Adobe (NASDAQ: ADBE) - Q3 2024 Earnings Call

at Adobe we're building the future of video to help editors realize their Creative Vision faster and push it further this past spring we unveiled early explorations of generative AI in our video applications and today we're excited to share an update on progress and new capabilities that will help creatives overcome common editing challenges Guided by our community's input the Adobe Firefly video model is trained with creators rights and Ed and designed to be commercially safe with firefly text to video you can use text prompts a wide variety of camera controls and reference images to generate b-roll that seamlessly fills gaps in your timeline quickly explore ideas for Unique visual effects create elements for preis visualization like atmospheric overlays or use text to video to generate inspiration promotion graphics with image to video bring your still shots or illustrations to Life by transforming them into stunning liveaction clips and coming later this year to Premier Pro beta generative extend lets you extend Clips to cover gaps in footage smooth out transitions or hold on shots longer for perfectly timed edits and again like other Firefly generative AI models our video model is designed to be commercially safe and is only trained on public domain or licensed content never on our users content so you can create with confidence we can't wait for you to get your hands on these new capabilities in beta later this [Music] year good day and welcome to the Q3 fy4 Adobe earnings conference call today's conference is being recorded at this time I'd like to turn the conference or to Jonathan Voss VP of investor relations please go ahead good afternoon and thank you for joining us with me on the call today are shantan nunar adobe's chair and CEO David wadwani president of digital media anel chakravarthy president of digital experience and Dan D Executive Vice President and CFO on this call which is being recorded we will discuss adobe's thirdd quarter fiscal year 2024 Financial results you can find our press release as well as PDFs of our prepared remarks and financial results on adobe's investor relations website the information discussed on this call including our financial targets and product plans is as of today September 12th and contains forward-looking statements that involve risk uncertainty and assumptions actual results May differ materially from those set forth in these statements for more information on those risks please review today's earnings release and adobe's SEC filings on this call we will discuss Gap and non-gaap financial measures our reported results include Gap growth rates as well as constant currency growth rates during this presentation adobe's Executives will refer to constant currency growth rates unless otherwise stated non-gap reconciliations are available in our earnings release and on adobe's investor relations website I will now turn the call over to shantu thanks Jonathan good afternoon and thank you for joining us adob be at an outstanding third quarter we saw strength across Creative Cloud document cloud and experience Cloud achieving revenue of 5.41 billion representing 11% year-over-year growth Gap earnings per share for the quarter was 376 and non-gaap earnings per share was 465 representing 23% and 14% year-over-year growth respectively our success reflects our strong execution ution against an ambitious Innovation agenda to deliver value to our customers the product advances we've launched in the past 18 months are delighting a huge and growing Universe of users and Enterprises empowering them to unleash their creativity accelerate document productivity and power their digital businesses our vision revolves around adobe's deep technology platforms across creative class Cloud document cloud and experience Cloud which when integrated provides significant differentiation and value we're amplifying creativity and productivity by enabling the convergence of products like Photoshop Express and acrobat as knowledge workers and creatives seek to make content more compelling and engaging we're bringing together content creation and production workflow and collaboration and campaign activation and insights across Creative Cloud Express and experience Cloud new offerings include Adobe gen studio and Firefly Services Empower companies to address personalized content creation at scale with agility and enable them to address their content supply chain challenges adobe's customer Centric approach to AI is highly differentiated across data models and interfaces we train our Firefly models on data that allows us to offer customers a solution designed to be commercially safe we have now released Firefly models for Imaging vector and design and just previewed a new firly video model our greatest differentiation comes at the interface layer with our ability to rapidly integrate AI across our industry-leading product portfolio making it easy for customers of all sizes to adopt and realize value from AI Firefly powered features in Adobe Photoshop illustrator Lightroom and Premier Pro help creators expand upon their natural creativity and accelerate productivity Adobe Express is a quick and easy create anything application unlocking creative expression for millions of users acrobat AI assistant helps extract greater value from PDF documents Adobe experience platform AI assistant empowers Brands to automate workflows and generate new audiences and Journeys Adobe gen Studio brings together content and data integrating High Velocity creative expression with the Enterprise activation needed to deliver personalization at scale overall we're delighted to see customer excitement and adoption for our AI Solutions continue to to grow and we have now surpassed 12 billion Firefly power Generations across Adobe tools I'll now turn it over to David to discuss the momentum in our digital media business thanks shotu hello everyone in Q3 we achieved net new digital media AR of 504 million and revenue of 4 billion which grew 12% year-over-year fueled by innovation in both our creative and document businesses with document Cloud we continue to reinvent how people create edit share review and sign digital documents with PDF and acrobat across mobile web and desktop for decades PDF has been the deao standard for storing unstructured data resulting in the creation and sharing of trillions of PDFs the introduction of AI assistant across Adobe Acrobat and reader has transformed the way people interact with and extract value from these documents in Q3 we release significant advancements including the ability to have conversations across multiple documents and support for different document formats saving users valuable time and providing important insights we're thrilled to see this value translate into AI assistant usage with over 70% quarter over quarter growth in AI interactions in addition to consumption we're focused on leveraging generative AI to expand content Creation in Adobe Acrobat we've integrated Adobe Firefly image generation into our edit PDF workflows we've optimized AI assistant and acrobat to generate content fit for presentations emails and other forms of communication and we're laying the groundwork for richer content creation including the generation of adobe Express projects the application of this technology across verticals and industries is virtually Limitless Tata consultancy Services recently used Adobe Premiere Pro to transcribe hours of conference videos and then used AI assistant in acrobat to create digestible event summaries in minutes this allowed them to distribute newsletters on session content to attendees in real time we're excited to leverage generative AI to add value to content creation and consumption in acrobat and reader in the months ahead given the early adoption of AI assistant we intend to actively promote subscription plans that include generative AI capabilities over Legacy Perpetual plans that do not in Q3 we achiev document Cloud revenue of 87 million growing 18% year-over-year we added 163 million of net new document Cloud ARR other highlights include expanded acrobat customer value with multi-document support for AI assistant enhanced meeting transcript capabilities and support for larger documents optimized AI assistant for mobile web and desktop experiences including voice enabled conversations on Android continued strength of pdf-based collaboration with shared links growing greater than 70% year-over-year increased top of funnel through acrobat web with monthly active users growing over 35% year-over-year as a result of Link sharing and our Microsoft Edge and Google Chrome extensions key Enterprise customer wins include Amazon Charles Schwab Disney Home Depot KPMG Red Bull Sutter Health and the US Treasury Department with Creative Cloud the demand for Creative expression and design across media types and surfaces has never been greater consumers are sharing edited photos more than ever students need to create school presentations that stand out creative professionals are being asked to create more images designs and videos faster than ever before small businesses are looking to engage prospects on social channels and large Enterprises are defining their content Supply workflows to deliver personalization at scale AI has the potential to empower creative professionals communicators consumers and organizations of all sizes to be more creative and productive our strategy is to build technology that will create more streamlined and precise workflows within our tools through features like text to template and express generative fill and Photoshop generative recolor and illustrator generative remove and Lightroom and the upcoming generative extend for video and Premiere Pro we're exposing the power of our creative tools and the magic of generative AI through Firefly service apis so organizations can generate and assemble content at scale as we integrate Firefly Innovations throughout our tools usage continues to accelerate Crossing 12 billion Generations since launch the introduction of the new Firefly video model earlier this week at IBC is another important milestone in our journey our video model like the other models in the Firefly family is built to be commercially safe with fine grain control and application integration at its core this will Empower editors to realize their Creative Vision more productively in our video products including Premier Pro with Express we're on a multi-year strategic journey to dramatically expand our reach across customer segments Adobe Express is our AI first content creation application fulfilling our mission to enable creativity for all the allnew release of Express across web and mobile earlier this year has been embraced by millions of users they love how easy it is to create anything in Express with strong enthusiasm for our image editing features powered by Photoshop video editing capabilities powered by Premiere Pro document and presentation workflows powered by acrobat and unparalleled generative AI features powered by Adobe Firefly our integration of adobe stock and design temp templates with our unique Firefly design model ensures that content created in Express can stand out express empowers a broad array of individuals and businesses from solopreneurs to the largest Enterprises in the world we're continuing to grow Express as we ramp our go market activities to support recent product releases including Express for individuals Express for Education Express for teams and express for Enterprises as a result in Q3 we drove 70% Your your growth in cumulative exports we onboarded over 1500 businesses and millions of students in Q3 we achieved 3.19 billion in Revenue which grew 11% year-over-year in constant currency net new Creative Cloud AR was $341 Million other highlights include new AI powered features in Photoshop that accelerate core creative workflows and streamline repetitive tasks generative fill and Photoshop was upgraded to Firefly image 3 generative image was made generally available and the new selection brush and adjustment brush tools were introduced making selective edits easier than ever broad-based Innovations in illustrator including significant improvements to Vector generation enhancements to text to pattern and the allnew generative shape fill these advances unlock new ways for pro designers and illustrators to quickly bring their Vision to life strong adoption of the latest version of Lightroom and Lightroom mobile which now includes the new generative remove feature millions of users have non-destructively removed unwanted objects from their photos with a single click strong demand for Firefly Services which provide apis tools and services for Content generation editing and assembly empowering organizations to automate content production while maintaining quality and control total API calls tripled quarter over quarter Acrobat Pro single app continues to be a growth driver in Creative Cloud reflecting the increasing adoption of PDF as a preferred format to create collaborate and share visually compelling content key Enterprise customer wins include the Brand Tech group denu Estee Lauder Google media monks meta MLB newal Brands Pepsi Co stagwell group and the US Navy we look forward to hosting Adobe Max the world's largest creativity Conference next month in Miami where we will welcome more than 10,000 members of our Global community and engag with hundreds of thousands more online we will hear from inspiring creators and unveil Innovations across our clouds in summary we are excited about the pace and caliber of Innovations across our digital media products and the continued execution across multiple growth drivers I'll now pass it to enel thanks David hello everyone in Q3 we achieved experienced Cloud revenue of $1.35 billion subscription Revenue was $1.23 billion representing 12% year-over-year growth customer experience management remains top of- mind for b2c and B2B companies around the world as they focus on digital strategies for customer acquisition engagement retention and expansion Enterprises want an integrated platform to deliver personalized experiences at scale to their customers while maximizing the ROI of their marketing and customer experience Investments through the integration of experience cloud and Creative Cloud Adobe is uniquely positioned to combine the right content data and Journeys in real time for every customer experience the revenue growth we're driving across our categories content Commerce and workflows Data Insights and audiences and customer Journeys all built on the Adobe experience platform demonstrate the strength of our business Global Brands trust Adobe to build their content supply chain and deliver personalization at scale making us the number one digital experience platform in the industry customers are embracing the opportunity to address their content supply chain challenges with Adobe gen studio with Native Integrations across experience cloud and Creative Cloud gen Studio empowers marketers to quickly plan create store deliver and measure marketing content and drive greater efficiency in their [Music] organizations Financial Services leader Vanguard is creating an integrated content supply chain to serve the Strategic goal of deepening their relationships with a broad range of investors leveraging the Gen Studio solution Vanguard was able to increase quality engagement by 176% by focusing on onet toone personalization and to realize millions in savings by improving content velocity and resource allocation with an end-to-end content creation workflow other highlights include the general availability of adobe content Hub further enhancing the value of adobe experience manager assets content Hub enables Brands to reimagine how creative assets are used across their organization and with external agencies driving content velocity and major efficiency gains AEM assets is used by the majority of the Fortune 50 including eight of the 10 largest media companies nine of the 10 largest financial services companies and eight of the 10 largest retailers increasing importance and Adoption of workfront to streamline workflows across marketing organizations and agencies we extended our leadership in this category through the general availability of adobe workfront planning which delivers a comprehensive view of all marketing activities in an organization and enables teams to optimize marketing planning and execution Global Brands including deoe interpublic group and NASCAR are using workfront planning to drive productivity gains and meet the rising demand for highly personalized marketing campaigns continued momentum for Adobe experience platform and Native applications including realtime customer data platform customer Journey analytics and Adobe Journey Optimizer we expanded our a portfolio with the general availability of adobe Journey Optimizer B2B Edition which leverages generative AI to deliver personalized experiences to buying groups the decision makers practitioners and stakeholders responsible for major purchasing decisions strong industry analyst recognition including the Forester wave for B2B Revenue marketing platforms and three IDC marketscape reports across digital asset management and headless digital Commerce for both Enterprise and midmarket key customer wins include denu Home Depot human IBM Johnson and Johnson Mayo I newal Brands Premier League stagwell group TD Bank and UPS we look forward to unveiling new customer experience management Innovations across content data and Journeys at Max next month showcasing Integrations across Express Creative Cloud and experience Cloud for Freelancers solopreneurs and marketers across agencies and Enterprises our pace of innovation commitment to customer Val value Global partner ecosystem and category defining Solutions position us to continue our Market leadership I will now pass it to Dan thanks anel today I'll start by summarizing adobe's performance in Q3 fiscal 2024 highlighting growth drivers across our businesses and I'll finish with financial Targets in Q3 Adobe achieved record revenue of 5.41 billion which represents 11% year-over-year growth as reported and in constant currency our focus on both growth and profitability has been a Cornerstone of our operating Philosophy for years rooted in strategic prioritization Relentless Innovation and Laser focused execution our Q3 results reflect this approach we're making significant investments in our technology platforms launching Global campaigns to expand our customer base and attracting top tier Talent while delivering world-class cash flows and profitability third quarter business and financial highlights included Gap deluded earnings per share of $376 and non-gaap deluded earnings per share of $465 digital media revenue of 4.0 billion net new digital media ARR of 5504 million digital experience revenue of 1.35 billion cash flows from operations of 2.02 billion an RPO 18.14 billion exiting the quarter in our digital media segment we achieved Q3 revenue of 4. billion which represents 11% year-over-year growth or 12% in constant currency we exited the quarter with 16.76% year-over-year in constant currency Adobe achieved document Cloud revenue of 87 million which represents 18% year-over-year growth as reported and in constant currency we added 163 million of net new document Cloud ARR which was a record for a Q3 growing our ending ARR book of business 24% year-over-year in constant currency Q3 document Cloud growth drivers included usage and Mal growth across Adobe Reader and acrobat usage of Mal growth via third-party ecosystems including Google Chrome and Microsoft Edge extensions which are driving free topa conversion demand for acrobat desktop and mobile subscriptions across all customer segments and geographies strength and monetization of our AI assistant with new acrobat subscriptions strength and smbs driven by our reseller partner Network and strength and Enterprise and public sector sales with a number of large deals closing in the quarter we achieve creative revenue of 3.19 billion which represents 10% year-over-year growth or 11% in constant currency we added 341 million of net new creative ARR in the quarter growing our ending ARR book of business 11% year-over-year in constant currency Q3 creative growth drivers included new subscriptions for Creative Cloud all apps across customer segments including teams Enterprise and education with with back to school demand strength across our Acrobat Pro illustrator Lightroom and Photoshop single apps on adobe.com growing demand for AI first Adobe Express offerings in Mobile emerging markets and education early monetization of our new Firefly Services solution in the Enterprise segment continued momentum with new subscriptions in emerging markets and contribution from customers stepping up to our higher value creative plans at renewal turning to our digital experience segment in Q3 we achieved revenue of 1.35 billion which represents 10% year-over-year growth as reported and in constant currency digital experience subscription revenue is 1.23 billion growing 12% year-over-year as reported and in constant currency Q3 digital experience growth drivers included strong subscription Revenue growth at scale of a and Native applications up greater than 50% year-over-year strong subscription Revenue growth with Adobe experience manager and workfront success in Booking transformational deals as well as individual solution selling continued strength and retention and expansion across our Enterprise customers and growing pipeline for our gen Studio solutions to address the content supply chain opportunity turning to the income statement and balance sheet in Q3 Adobe delivered year-over-year EPS growth of 23% on a gap basis and 14% on a non-gaap basis this is primarily driven by Revenue growth and discipline prioritization of our investments which resulted in operating margin strength in Q3 the company continues to deliver worldclass margins while making significant investments in AI model training and inferencing capacity adobe's effective tax rate in Q3 was 17.5% on a gap basis and 18.5% on a nonap basis RPO exiting the quarter was 18.14 billion growing 15% year-over-year as reported or 16% in constant currency current RPO grew 12% year-over-year exiting the quarter our ending cash in short-term investment position at the end of Q3 was 7.52 billion and cash flows from operations in the quarter were 2.02 billion in Q3 we entered into a 2.5 billion share purchase agreement and we currently have 20.15 billion remaining of the original 25 billion authorization granted in March 2024 we will now provide Q4 targets which factoring current macroeconomic conditions and year-end seasonal strength for Q4 we're targeting total Adobe revenue of 5.50 to 5 5.55 billion Digital Media Net new ARR of approximately 550 million digital media segment revenue of 4.09 to 4.12 billion digital experience segment revenue of 1.36 to 1.38 billion digital experience subscription revenue of 1.23 to 1.25 billion tax rate of approximately 16% on a gap basis and 18.5% on a Gap basis Gap earnings per share of $358 to $363 and non-gap earnings per share of $463 to $468 in summary I'm proud of our year-to-date performance which stems from a powerful combination of product leadership rapid Innovation Diversified business and financial discipline given the massive markets we're catalyzing I'm confident in our ability to drive growth and Industry leadership seanu back to you thanks Dan adobe's focus on responsible Innovation with customers at the center continues to be a unifying purpose for the company the content authenticity initiative which we founded in 2019 now counts over 3,300 members across the digital ecos system all committed to enhancing trust and transparency with content credential enals in 5 years this Mission has gone from a vision to reality with companies including Amazon Google Leica meta Qualcomm Sony Tik Tok and others all committing to implementing content credentials the US Department of Defense became the first federal government agency to implement content credentials by applying them to official DOD images which teaming up with Governor Gavin Nome on a new initiative to boost digital and media literacy skills in K through2 schools and higher education institutions in California by providing educational content programming and resources to schools across the state we can help Empower California's future Workforce for success in an AI powered world and use this as a blueprint for other states and countries next week we will bring employees together for our annual Adobe for-all conference to celebrate our vision and purpose and the impact that has on our customers and communities I'm confident that adobe's culture Innovative product road map Global Market opportunity trusted brand and the unwavering commitment of our employees will continue to drive our success thank you and we will now take questions thank you if you would like to signal with questions please press star one on your touchtone telephone if you're joining us today using a speaker phone please make sure your mute function is turned off to lie your signal to reach our equipment please limit yourself to one question per person again that will be star one if you would like to signal with questions star one and the first question will come from Alex zuken with wolf research hey guys thanks for taking my question and congrats on what looks like a very strong quarter um it's one question but it's a two-parter it the quarter itself particularly on the digital media AR looked very strong it looked unseasonably strong because you haven't grown net new AR sequentially in 3Q I think in almost four years so maybe just comment like what drove this unseasonable strength as a pricing AI traction and particularly the document Cloud net new AR uh but at the same time given all the product momentum you went through in the script it it's a bit confusing to understand why the Q4 uh guide is the lowest it's ever been sequentially for a Q4 on net new digital media ARR which I think makes people a little nervous about you know maybe the go forward the the next year uh performance and so maybe just address this dichotomy because it looks kind of seasonally a little bit different than what we're used to and I think it's Weighing on the stock after hours I'm happy to start uh Alex and then uh David can certainly also add to that I mean to your point uh we had a strong quarter and uh when I think about digital media uh document Cloud to the point that you made acrobat continues to perform the AI assistant and the skew uh that we have associated with uh acrobat continues to perform well um as we had said we expect creative to show uh uh growth on growth both year-over-year and so that also played out exactly as we expected and you know it was a strong end when you look at it as it relates to uh you know the last few weeks performance we saw the uh typical strength that we would see going into uh Q4 I I can see how you're saying you know you're looking at the sequential guide we're looking at it and saying it's the strongest ever Q4 uh Target that we have put out there for Q4 Alex and so you know I think we just continue to uh Focus we would expect creative to again uh grow when you talk about growth over growth net new ARR in Q4 and uh you know all of the new initiatives they were talking about AI Etc continue to perform so uh you know from our perspective uh when we look at what we guided to the second half of the Year to your point Q3 is stronger uh we expect a seasonally strong uh Q4 and then you know uh continued Innovation should continue to drive growth yeah maybe I'll just add a a couple things to what chantu said um you know again just a little bit more context behind the strength and document Cloud uh obviously link sharing uh and uh what we've done with uh reader distribution across mobile web and desktop that's really what continues to drive this business and that underlying strength is going to continue not just in Q3 but it's going to be something that we're able to you know bet on and and uh and grow on going forward because we've got a lot of flow optimizations associated with that um as we look at uh you know Creative Cloud again we have a broader set of offerings than we've ever had right we have things like uh with Creative Cloud uh we we have higher value higher priced offers thanks to AI Innovation that's happening in the Bas plans that are impacting uh how uh how the Creative Cloud business is is uh is doing uh we also have a broader set of uh of offerings than we've ever had now with web and mobile uh including premium and lower priced uh offerings that are you know driving more proliferation and the of those two things also sort of comes into the strength of the quarter and and how we think see things going out but as you look at um the second half overall you know we came into the second half uh with a with a strong expectation of how the the second half is going to play out uh and frankly it's playing out as we expected in terms of the aggregate uh Q3 Q4 number in terms of the specifics on timing uh Q3 was a little stronger than than uh you expected and and for a good reason given seasonality I think a lot of that can be explained by a few deals that would have historically just uh closed in Q4 closing earlier than expected in in Q3 and that changed the dynamic in terms of the linearity that you would typically see between Q3 and Q4 very helpful guys thanks again and our next question will come from Mark Murphy with JP Morgan thank you so much and all my congrats uh David I'm wondering if you could compare the AI monetization opportunity that uh you're sensing with the image models relative uh to the the future potential uh with you know with your audio and video models just for instance how many tokens uh might be consumed when someone is generating um a video versus an image and then tying in with that just how optimistic are you maybe being able to solve um some of the limitations with the current video generation models where you know the facial expressions um can lack realism or they can't handle uh the object interactions or uh they don't provide enough detail or resolution in the videos yeah happy to happy to take that um let me just sort of take a little bit of a step back and and talk about you know the the core strategy uh that we have for AI and the and the conversion then in terms of how we think about monetization so you know I think we've been incredibly consistent with what we've said you know dating back you know a year a year and a half uh ago where we talked about the fact that we were going to develop the broadest set of uh models for the creative Community uh and we were going to differentiate the models based on quality commercial safety uh integratability into our tools and controlability and and as you've seen very methodically over the last 18 months we continue to bring more and more of that Innovation uh to life and that fundamentally is is working as we've now started to integrate it much more actively uh into our base if you look at it with uh with uh photography we now have in our tool generative remove we have ai assisted edits in design we have uh generative uh pattern generative uh fill shape uh we have uh uh in um in Photoshop we have gen remove uh we also have uh gen fill and I can continue on with all the generations but we've also now started to integrate it in Firefly services for what we're enabling Enterprises to be able to access and use uh you know in terms of batch work and through apis um if you look at sort of how that's played out as we talked about we're seeing accelerated use and generative credits being uh consumed because of uh of that deeper integration into all of our tools and that is is playing out um as we expected uh when you look at then how that converts to monetization um first and foremost we've integrated it a lot of that value into our core products and with more value and and more pricing uh we're also seeing that when people use these generative features they retain better we're also seeing that when people come to uh Adobe to try our Creative Cloud applications or exess express application they're able to convert better um and so there are all these ancillary implied benefits that we're getting but in terms of direct monetization what we've said in the past is that the current model is around generative credits which is I think where you're you're going with this and we do see with every subsequent cap capability we integrated into tool total credits consumed going up now what we are trying to do as we go forward you know we haven't uh started instituting you know the the Caps yet uh and part of this is as we've said all along we want to really focus our attention on on proliferation and usage across our base we see a lot of users excited about it it's some of the most actively used features that we've ever ever released and we want to avoid the generation anxiety that that people feel um but we're watching very closely as the econom the the economy of generative credits evolves and we're going to look at you know instituting those caps at some point when we feel the time is right Andor we're also looking at uh other alternative models what we did with acrobat AI assistant has proven to be very uh very uh effective and so we're also considering other opportunities like having standard CC plans that have uh you know a core set of generative capabilities but also having premium API sorry cre premium AI plans that will include things more like video and other things so we're very happy about the Innovation that's that's coming and we've see the opportunity to uh engage very deeply in the monetization but we want to play it out over time and proliferation continues to be our primary guide and then lastly in terms of quality we're I don't know if you had a chance to see you know some of the the videos we put out there uh integrated directly into Premiere also text uh text a video image to video more controlability we have also the ability now uh to generate not just you know scenes with humans and dogs and organic animals but all these like overlays and things that creative professionals actually want to to work with and so we're very excited about the set of things that they can get out of the box that get going and human faces and things will just continue to get better we have a lot of great research that you'll start to see and I hope you get to play with the models because we've taken a huge step forward there mark maybe I'll just add a little to what David said uh which was great uh I spent a couple of hours with our video team they have just absolutely hit it out of the park uh I mean the work that they've done uh which is leveraging the image models with video and again I think to David's point the integration with Premier that's where we've always said it's the integration of the model in the application that differentiates it I think you know when uh other models first came out people were like wow you can describe it that's just such a small part of where the value is and the real value is you have a video you want to extend it it's a you know Game Changer in terms of what we can do so you know really excited about the stuff that we're doing in video and again to David's point this will be monetized differently from the way we have for images which was you know part of the you know sort of Base value pricing so I the way I answer your question is and the third thing I would say is remember we have the ability to create custom models as well and so when you ingest the video that people want to edit the ability to you know extend that is not just dependent on what the model is but also on what the new data is and again that represents uh you know really a unique ability for us so hopefully all those three demonstrate why uh you know we're leading the pack in terms of how people can derive value in the nonlinear editors which is where uh the action is going to be thank you very much and moving on to Keith Bachman with hi thank you very much I appreciate taking the question I wanted to to pick up a little bit on how we should be thinking about David you just meant monetization and will consumption you think as we start to turn the year can consumption contribute to ARR growth uh as we look at FY 25 because I think there's pervasive fears that the state of competition May in fact limit your ability to to turn on that monetization if you will from either consumption or or price and I just wanted to see if you could uh lace in consumption against uh the backdrop of competition from our perspective uh Keith I think when you look at what we have with the apps and the models uh we just continue to think that's uniquely differentiated uh Firefly Services which is you can think of that also as a consumption model where we have that it's off to a really good start uh you know our ability to give Enterprises the ability to automate content create custom models uh you know within Enterprises uh we're seeing real traction because it's a differentiated solution in that it's designed to be uh commercially safe uh and as it relates to the core subscription models again uh David said this but I'll reiterate it which is the core subscription models for products like Photoshop and illustrator I think the differentiation is uh the combination of the model and the uh the the technology and in video I think we will find uh additional ways to monetize it so uh I'm not sure who specifically you're referring to as it relates to you know competition in this space but from our perspective it's just unique I mean if you look at the acceleration of what we've seen of generations in Photoshop illustrator Lightroom uh you know it's clear that we're actually extending uh the value rather than having other people catch up and then one other thing I just emphasized there is that the commercial safety uh is so important to uh businesses of all sizes frankly and that is something that we feel very very very differentiated on in addition to everything Shan news said okay great and then perhaps for my followup I wanted to pick up on Alex's first question but you're guiding net new ARR down 3% year-over-year in Q4 and I I think investors are you know thereby taking that as perhaps a framework when you look at next year but is there anything you know that net new AR will be down next year and I know you don't want to give guidance for next year but just just any kind of thoughts you want to address as it relates to uh the guidance associated with that new AR being down in Q4 versus you know a framework that we might want to apply for for the fy2 net new AR you're right Keith we're not going to give FY 25 guidance we'll certainly share more at Max and we would expect like we did last year that at the December earnings call will uh give color on uh you know fiscal 25 AR but I'd say a couple of things uh first as it relates to again the performance of the second half because to Alex and your question if there questions around Q3 and Q4 and what that uh Trend means uh again we will hope to have record net new AR in fiscal 24 uh which I think is is a great thing we gave 1 1950 at the end of Q2 we're clearly on track to you know beat that number which uh we take as a positive sign and the other thing maybe perhaps uh you know tactically for you folks to think about as well as it relates to the Q4 guidance uh typically you have Black Friday and Cyber Monday uh in the same quarter this time Cyber Monday I believe is in q1 and uh so as it relates to our Q4 performance uh you know it's uh it's the highest Target that we've ever uh issued you know we will go out and then continue to execute and um you know continue to innovate so that's the way I look at the business Keith okay thank you sh and the next question will come from sacket CIA with Barclays okay great hey guys thanks for taking my question um David maybe maybe for you um you know you touched on some of the drivers in in document which which was super helpful but I'd love to maybe go one level deeper into some of the Dynamics in in that business which of course continues to grow net new ARR at a at a really nice clip so so maybe we can just talk a little bit about you know are there are there any pricing headwinds or or Tailwinds that we should keep in mind specifically for docent cloud and also maybe you can give us a sense for sort of where document cloud is in in its journey to maybe becoming more of a subscription heavy business do do do those make sense uh the first part does let me uh let me uh try to address the whole thing the question on subscription heavy uh you know it is a it is a very strong subscription business for us uh already but I'll I'll touch on that and uh hopefully I'll address your question so first if we take a step back and and look at uh doc document Cloud I mean the foundation of uh everything we're doing here uh is incredibly strong and it's a machine we've had for a long time but it continues to uh perform incredibly well and what I mean by that is the platform proliferation of what we have with acrobat and and reader um the fact that we have you know 40 years into this business the rise of PDF and PDF becoming the de facto standard for you know uh content as a unstructured Content as a whole is a remarkable foundation for us to be building on um and the distribution we have across desktop web uh mobile uh including uh web extensions uh is is really the foundation of everything we do because that becomes the top of funnel for us you layer on top of that um the fact that generative AI in general has come out where uh unstructured content especially PDF unstructured content the trill three trillion PDFs out there that we believe are out there uh has suddenly inherently much more value than it did a year ago uh and this whole ecosystem is set up well for us um in addition to that Foundation we've also been over the course of the last few years really transitioning the way people share because if you think about uh uh PDFs and acrobat in general one of the most important things people do is they produce the PDF to share it with others often for comment and review engagement and by increasing sharing via links versus sharing as an attachment uh we see a lot more engagement and interaction that we're able to benefit from and that helps with the top of funnel and we can provide more value then on that platform what we've done is with AI assistant we focused on consumption for the last uh nine months starting with the ability to look at a single PDF uh and ask questions of that PDF then we sort of then we added support for multidock so you can now have five or six PDFs that you're having a conversation with we added support for multiple formats so you can look at PDFs but you can also drag in you know uh Word documents or PowerPoint documents or a link to uh uh to a meeting transcript that you have um we're adding in the process of adding language support uh for uh other languages uh optimizations we're now starting to work on document type optimization so if it's a contract we know how to optimize the results uh you know even better than if it's a marketing document um and that's all about consumption but in addition to consumption we're now expanding because these conversations that happen with these documents are inherently about getting some insight and then sharing that Insight we've also started to do things that you can create richer content on the back end of it so Firefly is embedded uh now in edit PDF workflows uh we have the conversational uh content is now able to generate emails and presentations and those kinds of things uh We've now embedded in the convert PDF workflows the ability to Output to express uh and create richer media outputs um and you can start to see all of this stuff coming together uh in a in a very real way already but also in the months ahead the last thing I want to say on this too is that um what's really working out well for us is that when we are out pitching this opportunity not just in terms of uh you know the individuals that use it but also businesses is that we don't have any security concerns right our our data governance model is the same data governance model that's happened if you have access to the documents you can have conversations with the documents uh and so it makes it a much easier uh thing for Enterprises to adopt because there's no system systemic or govern govern governance changes and so all of that continues to drive more adoption and as I said on the prepared remarks uh document cloud is substantially a subscription business but now with AI assistant being available to subscri subscribers and not as directly to uh Perpetual users we expect that to continue to transition even further super helpful thanks guys and the next question will come from J fla with Griffin Securities yeah thank you good evening um David I'd like to follow up on something that you said on the second quarter call uh and that was that um you said at the time that you were for the rest of the year going to quote pour gas on your GTM and as well engage in a full funnel campaign later in the year so the question is could you update us on on that I mean it does seem to be uh in no small part corroborated by some of your internal Investments that we've been able to see uh for example in your icx team your go to market positions across multiple products strategy positions and so forth but you know you you've made this commitment for a substantial expansion but do you think you need going forward to continually accelerate the pace of investments in uh go to market um or do you think at some point perhaps soon you can begin to taper that off and then leverage that capacity uh um to revenue growth in Derby margin expansion Jay I think we might have to uh have you join our our marketing organization given how much you know about the uh the market dynamics but great question and so um uh first and foremost again if you're going to talk about Express let's take a little bit of a step back and and understand the Dynamics of where we are in the in the evolution um you know I think what what we had talked about in Q2 was that um that not only do we feel like we have an incredible product now but that product is built on a brand new platform uh that has the ability to develop AI functionality you know uh as a native part of that platform so the speed of innovation that we've been uh adding capabilities to express is uh has really been been a breaket speed and we're very excited about that um you know features like native integration of firefly so that you know everything that's generated here is commercially safe which again like I said is is important to individuals and to businesses uh but doing it with more control things like style and structure match uh and integrated into the image viewer the video viewer uh editor and the uh and the Design Surfaces so very excited about that uh in addition to to those basic capabilities that are so foundational this is really the design model that we've been talking about Firefly design model this is where it's surfacing the most and so you combine what we're doing with templates and the design model and people are able to create and effectively get access to an infinite number of templates right we we believe that we're moving from a template Centric uh you know uh set of tools for communicators to an AI Centric set of tools and we feel that with our design model and everything we have we're fundamentally going to create better content that stands out uh ultimately we also have you know great workflows that we've developed with Photoshop and illustrator and acrobat um and we've integrated all of this in ways that are fundamentally you know effective for businesses including bulk creation and assembly capabilities so small businesses all the way through Enterprises are able to leverage this for their designer to marketer workflows um in addition to all of that Innovation to your point we've really been focused on the go to market since last time uh since uh we last spoke or right before we last spoke uh in Q3 we uh expanded the offer set significantly we've always had Express for individuals in Market but we added Express for teams Express for Enterprise and we just launched Express for Education this back to school year with a lot better support for classrooms and teacher student uh workflows as well uh on the marketing side we've been ramping uh ramping that very actively you know it's a net new audience to Adobe I mean that's something to really recognize this isn't about shifting existing audience over solely it's about getting access to net new audience and so for that we have to employ both uh you know traditional means uh with a focus on awareness campaign but also uh you know leveraging social because that's where this uh this audience is so you know you'll see us doing a lot more on social as a result and then on the back of all that we're ramping our our direct sales uh you know we have a very you know ATS scale inside sales motion that we're starting to lean into we have a very significant direct sales motion that we have in in Enterprises in midmarket that we're leveraging adobe.com Journeys we have a lot of businesses and individuals coming on adobe.com and doing a lot more optimization in in the App Store and that's really what you're starting to see in the numbers we shared with strong usage at 70% year-over-year cumulative exports strong business you know momentum with over 1500 businesses sold and really great our best back to school season ever uh with millions of students now enabled on it so that's the foundation and and you know if you're you know the one thing I would say is yes we started pouring gas on it and we're going to pour more gas on it not less in the in the months and years ahead maybe two other things Jay just a big picture I mean we continue to invest in all of the key long-term things whether it's training of models whether it's Express whether it's a and apps whether it's gen studio uh you know while delivering what I think are phenomenal margins and so we'll continue to uh you know make those uh tradeoffs in terms of growth and profitability and maybe a little tongue and cheek uh part of the reason why uh David has the ability to invest as much in marketing as he uses the best marketing technology in the world from that is true thank you and our next question will come from Tyler radkey with City yes thanks very much for taking the question U wanted to ask you about the the digital experience uh side of the business so uh RPO look looked pretty pretty strong in terms of sequential additions uh the implied guide for Q4 was was a bit like than consensus I know you did talk about some unusual Dynamics in terms of seasonality cyber monday uh but could you just talk about um the the the strength and underlying Dynamics you're seeing in the business heading at the T4 thank you yeah when we look at the digital experience business we are pleased with the overall execution of the business we have a a big opportunity with what we call personalization at scale where whether it's a b2c company or a B2B company the ability to deliver personalized customer experiences uh to consumers or to hundreds of thousands of business customers individuals within businesses this is important for every company in the world and we have the integrated platform and the applications to be able to help them deliver those kinds of experiences and we have the unique ability to bring together the right content the data customer data and the customer Journeys across our experience cloud and the integration with Creative Cloud to deliver those personalized experiences and that's pretty unique to what we can do uh at Adobe and that's one of the things that we're seeing in the dynamic in the Enterprise Market is uh the Enterprises are scrutinizing all the deals that they want to do I think in this uh uh uh in this case they look at our offerings and see the ability to not only help with uh growth uh they also look at uh uh the efficiency gains that we can help them create and that's helping us uh as Enterprises scrutinized the spend and when you look at our guide uh we're obviously we are focused on uh most closely on our subscription business and that's the business that uh uh continues to grow strongly and we're showing uh good performance on the subscription business and our overall revenue is a combination of subscription and services where we really are focused on uh working with a broad Global partner ecosystem to make sure that we deliver services to our customers and help them realize value from our offerings thank you hey operator we're at the top of the hour we'll sneak in one more question and then wrap up thank you thank you that question will come from Brent Phil with Jeff thanks Dan just back to the the guide can we um just drill in I I know you mentioned there were a couple factors that were uh were at at uh contemplated that I'm just curious if there's anything else that you're seeing that is different in terms of end demand or uh any stop I know the us deel a little bit accelerated uh No Bren I mean I think we had a strong Q3 and you know we continue to see the momentum in the business and you know it's our typical uh you know considered targets that we do and you know I focus on execution so uh we're not seeing anything as it relates to you know a change in the business Dynamics I also mentioned that the last few weeks of Q3 as you know the summer seasonality ends uh we saw the traditional strength that we expect to see on our web traffic so you know I I think Max is coming up uh we have an exciting uh agenda in terms of what we're going to be talking about in terms of Max and so you know I mean if I take a step back and and think about it given this is the last question I mean you know from my perspective strong Q3 uh across uh every aspect of our business you know Revenue EPS digital media AR DX uh you know Subs Revenue acrobat certainly also continue to show the strength we have innov momentum in the business and The Innovation road map I mean across all of the key initiatives that we've been talking about whether that's Express gen studio and you know the excitement that people have associated with automating all of that content a and apps on the data side uh Imaging and video the work that the digital media team has done on Photoshop uh and on ill rator and then what's coming down the pike on video and Firefly Services you know I think the AI monetization as well which I know is a a theme of a number of people uh that have asked whether it's acrobat whether it's uh you know the premium SK skews as it relates to experience Cloud uh whether it's what's happening on gen fill and the usage of gen fill Lightroom and Lightroom mobile uh I think we're clearly demonstrating how AI can both uh Drive value uh for our customers and therefore you know we acquire new customers and retain customers better so you know uh feels good we look forward to uh uh seeing all of you at at Max and we're going to just continue to focus on Innovation and uh delighting our customers but thank you for joining us yeah thanks shant tanu and uh we do look forward to the uh investor event that we'll be holding in Miami at Max on October 14th where we will be doing a Q&A with management we hope to see many of you there and with that thank you for joining the call and this concludes the event thank you that does conclude today's conference we do thank you for your participation have an excellent day