millions) - Updated for December 2016 Currency Rates - - - - - - - - 472 - 493 520 -

Total Digital Media ARR2,3

(Creative ARR + Document Cloud ARR; $Millions) 2,092 2,356 2,646 2,996 - - - - - - - - -

Total Digital Media ARR3 ($Millions) - Updated for December 2015 Currency Rates - - - 2,882 - 3,128 3,413 3,698 4,014 - - - -

Total Digital Media ARR3 ($Millions) - Updated for December 2016 Currency Rates - - - - - - - - 3,987 - 4,252 4,564 -

Adobe Experience Cloud Revenue ($Millions) 311.5 326.6 368.4 352.2 1,358.7 377.3 385.4 404.0 464.7 1,631.4 477.3* 495.4 972.7

LiveCycle and Web Conferencing Revenue ($Millions) 45.7 39.9 34.1 30.5 150.2 28.9 26.8 25.6 23.8 105.1 23.8 21.3 45.1

Americas 644.6 669.2 698.1 776.2 2,788.1 806.5 820.0 851.9 921.7 3,400.1 975.8 1,026.7 2,002.5

EMEA 307.1 323.9 350.1 355.4 1,336.4 385.6 380.6 400.2 452.7 1,619.1 459.1 475.9 935.0

Asia 157.5 169.1 169.6 174.8 671.0 191.2 198.1 211.9 234.0 835.2 246.7 269.6 516.3

Americas 58% 58% 57% 60% 58% 58% 59% 58% 57% 58% 58% 58% 58%

EMEA 28% 28% 29% 27% 28% 28% 27% 27% 28% 28% 27% 27% 27%

Asia 14% 14% 14% 13% 14% 14% 14% 15% 15% 14% 15% 15% 15%

Digital Media 44.3 50.7 56.5 59.0 210.6 54.6 58.2 56.8 61.6 231.1 55.0 58.4 113.4

Digital Marketing 120.4 131.9 132.4 140.6 525.3 141.9 142.0 144.1 153.1 581.1 180.6 179.3 359.9

Print & Publishing 2.1 2.6 2.1 1.8 8.4 2.1 1.9 1.8 1.9 7.7 1.7 1.7 3.4

Total 166.8 185.2 191.0 201.4 744.3 198.6 202.1 202.7 216.6 819.9 237.3 239.4 476.7

Direct Costs 5.0 5.0 4.6 5.0 19.6 5.5 5.3 5.0 5.3 21.1 7.4 8.7 16.1

Research & Development 31.1 29.1 29.0 29.5 118.7 32.8 30.2 30.6 30.9 124.5 38.6 48.0 86.6

Sales & Marketing 32.1 33.0 33.2 30.0 128.3 33.6 33.0 32.2 32.2 131.0 37.7 40.8 78.5

General & Administrative 18.4 18.3 17.6 17.2 71.5 19.8 18.7 18.3 18.2 75.0 19.9 21.1 41.0

Total 86.6 85.4 84.4 81.7 338.1 91.7 87.2 86.1 86.6 351.6 103.6 118.6 222.2

Worldwide Employees 12,698 13,266 13,665 13,893 - 14,154 14,844 15,381 15,706 - 16,637 17,322 -

Days Sales Outstanding - Trade Receivables 44 39 44 47 - 42 43 45 47 - 46 46 -

Diluted Shares Outstanding 507.5 505.6 505.8 506.0 507.2 505.7 504.7 503.7 501.2 504.3 500.9 500.4 501.0

Stock-Based and Deferred

Compensation Expenses

($Millions)

Other Data

Revenue by Segment ($Millions)

Revenue by Segment

(as % of total revenue)

Revenue by Geography

($Millions)

Revenue by Geography

(as % of total revenue)

Digital Media

1 Creative Annualized Recurring Revenue ("ARR") = Annual Value of Creative Cloud Subscriptions and Services + Annual Value of Creative ETLA Contracts + Annual Value of Digital Publishing Suite ("DPS") Contracts

2 In Q3 FY15, Creative ARR and Digital Media ARR were restated for Q4 FY14, Q1 FY15 and Q2 FY15; the adjustment was based on the addition of approximately 40 thousand net new Creative Cloud Subscriptions during that time

3 ARR is forecasted annually at December currency rates, and currency rates are held constant through that fiscal year for measurement purposes; end-of-year actual ARR balances are revalued at new December rates for the next fiscal year

4 Document Cloud Annualized Recurring Revenue ("ARR") = Annual Value of Document Cloud Subscriptions and Services + Annual Value of Acrobat ETLA Contracts

Adobe Systems Investor Relations Data Sheet

Supplementary Cost of Revenue

Data ($Millions)

Supplementary Business Unit

Data

Digital Marketing

* Includes $10M in revenue from Adobe's TubeMogul business recognized on a gross basis in Q1 FY2017

Adobe provides this information as of the modification date above and makes no commitment to update the information subsequently.For a full explanation of this data, you are encouraged to review Adobe's Form 10-K and 10-Q SEC filings.

Income Statement - Reconciliation of GAAP to Non-GAAPLast Updated: June 20, 2017

Description Q1`15 Q2`15 Q3`15 Q4`15 FY2015 Q1`16 Q2`16 Q3`16 Q4`16 FY2016 Q1`17 Q2`17FY2017

YTDRevenue 1,109.2 1,162.2 1,217.8 1,306.4 4,795.5 1,383.3 1,398.7 1,464.0 1,608.4 5,854.4 1,681.6 1,772.2 3,453.8

Cost of revenue 166.8 185.2 191.0 201.4 744.3 198.6 202.1 202.7 216.5 819.9 237.3 239.4 476.7

Gross profit 942.4 977.0 1,026.8 1,105.0 4,051.2 1,184.8 1,196.6 1,261.3 1,391.9 5,034.5 1,444.3 1,532.8 2,977.1

Operating expenses 769.4 783.4 780.8 814.6 3,148.1 877.0 852.4 891.9 919.6 3,540.9 975.3 1,028.7 2,004.1

Operating income 173.0 193.6 246.0 290.4 903.1 307.8 344.2 369.3 472.3 1,493.6 469.0 504.1 973.1

Non-operating income (expense) (9.8) (12.6) (13.4) 6.5 (29.3) (15.5) (14.4) (13.0) (15.6) (58.5) (8.4) (11.5) (19.8)

Income before income taxes 163.2 181.0 232.6 296.9 873.8 292.3 329.8 356.3 456.7 1,435.1 460.6 492.6 953.3

Provision for income taxes 78.4 33.5 58.1 74.2 244.2 38.0 85.7 85.5 57.1 266.3 62.2 118.2 180.4

Net income 84.8 147.5 174.5 222.7 629.6 254.3 244.1 270.8 399.6 1,168.8 398.4 374.4 772.8

Diluted earnings per share 0.17$ 0.29$ 0.34$ 0.44$ 1.24$ 0.50$ 0.48$ 0.54$ 0.80$ 2.32$ 0.80$ 0.75$ 1.54$

Cost of revenueStock-based and deferred compensation (5.0) (5.0) (4.6) (4.9) (19.6) (5.5) (5.3) (5.0) (5.3) (21.1) (7.4) (8.7) (16.1) Amortization of purchased intangibles and

technology license arrangements (19.5) (22.0) (22.8) (19.6) (83.9) (17.9) (13.6) (13.4) (12.6) (57.5) (16.3) (17.2) (33.6)

Total adjustments to cost

of revenue (24.5) (27.0) (27.4) (24.6) (103.5) (23.4) (18.9) (18.4) (17.9) (78.7) (23.7) (26.0) (49.6)

Operating expensesStock-based and deferred compensation (81.6) (80.4) (79.8) (76.8) (318.5) (86.2) (81.9) (81.1) (81.3) (330.4) (96.2) (109.9) (206.1)

Restructuring and other charges (1.8) - 0.8 (0.5) (1.6) 0.4 0.5 0.3 0.3 1.5 - 0.1 0.1

Amortization of purchased intangibles and

technology license arrangements (14.3) (18.1) (18.2) (18.1) (68.6) (18.4) (19.0) (22.7) (18.5) (78.5) (19.1) (19.3) (38.4)

Loss contingency (reversal) - - 10.0 - 10.0 - - - - - - - -

Total adjustments to

operating expenses (97.7) (98.5) (87.3) (95.3) (378.7) (104.2) (100.4) (103.5) (99.5) (407.4) (115.4) (129.1) 244.4

Non-operating income (expense) (1.4) (0.2) 1.3 (22.0) (22.4) 1.2 3.3 (1.5) (1.4) 1.6 (2.6) (1.7) (4.3)

Taxes (18.7) 30.8 15.1 8.7 35.9 50.4 9.3 14.6 63.1 137.4 63.2 17.4 80.6

Revenue 1,109.2 1,162.2 1,217.8 1,306.4 4,795.5 1,383.3 1,398.7 1,464.0 1,608.4 5,854.4 1,681.6 1,772.2 3,453.8

Cost of revenue 142.2 158.2 163.6 176.8 640.8 175.2 183.2 184.3 198.6 741.2 213.7 213.4 427.1

Gross profit 967.0 1,004.0 1,054.2 1,129.6 4,154.7 1,208.1 1,215.5 1,279.7 1,409.8 5,113.2 1,468.0 1,558.8 3,026.8

Operating expenses 671.8 684.9 693.5 719.3 2,769.4 772.8 752.0 788.5 820.1 3,133.5 859.9 899.7 1,759.6

Operating income 295.2 319.1 360.7 410.3 1,385.3 435.3 463.5 491.1 589.7 1,979.7 608.0 659.1 1,267.2

Non-operating income (expense) (11.2) (12.9) (12.1) (15.5) (51.7) (14.3) (11.1) (14.6) (16.9) (56.9) (10.9) (13.2) (24.1)

Income before income taxes 284.0 306.2 348.6 394.8 1,333.6 421.0 452.4 476.6 572.8 1,922.8 597.1 645.9 1,243.1

Provision for income taxes 59.6 64.3 73.2 82.9 280.1 88.4 95.0 100.1 120.2 403.7 125.4 135.6 261.0

Net income 224.4 241.9 275.4 311.9 1,053.5 332.6 357.4 376.5 452.6 1,519.1 471.7 510.3 982.0

Diluted earnings per share 0.44$ 0.48$ 0.54$ 0.62$ 2.08$ 0.66$ 0.71$ 0.75$ 0.90$ 3.01$ 0.94$ 1.02$ 1.96$

Shares Diluted shares outstanding 507.5 505.6 505.8 506.0 507.2 505.7 504.7 503.7 501.2 504.3 500.9 500.4 501.0GAAP diluted earnings per share 0.17 0.29 0.34 0.44 1.24 0.50 0.48 0.54 0.80 2.32 0.80 0.75 1.54

Stock-based and deferred compensation 0.17 0.17 0.17 0.16 0.67 0.18 0.17 0.17 0.17 0.70 0.21 0.24 0.44

Restructuring and other charges - - - - - - - - - - - - -


technology license arrangements 0.07 0.08 0.08 0.07 0.30 0.07 0.06 0.07 0.06 0.27 0.07 0.07 0.14

Non-operating income (expense) - - - (0.04) (0.04) - 0.01 - - - (0.01) - (0.01)

Loss contingency (reversal) - - (0.02) - (0.02) - - - - - - - -

Income tax adjustments 0.03 (0.06) (0.03) (0.01) (0.07) (0.09) (0.01) (0.03) (0.13) (0.28) (0.13) (0.03) (0.15)

Non-GAAP diluted earnings per share 0.44$ 0.48$ 0.54$ 0.62$ 2.08$ 0.66$ 0.71$ 0.75$ 0.90$ 3.01$ 0.94$ 1.02$ 1.96$

GAAP operating margin 15.6% 16.7% 20.2% 22.2% 18.8% 22.2% 24.6% 25.2% 29.4% 25.5% 27.9% 28.4% 28.2%

Stock-based and deferred compensation 7.8% 7.3% 6.9% 6.3% 7.0% 6.6% 6.2% 5.9% 5.4% 6.0% 6.2% 6.7% 6.4%

Restructuring and other charges 0.2% - -0.1% - - - - - - - - - -


technology license arrangements 3.0% 3.5% 3.4% 2.9% 3.3% 2.7% 2.3% 2.4% 1.9% 2.3% 2.1% 2.1% 2.1%

Loss contingency (reversal) - - -0.8% - -0.2% - - - - - - - -

Non-GAAP operating margin 26.6% 27.5% 29.6% 31.4% 28.9% 31.5% 33.1% 33.5% 36.7% 33.8% 36.2% 37.2% 36.7%

Reconciliation of Diluted Earnings Per

Share ($)

Reconciliation of GAAP to Non-GAAP

Operating Margin

GAAP ($Millions, except EPS)

Adjustments to Reconcile to Non-GAAP

($Millions)

Non-GAAP ($Millions, except EPS)

Adobe Systems Investor Relations Data Sheet

The above results are supplied to provide meaningful supplemental information regarding Adobe’s core operating results because such information excludes amounts that are not necessarily related to its core operating results. Adobe uses this non-GAAP financial information in assessing the performance of the Company’s ongoing operations, and for planning and forecasting in future periods. This non-

GAAP information should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

Last Updated: June 20, 2017

Creative

Creative Cloud Creative Cloud Desktop Apps Creative Cloud Mobile Apps

Creative Cloud for individuals Acrobat Pro DC Behance

Creative Cloud for students and teachers After Effects Capture

Creative Cloud for teams Animate (formerly Flash Professional) Comp

Creative Cloud for enterprises Audition Experience Design (Beta)

Creative Cloud for education Bridge Illustrator Draw

Creative Cloud Photography plan Character Animator (Beta) Photo Editor by Aviary

Dreamweaver Photoshop Express

Services Experience Design (Beta) Photoshop Fix

AIR/Flash Player Fireworks CS6 Photoshop Lightroom for mobile

Aviary Fuse (Beta) Photoshop Mix

Behance Illustrator Photoshop Sketch

Creative SDK InCopy Portfolio

Digital Publishing Suite InDesign Prelude Live Logger

Extendscript Toolkit Ink & Slide Premiere Clip

Extension Manager Media Encoder Preview

Flash Builder Muse Scout

Gaming SDK Photoshop Spark Page

PhoneGap Build Photoshop Lightroom Spark Post

Portfolio Prelude Spark Video

Stock Premiere Pro

Story Plus Scout Consumer Products

Talent Speedgrade Photoshop Elements

Typekit Story Plus Premiere Elements

Document Cloud

Acrobat Pro DC Scan Document Cloud Send

Acrobat Standard DC Sign PDF Pack

Reader DC Document Cloud ExportPDF

Adobe Marketing Cloud Adobe Analytics Cloud

Adobe Experience Manager Adobe Target Adobe Analytics

Assets Targeting & Personalization Standard

Communities Search & Merchandising Premium

Forms Mobile App Targeting & Optimization Video

Livefyre Mobile Apps

Mobile Adobe Primetime

Sites PayTV Pass Adobe Audience Manager

TV SDKs (Player, DRM, Packaging) Audience Manager

Adobe Campaign Ad Insertion, Ad Decisioning

Campaign Adobe Advertising Cloud

Adobe Social Adobe Media Optimizer

Social Media Optimizer Search

Media Optimizer DSP (TubeMogul)

Media Optimizer DCO

LiveCycle Web Conferencing

LiveCycle Connect

Authorware eLearning Suite PostScript

Captivate Font Folio Robohelp

ColdFusion FrameMaker Shockwave Player

Contribute JRun Technical Communication Suite

Director PageMaker Type

FY2017 Business Segment Classifications

Products

Digital Media

Digital Marketing

Print & Publishing

Adobe Experience Cloud

Adobe provides this information as of the modification date above and makes no commitment to update the information subsequently. For a full explanation of this data, you are encouraged to review Adobe's Form 10-K and 10-Q SEC filings.

Adobe Financial Targets June 20, 2017

Page 1 of 3

This document summarizes Adobe’s Q3 fiscal year 2017 financial targets and target commentary provided by Adobe, and reconciles GAAP to non-GAAP targets.

Q3 Fiscal Year 2017 Targets

The following third quarter FY2017 targets and target commentary were provided by Adobe on June 20, 2017.

Revenue ~$1.815 billion

Non-operating other expense ~$14 million

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

Earnings per share GAAP: ~$0.72 Non-GAAP: ~$1.00

Share count ~501 million shares

• Expect to achieve approximately $300 million of net new Digital Media ARR • Expect Digital Media segment year-over-year revenue growth of approximately 26% • Expect Adobe Experience Cloud year-over-year revenue growth of approximately 25%

Reconciliation of GAAP to Non-GAAP Financial Targets (In millions, except per share data)

The following tables show Adobe's third quarter fiscal year 2017 financial targets reconciled to non-GAAP financial targets included in this document.

Third Quarter Fiscal 2017

Diluted net income per share: GAAP diluted net income per share ............................................................................................................................... $ 0.72 Stock-based and deferred compensation expense.............................................................................................. 0.24 Amortization of purchased intangibles ........................................................................................................................ 0.08 Income tax adjustments .......................................................................................................................................................... (0.04 ) Non-GAAP diluted net income per share ................................................................................................................... $ 1.00

Shares used to compute diluted net income per share ................................................................................... 501.0

Third Quarter

Fiscal 2017

Effective income tax rate:

GAAP effective income tax rate ......................................................................................................................................... 24.0 %

Stock-based and deferred compensation expense ............................................................................................. (1.5 )

Amortization of purchased intangibles ....................................................................................................................... (0.5 )

Income tax adjustments.......................................................................................................................................................... (1.0 )

Non-GAAP effective income tax rate ............................................................................................................................ 21.0 %


Page 2 of 3




Calculating Annualized Recurring Revenue (“ARR”)

Creative ARR

Annual Value of Creative Cloud Subscriptions and Services +

Annual Digital Publishing Suite Contract Value +

Annual Creative ETLA Contract Value

Document Cloud ARR

Annual Value of Document Cloud Subscriptions and Services

+ Annual Document Cloud ETLA Contract Value

Digital Media ARR Creative ARR

+ Document Cloud ARR

Note: ARR targets and results are adjusted for constant currency based on exchange rates in December each year.


Page 3 of 3


Our financial targets contain forward-looking statements and projections, including those related to revenue, annualized recurring revenue, non-operating other expense, tax rate on a GAAP and non-GAAP basis, earnings per share on a GAAP and non-GAAP basis, and share count, all of which involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to: failure to develop, market and offer products and services that meet customer requirements, introduction of new products, services and business models by competitors, fluctuations in subscription renewal rates, failure to successfully manage transitions to new business models and markets, uncertainty in economic conditions and the financial markets, complex and unpredictable sales cycles for some enterprise offerings, risks associated with cyber-attacks and information security, potential interruptions or delays in hosted services provided by us or third parties, changes in accounting principles, and failure to realize the anticipated benefits of past or future acquisitions.

For a discussion of these and other risks and uncertainties, please refer to Adobe’s Annual Report on Form 10-K for our fiscal year 2016 and Adobe’s Quarterly Reports on Form 10-Q issued in fiscal year 2017. Adobe assumes no obligation to, and does not currently intend to, update these forward-looking statements.

Adobe Financial Targets December 15, 2016

Page 1 of 2

This document summarizes financial targets and target commentary provided by Adobe, and reconciles GAAP to non-GAAP targets.

Fiscal Year 2015 – Fiscal Year 2018 Financial Targets

The following fiscal year FY2015 through FY2018 compound annual growth rate (“CAGR”) and ARR targets were reaffirmed by Adobe on December 15, 2016.

Total Adobe revenue Approximately 20 percent CAGR

Digital Media segment revenue Greater than 20 percent CAGR

Digital Media ARR Greater than 20 percent CAGR

Adobe Marketing Cloud revenue Greater than 20 percent CAGR

Adobe Marketing Cloud bookings Approximately 30 percent CAGR

Non-GAAP earnings per share* Approximately 30 percent CAGR

Operating cash flow Approximately 25 percent CAGR

*As part of its long-term growth targets, Adobe believes it can achieve approximately 30 percent CAGR in non-GAAP diluted net income per share. Although the information to enable Adobe to reconcile and provide GAAP diluted net income per share targets for those years is not available at this time, reconciling items are expected to include, stock-based and deferred compensation expense, amortization of purchased intangibles, investment gains and losses and income tax adjustments.




Adobe Financial Targets December 15, 2016

Page 2 of 2

Calculating Annualized Recurring Revenue (“ARR”)

Creative ARR

Annual Value of Creative Cloud Subscriptions and Services +

Annual Digital Publishing Suite Contract Value +

Annual Creative ETLA Contract Value

Document Cloud ARR

Annual Value of Document Cloud Subscriptions and Services

+ Annual Document Cloud ETLA Contract Value

Digital Media ARR Creative ARR

+ Document Cloud ARR

Note: ARR targets and results are adjusted for constant currency based on exchange rates in December each year.


Our financial targets contain forward-looking statements and projections, including those related to revenue and bookings growth in our Digital Marketing business, growth in recurring revenue, revenue, earnings per share on a GAAP and non-GAAP basis, share count, non-operating other expense, operating cash flow, and tax rate on a GAAP and non-GAAP basis, which involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to: failure to develop, market and offer products and services that meet customer requirements, introduction of new products, services and business models by competitors, failure to successfully manage transitions to new business models and markets, uncertainty in economic conditions and the financial markets, fluctuations in subscription renewal rates, complex and unpredictable sales cycles for some enterprise offerings, risks associated with cyber-attacks and information security, potential interruptions or delays in hosted services provided by us or third parties, changes in accounting principles, and failure to realize the anticipated benefits of past or future acquisitions.

For a discussion of these and other risks and uncertainties, please refer to Adobe’s Annual Report on Form 10-K for our fiscal year 2015 and Adobe’s Quarterly Reports on Form 10-Q issued in fiscal year 2016. Adobe assumes no obligation to, and does not currently intend to, update these forward-looking statements.

Adobe Financial Disclaimer June 22, 2017

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Our actual results could differ materially from our forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed below. These and many other factors described in this report could adversely affect our operations, performance and financial condition.

If we cannot continue to develop, market and offer new products and services or enhancements to existing products and services that meet customer requirements, our operating results could suffer.

The process of developing new technology products and services and enhancing existing offerings is complex, costly and uncertain. If we fail to anticipate customers’ changing needs and emerging technological trends, our market share and results of operations could suffer. We must make long-term investments, develop or obtain appropriate intellectual property and commit significant resources before knowing whether our predictions will accurately reflect customer demand for our products and services. If we are unable to extend our core technologies into new applications and platforms and to anticipate or respond to technological trends, the market’s acceptance of our products and services could decline and our results would suffer. Additionally, any delay in the development, marketing or launch of a new offering or enhancement to an existing offering could result in customer attrition or impede our ability to attract new customers, causing a decline in our revenue, earnings or stock price and weakening our competitive position. Furthermore, third parties market certain of our offerings and support certain product functionality. If we are unsuccessful in establishing or maintaining our strategic relationships with these third parties, our ability to compete in the marketplace, to reach new customers and geographies or to grow our revenue could be impaired and our operating results could suffer.

We offer our products on a variety of hardware platforms. Consumers continue to shift away from personal computers to tablet and mobile devices. If we cannot continue to adapt our products to tablet and mobile devices, our business could be harmed. To the extent that consumer purchases of these devices slow down, or to the extent that significant demand arises for our products or competitive products on other platforms before we offer our products on those platforms, our business could be harmed. Releases of new devices or operating systems may make it more difficult for our products to perform or may require significant costs in order for us to adapt our solutions to such devices or operating systems. These potential costs and delays could harm our business.

Introduction of new products, services and business models by competitors or others could harm our competitive position and results of operations.

The markets for our products and services are characterized by intense competition, evolving industry standards, emerging business and distribution models, disruptive technology developments, short life cycles, customer price sensitivity and frequent new product introductions (including alternatives with limited functionality available at lower costs or free of charge). Any of these factors could create downward pressure on pricing and gross margins and could adversely affect our renewal and upgrade rates, as well as our ability to attract new customers. Our future success will depend on our continued ability to enhance and better integrate our existing products and services, introduce new products and services in a timely and cost-effective manner, meet changing customer needs, extend our core technology into new applications, and anticipate emerging standards, business models, software delivery methods and other technological developments. If any competing products, services or operating systems that are not compatible with our solutions achieve widespread acceptance, our operating results could suffer. In addition, consolidation has occurred among some of the competitors in the markets in which we compete. Further consolidations in these markets may subject us to increased competitive pressures and may therefore harm our results of operations.

The introduction of certain technologies may reduce the effectiveness of our products. For example, some of our products rely on third-party cookies, which are placed on individual browsers when consumers visit websites that contain advertisements. We use these cookies to help our customers more effectively advertise, to gauge the performance of their advertisements, and to detect and prevent fraudulent activity. Consumers can block or delete cookies through their browsers or “ad-blocking” software or applications. The most common Internet browsers allow consumers to modify their browser settings to prevent cookies from being accepted by their browsers, or are set to block third-party cookies by default. Increased use of methods, software or applications that block cookies could harm our business.

For additional information regarding our competition and the risks arising out of the competitive environment in which we operate, see the section entitled “Competition” contained in Item 1 of our Annual Report on Form 10-K for the fiscal year ended December 2, 2016.

We may be unable to predict subscription renewal rates and the impact these rates may have on our future revenue and operating results.

The hosted business model we use in our Adobe Experience Cloud offerings typically involves selling services on a subscription basis pursuant to service agreements that are generally one to three years in length. Our individual Creative Cloud and Document Cloud subscription agreements are generally month-to-month or one year in length, ETLAs for our Digital Media products and services are generally three years in length, and subscription agreements for other products and services may provide for shorter or longer terms. Our customers have no obligation to renew their subscriptions for our services after the expiration of their initial subscription period, and some customers elect not to renew. We cannot provide assurance that our subscriptions will be renewed at the same or higher level of service, for the same number of seats or licenses or for the same duration of time, if at all. Moreover, under certain circumstances, some of our customers have the right to cancel their service agreements prior to the expiration of the terms of their agreements. We cannot provide assurance that we will be able to accurately predict future customer renewal rates. Our customers’ renewal rates may decline or fluctuate as a result of a numbe

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Adobe Investor Presentation - June 2017 · This quarter, we were also included on Forbes’ “Best Large Employers” list and LinkedIn’s Top Global Companies List, and received