01—Abstract
Summary
Summary of the 10-Q filed August 31, 2018. Cited figures are marked; the original filing is the authoritative source.
Salesforce, Inc. reported strong performance for the fiscal second quarter ended July 31, 2018.
Total revenues grew by a significant 27% year-over-year, reaching $3.3 billiona, primarily driven by a 28% increase in subscription and support revenues. This growth was fueled by new business, customer upgrades, and existing customer expansions, with the acquisition of MuleSoft contributing notably. The company maintained a low attrition rate, which is crucial for its subscription-based model.
Despite increased operating expenses, particularly in marketing and sales and research and development, largely due to strategic acquisitions and investments in growth, Salesforce demonstrated solid operational execution. The company also saw substantial growth in operating income, which increased to $115 millionb from $84 million in the prior year's comparable quarter. A significant boost in net income to $299 million was driven by strong operational performance and a substantial one-time tax benefit related to the release of a valuation allowance following the MuleSoft acquisition.
Salesforce's balance sheet remains robust, with total assets growing significantly, largely due to goodwill and intangible assets recognized from recent acquisitions, notably MuleSoft for approximately $6.4 billionc and CloudCraze for $190 million. The company also strengthened its financial position by issuing new senior notes. Overall, the results indicate a healthy trajectory of growth and strategic execution.
02—Key points
Key Highlights
- Total revenues increased by 27% to $3.3 billion for the three months ended July 31, 2018, compared to $2.6 billion in the prior year.
- Subscription and support revenues, the primary revenue driver, grew by 28% to $3.1 billion.
- Operating income improved to $115 million, up from $84 million in the prior year's comparable quarter.
- Net income significantly increased to $299 million from $46 million, aided by a substantial tax benefit.
- The company completed the acquisition of MuleSoft for approximately $6.4 billion, adding significant goodwill and intangible assets.
- Salesforce issued $1.0 billion in 2023 Senior Notes and $1.5 billion in 2028 Senior Notes to fund strategic initiatives.
- Total assets grew to $25.8 billion from $22.0 billion, largely due to acquisitions and increased goodwill.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2019, Salesforce, Inc. kept $0.09.
- Revenue$3.28B100.0%
- Cost of revenue−$849.0M25.9%
- Gross profit$2.43B74.1%
- Operating costs−$2.32B70.6%
- Operating income$115.0M3.5%
- Interest, other & tax$184.0M5.6%
- Net income$299.0M9.1%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2019filed August 31, 2018Financial Statements
Q2 FY2019 against Q2 FY2018
| Line item | Q2 FY2019Q2 FY2018 | Change |
|---|---|---|
| Revenue | $3.28B$2.56B | +28.1% |
| Cost of Revenue | $849.00M$670.00M | +26.7% |
| Gross Profit | $2.43B$1.91B | +27.5% |
| R&D Expenses | $463.00M$387.00M | +19.6% |
| Operating Expenses | $2.32B$1.82B | +27.1% |
| Operating Income | $115.00M$84.00M | +36.9% |
| Interest Expense | $32.00M$14.00M | +128.6% |
| Net Income | $299.00M$46.00M | +550.0% |
| EPS (Basic) | $0.40$0.06 | +566.7% |
| EPS (Diluted) | $0.39$0.06 | +550.0% |
| Shares Outstanding (Basic) | 747.00M712.00M | +4.9% |
| Shares Outstanding (Diluted) | 774.00M729.00M | +6.2% |
05—Questions
Frequently Asked Questions
What was Salesforce's revenue growth in the reported quarter?
Salesforce reported a 27% increase in total revenues for the three months ended July 31, 2018, reaching $3.3 billion, up from $2.6 billion in the same period last year. Subscription and support revenues, which form the bulk of their business, grew by 28%.
What was the impact of acquisitions on the financial statements?
The acquisition of MuleSoft for approximately $6.4 billion was a major event, contributing to a significant increase in goodwill and intangible assets. The acquisition also contributed $99 million to revenues in the quarter. CloudCraze was also acquired for approximately $190 million. These acquisitions, along with associated integration costs, impacted operating expenses and the balance sheet.
How did the company's profitability change?
Salesforce demonstrated improved profitability. Operating income rose to $115 million from $84 million in the prior year's quarter. Net income saw a substantial increase to $299 million from $46 million, partly driven by a significant one-time tax benefit related to a valuation allowance release associated with the MuleSoft acquisition.
What is the company's outlook based on this report?
While specific forward-looking guidance is not detailed in this excerpt, the strong revenue growth, improved profitability, and strategic acquisitions suggest a positive operational trajectory. However, the company continues to invest heavily in marketing and sales and R&D, which are expected to remain significant expenses. The balance sheet reflects growth through acquisitions and debt issuance.
06—Continue