01—Abstract
Summary
Summary of the 10-Q filed August 23, 2019. Cited figures are marked; the original filing is the authoritative source.
Salesforce, Inc.'s Form 10-Q filing for the quarter ended July 31, 2019, reveals a period of robust revenue growth driven by its core subscription and support services.
Total revenues increased by 22% year-over-year for the quarter, reaching $4.0 billiona, with subscription and support revenue growing by 22% to $3.7 billion. This growth was primarily attributed to an increase in new business and upgrades from existing customers. The company's balance sheet shows a significant increase in operating lease right-of-use assets and liabilities due to the adoption of new lease accounting standards (Topic 842).
Total assets grew to $33.3 billionb, up from $30.7 billion at the fiscal year-end. While the company maintains a strong liquidity position with $6.0 billion in cash, cash equivalents, and marketable securities, it also incurred a notable $166 million non-cash charge related to the settlement of a Salesforce.org reseller agreement. Investors should note the company's ongoing investment in research and development and marketing and sales, which are key drivers of its growth strategy.
02—Key points
Key Highlights
- Total revenues for the three months ended July 31, 2019, increased by 22% to $3.997 billion compared to $3.281 billion in the prior year's quarter.
- Subscription and support revenues, the primary revenue driver, grew by 22% to $3.745 billion for the quarter.
- The company adopted new lease accounting standards (Topic 842) in fiscal 2020, resulting in the recognition of significant operating lease right-of-use assets ($2.9 billion) and liabilities ($3.1 billion) on the balance sheet.
- Operating expenses increased by 27% year-over-year for the quarter, driven by higher R&D and Marketing & Sales expenses, partially offset by a one-time $166 million loss on settlement of a Salesforce.org reseller agreement impacting total operating expenses.
- Income from operations decreased to $58 million from $115 million year-over-year, reflecting increased operating expenses.
- Net income for the quarter was $91 million ($0.11 per diluted share), a decrease from $299 million ($0.39 per diluted share) in the same period last year.
- The company announced the acquisition of Tableau Software, Inc. for approximately $14.9 billion in stock and assumed awards, which closed after the end of this reporting period.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2020, Salesforce, Inc. kept $0.02.
- Revenue$4.00B100.0%
- Cost of revenue−$967.0M24.2%
- Gross profit$3.03B75.8%
- Operating costs−$2.97B74.4%
- Operating income$58.0M1.5%
- Interest, other & tax$33.0M0.8%
- Net income$91.0M2.3%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2020filed August 23, 2019Financial Statements
Q2 FY2020 against Q2 FY2019
| Line item | Q2 FY2020Q2 FY2019 | Change |
|---|---|---|
| Revenue | $4.00B$3.28B | +21.8% |
| Cost of Revenue | $967.00M$849.00M | +13.9% |
| Gross Profit | $3.03B$2.43B | +24.6% |
| R&D Expenses | $607.00M$463.00M | +31.1% |
| Operating Expenses | $2.97B$2.32B | +28.3% |
| Operating Income | $58.00M$115.00M | −49.6% |
| Interest Expense | $29.00M$32.00M | −9.4% |
| Net Income | $91.00M$299.00M | −69.6% |
| EPS (Basic) | $0.12$0.40 | −70.0% |
| EPS (Diluted) | $0.11$0.39 | −71.8% |
| Shares Outstanding (Basic) | 776.00M747.00M | +3.9% |
| Shares Outstanding (Diluted) | 795.00M774.00M | +2.7% |
05—Questions
Frequently Asked Questions
What was Salesforce's revenue performance in the reported quarter?
Salesforce reported strong revenue growth, with total revenues for the three months ended July 31, 2019, increasing by 22% to $3.997 billion compared to $3.281 billion in the prior year's quarter. Subscription and support revenues, the core of their business, also grew by 22% to $3.745 billion.
How did the adoption of new accounting standards impact the balance sheet?
The company adopted new lease accounting standards (Topic 842) effective February 1, 2019. This led to the recognition of significant operating lease right-of-use assets ($2.9 billion) and liabilities ($3.1 billion) on the condensed consolidated balance sheet as of July 31, 2019, making the current balance sheet not directly comparable to prior periods.
What is the financial impact of the Salesforce.org reseller agreement settlement?
Salesforce recorded a one-time, non-cash operating expense charge of $166 million related to the settlement of the Salesforce.org reseller agreement during the quarter. This charge significantly impacted the reported operating expenses and income from operations.
How is Salesforce managing its investments and cash flow?
The company maintains a healthy liquidity position with $6.0 billion in cash, cash equivalents, and marketable securities as of July 31, 2019. Net cash provided by operating activities was $436 million for the quarter. The company also has significant strategic investments, which contributed $109 million in net gains for the quarter, and continues to invest in R&D and sales & marketing for future growth.
06—Continue