Good afternoon, ladies and gentlemen. I would like to welcome you to Adobe Systems' First Quarter Fiscal Year 2018 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 would like to now 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 our call today, we will discuss Adobe's first quarter fiscal year 2018 financial results. By now, you should have a copy of our earnings press release which crossed the wire approximately one hour ago. We've also posted PDFs of our earnings call prepared remarks and slides, financial targets and an updated investor datasheet on Adobe.com. If you would like a copy of these documents, you can go to Adobe's Investor Relations page and find them listed under Quick Links. Before we get started we want to emphasize that some of the information discussed in this call, particularly our revenue and operating model targets, and our forward-looking product plans, is based on information as of today, March 15, 2018, and contains forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the Forward-Looking Statements Disclosure in the earnings press release we issued today, as well as Adobe's SEC filings. During this call, we will discuss GAAP and non-GAAP financial measures. A reconciliation between the two is available in our earnings release and in our updated investor datasheet on Adobe's Investor Relations website. Call participants are advised that the audio of this conference call is being webcast live in Adobe Connect, and is also being recorded for playback purposes. An archive of the webcast will be made available on Adobe's Investor Relations website for approximately 45 days, and is the property of Adobe. The call audio and the webcast archive may not be re-recorded, or otherwise reproduced or distributed without prior written permission from Adobe. I will now turn the call over to Shantanu.

Thanks, Mike and good afternoon. FY2018 is off to a strong start for Adobe as we continue to successfully execute against our strategy. In Q1 we delivered record revenue of $2.08 billion dollars, which represents 24% year-over-year growth. GAAP earnings per share in Q1 was $1.17, and non-GAAP earnings per share was $1.55. Our strategy to empower people to create and transform how businesses compete is working. Our relentless focus on delivering innovation to our customers is continuing to drive our outstanding performance. Across the globe, individuals and companies now recognize that great experiences have become the basis of differentiation in an increasingly competitive and complex world. With the world's best digital media and digital experience cloud-based solutions, Adobe has become the go-to company for helping customers develop and deliver transformative digital experiences. In our Digital Media business, we achieved strong growth in both Creative revenue and Document Cloud revenue for Q1, achieving net new annualized recurring revenue, or ARR growth of $336 million. We exited Q1 with Creative ARR of $5.07 billion, marking the first time Creative ARR has surpassed $5 billion. Across our individual, team and enterprise offerings, we continue to acquire new subscribers through Creative Cloud single app and all app offerings. We focus on retention by driving customer engagement through products, services and community. In addition to strength in our major geographies, emerging markets such as Korea, China and Southeast Asia are beginning to contribute to subscriber growth. Creative Cloud remains the gold standard for creativity and design. We deliver ongoing value to our subscribers through major feature enhancements in our existing flagship applications across desktop and mobile devices. In addition, we are attracting a broader set of consumers and creative professionals through innovative new applications like Adobe Character Animator, Spark, Lightroom CC, Dimension and XD.…

Thanks Shantanu. In the first quarter of FY18, Adobe's momentum continued with record revenue of $2.08 billion, which represents 24% year-over-year growth. GAAP diluted earnings per share in Q1 was $1.17 and non-GAAP diluted earnings per share was $1.55. We drove strong performance across our product offerings and geographies during the quarter. Highlights in Q1 included, record Digital Media revenue, including Creative revenue of $1.23 billion and Adobe Document Cloud revenue of $231 million; record Adobe Experience Cloud revenue of $554 million; net new Digital Media ARR of $336 million, and exiting Q1 with more than $5 billion of Creative ARR; deferred revenue growth of 25% year-over-year; record cash flow from operations of $990 million; returning over $300 million of cash to our stockholders through stock buyback; and a record 88% of our revenue in Q1 was from recurring sources. In Digital Media, we grew segment revenue by 28% year-over-year. The addition of $336 million net new Digital Media ARR during the quarter grew the total to $5.72 billion exiting Q1. Within Digital Media, Creative revenue grew 30% year-over-year in Q1 and we increased Creative ARR by $303 million. Several key factors helped drive this growth, including, strong net new subscriptions across user segments and geographies, spanning creative professionals to consumers and students; And quarter-over-quarter growth in ARPU across all product categories. In addition, services are helping to grow Creative ARR and revenue. Adobe Stock had a strong quarter, and Stock and collaboration services helped grow Creative Cloud enterprise ARR. 86% of creative enterprise agreements signed during Q1 included services, which helps expand the use of Creative Cloud within companies and makes it more mission critical to content workflows. During Q1, we finalized the transition on Adobe.com from using US dollar estimates from our third-party ecommerce platform in certain emerging…

Thanks, Mark. Day One of Adobe Summit - the world's largest digital experience conference is Tuesday March 27th. An invitation with registration and discounted pricing information to attend Summit in Las Vegas was sent out in January to our investor and analyst email list. We will host an informal Q&A session with financial analyst attendees and Adobe management on the afternoon of the 27th. Attendees can also attend educational sessions, meet with customers and partners, and learn more about our solutions at the conference. More details about Summit are available at summit.adobe.com. If you wish to listen to a playback of today's conference call, a web-based archive of the call will be available on our IR site later today. Alternatively, you can listen to a phone replay by calling 855-859- 2056. Use conference ID number 6388567. International callers should dial 404-537-3406. The phone playback service will be available beginning at 5pm Pacific Time today, and ending at 5pm Pacific Time on March 21st, 2018. We will now be happy to take your questions, and we ask that you limit your questions to one per person. Operator?

[Operator Instructions] Your first question comes from Adam Holt with MoffettNathanson.

Hi, guys. Thanks very much and congratulations on another spectacular quarter, 60% plus EPS growth, just amazing. I guess my question is for Shantanu. As we head into the Summit event, it's an interesting market. We've been seeing headlines about companies like Procter & Gamble cutting digital media spend. And it's been - it sort of seems like a little bit more of a mixed environment, yet you all continue to do well. And I wanted to, A, get your sense for how the end market feels to you? Whether things like cut on digital spend trickles down into your market? And, B, just thinking about the growth rates, do you feel like you're at steady state with sort of Digital Experience at 15%? Or can that - can you do better as some of your products get more mature? That's it. Thanks.

Thanks, Adam. As it relates to digital transformation and what's happening in the Digital Experience business, it actually feels like the spending environment for digital within enterprises remains unaffected by what you're referring to as marketing spend. And the reason for that is that everybody is trying to engage with their customers digitally across touch points. And as you know, our offering, which is the most comprehensive, actually has everything to do with not just the advertising spend aspect of marketing but also the delivery of the content, the multichannel campaign communication, the audience segmentation. And to give you maybe a little bit more color on that, Adam, it's really about - the themes that we hear about are first, every business is trying to do customer segmentation. Every business is trying to do - ensuring that they can personalize the experience they're delivering for their customers, and running the business, frankly, by looking at real-time metrics, which correspond clearly to our Audience Manager product, our Analytics product and our Campaign product. So it feels like long term, the digital media spend is only going to increase. People are going to ask for more attribution associated with it. And so it feels really strong. We had a strong revenue as well as a booking's quarter. The last thing I might say in that is if you look at the underlying business, I think we said in the prepared remarks that the revenue actually grew greater than 20%. And that's as a result of us focusing a lot more on subscription bookings and subscription revenue rather than focusing on services because we have an incredibly large ecosystem of partners. So feels really good and we expect the momentum to continue.

That's great. Thank you.

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

Thanks so much and my congratulations as well. Maybe just on actually on Digital Media. I'm curious on the comment on 86% attach of services on Creative Cloud. I'm just curious as to, is there any way to think about how material that is on driving ARPU as you think about that service attach? And then maybe as a follow-up to Mark, was there any impact on new ARR from the impending price increase that went into effect on March 1? Was there any sort of shift of renewals, for example, into Q1? Thanks.

Ross, with respect to your first question and the environment within the enterprise, we have talked about, during the first time we transitioned enterprise customers from buying the perpetual product to buying the cloud product that we had, in effect, mirrored the various solutions that we had as part of Creative Suite. As we are now increasingly renewing them, we have been doing, I think, a great job of evangelizing the entire suite of products. So the first thing we see as it relates to ARPU increases is people moving from a subset of products to using the entire suite of products. The other thing that we've been doing with enterprises is continuing to reflect the benefits of adopting Adobe Stock, so that they can have access to all of those great content as an on-ramp to accelerate the creativity process as well as things like Creative libraries, which enables an enterprise to globally ensure that they're using the same fonts and colors and assets to ensure consistency and improve what we call as content velocity. And so I think the need from enterprises to really standardize across all of our products and with content management and asset management now becoming an increasingly important thing, it's really great to see both the ARPU increase and the increased adoption of our Creative product within enterprises. And that's certainly contributing to the strength in ARR that you saw.

And then Ross, as it relates to the price increase in Creative Cloud, it's a process. We started communication with the channel and customers in March. We're trying to be very diligent about the communication and getting it right. The price changes were not in effect in Q1. They'll take effect in Q2. And as we've said from the very beginning, it won't represent a material impact on ARR in '18.

And the last thing I'd maybe add to that, Ross, is we don't think there was some impact associated with the impending price as it related to Q1 results. And so when we look at our Q1 results across geographies, it wasn't as if there was an impact of that in Q1.

Meaning that people were not buying in advance of the price increase.

Yes, exactly. No, I think that was clear from your guide on ARR in Q2. Thanks again, congratulations.

Thank you.

Your next question comes from Jennifer Lowe with UBS. Your line is open.

Great, thank you. Shantanu, maybe a question for you, you've commented in your prepared remarks that you were seeing an increase in demand for Creative Cloud in some emerging markets and you named Korea, China, Southeast Asia. And China in particular is an interesting one, given how usage of Creative Suite and may be low monetization. Can you talk a little bit about what your sense is on how much of that is existing paying customers migrating to Creative Cloud versus starting to eat into piracy a bit in that market in particular?

Sure, Jennifer. I mean, I think what we are seeing in those emerging markets is actually a phased shift in what we have seen in the other major geographies that we have, which is people love the new innovation that we're providing. People love the comprehensive nature of what we've delivered with Creative Cloud. People, who are casual pirates are now finding that the affordability of the upfront price allows them to actually be legitimate customers of Creative Cloud. And I think the one difference that we have for the first time is in those markets we're able to offer differential pricing and not feel like the differential pricing will cause people to take the product, put it in a box and resell it in the United States. And so I think we've very effectively combated piracy. But I think it just actually reflects with mobile exploding in those particular areas and content creation for mobile being such a large requirement in those emerging markets. It just continues to do well. In different markets the last thing I might say is that there may be different offerings where we are seeing the initial traction. So I would say in the - in some of those emerging markets the traction might be more with team and enterprise, then in individual, but overall I think the trend is really positive.

Okay thank you.

Your next question comes from Brent Thill with Jefferies. Your line is open.

Good afternoon. Mark, you mentioned the ARPU was up, quarter-over-quarter in all categories. I think that's a shift in your tone versus kind of the flat to up that you've commented in the past. I am just curious if going forward you expect that trajectory to continue throughout the year?

Well clearly we are benefiting from continued people coming off of price promotion. As we said we are benefitting from services. As we said stock's doing well and we are benefiting from services there. So that's clearly the trajectory that we see. The price increases, like I said, have not taken affect yet. So that will help down the road as well.

Okay, and just a quick follow-up on close to 42% operating margins. One of the questions that you've gone is as it relates to the reinvestment back in the business, and at the growth rate you are at and the margin structure is there a level where you feel that there is an appropriate reinvestment back for the future you feel that you are balancing that, given where margins are at now?

Yeah, I mean clearly we think we are balancing it. Q1 strengthen margin and earnings, though was clearly driven by the revenue upside that you saw. And hiring in the first quarter is lower just based on seasonality with hiring. We expect hiring to pick up the balance of the year. We have Summit. We have MAX. We're definitely going to have increased spending as we go through the rest of the year. So I wouldn't look at that 42% as the new watermark. I would look at the revenue and earnings and information we provided for Q2, and you'll see that operating margin will be a little bit lower in Q2. So that's not kind of the new run rate.

And Brent, we'll continue to be very diligent about the opportunities. There are still tremendous opportunities ahead of us. I think our investment in deep technology, you'll see some of the benefits of that at Summit, and with AI and us being continued to recognize in terms of what we are doing with AI, expect to see continued investments in that space. And so we have large opportunities and we're going to continue to focus on driving aggressive growth.

Thank you.

The next question comes from Alex Zukin with Piper Jaffray. Your line is now open.

Hey, guys. Congrats on another great quarter. I guess one question I maybe had and then a follow-up is just given the upside versus kind of the guide for Digital Media ARR, were you more surprised by the strength in our ARPU growth or new subscriber growth? And maybe also just can you help us stack rank the new subscriber growth coming from the lower SKU customers versus the international subscriber growth?

Yes. Again, I would look at the success that we had and what we have seen in the past is maybe a little bit a falloff from Q4 to Q1. And the momentum actually continued, which I think just reflects interest in the Creative products. It continues to be across the board. Clearly, a lot of the new customer acquisition we are seeing is as a result of Single App adoption and we're doing an effective job of completing them to use the entire suite. So I would say it was the new customer adoption that drove more of the ARR than the ARPU. We're doing a good job, however, of engagement, as we mentioned in our prepared remarks. And as people are coming to their annual cycle or re-upping. And I think as it relates to the specific products, the usual suspects continue to show a lot of strength. Imaging continues to be strong. One interesting thing, we introduced a mobile offering of our product. We're seeing now mobile offering being adopted, and so we're starting to monetize that. We're monetizing Spark, and stock continues to feel good. And last but certainly not least, as we have said, Acrobat and the strength of Acrobat, both as it relates to what we are seeing on subscriptions across Creative and Document Cloud as well as licensing, the licensing tends to be primarily customers who are already using Acrobat and are adding more seats as a result of the strength of their businesses, that was also really encouraging. And all of the Acrobat that's being used as perpetual, that continues to be an opportunity for us down the road to move to subscription. So I feel strong all around.

Got it. And then, Shantanu, maybe a follow-up on Sensei and AI, are you seeing that given the broader adoption of the suite rather than specific products, are you seeing any of that being driven by Sensei? And maybe the automation of workflows across product lines that you're driving?

Without a doubt. I mean, what people come, and whether it's a company like Reliance Telecommunications in India or Loblaw visited us from Canada or Tourism Australia, or MasterCard, what they're asking us is you guys have transitioned your business to be more direct. Tell us how you are moving from data collection, to insight, to automation, and whether it's in analytics or what we do with anomaly detection, or whether it's in personalization, what we do with recommendations based on data or media attribution in the marketing side. They are clearly expecting and we're delivering on this automated nature of what AI can bring to it. Hopefully you're going to be at Summit and we'll share a little bit more about it. The deep investment that we've also made in our data platform and how you can actually start to get this unified view of a customer, I think a lot of people are finding that very impressive in terms of what that can do for their businesses. So the investment is clearly being recognized and adding value.

Great, thank you guys.

The next question comes from Jay Vleeschhouwer with Griffin Securities. Your line is open.

Thank you. Good evening. One for you, Shantanu, and one for Mark. For Shantanu, we've sometimes spoken of the cohort phenomenon within Creative Cloud, that is the aging or mix of older Digital Media customers that you've been trying to move or migrate to CC. So similar question regarding Marketing Cloud, when you think back to the deployment of AEM and MO and so forth, 4, 5, 6, seven years ago, what kind of upgrading phenomenon have you been seeing as part of the business recently? And for Mark, what further gross margin leverage do you think you might still be able to experience? You are at 95% in Digital Media but might there still be some upside there in you are around 63% or so in Digital Marketing? Is there some leverage there?

Jay, as it relates to the Digital Experience business, I think we have always said that with existing customers who have adopted one solution, the strategy has been to continuously demonstrate how the integration of our newer solutions can add more value. I think in the prepared remarks we talked about how some of the emerging solutions showed strength, whether it's Audience Manager, which is being used for customer segmentation and definition. So that's clearly the - how we continue to grow existing accounts as well as increased usage of our products. And with new accounts, it tends to be a little bit more of adoption of the entire platform that's driving it. So I would say the earlier cohorts, because they had originally adopted one or two solutions because that's what the portfolio had, that cohort we focus more on upsells. And the newer cohorts, we are focusing more on the entire story in the platform.

And then Jay, on gross margin, a lot of that improvement comes from operating efficiency in our hosted costs and it comes from better margin on professional services. I would expect that we'll continue to see margin improvement, probably more so on the Digital Experience side than the Digital Media side. You're not going to see a big movement but you'll see continued improvement in gross margin.

Thank you.

Your next question comes from Walter Pritchard with Citi. Your line is open.

Hi, thanks. Shantanu, on the Digital Marketing side, I'm wondering you bought TubeMogul about a year ago. I'm wondering how you're thinking about M& A in that area, it just does seem like that market's moving pretty quickly and acquisitions could be a part of the future. Just curious, anything especially anything large you might be contemplating in that area?

Well, Walter, I think with the acquisition of Tube, we became the most comprehensive offering already in the market and adding the ability to do linear, nonlinear and adding TV to the mix of search, social, display really was good. So we feel good about our opportunity there. And it's unlikely that there's anything large that's going to change. We like what we have organically, Walter.

Thank you.

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

First of all, congratulations to Mark Garrett on your retirement. Outstanding job, and still be tremendous value. I think it will go down as one of the best. And a question for you, Shantanu. When you look at the old cycle, which ended I think you gave CS installed base of 12.8 million, I forget how many years back that was. Now you got a different word [ph] to your point, it's more mobile, it's more smartphones. What is your best prognostication as to how the days of the old Creative users will play out in the next cycle? Are we looking at an addressable opportunity in terms of even it's a job creation that is multiples of what the old base? Because we're used to analyzing Adobe through the lens of this is the old cycle, this is the old base, this is where the company matures, and whatnot. Can help us understand some numbers in perspective as to why the addressable market could be, if I'm right, it could be multiple, given mobile and a whole bunch of other factors that just did not exist in the prior cycle. That's it for me. Thank you.

Well, Kash, you're right that we about the fact that we look at it as not just as a migration opportunity but a very significant new opportunity as it relates to the importance of creativity, everything from K-12, which is why we try to give an example of how Spark is used there. It was never really a migration story and as people like you have recognized that it's been a hugely expansive story in terms of attracting new customers. And what we try and do, and that's probably more appropriate at our analyst call, is to continue to show how big that TAM is, when we talk about the $20 billion TAM and the number of users and the different offerings that we have. And so within the company, we're just focused on how do we keep adding more subscribers, the migration is not the first, second or third thing we talk about. We talk about the acquisition, we talk about engagement. And our product like XD, every product manager in the world should be using it. When we talk about everyone has a story to tell and the media types that they are using to tell that story and the devices that they are using to tell that story on and the modalities that they're using to create that story, it has never been more exciting in terms of what we can do for content creation. And I think our teams are doing an incredible job at innovating. So it's clearly a multiple of what we considered at the peak of the Creative Suite. And it really should be. I'd love to see every single student in K-12 as part of every history project use our Creative Suite to tell - Creative Cloud to tell the story.

In my next life I want to be a creative artist. Thank you so much guys. Congrats.

With artificial intelligence, we're going to make that happen right now happen right now, Kash.

Exciting guys. Thank you.

Thanks.

Your next question comes from Saket Kalia with Barclays. Your line is open.

Hi, guys. Thanks for taking my question here. Mark, I think it was mentioned earlier that in Digital Experience, there is more of a focus on subscription versus services kind of given the ecosystem of partners. And I know we don't talk about segment margins specifically, operating margins that is. But can you just talk about qualitatively whether we should see a more concerted effort in leveraging the partner ecosystem in Digital Experience? And what that can mean for segment margins?

Maybe I'll start off and then Mark can certainly add. When we talk about ecosystem of partners, the ecosystem of partners is really in three categories. I mean, we have an incredible set of what you would have considered the traditional SI partners, the Accentures, the Deloittes of the world who have practices built around digital transformation, who are out there not just implementing our solutions but also certainly co-selling and helping sell our solutions. We have the media agencies as the media agencies are moving their business to include a technology and strategy component for digital transformation, the WPPs, the Publicises of the world have become incredibly great partners in that. And then you have the traditional ISVs and the partnership with Microsoft allows us to jointly go to market with a very integrated offering across what they are doing with dynamics and power BI and Azure, and what we are doing with Analytics Cloud, Marketing Cloud and Advertising Cloud. When the business was starting, we had a consulting organization that enabled people to implement this. I think a lot of the implementation and the running - we have a great ecosystem of partners, and so that results in us not requiring as many consulting resources. And we've shifted our focus there to be more architectural services, so that we can ensure that people are getting the best value out of our products. And so that reflects itself in terms of when we use those services as part of COGS instead of that being there, and that's why it's more a traditional software sale, which, in your words, would result in better margins. So that's how we tend to think of what's happening in the environment and why we feel well-served by both the super global partners as well as some regional partners.

The only thing I'd add to that is to the extent that we can leverage that partner ecosystem that Shantanu talked about, we could potentially invest a little bit less in the sales and marketing line than we are currently doing a lot on our own today. So you get leveraged both in professional services and in sales and marketing.

Very helpful. Thanks guys.

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

Thanks. This is Mark Grant on for Heather. Appreciate you taking the question. You've mentioned a couple of times that there are opportunities that you've taken advantage of within the customer base to look at customers that are single product, or using a subset of the product and then moving them to the full suite, obviously driving some improved ops there. Can you give us a sense of the relative size of that opportunity going forward? And how much of the base do you think is still in a position to make that shift into a larger ticket?

You're referring to the Digital Experience side in terms of single solutions and multiple? I think Brad, at the last analyst call, gave you some update about how we are moving in terms of the top 100 customers and the significant improvement in revenue associated with each of those customers. But as we continue to offer more integration between our products, as they continue to grow their own businesses and the transactions caused, they're significant. I would go back to our big picture of how when we think about Digital Experience, it's a $60-plus billion opportunity. And while we are doing well, there's still is a significant amount of headroom in that business.

Great, thank you.

Your next question comes from Sterling Auty with JPMorgan. Your line is open.

Yeah, thanks. Hi, guys. You called out Acrobat and Document Cloud a couple of times. I'm just curious is there any particular vertical industry that are seeing a bigger uptake? Or maybe a new use case that's starting to drive that growth?

Well, I think the use of both PDF and Adobe Sign to automate paper-based processes across a variety of industries is certainly one of the places that we are seeing it. But I would also point back to mobile and the adoption of PDF on mobile and what's happening there and the ability for that. We've also done a really incredible job I think as a team of leveraging Reader. And so the fact that we have Reader distributed and you get when you get one of these documents that has an embedded, whether it's a spreadsheet or something else in it and you want to edit it, the ability for people to now edit PDFs and to use it as an on-ramp as part of their creative process, that's also helping out. So I think there are three or four horizontal use cases. And as it relates to vertical industries, anybody who is trying to automate paper-based processes and regulated industries like government, financial services, tends to be at the forefront of that. They're certainly seeing the benefits, not just of moving to PDF but also the benefit of using Adobe Sign.

And this is Mike. Operator, we'll do two more questions and before we do that, just to build on what Shantanu said, the datasheet that we have publish has the Excel file built into it as an attachment, just as an example of what Shantanu said. And I say that not only to point that out but also with the new segment information we published in January, it would be helpful to look at the updated datasheet for the new segment information that we have moving forward this year. So operator, two more questions, please.

Certainly. You're next question comes from Keith Weiss with Morgan Stanley. Your line is open.

Just want to thank you for taking the call guys. And another outstanding quarter. Just a quick question on sort of Digital Marketing side of the equation, with GDPR really coming onto the horizon, do you guys see an indication or do you have any concerns that there may be some frictions around some of the more sort of customer data-type functionalities that guys are doing in the marketing office with deeper innovation [ph] and segmentation? Or is that kind of a non-issue amongst the customer base?

I'd point back to what happened when the cloud first came out. When the cloud first came on the horizon, I think a lot of people appropriately talked about what that meant for security. And I think a number of cloud vendors clearly pointed out that the ability for people to update that would actually make systems more secure, which is something that I think most people would look at. I think as people are collecting data, the emphasis and importance of data and privacy continue to be front and center. But I don't think it changes the fundamental trajectory associated with people wanting to have all of this in the cloud. We just have to make sure that we use it as a tailwind against the competition and step up, like we have done when we collect customer data to enable our customers to do that as well. And so we'll be ready for GDPR when it comes, but it's not going to change this fundamental move where things are going to move in the cloud and digital is going to be the way in which enterprises transact with consumers.

Got it. And maybe a quick one for Mark. The repurchase activity continues to go on pace and even sort of up the pace a little bit. You guys building up a lot of cash on the balance sheet, any update on kind of potential uses for that cash?

So there's no change to our current prioritization of capital. We still take excess cash and put it towards M&A and share repurchases. Obviously, we have more excess cash now with the tax reform. We have $1.6 billion remaining on our current authorization, and obviously we're executing against that. When we're ready, of course we'll come out to you with any change to the current trajectory on that.

Excellent, thank you guys.

Your last question comes from Derrick Wood from Cowen and Company. Your line is open.

Great, thanks. So we're hearing more and more digital agencies enter the SI market and kind of want to participate in technology implementation on the marketing side. Not just large ones that you talked about but a lot of midmarket agencies. So I'm just wondering how you're thinking about the midmarket opportunity for Experience Cloud. Is there anything - any new initiatives he could look at to focus more on the midmarket?

We've announced a couple of partnerships there, Derrick, with midmarket providers in order to do it. I would say our focus is really more on the larger enterprises right now. That's not to say that we do not partner with regional media agencies and/or SIs. They tend to have, in many countries, very strong relationships with enterprises. So our partner ecosystem is open to all. But in terms of taking our own solutions and focusing them down market as opposed to focusing our solutions on what we think the largest opportunity is, we're focused a lot more on the large enterprise opportunity. Since that was the last question, you know what, Mark, Mike and I do is when we are going through our preparation we try and make sure we address some of the things that may be top of mind. And one of the questions that actually didn't come up was the fact that we haven't updated our annual guidance, and we wanted to sort of proactively ensure that we address that and say we really don't want to get into updating annual targets across revenue and balance sheet every quarter. I think for those of you as you think about how this plays out, the Q1 performance as well as the Q2 targets, I think, are clear indicators of the strength of the business. And the one thing we might have you continue to focus on is our original second half growth of 20% on revenue as you think about how you want to be prudent about your models. But having said that, we had an outstanding quarter. This strategy of empowering people to create and helping businesses transform just represent large addressable markets. And we see significant tailwinds. I'm pleased with the relentless execution. And it just continues to hopefully demonstrate to you that we're a unique company that's able to drive both top line and bottom line growth with significant operating margins. We will continue to invest in driving innovation through long-term technology investments in both Digital Media and Digital Marketing. And we're really pleased with how Sensei has continued to be a differentiator. Look forward to those of you who will be able to join us at Summit, and thank you again for joining us today.

And one last thing, we had some connectivity problems on Connect. So for those that are on Connect, the archive will be complete as well as the phone replay. So if you did have some issues listening on the Connect session, we'll have that rectified in the archive, and thanks again for joining us.

This concludes today's conference call. You may now disconnect.