01—Abstract
Summary
Summary of the 10-Q filed August 30, 2013. Cited figures are marked; the original filing is the authoritative source.
Salesforce.com, Inc. (CRM) reported robust revenue growth of 31% year-over-year for the third quarter of fiscal year 2014, reaching $957.1 milliona.
This strong performance was driven by a 31% increase in subscription and support revenues, which now constitute 94% of total revenue. The company's strategic focus on strengthening core solutions, innovating in high-growth markets, and improving customer renewal rates continues to yield positive results. Financially, the company reported a net income of $76.6 millionb for the quarter, a significant improvement from a net loss in the prior year period.
This turnaround was largely attributed to a substantial tax benefit resulting from a partial release of its valuation allowance on deferred tax assets, primarily linked to the ExactTarget acquisition. Despite operational expenses increasing due to investments in growth and the integration of ExactTarget, the company demonstrated strong operating leverage, with marketing and sales expenses as a percentage of revenue decreasing year-over-year.
The balance sheet shows a significant increase in goodwill and intangible assets due to acquisitions, alongside increased long-term debt and convertible notes to fund these strategic moves. Overall, Salesforce presented a solid financial performance with strong revenue growth and a return to profitability, albeit aided by a significant tax benefit.
02—Key points
Key Highlights
- Total revenues grew 31% to $957.1 million for the three months ended July 31, 2013, compared to $731.6 million in the prior year period.
- Subscription and support revenues increased by 31% to $902.8 million, representing 94% of total revenues.
- The company reported a net income of $76.6 million for the quarter, a significant improvement from a net loss of $(9.8) million in the prior year period.
- A substantial tax benefit of $133.4 million was recognized, primarily due to a $128.8 million discrete tax benefit from the partial release of the valuation allowance on deferred tax assets following the ExactTarget acquisition.
- Operating expenses increased by 34% to $779.2 million, primarily due to investments in headcount and the acquisition of ExactTarget.
- The acquisition of ExactTarget for approximately $2.6 billion significantly increased goodwill to $3.5 billion and intangible assets.
- The company issued $1.15 billion in 0.25% convertible senior notes and secured a $300 million term loan, increasing total debt.
- Despite increased expenses and debt, the company generated positive net cash from operating activities of $183.2 million for the quarter.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2014, Salesforce, Inc. kept $0.08.
- Revenue$957.1M100.0%
- Cost of revenue−$217.7M22.7%
- Gross profit$739.4M77.3%
- Operating costs−$779.2M81.4%
- Operating income−$39.9M4.2%
- Interest, other & tax$116.5M12.2%
- Net income$76.6M8.0%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2014filed August 30, 2013Financial Statements
Q2 FY2014 against Q2 FY2013
| Line item | Q2 FY2014Q2 FY2013 | Change |
|---|---|---|
| Revenue | $957.09M$731.65M | +30.8% |
| Cost of Revenue | $217.72M$162.42M | +34.0% |
| Gross Profit | $739.38M$569.23M | +29.9% |
| R&D Expenses | $148.08M$99.44M | +48.9% |
| Operating Expenses | $779.23M$582.70M | +33.7% |
| Operating Income | -$39.86M-$13.47M | −196.0% |
| Interest Expense | $19.66M$8.03M | +144.7% |
| Net Income | $76.60M-$9.83M | +879.4% |
| EPS (Basic) | $0.13$-0.02 | +750.0% |
| EPS (Diluted) | $0.12$-0.02 | +700.0% |
| Shares Outstanding (Basic) | 593.96M557.70M | +6.5% |
| Shares Outstanding (Diluted) | 624.66M557.70M | +12.0% |
05—Questions
Frequently Asked Questions
How did Salesforce's revenue perform in this quarter?
Salesforce reported strong revenue growth, with total revenues increasing by 31% to $957.1 million for the three months ended July 31, 2013, compared to $731.6 million in the same period last year. This growth was primarily driven by subscription and support revenues, which rose 31% to $902.8 million.
What was the company's profitability for the quarter, and what factors influenced it?
Salesforce achieved a net income of $76.6 million for the quarter, a significant improvement from a net loss of $(9.8) million in the prior year. This profitability was significantly boosted by a $128.8 million discrete tax benefit from the partial release of its valuation allowance on deferred tax assets, largely due to the ExactTarget acquisition. While operating expenses increased due to investments and acquisitions, the company benefited from this tax adjustment.
What significant strategic actions did Salesforce undertake during the quarter?
The most significant strategic action was the acquisition of ExactTarget for approximately $2.6 billion in July 2013, which aims to enhance its marketing platform capabilities. This acquisition led to a substantial increase in goodwill and intangible assets. Additionally, the company issued $1.15 billion in convertible senior notes and secured a $300 million term loan to help fund its growth and acquisition strategy.
How has the ExactTarget acquisition impacted the company's financial position?
The ExactTarget acquisition has significantly impacted Salesforce's financial position. Goodwill increased substantially to $3.5 billion. The company also took on additional debt through a term loan and issued convertible senior notes. The integration of ExactTarget also contributed to the increase in operating expenses.
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