Operator

Good day, and welcome to the Q3 FY '24 Adobe Earnings Conference Call. Today's
conference is being recorded. At this time, I'd like to turn the conference over to
Jonathan Vaas, VP of Investor Relations. Please go ahead.

Jonathan Vaas

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 third quarter fiscal year
2024 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, September 12, and contains forward-looking statements that involve
risks, 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 growth 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.

Shantanu Narayen

Thanks, Jonathan. Good afternoon, and thank you for joining us. Adobe had an
outstanding third quarter. We saw strength across Creative Cloud, Document Cloud and
Experience Cloud, achieving revenue of $5.41 billion, representing 11% year-over-year
growth. GAAP earnings per share for the quarter was $3.76 and non-GAAP earnings per
share was $4.65, representing 23% and 14% year-over-year growth, respectively.

Our success reflects our strong execution against an ambitious innovation agenda to
deliver value to our customers. The product advances we've launched in the past 18
months are delighting a huge and growing universe of users and enterprises,
empowering them to unleash their creativity, accelerate document productivity and
power their digital businesses.

Our vision revolves around Adobe's deep technology platforms across Creative Cloud,
Document Cloud and Experience Cloud, which when integrated provide significant
differentiation and value. We're amplifying creativity and productivity by enabling the
convergence of products like Photoshop, Express and Acrobat as knowledge workers
and creatives seek to make content more compelling and engaging. We're bringing
together content creation and production, workflow and collaboration and campaign
activation and insights across Creative Cloud, Express and Experience Cloud. New
offerings include Adobe GenStudio and Firefly Services empower companies to address
personalized content creation at scale with agility and enable them to address their
content supply chain challenges.

Adobe's customer-centric approach to AI is highly differentiated across data, models

and interfaces. We train our Firefly models on data that allows us to offer customers a
solution designed to be commercially safe. We have now released Firefly models for
imaging, vector and design and just previewed a new Firefly Video model. Our greatest
differentiation comes at the interface layer with our ability to rapidly integrate AI across
our industry-leading product portfolio, making it easy for customers of all sizes to adopt
and realize value from AI.

Firefly-powered features in Adobe Photoshop, Illustrator, Lightroom and Premiere Pro

help creators expand upon their natural creativity and accelerate productivity. Adobe
Express is a quick and easy create-anything application, unlocking creative expression
for millions of users. Acrobat AI Assistant helps extract greater value from PDF
documents. Adobe Experience Platform AI Assistant empowers brands to automate
workflows and generate new audiences and journeys. Adobe GenStudio brings together
content and data, integrating high-velocity creative expression with the enterprise
activation needed to deliver personalization at scale.

Overall, we're delighted to see customer excitement and adoption for our AI solutions
continue to grow, and we have now surpassed 12 billion Firefly-powered generations
across Adobe tools. I'll now turn it over to David to discuss the momentum in our Digital
Media business.

David Wadhwani

Thanks, Shantanu. Hello, everyone. In Q3, we achieved net new Digital Media ARR of
$504 million and revenue of $4 billion, which grew 12% year-over-year, fueled by
innovation in both our Creative and Document businesses. With Document Cloud, we
continue to reinvent how people create, edit, share, review, and sign digital documents
with PDF and Acrobat across mobile, web and desktop.

For decades, PDF has been the de facto standard for storing unstructured data, resulting
in the creation and sharing of trillions of PDFs. The introduction of AI Assistant across
Adobe Acrobat and Reader has transformed the way people interact with and extract
value from these documents. In Q3, we released significant advancements, including the
ability to have conversations across multiple documents and support for different
document formats, saving users valuable time and providing important insights.
We are thrilled to see this value translate into AI Assistant usage with over 70%
quarter-over-quarter growth in AI interactions. In addition to consumption, we're focused
on leveraging generative AI to expand content creation in Adobe Acrobat. We've
integrated Adobe Firefly image generation into our Edit PDF workflows. We've optimized
AI Assistant in Acrobat to generate content fit for presentations, e-mails and other forms
of communication, and we're laying the groundwork for richer content creation, including
the generation of Adobe Express projects.

The application of this technology across verticals and industries is virtually limitless.
Tata Consultancy Services recently used Adobe Premiere Pro to transcribe hours of
conference videos and then used AI Assistant in Acrobat to create digestible event
summaries in minutes. This allowed them to distribute newsletters on session content
to attendees in real-time.

We're excited to leverage generative AI to add value to content creation and

consumption in Acrobat and Reader in the months ahead. Given the early adoption of AI
Assistant, we intend to actively promote subscription plans that include generative AI
capabilities over legacy perpetual plans that do not.

In Q3, we achieved Document Cloud revenue of $807 million, growing 18%

year-over-year. We added $163 million of net new Document Cloud ARR. Other highlights
include: Expanded Acrobat customer value with multi-document support for AI
Assistant, enhanced meeting transcript capabilities and support for larger documents;
optimized AI Assistant for mobile, web and desktop experiences, including
voice-enabled conversations on Android; continued strength of PDF-based collaboration
with shared links growing greater than 70% year-over-year; increased top of funnel
through Acrobat Web with monthly active users growing over 35% year-over-year as a
result of link sharing and our Microsoft Edge and Google Chrome extensions; Key
enterprise customer wins include Amazon, Charles Schwab, Disney, Home Depot, KPMG,
RedBull, Sutter Health and the U.S. Treasury Department.

With Creative Cloud, the demand for creative expression and design across media types
and surfaces has never been greater. Consumers are sharing edited photos more than
ever. Students need to create school presentations that stand out. Creative
professionals are being asked to create more images, designs, and videos faster than
ever before. Small businesses are looking to engage prospects on social channels, and
large enterprises are defining their content supply workflows to deliver personalization
at scale.

AI has the potential to empower creative professionals, communicators, consumers and

organizations of all sizes to be more creative and productive. Our strategy is to build
technology that will create more streamlined and precise workflows within our tools
through features like Text-to-Template in Express, Generative Fill in Photoshop,
Generative Recolor in Illustrator, Generative Remove in Lightroom and the upcoming
Generative Extend for video in Premiere Pro. We're exposing the power of our creative
tools and the magic of generative AI through Firefly Service APIs so organizations can
generate and assemble content at scale.

As we integrate Firefly innovations throughout our tools, usage continues to accelerate,

crossing 12 billion generations since launch. The introduction of the new Firefly video
model earlier this week at IBC is another important milestone in our journey. Our video
model, like the other models in the Firefly family, is built to be commercially safe with
fine-grained control and application integration at its core. This will empower editors to
realize their creative vision more productively in our video products, including Premiere
Pro.

With Express, we're on a multiyear strategic journey to dramatically expand our reach
across customer segments. Adobe Express is our AI-first content creation application,
fulfilling our mission to enable creativity for all. The all-new release of Express across
web and mobile earlier this year has been embraced by millions of users. They love how
easy it is to create anything in Express, with strong enthusiasm for our image editing
features powered by Photoshop, video editing capabilities powered by Premiere Pro,
document and presentation workflows powered by Acrobat, and unparalleled generative
AI features powered by Adobe Firefly.

Our integration of Adobe Stock and design templates with our unique Firefly design
model ensures that content created in Express can stand out. Express empowers a
broad array of individuals and businesses from solopreneurs to the largest enterprises
in the world. We're continuing to grow Express as we ramp our go-to-market activities to
support recent product releases, including Express for individuals, Express for
Education, Express for Teams and Express for Enterprises. As a result, in Q3, we drove
70% year-over-year growth in cumulative exports, we onboarded over 1,500 businesses
and millions of students.

In Q3, we achieved $3.19 billion in revenue, which grew 11% year-over-year in constant
currency. Net new Creative Cloud ARR was $341 million. Other highlights include: New
AI-powered features in Photoshop that accelerate core creative workflows and
streamline repetitive tasks. Generative Fill in Photoshop was upgraded to Firefly Image
3. Generative Image was made generally available, and the new Selection Brush and
Adjustment Brush tools were introduced, making selective edits easier than ever.

Broad-based innovations in Illustrator, including significant improvements to vector

generation, enhancements to text to pattern and the all-new Generative Shape Fill. These
advances unlock new ways for pro designers and illustrators to quickly bring their vision
to life. Strong adoption of the latest version of Lightroom and Lightroom Mobile, which
now includes the new Generative Remove feature. Millions of users have
non-destructively removed unwanted objects from their photos with a single click.
Strong demand for Firefly Services, which provide APIs, tools and services for content
generation, editing and assembly, empowering organizations to automate content
production while maintaining quality and control. Total API calls tripled
quarter-over-quarter. Acrobat Pro single app continues to be a growth driver in Creative
Cloud, reflecting the increasing adoption of PDF as a preferred format to create,
collaborate, and share visually compelling content. Key enterprise customer wins
include The Brandtech Group, Dentsu, Estée Lauder, Google, MediaMonks, Meta, MLB,
Newell Brands, PepsiCo, Stagwell Group, and the U.S. Navy.

We look forward to hosting Adobe MAX, the world's largest creativity conference, next
month in Miami, where we will welcome more than 10,000 members of our global
community and engage with hundreds of thousands more online. We will hear from
inspiring creators and unveil innovations across our clouds.

In summary, we are excited about the pace and caliber of innovations across our Digital
Media products and the continued execution across multiple growth drivers. I'll now
pass it to Anil.

Anil Chakravarthy

Thanks, David. Hello, everyone. In Q3, we achieved Experience Cloud revenue of $1.35
billion. Subscription revenue was $1.23 billion, representing 12% year-over-year growth.
Customer Experience Management remains top of mind for B2C and B2B companies
around the world as they focus on digital strategies for customer acquisition,
engagement, retention and expansion. Enterprises want an integrated platform to deliver
personalized experiences at scale to their customers while maximizing the ROI of their
marketing and customer experience investments.

Through the integration of Experience Cloud and Creative Cloud, Adobe is uniquely
positioned to combine the right content, data and journeys in real-time for every
customer experience. The revenue growth we are driving across our categories, content,
commerce and workflows, data insights and audiences and customer journeys, all built
on the Adobe Experience Platform demonstrate the strength of our business. Global
brands trust Adobe to build their content supply chain and deliver personalization at
scale, making us the #1 digital experience platform in the industry.

Customers are embracing the opportunity to address their content supply chain
challenges with Adobe GenStudio. With native integrations across Experience Cloud and
Creative Cloud, GenStudio empowers marketers to quickly plan, create, store, deliver and
measure marketing content and drive greater efficiency in their organizations.

Financial services leader Vanguard is creating an integrated content supply chain to

serve the strategic goal of deepening their relationships with a broad range of investors.
Leveraging the GenStudio solution, Vanguard was able to increase quality engagement
by 176% by focusing on one-to-one personalization and to realize millions in savings by
improving content velocity and resource allocation with an end-to-end content creation
workflow.

Other highlights include: the general availability of Adobe Content Hub, further
enhancing the value of Adobe Experience Manager Assets. Content Hub enables brands
to reimagine how creative assets are used across their organization and with external
agencies, driving content velocity and major efficiency gains. AEM Assets is used by the
majority of the Fortune 50, including 8 of the 10 largest media companies, 9 of the 10
largest financial services companies, and 8 of the 10 largest retailers.

Increasing importance and adoption of Workfront to streamline workflows across

marketing organizations and agencies. We extended our leadership in this category
through the general availability of Adobe Workfront Planning, which delivers a
comprehensive view of all marketing activities in an organization and enables teams to
optimize marketing planning and execution. Global brands, including Deloitte, Interpublic
Group and NASCAR are using Workfront Planning to drive productivity gains and meet
the rising demand for highly personalized marketing campaigns.

Continued momentum for Adobe Experience Platform and native applications, including
real-time Customer Data Platform, Customer Journey Analytics and Adobe Journey
Optimizer. We expanded our AEP portfolio with the general availability of Adobe Journey
Optimizer B2B Edition, which leverages generative AI to deliver personalized experiences
to buying groups, the decision-makers, practitioners and stakeholders responsible for
major purchasing decisions.

Strong industry analyst recognition, including the Forrester Wave for B2B Revenue
Marketing Platforms and 3 IDC MarketScape reports across Digital Asset Management
and Headless Digital Commerce for both Enterprise and Mid-Market. Key customer wins
include Dentsu, Home Depot, Humana, IBM, Johnson & Johnson, Mayo Clinic, Newell
Brands, Premier League, Stagwell Group, TD Bank and UPS.

We look forward to unveiling new customer experience management innovations across

content, data and journeys at MAX next month, showcasing integrations across Express,
Creative Cloud and Experience Cloud for freelancers, solopreneurs and marketers
across agencies and enterprises. Our pace of innovation, commitment to customer
value, global partner ecosystem, and category-defining solutions position us to continue
our market leadership. I will now pass it to Dan.

Daniel Durn

Thanks, Anil. Today, I'll start by summarizing Adobe's performance in Q3 fiscal 2024,
highlighting growth drivers across our businesses and I'll finish with financial targets. In
Q3, Adobe achieved record revenue of $5.41 billion, which represents 11% year-over-year
growth as reported and in constant currency. Our focus on both growth and profitability
has been a cornerstone of our operating philosophy for years, rooted in strategic
prioritization, relentless innovation and laser-focused execution. Our Q3 results reflect
this approach. We're making significant investments in our technology platforms,
launching global campaigns to expand our customer base, and attracting top-tier talent
while delivering world-class cash flows and profitability.

Third quarter business and financial highlights included: GAAP diluted earnings per
share of $3.76 and non-GAAP diluted earnings per share of $4.65; Digital Media revenue
of $4.00 billion; net new Digital Media ARR of $504 million; Digital Experience revenue of
$1.35 billion; cash flows from operations of $2.02 billion; an RPO of $18.14 billion
exiting the quarter.

In our Digital Media segment, we achieved Q3 revenue of $4.00 billion, which represents
11% year-over-year growth or 12% in constant currency. We exited the quarter with
$16.76 billion of Digital Media ARR, growing our ending ARR book of business 13%
year-over-year in constant currency. Adobe achieved Document Cloud revenue of $807
million, which represents 18% year-over-year growth as reported and in constant
currency. We added $163 million of net new Document Cloud ARR, which was a record
for Q3, growing our ending ARR book of business 24% year-over-year in constant
currency.

Q3 Document Cloud growth drivers included: Usage and MAU growth across Adobe
Reader and Acrobat; usage and MAU growth via third-party ecosystems, including
Google Chrome and Microsoft Edge extensions, which are driving free-to-paid
conversion; demand for Acrobat desktop and mobile subscriptions across all customer
segments and geographies; strength in monetization of our AI Assistant with new
Acrobat subscriptions; strength in SMBs driven by our reseller partner network; and
strength in enterprise and public sector sales with a number of large deals closing in the
quarter.

We achieved Creative revenue of $3.19 billion, which represents 10% year-over-year

growth or 11% in constant currency. We added $341 million of net new Creative ARR in
the quarter, growing our ending ARR book of business 11% year-over-year in constant
currency. Q3 Creative growth drivers included: New subscriptions for Creative Cloud All
Apps across customer segments, including Teams, Enterprise and Education with
back-to-school demand; strength across our Acrobat Pro, Illustrator, Lightroom and
Photoshop single apps on Adobe.com; growing demand for AI-first Adobe Express
offerings in mobile, emerging markets and education; early monetization of our new
Firefly Services solution in the Enterprise segment; continued momentum with new
subscriptions in emerging markets; and contribution from customers stepping up to our
higher-value creative plans at renewal.

Turning to our Digital Experience segment. In Q3, we achieved revenue of $1.35 billion,
which represents 10% year-over-year growth as reported and in constant currency.
Digital Experience subscription revenue was $1.23 billion, growing 12% year-over-year as
reported and in constant currency. Q3 Digital Experience growth drivers included: Strong
subscription revenue growth at scale of AEP and native applications, up greater than
50% year-over-year; strong subscription revenue growth with Adobe Experience Manager
and Workfront; success in booking transformational deals as well as individual solution
selling; continued strength in retention and expansion across our enterprise customers;
and growing pipeline for our GenStudio solutions to address the content supply chain
opportunity.

Turning to the income statement and balance sheet. In Q3, Adobe delivered
year-over-year EPS growth of 23% on a GAAP basis and 14% on a non-GAAP basis. This
is primarily driven by revenue growth and disciplined prioritization of our investments,
which resulted in operating margin strength in Q3. The company continues to deliver
world-class margins while making significant investments in AI model training and
inferencing capacity. Adobe's effective tax rate in Q3 was 17.5% on a GAAP basis and
18.5% on a non-GAAP basis. RPO exiting the quarter was $18.14 billion, growing 15%
year-over-year as reported or 16% in constant currency. Current RPO grew 12%
year-over-year exiting the quarter.

Our ending cash and short-term investment position at the end of Q3 was $7.52 billion,
and cash flows from operations in the quarter were $2.02 billion. In Q3, we entered into
a $2.5 billion share repurchase agreement, and we currently have $20.15 billion
remaining of the original $25 billion authorization granted in March 2024.

We will now provide Q4 targets, which factor in current macroeconomic conditions and
year-end seasonal strength. For Q4, we're targeting total Adobe revenue of $5.50 billion
to $5.55 billion; Digital Media net new ARR of approximately $550 million; Digital Media
segment revenue of $4.09 billion to $4.12 billion; Digital Experience segment revenue of
$1.36 billion to $1.38 billion; Digital Experience subscription revenue of $1.23 billion to
$1.25 billion; tax rate of approximately 16% on a GAAP basis and 18.5% on a non-GAAP
basis; GAAP earnings per share of $3.58 to $3.63; and non-GAAP earnings per share of
$4.63 to $4.68.

In summary, I'm proud of our year-to-date performance, which stems from a powerful
combination of product leadership, rapid innovation, diversified business and financial
discipline. Given the massive markets we're catalyzing, I'm confident in our ability to
drive growth and industry leadership. Shantanu, back to you.

Shantanu Narayen

Thanks, Dan. Adobe's focus on responsible innovation with customers at the center
continues to be a unifying purpose for the company. The Content Authenticity Initiative,
which we founded in 2019, now counts over 3,300 members across the digital
ecosystem, all committed to enhancing trust and transparency with Content Credentials.
In 5 years, this mission has gone from a vision to reality with companies including
Amazon, Google, Leica, Meta, Qualcomm, Sony, TikTok, and others all committing to
implementing Content Credentials.

The U.S. Department of Defense became the first federal government agency to
implement Content Credentials by applying them to official DoD images. We're teaming
up with Governor Gavin Newsom on a new initiative to boost digital and media literacy
skills in K-12 schools and higher education institutions in California. By providing
educational content, programming and resources to schools across the state, we can
help empower California's future workforce for success in an AI-powered world and use
this as a blueprint for other states and countries.

Next week, we will bring employees together for our annual Adobe for All conference to
celebrate our vision and purpose and the impact that it has on our customers and
communities. I'm confident that Adobe's culture, innovative product road map, global
market opportunity, trusted brand and the unwavering commitment of our employees
will continue to drive our success. Thank you, and we will now take questions.

Operator

[Operator Instructions] And the first question will come from Alex Zukin with Wolfe
Research.

Aleksandr Zukin

Congrats on what looks like a very strong quarter. I had just one question but it's a
2-parter. The quarter itself, particularly on the Digital Media ARR, looked very strong. It
looked unseasonably strong because you haven't grown net new ARR sequentially into
3Q, I think, in almost 4 years. So maybe just comment like what drove this unseasonable
strength? Is it pricing, AI traction and particularly the Document Cloud net new ARR?

But at the same time, given all the product momentum you went through in the script, it's
a bit confusing to understand why the Q4 guide is the lowest it's ever been sequentially
for Q4 on net new Digital Media ARR, which I think makes people a little nervous about
maybe the go forward, the next year performance. And so maybe just address this
dichotomy because it looks kind of seasonally a little bit different than what we're used
to. And I think it's weighing on the stock after hours.

Shantanu Narayen

I'm happy to start, Alex, and then David can certainly also add to that. I mean, to your
point, we had a strong quarter. And when I think about Digital Media, Document Cloud, to
the point that you made, Acrobat continues to perform, the AI Assistant and the SKU
that we have associated with Acrobat continues to perform well. As we had said, we
expect Creative to show growth on growth year-over-year. And so that also played out
exactly as we expected.
And it was a strong end. When you look at it as it relates to the last few weeks
performance, we saw the typical strength that we would see going into Q4. I can see
how you're saying you're looking at the sequential guide. We're looking at it and saying
it's the strongest ever Q4 target that we have put out there for Q4, Alex. And so I think we
just continue to focus. We would expect Creative to again grow when you talk about
growth over growth net new ARR in Q4.

And all of the new initiatives that we're talking about, AI, et cetera, continue to perform.
So from our perspective, when we look at what we guided to the second half of the year,
to your point, Q3 is stronger. We expect a seasonally strong Q4 and then our continued
innovation should continue to drive growth.

David Wadhwani

Yes. And maybe I'll just add a couple of things to what Shantanu said, again, just a little
bit more context behind the strength in Document Cloud. Obviously, link sharing and
what we've done with Reader distribution across mobile, web, and desktop, that's really
what continues to drive this business. And that underlying strength is going to continue
not just in Q3 but it's going to be something that we're able to bet on and grow on going
forward because we've got a lot of flow optimizations associated with that.

As we look at Creative Cloud, again, we have a broader set of offerings than we've ever
had, right? We have things like with Creative Cloud, we have higher value, higher-priced
offers, thanks to AI innovation that's happening in the base plans that are impacting how
the Creative Cloud business is doing. We also have a broader set of offerings than we've
ever had, now with web and mobile including premium and lower-priced offerings that
are driving more proliferation. And the blend of those 2 things also sort of comes into
the strength of the quarter and how we see things going out.

But as you look at the second half overall, we came into the second half with a strong
expectation of how the second half is going to play out. And frankly, it's playing out as
we expected in terms of the aggregate Q3, Q4 number. In terms of the specifics on
timing, Q3 was a little stronger than you expected and for a good reason, given
seasonality. I think a lot of that can be explained by a few deals that would have
historically just closed in Q4, closing earlier than expected in Q3. And that changed the
dynamic in terms of the linearity that you would typically see between Q3 and Q4.

Operator

And our next question will come from Mark Murphy with JPMorgan.

Mark Murphy

I'll add my congrats. David, I'm wondering if you can compare the AI monetization
opportunity that you're sensing with the image models relative to the future potential.
With your audio and video models, just for instance, how many tokens might be
consumed when someone is generating a video versus an image? And then tying in with
that, just how optimistic are you maybe being able to solve some of the limitations with
the current video generation models where the facial expressions can lack realism, or
they can't handle the object interactions or they don't provide enough detail or resolution
in the video?

David Wadhwani

Yes, happy to take that. Let me just sort of take a little bit of a step back and talk about
the core strategy that we have for AI and the conversion then in terms of how we think
about monetization. So I think we've been incredibly consistent with what we've said,
dating back 1 year, 1.5 years ago, where we talked about the fact that we were going to
develop the broadest set of models for the creative community. And we were going to
differentiate the models based on quality, commercial safety, integratability into our
tools and controllability.

And as you've seen very methodically over the last 18 months, we continue to bring
more and more of that innovation to life. And that fundamentally is working as we've
now started to integrate it much more actively into our base. If you look at it with
photography, we now have in our tool, Generative Remove, we have AI-assisted edits in
design, we have Generative Pattern, Generative Fill Shape. We have, in Photoshop, we
have Gen Remove. We also have Gen Fill, and I can continue on with all the generations,
but we've also now started to integrate it in Firefly Services for what we're enabling
enterprises to be able to access and use in terms of batch work and through APIs.

If you look at sort of how that's played out, as we talked about, we're seeing accelerated
use and generative credits being consumed because of that deeper integration into all
of our tools, and that is playing out as we expected. When you look at then how that
converts to monetization, first and foremost, we've integrated it a lot of that value into
our core products with more value and more pricing. We're also seeing that when people
use these generative features, they retain better. We're also seeing that when people
come to Adobe to try our Creative Cloud applications or Express application, they're able
to convert better.

And so there are all these ancillary implied benefits that we're getting. But in terms of
direct monetization, what we've said in the past is that the current model is around
generative credits, which is I think where you're going with this. And we do see with
every subsequent capability we integrate into the tool, total credits consumed going up.
Now what we are trying to do as we go forward, we haven't started instituting the caps
yet. And part of this is, as we've said all along, we want to really focus our attention on
proliferation and usage across our base. We see a lot of users excited about it. It's some
of the most actively used features that we've ever released.

And we want to avoid the generation anxiety that people feel. But we're watching very
closely as the economy of generative credits evolves, and we're going to look at
instituting those caps at some point when we feel the time is right and/or we're also
looking at other alternative models. What we did with Acrobat AI Assistant has proven to
be very effective. And so we're also considering other opportunities like having standard
CC plans that have a core set of generative capabilities but also having premium API --
sorry, premium AI plans that will include things more like video and other things.

So we're very happy about the innovation that's coming, and we see the opportunity to
engage very deeply in the monetization. But we want to play it out over time and
proliferation continues to be our primary guide. And then lastly in terms of quality, we're
-- I don't know if you had a chance to see some of the videos we put out there integrated
directly into Premiere, also text to video, images to video, more controllability. We have
also the ability now to generate not just themes with humans and dogs and organic
animals, but all these like overlays and things that creative professionals actually want
to work with.

And so we're very excited about the set of things that they can get out of the box that
get going. And human faces and things will just continue to get better. We have a lot of
great research that you'll start to see, and I hope you get to play with the models
because we've taken a huge step forward there.

Shantanu Narayen

Mark, maybe I'll just add a little to what David said, which was great. I spend a couple of
hours with our video team. They have just absolutely hit it out of the park. I mean the
work that they have done, which is leveraging the image models with video, and again, I
think to David's point, the integration with Premiere, that's where we've always said, it's
the integration of the model and the application that differentiates it.

I think when other models first came out, people were like, "Wow, you can describe it."
That's just such a small part of where the value is. And the real value is, you have a
video, you want to extend it. It's a game changer in terms of what we can do. So really
excited about the stuff that we're doing in video. And again, to David's point, this will be
monetized differently from the way we have for images, which was part of the sort of
base value pricing.

So the way I answer your question is, and the third thing I would say is, remember, we
have the ability to create custom models as well. And so when you ingest the video that
people want to edit, the ability to extend that is not just dependent on what the model is
but also on what the new data is. And again, that represents really a unique ability for us.
So hopefully, all those 3 demonstrate why we're leading the pack in terms of how people
can derive value in the nonlinear editors, which is where the action is going to be.

Operator

And moving on to Keith Bachman with BMO.

Keith Bachman

I wanted to pick up a little bit on how we should be thinking about, David, you said
monetization. And will consumption, you think, as we start to turn the year, can
consumption contribute to ARR growth as we look at FY '25? Because I think there's
pervasive fears that the state of competition may, in fact, limit your ability to turn on that
monetization, if you will, from either consumption or price. And I just wanted to see if
you could lace in consumption against the backdrop of competition.

Shantanu Narayen

From our perspective, Keith, I think when you look at what we have with the apps and the
models, we just continue to think that's uniquely differentiated. Firefly Services, which is
you can think of that also as a consumption model where we have that, it's off to a really
good start. Our ability to give enterprises the ability to automate content, create custom
models within enterprises, we're seeing real traction because it's a differentiated
solution and that it's designed to be commercially safe.

And as it relates to the core subscription models, again, David said this but I'll reiterate it,
which is the core subscription models for products like Photoshop and Illustrator, I think
the differentiation is the combination of the model and the technology. And in video, I
think we will find additional ways to monetize it. So I'm not sure who specifically you're
referring to as it relates to competition in this space, but from our perspective, it's just
unique. I mean, if you look at the acceleration of what we've seen of generations in
Photoshop, Illustrator, Lightroom, it's clear that we're actually extending the value rather
than having other people catch up.

David Wadhwani

And then one other thing I'd just emphasize there is that the commercial safety is so
important to businesses of all sizes, frankly, and that is something that we feel very, very
differentiated in addition to everything Shantanu said.

Keith Bachman

Okay. Great. And then perhaps for my follow-up, I wanted to pick up on Alex's first
question. But you're guiding net new ARR down 3% year-over-year in Q4. And I think
investors are thereby taking that as perhaps a framework when you look at next year.
But is there anything that net new ARR will be down next year? I know you don't want to
give guidance for next year, but just any kind of thoughts you want to address as it
relates to the guidance associated with net new ARR being down in Q4 versus a
framework that we might want to apply for the FY '25 net new ARR?

Shantanu Narayen
You're right, Keith. We're not going to give FY '25 guidance. We'll certainly share more at
MAX. And we would expect, like we did last year that at the December earnings call, we'll
give color on fiscal '25 ARR. But I'd say a couple of things. First, as it relates to, again,
the performance of the second half because to Alex and your question, if there are
questions around Q3 and Q4 and what that trend means, again, we will hope to have
record net new ARR in fiscal '24, which I think is a great thing.

We gave 1-9-5-0 (sic) [ $1.95 billion ] at the end of Q2. We're clearly on track to beat that
number, which we take as a positive sign. And the other thing maybe perhaps tactically
for you folks to think about as well as it relates to the Q4 guidance. Typically, you have
Black Friday and Cyber Monday in the same quarter. This time, Cyber Monday, I believe,
is in Q1. And so as it relates to our Q4 performance, it's the highest target that we've
ever issued. We will go out and continue to execute and continue to innovate. So that's
the way I look at the business, Keith.

Operator

And the next question will come from Saket Kalia with Barclays.

Saket Kalia

Okay. Great. David, maybe for you. You touched on some of the drivers in Document,
which was super helpful. But I'd love to maybe go one level deeper into some of the
dynamics in that business, which, of course, continues to grow net new ARR at a really
nice clip. So maybe we can just talk a little bit about, are there any pricing headwinds or
tailwinds that we should keep in mind, specifically for Document Cloud? And also maybe
you can give us a sense for sort of where Document Cloud is in its journey to maybe
becoming more of a subscription-heavy business? Do those make sense?

David Wadhwani

The first part does. Let me try to address the whole thing. The question on subscription
heavy, it is a very strong subscription business for us already. But I'll touch on that and
hopefully, I'll address your question. So first, if we take a step back and look at
Document Cloud. I mean the foundation of everything we're doing here is incredibly
strong. And it's a machine we've had for a long time but it continues to perform
incredibly well. And what I mean by that is the platform proliferation of what we have
with Acrobat and Reader.

The fact that we have, 40 years into this business, the rise of PDF and PDF becoming the
de facto standard for content as unstructured content as a whole is a remarkable
foundation for us to be building on. And the distribution we have across desktop, web,
mobile, including web extensions is really the foundation of everything we do because
that becomes the top of funnel for us. You layer on top of that the fact that generative
AI, in general, has come out where unstructured content, especially PDF unstructured
content, the 3 trillion PDFs out there that we believe are out there, has suddenly
inherently much more value than it did a year ago. And this whole ecosystem is set up
well for us.

In addition to that foundation, we've also been, over the course of the last few years,
really transitioning the way people share because if you think about PDFs and Acrobat in
general, one of the most important things people do is they produce the PDF to share it
with others often for a comment and review engagement. And by increasing sharing via
links versus sharing as an attachment, we see a lot more engagement and interaction
that we're able to benefit from, and that also helps with the top of funnel and we can
provide more value.

Then on that platform, what we've done is with AI Assistant, we focused on

consumption for the last 9 months, starting with the ability to look at a single PDF and
ask questions of that PDF. Then we added support for multi-docs so you can now have 5
or 6 PDFs that you're having a conversation with. We added support for multiple
formats. So you can look at PDFs but you can also drag in Word documents or
PowerPoint documents or a link to a meeting transcript that you have.

We're adding -- in the process of adding language support for other languages
optimizations. We're now starting to work on document type optimization. So if it's a
contract, we know how to optimize the results even better than if it's a marketing
document. And that's all about consumption. But in addition to consumption, we're now
expanding because these conversations that happen with these documents are
inherently about getting some insight and then sharing that insight.

We've also started to do things that you can create richer content on the back end of it.
So Firefly is embedded now in Edit PDF workflows. We have the conversational content
and now able to generate e-mails and presentations and those kinds of things. We've
now embedded in the convert PDF workflows the ability to output to Express and create
richer media output. And you can start to see all of this stuff coming together in a very
real way already but also in the months ahead.

The last thing I want to say on this, too, is that what's really working out well for us is
that when we are out pitching this opportunity not just in terms of the individuals that
use it but also businesses is that we don't have any security concerns, right? Our data
governance model is the same data governance model that's happened. If you have
access to the documents, you can have conversations with the documents. And so it
makes it a much easier thing for enterprises to adopt because there's no systemic
governance changes.

And so all of that continues to drive more adoption. And as I said on the prepared
remarks, Document Cloud is substantially a subscription business, but now with AI
Assistant being available to subscribers and not as directly to perpetual users, we
expect that to continue to transition even further.
Operator

And the next question will come from Jay Vleeschhouwer with Griffin Securities.

Jay Vleeschhouwer

David, I'd like to follow up on something that you said on the second quarter call, and
that was that you said at the time that you were, for the rest of the year, going to "pour
gas on your GTM" and as well engage in a full funnel campaign later in the year. So the
question is, could you update us on that? I mean it does seem to be, in no small part,
corroborated by some of your internal investments that we've been able to see, for
example, in your ICX team, your go-to-market positions across multiple products,
strategy positions and so forth.

But you've made this commitment for a substantial expansion. But do you think you
need going forward to continually accelerate the pace of investments in go-to-market?
Or do you think at some point, perhaps soon, you can begin to taper that off and then
leverage that capacity to revenue growth and thereby margin expansion?

David Wadhwani

Jay, I think we might have to have you join our marketing organization, given how much
you know about the market dynamics. But great question. And so first and foremost,
again, if we're going to talk about Express, let's take a little bit of a step back and
understand the dynamics of where we are in the evolution. I think what we had talked
about in Q2 was that not only do we feel like we have an incredible product now, but that
product is built on a brand-new platform that has the ability to develop AI functionality
as a native part of that platform. So the speed of innovation that we've been adding
capabilities to Express has really been at breakneck speed, and we're very excited about
that.

Features like native integration of Firefly so that everything that's generated here is
commercially safe, which again, like I said, is important to individuals and to businesses
but doing it with more control, things like style and structure match and integrate it into
the image viewer, the video viewer, editor and the design services. So very excited about
that. In addition to those basic capabilities that are so foundational, this is really the
design model that we've been talking about, Firefly Design model. This is where it's
surfacing the most.

And so you combine what we're doing with templates and the design model and people
are able to create and effectively get access to an infinite number of templates, right?
We believe that we're moving from a template-centric set of tools for communicators to
an AI-centric set of tools. And we feel that with our design model and everything we
have, we're fundamentally going to create better content that stands out ultimately. We
also have great workflows that we've developed with Photoshop and Illustrator and
Acrobat.

And we've integrated all of this in ways that are fundamentally effective for businesses,
including bulk creation and assembly capabilities, so small businesses all the way
through enterprises are able to leverage this for their designer to marketer workflows. In
addition to all of that innovation, to your point, we've really been focused on the
go-to-market since the last time. Since we last spoke or right before we last spoke in Q3,
we expanded the offer set significantly.

We've always had Express for Individuals in market but we added Express for Teams,
Express for Enterprise. And we just launched Express for Education this back-to-school
year with a lot better support for classrooms and teacher-student workflows as well. On
the marketing side, we've been ramping that very actively. It's a net new audience to
Adobe. I mean that's something to really recognize this isn't about shifting existing
audience over solely. It's about getting access to net new audience.

And so for that, we have to employ both traditional means with a focus on awareness
campaign but also leveraging social because that's where this audience is. So you'll see
us doing a lot more on social as a result. And then on the back of all that, we're ramping
our direct sales. We have a very at-scale inside sales motion that we're starting to lean
into. We have a very significant direct sales motion that we have in enterprises and
mid-market that we're leveraging. Adobe.com journeys, we have a lot of businesses and
individuals coming on Adobe.com and doing a lot more optimization in the App Store.

And that's really what you're starting to see in the numbers we shared with strong usage
at 70% year-over-year. Cumulative exports, strong business momentum with over 1,500
businesses sold and really great -- our best back-to-school season ever, with millions of
students now enabled on it. So that's the foundation. And if you're -- the one thing I
would say is, yes, we started pouring gas on it and we're going to pour more gas on it,
not less in the months and years ahead.

Shantanu Narayen

Maybe two other things, Jay, just big picture. I mean we continue to invest in all of the
key long-term things, whether it's training of models, whether it's Express, whether it's
AEP and Apps, whether it's GenStudio while delivering what I think are phenomenal
margins. And so we'll continue to make those trade-offs in terms of growth and
profitability. And maybe a little tongue in cheek. Part of the reason why David has the
ability to invest as much in marketing is he uses the best marketing technology in the
world from Anil.

David Wadhwani

That is true.
Operator

And our next question will come from Tyler Radke with Citi.

Tyler Radke

I wanted to ask you about the Digital Experience side of the business. So RPO looked
pretty strong in terms of sequential additions. The implied guide for Q4 was a bit lighter
than consensus. I know you did talk about some unusual dynamics in terms of
seasonality, Cyber Monday. But could you just talk about the strength and the underlying
dynamics you're seeing in the business heading into Q4?

Anil Chakravarthy

Yes. When we look at the Digital Experience business, we are pleased with the overall
execution of the business. We have a big opportunity with what we call personalization
at scale, where whether it's a B2C company or a B2B company, the ability to deliver
personalized customer experiences to consumers or to hundreds of thousands of
business customers, individuals within businesses, this is important for every company
in the world.

And we have the integrated platform and the applications to be able to help them deliver
those kinds of experiences. And we have the unique ability to bring together the right
content, the data, customer data and the customer journeys across our Experience
Cloud and the integration with Creative Cloud to deliver those personalized experiences,
and that's pretty unique to what we can do at Adobe.

And that's one of the things that we are seeing in the dynamic in the enterprise market is
the enterprises are scrutinizing all the deals that they want to do. I think in this case,
they look at our offerings and see the ability to not only help with growth, they also look
at the efficiency gains that we could help them create. And that's helping us as
enterprises scrutinize the spend.

And when you look at our guide, we're obviously -- we are focused on most closely on
our subscription business, and that's the business that continues to grow strongly, and
we're showing good performance on the subscription business. And our overall revenue
is a combination of subscription and services where we really are focused on working
with a broad global partner ecosystem to make sure that we deliver services to our
customers and help them realize value from our offerings.

Jonathan Vaas

Operator, we're at the top of the hour. We'll sneak in one more question and then wrap
up.

Operator
That question will come from Brent Thill with Jefferies.

Brent Thill

Just back to the guide. Can we just drill in? I know you mentioned there were a couple of
factors that were contemplated. I'm just curious, is there anything else that you're seeing
in that, that is different in terms of end demand? Or any thoughts as I know the U.S.
decelerated a little bit, EMEA has accelerated?

Shantanu Narayen

No, Brent, I mean, I think we had a strong Q3, and we continue to see the momentum in
the business. And it's our typical considered targets that we do and our focus on
execution. So we're not seeing anything as it relates to a change in the business
dynamics. I also mentioned that the last few weeks of Q3, as you know, the summer
seasonality ends. We saw the traditional strength that we expect to see on our web
traffic.

So I think MAX is coming up. We have an exciting agenda in terms of what we're going
to be talking about in terms of MAX. And so I mean, if I take a step back and think about
it, given this is the last question, I mean, from my perspective, strong Q3 across every
aspect of our business, revenue, EPS, Digital Media ARR, DX subs revenue. Acrobat
certainly also continued to show the strength. We have momentum in the business. And
the innovation road map, I mean, across all of the key initiatives that we've been talking
about, whether that's Express, GenStudio and the excitement that people have
associated with automating all of that content, AEP and Apps on the data side.

Imaging and video, the work that the Digital Media team has done on Photoshop and on
Illustrator and then what's coming down the pike on video. In Firefly Services, I think the
AI monetization as well, which I know is a theme of a number of people that have asked,
whether it's Acrobat, whether it's the premium SKUs as it relates to Experience Cloud,
whether it's what's happening on Gen Fill and the usage of Gen Fill, Lightroom and
Lightroom Mobile, I think we're clearly demonstrating how AI can both drive value for our
customers, and therefore, we acquire new customers and retain customers better.

So it feels good. We look forward to seeing all of you at MAX and we're going to just
continue to focus on innovation and delighting our customers. But thank you for joining
us.

Jonathan Vaas

Yes. Thanks, Shantanu. And we do look forward to the investor event that we'll be
holding in Miami at MAX on October 14, where we will be doing a Q&A with
management. We hope to see many of you there. And with that, thank you for joining the
call, and this concludes the event.
Operator

That does conclude today's conference. We do thank you for your participation. Have an
excellent day.