ADBE
#Sure, <UNK>.
Clearly, from our perspective, the Business is performing exceptionally well.
We had a great Q1 across all the key metrics, and to your point, we provided we think are strong Q2 targets.
If you remember back, we guided FY17, the first time at Analyst Day back in November of last year.
We've updated it again in December with Q4 earnings.
We updated it once more in January for TubeMogul.
We just don't want to get in a habit of updating annual guidance so frequently.
We're very happy with the first quarter.
We're very pleased with what we were able to do from a guidance perspective on Q2.
Clearly, we've got momentum.
We just don't want to get in the habit of updating annual guidance that frequently.
Our salary increases kick in for the Company, and that has an effect on Q2 from a cost perspective.
You'll see that every year.
We'll continue to hire and invest in the Company.
Again, we feel great about our performance in Q1, and our ability to drive leverage in the model going forward.
Yes, let me take the second one first which is, you'll get an update as well at Summit.
So we're hoping a lot of you will be at Summit.
I think you'll be pleased with how quickly we've been able to integrate the products.
From my point of view, the benefit from the Microsoft relationship is really customer-driven.
Customers are asking for integration with Azure, Power BI, as well as Dynamics.
I think the team has done a great job.
But next week, we will give you a little bit of an update on that.
On the first question as it relates to the competitive, I think we've talked about ---+ this is a $40 billion TAM.
Clearly, there are other players that you are alluding to that are also seeing this as a market opportunity.
And so ---+ but our track record and our winning percentage record in the areas that we're strong continues to be excellent.
I think we have a differentiated solution, and I think our vision, the way we want to take this and how we want to continue to expand it, I think it still makes us a unique leader.
But certainly, there are other players in this market as well, <UNK>.
The single biggest thing probably worth mentioning, <UNK>, is you're exactly right.
If you look at Digital <UNK>eting this quarter, that $10 million of gross revenue recognition would flow right into COGS so you would have $10 million of revenue and $10 million of COGS.
If you back that $10 million of COGS out of Digital <UNK>eting, the gross profit would be exactly the same as last quarter.
There's really no change to Digital <UNK>eting cost of service.
It's been pretty consistent.
And you're exactly right, it was really driven by 2014.
On the Digital Media side, I think what you saw this quarter is some of the upside that you see in our revenue relative to our guidance was from a bit more perpetual product, especially on the Acrobat side.
And that comes, as you know, with very, very, high gross margins.
That's why you would have seen Digital Media gross margin better this quarter.
Services, I can't remember what your question was.
It was back to Q ---+
The revenue is down sequentially mainly because in Q4, it's a very difficult time for the teams to deliver services with holidays and year-end.
So, typically, Q1 revenue is going to be a little bit lighter on the services side.
The cost of services doesn't change that much so that's why you see a little bit less on the gross margin side.
Yes, this is <UNK>.
We did push out some price increases around the world in various markets because of FX to stay FX-neutral, if you will.
The good news there is we really did not see an impact to ARR.
So that does give us confidence down the road, we are able to tweak pricing a bit.
We're not taking advantage of that yet other than FX but that was a very good sign.
With the week, I would have to get back to you.
The TubeMogul growth, you just take out $10 million, and instead of $26 million, it would have been $24 million.
But I don't have the week broken out between the different businesses.
It's about $75 million, we said, a year ago.
But we didn't split it between the businesses, I don't think it's (multiple speakers) very material for Digital <UNK>eting, to be honest with you.
It's more material on the media side, that extra week.
Because you think about it as recognizing revenue from subscribers.
It doesn't change that much from an enterprise perspective.
The way that I would answer that is strategically, as we look at that business, there are three things that we think we continue to have to execute on to ensure that we capitalize on the opportunity we've talked about.
The first is integration within the products.
I think you've seen us make some good integration with products like Photoshop.
The ability for people to contribute and to acquire assets is built into the product.
That's one area that we are continuing to make sure we invest.
The second one that tends to be a win, which you compete effectively is the inventory.
So I think having the inventory and having the inventory across different kinds of assets, including premium and including partnerships with some of the people that you are talking about.
That also helps us ensure that we are competitively either ahead of the market, or at least in line with the market.
And the third one that we think about when we think about stock is, how good is our technology to find the right asset based on the intelligence that we can provide.
And that's where I think we will demonstrate superior advantage to anything else that's out there, because our ability to understand these assets and, irrespective of what keyword is being used to search for a particular asset, we turn to the right, in other words, search relevance and search is going to be a key part of it.
I think in all three of those, we're continuing to make great progress.
I think at MAX, we showed you a lot of really cool ways in which we will make that more relevant.
It's an area we will continue to invest in, so we feel good about it there.
You're absolutely right.
The good news is we're absolutely mission critical to our customers, so the level of engagement that we have with these enterprises is at multiple levels all the way from the C-Suite to all of our products.
I would say, actually, on the field side and on the partner side, we [are everywhere] we think we have a world-class organization that does that.
Because it's not just what you do internally.
It's ensuring the thousand partners that I talked who are also partners with the companies that we're working with are evangelizing and promoting our products, and are educated on our products.
I actually feel good about all of those.
In some cases, you have those deals, the larger the size, the time taken can increase.
But that's why we want to build a healthy pipeline and continue to execute against that.
Feel very good about it and that is, without a doubt, one of the areas where we've invested in over the last few years.
Sure.
There's no difference on the cost side than what you've seen in prior years.
As I just mentioned a few minutes ago on the revenue side in Q1, we did have a little bit of the upside coming from some increased perpetual revenue on the Acrobat side of the business, on the Toolbar distribution deal.
And that revenue upside can typically drop down to the bottom-line pretty readily.
So, that's where you saw a bit more margin than we had guided to in the first quarter.
Expense-wise, there's no real change to our trajectory and there hasn't been for quite some time.
In terms of long-term margins, the best I can do for you right now is two things.
One, we're very focused on margin.
You see that in any given quarter.
You see that when we over-achieve on revenue, like we did in Q1.
We gave a three-year model a little while back that shows what margins could like those look through at least 2018.
And if you looked at that model and looked at it back when we gave it to you, you would see margins up above 35%.
Beyond that, we'll see.
Operator, we will take two more questions, please.
We actually feel really good about all of the technology that we have.
We're always on the lookout for small innovative companies.
I think both <UNK> and I have always talked about we look for is it bringing us strategic advantage.
What is the culture of the companies that we are looking at because we are very, very thoughtful about making sure that we continue to expand on the vision of what people want.
And the third is financially, whether it makes sense.
I ---+ we've done some when they make sense.
But, we feel really good about the core value that we have and we continue to be on the lookout for things that meet our criteria in all of those.
Namely, continuing to expand strategically what we can do, ensuring that the culture fit is right and financially making sense.
From our point of view, as we are going more and more to these large enterprises with solutions across the Creative Cloud, Document Cloud, and the <UNK>eting Cloud, we have a quarterback model and the account model with this quarterback is that they are clearly bringing to bear opportunities like the ones that you are talking about.
If you are in there primarily with <UNK>eting Cloud ensuring that we sell more solutions, sell stock, sell Sign, and continue to drive the CC ETLAs, so I think the model that we have in the field is really one of, how do we comprehensively to these larger accounts, ensure that they are getting the benefit of the breadth of our solutions.
And to your point, in CC, when we think about the CC enterprise opportunity, and the conversations that we are having with those customers, we are very much moving them from custom to complete.
And we are moving them from complete to complete plus services.
And the services that is top of mind for us is Stock.
So it's a good question and it's clearly one of the areas that we're focused on.
Since that was the last question, I think, in summary, we were really pleased with the strong start to Q1.
It was an outstanding quarter.
I think the Q2 targets that we gave reflect the continued momentum in the business.
In addition to the great quarterly performance, we are really excited about the long-term opportunities that we've outlined, namely, the ability to empower people to create the things they want to create, and to enable businesses to transform themselves.
And I think we're ---+ we continue to be unique in that we are one of the only companies that's delivering great top-line growth and bottom-line earnings.
We're looking forward to next week's Adobe Summit.
It's our largest ever.
We really hope you'll join us to hear about our vision for the future and demonstrate both product and partner progress against that vision.
Thank you for joining us today.
This concludes our call.
Thanks everyone.
