Salesforce Announces Record Second Quarter Fiscal 2019 Results
SAN FRANCISCO, Aug. 29, 2018 /PRNewswire/ -- Salesforce (NYSE: CRM), the global leader in CRM, today announced results for its fiscal second quarter ended July 31, 2018.
"Salesforce revenue grew 27% to almost $3.3 billion in the second quarter, with excellent performance across our clouds, industry segments and geographies," said Keith Block, co-CEO, Salesforce. "With this strong quarter, we're well on our way to our next milestone of $23 billion in revenue in FY22."
"Salesforce's vision and position as the #1 sales, service, marketing and CRM platform is enabling our customers to stay ahead and thrive in this Fourth Industrial Revolution," said Marc Benioff, chairman and co-CEO, Salesforce. "We are guided by our values as we ensure our technology drives our customers' success and improves the state of the world."
Salesforce delivered the following results for its fiscal second quarter:
Revenue: Total second quarter revenue was $3.28 billion, an increase of 27% year-over-year, and 27% in constant currency. Subscription and support revenues were $3.06 billion, an increase of 28% year-over-year. Professional services and other revenues were $221 million, an increase of 14% year-over-year.
Earnings per Share: Second quarter GAAP diluted earnings per share was $0.39, and non-GAAP diluted earnings per share was $0.71. Mark-to-market accounting of the company's strategic investments, required by ASU 2016-01, benefitted GAAP diluted earnings per share by $0.18 and non-GAAP diluted earnings per share by $0.14. GAAP diluted earnings per share also benefitted by $0.18 related to the partial release of the tax valuation allowance as a result of the MuleSoft acquisition.
Cash: Cash generated from operations for the second quarter was $458 million, an increase of 38% year-over-year. Total cash, cash equivalents and marketable securities ended the second quarter at $3.43 billion.
Unearned Revenue: Unearned revenue on the balance sheet as of July 31, 2018 was $5.88 billion, an increase of 24% year-over-year, and 24% in constant currency.
Remaining Performance Obligation (formerly Remaining Transaction Price): Remaining performance obligation, representing future revenues that are under contract but have not yet been recognized, ended the second quarter at approximately $21 billion, an increase of 36% year-over-year. This includes approximately $200 million related to the remaining performance obligation from MuleSoft. Current remaining performance obligation, which represents the future revenues under contract expected to be recognized over the next 12 months, ended the second quarter at approximately $9.8 billion, an increase of 27% year-over-year.
As of August 29, 2018, the company is initiating revenue, earnings per share, and unearned revenue guidance for its third quarter of fiscal year 2019. In addition, the company is raising its revenue guidance, earnings per share guidance, and operating cash flow growth guidance for its full fiscal year 2019, previously provided on May 29, 2018. The guidance below does not reflect any potential future gains or losses on our strategic investment portfolio resulting from the impact of ASU 2016-01 and is based on estimated GAAP tax rates that reflect the company's currently available information, including the anticipated impact of the new Tax Act and interpretations thereof, as well as other factors and assumptions. The GAAP tax rates may fluctuate due to recent acquisitions.
Q3 FY19 Guidance Full Year FY19 Guidance
---------------- -----------------------
Revenue $3.355 - $3.365 billion $13.125 - $13.175 billion
Y/Y Growth 24% - 25% 25%
GAAP EPS $0.01 - $0.02 $0.97 - $0.99
Non-GAAP EPS $0.49 - $0.50 $2.50 - $2.52
Unearned Revenue Growth (y/y) ~20% N/A
Operating Cash Flow Growth (y/y) N/A 15% - 16%
The following is a per share reconciliation of GAAP diluted earnings per share to non-GAAP diluted earnings per share guidance for the next quarter and the full year:
Fiscal 2019
-----------
Q3 FY2019
--- ------
GAAP EPS range* $0.01 - $0.02 $0.97 - $0.99
Plus
Amortization of purchased intangibles $0.16 $0.57
Stock-based expense $0.45 $1.65
Amortization of debt discount, net $0.00 $0.01
Less
Income tax effects and adjustments** $(0.13) $(0.70)
------ ------
Non-GAAP diluted EPS*** $0.49 - $0.50 $2.50 - $2.52
Shares used in computing basic net income per share (millions) 760 751
Shares used in computing diluted net income per share (millions) 785 776
* The Company's GAAP tax
provision is expected to be
15.0% for the three months
ended October 31, 2018 and
(0.2%) for the twelve months
ended January 31, 2019. The
GAAP tax rates may fluctuate
due to recent acquisitions.
The Company's projected GAAP
diluted EPS excludes potential
future impacts of ASU 2016-01.
** The Company's Non-GAAP tax
provision uses a long-term
projected tax rate of 21.5%,
which reflects currently
available information and
could be subject to change.
*** The Company's projected
Non-GAAP diluted EPS excludes
potential future impacts of
ASU 2016-01.
For additional information regarding non-GAAP financial measures see the reconciliation of results and related explanations below.
Quarterly Conference Call
Salesforce will host a conference call at 2:00 p.m. (PT) / 5:00 p.m. (ET) today to discuss its financial results with the investment community. A live web broadcast of the event will be available on the Salesforce Investor Relations website at www.salesforce.com/investor. A live dial-in is available domestically at 866-901-SFDC or 866-901-7332 and internationally at 706-902-1764, passcode 1193487. A replay will be available at (800) 585-8367 or (855) 859-2056 until midnight (ET) September 28, 2018.
About Salesforce
Salesforce, the global leader in CRM, empowers companies to connect with their customers in a whole new way. Salesforce has headquarters in San Francisco, with offices in Europe and Asia, and trades on the New York Stock Exchange under the ticker symbol "CRM." For more information about Salesforce, visit: www.salesforce.com.
"Safe harbor" statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements about our financial results, which may include expected GAAP and non-GAAP financial and other operating and non-operating results, including revenue, net income, diluted earnings per share, operating cash flow growth, operating margin improvement, unearned revenue (previously referred to as deferred revenue) growth, expected revenue growth, expected tax rates, stock-based compensation expenses, amortization of purchased intangibles, and shares outstanding. The achievement or success of the matters covered by such forward-looking statements involves risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, the company's results could differ materially from the results expressed or implied by the forward-looking statements we make.
The risks and uncertainties referred to above include -- but are not limited to -- risks associated with the effect of general economic and market conditions; the impact of foreign currency exchange rate and interest rate fluctuations on our results; our business strategy and our plan to build our business, including our strategy to be the leading provider of enterprise cloud computing applications and platforms; the pace of change and innovation in enterprise cloud computing services; the competitive nature of the market in which we participate; our international expansion strategy; our service performance and security, including the resources and costs required to prevent, detect and remediate potential security breaches; the expenses associated with new data centers and third-party infrastructure providers; additional data center capacity; real estate and office facilities space; our operating results and cash flows; new services and product features; our strategy of acquiring or making investments in complementary businesses, joint ventures, services, technologies and intellectual property rights; the performance and fair value of our investments in complementary businesses through our strategic investment portfolio; our ability to realize the benefits from strategic partnerships and investments; our ability to successfully integrate acquired businesses and technologies, including the operations of MuleSoft, Inc.; our ability to continue to grow and maintain unearned revenue and remaining performance obligation; our ability to protect our intellectual property rights; our ability to develop our brands; our reliance on third-party hardware, software and platform providers; our dependency on the development and maintenance of the infrastructure of the Internet; the effect of evolving domestic and foreign government regulations, including those related to the provision of services on the Internet, those related to accessing the Internet, and those addressing data privacy and import and export controls; the valuation of our deferred tax assets; the potential availability of additional tax assets in the future; the impact of new accounting pronouncements and tax laws, including the U.S. Tax Cuts and Jobs Act, and interpretations thereof; uncertainties affecting our ability to estimate our non-GAAP tax rate; the impact of future gains or losses from our strategic investment portfolio; the impact of expensing stock options and other equity awards; the sufficiency of our capital resources; factors related to our outstanding debt, revolving credit facility, term loans and loan associated with 50 Fremont; compliance with our debt covenants and capital lease obligations; current and potential litigation involving us; and the impact of climate change.
Further information on these and other factors that could affect the company's financial results is included in the reports on Forms 10-K, 10-Q and 8-K and in other filings we make with the Securities and Exchange Commission from time to time. These documents are available on the SEC Filings section of the Investor Information section of the company's website at www.salesforce.com/investor.
Salesforce.com, inc. assumes no obligation and does not intend to update these forward-looking statements, except as required by law.
© 2018 salesforce.com, inc. All rights reserved. Salesforce and other marks are trademarks of salesforce.com, inc. Other brands featured herein may be trademarks of their respective owners.
salesforce.com, inc.
Consolidated Statements of Operations
(in millions, except per share data)
(Unaudited)
Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
(as adjusted)* (as adjusted)*
--------------
Revenues:
Subscription and support $3,060 $2,383 $5,870 $4,592
Professional services and other 221 194 417 382
Total revenues 3,281 2,577 6,287 4,974
Cost of revenues (1)(2):
Subscription and support 638 494 1,211 957
Professional services and other 211 176 405 364
Total cost of revenues 849 670 1,616 1,321
Gross profit 2,432 1,907 4,671 3,653
Operating expenses (1)(2):
Research and development 463 387 887 763
Marketing and sales 1,504 1,153 2,833 2,259
General and administrative 350 283 645 543
--- --- --- ---
Total operating expenses 2,317 1,823 4,365 3,565
----- ----- ----- -----
Income from operations 115 84 306 88
Investment income 12 9 28 14
Interest expense (39) (22) (73) (44)
Gains (losses) on strategic investments, net 143 (8) 354 (5)
Other income 0 0 1 0
Income before benefit from (provision for) income taxes 231 63 616 53
Benefit from (provision for) income taxes 68 (17) 27 (6)
Net income $299 $46 $643 $47
==== === ==== ===
Basic net income per share $0.40 $0.06 $0.87 $0.07
Diluted net income per share $0.39 $0.06 $0.84 $0.06
Shares used in computing basic net income per share 747 712 737 709
Shares used in computing diluted net income per share 774 729 763 726
(1) Amounts include amortization of intangible assets acquired through business combinations, as follows:
Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
---- ---- ---- ----
Cost of revenues $52 $43 $91 $87
Marketing and sales 67 31 97 61
(2) Amounts include stock-based expense, as follows:
Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
---- ---- ---- ----
Cost of revenues $43 $32 $77 $64
Research and development 81 67 147 131
Marketing and sales 174 120 294 239
General and administrative 53 37 85 74
* Prior period information
has been adjusted for the
adoption of Accounting
Standards Update No.
2014-09, "Revenue from
Contracts with Customers
(Topic 606)", which the
Company adopted on February
1, 2018.
salesforce.com, inc.
Consolidated Statements of Operations
(As a percentage of total revenues)
(Unaudited)
Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
(as adjusted)* (as adjusted)*
--------------
Revenues:
Subscription and support 93% 92% 93% 92%
Professional services and other 7 8 7 8
--- --- --- ---
Total revenues 100 100 100 100
Cost of revenues (1)(2):
Subscription and support 20 19 19 19
Professional services and other 6 7 7 8
--- --- --- ---
Total cost of revenues 26 26 26 27
--- --- --- ---
Gross profit 74 74 74 73
Operating expenses (1)(2):
Research and development 14 15 14 15
Marketing and sales 46 45 45 45
General and administrative 11 11 10 11
--- --- --- ---
Total operating expenses 71 71 69 71
Income from operations 3 3 5 2
Investment income 1 0 0 0
Interest expense (1) (1) (1) (1)
Gains (losses) on strategic investments, net 4 0 6 0
Other income 0 0 0 0
Income before benefit from (provision for) income taxes 7 2 10 1
Benefit from (provision for) income taxes 2 0 0 0
--- --- --- ---
Net income 9% 2% 10% 1%
=== === === ===
(1) Amounts include amortization of intangible assets acquired through business combinations, as follows:
Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
---- ---- ---- ----
Cost of revenues 2% 2% 1% 2%
Marketing and sales 2 1 2 1
(2) Stock-based expense as a percentage of total revenues, as follows:
Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
---- ---- ---- ----
Cost of revenues 1% 1% 1% 1%
Research and development 2 3 2 3
Marketing and sales 5 5 5 5
General and administrative 2 1 1 1
* Prior period information
has been adjusted for the
adoption of Topic 606.
salesforce.com, inc.
Consolidated Balance Sheets
(in millions)
(Unaudited)
July 31, January 31, 2018
2018 (as adjusted)*
---- -------------
Assets
Current assets:
Cash and cash equivalents $2,319 $2,543
Marketable securities 1,108 1,978
Accounts receivable, net 1,980 3,921
Costs capitalized to obtain revenue contracts, net 669 671
Prepaid expenses and other current assets 726 471
---
Total current assets 6,802 9,584
Property and equipment, net 1,986 1,947
Costs capitalized to obtain revenue contracts, noncurrent, net 999 1,105
Capitalized software, net 145 146
Strategic investments 1,202 677
Goodwill 12,254 7,314
Intangible assets acquired through business combinations, net 1,976 827
Other assets, net 459 384
Total assets $25,823 $21,984
======= =======
Liabilities and stockholders' equity
Current liabilities:
Accounts payable, accrued expenses and other liabilities 2,083 2,047
Unearned revenue 5,883 6,995
Current portion of debt 503 1,025
--- -----
Total current liabilities 8,469 10,067
Noncurrent debt 3,173 695
Other noncurrent liabilities 653 846
--- ---
Total liabilities 12,295 11,608
------ ------
Stockholders' equity:
Common stock 1 1
Additional paid-in capital 12,308 9,752
Accumulated other comprehensive loss (50) (12)
Retained earnings 1,269 635
----- ---
Total stockholders' equity 13,528 10,376
------ ------
Total liabilities and stockholders' equity $25,823 $21,984
======= =======
* Prior period information
has been adjusted for the
adoption of Topic 606.
salesforce.com, inc.
Consolidated Statements of Cash Flows
(in millions)
(Unaudited)
Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
(as adjusted)* (as adjusted)*
--------------
Operating activities:
Net income $299 $46 $643 $47
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 252 192 433 377
Amortization of debt discount and issuance costs 1 7 17 15
Amortization of costs capitalized to obtain revenue contracts, net 183 148 371 289
Expenses related to employee stock plans 351 256 603 508
(Gains) losses on strategic investments, net (143) 8 (354) 5
Changes in assets and liabilities, net of business combinations:
Accounts receivable, net (149) (130) 2,013 1,629
Costs capitalized to obtain revenue contracts, net (146) (185) (264) (318)
Prepaid expenses and other current assets and other assets 4 6 (86) (179)
Accounts payable, accrued expenses and other liabilities 179 203 (277) (94)
Unearned revenue (373) (220) (1,175) (718)
Net cash provided by operating activities 458 331 1,924 1,561
--- --- ----- -----
Investing activities:
Business combinations, net of cash acquired (4,803) 0 (4,985) (20)
Purchases of strategic investments (37) (46) (184) (58)
Sales of strategic investments 2 3 6 15
Purchases of marketable securities (28) (501) (291) (1,200)
Sales of marketable securities 335 139 1,273 243
Maturities of marketable securities 40 9 88 13
Capital expenditures (170) (128) (292) (285)
---- ---- ---- ----
Net cash used in investing activities (4,661) (524) (4,385) (1,292)
------ ---- ------ ------
Financing activities:
Proceeds from issuance of debt, net 496 0 2,966 0
Proceeds from employee stock plans 182 183 383 343
Principal payments on capital lease obligations (89) (66) (108) (75)
Repayments of debt 0 0 (1,027) (200)
--- --- ------ ----
Net cash provided by financing activities 589 117 2,214 68
--- --- ----- ---
Effect of exchange rate changes 11 0 23 5
--- --- --- ---
Net increase (decrease) in cash and cash equivalents (3,603) (76) (224) 342
Cash and cash equivalents, beginning of period 5,922 2,025 2,543 1,607
----- ----- ----- -----
Cash and cash equivalents, end of period $2,319 $1,949 $2,319 $1,949
====== ====== ====== ======
* Prior period information
has been adjusted for the
adoption of Topic 606. Total
net cash provided by
operating activities for the
three and six months ended
July 31, 2017 as adjusted
did not change.
salesforce.com, inc.
Additional Metrics
(Unaudited)
Jul 31, Apr 30, Jan 31, Oct 31, Jul 31, Apr 30,
2018 2018 2017 2017 2017
2018
---
Full Time Equivalent Headcount (1) 32,717 30,149 29,401 28,527 27,155 26,213
Financial data (in millions):
Cash, cash equivalents and marketable securities (2) $3,427 $7,159 $4,521 $3,629 $3,501 $3,220
Strategic investments (3) $1,202 $1,024 $677 $670 $658 $639
Unearned revenue (4) $5,883 $6,201 $6,995 $4,312 $4,749 $4,969
Principal due on the Company's outstanding debt obligations (2) $3,700 $3,200 $1,727 $1,850 $1,850 $1,850
(1) Full time equivalent headcount
includes 1,267 from the May 2018
acquisition of MuleSoft, Inc.
(2) The Company raised
approximately $2.5 billion in a
public offering of unsecured debt
in April 2018 in connection with
the acquisition of MuleSoft, Inc.
which closed in May 2018. Total
cash paid in May 2018 in
connection with the acquisition
was approximately $4.9 billion.
The Company's 0.25% Convertible
Senior Notes matured in April 2018
and the Company paid the principal
amount due at that time.
(3) The strategic investment
balance as of July 31, 2018 and
April 30, 2018 includes the fair
value adjustments of the Company's
publicly traded and privately held
equity investments as the Company
adopted Accounting Standards
Update No. 2016-01, "Financial
Instruments-Overall (Subtopic
825-10)" on February 1, 2018. See
discussion below for further
details on the fair value
adjustments.
(4) Prior period information has
been adjusted for the adoption of
Topic 606, which the Company
adopted on February 1, 2018. Topic
606 introduced unearned revenue,
which is substantially similar to
deferred revenue under previous
accounting guidance, except for
the removal of the limitation on
contingent revenue.
Supplemental Revenue Analysis
Remaining Performance Obligation (Formerly "Remaining Transaction Price")
Topic 606 introduced remaining transaction price, which is different than unbilled deferred revenue under previous accounting guidance. Transaction price allocated to the remaining performance obligations represents contracted revenue that has not yet been recognized, which includes unearned revenue and unbilled amounts that will be recognized as revenue in future periods. Transaction price allocated to the remaining performance obligation is influenced by several factors, including seasonality, the timing of renewals, average contract terms and foreign currency exchange rates. Unbilled portions of the remaining transaction price denominated in foreign currencies are revalued each period based on the period end exchange rates.
As with unbilled deferred revenue under previous accounting guidance, the portion of the remaining performance obligation that is unbilled is not recorded on the balance sheet. Remaining performance obligation consisted of the following (in billions):
Current Noncurrent Total
-------
As of July 31, 2018 $9.8 $11.2 $21.0
As of April 30, 2018 $9.6 $10.8 $20.4
As of July 31, 2017 $7.7 $7.7 $15.4
Disaggregation of Revenue
Subscription and support revenue by cloud service offering (in millions): Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
(as adjusted)*
(as adjusted)*
-------------
Sales Cloud $1,004 $891 $1,969 $1,721
Service Cloud 892 700 1,740 1,356
Salesforce Platform and Other 712 463 1,287 887
Marketing and Commerce Cloud 452 329 874 628
$3,060 $2,383 $5,870 $4,592
====== ====== ====== ======
Total revenues by geography (in millions): Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
(as adjusted)* (as adjusted)*
------------- -------------
Americas $2,338 $1,868 $4,439 $3,633
Europe 629 466 1,235 875
Asia Pacific 314 243 613 466
--- --- --- ---
$3,281 $2,577 $6,287 $4,974
====== ====== ====== ======
Total revenues by geography as a percentage of total revenues: Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
(as adjusted)* (as adjusted)*
------------- -------------
Americas 71% 73% 71% 73%
Europe 19 18 19 18
Asia Pacific 10 9 10 9
--- --- --- ---
100% 100% 100% 100%
=== === === ===
* Prior period information
has been adjusted for the
adoption of Topic 606.
Constant Currency Growth Rates
The Company presents constant currency information to provide a framework for assessing how the Company's underlying business performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the weighted average exchange rate for the quarter being compared to for growth rate calculations presented, rather than the actual exchange rates in effect during that period.
Revenue constant currency growth rates (as compared to the comparable prior periods as adjusted for Topic 606) were as follows:
Three Months Ended Three Months Ended Three Months Ended
April 30, 2018 July 31, 2017
July 31, 2018 compared to Three Months compared to Three Months
Ended April 30, 2017 Ended July 31, 2016
compared to Three Months
Ended July 31, 2017
-------------------
Americas 25% 19% 24%
Europe 32% 31% 31%
Asia
Pacific 28% 30% 27%
Total
growth 27% 22% 26%
The Company presents constant currency information for unearned revenue to provide a framework for assessing how the Company's underlying business performed excluding the effects of foreign currency rate fluctuations. To present the information, the Company converted the unearned revenue balances in local currencies in previous comparable periods using the United States dollar currency exchange rate as of the most recent balance sheet date.
Unearned revenue constant currency growth rates (as compared to the comparable prior periods as adjusted for Topic 606) were as follows:
July 31, 2018 April 30, 2018 July 31, 2017
compared to compared to compared to
July 31, 2017 April 30, 2017 July 31, 2016
------------- -------------- -------------
Total growth 24% 23% 25%
Supplemental Cash Flow Information
Free cash flow analysis, a non-GAAP measure
(in millions)
Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
(as adjusted)* (as adjusted)*
--------------
Operating cash flow
GAAP net cash provided by operating activities $458 $331 $1,924 $1,561
Less:
Capital expenditures (170) (128) (292) (285)
---- ---- ---- ----
Free cash flow $288 $203 $1,632 $1,276
==== ==== ====== ======
* Prior period information
has been adjusted for the
adoption of Topic 606. Total
net cash provided by
operating activities for the
three and six months ended
July 31, 2017 as adjusted
did not change.
Supplemental Strategic Investment Information
Gains on strategic investments, net
(in millions)
Upon adoption of ASU 2016-01 in the first fiscal quarter of 2019, the Company is now required to record all fair value adjustments of the Company's publicly traded and privately held equity investments through the statement of operations. As such the Company
anticipates additional volatility to the Company's statements of operations in future periods, due to changes in market prices of the Company's investments in publicly held equity investments and the valuation and timing of observable price changes and impairments of
the Company's investments in privately held securities. These changes could be material based on market conditions and events. The results for the current fiscal period are not indicative of the results to be expected for any subsequent quarter or the fiscal year
ending January 31, 2019.
Net realized and unrealized gains on strategic investments were as follows (in millions):
Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
---- ---- ---- ----
Net gains recognized on publicly traded securities $65 $0 $276 $0
Net gains (losses) recognized on privately held securities 78 (8) 78 (5)
--- --- --- ---
Gains (losses) on strategic investments, net $143 $(8) $354 $(5)
==== === ==== ===
Supplemental Debt Information
(in millions)
The carrying values of the Company's borrowings were as follows:
Instrument Date of issuance Maturity date July 31, 2018 January 31, 2018
---------- ---------------- ------------- ------------- ----------------
2021 Term Loan May 2018 May 2021 $499 $0
2023 Senior Notes April 2018 April 2023 992 0
2028 Senior Notes April 2018 April 2028 1,487 0
2019 Term Loan July 2016 July 2019 499 498
Loan assumed on 50 Fremont February 2015 June 2023 199 199
0.25% Convertible Senior Notes March 2013 April 2018 0 1,023
Total carrying value of debt 3,676 1,720
Less current portion of debt (503) (1,025)
---- ------
Total noncurrent debt $3,173 $695
====== ====
Selected Balance Sheet Accounts (in millions):
July 31, April 30, January 31, 2018
2018 (as adjusted)*
2018
----
Prepaid Expenses and Other Current Assets
Prepaid income taxes $15 $18 $33
Other taxes receivable 39 34 33
Prepaid expenses and other current assets 672 510 405
--- ---
$726 $562 $471
==== ==== ====
Property and Equipment, net
Land $184 $184 $184
Buildings and building improvements 629 631 626
Computers, equipment and software 1,700 1,667 1,629
Furniture and fixtures 156 147 139
Leasehold improvements 952 862 825
--- ---
Property and equipment, gross 3,621 3,491 3,403
Less accumulated depreciation and amortization (1,635) (1,541) (1,456)
------ ------ ------
$1,986 $1,950 $1,947
====== ====== ======
Intangible Assets Acquired Through Business Combinations, net
Acquired developed technology $500 $328 $350
Customer relationships 1,465 482 472
Other 11 5 5
---
$1,976 $815 $827
====== ==== ====
Other Assets, net
Deferred income taxes, noncurrent, net $43 $39 $36
Long-term deposits 25 23 24
Domain names and patents, net 33 21 23
Customer contract assets resulting from business combinations 170 138 159
Other 188 171 142
$459 $392 $384
==== ==== ====
Accounts Payable, Accrued Expenses and Other Liabilities
Accounts payable $201 $134 $76
Accrued compensation 674 596 1,001
Accrued income and other taxes payable 303 213 306
Capital lease obligation, current 205 100 103
Other current liabilities 700 648 561
$2,083 $1,691 $2,047
====== ====== ======
Other Noncurrent Liabilities
Deferred income taxes and income taxes payable $136 $123 $121
Financing obligation - leased facility 197 197 198
Long-term lease liabilities and other 320 516 527
--- --- ---
$653 $836 $846
==== ==== ====
* Prior period information
has been adjusted for the
adoption of Topic 606.
Comprehensive Income
(in millions)
(Unaudited)
Three Months Ended July 31, Six Months Ended July 31,
2018 2017 (as adjusted) 2018 2017 (as adjusted)
Net income $299 $46 * $643 $47 *
Other comprehensive income (loss), before tax and net of reclassification adjustments:
Foreign currency translation and other gains (losses) (17) 16 (27) 30
Unrealized gains (losses) on marketable securities and strategic investments 0 (8) (4) 63
Other comprehensive income (loss), before tax (17) 8 (31) 93
Other comprehensive income (loss), net of tax $(17) $8 $(31) $93
---- --- ---- ---
Comprehensive income $282 $54 $612 $140
==== === ==== ====
* Prior period information
has been adjusted for the
adoption of Topic 606.
Supplemental Diluted Share Count Information
(share data in millions)
Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
---- ---- ---- ----
Weighted-average shares outstanding for basic earnings per share 747 712 737 709
Effect of dilutive securities:
Convertible senior notes 0 4 2 4
Employee stock awards 23 13 20 13
Warrants 4 0 4 0
--- --- --- ---
Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share 774 729 763 726
=== === === ===
salesforce.com, inc.
GAAP Results Reconciled to non-GAAP Results
The following table reflects selected GAAP results reconciled to non-GAAP results.
(in millions, except per share data)
(Unaudited)
Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
(as adjusted)* (as adjusted)*
--------------
Non-GAAP gross profit
---------------------
GAAP gross profit $2,432 $1,907 $4,671 $3,653
Plus:
Amortization of purchased intangibles (a) 52 43 91 87
Stock-based expense (b) 43 32 77 64
--- --- --- ---
Non-GAAP gross profit $2,527 $1,982 $4,839 $3,804
------ ------ ------ ------
Non-GAAP operating expenses
---------------------------
GAAP operating expenses $2,317 $1,823 $4,365 $3,565
Less:
Amortization of purchased intangibles (a) 67 31 97 61
Stock-based expense (b) 308 224 526 444
--- --- --- ---
Non-GAAP operating expenses $1,942 $1,568 $3,742 $3,060
------ ------ ------ ------
Non-GAAP income from operations
-------------------------------
GAAP income from operations $115 $84 $306 $88
Plus:
Amortization of purchased intangibles (a) 119 74 188 148
Stock-based expense (b) 351 256 603 508
--- --- --- ---
Non-GAAP income from operations $585 $414 $1,097 $744
---- ---- ------ ----
Non-GAAP non-operating income (loss) (c)
---------------------------------------
GAAP non-operating income (loss) $116 $(21) $310 $(35)
Plus:
Amortization of debt discount, net 0 6 4 13
--- --- --- ---
Non-GAAP non-operating income (loss) $116 $(15) $314 $(22)
---- ---- ---- ----
Non-GAAP net income
-------------------
GAAP net income $299 $46 $643 $47
Plus:
Amortization of purchased intangibles (a) 119 74 188 148
Stock-based expense (b) 351 256 603 508
Amortization of debt discount, net 0 6 4 13
Less:
Income tax effects and adjustments (219) (121) (330) (243)
---- ---- ---- ----
Non-GAAP net income $550 $261 $1,108 $473
==== ==== ====== ====
* Prior period information
has been adjusted for the
adoption of Topic 606.
Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
(as adjusted)* (as adjusted)*
-------------- --------------
Non-GAAP diluted earnings per share
-----------------------------------
GAAP diluted net income per share $0.39 $0.06 $0.84 $0.06
Plus:
Amortization of purchased intangibles 0.15 0.10 0.25 0.20
Stock-based expense 0.45 0.35 0.79 0.70
Amortization of debt discount, net 0.00 0.01 0.01 0.02
Less:
Income tax effects and adjustments (0.28) (0.16) (0.44) (0.33)
----- ----- -----
Non-GAAP diluted earnings per share $0.71 $0.36 $1.45 $0.65
===== ===== ===== =====
Shares used in computing Non-GAAP diluted net income per share 774 729 763 726
* Prior period information
has been adjusted for the
adoption of Topic 606.
a) Amortization of purchased intangibles were as follows:
Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
---- ---- ---- ----
Cost of revenues $52 $43 $91 $87
Marketing and sales 67 31 97 61
--- --- --- ---
$119 $74 $188 $148
==== === ==== ====
b) Stock-based expense was as follows:
Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
---- ---- ---- ----
Cost of revenues $43 $32 $77 $64
Research and development 81 67 147 131
Marketing and sales 174 120 294 239
General and administrative 53 37 85 74
--- --- --- ---
$351 $256 $603 $508
==== ==== ==== ====
c) GAAP non-operating income (loss) consists of investment income, interest expense, gains on strategic investments, net and other income.
salesforce.com, inc.
Computation of Basic and Diluted GAAP and non-GAAP Net Income Per Share
(in millions, except per share data)
(Unaudited)
Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
(as adjusted)* (as adjusted)*
--------------
GAAP Basic Net Income Per Share
Net income $299 $46 $643 $47
Basic net income per share $0.40 $0.06 $0.87 $0.07
Shares used in computing basic net income per share 747 712 737 709
Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
(as adjusted)*
(as adjusted)*
--------------
Non-GAAP Basic Net Income Per Share
Non-GAAP net income $550 $261 $1,108 $473
Basic Non-GAAP net income per share $0.74 $0.37 $1.50 $0.67
Shares used in computing basic Non-GAAP net income per share 747 712 737 709
Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
(as adjusted)* (as adjusted)*
--------------
GAAP Diluted Net Income Per Share
Net income $299 $46 $643 $47
Diluted net income per share $0.39 $0.06 $0.84 $0.06
Shares used in computing diluted net income per share 774 729 763 726
Three Months Ended July 31, Six Months Ended July 31,
2018 2017 2018 2017
(as adjusted)* (as adjusted)*
--------------
Non-GAAP Diluted Net Income Per Share
Non-GAAP net income $550 $261 $1,108 $473
Diluted Non-GAAP net income per share $0.71 $0.36 $1.45 $0.65
Shares used in computing diluted Non-GAAP net income per share 774 729 763 726
* Prior period information
has been adjusted for the
adoption of Topic 606.
Non-GAAP Financial Measures: This press release includes information about non-GAAP diluted earnings per share, non-GAAP tax rates, non-GAAP free cash flow, and constant currency revenue and constant currency unearned revenue growth rates (collectively the "non-GAAP financial measures"). These non-GAAP financial measures are measurements of financial performance that are not prepared in accordance with U.S. generally accepted accounting principles and computational methods may differ from those used by other companies. Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with the company's consolidated financial statements prepared in accordance with GAAP. Management uses both GAAP and non-GAAP measures when planning, monitoring, and evaluating the company's performance.
The primary purpose of using non-GAAP measures is to provide supplemental information that may prove useful to investors and to enable investors to evaluate the company's results in the same way management does. Management believes that supplementing GAAP disclosure with non-GAAP disclosure provides investors with a more complete view of the company's operational performance and allows for meaningful period-to-period comparisons and analysis of trends in the company's business. Further, to the extent that other companies use similar methods in calculating non-GAAP measures, the provision of supplemental non-GAAP information can allow for a comparison of the company's relative performance against other companies that also report non-GAAP operating results.
Non-GAAP diluted earnings per share excludes, to the extent applicable, the impact of the following items: stock-based compensation, amortization of acquisition-related intangibles, and previously the net amortization of debt discount on the company's convertible senior notes, as well as income tax adjustments. These items are excluded because the decisions that give rise to them are not made to increase revenue in a particular period, but instead for the company's long-term benefit over multiple periods.
Specifically, management is excluding the following items from its non-GAAP earnings per share, as applicable, for the periods presented in the Q2 FY19 financial statements and for its non-GAAP estimates for Q3 and FY19:
-- Stock-Based Expenses: The company's compensation strategy includes the
use of stock-based compensation to attract and retain employees and
executives. It is principally aimed at aligning their interests with
those of our stockholders and at long-term employee retention, rather
than to motivate or reward operational performance for any particular
period. Thus, stock-based compensation expense varies for reasons that
are generally unrelated to operational decisions and performance in any
particular period.
-- Amortization of Purchased Intangibles: The company views amortization
of acquisition-related intangible assets, such as the amortization of
the cost associated with an acquired company's research and development
efforts, trade names, customer lists and customer relationships, and in
some cases, acquired lease intangibles, as items arising from
pre-acquisition activities determined at the time of an acquisition.
While these intangible assets are continually evaluated for impairment,
amortization of the cost of purchased intangibles is a static expense,
one that is not typically affected by operations during any particular
period.
-- Gains on Strategic Investments, net: Upon the adoption of Accounting
Standards Update 2016-01 on February 1, 2018, the company is required to
record all fair value adjustments to its equity securities held within
the strategic investment portfolio through the statement of operations.
As a result of potential and unknown market volatility, the company
excludes any potential future gains or losses on its strategic
investment portfolio from both its GAAP and non-GAAP estimates for
future periods.
-- Income Tax Effects and Adjustments: The company utilizes a fixed
long-term projected non-GAAP tax rate in order to provide better
consistency across the interim reporting periods by eliminating the
effects of items such as changes in the tax valuation allowance and tax
effects of acquisitions-related costs, since each of these can vary in
size and frequency. When projecting this long-term rate, the company
evaluated a three-year financial projection that excludes the direct
impact of the following non-cash items: stock-based expenses,
amortization of purchased intangibles, and previously the amortization
of debt discount. The projected rate also assumes no new acquisitions in
the three-year period, and considers other factors including the
company's expected tax structure, its tax positions in various
jurisdictions and key legislation in major jurisdictions where the
company operates. For fiscal 2019, the company uses a projected non-GAAP
tax rate of 21.5 percent, which reflects currently available
information, including the anticipated impact of the Tax Act and
interpretations thereof, as well as other factors and assumptions. The
non-GAAP tax rate could be subject to change for a variety of reasons,
including the company's ongoing analysis of the Tax Act over the
measurement period, the rapidly evolving global tax environment,
significant changes in the company's geographic earnings mix including
due to acquisition activity, or other changes to the company's strategy
or business operations. The company will re-evaluate its long-term rate
as appropriate.
The company defines the non-GAAP measure free cash flow as GAAP net cash provided by operating activities, less capital expenditures. For this purpose, capital expenditures does not include our strategic investments.
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SOURCE Salesforce
