Adobe Inc Investor Q&A Session Hosted by Scotiabank (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : Great. Maybe to start off, I think the best place to start is to talk a little bit about Adobe since the company has evolved a lot over the years. You're

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : Great. I think that's a great starting point. One thing I neglected in my opening in my rush to get Jonathan, Andrew talking and rather than me was the fact that we are taking Q&A from the audience today. I'm going to moderate it. Please throw any questions in the box. We'll get to them as part of the discussion, but we'd welcome your participation. And maybe before we go any further into the questions, can you just quickly set up for us the segments of Adobe and how you operate? Maybe talk a little bit about the growth rates that you've experienced there? And obviously, the significant profitability in both segments, but talk us through that. That way we have context for where we're going to head next in the discussion. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 23, 2021 / 5:00PM, BNS.TO - Adobe Inc Investor Q&A Session Hosted by Scotiabank (Virtual)

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : Great. And you touched on it there. You talked about the total TAM that you laid out at your Investor Day, but maybe if we talk a little bit about the creative business, it's gone through the transition. It was arguably one of the first businesses to go from legacy on-prem to cloud. Maybe talk about where we're at in that, and then maybe the specific TAM that you folks had put up related to maybe more digital, the creative business, that side of it?

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : Wow, you're right. It's been a great story. It continues to be a great story. Obviously, last quarter, strong ARR growth in Digital Media. Talk a little bit about where that growth is coming from in terms of new customers and product demand, and then I've got a bunch of customers to -- questions to weave in here from the audience.

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : Great. Hey, you touched on SMB. This is likely the right place to weave this question in. Could you speak a little bit about Adobe's self-serve offerings and how that's expanded over time? And if there's any relevant KPIs people should be thinking about?

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : (technical difficulty)

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : (technical difficulty) REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 23, 2021 / 5:00PM, BNS.TO - Adobe Inc Investor Q&A Session Hosted by Scotiabank (Virtual)

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : (technical difficulty) Okay. We'll try a quick switch. Is that better?

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : See, we've in progress switched here. So back to the question I was asking that you correctly interpreted and took a minute to answer was could you talk a little bit or differentiate digital experience versus other players, i.e., Salesforce? And do you target a specific function in an organization, an industry, a vertical and then even the pricing model? I think maybe this question is more about putting context around how you go to market in your various areas and maybe splitting the retail, SMB and then the enterprise business. I think that's what that person's sort of looking for.

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : Great. Maybe a logical place to take that, and the first part of it would be you likely want to tell people what Magento Commerce is. I know, but we've got a bunch of people who are interested in Magento and what's going on there. But you referred to it with the online shopping cart. So talk to us a little bit about, first, what's Magento? What the strategy is, and what we can expect in the years to come because you just sort of alluded to some of that, I think, or foreshadowed?

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : Perfect. You answered part of the next question that relates to it. So why don't we -- well, I'll paraphrase for this person and pivot it. They want to know the revenue mix and how it changed. And clearly, you're not providing it, and that's understandable. But maybe just any comments around what has changed. You mentioned moving from a mid-market to an enterprise shift. I don't know if there's been any data points. And if not, we'll travel on to the next question.

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : Fantastic. Maybe tying to that same whole topic area. Why don't we talk a little bit -- you've already discussed about COVID and digital transformation. We've had that come up. We likely would have a bingo already by now for saying that word a bunch of times. But maybe talking Digital Media, what products you see as having truly transformed or maybe emerging even more than they were heading into the pandemic? Adobe already had strong growth, and things sort of got turbocharged, but there's names like Sign, for example, is one thing I'm thinking of that seems like fundamental changes occur.

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : Great. And if we shift a little bit to the Digital Experience part of the business, obviously, you saw a super strong growth in Q2, up 21% year-on-year. Maybe talk about the drivers you're seeing within that line of business. And then there's a question from the audience that I think ties to it.

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : Makes sense. And if we take the audience question, and I think what this person is referring to is we know there was some change with regard to ad cloud and some of the changes you made in Omniture and sort of exiting part of the business. Their question is asking you for long-term gross margin projections, which I'm certainly you'll be excited about. But maybe the context is more how should they think about what occurred with the change you made within that line of business? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 23, 2021 / 5:00PM, BNS.TO - Adobe Inc Investor Q&A Session Hosted by Scotiabank (Virtual)

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : Great. I think that makes sense. And maybe just tying to sort of moving a little bit shifting back towards e-commerce. We talked a bunch before about Adobe Commerce. Maybe talk more broadly about where you fit within that context of e-commerce. We know you've been working with people like FedEx. You've done digital advertising. You deliver the creative. Any other comments around e-commerce? It's an area of interest for certainly our client base here.

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : Makes perfect sense. Maybe one thing just to sort of help the audience overall because Adobe's so broad, maybe position where Adobe sits in the key markets of who you'd actually think about as competitors or how investors should think you're competing against various people? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 23, 2021 / 5:00PM, BNS.TO - Adobe Inc Investor Q&A Session Hosted by Scotiabank (Virtual) And obviously, it's a massive product set. But if you wanted to just take the big segments, who would somebody want to be looking at and paying attention to or...

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : Great. I think that leads us to the next one, which I think is going to be a bit of a mash up between my question and one of the audience questions here. So if we think about it, you ended last quarter with $1.1 billion in net cash in Q2, substantial free cash generation. Maybe talk about capital allocation. And even beyond that, they'd like to know about buybacks, but maybe even where do you stand on a dividend or reinstating a dividend? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 23, 2021 / 5:00PM, BNS.TO - Adobe Inc Investor Q&A Session Hosted by Scotiabank (Virtual)

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : Great. I think that gave us a good answer on where your capital is going to go, which is substantial and growing. You covered a bunch of the M&A questions I would have logically had. And I think you've sort of given people a sense of where you'd go there. You have had some management and transitions in the team. Obviously, John Murphy announcing his retirement and the return of David Wadhwani as EVP and Chief Business Officer. Maybe talk about where we're at in terms of the overall team.

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : That's great. Just on the overall corporate side, Adobe is clearly one of the leading technology companies globally. An area we've had lots of focus on and lots of the clients that are on the line have a focus on is ESG. And I think it's worthy of you guys speaking a little bit about what Adobe has been doing in relation to ESG initiatives.

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : Great. I think we've got time for maybe 2 more questions. So the one I'm going to leave you with here is talk to us a little bit about either one of you, what are you the most sort of interested and excited about in seeing evolve over the next couple of years from Adobe? What do you think is REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 23, 2021 / 5:00PM, BNS.TO - Adobe Inc Investor Q&A Session Hosted by Scotiabank (Virtual) going to stand out when we look back 3 or 5 years from now that you're like, wow, people either missed it, didn't understand it, didn't appreciate it, and they, look at where this is now?

Question: Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst : I think we'd all be happy not to be pestered with the display ads that don't apply to us. So I think I would echo that, and I think that's a good place to maybe leave today's discussion. It's been far-reaching and covered a lot of ground that Adobe does. And I want to, on behalf of Scotia, thank the Adobe team, Jonathan and Andrew, for joining us today. I know that we're happy to facilitate having them out, but you can reach out to them directly or we're happy to connect you with either of them. And I want to thank everybody for joining us and your questions today. Thanks, guys.