CRM
$247.20
Salesforce.com
$4.46
1.84%
Earnings Details
2nd Quarter July 2020
Tuesday, August 25, 2020 4:05:00 PM
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Summary

Salesforce.com Beats

Salesforce.com (CRM) reported 2nd Quarter July 2020 earnings of $1.42 per share on revenue of $5.2 billion. The consensus earnings estimate was $0.67 per share on revenue of $4.9 billion. The Earnings Whisper number was $0.69 per share. Revenue grew 28.9% on a year-over-year basis.

The company said it expects third quarter non-GAAP earnings of $0.73 to $0.74 per share on revenue of $5.24 billion to $5.25 billion. The current consensus earnings estimate is $0.76 per share on revenue of $5.01 billion for the quarter ending October 31, 2020. The company also said it expects fiscal year earnings of $3.72 to $3.74 per share on revenue of $20.7 billion to $20.8 billion. The company's previous guidance was earnings of $2.93 to $2.95 per share on revenue of approximately $20.0 billion and the current consensus earnings estimate is $2.96 per share on revenue of $20.05 billion for the year ending January 31, 2021.

Salesforce.com Inc provides enterprise cloud computing solutions, offering social and mobile cloud apps and platform services, as well as professional services to facilitate the adoption of its solutions.

Results
Reported Earnings
$1.42
Earnings Whisper
$0.69
Consensus Estimate
$0.67
Reported Revenue
$5.15 Bil
Revenue Estimate
$4.90 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Salesforce Announces Strong Second Quarter Fiscal 2021 Results

SAN FRANCISCO, Aug. 25, 2020 /PRNewswire/ -- Salesforce (NYSE: CRM), the global leader in CRM, today announced results for its fiscal second quarter ended July 31, 2020.

"It's humbling to have had one of the best quarters in Salesforce's history against the backdrop of multiple crises seriously affecting our communities around the world," said Marc Benioff, Chair and CEO of Salesforce. "Salesforce was founded on our belief in stakeholder capitalism and our core values of trust, customer success, innovation and equality. Our success in the quarter brought all of this together with the power of our Customer 360 platform, the resilience of our business model, putting our customers first and doing our part to take care of all of our stakeholders. We know that together we have an opportunity to emerge from these times even stronger."

Salesforce delivered the following results for its fiscal second quarter:

Revenue: Total second quarter revenue was $5.15 billion, an increase of 29% year-over-year, and 29% in constant currency. Subscription and support revenues for the quarter were $4.84 billion, an increase of 29% year-over-year. Professional services and other revenues for the quarter were $0.31 billion, an increase of 23% year-over-year.

Earnings per Share: Second quarter GAAP diluted earnings per share was $2.85, and non-GAAP diluted earnings per share was $1.44. Mark-to-market accounting of the company's strategic investments, required by ASU 2016-01, benefited GAAP diluted earnings per share by $0.55 based on a U.S. tax rate of 25% and non-GAAP diluted earnings per share by $0.58 based on a non-GAAP tax rate of 22%. GAAP diluted earnings per share was also benefited by $2.17 as the company changed its international corporate structure, which included the consolidation of intangible property, resulting in a $2 billion net tax benefit related to foreign deferred tax assets.  Please note that this had no impact on Non-GAAP diluted earnings per share, as the company utilizes a fixed long-term projected non-GAAP tax rate, which generally excludes effects for discrete events.

Cash: Cash generated from operations for the second quarter was $0.43 billion, a decrease of 2% year-over-year. Total cash, cash equivalents and marketable securities ended the second quarter at $9.28 billion.

Remaining Performance Obligation: Remaining performance obligation ended the second quarter at approximately $30.6 billion, an increase of 21% year-over-year. Current remaining performance obligation ended the second quarter at approximately $15.2 billion, an increase of 26% year-over-year, 24% in constant currency.

As of August 25, 2020, the company is initiating its revenue guidance, GAAP earnings per share guidance, non-GAAP earnings per share guidance, and current remaining performance obligation growth guidance for its third quarter of fiscal year 2021. As of August 25, 2020, the company is raising its revenue guidance, GAAP earnings per share guidance, non-GAAP earnings per share guidance, and operating cash flow guidance previously provided on May 28, 2020 for its full fiscal year 2021.  Management will provide further commentary around these guidance assumptions on its earnings call, which is expected to occur on August 25, 2020 at 2:00 PM Pacific Time.

Our guidance assumes no change to the value of the company's strategic investment portfolio resulting from ASU 2016-01 as it is not possible to forecast future gains and losses. 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 FY21
Guidance


Full Year FY21
Guidance

Revenue

$5.24 - $5.25 Billion


$20.7 - $20.8 Billion

Y/Y Growth

16%


21% - 22%

GAAP earnings per share

$0.03 - $0.04


$3.12 - $3.14

Non-GAAP earnings per share

$0.73 - $0.74


$3.72 - $3.74

Operating Cash Flow Growth (Y/Y)

N/A


~12% - 13%

Current Remaining Performance Obligation Growth (Y/Y)

~19%


N/A

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 2021


Q3


FY21

GAAP earnings per share range(1)(2)

$0.03 - $0.04


$3.12 - $3.14

Plus




Amortization of purchased intangibles

$

0.30



$

1.21


Stock-based expense

$

0.61



$

2.35


Less




Income tax effects and adjustments(3)

$

(0.21)



$

(2.96)


Non-GAAP diluted earnings per share(2)

$0.73 - $0.74


$3.72 - $3.74

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

911



907


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

937



929



(1) The company's GAAP tax provision is expected to be approximately (20%) for the three months ended October 31, 2020, and approximately (146%) for the year ended January 31, 2021. The GAAP tax rates may fluctuate due to discrete tax items and related effects in conjunction with certain provisions in the Tax Cuts and Jobs Act, future acquisitions or other transactions. The company changed its international corporate structure, which included the consolidation of intangible property, resulting in a $2 billion net tax benefit related to foreign deferred tax assets in the second quarter, and is reflected in the full year GAAP EPS guidance.  This change had no impact on Non-GAAP earnings per share, as the company utilizes a fixed long-term projected Non-GAAP tax rate which generally excludes effects for discrete events. 

(2) The company's projected GAAP and Non-GAAP diluted earnings per share assumes no change to the value of our 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 publicity 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.

(3) The company's Non-GAAP tax provision uses a long-term projected tax rate of 22.0%, which reflects currently available information and could be subject to change.

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) to discuss its financial results with the investment community. A live webcast and replay details of the event will be available on the Salesforce Investor Relations website at www.salesforce.com/investor.

About Salesforce
Salesforce is the global leader in Customer Relationship Management (CRM), bringing companies closer to their customers in the digital age. Founded in 1999, Salesforce enables companies of every size and industry to take advantage of powerful technologies—cloud, mobile, social, internet of things, artificial intelligence, voice and blockchain—to create a 360-degree view of their customers. For more information about Salesforce (NYSE: CRM), 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, earnings per share, operating cash flow growth, operating margin improvement, expected revenue growth, expected current remaining performance obligation growth, expected tax rates, stock-based compensation expenses, amortization of purchased intangibles, shares outstanding, market growth, environmental, social and governance goals, expected capital allocation, including mergers and acquisitions, capital expenditures and other investments, expectations regarding closing contemplated acquisitions and contributions from acquired companies.  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 impact of, and actions we may take in response to, the COVID-19 pandemic, related public health measures and resulting economic downturn and market volatility; our ability to maintain service performance and security levels meeting the expectations of our customers, and the resources and costs required to avoid unanticipated downtime and prevent, detect and remediate performance degradation and security breaches; the expenses associated with our data centers and third-party infrastructure providers; our ability to secure and costs related to additional data center capacity; our reliance on third-party hardware, software and platform providers; 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; current and potential litigation involving us or our industry, including litigation involving acquired entities such as Tableau, and the resolution or settlement thereof; regulatory developments and regulatory investigations involving us or affecting our industry; our ability to successfully introduce new services and product features, including any efforts to expand our services beyond the CRM market; the success of our strategy of acquiring or making investments in complementary businesses, joint ventures, services, technologies and intellectual property rights; our ability to realize the benefits from strategic partnerships, joint ventures and investments; our ability to successfully integrate acquired businesses and technologies; our ability to compete in the market in which we participate; the success of our business strategy and our plan to build our business, including our strategy to be a leading provider of enterprise cloud computing applications and platforms; our ability to execute our business plans; our ability to continue to grow unearned revenue and remaining performance obligation; the pace of change and innovation in enterprise cloud computing services; the seasonal nature of our sales cycles; our ability to limit customer attrition and costs related to those efforts; the success of 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 dependency on the development and maintenance of the infrastructure of the Internet; our real estate and office facilities strategy and related costs and uncertainties; fluctuations in, and our ability to predict, our operating results and cash flows; the variability in our results arising from the accounting for term license revenue products; the performance and fair value of our investments in complementary businesses through our strategic investment portfolio; 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 protect our intellectual property rights; our ability to develop our brands; the impact of foreign currency exchange rate and interest rate fluctuations on our results; 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; uncertainties regarding our tax obligations in connection with potential jurisdictional transfers of intellectual property, including the tax rate, the timing of the transfer and the value of such transferred intellectual property; uncertainties regarding the effect of general economic and market conditions; the impact of geopolitical events; uncertainties regarding the impact of expensing stock options and other equity awards; the sufficiency of our capital resources; risks related to our 2023 and 2028 senior notes, revolving credit facility and loan associated with 50 Fremont; our ability to comply with our debt covenants and lease obligations; and the impact of climate change, natural disasters and actual or threatened public health emergencies, including the ongoing COVID-19 pandemic.

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.

© 2020 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,


2020


2019


2020


2019

Revenues:








Subscription and support

$

4,840



$

3,745



$

9,415



$

7,241


Professional services and other

311



252



601



493


Total revenues

5,151



3,997



10,016



7,734


Cost of revenues (1)(2):








Subscription and support

1,013



727



1,979



1,405


Professional services and other

298



240



586



476


Total cost of revenues

1,311



967



2,565



1,881


Gross profit

3,840



3,030



7,451



5,853


Operating expenses (1)(2):








Research and development

898



607



1,757



1,161


Marketing and sales

2,275



1,824



4,665



3,521


General and administrative

489



375



991



737


Loss on settlement of Salesforce.org reseller agreement

0



166



0



166


Total operating expenses

3,662



2,972



7,413



5,585


Income from operations

178



58



38



268


Gains on strategic investments, net

682



109



874



390


Other expense

(21)



(3)



(26)



(12)


Income before benefit from (provision for) income taxes

839



164



886



646


Benefit from (provision for) income taxes (3)

1,786



(73)



1,838



(163)


Net income

$

2,625



$

91



$

2,724



$

483


Basic net income per share

$

2.90



$

0.12



$

3.02



$

0.62


Diluted net income per share

$

2.85



$

0.11



$

2.96



$

0.61


Shares used in computing basic net income per share

904



776



901



774


Shares used in computing diluted net income per share

922



795



919



795



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



Three Months Ended July 31,


Six Months Ended July 31,


2020


2019


2020


2019

Cost of revenues

$

166



$

62



$

325



$

123


Marketing and sales

118



65



230



133



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



Three Months Ended July 31,


Six Months Ended July 31,


2020


2019


2020


2019

Cost of revenues 

$

63



$

46



$

115



$

89


Research and development 

184



98



350



179


Marketing and sales 

253



199



476



376


General and administrative 

78



45



141



87




(3)

During the three months ended July 31, 2020 the Company recorded approximately $2.0 billion of benefit from income taxes due to a one-time discrete tax item from the recognition of deferred tax assets related to an intra-entity transfer of intangible property.

 

salesforce.com, inc.

Consolidated Statements of Operations

(As a percentage of total revenues)

(Unaudited)



Three Months Ended July 31,


Six Months Ended July 31,


2020


2019


2020


2019

Revenues:








Subscription and support

94

%


94

%


94

%


94

%

Professional services and other

6



6



6



6


Total revenues

100



100



100



100


Cost of revenues (1)(2):








Subscription and support

19



18



20



18


Professional services and other

6



6



6



6


Total cost of revenues

25



24



26



24


Gross profit

75



76



74



76


Operating expenses (1)(2):








Research and development

18



15



17



15


Marketing and sales

44



46



47



45


General and administrative

10



9



10



10


Loss on settlement of Salesforce.org reseller agreement

0



4



0



2


Total operating expenses

72



74



74



72


Income from operations

3



2



0



4


Gains on strategic investments, net

13



2



9



5


Other expense

0



0



0



(1)


Income before benefit from (provision for) income taxes

16



4



9



8


Benefit from (provision for) income taxes

35



(2)



18



(2)


Net income

51

%


2

%


27

%


6

%


(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,


2020


2019


2020


2019

Cost of revenues

3

%


2

%


3

%


2

%

Marketing and sales

2



2



2



2



(2)  Amounts include stock-based expense as a percentage of total revenues, as follows:



Three Months Ended July 31,


Six Months Ended July 31,


2020


2019


2020


2019

Cost of revenues

1

%


1

%


1

%


1

%

Research and development

4



2



4



2


Marketing and sales

5



5



5



5


General and administrative

1



1



1



1


 

salesforce.com, inc.

Consolidated Balance Sheets

(in millions)

(Unaudited)



July 31, 2020


January 31, 2020

Assets




Current assets:




Cash and cash equivalents

$

4,052



$

4,145


Marketable securities

5,231



3,802


Accounts receivable, net

3,445



6,174


Costs capitalized to obtain revenue contracts, net

948



926


Prepaid expenses and other current assets

1,170



916


Total current assets

14,846



15,963


Property and equipment, net

2,528



2,375


Operating lease right-of-use assets, net

2,985



3,040


Noncurrent costs capitalized to obtain revenue contracts, net

1,309



1,348


Strategic investments

2,555



1,963


Goodwill

26,301



25,134


Intangible assets acquired through business combinations, net

4,676



4,724


Deferred tax assets and other assets, net

2,580



579


Total assets

$

57,780



$

55,126


Liabilities and stockholders' equity




Current liabilities:




Accounts payable, accrued expenses and other liabilities

$

3,485



$

3,433


Operating lease liabilities, current

767



750


Unearned revenue

8,711



10,662


Total current liabilities

12,963



14,845


Noncurrent debt

2,673



2,673


Noncurrent operating lease liabilities

2,407



2,445


Other noncurrent liabilities

1,297



1,278


Total liabilities

19,340



21,241


Stockholders' equity:




Common stock

1



1


Additional paid-in capital

33,922



32,116


Accumulated other comprehensive loss

(68)



(93)


Retained earnings

4,585



1,861


Total stockholders' equity

38,440



33,885


Total liabilities and stockholders' equity

$

57,780



$

55,126


 

salesforce.com, inc.

Consolidated Statements of Cash Flows

(in millions)

(Unaudited)



Three Months Ended July 31,


Six Months Ended July 31,


2020


2019


2020


2019

Operating activities:








Net income

$

2,625



$

91



$

2,724



$

483


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








Depreciation and amortization

649



457



1,307



894


Amortization of costs capitalized to obtain revenue contracts, net

250



217



497



426


Expenses related to employee stock plans

578



388



1,082



731


Loss on settlement of Salesforce.org reseller agreement

0



166



0



166


Gains on strategic investments, net

(682)



(109)



(874)



(390)


Tax benefit from intra-entity transfer of intangible property

(2,003)



0



(2,003)



0


Changes in assets and liabilities, net of business combinations:








Accounts receivable, net

(349)



(146)



2,745



2,628


Costs capitalized to obtain revenue contracts, net

(455)



(173)



(480)



(297)


Prepaid expenses and other current assets and other assets

(203)



28



(214)



(69)


Accounts payable and accrued expenses and other liabilities

693



293



(64)



(252)


Operating lease liabilities

(209)



(182)



(412)



(346)


Unearned revenue

(465)



(594)



(2,020)



(1,573)


Net cash provided by operating activities

429



436



2,288



2,401


Investing activities:








Business combinations, net of cash acquired

(1,154)



(423)



(1,257)



(433)


Purchases of strategic investments

(232)



(62)



(574)



(221)


Sales of strategic investments

51



71



652



265


Purchases of marketable securities

(1,681)



(772)



(2,515)



(1,506)


Sales of marketable securities

207



375



544



461


Maturities of marketable securities

330



137



557



193


Capital expenditures

(114)



(178)



(437)



(337)


Net cash used in investing activities

(2,593)



(852)



(3,030)



(1,578)


Financing activities:








Proceeds from employee stock plans

466



152



724



371


Principal payments on financing obligations

(24)



(134)



(72)



(145)


Repayments of debt

(1)



(201)



(2)



(202)


Net cash provided by (used in) financing activities

441



(183)



650



24


Effect of exchange rate changes

3



(1)



(1)



(6)


Net increase (decrease) in cash and cash equivalents

(1,720)



(600)



(93)



841


Cash and cash equivalents, beginning of period

5,772



4,110



4,145



2,669


Cash and cash equivalents, end of period

$

4,052



$

3,510



$

4,052



$

3,510


 

salesforce.com, inc.

Additional Metrics

(Unaudited)



July 31,

2020


April 30,

2020


January 31,
2020


October 31,
2019


July 31,

2019


April 30,

2019

Full time equivalent headcount (1)

54,255



51,613



49,703



47,677



40,571



37,485


Financial data (in millions):












Cash, cash equivalents and marketable securities (2)

$

9,283



$

9,802



$

7,947



$

6,529



$

6,042



$

6,379


Strategic investments (3)

2,555



1,902



1,963



1,760



1,614



1,548


Operating lease liabilities

3,174



3,164



3,195



3,270



3,047



3,058


Principal due on the Company's outstanding debt obligations (4)

2,692



2,693



2,694



2,845



2,996



3,197


Net cash provided by operating activities

429



1,859



1,632



298



436



1,965


Capital expenditures

114



323



136



170



178



159




(1)

Full time equivalent headcount includes 5,231 from third quarter fiscal 2020 acquisitions.

(2)

The Company paid approximately $1.2 billion of cash consideration in connection with the acquisition of Vlocity, Inc. in June 2020.

(3)

In July 2020, one of the Company's strategic investments completed its initial public offering, resulting in an unrealized gain of $617 million for the three months ended July 31, 2020.

(4)

The Company repaid $200 million, $150 million and $150 million of the 2021 Term Loan in June 2019, October 2019 and November 2019, respectively.

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, 2020 (1)

$

15.2



$

15.4



$

30.6


As of April 30, 2020 (2)

14.5



14.8



29.3


As of January 31, 2020 (3)

15.0



15.8



30.8


As of October 31, 2019 (4)

12.8



13.1



25.9


As of July 31, 2019

12.1



13.2



25.3




(1)

Includes approximately $750 million of remaining performance obligation related to the Tableau acquisition in August 2019.

(2)

Includes approximately $700 million of remaining performance obligation related to the Tableau acquisition.

(3)

Includes approximately $650 million of remaining performance obligation related to the Tableau acquisition.

(4)

Includes approximately $550 million of remaining performance obligation related to the Tableau acquisition.

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,


2020


2019


2020


2019

Unearned revenue, beginning of period

$

9,112



$

7,585



$

10,662



$

8,564


Billings and other (1)

4,632



3,396



7,937



6,110


Contribution from contract asset

54



7



59



51


Revenue recognized ratably over time

(4,657)



(3,736)



(9,110)



(7,223)


Revenue recognized over time as delivered

(190)



(174)



(381)



(346)


Revenue recognized at a point in time

(304)



(87)



(525)



(165)


Unearned revenue from business combinations

64



151



69



151


Unearned revenue, end of period

$

8,711



$

7,142



$

8,711



$

7,142




(1)

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,


2020


2019


2020


2019

Sales Cloud

$

1,279



$

1,130



$

2,524



$

2,203


Service Cloud

1,303



1,087



2,555



2,107


Salesforce Platform and Other (1)

1,512



912



2,876



1,754


Marketing and Commerce Cloud

746



616



1,460



1,177



$

4,840



$

3,745



$

9,415



$

7,241




(1)

Includes approximately $375 million and $648 million of revenue for the three months and six months ended July 31, 2020, respectively, contributed from the August 2019 acquisition of Tableau.

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,


2020


2019


2020


2019

Americas

$

3,596



$

2,816



$

6,966



$

5,433


Europe

1,070



786



2,104



1,541


Asia Pacific

485



395



946



760



$

5,151



$

3,997



$

10,016



$

7,734











Three Months Ended July 31,


Six Months Ended July 31,


2020


2019


2020


2019

Americas

70

%


70

%


70

%


70

%

Europe

21



20



21



20


Asia Pacific

9



10



9



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, 2020

compared to Three Months

Ended July 31, 2019


Three Months Ended

April 30, 2020

compared to Three Months

Ended April 30, 2019


Three Months Ended

July 31, 2019

compared to Three Months

Ended July 31, 2018

Americas

28%


29%


20%

Europe

38%


41%


30%

Asia Pacific

23%


28%


27%

Total growth

29%


31%


23%

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 were as follows:


July 31, 2020

compared to

July 31, 2019


April 30, 2020
compared to
April 30, 2019


July 31, 2019
compared to
July 31, 2018

Total growth

24%


24%


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,


2020


2019


2020


2019

GAAP net cash provided by operating activities

$

429



$

436



$

2,288



$

2,401


Capital expenditures (1)

(114)



(178)



(437)



(337)


Free cash flow

$

315



$

258



$

1,851



$

2,064




(1)

Capital expenditures for the six months ended July 31, 2020 includes the Company's purchase of the property located at 450 Mission St. in San Francisco ("450 Mission") in March 2020 for approximately $150 million.

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 statements 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, such as an initial public offering. 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,


2020


2019


2020


2019

Unrealized gains recognized on publicly traded equity securities, net

$

623



$

66



$

623



$

216


Unrealized gains (losses) recognized on privately held equity securities, net

14



0



(24)



122


Realized gains on sales of equity securities, net

49



43



288



62


Losses on debt securities, net

(4)



0



(13)



(10)


Gains on strategic investments, net

$

682



$

109



$

874



$

390


In July 2020, one of the Company's strategic investments completed its initial public offering, resulting in an unrealized gain of $617 million for the three months ended July 31, 2020.

Supplemental Debt Information

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

Instrument


Date of issuance


Maturity date


July 31, 2020


January 31, 2020

2023 Senior Notes


April 2018


April 2023


$

995



$

995


2028 Senior Notes


April 2018


April 2028


1,490



1,489


Loan assumed on 50 Fremont


February 2015


June 2023


191



193


Total carrying value of debt






2,676



2,677


Less current portion of debt






(3)



(4)


Total noncurrent debt






$

2,673



$

2,673


 

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,


2020


2019


2020


2019

Non-GAAP gross profit








GAAP gross profit

$

3,840



$

3,030



$

7,451



$

5,853


Plus:








Amortization of purchased intangibles (1)

166



62



325



123


Stock-based expense (2)

63



46



115



89


Non-GAAP gross profit

$

4,069



$

3,138



$

7,891



$

6,065


Non-GAAP operating expenses








GAAP operating expenses

$

3,662



$

2,972



$

7,413



$

5,585


Less:








Amortization of purchased intangibles (1)

118



65



230



133


Stock-based expense (2)

515



342



967



642


Non-GAAP operating expenses

$

3,029



$

2,565



$

6,216



$

4,810


Non-GAAP income from operations








GAAP income from operations

$

178



$

58



$

38



$

268


Plus:








Amortization of purchased intangibles (1)

284



127



555



256


Stock-based expense (2)

578



388



1,082



731


Non-GAAP income from operations

$

1,040



$

573



$

1,675



$

1,255


Non-GAAP net income








GAAP net income

$

2,625



$

91



$

2,724



$

483


Plus:








Amortization of purchased intangibles (1)

284



127



555



256


Stock-based expense (2)

578



388



1,082



731


Income tax effects and adjustments

(2,160)



(80)



(2,393)



(205)


Non-GAAP net income

$

1,327



$

526



$

1,968



$

1,265







Three Months Ended July 31,


Six Months Ended July 31,


2020


2019


2020


2019

Non-GAAP diluted net income per share








GAAP diluted net income per share

$

2.85



$

0.11



$

2.96



$

0.61


Plus:








Amortization of purchased intangibles

0.30



0.16



0.60



0.32


Stock-based expense

0.63



0.49



1.18



0.92


Income tax effects and adjustments

(2.34)



(0.10)



(2.60)



(0.26)


Non-GAAP diluted net income per share

$

1.44



$

0.66



$

2.14



$

1.59


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

922



795



919



795



(1)  Amortization of purchased intangibles was as follows:



Three Months Ended July 31,


Six Months Ended July 31,


2020


2019


2020


2019

Cost of revenues

$

166



$

62



$

325



$

123


Marketing and sales

118



65



230



133



$

284



$

127



$

555



$

256



(2)  Stock-based expense was as follows:



Three Months Ended July 31,


Six Months Ended July 31,


2020


2019


2020


2019

Cost of revenues

$

63



$

46



$

115



$

89


Research and development

184



98



350



179


Marketing and sales

253



199



476



376


General and administrative

78



45



141



87



$

578



$

388



$

1,082



$

731


 

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,


2020


2019


2020


2019

GAAP Basic Net Income Per Share








Net income

$

2,625



$

91



$

2,724



$

483


Basic net income per share

$

2.90



$

0.12



$

3.02



$

0.62


Shares used in computing basic net income per share

904



776



901



774











Three Months Ended July 31,


Six Months Ended July 31,


2020


2019


2020


2019

Non-GAAP Basic Net Income Per Share








Non-GAAP net income

$

1,327



$

526



$

1,968



$

1,265


Non-GAAP basic net income per share

$

1.47



$

0.68



$

2.18



$

1.63


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

904



776



901



774











Three Months Ended July 31,


Six Months Ended July 31,


2020


2019


2020


2019

GAAP Diluted Net Income Per Share








Net income

$

2,625



$

91



$

2,724



$

483


Diluted net income per share

$

2.85



$

0.11



$

2.96



$

0.61


Shares used in computing diluted net income per share

922



795



919



795











Three Months Ended July 31,


Six Months Ended July 31,


2020


2019


2020


2019

Non-GAAP Diluted Net Income Per Share








Non-GAAP net income

$

1,327



$

526



$

1,968



$

1,265


Non-GAAP diluted net income per share

$

1.44



$

0.66



$

2.14



$

1.59


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

922



795



919



795


Non-GAAP Financial Measures:  This press release includes information about non-GAAP diluted earnings per share, non-GAAP tax rates, free cash flow 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 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 FY21 financial statements and for its non-GAAP estimates for Q3 and FY21:

  • 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 used a projected non-GAAP tax rate of 22.5%. For fiscal 2021, the company uses a projected non-GAAP tax rate of 22.0%, 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 the 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 includes the cash consideration related to the purchase of 450 Mission in March 2020, but does not include our strategic investments.

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SOURCE Salesforce