Adobe Inc. (ADBE) Earnings Call Transcript & Summary

Good afternoon, and thanks for being here with us today. Joining me 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, Executive Vice President and CFO. This call is being recorded, and during it we'll go over Adobe's financial results for the third quarter of fiscal year 2025. Our press release, along with a PDF of our prepared remarks and financial results, is available on Adobe's Investor Relations website. Everything we discuss today, including our financial targets and product plans, reflects information as of today, September 11, 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. Today we'll cover both GAAP and non-GAAP financial measures. Our reported results include GAAP growth rates and non-GAAP growth rates, including constant currency rates. Unless otherwise stated, Adobe's executives will refer to constant currency growth rates during this presentation. 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, Doug, and good afternoon to all of you — appreciate you being here. Once again Adobe posted a solid quarter, with double-digit increases on both the top line and in profitability. During Q3 our revenue hit a record $5.99 billion, which works out to 10% growth compared with a year earlier. On a GAAP basis, earnings per share came to $4.18 for the quarter, while non-GAAP earnings per share reached $5.31, up 14% from the same period last year. AI amounts to a seismic technological change and gives Adobe its largest opening in decades. Our approach to capturing AI's potential centers on embedding it throughout our category-leading apps so customers get added value, while also rolling out brand-new AI-first offerings. Execution against that approach has gone very well — we've sped up innovation while concentrating on bringing more value to Creative and Marketing Professionals, Business Professionals, and Consumers. Creativity remains at the heart of what this company does. We're embedding AI throughout our flagship Creative Cloud Applications, among them Photoshop, Illustrator, Premiere Pro and After Effects, and we're rolling out fresh offerings for the next generation of creators through Adobe Firefly on web and mobile. Within the new Firefly application we're providing a solution that spans the whole journey from ideation through to creation, making it one place where creators can run their workflows. It brings together our own first-party, commercially safe models along with leading third-party models, and adoption of the standalone Firefly subscription offering has been strong. Not long ago we brought in Google Gemini Flash 2.5, joining Google's Veo and Imagen models on a partner roster that also features OpenAI, Black Forest Labs, Runway, Pika, Ideogram and more. In this fast-moving AI leap, where every generative AI model carries its own aesthetic style, we give customers the choice and flexibility to use whichever model suits them inside Adobe applications, with none of the friction that comes from hopping between workflows and platforms. AI is now woven deeply through our flagship Creative Cloud applications, handing creators whatever they need to bring their creative visions to life within a single workflow. Adoption of the Creative Cloud Pro offering, which bundles Firefly, has been strong — a sign of the value professionals place on having AI paired with powerful, precise creative tools. To put it plainly, Adobe is the operating system for creative work. Adobe unites creativity and marketing in the enterprise, providing the most differentiated solution to meet the expanding needs of Creative and Marketing Professionals. Adobe GenStudio stands as the most comprehensive solution, pulling together workflow and planning, creation and production, asset management, activation and delivery, and reporting and insights, so that marketing automation with AI becomes possible in the enterprise. Our Workfront, Frame, AEM Assets, Firefly Services and GenStudio for performance marketing products — all key pieces of the integrated GenStudio solution — have now passed $1 billion in ARR, expanding more than 25% year-over-year. Customers are drawing on the rich data and customer knowledge inside Adobe Experience Platform to power agentic workflows that scale what Adobe's category-leading customer experience orchestration applications can do. Momentum and adoption keep building for the Adobe Experience Platform AI assistant, with 70% of eligible AEP customers making use of this functionality. Because AI is reshaping consumer behavior, it is also reinventing marketing and customer experience. The way people find brands is moving away from being mostly search-driven and now includes generative engine optimization. AI is turning into the new interface, one shaped by conversations instead of clicking through menus. Companies need to provide deeply personalized, immersive experiences on their own properties, building engagement along with loyalty. In this new landscape, Adobe stands alone in providing an integrated customer experience platform that brings automation, agility and scale. The surge in content creation and automation across the enterprise, plus the emergence of new marketing requirements like LLM optimization and LLM advertising, represent an enormous opportunity for Adobe. We're embedding AI within Adobe Experience Manager through our forthcoming LLM Optimizer release, a potent agentic app designed to boost brand visibility, fuel acquisition and sustain customer engagement across LLM platforms. For Business Professionals and Consumers, we're merging creativity with productivity for billions of users through the recent debut of Acrobat Studio, which unites Acrobat and Express. PDF has served as the worldwide standard for digital documents for more than 30 years and keeps expanding; we're taking Acrobat from a top document productivity app to a first of its kind place where people gain insights more quickly, produce standout content and collaborate with greater ease. The new Acrobat Studio features PDF spaces, which turns collections of PDFs, web pages and other files into dynamic knowledge hubs that assist people in working smarter and faster by using an AI assistant to derive insights. We're observing consistent growth throughout our family of Acrobat and Express products, with combined monthly active users up roughly 20% year-over-year. Adobe leads the AI Creative Applications category. Our AI influenced ARR has now exceeded $5 billion, rising from more than $3.5 billion as we exited fiscal year 2024, and we've already exceeded our full year AI-first ending ARR target. Thanks to our customer-focused growth strategy, product innovation, strong go-to-market execution and the momentum in our business, we're happy to once again lift our FY '25 revenue and EPS targets. I'll now hand things over to David and Anil to talk through the momentum in our business.

Thank you, Shantanu, and good morning to all of you. Digital Media posted revenue of $4.46 billion during Q3, an increase of 11% compared with the same period a year earlier. We closed out the quarter with $18.59 billion in Digital Media ARR, which represents 11.7% growth in ending ARR versus a year ago. It was another robust quarter for our Business Professionals and Consumers customer group. With the launch of Acrobat AI Assistant, we delivered a fresh conversational interface that improves how customers engage with PDFs; this drives better understanding across the trillion PDFs that exist globally. Adoption of the AI assistant across desktop, web and mobile keeps accelerating. Our ambition is to leverage generative AI and conversational experiences to profoundly transform the way knowledge gets found, combined and distributed; we are carrying out our plan to broaden the function of PDF and Acrobat by providing a unified experience that lets people seamlessly shift from consuming content in Acrobat to producing content in Express. We have widened our approach by launching PDF Spaces, a new basis for consuming and creating content. PDF Spaces changes the way individuals interact with documents, turning static files into vibrant collaborative knowledge centers. Through PDF Spaces, users can arrange documents and links, surface insights more quickly via conversational experiences, and edit and remix PDF content into fresh formats such as e-mails and presentations. I am especially thrilled that just about anyone can readily build agents that carry out document tasks for them. Teams can use PDF Spaces together with colleagues to enable more powerful knowledge sharing and collaboration. PDF Spaces combined with AI Assistant and an integrated Express experience can be accessed via Acrobat Studio, a brand-new premium offering within our Acrobat line-up. Acrobat Studio has gotten a strong early reception, with encouraging adoption and usage patterns that underscore considerable customer demand and opportunity ahead. We are witnessing swift uptake of Adobe Express. Within the enterprise, Express helps organizations scale content creation while preserving brand consistency and quality. A strong illustration is dentsu, which has embedded Express as a central element of its worldwide marketing strategy. Adobe's platform is being deployed to all 68,000 employees across the globe and extended across brands, among them Carat, iProspect, dentsu X, Dentsu Creative, Tag, and Merkle by allowing creative teams to produce content in Creative Cloud and distribute that content via Express inside a broader GenStudio solution, dentsu guarantees brand alignment across global teams while enabling marketers to generate and remix their own content. This is producing quantifiable results at dentsu. Additional business highlights include ending units of Acrobat AI Assistant climbing over 40% quarter-over-quarter, and AI system engagement involving conversations and summarizations rising almost 50% quarter-over-quarter. Acrobat Mobile ending ARR increased by more than 30% year-over-year. More than 14,000 organizations brought in Express during Q3 by itself, a 4x rise in the quarter relative to a year earlier. Express usage inside Acrobat nearly doubled quarter-over-quarter. New Express integrations during Q3 feature LinkedIn, Miro and Premier League. With students using express premium plans up by more than 80% compared to a year earlier, we entered into an agreement with California's state government. That partnership is aimed at getting high schoolers and college students throughout the California State University network ready for AI-related careers, giving them Express, Acrobat AI Assistant and Firefly. Notable customer deals include Allegis Group, DSV, FedEx, Intuit, KKR, Lloyds Bank, Lockheed Martin, the Provincial Government of Ontario, the State Government of Virginia and Vivendi. It was a solid quarter for our Creative Business. Creativity matters more than it ever has, and we keep leading the way by rolling out the newest wave of innovations that give creative professionals and creators the tools to succeed. With content demand rising faster and faster, our approach focuses on opening up creativity to more people, making it smarter and boosting its impact. To do that, we're weaving AI deeply into our flagship applications, broadening creative possibilities via new apps such as Firefly, and offering robust automation so customers can scale up their output. Taken together, these advances are changing the way ideas travel from inspiration to execution and helping our customers create with more speed, efficiency and imagination; we keep embedding AI within flagship applications such as Photoshop, Premiere Pro and Illustrator so new users get up to speed faster and existing users become much more productive. Lately, for instance, we introduced a fresh Harmonize capability in Photoshop that merges composited objects with the surrounding image by automatically tweaking lighting, colors and shadows. Harmonize quickly grew into one of the most heavily used capabilities within Photoshop. We brought Project Turntable, a well-liked sneak from MAX last year, into Illustrator, letting users spin their 2D artwork so they can accurately see it from various angles, which removes a task that was often repeated and ate up time. Breakthroughs such as these turn directly into value customers can measure by shortening production timelines, allowing more content to be produced and lifting the overall standard of creative output, and they have fueled robust adoption of our new Creative Cloud Pro offering. The Firefly app amounts to a capable yet easy-to-use AI production studio that helps creators bring original intent to life quicker than at any point before; during Q3, we introduced a batch of fresh features, among them avatar generation, sound effects generation and enhancements to our expanding roster of integrated generative models. Through Firefly we give access to Adobe's commercially safe generative AI models along with an ever-growing set of top third-party models, such as Google's Imagen, Veo and Gemini Flash 2.5, OpenAI's GPT-Image plus Flux, Runway, Ideogram, Pika and Ray2, among others. Thanks to this, the Firefly app is becoming the preferred place for generating and editing content both for creators trying Adobe products for the very first time and for Creative Professionals who have relied on Creative Cloud Applications for years. Via Firefly Services, we're handing enterprises of every size and in every vertical remarkably strong automated content production abilities. These agentic services draw on custom models to automate and personalize image, video and 3D content for marketing campaigns, ad creation and post-production video work, all while keeping brand consistency intact. On top of that, we rolled out a no-code interface that brings Firefly Services' capabilities to studio and design teams. You can access Firefly services via GenStudio, and individuals can get them through Firefly App subscriptions. Use of Firefly Services climbed 32% quarter-over-quarter, while consumption of custom models rose 68% over the same period. Among other business highlights: we kept adding new Creative Cloud users, with notable momentum in emerging markets such as India, where ending units were up 50% year-over-year. The Firefly App for mobile has seen millions of downloads since it launched. Firefly App MAU increased 30% quarter-over-quarter. The Firefly App keeps drawing next-gen creators, with first-time Adobe subscribers coming through the app up 20% quarter-over-quarter. Generative AI usage sped up, reaching 29 billion generations, and video generations rose almost 40% quarter-over-quarter. Notable enterprise wins include Disney, FedEx, Home Depot, Meta, MetLife, Stagwell, Ulta and Volkswagen. We can't wait to greet our community at Adobe MAX next month. We'll present extraordinary innovations showcasing fantastic productivity features across our flagship Creative Cloud Applications, game-changing AI capabilities powered by Firefly and third-party models, fresh agentic experiences for conversational editing, and major advances in content production automation for enterprises. MAX is always a celebration of the community's Creativity, and we're eager to share how Adobe magic is reshaping Creative Workflows and opening up new opportunities. I'll now hand things over to Anil.

Thank you, David, and good morning to all of you. Our Digital Experience business posted a robust third quarter, with quarterly revenue reaching $1.48 billion. Subscription revenue came in at $1.37 billion during the quarter, which marks 11% growth compared with the prior-year period, and that makes us the biggest software provider in our space. The reason we've succeeded is that we offer the most complete solution available for digital marketing and customer experience, which lets the world's biggest brands deliver personalized experiences at scale. AI is reshaping consumer behavior and changing the way companies connect with their customers. According to our latest Adobe Digital Index data, drawn from online transactions spanning more than 1 trillion visits to U.S. retail sites, LLM traffic jumped 4,700% year-over-year in July 2025. With consumer behavior and expectations shifting so quickly in the age of AI, brands are being pushed to reinvent both marketing and customer experience. Customer acquisition is getting disrupted because brand discovery is moving away from link-based search results and now includes LLMs. To win visibility through LLMs, brands must supply machine-readable content and real-time updates while also deepening their direct ties with consumers; as conversational interfaces become more common, consumers increasingly expect to handle any interaction with a brand through one single interface. Hyperpersonalization and immersive experiences will draw consumers toward owned channels such as websites and mobile apps, which lets brands build stronger customer engagement and loyalty. To reach the scale, automation, agility and efficiency that the AI era demands, enterprises require an end-to-end integrated customer experience orchestration platform. Adobe holds a unique position to assist businesses in orchestrating and delivering personalized customer experiences by blending creativity, marketing and agentic AI. Our AI-first and AI-infused offerings — covering GenStudio for content supply chain, AEP and Apps for customer engagement and loyalty, plus Adobe Experience Manager and LLM Optimizer for brand visibility and discovery — allow us to power customer experience orchestration in the age of agentic AI. We're witnessing accelerating adoption and usage of Adobe GenStudio, our most comprehensive content supply chain solution, as enterprises use AI to drive content velocity. New capabilities within Adobe GenStudio for performance marketing are speeding up video and display ad campaign creation. Marketers will be able to create engaging short-form video ads with the commercially safe Firefly video model. We rolled out capabilities for display ad campaigns, including on-brand image generation powered by Firefly, along with offerings with Amazon Ads, Google Campaign Manager 360, LinkedIn and Meta to enable seamless campaign workflows; we're also innovating on our leading AEP marketing and customer experience platform with built-in agentic functionality, giving marketers the ability to deliver digital experiences with greater agility and efficiency. Our intelligent agents grasp intent, reason and suggest actions that drive outcomes across content, data and journeys. Purpose-built agents are embedded throughout our core apps and new AI-first applications, helping brands unlock greater efficiency and precision, automate workflows and personalized experiences at scale; in Q3 we launched the first phase of AEP Agent Orchestrator, which empowers businesses to build, manage and orchestrate AI agents from Adobe and third parties. So these tools are what drive both the data insights agent and the product support agent, both of which are out in general availability right now, and they join our expanding lineup of agents. Our freshest development is Adobe LLM Optimizer, which you can get in early access. Since buyers and potential buyers are leaning more and more on generative AI search and assistance to find brands, LLM Optimizer assists in molding the way brands appear in results, which fuels influence, visibility and qualified traffic. Additional business highlights take in robust appetite for AEP and native apps, with Q3 subscription revenue climbing beyond 40% compared to the same period last year. There's ongoing uptake and momentum for AEP AI Assistant, with 70% of AEP customers who qualify making use of AI Assistant. We also announced more partnerships at Cannes, covering Accenture, dentsu, IBM, Infosys, Omnicom and Publicis. Then there's recognition from industry analysts, such as being called a leader in 2 Forrester Wave reports covering customer data platforms for B2B and Digital Analytics Solutions, plus 2 IDC Marketscapes covering worldwide AI-enabled marketing platforms for enterprise and midsized customers. Cross-cloud deals grew a solid 60% year-over-year, which shows the worth of the Adobe integrated platform, GenStudio included. More than 40% of our top 50 enterprise accounts have doubled their ARR spend from the beginning of FY '23. And we landed key global customer wins, among them Amgen, Australia Post, Disck's Sporting Goods, Disney, FedEx, Intuit, Lloyds Bank, Macy's, MetLife, Microsoft, Morgan Stanley, Qatar Airways and Stagwell; we can't wait to display our newest innovations, such as AI-first apps and AI-infused products, at MAX next month. These strides reinforce our standing as the leader in customer experience orchestration during the age of agentic AI. I'll hand things back to Dan now.

Thanks, Anil. To kick things off today, I'll walk through how Adobe did in Q3 of fiscal 2025, point out what fueled expansion across each of our businesses, and then wrap up with the guidance we're giving. During Q3, we came in ahead of our goals and, for another quarter, posted double-digit increases on both the top line and in EPS. Our approach to generating demand involves embedding AI throughout our category-leading offerings, plus rolling out brand-new AI-first products serving Business Professionals and Consumers, Creative Professionals and creators, and Marketing Professionals. Adobe brought in $5.99 billion in revenue, reflecting 11% growth compared with a year earlier on a reported basis, or 10% when measured in constant currency. GAAP diluted earnings per share for Q3 came to $4.18, while non-GAAP diluted earnings per share reached $5.31, representing year-over-year increases of 11% and 14%, respectively. ARR influenced by Adobe AI moved past $5 billion, and we anticipate that figure will keep climbing as a share of our overall business. Impressively, ARR generated by our brand-new AI-first products — Firefly, Acrobat AI Assistant, and GenStudio for performance marketing among them — has already hit our end-of-year goal of more than $250 million. Business and financial highlights for the third quarter were as follows: Digital Media revenue reached $4.46 billion. Digital Media ending ARR stood at $18.59 billion, up 11.7% compared with the same period last year. Digital Experience revenue came to $1.48 billion, cash flows from operations totaled $2.20 billion — a Q3 record for us. And remaining performance obligations at quarter's end were $20.44 billion, up 13% versus a year ago, or 12% in constant currency, while CRPO rose 10% both as reported and in constant currency. In our Digital Media segment, revenue grew 12% year-over-year as reported, or 11% in constant currency. We closed the quarter with Digital Media ARR up 11.7% year-over-year in constant currency, propelled by robust appetite for higher-value AI-infused offerings such as Creative Cloud Pro and Acrobat, along with AI-first products like Firefly and Acrobat AI Assistant. Within Digital Media, the third-quarter growth for Business Professionals and Consumers came from several places. Monthly active users for Acrobat and Express climbed about 25% versus the same period last year, and that supports our premium growth approach. Other contributors included strong engagement and monetization across our Acrobat products, including the AI assistant and Acrobat Studio, which we just launched, along with a fourfold increase in business adoption of Express for the quarter compared with the prior year. We also saw solid results in education, driven by student, faculty and staff access to Express, Acrobat AI Assistant and Firefly, plus a strong ARR book of business that covers every route to market and geography. Within Digital Media, the factors behind Q3 growth for Creative Professionals and Creators were: increased desire for and reliance on AI-powered capabilities in our main apps — Photoshop, Premiere Pro, and Illustrator — as part of the new Creative Cloud Pro package; substantial new subscriber adoption of the Firefly App by individual users and Firefly Services by business customers; and support for Firefly plus external models inside Creative Cloud Applications, which drove quarter-over-quarter acceleration in generative AI consumption and strong expansion in ARR book of business across all routes to market and every region. Turning now to Digital Experience: in Q3, we generated $1.48 billion in revenue, representing 9% growth compared with the prior year on both a reported and constant-currency basis. Subscription revenue for Digital Experience came in at $1.37 billion, up 11% compared to the same period last year, both as reported and on a constant currency basis. Inside Digital Experience, the Q3 growth drivers for Marketing Professionals encompassed AEP and Apps ending ARR expanding more than 40% versus a year ago, as enterprises zero in on delivering personalization at scale for customer engagement. We saw strong adoption of AEM, including Sites Optimizer, as marketers boost the relevancy of their owned websites across search and LLM platforms alike. Demand keeps climbing for GenStudio — the all-in-one solution we offer for managing the content supply chain — because businesses are pushing for faster content output and greater use of AI automation. On top of that, we're seeing retention stay strong, accounts continue to expand, and we're executing well on contracts worth more than $1 million in our main industries and regions. Our growth plan centers on meeting the varied requirements of two groups: Business Professionals and Consumers, plus Creative and Marketing Professionals. As we've explained before, building our new products, service options, pricing approaches, and market strategies around these customer segments will keep driving us forward. Within the Business Professionals and Consumers Group, subscription revenue came to $1.65 billion, which works out to 15% year-over-year growth as reported, or 14% when measured in constant currency. On the Creative and Marketing Professionals Group side, we saw subscription revenue hit $4.12 billion. That's up 11% compared to a year ago, or 10% when you strip out currency effects. Within the enterprise space — where creativity meets marketing — Adobe's integrated, AI-infused offerings are reworking the whole content supply chain. That covers digital content workflow and planning, creation and production, asset management, delivery and activation, plus reporting and insights. This is a huge market, and it gives us a chance to grow both creative seat counts and ARPU, while also fueling demand for our content production and marketing automation solutions. With GenStudio, we're seeing strong uptake of our automation solutions among enterprise customers. On this call, we're noting that the combined annual recurring revenue for Workfront, Frame, AEM Assets, Firefly Services, and GenStudio for performance marketing — all central pieces of the GenStudio integrated offering — has now passed $1 billion, up more than 25% compared with a year earlier. Within our enterprise segment, One Adobe deals rose by over 60% year over year, which speaks to adoption spanning multiple clouds and stronger strategic ties with our customers. If you want the historical subscription revenue tied to those customer groups, it's available in the Adobe Investor Relations data sheet, under Supplementary Customer Group Data, with figures going back to FY '23. Now, shifting to a few other financial items: Adobe's effective tax rate for Q3 came in at 19.0% on a GAAP basis, and 18.5% on a non-GAAP basis. During the quarter, our operations generated a Q3-record $2.20 billion in cash flow, and we finished Q3 with $5.94 billion in cash plus short-term investments. In Q3, we signed a share repurchase agreement worth $2.50 billion, and of the $25 billion authorization approved in March 2024, $8.40 billion is still available. Now I'll move on to our financial targets, which are based on current macroeconomic conditions; for Q4 of FY '25, our targets are as follows. Total Adobe revenue between $6.075 million and $6.125 billion, Digital Media segment revenue between $4.53 billion and $4.56 billion, and Digital Experience segment revenue between $1.495 billion and $1.515 billion. As for Digital Experience subscription revenue, we're expecting $1.395 billion to $1.410 billion. On a GAAP basis, we expect diluted earnings per share in the range of $4.27 to $4.32, and on a non-GAAP basis, that figure should be between $5.35 and $5.40. Looking ahead to the fourth quarter, we anticipate a non-GAAP operating margin of about 45.5%, with a non-GAAP tax rate around 18.5%. Given the momentum in our business, we're pleased to increase our target for media ending ARR growth, and with our Q4 goals now set, we're also boosting our full-year targets for total revenue as well as GAAP and non-GAAP EPS. For fiscal 2025, we're aiming for total Adobe revenue between $23.65 billion and $23.70 billion. As for our Digital Media segment, the revenue target is $17.56 billion to $17.59 billion. Turning to our results, the Digital Media annual recurring revenue book closed the period up 11.3% compared with the same quarter last year. For the Digital Experience business, we're aiming for revenue between $5.84 billion and $5.86 billion. Subscription revenue within that segment should land somewhere in the range of $5.39 billion to $5.41 billion. On the bottom line, GAAP earnings per share is projected at $16.53 to $16.58, while the non-GAAP figure is expected to come in at $20.80 to $20.85. Stepping back, Adobe's third-quarter results reflect strong execution against the backdrop of an AI-first landscape. Because we keep our focus on leading with our products and innovating around what customers need, we believe we're set up to generate growth that lasts and remains profitable. It's genuinely thrilling to see customers adopting and applying the full range of our differentiated AI-first and AI-infused offerings. Going forward, I have confidence that our investments and strategic focus will produce long-term shareholder value. Shantanu, over to you.

Appreciate that, Dan. Staying closely involved with the exceptional teams behind our products keeps my energy level really high, and I'm thrilled about the inventive road map we have for bringing Adobe magic to a growing base of customers; from my conversations with businesses globally, the message comes through clearly that Adobe is the partner they're putting money into for creative AI technology they depend on for their core operations. I'm eager to connect with all of you at Adobe MAX, where the plan is to highlight amazing breakthroughs spanning creativity, marketing and AI, and to hold a Q&A session for investors. Thanks so much, and at this point we'll open things up for your questions. Operator?

Fantastic. It's really encouraging to watch those full-year figures trending favorably. I have a couple of things to ask, if that's alright. First, regarding the demonstration you all presented in that video at the start. Once again, it truly showcased that Adobe magic, particularly with what you're accomplishing using Nano Banana, and the ability to edit images in that manner. Could you clarify for us which portion of that involves the diffusion engine sourced from Nano Banana? Which portion relies on the Adobe infrastructure sitting beneath it that makes that detailed, fine-grained manipulation possible, just so we can better grasp what value proposition Adobe contributes to the mix? That's my first question. My second question concerns a wider worry I've picked up from investors, specifically regarding ad platforms such as Google or Meta embedding diffusion engines straight into their advertising systems. To try to gauge that exposure, could you help us figure out what share of your customer base consists of those single-channel marketers for whom that might genuinely pose a threat to Adobe in terms of losing them?

I'll kick things off, Keith, then pass it over to Shantanu and Anil for that second portion. So indeed, we're quite thrilled about the collaboration we have with Google; and honestly, every one of the third-party model partners we work with, if I might rewind briefly. As a quick reminder, our approach when it comes to what we deliver in our Creative Cloud Applications and our Firefly Applications is to genuinely stand apart on 2 things. First is choice, and second is integrations. On the choice side, we aim to ensure that every third-party model is accessible — you witnessed our announcement involving Google and Nano Banana, OpenAI, Flux, Runway, Luma, Ideogram, and that roster keeps expanding; and you brought up the Nano Banana example. We in fact rolled out Nano Banana on the very first day — on the day it launched as part of the Firefly application, and at this point we're weaving it into Integrated Cloud Pro. So at the heart of selecting whichever model offers the most compelling option for whatever task you're pursuing, you know you can come to Adobe, and it will be available. The second piece is that integration, as you mentioned, correct? We possess numerous workflows that we have — that we've drawn into the model. You caught that in the demo you watched, and in every demo out there, folks are pairing Nano Banana with Photoshop; they're approaching it by merging the precision and control that Photoshop delivers and fusing it with Nano Banana's generative abilities. In a lot of respects, this isn't really distinct from the Generative Fill features we introduced earlier, except that at this point we're beginning to merge these elements tighter and tighter. And what truly lasts, what sets it apart, is that pipeline: you can create something or shoot something, move it into a precise revision, send it over to a video model — possibly ours or possibly a different company's — add sound effects coming from another video model, and afterward carry out the meticulous, exact actioning. That blending of components is, in our view, where the real magic is going to occur.

Possibly, Keith, I should just chime in there and build on what David mentioned. The real secret sauce is obviously in our apps, since we're able to take every model out there and bring it into our interface. And pulling that off is hardly a simple job — it's what we've managed to create. Honestly, that's why we set out to build Firefly: we grasp diffusion as well as transformer models, I'd argue, more deeply than anyone else in the creative application space. So please don't undervalue how much of that magic we have to put in to make everything feel this effortless. Turning to your other question, about the way people will build and launch campaigns along with ad placements across all those various platforms: my sense is you'll see a number of smaller and mid-sized businesses picking it up. As for every one of the bigger firms, what we keep hearing from enterprises is that they're after the capability to build campaigns, deploy them over multiple channels, view attribution, and also see — what analysis we can deliver. Beyond that, though, every one of those ad channels you brought up is genuinely thrilled that Adobe is making this seamless, which explains why, in GenStudio for performance marketing, you've got support for third-party channels — be it TikTok, Meta, Google, Amazon, the whole set — and we'll simply keep at it. And that uptake, I believe we mentioned this on the enterprise side, just keeps being genuinely thrilling for us.

Fantastic. It's truly encouraging to witness you surpassing that objective across the entire year — $250 million in ARR from AI-first offerings. There's quite a bit packed in there, and it would be helpful to hear your perspective on which piece is fueling that better-than-expected result. And where exactly are you finding the momentum among those AI-first products?

Right. Brad, I believe what we aimed to accomplish during the analyst meeting was simply to demonstrate that we're not just rolling out incredible innovation in what we build; but honestly, turning that into money — regardless of whether it happens within our current lineup or through brand-new offerings — is something we're, first, committed to and, second, executing on extremely well. So when it comes to influence revenue, which covers items such as Creative Cloud and how Creative Cloud gets used, what we're observing in Acrobat, what shows up in Express, what appears in the DX solutions that incorporate AI — it was plain to see, and we took a very cautious stance regarding what we deliver for users who went beyond 5 billion. Regarding the second piece, namely AI-first, Firefly services, GenStudio — the broader GenStudio offering is certainly experiencing substantial uptake, along with AI Assistant in Acrobat and all our efforts tied to AI Acrobat. I constantly fret, Brad, that if I single out 1 or 2 products, other teams will assume I don't hold them in high regard internally. Yet honestly, throughout all of them, we've witnessed remarkable traction and comfortably went past the $250 million threshold; so we're genuinely happy with that. Our guiding principle, obviously, is that we want AI embedded into every single dollar of revenue we generate, and I believe we're performing excellently on that front.

This is John Byun calling in for Brent Thill. I have two things I'd like to ask. First, could you give us a bit of insight into how AI credit consumption breaks down between your Firefly-powered offerings and those from outside providers — are you noticing any growth in usage of the third-party models, and what's the user reaction? Second, regarding the LLM Optimizer, have you deployed it inside Adobe, and has it affected the top of funnel or conversion at all?

Yes. Thanks for asking. On the matter of models from outside companies — our approach, as I mentioned before, is centered on offering choice, so that whichever model someone wants access to ends up reachable in a single location, plus tighter integration. That forms the central basis for everything we're doing. Regarding how this shows up in the market, there are so many announcements and so much opportunity emerging alongside all these shifts. We're all witnessing it daily. The sheer volume of updates and news involving these models, with Firefly among them, keeps advancing what's achievable at the frontier. What that enables us to do, above all, is take each of those moments at the top of funnel and use it as a chance to draw people into Firefly so they can experiment with that new capability. So from a funnel management and top-of-funnel standpoint, that's proven to be a terrific addition for us. And then, inside the product itself, Firefly still accounts for most generation, because of commercial safety and the foundations behind it. That said, we're observing a solid rise in how much the other models get used. Particularly for use cases such as ideation and editing features that are built into Firefly; so that balance looks correct to us, and we'll keep refining and encouraging that discovery within our applications moving forward.

Now, on your second point about the LLM Optimizer. Yeah, so I'd actually been collaborating inside the company with our team — the adobe.com group, which of course operates a major digital operation. That's where the LLM Optimizer got its start. We saw that with certain traffic — not just what comes from search, but many of our customers and prospects had begun posing questions inside ChatGPT, Perplexity, and similar tools. How can I edit this PDF? I've got a big PDF. What's the way to compress it? Questions along those lines. And it became clear to us that plenty of content was already at our disposal, and if we put it out through the proper channels, the LLMs would pick it up, which would bring our Acrobat brand significantly more visibility via the LLMs. So that's the origin of the concept for the product. Then, as we began speaking with Chief Marketing Officers globally, we saw this was a top-of-mind subject for them too, and that is what resulted in the announcement at Cannes, and we're thrilled the product will reach general availability later this quarter.

The innovation we've brought to this area genuinely has me thrilled. In many of the preview reports, I've seen people focus on web traffic, and that traffic is arriving via a variety of channels. That shift is quite novel. So when it comes to search traffic alone and the trends within search, you truly need to begin accounting for — and I believe we're among the leaders here — how to capitalize on what's taking place, not only in search but also in social, and now more and more in LLM. Thus, as Anil said, this isn't merely a chance for us to apply it internally; it's, I'd argue, an enormous chance for us to assist each and every company in navigating this fresh reality.

I'd like to dig into the pricing aspect here. Clearly, given the sort of line item optimization we saw this quarter. I'm curious whether you can offer any color on how things performed excluding price, and how the installed base responded to that? Then also, how should we frame PxQ as we look toward next year?

Sure. Tyler, when it comes to the Creative business, which like I mentioned represents the company's core DNA, in my view, we witnessed strength everywhere. So let me make that clear. As you noted, regarding the core Creative Professional and how much adoption they're doing around AI, the shift to the Creative Cloud Pro offering performed exceptionally well; beyond that, though, what we're observing with the Firefly subscription and what it enables for people, creators, the next generation, those new to Adobe — I believe David mentioned how we're bringing more new users into Adobe through the Creative Platform; that too demonstrated significant strength. Plus Firefly Services and within the enterprise, the mix of what they can accomplish with Creative Cloud alongside Firefly services as part of GenStudio. So we're feeling positive; we aim to keep delivering value. So to sum it up, the migration was very healthy, yet that wasn't the whole story. What accounts for the strength we're seeing is actually strength across the board.

So, Shantanu, regarding that point you made a moment ago, I have just 2 brief questions. First, it feels like this quarter was, I'd say, nearly a pivotal one for you folks. It was the first quarter, I believe, where net new DM ARR was actually flat or perhaps even up for the first time this year, against a harder comparison. You lifted the guidance. You beat your AI-first spending ARR goal by a quarter; it looks like you're performing far above expectations. Could you break down how much of this stems from improved uptake of the AI-first products as opposed to for PxQ? And in the end, does that give you assurance that you can keep growing DM ARR by at least double digits for the foreseeable future? Then I have a brief product follow-up.