Q4 Operating Cash Flow Exceeds $1 Billion; Company Raises Revenue and ARR Targets for Fiscal Year 2019

San Jose, Calif. – Adobe today reported financial results for its fourth quarter and fiscal year 2018 ended Nov. 30, 2018.

In its fourth quarter of fiscal year 2018, Adobe achieved record quarterly revenue of $2.46 billion, which represents 23 percent year-over-year growth. In fiscal year 2018, Adobe achieved record annual revenue of $9.03 billion, which represents 24 percent year-over-year growth.

"Adobe achieved record revenue of greater than $9 billion and delivered outstanding earnings performance in fiscal 2018," said Shantanu Narayen, president and CEO, Adobe. "In 2018 we made significant investments across our product portfolio, entered new markets, and made strategic acquisitions which we believe will fuel continued top and bottom-line performance.”

“We finished the year strong with record results across the board, meeting or exceeding all of our annual and quarterly targets which did not include Marketo,” said John Murphy, executive vice president and CFO, Adobe. “We’re excited to add Marketo and the expanded market opportunity it provides. We look forward to delivering strong revenue growth, accelerating earnings growth and healthy margin expansion during fiscal 2019.”

Adobe acquired Marketo, Inc. on Oct. 31, 2018, which added approximately $21 million of revenue in the fourth quarter. This press release provides key financial information with and without the impact of the Marketo transaction to enable evaluation of the Company’s performance based on financial targets provided before the acquisition.

Fourth Quarter Fiscal Year 2018 Financial Results

1 Adobe provided Q4 FY2018 targets on Sept. 13, 2018 and reaffirmed them on Oct. 15, 2018, both of which preceded its acquisition of Marketo on Oct. 31, 2018
2 A reconciliation between GAAP and non-GAAP results is provided at the end of this press release and on Adobe’s website

Other financial highlights in the fourth quarter of fiscal 2018 include:

• Operating income grew 11 percent and net income grew 35 percent year-over-year on a GAAP-basis; operating income grew 18 percent and net income grew 44 percent year-over-year on a non-GAAP basis.
• Cash flow from operations was a record $1.11 billion.
• Deferred revenue grew to $3.05 billion.

The company repurchased approximately 1.6 million shares during the quarter, returning $397 million of cash to stockholders.

Fiscal Year 2018 Financial Results

1 Adobe provided annual FY2018 targets on Dec. 14, 2017
2 Includes revenue from SaaS, managed service and term offerings for Analytics Cloud, Marketing Cloud and Magento Commerce Cloud, as well as total revenue for Adobe Advertising Cloud
3 A reconciliation between GAAP and non-GAAP results is provided at the end of this press release and on Adobe’s website

Other financial highlights in fiscal year 2018 include:

• Operating income grew 31 percent and net income grew 53 percent year-over-year on a GAAP-basis; operating income grew 31 percent and net income grew 56 percent year-over-year on a non-GAAP basis.
• Adobe generated $4.03 billion in operating cash flow during the year.
• The company repurchased 8.7 million shares during the year, returning $2.00 billion of cash to stockholders.

ASC 606 Update

Adobe will report its financial results based on Accounting Standards Coding Topic 606 (“ASC 606”) in its fiscal year 2019, beginning in March 2019 with its first quarter earnings report. The financial targets Adobe is providing today remain based on ASC 605 as the Company integrates its acquisition of Marketo into its financial systems. Adobe continues to believe that moving to 606 in fiscal year 2019 reporting will not materially impact its revenue. However, the Company now expects there will be a slight improvement to earnings through fiscal year 2019 due to benefits from capitalization of sales commissions.

Adobe Updates Financial Targets for Fiscal Year 2019 to Include Marketo

Adobe provided preliminary fiscal year 2019 financial targets at its Financial Analyst Meeting on Oct. 15, 2018, before it had closed its acquisition of Marketo. The Company today is updating those targets and providing earnings per share targets to reflect the impact of:

• The acquisition of Marketo, including revenue, operating expense and the write-down of deferred revenue due to purchase accounting, and higher other expense in order to fund the acquisition; and
• Adverse changes in global currency rates since Sept. 2018, which was the time period used for spot currency rates as a basis for providing the preliminary fiscal year 2019 targets in mid-October.

The following table and subsequent commentary summarizes Adobe’s annual fiscal year 2019 targets:

1 Includes annualized subscription value of SaaS, managed service and term offerings under contract for Analytics Cloud, Marketing Cloud and Magento Commerce Cloud

During fiscal year 2019, after the first quarter Adobe expects revenue in each quarter to grow by approximately the same year-over-year growth percentage implied in its targeted revenue for the year. In addition, the Company expects net new Digital Media ARR in each quarter to be sequentially similar as that achieved in past fiscal years from quarter to quarter – with typical summer seasonality which can lead to sequentially lower net new ARR in the third quarter, as well as normal year-end sequential strength in fourth quarter net new ARR.

As the financial impact of lost deferred revenue from recent acquisitions due to purchase accounting tapers off during fiscal year 2019, after the first quarter Adobe expects quarterly operating margins and quarterly earnings per share growth rates to increase sequentially during the year.

A reconciliation between GAAP and non-GAAP targets is provided at the end of this press release and on Adobe’s website.

Adobe Provides First Quarter Fiscal Year 2019 Financial Targets

The following table summarizes Adobe’s first quarter fiscal year 2019 targets:

A reconciliation between GAAP and non-GAAP targets is provided at the end of this press release and on Adobe’s website.

Adobe to Webcast Earnings Conference Call

Adobe will webcast its fourth quarter and fiscal year 2018 earnings conference call today at 2:00 p.m. Pacific Time from its investor relations website: www.adobe.com/ADBE. Earnings documents, including Adobe management’s prepared conference call remarks with slides, financial targets and an investor datasheet are posted to Adobe’s investor relations website in advance of the conference call for reference. A reconciliation between GAAP and non-GAAP earnings results and financial targets is also provided on the website.