Adobe Inc. (ADBE) Earnings Call Transcript

Welcome, everyone, to Adobe MAX 2024 Investor Update. It's great to see so many friendly faces here from the investment community, some of our Board members in the back. Welcome. Thanks for coming. Just curious, show of hands, how many of you were at the keynote this morning? Awesome. Okay. It's a tough act to follow when my big [Audio Gap] Go through from the stage. So with that, I'm going to jump into the legal disclaimer. If you would go to -- that's -- Joe, you might need to hard-code the -- oh, there we go. So the statements we'll be making today do involve forward-looking statements that involve risk, uncertainty and assumptions. Actual results could materially differ from those set forth in these statements, so please look at our risk factors. We'll also be including GAAP and non-GAAP financial metrics. So please look at the reconciliation that will be on the posted version of this deck, which you'll find on the IR website. Now mind the distraction. But I know what you're all thinking: "Wow, Vaas, you really nailed that legal disclaimer." I didn't go to law school for the good company years ago. It was really to stick the landing on the legalese like I just did. Many of you may have heard, I have decided to go back to my roots into the legal profession. So this is the last time I get to read these words. I'm going to go back to drafting them instead down the road. So it's been almost 14 years at Adobe for me. This is my fifth MAX as the Head of IR. And what an honor it's been. It's not my last MAX overall because I'm convinced I'll be back as a paying customer down the road. But I did want to quickly introduce Steve Day, who's going to be Interim Head of IR. Steve will come up at the end, so you all get to hear him speak briefly. He's much more charming than I am. But thank you, Steve, and sorry. And then I'm going to toss it over to the executive team again to walk through a brief presentation, and then I'll be back up here taking Q&A.

Thanks, Jonathan. And I'd be remiss if I didn't start off by thanking Jonathan for 14 incredible years. As befitting the new role that he's going to take, he actually drafted an entire document for me about his memories of his time at Adobe. And there were some very meaningful words that he said. But thank you, Jonathan, and certainly wishing you all the best. Thank you all for joining us, yes. Thank you all for joining us as well today. As Jonathan said, I think the primary purpose of this is to spend some time answering questions. But given as part of the feedback that we get in talking to both folks on the buy side and the sell side, I thought I just start off by making a few comments, I think everybody else will, and then we'll open it up for questions. But let me just start off by saying I'm incredibly proud of the amount of innovation that we've delivered. I know a lot of the questions that came up when AI first burst on the scene was what is Adobe going to do in terms of harnessing the power of that? And is that accretive to the company's opportunity? We certainly believe that it is. And if you take a step back, I think we've talked about the fact that, from our perspective, there are 3 layers to what we're doing as it relates to AI. We're focused on data. Very, very differentiated in that we are designing all our models to be commercially safe, something that actually is very important to all enterprises. I know a lot of you are also working for large enterprises, and they don't want to use models that are not designed to be commercially safe. We were very clear strategically about the areas where we would have to invest in our own models, both for the flexibility that it provided as well as the controllability. And as we challenged our engineers to focus on designing these models and creating these models with data that was fully licensed and/or public domain, we said models as it relates to imaging or video or design or vector are certainly things that we should have under the Firefly family of models. I know David will talk a little bit more to the numbers. But fundamentally, we believe that the way people get value out of all of this is in the interface layer and ensuring that our applications embrace AI to allow people to do magical stuff. And I think you saw a significant amount of that today. The term generative, something is now fast becoming the win, which we talk about it, whether it's Generative Extend in Premiere, Generative Fill, Generative Recolor. And if you look at it across all our products, whether they be AI-first products where we are completely conceptualizing it differently in terms of how people use the products, or whether it's embracing AI, I think we've done an absolutely spectacular job on that. And all of the innovation that you hear about is released almost on the same day. So that's the first thing I wanted to mention. Acrobat and AI Assistant is also clearly been one of the ways in which we've embraced it, and building on what we had done with Liquid Mode. And so -- and then the third thing I'd probably say is in Anil's business as we talk about what's happened on the Adobe Experience platform with AEM, the Experience Manager, we've certainly embraced it with the system so you can help build web pages faster. Think about it as different conversational interfaces that we are going to champion. So the way in which any one of you experience a website in the future is going to be different. And we think we have the lead on that, certainly with the Adobe Experience platform and being able to use it. But I think the other benefit of what we've done in AI with products like GenStudio, and it was great to see GenStudio for Performance Marketing being released today, is really leverage all of the different solutions that we have in order to make our products be incredibly differentiated. And so when you think about how the world is producing any piece of content, we just look at what you can do with GenStudio, whether it's on the creation and production side, whether it's on the workflow, whether it's how all these assets are managed, how they are activated, and the performance and analysis associated with that. So really excited about the potential for GenStudio. We've talked about the excitement that we had for the Adobe Experience Platform which is certainly playing out. In my mind, this one can be an even larger opportunity for Adobe. So I thought I just mention that. But I think we've done a great job on the innovation. I think as part of the AI innovation as well, I know one question that's top of mind for a lot of you is how are you monetizing it? And the good news is we are monetizing it in many ways, and I think Dan will continue to touch on that. But just to give you a flavor. Certainly, I think as part of the subscriptions that we have and the tiering of the subscriptions in Creative Cloud and Document Cloud, we are embedding a lot of the capabilities for AI because we want people to embrace it. We want it to be useful. We want it to drive further retention and engagement with our customers. So at the base layer, the fact is that our tiering for subscriptions have it. We've done add-ons. I mean, we certainly have add-on offerings for both Creative Cloud as well as Document Cloud. That's the AI Assistant part that I talked about. And we will continue to see that. I know there'll be a lot of questions perhaps about video, so I won't answer that right now. But that, you can also imagine as an additional offering. I think the third way in addition to subscriptions and add-on offerings is everything that we're doing in Digital Experience. So we have a tiering of our Digital Experience solutions as well. And I think the Ultimate offer in the Prime, those are ways in which the higher-priced offerings are already embedding our AI functionality. And they have more value, and those are ways in which we are monetizing it. And last but not least, I mean, some of these new things that we've done, whether it's GenStudio that I touched on briefly or Firefly Services, that's again a brand new way of monetizing it. We've seen a lot of success with Firefly Services, custom models, and I think you're going to touch on that as well. So I just wanted to touch on the AI innovation has already been accompanied by a significant amount of thought, but we're also experimenting. As you can see, the amount of innovation that we've done today, whether it's with new or concept. So we're still early in terms of thinking about how we make sure that we innovate at the pace at which we want to and figure out how we can innovate it at that pace. So that's a little bit on the innovation. And then as you think about it and take a step back on what our revenue numbers are for the entire year and how we've done that, I think that's on the next slide. Just a way to look at it and say, this was the fiscal 2024 recap. I wanted to highlight what we had as our FY '24 targets when we met with you folks in December, what we updated in June. And top to bottom, we're in a position to beat and exceed all of them. So I feel good about how, fiscally as well, that has played out. But today is about MAX. We wanted to touch a little bit more on MAX, so I'll let David touch on MAX.

That was great. First of all, thrilled to see how many of you were at MAX. But for those who are online and a few of you who didn't attend, really, I said it on stage, but I mean it really is one of my favorite times of the year, put it up there with all the family holidays, because it does feel like a family and a community getting back together, right? And that's really the wonderful thing about getting all of these creative -- incredible creative minds together. So 10,000 people attending this year. We have over 200 sessions, over 200 speakers, and the energy is just fantastic. We've been -- what's also great is we have so many of our product teams here. And so the product team and the design team get a chance to talk directly with their users and start to think about what we're going to put into the hopper throughout the next year and going into MAX. A couple of other things that are amazing about the reach that we get from MAX. We expect to see hundreds of thousands of views online for MAX over the course of the next few weeks. And then on top of all that, this is really -- we organize the show and we try to put everything together so that they're -- that we can atomize it and really leverage social. So we expect to see about 0.5 billion interactions around the content on social over the course of the next few weeks or month. And what -- that foundation is really around how we set the tone from where we are and where we're going. And so if you noted in the context of the keynote, we really tried to evolve the conversation with creatives. Of course, what Adobe has been always known for, for many decades is around helping you create with more productivity. And we had some great announcements. I always love the reaction from the Illustrator crew. When we did objects in the past, I think someone might have fainted. Like there was all kinds of like excitement in the audience, but it was great to see because it really fundamentally changes and saves them their nights and weekends. Don't worry, no one was hurt watching the show. But beyond that, we have all the capabilities around generative AI coming into everything from Illustrator to Photoshop, Lightroom and Premiere. And those foundations of creation made a big difference, right? The other big announcement today was obviously video generation model, and I'll talk a little bit more about that in a second. But beyond creation, we really have been over the course of the last few years shifting to the right, moving into collaboration. Because when you create that content, what you do with that content is going to fundamentally change the shape of the business you're trying to support, right? And so whether it's about collaborating with other creatives and/or stakeholders around sharing and reviewing of content when you have to generate content quickly with Frame; or whether it's about enabling more self-service activation; whether it's with HR or sales or marketing or comms through Express, and how creatives can enable and publish templates into Express while maintaining control and locking brand elements down; or whether it's the things that we're working on across the Creative Cloud and the Experience Cloud, around GenStudio for Performance Marketing, really enabling the monetization of someone's creative vision. That's really how we're shifting right. But we also talked about -- and this is something Scott has been saying for a long time, as he's been spending time with the creative community, is as some of these things like the rote work and the tedious work frees up time, we should and can expect creators to spend more time on the visioning side, which is why we introduced Project Concept. And that's something, as we mentioned, isn't shipping today. But you can expect it to start shipping in the next few months. We're very excited about what this looks like. Go to the next slide. Then if you zoom back out, everything we announced today is part of this broader plan and vision that we've been sharing with you. First, the foundation of what we're doing are these Firefly models. As Shantanu said, it's about training them responsibly in a way that's commercially safe. It's about control that we give people. It's about the integration that we enable around them. And it's about making sure that Adobe has the broadest set of offerings, from imaging to vector to design to now video. And by the way, when we talk about video, it's really video and audio. We also have capabilities around auto dubbing and lip syncing and all of these capabilities now are enabled in Firefly the model. And it's just going to continue to grow broader and broader. And they're the most creator-friendly models in the world. The second thing then is where do they show up? And the primary area we want to make sure that they show up effectively is within our core creative applications, Photoshop, Illustrator, Lightroom. And these capabilities showing up in there, we talked about it. 13 billion generations and counting. This continues to accelerate on a monthly basis. The vast majority of it are actually happening in the applications. So people are using the applications more, and they're using them more because they're more productive than they've ever been, and they can get more done. Express is also an area that we're seeing a lot of excitement. I don't know for those who were here, as you saw the Express demo, I hope you started to see how the Creative Pro base is actually getting excited about it. In fact, we even showed pro tips for using Express today. But it's also, in addition to everything there, we now have support for enterprise deployments of Express. We've done some great work so these creative professionals can leverage Express and push content out. Firefly Services, we've talked a little bit about this. It's about if you're going to create these models and you're going to give it to professionals and you're going to give it to everyone in the organization, you also recognize that sometimes you want to automate the content assembly and process for creating these ads. And that's really what Firefly Services does. We're very excited about this. Firefly Services is now at -- I think we saw a 3x growth quarter-over-quarter in terms of the number of APIs being called there. So we're starting to see real deployment now in enterprises, which is very exciting. We talked about, I think, Pepsi on stage. Pepsi was a great example of a campaign that ran on Firefly Services. But we have a growing list of customers around that. GenStudio for Performance Marketing. This is something that, from the creative side, this is one of those wonderful handshakes between an LME on the product level. This is where on the creative side, creatives want to create the content, they wanted to make sure that it's going and getting utilized. But they also want the feedback to know if the content they're creating is actually having the right impact so they can continue to iterate. And I'll let Anil share more about that. But that's really that closed loop system that, frankly, we've been talking about for a long time. It is shipping today, and it's really sort of connected in the creative flows. And then last, but I can't not talk about everything with Acrobat. You're seeing how well Acrobat's doing. One of the things that I do want to share is like Acrobat monthly active users is still growing. We just crossed 600 million monthly active users for Acrobat and Reader, which is amazing to see given how far we are. But you start looking at the utilization and the value of Acrobat, all the work we've done with partners like Microsoft and Google and others to get the proliferation going, and you see the value you're adding with AI Assistant. So just excited about all these things, and all of this wraps up into the point in time that you saw this morning.

Well, thanks, David. In Digital Experience, I mean, it's been a great year in terms of innovation for us. Digital Experience, as you all know, we're all about helping enterprise customers power their digital businesses. And we do that by helping them deliver personalized experiences at scale to their customers across the customer journey, whether it's customer acquisition, engagement, retention or then customer expansion. And the way we bring that together is you have to bring to them the right content that we've been talking about with the right customer data and make the journeys happen in any channel that your customers are at. And that's what we help do across a common platform. So we're uniquely positioned across what we do with the Experience Cloud and the Creative Cloud to bring together all of the elements of the content, the data and the journeys that are required, whether it's a B2C customer or a B2B customer, to deliver these kinds of personalized experience at scale in real time. If you're a B2C customer, it's hundreds of millions of consumers. If it's B2B customers, you have buying groups and you do it on an account-based basis across hundreds of thousands of B2B customers. And we're able to do both of those very well across our portfolio. What we have done with innovation is, across each of those elements, whether it's content, data and journeys, we had a great year in terms of innovation. Just to call out a few things, for example, on the content side, let me pick up on the GenStudio for Performance Marketing that, as David mentioned, is a great handshake between the Creative Cloud and the Experience Cloud. There, we see brands around the world really moving a lot of their marketing dollars from traditional channels to new channels, like paid social, digital media, connected TV, retail media networks. These are the kinds of channels where they can actually measure the performance of their marketing investments and tie it much better to the actual performance of what is working and not, and do that on a real-time basis. And GenStudio, by cutting across both the Creative Cloud and the Experience Cloud, really brings that together and taps into a very, very large market opportunity. So we're really proud that it's going GA, and we have -- as Shantanu mentioned, we have big ambitions for that. On the content side, again, our flagship is the Adobe Experience Manager, and we've had a tremendous number of innovations, including the incorporation of generative AI to be able to deliver content through websites and other channels, through the Adobe Experience Manager on a personalized basis. In addition, we've also been helping improve the end user experience through innovations like Edge Delivery Services, which really make sure that every single user, you can get 100 on your Google Lighthouse score, which would be the pinnacle of the right website experience for every brand out there. On the data side, the Adobe Experience Platform is continuing to perform extremely well. And we are on track with the Adobe Experience Platform and our native apps built on it to be a $1 billion book of business by the end of the year. The Adobe Experience Platform, we incorporated generative AI, but we did that with the same framework that Shantanu talked about, the apps, the models and the data, so that it is designed to be commercially safe. And enterprises can deploy that in the context of these customer data journeys and get their use cases going much faster in a well-governed, trusted manner. And that launched earlier this year. We've also introduced the Adobe Experience Platform Federated Audience Composition, which is when you have data in enterprise cloud data warehouses, like many of our customers do, to be able to take advantage of that data for customer activation, to be able to have the right data available to personalize customer experiences without making a copy of the data. And that really obviously is way more efficient and effective as well. That was another major one that we launched this year. And in terms of journeys, our flagship product is the Adobe Journey Optimizer which is built on top of the experience platform. And the Adobe Journey Optimizer, we released this year the B2B addition, so that it can take advantage of the knowledge that we have in our applications like Marketo for B2B customers and bring them into the Adobe Experience Platform, again, provide personalized customer experiences to B2B customers as well. So I wanted to give you a sense of some of the highlights of this year's innovation.

So thanks, Anil. As you know, we've got a great track record at the company of executing, and we consistently execute well relative to the targets that we set. Q3, no different, and we exited Q3 with strong momentum. We're seeing that momentum carry into Q4, quarter's off to a good start, so we're reaffirming the Q4 targets. We remain confident in our ability to deliver another strong quarter at the company. So given the massive technology inflection that's happening right now, we spend a lot of time being thoughtful about the framework we're using to drive our growth agenda at the company and the altitude with which we want to talk about it with investors. Our strategy, it hasn't changed. We continue to be focused on delivering AI innovation across the entire AI stack, from data to models to interfaces. And now we're going to provide clarity on how we're going to monetize that strategy. So we're going to monetize AI in 4 distinct ways at the company: First, through new value in our subscription plans; two, through [ add-ons ] to our offerings; three, tiered offerings in the enterprise; and four, through new AI-first standalone offerings. And we continue to invest to win at the company. We've got a pervasive footprint with our customers, and we're going to leverage that pervasiveness to natively and deeply integrate these proprietary AI capabilities throughout our entire suite of product offerings. Secondly, as we bring our clouds closer together to solve those higher-order customer problems, it creates significant and lasting differentiation for us in the market. And lastly, our scaled go-to-market motion. It's ideally set up for those cross-cloud engagements with our customers. And we're scaling our partner ecosystems so that we can serve and support our customers even better. So taking a step back, we've been thinking a lot about the agenda for driving growth and aligning it with how we guide the business. And as you can imagine, as part of that ongoing process, we've had a lot of thoughtful discussions, both internally and with investors, over the past year. So netting it out. No changes to how we guide revenue and EPS. ARR. ARR remains the best lead indicator of the performance of our Digital Media business. However, ending ARR year-over-year growth as opposed to quarterly net new ARR provides better visibility into the true underlying longer-term trajectory of the business. Each quarter, we're going to continue to report ending ARR. You're going to get the same visibility that you do today when we report the business. And we're going to break that ending ARR out by both the Creative and the Document Cloud businesses. And in addition to those formalized set of targets for the company, we're going to provide additional information to help model the trends of the business, things like operating margin, tax rate, share count, et cetera. In December, at our earnings, in addition to the annual exercise we go through today, where we take that exiting ARR book of business and we revalue it at next year's currency rates, we're going to go through the additional disclosure, the additional work of taking that same approach each and every quarter of FY '24 so you get that good baseline of FY '24 [ to compare ] performance in FY '25. Lastly, at Summit. Summit this year, we talked about giving more product-level disclosures that represent how we're leaning into the technological inflection that's shaping the end markets. More work to be done on that, but we're definitely thinking more about how we give more of that product-level disclosure to give that -- you visibility on the performance of the business. So with that, Shantanu, any final comments before we come to Q&A?

No. Let's open it up to Q&A. Yes.

All right. Let's do Q&A. I'm going to -- we're going to take the first one from Jay Vleeschhouwer here, the other JV in the room. As I know he's going to role-model a single-part question, being as concise as always. Go for it, Jay.

Thank you, JV. So David referred to your closed loop system which is manifesting something you've started talking about 3 or 4 years ago when you referred to the evolution of the creative stack to become more deeply collaborative and so forth. So you've done a lot of that within DME and across the DX. The question that brings to mind though is what is your vision or intent for go-to-market? In the last few months and quarters, there have been some very interesting internal indications of where you're investing: strategy, mid-market, SMB, Firefly, of course, Workfront and so forth. Dan mentioned partners. So for all that you're doing now expanding the portfolio and the reach of the portfolio, how are you thinking about the composition and capacities of go-to-market?

Yes. I mean, first of all, one of the things I think we have the privilege of having built over the last 40 years is maybe one of the most diverse and, I guess, geographically distributed go-to-markets, I think, that you can possibly have. And that serves as a really powerful foundation and machine. So whether it's what we do on adobe.com and everything we've done in terms of our digital data-driven operating model in DDOM, whether it's our at-scale inside phones team and what they're doing globally, both in terms of taking inbound orders and then also going after outbound orders, whether it's our channel and the foundation that they provide. Or on top of that, we have a corporate sales organization that's focused on what you typically call mid-market companies. And then you have our enterprise sales organization that's speaking to everyone, from our -- the creative directors and to the CMOs in the world. So that breadth of foundation of how we go to market continues to stay. Now a few areas that we're -- because of what we've done and how we've approached the market, that we have an opportunity to make outsized investments in. First is now, we do have a very broad set of offerings that -- compared to a couple of years ago, around web and mobile. And if you think about Lightroom web and mobile, you think about Express web and mobile, you look at where we are with Photoshop and also the things we have now on Photoshop with iPad support, all of these capabilities now give us -- our Acrobat web and mobile. They give us this ability to actually invest a lot more in social, which is why we are so obsessive about the 500 million social interactions that we want to see come out of this and actually journey people to our applications in the App Store. That foundation of what we've done, I think, is an area of outsized investment. Then in terms -- in addition to that, we have the ability now with Express, even in small businesses, to reach outside of the creative teams, right? So our phones teams are calling into organizations and doing attach motions. When they're selling something like Creative Cloud or Acrobat, they're actually now saying, "Hey, let's also talk to your marketing or HR or comms teams or sales organizations." And we're reaching more broadly beyond that. But certainly, the last -- the second to last part I want to talk about is enterprise. We're seeing a lot of joint deals now. And certainly let Anil also share, or maybe our salesperson #1 with Shantanu, share a little bit here, too. But there's such an opportunity, when we go to these large-scale organizations and they recognize the demand for content and the need for personalization is through the roof. And as we do that, it's really about these 2 clouds coming together. And the last thing I will just say, which I think is really important because it is a muscle that we've developed in some areas, but we're expanding more broadly, is in product surfaces, right? We talked about Acrobat now has 600 million monthly active users, right? We are -- and other applications also have very large bases of monthly active users, both free and paid. These surfaces are now also available to us to do more cross products we've ever had before because, again like I said, Express is a knowledge worker tool as much as it is a creative tool. And so we're starting to leverage those things. In fact, if you have Acrobat, open it up, go to export, and you'll see that you can now export directly to Express documents as well.

Maybe I'll just add a couple of things to that, Jay, which is just some terminology so that everybody has -- as David said, we have digital, right? Digital reports all to David, and it allows anybody who wants to buy Creative Cloud, Express or Document Cloud to transact on adobe.com, which, as you know, is becoming increasingly the part of the business. David runs field, what's called field, which again, as he described, it's the channel partners who are selling our stuff; it's phones; and it's everything to do with what we are doing for corporate, which is a set of enterprise accounts at a certain size. So channel, phones, and the corporate accounts. I think if your question is all around primarily the large enterprise and how we're going for the large enterprise, that's what Anil runs, and that is all with GenStudio. Whatever is in the bill of materials, whether it's a Creative Cloud, whether it's Express, whether it's AEM assets or whether it's AEP, we have now the ability to transact all of that. In fact, a number of us, once we finish this, all the customer events, and so that's a big advantage. Because whether it's Firefly Services or whether it's Creative Cloud, whether it's Express, whether it's Acrobat site licensing, that all happens under Anil in a unified way, including the same segmentation that Anil has talked to you in the past about transformational accounts versus non-enterprise accounts. So I think that's working actually, as David said, incredibly well.

Okay. Next question. Let's go with Michael back here, second row.

It's Michael Turrin with Wells Fargo. Great keynote. Great event. I appreciate the slides. Dan, the move to ARR on an annual versus quarterly basis at this scale makes sense. The question we're going to get is just on the thought stream that you've used in terms of newer metrics. And so maybe you can spend some time just on, if not those metrics today, what the key attributes you're seeing that the market might be missing? And just kind of tie back to the thought process, at least for now because I think it's very important.

Yes. So as you think about the amazing amount of innovation that we've got on display, Firefly is a little older than 1 year. And then you think about the product integrations. And when you think about the innovation that we're bringing to market, different versions of the model, different points of integration, bringing our clouds together to solve those cross-cloud problem statements for our customers, there's a lot of innovation, a lot of experimentation that's ongoing right now. When we take a step of putting that metric framework out that's more product-driven, we want it to be the things that stand the test of time so there's a real consistency with the framework that we put forward. Right now, there's just a ton of innovation that's coming out. We're engaging with customers in new ways. We're building out the freemium part of the funnel, engaging with customers in different ways. And again, more of those cross-cloud selling in the enterprise. We just want to make sure that what we lock on is really reflective from a broader set of metrics that stands the test of time and reflects really where the company is going so they become the true lead indicators that investors can lock on.

I appreciate you stating that people really want the big picture. Just wanted to clarify, as Dan said as well, first, there's going to be complete transparency about reporting what the book of business ARR is, both in Document Cloud and Creative Cloud. So I wanted to clarify that, that definitely existed. And as you point out, we're hoping that people will really look at the trajectory of the business and the scale of the business on an annual basis. So I think in terms of your other question about how we're thinking about it, one that comes up is AI monetization, right? That one is one where, again, that's why we try to give you color that it's embedded in every part of the business. I mean, it's embedded in subscriptions. Much like we did with AEP and give you a sort of insight into the magnitude of the business and how successful that is, I think we've thought about GenStudio and how do we give you a success on that as well as the second one is Express. And people are saying, "Hey, give us some indication." So hopefully, that's on the right track as it relates. I think at Summit, that's why we teed it up. And when we do our FA meeting, those are the 2 other areas where our perception is. And continuing to give you like monthly average users statistics as David did on Acrobat. So hopefully, that gives you a little bit more color on how we're thinking about it.

Let's go with Saket here.

Saket from Barclays. Shantanu and Dave, I think we've touched on sort of the idea of Firefly Video being priced differently, maybe more as a subscription as opposed to being more credit-driven. Maybe the question is, what was the thought process on that? What are the other examples that you looked at internally? I mean like stock comes to mind. Maybe the AI assistant for Acrobat. There's so many examples. But what are some examples you looked at as you thought about those 2 pricing paths as well as trying to maximize value for both Adobe and for customers?

I'll start, and then maybe, David, you could go. I mean, first, I think even when we introduced imaging and vector and design, we were like we want people to embrace it. And we thought there was way more value that would accrue to both customers and to Adobe, as you said, by having that as part of the subscription base and by increasing acquisition and retention because we're still in the game of how do we attract more and more people to our platform, whether it's through Express, Creative Cloud or our other products. So that was very clear. Video is different because of the cost associated with it as well. So with that, why don't I hand it over to you, David, to describe how we'll monetize that?

Yes. Sounds great. And again, I think Dan also said this earlier, and Shantanu mentioned it, we're early in understanding all the dynamics for monetizing this. And I think something we've told you multiple times in the past is that our primary focus has and continued to be around proliferation and monetization, these are things we're continuing to test. So as you mentioned, with imaging and vectors, we baked it into the core capability of the products, and we're making sure everyone is using it. You saw the value. And as part of the growth driver is we put more value, we were able to do some price associated with that value, and it's the usage drives better retention. It's the whole growth driver. And because the usage is so good, onboarding is easier, so conversion rates are better. So it gives us the growth driver to bring in new customers as well. Now Acrobat, we obviously did a very different playbook, which was to basically say, "Hey, look, this is a specialized capability on top of this, and we want to charge for that out of the gate." And we see the dynamics there. Both are working in very different ways. We look at video and we say that it's closer, frankly, to the Acrobat model in the context of it's a more specialized task where people get more direct value out of it in the medium term that can be more easily measured, and it costs us more. And so that whole calculus went into looking and saying, "Really, this is probably a plan or maybe a tier of plans that we can introduce that's closer to the Acrobat side than the other." And I don't want to forget Firefly Services, right? Firefly Services, I mentioned 3x growth quarter-over-quarter in terms of API calls. That's based on some subscription basis based on tiered consumption model. So we're going to try all of these things, and we start -- we're all learning a lot as we go. And we're getting more and more confident in terms of how we roll these out.

I would just underscore -- go ahead. I was going to underscore one thing, which is it's funny. I mean a couple of years ago, we were in this comp era of AI, where it was almost like, oh yes, it would just be generative credits, and it will be simple. But now, I mean, you saw an example of a product today, Project Concept where it's literally hundreds of generations happening behind the scenes for people to explore all sorts of nooks and crannies of their own mind. And so I'm happy that we're also, to David's point, learning. And we're waiting for a very durable approach based on what we're realizing works for the customer because we're in the early days, right, of this transformation. And what's clear though is the customers are getting a lot of value, and we're starting to get closer and closer to exactly how this is going to manifest across our products.

The last thing I would just say is, even with video, though, the reducing of friction so that there will be an allocation for people to come in and try it out and experience the magic is definitely part of the strategy because we'd be crazy not to allow people to try one Generative Extend and say, "Oh, my God, I'm not going to be able to live without it."

Okay. Next question. Let's go with Karl back here in the middle row.

Okay. Karl Keirstead at UBS. First of all, I want to say that for me, the star of the show this morning was not Firefly, it was the what's up homie guy. If you can have him back next year because I love that guy.

He's hosting the party later. We'll tell you where it is.

Okay. Okay. Good. So maybe my follow-up to Michael's question to Dan around the ARR change. It was really more the why. Did you and the team just feel like Adobe is at a level of maturity where you didn't need to be giving that metric to that level of detail? Are you reacting, Dan, to the stock volatility that comes from giving that on a quarterly basis? Or is something changing in the business that makes it harder for you to guide to that metric, and that's what's motivating you to give it on an annual basis? Just hoping you could unpack your rationale.

Yes. So we'll never react to stock price volatility. We'll always take a substantive approach to how we want to drive the growth agenda at the company. And then we want to be able to provide a set of metrics around how we're driving and managing the business that best reflect the trajectory, the go-forward trajectory. At the core of it is just transparency and trajectory. As Shantanu said, we're still going to have all of the information on the business that you currently get today as part of actual results. So it's all going to be there. But I do think the longer-term growth trajectory of the business is better reflected by that year-over-year growth than maybe a precision around whether $10 million flows into one quarter or another. The trajectory of the business is unchanged by that dynamic. And so we really want to elevate the investor focus on what the best indicator of that true long-term growth trajectory of the businesses. And we think ARR. ARR is a great indicator of that future performance. Just looking at it on an annual year-over-year basis, we think, elevates the focus to the right metric. And I had a couple of conversations throughout the year, frankly, where investors who know the story a little less well have lost the plot. They're like, why is your creative business down? Like our creative business isn't down. It's growing double digits. And the [ perplexed ] look on their face, not understanding, have lost the plot. So this is about understanding how we're going to grow and drive the business, what we think the best metrics are to underpin that growth trajectory and elevate the conversation so that we don't lose sight of the fact that this is a large business growing nicely double digits with a lot of innovation and tailwinds behind it.