Adobe Inc (ADBE) — Q3 2022 Earnings Call Transcript

Good morning and thank you for joining us. With me on the call today are Shantanu Narayen, Adobe Chairman and CEO; David Wadhwani, President of Digital Media; Anil Chakravarthy, President of Digital Experience; and Dan Durn, Executive Vice President and CFO. On this call, which is being recorded, we will discuss Adobe’s third quarter fiscal year 2022 financial results. You can find our Q3 press release as well as PDFs of our prepared remarks and financial results on Adobe’s Investor Relations website. The information discussed on this call, including our financial targets and product plans, is as of today, September 15th and contains forward-looking statements that involve risk, uncertainty and assumptions. Actual results may differ materially from those set forth in these statements. For a discussion of these risks, you should review the factors discussed in today’s press release and then Adobe’s SEC filings. On this call, we will discuss GAAP and non-GAAP financial measures. Our reported results include GAAP growth rates, as well as adjusted growth rates in constant currency. During this presentation, Adobe’s executives will refer to constant currency growth rates unless otherwise stated. Reconciliations between the two are available in our earnings release and on Adobe’s Investor Relations website. I will now turn the call over to Shantanu.

Thanks, Jonathan, and thank you for joining us. Adobe had another record quarter, achieving $4.43 billion in revenue, which represents 15% year-over-year growth. GAAP earnings per share for the quarter was $2.42 and non-GAAP earnings per share was $3.40. In our Digital Media business, we achieved $3.23 billion in revenue. Net new Digital Media annualized recurring revenue (ARR) was $449 million and total Digital Media ARR exiting Q3 grew to $13.40 billion. In our Experience Cloud business, we achieved $1.12 billion in revenue and subscription revenue was $981 million. In this digital-first world, Adobe Creative Cloud, Document Cloud, and Experience Cloud have become even more mission-critical to an increasingly wide range of customers, from students to creative professionals to small businesses to the world’s largest enterprises. Fueled by our groundbreaking technology, track record of creating and leading categories, and consistently strong execution, our opportunity is larger than ever before. Adobe’s greatness has been rooted in defining new categories and platforms and delivering cutting-edge solutions through both organic innovation and inorganic acquisitions. Throughout our history, Adobe’s innovations have touched billions of lives around the globe. From revolutionizing imaging and creative expression with Photoshop to pioneering electronic documents through PDF, to creating the digital marketing category with Adobe Experience Cloud, Adobe continues to invent and transform categories. We are in the golden age of design and we believe we have a unique opportunity to usher in a new era of collaborative creative computing. I am thrilled to share that today we announced our intention to acquire Figma, a leading web-first design platform that will help us accelerate this vision. Figma enables designers, developers, and all stakeholders to collaborate in the product design process from ideation to design to delivery. The combination of Adobe and Figma will significantly expand our reach and market opportunity while making the creative process more accessible and productive to more people. I will now turn it over to David to share more about our vision for Adobe and Figma and momentum in the Digital Media business.

It’s an exciting day for Adobe and Figma. Figma’s mission is to help teams collaborate visually and make design accessible to all. Dylan Field, Figma’s CEO, and his team launched Figma as the first design tool purpose-built for the web in 2012. Figma and FigJam make it possible for all stakeholders designing interactive mobile and web applications to collaborate through multi-player workflows, sophisticated design systems and a rich extensible developer ecosystem. Figma has built an incredible product and an outstanding business, delivering world-class ARR growth and net dollar retention with a disciplined and efficient operating model. Figma has attracted a new generation of millions of designers and developers and a loyal student following. To give you a sense of their scale and financial success, Figma is expected to add approximately $200 million in net new ARR this year, surpassing $400 million in total ARR exiting 2022, with a greater than 150% net dollar retention rate. With a total addressable market of $16.5 billion by 2025, Figma is just getting started. Adobe has always been focused on empowering everyone to create digital experiences, and the combination of Adobe and Figma is the perfect opportunity. The combination of Adobe and Figma will create new opportunities and accelerate our strategy in a few ways. First, reimagining the future of creativity and productivity, Adobe and Figma share a passion for helping individuals and teams be more creative and productive. Adobe and Figma now have a new opportunity to make content creation more efficient, collaborative, and fun by bringing together Adobe Express, Acrobat, and FigJam, an online whiteboarding solution for teams. With the combination of these products, we can offer tremendous value to hundreds of millions of customers. Second, accelerating creativity on the web, as creativity becomes increasingly collaborative, the web makes it easier for teams to create together. Figma’s web-based, multi-player platform can accelerate the delivery of Adobe’s Creative Cloud technologies on the web, making the creative process accessible to more people. This will dramatically increase Adobe’s reach and addressable market opportunity. Third, advancing product design, web and mobile applications are increasingly underpinning how we live and work. This is driving explosive growth in the product design category. The combination of Adobe and Figma will benefit all stakeholders in the product design process, from designers to product managers to developers, by bringing powerful capabilities from Adobe’s imaging, photography, illustration, video, 3D, and font technologies into the Figma platform over time. And fourth, empowering and expanding the community, throughout our history, Adobe’s community has been a constant source of inspiration and a catalyst for innovation. Figma has a thriving community who develop and share everything from tutorials, templates, and plug-ins with their large and growing ecosystem. The combination of our communities will bring designers and developers closer together to unlock the future of collaborative design. Adobe and Figma could not be a better match; our people, innovative technology, and joint mission to democratize creativity and collaboration will deliver increased value to a growing base of customers. I look forward to welcoming Dylan and the entire Figma team to Adobe once the transaction closes. The acquisition of Figma could not come at a more exciting time for Adobe’s Digital Media business, which surpassed $13 billion in ARR this quarter, growing 16% year-over-year exiting the quarter. Adobe Creative Cloud remains the world’s creative engine, empowering everyone to create whenever and wherever inspiration strikes. In Q3, we achieved net new Creative Cloud ARR of $330 million and revenue of $2.63 billion, which grew 14% year-over-year. Q3 highlights include strong momentum for Adobe Express, with significant growth in new users. Adobe Express is serving an expansive universe of creative professionals, communicators, and knowledge workers, from students to small business owners to social influencers. It’s exciting to see the rapid innovation we are delivering to enable millions of customers to create standout multimedia content. Adobe Express has thousands of templates, millions of stock assets, and quick action functionality that make it easy to do any creative task. Millions of new users are coming to Adobe Express, driven by viral adoption and our creative marketing campaigns. Fast Company recently named Adobe Express one of the best new productivity apps of 2022. Strength in our Photoshop and Lightroom offerings across desktop and mobile, tailwinds in our video segment for Premiere Pro and Frame.io, our integrated video editing and collaboration offering, demand for our Substance products, as brands across every industry embrace 3D and immersive content as a new medium, and momentum in the Adobe Stock business emphasizing the importance of content velocity for businesses of all sizes.

Thanks, David. Hello everyone. One thing has become abundantly clear in this environment, digital has become the critical channel to engage customers and drive growth. Across the globe, companies in every industry are prioritizing investments in software solutions and services that enable them to anticipate and meet the expectations of their consumers. Customer Experience Management is an imperative, and Adobe is the category leader. Adobe Experience Cloud delivers predictive, personalized, real-time digital experiences, from acquisition to monetization to retention, across content and commerce, customer journeys, data insights, and audiences and marketing workflow. In particular, we are driving strong enterprise adoption of Adobe Experience Cloud and Real-Time CDP which are foundational to this next-generation enterprise architecture. FC Bayern, one of the world’s most successful football clubs, is leveraging Adobe Experience Cloud and Real-Time CDP to transform their fan experience. This gives them a holistic view of every fan’s engagement online and offline, enabling them to deliver personalized experiences such as discounts at the stadium or an immersive shopping experience for viewers at home. In Q3, we continued to drive strong Experience Cloud growth, achieving a record $1.12 billion in revenue. Subscription revenue was $981 million for the quarter, representing 15% year-over-year growth. Q3 highlights include strong momentum for Adobe Experience Cloud and AEP-native applications, with the book of business more than doubling year over year; significant growth for Adobe Commerce, underscoring the demand for digital storefronts and marketplaces; Experience Cloud was named a leader for the sixth consecutive year in the Gartner Magic Quadrant for Digital Commerce and achieved the highest position in the Forrester Wave for Enterprise Marketing Suites; and key customer wins, including Crédit Agricole, Morgan Stanley, NASA, Qualcomm, T-Mobile and UnitedHealth Group. Looking forward, Adobe is leading an explosive growth category that is increasingly important to enterprises of all sizes. Adobe is well-positioned to help enterprises deliver exceptional customer experiences with industry-leading platforms and applications, a strong track record of deploying solutions successfully for thousands of customers and a proven ability to deliver the next-generation architecture for Customer Experience Management.

Thanks, Anil. Today I will start by summarizing Adobe’s performance in Q3 fiscal 2022, highlighting growth drivers across our businesses, then I will discuss the announced acquisition of Figma and I will finish with financial targets. Adobe delivered a solid Q3, continuing to demonstrate that our products are mission critical to our customers’ success in any macro environment, from the millions of individuals who use our offerings to create digital content, to the small businesses that run their document workflows on Adobe, to the large enterprises that have transformed how they interact with their end users by providing personalization at scale. Q3 business and financial highlights included: record revenue of $4.43 billion; GAAP diluted earnings per share of $2.42 and non-GAAP diluted earnings per share of $3.40; Digital Media revenue of $3.23 billion; net new Digital Media ARR of $449 million; Digital Experience revenue of $1.12 billion; cash flows from operations of $1.70 billion; RPO of $14.11 billion exiting the quarter; and repurchasing approximately 5.1 million shares of our stock during the quarter. In our Digital Media segment, we achieved 13% year-over-year revenue growth in Q3 or 16% in constant currency. We exited the quarter with $13.40 billion of Digital Media ARR. We saw expected summer seasonality in the quarter, with the overall acquisition and engagement environment for our offerings remaining strong. We achieved Creative revenue of $2.63 billion, which represents 11% year-over-year growth or 14% in constant currency. We added $330 million of net new Creative ARR in the quarter. Third quarter Creative growth drivers included: momentum in small and medium businesses with our Teams offering, where we continue to drive strong new customer acquisition and are seeing engagement and retention at all-time highs; strong growth in our Illustrator and InDesign businesses; demand for our flagship photography, imaging and video applications; Adobe Stock where we continue to drive strong book of business growth; and momentum in our new growth initiatives, such as Frame.io and Substance, each of which grew ending ARR greater than 50% year-over-year exiting the quarter. Adobe achieved Document Cloud revenue of $607 million, which represents 23% year-over-year growth or 25% in constant currency. We added $119 million of net new Document Cloud ARR in the quarter, our strongest Q3 to-date. Third quarter Document Cloud growth drivers included: accelerated adoption of PDF and Adobe Reader across multiple surfaces; growth of Acrobat Web, fueled by online searches for PDF and document actions; strong performance of Acrobat and Adobe Sign; performance of our reseller channel continuing to drive new Document Cloud subscriptions, particularly with small and medium businesses; and continued seat expansion in the enterprise. In August we began to roll out the new Acrobat integrated with Sign offering, which included updated pricing.

Thanks, Dan. Hello everyone. One thing has become abundantly clear in this environment, digital has become the critical channel to engage customers and drive growth. Across the globe, companies in every industry are prioritizing investments in software solutions and services that enable them to anticipate and meet the expectations of their consumers. Customer Experience Management is an imperative, and Adobe is the category leader. Adobe Experience Cloud delivers predictive, personalized, real-time digital experiences, from acquisition to monetization to retention, across content and commerce, customer journeys, data insights, and audiences and marketing workflow. In particular, we are driving strong enterprise adoption of Adobe Experience Cloud and Real-Time CDP which are foundational to this next-generation enterprise architecture. FC Bayern, one of the world’s most successful football clubs, is leveraging Adobe Experience Cloud and Real-Time CDP to transform their fan experience. This gives them a holistic view of every fan’s engagement online and offline, enabling them to deliver personalized experiences such as discounts at the stadium or an immersive shopping experience for viewers at home. In Q3, we continued to drive strong Experience Cloud growth, achieving a record $1.12 billion in revenue. Subscription revenue was $981 million for the quarter, representing 15% year-over-year growth. Q3 highlights include strong momentum for Adobe Experience Cloud and AEP-native applications, with the book of business more than doubling year over year; significant growth for Adobe Commerce, underscoring the demand for digital storefronts and marketplaces; Experience Cloud was named a leader for the sixth consecutive year in the Gartner Magic Quadrant for Digital Commerce and achieved the highest position in the Forrester Wave for Enterprise Marketing Suites; and key customer wins, including Crédit Agricole, Morgan Stanley, NASA, Qualcomm, T-Mobile and UnitedHealth Group. Looking forward, Adobe is leading an explosive growth category that is increasingly important to enterprises of all sizes. Adobe is well-positioned to help enterprises deliver exceptional customer experiences with industry-leading platforms and applications, a strong track record of deploying solutions successfully for thousands of customers and a proven ability to deliver the next-generation architecture for Customer Experience Management.

Thanks, Anil. Today I will start by summarizing Adobe’s performance in Q3 fiscal 2022, highlighting growth drivers across our businesses, then I will discuss the announced acquisition of Figma and I will finish with financial targets. Adobe delivered a solid Q3, continuing to demonstrate that our products are mission critical to our customer’s success in any macro environment, from the millions of individuals who use our offerings to create digital content, to the small businesses that run their document workflows on Adobe, to the large enterprises that have transformed how they interact with their end users by providing personalization at scale. Q3 business and financial highlights included record revenue of $4.43 billion; GAAP diluted earnings per share of $2.42 and non-GAAP diluted earnings per share of $3.40; Digital Media revenue of $3.23 billion; net new Digital Media ARR of $449 million; Digital Experience revenue of $1.12 billion; cash flows from operations of $1.70 billion; RPO of $14.11 billion exiting the quarter; and repurchasing approximately 5.1 million shares of our stock during the quarter. In our Digital Media segment, we achieved 13% year-over-year revenue growth in Q3 or 16% in constant currency. We exited the quarter with $13.40 billion of Digital Media ARR. We saw expected summer seasonality in the quarter, with the overall acquisition and engagement environment for our offerings remaining strong. We achieved Creative revenue of $2.63 billion, which represents 11% year-over-year growth or 14% in constant currency. We added $330 million of net new Creative ARR in the quarter. Third quarter Creative growth drivers included momentum in small and medium businesses with our Teams offering, where we continue to drive strong new customer acquisition and are seeing engagement and retention at all-time highs; strong growth in our Illustrator and InDesign businesses; demand for our flagship photography, imaging and video applications; Adobe Stock where we continue to drive strong book of business growth; and momentum in our new growth initiatives, such as Frame.io and Substance, each of which grew ending ARR greater than 50% year-over-year exiting the quarter.

Thanks, Dan. It was great to be back on the road this quarter meeting customers and partners as businesses return to a new hybrid work model. I was inspired and energized welcoming our new hires and meeting Adobe employees across multiple sites who will together drive the next phase of innovation, growth, and culture. Adobe’s strength has always come from our most important asset, people. I am incredibly proud of the recognition we continue to receive as a great place to work. This quarter, Adobe was named to Fast Company’s Best Workplace for Innovators and Fortune’s Best Workplaces in Tech. Next week, we will hold our Adobe for All conference to bring employees together to celebrate our shared values of diversity, equity and inclusion. It is an exciting time at Adobe. Our strategy to unleash creativity for all, accelerate document productivity, and power digital businesses is working. We are delivering on our innovative product roadmap, driving growth across new and established businesses, and delighting a growing universe of customers. In addition to achieving all this success, we continue to look around the corner for new transformational opportunities that will drive decades of growth for Adobe. We believe that every individual, team, and business will strive to be more creative and productive in this digital era. Adobe has a unique opportunity to usher in a world of collaborative creativity. In my conversations with Dylan at Figma, it became abundantly clear that together we could accelerate this new vision, delivering great value to our customers and shareholders. I look forward to welcoming Figma into the Adobe family upon closing of the transaction. We look forward to seeing you at MAX and closing the year strong. Now, we will take questions.

Hello. Thank you very much. Congratulations to the management team on a significant advancement. Shantanu and team, could you discuss the direction of Figma and whether there is any overlap between Adobe's future aspirations for its Creative suite and Figma's growth trajectory? Specifically, what do you see as the additional opportunities here? It appears that Figma has a $16 billion total addressable market, while your Creative division is noted to exceed $40 billion. I am curious about the potential total addressable market for Figma as it integrates with Adobe and identifies new user demographics. Additionally, Dan, the three-year timeline to reach breakeven appears to involve some conservative assumptions, especially since Figma is currently generating cash. What are your thoughts on that lengthy breakeven period? Thank you and congratulations again.

Thanks, Kash, and congratulations to you as well for the conference that is happening right now and given our quiet period as you know we can’t attend. But let me take a step back and talk about why we believe this is a fundamentally transformative move for Adobe. When we think about the future of what’s happening with creativity, and in a sense, what’s going to happen as it relates to multiple people engaging in that with respect to collaboration, we just believe that this is going to be an incredible value and a way to attract a whole bunch of new customers to the combined platform. When you think about Adobe, certainly we target knowledge workers, we target communicators, we target creative professionals. Figma really focuses a lot also on developers; they focus very much on the other stakeholders who are involved in the product design process. So when we talk about the fact that Figma has a $16 billion TAM, that’s referring to the TAM as it exists today, in terms of what they are doing, both as it relates to product design, as well as that relating to collaborative whiteboarding and ideation, which as you know, FigJam has this incredible product that has, I believe, a much, much larger available addressable opportunity. But if you take a really what we think is the massive opportunity and putting this together, I think there are four aspects that are really exciting for us. First, there is going to be a next-generation of Creative collaboration that happens in the industry, and we believe that the combination of the two companies enables us to really position Adobe and deliver great value for this Creative collaboration industry. Second, we continue to believe that we can accelerate what it means to create on the web. What Figma has done is they have delivered a really incredible technology platform and solved a number of the issues that need to be solved to allow multiple people to collaborate on the web. Third, we think that we can advance product design and if you take the decades of Adobe technology that exists, our imaging technology, our vector technology, video technology that we have and think about what that means to bring that to the web and dramatically increase the number of customers who can then benefit from it. And last but not least, I think, to your question. This now really addresses that sort of Holy Grail of anybody creating a mobile application, anybody creating a website, anybody creating an application for any device that has a screen, combining what we can do on the designers, developers, and the stakeholders to make that happen. So I think today, what we shared with you is what they talk about as their addressable market opportunity, what we talk about as ours. But I think the real benefit of this combination is creating brand new markets, much like we have done with Digital Experience and other industries that we are part of. So thank you, and we are really excited about this.

This deal is primarily focused on growth and positioning the company to create new categories and drive long-term growth. As we consider our growth trajectory, we've identified several key drivers. We're looking to enhance the performance of our platform as a combined company, ensuring it reaches our customers through our global market presence. Additionally, we aim to speed up the introduction of new Adobe offerings online and collaborate on new initiatives as we explore opportunities in creative collaboration. This presents a chance to strategically manage our R&D investments as we advance our roadmap, balancing the need for growth while maintaining that trajectory in a disciplined manner. Over time, we will provide significant value to our investors. From the second year after the acquisition, you can expect our earnings per share growth rate to outpace our overall revenue growth, becoming accretive by the end of the third year, and we are in a strong position to deliver substantial value.

Thank you very much and congratulations. This is obviously a big moment for Adobe. It’s pretty clear what Figma brings to the table in terms of innovation, collaboration, and communities, and I appreciate the comments about Figma helping to further webify core Adobe products. But what do you say to the perspective that this $20 billion acquisition seems more reactive versus proactive? And perhaps more importantly, how do we get comfortable that Adobe’s organic innovation engine is alive and well for capturing the trends and opportunities that lie ahead in Creative?

Brad, it’s a good question and I understand that in these markets, particularly, acquisitions, and maybe large ones are viewed with some skepticism. We certainly believe and I will talk about it that Figma will be a transformative deal for the customers and industries and it dramatically increases our TAM. We can deliver great value to an increasing set of customers. But I also want to reassure all of you and if you look at our results, this in no way changes our focus or our excitement on our current portfolio. We are growing well, and we are demonstrating strength across all of our three cloud offerings and we continue to execute against our current initiatives. And so if you look at the multiple internal businesses that are achieving velocity, whether it’s Adobe Experience platform and the apps that are built natively on top of it, what’s happening with 3D and immersive, what’s happening with Acrobat Forms, what’s happening with Frame. This is additive. And when opportunities like this present themselves, Brad, I think it’s the great companies that look at it and say, are you going to focus on the here and now only or are you going to seize on the opportunity that really positions Adobe for the next few decades. And so it’s a great question. We understand that there will be questions associated with valuation. We certainly believe that it provides valuation to our shareholders as well. When you look at what this means for us, but in no way diminishes my excitement around our current portfolio.

Hey, everyone. I will begin with a question that isn't related to Figma and then connect it to Figma later. Shantanu or David, can you share your insights on the demand landscape and how it has evolved this quarter? Many companies are experiencing longer deal cycles and reduced deal sizes. Our observations in the Digital Experience sector indicate that deal closures are taking more time due to an increased number of required signatures. So, to start, what are you observing in the demand environment? One question from investors is why this is the right time for this transaction, especially since we might be entering a recessionary phase. Couldn't this type of deal have been done for a lower cost at a later time? That's how I want to frame this.

Yeah. Let me address the first part, which was your second part of the question, which is why now. Again, as I said, we just believe that this new vision that we can create for what we can do with collaborative creativity, there’s no time like the present to start working on top of it. And when opportunities like this present themselves, you have to act upon it rather than kicking that can down the road, Alex. So, from my perspective, we know how to make this deliver great value to our customers. I will have David also speak to the demand environment and the Creative side. On the Enterprise side, as we said, we had strong results. I mean the AEP plus apps business, that book of business is doubling, which really reflects the foundational aspects of what we are delivering.

On the Digital Media side, we started the year with a projection of $1.9 billion, and we aim to exceed that. Considering the current macroeconomic situation, we are at $1.88 billion when looking at our performance from Q1, Q2, Q3 and our forecast for Q4. We are proud of this achievement. Being an ambitious company, we intend to surpass that figure. All leading indicators remain robust, with strong new user acquisition, engagement, retention, and monthly active users. We feel very confident in our ability to navigate the macro environment despite the challenges in the world around us.

Shan, everyone admires your discipline regarding M&A over the past decade, and there's a sense that you've set a new standard. Many are curious about the valuation, especially since revenue could potentially double, which would place it over 25 times ARR. What made this situation unique, and considering your previous comments on XD's potential, what has transpired with XD, and how does it look as it continues to grow?

So two things to that, Brent. The first is, I understand that what you are saying in effect is some people will say, hey, show me how this value is accruing to Adobe shareholders as well and we certainly believe that otherwise we wouldn’t be doing it, and we do believe that it will be value-generating for the Adobe shareholders. I think as it relates to XD and as it relates to Figma, I mean, we certainly, for designers, we are targeting what needed to happen as it related to screen design with the desktop product. I think the much newer market that emerged, which Figma effectively both addressed and pioneered, was the ability to do this in a collaborative way and dramatically increase the scale, and they over the last decade, have really invested in and solved some of the hard technical problems that existed to make this happen on the web friction-free. So from our perspective, the Creative products continue to be strong, the ability to really tie the designers and developers is really where there’s this unique opportunity, as well as to create new markets. I mean, I will give you one more sort of what-if scenario in terms of how we think about it, which is you combine what they have done with whiteboarding and ideation, and what will be the future of work, and if you think about the presence of Acrobat and what we have with Acrobat or if you think about the notion of brainstorming and what happens with FigJam, with what happens with Adobe Express, I think the opportunities are tremendous.

Thank you for taking my question. I have a brief one regarding Figma; I don't want to dwell on it too much but I do have some questions about the core business. We’ve received a lot of feedback about Figma in the field, and it seems like a valuable asset for your company. However, it appears to overlap significantly with InDesign. Can you clarify whether there is a plan to rationalize these two products or if Figma will be the primary focus going forward? Additionally, last quarter, you provided an update on how pricing was affecting Digital Media and new annual recurring revenue. I would like to know how the pricing impacts played out this quarter. Lastly, I noticed that you’ve scaled back on hiring a bit; could you discuss your investment pace moving forward and whether it will be more measured given the growing macroeconomic challenges? Thank you.

Yeah. I will start by talking about InDesign and Figma. They are very different products at the core. InDesign is around building print and publishing workflows and doing layout. Figma is really all about enabling product design and a collaborative product design model. In fact, if you look at InDesign, it’s our traditional base of users, predominantly designers that are using it. One of the things that’s really interesting about Figma is the makeup of their user base. In fact, two-thirds of their users are not designers; they are developers and other stakeholders in the process, and the foundation of that collaborative model is what makes this such a special and accretive acquisition for us. If you think about going forward, the primary focus is going to be about bringing Figma into the family and then taking all of the capabilities we have across illustration and video and creative imaging and building it on top of the Figma platform to enable a whole new generation of capabilities that are going to resonate with digital native and next-generation creative professionals, and we are very excited about them. The two products are quite different.

Yeah. Then from an investment standpoint, one of the great things about Adobe is, is we have got tremendous growth opportunities. We have got an opportunity to drive the core franchise to $30 billion to $40 billion of revenue. But we are going to do what we have always done, which is invest in a disciplined way and drive that growth with strong profitability and strong cash flow and so we will do what we have always done. We are going to orient towards growth. We are back utilizing our facilities. We are investing to scale our business. We are investing in our products, go-to-market marketing. We are driving PLG motions, but we are going to do it in a disciplined way that delivers strong profitability and cash flow while growing this business in a strong and robust way. So we will do what we have always done, operating a disciplined business.

On the pricing side, our approach is centered on value. Our business strategy focuses on acquiring new users, upselling, and, when necessary, adjusting prices, all of which are tied to the added value we provide. In the Creative segment, we've been introducing numerous apps and integrating Frame.io into our Creative Cloud applications. We've developed many share and review workflows, as well as a wide range of stock and content images. Additionally, on the Acrobat Pro side, we've enhanced integration with Sign for bulk signatures, branding, and web forms payments. Ultimately, our pricing is always linked to the genuine value we deliver, and as a result, we continue to see pricing align with our expectations, all of which we included in our plans for the year.

Thank you. I have another question regarding Figma. It appears that the company is well positioned for use cases involving designers and developers, similar to how Frame.io operates in video editing, which expands the possibilities for Creative Cloud. My question is about the future of Creative Cloud—specifically, where its boundaries lie and where Figma begins. Is there a chance that this acquisition and its associated use cases could lead to increased sales of Creative Cloud subscriptions?

I think the three ways in which we look at that. First, in terms of the customers for Figma, I think, as David mentioned, the number of developers who are part of this product set is actually extremely extensive. But in addition to the product set associated with Figma design for developers, as well as stakeholders, I do want to again emphasize the product fit as it relates to FigJam for anybody who’s a knowledge worker and anybody who wants to ideate. So if you think about the value of ideation and brainstorming, I mean the reality is they have tens of millions of people who signed up and trialed Figma. We have hundreds of millions of people who have used our products and so the adjacency in terms of enabling both of those combined sets of customers to use each other’s products, we continue to believe that drives great value. So this is really about, in our sense and then if you take Acrobat and the penetration that Acrobat has, everybody who’s using Acrobat also wants to both share, as well as ideate and brainstorm. So I know there’s a lot of questions around Figma design, which is clearly achieved escape velocity. I would urge you also to spend a little time looking at FigJam as I know you have and then you would really understand that, that also dramatically expands the customer base. So, yes, getting Creative Cloud to a more diverse set of customers on the web, allowing collaboration and enabling it much like you said with Frame. That’s very much part of the strategy.

Yeah. No. It’s playing out as we expected as we take a look at the enterprise business, closing million-dollar-plus deals and transformational deals as we look forward off of that momentum into Q4. Pipeline is building nicely. The team is doing a good job executing against the opportunity, and it’s playing out as expected.

Hey, Operator. We are coming up on the top of the hour. Let’s try to squeeze in two more questions please.

Hi. Thanks for taking my question. I just wanted to focus a little bit more in the near-term in terms of your guidance for Q4. If we were in back to last year, you saw sort of a lower uplift around sort of the Black Friday selling period as compared to prior years. Now, obviously, going into this Q4 is always is you are a seasonally stronger business or enterprise spend period for Adobe, we are also going into that sort of that Black Friday period again, obviously. When you think about your guidance for Q4, what are you baking in compared to last year for sort of those Black Friday trends, but also that sort of seasonal uplift in the business spending?

I think as we said in our prepared remarks, Phil, we are guiding in typical seasonality. Q4 tends to be a strong season both in terms of the enterprise business for us and closing the enterprise business and the pipeline that we have built over the year, as well as some consumer commerce days, as you mentioned, and all of that is factored into the targets that we are guiding. We are not changing that based on anything different than we have seen. So I think we continue to believe that our business is resilient and if you look at the initial targets that we are providing, we would expect to have another strong seasonal close to the year.

Hi. Thank you very much and congratulations on the acquisition. Dan, I wanted to follow up on your comments regarding the dilution related to the deal. Based on what Shantanu and the team have mentioned about the complementary nature of the acquisition and its potential to expand the market, people are curious why there aren’t more synergies from a go-to-market perspective with this deal. Bringing Figma onto your platform should ideally enhance sales given your scale. So, how much of that is reflected in the dilution forecast or are you reserving that as upside? I understand it’s early, but the duration of the dilution is confusing to some, especially since this deal is expected to be complementary from a go-to-market standpoint.

For us, this is all about top-line growth and if you look at what we expect in terms of their continued growth alongside ours, I believe the top line for both companies can accelerate. At the FA meeting, as we have more time, we would be happy to share more details about it. From my perspective, we genuinely think we have a plan that will demonstrate the benefits of the combination while also continuing to exceed expectations.

Thanks, everyone, for joining us this morning. This concludes the call.