The operator introduces the Q2 FY 2024 Adobe Earnings Conference Call and turns it over to Jonathan Vaas, VP of Investor Relations. Vaas introduces the executives present on the call and mentions that they will be discussing Adobe's second quarter fiscal year 2024 financial results. He also mentions that the information discussed may contain forward-looking statements and that they will be discussing GAAP and non-GAAP financial measures. Shantanu Narayen, Adobe's Chair and CEO, then discusses the company's outstanding quarter, with revenue of $5.31 billion and 11% year-over-year growth. He also mentions GAAP and non-GAAP earnings per share and attributes their success to an innovative product roadmap.

Adobe is seeing growth in users from various backgrounds using their products for creativity, document productivity, and digital businesses. They have a unique approach to AI that aims to assist and amplify human ingenuity. They have integrated AI into their Creative Cloud and Document Cloud offerings, with over 9 billion images generated using their Firefly AI models. They also offer an AI-powered conversational engine for document productivity, available to all customers. Adobe Experience Platform, their newest venture, is on track to be a billion-dollar business in their Digital Experience portfolio.

Adobe has released AEP AI Assistant to improve the productivity of marketing professionals and expand access to native AEP applications. They are also bringing together products from different clouds to address the content supply chain opportunity. Their approach to empower marketers is resonating with customers and they are seeing success in monetizing new AI technologies. As a result, they have raised their annual targets for Digital Media net new ARR, Digital Experience subscription revenue, and EPS. In Q2, they achieved net new Digital Media ARR of $487 million and revenue of $3.91 billion, with growth in both areas. PDF has become a global standard and Acrobat is the preferred platform for viewing, editing, sharing, and collaborating with these documents.

Adobe has seen steady growth in monthly active users of their Document Cloud solutions, with the introduction of Acrobat AI Assistant in April. This new tool allows for more efficient and innovative use of PDFs, and is available as a standalone offer or as an add-on to Acrobat Standard and Pro. In Q2, Document Cloud revenue grew by 19% and they added $165 million of net new ARR. Other highlights include the expansion of AI Assistant to support different document types and enterprise requirements, as well as strong growth in link sharing and free monthly active users. The company also saw success in converting free users to paid subscriptions and gaining new enterprise customers such as AstraZeneca, Chevron, and Wells Fargo.

Creative professionals are in high demand to produce engaging content for various platforms and channels. Adobe's Creative Cloud, Express, and Firefly Services, with the help of generative AI, are catering to this need by constantly improving their flagship applications and integrating with third-party AI models. The new Adobe Express application, available on iOS and Android, has seen a strong start with a doubling of monthly active users.

The recent Design Made Easy event focused on Express for Business, which offers integrated power and commercial safety, seamless workflows, and enterprise-grade brand controls. Firefly Services and Custom Models were also announced at the event, allowing for faster and more cost-effective creation of asset variations. The increasing availability of Firefly in various platforms is driving its growth, with May seeing the most generations to date. In Q2, Adobe achieved $3.13 billion in revenue with $322 million in net new Creative Cloud ARR.

In the second quarter, Adobe had several business highlights, including the launch of Express for Business and Firefly custom models, as well as the release of new features and integrations in various products. They also saw strong adoption of AI functionality and raised their annual net new ARR target. In the Experience Cloud division, they achieved $1.33 billion in revenue, with subscription revenue growing by 13% year-over-year.

Adobe is a leader in helping enterprises deliver personalized experiences to their customers through their Adobe Experience Platform. They are also transforming the content supply chain with Adobe GenStudio and leveraging generative AI through native integrations. Customer experience management and personalization are top priorities for enterprise customers, and Adobe has seen great interest and adoption of their latest innovations, such as AEP AI Assistant. Major companies like General Motors, Hanes brands, and Marriott International have all worked with Adobe to boost productivity and create personalized experiences for their customers.

The article mentions various business highlights for Adobe, including their success with AEP and native applications, a 60% increase in subscription revenue, and new innovations announced at their Summit event. They also discuss advancements in their GenStudio platform, such as contextual search and Adobe Workfront Planning. Adobe has received recognition from industry analysts and has gained new customers, including Amazon and Mercedes-Benz. Additionally, their partner ecosystem of system integrators and agencies has helped deliver services across their product portfolio.

In Q2 fiscal 2024, Adobe had a strong performance with record revenue of $5.31 billion, 10% year-over-year growth, and strength across all three clouds. The company's diversification, talented employees, strong execution, and financial discipline make it resilient. Highlights include GAAP diluted earnings per share of $3.49, non-GAAP diluted earnings per share of $4.48, Digital Media revenue of $3.91 billion, net new Digital Media ARR of $487 million, Digital Experience revenue of $1.33 billion, cash flows from operations of $1.94 billion, and RPO of $17.86 billion. In the Digital Media segment, revenue was $3.91 billion, up 11% year-over-year, and $16.25 billion of Digital Media ARR was achieved. Document Cloud revenue was $782 million, up 19% year-over-year.

In the second quarter, Adobe saw record growth in Document Cloud ARR, driven by demand for Acrobat subscriptions, new user acquisition, and strong usage and engagement from various sources. The Creative business also saw growth, with strong sales of subscriptions for Creative Cloud All Apps, single apps, and new offerings. Adobe is confident in their performance for the rest of the year and has raised their Digital Media net new ARR target for the fiscal year.

In Q2, the Digital Experience segment of Adobe achieved 9% year-over-year revenue growth, with subscription revenue growing by 13%. This was driven by strength in transformational accounts, market leadership in AEP and native applications, and increased adoption of AEM and Workfront solutions. The company also saw 24% GAAP EPS growth and 15% non-GAAP EPS growth, with disciplined investment prioritization and strong gross margins. The effective tax rate was in line with expectations, and RPO grew by 17% year-over-year. The company also entered into a $2.5 billion share repurchase agreement and has $22.7 billion remaining in its authorization for share repurchases.

The company is providing updated targets for Q3 and fiscal 2024, taking into account current economic conditions and strong momentum in their business. They are targeting specific revenue and earnings figures, with a strong finish expected in Q4. The company's performance in the first half of the year has been strong, and they are confident in their ability to continue delivering strong results in the future.

Adobe CEO Shantanu Narayen thanks employees for their dedication and mentions the company's recognition on several lists. He also discusses the strong demand for their products and services and their plans for the future. During the Q&A, he is asked about the drivers of their strong net new ARR in Creative Cloud and he attributes it to the company's innovation, specifically the use of AI in their applications. He also mentions that new users are a major factor in their continued growth.

Adobe's Document Cloud and Creative Cloud saw strong growth in the third quarter, driven by the introduction of AI Assistant and the adoption of higher-value products. The company also saw strength in the SMB and enterprise segments. In terms of gen AI demand, Adobe has a platform that includes data, models, and interfaces. The release of Firefly services has led to some customer wins, but the adoption of custom models is still in its early stages and is expected to continue growing in the next two quarters.

The speaker discusses the potential for gen AI in the field of interfaces and how it can enhance productivity and create new workflows. They mention the success of AI features in products like Acrobat, Photoshop, and Illustrator, both for existing customers and new prospects. They also highlight the launch of an AI-first application called Express and the company's efforts to bring AI into production. The speaker emphasizes the importance of AI in the company's core applications and their efforts to promote it through events like Summit and Max London.

In this paragraph, Shantanu Narayen discusses how Adobe has integrated AI into all aspects of their business, leading to increased productivity for everyone. He also mentions that Digital and SMB had a strong quarter, driving further growth. When asked about the macroeconomic environment, Narayen emphasizes Adobe's diverse and differentiated products and their focus on execution and converting interest in AI into monetization. He states that there is nothing significant to report in terms of the macroeconomic environment and they will continue to focus on execution.

The speaker thanks the company for taking their question and congratulates them on their quarter. They discuss the many layers of the Firefly monetization story and how it drives increased engagement in their flagship products. They mention the potential for higher retention rates and other ways to monetize the technology, with a focus on user adoption and proliferation. They also mention the importance of embedding generative AI into their tools, starting with Express.

Adobe's focus on AI and product-led growth is driving success in both their marketing and core Creative products. The introduction of Firefly and the AI Assistant have led to higher conversion and retention rates. The company is also seeing strong adoption of their AI functionality, with 9 billion generations in Photoshop and continued momentum in usage and retention. The success of Express, Adobe's AI-powered platform, is evident in various metrics and accomplishments this quarter.

David Wadhwani, an executive at Adobe, discusses the success of their product, Express, and its recent updates. The new platform has led to a significant increase in monthly active users and exports. Wadhwani also shares the company's vision for Express to become the go-to place for creating through a combination of conversational and standard inputs, and their plans to market it through their data-driven operating model and expertise in the mobile app store.

Adobe is confident in their product-led growth strategy, with Express Workflows being integrated into various workflows and efforts to target small/medium businesses and the education market. They are also seeing strong unit growth thanks to their AI features and focus on new user acquisition and existing member retention.

Shantanu Narayen and Gregg Moskowitz discuss the success of Adobe's customer acquisition model through trial and free conversions, as well as the strength of their digital marketing and mobile strategies. They also highlight the role of AI in driving growth in emerging markets.

Adobe's CEO, David Wadhwani, congratulates the company on their solid results in an uncertain market. He addresses a question about the decline in Creative Cloud net new ARR in Q1 and Q2, and explains that the complexity of year-over-year comparisons and pricing marks are now behind them. He expresses excitement about the momentum of the first half and how it sets them up for the second half, driven by new user acquisition through Express on mobile and web.

Adobe is pleased with the success of their AI assistant in Reader and the increasing usage of Firefly, which has been especially strong in emerging markets. Existing customers are also migrating to higher-priced plans because of Firefly's capabilities, and this is driving momentum in the enterprise segment. New offerings, such as automation and content production, are also contributing to Adobe's growth formula of P times Q plus V. The question from Brad Sills is about the generative credit component of Adobe's pricing.

Shantanu Narayen, CEO of Adobe, agrees that the company's integration of Firefly into their flagship products has been successful and will likely lead to an increase in the generative credit component of their pricing. This is due to the fact that the higher-value paid plans already include unlimited generative capability, while free and trial users will eventually hit their limits and have to subscribe. As Adobe expands into video capabilities, they plan to offer different plans that take into account the amount of work required for video generation. Additionally, Express, Adobe's AI tool, is driving growth in exports, and the company is also seeing success with upselling their AI Assistant to Reader and Acrobat Pro users.

The speaker discusses Adobe's success in the customer experience management space, particularly with their AEP platform. They mention the importance of personalization and the AEP AI Assistant in driving growth and making it easier for customers to deploy use cases. The speaker also highlights Adobe's position as the largest provider in this space and their success in collaboration between marketing and IT teams.

Kash Rangan from Goldman Sachs asks about the potential impact of generative AI on Adobe's businesses. He wonders if it could replace the need for creative and marketing professionals, or if it will instead create new opportunities for growth. Shantanu Narayen, Anil Chakravarthy, and Dave Welch share their thoughts on the matter.

Shantanu Narayen, CEO of Adobe, discusses the current interest in AI among investors and how it is primarily focused on infrastructure and chips. However, he believes that the true value of AI will come from its use in inference and embedded into workflows. He also predicts that generative AI will expand the market and make products more accessible and productive, particularly in terms of content creation and personalization.

Adobe's CEO and EVP discuss the increasing demand for content and the role of generative AI in accelerating this demand. They believe that in five years, more people will be using creative tools to achieve their goals, and marketers will have more agility in delivering specific campaigns and audiences. They also address concerns about AI and emphasize the importance of investing in interfaces to make the most of its potential. They also mention the excitement surrounding different models and the need for an interface layer to synthesize their capabilities.

The company will be using Firefly and best-of-breed personalities to build their products, tools, and services. The CEO and CMO discussed the benefits of using this technology, such as cost savings and faster time to market for campaigns. The company plans to pitch this technology to other customers.

Adobe has been working with a variety of customers to accelerate content creation for social media, regional campaigns, and personalized marketing. The initial usage of Firefly services has been focused on ideation and creating variations for different geographies, as well as engaging with communities. Many companies are also using Firefly services for their community portals, and agencies have publicly embraced GenStudio.

The media companies are interested in using gen AI to automate and accelerate content production. The company has great answers to questions about indemnification and continues to be a key differentiator. The company executed well in Q2 and remains focused on leveraging technology to reach a broader set of customers. The real value of AI will be in the interfaces used by individuals and enterprises, and the company is well positioned for this. The call concludes.

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