Adobe had an impressive quarter, achieving record revenue of $4.82 billion and 13% year-over-year growth. The company reported GAAP earnings per share of $2.82 and non-GAAP earnings per share of $3.91. Jonathan Vaas, Vice President of Investor Relations, welcomed participants to the Q2 FY '23 Adobe Earnings Conference Call and introduced Shantanu Narayen, Chair and CEO, David Wadhwani, President of Digital Media, Anil Chakravarthy, President of Digital Experience, and Dan Durn, Executive Vice President and CFO. The call discussed Adobe's second quarter fiscal year 2023 financial results, and discussed GAAP and non-GAAP financial measures.

Adobe is leveraging disruptive technologies such as cloud computing, mobile, and AI to increase its addressable market opportunity. It has implemented hundreds of AI innovations through Adobe Sensei, such as Neural Filters in Photoshop and Liquid Mode in Acrobat. It is also investing in R&D to develop and deploy Firefly, its generative AI technology, which focuses on data, models, and interfaces. These efforts will enable customers to access and use Adobe products more easily and productively.

Adobe recently launched Firefly, a digital experience business that has been successful in capturing the imagination of the world. Last week, they hosted a successful EMEA Summit to further reinforce their digital mission. Adobe's flagship products and AI copilot are extending their leadership in core creative categories, resulting in net new creative ARR of $354 million and revenue of $2.85 billion in Q2. They are excited about their generative AI road map that will make their products more accessible and enhance productivity for existing customers.

Adobe has released Firefly, a family of creative generative AI models, and Adobe Express with Firefly generative AI capabilities, both of which have been met with tremendous customer interest and success. Firefly is integrated into product workflows to accelerate ideation and production processes, while Adobe Express provides users with video editing capabilities and the ability to create and share standout content. Generative Recolor in Illustrator has also been released, allowing users to iterate and transform Vector Art. All of these capabilities are designed to revolutionize the creative process.

Adobe is making advancements in video editing, collaboration, and mobile editing with its AI-powered text-based editing and automatic tone mapping in Premier Pro, expanded Frame.io platform, and Lightroom mobile update. Additionally, Adobe is partnering with Google, NVIDIA, and Apple to develop generative AI capabilities and offering multiple monetization opportunities such as standalone freemium offerings, copilot generative AI functionality, subscription credit packs, access to APIs, and exclusive custom models. These advancements and partnerships are expected to drive higher ARPUs, retention, and acquisition opportunities.

Adobe Document Cloud offers a comprehensive set of products to help streamline and automate document-based workflows. In Q2, Document Cloud revenue grew 14%, and they added $116 million of net new Document Cloud ARR. Highlights include growth in Acrobat web monthly active users, viral adoption of PDF collaboration services, mobile momentum, and new workflows between Acrobat and Express. Today marks the 30th anniversary of Acrobat, and PDF and Acrobat are more relevant than ever before.

Adobe's Digital Media business is experiencing strong growth due to its breadth of offerings, go-to-market strength, and data-driven operating model. Adobe's Experience Cloud business also achieved $1.22 billion in revenue in Q2 with 14% year-over-year growth. The company is trusted by businesses of all sizes and industries to provide comprehensive solutions for content and commerce, data insights and audiences, customer journeys and marketing workflows. Adobe is also in the process of acquiring Figma, and they anticipate that the transaction should close by the end of 2023.

Adobe Experience Cloud is used by 87% of Fortune 100 companies, and customers are creating over 30 trillion audience segments every day. Prudential Financial and Prada are using the cloud to power their customer experience management workflows and connect digital and in-store experiences. Sensei gen AI is being used to generate audiences and design tailored customer journeys, create on-brand visual content, and optimize campaigns. Adobe's book of business has exceeded $500 million.

Adobe recently launched new capabilities in their Realtime CDP platform, which can be used by global brands to deliver personalized experiences. They have also released Adobe Product Analytics, a content supply chain solution, Workfront, Adobe Mix Modeler, AI innovations in Adobe Experience Manager, and have received positive ratings from industry analyst reports. Additionally, they have gained key customer wins, but are seeing some projects being pushed out due to the current enterprise spend environment.

Adobe achieved record revenue of $4.82 billion in Q2 of fiscal 2023, with GAAP diluted earnings per share of $2.82 and non-GAAP diluted earnings per share of $3.91. Digital Media revenue was $3.51 billion, growing 10% year-over-year, and Digital Experience revenue was $1.22 billion. Cash flows from operations were $2.14 billion, with RPO of $15.22 billion exiting the quarter and 2.7 million shares of stock repurchased. Creative revenue was $2.85 billion, growing 9% year-over-year.

Adobe achieved Document Cloud revenue of $659 million in the second quarter, with net new Document Cloud ARR crossing the $2.5 billion milestone and growing 22% year-over-year in constant currency. Creative growth drivers included new user growth, single app subscriptions, Adobe Stock, Frame.io, Substance, Acrobat CC with Sign capabilities and success in the enterprise. Digital Experience segment revenue was also strong, with Acrobat subscription demand, mobile downloads, liquid mode usage up over 40%, and seat expansion driving growth. Perpetual sales accounted for less than 5% of Document Cloud revenue.

In the second quarter of 2021, Adobe achieved revenue of $1.22 billion, representing 12% year-over-year growth or 14% in constant currency. Subscription revenue for Adobe Experience Platform and apps grew more than 60%, and Adobe's effective tax rate was 21.5% on a GAAP basis and 18.5% on a non-GAAP basis. The company's ending cash and short-term investment position was $6.60 billion, and they entered into a $1 billion share repurchase agreement.

Adobe has raised its annual fiscal 2023 targets for EPS and net new Digital Media ARR. The company is targeting total Adobe revenue of $19.25 billion to $19.35 billion, Digital Media net new ARR of approximately $1.75 billion, Digital Media segment revenue of $14.10 billion to $14.15 billion, Digital Experience segment revenue of $4.85 billion to $4.90 billion, Digital Experience subscription revenue of $4.30 billion to $4.35 billion, tax rate of approximately 21.5% on a GAAP basis and 18.5% on a non-GAAP basis, GAAP earnings per share of $11.15 to $11.25 and non-GAAP earnings per share of $15.65 to $15.75. For Q3, Adobe is targeting total revenue of $4.83 billion to $4.87 billion, Digital Media net new ARR of approximately $410 million, Digital Media segment revenue of $3.55 billion to $3.57 billion, Digital Experience segment revenue of $1.21 billion to $1.23 billion, Digital Experience subscription revenue of $1.08 billion to $1.10 billion, tax rate of approximately 21.5% on a GAAP basis and 18.5% on a non-GAAP basis, GAAP earnings per share of $2.82 to $2.88 and non-GAAP earnings per share of $3.95 to $4. Adobe is expecting year-end strength in customer demand for Digital Experience and Digital Media solutions in Q4.

Adobe is very excited about their new product Firefly, which is expected to drive user demand and content generation. They are investing in hiring new college grads and interns to bring the best and brightest talent to Adobe and are expecting 2023 to be a phenomenal year. They are confident that Firefly will expand Adobe's success for decades.

The early customer and community response to Adobe's Firefly and Photoshop products have been overwhelmingly positive, with over 0.5 billion assets generated and 80x higher than expected during the beta. Social buzz has been great, and Adobe is excited about the potential business opportunities it presents, such as increased user retention, new user onboarding, monetization of Adobe.com/firefly, subscription credit packs, and increased ARPU, user numbers, and LTV. However, these effects will take many years to manifest and won't impact Q3 numbers.

Adobe Express has recently released a beta version of the product which has been well-received due to the integration of Firefly. Firefly is able to integrate directly into the user flows and user journeys to generate video content and PDFs for marketing collateral. Adobe Creative Cloud users are excited about the workflows introduced with Illustrator and Photoshop, which allow them to take their illustrator output and add animation to it before pushing it out to social media.

Adobe's Visual Media business is seeing a lot of success with its Photoshop templates, Express and Firefly package, and Workfront and Frame.io platforms. These tools are allowing Creative pros to create content and marketers to edit it quickly and easily. Adobe is also introducing generative AI capabilities to the enterprise, and customers are well prepared to take advantage of these with their content and data. Anil's Adobe Experience Manager is also part of this.

David Wadhwani and Anil Chakravarthy discuss how Firefly, a content creation platform, provides customers with quality output, integrates into existing workflows, and is commercially safe for use. Additionally, Firefly provides indemnification for content created with the platform, which is especially important in the shift from mass marketing to personalized marketing at scale.

Adobe has the data, models, and interfaces to create personalized marketing at scale, allowing for companies to create custom models tailored to their needs. Shantanu Narayen added that the go-to-market is already aligned within the company and the DM business continues to outperform in an impressive way.

Adobe had a strong start to the year, with traffic to their website and product-led growth investments paying dividends. The messaging resonated with a broad audience, and there was strong conversion. Adobe has been investing in product-led growth motions in their core flagship applications, leveraging Digital Experience products to do personalization at scale, and seeing good inflection in their mobile applications. Emerging products like Substance and Frame are also growing nicely.

Adobe is investing in gen AI to unlock the magic of their technology platform and integrate it across their product portfolio. They are doing this in a disciplined way to drive margin and cash flow for investors, and they are prioritizing their spending and projects to bring the technology to life quickly. This discipline is already paying off, as evidenced by the strong profitability in Q1.

David Wadhwani adds to the previous statement by explaining how the engineering and finance teams are working together to optimize the model training and inference execution, leveraging the hardware and software advances from NVIDIA, optimizing the user experience, and ultimately unlocking the potential of hybrid generative approaches for cost savings.

Acrobat had another strong quarter, with ARR growing 23%. The demand for PDFs has been a major tailwind for the business, with PDF-related searches continuing to grow 30 years after its launch. Acrobat has been investing heavily in expanding its top of funnel with Acrobat Web and Acrobat Mobile, as well as partnerships with Microsoft to make Acrobat and Reader the foundation of all documents viewed in Edge.

Firefly's enterprise-safe generative model has been a major point of differentiation for the company, and customers have shown a great deal of interest in the potential that generative models can offer. At Firefly's Summit in London, customers asked questions about copyright and trademark issues, and how they could use other solutions. Dan Durn commented that the company has a long track record of setting expectations and executing against them, and they expect a strong finish to the year.

Adobe recently announced the launch of its content supply chain product, which has been met with a lot of interest from customers. Matt Swanson commented positively on the product, as it is something that both users and CEOs can agree on. Shantanu Narayen then discussed the potential business impact of the product, such as the need for pipeline development and the investment in consulting capacity. He also mentioned that Adobe is a good example of what this product can do.

Content supply chain technology allows marketers to create marketing campaigns within Adobe Experience Manager (AEM) and other asset management solutions. This technology can help globalize campaigns and reduce expenses. Companies such as Accenture, IBM, Omnicom, and Publicis have partnered with Adobe to implement the content supply chain for customers in different industries and locations.

Shantanu Narayen explains that Adobe's generative AI strategy is based on three layers: using unique data from customers, creating foundational models with domain expertise, and providing value to users with ubiquitous interfaces. Adobe is focused on creating custom models that can be used in marketing campaigns, automating production, creating websites and mobile apps, and synthesizing and understanding the structure of PDFs. Generative Recolor, Adobe Illustrator, and Generative Fill in Photoshop are examples of how Adobe is utilizing generative AI.

David Wadhwani explains that Adobe's focus is on increasing productivity and importance of new workflows, which has always led to an increase in jobs. He uses video editing as an example, where Adobe's tools have lowered the cost of production and increased the ability to create more content, thus creating new business opportunities.

Shantanu Narayen explains that the Creative Cloud is a catalyst for both the Digital Media and Digital Experience businesses, as customers are interested in how the clouds and offerings can work together. This can help them create campaigns, deliver them, and understand the analytics associated with them. The foundation for the business is strong, as there is an opportunity to increase the franchise, ARPU, and LTV.

Shantanu Narayen, CEO of Adobe, thanked the Adobe team for their successful execution in the first half of the year and congratulated the Acrobat team for 30 years of innovation. He also highlighted the company's recent accomplishments such as Firefly, Generative Fill, Generative Recoloring, Acrobat across the web, Digital Experience, Adobe mix model, product analytics, and content supply chain. He expressed his excitement for the second half of the year and the company's ability to continue to drive innovation and serve customers. He then handed the call off to Jonathan Vaas to conclude the event.

This summary was generated with AI and may contain some inaccuracies.