Salesforce Announces Fiscal 2017 Third Quarter Results
Initiates FY18 Revenue Guidance of $10.1 Billion to $10.15 Billion
• Revenue of $2.14 Billion, up 25% Year-Over-Year, 27% in Constant Currency
• Deferred Revenue of $3.50 Billion, up 23% Year-Over-Year, 25% in Constant Currency
• Unbilled Deferred Revenue of Approximately $8.6 Billion, up 28% Year-Over-Year
• Initiates Fourth Quarter Revenue Guidance of $2.267 Billion to $2.277 Billion
• Raises Full Year Fiscal 2017 Revenue Guidance to $8.365 Billion to $8.375 Billion
SAN FRANCISCO, Calif. – Nov. 17, 2016 – Salesforce (NYSE: CRM), the Customer Success Platform and world’s #1 CRM company, today announced results for its third fiscal quarter ended October 31, 2016.
“Salesforce delivered an exceptional quarter with year-over-year revenue growth of 25% in dollars and 27% in constant currency,” said Marc Benioff, chairman and CEO, Salesforce. “I’m delighted to announce that we expect to deliver our first $10 billion year during our fiscal year 2018, which puts us well on the path to reach $20 billion faster than any other enterprise software company.”
“We had outstanding execution in the third quarter, closing a record number of large transactions as more and more companies look to Salesforce as their trusted advisor to redefine their customer strategies,” said Keith Block, vice chairman, president and COO, Salesforce. “No other enterprise software company is delivering customer success at this scale — and certainly not at this pace.”
“We delivered another strong quarter of booked business on and off the balance sheet, which is now more than $12 billion, up 27% year-over-year," said Mark Hawkins, CFO, Salesforce. “We are pleased to raise our fiscal full-year 2017 revenue guidance by $50 million to $8.375 billion at the high end of the range.”
Salesforce delivered the following results for its third fiscal quarter 2017:
Revenue: Total revenue was $2.14 billion, an increase of 25% year-over-year, and 27% in constant currency. Subscription and support revenues were $1.98 billion, an increase of 24% year-over-year. Professional services and other revenues were $161 million, an increase of 39% year-over-year.
Earnings per Share: GAAP loss per share was ($0.05), and non-GAAP diluted earnings per share was $0.24.
Cash: Cash generated from operations was $154 million, a decrease of 5% year-over-year. Total cash, cash equivalents and marketable securities finished the quarter at $1.75 billion.
Deferred Revenue: Deferred revenue on the balance sheet as of October 31, 2016 was $3.50 billion, an increase of 23% year-over-year, and 25% in constant currency. Unbilled deferred revenue, representing business that is contracted but unbilled and off balance sheet, ended the third quarter at approximately $8.6 billion, up 28% year-over-year. This includes approximately $350 million related to unbilled deferred revenue from the Demandware acquisition.
As of November 17, 2016, the company is initiating revenue, earnings per share, and deferred revenue guidance for its fourth quarter of fiscal year 2017. In addition, the company is raising its full fiscal year 2017 revenue and non-GAAP earnings per share guidance, lowering its GAAP earnings per share guidance, and maintaining its operating cash flow guidance, previously provided on August 31, 2016. The company is also initiating revenue guidance for its fiscal year 2018. This guidance includes the impact of acquisitions that have closed to date or have signed and are expected to close in the company’s fourth quarter of fiscal 2017.
Q4 FY17 Guidance: Revenue is projected to be approximately $2.267 billion to $2.277 billion, an increase of 25% to 26% year-over-year.
GAAP loss per share is projected to be ($0.10) to ($0.09), while non-GAAP diluted earnings per share is projected to be $0.24 to $0.25.
On balance sheet deferred revenue growth is projected to be approximately 22% to 23% year-over-year.
Full Year FY17 Guidance: Revenue is projected to be approximately $8.365 billion to $8.375 billion, an increase of 25% to 26% year-over-year.
GAAP diluted earnings per share is projected to be $0.24 to $0.25, while non-GAAP diluted earnings per share is projected to be $0.97 to $0.98.
Operating cash flow growth is projected to be 20% to 21% year-over-year.
Full Year FY18 Guidance: Revenue for the company’s full fiscal year 2018 is projected to be approximately $10.1 billion to $10.15 billion, an increase of 21% year-over-year. The company plans on providing its expectations for FY18 GAAP EPS, non-GAAP EPS, and operating cash flow when it announces its fourth quarter and full fiscal year 2017 results in February 2017.
The following is a per share reconciliation of GAAP diluted earnings per share to non-GAAP diluted 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 6538283. A replay will be available at (800) 585-8367 or (855) 859-2056 until midnight (ET) Dec. 17, 2016.
Salesforce, the Customer Success Platform and world's #1 CRM company, empowers companies to connect with their customers in a whole new way. Salesforce has headquarters in San Francisco, with offices in Europe and Asia, and trades on the New York Stock Exchange under the ticker symbol "CRM." For more information about Salesforce, visit: www.salesforce.com.
"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), diluted 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, cash flow, and ability to maintain continued growth of deferred revenue and unbilled deferred revenue; foreign currency exchange rates; errors, interruptions or delays in the company’s services or the company’s Web hosting; breaches of the company’s security measures; the financial and other 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; collection of receivables; interest rates; factors affecting the company’s deferred tax assets and ability to value and utilize them; 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 diluted earnings per share, non-GAAP tax rates, non-GAAP free cash flow, and constant currency revenue and deferred revenue growth rates (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 on the company’s operating performance and to enable investors to evaluate the company’s results in the same way management does. These non-cash or non-recurring items generally consist of one-time items resulting from strategic decisions that affect multiple periods or periods unrelated to when the actual items were incurred. 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 investors with a more complete view of the company’s operational performance and allows for meaningful period-to-period comparisons and analysis of trends in the company’s business. 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 diluted 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, gains/losses on sales of land and building improvements, gains on sales of strategic investments, 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.
Specifically, management is excluding the following items from its non-GAAP earnings per share for Q3 and its non-GAAP estimates for Q4 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.
• Gains and Losses on Sales of Strategic Investments: The company views gains on sales of its strategic investments resulting from acquisitions initiated by the company in which an equity interest was previously held as discrete events and not indicative of operational performance during any particular period.
• Income Tax Effects and Adjustments: The Company utilizes 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 on sales of strategic investments, 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 or if any significant events that may materially affect this long-term rate occur. The non-GAAP tax rate for fiscal 2017 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 - leased facilities.