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Salesforce Announces Record Second Quarter Fiscal 2020 Results

August 22, 2019
Raises FY20 Revenue Guidance to $16.75 Billion to $16.90 Billion
- Second Quarter Revenue of $4.0 Billion, up 22% Year-Over-Year, 23% in Constant Currency
- Current Remaining Performance Obligation of Approximately $12.1 Billion, up 23% Year-Over-Year, 25% in Constant Currency
- Remaining Performance Obligation of Approximately $25.3 Billion, up 20% Year-Over-Year
- Initiates Q3 FY20 Revenue Guidance of $4.44 Billion to $4.45 Billion, up 31% Year-Over-Year
- Initiates Q3 FY20 Current Remaining Performance Obligation Guidance of 24% to 25% Year-Over-Year

SAN FRANCISCO, Calif., Aug. 22, 2019 /PRNewswire/ -- Salesforce (NYSE: CRM), the global leader in CRM, today announced results for its fiscal second quarter ended July 31, 2019.

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

"Following an outstanding quarter, we're raising our FY20 revenue guidance to $16.9 billion at the high-end of the range," said Marc Benioff, Chairman & co-CEO, Salesforce. "With our Customer 360 vision, Einstein AI and the millions of Trailblazers innovating on our platform, Salesforce has never been better positioned for the future."

"An enormous wave of digital transformation is sweeping across every industry, and major brands, like FedEx, AXA and Unicredit, turned to Salesforce in the quarter to propel their growth," said Keith Block, co-CEO, Salesforce. "The trust our customers have in us to drive their digital transformations is reflected in our strong quarterly results across our clouds and regions."

Salesforce delivered the following results for its fiscal second quarter:

Revenue: Total second quarter revenue was $4.0 billion, an increase of 22% year-over-year, and 23% in constant currency. Subscription and support revenues were $3.75 billion, an increase of 22% year-over-year. Professional services and other revenues were $252 million, an increase of 14% year-over-year.

Earnings per Share: Second quarter GAAP diluted earnings per share was $0.11, and non-GAAP diluted earnings per share was $0.66. GAAP and non-GAAP diluted earnings per share were negatively impacted by the loss on the settlement of the Salesforce.org reseller agreement by $0.16. Mark-to-market accounting of the company's strategic investments, required by ASU 2016-01, benefited GAAP diluted earnings per share by $0.10 based on the US tax rate of 25% and non-GAAP diluted earnings per share by $0.11 based on a non-GAAP tax rate of 22.5%.

Cash: Cash generated from operations for the second quarter was $436 million, a decrease of 5% year-over-year. Total cash, cash equivalents and marketable securities ended the second quarter at $6.04 billion.

Remaining Performance Obligation: Remaining performance obligation ended the second quarter at approximately $25.3 billion, an increase of 20% year-over-year. This includes approximately $350 million related to the business combination with Salesforce.org. Current remaining performance obligation ended the second quarter at approximately $12.1 billion, an increase of 23% year-over-year, 25% in constant currency.

As of August 22, 2019, the company is initiating revenue, earnings per share and current remaining performance obligation growth guidance for its third quarter of fiscal year 2020. For the full fiscal year 2020, the company is raising its revenue and non-GAAP earnings per share guidance, and maintaining its operating cash flow guidance, previously provided on June 10, 2019, as amended on June 12, 2019. The company is decreasing its GAAP earnings per share guidance previously provided on June 4, 2019. The guidance below assumes no change to the value the company's strategic investment portfolio resulting from ASU 2016-01 as it is not possible to forecast future gains and losses. While historically the company's strategic investment portfolio has had a positive impact on the company's financial results, that may not be true for future periods, particularly in periods of significant market fluctuations that affect the publicly traded companies within the company's strategic investment portfolio. The impact of future gains or losses from the company's strategic investment portfolio could be material. In addition, the guidance below is based on estimated GAAP tax rates that reflect the company's currently available information, and excludes forecasted discrete tax items such as excess tax benefits from stock-based compensation. The GAAP tax rates may fluctuate due to future acquisitions or other transactions.


Q3 FY20
Guidance


Full Year FY20

Guidance

Revenue

$4.44 - $4.45 billion


$16.75 - $16.90 billion

Y/Y Growth

31%


26% - 27%

GAAP (loss) earnings per share

($0.21) - ($0.20)


$0.28 - $0.30

Non-GAAP earnings per share

$0.65 - $0.66


$2.82 - $2.84

Operating Cash Flow Growth (Y/Y)

N/A


21% - 22%

Current Remaining Performance Obligation Growth (Y/Y)

24% to 25%


N/A

The following is a per share reconciliation of GAAP diluted (loss) earnings per share to non-GAAP diluted earnings per share guidance for the next quarter and the full year:


Fiscal 2020


Q3


FY20

GAAP (loss) earnings per share range*

($0.21) - ($0.20)



$0.28 -$0.30


Plus




Amortization of purchased intangibles

$

0.32



$

0.99


Stock-based expense

$

0.59



$

2.08


Less




Income tax effects and adjustments**

$

(0.05)



$

(0.53)


Non-GAAP diluted earnings per share***

$0.65 - $0.66



$2.82 - $2.84






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

881



830


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

917



858


* The company's GAAP tax provision is expected to be approximately (300%) for the three months ended October 31, 2019 and approximately 48% for the year ended January 31, 2020. The GAAP tax rates may fluctuate due to discrete tax items, future acquisitions or other transactions. The company's projected GAAP basic and diluted EPS assumes no change to the value of its strategic investment portfolio resulting from ASU 2016-01 as it is not possible to forecast future gains and losses.

** The company's Non-GAAP tax provision uses a long-term projected tax rate of 22.5%, which reflects currently available information and could be subject to change.

*** The company's projected Non-GAAP basic and diluted earnings per share assumes no change to the value of its strategic investment portfolio resulting from ASU 2016-01 as it is not possible to forecast future gains and losses.

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 2492128.  A replay will be available at 855-859-2056 or 404-537-3406, passcode 2492128, until midnight (ET) September 22, 2019.

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 the company's financial and operating 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, expected revenue growth, expected current remaining performance obligation growth, expected tax rates, the one-time accounting non-cash charge that was incurred in connection with the Salesforce.org combination; stock-based compensation expenses, amortization of purchased intangibles, shares outstanding, market growth and sustainability goals.  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 it makes.

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 geopolitical events; 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 seasonal nature of our sales cycles; the competitive nature of the market in which we participate; our international expansion strategy; the demands on our personnel and infrastructure resulting from significant growth in our customer base and operations, including as a result of acquisitions; our service performance and security, including the resources and costs required to avoid unanticipated downtime and 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, including any efforts to expand our services beyond the CRM market; 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, joint ventures and investments; the impact of future gains or losses from our strategic investment portfolio, including gains or losses from overall market conditions that may affect the publicly traded companies within our strategic investment portfolio; our ability to execute our business plans; our ability to successfully integrate acquired businesses and technologies, including delays related to the integration of Tableau due to regulatory review by the United Kingdom Competition and Markets Authority; our ability to continue to grow 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, cross-border data transfers and import and export controls; the valuation of our deferred tax assets and the release of related valuation allowances; the potential availability of additional tax assets in the future; the impact of new accounting pronouncements and tax laws; uncertainties affecting our ability to estimate our tax rate; 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 loan and loan associated with 50 Fremont; compliance with our debt covenants and 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 it makes 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.

© 2019 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,


2019


2018


2019


2018

Revenues:








Subscription and support

$

3,745



$

3,060



$

7,241



$

5,870


Professional services and other

252



221



493



417


Total revenues

3,997



3,281



7,734



6,287


Cost of revenues (1)(2):









Subscription and support

727



638



1,405



1,211


Professional services and other

240



211



476



405


Total cost of revenues

967



849



1,881



1,616


Gross profit

3,030



2,432



5,853



4,671


Operating expenses (1)(2):








Research and development

607



463



1,161



887


Marketing and sales

1,824



1,504



3,521



2,833


General and administrative

375



350



737



645


Loss on settlement of Salesforce.org reseller agreement (3)

166



0



166



0


Total operating expenses

2,972



2,317



5,585



4,365


Income from operations

58



115



268



306


Gains on strategic investments, net

109



143



390



354


Other expense

(3)



(27)



(12)



(44)


Income before benefit from (provision for) income taxes

164



231



646



616


Benefit from (provision for) income taxes

(73)



68



(163)



27


Net income

$

91



$

299



$

483



$

643


Basic net income per share

$

0.12



$

0.40



$

0.62



$

0.87


Diluted net income per share

$

0.11



$

0.39



$

0.61



$

0.84


Shares used in computing basic net income per share

776



747



774



737


Shares used in computing diluted net income per share

795



774



795



763





(1)   Amounts include amortization of intangible assets acquired through business combinations, as follows:


















Three Months Ended July 31,


Six Months Ended July 31,


2019


2018


2019


2018

Cost of revenues

$

62



$

52



$

123



$

91


Marketing and sales

65



67



133



97





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


















Three Months Ended July 31,


Six Months Ended July 31,


2019


2018


2019


2018

Cost of revenues

$

46



$

43



$

89



$

77


Research and development

98



81



179



147


Marketing and sales

199



174



376



294


General and administrative

45



53



87



85




(3)   Amount represents a one-time non-cash charge related to the settlement of the reseller agreement between Salesforce and
Salesforce.org, a related party.


 

salesforce.com, inc.

Consolidated Statements of Operations

(As a percentage of total revenues)

(Unaudited)



Three Months Ended July 31,


Six Months Ended July 31,


2019


2018


2019


2018

Revenues:








Subscription and support

94

%


93

%


94

%


93

%

Professional services and other

6



7



6



7


Total revenues

100



100



100



100


Cost of revenues (1)(2):








Subscription and support

18



20



18



19


Professional services and other

6



6



6



7


Total cost of revenues

24



26



24



26


Gross profit

76



74



76



74


Operating expenses (1)(2):








Research and development

15



14



15



14


Marketing and sales

46



46



45



45


General and administrative

9



11



10



10


Loss on settlement of Salesforce.org reseller agreement

4



0



2



0


Total operating expenses

74



71



72



69


Income from operations

2



3



4



5


Gains on strategic investments, net

2



4



5



6


Other expense

0



0



(1)



(1)


Income before benefit from (provision for) income taxes

4



7



8



10


Benefit from (provision for) income taxes

(2)



2



(2)



0


Net income

2

%


9

%


6

%


10

%


(1)   Amounts include amortization of intangible assets acquired through business combinations as a percentage of total revenues, as follows:



Three Months Ended July 31,


Six Months Ended July 31,


2019


2018


2019


2018

Cost of revenues

2

%


2

%


2

%


1

%

Marketing and sales

2



2



2



2



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














Three Months Ended July 31,


Six Months Ended July 31,


2019


2018


2019


2018

Cost of revenues

1

%


1

%


1

%


1

%

Research and development

2



2



2



2


Marketing and sales

5



5



5



5


General and administrative

1



2



1



1


 

salesforce.com, inc.

Consolidated Balance Sheets

(in millions)

(Unaudited)










July 31, 2019


January 31, 2019

Assets




Current assets:




Cash and cash equivalents

$

3,510



$

2,669


Marketable securities

2,532



1,673


Accounts receivable, net

2,332



4,924


Costs capitalized to obtain revenue contracts, net

786



788


Prepaid expenses and other current assets

743



629


Total current assets

9,903



10,683


Property and equipment, net

2,283



2,051


Operating lease right-of-use assets (1)

2,904



0


Costs capitalized to obtain revenue contracts, noncurrent, net

1,105



1,232


Strategic investments

1,614



1,302


Goodwill

13,199



12,851


Intangible assets acquired through business combinations, net

1,725



1,923


Capitalized software and other assets, net

603



695


Total assets

$

33,336



$

30,737


Liabilities and stockholders' equity




Current liabilities:




Accounts payable, accrued expenses and other liabilities

$

2,347



$

2,691


Operating lease liabilities, current (1)

706



0


Unearned revenue

7,142



8,564


Total current liabilities

10,195



11,255


Noncurrent debt

2,973



3,173


Noncurrent operating lease liabilities (1)

2,341



0


Other noncurrent liabilities

661



704


Total liabilities

16,170



15,132


Stockholders' equity:




Common stock

1



1


Additional paid-in capital

15,024



13,927


Accumulated other comprehensive loss

(77)



(58)


Retained earnings

2,218



1,735


Total stockholders' equity

17,166



15,605


Total liabilities and stockholders' equity

$

33,336



$

30,737



(1) Reflects the prospective adoption of Accounting Standards Update No. 2016-02, "Leases (Topic 842)", which the Company adopted on February 1, 2019.

 

salesforce.com, inc.

Consolidated Statements of Cash Flows

(in millions)

(Unaudited)


















Three Months Ended July 31,


Six Months Ended July 31,


2019


2018


2019


2018

Operating activities:








Net income

$

91



$

299



$

483



$

643


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








Depreciation and amortization

457



253



894



450


Amortization of costs capitalized to obtain revenue contracts, net

217



183



426



371


Expenses related to employee stock plans

388



351



731



603


Loss on settlement of Salesforce.org reseller agreement

166



0



166



0


Gains on strategic investments, net

(109)



(143)



(390)



(354)


Changes in assets and liabilities, net of business combinations:








Accounts receivable, net

(146)



(149)



2,628



2,013


Costs capitalized to obtain revenue contracts, net

(173)



(146)



(297)



(264)


Prepaid expenses and other current assets and other assets

28



4



(69)



(86)


Accounts payable

26



71



41



121


Accrued expenses and other liabilities

267



108



(293)



(398)


Operating lease liabilities

(182)



0



(346)



0


Unearned revenue

(594)



(373)



(1,573)



(1,175)


Net cash provided by operating activities

436



458



2,401



1,924


Investing activities:








Business combinations, net of cash acquired

(423)



(4,803)



(433)



(4,985)


Purchases of strategic investments

(62)



(37)



(221)



(184)


Sales of strategic investments

71



2



265



6


Purchases of marketable securities

(772)



(28)



(1,506)



(291)


Sales of marketable securities

375



335



461



1,273


Maturities of marketable securities

137



40



193



88


Capital expenditures

(178)



(170)



(337)



(292)


Net cash used in investing activities

(852)



(4,661)



(1,578)



(4,385)


Financing activities:








Proceeds from issuance of debt, net

0



496



0



2,966


Proceeds from employee stock plans

152



182



371



383


Principal payments on financing obligations (1)

(134)



(89)



(145)



(108)


Repayments of debt

(201)



0



(202)



(1,027)


Net cash provided by (used in) financing activities

(183)



589



24



2,214


Effect of exchange rate changes

(1)



11



(6)



23


Net increase (decrease) in cash and cash equivalents

(600)



(3,603)



841



(224)


Cash and cash equivalents, beginning of period

4,110



5,922



2,669



2,543


Cash and cash equivalents, end of period

$

3,510



$

2,319



$

3,510



$

2,319



(1) Previously referred to as principal payments on capital lease obligations.

 

salesforce.com, inc.

Additional Metrics

(Unaudited) 


























July 31,

2019


Apr 30,

2019


Jan 31,

2019


Oct 31,

2018


Jul 31,
2018


Apr 30,
2018

Full Time Equivalent Headcount

40,571



37,485



35,995



34,391



32,717



30,149


Financial data (in millions):












Cash, cash equivalents and marketable securities

$

6,042



$

6,379



$

4,342



$

3,450



$

3,427



$

7,159


Strategic investments

1,614



1,548



1,302



1,251



1,202



1,024


Operating lease liabilities (1)

3,047



3,058



NA



NA



NA



NA


Principal due on the Company's outstanding debt obligations (2)

2,996



3,197



3,198



3,699



3,700



3,200


Net cash provided by operating activities

436



1,965



1,331



143



458



1,466


Capital expenditures

178



159



167



136



170



122



(1) Effective February 1, 2019, the Company prospectively adopted Topic 842. Accordingly, the results for prior periods were not adjusted to conform to the current period measurement or recognition of results.

(2) The Company repaid $200 million of the 2021 Term Loan in June 2019.

Supplemental Revenue Analysis

Remaining Performance Obligation

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.

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, 2019 (1)

$

12.1



$

13.2



$

25.3


As of April 30, 2019

$

11.8



$

13.1



$

24.9


As of January 31, 2019

$

11.9



$

13.8



$

25.7


As of October 31, 2018

$

10.0



$

11.2



$

21.2


As of July 31, 2018

$

9.8



$

11.2



$

21.0


As of April 30, 2018 (2)

$

9.6



$

10.8



$

20.4


As of January 31, 2018 (2)

$

9.6



$

11.0



$

20.6



(1) Includes $350 million of Remaining Performance Obligation related to the Salesforce.org business combination in June 2019.

(2) Does not include any contribution to Remaining Performance Obligation from the May 2018 acquisition of MuleSoft, Inc.

Unearned Revenue

Unearned revenue represents amounts that have been invoiced in advance of revenue recognition and is recognized as revenue when transfer of control to customers has occurred or services have been provided. The change in unearned revenue was as follows (in millions):



















Three Months Ended July 31,


Six Months Ended July 31,


2019


2018


2019


2018

Unearned revenue, beginning of period

$

7,585



$

6,201



$

8,564



$

6,995


Billings and other*

3,396



2,875



6,110



5,086


Contribution from contract asset

7



31



51



25


Revenue recognized ratably over time

(3,736)



(3,056)



(7,223)



(5,924)


Revenue recognized over time as delivered

(174)



(162)



(346)



(299)


Revenue recognized at a point in time

(87)



(63)



(165)



(64)


Unearned revenue from business combinations

151



57



151



64


Unearned revenue, end of period

$

7,142



$

5,883



$

7,142



$

5,883



*Other includes, for example, the impact of foreign currency translation

Disaggregation of Revenue
Subscription and Support Revenue by the Company's service offerings

Subscription and support revenues consisted of the following (in millions):



Three Months Ended July 31,


Six Months Ended July 31,


2019


2018


2019


2018

Sales Cloud

$

1,130



$

1,004



$

2,203



$

1,969


Service Cloud

1,087



892



2,107



1,740


Salesforce Platform and Other

912



712



1,754



1,287


Marketing and Commerce Cloud

616



452



1,177



874



$

3,745



$

3,060



$

7,241



$

5,870


The above subscription and support revenue includes approximately $51 million of revenue contributed from the acquisition of Salesforce.org for the period June 3, 2019 through July 31, 2019.

Total Revenue by Geographic Locations

Revenues by geographical region consisted of the following (in millions):


Three Months Ended July 31,


Six Months Ended July 31,


2019


2018


2019


2018

Americas

$

2,816



$

2,338



$

5,433



$

4,439


Europe

786



629



1,541



1,235


Asia Pacific

395



314



760



613



$

3,997



$

3,281



$

7,734



$

6,287











Three Months Ended July 31,


Six Months Ended July 31,


2019


2018


2019


2018

Americas

70

%


71

%


70

%


71

%

Europe

20



19



20



19


Asia Pacific

10



10



10



10



100

%


100

%


100

%


100

%

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 were as follows:


Three Months Ended
July 31, 2019
compared to Three Months
Ended July 31, 2018


Three Months Ended
April 30, 2019
compared to Three Months
Ended April 30, 2018


Three Months Ended
July 31, 2018
compared to Three Months
Ended July 31, 2017

Americas

20%


25%


25%

Europe

30%


32%


32%

Asia Pacific

27%


27%


28%

Total growth

23%


26%


27%

The Company presents constant currency information for current remaining performance obligation 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 current remaining performance obligation balances in local currencies in previous comparable periods using the United States dollar currency exchange rate as of the most recent balance sheet date.

Current remaining performance obligation constant currency growth rates was as follows:


July 31, 2019
compared to
July 31, 2018


April 30, 2019
compared to
April 30, 2018

Total growth

25%


24%

Supplemental Strategic Investment Information
Gains on strategic investments, net

All fair value adjustments of the Company's publicly traded and privately held equity investments are recorded through the statement of operations.  Therefore, 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 fiscal year.

Gains and losses recognized on strategic investments were as follows (in millions):


Three Months Ended July 31,


Six Months Ended July 31,


2019


2018


2019


2018

Net gains recognized on publicly traded securities

$

66



$

65



$

216



$

276


Net gains recognized on privately held securities

0



90



122



81


Net gains recognized on sales of equity securities

43



1



62



9


Net losses recognized on debt securities

0



(13)



(10)



(12)


Gains on strategic investments, net

$

109



$

143



$

390



$

354


Supplemental Debt Information

The carrying values of the Company's borrowings were as follows (in millions):

Instrument


Date of issuance


Maturity date


July 31, 2019


January 31, 2019

2021 Term Loan


May 2018


May 2021


$

299

(1)


$

499


2023 Senior Notes


April 2018


April 2023


994



993


2028 Senior Notes


April 2018


April 2028


1,489



1,488


Loan assumed on 50 Fremont


February 2015


June 2023


195



196


Total carrying value of debt






2,977



3,176


Less current portion of debt






(4)



(3)


Total noncurrent debt






$

2,973



$

3,173



(1) The Company repaid $200 million of the 2021 Term Loan in June 2019.

 

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,


2019


2018


2019


2018

Non-GAAP gross profit








GAAP gross profit

$

3,030



$

2,432



$

5,853



$

4,671


Plus:








Amortization of purchased intangibles (1)

62



52



123



91


Stock-based expense (2)

46



43



89



77


Non-GAAP gross profit

$

3,138



$

2,527



$

6,065



$

4,839


Non-GAAP operating expenses








GAAP operating expenses

$

2,972



$

2,317



$

5,585



$

4,365


Less:








Amortization of purchased intangibles (1)

65



67



133



97


Stock-based expense (2)

342



308



642



526


Non-GAAP operating expenses

$

2,565



$

1,942



$

4,810



$

3,742


Non-GAAP income from operations








GAAP income from operations

$

58



$

115



$

268



$

306


Plus:








Amortization of purchased intangibles (1)

127



119



256



188


Stock-based expense (2)

388



351



731



603


Non-GAAP income from operations

$

573



$

585



$

1,255



$

1,097


Non-GAAP non-operating income (3)








GAAP non-operating income

$

106



$

116



$

378



$

310


Plus:








Amortization of debt discount, net

0



0



0



4


Non-GAAP non-operating income

$

106



$

116



$

378



$

314


Non-GAAP net income








GAAP net income

$

91



$

299



$

483



$

643


Plus:








Amortization of purchased intangibles (1)

127



119



256



188


Stock-based expense (2)

388



351



731



603


Amortization of debt discount, net

0



0



0



4


Less:








Income tax effects and adjustments

(80)



(219)



(205)



(330)


Non-GAAP net income

$

526



$

550



$

1,265



$

1,108


 


Three Months Ended July 31,


Six Months Ended July 31,


2019


2018


2019


2018

Non-GAAP diluted earnings per share








GAAP diluted net income per share

$

0.11



$

0.39



$

0.61



$

0.84


Plus:








Amortization of purchased intangibles

0.16



0.15



0.32



0.25


Stock-based expense

0.49



0.45



0.92



0.79


Amortization of debt discount, net

0.00



0.00



0.00



0.00


Less:








Income tax effects and adjustments

(0.10)



(0.28)



(0.26)



(0.43)


Non-GAAP diluted earnings per share

$

0.66



$

0.71



$

1.59



$

1.45


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

795



774



795



763














1)   Amortization of purchased intangibles were as follows:














Three Months Ended July 31,


Six Months Ended July 31,


2019


2018


2019


2018

Cost of revenues

$

62



$

52



$

123



$

91


Marketing and sales

65



67



133



97



$

127



$

119



$

256



$

188


2)   Stock-based expense was as follows:


















Three Months Ended July 31,


Six Months Ended July 31,


2019


2018


2019


2018

Cost of revenues

$

46



$

43



$

89



$

77


Research and development

98



81



179



147


Marketing and sales

199



174



376



294


General and administrative

45



53



87



85



$

388



$

351



$

731



$

603



3)   GAAP non-operating income 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,


2019


2018


2019


2018

GAAP Basic Net Income Per Share








Net income

$

91



$

299



$

483



$

643


Basic net income per share

$

0.12



$

0.40



$

0.62



$

0.87


Shares used in computing basic net income per share

776



747



774



737











Three Months Ended July 31,


Six Months Ended July 31,


2019


2018


2019


2018

Non-GAAP Basic Net Income Per Share








Non-GAAP net income

$

526



$

550



$

1,265



$

1,108


Basic Non-GAAP net income per share

$

0.68



$

0.74



$

1.63



$

1.50


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

776



747



774



737











Three Months Ended July 31,


Six Months Ended July 31,


2019


2018


2019


2018

GAAP Diluted Net Income Per Share








Net income

$

91



$

299



$

483



$

643


Diluted net income per share

$

0.11



$

0.39



$

0.61



$

0.84


Shares used in computing diluted net income per share

795



774



795



763











Three Months Ended July 31,


Six Months Ended July 31,


2019


2018


2019


2018

Non-GAAP Diluted Net Income Per Share








Non-GAAP net income

$

526



$

550



$

1,265



$

1,108


Diluted Non-GAAP net income per share

$

0.66



$

0.71



$

1.59



$

1.45


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

795



774



795



763


Non-GAAP Financial Measures:  This press release includes information about non-GAAP diluted earnings per share, non-GAAP tax rates and constant currency revenue and constant currency current remaining performance obligation 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 FY20 financial statements and for its non-GAAP estimates for Q3 and FY20:

  • 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, which is not typically affected by operations during any particular period. Although we exclude the amortization of purchased intangibles from these non-GAAP measures, management believes that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.
  • 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 it is not possible to forecast future gains and losses, the company assumes no change to the value of its strategic investment portfolio in 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 acquisition-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 and the amortization of purchased intangibles. 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 2020, the company uses a projected non-GAAP tax rate of 22.5%, which reflects currently available information, as well as other factors and assumptions. The non-GAAP tax rate could be subject to change for a variety of reasons, including the rapidly evolving global tax environment, significant changes in the company's geographic earnings mix 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.

 

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SOURCE Salesforce

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