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Salesforce Announces Record Second Quarter Fiscal 2019 Results

Aug 29, 2018
Raises FY19 Revenue Guidance to $13.125 Billion to $13.175 Billion
- Second Quarter Revenue of $3.28 Billion, up 27% Year-Over-Year, 27% in Constant Currency
- Unearned Revenue of $5.88 Billion, up 24% Year-Over-Year, 24% in Constant Currency
- Remaining Performance Obligation of Approximately $21 Billion, up 36% Year-Over-Year
- Second Quarter Operating Cash Flow of $458 Million, up 38% Year-Over-Year

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 (PRNewsFoto/salesforce.com) (PRNewsfoto/Salesforce)

"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

(as adjusted)*


2018


2017

(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

(as adjusted)*


2018


2017

(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,
 2018


January 31, 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

(as adjusted)*


2018


2017

(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,
2018


Apr 30,
2018


Jan 31,

2018


Oct 31,
2017


Jul 31,
2017


Apr 30,
2017

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

(as adjusted)*


2018


2017
(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

(as adjusted)*


2018


2017

(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

(as adjusted)*


2018


2017

(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

July 31, 2018

compared to Three Months

Ended July 31, 2017


Three Months Ended
April 30, 2018
compared to Three Months 
Ended April 30, 2017


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

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
compared to
July 31, 2017


April 30, 2018
compared to
April 30, 2017


July 31, 2017
compared to
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

(as adjusted)*


2018


2017

(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,
 2018


April 30,

2018


January 31, 2018
(as adjusted)*

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

(as adjusted)*


2018


2017

(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

(as adjusted)*


2018


2017

(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

(as adjusted)*


2018


2017

(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
(as adjusted)*


2018


2017

(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

(as adjusted)*


2018


2017

(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

(as adjusted)*


2018


2017

(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.

 

Cision View original content with multimedia:http://www.prnewswire.com/news-releases/salesforce-announces-record-second-quarter-fiscal-2019-results-300704364.html

SOURCE Salesforce

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