Salesforce Announces Fiscal 2016 Fourth Quarter and Full Year Results
Raises FY17 Revenue Guidance to $8.08 Billion to $8.12 Billion
• Quarterly Revenue of $1.81 Billion, up 25% Year-Over-Year, 27% in Constant Currency
• Full Year Revenue of $6.67 Billion, up 24% Year-Over-Year, 27% in Constant Currency
• Quarterly Operating Cash Flow of $459 million, up 38% Year-Over-Year
• Full Year Operating Cash Flow of $1.61 Billion, up 37% Year-Over-Year
• Deferred Revenue of $4.29 Billion, up 29% Year-Over-Year, 31% in Constant Currency
• Unbilled Deferred Revenue of Approximately $7.1 Billion, up 25% Year-Over-Year
• Initiates First Quarter Revenue Guidance of $1.885 Billion to $1.895 Billion
SAN FRANCISCO, Calif. – Feb 24, 2016 – Salesforce (NYSE: CRM), the Customer Success Platform and world’s #1 CRM company, today announced results for its fiscal fourth quarter and full fiscal year ended January 31, 2016.
“By any measure, this was a spectacular finish to the year with 27% revenue growth in constant currency for the fourth quarter, and for the full year,” said Marc Benioff, chairman and CEO, Salesforce. “We are raising our fiscal year 2017 revenue guidance to $8.12 billion at the high end of our range -- unprecedented growth for a company of our size and scale.”
“We increased our non-GAAP operating margin by 177 basis points, which drove outstanding full year operating cash flow of $1.6 billion, up 37% from a year ago,” said Mark Hawkins, CFO, Salesforce. “We expect to continue to drive operating leverage and strong cash flow growth in fiscal 2017.””
“We hit an all-time high in large transactions in fiscal 2016 as more and more companies look to Salesforce as their trusted advisor,” said Keith Block, vice chairman, president and COO, Salesforce. “The tremendous response to our customer success platform is driving exceptional growth for Salesforce across every region, every cloud and every industry.”
Salesforce delivered the following results for its fourth fiscal quarter and full fiscal year 2016:
Revenue: Total Q4 revenue was $1.81 billion, an increase of 25% year-over-year, and 27% in constant currency. Subscription and support revenues were $1.68 billion, an increase of 25% year-over-year. Professional services and other revenues were $127 million, an increase of 28% year-over-year.
Full fiscal year 2016 revenue was $6.67 billion, an increase of 24% year-over-year, and 27% in constant currency. Subscription and support revenues were $6.21 billion, an increase of 24% year-over-year. Professional services and other revenues were $462 million, an increase of 28% year-over-year.
Earnings per Share: Q4 GAAP loss per share was ($0.04), and non-GAAP diluted earnings per share was $0.19. For the full fiscal year 2016, GAAP loss per share was ($0.07), and non-GAAP diluted earnings per share was $0.75.
Cash: Cash generated from operations for the fourth quarter was $459 million, an increase of 38% year-over-year. Cash generated from operations for the full fiscal year 2016 was $1.61 billion, an increase of 37% year-over-year. Total cash, cash equivalents and marketable securities finished the year at $2.73 billion.
Deferred Revenue: Deferred revenue on the balance sheet as of January 31, 2016 was $4.29 billion, an increase of 29% year-over-year, and 31% in constant currency. Unbilled deferred revenue, representing business that is contracted but unbilled and off balance sheet, ended the fourth quarter at approximately $7.1 billion, up 25% year-over-year.
As of February 24, 2016, the company is initiating revenue, earnings per share, and deferred revenue guidance for its first quarter of fiscal year 2017. In addition, the company is raising its full fiscal year 2017 revenue guidance previously provided on November 18, 2015. The company is also initiating earnings per share and operating cash flow guidance for its fiscal year 2017.
Q1 FY17 Guidance: Revenue is projected to be approximately $1.885 billion to $1.895 billion, an increase of 25% year-over-year.
Diluted GAAP earnings per share is projected to be in the range of $0.00 to $0.01, while diluted non-GAAP earnings per share is projected to be in the range of $0.23 to $0.24.
On balance sheet deferred revenue growth is projected to be approximately 24% to 25% year-over-year.
Full Year FY17 Guidance: Revenue is projected to be approximately $8.08 billion to $8.12 billion, an increase of 21% to 22% year-over-year.
GAAP loss per share is projected to be in the range of ($0.02) to $0.00, while diluted non-GAAP earnings per share is projected to be in the range of $0.99 to $1.01.
Operating cash flow growth is projected to be approximately 23% to 24% year-over-year.
The following is a per share reconciliation of GAAP earnings per share to diluted non-GAAP earnings per share guidance for the next quarter and full fiscal year:
For additional information regarding non-GAAP financial measures see the reconciliation of results and related explanations below.
Quarterly Conference Call
Salesforce will host a conference call at 2:00 p.m. (PT) / 5:00 p.m. (ET) today to discuss its financial results with the investment community. A live web broadcast of the event will be available on the Salesforce Investor Relations website at www.salesforce.com/investor. A live dial-in is available domestically at 866-901-SFDC or 866-901-7332 and internationally at 706-902-1764, passcode 25556157. A replay will be available at (800) 585-8367 or (855) 859-2056 until midnight (ET) Mar. 24, 2016.
"Safe harbor" statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements about our financial results, which may include expected GAAP and non-GAAP financial and other operating and non-operating results, including revenue, net income (loss), earnings per share, operating cash flow growth, operating margin improvement, deferred revenue growth, expected revenue run rate, expected tax rates, stock-based compensation expenses, amortization of purchased intangibles, amortization of debt discount, and shares outstanding. The achievement or success of the matters covered by such forward-looking statements involves risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, the company’s results could differ materially from the results expressed or implied by the forward-looking statements we make.
The risks and uncertainties referred to above include -- but are not limited to -- risks associated with possible fluctuations in the company’s financial and operating results; the company’s rate of growth and anticipated revenue run rate, including the company’s ability to convert deferred revenue and unbilled deferred revenue into revenue and, as appropriate, cash flow, and ability to maintain continued growth of deferred revenue and unbilled deferred revenue; errors, interruptions or delays in the company’s services or the company’s Web hosting; breaches of the company’s security measures; the financial impact of any previous and future acquisitions; the nature of the company’s business model; the company’s ability to continue to release, and gain customer acceptance of, new and improved versions of the company’s services; successful customer deployment and utilization of the company’s existing and future services; changes in the company’s sales cycle; competition; various financial aspects of the company’s subscription model; unexpected increases in attrition or decreases in new business; the company’s ability to realize benefits from strategic partnerships and strategic investments; the emerging markets in which the company operates; unique aspects of entering or expanding in international markets, the company’s ability to hire, retain and motivate employees and manage the company’s growth; changes in the company’s customer base; technological developments; regulatory developments; litigation related to intellectual property and other matters, and any related claims, negotiations and settlements; unanticipated changes in the company’s effective tax rate; factors affecting the company’s outstanding convertible notes and revolving credit facility; fluctuations in the number of company shares outstanding and the price of such shares; foreign currency exchange rates; collection of receivables; interest rates; factors affecting the company’s deferred tax assets and ability to value and utilize them, including the timing of when the company will once again achieve profitability on a pre-tax basis; the potential negative impact of indirect tax exposure; the risks and expenses associated with the company’s real estate and office facilities space; and general developments in the economy, financial markets, and credit markets.
Further information on these and other factors that could affect the company’s financial results is included in the reports on Forms 10-K, 10-Q and 8-K and in other filings we make with the Securities and Exchange Commission from time to time. These documents are available on the SEC Filings section of the Investor Information section of the company’s website at www.salesforce.com/investor.
Salesforce.com, inc. assumes no obligation and does not intend to update these forward-looking statements, except as required by law.
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Non-GAAP Financial Measures: This press release includes information about non-GAAP earnings per share, non-GAAP tax rates, and non-GAAP free cash flow (collectively the “non-GAAP financial measures”). These non-GAAP financial measures are measurements of financial performance that are not prepared in accordance with U.S. generally accepted accounting principles and computational methods may differ from those used by other companies. Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with the company’s consolidated financial statements prepared in accordance with GAAP. Management uses both GAAP and non-GAAP measures when planning, monitoring, and evaluating the company’s performance.
The primary purpose of using non-GAAP measures is to provide supplemental information that may prove useful to investors who wish to consider the impact of certain non-cash or non-recurring items, such as certain one-time charges, on the company’s operating performance. While strategic decisions, such as those related to the issuance of equity awards (resulting in stock-based compensation), mergers and acquisitions, real estate activity or the issuance of debt securities, are made to further the company’s long-term strategic objectives and impact the company’s statement of operations under GAAP measures, these items affect multiple periods and management is not able to change or affect these items in any particular period. As such, management believes that supplementing GAAP disclosure with non-GAAP disclosure that excludes items that are not directly related to performance in any particular period provides management and investors with a more complete view of the company’s operational performance. Further, to the extent that other companies use similar methods in calculating non-GAAP measures, the provision of supplemental non-GAAP information can allow for a comparison of the company’s relative performance against other companies that also report non-GAAP operating results.
Non-GAAP earnings per share excludes the impact of the following items: stock-based compensation, amortization of acquisition-related intangibles, amortization of acquired leases, the net amortization of debt discount on the company’s convertible senior notes, and gains/losses on conversions of the company’s convertible senior notes, gains/losses on sales of land and building improvements, and termination of office leases, as well as income tax adjustments. These items are excluded because the decisions which gave rise to these items were not made to increase revenue in a particular period, but were made for the company’s long-term benefit over multiple periods.
The purpose of the non-GAAP tax rate is to quantify the excluded tax adjustments and the tax consequences associated with the above excluded items. The company reports a projected long-term tax rate to eliminate the effects of non-recurring and period-specific items, which can vary in size and frequency. This projected long-term non-GAAP tax rate could be subject to change in the future for a variety of reasons, such as, for example, significant changes in the company’s geographic earnings mix including acquisition activity or fundamental tax law changes in major jurisdictions where the company operates.
Specifically, management is excluding the following items from its non-GAAP earnings per share for Q4 and FY16 and its non-GAAP estimates for Q1 and FY17:
• Stock-Based Expenses: The company’s compensation strategy includes the use of stock-based compensation to attract and retain employees and executives. It is principally aimed at aligning their interests with those of our stockholders and at long-term employee retention, rather than to motivate or reward operational performance for any particular period. Thus, stock-based compensation expense varies for reasons that are generally unrelated to operational decisions and performance in any particular period.
• Amortization of Purchased Intangibles and Acquired Leases: The company views amortization of acquisition- and building-related intangible assets, such as the amortization of the cost associated with an acquired company’s research and development efforts, trade names, customer lists and customer relationships, and acquired lease intangibles, as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are continually evaluated for impairment, amortization of the cost of purchased intangibles is a static expense, one that is not typically affected by operations during any particular period.
• Amortization of Debt Discount: Under GAAP, certain convertible debt instruments that may be settled in cash (or other assets) on conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Accordingly, for GAAP purposes we are required to recognize imputed interest expense on the company’s $1.15 billion of convertible senior notes due 2018 that were issued in a private placement in March 2013. The imputed interest rate was approximately 2.5% for the convertible notes due 2018, while the actual coupon interest rate of the notes is 0.25%. The difference between the imputed interest expense and the coupon interest expense, net of the interest amount capitalized, is excluded from management’s assessment of the company’s operating performance because management believes that this non-cash expense is not indicative of ongoing operating performance.
• Non-Cash Gains/Losses on Conversion of Debt: Upon settlement of the company’s convertible senior notes, we attribute the fair value of the consideration transferred to the liability and equity components of the convertible senior notes. The difference between the fair value of consideration attributed to the liability component and the carrying value of the liability as of settlement date is recorded as a non-cash gain or loss on the statement of operations.
• Gain on Sales of Land and Building Improvements: The company views the non-operating gains associated with the sales of the land and building improvements at Mission Bay to be a discrete item.
• Lease Termination Resulting From Purchase of Office Building: The company views the non-cash, one-time gain associated with the termination of its lease at 50 Fremont to be a discrete item.
• Income Tax Effects and Adjustments: Since fiscal 2015, the company has utilized a fixed long-term projected non-GAAP tax rate in order to provide better consistency across the interim reporting periods by eliminating the effects of non-recurring and period-specific items such as changes in the tax valuation allowance and tax effects of acquisitions-related costs, since each of these can vary in size and frequency. When projecting this long-term rate, the company evaluated a three-year financial projection that excludes the direct impact of the following non-cash items: stock-based expenses, amortization of purchased intangibles, amortization of acquired leases, amortization of debt discount, gains/losses on the sales of land and building improvements, gains/losses on conversions of debt, and termination of office leases. The projected rate also assumes no new acquisitions in the three-year period, and considers other factors including the company’s tax structure, its tax positions in various jurisdictions and key legislation in major jurisdictions where the company operates. This long-term rate could be subject to change for a variety of reasons, such as significant changes in the geographic earnings mix, including acquisition activity, or fundamental tax law changes in major jurisdictions where the company operates. The company re-evaluates this long-term rate on an annual basis, and, as appropriate, if a significant event materially affects it. Its fiscal 2016 non-GAAP tax provision used a rate of 35.5 percent, which reflected the related tax impact from the recent U.S. Tax Court decision in Altera Corporation’s litigation with the Internal Revenue Service. The company’s fiscal 2017 fixed long-term projected non-GAAP tax rate is 35.0 percent.
The company defines the non-GAAP measure free cash flow as GAAP net cash provided by operating activities, less capital expenditures. For this purpose, capital expenditures does not include our strategic investments, nor does it include any costs or activities related to our purchase of 50 Fremont land and building, and building in progress - leased facilities.