Adobe Inc. (ADBE) Earnings Call Transcript & Summary

All right. Welcome, everyone, to Adobe Summit 2024. Awesome to see so many friendly faces up here. We got a bigger room for you all this year, so you could spread out a little bit. I'm glad to see everyone's utilizing that. I'm Jonathan Vaas, VP of Investor Relations for Adobe. Just wanted to say a quick welcome not only to everyone here in the room but all the folks globally who are joining us on the webcast. Thank you for joining. Also wanted to recognize a few groups in the room. Several members of our Board of Directors have joined us. I just wanted to say thank you. We always value the engagement, and I personally value all of the input you guys provide. And our entire executive team is here in the front row. After the presentation, most of the members of the executive team will join up here on the stage for Q&A. And then I also just wanted to recognize all the Adobe employees who made Summit happen. I hope folks had a chance to see the keynote today, some really incredible innovation on display. Before I jump into the fine print, I've been reflecting about 1 year ago, it was when we announced, right around the corner here at Summit, Adobe Firefly. And I've just been reflecting on the fact that, that was 1 year ago. We usually say, "Wow, that year flew by." But it's quite the opposite for me. I wonder if others feel the same way, but there was so much innovation that happened over the last year that, in some ways, I can't believe that it's only been 1 year. It feels like it's been ages. And we'll share a video as well during the presentation that highlights so much of the innovation Adobe delivered over that year. So before we jump in, just really quickly, safe harbor. There's going to be forward-looking statements that involve risks and uncertainties. Please do refer to our SEC filings as well as the Q1 earnings press release, which has more information, and the risk factors that you'll find as part of our periodic filings. The non-GAAP disclosures and reconciliations, you'll find at the end of the presentation that was posted to the IR website today. As we go through the presentation today, you'll see a number of financial charts and disclosures. There are additional charts that you'll find on the version that was posted for the website. I remember, last time we saw you, I made some jokes about pie charts and protractors, and you will find those on the posted version. So make sure you go check that out for the additional information that you'll find there. And then we'll jump into the agenda before I toss it over to Shantanu. So Shantanu is going to start. He's going to go through a strategy update. I imagine he might talk about AI a little bit. And for those of you who know Shantanu, you'll understand why I say I'm as excited as anyone else to find out what he's going to say. Dan will then come up and give a financial update. Dan will go through the 3 business units, talk about business momentum. He's going to frame the AI monetization strategy across those businesses. And he'll update our 2027 TAMs across Document Cloud, Creative Cloud and Digital Experience. And with that, I will pass it over to Shantanu.

Thank you, Jonathan. And I'd like to also extend my welcome both to people here in the room as well as for those who are joining online. So let me talk a little bit on Summit. And it's hard not to be here at Summit and just reflect that this is a business that is on scale to be a $5 billion business this year. And when you think that we created the digital marketing category, we created the customer experience management category to look at the traction that we've had and how this business has been performing from scale, two of the numbers that really appeal a lot to me, the first is, I think we performed something like $17 trillion evaluation, segment evaluations, every single day. And so that's the scale at which when you think about the commerce infrastructure of the United States or the globe, how much of a role Adobe plays in that. And then the second number that really appeals to me is what we've been doing more recently with Adobe Experience Platform and the applications and to see the tremendous growth that Anil and the team have driven in this new area. And we'll touch on why there are a number of such initiatives that we're again excited about. There are over 11,000 people here at Summit. And last year, we shut it down at 10,000. Even this year, we actually had to shut it down because we weren't sure as we all come back post-pandemic. But I understand that a significant larger number participate online. Just to give you a flavor for the customers who are here, and I know a lot of you actually use this as an opportunity to go engage with customers and hear what's on their mind. But we have, I think, 59% of the customers that are represented here that are with over 5,000 employees and 64% of them have over $1 billion in revenue. And the partners, we also have a partner session where we actually share with the partners everything that's going on, go a lot more in depth in terms of the technology, that representation is also really good. I hope you had a chance, for the people in the room, hopefully, you saw Anil and David's keynote. But I did want to touch on a couple of the announcements that we made, especially for the people who are online. This whole data-driven personalization at scale, I think if you followed Adobe for a while and followed our digital marketing strategy for a while, we always talked about how do you deliver the right experience at the last millisecond, then we've been talking about personalization at scale. And what we can do right now with the Adobe Experience Platform to deliver that personalization at scale and the adoption, frankly, that the Adobe Experience platform has had, it was clearly our vision that we believe that you needed a next-generation customer data infrastructure in order to deal with what customers expected of you. And it's very clear to us that the Adobe Experience Platform is one of the leaders in that particular category. So that was really exciting. One of the areas that I personally spend a lot of time this year, as some of you know, I'm still acting CMO after Ann retired because I love trying to understand the functional area in detail. But what we've been able to do with what we are calling Adobe GenStudio and the entire content supply chain, we've really immersed ourselves as a company in thinking about how do people create campaign brief, how do they then create ideation and all of the content that you need for ideation, then what happens in terms of the variation and the production of all of those assets, how do you then activate it. And in our particular case, when we were thinking of even Cyber Monday and Black Friday at the beginning of the year, when we conceived what our promotional activities would be, what is the campaign we would do, whether it was the Photoshop Can campaign or whether it was the Acrobat's Got It campaign, to really immerse ourselves in all of the content creation, production, workflow management, that really drove, in many ways, all of the innovation that we've been thrilled to show all of our customers with what's called the Adobe GenStudio. And thinking about how AI plays a role in that, especially in all of the variations that's being created, it used to be that the ability to create that content was just not feasible. And so people would create content perhaps for a U.S. rollout, and then they would figure out how they did this geographically. And what we want is the ability for people, in a few minutes, to actually activate all of that content. So the interest level that we've also seen associated with all of our GenStudio product announcements and solutions, pretty incredible. I know we talked to you last year about Firefly. As Jonathan said, it was just a year ago when we said, "Here's our model of how we think about models and data and interfaces," and I'll touch a little bit on that. Today, we announced a new functionality even in Firefly. We have Image Model 1, then we created Image Model 2, then we did a style and structured way of really trying to capture what was people's minds. And it's actually taken over, when you think about what's happening on social and you look at some of the content that people have already created with the Image Model, with structure references, it's really mind-blowing. Somebody took a logo and an icon of Adobe. And then they said, "Let's create tens of thousands of variations of it." And they're just absolutely fabulous. But one of the things that we worked on very hard in addition to the models was also to really think about how do we create custom models. I'm sure this will come up. And as we talk about our architecture for what happens with ideation, where you may use one set of models, and how you use production and may use a different set of models that perhaps has a different set of IP associated with it, we were really thrilled to announce Firefly services. And what Firefly services is, very simply, you saw the Coke, it was really nice of Coke to actually share their assets with us for demo. But a company like Coke or a company that doesn't want its content to be uploaded into the Internet, we can now create a custom model for them. So you use the Adobe Firefly model, you create a custom model, you have an API. So now everybody, and I think you saw this hopefully in the demo that we showed with GenStudio, you can actually pick what model you want. And so this actually extends further the capabilities. So the Firefly services and custom models to accelerate enterprise content creation and the interaction of that with Adobe Express and Photoshop, again, I think they were pretty milestones. So very excited about the product innovation that we've delivered. And I encourage you, if you have the time, to watch the replays as well as to go some of the other shows that exist. So today is really a little bit more about an update. As Jonathan said, Dan is going to go into the addressable markets. But I again wanted to just, since we just finished Q1, talk about the strong Q1 financial results. I won't belabor the points that we have, but we continue to drive accelerated growth as well as increased profitability. I think after the earnings, there were some questions about what that meant for our financial targets. And as you know, in light of the termination payment that we had to do, there is an impact to GAAP tax rate as well as GAAP EPS by the entire year. This is with respect to the Figma termination payment. So what we said was, "Let's just go ahead and update our financial targets." And those are all there here. I think that was some of the feedback also from some of you as investors. And as you can see, based on the strength of Q1, we are reiterating all of the key metrics that we have, whether it's Digital Media net new ARR of $1.9 billion as well as Digital Experience subscription revenue of $4.75 billion to $4.80 billion. So I just wanted to make sure that you realize that we're off to a great start. We're confident in the business momentum in Q2 and beyond. I touched on a lot of this in our last presentation, where we talk about all of the tectonic shifts and the innovation that's really driving it. And I think it's really important for everybody in this room to think about the fact that every one of those tectonic shifts that has happened has increased our addressable market. Every one of them has allowed us to attract new customers. And frankly, each one of those shifts builds on each other. So when you think about when we go from a PC-only to a PC-plus, Web-plus mobile era, when you think about what's happening with social and the amount of content that's being created in social, every one of these, the volume of creative assets that have been created and the surface area for adding across each one of them has expanded. And we believe that AI will be exactly the same. So we started with physically printing and publishing documents with the Internet, then everybody had unprecedented access to this creativity. When you had a phone in your pocket and a capture device that allowed you to do it, that further exploded the amount of content. And AI is going to further open that floodgates because now everybody's imagination can be translated from their imagination into a piece of media or a piece of content that can be then further refined, edited, integrated, deployed and delivered. And that's, I think, the generational opportunity for the industry as well as for Adobe as it relates to content because the amount of content that's being created is only going to explode. I think the ideation phase is also going to grow disproportionately because now the number of people who with AI can participate in that ideation process, both individually as well as part of the workflow, that's where there's going to be explosive growth as well. So this, I think, is a really important slide in terms of how we think about our strategy. And we touched on this also at MAX, which is we think about data, we think about models, we think about the apps and interfaces. And each one of them, I think we have an important area of differentiation that I'd like to make sure we touch on. On data, our rich data set draws upon the investments that we've made across creativity, documents, customer experiences. But it allows us to train these models on high-quality assets, which are designed to be commercially viable and professional quality. And we hear that a lot from our customers, which is they may use any models if they want to be doing the ideation part upfront. But when they want to deploy that as part of a media placement, as part of a campaign they're running, as part of e-mail, they want to make sure that they understand the IP of where that model came from and how it was created. So I think the data part has been a differentiator in how we have introduced and continued to develop Firefly. Models. We will, and we will continue to build our own foundation models in the categories where we have deep domain expertise. Whether you call it imaging, and I know there's a lot of questions about video, we have our own imaging, video models as well that are hard at work. And those are also being integrated into our products; documents, certainly, what we've done with PDF. And today, we introduced a bunch of foundation models for Experience Cloud as well, so how we think about the Journey or how we think about the Generative models; the introduction of AI assistant as well in Adobe Experience Cloud, which allows you to have a conversational interface and say, "Hey, I want to create this campaign towards this segment and roll that out," and if you can enable the product to do that on your behalf. So models are important, the IP, the security, the governance of those models are important. And Adobe will ensure that in the models that we develop that we communicate to our customers, what went into the creation of those particular models. But the biggest thing that really needs to happen is where you think about the apps and interfaces. Actually, one more point about the models that I want to make sure, again, I say: the greatest value of generative AI, I think, is also around this model customization. The creative control that you can have in the apps and the commercial viability of where Firefly is already being used and the way it can be used to create customer value. So we continue to believe that we're very differentiated. But as I was saying, the generative AI, where it comes to life is really in these apps and interfaces. And you can see on the screen the various surfaces in which we have already integrated generative AI. So when you talk about ideation, exploration, when you talk about delivering the actual magic in our creative applications, the whole idea for us is how do our customers gain superpowers when gen AI is natively integrated into their workflows. And again, here, it's whether they're using Adobe or whether they're using third-party models. There was another important demo that I hope you all caught where when you're in GenStudio, you can actually pick which model you would like to use. And so for Adobe, the ability to have custom models, to have Adobe models, as well as integrate any third-party model that somebody wants to use, that clearly is, again, a differentiator and a strength for Adobe because it's the interfaces in which they use it that people really love and they become more productive. And so that's something that I think is also really important to understand in this. But we're also advancing collaboration with partners. We talked about this. So whether it's with NVIDIA, whether it's with OpenAI, whether it's with Google, we will continue to also partner with all of these other third-parties and industry companies to make sure that we're focused on how we can develop standards and how their models can be incorporated as appropriate into our applications. And in some cases, whether it's in Acrobat, we also just leverage a third-party model. So I just wanted to go a little bit more again into data models and apps and interfaces and how we do it. If you take a step back, though, and as Jonathan said, I'm really proud of the AI innovation that we've delivered in the past year. I mean, if you look at some of the stuff that's on this slide, clearly, we created our own Firefly models. We marked the 1-year anniversary of that. And we said that we've had over 6.5 billion generations since launch. We delivered that entire magic of Firefly within our Creative Cloud applications. So when you think about what happened with Photoshop, when you think about what happened with Illustrator, the fact that we have Generative Fill because that's where the real magic happens in terms of people being able to use all of those models. Adobe Express, huge improvements in what we can do with Adobe Express to make it an AI-first application. And if you've used the new mobile application that's in beta, you can actually see how we're again changing the paradigm. The paradigm has changed from surface to surface. People may have first used a desktop, then they used desktop and mobile and Web. Now they're all going to use an AI-first assistant mechanism to do it. And I think that's what Adobe Express really represents in terms of going from ideation all the way to content creation. I touched on Firefly services. This is a collection of APIs that people can use for generation, creation, editing. And the interest in that particular set of Firefly services as we design them to be commercially safe is really exciting because every enterprise wants to know how they can quickly deploy it and how they can quickly get it up and running. AI in Acrobat and Reader. Acrobat and Reader is a little different in how we expect to monetize it. So we've talked about the Generative packs way in the Creative Cloud. In Acrobat, we're going to do something different. So if you have an AI assistant, whether it's in Reader or whether it's in Acrobat, think of that as a monthly subscription and an additional fee in order to have that conversational interface. And we have another slide that talks about the different monetization mechanisms because the appropriateness of one monetization mechanism may not be across our entire set of products. And so the fact that you can generate these summaries, you can have the insights, you can compare it with other documents on your desktop or, over time, across your entire knowledge management, I think that's where the value for AI Assistant in Acrobat is going to be. And we touched on GenStudio as well. So I want belabor that point. But I think the team made actually a video to just see, over these last 12 months, the amount of innovation that we've done. So why don't we roll the video? [Presentation]

I can absolutely guarantee that both generative AI as well as Adobe products were used in the creation of that video. A little bit on monetization because I know that's a question that a number of you have. And so what we try to do is break it up in terms of the new generative AI capabilities. We certainly believe it is going to attract millions of new users to the Adobe franchise. I think Dan has a slide later in the deck that you'll see, which talks about how, across Digital Media, the number of commercial subscriptions, I think net of education as well as enterprise, continues to grow and why that's a power of the growth that we are seeing. We're certainly growing the value that we deliver to existing customers and driving record engagement. So again, we'll talk about the new units that we're seeing in terms of the new user growth on Photoshop with Generative Fill but also the engagement because, when you have increased engagement, then you can also think about different offers that we have. So on the new user growth, whether it's the Firefly Web app where people can come in, they can do ideation and they can create a subscription; whether it's in Express, again, through both a freemium model and a non-freemium model as well as a monthly subscription; Acrobat Reader and Scan, where I said it's a slightly different monetization model; and in Creative Cloud, certainly, what we've done is we've embedded a lot of that functionality directly within the applications and we've impacted the base pricing, so just multiple ways of both attracting new users as well as thinking about the increased product value and engagement that we have. The Experience Cloud AI services. When we sell to the enterprise, we typically have three different layers. We have what's called ultimate, at the top level, and this is typical enterprise selling. And so a lot of these AI services are embedded as part of the new value that we're delivering to enterprises. And I'm sure in the Q&A, Anil can also talk a lot more about that. And then there are completely new offerings and services in terms of monetization. So when you think about AI Assistant for Reader, it's the first time that we can actually start to monetize PDF consumption and not just PDF creation or collaboration or signing or the other verbs that we have. Firefly services. Think of Firefly services not just for the enterprise. Over time, if you're a small and medium business, you can just come up. You can be provisioned on GenStudio. You can create a campaign directly there. You can do your ideation. And so Firefly services and the combination of Firefly services and GenStudio, whether it's for APIs or as well as for custom models, all these are different and new offerings and services that we certainly have. And so as we think about the monetization opportunity across all of these different dimensions, certainly at Adobe, we're starting to track the contribution of gen AI to growth. And this is something that we have talked about how we start to break out externally. And so think of it much like we did AEP and apps, when we said we're going to come up with a new model for what we build with the Adobe Experience Platform and then associated with it, whether it's Adobe Journey Optimizer or the Customer Journey Analytics, to give you some color of how that is driving growth, we are still refining our internal methodology for tracking this because AI is embedded in everything that we do. But I know that's one of the questions that a number of investors have, which is give us some color in terms of how this is starting to appeal to the growth. And so we've thought about it in terms of, first, let's make sure we share all of the innovation that we're doing. We can, again, double-click on how we are monetizing each part. But we are starting to think about how do we start to break out some revenue number that gives you a flavor. We started to do that in generations because it's so embedded in all of our revenue. But the aspiration certainly is that this is the next billion-dollar growth opportunity for Adobe. So I wanted to make sure I touched on how we are thinking about monetization. And then maybe one of the projects that I am actually particularly excited about is this cloud convergence across all of our apps, we think that's a massive competitive differentiation for Adobe. Because when you think about it, whether you're a small and medium business, whether you're a large enterprise or you're somebody as a freelancer that's contributing to content, it really requires all these elements that you see on the screen: how do you do the creation and production; how do you do ideation; once you have all of those assets, how do you create an asset management system; where it exists. A lot of people have solved the creation and production with asset management. But then activating that in real time and producing the delivery, that's something that only Adobe can do because we have the Creative Cloud as well as we have the Experience Cloud. And then associated with this certainly is how do you increase the number of stakeholders with what we are doing around workflow and planning. And so if you're a small and medium business or if you're a freelancer, you can use Frame. If you're a larger enterprise, you can use Workfront. And there are large companies that have completely standardized. They've completely standardized on Workfront for the workflow and planning. But every marketer and every agency that I talk to, when they are thinking about how can I have AI also help with my efficiency and cost say, "How do I get reporting and insights? How do I understand, for each piece of content that I've created, what the efficacy of that piece of content was?" And again, the fact that we have Web analytics, the fact that we have Customer Journey Analytics, we can in real time actually continue to emphasize the pieces of content that are delivering great value and underuse the ones that are not. And so I think it's the combination of Express, Firefly, Creative Cloud, Acrobat and Experience Cloud that really gives us, I think, a very unique solution to address all of the content and data needs that anybody has in order to do customer experience management. Dan is going to talk a lot more about this, but I certainly feel that our mission, to change the world through digital experiences, is more relevant and has more growth opportunities than ever before. And we believe that both AI and generative AI expands the massive opportunities on which we are focused: unleashing creativity for all; enabling anybody who has a story to tell, to tell that story across any media type, across any device; accelerate document productivity, increasingly the currency of all knowledge in an enterprise; and power digital businesses, which continues to be a large growth opportunity where Adobe is the leader. And I think that's what underpins our growing addressable market, which is expected to be approximately $293 billion, as you see, in 2027. So I'll turn it over to Dan to talk more about the key growth drivers, the addressable market, a little bit more about the financial strategy, and then we'll come back for Q&A. Dan?

Thanks, Shantanu. It's great to see everybody here today at Adobe Summit. And I hope you're excited and inspired by the announcements we shared at this morning's keynote and what's coming up tomorrow. Back in October at Adobe MAX, we shared our innovation road map and our strategy. And I want to build on the vision and opportunities that Shantanu and the team shared. And we're going to walk through the market shifts that are driving our business and expanding the addressable market opportunity. As you can see, our business, it's incredibly diverse. We're balanced. And that's not only across monetization models but also customer segments, routes to market and geographies. The balance and diversity, it's made our business incredibly resilient. How many companies have SKUs that they sell to consumers for a few dollars a month, all the way up to large, transformative enterprise deals with total contract values that can be more than $100 million in size while delivering world-class execution across that entire continuum? The resiliency, it's clearly on display here. We're relentlessly focused on delivering groundbreaking innovation, expanding into new markets and making our customers successful. Our diversity, combined with this relentless focus on innovation and customer success, that's what powers these financial results. And it took Adobe decades of innovation and strong execution to reach $10 billion of revenue. And we're going from $10 billion to $20 billion of revenue in just 5 years. And our subscription revenue was 28% in 2013, and now it's touching almost 95% a decade later. That's truly a remarkable journey. And while these trends speak for themselves, it's clear they just don't happen. World-class margins, that's a result of strong focus and execution, an industry-defining innovation and category leadership. And our ability to consistently invest in innovation and category leadership and do it in a disciplined way has enabled us to deliver strong, consistent profitable growth. So let's jump in. Let's start with the Digital Media business. Our success, again, it's by design. It's not an accident. It's driven by industry-leading innovation as well as the diversity of business models, routes to market, our global footprint. All of that resiliency, it's on display here. AI, it has the potential to play a critical role in not only making our products even stickier but delighting new and existing customers. You can see the growth in commercial subscriptions that Shantanu referenced. You can see it overlaid on this chart, shows that new subscriptions continue to be the predominant driver of growth for us as a company. And over this time period, commercial subscriptions, they're up over 50%. And keep in mind, our overall customer surface area, it's even broader when you think about education and the enterprise. And growth in those segments broadly aligns with the trends you see here. And we've got tremendous runway to bring new users into the Adobe ecosystem, and we're leveraging generative AI to accelerate that trend. Now as we dig into our 3 clouds, I'm going to cover three topics in each section. First, I'm going to reorient us back to what we heard in October, going to recap the AI strategy we shared at Adobe MAX. We talked about how AI is going to raise the ceiling by adding more value, how it's going to lower the floor by democratizing access to the technology and how it's going to expand the monetization opportunities. Second, I'll update you on our business momentum. And then third, I'll wrap it up with the 2027 TAM for each cloud. As you know, Doc Cloud continues to perform incredibly well. We're delivering strong growth, and that's across both free and paid now, and that's across customer segments. Collaboration is accelerating. We're up over 300% year-on-year with users sharing PDF links. Free-to-paid conversions continues to perform well, and it's driving revenue growth. So let's double-click on our innovation strategy. At MAX back in October, David shared three ways we're leveraging generative AI to help our customers combat information overload, accelerating time to insight, supercharging document creation and editing and improving collaboration. In Doc Cloud, our innovations, they enable us to deliver more value to existing users through AI Assistant's conversational interfaces while, at the same time, it's an on-ramp for millions of more users, particularly through free Reader experience and funnel. The monetization opportunity extends across the spectrum of customers, from expanding the freemium segment with Reader to paid AI plans with both Reader and Acrobat across all surfaces and the enterprise-grade capability where we increase value and drive higher enterprise penetration. And I'm going to expand on the AI monetization across the broader Digital Media business a bit later. I want to take a moment and put the innovations behind AI Assistant in Acrobat and Reader in context. The world's information, it lives in PDF. AI Assistant, it unlocks the value of that information that's stored in the over 3 trillion PDFs globally, and it transforms user productivity and workflows. AI Assistant also augments third-party LLM services with a deep understanding of the PDF structure and the same AI and machine learning models that are behind Acrobat Liquid Mode. But the real value unlock, it's in the ease and velocity with which users can extract insights from the information that's contained in PDFs. And we expect to begin to monetize AI assistant starting in April. And we've driven great success with our product-led growth, or PLG, motions. So how does it work? PLG, it's about meeting customers where they are. It's about making them successful without any friction. It's driving deep engagements with our products. And it's creating viral growth loops that organically bring customers to the Adobe ecosystem and do it through product engagement. And we're integrating AI into this playbook to accelerate growth of our flagship businesses. There's no better case study for this than the success we've driven with Acrobat Web. Taking a flagship like Acrobat to the web, it's broadened the funnel and it served as an accelerant of the business. And you can see that acquisition in a freemium, low-friction environment turn into engagement. We saw a greater than 70% increase in Acrobat Web monthly active users as well as a 200% increase in monthly active users that are sharing documents to collaborate. The business impact of frictionless customer acquisition and viral product-led growth, it's just phenomenal. Fiscal 2023, it translated into a greater than 65% increase in new paid subscriptions through the Acrobat Web funnel. And we're going to run this same playbook with AI Assistant, and we're going to do it across all surfaces, desktop, Web, mobile as well as other offerings we're going to be bringing to market. And we're excited about the Document Cloud strategy. It unlocks a large addressable market, which is projected to grow to $47 billion by 2027. $25 billion of that TAM is from knowledge workers. And we see these customers using Acrobat with higher frequency and depth, and they're doing it for collaboration, for creation and creative expression and they're doing it across the organizations. $22 billion of the TAM, it's coming from communicators. And we see these customers with more Web and mobile use cases. And they can access the power of generative AI at their fingertips through greater use of Reader and eSignatures. And as you bridge back to the 2024 TAM, we've distributed document services and APIs across these two categories in light of our strategy and how we run the business today. And we're on the cusp of monetizing the power of AI and delivering superior value to our customers. And again, it's across all surface areas: desktop, Web and mobile. Now let's move on to Creative Cloud. The business is performing well. We're adding more creative professionals, communicators, consumers, across our flagships, like Photoshop, Illustrator, Premiere and the new Adobe Express offerings on Web and mobile. And we're integrating those creative capabilities into enterprise marketing workflows through integrations with our DX products. And now with the incredible success of Firefly, combined with today's announcements around custom models, Firefly services, we're incredibly well positioned to drive product innovation and customer value for years to come. So let's jump into the innovation strategy. And again, starting with Firefly, that's our family of creative foundation models. Today, it spans images, vectors, design, text effects. And going forward, quickly, we're going to expand into audio, video, 3D. And you're seeing how we're bringing that magic across our core product portfolio from Generative Fill and Generative Expand in Photoshop to AI-first applications like Firefly, Adobe Express on the Web and now Adobe Express Mobile, which is in beta. And we're also accelerating content creation velocity for the enterprise with GenStudio. And we're enabling them to embed and extend our technology into their creative production and marketing workflows with Firefly services. And I'm excited to show you the power of custom models and Firefly services shortly. So how does this broaden the opportunity? Again, it's about delivering more value to existing customers by leveraging generative AI to supercharge their content creation. But it's also about attracting significantly more users to Creative Cloud flagships with easier onboarding and through frictionless applications like Firefly, Adobe Express on both Web and mobile. Creative Cloud. We're already driving monetization of these technologies through the value that's been added to our flagship applications. And we're seeing strong interest from enterprise in Firefly services. And that same concept, it applies to custom models in GenStudio as well. Now let's talk about our AI momentum across Firefly, Photoshop and Express. We talked about the scale of our adoption, 6.5 billion generations since launch a year ago. And I want to help you connect that usage to business impact. I'll start by highlighting the impact generative AI had when we deeply embedded it last year into one of our Creative flagships, Photoshop. We saw virality of product interest increase, a greater than 50% increase in social interactions following the public beta of Generative Fill. And it's leading to business impact, strong product adoption, greater than 30% year-over-year increase in new Photoshop subscriptions. We also see that Photoshop users who use Generative Fill, they utilize the product more, they renew at a higher rate. The impact we see when we integrate AI, viral interest, easier onboarding, deeper engagement, ultimately, driving business growth. And when you look at Adobe Express, we're seeing a doubling of exports year-over-year. And we see this as an important indicator of the value that users are really extracting from the product. And with the mobile beta in market, we're seeing an increased number of Express customers engage and use generative AI. We see that as an indicator of strong engagement. And as we look ahead at our road map, that is going to be our playbook. We're going to execute this playbook across the portfolio and media types. We're going to drive business impact more broadly throughout the Digital Media ecosystem. You'll see us do it with video, 3D, audio, photography and so on. Before we go into the TAM, I want to share more about Firefly services, including custom models. We believe these are going to be huge opportunities for Adobe. Custom models, they're an integral component of Firefly services. I think the best way to think about it: they're a foundational element that truly unlocks the velocity of automated content production. Custom models, they start with a model that's designed to be commercially safe. And then we augment that model. We ingest a customer's own IP and their on-brand assets. And then we train the model on that content. What you have is a custom model whose output has high brand fidelity and becomes a real accelerant in the process. But the magic of the custom model, it's unlocked when you integrally weave that custom model into enterprise workflows. And that's what we're providing with Firefly services. And to give you a better understanding, we've put together a couple of quick videos. First, you're going to see custom models in action, followed by Firefly services, which is a part of our broader GenStudio solution. So please go ahead and roll the videos. [Presentation]

I hope you now get a better sense of how powerful this really is and why we're so excited about it being a huge opportunity for Adobe. Creative Cloud TAM, growing to $91 billion by 2027. It's a massive opportunity growing across all segments. $44 billion of the TAM comes from professional creativity, with users extracting greater value from the Creative flagship products through deeply embedded and integrated AI features. And we're adding transformational value to enterprises with the power of Firefly services. $47 billion of the TAM comes from the broader market opportunity where AI is enabling hundreds of millions of communicators and consumers to participate in the creativity process. We talked about lowering the floor, raising the ceiling in this market, our $91 billion TAM reflects all of that. So zooming back out, looking at AI monetization across both Creative Cloud and Doc Cloud within the Digital Media business. As you can see, our approach to generative AI in Digital Media, it's very comprehensive. We're broadening the top of the funnel, bringing in subscribers by having a more frictionless onboarding and retention, and we're embedding productivity-enhancing capabilities throughout the portfolio to drive higher value. We're also bringing automation into all stages of content supply chain to increase the velocity and efficiency for our enterprise customers. Now let's look holistically at how we see generative AI monetization opportunity across Digital Media. In the software industry, you think about a typical P times Q calculation. In Adobe's case, with all of the innovation we're bringing across our product surfaces, the result for us: more Q, higher P and a new value we're delivering. Let's call it V. And with our new transformative services, we're offering more value, helping enterprises tackle content automation so that they can deliver true personalization at scale. This gives us the opportunity to sell based on value to large enterprises. And we already see that value sell pipeline building today with Firefly services and GenStudio. As AI eases customer onboarding, deepens engagement, it results in a better funnel, higher retention and growth across the customer base. Here's a conceptual framework. I'm going to caveat this. This is not one to pull out a ruler or start measuring slope and area under the curve. It's just a conceptual framework. And it represents the distribution curve of our Digital Media customers. For every customer who opens up an Adobe app once a week, there's another who's using it 10 hours a day and deeply engaging with features like Generative Fill and Firefly. And in between these two personas, there's a bulk of the customer usage bell curve somewhere in the middle. And generative AI-powered products, they're better positioned to attract new users, deepen engagement, and we're already seeing this with Photoshop. They're using it more and retaining better. And as I mentioned, we're going to continue to roll out that playbook across our ecosystem of applications and services. And as the depth of usage pushes this distribution curve to the right, I go back to the potential to convert that deeper engagement and consumption of generative credits, along with the substantial value that we can add in the enterprise. So the strategy of pushing the curve to the right, it's an important way of visualizing how we think about how the impact of these technologies changes customer engagement with the product portfolio. So let's move on to Digital Experience. You can see the enthusiasm today, this week, here at Summit, awesome show. Our message: personalization at scale, it's resonating with the customers at the C-level and beyond. This is an area where enterprises are continuing to invest. The importance of having a differentiated customer experience, it's real. And we're unique. We have a comprehensive portfolio that spans content production, real-time data, customer journeys. And our leadership in this space, it drove the strongest Q1 ever. In October, Anil shared three areas where we're focused on leveraging generative AI technologies across the DX portfolio. First, implementing an AI assistant into current and future core applications to enhance the productivity of our customers; second, leveraging generative AI to reimagine Digital Experience applications, such as Adobe Experience Manager; and third, building new generative AI-powered solutions like GenStudio that are going to revolutionize digital experiences for our customers. We see AI and Experience Cloud expanding the opportunity in two ways: first, simplifying the content creation to production process delivers efficiency gains and drives a higher ROI for customers, we're adding more value; two, expanding the enterprise use space with conversational interfaces that unlock Digital Experience insights across organizations. And we're monetizing that innovation across the portfolio with upsells and seed expansion by empowering more practitioners with those automated generative insights. And we're reimagining Experience Cloud applications, and we're delivering transformational value with solutions like GenStudio. And it's clear, enterprises who connect with customers in a personalized way across digital channels, they're partnering with Adobe. Adobe is the digital interface between enterprises and their customers to deliver true personalization at scale. The momentum clearly comes through in these numbers. AEP and apps, across the $800 million book of business milestone in about 4 years, grew greater than 60% exiting Q1. Double-clicking on our expansion with customer cohorts, you can see the tremendous growth over the last 3 years. And we saw the steepest growth from our largest strategic accounts. These visionary customers, they're a bellwether for how the rest of the enterprises will grow and invest over time. And there's a tremendous opportunity to drive deeper adoption into these customer cohorts. Looking at how all of this translates to market opportunity, we now have a 2027 TAM of about $155 billion in customer experience management. This TAM reflects the opportunities we see with existing and new customers as we solve problems across CXM, like content supply chain and personalization at scale. And comparing to the 2024 TAM, workflow, it's now combined with content and commerce given the product integrations that we've delivered across these categories. And when you think about the way our largest customers are investing and the opportunity to drive transformative adoption more broadly, a large portion of the TAM is represented by our existing installed base today. And additionally, there's a massive opportunity to continue winning with new logos and bringing them on this journey. And now zooming back out, taking a look at Adobe more holistically. Generative AI, it's catalyzing a convergence of opportunities across all 3 of our clouds. As personalization at scale becomes a market imperative, you're going to continue to see an explosion of content. And as marketers drive closer and closer to smaller and smaller segment sizes, ultimately targeting a segment size of N of 1. That N of 1 personalization, that's the holy grail in marketing. The result, it's going to be a flywheel of activity, drives customer demand and adoption, and that's across the entire product portfolio. And this virtuous cycle that we're delivering with Firefly services, GenStudio, real-time CDP, these are the solutions that are the key to enabling real-time personalization at scale for our customers. So we've just explored how trends in technology are shaping Adobe's innovation road map, our monetization model, our market opportunity. I'm now going to spend time on the financial strategy that underpins our growth and profitability. We continue to maintain a disciplined approach to the financial strategy. Adobe is hyper-focused on growing revenue and growing earnings per share. Adobe is hyper-focused on strong profitable growth. For us, it's about growth and profitability. Regarding capital structure, we exited Q1 approximately $6.8 billion of cash, $3.6 billion of debt, and that results in a net cash position of about $3.2 billion. When you combine our outlook with the business needs, we believe a net debt-neutral position gives us the right balance between financial flexibility and returning cash to shareholders. And over time, we'd expect to bring cash and debt into a closer balance, with both around approximately $6 billion. As part of our disciplined financial management, we continue to focus on delivering strong, consistent capital returns. $15 billion was the prior 4-year repurchase authorization, and we fully utilized it in approximately 3 years. Earlier this month, we announced our new 4-year authorization at $25 billion. Q1, we executed approximately $2 billion of share repurchase. Q2 we've just entered into a $2.5 billion repurchase contract. So at that current pace in the first half of 2024, we're off to a fast start relative to the new authorization, and that's consistent with how we've operated in the past. We plan to stay flexible, drive profitable growth, drive strong cash flow, drive the innovation road map and return capital to shareholders. Now when you look at the products and our pipeline of innovation, there's a massive $293 billion market opportunity in front of us. We're expanding the top of the funnel to reach more customers and bring them deeper into the ecosystem, and we're doing it with innovation. And as I think about Adobe's path, the $30 billion of revenue and beyond, let's come back to the growth algorithm. We've always said it starts with new subscriptions. That's the main driver of growth. And then we add cross-sell and upsell and pricing to the equation. And now with AI-powered innovations that we're driving, we're adding new monetization levers to the mix. Adobe's future is bright. Our best days are in front of us. We're not opportunity-constrained. Our engine of innovation is strong, and we've got a differentiated approach to AI. All of the pieces are in place. Now it's up to us to execute against this opportunity. Tremendous pace of innovation on display, execution strong, road map robust. Bringing these innovations to life for our customers across the amazing products and services, it positions Adobe to win in the era of AI. It's early in the journey, but we really like what we see. Now I'll turn it back to JV for Q&A. Thank you.

All right. Thanks, Dan. So we'll play some quick musical chairs here and then invite most of the executive team to join us. If you want to come on up guys, Dan, Anil, Shantanu, Scott and David. And I also wanted to recognize our Chief Human Resources Officer, Gloria Chen, who's here; as well as Dana Rao, our General Counsel and Chief Trust Officer. I did not invite Dana to join because his jokes are funnier than mine and in solidarity, Gloria is sitting out as well. But thanks for being here. So before we open it up to the audience, I just wanted to give an opportunity for Anil, then David and then Scott, just to share some reflections on day 1 of Summit, the keynotes, the enthusiasm you're hearing from customers. We'll just go down the line, starting with you, Anil, and then we'll open it up for questions.

Awesome. Thanks, JV. Yes, with Summit, as you've seen, many of you hopefully caught the keynote this morning, it's been really oversubscribed and a ton of enthusiasm. Again, hitting at the same points that both Dan and Shantanu touched on, this notion of personalization at scale is really resonating with customers. It's a must-have for enterprises. That's how they are differentiating both B2C and B2B. And those investments, they're looking for a platform partner who can go with them on this journey. And when you look at what's required to pull this all together, the content, the data, the customer data and being able to handle that well, the customer journey so that you can actually use the gen AI and make all of this work in a two-way conversation with customers, bringing it all together with a partner who can be trusted on the gen AI front. So we're in a really good place, and we're seeing that message resonate.

Yes. And I'll just add on briefly. I mean, I think last year at this event, a number of you commented on how good it was to see the Digital Experience and the Digital Media businesses starting to come together in a way that was accelerant to what we had been talking about before. I'd say today was another great example of that, right? I mean, if you looked at the slide that Anil put up for the content supply chain, very, very active work going on with, of course, custom models and Firefly services. We didn't even have time to get into it this morning, but there's a lot of work with our core Creative Cloud for enterprise workflows. There's a lot of workflows not with Express for enterprise. So all of those conversations are happening right now as we speak, and we'll be spending a lot of time with enterprise customers coming out of the show. But in addition to that, I do want to just underscore the pace of innovation that you saw from all of us last year when it comes to gen AI is continuing this year. Obviously, we announced a bunch of things today. You can assume that a month from now, and I know we're not done with Summit yet, but we have London MAX coming up. There's going to be some amazing announcements around Firefly and Photoshop there. We have a couple of really important betas out with AI Assistant and Express Mobile. You can expect those to come out of beta in the next few weeks and start to see the ramp. And then just the number of innovations that you'll see in the back half of the year around audio, video, 3D and how that makes the tools, very, very excited about it.

Yes. I think from a strategy perspective, a common conversation amongst my peers in the industry is, during a Cambrian explosion where every day from within our labs and beyond, there's like some new breakthrough, some new insight, the question is always how do you know how to prioritize, how do you know which way to move when everything is changing almost every week. And the answer, of course, is doubling down on customer empathy. And just to apply that as a lens to our strategy we shared last year around raising the ceiling and lowering the floor, in raising the ceiling, there was a moment this year where I was sitting with a focus group of some illustrators who were seeing the capabilities of the vector model in Illustrator. And one of them actually started to tear as they saw the possibility of exploring infinite number of color combinations to transform a very sophisticated vector creation Illustrator for marketing purposes and how they could now explore so many more possibilities to find a better solution than they could have ever found before. You see examples like that also in, of course, Document Cloud with the AI Assistant, turbocharging productivity for that customer; and in the DX business, the ability to personalize at scale in ways that you used to have so many people having to just segment by segment by segment as opposed to person by person, it's just an amazing empowering moment that customers are starting to sense and feel. And I think that just stands out. And then in terms of lowering the floor, I mean, my goodness, the number of folks that can now go in and participate in their businesses' marketing with GenStudio, this notion of agile marketing or thinking and acting in real time as a brand finally being accessible and allowing more people to get into the fold, I think it's a great example; as well, of course, Express and all the products we're taking into market and Creative Cloud to outfit everyone to be creative and participate. So I think that's super exciting. And then in terms of strategy of where we're going now, I think we saw it today. Firefly, it's all about customization and personalization and outfitting teams with APIs to make their own workflows better and really be creative in how they actually build their workflows of the future. I think that that's clearly the future of Firefly for our customers, and they're excited about it. They're already asking questions of can I do this, can I do that, and that's what we want to see. And Shantanu also alluded to this earlier, but there's also this whole world of niche models that are going to emerge. There are small little teams building models that do very sophisticated niche things that our customers are going to want to have access to. And we're really excited to bring some of these models into the interfaces that these customers use every day like Photoshop, et cetera, because we want them to be able to, much like they use plug-ins, build superpowers into their workflows in products like Photoshop; or supporting any camera in the world that captures any photo that then you want to bring into Photoshop. In many ways, these models are kind of the new cameras, and we want to make sure that we support them as well. And I'm happy, Shantanu, you talked a little bit earlier about our embracing of some of the third-party models into the ecosystem. So I think that's some of the stuff that's exciting about the world ahead.

Great. Okay. So hands up. We have a couple of mic runners here. And please remember to introduce yourself so we make sure it's properly reflected in the transcript. So Jessica, why don't you go to Saket who's right next to you here in the middle?

Saket Kalia at Barclays. I have a bit of a hypothetical question here, and it's related to Firefly. Firefly to me seems like such an enterprise-friendly solution. And so the hypothetical question here is, maybe it's for you, David, if we fast forward 3 to 5 years and look at the biggest drivers of Firefly related revenue, maybe I'll call it, do you think it's going to be more driven by enterprises or more from communicators? And we've got Adobe Express coming around, right? So again, it just feels so much more enterprise-friendly compared to all the other noise that's out there in gen AI. How do you think about that?

Yes. Happy to take that, and anyone else, of course, please jump in. I think Shantanu and Dan did a nice job of framing up where the monetization of these capabilities can come from. As it relates to Firefly, and then maybe I'll sort of ladder up to where we think the monetization opportunities are, Firefly does a few things. One is the quality of what we generate is excellent, and you're going to see some big steps forward again in the next few weeks and months, and we're very excited about that. Two, it's second to none in terms of controllability. You saw what we showed in terms of style match and structure match. I've been getting social feeds from our community doing amazing things with this that, frankly, we didn't even imagine when we launched it, already a few hours after launching it. So that controllability is an essential part of that. And then integration into workflows, and those workflows are certainly things like Firefly services and GenStudio for the enterprise. But they're also our core creative applications, like flagship applications like Photoshop and Illustrator for creative professionals, and they're products like Express for general utilization. But also we are able to take things like Express and componentize them and integrate them into third-party services. We've made an announcement recently about Wix taking Express and embedding it into its workflow. So the utilization and the value is going to be very, very broad, absolutely. I think, as Dan alluded to, what we're doing in enterprise with this is off to a great start, and we're very excited about that. The pipeline is building very quickly. This show is going to be, I think, an amazing pipeline generation opportunity for that. But we have already seen, and you continue to see, that the integration of Firefly into Photoshop and Illustrator drove the continued growth of subscriptions and subscribers for our core Creative products as well. And now as we're coming out of beta on mobile, we've been marketing Express, but the opportunity, when we've got mobile and Web fully formed and when we have Photoshop mobile and Web fully formed and when we have Acrobat Web fully formed, our ability to market in a much bigger way for Express and the communicator base is going to change to another gear in the next few weeks. So I really look at this as really helping all of those segments. I'm not going to pick one of my children.

Saket, maybe if you're asking a hypothetical question, maybe I can hallucinate on an answer in the setting of generative AI. I think in the short term, to David's point, we'll probably monetize that in the enterprise faster. And so I think that's a valid assumption. I think in the long run, the viral adoption of this across individuals is going to be ginormous. So that's why I would say it's more a timing thing based on what we have said.

Okay. We'll go to the next one. Let's go to Kash right here in the front row.

Great show, guys. The innovation, the Summit, even relative to MAX, it just seems to be orders of magnitude, so great job on that. My question is, in the productivity savings we're seeing with these scenarios, how are customers actually going to be funding, to your point about enterprise adoption? Is there an ROI calculator, bodies saved, doing things faster that can give us the comfort that you're going to get paid for this? And secondly, Shantanu, you talked about tech disruptions and how previous disruptions get folded in the next cycle. It also is the case that sadly, maybe not in your case, that the incumbents in the prior cycle rarely make it. So in this cycle, how do you gauge your ability to put new competitors at bay that typically are better leveraged to exploit disruptions? So what about your business gives you the confidence that you can turn this into a strength as opposed to weakness?

Sure, Kash, I mean I'll start with the second, and then people can certainly respond. I do think this is one of those eras where incumbency is an advantage if you innovate at the right pace. I mean I think with every disruptive innovation, I mean there's an opportunity for the disruptors and there's an opportunity for the incumbents. I think this one, given the data that we have, given the interfaces that we have, to your point and maybe even Saket's, I mean there's a lot of conversation around the models. But where the value really accrues to people is in the interfaces and what you can do with it, which is your first. So I like what we are doing, partly because we've really innovated across the spectrum. But I do believe that for the things we've done, when we have IP and we have the ability, I actually think you're going to see a lot of AI companies that have focused on fundamental models fall by the wayside because I think the capital allocation also associated with what they have to raise, it's just not sustainable for them because they don't have a business model. So it doesn't mean in any way that we can be complacent. But actually like the incumbents in the space because the incumbents have the interfaces. I think to your second point, we do have ROI calculators, and Anil can talk of it in the enterprise. I mean there isn't a CFO probably who's saying, "Hey, how much am I spending on marketing? How much am I spending on content creation? How much am I spending on the efficacy of that stuff?" But I would say for the most part today, think about what's happened with code. I mean if you actually think about where the state of the art of predictive AI or generative AI is probably the most advanced, it's probably in code. You don't hear people say, "I'm not going to do any more engineering hiring." In fact, they're hiring people. They want them to be more productive. So we're seeing this duality of people saying, "I want my marketers to be more productive. I want them to create." But they're also then saying, "Hey, can I make sure of the content that I'm creating? What is a way for me to really look at it?" I think the one real advantage we have there is in asset management. You go to any company on the planet and you ask them, "How much content do you think you're creating a year?" I will challenge any one of you to actually go into an organization and find out where it is. And I think that's one of our secret sources where we can actually start to capture what is the amount of content being created, where are the briefs. But I think right now, people are like, "If I can do more for all the ideas that I have," that's really more the conversation that we're having. But you can talk to it in the enterprise, Anil.

Yes, exactly. In the enterprise, the ROI comes in both places. One is in the efficiency that you just hit on, and that is big because, in many cases, even the cost is unknown or untabulated and this is a great way to get their arms around it. And it really drives cost savings and efficiency. But it also really is helping them with growth. I mean like the ads that you saw that GenStudio was helping you create, whether it's for Facebook or all the paid media advertising that you're doing and all the other campaigns that you're doing, being able to drive better conversion on that leads to growth. And that is also extremely important for the otherwise. So it helps on both, both the efficiency as well as in the customer acquisition and effectiveness there.

Okay. Let's go right here in the front row, Keith.

Keith Weiss from Morgan Stanley. So I think one of the really interesting topics is the tying together the Digital Media and the Digital Experience, and generative AI is starting to pull that together. And it seems like you're seeing it already in some of like the bigger bill of materials in terms of Experience Cloud of more of a consolidation. So a two-part question. One, on one side of the equation, can you talk to us about how you expect that to come together over time? Is there going to be pricing and packaging? I guess, GenStudio is one of them, that pricing and packaging you're bringing together. The other side of the equation is, it seems like there's a little bit of a missing piece of the equation of where Figma would have come in with UX design and that side of the equation. Do you have to fill that gap on a go-forward basis? Do we need some replacement for where Figma would have been in that part of the equation?

I'll answer the second one, and then maybe Anil and I can both touch on the first one. Figma was a great adjacency. And I think we were excited about it. In all my interactions over the time that we were talking to them, my respect for Dylan and what they've done just actually grew over the period. But that doesn't mean that without product design, we don't have a comprehensive offering in this scheme. So we actually think, as it relates to creation of campaigns, if you think of GenStudio and the first 4 use cases where everybody is really excited about what's happening with GenStudio. The first is, "I'm running a campaign. I want to run the campaign. Where are all my assets? And how do I run the campaign?" E-mail, every e-mail that you're generating, you want a piece of personalized content, "How am I creating that piece of personalized content? And how am I doing it through the Adobe Journey Optimizer?" Media placements, "I have all these different places where I'm placing ads. For every one of those different ad platforms that I have, I'm creating all of this content. Oh my god, Adobe, if I can provision that and run that really quickly, wouldn't that be a great thing?" And then fourth, within the product surface itself. So when you think about where all this content is being created across all those 4, those are the 4 that we're impeccably well suited to go address. And so product design, I would say, is an orthogonal part to that because people are creating content for all of that, and that's what GenStudio covers. So if you look at the GenStudio thing, you can look at campaigns. You can look at where it is for media placement. You can look at it for e-mail. You can look at it for website, sorry, I missed the website as well, and all of the creation for the website. So there's so much in that for us that I think we're good. Now as it relates to partnering with Figma over time and continuing to make sure that we can integrate, that's certainly something that Scott and all of us continue to do, which is like, "Let's partner with them so that we can have the assets go back and forth." And I think it helps them and it helps us. And I think bill of materials, let me answer that, bill of materials, the bill of materials of a typical big customer, the good news is David and Anil are going in together, and we sort of go in and say, "Hey, what are you trying to do? How many marketers do you have? Where are you creating this? How do you want to change it?" So that's the Express conversation and the Photoshop conversation to the studio. So you first go to the studio team and you say, "Hey, who's creating this campaign? How are you creating it? How many versions of Photoshop do you want? How can you get Express because you want the marketers?" Then you go to the IT and the IT is like, "But I want my own custom model. I want to update my model. I want my stuff to be there." Great. We have that customer model. And then Anil is all about the asset management, the activation and delivery. So we are closing it. And that's one of the things that I think, based on all your feedback to Jonathan, we're trying to figure out how do we show you what that revenue is for these, call it, GenStudio and Firefly services, which is a combination of DME and DX. But that's clearly our value proposition. And that's why, even today, you'll see customers straddle both those elements of the business.

Let's go to Alex over here, blue shirt on the front.

I was going to ask Keith a little bit of, based on his report, "We expect to see this, we hope to see this." Hopefully, we answered a lot of your questions, Keith.

Give us a follow-up after.

Yes.

Alex Zukin from Wolfe Research. So first, hugely appreciate the contextualization around AI opportunity. I think last time we were here, we were all kind of talking theoretically about what are these products going to be, where are the monetization pathways potentially. I think you laid out kind of very clearly where they're going to come in. Shantanu, I want to tie together some numbers. And I don't know if you meant to tie these together, but we're analysts and we like to bridge. But you said $1 billion in AI revenue or your next $1 billion in revenue is from AI. Dan noted the pathway to $30 billion, but most of your targets are through '27. If I think about the cadence of monetization through these services, help us drill in, give us some breadcrumbs, if you will. How do they layer in? And is it a low single-digit percentage of your revenue coming from AI, $1 billion over $30 billion over that time? Or help us understand how and where, not precisely, but just so we can kind of dream the dream.

Yes. Alex, it's one of these things where the beauty of what we have done is by embedding it. So somebody is now being attracted to a new Creative Cloud all-app subscription as a result of the gen AI, right? So it's a brand-new subscriber, they have come to us, there's no way they would have come to us if it wasn't for all the social engagement and interaction that's happening about gen AI. And they look at it and say, "Oh my God, the onboarding." They did a Google Search or they participated in TikTok, they come to Adobe, they're like, "Oh my God, I'm already in Photoshop Web, I can try a generative AI," and I've subscribed to a service. The challenge is how do I specify what part of that revenue I should attribute to AI versus what part of that revenue I shouldn't attribute to AI. The Firefly services is straightforward, right? I mean I can say, this is how much revenue we're making in Firefly services. GenStudio is simple. Acrobat will hopefully be simple over time because Acrobat is a completely separate thing and it's an add-on to Reader. So that's the thing that we are working through, how do we give you color in terms of as we show you the generations. Engagement, right? I mean, I think both Dan and David will keep saying, "The people who use gen AI, they're more engaged and they're retaining." So I think this is something that's even a work in progress for us, and I understand. So the TAM is certainly accelerating for us. And as that revenue comes, what percentage do we allocate to AI. I'll be honest, I mean, part of what we don't want to do is a lot of companies took a lot of their mainstream revenue and call it cloud revenue, right? And so we don't want to engage in something that we all don't feel good about. So I know that's probably an unsatisfying answer at one level. But hopefully, you understand the complexity of when somebody is attracted to Acrobat or attracted to Creative Cloud or attracted to Express. Let's take Express. 40% of those who are coming, say, "Hey, I want to start." The old model for how people did communicate creation was through a template. I think that's going to fall by the wayside. They're all going to come, they're going to have a conversational interface, which is what we have and do it. Do I attribute 50% of my revenue to AI? Do I attribute 100%? So we'll continue to work on it. That's our commitment, and we'll give you some number. Does that make sense in terms of how we're laying it out?

I guess maybe I'll change to the specifics, the ones that are easier, putting that in the context of where the consumption of credit packs is more, what I'd call, [ distinguishable ]?

Maybe just repeat it.

Yes. So the question is there are some elements of gen AI that are directly embedded in the base offers, for lack of a better word, and some that are more distinguishable, how should we think about the things that are more distinguishable like a credit pack and how does that play out. I want to go back to where you started and make sure everyone is really internalizing, I think, what you're getting at. If you think about it, the wins of gen AI are incredibly strong. We know that. We see that 6.5 billion generations, 50% increase in social interactions. When we launched something in Photoshop and Firefly, 30% increase in conversion. You saw all the stats. It's very real and very tangible with the impact of that. At the same time, we've just put up a bunch of sales, right? We introduced generative AI packs last year, and we told you we're going to learn from that. We embedded generative AI credits quite richly in our base products. And we increased the pricing for the value we added there. We've now introduced AI services that are standalone and are add-on packs. You don't get it as part of your base Acrobat subscription. Firefly services is a consumption-based model that now lets us have a value-based pricing conversation with enterprises. So all of these sales are up. And honestly, we see the wins. We're learning what the mechanisms are. And that's really the power of where we are right now. We know that there's a lot of wind, and we're learning where to pick up. What I would say is that we've already said, in the second half of this year, we should start to see the lift in the business starting to come from the generative AI capabilities. And so that's where you'll start to see some of the initial benefit from AI monetization, for Acrobat AI monetization for Photoshop and Illustrator. And then I mentioned earlier, video and audio and 3D models. Right now, I think a lot of you think of, "I generated an image, it costs me one credit. How much is that really going to cost?" As we introduce something like video, that's not going to cost one credit to generate. The value is much more significant. We might charge multiple credits per second of video generated or video edited through this thing. And so that's going to drive even more opportunity to drive more generative pack sales or create more base offers that are optimized for video and price that accordingly. So there's a lot of opportunities. You'll start to see it in the second half of this year.

Let's go to the 3 gentlemen in the front row, my left to right, yes, starting with Mark.

Mark Murphy with JPMorgan. David, since you just ended on that note, that's where I wanted to go. When do you think we might get our first look at your AI-powered video generator product? And when you look at that competitive set, if we think of Runway, HeyGen, Synthesia, Sora, where do you see the shortcomings of those providers where Adobe may have an opportunity to differentiate? I'm wondering, in this case, if that can go beyond the IP protection, it maybe ends up going into the realm of these custom models where the audience clapping was quite noticeable on that topic today. And maybe it somehow goes into the realm of audio as well because I think you're mentioning those two almost simultaneously.

Really important question, and I think this is one that I do want to correct one thing you started with, the competitive nature of Sora and some of the others, Runway and other models out there. Because I want us to kind of stick a step back and touch on what Shantanu and Scott talked about. If you look at content production, right, it's always had a few phases. Phase one is ideation. Then you go to content capture. Then you go to content production. And then you go to content distribution. If you look at AI models that are in the market, the predominant focus that they have has been around ideation and capture, right, so something like video generation. It's about not having to shoot that with your camera. It's about generating the video instead of shooting it with the camera. That's not typically been a business that Adobe has been at. So we love that because the more video that gets created, either shot by camera or generated by Sora or generated by Runway, that's a foundation of the video that needs to now get put into a core tool for production. And production can be assembly, it can be color correction, it could be trimming an extension, it can be music augmentation, all of those things, right? So I do want to sort of put, every time there's something that comes out in the AI space, that improves the model, that increases the amount of content that's going to get created, we're all cheering, whether it comes from Adobe or whether it comes from a third-party model. So that's one. Then the second thing is when it comes from third-party models, as Scott mentioned, we are going to be building and you will see more and more interfaces directly in Photoshop and Illustrator, Premiere, After Effects, Express, to bring that content into our tools so that you can shape it and do what you want with. Now where our models will differentiate, and I think this is exactly where you're going, one is we always talk about the transparency, right? So the core of the transparency, we do a lot of work on bias and a lot of work in terms of like making sure the right kind of content is generated. But the second area is controllability because no one knows more about what it takes to actually create a highly produced video or a beautiful image than we do. And so the work we're doing around controllability is on multiple levels. One is it's in the interfaces. So obviously, in Photoshop and Illustrator and these aspects, we're integrating it in. But we're also doing it at the model level, right? Style match and structure match are not just random ideas that came up. They were ideas that came up because we know what creatives need to do. And we also know that those are going to be toolable and more embeddable directly into our workflows. And you can imagine style match and structure match in our video models and you can imagine them being a applied to video that's created by a third-party model and edited in our tools with our model. So these things are going to be really connected. But control is going to be a really important part of how we differentiate. But we're going to take content from everyone in any model and then bringing in tools for further editing.

And maybe the last thing I would say, just to your question, Mark, around enterprise and the custom models, that's exactly where a lot of those companies are saying, "Hey, we want to start ingesting imaging assets, animation assets, video assets to start to understand how we can play with that within the context." The one thing that we also have this notion of is people using these models for ideation are not always using the models for production or creation. So that's something that you have to -- even today, I saw some really lovely videos that were being created through text-to-image. And everybody said, "This is being able to take my imagination." Scott calls that the camera. It's the next-generation camera. But the usage of that in actual production is minuscule today because they want to know the IP of what was used in that and how it was edited and how it was controlled. And I think that will also continue to play out across both. Having said that, the technology, when I go into the labs and I think there are some of our folks here in the labs, what they have solved in terms of fundamental, in our video models, you have to solve fundamental physics. I mean the fact that when you say a person walking doesn't hit a wall or go through the floor and stuff like that, I mean it's mind-boggling how good the models are at Adobe in terms of what they are doing. It's just amazing.

And I didn't answer that part of the question. But yes, later this year, we're not giving more dates on that, but very excited to get it out.

Jay?

Jay Vleeschhouwer, Griffin. Dan's earlier comments on P times Q was, I think, a good back-to-basics commentary that Adobe has needed. So with that in mind, the last time you disclosed the classic CC base was exactly 8 years at 6 million. And there's reason to believe that the base has since quintupled. Does your growth expectation for the classic business assume that you can maintain that average annual increase we've seen for the last 8 years? Or do you anticipate, for all the technical reasons we've been hearing about that, that ex growth average will perhaps increase plus everything else? And then just a clarification on GenStudio, is it meant to be superseding the a la carte multi-solution sales approach you previously had for DX? And if so, do you have an explicit base migration or upsell program of the very large base of multi-solution customers you've had before?

So Jay, if I understood the first question associated with creative professionals and what you were calling classic and creative professionals coming into the workspace, I think we've said this, we think it's the golden age of design and more people are coming into the content creation process than ever before. More marketers are going to engage in the content creation process than ever before. So if I understood your first question right, and if you look at the number of people who are coming in to buy, whether it's a single app or whether it's the Creative Cloud all-apps, we think there are going to be more people who are interested in that offering than ever before. And I think that growth will only continue. So that's the way I would answer your first question. I think on your second question, we're offering it both ways. I think the beauty of GenStudio is it's really captured the magic. I was with the CEO of a large -- Anil and I met with the CEO of a really large consulting services company that wants to offer this as a premium offering to every company. And the fact that we called it GenStudio, for the next 15 minutes, she was talking about how GenStudio is going to be a catalyst. And so I think it's captured the imagination of, to your point, bringing together these disparate things, right, the content creation and production, the asset management, the activation and delivery, the insights and reporting as well as the workflow and planning into a very easy-to-use marketing description that we can do. I think the way we'll sell it, we'll sell any combination. We will sell the large transformative deals where here is it and it comes with Firefly services. And Anil and his team have already done that. If you've already owned asset management, great. You can get workflow to your upsell or cross-sell question. Get Workfront, if you want to now start using Workfront, use it. So Anil, maybe you can add to it, we set all those combinations today.

Yes. To your question, we definitely see it as additive because the current supply chain like we went through today, that end-to-end business process is under-automated today. So most companies, like you were saying earlier, you can't even track the number of assets you have. So the amount of technology moat in automating it today is actually very small. So it's not actually replacing, it is both of them, the building blocks that we talked about, and this new way, the gen AI-first way for helping marketers do it, I think there's room to grow both. So it's definitely additive.

We had to stop the customer executive forum. I mean we were sold out on the number. And my team was a little proud of the fact that we were sold out. And I'm like, "That's bad news. That's not good news. As far as I'm concerned, I want as many." So I think they reopened it up, and they said, "Anybody who wants to come, we're open for business."

Exactly.

Ben Reitzes, Melius Research. It's a great event. Next time, you got to start with me and go this way because Jay kind of took some of my question, but I'll try again. So I do think seat growth is one of the #1 concerns we get. So I wanted to kind of hit it again. Dan, you have the TAM going from $63 billion to $91 billion in the Creative, I believe, by 2027. I just want to clarify, though, there's got to be seat growth in there. And then how much is new services? And how much is potentially price value increase? So that's the first part of my question I just want to clarify. And then, Shantanu, when you reported earnings, you guys cited IBM and the work they've done. However, I follow them really closely. They actually cut a significant amount of people in the marketing department, in comms, I mean a big number. Some people say it's as much as 50%. I don't really know the real number. So the impression I got was they're using AI to cut and cut costs and be more efficient. And Arvind has been really out front on this. And I wouldn't say alarm bells went off, but I've gotten some questions about it. And it's just they're using some of your technology to do that. And I just wanted to see how you felt about that. And if you felt like is there stuff we're not thinking of? If seat growth goes down at customers, like do they buy other stuff, the enterprise stuff? And I just wanted to see what you thought of that. So sorry for the rambling there, but Dan maybe and then Shantanu.

Yes. So as we take a look at the Creative TAM, when we go back to a P times Q times V framework, and Shantanu talked about golden age of creativity, growth is going to continue in terms of the number of people who have access to the creative process and whether that's on the professional side or on the consumer and communicators because you're lowering the barrier of adoption, you're democratizing access, you're bringing more people into the creative process in an enterprise, bringing stakeholders into that process as well, having them enabled through the GenStudio process, Firefly services, Adobe Express, the tools are going into place to punch up the Q part of the equation. When you think about the opportunities we have, things like AI Assistant in Acrobat and ability to sit alongside a free Reader funnel, and for the first time, we now have a vehicle to start monetizing that technology, there is a key aspect of the technologies that are going in place. And then we talked about the value of custom models, Firefly services, the ability to become more productive in those content workflows from the creation, production to activation, that entire chain has the potential to generate a tremendous amount of value for the customers that adopt those technology and those workflows. Each of those elements is going into that $93 billion TAM -- I'm sorry, $91 billion TAM. All of it plays a role. And that's why we're really excited about what we see. Not only is the TAM expanding, but our ability to penetrate deeper into that TAM as an Adobe platform given the number of innovations we're bringing to market and our ability to touch the people involved in the creative process.

So first, a huge fan of what Arvind has done at IBM, and I don't think it's appropriate for me to talk specifically on what they've done as it relates to the numbers. Having said that, Jonathan, their CMO is here. And if you look at it, they've actually, I think, taken over the sphere. And they're doing this Adobe and IBM and how this entire content generation through AI can actually be dramatically expanded to deliver value not just within IBM but also across all the common set of customers that we have. So very excited about it. But I think your question, Ben, was really about, okay, is this going to cause more seats? Or is this going to cause less seats, right? And in my mind, there's no question that every marketer, if they have access to this technology and they can create the number of campaigns to create personalization, you're going to have more people actually do it. So I can't comment on them, but the excitement that we see from marketers right now is how do I get access to this technology because I want them to be more productive, I want them to be more personalized. And so that's really what I think it will drive. It will drive more adoption. A lot of this, I think David said this in his keynote, people didn't do this. Because I know you can look at it and say, "Wow, you're saying there were 50,000 variations. I wonder how many people were involved in that and now if AI is going to do it." The truth is none of them did that. They all had the desire to do it, and AI is going to enable them to do it. So I think it's going to force more people to engage.

I was going to say one quick comment. I mean, if you look at the engineering as a sort of a proxy over the last 20 years, this is a role that's been fundamentally refactored every year for maybe a couple of decades. And yet people keep hiring more engineers, and it's because you have fewer engineers doing lower order tasks and you have more engineers doing higher order tasks. And the thought that you actually end up wanting more people when you increase the ROI on sort of intellect and creativity, you end up wanting kind of more people to push that forward. And I'm just excited about a world in which a lot of our customers become flywheel customers where they're getting the benefits of that flywheel that Dan showed earlier, how you generate an asset, you personalize it based on all the customer data, you test variations, you optimize your leverage analytics. And I think in that, you're going to see a lot of higher-order work, honestly, that sort of reveals itself and needs to be done by someone. And products like GenStudio are kind of created for that net new user of ours that can contribute.

Last question, let's go right here in the front, Zelnick.

Brad Zelnick, Deutsche Bank. It's a great event. If I think about the last decade, I've heard countless concerns around disruptive forces that could limit or encroach on Adobe's opportunity. And I think your market cap has increased nearly tenfold over that same time, so you have a good track record. Not that you should rest on your laurels, but as we think competitively, and we speak to customers, agencies, even SIs as we have even today, the answer to the competitive question seems pretty clear in that bringing both DM and DX together is very unique and extremely valuable for driving infinite personalization and enabling the content supply chains that are out there. But today, DX is roughly 1/3 of the size of Digital Media and growing more slowly. So building on Keith's bill of material question earlier, what needs to happen to see the DX business accelerate? And should we maybe not even be concerned with where the revenue lands and how Anil and David carve out the enterprise deals when they come in?

Okay. I'm happy to start. Yes. Look, we are totally approaching this as one opportunity across Adobe. I mean when we look at -- exactly for the reasons that you just stated, when we talk to customers, they're talking to Adobe, they don't really care where our reporting lines are, et cetera. They're looking at the problems that they're trying to solve and the competitive advantage that they can get and the differentiation they can offer to their customers. So it is truly a massive opportunity. Dan shared the statistics about our top 25 customers, 100 customers and 1,000 customers. And I think the top 25 customers, I mean, from our perspective, really have seen the value of working with a platform like Adobe. And we believe that that's a trend that is absolutely going to continue, and it's going to continue to a much broader swath of the market.

Yes. I couldn't agree more. I mean Anil and I have done more meetings together than ever before. And I've been in and out of different enterprise opportunities throughout the time, both at Digital Media and outside of Adobe. And I will say the amount of mind share we have in terms of bringing these clouds together is very palpable in the company because when we talk to customers, if we talk to 25 customers, 25 of them are interested in the solution, right? And it's not a hard sell. People just want to know how they go about doing it. And the best part of, I think, the engagement we have here is that we have deep engagement with the creative teams and we have deep engagement with the marketing organizations not just as a vendor but as a trusted source of information. And this is a technology that's coming in, but it's also going to be around a cultural shift in the organization. And going back to the previous question, what do you do with this when you have it? Is your primary objective cost reduction? Or is it about leveraging this to get a competitive advantage over your competitors? And we'll tell you, everyone that we talk to is actually looking at how do you manage the cost, of course, but get a competitive advantage. So it's about generating more content for greater personalization. And the two of these coming together, I think, is the only path forward. And then one more thing I want to say is it's very easy to think about Firefly services as generative services. In other words, I just want to generate something out of it. But Firefly services also includes all of the pipeline capabilities of Photoshop and Illustrator and Premiere and After Effects in a way that I think when we put it in the GenStudio, and to Shantanu's point, the number of seats and the number of people participating in this is going to go through the roof because now they can.

And Brad, maybe since this is the last question, I mean, again, I've had the privilege of being at the company for a few years. And I think where we won is really in investing in fundamental product that has this platform nature to it, which serves us well for decades. And if I think about it, that's why we started off even this gen AI with have we embraced and executed on the vision of what AI can do not just in terms of each of the clouds but in bringing the clouds together. And I feel really good about that. I feel really good about what I see in the labs. I feel really good about what I see that we've delivered. And so that's, I think, one big area why I continue to be extremely bullish about what we've done on the product side. The second thing that's perhaps a little underappreciated is we always talked about DDOM and driving this viral adoption for customers. And we've done a great job at that. The enterprise, because Anil drives that across all of DME and DX in a unified way, that's also become a pretty potent advantage for us as it relates to selling it. You saw it in the RPO in Q1. But I think continuing to do these transformative deals, that I think, again, continues to be an area where people are looking at Adobe not as a provider of individual solutions but as a technology partner. And it's taken us a few years to get to that, but the fact that we're there when you combine what we do in Acrobat and DX and DME, I think that's another significant advantage. Because any new thing that we bring to the table, most enterprises are willing to say, "Hey, it's from Adobe. I should pay attention to it." So I think that's the second advantage. And I think we are still able to do it by driving top line revenue growth as well as incredible profitability. And so I think that's where we'll continue to focus. And you talked about the last 10 years, we're not looking backwards. We're looking forwards, and we're like, "Hey, let's go do one better." And that's why I think that the company's best days are ahead of us. And I think the team that we have in the company and the kind of innovation that we've done over the last year doesn't happen without great employees and great work by all the people around. So I'm very excited.

Thanks, everyone, for joining. I look forward to continuing the conversation, and that's a wrap.

Thanks.

Thank you.

Thank you.