Mike Saviage - Vice President, Investor Relations Shantanu Narayen - President and CEO Mark Garrett - Executive Vice President and CFO

Steve Rogers - Citi Sterling Auty - JP Morgan Kash Rangan - Bank of America Merrill Lynch Kirk Materne - Evercore ISI Mark Moerdler - Bernstein Research Ross MacMillan - RBC Capital Markets Brent Thill - UBS Samad Samana - FBR Capital Markets Brian Wieser - Pivotal Research Heather Bellini - Goldman Sachs Keith Weiss - Morgan Stanley Jay Vleeschhouwer - Griffin Securities Derrick Wood - Susquehanna International Group Brendan Barnicle - Pacific Crest Securities

Good afternoon, ladies and gentlemen. I’d like to welcome you to Adobe Systems Fourth Quarter Fiscal Year 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I’d now like to turn the call over to Mr. Mike Saviage, Vice President of Investor Relations. Please go ahead, sir.

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 the call today, we will discuss Adobe's fourth quarter and fiscal year 2015 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 the Investor Relations page and find them listed under Quick Links. 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, December 10, 2015, 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.

Thanks, Mike, and good afternoon. FY15 was a record year. Adobe is driving digital experiences that are fundamental to the transformation of every global brand, government and educational institution. We delivered strong performance across each of our three cloud businesses. We exceeded our targets in Creative Cloud annualized recurring revenue and subscriptions, launched and ramped our Adobe Document Cloud business, and drove strong revenue and bookings growth for Adobe Marketing Cloud. In Q4, we delivered revenue of $1.3 billion and non-GAAP EPS of $0.62. For the year, we grew total revenue to $4.8 billion with non-GAAP EPS of $2.08. In Digital Media, Creative ARR grew to $2.6 billion exiting the year, an increase in Q4 of $310 million. This strong performance was driven by enterprise adoption and the addition of 833,000 net new individual and team Creative Cloud subscriptions. Ending Q4 Creative Cloud subscriptions were 6.17 million. Subscription growth was fueled by continued migration of the Creative Suite installed base, as well as the addition of customers that are new to Adobe’s creative products. We achieved strength across our Complete and Single App offerings, including Creative Cloud for individuals, Creative Cloud for teams, Creative Cloud for education and the Creative Cloud Photography Plan. The value of the Creative Cloud service grew significantly in 2015, with innovation in many areas including, hundreds of new features across Creative Cloud desktop apps, with innovation across our imaging, illustration, web design and video tools. New Photoshop features like Dehaze, which eliminates fog and haze from photos and Illustrator’s Shaper tool, which lets you draw with natural gestures that magically transform into perfect geometric shapes, drew rave reviews from our customers. Innovation in our Creative Cloud video apps continues to entice the Hollywood community to switch to Adobe Premiere Pro, which is now the leader in its category. The upcoming Coen Brothers movie, Hail Caesar and 20th Century Fox’s much-anticipated Deadpool are the latest to be edited in Premiere Pro. New mobile apps like Photoshop Fix, which revolutionizes photo retouching, Premiere Clip, which lets users create and edit videos, Comp CC, which helps users lay out designs and Capture CC, which simplifies the capture of creative assets on the go, have all received high app store ratings from customers. These millions of downloads are bringing new customers into the Adobe franchise, almost half of new Adobe IDs are created in one of our mobile apps. Our goal is to make the mobile-to-desktop workflow for creatives as seamless as possible so that they can be creative and productive wherever they are. We’re looking to expand further, with new mobile apps, like Adobe Voice and Slate, which bring Adobe technology to storytellers of every age and ability. The power of our mobile and desktop apps is significantly enhanced by the introduction of our CreativeSync technology, which enables Creatives the freedom to create and collaborate in an increasingly connected world. The Adobe Marketplace which includes Adobe Stock, is the industry’s first stock content service to be integrated directly into the content creation process. Adobe Stock is a fast growing marketplace with over 1 million high-definition video files and 45 million photo and graphics assets integrated directly within CC desktop apps, and is driving attach to existing and new Creative Cloud subscriptions. Four years into our Creative Cloud journey, we have deeper insight into the needs of the Creative community, more satisfied customers and a significantly larger total addressable market. Growth will continue to be fueled by three initiatives, migrating the Creative Suite installed base, attracting new customers and driving higher ARPU through cloud services such as Adobe Stock. In March we introduced Adobe Document Cloud, an innovative solution to manage documents across devices. Building on our strong PDF and Acrobat franchise, Document Cloud is a complete portfolio of secure digital document solutions that streamline business processes. It includes Acrobat DC, Adobe eSign electronic signature services, plus web and mobile apps. In October, we launched our first file sync and share partnership with Dropbox, integrating Acrobat, Acrobat Reader and Dropbox across mobile, desktop and web. This quarter we delivered a milestone release of Adobe eSign services with innovative mobile app functionality and a focus on enterprise mobility and control. Adobe eSign services have attracted a strong stable of partners, including integrations with Workday, Ariba, Microsoft and Salesforce. Q4 Document Cloud revenue was $209 million and we grew Document Cloud ARR to $397 million exiting the year. In Digital Marketing, we achieved strong Adobe Marketing Cloud bookings in Q4 and revenue of $352 million. We continue to drive large-scale engagements with Marketing Cloud customers. Significant transactions in Q4 included Home Depot, Etihad Airlines, McDonald’s, Comcast Cable and Kaiser. Last month, we announced the availability of Audience Marketplace, a new data exchange in our Adobe Audience Manager platform that connects advertisers and content publishers. Through our integrations with leading data providers, Audience Marketplace can access large volumes of high-value audience data for more accurate and valuable insights. The platform also allows advertisers and content publishers to create more accurate audience segments and have greater insights into real-time performance. An ecosystem of global partners allows us to scale Adobe Marketing Cloud to better engage with customers at every touchpoint. Eight of the 10 largest agencies and eight of the 12 largest system integrators have built digital marketing practices around Adobe Marketing Cloud. Today, we announced the expansion of our global alliance relationship with Accenture to create and deliver digital marketing solutions utilizing Adobe Marketing Cloud for life science, healthcare, and financial services organizations in North America and Europe. Adobe manages over 40 trillion customer data transactions through Adobe Marketing Cloud every year. And we are viewed as the expert in reporting and predicting major retail and consumer trends. Adobe Marketing Cloud measures 80% of all online transactions from the top 100 U.S. retailers, and over $7.50 out of every $10 spent online with the top 500 U.S. retailers. Our widely covered Adobe Digital Index holiday shopping report measured $11 billion in sales from Black Friday through Cyber Monday and revealed that a third of sales came from mobile devices. Adobe Marketing Cloud continued to be recognized as the leader in industry analyst reports. In Q4, Forrester Research recognized Adobe as the industry leader in two Wave reports: Data Management Platforms and Digital Experience Platforms. Gartner also named Adobe as an industry leader in its 2015 Magic Quadrant for Digital Marketing Analytics research report. For 2015 in total, Adobe received leadership recognition in 15 industry analyst reports, reinforcing our strong momentum in the competitive digital marketing arena. Adobe Marketing Cloud is the leader in this explosive enterprise growth category, with the most integrated offering for customers and a deep and growing set of partnerships. We are targeting multi-year, multi-solution engagements, which gives us a critical role in our customers’ digital success. We will continue to invest to expand our offerings, capture market share and drive future growth. Our record results in 2015 represent the collective efforts of our employees around the world to deliver innovation to a wide spectrum of customers that spans from students to photographers to data scientists to CXOs. While Creative Cloud, Adobe Document Cloud and Adobe Marketing Cloud each achieved significant momentum and are leaders in their categories, our true opportunity is in bringing all of these solutions together. As companies and institutions face the need to create and deliver more compelling and personalized content, faster than ever before, our role is even more critical. We help our customers build digital experiences informed by insights, supported by data, brought to life through powerful creations, and delivered at the moment that matters. Coming off a great year, we continue to have a sense of urgency and purpose. There is a lot of opportunity ahead and we will work hard to capture it. We look forward to another record year in 2016. Mark?

Thanks, Shantanu. Our earnings report today covers both Q4 and fiscal year 2015 results. In FY ‘15, Adobe achieved annual revenue of $4.796 billion dollars, which represents 16% year-over-year growth. GAAP EPS for the year was $1.24, and non-GAAP EPS was $2.08. This performance is the result of strong execution against our strategy, and from some noteworthy achievements during the year. Growing Digital Media ARR by approximately $1.1 billion during the year to exit fiscal 2015 with just under $3 billion, well ahead of our original and upwardly revised targets. Exiting the year with approximately $2.6 billion of Creative ARR, driven by strong adoption of Creative Cloud across individual, team and enterprise offerings. Total individual and team Creative Cloud subscriptions ending the year were 6.17 million, also well ahead of our projections. Delivering Document Cloud revenue of $796 million and growing Document Cloud ARR to $397 million. Achieving record Adobe Marketing Cloud revenue of $1.36 billion and our goal of approximately 30% annual bookings growth. Generating $1.47 billion in operating cash flow during the year. Growing deferred revenue to a record $1.49 billion, and increasing our unbilled backlog to approximately $2.9 billion exiting the year together, this represents nearly $4.4 billion of contracted revenue that will be recognized over time. And returning nearly $627 million in cash to stockholders through our stock repurchase program. In the fourth quarter of FY ‘15, Adobe achieved record revenue of $1.306 million, which represents 22% year-over-year growth. GAAP diluted earnings per share were $0.44 and non-GAAP diluted earnings per share were $0.62. Highlights in our fourth quarter include driving Creative Cloud adoption that resulted in record sequential Creative Cloud ARR growth and record Creative product family quarterly revenue. Posting record net new Digital Media ARR of $350 million. Delivering Adobe Marketing Cloud revenue of $352 million. Reporting strong year-over-year growth in operating and net income. Achieving strong cash flow from operations of $455 million. And exiting Q4 with a record 74% recurring revenue. In Digital Media, we added $310 million of Creative ARR during Q4, which is the highest ever quarterly growth of Creative ARR. Contributing to this strong growth was record net new Creative Cloud subscriptions of 833,000. Across all routes to market, we are seeing strong demand for Creative Cloud. We continue to migrate existing customers to Creative Cloud, and are attracting large numbers of first-time customers. Overall, Creative Cloud retention remains strong. Commercial Creative Cloud ARPU, including individual and team subscriptions, grew in Q4, while Education and Photography Plan ARPU remained relatively consistent with prior quarters. Adoption of Adobe Stock continues to increase ARPU. Across all offerings, blended ARPU remains relatively consistent with last quarter. We are excited about the progress we’ve made with Adobe Stock. We achieved our revenue target for the year and are focused on driving attachment of Stock subscriptions with existing and new Creative Cloud subscribers. With Document Cloud, we had a strong Q4 to finish a solid year. We’ve delivered on our goal of maintaining consistent revenue while shifting more of the business to be recurring. In Q4, we achieved Document Cloud revenue of $209 million, while growing Document Cloud ARR to $397 million exiting the year. To give some context, only 16% of this business was recurring revenue in fiscal 2012. In fiscal 2015, 48% of the business was ratable-based revenue. We delivered Adobe Marketing Cloud revenue of $352 million, with record bookings in Q4 that contributed to achieving our annual bookings growth goal of approximately 30%. During Q4, we migrated even more Experience Manager and Campaign perpetual business to a ratable managed services offering than we had targeted. In fact, we achieved higher bookings for Experience Manager as a managed services offering in Q4 than we achieved in all of fiscal 2014. This performance is reflected in deferred revenue and unbilled backlog. Entering fiscal 2016, it is expected that there is no material perpetual revenue remaining. Other marketing Cloud highlights in Q4 include, continued growth in multi-solution adoption by our biggest customers, improved customer retention rates on a larger book of business, strong performance with our two newest solutions, Audience Manager and Primetime, and benefits to our business from mobile device use and the beginning of the online holiday shopping season, in Q4 mobile data transactions grew to 47% of total data transactions with products such as Adobe Analytics. Our Digital Marketing segment revenue also includes LiveCycle and Connect revenue, which continues to decline as expected. Geographically, we experienced stable demand across our major geographies. From a quarter-over-quarter currency perspective, FX decreased revenue by $8.4 million. We had $1.3 million in hedge gains in Q4 FY15 versus $9.1 million in hedge gains in Q3 FY15, thus the net sequential currency decrease to revenue considering hedging gains was $16.2 million. From a year-over-year currency perspective, FX decreased revenue by $59.6 million. We had $1.3 million in hedge gains in Q4 FY15 versus $12.2 million in hedge gains in Q4 FY14, thus the net year-over-year currency decrease to revenue considering hedging gains was $70.5 million. In Q4, Adobe’s effective tax rate was 25% on a GAAP basis and 21% on a non-GAAP basis, consistent with our targets for the quarter. Employees at the end of Q4 totaled 13,893 versus 13,665 at the end of last quarter. Our trade DSO was 47 days, which compares to 50 days in the year ago quarter and 44 days last quarter. Cash flow from operations was $455 million in the quarter. Unbilled backlog at the end of FY15 grew to a record $2.89 billion, which now includes the value of individual annual Creative Cloud subscriptions. This compares to unbilled backlog at the end of FY14 of $2.19 billion, which we have also updated to include the value of individual annual Creative Cloud subscriptions. Deferred revenue grew to a record $1.49 billion, up 29% year-over-year. Our ending cash and short-term investment position was $3.99 billion, compared to $3.67 billion at the end of Q3. In Q4, we repurchased approximately 1.4 million shares at a cost of $122 million. For the full fiscal year we repurchased 8.1 million shares at a total cost of $627 million. We currently have $1.6 billion remaining under our latest repurchase authority granted in January, 2015. Now I will provide our financial outlook. As a result of the continued momentum in our business, we are reaffirming all of the long-term financial targets that we provided at our Analyst Meeting in October, highlighted by a 20% total Adobe revenue CAGR through fiscal 2018. For fiscal 2016, our targets include, total Adobe revenue of approximately $5.7 billion, approximately 20% year-over-year Digital Media segment revenue growth, exiting Digital Media ARR of approximately $3.875 billion, an increase of approximately $1 billion during fiscal 2016, approximately 20% year-over-year Marketing Cloud revenue growth, with approximately 30% annual bookings growth, and GAAP EPS of approximately $1.80, with non-GAAP EPS of approximately $2.70. These fiscal 2016 targets are consistent with the preliminary targets we provided in October at our Analyst Meeting, with the exception of an increase to our Digital Media ARR target. In October, we provided a FY16 Digital Media ARR growth target of approximately 25%, based on a targeted exit of $2.95 billion in FY15. This implied net new Digital Media ARR growth of $738 million in FY16. We exited FY15 with $2.99 billion of actual Digital Media ARR, above our target of $2.95 billion. We adjust ARR on an annual basis to reflect any material FX changes. Our fiscal 2015 actual exiting Digital Media ARR of $2.99 billion was based on December 2014 FX rates. We’ve revalued that ARR amount based on December 2015 FX rates and this has led to an updated Digital Media ARR exiting FY15 of $2.88 billion. As a result of the momentum in Q4 that we expect to continue in FY16, we are raising our net new Digital Media ARR growth target to approximately $1 billion from the original implied target of $738 million. This results in a new target of $3.875 billion of Digital Media ARR exiting FY16. In addition, we are providing quarterly color on FY16. We expect revenue and earnings per share to grow sequentially during the year. We expect net new Digital Media ARR to ramp sequentially similar to what was achieved in FY15. We expect Marketing Cloud revenue to grow sequentially during the year. However, quarterly year-over-year revenue growth will fluctuate below and above our annual target of 20% based on the amount of perpetual revenue achieved in the prior year ago quarters. In Q1 fiscal 2016 we are targeting a revenue range of $1,300 billion to $1,350 billion. We expect sequential growth from Q4 to Q1 in Creative and Marketing Cloud. We expect our Q1 share count to be between 506 million to 508 million shares. We are targeting net non-operating expense to be between $14 million and $16 million on both a GAAP and non-GAAP basis. We are targeting a Q1 tax rate of approximately 25% on a GAAP basis and 21% on a non-GAAP basis. These targets yield a Q1 GAAP earnings per share range of $0.33 to $0.39 per share and a Q1 non-GAAP earnings per share range of $0.56 to $0.62. All of our targets are summarized in the Financial Targets document on our Investor Relations website. In summary, fiscal 2015 was a watershed year for Adobe. Strong growth across key financial metrics reflect our amazing performance. Our long-term financial targets, including a 20% revenue CAGR through fiscal 2018, show that the benefits of our move to the cloud are just beginning. Mike?

Thanks Mark. Registration is now open for Adobe’s annual Digital Marketing Summit. In 2016, Summit moves to Las Vegas during the week of March 21st. The opening day keynote will be on the morning of Tuesday March 22nd, and later that day we will also host an informal meeting with Adobe management for Summit attendees from the financial community. Registration information for Summit was sent out last week to our investor and analyst database, and more information about our user conference is available at summit.adobe.com. If you haven’t already signed up and need registration information, send an email to ir@adobe.com. If you are unable to attend in person, the keynote session will be webcast live. For those who 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 number 85090018. Again, the number is 855-859-2056 with ID number 85090018. 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 December 16, 2015. We would now be happy to take your questions, and we ask that you limit your questions to one per person. Operator.

[Operator Instructions] Your question comes from the line of Walter Pritchard from Citi. Your line is open.

Good day. It’s Steve Rogers on for Walter. Just wanted to ask you about what you’re seeing in terms of the subscribers moving from point to full and just kind of the impact there that, that would have on ARPU? And then I got a quick follow-up if you could allow me second question.

I think overall in terms of the subscriptions, we saw strength across all of the offerings. Certainly, I think as we innovate, we’re distancing our Creative Cloud offering from the Creative Suite offering. So we’re seeing good migration of existing customers. I would say Q4 was also characterized by international adoption accelerating in countries like Japan and Germany. Hobbyist and consumer customers are adopting the photography plan and education also continues to grow. And I think all of those contributed to a seasonally strong Q4. I think as you look at the individual versus complete, we've always maintained that individual is a good new way to attract customers to our platform and whether we move them from individual to compete or to we add stock, those are ways in which we are increasing the ARPU. And so across all of them we continue to execute well.

Great. And just to follow-up, just on Fotolia, if you just sandbox that business and look at kind of expectations for next year. Can you talk about what you're kind of expecting there and maybe give some color in terms of just standalone Adobe Stock customers versus people attaching on Creative Cloud?

From how we present that to our customers, the two real opportunities for us is to both take existing Creative Cloud subscribers and offer them an upsell to the Creative Cloud plus the stock subscription and in addition to that for new customers to have opportunity to both get that applications, as well as stock. And we offer both of those today, both of them are doing well. I think Mark mentioned in his prepared remarks that we accomplish the goals that we set for Adobe Stock for ourselves in fiscal ‘15 and certainly we expect to see it accelerated in ‘16. We’re not breaking it out because it's part of the annualized recurring revenue as well as the revenue that we report in Creative but so far so good. We've also added on the product side, two things we've added, video files right now which I think is going to be important and with the November release of the Creative Suite products we’ve added integration so that the workflow for the content creative professionals is now improved and enhanced.

Good. Thanks.

Your next question comes from the line of Sterling Auty from JP Morgan. Your line is open.

Yes. Thank you. One follow-up on the line of question, the 833,000 subscriber additions, were there anything that you did in terms of incentives in the quarter. You matched with some of the international geographies. Is there anything that you did different to drive conversions in those international markets? How should we think about the sustainability of that impact?

Well, Sterling, as it relates to what we did specifically in Q4, I won’t highlight anything that was unusual or different from what we've been doing since the introduction of the Creative Cloud. We’re constantly finding ways to incent people to move from Creative Suite to Creative Cloud or new customers. And as you know, we look very closely at retention, as well as how they migrate off any promotional pricing that we might do as they finished the first year. So I would say nothing unusual and I think just executing on all cylinders.

Great. Thank you.

Your next question comes from the line of Kash Rangan from Bank of America Merrill Lynch. Your line is open.

Hi. Thank you very much. Congratulations. Will you be reporting net new subs going forward and if you have any thoughts on where you're shooting for fiscal ‘18, I know you gave us a framework or ARR revenue EPS but where would you likely be targeting subs as you exit your long-term framework and also on an annual quarterly basis? Thank you.

Well, first, thanks Kash for you comments. Clearly, our long-term goal is to attract tens of millions of customers to the vision of Creative Cloud and drive both higher ARR and revenue. It's been important to us through this entire transition to make sure we give you metrics to understand the health of the business. And as we keep stating, we believe that as we are going to introduce new subscriptions whether it's mobile only subscriptions or education subscriptions to attract new customers to the platform, ARR continues to be the most important metric of the health of the business, as well as revenue. And so certainly, if you look at our goals of tens of millions of subscribers, we continue to expect to see acceleration and subscription growth. But I think the more important metric and maybe to answer Sterling’s question as well in terms of how you think about 2016, I would look at the $1 billion of ARR that we’ve provided and look at the seasonal way in which it was added in FY ‘15. And I think that should be a good proxy for how you model FY ‘16.

Got it. Also, secondly, Shantanu, thank you for taking the question. What is your goal for Fotolia attached within the Creative installed base?

Kash, I'm not sure we have a specific goal that we outline. We certainly think that as we’ve said over 85% of both the buyers and sellers are Creative customers. And so you know, we would like to see all of them when they have inspiration and want to use stock for photography or videos, to use our stock service. And conversely it's a great marketplace for them to monetize their creative assets. So we continue to think there is significant upside there.

Happy holidays gentlemen.

Thanks Kash.

Your next question comes from the line of Kirk Materne from Evercore ISI. Your line is open.

Yes. Thanks very much. Shantanu, I was wondering if you could talk a little bit about the competition in the marketing cloud as you guys get into more multiproduct, multi-year deals. Is the competition so changing, are you seeing or imagine bigger competitors there. Are you still seeing some point products or solutions in the market. And I guess when you talk about lot of these big deals, obviously you guys expand your relationship with Accenture this morning. Could you talk about how many of those big deals have big SI partner or advertising partner going in there with you and the importance of those partnerships? Thanks.

Sure. So multiple questions there Kirk. Let me address the last one first, which is partners are playing increasingly important role in large number of the implementations. I think what we are certainly seeing as it relates to the multi-solutions is digital disruption as this conversation that's happening in every single boardroom and the awareness and the recognition that the customer journey and digital experience is fundamental to making that transformation, we hear that everywhere we go. And so I think marketing departments, CIOs, Chief Revenue Officers are recognizing that a platform is essential to helping with this particular transformation. So I think what's fueling our business is that the importance of digital transformation is now a Board level discussion rather than just a practitioner. With respect to the systems integrators and the digital agencies, up all of them have been great partners to us. I think today's announcement with Accenture just highlights how we can even further accelerate in the U.S. what we're doing in healthcare, as well as in financial services with them. To your other question about competitive dynamics that are happening in the marketplace, we clearly have the most comprehensive integrated offering. I don't think that's in question. There are a number of players who are offering point solutions and we recognize much like we did on the creative business that we have to deliver best-of-breed but we have to integrate it better than ever before. Products like audience manager are starting to really take traction and I think that reflects the growing importance of how customer segmentation is important across our solutions. So we have a number of point product competitors. We have a number of the large enterprise vendors who also look at marketing as an opportunity. I would say for the most part our offering is clearly differentiated and the distinction between us and others as we keep innovating should continue to increase. So it's been a healthy and positive.

Thanks very much and congrats on the fiscal year.

Thank you.

Your next question comes from the line of Mark Moerdler from Bernstein Research. Your line is open.

Thank you and congrats on the quarter. So I want to drill a little bit on deferred revenue which continues to grow much faster than revenue itself and you would expect that to some extent. I just want to confirm that there are no other factors that are affecting or impacting it, there is no change in contract terms or anything else or payment terms et cetera that would be affecting that.

Hey, Mark, it’s Mark. No. there is no change there at all. Deferred really is just growing as a result of ETLAs on the creative side and bookings on the digital marketing side, just as you would expect.

And one quick follow-up and deferred is not include the hobbyists, correct? Deferred does not include the hobbyists, correct?

Yeah. Because the hobbyists are being billed monthly.

Yeah. Anyone that’s billed monthly wouldn't show up in deferred, right. So deferred is just things that have been billed but not yet recognized to revenue. And you also see this effect in the unbilled backlog that I talked about in the script as well.

Perfect. Thank you. Congrats on the quarter.

Thank you.

Your next question comes from the line of Ross MacMillan from RBC Capital Markets. Your line is open.

Thanks so much and congratulations for me as well. I just was curious this quarter on the mix of Creative Cloud subscribers between single app and complete, do you have that number, Mark or Shantanu?

Yeah. Give me one second Ross. If you have another question, [indiscernible]

Yeah. My second question was on the marketing side, it sounded like you had a very strong booking this quarter. But I think the marketing cloud revenue was a tad lower than the low end of that guidance range you had provided. And I was just curious as to what that puts and takes there were? Was it really just even less perpetual than you thought or any other factors on that line that would be helpful? Thanks.

Yeah. Sure. I'll answer both of those, Ross. So the mix was 52 complete and 48 point on Creative Cloud. And as it relates to digital marketing, what we would say is that as Shantanu mentioned, we're the leader in this category, we've had record revenue and record bookings in that space, AM and Analytics of the largest pieces of the business. And as you know, AM for a little while now has been going through this migration from perpetual to one of the Managed Services offering. In Q4, to put some numbers around it, in Q4 we had roughly $20 million of perpetual revenue. That was well below what we thought in that $365 million to $400 million range we’ve provided. So even though we were anticipating perpetual being less than it was a year ago, it came in well below the range that we had provided you. In ’16, the FY16 targets have less than $45 million in perpetual for the entire year. So we basically taken almost all of the perpetual revenue risk out of the targets for this very reason. So it should not be an issue going into next year. It’s out of the guidance for the most part and it's really the only reason we came in below that range we had provided for Q4.

And just to clarify, Ross, when Mark says that, perpetual was low, it did change to ratable rather than…

Yeah. Yeah.

… dropping out and so as it related to bookings…

Yeah.

… especially when you consider it FX adjusted for constant, we saw both quarterly and annual growth rates greater than 35%, so stronger bookings.

And the last thing I'd add to that is, the quarterly growth, when you look at the quarterly growth next year on a quarter year-over-year basis, its going to vary under the 20%, over the 20% slightly each quarter based on how much perpetual was in the FY15 related quarter.

Yeah.

But we still believe we’re going to hit the 20% on a year.

Yeah. That’s very clear. That’s great. And maybe just one very quick last follow-up. Just somewhat like cash’s question, but I know you’re not guiding to subs. But you added $1.1 billion of Creative ARR this year? You're targeting $1 billion next year. That delta if we think about that of $100 million and then we think about your sub adds this past year, is that a good proxy? So call it just under 10% less, is that a good proxy for the way we should think about sub adds give or take or do you think there is an ARPU delta that we should also take into account?

It’s the later, Ross, and it’s not the former. Again, as we introduced new subscriptions that will target mobile or education as we said and as we are looking to attract tens of millions of subscribers, we don't necessarily foresee decline in year-over-year growth in subscriptions.

Great.

To put another way there is more growth there.

Yeah.

Yeah. Understood.

Subscription is to go up.

That’s great. Well, congratulation again. Thanks so much.

Thank you.

Thanks, Ross.

Your next question comes from the line of Brent Thill from UBS. Your line is open.

Thanks. Shantanu, the Marketing Cloud, you’ve continued to highlight really strong bookings. I’m curious if you could just walk through what you're seeing in terms of some of the deal sizes, I think in the past you talked about deal sizes are getting bigger, they’re taking more components of the large suite. Anything else stand out to you this quarter or maybe perhaps sort of the last couple of quarters that seems to be a trend that you're seeing now that you haven't seen in the past?

I think the two things I’d highlight Brent is first, adoption of the entire Marketing Cloud, as well as some of the Core Services. So, I would say, Audience Manager is seeing good strength. Audience Manager, again, just to clarify like a Data Management Platforms, as well as the ability for people to use the same customer segments across each of our products. So we are seeing good growth in Audience Manager. The two are large components of the Marketing Cloud analytics, as well as Experience Manager continue to power along. Made some good progress with Campaign, Campaign growth has been really good to see. And last but certainly not least, I would say Primetime. I think with video being explosive category. We haven’t touched on that as much. But TV Everywhere and digital consumptions of videos increasing and so I think we’re continuing to see some good progress in video. But there is a clear requirement on the part of our customers to say, does all this stuff work together and I think that is only playing to our strength as well our brand. So across the Board we continue to see good strength.

Okay. And just real quick on the Marketing Cloud, Mark, as a follow-up. The question from investors, obviously, the doubling of the backlog versus the revenue growth for the last two years and at some point that has to converge in your -- your client for that conversions next year? Has there been anything else that’s been surprising on implementation duration or have been some of these transactions has there been any churn on some of the original contracts that have been signed? That is a question that’s come up, but I wanted to, it didn’t sound like it, but I wanted to make sure we ask?

Yeah. That’s a fair question, Brent. No, churn has not been a problem, retention remains really high. We've done really well from that perspective. We’ve talked about the fact that as customers do larger deployments. It does take a little bit longer to get them up and running and that delays the revenue clock a little bit. It's not a huge material problem. In fact it’s a good thing, because they are doing larger deals with us. But nothing has changed from that perspective. It’s really…

Thanks for the color.

It’s mainly been this perpetual shift.

Thank you.

Your next question comes from the line of Samad Samana from FBR Capital Markets. Your line is open.

Hi. Thanks for taking my question. So, I wanted to touch on the geographic side. It looks like there is a nice acceleration in Asia-Pacific? I was curious if there is something specific that drove that. And then conversely with EMEA, it seemed like there is a slowdown, despite you guys calling out fairly healthy booking, especially on the Marketing Cloud side? I was wondering if you guys give us some color on what’s going on in Asia-Pacific and EMEA? Thanks.

Samad, I mean, when we look at what's happening with the business in Asia-Pacific. Certainly both Japan, we continue to see good adoption of the Creative Cloud and the rest of Asia-Pacific had a very strong Digital Marketing growth as well. I mean, we see more adoption of that. In Financial Services, Australia continues to perform well. And as it relates to Europe as well, I mean we are seeing good growth in Digital Marketing in both regions. We focused our Digital Marketing on a few geographies, so the U.K., Germany, Australia and Japan, I would highlight as the areas where we are focusing a lot of our Digital Marketing. But nothing stands out in terms of what's happening in those regions. All of them continued to show promise for both Creative Cloud, as well as Digital Marketing.

Great. Thanks.

Your next question comes from the line of Brian Wieser from Pivotal Research. Your line is open.

Thanks for taking the question. Just building more on the Marketing Cloud and Data Management platforms in particular. We’re seeing lot of really interesting suites from some of your competitors out there, integrating more of a focus on attributions from some and then more focus on actual data from others, of course, Google launching theirs. I'm just curious, what sort of vision you have in terms of, how you see Data Management evolving in terms of product offering? Obviously, you're integrated with your overall other product suite. I’m just curious, if you think you need to push further into attribution, for example, push further into display buying that loan, other direction or if the segments that of marketers are focused on are those for whom your currency is most appropriate?

From our point of view, I think the focus that we have for the digital marketing business in the Marketing Cloud, in particular, is how can we enable people to have a great experience across mobile devices, tablets, and create that compelling web experience that people want. From our point of view, everything starts with the content platform and the data intelligence. The Data Management platform itself for us, it's a means to both how are you spending your advertising dollars and ensuring that you get the return of investment on that. And the advertising part is just a small portion of our overall marketing cloud revenue as well as our offering. So it's an important strategic part to enable people to understand who their customers are, the demographics, the profiles, so that they can effectively give them the offering that they need. But it should not be construed as a further increase into the advertising ecosystem even though that's a healthy business for us.

All right. Thank you.

The next question comes from the line of Heather Bellini with Goldman Sachs. Your line is open.

Great. Thank you. I would just wonder just watching everything that’s going on with TV dollars shifting and mobile advertising really starting to take up with bigger form factors in the market especially the likes of 6 plus. Just wondering, if you can share with us that kind of how you see this is potentially even accelerating some of the growth that you’ve been seeing. Now that you’ve got kind of what looks like accelerating shift of offline go into online. It seems like you have some attribution technology that really, might out of the competition there. So, I was just wondering, if you could share that with us. And then the other question was just related to OpEx for Mark. Obviously you guys did a great job in fiscal ‘15 and only grew it by about 2% and your guidance for this year implies a pretty good wrap. I’m just wondering which line items should we see the strongest growth from in fiscal ‘16 from an OpEx perspective? Thank you.

Hi, Heather, it‘s Mark, I'll start. On the OpEx side, the bulk of the increase will show up in sales and marketing. I mean COGS is going to go up because it's variable with revenue especially in the digital marketing business. But across both businesses, if you want to go after these large new TAMs that we out line at Analyst Day, we’re going to need the sales and marketing dollars to do that. So that that's what's baked into the model for the next three years frankly and that's included in the guidance that we provided.

And Heather on your first question, first with respect to attribution clearly the versions of the Marketing Cloud have attribution. We’re continuing to enhance the attribution, so that we can not just do attribution at a individual spend level but we can also do it across both the entire Marketing Cloud as well as what's happening between online spend, display spend, service spend, social spend, and off-line spend. So we've been spending more of our research efforts to better enable marketers to understand the efficacy of their dollar spend. I think with respect to mobile, it’s actually driving everyone of our individual solution components. I think Mark alluded to something like 40 plus percent of the transactions that people now have are on mobile. And so if you think about it from the point of view of the content that’s being delivered to mobile devices, the video that's being consumed on mobile devices, the campaigns that require SMS or messaging, mobile is being just a huge tailwind for us across each of our solutions, in terms of the important for people to have new solutions. The advertising component again for us is represented in the media optimizer that business is showing growth. But it's not just the advertising part of mobile that's fueling our business. It's the consumption just as much.

Thank you very much.

Your next question comes from line of Keith Weiss from Morgan Stanley. Your line is open.

Thanks. Thank you for taking the question guys and very nice quarter. Two questions, sort of -- one on sort of the [topline segregation] [ph] and the other on expenses. In terms of sort of the -- sort of international adoption of Creative Cloud, you talked about international market is picking up for you guys. How should we think about the lag between sort of where the U.S. is, where that lead us at the spaces versus where international market is and how far back is sort of the rest of world to be beyond -- behind the U.S.? And then on the OpEx side of the equation, just looking for little bit more color. It looks like you guys said headcount growth around 11% and so that’s picking up a little bit, just wondering where you guys are making those investments and how we should think about that headcount growth into the forward fiscal year?

I will take the first questions and the first question as it related to sort of the lag between U.S. markets and international markets. The way I would describe it is, Australia was the first place that we introduced it and so we've got tremendous experience through what we did in Australia and certainly, a lot of the focus that we have had has been in the U.S. The other non-speaking international markets, we consider them a year behind or year and half behind in some cases and catching up, because we put as -- we put a significant amount of our attention in the U.S. So nothing in those markets would lead us to believe that we won't see the same kind of success, but that may give you some sort of measure of where we are in the U.S. versus the rest of the world. We haven't yet really targeted and we've always talked about this being an opportunity, the emerging markets and having completely different pricing available there, because we continue to believe that there's so much opportunity and what we would say our markets where the propensity to both take subscriptions, as well as the network bandwidth is higher than in some of the other markets. So that continues to be on the roadmap.

And if you look at the headcount, it’s pretty consistent with what I told Heather. The headcount adds in Q4 were primarily in sales and marketing. The headcount adds frankly across the entire year were primarily in sales and marketing, and it's really just to drive sales capacity in the sales organization quarter carrying sales capacity and to do marketing activities to address these larger TAMs that we talked about.

Thank you.

Next question.

Your next question comes from the line of Jay Vleeschhouwer from Griffin Securities. Your line is open.

Hi. Thanks. Good evening. Two things, first, with respect to the ongoing momentum in subscriber apps for Creative Cloud, I understand you are not guiding specifically? But, how are you thinking about the importance or contribution from net new customers, I’ll just say, due to Adobe as you define them as compared to upgrading the base? But first couple of years at least if Creative Cloud looked as new, new customers were something over 20% of the count and that number seem to have move closer to 30% more recently? If you look at over the next couple of years, what sort of contribution of, again, new, new to Adobe kind of Creative Cloud subscribers are thinking of or that you might need to have? And secondly, for Mark, with respect to the profitability of the digital marketing business, how are you thinking about that in terms of the role of cost of services, which is a large part of that revenue stream, when you look at your cost of revenues sequentially year-over-year, it’s obvious that Digital Marketing is a significant part of the sequential and year-over-year increases in your cost of revenue and that seems to be very heavily driven by services, specifically? So, how are you thinking of the progression overtime of the dependency on services and perhaps, the ability to improve the profitability of the Digital Marketing business?

Yeah. Sure, Jay. And certainly sub adds we would expect that we will continue to drive net new subscribers to Adobe. You're right it's been more like 30%. We would expect that to continue. That's how we are going to address these large new TAM opportunities that we outlined at Analyst Day. And in Digital Marketing, the margin on that business continues to improve, from a gross margin perspective. We fully expect that we can do better and better from a hosted gross margin perspective, as well as from a professional services perspective and I would expect that to continue.

All right. Thanks. And if I could maybe squeeze one more. Are you have such visibility in model but unusually you don’t will be guide to cash flow and I was wondering if you might give a comment on that for ’16?

Well, we did for the first time give a cash flow guide from a CAGR perspective over ‘15 through ‘18 at Analyst Day. So as we get more and more predictable, I’ll look at whether we bring that in a bit tighter, but we did give a 25% cash flow CAGR through ’18.

Okay. Thanks, Mark.

Sure. Operator, we’re coming up in the top of the hour, why don’t we take two more questions.

Your next question comes from line of Derrick Wood from Susquehanna International Group. Your line is open.

Thanks. A question on guidance on the Digital Media side, it looks like you’re guiding to 35% growth in ARR and 20% growth in revenue. And I think that these numbers overtime start to converge, but there's obviously still a bit of a delta out there with some slower growth or maybe shrinking perpetual license components. So can you give us some context about what those moving parts are the way on revenue growth as we think about that as in ’16?

Hey, Derrick. It’s Mark. Yeah. You're right. It's a big ARR guide and smaller revenue guide if you will. They do converge overtime and there are pieces in that segment that are perpetual that are telling off that we’ve talked about things like Lightroom, things like the hobbyist products, things like the interactive development, the monetization of our website. Those pieces of the business have been perpetually oriented and are definitely tailing off, and that's causing a little bit of a short-term slowdown on the revenue growth. But overtime they definitely converge ARR in revenue.

And I could squeeze in other one in on the digital marketing side and it was mentioned earlier that longer time to go live because projects are getting more complex that's weighed on time to revenue recognition. Is there anything you can do with the, I guess, engaging with the SI community to lower those cycles or kind of do we expect that to be constant really at these levels going forward?

Well, I think another way that you should be thinking about it is the customer in question may have the most immediate need of completely replacing their website. But what they decide to do because of the breadth of our offering, say, not only are we going to take the experience manager and analytics solution which is natural, but because all of the solutions work together, we’re actually going to go ahead and engage Adobe in the entire solution. But in terms of how they implement them, then they may implement them sequentially in order to make sure that they get the most benefit out of it and that it goes smoothly. So some of these are just their large complete replacements of the web infrastructure and the entire online presence. And from our point of view, they’re making a very strategic decision to go with Adobe for the entire platform and so we think that's good. And as Mark pointed out, the revenue starts to flow starting fiscal ‘16.

Great. Thanks, guys.

Your next question comes from the line of Brendan Barnicle from Pacific Crest Securities. Your line is open.

Thanks so much. Shantanu, I just wanted to follow-up on your answer to Ross MacMillan’s question and when you think about the guidance for next year, are you contemplating any ARPU improvement?

I think as it related to ARPU even this year, we did see in the commercial segment actually an ARPU increase. So certainly, the ARPU as it related to commercial increase, the ARPU as it related to the other services were relatively consistent and then when you look at it from a blended point of view, it was also relatively consistent. We definitely expect to see stock getting uptick in terms of the existing install base. At the same time, there are opportunities for us to attract a completely new set of customers whether they be in education, whether they be mobile only customers. And we would be crazy not to get them to our platform and drive future ARR and revenues. And so that’s the way we are looking at the business. I realize it’s easier to just do a p-time SKU but the truth is we don’t have just one single offering that allows you to take it. It’s the breadth of our offering that will actually enable us to be a more predictable and honestly drive future growth more than sticking to only the Creative Cloud enter single offering. So we’re pleased with way that’s going but hopefully that gives you some color into where we’re headed. Well, given that was the last question, I just wanted to say we feel like we had a fantastic finish to a great year. And more importantly, we enter fiscal ‘16 with significant momentum as well as an incredible opportunity for us to continue to innovate on behalf of our customers and grow. As I think about it for individuals, good design in Creative have never been more important. And I think with Creative Cloud, we’ve delivered a one-stop destination that delivers everything from inspiration all the way up to monetization. And for businesses, the digital disruption topic is absolutely dominating boardroom conversations. And we realized that a direct compelling digital experience is so critical to enabling this transformation and our lead in digital marketing solutions enables all of these customers to make the transition happen. And from our point of view when you combine these two opportunities, the power of creative content as well as data intelligence, we feel that’s going to continue to fuel our business and excellent execution by our employees helps us deliver the results that you saw. So thank you for joining us today and we look forward to the next call.

This concludes our call. Thank you.