Adobe Inc. (NASDAQ:ADBE) Bank of America Merrill Lynch Conference Call September 21, 2023 11:00 AM ET

Company Participants

Dan Durn - Executive Vice President and Chief Financial Officer

Jonathan Vaas - Vice President of Investor Relations

Conference Call Participants

Bradley Sills - Bank of America Merrill Lynch

Operator

This call or the replay is not for media representative. All such individuals are instructed to disconnect now. Thank you. Over to you, Brad.

Bradley Sills

Wonderful. Thanks so much everybody for joining. I'm delighted to be hosting a call here with Adobe CFO, Dan Durn; Head of IR, Jonathan Vaas, who you all know. And we've got a number of questions here that we're going to kind of go through. We have 50 minutes and we will leave some time at the end here for any questions. If you do want to pose a question, please feel free to do so either through the app that there's a chat window and a chat feature within this webcast presentation or you could just send me an email at brad.sills@bofa.com.

So with that, thanks again. Dan, Jonathan, great to have you both here. Thanks for joining.

Dan Durn

Yes. Thanks, Brad. [It's a pleasure to be here and appreciated].

Bradley Sills

Awesome. Yes, absolutely, and a lot to talk about. A lot last week that we saw from Adobe on the pricing announcements here for Firefly and AI, you had a nice quarter that you reported as well. So why don't we just start there. I'm sure you've been busy since the earnings call. Perhaps if we could just start with what are some of the key highlights that you'd like to point out here from the earnings call and what's been the feedback?

Dan Durn

Yes. So company's been performing really well. As you know, you get the topline up 13% year-over-year. DME business is up 14%. Subscriptions, DX subscriptions are up 11% – I'm sorry, 13% year-over-year. So company is performing well from a topline standpoint. Driving that is strong digital flows on a Creative Cloud business. You can see the excitement around the new innovation that we're bringing to market, Express, Firefly. Firefly capabilities natively embedded into some of our flagship applications.

Document Cloud continues to perform really well. You're seeing the PLG motion continue to drive value for customers. And you see Acrobat web drive strong uptake, Acrobat mobile, again strong uptake. And then from a DX standpoint, AEP and Apps continues to drive really strong growth. We're winning in large transformational deals across the board where we're solving those hardest problems for customers with an integrated suite of solutions simultaneously driving topline benefits and doing it from a productivity standpoint so that they can drive that profitable growth and then making substantive investments across the entire product portfolio.

You can see the strength of the margins and the cash flow operating margin, 46.3% and $1.87 billion of operating cash flow. So top to bottom across the portfolio, investments to drive growth, but also being responsible and discipline from an execution standpoint, delivering those strong results in a value accretive way for investors.

Bradley Sills

Wonderful. No, that's great. Thanks, Dan. And why don't we shift gears to some of the pricing announcements last week, with the release of Firefly in conjunction there. Maybe just a recap of that and some of the rationale for the pricing that was announced?

Dan Durn

Yes. So what we announced was we're going to be introducing Firefly as a generally available web application. You've got the free version, then you've got the premium version where there's a $5 a month subscription. You can see what we're natively integrating from an Express standpoint, making that generally available. And then from a Creative Cloud standpoint, you can see $2 increase for the individual SKUs, individual apps SKUs. And then you can see a $5 increase for the all apps SKUs. And so the pricing on the Creative Cloud kicks in at November 1st, and it's only upon renewal of the subscription and new user adoption. So there's going to be very, modest impact and uplift from these pricing actions as we look forward into Q4.

And then what I would say is the philosophy that underpins that is all about pervasive adoption of the technology. We've got a long history of introducing technology, making pervasive across the ecosystem, and deeply embedding these incredible capabilities into natively integrated into the applications, but deeply integrated into the workflows that define day-to-day existence of our customers. And so it's going to be a real productivity answer as we roll these capabilities out, but the innovation roadmap that sits behind it is really impressive. And we're going to be bringing other media types to the table beyond images with these generative AI capabilities, things like video, 3D content, InDesign, lot of great surface area for us to introduce these capabilities.

Bradley Sills

That's exciting. That's great. Awesome. So you guys are talking to customers, you're pricing to value. You've done some studies here, I'm sure to back that pricing. I guess, what would you say from just a qualitative standpoint as to how customers are deriving value here and how pricing kind of commensurate with that?

Dan Durn

Yes. So as we've engaged with customers, we're seeing virality in the community of the capabilities that we're bringing to market. The enthusiasm from the community, the response we're getting from people when we brought betas to market historically, I think the all time high for us was maybe 80 to a 100,000 downloads, something in that neighborhood. What we're seeing with Photoshop and Illustrator with these capabilities, generative AI capabilities, natively integrated into those applications. We saw 3 million downloads in the beta window with over 2 billion generations from the customer base. And so the response from the community, the response from the customer base has been fantastic. These are game changing capabilities when you think about the creative workflows that define what our customers do.

Bradley Sills

That's great. And anything we should be mindful here with respect to timing of the rollout and geographies? I think Asia was excluded from the price increase, yes which we'll kick in, in November, as you mentioned, but any other kind of considerations as we think about putting this in our models across as you roll this out?

Dan Durn

Yes. It's a great observation. It's a partial rollout initially. We'll get to global rollout over time. Initially it'll be in the Americas and Europe. We also had modest FX adjustments in a few geographies, Argentina, Brazil, Chile, and then Sweden and Norway. So there's a little bit of FX adjustments built-in. But it's a partial rollout. And we'll work to get a global rollout over time as we get a chance to continue to refine from a culturization standpoint, other geographies, and then we'll bring those online over time.

Bradley Sills

Wonderful. Thank you for that. And why don't we shift to the Credit Packs, the consumption component, if you will, to the pricing announcement here. How should we think about that impacting ARR recurring subscription? Will it be a separate transactional light item and also I guess, what are you considering a transaction or individual unit in that pricing component?

Dan Durn

Yes. So what's great about the Credit Packs is they're going to be done on a subscription basis. And so that will get baked into the ARR component. From a philosophical standpoint, we're approaching the market initially, again, we want pervasive adoption. We don't want generation anxiety taking hold within the customer base. So we've got a nice allocation of generative credits in the baseline subscription, but those that engage deeper way with the ecosystem, have the opportunity of upping that credit allocation through a purchase subscription around generative credits. One credit equals one generation.

So as you think about the ideation process, you think about embedding it in the workflow. And you'll see this on display at MAX during product demos. You'll see how artists engage with the tools, how they bring their creativity to life in the digital world, the number of times that they hit that generative capability natively in the workflow. And you can begin to get a sense of how customers will engage. Those that hit that credit limit have the opportunity to get additional credit allocations will be embedded in ARR line, net new ARR lines. And what I would also say is, David said something really important on the earnings call.

He said, we're going to be bringing these generative capabilities to market in different media types. So you can think about the compute power embedded in 3D. You can think about the compute power embedded in generative video. The credit system is now a framework to think about currency in the Adobe ecosystem and the compute power that brings these different media types to life. So now you've got ecosystem that's purpose-built so that if someone wants to generate video or 3D content, it's going to be a different credit consumption than just the image model. And so now we've got the foundation built for future delivery of these technologies and consumptions of those credits at various rates depending on opportunity type that generate actions. So we really look about the long-term arc of financial performance around that Credit Packs ecosystem and [we are really encouraged by that].

Bradley Sills

Wonderful. Thanks, Dan. And as part of this announcement here, there's concept of fast versus slow generation. Once you exceed the minimums that are included in the base subscription and go, you have the option to go to the premium. Can you just give us a sense for what that means exactly? You talked about getting in queue once you, if exceeded those, those maximums, what does that mean exactly? How slow versus the fast generation?

Dan Durn

Yes. So not surprisingly, we are a very data-driven company, and we have a lot of usage data from the customer base. In the six months, we've been active with the beta in the market. Based on those usage statistics, we've created the framework around credit allocation so that we can reserve the right kind of compute horsepower to serve our customers and give them the type of experience they expect in the Adobe ecosystem. Once a customer hits that credit allocation, they're put into a slow lane if you'll, fast lane, slow lane just to use an analogy. We've got a reserve instance of compute power that's then going to be shared across that slow lane component. It allows us to create the right kind of user experience for customers as they consume those fast credit allocations, but it also allows us to manage cost on the backend for those that don't want to engage deeper with the – credit subscription, a Generative Credit subscription pack.

And so it's striking the right balance between user experience and driving it to market, driving the technologies to market in a cost efficient way. So we're managing the inferencing costs across our ecosystem, and we set the limits and we set the pricing in a way that we think it's going to be value accretive for the customer, but also value accretive for investors. We'll continue to monitor the data, we'll continue to watch customer usage and we'll obviously make adjustments at time to make sure we're doing this in a way that value investors.

Bradley Sills

Wonderful. Thanks, Dan. And how should we think about the interplay with Firefly and Stock? Is it possible that this additional engagement from Firefly could drive more transactional revenue through stock? Maybe you could elaborate a little bit on how we should think about those two?

Dan Durn

Yes. So we think there's going to be interesting opportunities over time with the Stock business as we engage, as our users and community engage with the Firefly ecosystem, you're bringing a lot more people into the creative process and the repository of content that sits on stock and the opportunities that we're going to have over time as more people come into the creative process.

We think there's an interesting opportunity there. If I take a snapshot in time of today, we've seen a lot of momentum at Stock business as we've brought Firefly capabilities to market. Q3 was an all time record. We've just implemented the contributor bonus payout, and we've gotten a great response from the stock contributors for that extra economic upside from the training we've done on their content. And so we think that there's a really nice ecosystem building around stock and that business is performing. We really see the momentum in that business as we brought these Firefly capabilities online.

Bradley Sills

Wonderful. Great. And you raised your Q4 implied guidance for Q4 on digital media net new ARR. Can you elaborate a bit on how much of that increase is just broad based momentum in the business versus the impact from that first month of the price increase taking effect, please? We get this question a lot. I'm sure you have.

Dan Durn

Good thing is you can see in the guide the momentum of the business. There's a strong follow through business is performing well. You see where we were at the beginning of the year, $1.65 billion quarter-ago, we formally raised that to $1.75 billion of net new ARR. You can see what's implied from our Q3 print, our Q4 guide. There's a lot of strong momentum around the business. We're going to stay focused on driving innovation. We're going to stay focused on keeping the company's priorities clear as this major inflection comes to life in the market.

And then we're going to execute with rigor behind that prioritization and innovation. So we like the setup, the piece of innovation at the company is all-time high, the velocity of the engagement collaboration across the organization. I really would encourage people to either go to Max in-person or watch the webcast of what we're bringing to light. You'll get a lot of insight around the engine of innovation at the company and the philosophy with which it's moving. And it's just a real [indiscernible].

Bradley Sills

Wonderful. Thanks, Dan. And I think historically, you have commented that net new ARR growth historically has been driven by one new user ads, two upsells, and then kind of third – distant third I think was price. So how has that changed at all with this announcement for next year, obviously? And then also just longer term, is that philosophy changed at all, just given all the innovation that we're seeing in the base product that you're putting into the base product with components like Firefly?

Dan Durn

Yes. No change to the growth algorithm that underpins the great results and momentum we see in the business. First and foremost, it's going to be about new user adoption. You see that in the approach that we're taking strategy around our pricing. We're pricing these technologies in a way that's going to create pervasive user adoption and democratize access to the Adobe ecosystem. So we lower the barrier adoption by embedding copilots in the product, anticipating through machine learning, what the next logical step in the creative process is, and revealing that through a toolbar that increases the time to productivity of new users to the ecosystem. So pervasiveness of these technologies, new user is first and foremost.

Then one of the things that we have really honed, we've got an core competency, a superpower inside of the company, is taking people on digital journeys through the ecosystem to cross-sell and up-sell. We've got a data-driven operating model. We understand how they engage with these users through a digital channel that leads to value for our users, but also increased financial performance. Third of the three, as you point out, will be pricing actions from time-to-time. You see that playing out the market.

Now that we've got a segmented product portfolio, we can engage the casual users in the Adobe ecosystem. We can take the next step on the journey as they go deeper, get them into Express and Express Premium, get them into individual apps, get customers into all apps. There's going to be a point of adoption at every place in that customer's journey so that the tools and technology, the products that they engage with are purpose built for their needs. We're no longer going to have professional applications doing multiple duty across our customer base.

We understand the consumers and the communicators. We've been engaging with them for a very long time and do billions of dollars of revenue with those users to get the product segmented gives us the opportunity to value price these products over time. And so from time-to-time, we will continue to engage in, customers realize that value, but we're also delivering that for investors.

Jonathan Vaas

I wanted to add something here, I think something that makes this a unique moment for Adobe. If you think about generative AI and Firefly, I think it's a rare moment when the same technology is playing at the low end of the market in bringing in new customers who don't have creative skills yet that have been honed. And that very same technology is adding a tremendous amount of value to the professionals who have used our product for decades. And so it's in some ways the same foundational piece of innovation is going to add to that new customer acquisition motion. It's going to aid in the up-sell motions as people sort of learn how to use the products. And it's delivering a tremendous amount of value to the ecosystem of skilled experts that's going to be an uplift there as well. So in that growth algorithm, I see positive impacts of Firefly and generative AI across kind of the whole ARR algorithm for Adobe.

Bradley Sills

Wonderful. Thanks, Jonathan. Great. So maybe a good segue into some of the commentary you've made here around customers coming into the franchise through. And then they have the upgrade path through the freemium model, if you will, in that consumer and communicator market segment that you've talked about over the years. So maybe if you could just elaborate a little bit on what did you see during the beta of Firefly? What impact did it have on that top of funnel business in those two segments? And is that next cohort, large cohort of customers coming in such that you can take them on these journeys that you're describing?

Dan Durn

Yes. So couple observations. We brought Firefly technology to the market in beta form. We saw customer engagement. We saw the virality of the moment and the users and the customers being blown away with that capability, natively integrating it into Photoshop and Illustrator, you saw me in the curve in terms of engagement, clicking over 2 billion generations, and again, the beta downloads relative to historic norms when we brought beta versions of products to market, we saw, again, all time highs of 80,000 or 100,000 type numbers historically. 3 million beta downloads of Photoshop and Illustrator give you a sense of the depth of engagement and the interest that's been sparked with these technologies.

And when we engage with the professional community and we embed these capabilities in their workflows, they're absolutely blown away at the productivity enhancement, the ideation process, they can cover a lot more surface area of ideas. Now they can hone that down to where they want to land, and then with the power and precision of the tools, take that further and bring it to life in the digital world. That magic – the enthusiasm from the users is off the charts. That magic is going beyond on display in [indiscernible] MAX. And again, day one keynotes and product demos, I really would encourage everybody to take a look at what's happening. And then you'll understand the enthusiasm from the user community when you see that magic brought to life natively in workflows.

Bradley Sills

Wonderful. Thanks, Dan. Well, great. And then have to ask a macro question. It's not something you often discuss. I think, last year when you saw some headwinds, I think that – the first quarter we saw that it was more on just the e-commerce. You didn't see that bump that you had seen in the prior year with reopening. And then you had currency impact, then you had the Russia impact. But I don't think you ever really called out the macro having a major impact on the business. Correct me if I'm wrong. But would love to get your take on how this slowdown has impacted the business and how we should think about any potential tailwinds as we potentially could come out of this?

Dan Durn

Yes. So we see what others see in the market. Conversations we have with customers, the macro market we see what others see. The great thing about Adobe is we're built to be resilient. When you look at the business model, the way we monetize our technology, it's incredibly resilient. When you think about the customer segments that we span, individuals, students, teams inside of small companies all the way to the largest enterprises on the planet spanning that entire customer base, the global footprint that we have, we're a company that's built to be resilient. And that resiliency shines in this environment.

You look at the way we're growing in a difficult macro, you look at the profitability we're producing, and you look at the velocity piece of innovation that we're bringing to life broadly across the entire product portfolio. And you can see what makes Adobe special in an environment like this. And so again, we're going to stay focused on prioritizing. We're going to stay focused on innovating, and we're going to stay focused on executing with rigor to deliver value for investors, and you see that philosophy on full display in this environment.

Bradley Sills

Wonderful. Thanks, Dan. And why don't we shift gears to margin here. A lot of questions have come in. I promise I'll get to some here in a few minutes. But want to spend the next five minutes or so here kind of with some of these questions. Just on margin, on the earnings call, you had mentioned that margin should kind of remain consistent with that mid-40s level that you're seeing even as you ramp generative AI. So could you elaborate a little bit on the puts and takes here, particularly with generative AI and as Firefly ramps, how should we be thinking about that impact on the margin profile?

Dan Durn

Yes. And so company is performing really well at times of inflection. My personal view is a little bit of shaping guidance to help investors see through some of the complexities of a major inflection coming to life in a market. So that was the intent around the commentary. We'll make substantive investments to bring these technologies to life. The good thing about that is there's very few companies that can do what we do. When you think about from a COGS standpoint, inferencing content, when you think about OpEx, R&D from a training and bringing foundation models to life, the investments we're making to lead in this inflection are substantive. You can see where we guided Q4 was implied in that guide is about a 45.5% operating margin.

If I go back in time to when we started the year and set the annual targets implied in those targets was about a 44.5%. So that gives you a mid-40s sort of ballpark to think about as we bring these technologies to life, as we continue to make these investments, to crystallize that clear market leadership in bringing the creative process to life with generative AI capabilities and bringing more people onto the Adobe ecosystem by democratizing access to our core technologies rolling it out into our Document Cloud portfolio, bringing it to life and our experience cloud portfolio, it's going to be pervasive across the product lineup as we make those investments. Mid-40s, ballpark is how to think about the margin profile as we drive that long-term topline progression built on these technologies.

Bradley Sills

Great. And while we're on the topic of Firefly, obviously dominating the conversation here, understandably, what do you think of the biggest differentiators here versus some of these alternatives out there, LLMs out there, like Midjourney and DALL-E. David mentioned on the call that enterprises view Adobe in general as it was Firefly, the safe option, and he elaborated on what that means exactly. But I'd love to get your perspective on the differentiation here as we see some third-party LLMs coming in?

Dan Durn

Yes. So as we think about the foundation of generative AI capabilities, you think about three pillars of that foundation. Think about data, think about the foundation models, and then think about the surface area and products suite workflows to bring these technologies to life so they have relevance for the customer.

From a data standpoint, we start with our Stock portfolio, gives us a deep rich data set that we have license to train on. Then you think about other data that we've brought into the process embedded by legal, where it's safe to consume, that is the foundation of our data set. So we've started with commercially safe in mind because we know we're going to be pervasive against the enterprise.

So you start with the foundation of design to be commercially safe. If you think about where we differentiate ourselves in the market, we've got unique perspectives on the creative process, on the imaging process, on the video process, on the 3D process, on the design process. There's insights from that market and our product portfolio and the way we engage with that user base. We've got a highly differentiated set of insights around those media types that are going form the foundation.

And then you think about the surface area, we are pervasive across the workflows, whether it's digital content creation, digital documents, or a digital interface between a company and its customers, that digital marketing channel. We've got – we're deeply ingrained with how teams and companies operate gives us an incredible surface area to bring these technologies to life. Absent those surface areas, those workflows, this technology is almost – and what you'll see on display at MAX, you'll see the ideation process that work, you'll see the creative hone that down to an idea.

And then the power and precision of the technologies to take that further, nobody can compete with that continuum. And then we think about commercially safe as the foundation of our models. And then you think about engaging with enterprise where they can ingest on-brand content and data to customize and tune the model for their own brand so that they can take their creative teams and begin to unleash them.

And if you think about the velocity of content creation, digital content creation inside of our customers and then activating that digital content with things like CDP and Journey Optimizer, analyzing the way they're engaging with their customers and the workflows associated with that, you begin to see a velocity of personalized content creation that's on brand designed to be safe and our customers are going to start to ramp their engagement in a very personalized way with their customer sets. We are at the foundation of unleashing that capability. Nobody can compete with that.

Bradley Sills

Wonderful. Great to hear. Thanks Dan. And then one more for me, and then I'll go to some of the questions here. On the earnings call, you alluded to an opportunity here to work with large brands who may wish to bring in their own proprietary data, their own images, LLMs to Adobe and create kind of custom Firefly models, if you will. Should we think of this as potentially a third leg to the AI monetization opportunity here? Obviously you've got the price increase, you have the premium subscription for fast image generation. Could this be a third leg of growth here? Like some structured EAs of some kind?

Dan Durn

Yes. So the engagement with the enterprise customers, we have – virtually all of them are very interested in this capability for the reasons I just mentioned. They see an opportunity to ingest on-brand assets, tune those models to the specific brand environment they operate in. And then when you think about the capabilities of a real-time CDP platform, where you get those real-time digital insights on who their customers are, that now the framework is in place to tailor that content to cohorts that become increasingly, increasingly refined to the holy grail of NF1, virtually all of our customers see the value potential in those tuned and trained customized models. We think it's going to be a nice tailwind from an economic standpoint as we engage those customer sets, virtually all of those enterprise customers are showing incredible interest in that capability.

Question-and-Answer Session

Q - Bradley Sills

Great. Thanks, Dan. So we have about 15 minutes left here. I'm going to go through some of these questions here. A lot have come in, one on Figma. And the question is, as to the acquisition, have you become more confident after several months of engagement with regulators? And can you elaborate on how potentially generative AI and the opportunity there may change the merit of the acquisition?

Dan Durn

Yes. So we're engaging with regulators in three geographies. The CMA in the UK and the EC in the EU both have gone to Phase II. We continue to engage with the Department of Justice. And the timelines around the CMA and the EC are published on their websites. And we continue to believe in the merits of the transaction. We're having great conversations with the regulators, and we'll know in the coming months sort of what the result of the process is. And so we feel good about where we stand.

From a generative AI capability, I don't think it fundamentally alters the view of the transaction. Figma is addressing a nice adjacency to our core business. We like the response we've gotten from customers and industry press. They see the value of bringing these capabilities together and creating a more seamless environment for our customers and their customers to operate in a common environment, but it doesn't change the thesis, it's a nice market adjacency for us.

Bradley Sills

Got it. Thanks, Dan. One here on the price increase and the impact on Q4. The question is given that almost half of the base is individual and monthly, why wouldn't we see mechanically the full impact of the net new ARR from that price increase on the monthly cohort renewing in Q4? Yes, that's the question.

Dan Durn

Yes. So again, late quarter impact from the pricing, not everybody renews on the first day of the month. They're going to renew when they renew. And again, just to shape it from an expectation standpoint, there'll be a modest uplift in Q4.

Jonathan Vaas

And I can add more because this maybe baked into some confusion on the question. Most of our individual subscribers are on annual plans that are billed monthly on their credit cards. We do have monthly subscriptions that renew every month at a higher price point. But that's a much smaller SKU for us than the annual paid monthly SKUs.

Bradley Sills

Got it. Okay. And another question here around how generative AI – is the TAM expansion here that seems logical that AI breaks down, but the question is how do you think about how this could impact your competitive dynamic with the likes of the down market competitors like Canva?

Dan Durn

So we like how we're positioned against the broad continuum of the customer set. If you look at the capabilities that are being brought to life with Express. Democratization of access to our ecosystem embedded natively embedding a co-pilot in the creative process throughout our flagship apps. We're incredibly well positioned as I see the power of these technologies. When I think about the longer term roadmap, we've been investing in these capabilities for decades, the power and precision of those individual and applications across our entire portfolio, how we reveal those capabilities over time in the Express roadmap to bring customers deeper into our ecosystem, nobody can match that collective investment in the features that define who we are. And again, selectively feel like those over time as part of that Express roadmap, nobody can match that. So we feel incredibly good about how we're positioned across that entire continuum of the customer base.

Bradley Sills

Right. Wonderful. Okay, great. And a question here on any guardrails that you can provide us here as to how we should think about this impact for next fiscal year. Obviously there's the Q4 impact that we've talked about here, but for next fiscal year, you're talking about millions of top of funnel user adds, and there's a price increase here. So anything you can provide to help us think about the impact for next year?

Dan Durn

Yes. So I'll just come back to – come to MAX, see the technology. We'll engage from a technology, generative AI roadmap. We'll talk about expectation shaping from a market standpoint. But the FY2024 insights, stay tuned for the next earnings call. We'll set the expectations about the financial targets on that call. I won't [indiscernible] with that.

Bradley Sills

Wonderful. Okay. Thanks, Dan. Okay. Why don't we shift to a comment you made earlier, right. Maybe we can just double click on that. You mentioned video editing, that there's an opportunity here. It seems like it could be significant. And I recall the Frame.io acquisition puts you in a good place there. So what have you seen there in terms of engagement and usage here, and where's the opportunity for generative AI in that category?

Dan Durn

Yes. There's a massive opportunity from a generative AI standpoint. Nobody understands this industry the way we do and the technical capabilities that define that product set. What you'll see at MAX and Shantanu mentioned this or David mentioned this, I can't remember which one of the earnings call. Text editing, one on the engineering board in Hollywood this year for that capability will show what that capability is like in one of our product demos. But basically, you turn the source material into a script, and it's – editing the video content is as easy as cutting and pasting in a word document.

And to see that power come together where you can slice those video segments together, you can edit, you can cut pieces out. It's as simple as cut and paste. The engineering power is to bring that type of capability, have very intuitive user interface on something that's complex like video editing. That text editing capability is just a first step in the journey of bringing these amazing technologies to life. In another media type, you'll see that on-display in one of those product demos at MAX, it's awesome.

Bradley Sills

Great. That's great. Exciting. Look forward to seeing that. Okay, good. And why don't we shift gears to the Document Cloud. Business is performing nicely, growing a steady 17%, 18% last few quarters. Maybe you could just help us elaborate a little bit on what are the key growth drivers there? Where are you seeing traction?

Dan Durn

Yes. This team has done a great job from a PLG standpoint. This is the, call it the lead horse, if you will, on the PLG motion inside of the company. You see that motion coming to life on Acrobat web. You can see the number of users that are engaging. It's up significantly year-over-year. Acrobat web, you can see Acrobat mobile kicking in. Liquid Mode is a really important capability that basically seamlessly across surface area of devices change the user experience, so that they get a great outcome. So that team is performing well, continuing to engage their customer base with that strong PLG motion. David and Shantanu, alluded to the capabilities that we're going to be bringing to life when you can engage more conversationally with your documents than you have been able to do in the past.

And it's the documents that you have on your device, it's the documents that you have in your team, and ultimately it's going to be the documents you have in your enterprise and beyond. When you think about [indiscernible] set of content and you think about to engage with that in a more conversational way, you begin to see the productivity unlocks that come to life inside of organization [with capabilities]. I'll leave my comments there. Just repeating what David and Shantanu shared on the earnings call and again, come to share more of that.

Bradley Sills

Wonderful. Thanks Dan. Five minutes here. I've got a few more questions. Again, if you do have a question, please feel free to either email me or you could pose it here in the chat window. While we're on the topic of Document Cloud, Dan, you've seen some nice traction with Adobe Sign. I think that's driving a lot of incremental growth. Can you just elaborate a bit there on where that strength has been coming from?

Dan Durn

Yes. So about a year-ago, we went through a line optimization from a digital workflow standpoint, digital document standpoint, digital signature standpoint. We brought the capabilities of sign and Acrobat together optimized the lineup to our customers. And they're getting more value than buying each one individually in a [non-integrated] way. So that line optimization, we've gotten great feedback from customers. They appreciate the value that's embedded in there, and the increase of adoption of sign is an important part of that journey. We've seen a great response from customers. They appreciate the value of bringing those capabilities together.

Bradley Sills

Wonderful. Acrobat not an offering that we hear a lot about in the earnings call, but you have a dominant position there, obviously. Have you thought about a price increase for Acrobat with all the innovation underway there and across collaboration and e-signature?

Dan Durn

Yes. So we've got a clear market leadership when it comes to digital documents. PDF the most pervasive file format on the planet. Acrobat is the best way to engage with that. PLG motion is alive and well, but I would orient people to the growth algorithm. New user adoption see that alive and well make it pervasive, make people engage with our capabilities in a pervasive way. Take them on journeys, get into the digital workflows, bring sign in, natively embedded those capabilities into the Express product, bring more stakeholders in the creative processes enterprise into the Adobe ecosystem, get on their desktops, engage more meaningfully with the ecosystem in those digital workflows.

Embed collaborative capabilities, seamlessly into these products. You see that philosophy alive and well. Pricing is third – three from growth algorithm, but we're focused on new user adoption. And over time, based on the value we deliver to customers, there's an opportunity to turn a dial from a pricing standpoint. We'll certainly do it in a way that's value accretive from a customer and investors.

Jonathan Vaas

And I'll just jump in with another, stay tuned. For those who tune in for our Investor Event at MAX, there's going to be some exciting innovations that we preview there on the Acrobat business that show how we can increase the value and the capabilities of what's possible and we're excited about that.

Bradley Sills

Wonderful. Great. And then a final question here, one that just came in back to Firefly and some of the metrics that you provided there. The question is, did the 3 million beta downloads generate the 2 billion of images, or was there a standalone Firefly that also contributed to the 2 billion?

Dan Durn

Yes. Definitely the standalone has contributed to it, but we did see a bend in the curve once we natively integrated that and brought it to life in Photoshop and Illustrator. And it really sharpens the perspective. There's three pillars to generative AI capabilities. There's data, there's models, and then there's the surface area.

Of those three, the surface area, the product portfolio, the workflows, is the most important aspect of bringing these technologies to life in a way that customers can get productivity enhancements. In the absence of that workflow context, in the absence of that product context, it's almost just a novelty.

Bradley Sills

Wonderful.

Dan Durn

The magic of life, we saw it from a data standpoint, really sharpened our perspective on the importance. We've got the world's best imaging technology and knowledge. We've got the cleanest set of data to bring it to life in a commercially safe way, but that surface area natively embedding it, that's where the real power and it's the hardest to replicate for others that are trying to bring these capabilities to market. So we think we've got a distinct advantage in the way we engage with our community, and we saw those signals as those betas came to life. Customers, that's what drove 3 million downloads by historical standards. A signal like we've never seen before.

Bradley Sills

Wonderful. Well, Dan, Jonathan, thank you both so much for joining. Great session here. Learned a lot, great dialogue and look forward to seeing you at Adobe MAX in a couple of weeks.

Dan Durn

Sounds good. Thank again for the invite.

Jonathan Vaas

Thanks, everyone.