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Aiera, Inc. 5

I have 2 questions as well. First, for Tim, for enterprise specifically, what are some of the top 2 or 3 use cases on Vision Pro you're hearing most excitement? And then I have a follow-up for Luca.

Our next question is from Atif Malik with Citi.

David Vogt, Operator, Michael Ng, Benjamin Alexander Reitzes, Suhasini Chandramouli, Krish Sankar, Luca Maestri, Amit Jawaharlaz Daryanani, Timothy D. Cook, Erik William Richard Woodring, Wamsi Mohan

Atif Malik

And Tim, I was wondering if I could ask the China question again. Is there any more color from your visit there that gives you confidence that you've reached the bottom there and that it's turning? I know you've been -- you've continued to be confident there in the long term. Just wondering if there was any color as to when you think the tide turns there. And I have a follow-up.

Our next question is from Ben Reitzes with Melius.

Operator, Michael Ng, Luca Maestri, Timothy D. Cook, Suhasini Chandramouli

Ben Reitzes

I wanted to ask a question around the generative credit component to your pricing here. It seems like with all the progress you've made embedding Firefly across the key flagship products and the engagement levels that you're seeing, we should start to see perhaps some ramp in that generative credit component to your pricing. Is that a fair assessment? Would you expect to start to see that coming in? Or should we look to other services like the video capabilities that you're going to be launching shortly as a key catalyst there?

And we have a question from Brad Sills with Bank of America.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

Brad Sills

And congrats to all of you. I don't want Anil to feel left out so I'm going to ask a DX question. Anil, it's good to hear AEP is on track to become the next billion-dollar business for Adobe. Can you expand on the journey and drivers that get you there? And in particular, how important are cloud migrations? And how do you see AEP AI Assistant perhaps accelerating the journey to $1 billion?

And we'll take a question from Brad Zelnick with Deutsche Bank.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

Brad Zelnick

David, on Express, you mentioned the success you're seeing. Can you maybe drill into some of the other metrics and accomplishments that you're seeing out of Express this quarter?

And in terms of the generation, Saket, I think we talked about it. We did a great job at MAX in London talking about some of the new functionality and releasing. Photoshop, I think we're up to 9 billion generations, and actually, I think the greatest amount of generations was in May. So the momentum clearly is the more we integrate this functionality into our interfaces, the more that usage is really driving adoption as well as retention. Our next question comes from Brent Thill with Jefferies.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

Brent Thill

I have two. Andy, the first one is sort of on the cost to serve comments coming down for the first time since 2018. As you sort of look into '24 and '25, can you just sort of walk us through some of the key operational blocking and tackling this to happen to continue to drive down that cost of serve back to 2018 levels? Or however you're thinking about your North Star from that perspective? And then the second 1 is on sort of philosophical about capital returns. It looks like the cash balance could start building pretty nicely here. How do you think about the idea of buybacks, share repurchases or some type of capital return programs to sort of help shareholders out?

And the next question comes from the line of Brian Nowak with Morgan Stanley.

Dave Fildes, Brian Olsavsky, Operator, Andy Jassy

Brian Nowak

Yes. Let me start with the second one first. So we're mindful of the geopolitical issues around the world, especially as you say in the supply chain and how that might impact shipments both to the U.S. and to Europe. We're just working very hard to make that not back up on customers, and we'll continue to work that. It's not a material impact into the -- estimated in our guidance in Q1. But again, as I said, we're vigilant on that, and we'll work to take steps where we need to, to make sure that customer experience is not impacted.

And our next question comes from the line of Doug Anmuth with JPMorgan. Brian, you've seen very good improvement in International profitability over the last several quarters. Can you just talk about some of the levers here that you're thinking about just as you look to move into positive operating income and then how International could potentially approach North America levels over time? And then just a follow-up there. Are you seeing any shipping disruptions currently related to the Red Sea and does that factor into your outlook at all for 1Q?

Operator, Dave Fildes, Brian Olsavsky, Andy Jassy, Brian Nowak

Brian Olsavsky

Sure, Mark. I think Andy laid it out pretty well a few minutes ago on the cost structure, the regionalization, the -- growing into the assets that we added during the pandemic, great efficiency and work with productivity across really all of our operations network fixed -- attention to fixed cost and lowering costs where we can, maintaining costs where we can, the increase in advertising, success in advertising revenue growth that's outpaced our traffic growth rates. So all of those trends we expect to continue, and we're going to work hard to make sure they continue. And as we said, we have one guidepost is maybe pre-pandemic profitability, but we are working to -- we're not putting a limit on our improvement. We're going to continue to look for ways to lower the cost to serve.

Two questions, please. I think you mentioned, Brian, that the North American margins have improved for 7 quarters in a row or something like that, a significant number. I would assume that most of the factors like rising capacity utilization given your CapEx commentary about retail, the regional center efficiencies and then overall, moderation in shipping and logistics costs, labor costs, I mean, all these factors probably mean that we'll continue to get an improvement in North American margins, but if you would comment on that. And then secondly, on the Primetime Video -- Amazon Prime video, I know we just launched. But could you provide any color or context on expectations around that? You've got a massive number of Prime users who are coming in with a reasonable CPM with low ad load, but it seems like there should be a substantial opportunity for you. So if you want to try to size that for us or how you think about the upside, that would be really appreciated.

Operator, Dave Fildes, Brian Olsavsky, Andy Jassy, Brian Nowak

Brian Olsavsky

Well, thank you, Mark. I really appreciate it. I couldn't be more proud to be part of Salesforce the past 25 years, especially this past year as we took on a pivotal business transformation, while delivering incredible innovation for our customers and returns for our shareholders.

You can hear, why? Not just the fundamental transformation of the company, but also the fundamental transformation of the product line and the product vision as we move into this incredible new intelligent world that we're all seen with AI. So thank you. And now I'm turning it over to Brian, who was employee #13, our Chief Operating Officer. He's done a phenomenal job this year. Without him and without Amy without our whole management team, it would not be possible. I just want to thank again everyone who has been a huge part of everything, and I'll turn it over to you, Brian. Here we go.

Brian

I just wanted to follow up on AWS for a moment. You outlined the generative AI stack, which I think is -- which is very clear. So I'm just curious maybe how you're going to market within the application layer given sort of the competitive dynamics of that. And then maybe expand, if you could, Andy, a little bit on the strategy for Gene AI on the consumer-facing side of the business. I know you launched Rufus today. Is that an area that you think could materially improve conversion rates and the overall consumer engagement on retail apps or what's your vision there?

And our final question will come from the line of Colin Sebastian with Baird.

Operator, Scott William Devitt, Dave Fildes, Brian Olsavsky, Mark Mahaney, Andy Jassy, Brian Nowak

Colin Sebastian

Thanks, Anil. Today, I'll start by summarizing Adobe's performance in Q2 fiscal 2024, highlighting growth drivers across our businesses, and I'll finish with financial targets. In Q2, Adobe delivered strong top line growth and industry-leading profitability while accelerating the pace of innovations we're delivering to market across Document Cloud, Creative Cloud, and Experience Cloud. In the quarter, Adobe achieved record revenue of $5.31 billion, which represents 10% year-over-year growth or 11% in constant currency, with strength across all 3 clouds.

Strong industry analyst recognition including Gartner's Magic Quadrant for Content Marketing Platforms and leadership for both IDC's B2C and B2B MarketScapes for digital commerce applications. Key customer wins include Amazon, British Telecom, Comcast, Mercedes-Benz, Maruti Suzuki, Nationwide Building Society, Novo Nordisk, ServiceNow, Stellantis, Ulta Beauty, and U.S. Department of the Treasury. We have enabled our vibrant partner ecosystem of system integrators and agencies to deliver advisory and implementation services across our product portfolio. We look forward to engaging with customers and major agencies at the Cannes Lions Festival later this month. Our category-leading solutions, robust pipeline, and tremendous scale position us to drive strong growth in the second half, and we are raising our subscription revenue target for the year. I will now pass it to Dan.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Anil S. Chakravarthy, Daniel J. Durn

Daniel J. Durn

Yes, that's right. This is Dave. Just to give you that -- the balance was $155.7 billion as of 12/31. So that's up more than $45 billion year-over-year and $20 billion quarter-over-quarter.

I'm just going to do a 2-parter on AWS. If we take a step back, can you talk a little bit about the contribution from backlog conversion, AI workloads and some elements that allowed you to reaccelerate revenue at AWS in Q4 and how we should think about those components from an exit velocity point into 2024? And then against your broader comments on CapEx, any color on how we should be thinking about AI-driven CapEx within the AWS initiatives against the broader CapEx commentary?

Dave Fildes, Brian Olsavsky, Operator, Andy Jassy

Dave Fildes

Hello, and welcome to our Q4 2023 financial results conference call. Joining us today to answer your questions is Andy Jassy, our CEO; and Brian Olsavsky, our CFO.

Thank you for standing by. Good day, everyone, and welcome to the Amazon.com Fourth Quarter 2023 Financial Results Teleconference. [Operator Instructions] Today's call is being recorded. For opening remarks, I will be turning the call over to the Vice President of Investor Relations. Mr. Dave Fildes. Thank you, sir. Please go ahead.

Operator

David Fildes

I'm going to roll the 2 together so you guys have them both. So Luca, obviously, I'm trying to parse through the outlook for the June quarter. And just based on the quick math, it looks like all things being equal, given what you said, the iPhone business is going to be down mid-single digits again in the June quarter. And if that's the case, and maybe this is for Tim, obviously, how are you thinking about the competitive landscape in the context of what you just said, maybe outside of China?

Our next question is from David Vogt with UBS.

Operator, Michael Ng, Benjamin Alexander Reitzes, Luca Maestri, Timothy D. Cook, Erik William Richard Woodring, Suhasini Chandramouli, Wamsi Mohan

David Vogt

Yes. And just to add to a little bit of what Shantanu said, Alex, we've talked a lot about how FY '23 was the year that AI was in the playground, and this is the year we need to bring it into production. And a lot of that is industry-wide but we're in a pretty special position as it relates to that. So to Shantanu's point, a lot of active releases this quarter, right, Acrobat AI Assistant, Firefly updates in Photoshop. Firefly was introduced for the first time into Lightroom. Express Mobile launched, Express for Business launched. We launched Firefly services for enterprises to produce content at scale.

And Photoshop, I'll have David again add, but Generative Fill and what we are doing there, what we are doing in Illustrator. And that both for existing customers as well as for prospects who now come in and say, the products are becoming increasingly more productive for us, that's what's really driving the value there. And last but not least, the AI-first applications. When we think of an application like Express, Express is all about reimagining what we can do for creatives by sort of leapfrogging existing technologies and providing an AI-first application. And so that's also off to a good start.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

David Wadhwani

Yes. For starters, there's a lot of buzz of Express here at Adobe coming off the event we just had earlier this week, but it's really based on the fact that the innovation in Express is on a tear, right? A few months ago, we introduced an all-new Express for the web. This quarter, we introduced an all-new Express for mobile. We introduced Express for Business. We also now have, as we've just talked about, been more deeply integrating AI features, whether it's for imaging generation or generative fill or text effects, character animation, design generations more deeply into the flow for Express.

David, on Express, you mentioned the success you're seeing. Can you maybe drill into some of the other metrics and accomplishments that you're seeing out of Express this quarter?

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

David Wadhwani

Thanks, Shantanu. Hello, everyone. In Q2, we achieved net new Digital Media ARR of $487 million and revenue of $3.91 billion, which grew 12% year-over-year. On the Document Cloud side, PDF has become a global standard for automating business and consumer workflows, and Acrobat is the platform of choice to view, edit, share, and collaborate with these documents. We continue to see steady growth in monthly active users of our Document Cloud solutions, including Acrobat Reader, Acrobat Standard and Pro, and our signature share and review workflows across mobile, web, and desktop.

We're driving strong usage, value and demand for our AI solutions across all customer segments and seeing early success monetizing new AI technologies across our Digital Media and Digital Experience businesses. Given this rich product road map focused on execution and customer demand in the first half of the year, we're pleased to raise our annual Digital Media net new ARR, Digital Experience subscription revenue and EPS targets. I'll now turn it over to David to discuss the momentum in our Digital Media business.

Jonathan Vaas, Shantanu Narayen, Operator

David

Brian, you've seen very good improvement in International profitability over the last several quarters. Can you just talk about some of the levers here that you're thinking about just as you look to move into positive operating income and then how International could potentially approach North America levels over time? And then just a follow-up there. Are you seeing any shipping disruptions currently related to the Red Sea and does that factor into your outlook at all for 1Q?

And our next question comes from the line of Doug Anmuth with JPMorgan.

Operator, Dave Fildes, Brian Olsavsky, Andy Jassy, Brian Nowak

Doug Anmuth

I'm just going to do a 2-parter on AWS. If we take a step back, can you talk a little bit about the contribution from backlog conversion, AI workloads and some elements that allowed you to reaccelerate revenue at AWS in Q4 and how we should think about those components from an exit velocity point into 2024? And then against your broader comments on CapEx, any color on how we should be thinking about AI-driven CapEx within the AWS initiatives against the broader CapEx commentary?

[Operator Instructions] Our first question comes from the line of Eric Sheridan with Goldman Sachs.

Dave Fildes, Brian Olsavsky, Operator, Andy Jassy

Eric Sheridan

Maybe my first one, Tim. You've obviously mentioned your excitement around generative AI multiple times. I'm just curious how Apple is thinking about the different ways in which you can monetize this technology because historically, software upgrades haven't been a big factor in driving product cycles.

On a sequential basis, yes, we were down. It's primarily the fact that we had a slightly different mix of products than the previous one. Obviously, leverage plays a big role as we move from the holiday quarter into the -- into a more typical quarter. So I would say, primarily leverage and a different mix of products. I mean, we haven't seen anything different in terms -- within the product categories, we haven't seen anything in particular. Our next question is from Erik Woodring with Morgan Stanley.

Operator, Michael Ng, Luca Maestri, Timothy D. Cook, Suhasini Chandramouli

Erik Woodring

And I'll add my congratulations. For your Creative business, how are you thinking about the Q side of the P times Q equation over the balance of the year? Based on these numbers anyway, I would certainly assume that you had really healthy unit growth in Q2. And I'm wondering if you expect that to continue.

We've now embedded Express Workflows into Acrobat Editor. We obviously have been embedding it into Creative Cloud workflows. And also, as we showed at Summit with Anil, we've embedded it into our Experience Cloud workflows as well. In addition to all of that, we're now unleashing our inside sales force to target the small/medium businesses. Our education teams are really gearing up for the back-to-school launch for K-12 and higher ed. And our field and enterprise sales now have Express for Business. And we're doing all this globally, right? It's a massive market, and we're ramping up and we're ready to go. And the next question comes from Gregg Moskowitz with Mizuho.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

Gregg Moskowitz

Shantanu, since you also called out the strength in Digital earlier, including driving new Creative All Apps subscriptions from your website, are you doing anything different that's helping to drive that behavior? And if so, is that something you think can continue as well?

And Gregg, as you're aware, I mean, certainly with Express, we also have the model of customer acquisition as it relates to people coming in through trial and free and then conversion. So we are seeing the interest level as it relates to Express, in particular, significant interest.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy, Gregg Moskowitz

Gregg Moskowitz

I'll echo my congrats on the great quarter. I know it's early, but what's been the feedback and customer behavior for those users that are on Firefly services and GenStudio? And then thinking more longer term, what type of price uplift could you see from those customers over time, just given what you said about the acceleration in Firefly generations being driven by those products?

And next will be Jake Roberge with William Blair.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

Jake Roberge

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.

Good day, and welcome to the Q2 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, Operator

Jonathan Vaas

You guys could have 3 separate earnings calls because you have 3 different businesses that even the smallest 1 is very large. So yes, sorry, Anil, Dave, and Shantanu, I may not be able to ask all the questions that I want. I'm sure we have plenty. But I'll just keep it super high level, Shantanu.

We'll take a question from Kash Rangan with Goldman Sachs.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

Kash Rangan

And again, congratulations on a really solid set of results in an environment where not very many software companies have been able to beat and raise in this type of uneven environment. I wanted to maybe focus in a little bit on the question that Mark Moerdler asked, in particular on what gives you guys the confidence to see a return to year-on-year growth and Creative Cloud net new ARR. It declined in Q2, it declined in Q1. And if I'm not mistaken, the decline in Q2 was a little bit steeper than what we saw in Q1.

And moving on to Keith Weiss with Morgan Stanley.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

Keith Weiss

Again, sorry to beat the AI horse, but Tim, I know you don't want to reveal a lot. But I'm just kind of curious because last quarter, you spoke about how you're getting traction in enterprise. Is the AI strategy going to be both consumer and enterprise or is it going to be 1 half or the other? Any color would be helpful. And then I have a follow-up for Luca.

Just given that's been one of the concerns that's potentially been an overhang, of course, due to a lot of the news in the media around some of the legal cases. And I was wondering if there's just a big picture color you could give that makes us kind of think about it better and your ability to sort of continue to monetize that real estate. I think AI, generative AI and AI both are big opportunities for us across our products. And we'll talk more about it in the coming weeks. But I think there are numerous ways there that are great for us, and we think that we're well positioned. Our next question is from Krish Sankar with TD Cowen.

Operator, Michael Ng, Luca Maestri, Timothy D. Cook, Suhasini Chandramouli, Wamsi Mohan

Krish Sankar

Mike, it's Luca. On the outlook, what we said is we expect to grow low single digits in total for the company. We expect Services to grow double digits at a rate that is similar to what we've done in the first half of our fiscal year. And we also mentioned that iPad should grow double digits. This is the color that we're providing for the June quarter. In Services, we've seen very strong performance across the board. We've mentioned we've had records in several categories, in several geographic segments. It's very broad-based.

I have 2. First, I'll ask about the June quarter guidance, the revenue outlook for low single digits growth. I was wondering if you could run through some of the product assumptions, iPhone, like what kind of gives you confidence around that? And then on the Services momentum, what was better than expected in the quarter? And then I just have a quick follow-up.

Suhasini Chandramouli, Luca Maestri, Timothy D. Cook

Luca Maestri

On a sequential basis, yes, we were down. It's primarily the fact that we had a slightly different mix of products than the previous one. Obviously, leverage plays a big role as we move from the holiday quarter into the -- into a more typical quarter. So I would say, primarily leverage and a different mix of products. I mean, we haven't seen anything different in terms -- within the product categories, we haven't seen anything in particular.

And Luca, I was wondering if you could comment a bit on the product gross margins, the sequential step down. You noted mix and leverage. Any more color on the mix, if you could share if customers are at all starting to mix down across product lines? Or is this more a mix across product lines? Just trying to get some color on customer behavior given some of the broader inflationary pressures.

Suhasini Chandramouli, Luca Maestri, Timothy D. Cook

Luca Maestri

Yes. I mean, during the last quarter, commodity costs and general component costs behaved favorably to us. On the memory front, prices are starting to go up. They've gone up slightly during the March quarter. But in general, I think it's been a period, not only this quarter, but the last several quarters where commodities have behaved well for us.

Okay, very fair. And then, Luca, maybe to just follow up on Wamsi's comments or question. There's a broad concern about the headwind that rising commodity costs have on your product gross margins. Wondering if you could just clarify for us, if we take a step back and look at all of the components and commodities that go into your products kind of collectively, are you seeing these costs rising? Are they falling? What tools do you have to try to help mitigate some rising costs, if at all, rising input costs, if at all?

Operator, Michael Ng, Luca Maestri, Timothy D. Cook, Suhasini Chandramouli

Luca Maestri

I'm not sure I fully understand the question. But in general, what we are seeing on the product side, we continue to see a lot of interest at the top of the range of our products. And I think it's a combination of consumers wanting to purchase the best product that we offer in the different categories and our ability to make those purchases more affordable over time.

Got it, very helpful. And then for Luca, I'm kind of curious on given the macro environment, on the hardware side, are you seeing a bias towards like standard iPhone versus the Pro model? The reason I'm asking the question is that there's a weaker consumer spending environment, yet your services business is still growing and has amazing growth margins. So I'm just trying to like square the circle over there.

Operator, Michael Ng, Luca Maestri, Erik William Richard Woodring, Timothy D. Cook, Suhasini Chandramouli, Wamsi Mohan

Luca Maestri

Amit, this is Luca. I would say 1 step at a time, we have put out this target of getting to net cash neutral several years ago, and we're working very hard to get there. Our free cash flow generation has been very strong over the years, particularly the last few years. And so as you've seen this year, we've increased the amount that we're allocating to the buyback.

I have 2 as well. I guess first off on capital allocation, you folks have about $58 billion of net cash right now. As you think about eventually getting to this net cash neutral target, do you think at some point, Apple would be open to taking on leverage on the balance sheet and continuing the buyback program? Or is it more like once you get to this neutral position, it's going to be about returning free cash flow back to shareholders? I'm just wondering, how do you think about leverage on your balance sheet over time? And what sort of leverage do you think you'd be comfortable taking on?

Operator, Michael Ng, Luca Maestri, Erik William Richard Woodring, Timothy D. Cook, Suhasini Chandramouli, Wamsi Mohan

Luca Maestri

Yes, David, on the outlook, I'll only repeat what we said before, and this is the color that we're providing for the quarter. We do expect to grow in total low single digits. We do expect services to grow double digits, and we expect iPad to grow double digits. For the rest, I'll let you make assumptions, and then we will report 3 months from now.

I do see a key opportunity, as I've mentioned before, with generative AI, with all of our devices or the vast majority of our devices. And so I think that if you look out, that's not within the next quarter or so, and we don't guide at the product level, but I'm extremely optimistic. And so that's kind of how I view it. In terms of -- I'll let Luca comment on the outlook portion of it. I think if you step back on iPhone, though, and you make this adjustment from the previous year, our Q2 results would be flattish on iPhone. And so that's how we performed in Q2.

Operator, Michael Ng, Suhasini Chandramouli, Krish Sankar, Luca Maestri, Benjamin Alexander Reitzes, Timothy D. Cook, Erik William Richard Woodring, Wamsi Mohan

Luca Maestri

Yes. We provide guidance just for the current quarter, so I'll tell you about the guidance. We're guiding to, again, to a very high level of gross margins, 45.5% to 46.5%. Within that guidance, we expect memory to be a slight headwind, not a very large one, but a slight headwind. And the same applies for foreign exchange. Foreign exchange will have a negative impact sequentially of about 30 basis points.

Great. And then Luca, I believe you mentioned that for the March quarter, the commodity pricing environment was favorable. Can you talk about what you're assuming for commodity pricing on memory, et cetera, for the June quarter and maybe for the full year?

David Vogt, Operator, Michael Ng, Benjamin Alexander Reitzes, Suhasini Chandramouli, Samik Chatterjee, Krish Sankar, Luca Maestri, Amit Jawaharlaz Daryanani, Timothy D. Cook, Erik William Richard Woodring, Wamsi Mohan

Luca Maestri

Thank you, Tim, and good afternoon, everyone. Revenue for the March quarter was $90.8 billion, down 4% from last year. Foreign exchange had a negative year-over-year impact of 140 basis points on our results. Products revenue was $66.9 billion, down 10% year-over-year due to the challenging compare on iPhone that Tim described earlier, which was partially offset by strength from Mac. And thanks to our unparalleled customer satisfaction and loyalty and a high number of customers who are new to our products, our installed base of active devices reached an all-time high across all products and all geographic segments.

Through our Restore Fund, Apple has committed $200 million to nature-based carbon removal projects. And last month, we welcomed 2 supplier partners as new investors who will together invest up to an additional $80 million in the fund. Whether we're enriching lives of users across the globe or doing our part to be a force for good in the world, we do everything with a deep sense of purpose at Apple, and I'm proud of the impact we've already made at the halfway point in a year of unprecedented innovation. I couldn't be more excited for the future we have ahead of us, driven by the imagination and innovation of our teams and the enduring importance of our products and services in people's lives. With that, I'll turn it over to Luca.

Suhasini Chandramouli, Timothy D. Cook

Luca

Two questions, please. I think you mentioned, Brian, that the North American margins have improved for 7 quarters in a row or something like that, a significant number. I would assume that most of the factors like rising capacity utilization given your CapEx commentary about retail, the regional center efficiencies and then overall, moderation in shipping and logistics costs, labor costs, I mean, all these factors probably mean that we'll continue to get an improvement in North American margins, but if you would comment on that. And then secondly, on the Primetime Video -- Amazon Prime video, I know we just launched. But could you provide any color or context on expectations around that? You've got a massive number of Prime users who are coming in with a reasonable CPM with low ad load, but it seems like there should be a substantial opportunity for you. So if you want to try to size that for us or how you think about the upside, that would be really appreciated.

And the next question comes from the line of Mark Mahaney with Evercore ISI.

Operator, Dave Fildes, Brian Olsavsky, Andy Jassy, Brian Nowak

Mark Mahaney

Congratulations on the quarter and especially the strong net new ARR. I'd like to ask a little more color on specifically the net new ARR that we saw in Creative Cloud. Can you give us a sense of what the contribution near term, medium term to Digital ARR from seat growth versus upsell versus consumption, things like Adobe Stock and AI credits, even rank ordering or quantifying? Anything you can give us to give us a sense of what's driving that number? And that would be very helpful in really understanding what's going on in the drivers of that number.

[Operator Instructions] Our first question will come from Mark Moerdler with Bernstein.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

Mark Moerdler

I have 2. First, I'll ask about the June quarter guidance, the revenue outlook for low single digits growth. I was wondering if you could run through some of the product assumptions, iPhone, like what kind of gives you confidence around that? And then on the Services momentum, what was better than expected in the quarter? And then I just have a quick follow-up.

We will go ahead and take our first question from Mike Ng with Goldman Sachs.

Suhasini Chandramouli, Luca Maestri, Timothy D. Cook

Mike Ng

Great. And I wanted to ask about as Apple leans more into AI and generative AI, should we expect any changes to the historical CapEx cadence that we've seen in the last few years of about $10 billion to $11 billion per year? Or any changes to how we may have historically thought about the split between tooling, data center, and facilities?

Mike, it's Luca. On the outlook, what we said is we expect to grow low single digits in total for the company. We expect Services to grow double digits at a rate that is similar to what we've done in the first half of our fiscal year. And we also mentioned that iPad should grow double digits. This is the color that we're providing for the June quarter. In Services, we've seen very strong performance across the board. We've mentioned we've had records in several categories, in several geographic segments. It's very broad-based. Our subscription business is going well. Transacting accounts and paid accounts are growing. Paid accounts are growing double digits. And also, we've seen a really strong performance both in developed and emerging markets. So very pleased with the way the Services business is going.

Suhasini Chandramouli, Luca Maestri, Timothy D. Cook

Mike

[Operator Instructions] Our first question comes from the line of Eric Sheridan with Goldman Sachs.

One thing I'd like to highlight in our first quarter guidance is that we recently completed a useful life study for our servers and we are increasing the useful life from 5 years to 6 years beginning in January 2024. We will have this anticipated benefit to our operating income of approximately $900 million in Q1, which is included in our operating income guidance. As we turn the calendar to 2024, we are excited to continue upon the great work the teams have been able to deliver in 2023. We remain focused on streamlining and prioritizing projects in an effective way that reduces costs and also allows us to continue innovating and inventing for customers. With that, let's move on to questions.

Dave Fildes, Brian Olsavsky, Operator, Andy Jassy

Opearator

[Operator Instructions] Our first question will come from Mark Moerdler with Bernstein.

Thanks, Dan. Adobe remains one of the greatest places to work in the industry, and I want to thank our employees for their relentless dedication to supporting our customers and communities. We continue to invest in hiring, including new college grads and interns to bring the best and brightest talent to Adobe. This quarter, Adobe was recognized among Fortune's 100 Best Companies to Work For, Glassdoor's Best-led Companies and the Civic 50 List of the Most Community-minded Companies in the U.S. Demand for our category-defining products and services continues to grow. Our business fundamentals and market tailwinds are strong, and we look forward to building on our momentum in the second half and beyond. Thank you, and we will now take questions.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

Operator

I'm not going to ask about China, but you regularly call out all the rapid growth in many other emerging markets. So is Apple approaching a point where all those other emerging markets in aggregate might cross over to become larger than your current $70 billion greater China segments? And maybe investors could look at that for driving growth for the wider business? And I have a follow-up for Luca.

Our next question is from Richard Kramer with Arete Research.

Operator, Michael Ng, Amit Jawaharlaz Daryanani, Krish Sankar, Luca Maestri, Benjamin Alexander Reitzes, Timothy D. Cook, Suhasini Chandramouli, Erik William Richard Woodring, Wamsi Mohan

Richard Kramer

And echo the congrats on the quarter. Maybe for both of you, Shantanu and David. There are clearly just so many layers to the Firefly monetization story. But I think 1 theme that's coming out a little bit in this call and particularly interesting route to monetize is just the increased engagement that Firefly helps drive in your flagship products, right, or I think we call it sort of the interfaces, right?

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

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

Saket Kalia

I have a couple as well. Maybe for the first one, your Services growth accelerated from 11% growth to 14%. If you can sort of dig into the drivers of where or which parts of services did you really see that acceleration? And why is it a bit more sustainable as we think about the next quarter? Because I believe you're guiding more to sort of averaging out the first half of the year for the next quarter. So just curious what were the drivers? And why not have it a bit more sustainably sort of improve as we go through the remainder of the year? I have a quick follow-up.

Our next question is from Samik Chatterjee with JPMorgan.

Operator, Michael Ng, Suhasini Chandramouli, Krish Sankar, Luca Maestri, Benjamin Alexander Reitzes, Timothy D. Cook, Erik William Richard Woodring, Wamsi Mohan

Samik Chatterjee

I have one on grocery and one on healthcare. First, on grocery, I was wondering if you could talk a bit about the progress that you're making in unifying the offering between Dotcom, Fresh and Whole Foods. And -- and as it relates to reverse logistics and using the grocery facilities, how that's lowering the cost of logistics and whether there is a significant opportunity there in terms of driving traffic and revenue in the grocery business? Then secondly, on health care, in such a poor -- notoriously poor customer experience industry, you've made significant efforts now within acquisition and offering primary care. Just be curious if you could talk a little bit more about the longer-term vision in healthcare.

And our next question comes from the line of Scott Devitt with Wedbush Securities.

Operator, Dave Fildes, Brian Olsavsky, Mark Mahaney, Andy Jassy, Brian Nowak

Scott Devitt

Thanks, Jonathan. Good afternoon, and thank you for joining us. Adobe had an outstanding quarter, achieving revenue of $5.31 billion, representing 11% year-over-year growth. GAAP earnings per share for the quarter was $3.49, and non-GAAP earnings per share was $4.48, representing 15% year-over-year growth. Our success is driven by growing customer value through an innovative product road map. The advances we are delivering across Creative Cloud, Document Cloud, and Experience Cloud are enabling us to attract an expanding universe of users. Everyone from creators, communicators, students, entrepreneurs, and businesses of all sizes are using our products to unleash their creativity, accelerate document productivity, and power their digital businesses.

On this call, which is being recorded, we will discuss Adobe's second 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, June 13, 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 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.

Jonathan Vaas, Shantanu Narayen, Operator

Shantanu Narayen

Thanks, Dan. Adobe remains one of the greatest places to work in the industry, and I want to thank our employees for their relentless dedication to supporting our customers and communities. We continue to invest in hiring, including new college grads and interns to bring the best and brightest talent to Adobe.

For fiscal 2024, given our first half performance, we are now targeting: total Adobe revenue of $21.40 billion to $21.50 billion; Digital Media net new ARR of approximately $1.95 billion; Digital Media segment revenue of $15.80 billion to $15.85 billion; Digital Experience segment revenue of $5.325 billion to $5.375 billion; Digital Experience subscription revenue of $4.775 billion to $4.825 billion; tax rate of approximately 20.5% on a GAAP basis and 18.5% on a non-GAAP basis; GAAP earnings per share of $11.80 to $12; and non-GAAP earnings per share of $18 to $18.20. In summary, I'm extremely pleased with the company's performance in the first half of the year and the momentum we see in our business. Adobe's product leadership, velocity of innovation, diversity of our business, and financial discipline make us unique, enabling us to deliver strong top and bottom line results through dynamic market conditions. I'm confident in our ability to catalyze transformative long-term trends that will position us to win over the next decade. Shantanu, back to you.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

Shantanu Narayen

And Gregg, as you're aware, I mean, certainly with Express, we also have the model of customer acquisition as it relates to people coming in through trial and free and then conversion. So we are seeing the interest level as it relates to Express, in particular, significant interest.

Yes. I mean, again, I think what -- it is this mix of product innovation that we've been putting out there and the steady drumbeat of that. A lot of it getting attention because of the quality and the hooks of AI and being able to sort of bring people, onboarding them quickly and successfully into the product. And then as we talked about, the more they use these AI features, the more they retain. And we feel really good about really that whole workflow. So yes, the new user growth continues to be our primary focus. And when you add in everything we're doing with Express, we're -- again, like I said, we're off to the races and we feel very good about the momentum on new user acquisition and existing member retention.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy, Gregg Moskowitz

Shantanu Narayen

I would sort of modesty say, we've been world-class at sort of driving that for a long time now. But the team, I think, continues to do an amazing job. And I would say David referred to the DDOM. Adobe Home is now sort of increasingly the way that we're driving a lot of people to get aware of our new products. And so I would say the mobile part as well and the mobile journeys, as we've got these mobile products, whether it's Lightroom or whether it's certainly, Express, that's an area of increasing focus for us.

Shantanu, since you also called out the strength in Digital earlier, including driving new Creative All Apps subscriptions from your website, are you doing anything different that's helping to drive that behavior? And if so, is that something you think can continue as well?

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

Shantanu Narayen

It's really too early to answer the question. We just implemented in March, as you probably know, in the European Union, the alternate app stores and alternate billing, et cetera. So we're focused on complying while mitigating the impacts to user privacy and security that you mentioned. And so that's our focus.

Tim, can you talk about the implications to Apple from the changes driven by EU DMA? You've had to open up third-party app stores. Clearly, this poses some security risks on the one hand, which can dilute the experience but also lower payments from developers to Apple. What are you seeing developers choose in these early days and consumers choose in terms of these third-party app stores? And I have a follow-up.

Suhasini Chandramouli, Luca Maestri, Timothy D. Cook

Timothy D. Cook

I don't want to get in front of our announcements, obviously. I would just say that we see generative AI as a very key opportunity across our products, and we believe that we have advantages that set us apart there. And we'll be talking more about it as we go through the weeks ahead.

Maybe my first one, Tim. You've obviously mentioned your excitement around generative AI multiple times. I'm just curious how Apple is thinking about the different ways in which you can monetize this technology because historically, software upgrades haven't been a big factor in driving product cycles. And so could AI be potentially different? How could that impact replacement cycles? Is there any services angle you'd be thinking. Any color that you can share on that, and then I have a follow-up, please.

Operator, Michael Ng, Luca Maestri, Timothy D. Cook, Suhasini Chandramouli

Timothy D. Cook

Ben, if you look at our results in Q2 for Greater China, we were down [ 8 ] That's an acceleration from the previous quarter in Q1. And the primary driver of the acceleration was iPhone. And if you then look at iPhone within Mainland China, we grew on a reported basis, that's before any kind of normalization for the supply disruption that we mentioned earlier.

And Tim, I was wondering if I could ask the China question again. Is there any more color from your visit there that gives you confidence that you've reached the bottom there and that it's turning? I know you've been -- you've continued to be confident there in the long term. Just wondering if there was any color as to when you think the tide turns there. And I have a follow-up.

Operator, Michael Ng, Luca Maestri, Timothy D. Cook, Suhasini Chandramouli

Timothy D. Cook

Our focus on enterprise has been in, through the quarter and the quarters that preceded it, on selling iPhones and iPads and Macs. And we recently added Vision Pro to that, and we're thrilled with what we see there in terms of interest from big companies buying some to explore ways they can use it. And so I see enormous opportunity in the enterprise. I wouldn't want to cabin that to AI-only. I think there's a great opportunity for us around the world in enterprise.

Again, sorry to beat the AI horse, but Tim, I know you don't want to reveal a lot. But I'm just kind of curious because last quarter, you spoke about how you're getting traction in enterprise. Is the AI strategy going to be both consumer and enterprise or is it going to be 1 half or the other? Any color would be helpful. And then I have a follow-up for Luca.

Operator, Michael Ng, Luca Maestri, Timothy D. Cook, Suhasini Chandramouli, Wamsi Mohan

Timothy D. Cook

Yes, I can only tell you what we're seeing. And so I don't want to present myself as an economist so I'll steer clear of that. What we saw was an acceleration from Q1, and it was driven by iPhone, and iPhone in Mainland China before we adjust for this $5 billion impact that we talked about earlier, did grow. That means the other products didn't fare as well, and so we clearly have work there to do.

Fair enough. I figure it's more trying anyway. If I go back to this China discussion a bit, and Tim, I think your comments around growth in iPhones and Macs in China is really notable. Could you step back? I mean, these numbers are still declining at least Greater China on a year-over-year basis in aggregate. Maybe just talk about what are you seeing from a macro basis in China. And then at least the annual decline -- or year-over-year declines that we're seeing, do you think it's more macro driven or more competitive driven over there? That would be helpful.

Operator, Michael Ng, Benjamin Alexander Reitzes, Luca Maestri, Timothy D. Cook, Erik William Richard Woodring, Suhasini Chandramouli, Wamsi Mohan

Timothy D. Cook

I can't address the data points. I could only address what our results are. And we did accelerate last quarter and the iPhone grew in Mainland China. So that's what the results were. I can't bridge to numbers we didn't come up with.

And I think I have to ask you as well like everybody else. I guess, I'm going to go back to the China question. I guess at a high level, the simple question is, when we look at the data points that have been repeatedly reported throughout the course of this quarter, I'm curious, Tim, what are we missing? Like where do you think people are missing Apple's iPhone traction within the China market? Just at a high level, given the data points that were reported throughout this course of last quarter.

Operator, Michael Ng, Amit Jawaharlaz Daryanani, Krish Sankar, Luca Maestri, Benjamin Alexander Reitzes, Timothy D. Cook, Suhasini Chandramouli, Erik William Richard Woodring, Wamsi Mohan

Timothy D. Cook

Yes, the great thing is I'm hearing about so many of them. I wouldn't say that one has emerged as the top right now. The most impressive thing is that similar to the way people use the Mac, you use it for everything. People are using it for many different things in enterprise. And that varies from field service to training to health care-related things like preparing a doctor for pre-op surgery or advanced imaging.

I have 2 questions as well. First, for Tim, for enterprise specifically, what are some of the top 2 or 3 use cases on Vision Pro you're hearing most excitement? And then I have a follow-up for Luca.

David Vogt, Operator, Michael Ng, Benjamin Alexander Reitzes, Suhasini Chandramouli, Krish Sankar, Luca Maestri, Amit Jawaharlaz Daryanani, Timothy D. Cook, Erik William Richard Woodring, Wamsi Mohan

Timothy D. Cook

Tim, can you talk about the implications to Apple from the changes driven by EU DMA? You've had to open up third-party app stores. Clearly, this poses some security risks on the one hand, which can dilute the experience but also lower payments from developers to Apple. What are you seeing developers choose in these early days and consumers choose in terms of these third-party app stores? And I have a follow-up.

As you know, on the CapEx front, we have a bit of a hybrid model where we make some of the investments ourselves. In other cases, we share them with our suppliers and partners. On the manufacturing side, we purchase some of the tools and manufacturing equipment. In some of the cases, our suppliers make the investment, and we do something similar on the data center side. We have our own data center capacity and then we use capacity from third parties. It's a model that has worked well for us historically, and we plan to continue along the same lines going forward. Our next question is from Wamsi Mohan with Bank of America.

Suhasini Chandramouli, Luca Maestri, Timothy D. Cook

Wamsi Mohan

To add a few things to what Brian said. I think just as it relates to the first part of the question, just the way to think about backlog conversion is just these are deals that we've signed that are long-term deals typically with customers. And then there's some amount of time it takes where we work with those customers to migrate those workloads. And so some of the trends that we have seen over the last quarter. First of all, I think that the lion's share of cost optimization has happened. It's not that there won't be any more or that we don't see anymore, but it's just attenuated very significantly. And at the same time, what we've seen is that migrations and this speaks to some of the backlog, migrations that were proceeding, but maybe not at the pace that we saw before, have started to pick up again.

On the CapEx side, let me talk in total for the company. We had $48 billion in 2023 was down $10 billion year-over-year. We talked about during the year quite a bit. A lot of the mix of investment in 2023 was tied to infrastructure, mostly supporting AWS but also supporting our core Amazon businesses was about 60% of our spend. So it reached a very high percentage. We anticipate those trends continuing into 2024. CapEx will go up in 2024. I'm not giving a number today, but we do -- we're still working through plans for the year, but we do expect CapEx to rise as we add capacity in AWS for region expansions, but primarily the work we're doing with generative AI projects. In the fulfillment center and logistics area, I would say it's more incremental capacity at this point based on additional demand, although we are seeing some additional investments for same-day delivery sites and automation, robotics. But the trend for most of the large percentage of the spend will be in infrastructure is going to continue into 2024.

Dave Fildes, Brian Olsavsky, Operator, Andy Jassy

We've also seen that a number of the deals that typically signed more quickly, but were signing more slowly in more uncertain environments. A lot of those got done in the last quarter, and you heard in my opening remarks some of the examples, but that was some of several, and we're continuing to see that trend. And then on the Gen AI side, it's -- if you look at the Gen AI revenue we have, in absolute numbers, it's a pretty big number, but in the scheme of a $100 billion annual revenue run rate business, it's still relatively small, much smaller than what it will be in the future, where we really believe we're going to drive tens of billions of dollars of revenue over the next several years.

To add a few things to what Brian said. I think just as it relates to the first part of the question, just the way to think about backlog conversion is just these are deals that we've signed that are long-term deals typically with customers. And then there's some amount of time it takes where we work with those customers to migrate those workloads. And so some of the trends that we have seen over the last quarter. First of all, I think that the lion's share of cost optimization has happened. It's not that there won't be any more or that we don't see anymore, but it's just attenuated very significantly. And at the same time, what we've seen is that migrations and this speaks to some of the backlog, migrations that were proceeding, but maybe not at the pace that we saw before, have started to pick up again.

Dave Fildes, Brian Olsavsky, Operator, Andy Jassy

Brian, I appreciate it. I'll take the first, and I'll let Brian take the second. On the cost to serve coming down, as I mentioned in my opening remarks, I don't think that we feel like where we're going to ultimately be. I think we feel like we have meaningful upside there. And I think 1 thing that it's easy to make as large a change as we made in regionalization in the U.S. and saying, check, we got that done. But the reality is, we still have several improvements and a bunch of ways that we can hone the regionalization improvements that we made in 2023 and in 2024.

I have two. Andy, the first one is sort of on the cost to serve comments coming down for the first time since 2018. As you sort of look into '24 and '25, can you just sort of walk us through some of the key operational blocking and tackling this to happen to continue to drive down that cost of serve back to 2018 levels? Or however you're thinking about your North Star from that perspective? And then the second 1 is on sort of philosophical about capital returns. It looks like the cash balance could start building pretty nicely here. How do you think about the idea of buybacks, share repurchases or some type of capital return programs to sort of help shareholders out?

Dave Fildes, Brian Olsavsky, Operator, Andy Jassy

Yes, I'd just add a couple of other items there. We've gotten a lot better at fixed cost controls, as we scale. And I think you're seeing that as part of our ability to lower cost per serve not only in operations, it's actually throughout the company. And we're seeing a reduction in some of the inflationary factors that hit us in -- especially hard in 2021 and 2022, things like transportation services, fuel and others. So not totally out of the woods there, but coming down, and we still see some more upside.

And we looked at it really a beginner's eye and we have found so many areas that we believe that we can evolve that I think will both help our cost to serve and even more importantly, deliver faster delivery speeds for customers. And I mentioned one area which, in particular, which you'll see us focus on over the next year or two is just, we think there are real opportunities in our inbound network and our inbound processes. And then where we locate inventory in association with that, which will accomplish both of those tasks. But for us, I don't believe that we believe that 2018 is the North Star in cost to serve. I think we believe we can keep evolving it and being better than that.

Dave Fildes, Brian Olsavsky, Operator, Andy Jassy

Yes. On grocery, we're pleased with the progress we're making there. When we think about our grocery business right now and kind of, I'll call it, 3 big macro segments. The first is nonperishables where these are things like consumables and canned goods and pet food and health and beauty products and pharmaceutical. And we -- it's a big business and it's continuing to grow at a very healthy clip, and we're really pleased with that business. And it's really the way the most mass merchandise -- mass merchandisers got into the grocery business a few decades ago. So that continues to grow at a very healthy clip.

I have one on grocery and one on healthcare. First, on grocery, I was wondering if you could talk a bit about the progress that you're making in unifying the offering between Dotcom, Fresh and Whole Foods. And -- and as it relates to reverse logistics and using the grocery facilities, how that's lowering the cost of logistics and whether there is a significant opportunity there in terms of driving traffic and revenue in the grocery business? Then secondly, on health care, in such a poor -- notoriously poor customer experience industry, you've made significant efforts now within acquisition and offering primary care. Just be curious if you could talk a little bit more about the longer-term vision in healthcare.

Operator, Dave Fildes, Brian Olsavsky, Mark Mahaney, Andy Jassy, Brian Nowak

Yes. So Colin, I would say a few things on -- first on generative AI. It's -- when we talk to customers, particularly at enterprises as they're thinking about generative AI, many are still thinking through at which layers of those 3 layers of the stack, I laid out that they want to operate in. And we predict that most companies will operate in at least 2 of them. But I also think even though it may not be the case early on, I think many of the technically capable companies will operate at all 3. They will build their own models. They will leverage existing models from us, and then they're going to build the apps.

I just wanted to follow up on AWS for a moment. You outlined the generative AI stack, which I think is -- which is very clear. So I'm just curious maybe how you're going to market within the application layer given sort of the competitive dynamics of that. And then maybe expand, if you could, Andy, a little bit on the strategy for Gene AI on the consumer-facing side of the business. I know you launched Rufus today. Is that an area that you think could materially improve conversion rates and the overall consumer engagement on retail apps or what's your vision there?

Operator, Scott William Devitt, Dave Fildes, Brian Olsavsky, Mark Mahaney, Colin Sebastian, Andy Jassy, Brian Nowak

Thank you, Luca. Operator, may we have the first question, please?

As we move ahead into the June quarter, I'd like to review our outlook, which includes the types of forward-looking information that Suhasini referred to at the beginning of the call. The color we are providing today assumes that the macroeconomic outlook doesn't worsen from what we are projecting today for the current quarter. We expect our June quarter total company revenue to grow low single digits year-over-year in spite of a foreign exchange headwind of about 2.5 percentage points. We expect our Services business to grow double digits at a rate similar to the growth we reported for the first half of the fiscal year. And we expect iPad revenue to grow double digits. We expect gross margin to be between 45.5% and 46.5%. We expect OpEx to be between $14.3 billion and $14.5 billion. We expect OI&E to be around $50 million, excluding any potential impact from the mark-to-market of minority investments and our tax rate to be around 16%. With that, let's open the call to questions.

Suhasini Chandramouli, Luca Maestri, Timothy D. Cook

Yes. We are obviously very excited about the opportunity with gen AI. We obviously are pushing very hard on innovation on every front, and we've been doing that for many, many years. Just during the last 5 years, we spent more than $100 billion in research and development.

Great. And I wanted to ask about as Apple leans more into AI and generative AI, should we expect any changes to the historical CapEx cadence that we've seen in the last few years of about $10 billion to $11 billion per year? Or any changes to how we may have historically thought about the split between tooling, data center, and facilities?

Suhasini Chandramouli, Luca Maestri, Timothy D. Cook

Okay. And Luca, I was wondering if you could comment a bit on the product gross margins, the sequential step down. You noted mix and leverage. Any more color on the mix, if you could share if customers are at all starting to mix down across product lines? Or is this more a mix across product lines? Just trying to get some color on customer behavior given some of the broader inflationary pressures.

It's really too early to answer the question. We just implemented in March, as you probably know, in the European Union, the alternate app stores and alternate billing, et cetera. So we're focused on complying while mitigating the impacts to user privacy and security that you mentioned. And so that's our focus.

Suhasini Chandramouli, Luca Maestri, Timothy D. Cook

Okay, very fair. And then, Luca, maybe to just follow up on Wamsi's comments or question. There's a broad concern about the headwind that rising commodity costs have on your product gross margins. Wondering if you could just clarify for us, if we take a step back and look at all of the components and commodities that go into your products kind of collectively, are you seeing these costs rising? Are they falling? What tools do you have to try to help mitigate some rising costs, if at all, rising input costs, if at all?

And so could AI be potentially different? How could that impact replacement cycles? Is there any services angle you'd be thinking. Any color that you can share on that, and then I have a follow-up, please. I don't want to get in front of our announcements, obviously. I would just say that we see generative AI as a very key opportunity across our products, and we believe that we have advantages that set us apart there. And we'll be talking more about it as we go through the weeks ahead.

Operator, Michael Ng, Luca Maestri, Timothy D. Cook, Suhasini Chandramouli

Okay. And then my follow-up, I want to ask this carefully, though, it's -- there's a fear out there that you may lose some traffic acquisition revenue. And I was wondering if you thought, AI from a big picture, and it doesn't have to be on a long-term basis," I mean, from a big picture, if AI is an opportunity for you to continue to monetize your mobile real estate, just how you -- how maybe investors can think about that from a big picture.

And if you look at the top-selling smartphones, the top 2 in urban China are iPhones. And while I was there, it was a great visit, and we opened a new store in Shanghai and the reception was very warm and highly energetic. And so I left there having a fantastic trip and enjoyed being there. And so I maintain a great view of China in the long term. I don't know how each and every quarter goes and each and every week. But over the long haul, I have a very positive viewpoint.

Operator, Michael Ng, Luca Maestri, Timothy D. Cook, Suhasini Chandramouli, Wamsi Mohan

I think AI, generative AI and AI both are big opportunities for us across our products. And we'll talk more about it in the coming weeks. But I think there are numerous ways there that are great for us, and we think that we're well positioned.

Okay. And then my follow-up, I want to ask this carefully, though, it's -- there's a fear out there that you may lose some traffic acquisition revenue. And I was wondering if you thought, AI from a big picture, and it doesn't have to be on a long-term basis," I mean, from a big picture, if AI is an opportunity for you to continue to monetize your mobile real estate, just how you -- how maybe investors can think about that from a big picture. Just given that's been one of the concerns that's potentially been an overhang, of course, due to a lot of the news in the media around some of the legal cases. And I was wondering if there's just a big picture color you could give that makes us kind of think about it better and your ability to sort of continue to monetize that real estate.

Operator, Michael Ng, Luca Maestri, Timothy D. Cook, Suhasini Chandramouli, Wamsi Mohan

Got it, very helpful. And then for Luca, I'm kind of curious on given the macro environment, on the hardware side, are you seeing a bias towards like standard iPhone versus the Pro model? The reason I'm asking the question is that there's a weaker consumer spending environment, yet your services business is still growing and has amazing growth margins. So I'm just trying to like square the circle over there.

Our focus on enterprise has been in, through the quarter and the quarters that preceded it, on selling iPhones and iPads and Macs. And we recently added Vision Pro to that, and we're thrilled with what we see there in terms of interest from big companies buying some to explore ways they can use it. And so I see enormous opportunity in the enterprise. I wouldn't want to cabin that to AI-only. I think there's a great opportunity for us around the world in enterprise.

Operator, Michael Ng, Luca Maestri, Erik William Richard Woodring, Timothy D. Cook, Suhasini Chandramouli, Wamsi Mohan

Fair enough. I figure it's more trying anyway. If I go back to this China discussion a bit, and Tim, I think your comments around growth in iPhones and Macs in China is really notable. Could you step back? I mean, these numbers are still declining at least Greater China on a year-over-year basis in aggregate. Maybe just talk about what are you seeing from a macro basis in China. And then at least the annual decline -- or year-over-year declines that we're seeing, do you think it's more macro driven or more competitive driven over there? That would be helpful.

Amit, this is Luca. I would say 1 step at a time, we have put out this target of getting to net cash neutral several years ago, and we're working very hard to get there. Our free cash flow generation has been very strong over the years, particularly the last few years. And so as you've seen this year, we've increased the amount that we're allocating to the buyback. For the last couple of years, we were doing $90 billion. Now we're doing $110 billion. So let's get there first. It's going to take a while still. And then when we are there, we're going to reassess and see what is the optimal capital structure for the company at that point in time. Obviously, there's going to be a number of considerations that we will need to look at when we get there.

Operator, Michael Ng, Benjamin Alexander Reitzes, Luca Maestri, Timothy D. Cook, Erik William Richard Woodring, Suhasini Chandramouli, Wamsi Mohan

I do see a key opportunity, as I've mentioned before, with generative AI, with all of our devices or the vast majority of our devices. And so I think that if you look out, that's not within the next quarter or so, and we don't guide at the product level, but I'm extremely optimistic. And so that's kind of how I view it. In terms of -- I'll let Luca comment on the outlook portion of it. I think if you step back on iPhone, though, and you make this adjustment from the previous year, our Q2 results would be flattish on iPhone. And so that's how we performed in Q2.

And what changes sort of the consumer demand or receptivity to new devices because we've been in this malaise for a while. Is it really this AI initiative that a lot of companies are pursuing? And do you think that changes sort of the demand drivers going forward? Or is it just really more of a timing issue in terms of the replacement cycle is a little bit long in the tooth, and we see a bit of an upgrade cycle at some point maybe later this year into next year?

Operator, Michael Ng, Benjamin Alexander Reitzes, Luca Maestri, Timothy D. Cook, Erik William Richard Woodring, Suhasini Chandramouli, Wamsi Mohan

So a number of things on Services. First of all, the overall performance was very strong. As I said earlier, all-time records in both developed and emerging markets, so we see our Services do well across the world. Records in many of our Services categories, there are some categories that are growing very fast also because they are relatively smaller in the scheme of our Services business like cloud, video, payment services, those all set all-time revenue records.

I have a couple as well. Maybe for the first one, your Services growth accelerated from 11% growth to 14%. If you can sort of dig into the drivers of where or which parts of services did you really see that acceleration? And why is it a bit more sustainable as we think about the next quarter? Because I believe you're guiding more to sort of averaging out the first half of the year for the next quarter. So just curious what were the drivers? And why not have it a bit more sustainably sort of improve as we go through the remainder of the year? I have a quick follow-up.

Operator, Michael Ng, Suhasini Chandramouli, Krish Sankar, Luca Maestri, Benjamin Alexander Reitzes, Timothy D. Cook, Erik William Richard Woodring, Wamsi Mohan

Got it, got it. And for my follow-up, if I can ask you more specifically about the India market. Obviously, you continue to make new records in terms of revenue in that market. How much of the momentum you're seeing would you associate with your sort of retail strategy in that market, retail expansion relative to maybe some of the supply change or the manufacturing changes or strategy you've undergone or taken in that market itself? Any thoughts around that would be helpful.

So we feel very good about the progress that we're making in Services. As we go forward, I'll just point out that if you look at our growth rates a year ago, they improved during the course of the fiscal year last year. So the comps for the Services business become a bit more challenging as we go through the year. But in general, as I mentioned, we still expect to grow double digits in the June quarter at a rate that is very similar to what we've done in the first half.

Operator, Michael Ng, Suhasini Chandramouli, Krish Sankar, Luca Maestri, Benjamin Alexander Reitzes, Timothy D. Cook, Erik William Richard Woodring, Wamsi Mohan

Sure. We did grow strong double digit, and so we were very, very pleased with that. It was a new March quarter revenue record for us. As I've said before, I see it as an incredibly exciting market and it's a major focus for us. In terms of the operational side or supply chain side, we are producing there.

Got it, got it. And for my follow-up, if I can ask you more specifically about the India market. Obviously, you continue to make new records in terms of revenue in that market. How much of the momentum you're seeing would you associate with your sort of retail strategy in that market, retail expansion relative to maybe some of the supply change or the manufacturing changes or strategy you've undergone or taken in that market itself? Any thoughts around that would be helpful.

Operator, Michael Ng, Benjamin Alexander Reitzes, Suhasini Chandramouli, Krish Sankar, Luca Maestri, Amit Jawaharlaz Daryanani, Timothy D. Cook, Erik William Richard Woodring, Wamsi Mohan

Okay. And then as a quick follow-up. I know you guys haven't talked about this, quantified it in quite some time, but I'm curious to how we would characterize the channel inventory dynamics for iPhone.

And I think I have to ask you as well like everybody else. I guess, I'm going to go back to the China question. I guess at a high level, the simple question is, when we look at the data points that have been repeatedly reported throughout the course of this quarter, I'm curious, Tim, what are we missing? Like where do you think people are missing Apple's iPhone traction within the China market? Just at a high level, given the data points that were reported throughout this course of last quarter. I can't address the data points. I could only address what our results are. And we did accelerate last quarter and the iPhone grew in Mainland China. So that's what the results were. I can't bridge to numbers we didn't come up with.

Operator, Michael Ng, Amit Jawaharlaz Daryanani, Krish Sankar, Luca Maestri, Benjamin Alexander Reitzes, Timothy D. Cook, Suhasini Chandramouli, Erik William Richard Woodring, Wamsi Mohan

Sure. For the March quarter, we decreased channel inventory during the quarter. We usually decrease channel inventory during the Q2 time frame, so that's not unusual. And we're very comfortable with the overall channel inventory.

Okay. And then as a quick follow-up. I know you guys haven't talked about this, quantified it in quite some time, but I'm curious to how we would characterize the channel inventory dynamics for iPhone.

Operator, Michael Ng, Amit Jawaharlaz Daryanani, Krish Sankar, Luca Maestri, Benjamin Alexander Reitzes, Timothy D. Cook, Suhasini Chandramouli, Erik William Richard Woodring, Wamsi Mohan

I think, Richard, you're asking a really interesting question. We were looking at something similar recently. Obviously, China is by far the largest emerging market that we have. But when we start looking at places like India, like Saudi, like Mexico, Turkey, of course, Brazil and Mexico and Indonesia, the numbers are getting large and we're very happy because -- these are markets where our market share is low.

I'm not going to ask about China, but you regularly call out all the rapid growth in many other emerging markets. So is Apple approaching a point where all those other emerging markets in aggregate might cross over to become larger than your current $70 billion greater China segments? And maybe investors could look at that for driving growth for the wider business? And I have a follow-up for Luca.

Operator, Michael Ng, Amit Jawaharlaz Daryanani, Krish Sankar, Luca Maestri, Benjamin Alexander Reitzes, Timothy D. Cook, Suhasini Chandramouli, Erik William Richard Woodring, Wamsi Mohan

Okay. And then as a follow-up, maybe for either of you, I mean, you're coming up on 4 years from what was an incredibly popular iPhone 12 cycle. And given you're struggling to reduce your net reach or net neutral cash position and your margins are sort of near highs. Do you see ways to deploy capital more to spur replacement demand in your installed base, either with greater device financing, more investment in marketing, more promotions? I mean, do you feel like you need to produce those sort of margins? Or is it more important to spur growth with replacement?

The populations are large and growing, and our products are really making a lot of progress with -- in those markets. The level of excitement for the brand is very high. Tim was in Southeast Asia recently, and the level of excitement is incredibly high. So it is very good for us. And then -- and certainly, the numbers are getting larger all the time. And so the gap, as you compare it to the numbers in China, is reducing. And hopefully, that trajectory continues for a long time.

Operator, Michael Ng, Amit Jawaharlaz Daryanani, Krish Sankar, Luca Maestri, Benjamin Alexander Reitzes, Timothy D. Cook, Suhasini Chandramouli, Erik William Richard Woodring, Wamsi Mohan

I think innovation spurs the upgrade cycle and as one thing, of course, there's economic factors as well that play in there. And what kind of offerings there are from our carrier partners and so forth. And so there's a number of variables in there. But we work all of those, and we price our products for the value that we're delivering. And so that's how we look at it.

Okay. And then as a follow-up, maybe for either of you, I mean, you're coming up on 4 years from what was an incredibly popular iPhone 12 cycle. And given you're struggling to reduce your net reach or net neutral cash position and your margins are sort of near highs. Do you see ways to deploy capital more to spur replacement demand in your installed base, either with greater device financing, more investment in marketing, more promotions? I mean, do you feel like you need to produce those sort of margins? Or is it more important to spur growth with replacement?

David Vogt, Operator, Michael Ng, Benjamin Alexander Reitzes, Suhasini Chandramouli, Krish Sankar, Luca Maestri, Amit Jawaharlaz Daryanani, Timothy D. Cook, Erik William Richard Woodring, Wamsi Mohan

And if I can add to Tim's comments, Richard, one of the things that when you look over the long arc of time that maybe is not fully understood is that we've gone through a long period of very strong dollar. And what that means, given that our company sells more than 60% of our revenues outside the United States, the demand for our products in those markets is stronger than the results that we report just because of the translation of those local currencies into dollars, right?

I think innovation spurs the upgrade cycle and as one thing, of course, there's economic factors as well that play in there. And what kind of offerings there are from our carrier partners and so forth. And so there's a number of variables in there. But we work all of those, and we price our products for the value that we're delivering. And so that's how we look at it.

David Vogt, Operator, Michael Ng, Benjamin Alexander Reitzes, Suhasini Chandramouli, Krish Sankar, Luca Maestri, Amit Jawaharlaz Daryanani, Timothy D. Cook, Erik William Richard Woodring, Wamsi Mohan

Great. And then Luca, I believe you mentioned that for the March quarter, the commodity pricing environment was favorable. Can you talk about what you're assuming for commodity pricing on memory, et cetera, for the June quarter and maybe for the full year?

Yes, the great thing is I'm hearing about so many of them. I wouldn't say that one has emerged as the top right now. The most impressive thing is that similar to the way people use the Mac, you use it for everything. People are using it for many different things in enterprise. And that varies from field service to training to health care-related things like preparing a doctor for pre-op surgery or advanced imaging. And so it commands control centers. And so it's an enormous number of different verticals. And our focus is on -- is growing that ecosystem and getting more apps and more and more enterprises engaged. And the event that we had recently, I can't overstate the enthusiasm in the room. It was extraordinary. And so we're off to a good start, I think, with enterprise.

David Vogt, Operator, Michael Ng, Benjamin Alexander Reitzes, Suhasini Chandramouli, Samik Chatterjee, Krish Sankar, Luca Maestri, Amit Jawaharlaz Daryanani, Timothy D. Cook, Erik William Richard Woodring, Wamsi Mohan

Sure, Mark, let me start and then certainly, David and Dan can add. To your point, we had a strong quarter. And I think what's really driving the quarter, big picture, continues to be the innovation that we're delivering. And the way AI is actually making our applications both more affordable, easy to onboard as well as, frankly, higher-value users.

Congratulations on the quarter and especially the strong net new ARR. I'd like to ask a little more color on specifically the net new ARR that we saw in Creative Cloud. Can you give us a sense of what the contribution near term, medium term to Digital ARR from seat growth versus upsell versus consumption, things like Adobe Stock and AI credits, even rank ordering or quantifying? Anything you can give us to give us a sense of what's driving that number? And that would be very helpful in really understanding what's going on in the drivers of that number.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

Sure, Alex. Again maybe I'll start with that. And just taking a step back, I think we've talked about the platform that we have for gen AI that constitutes data as well as models and finally, interfaces. On the models, we released Firefly services. We've started to see some customer wins in Firefly services. So they're using it for variations, and these are the custom models that we're creating as well as access to APIs. I would say that's early in terms of the adoption, but the interest as customers say how they can ingest their data into our models as well as custom models, that's really ahead of us, and we expect that to continue to grow in Q3 and Q4.

Congratulations on just an incredible result. I wanted to ask kind of just similar to Mark's question, just how much gen AI demand did you see in the quarter in terms of sort of both the Creative Cloud portfolio and Digital Media, in Creative Studio as well as in GenStudio? And how does it kind of help to pick up more on the enterprise side of the business, on the SMB side of the business? Help us understand that progression and maybe how you're planning for it in the back half of the [indiscernible] guide.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

I think from a macro perspective, what I think differentiates Adobe more than any other company is how differentiated and how diverse the set of products that we have. And again, from individual consumers all the way to enterprises, our products are mission-critical. And so at this scale, it's all about execution.

That's super helpful. And then maybe just 1 on the macro. Just given your guys' purview, like what is the story that you're seeing in terms of the macro on the demand environment? Clearly again, you're commenting on solid performance in the SMB and in the enterprise. Is there any areas that you're seeing pockets of weaknesses that's really vertical-dependent? Just maybe give a comment on kind of how we should think about it as we look to the rest of the year.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

Yes, it's a great question. And yes, the core has been -- from the very beginning, we've talked to you guys about our primary focus for generative AI is about user adoption and proliferation, right? And that has continued to be the primary thing on our mind. And it's the primary thing on our mind for multiple reasons.

And echo the congrats on the quarter. Maybe for both of you, Shantanu and David. There are clearly just so many layers to the Firefly monetization story. But I think 1 theme that's coming out a little bit in this call and particularly interesting route to monetize is just the increased engagement that Firefly helps drive in your flagship products, right, or I think we call it sort of the interfaces, right? An example there would be like Generative Fill for Photoshop. And you've clearly started expanding that to other flagships like Premier and Illustrator. Maybe to go 1 level deeper, is there a way that you think about the potential opportunity from things like higher retention rates? Or any other way that -- I know it's really tough to size, but how have you sort of thought about it even qualitatively?

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

Yes. I mean, again, I think what -- it is this mix of product innovation that we've been putting out there and the steady drumbeat of that. A lot of it getting attention because of the quality and the hooks of AI and being able to sort of bring people, onboarding them quickly and successfully into the product.

And I'll add my congratulations. For your Creative business, how are you thinking about the Q side of the P times Q equation over the balance of the year? Based on these numbers anyway, I would certainly assume that you had really healthy unit growth in Q2. And I'm wondering if you expect that to continue.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

Yes. Thanks, Keith. This is one of the areas that I think we've shared with you the complexity of the year-over-year comparisons in the first half based on prior pricing marks that we had. But more importantly, to your point, the year-over-year complexities are now behind us. And we're very excited about the momentum of the first half and how it sets us up for the second half, frankly, across both Document Cloud and Creative Cloud. Both are really momentum stories.

And again, congratulations on a really solid set of results in an environment where not very many software companies have been able to beat and raise in this type of uneven environment. I wanted to maybe focus in a little bit on the question that Mark Moerdler asked, in particular on what gives you guys the confidence to see a return to year-on-year growth and Creative Cloud net new ARR. It declined in Q2, it declined in Q1. And if I'm not mistaken, the decline in Q2 was a little bit steeper than what we saw in Q1. So what are the particular drivers and maybe some detail on those drivers that give you guys the confidence that, that trend line that has been actually heading in the wrong direction is going to head in the right direction now? We're actually going to see growth in those metrics in Q3 and Q4?

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

I think you're right, Brad. When we think about what we've done with imaging and video, we've done the right thing by making sure the higher-value paid plans that people don't have to think about the amount of generative capability. And so there, the balance between for free and trialist users, they're going to run into the generative capability limits and, therefore, have to subscribe.

I wanted to ask a question around the generative credit component to your pricing here. It seems like with all the progress you've made embedding Firefly across the key flagship products and the engagement levels that you're seeing, we should start to see perhaps some ramp in that generative credit component to your pricing. Is that a fair assessment? Would you expect to start to see that coming in? Or should we look to other services like the video capabilities that you're going to be launching shortly as a key catalyst there?

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

Yes, Kash. I think there are 2 things when we talk to investors that are perhaps on their mind. I mean, I think the first is it's fair to say that the interest that exists right now from investors as it relates to AI is all associated with the infrastructure and chips and perhaps rightly so because that's where everybody is creating these models. They're all trying to train them. And there's a lot of, I think, deserved excitement associated with that part of where we are in the evolution of generative AI.

Generative AI, it seems to swing back and forth. Just so early in its evolution, the possibilities seem magical sometimes, endless sometimes, sometimes it feels very disappointing. But with every quarter that Adobe is executing on this path, where do you stand with the question that we do get from investors? Will generative AI be so good that it's the end of the creative process? So we don't need creative folks, that software will do everything? That sounds a little far-fetched, but I'm just throwing it out there to see how you would react that proposition. Same in Experience Cloud as well. Could generative AI create its own marketing campaign, put marketing people out of business? Or maybe it doesn't. I'm sure you have strong views. Maybe flipped on the other side, it does create category growth on the other hand, not category compression. So sorry for that super high-level question, but that seems to be a big debate on the stock here, at least from the long-term perspective.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

And maybe 1 thing to add to that, Kash, just to build on what Shantanu was talking about. I think the other thing we get asked a fair amount is about the comparison between different models, right? So Firefly might be better at something. Midjourney might be something at something else. DALL-E might do something else. And the key thing here is that around this table, we get excited when models innovate. We get excited when Firefly does something amazing. We get excited when third-party models do something because our view, to Shantanu's point, is that the more content that gets generated out of these models, the more content that needs to be edited, whether it's color correction, tone matching, transitions, assembling clips, or masking composite images.

And so net-net, I am absolutely betting on the fact that 5 years from now, there will be more people saying, "I'm using creative tools to accomplish what I want," and there'll be more marketers saying, "I can now, with the agility that I need, truly deliver a marketing campaign and an audience that's incredibly more specific than I could in the past." And that's Adobe's job to demonstrate how we are both leading in both those categories and to continue to innovate. But I recognize and I understand the question that exists in the industry associated with AI. If the value doesn't accrue to interfaces, I'll leave you with that. I think the investment would not be as beneficial as I believe it can be.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

Awesome, the message here is that gen AI is going to create more growth in the category. And Shantanu, you did that with the pivot to cloud. You grew the category, so here we go again.

And the reason for this is that this is not a game where there's going to be 1 model. Each model is going to have its own personality, what it generates, what it looks like, how fast it generates, how much it costs when it generates that, and to have some interface layer to help synthesize all of this is important. And so just sort of to note, we've said this before but I'll say it again here, you will see us building our products and tools and services leveraging Firefly for sure, but you'll also see us leveraging best-of-breed personalities from different models and integrate them all together.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

Maybe I'll start with customer 0. Right before this meeting, I was in a meeting with our CMO. And well, sometimes it's hard to tell, he's running the CMO or CEO head but CMO this time. And we were reviewing a full-funnel campaign that we're planning on launching later this year. And exactly as Shantanu mentioned earlier, we saw benefits in terms of cost of the campaign, faster time to market for the campaign, and the amount of content that we can create to personalize that campaign.

I'll echo my congrats on the great quarter. I know it's early, but what's been the feedback and customer behavior for those users that are on Firefly services and GenStudio? And then thinking more longer term, what type of price uplift could you see from those customers over time, just given what you said about the acceleration in Firefly generations being driven by those products?

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy

Thanks, everyone. This concludes the call.

But since that is the last question, let me just say I'm proud of how we executed in Q2, both across the product innovation, delivery as well as the go-to-market because clearly, a number of you asked how we were able to put together these numbers where others have perhaps talked about the macroeconomic environment. We certainly remain focused on leveraging technology to light a broader set of customers. And at the end of the day, to the questions that we were asked, we believe that the real value of AI will be in the interfaces that individuals, enterprises use to accomplish their tasks and workflows. And we think we're incredibly well positioned. So thank you for joining us.

Jonathan Vaas, Shantanu Narayen, Operator, David Wadhwani, Daniel J. Durn, Anil S. Chakravarthy