Adobe Investor Presentation · momentum, our addressable market, revenue, annualized recurring revenue, non-operating other expense, tax rate on a GAAP and non-GAAP basis, earnings

Adobe Investor Presentation March, 2018

•AdobeRemix

Lauro Samblas

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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 Creative ARR Exceeds $5 Billion in Q1 FY2018 SAN JOSE, Calif. — March 15, 2018 — Adobe (Nasdaq:ADBE) today reported strong financial results for its first quarter fiscal year 2018 ended March 2, 2018.

Financial Highlights

• Adobe achieved record quarterly revenue of $2.08 billion in its first quarter of fiscal year 2018, which represents 24 percent year-over-year revenue growth.

• Diluted earnings per share was $1.17 on a GAAP-basis, and $1.55 on a non-GAAP basis.

• Digital Media segment revenue was $1.46 billion, with Creative revenue growing to $1.23 billion and Document Cloud achieving revenue of $231 million.

• Digital Media Annualized Recurring Revenue (“ARR”) grew to $5.72 billion exiting the quarter, a quarter-over-quarter increase of $336 million. Creative ARR grew to $5.07 billion, and Document Cloud ARR grew to $647 million.

• Digital Experience segment revenue was $554 million, which represents 16 percent year-over-year growth.

• Operating income grew 50 percent and net income grew 46 percent year-over-year on a GAAP-basis; operating income grew 43 percent and net income grew 64 percent year-over-year on a non-GAAP basis.

• Cash flow from operations was $990 million, and deferred revenue grew 25 percent year-over-year to approximately $2.57 billion.

• Adobe repurchased approximately 1.6 million shares during the quarter, returning $301 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

“Adobe’s outstanding growth is driven by enabling our customers to be more creative, work smarter and transform their businesses

through our relentless focus on delivering innovation and intelligence across our solutions,” said Shantanu Narayen, president and

CEO, Adobe.

“Our leadership in the large addressable markets we created, combined with Adobe’s leveraged operating model, contributed to

another record quarter in Q1," said Mark Garrett, executive vice president and CFO, Adobe.

of 7 ADOBE ACHIEVES RECORD REVENUE

Adobe to Webcast Earnings Conference Call

Adobe will webcast its first quarter fiscal year 2018 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 customer success, product innovation, business momentum, our addressable market, 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, acquire, market and offer products and services that meet customer requirements, failure to compete effectively, introduction of new technology, complex sales cycles, risks related to the timing of revenue recognition from our subscription offerings, fluctuations in subscription renewal rates, potential interruptions or delays in hosted services provided by us or third parties, risks associated with cyber-attacks, information security and privacy, failure to realize the anticipated benefits of past or future acquisitions, changes in accounting principles and tax regulations, uncertainty in the financial markets and economic conditions in the countries where we operate, and other various risks associated with being a multinational corporation. 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 2017 ended Dec. 1, 2017, and Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2018.

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 March 2, 2018, which Adobe expects to file in March 2018.

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

About Adobe

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

###

© 2018 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.


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

March 2,

2018 March 3,

2017

Revenue: Subscription ......................................................................................................................................................................................................................... $ 1,793,358 $ 1,383,856

Product .................................................................................................................................................................................................................................... 171,608 183,385

Services and support .................................................................................................................................................................................................... 113,981 114,405

Total revenue ..................................................................................................................................................................................................................... 2,078,947 1,681,646

Cost of revenue:

Subscription ......................................................................................................................................................................................................................... 164,685 141,181

Product .................................................................................................................................................................................................................................... 12,877 14,333

Services and support .................................................................................................................................................................................................... 81,340 81,823

Total cost of revenue ................................................................................................................................................................................................... 258,902 237,337

Gross profit ........................................................................................................................................................................................................................... 1,820,045 1,444,309

Operating expenses:

Research and development ................................................................................................................................................................................... 348,769 285,077

Sales and marketing ..................................................................................................................................................................................................... 580,957 520,297

General and administrative .................................................................................................................................................................................... 170,440 150,808

Amortization of purchased intangibles ........................................................................................................................................................ 17,146 19,128

Total operating expenses......................................................................................................................................................................................... 1,117,312 975,310

Operating income........................................................................................................................................................................................................... 702,733 468,999

Non-operating income (expense):

Interest and other income (expense), net .................................................................................................................................................. 16,672 7,206

Interest expense ............................................................................................................................................................................................................... (19,899 ) (18,130 )

Investment gains (losses), net .............................................................................................................................................................................. 2,996 2,557

Total non-operating income (expense), net ............................................................................................................................................ (231 ) (8,367 )

Income before income taxes ................................................................................................................................................................................. 702,502 460,632 Provision for income taxes ...................................................................................................................................................................................... 119,426 62,186

Net income ........................................................................................................................................................................................................................... $ 583,076 $ 398,446

Basic net income per share .................................................................................................................................................................................... $ 1.18 $ 0.81

Shares used to compute basic net income per share....................................................................................................................... 492,061 494,612

Diluted net income per share ............................................................................................................................................................................... $ 1.17 $ 0.80

Shares used to compute diluted net income per share.................................................................................................................. 499,433 500,861


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

March 2,

2018 December 1,

2017 ASSETS

Current assets: Cash and cash equivalents ...................................................................................................................................................................................... $ 2,666,981 $ 2,306,072

Short-term investments............................................................................................................................................................................................. 3,480,989 3,513,702

Trade receivables, net of allowances for doubtful accounts of $9,284 and $9,151, respectively ................... 1,062,690 1,217,968

Prepaid expenses and other current assets .............................................................................................................................................. 270,154 210,071

Total current assets ....................................................................................................................................................................................................... 7,480,814 7,247,813

Property and equipment, net................................................................................................................................................................................ 991,674 936,976

Goodwill ................................................................................................................................................................................................................................. 5,843,899 5,821,561

Purchased and other intangibles, net ............................................................................................................................................................ 353,740 385,658

Deferred income taxes................................................................................................................................................................................................ 149,710 —

Other assets ......................................................................................................................................................................................................................... 153,648 143,548

Total assets .......................................................................................................................................................................................................................... $ 14,973,485 $ 14,535,556

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities: Trade payables .................................................................................................................................................................................................................. $ 131,090 $ 113,538

Accrued expenses ........................................................................................................................................................................................................... 911,044 993,773

Income taxes payable ................................................................................................................................................................................................. 10,591 14,196

Deferred revenue ............................................................................................................................................................................................................ 2,483,744 2,405,950

Total current liabilities ................................................................................................................................................................................................ 3,536,469 3,527,457

Long-term liabilities:

Debt ............................................................................................................................................................................................................................................ 1,874,794 1,881,421

Deferred revenue ............................................................................................................................................................................................................ 88,460 88,592

Income taxes payable ................................................................................................................................................................................................. 690,468 173,088

Deferred income taxes ............................................................................................................................................................................................... — 279,941

Other liabilities .................................................................................................................................................................................................................. 149,266 125,188

Total liabilities ................................................................................................................................................................................................................... 6,339,457 6,075,687

Stockholders’ equity:

Preferred stock, $0.0001 par value; 2,000 shares authorized ..................................................................................................... — —

Common stock, $0.0001 par value ................................................................................................................................................................... 61 61

Additional paid-in-capital ........................................................................................................................................................................................ 5,208,588 5,082,195

Retained earnings........................................................................................................................................................................................................... 9,830,399 9,573,870

Accumulated other comprehensive income (loss) ............................................................................................................................ (109,939 ) (111,821 )

Treasury stock, at cost (107,954 and 109,572, respectively), net of reissuances........................................................... (6,295,081 ) (6,084,436 )

Total stockholders’ equity ....................................................................................................................................................................................... 8,634,028 8,459,869

Total liabilities and stockholders’ equity ..................................................................................................................................................... $ 14,973,485 $ 14,535,556


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

Three Months Ended

March 2,

2018

March 3, 2017

Cash flows from operating activities: Net income ........................................................................................................................................................................................................................... $ 583,076 $ 398,446 Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, amortization and accretion.................................................................................................................................................. 76,522 80,809

Stock-based compensation expense .............................................................................................................................................................. 130,488 98,310

Unrealized investment (gains) losses, net.................................................................................................................................................. (929 ) (1,021 )

Changes in deferred revenue................................................................................................................................................................................ 77,662 40,832

Changes in other operating assets and liabilities ................................................................................................................................. 122,782 112,994

Net cash provided by operating activities.................................................................................................................................................. 989,601 730,370

Cash flows from investing activities:

Purchases, sales and maturities of short-term investments, net ............................................................................................. 7,894 169,320

Purchases of property and equipment ......................................................................................................................................................... (95,142 ) (30,903 )

Purchases and sales of long-term investments, intangibles and other assets, net .................................................. (6,514 ) (17,673 )

Acquisitions, net of cash ............................................................................................................................................................................................ — (459,626 )

Net cash used for investing activities ............................................................................................................................................................. (93,762 ) (338,882 )

Cash flows from financing activities:

Purchases of treasury stock .................................................................................................................................................................................... (300,000 ) (200,000 ) Taxes paid related to net share settlement of equity awards, net of proceeds from treasury stock reissuances ........................................................................................................................................................................................................................... (240,969 ) (131,227 )

Repayment of capital lease obligations ....................................................................................................................................................... (304 ) (268 )

Net cash used for financing activities ............................................................................................................................................................ (541,273 ) (331,495 )

Effect of exchange rate changes on cash and cash equivalents .............................................................................................. 6,343 (2,412 )

Net increase in cash and cash equivalents ................................................................................................................................................ 360,909 57,581

Cash and cash equivalents at beginning of period ............................................................................................................................. 2,306,072 1,011,315

Cash and cash equivalents at end of period ............................................................................................................................................. $ 2,666,981 $ 1,068,896


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

March 2,

2018 March 3,

2017 December 1,

2017

Operating income: GAAP operating income ................................................................................................................................................................ $ 702,733 $ 468,999 $ 649,340

Stock-based and deferred compensation expense ................................................................................................. 136,414 103,578 122,180

Restructuring and other charges ............................................................................................................................................. — — (359 )

Amortization of purchased intangibles.............................................................................................................................. 31,704 35,464 34,817

Non-GAAP operating income .................................................................................................................................................... $ 870,851 $ 608,041 $ 805,978

Net income:

GAAP net income ................................................................................................................................................................................ $ 583,076 $ 398,446 $ 501,549

Stock-based and deferred compensation expense ................................................................................................. 136,414 103,578 122,180

Restructuring and other charges ............................................................................................................................................. — — (359 )

Amortization of purchased intangibles.............................................................................................................................. 31,704 35,464 34,817

Investment (gains) losses, net ................................................................................................................................................... (2,996 ) (2,557 ) (2,292 )

Income tax adjustments* .............................................................................................................................................................. 23,987 (63,209 ) (25,982 )

Non-GAAP net income .................................................................................................................................................................... $ 772,185 $ 471,722 $ 629,913

Diluted net income per share:

GAAP diluted net income per share..................................................................................................................................... $ 1.17 $ 0.80 $ 1.00

Stock-based and deferred compensation expense ................................................................................................. 0.27 0.21 0.24

Amortization of purchased intangibles.............................................................................................................................. 0.06 0.07 0.07

Investment (gains) losses, net ................................................................................................................................................... — (0.01 ) —

Income tax adjustments* .............................................................................................................................................................. 0.05 (0.13 ) (0.05 )

Non-GAAP diluted net income per share ........................................................................................................................ $ 1.55 $ 0.94 $ 1.26

Shares used in computing diluted net income per share .................................................................................. 499,433 500,861

500,060

_________________________________________

* During the first quarter of fiscal 2018, the $24 million GAAP to non-GAAP income tax adjustment includes a provisional tax charge relating to the enactment of the Tax Cuts and Jobs Act that was excluded from non-GAAP earnings. The Company has recorded a provisional tax expense of $118 million, which is comprised of $86 million for fiscal year 2018 plus other ancillary effects recorded in the first fiscal quarter, related to the U.S. mandatory one-time transition tax on accumulated non-U.S. earnings. The company also recorded $10 million related to the remeasurement of

deferred taxes. The amounts are provisional based on the Securities and Exchange Commission Staff Accounting Bulletin No. 118. The remaining $104 million was related to other tax matters that are included in the annual non-GAAP tax rate.


Non-GAAP Results (continued)

Three Months

Ended

March 2,

2018 Effective income tax rate: GAAP effective income tax rate .................................................................................................................................................................................................................................. 17.0 % Resolution of income tax examinations .............................................................................................................................................................................................................. 2.0 Income tax adjustments ................................................................................................................................................................................................................................................... 9.0 Impacts of the Tax Act ........................................................................................................................................................................................................................................................ (17.0 ) Non-GAAP effective income tax rate** ................................................................................................................................................................................................................ 11.0 %

_________________________________________

** The GAAP effective income tax rate of 17% 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.

Adobe Q1 FY2018 Earnings Call Script March 15, 2018

Page 1 of 14

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 first quarter fiscal year 2018 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 14

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, March 15th, 2018, 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 14

SHANTANU NARAYEN

Thanks, Mike and good afternoon.

FY2018 is off to a strong start for Adobe as we continue to successfully execute against our strategy. In Q1

we delivered record revenue of $2.08 billion dollars, which represents 24% year-over-year growth. GAAP

earnings per share in Q1 was $1.17, and non-GAAP earnings per share was $1.55.

Our strategy to empower people to create and transform how businesses compete is working. Our

relentless focus on delivering innovation to our customers is continuing to drive our outstanding

performance.

Across the globe, individuals and companies now recognize that great experiences have become the

basis of differentiation in an increasingly competitive and complex world. With the world’s best digital

media and digital experience cloud-based solutions, Adobe has become the go-to company for helping

customers develop and deliver transformative digital experiences.


Page 4 of 14

In our Digital Media business, we achieved strong growth in both Creative revenue and Document Cloud

revenue for Q1, achieving net new Annualized Recurring Revenue, or “ARR” growth of $336 million. We

exited Q1 with Creative ARR of $5.07 billion, marking the first time Creative ARR has surpassed $5 billion.

Across our individual, team and enterprise offerings, we continue to acquire new subscribers through

Creative Cloud single app and all app offerings. We focus on retention by driving customer engagement

through products, services and community. In addition to strength in our major geographies, emerging

markets such as Korea, China and Southeast Asia are beginning to contribute to subscriber growth.

Creative Cloud remains the gold standard for creativity and design. We deliver ongoing value to our

subscribers through major feature enhancements in our existing flagship applications across desktop

and mobile devices. In addition, we are attracting a broader set of consumers and creative professionals

through innovative new applications like Adobe Character Animator, Spark, Lightroom CC, Dimension

and XD.

Adobe XD is an innovative new app for designing experiences across multiple screens. In addition to

graphic, mobile and website designers, product managers are adopting this all-in-one solution that

combines design, prototyping and collaboration capabilities. We recently delivered workflow

enhancements, tighter integration with Photoshop and deeper support for new modalities such as pen

and touch. Major companies including Wipro have standardized on XD as their core design product.

Video continues to be an explosive category, and our editing and production products including Adobe

Premiere Pro and After Effects, continue to gain momentum among large production houses as well as

independent film makers. More than half of the films at the recent Sundance Film Festival were edited


Page 5 of 14

with Premiere Pro, as were the majority of virtual reality projects.

Adobe Spark makes it easy for everyday communicators to transform their ideas into beautiful visual

stories that make an impact with graphics, videos and web pages. Starting next month, Adobe Spark

Premium will be accessible to every student globally, and we’re already beginning to see strong

adoption across school districts in areas like Anaheim in California, Roanoke in Virginia, Burnsville in

Minnesota and Deer Park in Texas.

In addition to the world’s best desktop and mobile tools, we continue to focus on community and

services to provide inspiration and accelerate the creative process. Adobe Stock now has a library of

more than 80 million images, videos and creative assets. Last month we announced a partnership with

the Pantone Color Institute to curate a collection of Adobe Stock Premium images inspired by the top

colors in fashion, as well as a gallery of Adobe Stock images that captures the essence of Pantone’s

always highly-anticipated “Color of the Year.” It’s Pantone:18-3838 Ultra Violet, for those of you who are

curious. Adobe Stock achieved record revenue in the quarter, with greater than 20% year-over-year

growth.

Adobe Document Cloud is the world’s leading digital document service, enabling individuals and

businesses to automate inefficient paper-based processes. Acrobat performance across Creative Cloud

and Document Cloud was particularly strong in Q1. Document Cloud subscriptions and Acrobat

perpetual licensing drove 18% year-over-year revenue growth, and $33 million in net new ARR.


Page 6 of 14

As worldwide PDF adoption continues, we are focused on delivering new services including Adobe Scan

and Adobe Sign. Adobe Scan, our mobile PDF application that leverages Adobe Sensei to capture and

create intelligent PDFs, has been downloaded more than 7 million times. Adobe Sign is now the

preferred e-signature solution in Office 365, and we closed our first set of joint customers in the quarter.

Digital transformation and the ability to deliver immersive, intelligent and impactful customer

experiences is a strategic imperative for businesses and governments worldwide. To drive customer

engagement and growth, you need to be an experience business and the Adobe Experience Cloud is the

industry’s most complete and integrated offering.

We achieved Experience Cloud revenue of $554 million in Q1, and strong bookings across Adobe

Marketing Cloud, Adobe Analytics Cloud and Adobe Advertising Cloud. Key customer deals included

Braun, City National Bank, Expedia, Ford, the NFL, Rakuten, Samsung and T. Rowe Price.

In Q1, Adobe was once again recognized as a leader by industry analyst firms, achieving top scores

among evaluated vendors in “The Forrester Wave: Enterprise Marketing Software Suites” and “The

Forrester Wave: Cross Channel Campaign Management” reports. Adobe was positioned as a “Major

Player” in IDC’s “Marketscape Worldwide AI in Enterprise Marketing Clouds Vendor Assessment”, with

Adobe Sensei ranking highest in capabilities. In the competitive category of Digital Experiences, Adobe

was recognized as a leader in the “Gartner Magic Quadrant for Digital Experience Platforms.”


Page 7 of 14

We are in a world where businesses are challenged to reach, engage and influence their customers

across multiple digital touch points and new interfaces including voice, augmented reality and virtual

reality. Our goal is to be a mission-critical partner to governments and enterprises as they undergo this

essential digital transformation. Our success is a result of our comprehensive offering, our deep

investment in technology and a rich ecosystem of partners.

In two weeks we will be hosting Summit, our annual digital experience conference that brings together

the world’s biggest brands, agencies, consulting firms and media companies. Leaders from Coca-Cola,

the NFL, Mercedes Benz, Tourism Australia, Marriott and more will share how they’re tackling digital

transformation and capitalizing on new opportunities in the experience era. We plan to unveil a

spectrum of new Experience Cloud capabilities, including new Sensei-powered features that will use new

algorithms to simplify complex tasks.

We’ve long recognized that our Experience Cloud customers need more than just innovative products –

they need a partner, who can help them navigate the many challenges involved in digital

transformation. Adobe has always prided itself on being that trusted partner, and at Summit we will

introduce a broad spectrum of programs that champion and enable our customers.

We have made great strides in delivering new magic through Adobe Sensei, our artificial intelligence and

machine learning framework across Creative Cloud, Document Cloud and Experience Cloud. Last month

we were recognized by Fast Company as one of the Most Innovative Companies in Artificial Intelligence.


Page 8 of 14

We are keenly aware that our continued growth as a company is made possible by an innovative and

exceptional team of employees around the world.

We were recently recognized by FORTUNE as one of the World’s Most Admired Software Companies.

FORTUNE also named Adobe one of its 100 Best Companies To Work For, the 18th year we’ve been

honored with that designation.

Adobe continues to have the right strategy, products and people in place to drive future growth. And

we’re fortunate to go to market with the industry’s best partners and serve the world’s most innovative

customers – across all industries and geographies. 2018 is off to an outstanding start and we look

forward to building on this momentum.

Mark.


Page 9 of 14

MARK GARRETT

Thanks, Shantanu.

In the first quarter of FY18, Adobe’s momentum continued with record revenue of $2.08 billion, which

represents 24% year-over-year growth. GAAP diluted earnings per share in Q1 was $1.17 and non-GAAP

diluted earnings per share was $1.55. We drove strong performance across our product offerings and

geographies during the quarter.

Highlights in Q1 included:

• Record Digital Media revenue, including Creative revenue of $1.23 billion and Adobe Document

Cloud revenue of $231 million;

• Record Adobe Experience Cloud revenue of $554 million;

• Net new Digital Media ARR of $336 million, and exiting Q1 with more than $5 billion of Creative ARR;

• Deferred revenue growth of 25% year-over-year;


Page 10 of 14

• Record cash flow from operations of $990 million;

• Returning over $300 million of cash to our stockholders through stock buyback;

• And a record 88% of our revenue in Q1 was from recurring sources.

In Digital Media, we grew segment revenue by 28% year-over-year. The addition of $336 million net

new Digital Media ARR during the quarter grew the total to $5.72 billion exiting Q1.

Within Digital Media, Creative revenue grew 30% year-over-year in Q1 and we increased Creative ARR

by $303 million. Several key factors helped drive this growth, including:

• Strong net new subscriptions across user segments and geographies, spanning creative professionals

to consumers and students;

• And quarter-over-quarter growth in ARPU across all product categories.

In addition, services are helping to grow Creative ARR and revenue. Adobe Stock had a strong quarter,

and Stock and collaboration services helped grow Creative Cloud enterprise ARR. 86% of creative

enterprise agreements signed during Q1 included services, which helps expand the use of Creative Cloud

within companies and makes it more mission critical to content workflows.

During Q1, we finalized a transition on Adobe.com from using US dollar estimates from our third-party

ecommerce platform in certain emerging markets, to using transactional level data denominated in local

currencies. This transition resulted in a one-time catch-up of approximately $20 million to our ending

ARR balance, and is reflected in the Q1 ARR increase.


Page 11 of 14

With Document Cloud, we achieved strong revenue with 18% year-over-year growth. The performance

in Q1 was driven by continued strength with Acrobat subscription adoption, and perpetual licensing of

Acrobat through the channel. Acrobat year-over-year unit growth across Creative Cloud and Document

Cloud again exceeded 20%, and Adobe Sign contributed with another solid quarter of revenue and ARR

growth.

In our Digital Experience segment, we achieved Adobe Experience Cloud revenue of $554 million, which

represents 16% year-over-year revenue growth. Subscription revenue grew 22% year-over year.

Experience Cloud performance in Q1 was driven by success across our Analytics Cloud, Marketing Cloud

and Advertising Cloud offerings, with emerging solutions such as Audience Manager, Campaign, Target

and Media Optimizer solutions achieving strong results.


Page 12 of 14

From a quarter-over-quarter currency perspective, FX increased revenue by $12.2 million. We had

$1 million in hedge gains in Q1 FY18, versus $1 million in hedge gains in Q4 FY17; thus, the net sequential

currency increase to revenue considering hedging gains was $12.2 million.

From a year-over-year currency perspective, FX increased revenue by $35.6 million. We had $1 million in

hedge gains in Q1 FY18, versus $18.3 million in hedge gains in Q1 FY17; thus, the net year-over-year

currency increase to revenue considering hedging gains was $18.3 million.

In Q1, Adobe’s effective tax rate was 17% on a GAAP-basis and 11% on a non-GAAP basis. These rates are

consistent with the updated tax rate targets we provided in January which reflect the impact of the new

Tax Act.

Our trade DSO was 47 days, which compares to 46 days in the year-ago quarter, and 55 days last quarter.

Deferred revenue grew to a record $2.57 billion, up 25% year-over-year.

Our ending cash and short-term investment position exiting Q1 was $6.15 billion.

Cash flow from operations was a record $990 million in the quarter.


Page 13 of 14

In Q1 FY18 we repurchased 1.6 million shares at a cost of $301 million, which lowered our diluted share

count to less than 500 million shares. We have approximately $1.6 billion remaining of our $2.5 billion

stock repurchase authority granted in January 2017.

Now I will provide our financial outlook. In Q2 FY18, we are targeting:

• Revenue of approximately 2 billion 150 million dollars;

• Digital Media segment year-over-year revenue growth of approximately 25%;

• Digital Experience segment year-over-year revenue growth of approximately 15%;

• Tax rate of approximately 13% on a GAAP basis, and 11% on a non-GAAP basis;

• Share count of approximately 499 million shares;

• GAAP earnings per share of approximately $1.16;

• Non-GAAP earnings per share of approximately $1.53; and

• Net new Digital Media ARR of approximately $330 million.

We expect revenue, earnings per share and Digital Media ARR results in Q3 and Q4 to follow similar

seasonality as was achieved in FY17.

Our leadership in the large addressable markets we created, combined with Adobe’s leveraged

operating model, contributed to another record quarter in Q1. We look forward to seeing you at Summit.

Mike.


Page 14 of 14

MIKE SAVIAGE

Thanks, Mark.

Day One of Adobe Summit – the world’s largest digital experience conference is Tuesday March 27th. An

invitation with registration and discounted pricing information to attend Summit in Las Vegas was sent

out in January to our investor and analyst email list. We will host an informal Q&A session with financial

analyst attendees and Adobe management on the afternoon of the 27th. Attendees can also attend

educational sessions, meet with customers and partners, and learn more about our solutions at the

conference. More details about Summit are available at summit.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 #6388567. 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 March

21st, 2018.

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

person. Operator.

Last Updated: March 15, 2018

Description Q1`16 Q2`16 Q3`16 Q4`16 FY2016 Q1`17 Q2`17 Q3`17 Q4`17 FY2017 Q1`18Revenue ($Millions) Total Revenue 1,383.3 1,398.7 1,464.0 1,608.4 5,854.4 1,681.6 1,772.2 1,841.1 2,006.6 7,301.5 2,078.9

Digital Media 931.7 943.1 990.0 1,076.2 3,941.0 1,138.1 1,212.0 1,270.2 1,390.3 5,010.6 1,460.5

Digital Experience 377.3 385.4 404.0 464.7 1,631.4 477.3 495.4 507.8 549.9 2,030.4 554.1

Publishing 74.3 70.2 70.0 67.5 282.0 66.2 64.8 63.1 66.4 260.5 64.3

Digital Media 68% 67% 68% 67% 67% 68% 68% 69% 69% 69% 70%

Digital Experience 27% 28% 27% 29% 28% 28% 28% 28% 28% 28% 27%

Publishing 5% 5% 5% 4% 5% 4% 4% 3% 3% 3% 3%

Creative Revenue ($Millions) 732.9 754.9 802.7 885.6 3,176.1 942.2 1,012.1 1,063.9 1,155.7 4,173.9 1,229.5

Creative ARR1,2 ($Millions) - Updated for December 2015 Currency Rates 2,735 2,998 3,256 3,539 - - - - - - -

Creative ARR1,2 ($Millions) - Updated for December 2016 Currency Rates - - - 3,515 - 3,759 4,044 4,316 4,631 - -

Creative ARR1,2 ($Millions) - Updated for December 2017 Currency Rates - - - - - - - - 4,771 - 5,074

Document Cloud Revenue ($Millions) 198.8 188.2 187.3 190.6 764.9 195.9 199.9 206.3 234.6 836.7 231.0

Document Cloud ARR2,3 ($Millions) - Updated for December 2015 Currency Rates 393 415 442 475 - - - - - - -

Document Cloud ARR2,3 ($Millions) - Updated for December 2016 Currency Rates - - - 472 - 493 520 556 600 - -

Document Cloud ARR2,3 ($Millions) - Updated for December 2017 Currency Rates - - - - - - - - 614 - 647

Total Digital Media ARR2 ($Millions) - Updated for December 2015 Currency Rates 3,128 3,413 3,698 4,014 - - - - - - -

Total Digital Media ARR2 ($Millions) - Updated for December 2016 Currency Rates - - - 3,987 - 4,252 4,564 4,872 5,231 - -

Total Digital Media ARR2 ($Millions) - Updated for December 2017 Currency Rates - - - - - - - - 5,385 - 5,721

Experience Cloud Subscription Revenue4 ($Millions) 265.8 264.0 287.2 306.2 1,123.2 352.9 377.1 395.2 427.3 1,552.5 430.9

Americas 806.5 820.0 851.9 921.7 3,400.1 975.8 1,026.7 1,063.1 1,151.0 4,216.6 1,170.7

EMEA 385.6 380.6 400.2 452.7 1,619.1 459.1 475.9 500.8 549.2 1,985.0 587.2

Asia 191.2 198.1 211.9 234.0 835.2 246.7 269.6 277.2 306.4 1,099.9 321.0

Americas 58% 59% 58% 57% 58% 58% 58% 58% 58% 58% 56%

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

Asia 14% 14% 15% 15% 14% 15% 15% 15% 15% 15% 16%

Digital Media 54.6 58.2 56.8 61.6 231.1 55.0 58.4 69.5 57.1 240.0 55.5

Digital Experience 136.4 136.4 139.2 147.9 559.9 176.8 175.1 187.6 207.5 747.0 198.8

Publishing 7.6 7.5 6.7 7.1 28.9 5.5 5.9 5.8 6.3 23.5 4.6

Total 198.6 202.1 202.7 216.6 819.9 237.3 239.4 262.9 270.9 1,010.5 258.9

Direct Costs 5.5 5.3 5.0 5.3 21.1 7.4 8.7 8.3 8.9 33.3 9.7

Research & Development 32.8 30.2 30.6 30.9 124.5 38.6 48.0 48.4 50.9 185.9 60.0

Sales & Marketing 33.6 33.0 32.2 32.2 131.0 37.7 40.8 41.0 40.6 160.1 44.4

General & Administrative 19.8 18.7 18.3 18.2 75.0 19.9 21.1 20.3 21.8 83.1 22.3

Total 91.7 87.2 86.1 86.6 351.6 103.6 118.6 118.0 122.2 462.4 136.4

Worldwide Employees 14,154 14,844 15,381 15,706 - 16,637 17,322 17,788 17,973 - 18,133

Days Sales Outstanding - Trade Receivables 42 43 45 47 - 46 46 50 55 - 47

Diluted Shares Outstanding 505.7 504.7 503.7 501.2 504.3 500.9 500.4 500.4 500.1 501.1 499.4

Digital Media

Adobe Systems Investor Relations Data Sheet

Digital Experience

Supplementary Segment Data

4 Includes revenue from SaaS, managed service and term offerings for Adobe Analytics Cloud and Adobe Marketing Cloud, as well as total revenue for Adobe Advertising Cloud

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)

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") Contracts2 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 year3 Document Cloud Annualized Recurring Revenue ("ARR") = Annual Value of Document Cloud Subscriptions and Services + Annual Value of Acrobat ETLA Contracts

Supplementary Cost of Revenue

Data ($Millions)

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: March 15, 2018

Description Q1`16 Q2`16 Q3`16 Q4`16 FY2016 Q1`17 Q2`17 Q3`17 Q4`17 FY2017 Q1`18Revenue 1,383.3 1,398.7 1,464.0 1,608.4 5,854.4 1,681.6 1,772.2 1,841.1 2,006.6 7,301.5 2,078.9 Cost of revenue 198.6 202.1 202.7 216.5 819.9 237.3 239.4 262.9 270.9 1,010.5 258.9Gross profit 1,184.8 1,196.6 1,261.3 1,391.9 5,034.5 1,444.3 1,532.8 1,578.2 1,735.7 6,291.0 1,820.0

Operating expenses 877.0 852.4 891.9 919.6 3,540.9 975.3 1,028.7 1,032.5 1,086.4 4,122.9 1,117.3

Operating income 307.8 344.2 369.3 472.3 1,493.6 469.0 504.1 545.7 649.3 2,168.1 702.7

Non-operating income (expense) (15.5) (14.4) (13.0) (15.6) (58.5) (8.4) (11.5) (4.3) (6.3) (30.5) (0.2)

Income before income taxes 292.3 329.8 356.3 456.7 1,435.1 460.6 492.6 541.4 643.0 2,137.6 702.5Provision for income taxes 38.0 85.7 85.5 57.1 266.3 62.2 118.2 121.8 141.5 443.7 119.4

Net income 254.3 244.1 270.8 399.6 1,168.8 398.4 374.4 419.6 501.5 1,693.9 583.1

Diluted earnings per share 0.50$ 0.48$ 0.54$ 0.80$ 2.32$ 0.80$ 0.75$ 0.84$ 1.00$ 3.38$ 1.17$

Cost of revenueStock-based and deferred compensation (5.5) (5.3) (5.0) (5.3) (21.1) (7.4) (8.7) (8.3) (8.9) (33.2) (9.7) Amortization of purchased intangibles and

technology license arrangements (17.9) (13.6) (13.4) (12.6) (57.5) (16.3) (17.2) (17.2) (16.1) (66.9) (14.6) Total adjustments to cost

of revenue (23.4) (18.9) (18.4) (17.9) (78.7) (23.7) (26.0) (25.5) (25.0) (100.2) (24.3)

Operating expensesStock-based and deferred compensation (86.2) (81.9) (81.1) (81.3) (330.4) (96.2) (109.9) (109.7) (113.3) (429.1) (126.7) Restructuring and other charges 0.4 0.5 0.3 0.3 1.5 - 0.1 - 0.4 0.5 - Amortization of purchased intangibles and

technology license arrangements (18.4) (19.0) (22.7) (18.5) (78.5) (19.1) (19.3) (19.4) (18.7) (76.6) (17.1) Total adjustments to

operating expenses (104.2) (100.4) (103.5) (99.5) (407.4) (115.4) (129.1) (129.1) (131.6) (505.2) (143.8)

Non-operating income (expense) 1.2 3.3 (1.5) (1.4) 1.6 (2.6) (1.7) (1.0) (2.3) (7.6) (3.0)

Taxes 50.4 9.3 14.6 63.1 137.4 63.2 17.4 24.1 26.0 130.7 (24.0)

Revenue 1,383.3 1,398.7 1,464.0 1,608.4 5,854.4 1,681.6 1,772.2 1,841.1 2,006.6 7,301.5 2,078.9 Cost of revenue 175.2 183.2 184.3 198.6 741.2 213.7 213.4 237.4 245.9 910.4 234.6Gross profit 1,208.1 1,215.5 1,279.7 1,409.8 5,113.2 1,468.0 1,558.8 1,603.7 1,760.7 6,391.2 1,844.3

Operating expenses 772.8 752.0 788.5 820.1 3,133.5 859.9 899.7 903.4 954.7 3,617.7 973.5

Operating income 435.3 463.5 491.1 589.7 1,979.7 608.0 659.1 700.3 806.0 2,773.4 870.9

Non-operating income (expense) (14.3) (11.1) (14.6) (16.9) (56.9) (10.9) (13.2) (5.3) (8.6) (38.0) (3.2)

Income before income taxes 421.0 452.4 476.6 572.8 1,922.8 597.1 645.9 695.0 797.4 2,735.4 867.6Provision for income taxes 88.4 95.0 100.1 120.2 403.7 125.4 135.6 146.0 167.4 574.4 95.4

Net income 332.6 357.4 376.5 452.6 1,519.1 471.7 510.3 549.1 629.9 2,161.0 772.2

Diluted earnings per share 0.66$ 0.71$ 0.75$ 0.90$ 3.01$ 0.94$ 1.02$ 1.10$ 1.26$ 4.31$ 1.55$

Shares Diluted shares outstanding 505.7 504.7 503.7 501.2 504.3 500.9 500.4 500.4 500.1 501.1 499.4

GAAP diluted earnings per share 0.50 0.48 0.54 0.80 2.32 0.80 0.75 0.84 1.00 3.38 1.17 Stock-based and deferred compensation 0.18 0.17 0.17 0.17 0.70 0.21 0.23 0.24 0.24 0.92 0.27 Amortization of purchased intangibles and

technology license arrangements 0.07 0.06 0.07 0.06 0.27 0.07 0.07 0.07 0.07 0.29 0.06Non-operating income (expense) - 0.01 - - - (0.01) - - - (0.02) - Income tax adjustments (0.09) (0.01) (0.03) (0.13) (0.28) (0.13) (0.03) (0.05) (0.05) (0.26) 0.05 Non-GAAP diluted earnings per share 0.66$ 0.71$ 0.75$ 0.90$ 3.01$ 0.94$ 1.02$ 1.10$ 1.26$ 4.31$ 1.55$

GAAP operating margin 22.2% 24.6% 25.2% 29.4% 25.5% 27.9% 28.4% 29.6% 32.4% 29.7% 33.8%Stock-based and deferred compensation 6.6% 6.2% 5.9% 5.4% 6.0% 6.2% 6.7% 6.4% 6.1% 6.3% 6.6%Amortization of purchased intangibles and

technology license arrangements 2.7% 2.3% 2.4% 1.9% 2.3% 2.1% 2.1% 2.0% 1.7% 2.0% 1.5%Non-GAAP operating margin 31.5% 33.1% 33.5% 36.7% 33.8% 36.2% 37.2% 38.0% 40.2% 38.0% 41.9%

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: March 15, 2018

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 Comp

Creative Cloud for enterprises Audition XD (Experience Design)

Creative Cloud for education Bridge Illustrator Draw

Creative Cloud Photography plan Character Animator Photo Editor by Aviary

Dimension Photoshop Express

Services Dreamweaver Photoshop Fix

AIR/Flash Player XD (Experience Design) Photoshop Lightroom for mobile

Aviary Fireworks CS6 Photoshop Mix

Behance Fuse (Beta) Photoshop Sketch

Creative SDK Illustrator Portfolio

Digital Publishing Suite InCopy Prelude Live Logger

Extendscript Toolkit InDesign Premiere Clip

Extension Manager Ink & Slide Preview

Flash Builder Media Encoder Scout

Gaming SDK Muse Spark Page

PhoneGap Build Photoshop Spark Post

Portfolio Photoshop Lightroom Spark Video

Stock Prelude

Story Plus Premiere Pro Consumer Products

Talent Scout Photoshop Elements

Typekit Story Premiere Elements

Acrobat Pro DC Document Cloud ExportPDF Scan

Acrobat Standard DC Document Cloud Send Sign

Reader DC PDF Pack

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

Authorware eLearning Suite PostScript

Captivate Font Folio Robohelp

ColdFusion FrameMaker Shockwave Player

Connect JRun Technical Communication Suite

Contribute LiveCycle Type

Director PageMaker

FY2018 Business Segment Classifications

Products

Digital Media

Digital Experience

Adobe Experience Cloud

Publishing

Creative

Document 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 March 15, 2018

Page 1 of 3

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

Q2 Fiscal Year 2018 Targets

The following second quarter fiscal year 2018 targets were provided by Adobe on March 15, 2018.

Adobe total revenue ~$2.150 billion

Digital Media segment revenue ~25% year-over-year growth

Digital Experience segment revenue ~15% year-over-year growth

Net non-operating other expense ~$3 million

Tax rate GAAP: ~13% Non-GAAP: ~11%

Share count ~499 million shares

Earnings per share GAAP: ~$1.16 Non-GAAP: ~$1.53

Net new Digital Media annualized recurring revenue (“ARR”) ~$330 million

Adobe expects quarterly revenue, earnings per share and Digital Media ARR results in Q3 and Q4 to follow similar seasonality as was achieved in fiscal year 2017.

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 2 of 3

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

The following tables show Adobe's second quarter fiscal year 2018 financial targets reconciled to non-GAAP financial targets included in this document.

Second Quarter Fiscal 2018

Diluted net income per share: GAAP diluted net income per share............................................................................................................................... 1.16 Stock-based and deferred compensation expense ............................................................................................. 0.32 Amortization of purchased intangibles ....................................................................................................................... 0.07 Income tax adjustments.......................................................................................................................................................... (0.02 ) Non-GAAP diluted net income per share .................................................................................................................. 1.53

Shares used to compute diluted net income per share ................................................................................... 499.0

Second Quarter

Fiscal 2018

Effective income tax rate:

GAAP effective income tax rate ......................................................................................................................................... 13.0 %

Stock-based and deferred compensation expense ............................................................................................. (0.8 )

Amortization of purchased intangibles ....................................................................................................................... (0.2 )

Income tax adjustments.......................................................................................................................................................... (2.0 )

Impact of Tax Act .......................................................................................................................................................................... 1.0

Non-GAAP effective income tax rate ............................................................................................................................ 11.0 %





Page 3 of 3


Our financial targets contain forward-looking statements and projections, including those related to revenue, earnings per share on a GAAP and non-GAAP basis, annualized recurring revenue, share count, non-operating other expense, 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, acquire, market and offer products and services that meet customer requirements, failure to compete effectively, introduction of new technology, complex sales cycles, risks related to the timing of revenue recognition from our subscription offerings, fluctuations in subscription renewal rates, potential interruptions or delays in hosted services provided by us or third parties, risks associated with cyber-attacks, information security and privacy, failure to realize the anticipated benefits of past or future acquisitions, changes in accounting principles and tax regulations, uncertainty in the financial markets and economic conditions in the countries where we operate, and other various risks associated with being a multinational corporation.

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 2017 ended Dec. 1, 2017, and Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2018.

Adobe Financial Targets January 22, 2018

Page 1 of 2

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

Fiscal Year 2018 Annual Targets

The following annual FY2018 targets and target commentary were provided by Adobe on January 22, 2018.

Adobe total revenue ~$8.725 billion

Digital Media segment revenue ~23% year-over-year growth

Adobe Experience Cloud subscription revenue1 ~20% year-over-year growth

Adobe Experience Cloud total revenue ~15% year-over-year growth

Earnings per share GAAP: ~$4.72 Non-GAAP: ~$6.20

Net new Digital Media annualized recurring revenue (“ARR”) ~$1.1 billion

Adobe Experience Cloud subscription bookings2 ~20% year-over-year growth

1 Includes revenue from SaaS, managed service and term offerings for Adobe Analytics Cloud and Adobe Marketing Cloud, as well as total revenue for Adobe Advertising Cloud

2 Includes annualized subscription value of SaaS, managed service and term offerings under contract for Adobe Analytics Cloud and Adobe Marketing Cloud

During fiscal year 2018, Adobe expects quarterly revenue, earnings per share and Digital Media ARR results to follow similar seasonality as was achieved in fiscal year 2017.

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.

Adobe Financial Targets January 22, 2018

Page 2 of 2

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

The following table shows Adobe's annual fiscal year 2018 earnings per share target reconciled to the non-GAAP financial target included in this document.

Fiscal Year 2018

Diluted net income per share: GAAP diluted net income per share............................................................................................................................... $ 4.72 Stock-based and deferred compensation expense ............................................................................................. 1.21 Amortization of purchased intangibles ....................................................................................................................... 0.27 Impacts of the Tax Act ................................................................................................................................................................................. 0.17 Income tax adjustments.......................................................................................................................................................... (0.17 ) Non-GAAP diluted net income per share .................................................................................................................. $ 6.20

Shares used to compute diluted net income per share ................................................................................... 500.0





Our financial targets contain forward-looking statements and projections, including those related to revenue, earnings per share on a GAAP and non-GAAP basis, annualized recurring revenue, subscription bookings, share count, non-operating other expense, 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, acquire, market and offer products and services that meet customer requirements, failure to compete effectively, introduction of new technology, complex sales cycles, risks related to the timing of revenue recognition from our subscription offerings, fluctuations in subscription renewal rates, potential interruptions or delays in hosted services provided by us or third parties, risks associated with cyber-attacks, information security and privacy, failure to realize the anticipated benefits of past or future acquisitions, changes in accounting principles and tax regulations, uncertainty in the financial markets and economic conditions in the countries where we operate, and other various risks associated with being a multinational corporation.

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 2017 ended Dec. 1, 2017, and Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2018.

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 Updates Q1 and Fiscal Year 2018 Financial Targets Impact of New U.S. Tax Law Results in Higher Fiscal Year 2018 Earnings Per Share Targets SAN JOSE, Calif. — Jan. 22, 2018 — Adobe (Nasdaq:ADBE) today announced it is updating its financial targets to include expected financial impacts of the Tax Cuts and Jobs Act (the “Tax Act”), which was enacted into law during its first quarter of fiscal year 2018. The updated targets are being provided in connection with today’s filing of Adobe’s annual report on Form 10-K for fiscal year 2017 with the U.S. Securities and Exchange Commission.

Among other provisions, the Tax Act reduces the U.S. corporate income tax rate from 35 percent to 21 percent and imposes a 15.5 percent tax on accumulated foreign earnings effective Jan. 1, 2018. Given Adobe’s fiscal year 2018 began Dec. 2, 2017, the company will have a partial-year impact due to these changes.

Adobe expects its fiscal year 2018 GAAP and non-GAAP effective tax rates will decline substantially from rates in fiscal year 2017, as shown in the table below. The company also expects fiscal year 2019 GAAP and non-GAAP effective tax rates to stabilize at a rate of approximately 18 percent, below its fiscal year 2017 rate of approximately 21 percent.

“The new Tax Act is lowering Adobe’s effective tax rates, driving a significant increase in our earnings per share targets," said Mark Garrett, executive vice president and CFO, Adobe. “With ready access to our offshore cash, we will continue to evaluate investment opportunities to grow our business and we are actively expanding our campuses in the Bay Area and Utah to accommodate the growth of our employee base.”

As of the end of its fiscal year 2017, Adobe had approximately $5.8 billion of cash and cash equivalents on its balance sheet, the majority of which was held offshore. Adobe estimates its accumulated foreign earnings tax obligation related to this will be offset against the company’s previous accrual for the repatriation of prior year foreign earnings. This amount, plus the amount the company expects to incur for remeasuring deferred tax assets, will result in a tax charge of approximately $85 million in Adobe’s first quarter fiscal year 2018 results and is factored into the GAAP effective tax rates provided in the table below.

Expected GAAP Effective Tax Rate Expected Non-GAAP Effective Tax Rate Q1 FY2018 Q2 – Q4 FY2018 Q1 FY2018 Q2 – Q4 FY2018

New target ~17 percent ~13 percent ~11 percent ~11 percent

Previous target ~9 percent ~23 percent ~21 percent ~21 percent

Adobe’s updated non-GAAP effective tax rate targets exclude a one-time financial impact of the tax law, consistent with the company’s long-standing practice of excluding large one-time items in its non-GAAP results.

of 5 Adobe Updates Q1 and Fiscal Year 2018 Financial Targets

Updated Financial Targets

As part of today’s update, Adobe reaffirmed its financial targets including

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Adobe Investor Presentation · momentum, our addressable market, revenue, annualized recurring revenue, non-operating other expense, tax rate on a GAAP and non-GAAP basis, earnings