Good afternoon. Welcome to Scotiabank presents Adobe Inc. We've got a team from Adobe joining us. I'm Paul Steep, one of the technology analysts at Scotiabank. I'm thrilled to have you with us. Before we begin, I want to read out this disclaimer, that the views and opinions expressed in this presentation are not necessarily those of Scotiabank and may differ from the views and opinions of other departments or divisions of Scotiabank. The information contained in this presentation does not constitute investment advice or an offer to buy or sell securities. Neither Scotiabank nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the statements or any information referred to in this presentation. With that out of the way, I wanted to welcome our guests from Adobe j oining us today, we have Jonathan Voss, the head of Investor Relations, and Andrew Chan, a key member of the Investor Relations team there. Welcome, guys. Thanks so much for having us, Paul Steep. It's great to be here. Thanks for having us. Great. Maybe to start off, I think the best place to start is to talk a little bit about Adobe, since the company's evolved a lot over the years. You're way more than PDF, and everyone knows and relies on that product in their day-to-day life. Maybe I'll leave it open to you as to who wants to start, but talk about the evolution of Adobe, what's changed, and then how people should think about Adobe now, obviously, in the context of what we've just been through and are coming through. That's a great place to start. There's so many ways in which the company has changed since I joined a little over a decade ago. Something we've been saying since then, I think long before Adobe, if you look at the end of every press release we put out, you'll see the words, "Adobe is changing the world through digital experiences." I think that's been the constant. What's changed is the way we think about digital experiences. If I even think about the sorts of digital experiences I was having 10 years ago, it's dramatically changed since we're here today, using a digital platform to even see and speak to each other. I don't even think I had a smartphone 10 years ago. I was a late adopter. For Adobe, when we think about what those digital experiences are and how we're changing the world, sure, 10 years ago, well before that, we invented the PDF, which very quickly became sort of the way people exchange documents. I often say your work isn't done until you have a PDF. The completion of a document and a project often will end with what's viewed as being the final product in a PDF. Adobe has the best PDF creation tools in the world. In the last 10 years, we've reinvented what the business is as consumer expectations around digital experiences continue to evolve and change. Software business, where your digital experience began 10 years ago with the physical experience of walking into a store and buying a shrink-wrapped box of software. Since then, we've reinvented the creative business time and time again by completely transitioning that to a subscription model that we call Creative Cloud. Creative Cloud started on the desktop, we saw the way digital experiences were expanding to far beyond the desktop to mobile devices, and then tablet devices, and all other kinds of internet-connected tools to where now. I was living in Boston, and I might have a digital experience walking to the subway. I might sit down on the subway, open up a tablet and work, and then get to the office and move to a desktop. We need to think about creative customers in the same way. It evolved from a subscription desktop product to tools that work across different connected mobile devices. Now we're thinking about just the web itself as an authoring platform, where you have tools that work inside of a web browser. I think this constant process of reinvention as we think about how consumers are thinking of digital in a more and more broad way. Something I said a lot through the pandemic we've been in over the last year is now digital experiences are the predominant type of experiences we're having. Now I even buy my lettuce and produce in a digital means because we got used to ordering. Groceries is even a digital business today as we buy those things online. Creative, we also transitioned that document business to a business that's a subscription model where people are getting PDF functionality and able to do all the types of things they want to do with a PDF on Acrobat Web. The other way that we've really transitioned is the way we work with enterprises. When I joined, we were predominantly working with enterprises to help them with content creation and documents, two important types of content. Today, we now have built what we call the Digital Experience Business, where we provide the technologies that helps large enterprises provide that type of relevant, hyper-personalized experiences in real time that their customers expect. They see content that's relevant to them. They see the images built on Adobe, delivered and optimized through our technology, and they're able to measure that. They're able to monetize it with commerce, and ultimately deliver those sorts of experiences at the speed of a click in real time. I would say something that has made Adobe uniquely Adobe is our ability to constantly kind of self-disrupt and reinvent what we do. I'm sure in another 10 years, I'll be telling a very similar story about the ways that digital continues to evolve, as does the company. Great. I think that's a great starting point. One thing I neglected in my opening, in my rush to get Jonathan and Andrew talking rather than me, was the fact that we are taking Q&A from the audience today. I'm going to moderate it. Please throw any questions in the box. We'll get to them as part of the discussion, but we'd welcome your participation. Maybe before we go any further into the questions, can you just quickly set up for us the segments of Adobe and how you operate? Maybe talk a little bit about the growth rates that you've experienced there, and obviously the significant profitability in both segments, but talk us through that. That way, we have context for where we're going to head next in the discussion. Sure. At the highest level, when Adobe talks about our strategic opportunities, we talk about the category of digital media and digital experience. Digital media includes both Creative Cloud, that's all of the software that is used around the globe, from large enterprises to consumers and hobbyists, to create compelling digital content. This is photography. Folks know Photoshop very well. Illustration tools, the video tools, Premiere, and After Effects have been explosive as more and more people want to tell their stories on platforms like YouTube, Instagram, and TikTok, to 3D content creation tools and other new media types. Creative Cloud is a business Adobe's been in for decades, and that's included in the digital media business. The other type of business in digital media that I also think of as a content business, again, is what we call Document Cloud. This started with the invention of the PDF back in the early 1990s, the Acrobat business, electronic signatures, scan technology on mobile. All of the integrated digital document workflows as part of our Document Cloud business. Both of those two are under the umbrella of Digital Media. We move over to the enterprise software business. We call that Digital Experience, and that was formerly Digital Marketing. Think of these as, again, enterprise subscription tools that are distinguishing from back office enterprise software like ERP. I think of this as the front office ecosystem, where these are the technologies that enable businesses to reach their customers and grow their businesses. A lot of technologies used on websites, mobile applications, and other channels as well for executing their campaigns and growing their businesses. That's all under DX. We do have a third business unit that we don't talk about as much, called publishing and advertising. That's a lot of the legacy products that Adobe's been in for a very long time, like PostScript, which was our first product as a company back in the 1980s. Those are the three segments. When you look at the growth, we're fortunate to be in the digital business right now, because it's a time where the addressable market for digital is just expanding explosively. From Creative Cloud to Document Cloud to Digital Experience, those are businesses that are all growing organically at strong double figures. I think when you look at subscription revenue and Digital Experience and revenues in the other two categories, growing in the 20%+ range year to date. We're certainly a growth business, and we believe with the $147 billion TAM for 2023, there's a lot of runway ahead of us for those businesses to keep growing. Of course, if you look at Adobe on a blended basis, we're a very profitable company as well. The combination of growth at our scale plus profitability puts the company in rarefied air, for sure. Great. You touched on it there. You talked about the total TAM that you laid out at your Financial Analyst Day. Maybe if we talk a little bit about the creative business, it's gone through the transition. It was arguably one of the first businesses to go from legacy on-prem to cloud. Maybe talk about where we're at in that and then maybe the specific TAM that you folks have put up related to maybe more digital, the creative business, that side of it. I think it's now a common case study in business schools, the way we transitioned a business that was almost all upfront revenue to a subscription revenue business. We think of that as an important part of our history, but one that we're far beyond. I think in creative, the subscription transition story is years behind us, and now you see the way having a subscription business model creates a stacking effect and really accelerates growth for us. I think when you look at our creative revenues, we really don't sell perpetual box software anymore in that business. We're, I think, at 97% subscription-based recurring revenue, with very little upfront revenue recognition there. When you look at where we are, I think we exited last year with around $8.7 billion in annualized recurring revenue in that business. We have a TAM that we identified for 2023 of $41 billion in creative, $62 billion, I think, for all of digital media. There's all kinds of opportunity ahead of us. It's not an accident that there's so much runway and so much TAM there, because what we found was when you dramatically lower the price of entry for products like we have where the experiences are really compelling, from boxes of software that were hundreds of thousands of dollars to you can use some of our products for $9.99 a month. We are able to attract so many new types of customers into the franchise, and that's why new user growth has been the predominant ARR driver of all kinds of growth drivers that we have, and we share those at our analyst meetings. That's the reason why there's so much opportunity there is because we've continued to reinvent our products and attract a broader and broader universe of customers. Today, it's not just designers who want to be creatives. I know all kinds of people with all kinds of interests, and there's an economy out there for them to create content and connect with other people who are interested in the same things that they are and reach an audience. It's neat to see how creativity has been democratized to the point that I can't think of a type of person I would meet who doesn't have a story to tell and couldn't tell that story and be a creator with Adobe's products and services. Wow. You're right. It's been a great story. Continues to be a great story. Obviously, last quarter, strong ARR growth in digital media. Talk a little bit about where that growth's coming from in terms of new customers and product demand, and then I've got a bunch of customers, questions to weave in here from the audience. Great. Well, before folks get tired of listening to me speak, I will kick this one over to my colleague, Andrew. Yes. As you mentioned, strength, it was really strong in Q2, and that strength was broad-based. We had talked about net new user acquisition driven by our data-driven operating model, or DDOM. We often talk about that as our kind of line of sight into engagement of our customers with our tools, right? It lets us know in real time who's using what product, how often they use it, and if that's an opportunity for us to drive them to other products, for example. That was really strong. There was strong enterprise licensing across both Creative Cloud and Document Cloud in the quarter. There was growth across geographies in the quarter as well. Retention was strong. We had also talked about the SMB segment, and in particular, our Creative Cloud for Teams tool, which, as most of you know saw a little bit of a headwind last year, and didn't do as well as we had expected it to. We had talked about it going back to pre-COVID retention and conversion levels in the quarter. If you look at all of the products that we talked about the video, Document Cloud, Acrobat, Signature as part of Acrobat, Photoshop, and all of the mobile products that we normally talk about, all of the different verticals like education and government, it was a really strong quarter just across the board. This kind of ties into our strategy that we've talked about. At our Financial Analyst Day, we often give a bunch of growth drivers that lend to that TAM that Jonathan mentioned, that $62 billion DME TAM. We really feel like we're hitting our stride right now with our DDOM and with our strategy approaching this business. That's why we've been able to be as strong. Strength across the geos, across products, across all of our customer base, the consumers, the knowledge workers, the enterprises, just strong overall. Great. Hey, you touched on SMB. This is likely the right place to weave this question in. Could you speak a little bit about Adobe's self-serve offerings and how that's expanded over time, and if there's any relevant KPIs people should be thinking about? Sure. When we talk about the digital media business, self-serve is actually, on an ARR basis, the majority of the business we do. I'll refer back to a chart we provided at our analyst meeting back in December. We do break down, at our analyst meeting, the ARR base of our creative business by product offering, and that's the individual offerings, the small volume or team offering, and then enterprise or ETLA. The individual, which is slightly more than a majority of the ARR, that's all self-serve business where they're coming to adobe.com, they're signing up, they're giving us their credit card information, and we bill them monthly. There's also some App Store ARR in there as well as mobile becomes a monetization growth vector for us. When you look at the team offering, we sell team in two different ways. We sell through a reseller channel, but we also sell team right on the adobe.com. You can go on.com, read about the team offering, see what the price is, and sign up for a team of users that wants to use our creative apps in a collaborative way across the team. Enterprise, of course, is not self-serve. That's more of a higher touch enterprise sales motion. When you look at team plus individual, you can just see how much of that business now is folks going on to adobe.com, one of the world's 100 most visited websites, an incredibly valuable platform for us. That also shows you the value of a brand like Adobe's. While our data-driven operating model, DDOM, makes us world-class in going out and driving traffic to the adobe.com and getting paid traffic that we earn with our awareness campaigns and digital marketing, there's also a tremendous amount of traffic that these are folks who have heard of Adobe. They seek us out, they go to the website, and they buy without us having to take any action other than having the value of the products and services and brand equity that we do. I think of the adobe.com as being kind of one of Adobe's superpowers that's made us as valuable of a company as we are today. Paul, your audio is breaking up to the point that it's hard to understand the question. Y ou're not coming through. I don't know if it's the headset or microphone or the internet connection. Okay. We'll try a quick switch. Any better? Yes, completely better. All right. Good. You're loud and clear. W e've in progress switched here. Back to the question I was asking that you correctly interpreted and took a minute to answer was, could you talk a little bit or differentiate Digital Experience versus other players, i.e. Salesforce? Do you target a specific function in an organization, an industry, a vertical, and then even the pricing model? I think maybe this question's more about putting context around how you go- to- market in your various areas and maybe splitting the retail SMB and then the enterprise business. I think that's what that person's sort of looking for. Sure. It's good to set some context there. First of all, when I think about at a high level what we offer, we are offering all of the technologies that a brand needs to provide hyper-relevant, personalized experiences in real time to their customers. If you are a CEO of a large enterprise, if you're a CIO, a Chief Revenue Officer, a marketer of a large enterprise, this is a problem you need to solve to grow your business and compete today. When I think about who we're appealing to at large enterprises, we're having strategic conversations at the highest levels across the C-suite. Historically, Adobe had really deep relationships with marketers through the content business that we've grown over time. I think today, we're really appealing to a majority of the folks in the C-suite when they're thinking about what's critical for their business. I talked earlier about how even the business of lettuce and grocery is now digital. Shantanu often says every business is a digital business. I think COVID taught us that it's true. I think, even if you're in the business of selling lettuce, you have to figure out, how can we get people to come on our website, have a wonderful experience of us showing them the groceries they want, making it really easy to put them in your cart, relevant offers, get them delivered well, follow up in a way where we understand the experience that was had and make it easy to buy again. It's a digital-first mindset for how businesses are thinking. We provide the tools and services that let them do that. There isn't another company that has the end-to-end set of digital experience tools or digital marketing tools that Adobe has. We compete with other large enterprise players, especially for certain of these solutions. When I think about Adobe's value proposition, it starts with the data layer of businesses understanding exactly what customer journeys are on their web properties, on their mobile properties, and a content platform that makes them able to provide the right relevant experience and content to end users. Our major competitors in the enterprise space don't actually have that content layer or the analytics layer. Those are the things that make Adobe Adobe and really make us tick. We've been focusing over the last couple of years on building a real-time customer data platform that allows enterprises to tie everything together, not just from their Adobe products, but from other databases, other vendors they use. They have one profile in real time that they can action against with their customers. That is also something that Adobe uniquely has built. We built that from the ground up. There are other technologies in this ecosystem where we do compete with other enterprise players. We offer commerce technology, the shopping cart on a website. We compete with players in the enterprise like Salesforce and SAP. We also have outbound multichannel campaign marketing. Salesforce is a competitor in that space, as well as a number of other players. Oracle is a competitor in that space. Whereas there's some areas where there's some competition and some product comparability across enterprise players, there's also products we have that they do not. It's not like the back-office software ecosystem where you have winner-take-all accounts, like with SAP and Oracle. Whereas in the front office, we make sure that our products are open and extensible. Our enterprises, we partner with a lot of the other players, and they can bring functionality in from their CRM system or they can bring data from identity graph providers and use those insights to function within our CDP and with our content platform. It's definitely an area of cooperation. It's an area where businesses are really leaning into investments and realizing that they have to be digital first. Even as we come out of this pandemic, I think Shantanu often says the genie's not going to go back in the bottle. Once people have made these investments in digital, they're going to realize the value of having that digital-first mindset, and consumers are going to keep ordering groceries on mobile apps and on desktop devices. I don't think I'm going to go to the grocery store as often as I did before COVID because now it's so easy to get what I want, and they bring it right to my front door. I do think digital transformation is here to stay, and we have a unique set of products that really are unmatched in the market. I think we're set up very well to take a disproportionate share of that big $85 billion TAM that we see growing over time. Great. Maybe a logical place to take that in the first part of it would be, you likely want to tell people what Magento Commerce is. I know, but we've got a bunch of people who are interested in Magento and what's going on there, but you referred to it with the online shopping cart. Talk to us a little bit about first, what's Magento, what the strategy is, and what we can expect in the years to come, because you just sort of alluded to some of that, I think, or foreshadowed? Sure. I now more think of it as Adobe Commerce. It's been three years since we acquired Magento. There's, of course, a big, vibrant, open source ecosystem around the open source version of Magento. I'll actually toss it over to Andrew to talk a little bit more about the product and the strategy for Adobe Commerce and what's next. F or those of you who don't know, we acquired Magento in the summer of 2018, what it was for us was really a commerce play. How that came about was we were getting a lot of questions from both the street as well as our customers saying, "Hey, you guys do everything from the content creation to the measuring of the data to all of the analytics, but you don't have a shopping cart." We're building these websites for our customers to use. We're providing the best content for them to be able to go and click through, you aren't leading them to the shopping cart, that's kind of where the value ends. With Magento, like all of our other acquisitions in the past, we took that feedback and we said, look, we already have a current integration with them, with our content offering, our Adobe Experience Manager tool. We decided that we were going to bring on this asset to integrate with our tools to make our offerings a more end-to-end solution for our customers, right? When we had first embarked on this journey, we had started off just doing digital marketing. Over the years, as we brought on more assets and we kind of built out that business, we evolved to doing more digital experience, and that's why it's called digital experience today. We want to help our customers kind of help their customers through their journeys. Customer experience management, and that's what Magento brings for us, that commerce aspect. Helping our customers build their websites so that their customers can go onto their websites and then bring them through that entire journey all the way to the shopping cart. That's how we think about that opportunity. It was a huge play for us because our aspirations were to bring that asset more into the enterprise because that's kind of where our bread and butter is. It was great because they had already been really strong in the mid-market with their eye to the enterprise. It made a lot of sense for us to bring in this tool that we already had an integration with that was strong in the mid-market and to bring them up into the enterprise. After we brought them on, we brought them under the Adobe umbrella, and it's been great for us. We don't break out the results of our individual businesses because as soon as we bring them on board, we hit the ground running. We integrate the company, the technology, the teams of people. It's been a huge grower for us, and we continue to be excited for this pillar. Perfect. You answered part of the next question that relates to it, so I'll paraphrase for this person and pivot it. They wanted to know the revenue mix and how it changed. Clearly you're not providing it. That's understandable. Maybe just any comments around what has changed. You mentioned moving from a mid-market to an enterprise shift. I don't know if there's been any data points. If not, we'll travel on to the next question. I'll take that. I think, like Andrew said, we've been very pleased with the growth, our ability to grow into the enterprise as well as to cross-selling synergies to take Adobe's products into the mid-market where Magento had a strong foothold. We sell their product as a subscription offering, and we are in the business of proving out the value with businesses and showing how they can grow their businesses more with Adobe because we have other products and solutions that we want to sell them so they can grow even more. I think of commerce as an anchor tenant in that value proposition to make every experience shoppable. Again, we don't break out the revenue growth, but we have over time, if you go back and look at our earnings transcripts, many, many times when John Murphy talks about growth drivers in a quarter or provides some metrics around the momentum we see in the business. Since the acquisition of Magento, if you just look for the word commerce in those transcripts, you'll see many mentions of how well this business has been doing. If you also look at industry analyst reports and net promoter scores, we think we've done a tremendous job with Magento, and it's really become one of the premier commerce platforms in the enterprise. Very pleased with how that's progressed. Fantastic. Maybe tying to that same whole topic area, why don't we talk a little bit, you've already discussed about COVID and digital transformation. We've had that come up. We likely would have a bingo already by now for saying that word a bunch of times. But maybe talk in Digital Media, what products you see as having truly transformed or maybe emerging even more than they were heading into the pandemic. Adobe already had strong growth, and things sort of got turbocharged, but there's names like Sign, for example, is one thing I'm thinking of that seems like fundamental change has occurred. Yes. There's a few I'm thinking of, so I don't forget them, I'm just going to list them from the start. Sign, the video products, and 3D. I'll start with Sign. When I think about the market for e-signatures, I approach it as an attorney. Since we acquired EchoSign back over 10 years ago now, we've been advocating for legal change around the world. Governments that have some arcane legal processes require stamps on paper and apostilles and notarization, fully embraced electronic signatures as legal. What we've seen over the past year is a cascade of changes in law around the world as geographies and governments and industries realize digital documents are here to stay, need to be fully legalized and encouraged. It's for the sustainability of the world. Frankly, digital documents have saved lives through the pandemic. We have seen this cascade of laws changing. We have seen that in India. We have seen that here in the U.S. The U.S. Securities and Exchange Commission now allows electronic signature of file documents. It was just last year, they required pen on paper still. The TAM has expanded. The culture around the world has changed, where people want to be able to easily sign an electronic document. I more often than not do it on my mobile device. It's two clicks of my thumb. My signature's in there. It looks just like I signed it on paper. It's got all of the security and keeps the logs of exactly what happened and how it was signed, fully legal. I see that as an explosive market where COVID really accelerated the digital adoption by several years. We're not going back on that. When you look at the TAM and electronic signatures, we're still in the very early days, and there's a lot of growth ahead. Video. When I think about the way I consume video, the number of platforms, the way my kids, how many different devices they consume video on, sometimes before I'm even out of bed in the morning. The types of different creators that are producing that video, from traditional linear TV to streaming services to YouTube creators. My son is just watching other people play video games all morning on YouTube, sadly. There's TikTok. There's people that just have very short-form video that makes you laugh. All different kinds of people are video content creators today who never would have imagined that they could edit and create a professional-looking video five years ago. We talked about throughout the last year, how many more people were becoming video creators, and there's audiences out there to be won. It's not just the editing tools. Premiere Rush is a simple editing tool for beginners, and they will quickly upsell to the desktop version of Premiere Pro. When they see what other creators are able to do with special effects and After Effects and motion graphics, we can sell them After Effects. That's just exploded. Today, I think any person with any interest can imagine themselves being a creator of video content where there's monetization opportunities out there on a host of different platforms, and that's changing the world in video. The third one I'll say is 3D. We see 3D as a media type exploding. Even today, a lot of the content that looks like 2D content to you or looks like photography or looks like traditional video is actually rendered 3D images using a lot of Adobe technology, and that's not going to go away. As more AR and VR experiences start to be had in typical households, that's a content type that's going to continue to explode. We see that as being a real vector of growth for Adobe, where there's going to be so many new hundreds of thousands or millions of new content creators to create all that 3D content that's going to be consumed in the future. Those are three areas where I think we're seeing real transformation and real growth opportunity ahead. Great. If we shift a little bit to the digital experience part of the business, obviously you saw super strong growth in Q2, up 21% year-over-year. Maybe talk about the drivers you're seeing within that line of business, then there's a question from the audience that I think ties to it. For the last year and a half, we've heard large enterprises saying, "digital transformation is an investment priority for us, period." In the technology space, I look at every CIO survey that hits my inbox, and digital transformation is consistently in the top two, I think along with data security, cybersecurity technologies. Early in the pandemic, there was a lot of wait and see by large enterprises. Just like Adobe, we wanted to make sure our employees were safe. We wanted to make sure our customers were up and running. Later in the year, that interest in investing we were hearing out of large enterprises started to turn into purchasing behavior. We talked last Q3 about the most million-dollar deals we ever had in a quarter. We had a great year-end. In Q2, we talked about our largest deal ever. I think it started with businesses identifying the strategy and the priority of digital transformation. Sometimes these are multi-quarter sales processes. Now, you hear us talking about the business with a lot of confidence, in part because we see the strength of the bookings that are going to roll into revenue in prior quarters. We also had a tremendous Summit conference in the spring that coincided with a few different things. One, the introduction of our B2B real-time customer data platform at a time when the world of digital marketing is changing. Third-party cookies are going away. IDFA is going away from Apple devices. Every digital marketer is wondering how are they going to do their jobs in this next era of using first-party data with tools like Adobe provides to meet customer expectations and grow their businesses. Things are aligning for us really well, where we're kind of in the re-acceleration now, and we're pleased with that. We're also really pleased with some of the big transformational accounts that we've announced, like Verizon and Nike, who are using our new data platform. I think for a lot of smaller businesses in the world, they wait to see the real leaders in digital transformation, what tools they're using and how they're doing it effectively. Now that we have those referenceable customers, there's a lot of interest and pipeline build that we're seeing around those new tools. We were very resilient as a company through what we faced last year. Now I think it's really neat to see companies starting to invest and really adopt our tools and grow their businesses through the innovations that we've built. Makes sense. If we take the audience question, and I think what this person's referring to is, we know there was some change with regard to Ad Cloud and some of the changes you made in Omniture and sort of exiting part of the business. Their question is asking you for long-term gross margin projections, which I'm certain you'll be excited about, but maybe the context is more how should they think about what occurred with the change you made within that line of business? Sure. For folks that don't know, if you go back to Q2 of 2020, we made the decision to exit a transaction-driven ad tech business called Advertising Cloud. There was a transaction-driven component where Adobe was executing campaigns on behalf of brand advertisers. There is also a technology platform component that our enterprises use and rely on, which remains. We made the decision, the ad tech space really wasn't a strategic growth area for us. It was a lower margin business, especially on the gross margin. We exited that transaction business. The remaining component, we moved to our publishing segment. With the re-segmenting, we restated our financials from 2018 onwards. You can see the Digital Experience as it stands today, it is now pure subscription revenue plus some services business. By making that decision around Ad Cloud, we were able to improve the gross margin profile of that business by step function, and I think the question was informed by that. Going forward, when I think about the gross margin of digital experience, mostly the cost of goods sold there are costs associated with the hosting of our products. We are cloud agnostic, we offer hosting through AWS, through Azure, a little bit of Google Cloud, as well as some owned cloud facilities. As we grow, there are economies of scale and efficiencies and pricing leverage we gain. There's also some headcount associated with the hosting function. We've talked about aspiring to continue to improve the gross margin of that business over time as we grow. That's something that you'll see, not by step function improvement, but just by a function of our growth and our leverage as a business. Great. I think that makes sense. Maybe just tying to sort of moving a little bit, shifting back towards e-commerce, we talked a bunch before about Adobe Commerce. Maybe talk more broadly about where you fit within that context of e-commerce. We know you've been working with people like FedEx, you've done digital advertising, you deliver the creative. Any other comments around e-commerce? It's an area of interest for certainly our client base here. Yes. You've seen Adobe in the commerce business, and across DX, really, that's how we refer to digital experience, partner with a lot of other players. We partner with FedEx, as you mentioned. We partner with PayPal for payment for our customers, and a number of other areas. Ultimately, not every enterprise has the scale and the reach of an Amazon.com, for example. That in and of themselves can provide hyper-personalized experiences, free shipping, make it very simple. We want every one of Adobe's enterprise customers with Adobe Commerce to be able to provide anything that one of those mega e-commerce players like an Amazon or a Walmart can provide. By partnering with FedEx, we have a very simple out-of-the-box option where somebody that wants to sell widgets on their e-commerce site can provide a free shipping option with expedited shipping through FedEx and make that very easy for their customers. Suddenly, their customers have an experience that's at parity with what they could find through one of those major e-commerce platforms. You'll see us continue to partner in that way to give our customers the ability to compete in that way and provide those types of experiences. Makes perfect sense. Maybe one thing, just to sort of help the audience overall, because Adobe's so broad, maybe position where Adobe sits in the key markets of who you'd actually think about as competitors, or how investors should think you're competing against various people. Obviously, it's a massive product set, but if you wanted to just take the big segments, who would somebody want to be looking at and paying attention to or from that perspective? Sure. For the creative business, there's not a single competitor that has anything approaching the set of content creation apps across all of these different categories and media types that we have. The answer of the question will be kind of drilling down into the particular point products and asking what are the other alternatives there. In a general way, I would say if you look at competition in terms of every photograph that's taken in the world and how that photograph is edited, there's an ecosystem of free tools that people can use, and that kind of gets them started. That gets them interested in being content creators. Those are from simple cropping and editing apps that are within an iPhone, for example, or simple editing apps that are on some web-based platforms. Once they're interested in being able to do more and take their content creation to the next level, they come to Adobe. Other competitors that monetize the tools, so one place that we played in for years is the video editing space. That's one where Adobe Premiere is the clear leader. Apple has been a competitor with a final product, not as much in the pro segment anymore, but in the hobbyist segment. Avid has had an offering for years in the editing space, and there's some newer upstarts there. There are a few point products. You'll find that editing is closely associated with all kinds of motion graphics and other assets, content creation. In terms of being able to connect them all in the cloud, nobody can touch what we've built. A newer category is experience design. We think experience-led thinking, experience design, product development is a paradigm that's going to continue to grow that category. That's a newer category where there's some other point solution providers like InVision and Sketch and Figma. I could go on and on. Effectively in that business, a few of our products tend to have a few point players that compete with us. End-to-end, there's not really a major competitor. In the Document Cloud business, when I think about PDF tools and functionality and all of the different PDF verbs we enable, there's not another major player that's really addressing that market in a way that competes with Adobe. We invented the PDF. We standardized the PDF. We really have the best PDF creation and function tools in the world. One of those functions, one of those types of verbs or PDF actions is signatures. In that space, DocuSign is the other large player. We get asked about DocuSign by investors a lot. DocuSign is really focused on contracts and the contracting ecosystem, contract management. One of the important parts of that business is electronic signatures. We do overlap with them there. I think we have the two leading solutions. That's a large and growing market where I think both of those businesses have seen strong growth. Again, I talked about competition in digital experience a bit already. I think in multi-channel outbound marketing, a lot of that is email marketing. We see Oracle, we see Salesforce, smaller players like Mailchimp even. In commerce, SAP is another competitor there. Downmarket from us, Shopify. They're more of an SMB player versus enterprise. In some of the spaces, Adobe's lead, like analytics or the customer data platform or content management, Adobe has a fairly significant lead over any competition, and there is much smaller players that we compete with in those spaces. Great. I think that leads us to the next one, which I think is going to be a bit of a mashup between my question and one of the audience questions here. If we think about it, you ended last quarter with $1.1 billion in net cash in Q2, substantial free cash generation. Maybe talk about capital allocation, and even beyond that, they'd like to know about buybacks, but maybe even where do you stand on a dividend or reinstating a dividend? Sure. Andrew, why don't you take that one? In terms of capital allocation, our focus has always been, we generate a lot of cash, right? Our businesses are profitable. We generate a lot of cash. Our focus and what John Murphy has said and what his predecessor said, Mark Garrett said, was that our focus is always going to be around returning that cash to shareholders. Buybacks are going to be our priority. We still had an authority left over, and then at our Financial Analyst Day last year, we'd announced an additional $15 billion buyback. If you go back in history and you look at how many quarters remaining, I think it's about 13 quarters. We're slowly accelerating. It's implied that we're accelerating that buyback. The focus is always going to be around buybacks first for us because of that cash generation. Second to that, we always like to keep a little bit of powder dry just for tuck-in M&A. We often do a lot of M&A that you probably, if we didn't have to file anything, you probably would never hear about it or even notice it because we've integrated those products into our products so well that it's just another small tuck-in M&As that we do to go and augment our products. That's our focus. Obviously, we've made some large acquisitions over the last several years, and that's because we were just looking at things that could help augment the business, and those were opportunistic. They fit into what we were trying to do. Our focus is always going to be around tuck-in, then depending on the appetite, depending on how transformational those assets that we're looking at are going to help us in our TAM expansion, we'll go and look at larger deals. We are hyper-focused on growing the business, and that's how we grow that business by looking at these assets. In terms of the dividend, I think we've had dividends in the past, and I think that that's something that we want to do potentially. I mean, never say never, but it's something that we want to be able to implement and to grow and to not just have it and then potentially take it back like we did in the past, right? It's something we need to have that's meaningful and that we can continue to grow. If we look at those priorities, again, it's going to probably be buybacks remaining the top priority. It's going to be tuck-in M&A, M&A that can help grow and augment the business. Then whatever's after that is going to be dependent on how we go from there. Great. I think you gave us a good answer on where your capital's going to go, which is substantial and growing. You covered a bunch of the M&A questions I would've logically had, and I think you've sort of given people a sense of where you'd go there. You have had some management and transitions in the team. Obviously, John Murphy announcing his retirement and the return of David Wadhwani as EVP and Chief Business Officer. Maybe talk about where we're at in terms of the overall team. I think Adobe's executive team over the past decade, I think, has been remarkably stable while also showing healthy change over time when folks retire, and we celebrate them. I think the Board and Shantanu have done a fabulous job of bringing people to Adobe that really mesh with our culture and fit with the company's values and have the big vision of thinking, how do we continue to do what we've done, which is constantly reinvent ourselves and think about big, audacious growth in light of the opportunity ahead. David coming back has just been a fabulous addition. For those who don't know, David Wadhwani led our Digital Media business before leaving to take a CEO opportunity back in 2015. I think David's come back with fabulous experiences and value that he brings. I think he would also say that our Digital Media business has also grown tremendously since 2015. More than $10 billion in recurring revenue with so much opportunity ahead. It's fabulous to have David back and see his passion for that business and for creativity and what documents can do. I know he has big, bold goals about how we're going to keep growing that business. Then John has done such a fabulous job in his tenure as CFO, from leading the acquisitions of Magento and Marketo. If you look at the margin progression of the company and the growth of the company and the way we weathered the storm of COVID, he's just done such a fabulous job, and we're excited for him and for him to be able to enjoy retirement. I would say you'll see, I think, a very orderly transition. As John said publicly, he's going to stick around until the Board and Shantanu find the right next person to take the helm of the finance org and lead us on that next phase of growth. We're excited about that. That's great. Just on the overall corporate side, Adobe is clearly one of the leading technology companies globally. An area we've had lots of focus on and lots of the clients that are on the line have a focus on is ESG. I think it's worthy of you guys speaking a little bit about what Adobe's been doing in relation to ESG initiatives. Yes. Adobe's been good at this since before it was even an acronym. It's part of our DNA as a company. It's part of the reason I joined. Thousands of the people who joined Adobe joined because of the values that the company was founded on. I think about human decency, treating employees well, treating constituents well. Making sure our products, frankly, are enabling a more sustainable world that uses less paper. They're giving people voices to tell their story. I think of the creative community writ large across the globe as a community that's calling for treating all people equally. I think of it as inclusion of our workforce. I think of it as digital citizenship for Adobe, making sure that people's rights of privacy are protected and valued, of making sure that we're creating and innovating technologies and artificial intelligence that fights against inherent bias and really is serving a more equitable world. ESG is something that Adobe has done very well. It makes my job so much easier that the company and the tone at the top was founded with these values. John Warnock is still on our board of directors, the principles and the values he founded the company on just emanate throughout the management team. What's happening now is we're seeing lots of long-focused funds that really want to invest in sustainably growing companies. They want to invest in companies that aren't polluters, that are treating people well, that are focused on a more sustainable world. Adobe's an anchor tenant of many of those because of these values. It's something we talk a lot about. In fact, our Board of Directors just recently made some changes to its committee structure to where our Nominating and Governance Committee is now called the Governance and Sustainability Committee with oversight for all of what we do on ESG. I think it shows the importance at the board level and on down about how important sustainability, digital citizenship, inclusion, and fairness is to Adobe as a culture. It's really great for me and gratifying to hear the way investors see that and value that. I think it's something that makes long-term Adobe a safer investment that eliminates a lot of systemic risk because all of that sustainability is built into the way we operate as a company. Great. I think we've got time for maybe two more questions. The one I'm going to leave you with here is, talk to us a little bit about, either one of you, what are you the most sort of interested and excited about in seeing evolve over the next couple of years from Adobe? What do you think is going to stand out when we look back three or five years from now that you're like, "Wow." People either missed it, didn't understand it, didn't appreciate it? I have two answers to that. One's on creative, one on business. On creative, we started talking about last year, the next way in which we're self-disrupting, the next place we want to be as a world-class authoring environment is the web browser itself. We talked about that as an R&D priority. I believe when the magic of Photoshop and video editing and what we've done with our creative tools can be harnessed within a web browser, that the unlock potential is huge. I think there's all kinds of people in the world that haven't had access to our tools and services that will, and there's all kinds of ways that that will have a further democratizing effect of the way people can tell their stories with Adobe technology. I'm really excited to see that reach and to see what we're able to do when we can deliver on that engineering challenge of bringing these apps to the web browser. The other thing I'm really excited about is more related to our customer data platform. I often talk to investors about the way we as consumers, for the past 20 years, have gotten very complacent and used to disjointed experiences from the brands we work with, where we'll go online and we'll look for a product we want and buy that product. For the next two weeks, companies are spending display advertising dollars trying to get us to buy the thing we already bought. One arm isn't talking to another of an enterprise, and you might have had a bad experience, and then another department or a website or an outbound message gives you an offer that's completely tone-deaf based on the experience you had. I think that the dawn is coming for this era of consumers accepting those disjointed experiences. I think in five years or in 10 years, brands will have to solve that problem, and consumers will expect the brands get it right, and they understand what we've done and what we want to do as consumers. If my prediction comes to fruition, it's a massive opportunity for the technology we've built and the business we've built, and I think we'll see for that customer platform business, just massive TAM expansion and opportunity going forward. I'm excited to see that. As a consumer, I'm excited for brands to start getting it right and really, across mobile apps and websites and in-store, understanding what I'm looking for and giving me the right experience and the right offers for me. I think we'd all be happy not to be pestered with display ads that don't apply to us. I think I would echo that, and I think that's a good place to maybe leave today's discussion. It's been far-reaching and covered a lot of ground that Adobe does. I wanted to, on behalf of Scotiabank, thank the Adobe team, Jonathan and Andrew, for joining us today. I know that we're happy to facilitate having them out, but you can reach out to them directly, or we're happy to connect you with either of them. Want to thank everybody for joining us and your questions today. Thanks, guys. Thank you, Paul. Thank you.