SAN FRANCISCO, April 2, 2018 /PRNewswire/
-- Salesforce (NYSE: CRM), the global leader in CRM,
intends to adopt Financial Accounting Standards Board accounting
standards ASC 606 and ASC 340-40 using the full retrospective
method beginning in its first fiscal quarter ending April 30, 2018. As a result, the company is
updating its guidance for its first fiscal quarter and full fiscal
year 2019 to reflect the anticipated adoption of these new
accounting standards.
As previously disclosed, Salesforce will adopt the following new
accounting standards:
- Accounting Standards Codification ("ASC") 606 "Revenue from
Contracts with Customers" ("ASC 606" or "606") and
- ASC 340-40 "Other Assets and Deferred Costs – Contracts with
Customers" ("ASC 340-40" or "340")
For fiscal year 2017 and fiscal year 2018, ASC 606 is currently
expected to have an immaterial benefit to the company's revenue.
ASC 340-40 is currently expected to materially benefit the
company's reported operating results for fiscal year 2017 and
fiscal year 2018, as it requires additional types of costs to be
capitalized and amortized over a longer period. The expected
adoption of both standards will not impact the company's operating
cash flow.
Under the new standard, costs related to obtaining new revenue
contracts are anticipated to be amortized on a straight-line basis
over four years, which, although longer than the typical initial
contract period, reflects the average period of benefit, including
expected contract renewals. Additionally, the company expects to
amortize capitalized costs for renewals and success fees paid to
partners over two years. For additional information regarding the
company's policies related to these new accounting standards, refer
to the company's most recent Form 10-K filed with the Securities
and Exchange Commission on March 9,
2018.
The following guidance reflects the anticipated adoption of
these new accounting standards. This guidance does not reflect the
financial impact from the company's announced definitive merger
agreement with MuleSoft, Inc., the financing arrangements in
connection with that acquisition, or the impact of new accounting
standard ASU 2016-011.
Guidance as Adjusted for the Anticipated Adoption of ASC 606
and ASC 340-40
Q1 FY19 Guidance: Revenue
is projected to be $2.935 billion to
$2.945 billion.
GAAP diluted earnings per share is
projected to be $0.12 to $0.13, while non-GAAP diluted earnings per share
is projected to be $0.46 to
$0.47.
Unearned revenue growth is
projected to be consistent with previously guided deferred revenue
growth of 23% to 24% year-over-year. Unearned revenue represents
ASC 605 deferred revenue less the cumulative timing
differences2 of recognized revenue from ASC 606
adoption. The company's balance sheet presentation will be updated
to include unearned revenue versus deferred revenue disclosed in
prior presentations.
|
Q1 FY19
Guidance
(as provided
2/28/18)
|
|
Q1 FY19
Guidance
(606/340
adjusted)
|
|
Low
|
High
|
|
Low
|
High
|
Revenue
|
$2.925B
|
$2.935B
|
|
$2.935B
|
$2.945B
|
GAAP
EPS
|
$0.09
|
$0.10
|
|
$0.12
|
$0.13
|
Non-GAAP
EPS
|
$0.43
|
$0.44
|
|
$0.46
|
$0.47
|
Full Year FY19 Guidance:
Revenue is projected to be $12.66
billion to $12.71 billion.
GAAP diluted earnings per share is
projected to be $0.91 to $0.93, while non-GAAP diluted earnings per share
is projected to be $2.25 to
$2.27.
The expected adoption of both
standards will not impact the company's operating cash, and as a
result, the company is reaffirming its operating cash flow growth
guidance of 20% to 21% year-over-year.
|
FY19
Guidance
(as provided
2/28/18)
|
|
FY19
Guidance
(606/340
adjusted)
|
|
Low
|
High
|
|
Low
|
High
|
Revenue
|
$12.60B
|
$12.65B
|
|
$12.66B
|
$12.71B
|
GAAP
EPS
|
$0.61
|
$0.63
|
|
$0.91
|
$0.93
|
Non-GAAP
EPS
|
$2.02
|
$2.04
|
|
$2.25
|
$2.27
|
Operating Cash
Flow Growth
|
20%
|
21%
|
|
No change
|
No change
|
The preceding guidance reflects the anticipated adoption of
these new accounting standards. This guidance does not reflect the
financial impact from the company's announced definitive merger
agreement with MuleSoft, Inc., the financing arrangements in
connection with that acquisition, or the impact of new accounting
standard ASU 2016-01.
The following is a per share reconciliation of GAAP diluted
earnings per share to non-GAAP diluted earnings per share guidance
for the first fiscal quarter and the full fiscal year:
|
Fiscal
2019
|
|
Q1
|
FY2019
|
|
|
|
GAAP diluted EPS
range*
|
$0.12 -
$0.13
|
$0.91 -
$0.93
|
Plus
|
|
|
Amortization of
purchased intangibles
|
$
0.09
|
$
0.35
|
Stock-based
expense
|
$
0.34
|
$
1.47
|
Amortization of debt
discount, net
|
$
0.01
|
$
0.01
|
Less
|
|
|
Income tax effects
and adjustments**
|
$
(0.10)
|
$
(0.49)
|
Non-GAAP diluted
EPS***
|
$0.46 -
$0.47
|
$2.25 -
$2.27
|
|
|
|
Shares used in
computing basic net income per share (millions)
|
730
|
742
|
Shares used in
computing diluted net income per share (millions)
|
757
|
763
|
|
|
|
* The Company's GAAP
tax provision is expected to be 15.0% for the three months ended
April 30, 2018 and 13.5% for the twelve months ended January 31,
2019. The Company's GAAP diluted EPS excludes the effect of ASU
2016-01.
|
** The Company's
Non-GAAP tax provision uses a long-term projected tax rate of
21.5%, which reflects currently available information and could be
subject to change.
|
*** The Company's
Non-GAAP diluted EPS excludes the effect of ASU 2016-01.
|
About Salesforce
Salesforce, the global leader in CRM,
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,
diluted earnings per share, operating cash flow growth, operating
margin improvement, unearned revenue (previously referred to as
deferred revenue) growth, expected revenue growth, 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 and uncertainties associated with the
company's anticipated acquisition of MuleSoft, Inc., including when
and whether the transaction closes and related financing
arrangements; risks associated with the effect of general economic
and market conditions; the impact of foreign currency exchange rate
and interest rate fluctuations on our results; our business
strategy and our plan to build our business, including our strategy
to be the leading provider of enterprise cloud computing
applications and platforms; the pace of change and innovation in
enterprise cloud computing services; the competitive nature of the
market in which we participate; our international expansion
strategy; our service performance and security, including the
resources and costs required to prevent, detect and remediate
potential security breaches; the expenses associated with new data
centers and third-party infrastructure providers; additional data
center capacity; real estate and office facilities space; our
operating results and cash flows; new services and product
features; our strategy of acquiring or making investments in
complementary businesses, joint ventures, services, technologies
and intellectual property rights, including the anticipated
acquisition of MuleSoft; the performance and fair value of our
investments in complementary businesses through our strategic
investment portfolio; our ability to realize the benefits from
strategic partnerships and investments; our ability to successfully
integrate acquired businesses and technologies, including the
operations of MuleSoft; our ability to continue to grow and
maintain unearned revenue and remaining transaction price
(previously referred to as deferred revenue and unbilled deferred
revenue); our ability to protect our intellectual property rights;
our ability to develop our brands; our reliance on third-party
hardware, software and platform providers; our dependency on the
development and maintenance of the infrastructure of the Internet;
the effect of evolving domestic and foreign government regulations,
including those related to the provision of services on the
Internet, those related to accessing the Internet, and those
addressing data privacy and import and export controls; the
valuation of our deferred tax assets; the potential availability of
additional tax assets in the future; the impact of new accounting
pronouncements and tax laws, including the U.S. Tax Cuts and Jobs
Act, and interpretations thereof; uncertainties affecting our
ability to estimate our non-GAAP tax rate; the impact of expensing
stock options and other equity awards; the sufficiency of our
capital resources; factors related to our outstanding convertible
notes, revolving credit facility, term loan and loan associated
with 50 Fremont; compliance with our debt covenants and capital
lease obligations; current and potential litigation involving us;
and the impact of climate change.
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.
© 2018 salesforce.com, inc. All rights
reserved. Salesforce and other marks are trademarks
of salesforce.com, inc. Other brands featured herein may
be trademarks of their respective owners.
Non-GAAP Financial Measures: This press release
includes information about non-GAAP diluted earnings per share and
non-GAAP tax 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 and to
enable investors to evaluate the company's results in the same way
management does. Management believes that supplementing GAAP
disclosure with non-GAAP disclosure 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, to the extent
applicable, the impact of the following items: stock-based
compensation, amortization of acquisition-related intangibles, the
net amortization of debt discount on the company's convertible
senior notes, and gains/losses on company-initiated acquisitions of
entities in which the company held an equity investment, as well as
income tax adjustments. These items are excluded because the
decisions that give rise to them are not made to increase revenue
in a particular period, but instead for the company's long-term
benefit over multiple periods.
Specifically, management is excluding the following items from
its non-GAAP earnings per share, as applicable, for its non-GAAP
estimates for Q1 and FY19:
- 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-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 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 on Acquisitions 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 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 and acquired leases, amortization of debt discount, and
gains on acquisitions of strategic investments. The projected rate
also assumes no new acquisitions in the three-year period, and
considers other factors including the company's expected tax
structure, its tax positions in various jurisdictions and key
legislation in major jurisdictions where the company operates. For
fiscal 2019, after evaluating the anticipated impact of ASC 606 and
ASC 340-40, the company has determined that its projected non-GAAP
tax rate of 21.5 percent remains appropriate, which reflects
currently available information, including the anticipated impact
of the Tax Act and interpretations thereof, as well as other
factors and assumptions. This non-GAAP tax rate could be subject to
change for a variety of reasons, including the company's ongoing
analysis of the Tax Act over the measurement period, the rapidly
evolving global tax environment, significant changes in the
geographic earnings mix including due to acquisition activity, or
other changes to the company's strategy or business operations. The
company will re-evaluate its long-term rate as appropriate.
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.
1 Accounting Standards Update 2016-01 "Financial
Instruments".
2 Cumulative timing differences represent the
adjustments from the opening balance sheet as of February 1, 2016.
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