Adobe Systems Earnings Call Nuggets: Creative and Marketing Clouds

Adobe Systems (NASDAQ:ADBE) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Creative Cloud

Brad Zelnick – Macquarie: Shantanu, in your prepared remarks, you talked about evaluating options to accommodate customers that are resisting the move to Creative Cloud. What types of solutions are you considering and does this in any way impact your confidence in achieving your sub-goals for the full-year?

Shantanu Narayen – President and CEO: So Brad, fundamentally, when we see the results that we’ve had, it’s clear to us that our strategy is spot on and actually our execution has been pretty outstanding. As you realize, with any major change like this, we’re looking for tweaks that would lead do a better customer and business outcome. We don’t have any that we’ve identified today, but we are pretty confident of all of the results and the metrics that we’ve identified at the beginning of the year. So, we continue to be very positive about the opportunity.

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Brad Zelnick – Macquarie: If I could ask one to Mark. Mark, on Creative Cloud ARPU, you mentioned promotional pricing would pressure ARPU in the short-term, but drive value longer-term. What was ARPU in the quarter and where do you see it going?

Mark Garrett – EVP and CFO: So we gave you guys in ARPU number, Brad, back in Q3. It’s been kind of in that ballpark, frankly, ever since we gave you that number. We are very focused, as Shantanu said, on driving subscribers, and we’ve said I think consistently that ARPU is going to move around a bit as we have things like promotion and mix change depending on what products people buy. But in the end, we’re driving ARR and any of these moves we make we expect would be accretive to ARR.

Brad Zelnick – Macquarie: It’s fair to say it’s around 37, is there any lower limit that you would manage to or you’re just looking to maximize ARR?

Mark Garrett – EVP and CFO: Right now, we’re looking to maximize ARR. But it’s been in that ballpark like I said since the beginning.

Marketing Cloud

Peter Goldmacher – Cowen and Co: I just wanted to try and understand the discrepancy between the reported numbers for Marketing Cloud and the bookings number. We have about 17% growth for Marketing Cloud and the bookings number is about 25%. Are you guys able to invoice for longer durations now? Is that what’s primarily driving the growth? If there is a change in invoice duration, if we normalize for that invoice duration, what would that growth rate be?

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Shantanu Narayen – President and CEO: So Peter, specifically what is happening in one of our solutions, which is the Adobe Web Experience Manager solution is that we have a new offering that we’re now providing, which is a managed services offering. So think about it, as people are actually now outsourcing their web infrastructure to us and the duration of this rather than being a upfront license is actually a term-based offering. The benefits to us are quite significant for this, Peter. We now are hosting the infrastructure for a number of the best brands in the world. Our ability to upsell them to other solutions has never been higher namely the Adobe Target solution or the Adobe Social solution. But the way we invoice this right now rather than it be upfront it’s over a multi-year period and it is a term period. So, I think Mark also alluded in his prepared remarks too, if we had recognized all of those bookings that we had got in the quarter, yes, the reported revenue would have been greater than 20%. So that business continues to perform exceedingly well, and actually, I think, it’s a healthier state of the business long-term for our long-term shareholders.

Peter Goldmacher – Cowen and Co: So, if we – when we get to the point where we’re anniversarying normalized contracts for that business and your other subscription businesses, what would that normalize growth rate be? Would it be closer high-teens, lower-20s?

Mark Garrett – EVP and CFO: Peter, it’s Mark. I think we’d still be in the 20% ballpark. That’s what we would target.

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