01—Abstract
Summary
Summary of the 10-Q filed August 25, 2017. Cited figures are marked; the original filing is the authoritative source.
Salesforce's (CRM) 10-Q filing for the period ending July 30, 2017, reveals a company in a robust growth phase, driven by strong subscription and support revenue increases.
Total revenues for the quarter rose by 26% year-over-year, reaching $2.6 billiona, with subscription and support revenue accounting for 92% of this total. The company continues to invest heavily in research and development and marketing and sales, which represent significant portions of operating expenses, indicating a focus on future growth and market expansion. While the company demonstrated solid top-line growth, net income for the quarter saw a substantial decrease compared to the prior year ($17.7 million vs. $229.6 million).
This was largely influenced by a significant tax benefit recorded in the prior year related to a valuation allowance release following the Demandware acquisition. Despite the year-over-year net income decline, the company's operational performance appears healthy, with substantial increases in gross profit and income from operations, signaling efficient cost management relative to revenue growth.
02—Key points
Key Highlights
- Total revenues increased by 26% to $2.6 billion for the three months ended July 31, 2017, compared to $2.0 billion in the prior year period.
- Subscription and support revenues grew by 26% to $2.4 billion, representing 92% of total revenues.
- Operating expenses increased by 24% to $1.84 billion, largely driven by higher R&D and Marketing & Sales expenses.
- Net income decreased significantly to $17.7 million from $229.6 million year-over-year, primarily due to a large tax benefit recorded in the prior year.
- Cash and cash equivalents increased to $1.95 billion, and the company maintained a strong liquidity position with $3.5 billion in cash, cash equivalents, and marketable securities.
- The company acquired Sequence, Inc. in February 2017 for $26.0 million.
- Deferred revenue remained substantial at $4.8 billion, indicating strong future revenue potential.
- The convertible senior notes due April 1, 2018, became convertible at the holders' option for the quarter ending October 31, 2017.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2018, Salesforce, Inc. kept $0.02.
- Revenue$2.56B100.0%
- Cost of revenue−$654.6M25.6%
- Gross profit$1.91B74.4%
- Operating costs−$1.82B71.2%
- Operating income$84.0M3.3%
- Interest, other & tax−$38.0M1.5%
- Net income$46.0M1.8%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2018filed August 25, 2017Financial Statements
Q2 FY2018 against Q2 FY2017
| Line item | Q2 FY2018Q2 FY2017 | Change |
|---|---|---|
| Revenue | $2.56B$2.04B | +25.8% |
| Cost of Revenue | $670.00M— | — |
| Gross Profit | $1.91B$1.51B | +26.2% |
| R&D Expenses | $387.00M$291.51M | +32.8% |
| Operating Expenses | $1.82B$1.48B | +23.3% |
| Operating Income | $84.00M$32.55M | +158.1% |
| Interest Expense | $14.00M$20.71M | −32.4% |
| Net Income | $46.00M$229.62M | −80.0% |
| EPS (Basic) | $0.06$0.34 | −82.4% |
| EPS (Diluted) | $0.06$0.33 | −81.8% |
| Shares Outstanding (Basic) | 712.00M681.13M | +4.5% |
| Shares Outstanding (Diluted) | 729.00M695.97M | +4.7% |
05—Questions
Frequently Asked Questions
What is the primary driver of Salesforce's revenue growth?
Salesforce's revenue growth is primarily driven by its Subscription and Support services, which accounted for 92% of total revenues in the reported quarter. This growth is attributed to volume increases from new customers, upgrades, and additional subscriptions from existing customers.
Why did net income decrease significantly compared to the prior year?
The significant decrease in net income from $229.6 million to $17.7 million is largely due to a substantial tax benefit of $205.3 million recorded in the prior year's quarter. This benefit was related to a partial release of the valuation allowance following the Demandware acquisition. The current quarter's net income was impacted by income taxes in profitable jurisdictions outside the U.S. and discrete tax benefits.
How is Salesforce managing its debt obligations, particularly the convertible senior notes?
Salesforce has $1.15 billion in outstanding 0.25% convertible senior notes due April 1, 2018. As of July 31, 2017, these notes became convertible at the holders' option for the subsequent quarter. The company also has a $500 million term loan and a $1 billion revolving credit facility, and it maintains a strong liquidity position to manage its obligations.
What is the company's strategy regarding acquisitions and investments?
Salesforce continues to pursue strategic investments and acquisitions to expand its offerings, presence, and reach in the enterprise cloud computing market. The acquisition of Demandware in July 2016 and Sequence, Inc. in February 2017 are examples. The company aims to reinvest in future growth through these activities and organic development.
06—Continue