01—Abstract
Summary
Summary of the 10-Q filed September 1, 2016. Cited figures are marked; the original filing is the authoritative source.
Salesforce, Inc. (CRM) reported its financial results for the second quarter of fiscal year 2017, ending July 31, 2016.
The company demonstrated strong revenue growth, with total revenues increasing by 25% year-over-year to $2.04 billiona. This growth was primarily driven by its Subscription and Support segment, which saw a 24% increase to $1.89 billion. The company also achieved significant growth in its professional services, up 33%.
This performance was bolstered by strategic acquisitions, notably the acquisition of Demandware, Inc. in July 2016 for approximately $2.9 billionb, which is expected to expand Salesforce's capabilities in the digital commerce market. Despite robust revenue growth, the company experienced increased operating expenses, largely due to investments in research and development, marketing and sales, and general administrative functions, including significant transaction costs related to the Demandware acquisition.
Notably, a substantial tax benefit of $265.7 millionc was recorded due to a partial release of the valuation allowance related to the Demandware acquisition, which significantly impacted the net income, resulting in a net income of $229.6 million for the quarter. The company's cash position remains strong, with cash and cash equivalents and marketable securities totaling $1.7 billion.
02—Key points
Key Highlights
- Total revenues grew 25% year-over-year to $2.04 billion, driven by a 24% increase in Subscription and Support revenues to $1.89 billion.
- Acquisition of Demandware, Inc. for approximately $2.9 billion in July 2016, aimed at enhancing its position in digital commerce and launching Salesforce Commerce Cloud.
- Operating expenses increased, with Marketing and Sales as the largest component, reflecting continued investment in growth and expansion.
- A significant tax benefit of $265.7 million was recognized due to the release of a valuation allowance related to the Demandware acquisition, leading to a reported net income of $229.6 million.
- Strong cash generation from operating activities of $1.3 billion for the six months ended July 31, 2016.
- Ended the period with $1.7 billion in cash, cash equivalents, and marketable securities, providing a solid liquidity position.
- Marketing and Sales expenses represented 46% of total revenues for the six months, indicating continued investment in customer acquisition and brand awareness.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2017, Salesforce, Inc. kept $0.11.
- Revenue$2.04B100.0%
- Cost of revenue−$525.6M25.8%
- Gross profit$1.51B74.2%
- Operating costs−$1.48B72.6%
- Operating income$32.6M1.6%
- Interest, other & tax$197.1M9.7%
- Net income$229.6M11.3%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2017filed September 1, 2016Financial Statements
Q2 FY2017 against Q2 FY2016
| Line item | Q2 FY2017Q2 FY2016 | Change |
|---|---|---|
| Revenue | $2.04B$1.63B | +24.6% |
| Gross Profit | $1.51B$1.23B | +22.9% |
| R&D Expenses | $291.51M$234.10M | +24.5% |
| Operating Expenses | $1.48B$1.21B | +22.2% |
| Operating Income | $32.55M$19.82M | +64.2% |
| Interest Expense | $20.71M$18.10M | +14.4% |
| Net Income | $229.62M-$852K | +27050.9% |
| EPS (Basic) | $0.34— | — |
| EPS (Diluted) | $0.33— | — |
| Shares Outstanding (Basic) | 681.13M659.37M | +3.3% |
| Shares Outstanding (Diluted) | 695.97M659.37M | +5.6% |
05—Questions
Frequently Asked Questions
What was Salesforce's revenue performance in the quarter?
Salesforce reported total revenues of $2.04 billion for the three months ended July 31, 2016, representing a 25% increase compared to the same period in the prior year. Subscription and Support revenues, the largest segment, grew 24% to $1.89 billion.
What major acquisitions did Salesforce make during this period?
In July 2016, Salesforce completed the acquisition of Demandware, Inc. for approximately $2.9 billion in cash. This acquisition is expected to bolster Salesforce's capabilities in the digital commerce market and lead to the launch of the Salesforce Commerce Cloud.
How did operating expenses change, and what were the key drivers?
Operating expenses increased significantly, driven by substantial investments in Research and Development (up $57.4 million year-over-year), Marketing and Sales (up $141.2 million year-over-year), and General and Administrative expenses (up $70.4 million year-over-year). These increases were due to higher employee-related costs, stock-based expenses, data center capacity expansion, and transaction costs related to the Demandware acquisition.
What was the impact of the Demandware acquisition on the company's tax provision?
The acquisition of Demandware resulted in a significant discrete tax benefit of $265.7 million during the quarter, primarily due to the partial release of a valuation allowance related to deferred tax assets. This benefit significantly impacted the reported net income.
06—Continue