Adobe Inc. (ADBE) Q3 2011 Earnings Report, Transcript and Summary

Good day, everyone. Welcome to the Adobe Systems Q3 Fiscal Year 2011 Earnings Conference Call. As a reminder, today's call is being recorded. At this time, I would 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; as well as Mark Garrett, Executive Vice President and CFO. In the call today, we will discuss Adobe's third quarter fiscal year 2011 financial results. By now, you should have a copy of our earnings press release, which crossed the wire approximately one hour ago. If you need a copy of the press release, you can go to adobe.com under the Company and News Room links to find an electronic copy. Before we get started, I wanted 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, September 20, 2011, and contains forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the Forward-Looking Statements Disclosure in the earnings press release we issued today, as well as Adobe's SEC filings. During this call, we will discuss GAAP and non-GAAP financial measures. A reconciliation between the 2 is available in today's earnings release and on our Investor Relations website in the Investor data sheet. Call participants are advised that the audio of this conference call is being broadcast live over the Internet in Adobe Connect and is also being recorded for playback purposes. An archive of the call will be made available on Adobe's Investor Relations website for approximately 45 days and is the property of Adobe Systems. The audio and archive may not be rerecorded or otherwise reproduced or distributed without prior written permission from Adobe Systems. I will now turn the call over to Shantanu.

Thanks, Mike, and good afternoon. In Q3, we delivered revenue and earnings within our targeted ranges. Revenue in the quarter was $1,013,000,000 with non-GAAP earnings per share of $0.55. Highlights in the quarter include record education revenue, strong growth in our digital video products, solid performance with Acrobat, continued bookings momentum in digital marketing and non-GAAP earnings at the high end of our targeted range. In today's call, Mark will first review our financial results in the quarter and provide our Q4 outlook. Following that, I will spend some time outlining some important strategic shifts we are making as a company. Mark?

Thanks, Shantanu. In the third quarter of fiscal 2011, Adobe achieved revenue of $1,013,000,000. This compares to $990.3 million reported in Q3 fiscal 2010 and $1,023,000,000 reported last quarter. Q3 GAAP operating expenses were $634.4 million compared to $589.2 million reported in Q3 fiscal 2010 and $637.3 million last quarter. Non-GAAP operating expenses in Q3 were $560.1 million compared to $524.7 million reported for Q3 fiscal 2010 and $556.7 million last quarter. GAAP operating income in Q3 fiscal 2011 was $274.1 million or 27.1% of revenue. This compares to GAAP operating income of $302 million or 30.5% of revenue in Q3 fiscal 2010 and $276.7 million or 27% of revenue last quarter. Non-GAAP operating income in Q3 fiscal 2011 was $366.1 million or 36.1% of revenue. This compares to non-GAAP operating income of $384.9 million or 38.9% of revenue in Q3 fiscal 2010 and $376.4 million or 36.8% of revenue last quarter. Adobe's effective GAAP tax rate in Q3 was 24%, and the effective non-GAAP tax rate was 22%. The difference between the GAAP and non-GAAP tax rates is due to our acquisition of EchoSign during the quarter. GAAP diluted earnings per share for Q3 fiscal 2011 were $0.39. This compares with GAAP diluted earnings per share of $0.44 reported in Q3 fiscal 2010 and GAAP diluted earnings per share of $0.45 reported last quarter. Non-GAAP diluted earnings per share for Q3 fiscal 2011 were $0.55. This compares with non-GAAP diluted earnings per share of $0.54 in Q3 fiscal 2010 and $0.55 reported last quarter. I'll now discuss Adobe's results in Q3 by business segment. Creative and Interactive Solutions segment revenue in Q3 was $417.9 million compared to $416.9 million in Q3 fiscal 2010 and $433.1 million last quarter. Digital Media Solutions Q3 revenue was $151.1 million compared to $157.7…

Thanks, Mark. Our industry is in the midst of a major transformation. Tablets and smartphones have become the new devices of choice. Software is moving to the cloud. Business models are evolving with subscription offerings and app stores and technologies like HTML5 are gaining favor. These trends are having a significant impact on our customers. From publishers to marketers to educational institutions, our customers face the same challenge: they need to create compelling digital content and applications that work on both desktops and devices and they need to measure the impact of those experiences. Adobe's heritage is in content authoring. We built the category and we remain the market leader. Today, we enable our core audience of publishers, designers and developers to create the world's best websites, applications and games using our Creative Suite desktop software. We will continue to innovate on the desktop, providing new functionality to address the challenges our customers face. With the shifting landscape that favors HTML5-based content and application delivery, we are doubling down in our investment in this area. CS5.5 delivered enhanced HTML5 capabilities. We recently previewed Adobe Edge, a new HTML5 web motion and interaction design tool, which allows web designers to create cutting-edge animations for their websites. Interest in this tool far exceeded our expectations. We just introduced the beta release of a new product, codename Muse, which allows designers to create and publish HTML-based websites without writing complex HTML code. We're also contributing new innovations to WebKit to allow for a more expressive web. These initiatives show our commitment to help drive the evolution of browsers and be the leading tools provider for HTML5, and this is only the beginning. The explosion of tablets is changing the paradigm for content authoring. We believe that content will be consumed and created on…

Thanks, Shantanu. Before we start Q&A, I want to remind everyone about some important dates for Adobe this fall. As Shantanu mentioned, Adobe MAX is just around the corner. Our annual conference will be held once again in Los Angeles during the week of October 3. We are offering a special registration price for Wall Street professionals to attend and are hosting a special reception with Adobe management for Wall Street attendees. Please e-mail Adobe Investor Relations at ir@adobe.com if you'd like information on the agenda and how to register. Our annual Financial Analyst Meeting will be held in New York City on November 9. Please save that date and a formal invitation will be sent out soon. In regards to today's earnings report, we have posted several documents on our Investor Relations website today, including a copy of the script containing our prepared remarks for today's call. To access these documents and the other investor-related information, go to www.adobe.com/adbe. For those who wish to listen to a playback of today's conference call, a web-based Adobe Connect archive of the call will be available from the IR page on adobe.com later today. Alternatively, you can listen to a phone replay by calling (888) 203-1112, use conference ID number 4657343. International callers should dial (719) 457-0820. The phone playback service will be available beginning at 4 p.m. Pacific time today and ending at 4 p.m. Pacific Time on Friday, September 23, 2011. We would now be happy to take your questions. Operator?

[Operator Instructions] And at this time, we will go to Steve Ashley with Robert W. Baird. Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division: Shantanu, during your prepared remarks, you talked about possibly monetizing some of the new HTML5 tools that you plan to introduce in the future, and I was just wondering if you might be able to give us a bit more of color on that.

Sure. So Steve, as we think about the evolution of Creative Suite moving forward, I think there are a couple of different things that we're hearing from our customers in terms of what would be catalysts for Creative Suite. And HTML5 and support for HTML5, whether that's browser-based content or creating standalone applications, are certainly one of it. So as you can expect, we will be taking the tools that we've been delivering, like Adobe Edge and Muse, and you might see that in future versions of the Creative Suite. So that's one example of how we're continuing to monetize HTML, because we want to be clearly the leader in HTML authoring. The other way is as HTML video is also taking off, you've probably seen that we announced a new version of the Flash Media Server. And the Flash Media Server also now serves up content not just to Flash video but, in addition to that, also to HTML video. So -- and finally, the Digital Publishing Solutions. The Digital Publishing Solutions also export all of these newspapers, magazines, catalogs that we are preparing in either Flash content or AIR or as HTML. So big picture, I would say as HTML is getting more prevalent, we're clearly both embracing it from the point of view of tools and being the leader in tools but also contributing aggressively to the evolution of HTML as a standard. Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division: Great. And maybe lastly, I'm sure the question on most people's minds are have you seen any change in kind of the economic environment and maybe particularly, Europe here in recent weeks or months?

Steve, it's Mark. From a demand perspective, I'd say that Asia and the Americas has been relatively stable, like I said in my prepared remarks. The weakness that we saw in the second quarter did continue into the third quarter in Europe. But I think it's important to keep in mind that Q3 is always our tough quarter due to summer seasonality, the way our calendar falls. So we were very pleased with where we came in, in our target range. And if you look at the guidance we provided, like I said, at the high end we would grow the business 10%, just like we anticipated before the start of the year. Margins are improving year-over-year. Earnings growth will be around 20% at the high end of the range. Shantanu said CS5.5 is having the effect of keeping the run rate up late in the cycle. Omniture bookings are growing over 20%, and Acrobat's doing very well. So overall, we're really pleased. We were definitely off the most in Europe. The weakness that we saw last quarter, like I said, continued. The largest miss within Europe was in the Enterprise segment. But we've got a strong pipeline for Q4, and we just now need to execute on our fourth quarter.

Moving along, we'll hear from Walter Pritchard with Citi.

This is Ken Wong for Walter. Just kind of digging down a little more into the Q4 guidance which was quite impressive. I'm just wondering if you guys could give us a little color around your confidence. Is it just you guys saw some deal slip, or is it really just the strength of the pipeline?

Yes, sure. This is Mark again. Q4, we expect to be similar to what you've seen from us in prior years. We expect to close the fourth quarter strong. It's traditionally strong, given our larger and larger Enterprise business. And as you know, enterprise customers do tend to buy more in the fourth quarter. In addition, like I said, Europe seasonality is tough in Q3. That improves in Q4. The government year end falls in our fourth quarter, and we benefit from our hobbyist launch in the fourth quarter. We've got a very strong pipeline, and we expect to close strong, like I said, we've done in prior years.

Great. And then maybe if you could just kind of talk a little bit on your video tools. Apple and their Final Cut product had sort of a bit of some shenanigans this past quarter. Did you see much impact on your business? And then what else are you doing to capitalize on this opportunity?

Yes. So clearly, we do see video as a large growth opportunity. That business actually did really well. We had a very aggressive program that we first rolled out in the U.S. called the Video Switcher program where we targeted both Avid as well as Final Cut Pro customers, and we're now actually rolling that out worldwide. And even prior to the recent announcements by Apple in terms of their focus more on the prosumer rather than the videographer, we were actually continuing to do well against both Apple and Avid. So it is our intent to continue to be strong in the video space. At the IDC conference recently, we also announced high-end color. And so the video is a strong business for us, not just on the authoring tools but, frankly, for the entire workflow because now we also have the ability to deliver that content and do content protection. So we're seeing good double-digit growth and it's clearly driving what you see in the DMS segment as we report our revenue.

Next in line, we'll go to Mike Olson with Piper Jaffray.

Just a question that we often get on Adobe is, "Will the growth in the business come from growth of the Creative Professional user base or increased revenue per customer?" And my guess is that you would answer that it's a combination of both, and perhaps you'll give us an update on the Creative Pro customer base like you have before at the Analyst Day. But would you suggest that the biggest growth in the number of Creative Pros, if we're looking at that piece of the growth of the business, is in the mobile space or the video space or somewhere else?

So Mike, that clearly is one of those questions where we spend a lot of time at the analyst meeting, and as you point out, it is both, which is for the existing Creative professional customer. I think there are a significant amount of changes that we'll drive. Digital publishing represents a large opportunity as they all want to get their content out to new devices. Video is clearly a growth opportunity for us, we're doing very well in that space with respect to market share. HTML5, continuing to make sure that we deliver the best tools in HTML5 for Creative Pro. And as I said, tablet applications, we intend to deliver a whole new set of tablet applications, which will be augmenting the current desktop functionality for Creative professionals. In addition to that, we actually believe that there's a large opportunity to attract new customers to the base with the new set of tablet applications that we will create, as well as subscriptions and attracting new customers. So both delivering new creative applications and extending that to the workflow is the way in which we intend to continue to grow that business, and you'll certainly hear a lot more about that at the analyst meeting.

Okay. And then just one quick one for Mark. When you think about 2012, I know you're not giving guidance on that but just wanted to talk about kind of linearity of the quarters. When you look at the year, is there any reason to not expect normal seasonality with Q2 up from Q1, especially with assuming CS6 ships in Q2, and then Q3 down from Q2 based on normal seasonality and then Q4 up from Q3? And the reason I asked is, if you look at kind of current consensus numbers, they assume revenue's up in every quarter in 2012 but would you suggest Q3 should be down sequentially followed by an uptick in Q4?

Well, so from a seasonality perspective, I wouldn't expect anything to change next year. But to be honest with you, we're not prepared to talk about 2012 color. We'll definitely spend a lot of time talking about that as we get together with you guys at Analyst Day.

Moving along, we'll go to Adam Holt with Morgan Stanley.

I had a couple of questions about the Enterprise business. You first said looked like the year-on-year growth in the Enterprise business is a little bit lower than what it has been. Was that a function of some of the difficulty you talked about in Europe? And how do you think about the trajectory of that business going forward?

Adam, it's Mark. So clearly, enterprise was a little lighter than we would've liked. Again, the weakness that we saw in Europe was primarily driven by weakness in the enterprise. If you look at our guidance though for the full year, we still expect that enterprise can grow 20%. And I know you're all very focused on quarterization, which I completely understand. But we expect the year, the full year, to play out exactly as we had talked to you about the end of last year. So the year is playing out exactly right. Q3 was a little different than we had expected, driven by Europe.

Okay, terrific. And then, if I could just shift to CS. 5.5 has obviously been a good release. Where do you think you are in penetration of 5.5? And how do you think about your transition from the half back of -- interval release into the 6 release?

So Adam, why don't I comment a little bit about that. In terms of where the penetration is for CS5, as Mark said in his prepared remarks, it's actually the revenue has now -- it's on par with CS3, and considerably greater than it is for CS4. We have about something like 40% of our customers on CS now on CS5 so that gives you some sense of the penetration. And what CS5 has done is really accomplish a couple of the objectives that we had set out to do. The first is, how do we drive continued strong run rate of 5% while moving to the annual cycle so that we could enable more frequent innovation. The second goal that we clearly had was to continue to update our products more frequently to allow our customers to deal with what was happening in the marketplace. And as we look forward, frankly, to the next version of CS, we can get a lot of things that are going to drive the new version of CS, and not least of which is a new version of our franchise imaging application. But in addition to that, the things that I mentioned earlier, video, expect to see a fair amount of HTML5 innovation coming in the next CS, and the combination, frankly, of both the Creative applications, the tablet applications and what we provide as cloud services. So a lot of excitement about what we're going to deliver next year.

Next question in queue will be from Jay Vleeschhouwer with Griffin Securities.

With respect to recurring revenues, which you highlighted in your prepared remarks, how likely is it that CS6, you would fully implement both the maintenance model, more of one than you've had to date, plus turn on CS Live services for revenue?

So Jay, what we have found when we look at what we delivered both in the pilot in Australia and with CS5.5 was, clearly, we're attracting new customers to the platform. So that is working. And a number of the customers that we surveyed said that they would not be buying CS products had it not been for subscriptions. In terms of what we're also seeing to add a little bit more color, we're seeing a fair number of people adopt the point products and we're seeing a fair amount of people adopt the entire suite. So subscriptions as a strategy is clearly working for us in terms of attracting new customers to the platform. With respect to CS, the next version of CS, CS6 and beyond, yes, continue to expect us to deliver more as a combination of what's there in the desktop, as well as what's there as services. So while I'm not going to share specifics around it, directionally, that's absolutely the way we're headed.

You used the terms transformation and doubling down in your remarks which I thought was interesting. A question perhaps for Mark. You have well over $3 billion of goodwill on your balance sheet, and I'm wondering to what extent you've thought about the need or desirability of, perhaps, writing down some of your older technology that may not take you into the future where you want to be. Is that at all something that you've given any thought to? And similarly, is there any opportunity for Adobe to license or even sell some of its IP as we've seen a number of other tech companies do?

Jay, it's Mark. Yes, so on the goodwill, we do look at that every year. We do a goodwill impairment test that's required. And given the strength of all those businesses that, that goodwill represents, we've not had a situation where we need to write that down.

And Jay, with respect to the doubling down, when we think of what's happening with content authoring and digital marketing, it really was to continue to signal that we're so excited about the opportunity associated with digital marketing. When we go in there and talk to large customers, whether they be in retail, financial services, transportation, the combination of what we are doing with our content authoring, content management and analytics is really resonating. And that's why we will continue to make sure that, that integrated offering is the route to market. The more we can align our resources, the more we believe that we will see accelerated growth in licensing in the enterprise.

Moving on, we will hear from Chad Bartley with Pacific Crest.

Follow-up question or two on the Enterprise business. Mark, achieving 20% growth for this year would imply about 25% sequential growth in Q4. Is that realistic? That's a pretty big jump. And then assuming that that's still the growth target going forward, this year benefited from the Day Software acquisition so from an organic perspective, are you still thinking about 20% growth beyond this year for the Enterprise segment?

Yes, so it is a big jump in the fourth quarter but like I said, the pipeline supports that. We're getting a lot of traction with Day in that space, and we've got the pipeline to support a very healthy Q4. And if you look back in prior years we, like I said, we do have typically a very strong fourth quarter in the enterprise, which is typical for most enterprise software companies. And with Day, we don't look at it as with Day, without Day, anymore. The sales force is selling an integrated solution, so it's basically one Customer Experience Management Solution that's being brought to market now.

And with respect 2012, we'll share more about...

2012, we'll share at Analyst Day.

At the Analyst Day.

And next question in queue will be from Brent Thill with UBS.

Mark, just on Q4, you talk about the pipeline. But I think most of us were taking slightly more conservative close rates based on some of the macro things that are coming up. And I guess just when you take that into account, what have you done in this Q4 versus past Q4s? Have you taken your close rates assumptions down? Just trying to understand what type of sensitivity do you put into this on the forecast that you've given?

Yes. So Brent, Shantanu and I and Matt Thompson, our Head of Sales, we sit down and we go through this every single week. And we look at the pipeline, we factor risk into that pipeline. Like I said, Q4 is going to be seasonally strong in the enterprise. We've got the government year end, we've got the hobbyist launch. So there's a lot of things that every year kind of are going in our direction from a Q4 perspective, and we do risk assess that pipeline.

Okay. So just from your perspective, have you taken a slightly more conservative close rate than past Q4s or is this...

I think the fair thing to say is the sales cycles have been a little bit extended. You might have seen some of that in the third quarter, and we're taking that into account. And it's factored into our range, right, the upside and maybe some of that risk is factored into the range. That's the purpose of the range as well.

Okay. I appreciate that. And just a quick follow-up on the government. I mean, you anticipate that we will see follow-through. There won't be a bigger lockdown like everyone's expecting?

Well, I think Q4 tends to be the year end in government, as you know, Brent, in terms of the U.S. government. And again, as Mark said, we're going to be focused on taking the pipeline that we have continuing to deliver new products and driving to a strong close. It's not anything different from what we would do every quarter. And so that's what we're focused on.

Next question will be from Dan Cummins with ThinkEquity.

You answered part of my question speaking to Jay about the subscriptions having some success with point products as well as the suites. I was wondering if you could go a little bit further and talk about the geo regions, and perhaps even the demographics with respect to the success you're having bringing new Adobe customers into the family. And then just a general question about the subscription revenue line growing 2.5% q-on-q, what kind of objective do you have to really stimulate that line with the tab apps, and this further initiative around subscription adoption?

Sure. There are multiple questions in that. For the current subscriptions, the customers that we are attracting are, I would say, fall into 2 categories. The new customers, and these are customers who have never experienced an Adobe product before, so clearly what we are doing with having attractive entry-level prices, attracting brand new customers. It's also converting customers whom we would have traditionally called version skippers to stay more current with the CS set of products. So that's how I would characterize what we are seeing with the subscription pricing. In terms of moving forward and in future releases of CS, the goal clearly is to have our current creative professionals stay current at higher numbers than we've seen with CS5 and prior releases. And with everything that's changing in the Creative environment, we believe that this really allows us to have more innovation. Take a product like Edge. If you have a product like Edge that's on subscription, that's offered to all of the subscription people, that provides incentive for people to stay current. And today, with the 18-month cycles, you aren't allowed to do that, as you know, given financial accounting. So that's the strategic rationale for continuing to drive towards subscriptions and attracting new customers to the platform. On the tablet side specifically, I think we would all say it's early. We do believe strongly that tablets will be used not just for consumption devices but for creation devices. You're going to continue to see styluses added to tablet devices which make it an even more compelling offering. We will have a comprehensive set of products, and I think it's early to say how rapidly that will grow, but we do think that's a new revenue stream that will be meaningful for Adobe.

And would those be purely subscription? And do you think you could have those substantially in the market in the first half of the next fiscal year?

Again, we don't want to have all news associated with unannounced products. I think Carousel you've seen is a product which is a subscription-based product. And I think as we continue to offer all of our Creative customers a suite, I think we will have both point product and suite offerings. That's as much as I'll share right now.

And the next question in queue will be from Mark Moerdler with Sanford Bernstein. Mark L. Moerdler - Sanford C. Bernstein & Co., Inc., Research Division: Question specifically relating to the announcements at Microsoft with Microsoft moving Windows 8 to HTML5 and Java as a core development environment, and the extended support within Visual Studios for HTML5. How do you see both the opportunity changing, as well as the competitive landscape changing?

Sure, I mean in terms of the opportunity again, we have said for a while that we continue to think that people will create content for web browsers, and they will create content as standalone applications. And Adobe intends to play in both of those categories with our Creative tools. As it relates to HTML, I think it's still in its infancy but we will work collaboratively with the entire community to make rich internet applications possible in HTML through the use of new frameworks. We will push video as a capability within HTML. We'll do the same thing for video. And I think that's going to evolve over the next 4 or 5 years. The browser support is just beginning to happen, frankly, in terms of browsers that are supporting HTML, both on desktops as well as on smartphones. And so I think, big picture, that's a big opportunity for a company like Adobe. And our customers are clearly telling us, they want us to help reduce the complexity of authoring for these new richer expressive paradigms through our Creative tools. In terms of Microsoft specifically, yes, I think they will also offer developer tools, and they'll be one of many companies that targets this large opportunity. On the standalone application side as well, we continue to make progress. I think the #1 selling iPad application in I think something like 13 countries, was an application that was built in Flash and then recompiled in AIR to run on the i platform. So expect us to continue to also invest in making sure that for standalone applications, whether they be on the Apple platform, the Android platform or the Microsoft platform, we also expect our technology to work standalone on those environments. Mark L. Moerdler - Sanford C. Bernstein & Co., Inc., Research Division: So you're -- following up on the comment about the iPad app, do you have a little more information you'd like to share in terms of what you're seeing in terms of people recompiling for iPad? Because obviously, there's been this worry about the Flash issue.

Well, certainly, I think AIR is the technology that works on iPads. We have thousands of applications that are working. And our tools are being used to get their applications as standalone applications in the Apple store. We've also supported Apple iTunes in terms of our Digital Publishing Solutions. We support subscriptions as part of that, and we support the newsstand as part of it. So think of Adobe as the company that will provide tools, workflow and solutions, not just for the web but also for all of these different app stores that are emerging.

Next, we'll hear from Ross MacMillan with Jefferies. Ross MacMillan - Jefferies & Company, Inc., Research Division: I just had a question just on the education segment because you mentioned it as a strong area for the business, and I recall this time last year, I think it was a weak part of the business. And given that we all assume education's tied somewhat to state and local spending, which inherently is weak right now, can you provide any color as to what drove the strength in education?

Sure. So Ross, again, in Q3 of last year, what we had said was that the revenue was strong but it was slightly weaker than our expectations a year ago. In Q4 this year, we did have record revenue in education. And I think it's being driven by the different offerings that we have. I mean, we have large deals that are driving it. Our Creative suite is being adopted increasingly as a standard across all of the design training schools. The progress that we've made in video is actually helping make that more of a standard. As more and more students use our products for digital literacy, we're continuing to see good growth in that. But I would attribute it to a combination of the direct enterprise large deals that we're driving across higher educations primarily, as well as more adoption of our products by students. Ross MacMillan - Jefferies & Company, Inc., Research Division: If I could have a follow-up. We've all seen some changes within the enterprise sales leadership recently. Can you -- is there any comment you can make around how you're thinking about the investments into enterprise? And the reason I also ask that is because we saw that you're also making some channel partner plan incentive changes. It seems like you're making a number of changes, if you will, within kind of distribution, and I just wonder if you can comment to that.

Yes. When I go out and talk to a number of enterprise customers, and I spend a fair amount of my time, the sweet spot of that opportunity is the combination of these customers adopting our entire Creative suite and the Acrobat as an enterprise license and standardizing on content management and Omniture, because they're all thinking of how do they revamp their website, how do they move their business online, how do they get closer to the customers and how do they make sure they can measure all of that transactions on their website. In terms of our enterprise go-to-market, again, Mark said, that's the reason for aligning more and more of our sales force as well as our marketing programs, to align around a joint offering to the customer because that's really resonating. Both the Day as well as the Omniture bookings are growing over 20% a year. And so that will continue to be a focus. You're right, we were able to -- we recruit back Garrett, who's heading up our North America sales effort. Garrett used to head up all of SAP's Japan efforts, so we were pleased with that. And so expect to see more alignment and more focus around digital marketing as the sweet spot in the enterprise. And having a unified message, having a unified marketing program, actually helps us paint a bigger story and sell higher into the enterprise. So expect to continue to see effort on that.

And moving along, we will hear from Brad Zelnick with Macquarie Securities.

Mark, I was hoping you could talk about your uses of cash, and specifically your propensity for M&A versus buybacks versus organic investment at this point. And maybe if you could give us an update on your thoughts around hiring going forward.

Sure. So from a cash perspective, our strategy has been pretty consistent. Clearly, we make sure we have the right level of cash we need to invest in the organic part of the business. We have been acquiring, like we said, mostly on the smaller size, mid to smaller size companies, and I always want to make sure we have cash on hand to do that. And then whatever excess U.S. cash we have after those 2 things, we've been driving towards share repurchase. And I would argue we've done a great job over 5 to 7 years of buying back incredible amount of stock, probably close to $1 billion a year, every year, for the past 5 or more years. And we've now got the share count down below $500 million -- 500 million shares, and I think that's been strategic in driving value to the shareholders. The second part was what?

Hiring.

Hiring. So we continue to hire into the business. You can see that. This quarter looks a little higher than it is because we had about 80 interns in that number. So if you back those out, it's a little bit less. But despite the interns, we continue to hire in primarily sales and marketing to drive that sales capacity in the enterprise for those enterprise businesses. And then some hiring in R&D, not necessarily all in the U.S. but around the world.

Mark, if I could just follow up with 2 quick data points. One, can you remind us, or give us an update on how much of your cash balance is onshore at this point? And number 2, I missed the shippable backlog number, did you finish the quarter with any backlog?

Yes. So the onshore cash, obviously, it fluctuates, but what we've been saying is that it's roughly 2/3 offshore at any given point in time and 1/3 onshore. In terms of backlog, again, the backlog is always factored into our guidance. We had no backlog coming into the quarter, and we had no backlog exiting this quarter. I think at this point, we're managing the inventory in the channel much, much tighter, and I would expect the backlog to be relatively insignificant going forward.

That question will be from Heather Bellini with Goldman Sachs. [Technical Difficulty] We'll move along to Perry Huang with Goldman Sachs. [Technical Difficulty] We will go to David Hilal with FBR Capital Markets. David M. Hilal - FBR Capital Markets & Co., Research Division: I want to peel back the onion a little bit on the business segments, specifically within Creative and Interactive. That business was down sequentially and missed consensus numbers. I wanted to understand some of the weakness there and whether that was attributable to Europe as well. And then conversely, digital media looked pretty -- they had a pretty good quarter, and I'm not sure if that was Photoshop, but maybe you can all help us understand the strength there, and some of the weakness in Creative and Interactive?

Yes, David, I'll start and Shantanu can add on. I understand that because we split those up, it gives you a little bit more color underneath the Creative covers, if you will. But if you look at it in total, the total Creative business did very well sequentially and, like I said, maintained the run rate that we had for CS5 with 5.5 on a year-over-year basis. So there's always going to be some ups and downs within there. But overall, CS5.5 is doing very well.

And specifically, I would say within the DMS segment, as we had alluded, the video products, and the production premium is also within that category, continue to do well, as do the imaging products. And so with that, 3 things, maybe, messages that I'll leave all of you with. The first is, we're clearly focused on driving a strong close to Q4 to achieve the financial targets that we had set for ourselves in 2011. But as we preview what we are going to be talking about a lot more at the Analyst Meeting, and our focus for 2012 really is in 2 areas. In content authoring, the 4 key initiatives that we have, continuing to drive innovation and Creative Suite in imaging and video with our publishing solutions, as well as in HTML; the introduction of new tablet applications, as well as cloud services to continue to innovate in terms of how people author; our Digital Publishing and monetization solutions, we have over 600 titles, we're going to continue to focus on having newspapers, magazines and catalogs move online; and document services with things like ensuring their document security, creation of PDF and electronic signatures continues to grow for us. And the large opportunity associated with digital marketing, targeting marketers who all want an online presence and want to make sure that they're serving their customers well; publishers being able to sell both their ads and content; and finally, advertisers, enabling them to optimize their ad spend. And we certainly believe that there's hundreds of billions that's moving online, and we're very well positioned with online marketing with our cloud-based services. So we look forward to sharing more with you at our Analyst Meeting and look forward to seeing many of you at MAX. Thank you for joining us.

Thank you.

And again, this does conclude today's conference call. Thank you for your participation.