Adobe Systems Incorporated (ADBE)

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Adobe Systems (ADBE)

Q3 2012 Earnings Call

September 19, 2012 5:00 pm ET


Mike Saviage - Vice President of Investor Relations

Shantanu Narayen - Chief Executive Officer, President and Director

Mark Garrett - Chief Financial Officer and Executive Vice President


Brent Thill - UBS Investment Bank, Research Division

Jennifer A. Swanson - Morgan Stanley, Research Division

Walter H. Pritchard - Citigroup Inc, Research Division

Chaitanya Yaramada - Robert W. Baird & Co. Incorporated, Research Division

Ross MacMillan - Jefferies & Company, Inc., Research Division

Perry Huang - Goldman Sachs Group Inc., Research Division

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Richard Fetyko - Janney Montgomery Scott LLC, Research Division

Bhavin Shah - Macquarie Research

Robert P. Breza - RBC Capital Markets, LLC, Research Division



Good afternoon. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to the Adobe Third Quarter Fiscal Year 2012 Earnings Conference Call. [Operator Instructions] Mr. Mike Saviage, Vice President of Investor Relations, you may begin.

Mike Saviage

Good afternoon, and thank you for joining us today. Joining me on the call are Adobe's President and CEO, Shantanu Narayen, as well as Mark Garrett, Executive Vice President and CFO.

In the call today, we will discuss Adobe's third quarter fiscal year 2012 financial results. By now you should have a copy of our earnings press release, which crossed the wire approximately 1 hour ago. If you need a copy of the press release, you can go to under the Company and Newsroom links to find an electronic copy.

Before we get started, I want to emphasize that some of the information discussed on this call, particularly our revenue, subscription and operating model targets and our forward-looking product plans, is based on information as of today, September 19, 2012, 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 2 is available in today's earnings release and on our Investor Relations website in the investor data sheet.

Call participants are advised that the audio of this conference call is being broadcast live over the Internet in Adobe Connect and is also being recorded for playback purposes. An archive of the call will be made available on Adobe's Investor Relations website for approximately 45 days and is the property of Adobe. The audio and archive may not be rerecorded or otherwise reproduced or distributed without prior written permission from Adobe.

I will now turn the call over to Shantanu.

Shantanu Narayen

Thanks, Mike, and good afternoon. At Adobe, we're focusing on 2 large market opportunities: digital media and digital marketing. Our results in Q3 demonstrate both our market leadership and momentum in these businesses. In our digital media business, we're transforming the way people create, publish and monetize their content across devices, and our pace of innovation has never been faster. The global Creative Cloud launch in May broke new ground. Through attractive subscription pricing, new cloud services and frequent product and feature enhancements, Adobe is changing how we deliver value to a broader set of customers.

Response to Creative Cloud has exceeded our expectations. After only 4 months since its introduction, we have approximately 200,000 paid Creative Cloud subscriptions. In addition to paid subscriptions, we offer an on-ramp to Creative Cloud through free memberships. We now have over 300,000 free members, and they represent a significant funnel for driving future paid subscribers.

We expect adoption to accelerate as we deliver constant innovation exclusively to Creative Cloud members. Since we've launched Creative Cloud, we've enhanced the offering to include Lightroom and Digital Publishing Suite, Single Edition and added new features to products like Illustrator. Coming soon are enhancements to Photoshop and Dreamweaver.

Next Monday, we're hosting a Create the Web event in San Francisco that will showcase our latest innovations around HTML5 products, which will also be included in Creative Cloud.

Our success thus far has been through Creative Cloud for individual users. Over the next few months, we will introduce new offerings for teams and enterprises which significantly expand the market opportunity for Creative Cloud. In November, we will launch Creative Cloud for teams, which will enhance collaboration and simplify the setup, management and administration for creative workgroups. Next year, we will deliver an enterprise version of Creative Cloud targeted at companies who wish to deploy and provision Creative Cloud across large organizations with a scale similar to the enterprise license agreements we have for Creative Suite today. Creative Cloud for enterprises will integrate with our Digital Publishing Suite and the Adobe marketing cloud offerings provided through our Digital Marketing Suite. Creative Cloud for teams and enterprises will be made available through our channel partners as well as directly from Adobe.

Today, we added Adobe Digital Publishing Suite, Single Edition, a service for individuals using Creative Cloud. At the enterprise level, we continue to drive strong adoption of Digital Publishing Suite. Nearly 1,100 customers are now using DPS worldwide to reach their readers with digital editions, up from 850 last quarter. These customers are now distributing 125,000 digital editions on average every day to iPads and other devices with over 40 million delivered to date. This quarter, we added Time Inc., which has signed an agreement to move its magazines over to Adobe DPS.

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