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Salesforce Announces Record Q2 Earnings, Surpasses $10B Run Rate Milestone Faster Than Any Enterprise Software Company in History

Aug 22, 2017

- Raises FY18 Revenue Guidance by $100 Million to $10.35 Billion to $10.40 Billion, up 23% to 24% Year-Over-Year
- Second Quarter Revenue of $2.56 Billion, up 26% Year-Over-Year, 25% in Constant Currency
- Second Quarter Operating Cash Flow of $331 Million, up 32% Year-Over-Year
- Deferred Revenue of $4.82 Billion, up 26% Year-Over-Year, 25% in Constant Currency
- Unbilled Deferred Revenue of Approximately $10.4 Billion, up 30% Year-Over-Year

SAN FRANCISCO, Aug. 22, 2017 /PRNewswire/ -- Salesforce (NYSE: CRM), the global leader in CRM, today announced results for its fiscal second quarter ended July 31, 2017.

Salesforce (PRNewsFoto/salesforce.com)

"We had a phenomenal quarter of growth, reaching a huge milestone for the company, becoming the first enterprise cloud software company to break the $10 billion revenue run rate," said Marc Benioff, chairman and CEO, Salesforce. "We did this faster than any other enterprise software company in history. Our continued momentum as the leader in CRM, the fastest-growing segment of our industry, combined with more than $15 billion in billed and unbilled deferred revenue, puts us well on the path to $20 billion and beyond."

Salesforce delivered the following results for its fiscal second quarter 2018:

Revenue: Total Q2 revenue was $2.56 billion, an increase of 26% year-over-year, and 25% in constant currency. Subscription and support revenues were $2.37 billion, an increase of 26% year-over-year. Professional services and other revenues were $193 million, an increase of 28% year-over-year.

Earnings per Share: Q2 GAAP diluted earnings per share was $0.02, and non-GAAP diluted earnings per share was $0.33.

Cash: Cash generated from operations for the second quarter was $331 million, an increase of 32% year-over-year. Total cash, cash equivalents and marketable securities finished the quarter at $3.50 billion.

Deferred Revenue: Deferred revenue on the balance sheet as of July 31, 2017 was $4.82 billion, an increase of 26% year-over-year, and 25% in constant currency. Unbilled deferred revenue, representing business that is contracted but unbilled and off balance sheet, ended the second quarter at approximately $10.4 billion, up 30% year-over-year. This includes approximately $625 million related to unbilled deferred revenue from Demandware.

As of August 22, 2017, the company is initiating revenue, earnings per share, and deferred revenue guidance for its third quarter of fiscal year 2018. In addition, the company is raising its full fiscal year 2018 revenue and earnings per share guidance, and maintaining its operating cash flow guidance, previously provided on May 18, 2017.

Q3 FY18 Guidance: Revenue is projected to be $2.64 billion to $2.65 billion, an increase of 23% to 24% year-over-year.

GAAP diluted earnings per share is projected to be $0.04 to $0.05, while non-GAAP diluted earnings per share is projected to be $0.36 to $0.37.

On balance sheet deferred revenue growth is projected to be 18% to 19% year-over-year.

Full Year FY18 Guidance: Revenue is projected to be $10.35 billion to $10.40 billion, an increase of 23% to 24% year-over-year.

GAAP diluted earnings per share is projected to be $0.07 to $0.09, while non-GAAP diluted earnings per share is projected to be $1.29 to $1.31.

Operating cash flow growth is projected to be 20% to 21% year-over-year.

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 2018


Q3

FY2018




GAAP diluted EPS range* 

 $0.04 - $0.05 

 $0.07 - $0.09 

Plus



Amortization of purchased intangibles

$                0.10

$                0.39

Stock-based expense

$                0.33

$                1.35

Amortization of debt discount, net

$                0.01

$                0.04

Less



Income tax effects and adjustments**

$              (0.12)

$              (0.56)

Non-GAAP diluted EPS

 $0.36 - $0.37 

 $1.29 - $1.31 




Shares used in computing basic net income per share (millions)

719

716

Shares used in computing diluted net income per share (millions)

736

733




* For Q3 GAAP diluted EPS, diluted number of shares used for calculation and expected tax rate of 55%.

For FY18 GAAP diluted EPS, diluted number of shares used for calculation and expected tax rate of 54%.




** The Company's non-GAAP tax provision uses a long-term projected tax rate of 34.5%. 

 

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 61976849.  A replay will be available at (800) 585-8367 or (855) 859-2056 until midnight (ET) Sept. 22, 2017.

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, deferred revenue growth, expected revenue run rate, expected tax rates, stock-based compensation expenses, amortization of purchased intangibles, amortization of debt discount 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 possible fluctuations in the company's financial and operating results; the company's rate of growth and anticipated revenue run rate, including the company's ability to convert deferred revenue and unbilled deferred revenue into revenue and cash flow, and ability to maintain continued growth of deferred revenue and unbilled deferred revenue; foreign currency exchange rates; errors, interruptions or delays in the company's services or the company's Web hosting; breaches of the company's security measures; the financial and other impact of any previous and future acquisitions; the nature of the company's business model, including risks related to government contracts; the company's ability to continue to release, and gain customer acceptance of, new and improved versions of the company's services; successful customer deployment and utilization of the company's existing and future services; changes in the company's sales cycle; competition; various financial aspects of the company's subscription model; unexpected increases in attrition or decreases in new business; the company's ability to realize benefits from strategic partnerships and strategic investments; the emerging markets in which the company operates; unique aspects of entering or expanding in international markets, including the compliance with United States export control laws, the company's ability to hire, retain and motivate employees and manage the company's growth; changes in the company's customer base; technological developments; regulatory developments; litigation and any related claims, negotiations and settlements, including with respect to intellectual property matters or industry-specific regulations; unanticipated changes in the company's effective tax rate; factors affecting the company's outstanding convertible notes, term loan, and revolving credit facility; fluctuations in the number of company shares outstanding and the price of such shares; collection of receivables; interest rates; factors affecting the company's deferred tax assets and ability to value and utilize them; the potential negative impact of indirect tax exposure; the risks and expenses associated with the company's real estate and office facilities space; and general developments in the economy, financial markets, credit markets and the impact of current and future accounting pronouncements and other financial reporting standards.

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.

© 2017 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 thousands, except per share data)

(Unaudited)



Three Months Ended July 31,


Six Months Ended July 31,


2017


2016


2017


2016

Revenues:








Subscription and support

$

2,368,499



$

1,886,080



$

4,569,407



$

3,661,573


Professional services and other

193,090



150,538



379,761



291,648


Total revenues

2,561,589



2,036,618



4,949,168



3,953,221


Cost of revenues (1)(2):








Subscription and support

493,879



376,456



956,800



727,557


Professional services and other

176,788



149,123



364,422



295,003


Total cost of revenues

670,667



525,579



1,321,222



1,022,560


Gross profit

1,890,922



1,511,039



3,627,946



2,930,661


Operating expenses (1)(2):








Research and development

386,447



291,506



762,528



552,476


Marketing and sales

1,170,749



934,931



2,280,253



1,830,791


General and administrative

282,933



252,051



543,254



462,857


Total operating expenses

1,840,129



1,478,488



3,586,035



2,846,124


Income from operations

50,793



32,551



41,911



84,537


Investment income

8,754



11,916



14,020



20,038


Interest expense

(21,629)



(20,708)



(43,825)



(42,719)


Other income (expense) (1)

(7,465)



524



(4,616)



(13,282)


Gains from acquisitions of strategic investments

0



0



0



12,864


Income before benefit from (provision for) income taxes

30,453



24,283



7,490



61,438


Benefit from (provision for) income taxes

(12,717)



205,339



1,039



206,943


Net income

$

17,736



$

229,622



$

8,529



$

268,381


Basic net income per share

$

0.02



$

0.34



$

0.01



$

0.40


Diluted net income per share

$

0.02



$

0.33



$

0.01



$

0.39


Shares used in computing basic net income per share

712,039



681,126



709,157



678,929


Shares used in computing diluted net income per share

729,386



695,968



726,222



691,714



















(1)       Amounts include amortization of purchased intangibles from business combinations, as follows:



Three Months Ended July 31,


Six Months Ended July 31,


2017


2016


2017


2016

Cost of revenues

$

43,483



$

25,544



$

87,069



$

47,759


Marketing and sales

30,563



23,151



61,207



38,537


Other non-operating expense

376



642



751



1,348














(2)       Amounts include stock-based expense, as follows:



Three Months Ended July 31,


Six Months Ended July 31,


2017


2016


2017


2016

Cost of revenues

$

32,202



$

23,495



$

63,712



$

50,129


Research and development

66,644



38,624



130,559



73,792


Marketing and sales

120,550



86,323



239,546



181,797


General and administrative

37,089



33,868



74,237



65,511



 

salesforce.com, inc.

Consolidated Statements of Operations

(As a percentage of total revenues)

(Unaudited)



Three Months Ended July 31,


Six Months Ended July 31,


2017


2016


2017


2016

Revenues:








Subscription and support

92%



93%



92%



93%


Professional services and other

8



7



8



7


Total revenues

100



100



100



100


Cost of revenues (1)(2):








Subscription and support

19



18



19



18


Professional services and other

7



8



8



8


Total cost of revenues

26



26



27



26


Gross profit

74



74



73



74


Operating expenses (1)(2):








Research and development

15



14



15



14


Marketing and sales

46



46



46



46


General and administrative

11



12



11



12


Total operating expenses

72



72



72



72


Income from operations

2



2



1



2


Investment income

0



0



0



1


Interest expense

(1)



(1)



(1)



(1)


Other income (expense) (1)

0



0



0



0


Gains from acquisitions of strategic investments

0



0



0



0


Income before benefit from (provision for) income taxes

1



1



0



2


Benefit from (provision for) income taxes

0



10



0



5


Net income

1%



11%



0%



7%















(1)       Amortization of purchased intangibles from business combinations as a percentage of total revenues, as follows:



Three Months Ended July 31,


Six Months Ended July 31,


2017


2016


2017


2016

Cost of revenues

2%



1%



2%



1%


Marketing and sales

1



1



1



1


Other non-operating expense

0



0



0



0














(2)     Stock-based expense as a percentage of total revenues, as follows:



Three Months Ended July 31,


Six Months Ended July 31,


2017


2016


2017


2016

Cost of revenues

1%



1%



1%



1%


Research and development

3



2



3



2


Marketing and sales

5



4



5



5


General and administrative

1



2



1



1


 

salesforce.com, inc.

Consolidated Balance Sheets

(in thousands)



July 31,
 2017


January 31,
 2017


(unaudited)



Assets




Current assets:




Cash and cash equivalents

$

1,949,110



$

1,606,549


Marketable securities

1,552,135



602,338


Accounts receivable, net

1,569,322



3,196,643


Deferred commissions

302,528



311,770


Prepaid expenses and other current assets

438,246



279,527


Total current assets

5,811,341



5,996,827


Property and equipment, net

1,866,576



1,787,534


Deferred commissions, noncurrent

224,232



227,849


Capitalized software, net

140,703



141,671


Strategic investments

657,687



566,953


Goodwill

7,294,381



7,263,846


Intangible assets acquired through business combinations, net

965,887



1,113,374


Other assets, net

457,996



486,869


Total assets

$

17,418,803



$

17,584,923


Liabilities, temporary equity and stockholders' equity




Current liabilities:




Accounts payable, accrued expenses and other liabilities

$

1,576,822



$

1,752,664


Deferred revenue

4,818,634



5,542,802


Convertible 0.25% senior notes, net

1,130,729



0


Total current liabilities

7,526,185



7,295,466


Convertible 0.25% senior notes, net

0



1,116,360


Term loan

497,796



497,221


Loan assumed on 50 Fremont

198,403



198,268


Revolving credit facility

0



196,542


Other noncurrent liabilities

727,882



780,939


Total liabilities

8,950,266



10,084,796


Temporary equity:




Convertible 0.25% senior notes

17,223



0


Stockholders' equity:




Common stock

719



708


Additional paid-in capital

8,889,441



8,040,170


Accumulated other comprehensive income (loss)

17,535



(75,841)


Accumulated deficit

(456,381)



(464,910)


Total stockholders' equity

8,451,314



7,500,127


Total liabilities, temporary equity and stockholders' equity

$

17,418,803



$

17,584,923


 

salesforce.com, inc.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)



Three Months Ended July 31,


Six Months Ended July 31,


2017


2016


2017


2016

Operating activities:








Net income

$

17,736



$

229,622



$

8,529



$

268,381


Adjustments to reconcile net income to net cash provided by operating activities:








Depreciation and amortization

192,257



149,361



377,365



282,133


Amortization of debt discount and issuance costs

7,753



6,868



15,470



14,053


Gains from acquisitions of strategic investments

0



0



0



(12,864)


Amortization of deferred commissions

107,868



88,783



214,010



177,297


Expenses related to employee stock plans

256,485



182,310



508,054



371,229


Changes in assets and liabilities, net of business combinations:








Accounts receivable, net

(129,447)



(73,167)



1,628,060



1,234,145


Deferred commissions

(116,703)



(70,643)



(201,152)



(134,162)


Prepaid expenses and other current assets and other assets

32,296



(9,728)



(151,115)



(66,399)


Accounts payable, accrued expenses and other liabilities

187,042



(46,666)



(114,200)



(332,894)


Deferred revenue

(224,018)



(206,062)



(724,168)



(499,179)


Net cash provided by operating activities

331,269



250,678



1,560,853



1,301,740


Investing activities:








Business combinations, net of cash acquired

0



(2,798,194)



(19,781)



(2,799,993)


Strategic investments, net

(42,958)



(390)



(43,416)



(22,451)


Purchases of marketable securities

(501,333)



(285,795)



(1,199,894)



(875,131)


Sales of marketable securities

139,628



1,610,724



243,465



1,833,658


Maturities of marketable securities

9,420



27,253



13,270



50,538


Capital expenditures

(128,388)



(96,030)



(284,990)



(179,331)


Net cash used in investing activities

(523,631)



(1,542,432)



(1,291,346)



(1,992,710)


Financing activities:








Proceeds from term loan, net

0



495,550



0



495,550


Proceeds from employee stock plans

183,009



133,878



342,816



223,019


Principal payments on capital lease obligations

(65,731)



(12,795)



(75,174)



(62,763)


Payments on revolving credit facility

0



0



(200,000)



0


Net cash provided by financing activities

117,278



616,633



67,642



655,806


Effect of exchange rate changes

(710)



(8,736)



5,412



(7,973)


Net increase (decrease) in cash and cash equivalents

(75,794)



(683,857)



342,561



(43,137)


Cash and cash equivalents, beginning of period

2,024,904



1,799,083



1,606,549



1,158,363


Cash and cash equivalents, end of period

$

1,949,110



$

1,115,226



$

1,949,110



$

1,115,226


 

salesforce.com, inc.

Additional Metrics

(Unaudited) 



Jul 31,
2017


Apr 30,
2017


Jan 31,
2017


Oct 31,
2016


Jul 31,
2016


Apr 30,
2016

Full Time Equivalent Headcount (1)

27,155



26,213



25,178



23,939



23,247



21,119


Financial data (in thousands):












Cash, cash equivalents and marketable securities

$

3,501,245



$

3,219,550



$

2,208,887



$

1,751,130



$

1,719,946



$

3,715,452


Strategic investments

$

657,687



$

639,191



$

566,953



$

555,968



$

548,258



$

520,750


Deferred revenue (2)

$

4,818,634



$

5,042,652



$

5,542,802



$

3,495,133



$

3,823,561



$

4,006,914


Unbilled deferred revenue, a non-GAAP measure (3)

$

10,400,000



$

9,600,000



$

9,000,000



$

8,600,000



$

8,000,000



$

7,600,000


Principal due on our outstanding debt obligations (4)

$

1,850,000



$

1,850,000



$

2,050,000



$

1,850,000



$

1,850,000



$

1,350,000



(1) Full time equivalent headcount for July 31, 2016 includes 1,050 from the acquisition of Demandware, Inc.

(2) Prior period balances include deferred revenue current and noncurrent.

(3) Unbilled deferred revenue represents future billings under our non-cancelable subscription agreements that have not been invoiced and, accordingly, are not recorded in deferred revenue.

(4) In July 2016, the Company borrowed $500.0 million under a term loan facility to partially fund the acquisition of Demandware, Inc.

 

Selected Balance Sheet Accounts (in thousands):



July 31,
 2017


April 30,
 2017


January 31,
 2017

Prepaid Expenses and Other Current Assets






Prepaid income taxes

$

75,031



$

69,134



$

26,932


Other taxes receivable

36,634



33,687



34,177


Prepaid expenses and other current assets

326,581



344,826



218,418



$

438,246



$

447,647



$

279,527


Property and Equipment, net






Land

$

183,888



$

183,888



$

183,888


Buildings and building improvements

623,411



621,950



621,377


Computers, equipment and software

1,555,572



1,503,140



1,440,986


Furniture and fixtures

125,858



122,435



112,564


Leasehold improvements

741,466



696,902



627,069



3,230,195



3,128,315



2,985,884


Less accumulated depreciation and amortization

(1,363,619)



(1,281,902)



(1,198,350)



$

1,866,576



$

1,846,413



$

1,787,534


Intangible Assets Acquired Through Business Combinations, net






Acquired developed technology

$

427,870



$

471,016



$

514,232


Customer relationships

531,065



562,125



589,579


Trade names and trademarks

3,581



4,091



4,601


Territory rights and other

2,690




3,096



3,530


50 Fremont lease intangibles

681



1,056



1,432



$

965,887



$

1,041,384



$

1,113,374


Other Assets, net






Deferred income taxes, noncurrent, net

$

29,926



$

29,312



$

28,939


Long-term deposits

24,305



23,874



23,597


Domain names and patents, net of accumulated amortization

30,662



34,784



39,213


Customer contract asset

229,597



255,387



281,733


Other

143,506



131,877



113,387



$

457,996



$

475,234



$

486,869


Accounts Payable, Accrued Expenses and Other Liabilities






Accounts payable

$

148,279



$

128,065



$

115,257


Accrued compensation

517,433



434,899



730,390


Non-cash equity liability

55,394



60,870



68,355


Accrued other liabilities

452,398



463,218



419,299


Accrued income and other taxes payable

196,670



192,434



239,699


Accrued professional costs

46,579



38,098



38,254


Accrued rent

21,384



22,777



19,710


Capital lease obligation, current

118,888



99,630



102,106


Financing obligation - leased facility, current

19,797



19,695



19,594



$

1,576,822



$

1,459,686



$

1,752,664


Other Noncurrent Liabilities






Deferred income taxes and income taxes payable

$

111,404



$

106,303



$

99,378


Financing obligation - leased facility

199,539



200,129



200,711


Long-term lease liabilities and other

416,939



496,302



480,850



$

727,882



$

802,734



$

780,939



 

Supplemental Revenue Analysis


Subscription and support revenue by cloud service offering (in millions):

Three Months Ended July 31,


Six Months Ended July 31,


2017


2016


2017


2016

Sales Cloud

$

886.4



$

754.9



$

1,716.0



$

1,479.5


Service Cloud

698.5



575.4



1,349.7



1,115.5


Salesforce Platform and Other

466.5



353.4



897.6



679.3


Marketing and Commerce Cloud

317.1



202.4



606.1



387.3



$

2,368.5



$

1,886.1



$

4,569.4



$

3,661.6





Three Months Ended July 31,


Six Months Ended July 31,


2017


2016


2017


2016

Total revenues by geography (in thousands):








Americas

$

1,854,169



$

1,495,201



$

3,609,527



$

2,908,430


Europe

464,371



347,320



873,986



675,174


Asia Pacific

243,049



194,097



465,655



369,617



$

2,561,589



$

2,036,618



$

4,949,168



$

3,953,221










Total revenues by geography as a percentage of total revenues:








Americas

72%



73%



73%



74%


Europe

18



17



18



17


Asia Pacific

10



10



9



9



100%



100%



100%



100%


 

Revenue constant currency growth rates (as compared to the comparable prior periods)

Three Months Ended
July 31, 2017
compared to Three Months
Ended July 31, 2016


Three Months Ended
April 30, 2017
compared to Three Months
Ended April 30, 2016


Three Months Ended
July 31, 2016
compared to Three Months
Ended July 31, 2015

Americas

24%


24%


24%

Europe

31%


29%


32%

Asia Pacific

27%


26%


29%

Total growth

25%


25%


26%

We present constant currency information to provide a framework for assessing how our 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.

Deferred revenue constant currency growth rates (as compared to the comparable prior periods)

July 31, 2017
compared to
July 31, 2016


April 30, 2017
compared to
April 30, 2016


July 31, 2016
compared to
July 31, 2015

Total growth

25%


27%


27%

We present constant currency information for deferred revenue to provide a framework for assessing how our underlying business performed excluding the effects of foreign currency rate fluctuations.  To present the information above, we convert the deferred revenue balances in local currencies in previous comparable periods using the United States dollar currency exchange rate as on the most recent balance sheet date.

Supplemental GAAP and Non-GAAP Diluted Share Count Information

(share data in thousands)



Three Months Ended July 31,


Six Months Ended July 31,


2017


2016


2017


2016

Weighted-average shares outstanding for basic earnings per share

712,039



681,126



709,157



678,929


Effect of dilutive securities:








Convertible senior notes

4,336



2,977



3,863



1,961


Employee stock awards

13,011



11,865



13,202



10,824


Adjusted weighted-average shares outstanding and assumed conversions for GAAP and Non-GAAP diluted earnings per share

729,386



695,968



726,222



691,714


 

Supplemental Cash Flow Information

Free cash flow analysis, a non-GAAP measure

(in thousands)



Three Months Ended July 31,


Six Months Ended July 31,


2017


2016


2017


2016

Operating cash flow








GAAP net cash provided by operating activities

$

331,269



$

250,678



$

1,560,853



$

1,301,740


Less:








Capital expenditures

(128,388)



(96,030)



(284,990)



(179,331)


Free cash flow

$

202,881



$

154,648



$

1,275,863



$

1,122,409


Our free cash flow analysis includes GAAP net cash provided by operating activities less capital expenditures. The capital expenditures balance does not include our strategic investments. 

Comprehensive Income

(in thousands)

(Unaudited)



Three Months Ended July 31,


Six Months Ended July 31,


2017


2016


2017


2016

Net income

$

17,736



$

229,622



$

8,529



$

268,381


Other comprehensive income, before tax and net of reclassification adjustments:








Foreign currency translation and other gains (losses)

16,384



(10,407)



30,408



(151)


Unrealized gains (losses) on marketable securities and strategic investments

(8,362)



25,896



62,968



36,980


Other comprehensive income, before tax

8,022



15,489



93,376



36,829


Tax effect

0



1,873



0



1,873


Other comprehensive income, net of tax

8,022



17,362



93,376



38,702


Comprehensive income

$

25,758



$

246,984



$

101,905



$

307,083



 

salesforce.com, inc.

GAAP Results Reconciled to non-GAAP Results

The following table reflects selected GAAP results reconciled to non-GAAP results.

(in thousands, except per share data)

(Unaudited) 



Three Months Ended July 31,


Six Months Ended July 31,


2017


2016


2017


2016

Non-GAAP gross profit








GAAP gross profit

$

1,890,922



$

1,511,039



$

3,627,946



$

2,930,661


Plus:








Amortization of purchased intangibles (a)

43,483



25,544



87,069



47,759


Stock-based expense (b)

32,202



23,495



63,712



50,129


Non-GAAP gross profit

$

1,966,607



$

1,560,078



$

3,778,727



$

3,028,549


Non-GAAP operating expenses








GAAP operating expenses

$

1,840,129



$

1,478,488



$

3,586,035



$

2,846,124


Less:








Amortization of purchased intangibles (a)

(30,563)



(23,151)



(61,207)



(38,537)


Stock-based expense (b)

(224,283)



(158,815)



(444,342)



(321,100)


Non-GAAP operating expenses

$

1,585,283



$

1,296,522



$

3,080,486



$

2,486,487


Non-GAAP income from operations








GAAP income from operations

$

50,793



$

32,551



$

41,911



$

84,537


Plus:








Amortization of purchased intangibles (a)

74,046



48,695



148,276



86,296


Stock-based expense (b)

256,485



182,310



508,054



371,229


Non-GAAP income from operations

$

381,324



$

263,556



$

698,241



$

542,062


Non-GAAP non-operating loss (c)








GAAP non-operating loss

$

(20,340)



$

(8,268)



$

(34,421)



$

(23,099)


Plus:








Amortization of debt discount, net

6,423



6,264



12,806



12,490


Amortization of acquired lease intangible

376



642



751



1,348


Less:








Gains from acquisitions of strategic investments

0



0



0



(12,864)


Non-GAAP non-operating loss

$

(13,541)



$

(1,362)



$

(20,864)



$

(22,125)


Non-GAAP net income








GAAP net income

$

17,736



$

229,622



$

8,529



$

268,381


Plus:








Amortization of purchased intangibles (a)

74,046



48,695



148,276



86,296


Amortization of acquired lease intangible

376



642



751



1,348


Stock-based expense (b)

256,485



182,310



508,054



371,229


Amortization of debt discount, net

6,423



6,264



12,806



12,490


Less:








Gains from acquisitions of strategic investments

0



0



0



(12,864)


Income tax effects and adjustments

(114,168)



(297,107)



(234,734)



(388,921)


Non-GAAP net income

$

240,898



$

170,426



$

443,682



$

337,959





Three Months Ended July 31,


Six Months Ended July 31,


2017


2016


2017


2016

Non-GAAP diluted earnings per share








GAAP diluted net income per share

$

0.02



$

0.33



$

0.01



$

0.39


Plus:








Amortization of purchased intangibles

0.10



0.07



0.20



0.12


Amortization of acquired lease intangible

0.00



0.00



0.00



0.00


Stock-based expense

0.35



0.26



0.70



0.54


Amortization of debt discount, net

0.01



0.01



0.02



0.02


Less:








Gains from acquisitions of strategic investments

0.00



0.00



0.00



(0.02)


Income tax effects and adjustments

(0.15)



(0.43)



(0.32)



(0.56)


Non-GAAP diluted earnings per share

$

0.33



$

0.24



$

0.61



$

0.49


Shares used in computing Non-GAAP diluted net income per share

729,386



695,968



726,222



691,714



a)             Amortization of purchased intangibles were as follows:



Three Months Ended July 31,


Six Months Ended July 31,


2017


2016


2017


2016

Cost of revenues

$

43,483



$

25,544



$

87,069



$

47,759


Marketing and sales

30,563



23,151



61,207



38,537



$

74,046



$

48,695



$

148,276



$

86,296




b)             Stock-based expense was as follows:



Three Months Ended July 31,


Six Months Ended July 31,


2017


2016


2017


2016

Cost of revenues

$

32,202



$

23,495



$

63,712



$

50,129


Research and development

66,644



38,624



130,559



73,792


Marketing and sales

120,550



86,323



239,546



181,797


General and administrative

37,089



33,868



74,237



65,511



$

256,485



$

182,310



$

508,054



$

371,229



c)             GAAP non-operating loss consists of investment income, interest expense, other expense and gains from acquisitions of strategic investments.

 

salesforce.com, inc.

Computation of Basic and Diluted GAAP and non-GAAP Net Income Per Share

(in thousands, except per share data)

(Unaudited)



Three Months Ended July 31,


Six Months Ended July 31,


2017


2016


2017


2016

GAAP Basic Net Income Per Share








Net income

$

17,736



$

229,622



$

8,529



$

268,381


Basic net income per share

$

0.02



$

0.34



$

0.01



$

0.40


Shares used in computing basic net income per share

712,039



681,126



709,157



678,929















Three Months Ended July 31,


Six Months Ended July 31,


2017


2016


2017


2016

Non-GAAP Basic Net Income Per Share








Non-GAAP net income

$

240,898



$

170,426



$

443,682



$

337,959


Basic Non-GAAP net income per share

$

0.34



$

0.25



$

0.63



$

0.50


Shares used in computing basic Non-GAAP net income per share

712,039



681,126



709,157



678,929















Three Months Ended July 31,


Six Months Ended July 31,


2017


2016


2017


2016

GAAP Diluted Net Income Per Share








Net income

$

17,736



$

229,622



$

8,529



$

268,381


Diluted net income per share

$

0.02



$

0.33



$

0.01



$

0.39


Shares used in computing diluted net income per share

729,386



695,968



726,222



691,714















Three Months Ended July 31,


Six Months Ended July 31,


2017


2016


2017


2016

Non-GAAP Diluted Net Income Per Share








Non-GAAP net income

$

240,898



$

170,426



$

443,682



$

337,959


Diluted Non-GAAP net income per share

$

0.33



$

0.24



$

0.61



$

0.49


Shares used in computing diluted Non-GAAP net income per share

729,386



695,968



726,222



691,714


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 deferred 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 the impact of the following items:  stock-based compensation, amortization of acquisition-related intangibles, amortization of acquired leases, the net amortization of debt discount on the company's convertible senior notes, gains/losses on conversions of the company's convertible senior notes, gains/losses on sales of land and building improvements, gains/losses on company-initiated acquisitions of entities in which the company held an equity investment, and termination of office leases, as well as income tax adjustments.  These items are excluded because the decisions which gave rise to these items were not made to increase revenue in a particular period, but were made 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 FY18 financial statements and for its non-GAAP estimates for Q3 and FY18:

  • 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 and Acquired Leases: The company views amortization of acquisition- and building-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 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.
  • Amortization of Debt Discount: Under GAAP, certain convertible debt instruments that may be settled in cash (or other assets) on conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. Accordingly, for GAAP purposes we are required to recognize imputed interest expense on the company's $1.15 billion of convertible senior notes due 2018 that were issued in a private placement in March 2013. The imputed interest rate was approximately 2.5% for the convertible notes due 2018, while the actual coupon interest rate of the notes is 0.25%. The difference between the imputed interest expense and the coupon interest expense, net of the interest amount capitalized, is excluded from management's assessment of the company's operating performance because management believes that this non-cash expense is not indicative of ongoing operating performance.
  • Gains on Acquisitions of Strategic Investments: The company views gains on sales of its strategic investments resulting from acquisitions initiated by the company in which an equity interest was previously held as discrete events and not indicative of operational performance during any particular period.
  • 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, amortization of acquired leases, amortization of debt discount, gains/losses on the sales of land and building improvements, gains on sales of strategic investments, and termination of office leases. The projected rate also assumes no new acquisitions in the three-year period, and considers other factors including the company's tax structure, its tax positions in various jurisdictions and key legislation in major jurisdictions where the company operates. This long-term rate could be subject to change for a variety of reasons, such as significant changes in the geographic earnings mix including acquisition activity, or fundamental tax law changes in major jurisdictions where the company operates. The company re-evaluates this long-term rate on an annual basis or if any significant events that may materially affect this long-term rate occur. The non-GAAP tax rate for fiscal 2018 is 34.5 percent.

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, nor does it include any costs or activities related to our purchase of 50 Fremont land and building, and building - leased facilities.

 

View original content with multimedia:http://www.prnewswire.com/news-releases/salesforce-announces-record-q2-earnings-surpasses-10b-run-rate-milestone-faster-than-any-enterprise-software-company-in-history-300507946.html

SOURCE Salesforce

John Cummings, Salesforce, Investor Relations, 415-778-4188, jcummings@salesforce.com; or Gina Sheibley, Salesforce, Public Relations, 917-297-8988, gsheibley@salesforce.com

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