Adobe Inc. (ADBE) Earnings Call Transcript & Summary

Good afternoon, and thanks for being here. Joining me today are Adobe's Chair and CEO, Shantanu Narayen; David Wadhwani, who leads Digital Media as President; Anil Chakravarthy, President of Digital Experience; and Dan Durn, our Executive Vice President and CFO. This call is being recorded, and during it we'll go over Adobe's financial results for the second quarter of fiscal year 2024. Our press release, along with PDFs of our prepared remarks and the financial results, is available on Adobe's Investor Relations website. Everything we talk about today, including our financial targets and product plans, reflects information as of today, June 13, and includes forward-looking statements involving risks, uncertainty and assumptions. Actual results could differ materially from what those statements set forth; to learn more about those risks, please review today's earnings release and Adobe's SEC filings; during this call, we'll cover both GAAP and non-GAAP financial measures. The results we report include GAAP growth rates and constant currency rates. Throughout this presentation, unless stated otherwise, Adobe's executives will refer to constant currency growth rates. Non-GAAP reconciliations can be found in our earnings release and on Adobe's Investor Relations website. I'll now hand the call over to Shantanu.

Thank you, Jonathan. Good afternoon, everyone, and I appreciate you being here with us. Adobe delivered a remarkable quarter, with revenue reaching $5.31 billion, which reflects 11% growth compared to a year ago. On a GAAP basis, earnings per share came in at $3.49 for the quarter, while non-GAAP earnings per share stood at $4.48, marking 15% growth year over year. What's fueling our achievements is the increasing value we bring to customers through a creative and forward-looking product road map. The progress we're making in Creative Cloud, Document Cloud, and Experience Cloud allows us to draw in a growing base of users. Creators, communicators, students, entrepreneurs, and companies of every size are turning to what we offer to unlock their creative potential, speed up document workflows, and drive their digital operations. Our distinctive strategy around AI stems from our conviction that creativity belongs uniquely to humans and that AI can support and magnify human imagination while boosting efficiency. We're pushing boundaries in data, models, and interfaces, and embedding AI natively throughout everything we provide. Within Creative Cloud, we've put resources into training our Firefly family of generative creative AI models using a proprietary data set, and we've brought AI capabilities into our flagship offerings, such as Photoshop, Illustrator, Lightroom, and Premier. We're reshaping what creativity means for a wider range of customers by offering Adobe Express as an AI-first application spanning web and mobile platforms. From its introduction in March 2023, Firefly has powered the creation of more than 9 billion images throughout Adobe's creative tools. In Document Cloud, we're transforming document productivity through Acrobat AI Assistant, a conversational engine driven by AI that can be set up easily within minutes. This boosts the worth of the trillions of PDFs, which contain a substantial share of the world's knowledge. Acrobat AI Assistant capabilities can now be accessed via an add-on subscription by every Reader and Acrobat enterprise and individual customer on desktop, web, and mobile. At the close of May, we marked the 5-year anniversary of Adobe Experience Platform, something we envisioned and developed from the ground up, and it's poised to become the next billion-dollar business within our Digital Experience portfolio; we introduced AEP AI Assistant to boost the efficiency of marketing professionals using generative AI while broadening access to native AEP applications. Through Adobe GenStudio, we're uniting offerings from across our clouds, such as Creative Cloud, Adobe Experience Manager, Workfront, Adobe Journey Optimizer, and Customer Journey Analytics, plus Adobe Express for Business, to seize the enormous content supply chain opportunity. Our strategy to help marketers swiftly plan, create, manage, activate, and measure content that stays on-brand is connecting with customers and confirming our leadership in data, content, and journeys for delivering personalized experiences at scale. We're broadening our applications to incorporate third-party text, image, and video models, and forming strategic partnerships to build multimodal large language models, giving customers more options in tools and further increasing the worth of our top-tier applications and solutions; we're generating robust usage, value, and demand for our AI offerings across every customer segment and witnessing early wins in monetizing new AI technologies throughout our Digital Media and Digital Experience businesses. With such a robust product road map centered on execution and customer demand during the year's first half, we are happy to lift our targets for the full year on Digital Media net new ARR, Digital Experience subscription revenue, and EPS. At this point, I'll hand things over to David so he can talk about the momentum in our Digital Media business.

Thank you, Shantanu. Hi, everybody. During the second quarter, our net new Digital Media ARR came in at $487 million alongside revenue of $3.91 billion, representing 12% growth compared with the same period a year earlier. On the Document Cloud front, PDF has emerged as a worldwide standard for automating workflows across both business and consumer use cases, while Acrobat stands as the preferred platform for viewing, editing, sharing, and collaborating on those documents. We keep witnessing consistent expansion in monthly active users across our Document Cloud offerings, which include Acrobat Reader, Acrobat Standard, and Acrobat Pro, as well as our signature share and review workflows spanning mobile, web, and desktop. Launching Acrobat AI Assistant, which became generally available during April for English documents, signals the start of a fresh chapter of innovation and efficiency for the roughly 3 trillion PDFs that exist globally. Acrobat AI Assistant enables anyone to move away from simply reading documents toward engaging in conversations with them, so they can summarize documents, pull out insights, draft presentations, and share learnings. AI Assistant can be purchased as a stand-alone offer for use within reader, or as an add-on for Acrobat Standard and Acrobat Pro. We are noticing encouraging early traction in driving adoption of AI Assistant through our commerce flows, and we stay optimistic regarding the opportunities over the long term. During the second quarter, Document Cloud revenue reached $782 million, up 19% versus the prior-year period. We brought in $165 million of net new Document Cloud ARR, a Q2 record, with ending ARR growth of 24% year-over-year in constant currency. Additional business highlights include general availability of Acrobat AI Assistant support for document types beyond PDF, for meeting transcripts, and for enterprise requirements. Acrobat link sharing for PDF-based collaboration keeps expanding quickly, more than doubling compared with a year ago and fueling viral adoption among new users. Free monthly active users of Acrobat Web climbed over 60% year-over-year, thanks to link sharing plus our Microsoft Edge and Google Chrome extensions; sustained momentum in free-to-paid digital conversion stemming from product-led growth optimizations; robust growth within the SMB segment for our Teams offering, powered by a mix of seat expansion and new account wins; and notable enterprise customer wins with AstraZeneca, Chevron, state government of Florida, state of Illinois, United Healthcare Services, and Wells Fargo. Now turning to Creative Cloud. Creative professionals are spearheading the worldwide push to satisfy ever-growing demand for engaging content across many platforms and channels. Enterprises depend on creative professionals to generate differentiated content that fuels increasingly personalized marketing campaigns. Solopreneurs and small businesses must stand out within a crowded digital landscape by using engaging videos and designs. Educators feel strongly about equipping students with the visual communication skills they will need to thrive across the coming decades. Consumers keep seeking new ways to share their stories digitally. Creative Cloud, Express, and Firefly services occupy a unique position to catalyze this opportunity for everyone by harnessing the promise of generative AI. Our Creative Cloud flagship applications keep rolling out new features that substantially enhance user onboarding while at the same time delivering unprecedented power and precision. On the newest release of Photoshop, customers already rank Generative Fill and Generative Expand among their three most-used tools. In Illustrator, text to vector support has gotten off to a terrific start. In Lightroom mobile, Remove Object is the feature growing faster than any other. At NAB — the biggest video show in North America — our sneak peek at generative AI capabilities in Premiere earned a Production Hub Award of Excellence; we're bringing together our flagship apps with Firefly and outside generative AI models to produce content that is as rich and engaging as possible. With Adobe Express, our aim is to deliver a breakthrough application that makes design simple for communicators everywhere, drawing on generative AI and on decades of Adobe technology across both web and mobile. We brought out the completely rebuilt Express app for iOS and Android earlier this quarter, and it has started strongly, with monthly active users having doubled from one quarter to the next. This week's Design Made Easy event, centered on Express for Business, marked yet another major advance for us. Businesses large and small are enthusiastic about the combined power and commercial safety of Firefly, the smooth workflows connecting Photoshop, Illustrator and Adobe Experience Cloud, and the enterprise-grade brand controls now included in Express for Business, which make it the ideal offering for marketing, sales and HR teams to create visual content quickly and easily for sharing. At Summit, we additionally revealed that Firefly services and custom models are now generally available. This platform gives developers access to API calls and model customization, reachable via low-code and no-code tools, and it works together with our Experience Cloud products. Through Firefly services, thousands of asset variations can be generated in minutes rather than months, and at a fraction of the expense. That lets us monetize the amount of content created via automation services. As Firefly becomes more widely available across Creative Cloud, Express, Firefly Services and the web app, we gain chances to reach more new users, deliver more value to those already with us, and monetize content automation. Thanks to these integrations, Firefly generations are accelerating, and May saw more generations than any month so far; during Q2, revenue reached $3.13 billion, an increase of 11% year-over-year. Net new Creative Cloud ARR came to $322 million. Additional business achievements encompass the introduction of Express for Business, which brings capabilities such as brand controls alongside template locking, Firefly custom models, bulk creation plus generation of variations, presentation and print features, and workflows involving Photoshop, Illustrator and Experience Cloud; the rollout of Firefly Image 3 Foundation Model featuring high-quality image generation and greater control through structure and style reference; the debut of the Photoshop (beta) offering Reference Image along with advances in Generative Fill; the arrival of Generative Remove in Adobe Lightroom, letting anyone erase unwanted objects from any photograph non-destructively with striking, high-quality photorealistic output; the launch of the Premier (beta) with new audio workflows that are driving strong usage; the deep integration of Firefly within Substance 3D, which delivers an easy method for creating textures and materials from reference images; the introduction of an all-new Frame.io, simplifying workflows across content types on a flexible and intuitive collaboration platform. Notable enterprise customer wins take in Credit Agricole, FedEx, Infosys, Rakuten, Ralph Lauren, Samsung, Schneider Electric, and Volvo. We're enthusiastic about the quickening pace of innovation throughout the Digital Media business and happy with how AI functionality has been adopted as well as its early monetization across Document Cloud and Creative Cloud, encompassing our flagship applications, Firefly Services and Express. We're glad to increase our annual net new ARR target to $1.95 billion and eager to deliver on our rich product road map during the second half. I'll now hand things over to Anil.

David, thank you. Hi, everybody. During the second quarter, our Experience Cloud top line came in at $1.33 billion. Subscription revenue reached $1.2 billion, which marks a 13% increase versus a year ago; when it comes to assisting enterprises in delivering tailored experiences at scale to their customers — by merging the appropriate content, customer data and journeys in real time — we hold the leading position in the industry. Five years back, when Adobe Experience Platform was launched, it represented a groundbreaking method for tackling customer data and journeys. As of today, we rank as the number one digital experience platform, and AEP alongside native apps is progressing nicely toward turning into a billion-dollar business. Through Adobe GenStudio, we are currently reinventing the content supply chain for enterprises, letting them generate content at scale by tapping generative AI via built-in connections with Firefly Services and Adobe Express for Business. Enterprise clients, spanning both B2C and B2B, regard customer experience management and personalization at scale as crucial avenues for standing out, which turns it into a top-priority investment for Chief Marketing Officers, Chief Information Officers and Chief Digital Officers. Our newest innovations have generated customer enthusiasm and uptake that excites us, among them AEP AI Assistant, a conversational interface driven by generative AI that gives practitioners the ability to automate tasks, simulate outcomes and create fresh audiences and journeys. To illustrate, companies such as General Motors and Hanesbrands have partnered with AEP AI Assistant to increase productivity and shorten time to value while broadening access to AEP and apps throughout their organizations. A prime illustration of a client that has extended its ten-year partnership with Adobe and adopted Adobe Experience Cloud to coordinate deeply personalized guest experiences spanning online reservations and the Marriott Bonvoy mobile app is Marriott International. Marriott can link data from scattered sources and activate pertinent experiences at the moments that count thanks to Adobe Real-time CDP and Adobe Journey Optimizer, which assists the company in pairing people with the finest choices throughout its portfolio of over 30 brands and close to 9,000 properties. Further business highlights consist of: ongoing traction with AEP and native applications that lifted subscription revenue 60% compared with a year earlier in Q2; AEP advancements unveiled at Summit encompass Adobe Journey Optimizer B2B Edition, a fresh application for B2B clients constructed on AEP to coordinate account-specific buying group journeys; Federated Audience Composition, which lets enterprises reduce data copying and build audiences straight from their enterprise data warehouses; and Real-Time CDP Collaboration, a novel clean room application enabling brands and publishers to work together in a privacy-safe manner to uncover, reach and gauge their valuable audiences in a landscape without third-party cookies. GenStudio developments aimed at enterprise content supply chain requirements spanning workflow and planning, creation and production, asset management, delivery and activation, plus reporting and insights. We've rolled out some new capabilities lately. Contextual search is now available in Adobe Experience Manager Assets, letting people locate the correct asset and variation within their expanding digital collections. Adobe Workfront Planning gives each user one consolidated picture of every task throughout the marketing life cycle, using highly visual marketing campaign calendars and dynamic briefs. And with AEM Generate Variations, producing content variations tailored to specific audiences happens faster, powering personalized web experiences. We've also earned notable praise from industry analysts, such as inclusion in Gartner's Magic Quadrant for Content Marketing Platforms, plus leadership positions in both IDC's B2C and B2B MarketScapes for digital commerce applications. Among our significant customer wins are Amazon, British Telecom, Comcast, Mercedes-Benz, Maruti Suzuki, Nationwide Building Society, Novo Nordisk, ServiceNow, Stellantis, ULTA Beauty, and U.S. Department of the Treasury. Our thriving partner ecosystem of system integrators and agencies is now equipped to provide advisory and implementation services spanning our product portfolio. Later this month, we're eager to connect with customers and major agencies at the Cannes Lions Festival. Given our category-leading solutions, strong pipeline and enormous scale, we're positioned to achieve robust growth in the second half, and we're increasing our subscription revenue goal for the year. Now I'll hand things over to Dan.

Thank you, Anil. To kick things off today, I'll walk through how Adobe performed during the second quarter of fiscal 2024, point out the growth drivers behind each of our businesses, and then wrap up with our financial targets. During Q2, Adobe posted robust top line expansion along with profitability that leads the industry, all while picking up the pace of the innovations we bring to market throughout Document Cloud, Creative Cloud and Experience Cloud. Within the quarter, Adobe hit record revenue of $5.31 billion, reflecting 10% growth year-over-year, or 11% in constant currency, with momentum seen across all 3 clouds. That outcome stems from the breadth of Adobe's operations — covering our top-tier offerings, various revenue approaches, distinct buyer groups, and worldwide regions. Combine that with our skilled workforce, dependable performance, and exceptional fiscal oversight, and you get the reasons this firm remains remarkably adaptable. Here's what stood out in Q2 on the business and financial side: GAAP diluted EPS came to $3.49, while non-GAAP diluted EPS reached $4.48, Digital Media brought in $3.91 billion in revenue, net new Digital Media ARR totaled $487 million, Digital Experience generated $1.33 billion in revenue, operating cash flow was $1.94 billion, and we closed the quarter with RPO at $17.86 billion. In our Digital Media business, second-quarter sales reached $3.91 billion, which represents an 11% increase compared with the same period a year earlier, and 12% when measured in constant currency. At the end of the quarter, Digital Media ARR stood at $16.25 billion, a 13% rise year-over-year in constant currency. Document Cloud revenue at Adobe was $782 million, reflecting 19% growth versus last year on both a reported and constant currency basis. Net new Document Cloud ARR totaled $165 million, a record for any second quarter. Growth drivers for Document Cloud in Q2 were: demand for Acrobat subscriptions spanning every customer segment and geography; new user acquisition stemming from rising Reader MAU; a terrific beginning to monetizing AI Assistant via our digital channel; robust usage and engagement from Acrobat Web along with our Chrome and Edge partnerships, which fuel free-to-paid conversion; expanding team subscription units sold to SMBs, via both adobe.com and our reseller channel; and momentum in our enterprise solutions, showing how vital PDF is as a source of unstructured data within business workflows. Creative revenue reached $3.13 billion, reflecting 10% growth year-over-year, or 11% in constant currency. We brought in $322 million of net new Creative ARR during the quarter. During Q2, the forces propelling Creative growth included several things. First, fresh Creative Cloud All Apps subscriptions, where digital purchasing via adobe.com proved especially strong, since multiple product launches across the quarter drove engagement and demand. Second, single apps grew impressively, covering imaging, photography, design and stock. Third, we saw greater customer curiosity and activity surrounding the new Express mobile and Express for Business products. Fourth, renewals held up well as buyers moved toward pricier, higher ARPU Creative Cloud plans that include Firefly entitlements. Fifth, subscription units kept climbing, with emerging markets standing out. And sixth, SMBs adopting our team offering generated momentum, alongside the enterprise segment through ETLA adoption. The Creative segment had a solid first half, and we're pleased with those results — they were driven by healthy commercial subscription activity across both Q1 and Q2. As we look forward, given the momentum carrying us into the back half of the year, we expect Creative net new ARR to grow year-over-year in Q3 and Q4, and for the full fiscal year we're raising our Digital Media net new ARR target. Turning now to Digital Experience: in Q2, that segment brought in $1.33 billion in revenue, which works out to 9% growth compared with a year ago, both on a reported basis and in constant currency. Digital Experience subscription revenue reached $1.20 billion, a 13% increase year-over-year as reported and in constant currency. For Q2 Digital Experience, several things fueled our growth. First, transformational accounts drove strong subscription revenue. Second, our market leadership with AEP and native applications showed up in subscription revenue climbing 60% compared to the same quarter last year. Third, we saw continued subscription revenue momentum across data insights and audiences plus customer journey categories. Fourth, businesses trying to solve content supply chain problems adopted our AEM and Workfront solutions more quickly. Now turning to the income statement and balance sheet: during Q2, Adobe's GAAP EPS grew 24% year-over-year, while non-GAAP EPS grew 15%. Those gains came from revenue growth along with disciplined prioritization of our investments, which delivered non-GAAP operating margin strength in Q2. The company continues to produce world-class gross margins even as it invests in groundbreaking AI capabilities. For the second quarter, Adobe's tax rate came in at 18.5%, applying to both GAAP and non-GAAP figures, which matched our forecast for the period. Remaining performance obligations finished the quarter at $17.86 billion, representing 17% growth compared with the same quarter last year on a reported basis, or 18% after factoring in a 1 point drag from currency. Current RPO was up 12% at the end of the quarter. We closed Q2 with $8.07 billion in cash and short-term investments, while operating cash flow for the quarter came to $1.94 billion; during Q2, we signed a $2.5 billion share buyback arrangement, and $22.7 billion is still available to us out of the $25 billion authorization approved in March 2024. We're going to share our goals for Q3 now, plus revised targets for all of fiscal 2024. These reflect today's macroeconomic landscape, the significant momentum we're seeing throughout our business, our latest foreign exchange view for the second half—where the U.S. dollar is holding up stronger than what we assumed back in December when we laid out our FY '24 targets—and the robust seasonal close we anticipate in Q4. Looking ahead to the third quarter, here's what we're aiming for. On the top line, Adobe as a whole should land somewhere between $5.33 billion and $5.38 billion. Within Digital Media, we expect net new ARR to come in around $460 million, with segment revenue between $3.95 billion and $3.98 billion. For Digital Experience, we're projecting revenue of $1.325 billion to $1.345 billion, and subscription revenue specifically should fall in the $1.20 billion to $1.22 billion range. On taxes, figure roughly 18% under GAAP and 18.5% on a non-GAAP basis. As for earnings per share, GAAP should be $3.45 to $3.50, while non-GAAP comes in at $4.50 to $4.55. When we factor in our first-half results and turn to fiscal 2024, here's what we're now projecting. Adobe's overall revenue should land somewhere between $21.40 billion and $21.50 billion. Digital Media should deliver net new ARR of about $1.95 billion. The Digital Media segment ought to bring in revenue ranging from $15.80 billion to $15.85 billion. For Digital Experience, revenue is expected to fall between $5.325 billion and $5.375 billion, with subscription revenue in that segment coming in between $4.775 billion and $4.825 billion. On taxes, we anticipate roughly 20.5% under GAAP and 18.5% on a non-GAAP basis. GAAP earnings per share should be somewhere in the range of $11.80 to $12, while non-GAAP earnings per share ought to land between $18 and $18.20. Taking all of this together, I'm extremely happy with how the company has done through the first six months and with the momentum we can see across our business. Adobe stands out because of its leadership in products, the speed at which we bring new ideas to market, the wide scope of what we do, and the rigor we apply to finances—factors that let us deliver solid results on both revenue and profit even when the market changes. I believe we can capitalize on far-reaching shifts that unfold over many years, positioning us to succeed throughout the coming ten years. Over to you, Shantanu.

Appreciate that, Dan. Adobe continues to rank among the top workplaces in our field, and I'd like to express gratitude to our staff for their tireless commitment to serving our customers and communities. Hiring remains a priority for us, and that includes bringing aboard recent college graduates along with interns so we can attract the finest, most talented people to Adobe. During this quarter, Adobe earned spots on Fortune's 100 Best Companies to Work For, appeared on Glassdoor's Best-Led Companies, and made the Civic 50 list recognizing the most community-minded companies in the U.S. Interest in our category-defining products and services keeps expanding. Our business fundamentals and market tailwinds are strong, and we look forward to building on our momentum in the second half and beyond. Thank you, and we will now take questions.

Nice work on the quarter, and particularly that impressive net new ARR. I'm hoping for a bit more detail specifically about the net new ARR we recorded in Creative Cloud. Could you help us understand the near-term and medium-term contributions to Digital ARR coming from seat growth, from upsell, and from consumption — things such as Adobe Stock and AI credits — perhaps even ranked or quantified? Whatever you can offer to clarify what's fueling that figure would really help us grasp the forces behind it.

Of course, Mark, I'll kick things off, and then David and Dan can certainly chime in. As you noted, it was a solid quarter for us; and what I believe is truly powering it, at a high level, remains the innovation we keep delivering and the manner in which AI is genuinely rendering our applications more affordable, simpler to adopt, and honestly, more appealing to higher-value users. Folks coming in new are still a major source of the expansion we keep witnessing across the business. When it comes to Document Cloud, much of that relates to rolling out AI Assistant and the reality that customers are shifting toward the more premium offerings; and regarding Creative Cloud, I'd highlight our imaging efforts with Firefly and the results we've observed in both Photoshop and Lightroom. In the prepared remarks, Dan definitely covered what's taking place across each of the individual segments; so the SMB segment in fact posted a solid quarter. Enterprise keeps delivering a solid quarter as well. So in every area, Mark, we genuinely observed momentum in the business.

Fantastic results — congratulations. My question is fairly close to what Mark raised. In the quarter, how much GenAI demand showed up across the Creative Cloud portfolio and Digital Media, and also in creative studio plus GenStudio? And in what ways does that help gain more traction with enterprise customers and with SMB customers? Walk us through how that's progressing and perhaps how you're budgeting for it in the back half under the <<inaudible>> guide.

Absolutely, Alex. I can take that one to begin with. Stepping back for a moment, we've discussed the GenAI platform we've built, which is made up of data, models, and interfaces. Where models are concerned, Firefly Services is now out. Some customer wins have begun appearing in Firefly Services. They're applying it to variations, and these involve the custom models we're building along with API access. Adoption-wise, I'd call it early, yet the enthusiasm from customers about ingesting their data into our models and custom models sits well ahead of us, and growth should continue through Q3 and Q4. The interfaces are, I believe, our largest opportunity and the reason GenAI excites us so much, since that's where value gets realized — whether by finishing tasks more quickly or by enabling new workflows. In that area specifically, Acrobat has seen a substantial amount of usage tied to AI Assistant, and so has Photoshop. I'll let David chime in again, but there's Generative Fill and what we're doing there, plus what we're doing in Illustrator. For current customers and for prospects alike, who now tell us the products keep getting more productive for them, that's what truly drives value. Finally, there are the AI-first applications. Take an application such as Express — Express is entirely about reimagining what's possible for creatives by leapfrogging today's technologies and delivering an AI-first application. That too is off to a solid start.

Absolutely, and let me build a bit on what Shantanu mentioned, Alex. We've discussed at length how fiscal '23 was when AI was still in the sandbox, and now we've reached the point where it must be put to work in production. Much of that shift is happening across the entire industry, but our situation is fairly unique in that regard. So, picking up on Shantanu's remark, there were plenty of active launches this quarter — Acrobat AI Assistant, Firefly updates in Photoshop. Firefly made its debut in Lightroom. Express mobile arrived. Express for Business arrived; we rolled out Firefly Services for enterprises so they can generate content at scale. As you can tell, there was an enormous amount of innovation within our core — within our core applications centered on generative AI. Combine that with certain activations we've carried out at Summit, plus what we did at MAX London, and we're spreading our message quite widely; it begins to build this capacity not merely to view and experiment with AI but genuinely employ it within your workflow. So that has become deeply woven into everything we do. And here's the crucial part — the interfaces where people do their work, if we deliver AI into those spaces, everyone grows more productive.

Also, Alex, perhaps just one final point. If you examine things in sequence through a route-to-market lens, digital put up a really robust quarter when it comes to our efforts on adobe.com. We had mentioned enterprise performing well in Q1 too. That carried on; and SMB as well, the enthusiasm for our team's offering likewise kept performing strongly. So in sequence, I would highlight SMB and digital momentum as fueling the additional expansion.

That's really useful. Then perhaps only a single question about the macro picture. Given the scope you both have, what's the narrative you're observing regarding the macro when it comes to the demand environment? Obviously, once more, you're talking about strong results in SMB and enterprise. Are there any places where you notice weak spots that are truly vertical specific? What — perhaps just offer a remark on roughly how we ought to frame it while we consider the remainder of the year.

From a macro standpoint, I believe what sets Adobe apart from every other company is just how differentiated and how varied our product portfolio is; and once more, from individual consumers all the way to enterprises, our offerings are mission-critical. So at this scale, everything comes down to execution. Business cycles will arrive and depart, Alex, yet we're in fact still concentrating on execution and turning the pipeline along with the interest and the awareness of AI into monetization; and so we'll simply be ruthlessly focused on keeping up that execution; so there's nothing truly different to report regarding the macroeconomic environment as we see it.

Congratulations on the quarter — I'd like to add mine. This question might be for the two of you, Shantanu and David. Clearly, the Firefly monetization story has a lot of distinct layers. However, one theme that appears to be coming up to some degree on this call, and that strikes me as an especially interesting route to monetization, is just the higher engagement Firefly helps create inside your flagship products — or, the way I think we describe them, the interfaces. Generative Fill for Photoshop would be one example of that; and you've clearly started bringing it into other flagships, like Premier and Illustrator. Maybe to go a bit further—can you frame how you consider the potential upside from things like better retention? Or some other angle—I know it's really difficult to quantify, but even in qualitative terms, how have you been thinking about it?

Yeah, that's a great question. And yeah, from the very beginning, the core has been—we've communicated to all of you that for generative AI, our primary emphasis is on user adoption and proliferation, right? And that continues to be the number one thing on our minds. And it's the number one thing on our minds for several reasons. Sure, here's a lightly edited spoken-English version: And like you said, there are plenty of ways we can make money from this. First off, when you think about the growth algorithms we always have in mind, it starts with new users, just like Shantanu said, right? Then after that, it's about giving existing users more value at a higher ARPU, right? So on the new user side, the main thing is making sure everything we do with generative AI is built into our tools, starting with Express, right? Express is out there in the market. We're seeing a lot of adoption and usage of Express out there. And as that happens, we're putting generative AI into Express more and more, in all sorts of ways. That benefit shows up across the board — from how we talk about the AI suite's full scope in our marketing, through how users engage, get onboarded successfully, and stick around. But the very same dynamic is playing out with our main creative offerings too, isn't it? Firefly's launch, alongside certain product-led growth initiatives we've undertaken — notably what we refer to as the context bar — allows newcomers to achieve better results right from the start, and that naturally supports improvements in conversion as well as retention. Then, with AI Assistant, being able to weave it into the buying journey for Acrobat and achieve a strong attach rate — at Adobe we've long described that kind of thing as a "would you like fries with it" moment during checkout. It's simply an excellent means for someone to express: this is value I want. I'd like to include that and purchase the more expensive option. We're seeing a lot of separate dynamics happening. Still, by far the strongest driver is what happens when customers — say, someone using Creative Cloud — shift into the costlier packages because Firefly comes included. So our goal is basically just to give those subscribers extra value as well.

When it comes to generation, Saket, I believe we've discussed this already. At MAX in London, we did a fantastic job presenting some of the new features and launches. On Photoshop, I think we've reached 9 billion generations, and in fact, I believe May saw the highest volume of generations; so the momentum is clear — the more we embed this capability into our interfaces, the more that usage is genuinely fueling both adoption and retention.

David, regarding Express, you brought up how well it's doing. Could you go deeper into a few of the additional stats and wins coming from Express during this quarter?

Sure. To begin with, there's plenty of excitement around Express at Adobe right after the event held earlier this week, yet the real driver is the reality that Express innovation is moving at a furious pace, correct? Several months back, we launched a completely new Express for the web. During this quarter, we launched a completely new Express for mobile. We launched Express for Business. As we just discussed, we've also been weaving AI capabilities more deeply in — be it imaging generation, Generative Fill, text effects, character animation, or design generations — further into the Express flow. That mix has produced a remarkable collection of metrics across the most recent quarter especially, while building up throughout the year. Express MAU is climbing rapidly. We noted in the script before that MAU on mobile has greater than doubled quarter-over-quarter, which is wonderful to witness. And cumulative exports, on a year-over-year basis, have increased by more than 80%. So we're genuinely pleased with the momentum underway. Yet stepping back, I believe it matters to step back and grasp our vision. The Express now available in market rests on an entirely new platform, correct? And that entirely new platform sets the foundation for the AI era. And this will be — Express will be the destination where anybody can arrive and create via a blend of conversational and standard inputs. That's the vision we hold. And I believe it's a chance for us to truly leap ahead regarding what we can achieve on the web and mobile at Adobe; and reaching this point has taken us some time. It didn't occur overnight; but since we've arrived, we're going to pour the gas on go to market, correct? You're aware of what we can achieve with our data-driven operating model. We've been increasing our efforts in Digital and adobe.com journeys; we can now do the same and release all of that expertise in the mobile app store. You're aware of what we're capable of regarding our product-led growth motions. We've now embedded Express workflows into Acrobat editor. We've clearly been embedding it into Creative Cloud workflows. And as we demonstrated at Summit with Anil, we've embedded it into our Experience Cloud workflows too. Beyond all of that, we're now releasing our inside sales force to go after small/medium businesses. Our education teams are truly preparing for the back-to-school launch for K-12 and higher ed; and our field and enterprise sales now have Express for Business. So — and we're doing all this globally, correct? This is an enormous opportunity, and our efforts are accelerating, and we are prepared to move forward.

I'd like to add my own congratulations as well. Regarding your creative business, what's your thinking on the Q portion of the P times Q formula for the rest of this year? Judging from these figures at least, I'd definitely figure you saw quite strong unit growth during Q2; and I'm curious whether you anticipate that carrying on.