Adobe Inc (ADBE) — Q1 2025 Earnings Call Transcript

Good afternoon and thank you for joining us. With me on the call today are Shantanu Narayen, Adobe’s Chair 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 first quarter fiscal year 2025 financial results. You can find our 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, March 12, and contains forward-looking statements that involve risk, uncertainty and assumptions. Actual results may differ materially from those set forth in these statements. For more information on those risks, please review today's earnings release and 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 constant currency rates. During this presentation, Adobe’s executives will refer to constant currency growth rates unless otherwise stated. Non-GAAP reconciliations are available in our earnings release and on Adobe’s Investor Relations website. I will now turn the call over to Shantanu.

Thanks Steve. Good afternoon and thank you for joining us. Adobe had a record first quarter. We achieved $5.71 billion in revenue in Q1, representing 11% year-over-year growth. GAAP earnings per share for the quarter was $4.14, and non-GAAP earnings per share was $5.08, representing 13% year-over-year growth. Our performance reflects the ongoing critical role that Adobe products play in powering the global digital economy. In addition, given Q1 performance, we are pleased to reaffirm our fiscal '25 targets. Next week is Adobe Summit, our flagship digital experience conference, where we will unveil the latest innovations across our portfolio. In addition, we will host our Annual Investor Meeting on March 18th, and we wanted to preview what we will share about our growth strategy. Adobe’s success over the past decade has been driven by the exponential growth of the creative economy and the customer-focused innovations we’ve delivered across Creative Cloud, Document Cloud and Experience Cloud. Our groundbreaking solutions are empowering an ever-expanding universe of users to imagine, create and deliver standout content that drives exceptional experiences. Adobe's mission to change the world through personalized digital experiences is more critical than ever as digital continues to rapidly transform work, life, education and entertainment. AI represents a generational opportunity to reimagine our technology platforms to serve an increasingly large and diverse customer universe. With creativity at the core, we have been evolving our offerings and routes to market to anticipate the distinct needs of creative professionals and next generation creators, marketing professionals, agencies and enterprises and the broader set of consumers and business professionals. We believe this will drive continued growth and profitability. Creative professionals and creators need power and precision to bring their ideas to life across any media type. The next generation of creators want the flexibility of web and mobile tools, in addition to the power of the desktop. They will benefit from the variety of AI models to ideate and explore creative possibilities. Adobe will serve this growing community with the most comprehensive set of web, mobile and desktop applications, delivered through various subscription tiers. In addition to Creative Cloud, we will offer new Firefly web app subscriptions that integrate and are an onramp for our web and mobile products. While Adobe’s commercially safe Firefly models will be integral to this offering, we will support additional third-party models to be part of this creative process. The Firefly app will be the umbrella destination for new creative categories like ideation. We recently introduced and incorporated our new Firefly video model into this offering, adding to the already supported image, vector and design models. In addition to monetizing standalone subscriptions for Firefly, we will introduce multiple Creative Cloud offerings that include Firefly tiering. Marketing professionals need to create an unprecedented volume of compelling content and optimize it to deliver personalized digital experiences across channels including mobile applications, email, social media and advertising platforms. They are looking for agility and self-service, as well as integrated workflows with their creative teams and agencies. To achieve this, enterprises require custom, commercially safe models and agents tailored to address the inefficiencies of the content supply chain. With Adobe GenStudio and Firefly Services, Adobe is transforming how brands and their agency partners collaborate on marketing campaigns, unlocking new levels of creativity, personalization and efficiency. The combination of the Adobe Experience Platform and Apps, and Adobe GenStudio is the most comprehensive marketing platform to deliver on this vision. In addition to our direct sales force, we will leverage an ecosystem of partners and agencies to sell, implement, operate and deliver business outcomes to companies of all sizes. We have accelerated One Adobe deals by increasingly integrating our creative and marketing products into a single enterprise solution. We will continue to invest in sales capacity to deliver Adobe-wide offerings across business, education and government. Business professionals and consumers want ease of use across web and mobile through a freemium model. They are looking for quick and easy AI-first, category-defining creative applications to help them stand out. While the need for creative expression continues to grow exponentially, the real value is in integrating creativity and productivity in an all-in-one solution. The combination of Express and Acrobat is Adobe’s opportunity to make the journey from document creation to consumption smoother than ever. AI Assistant in Acrobat, Reader and Express will accelerate the delivery of new conversational and agentic interfaces to add value to this combined offering. Revenue growth will be driven by distribution across web and mobile app stores, partnerships with major software providers and focus on SMB and enterprise sales. Our generative AI innovation is infused across the breadth of our products and its impact is influencing billions of ARR across acquisition, retention and value expansion as customers benefit from these new capabilities. This strength is also reflected in our AI-first standalone and add-on products such as Acrobat AI Assistant, Firefly App and Services and GenStudio for Performance Marketing, which have already contributed greater than $125 million in business exiting Q1 fiscal 2025 and we expect this AI book of business to double by the end of fiscal '25. In summary, by leveraging the breadth of our products and technology platforms in the era of AI and delivering new tailored offerings and solutions by customer groups, we will drive the engine of growth for the next decade. We will win by focusing on business professionals and consumers and creative and marketing professionals, with a unified product strategy and go-to-market. We will start to provide financial visibility into these two new groups starting this quarter and expand on this at our Investor Day at Summit next week. I’ll now turn it over to David to discuss the momentum in our Digital Media business.

Thanks Shantanu. Hello everyone. In Q1, we achieved revenue of $4.23 billion, which grew 12% year-over-year. We exited the quarter with $17.63 billion of Digital Media ARR, growing our ending ARR book of business 12.6% year-over-year. We continue to see healthy performance in both Creative Cloud and Document Cloud. Creative growth was driven by broad-based adoption across our routes to market and product portfolio with particular strength in new offerings like Firefly Services, an increasing number of One Adobe deals, and a growing base of web and mobile users. Document Cloud continued to see strong organic demand, continued optimizations in free-to-paid conversion journeys and AI Assistant being released in additional languages. We drove strong performance across Digital Media in emerging markets. The results represent a good start to the fiscal year. Creativity is going mainstream, and I want to provide more color on the audiences we serve. We live in a visual-first world where creative expression has become pervasive in every facet of life. Business professionals and consumers alike aim to produce visually rich, engaging content, whether it is a presentation, birthday invitation or social post. At the same time, creative professionals, creators and marketers are competing on the quality of their online presence and the personalized experiences they deliver to customers. They turn to Document Cloud, Creative Cloud and Experience Cloud to achieve their content goals. Going forward as a result of AI advancements, we see incredible opportunity to serve customers with audience-specific offerings. Business professionals and consumers are increasingly benefitting from deep integration between Acrobat, Express and Firefly while creative professionals, creators and marketers are investing in powerful workflows across Creative Cloud, our new web and mobile creative application, Firefly and GenStudio. PDF continues to be the global standard for digital documents for business professionals and Adobe Acrobat is revolutionizing the way people engage with them across mobile, web and desktop. Features like AI Assistant in Acrobat and Reader have been a game-changer for everyone from sales teams to students, looking for faster insights and smarter document editing. And the ability to share links and collect comments has increased document productivity and helped drive additional adoption. These new capabilities and our cross-surface investments have paid off, with Acrobat and Reader monthly active usage growing 23% year-over-year. Our success with Acrobat has also shown us that whether for a sales presentation, a school project, or a social media post, business professionals and consumers are looking for an easy-to-use solution that helps them create visually compelling content that stands out from the crowd of generic templates. In fact, a significant number of all documents created in Acrobat are visual documents; things like marketing content, sales pitches, presentations, infographics and cover pages. We are making good progress in addressing this need by embedding Express capabilities as a native experience in Acrobat with a goal of boosting productivity and making the journey from document consumption to content creation smoother than ever. The integration of Adobe Express features in Acrobat allows users to create richer PDFs with AI-generated cover pages, embedded infographics and customized images and empowers users to create fully formed animated videos and other rich digital outputs. We see numerous early indicators of user demand as Express usage through Acrobat has grown 10 times year-over-year. Other highlights for business professionals and consumers include; Acrobat AI Assistant support for languages now includes English, French, German, Italian, Portuguese, Spanish and Japanese. Acrobat AI Assistant support for legal workflows with contract-specific features. New AI capabilities in Express, like Clip Maker for auto-generation of video highlights, and Text Rewrite, to help produce more effective copy. Expanded Acrobat integrations with Microsoft Edge, Google Chrome, Gmail and Google Drive and strong adoption of link sharing for richer collaborative experiences have led to approximately 50% year-over-year growth in Acrobat web monthly active usage. Expanded Express integrations now include Miro, Box, Slack, Webflow and Hubspot. The Express ecosystem also expanded to 225 plugins, more than doubling in the last year. Strong business and student adoption. Express onboarded nearly 6,000 new businesses in Q1, representing approximately 50% quarter-over-quarter growth. Students with access to Express premium grew 85% year-over-year. Key global customer wins include AT&T, Delta Airlines, Disney, Ernst & Young, IBM, JPMorgan Chase, Microsoft, Paramount and Qatar Airlines. Creative professionals and the next generation of creators, who make their living by designing and producing content, are focused on standing out and bringing their unique creative visions to life with pixel-perfect precision. As we mark the 35th anniversary of Photoshop, Adobe creative applications remain the solutions of choice for the world's creative professionals across imaging, design, photography, video, illustration and 3D. We also see increasing demand from the next generation of creators, who are looking for freemium, web and mobile applications as they begin their creative journeys. To better serve these users, we launched a new Photoshop mobile app and an expanded web experience, delivering Photoshop’s iconic image editing and design capabilities on the iPhone. The mobile app and all-new web experience are also included in current Photoshop plans, offering established Photoshop customers a flexible ecosystem to create and edit across surfaces. The launch garnered over 30 million social engagements in just two weeks. The release of the Adobe Firefly Video Model in February, a commercially safe generative AI video model, has been very positively received by brands and creative professionals who have already started using it to create production-ready content. Users can generate video clips from a text prompt or image, use camera angles to control shots, create distinct scenes with 3D sketches, craft atmospheric elements and develop custom motion design elements. We’re thrilled to see creative professionals in enterprises and agencies; including dentsu, PepsiCo and Stagwell, finding success with the video model. Additionally, we recently launched an all-new Firefly application, the most comprehensive destination to generate images, vectors and now videos with unmatched creative control and direct integration with our industry-leading creative apps to seamlessly move from ideation to production. In addition to generating images, videos and designs from text, the app lets users generate videos from keyframes, use 3D designs to precisely direct generations, and translate audio and video into multiple languages. We also launched two new plans as part of this release; Firefly Standard and Firefly Pro, and began the rollout of our third plan, Firefly Premium, yesterday. User engagement has been strong, with over 90% of paid users generating videos. The launch of Photoshop on web and mobile and the release of the new Firefly application expands our growing family of web and mobile products, which now includes, Photoshop for creative imaging, Lightroom for photography, Express for design and Firefly for ideation and early production. These apps serve as value-added capabilities to our existing paid subscribers and as a frictionless, freemium onboarding experience to attract and monetize next generation creators. We’re delighted with the early interest in these new offerings. Other Creative Professional and Creator highlights include; continued strong adoption of GenAI in our products with Photoshop GenAI monthly active users at approximately 35% and Lightroom GenAI monthly active users at 30%. Users have generated over 20 billion assets with Firefly. The introduction of new features in Premiere Pro beta and After Effects beta are helping editors and motion designers stay ahead of deadlines with AI features like Media Intelligence, which helps users find footage faster using natural language and captions translation for 17 languages, which effortlessly expand video to global audiences. We’re honored to see visionary filmmakers around the world telling this season’s most acclaimed stories using Adobe creative applications including Academy Award winners Anora and Dune: Part Two. The launch of Adaptive Profiles and Distraction Removal in Adobe Lightroom and Adobe Camera Raw, which reduce tedious and repetitive tasks. MAX Japan brought our community together and served as an opportunity for us to launch a number of new innovations including performance improvements in Adobe Illustrator, which accelerate features like pan and zoom and loading large files up to 10 times faster. We had another great quarter in the enterprise with more customers turning to Firefly Services and Custom Models to scale on-brand content production for marketing use cases, including leading brands such as Deloitte Digital, IBM, IPG Health, Mattel and Tapestry. Tapestry, for example, has implemented a new and highly productive digital twin workflow using Custom Models and Firefly. You’ll hear more on how the combination of creativity and marketing is powering personalization at scale in enterprises. Adobe is incredibly well set up to take advantage of AI across creativity. We're rapidly delivering tailored innovations to serve the full continuum of content creation for business professionals and consumers, creative professionals and creators, and marketing professionals. Our expanding breadth of offerings is reaching a broader universe of customers, and our incredible go-to-market strength and proven data-driven operating model are propelling the growth of both flagship and new offerings. We will be unveiling more exciting product capabilities at Adobe Summit and MAX London in April. I’ll now pass it to Anil.

Thanks, David. Hello everyone. Experience Cloud had a strong Q1, achieving revenue of $1.41 billion for the quarter. Subscription revenue in the quarter was $1.3 billion, representing 11% year-over-year growth. Our leading solutions spanning content, data and customer journeys enable enterprises around the world to deliver personalized experiences at scale, helping customers drive both top-line growth and productivity gains. In Q1, we delivered typical seasonal bookings and advanced our pipeline as enterprise customers initiated the execution of their critical 2025 priorities. Adobe Experience Platform and Apps play a pivotal role in enabling unified customer experiences. With the addition of AEP AI Assistant, we extended the value and impact of Experience Platform by empowering more functions across the business with conversational interfaces for data ingestion, insight generation, audience segmentation and experience delivery. We are now building on these advances and expanding AEP to enable intelligent orchestration of customer experiences with AI agents natively built in. We are empowering customers to make better use of their first-party data and to drive more relevant ad experiences based on direct customer relationships. Our portfolio spans the entire content supply chain from creation and production, workflow and planning, asset management, delivery and activation through to reporting and insights. Now we are bringing together creativity and marketing with AI to help our customers realize the full potential of personalization at scale. Up to now, marketing professionals have been constrained by the number of content variations they can create and the number of journeys they can deploy. With Adobe GenStudio, brands around the globe have been working with Adobe to bring creative and marketing teams closer together, simplify their creation-to-activation process, and unlock new levels of creativity, insights and efficiency in marketing campaigns. Other highlights include strong demand for Adobe Experience platform and native applications, with Q1 subscription revenue growing nearly 50% year-on-year. Release of Real-Time CDP Collaboration, delivering a secure environment for advertisers and publishers to jointly discover, activate and measure high-value audiences for more relevant campaigns. Built on AEP, Real-Time CDP Collaboration is purpose-built for brands to connect and collaborate on first-party data. Users can now measure ad effectiveness directly with publishers including NBC Universal and Warner Bros. Discovery. Advertisers and agencies including Alterra Mountain Company, GroupM Wavemaker, Major League Baseball and The Coca-Cola Company piloted the solution to deliver personalized and performant ads. Launch of the AEM Cloud Service accelerator with Publicis Sapient which can reduce the labor cost of migration by up to 35%. Industry analyst recognition in major analyst reports including the Gartner Magic Quadrant for Digital Experience Platforms and Gartner Magic Quadrant for Personalization Engines. Strong demand for Firefly Services and Custom Models as part of the GenStudio solution with over 1,400 custom models since launch. GenStudio for Performance Marketing wins at leading brands including AT&T, Lennar, Lenovo, Lumen, Nebraska Furniture Mart, Red Hat, Thai Airways, and University of Phoenix. Strong partnership momentum with GenStudio for Performance Marketing supporting ad creation and activation for Google, Meta, Microsoft Ads, Snap, and TikTok, and several partners including Accenture, EY, IPG, Merkle and PWC offering vertical extension apps. Partnership with dentsu to bring GenAI from playground to production for our joint customers with Adobe GenStudio dentsu+. Key global customer wins include Delta Airlines, Ford, IBM, M.H. Alshaya, Microsoft, PNC Financial Services and Tyson Foods. These customer wins address the ongoing evolution of the requirements of global brands for an integrated workflow spanning creativity and marketing. This success is driven by product integration and innovation across Creative Cloud and Experience Cloud increasingly delivered through Adobe GenStudio. Our One Adobe enterprise go-to-market engine enables customers to deliver personalized and on-brand content at scale. The combination of our integrated enterprise solutions across creativity and marketing is a unique strength for Adobe. Next week, we are excited to host Adobe Summit, our flagship digital experience conference in Las Vegas, where we will be joined by thousands of customers, partners, and developers from around the world. We will share our vision for how brands can apply the power of generative AI and agentic technology to achieve personalization at scale and look forward to highlighting a number of product innovations. I will now pass it to Dan.

Thanks, Anil. Adobe’s business has grown over the last decade by delivering world-class products grouped within three clouds; Creative Cloud, Document Cloud, and Experience Cloud. In parallel, we have continued to expand cross-cloud offerings to better serve different customer groups. Examples include Acrobat which is reflected in Creative Cloud and Document Cloud; GenStudio which includes Creative Cloud, Express, Firefly Services and Experience Cloud; Enterprises who want to engage with One Adobe and combine Creative seats with marketing automation; and increasingly Acrobat and Express. We believe Adobe’s success will be driven by innovation in service of both business professionals and consumers and creative and marketing professionals. Reporting insights and the financial performance across these customer groups will provide a clear view of Adobe’s execution against our strategy. We will therefore provide overall Adobe revenue, Digital Media and Digital Experience segment revenue, Digital Experience Subscription revenue and Digital Media ending ARR in aggregate rather than by cloud, as well as subscription revenue for Business Professionals and Consumers and Creative and Marketing Professionals. Subscription revenue provided will primarily include revenue from SaaS, managed services and term offerings. Business Professionals and Consumers Group will consist of all subscription revenue from Document Cloud, Acrobat subscription revenue in Creative Cloud, and Adobe Express subscription revenue in Creative Cloud, all of which are part of Digital Media. Creative and Marketing Professionals Group will consist of all subscription revenue from Digital Experience, as well as all of the remaining subscription revenue from Creative Cloud in Digital Media. In today's call, I'll cover three main areas: our Q1 FY25 results focusing on key growth drivers, financial targets, and our supplemental disclosures. Now turning to the quarter. In the first quarter of FY’25, Adobe achieved revenue of $5.71 billion, which represents 10% year-over-year growth, or 11% in constant currency. GAAP diluted earnings per share in Q1 was $4.14 and non-GAAP diluted earnings per share was $5.08. Q1 business and financial highlights included: Digital media revenue of $4.23 billion; Digital Media ending ARR of $17.63 billion, growing 12.6% year-over-year. Digital Experience revenue of $1.41 billion. Cash flows from operations of $2.48 billion; and exiting the quarter, remaining performance obligations were $19.69 billion, growing 12% year-over-year and cRPO growing 11%. In our Digital Media segment, we achieved Q1 revenue of $4.23 billion, which represents 11% year-over-year growth, or 12% in constant currency. We exited the quarter with $17.63 billion of Digital Media ARR, growing our ending ARR book of business 12.6% year-over-year in constant currency. First quarter Digital Media growth drivers included strong growth for Acrobat across all routes to market and geographies; Acrobat Web and Mobile growth driven by freemium funnel and app store optimizations. Growth in Adobe Express, fueled by top of funnel improvements, PLG journeys across Acrobat and Express, and B2B customer onboarding. Strength in user adoption and engagement of Acrobat AI Assistant driven by expansion of features including support for additional languages and contract intelligence capabilities; Growth of Creative flagship offerings driven by All Apps, Stock, Imaging, and Photography; Continued momentum in Creative Web and Mobile offerings with 35% year-over-year ending paid subscription growth; and Strong momentum in the Enterprise driven by Firefly Services and the continued benefit from the upsell motion of generative AI-enabled offerings. Turning to our Digital Experience segment, in Q1 we achieved revenue of $1.41 billion, which represents 10% year-over-year growth as reported and in constant currency. Digital Experience subscription revenue was $1.30 billion, growing 11% year-over-year, as reported and in constant currency. First quarter Digital Experience growth drivers included momentum for product offerings across content, data, and journeys; AEP and Apps subscription revenue growing nearly 50% year-on-year. GenStudio solution surpassing $1B in ending ARR book of business. Early momentum in GenStudio for Performance Marketing in adoption and pipeline; and improvements in overall enterprise retention. Turning now to our customer group performance. Creative and Marketing Professionals Group subscription revenue was $3.92 billion, which represents 10% year-over-year growth as reported. Business Professionals and Consumers Group subscription revenue was $1.53 billion, which represents 15% year-over-year growth as reported. Adobe’s effective tax rate in Q1 was 17.0% on a GAAP basis and 18.5% on a non-GAAP basis. RPO exiting the quarter was $19.69 billion, growing 12% year-over-year, or 13% in constant currency and cRPO growing 11% year-over-year, or 12% in constant currency. Our cash flows from operations in the quarter were a Q1 record $2.48 billion, and ending cash and short-term investment position exiting Q1 was $7.44 billion. In Q1, we entered into share repurchase agreements totaling $3.25 billion, and we currently have $14.4 billion remaining of our $25 billion authorization granted in March 2024. Let me now turn to our Q2 FY 2025 financial targets. For Q2 FY’25 we are targeting total Adobe revenue of $5.77 billion to $5.82 billion. Digital Media segment revenue of $4.27 billion to $4.30 billion. Digital Experience segment revenue of $1.43 billion to $1.45 billion. Digital Experience subscription revenue of $1.315 billion to $1.325 billion. GAAP earnings per share of $3.80 to $3.85; and non-GAAP earnings per share of $4.95 to $5. For Q2, we expect non-GAAP operating margin of approximately 45% and a non-GAAP tax rate of approximately 18.5%. The year is off to a good start and assuming current macroeconomic conditions, I am pleased to reaffirm our full year guidance for fiscal year 2025. This quarter’s strong performance reflects Adobe’s long-standing focus on innovation and meeting the growing needs of our broad customer base. As businesses increasingly prioritize digital transformation, we are uniquely positioned to deliver value through our highly differentiated solutions and proven go-to-market execution to unleash the power of creativity. Looking ahead, we are excited about the opportunities to drive growth for our customers as we continue to shape the future in the era of AI. We look forward to seeing you next week at our Investor Meeting at Summit 2025. Thank you and we will now take questions.

Good afternoon Shantanu, if you took the AI book of business, it would be low single-digit percent of your total revenue for the year. I guess many are asking, when does this become more material? How long does it take? What is required? Maybe just help us walk through the AI journey and how that translates to revenue.

Happy to provide insights, Brent. If we consider our AI journey, it's structured in three phases. The first phase focuses on innovation. The second centers on monitoring usage and ensuring value and monetization. We're quite satisfied with our progress in all three areas, as we've discussed with you previously. A significant portion of our AI monetization comes from attracting subscribers, ensuring their retention, and encouraging them to opt for higher-value products. When customers purchase Creative Cloud or Document Cloud, they're effectively monetizing AI. Additionally, we wanted to highlight the new stand-alone products we are introducing, such as Acrobat AI Assistant, which will be available in various languages, Firefly, and the new subscription model for web services, including Firefly Services for enterprises and GenStudio. The $125 million in business we mentioned at the end of Q1 only pertains to this new area. We aim to double that. The impact on our overall business is significant. Looking ahead, investors can anticipate the new Firefly app, a web-based product that includes a subscription model, video capabilities, and ideation features. This will integrate well with Photoshop web, Express web, and our other products, providing additional growth opportunities. There will be more innovations and monetization in this sector. Ultimately, whether it involves innovation, our proprietary models, integration across our products, new revenue streams like GenStudio in the enterprise, or focusing on usage and monetization, I feel very optimistic about our direction.

Great. Thanks Shantanu.

Thanks for taking my question. Good afternoon. I wanted to double-click into the demand linearity you saw in the quarter. I appreciate the commentary reaffirming 11% Digital Media ARR growth guide for the full year. But could you provide more color on trends you saw in the quarter across Creative and Document Cloud here? Thanks.

Yes, happy to provide that information. Digital Media ARR grew by 12.6%, which aligns with our expectations, and the mix was also as anticipated. Looking at the demand and how the business performed this quarter, it reflects historical trends and a broad-based demand for our products, with some notable highlights. The market for business professionals and consumers is massive, with billions of users that we are targeting. Our strategy is focused on delivering comprehensive productivity solutions, spanning from consumption to creation, which is what we aim to achieve with Acrobat and Express. We witnessed significant momentum in these areas, with Acrobat reporting a 23% year-over-year increase in monthly active users. The conversion rates for these users have improved, positively impacting our business. Our AI Assistant, introduced last year, continues to excel and contributes to our strategy of enhancing consumption and conversational experiences, with a quarter-over-quarter usage growth of 2 times. Express has proven to be an exceptional product, and we have been making substantial investments in it, both in marketing and partnerships, effectively doubling our partner ecosystem this past year with new collaborators like Miro, Box, Webflow, and HubSpot. We have also seen an 85% year-over-year growth in students accessing the product and have ramped up our student and campus ambassador programs. We've added 6,000 new small and medium businesses to the Express product. In Acrobat, we're seeing increased demand, evidenced by a tenfold year-over-year engagement increase in Express capabilities from Acrobat users, and we feel optimistic about that audience. On the Creative professional and creator side, we already mentioned the introduction of the Firefly video model being utilized by companies like Dentsu, PepsiCo, and Stagwell. The new offerings from Standard to Pro, and the recent launch of Premium, which includes a larger set of generative credits, represent new monetization opportunities. We introduced Photoshop for mobile and web, resulting in hundreds of articles and 30 million social engagements, with the app featured prominently on the App Store over the weekend. We are also making great strides with AI in Lightroom web and mobile, as well as Premier. There's a lot of momentum in that sector. Additionally, as we've driven innovation, there are three significant milestones approaching: Summit next week, NAB shortly after, and then Max London. We have crossed 20 billion generations, with over 1 billion generations occurring monthly, and around 90% of Firefly app users are generating video as part of that. We're also experiencing strong growth in the enterprise sector. Anil, would you like to add anything?

Yes, exactly. To just echo what you were saying, I think in the enterprise, we see a lot of demand for creativity and marketing and AI coming together. Every CMO that we talk to, every agency that we work with, they are all very interested in how generative AI can be used to transform how the content supply chain works. And with the GenStudio offering, which combines the creativity and the marketing and the AI, we've seen tremendous traction and we saw a number of both customer wins, as well as a number of agency partners, and we look forward to unveiling a lot more of this at Summit.

So off to a great start, I think with innovation, new offerings and you can expect to see new offerings and peers in the months ahead.

Helpful. Look forward to talking to you next week. Thanks.

Excellent. Thank you guys for taking the question. And thank you for the additional disclosure. I think it's a really interesting view kind of breaking down the creative and marketing professionals versus the business professionals and consumer group. And kind of following on that last question, correct me if I'm wrong, but it feels kind of bullish to me that the business professionals and consumer group has a stronger growth rate, creative at 15% creative and marketing professionals, a little bit behind because it feels like business professionals and consumer group, those products would be faster sales cycle, particularly on the consumer side of the equation, faster adoption. The creative and marketing professionals, this broader solution that you are trying to sell would have a longer sales cycle. So the question is, am I thinking about that right? And are you seeing any indications that, that creative and marketing professional group, whether it's in your pipeline or sort of the activity you're seeing, could that catch up with what we're seeing from the business professionals and consumer group?

Part of our goal was to provide insight into how we're seeing different customer groups. People wonder how we drive creativity, and when considering the GenStudio product line, which we’ve identified as a $1 billion business, alongside AEP and Apps, also a $1 billion business, we’re addressing the entire content supply chain for creative professionals. As we add new subscriptions like the Firefly app and enhance video and functionality in GenStudio, we see significant growth potential. There's a large untapped opportunity in the creative market, especially within enterprises, which represents a substantial total addressable market. We're excited to share more about this. The $5 billion we’ve built in digital marketing is supporting the content and creative economy, which is why we wanted to give you a glimpse into these metrics related to our subscriptions and offerings. Additionally, we have made investments in Acrobat and Express to maintain distribution, contributing to our large user base with hundreds of millions of monthly users. These numbers will be important indicators for the growth of Express and Acrobat. I'm happy you found the extra information useful. I also want to clarify that we are not categorizing all revenue from Digital Media and Digital Experience as AI revenue. However, compared to other companies in our space, we’re pleased with the adoption of AI features within our products, particularly in Digital Experience, Acrobat, and the creative professional domain. Our intention was to highlight these developments for discussion at the FA meeting.

Outstanding. Can I sneak in one last question for Mr. Durn? It's great to see you take advantage of the recent dip in the stock price by increasing the share repurchases this quarter. Can you maintain this pace of share repurchases throughout the year, or is this more of a one-time occurrence?

Yes. So if I take a step back, Keith, and you think about the last four quarters, we've repurchased almost $11 billion. And we've always talked about if there's opportunities to be opportunistic along the way, we would take advantage of it. And I think that's what you saw play out in Q1. We've got a strong point of view about the financial profile throughout the course of the year. Happy to reaffirm guidance, but we're going to drive that with strong operating margins, strong cash flow delivery and be strong capital allocators throughout the year. So we feel good about where we sit. And if there's opportunities to be opportunistic, we will.

And Keith, it's definitely a vote of confidence that we feel in what we are seeing as the opportunities ahead of us.

Hi, thank you very much. Much appreciate the disclosure and the color and everything that goes with it. Shantanu, question for you. When you pivoted the company to a new business model through cloud, initially there was a lot of skepticism. Then you proved to us that the TAM was actually larger in the new creative meets the cloud cycle. And the company was able to accelerate through the transition and put up even better margins by expanding the TAM necessarily. So as you look at AI right now, right now, one bearish argument that one could make which I don't subscribe to, is that you're playing defense and that AI is a cost of staying in business and keeping us relevant to your creative base. But how do you look, since you've been through this one big shift before, you've got a lot of experience, where is your conviction on how truly incremental AI can be for your growth? Could you be at a similar junction where you're poised to get into the next cycle which is actually bigger TAM, not to put words in your mouth, but even maybe dare I say the potential to accelerate off of the good growth that we've seen so far? Thank you so much.

Well, Kash what I appreciate about the question is, this is what we wanted to really tee up in front of the FA meeting. But without a doubt, as David described, the opportunity for the business professional and consumers, I think you will start to see and we'll share more at the FA meeting that there are billions of people that we can bring into the fold for creativity and productivity and talk more about how we are, with the distribution that we have and with the monthly average users that we have, monetize that much like we've monetized Acrobat. And we definitely believe that it's a massive, massive opportunity. I think it is the same thing across creators. There are more creators that are entering. And again, I'll preview a little bit of what David will share, which is when you think about the web and mobile offerings that we are providing to attract more people to our platform, as creative professionals and next-generation creators, the number of people who want to enter that profession is significantly larger than it's ever been. And so with products like Photoshop on web and mobile, as well as Firefly app, that's clearly the intent to show how that as a subscription service and attracting the next generation creators will be a tailwind. And then when you put this together in the enterprise, I mean, hopefully, what you also see as part of the additional disclosures is that the enterprise has continued to be a material part of our business and material part of our growth because they are, in order to do personalization at scale, as Anil is talking about, there is going to be more content that's produced. There's going to be more content that's actually inserted into ad systems and social media. And so again, I think setting the stage for how that's a larger opportunity. But if you look at it from not just the length of we were marketing but look at the lens of, hey, that's a content business for us in the enterprise. We will again outline how that is only going to be a growing opportunity. So no question in my mind, all three of these are actually going to accelerate in terms of the TAM and then we have to innovate and execute against that. So I am more excited about the larger opportunity without a doubt as a result of AI. And we've talked about this, Kash. If you don't take advantage of AI, it is a disruption. In our particular case, the intent is clearly to show how it's a tailwind.

Excellent. And one follow-up and very quick, promise if I can. With the turbulence in the markets with trade wars, etc. tariffs, etc., how do you feel your customer base is going to behave? Is everything going to be on track from what you can tell by talking to your customers? Or are they kind of perplexed by what's going on and pausing? Thank you so much and that’s it for me.

I believe we have mentioned that under the current macroeconomic conditions, our diverse business is off to a strong start in our discussions. We are engaging with our peers, and I trust our experienced management team will guide us through this. Customers seem to be collectively trying to gauge the economic situation. However, the tariffs do not significantly affect Adobe as they do other companies, so we remain optimistic.

Thank you very much. Dan, can you give us more color on why you're changing the categorization of revenue, removing the historical Document Cloud and Creative Cloud? Is this driven by the One Adobe sales motion? Is Express now sold predominantly with Document Cloud? How should we think about the drivers? Thank you.

Yes, so thanks for the question, Mark. As we laid it out, we talked about increasingly driving cross-cloud offerings. We're already doing it today. We're going to be doing more of it going forward. And as you look at individuals increasingly buying offerings, as you look at enterprises increasingly buying solutions and bringing different parts of our portfolio together to meet their highest value needs around these two groupings of the customers, it really is meant to just draw a highlight to our strategy and how we are executing against that strategy. On a go-forward basis, our success is going to be driven by the way we innovate into the intersection of productivity and creativity, into the intersection of creativity and marketing. And those intersections are highlighted by these two groupings of customers. And so the intent around this is to really bring to life how we are driving our strategy, how we're executing against it, provides the best insight into how the company is performing on a go-forward basis.

Mark, we've received specific feedback indicating that you are aware of Acrobat's integration within both the Creative Cloud and Document Cloud. This integration highlights the growth and potential of that segment. Regarding One Adobe, the GenStudio solution is effectively replacing products like Photoshop and the Creative Cloud, while also incorporating Express for all marketers. We are offering Firefly Services and custom models, and we aim to promote this as a unified enterprise solution. This approach will also be reflected in our revenue reporting, enhancing visibility into our market strategies.

That makes a lot of sense. And one quick other one. Should we expect the disclosure on the AI ARR something that we'll be getting quarterly or periodically updated?

Periodically.

Hi, thank you for taking my question. I'd like to echo the positive comments regarding the new figures, especially concerning the AI book of business. My question revolves around the $125 million figure. Could you provide insight into how this amount breaks down among Assistant, Firefly, and GenStudio? Additionally, could you share the growth rates and how you plan to double that figure by year-end? Also, I'm curious if that $125 million is more beneficial for creative and marketing professionals or for business professionals.

Yes, that's a great question, Alex. To start, the AI Assistant has been in the market for about three to four quarters, while Firefly Service has been around for roughly the same period. GenStudio was launched late in the fourth quarter of last year. This context helps illustrate that the composition of our offerings will depend on how long these products have been available. Looking at the growth trajectory, we're discussing a $125 million figure expected to double within the next nine months, highlighting the scale and momentum of these businesses. The core innovation mentioned by Shantanu has led to significant utilization, and we are now moving towards monetizing these offerings. Firefly includes features like imaging, vector, design, video, and voice, with new video and voice functionality launching in a couple of weeks, showing promising early results. Commercial safety of the models is critical, as many enterprises are seeking them for their quality, range, and the commercial safety and creative control we provide, allowing for precise video generation and other capabilities. Additionally, we will be introducing third-party models to enhance our offerings, further positioning us as the go-to resource for creativity. We're also developing Firefly into a stand-alone product with different tiers, integrated into Creative Cloud and potentially further tiered. Our collaboration with Anil's team on GenStudio aims to ensure that all models, including third-party options, are incorporated into our offerings. This evolution shifts the focus from the models themselves to the workflows, integration, application tiers, and agent-based features, which leverage our strengths and the audiences we serve. This is why we are optimistic about the $125 million doubling within the next nine months.

Yes. I'm glad that you find the sort of information useful. I will give you a little bit more color as well on that. Remember, with Acrobat, we have AI Assistant that's separate, so this is only the separate Acrobat AI Assistant. So the majority of that revenue is actually Creative because as we can continue to put the AI Assistant, as part of an Acrobat SKU. We would not count that if that came as part of an Acrobat Premium SKU. So color-wise so far, creative actually represents the majority of that. But as you know, Acrobat is doing great.

That's very helpful. I guess to continue with that, we've observed a lot of consolidation in the AI sector, particularly with model companies and the emerging agents. Can you remind us how you view your strategy regarding organic versus inorganic innovation, considering the wide range of functionality you are releasing?

As it relates to the core creative models, we will have our commercially safe, as David said, Alex, and so within Firefly as an application and within each of our product integrations and Photoshop, etc., expect Firefly. We've also signaled and we've shown how we would support third-party models associated with that. And so whether it is a custom model that we create for one of our enterprise customers, I think if you look at it, there have been a couple of articles this week about how whether it's Estee Lauder, who is going to be building their models built on ours and leveraging it or a company like Publicis that's going to be taking these models. So our core imaging video franchise, we will have our models as it relates to text, we have support for other third-party models. And so I think it's a very practical and it's the right one, and we'll support all of the creative third-party models that people want to support, whether it is a custom model we create for them or whether it is any other third-party model within Firefly as an App and within Photoshop, you're going to see support for that as well. And so think of it as we are the way in which those models actually deliver value to a user. And so it is actually just like we did with Photoshop plug-ins in the past, you’re going to see those models supported within our flagship applications. Hopefully, that gives you a sense.

Thank you very much. I was wondering if you could share your thoughts on the current state of advertising activity and consumer spending trends, especially in light of the recent inconsistent results from various airlines and retailers. What gives you the confidence to maintain the FY '25 guidance when these sectors, which are significant parts of the economy, appear to be facing challenges? I'm curious if you see them continuing to create, market, and advertise despite the current environment.

I think at the end of the day, Mark, we just believe that digital is going to continue to be a fundamental part of the economy and the importance is going to continue. I mean, there isn't a single company that I've talked to that doesn't say digital. To your point, as other companies view macroeconomic conditions that may be particular to them, onuses on every company that's serving them with technology to demonstrate how the technology helps, whether it's the top line or the efficiency. But whether it's top-line growth or efficiency or both, they're not going to go out of style, as it relates to any enterprise saying, how can I use technology to accomplish my objectives?

Okay. As a quick follow-up on Alex's question, with the ARR of $125 million expected to double in the next nine months, do you think the composition will remain the same or will the introduction of video models change the mix during that period?

The video model is part of the creative Firefly app that will be part of this. I think a lot of these great questions, Mark, I mean, at the FA meeting, we'll try and give more color as well as to what we are seeing. But we wanted to at least start to outline what products were in there, the growth rates that we expect and how we are executing on, as I said, the innovation, usage, understanding and offering these as monetization. So we'll also, I know keep a track of the ongoing questions and address them at the FA meeting as well, Mark.

Okay, great. Hi, guys. Thanks for taking my question here and squeezing me here. I'll keep it to one. David, maybe for you. It's great to see the Firefly app tiers that customers can add to their existing subscriptions. And maybe to Shantanu's point, this is a better topic for FA day, but I'm wondering if we could just talk about how do you envision sort of the potential attach rate there? I mean, Firefly is clearly an unprecedented offering, so maybe that's really tough to answer. But are there any products that maybe Adobe has seen in the past like Adobe Stock or any others that you look at as sort of a framework for what that adoption curve could look like?

Yes. If we take a step back, the excitement around the Firefly app stems from two main reasons. First, in every conversation with creative professionals, it's clear they are under considerable pressure to produce more. This group shows strong engagement and adoption of the generative AI features we've integrated into the product, as they are easy to find and effective, providing significant value. We plan to deepen the integration of these premium features in the Firefly Standard, Pro, and Premium plans into the creative workflow, allowing more individuals to discover them. Additionally, we will analyze usage and excitement to ensure our pricing and tiering strategies optimize opportunities for customers while also benefiting Adobe and our shareholders. This area holds significant promise as we move forward. The second point to emphasize is the relevance of the Firefly experience for non-creative professionals and the next generation of creators. Early adoption rates of the Firefly paid plans indicate that it adds value for creative professionals while also serving as an effective onboarding tool for emerging creators. Furthermore, there's an increasing opportunity to integrate our web and mobile offerings, not just for generative capabilities but also for how users can utilize content generated through Photoshop and Express on web and mobile. We're enthusiastic about Firefly Services and the monetization potential for both attracting new users and increasing value for our existing customer base.

And Saket, since that was the last question, thank you. And maybe just in a quick summary, I mean, the four things that I would leave you all with is Q1 was a strong start. We were pleased with our performance. When you think about the addressable markets that we have, as we think about how we serve the business professional and the consumer and the creative professional and the marketing professional, we believe that, that's an immense opportunity that's only going to grow as a result of AI. We are pleased with how AI is now infused across all of our products and how we are further tailoring the breadth of our products to serve these customer groups in a way in which we delight them. And we're starting to outline how the monetization will be different for each one of these and applicable for the customer group that we are serving. We really continue to believe that this will drive growth and profitability for us, as a company in '25 and beyond. And so we look forward to joining you all at the FA meeting, and thank you for joining us today.