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Salesforce Tops Forecasts - Guides Down

March 5, 2019

Salesforce noted earnings of 70 cents per share, with expectations set at 55 cents per share. Revenue was up 26 percent to $3.60 billion, that was more then the $3.56 billion which was expected.

Feeling heat from Microsoft and Oracle, Salesforce guided Q1 profit between 60 cents and 61 cents per share and revenue between $3.67 billion and $3.68 billion. Wall Street was expecting a profit of 63 cents per share and revenue of $3.70 billion.

For year 2020, profit between was guided in the range of $2.74 and $2.76 per share and revenue between $15.95 billion and $16.05 billion. Investors were expecting a profit of $2.75 per share on revenue of $15.99 billion.

"We had another year of outstanding revenue growth, surpassing $13 billion in revenue faster than any other enterprise software company in history," said Marc Benioff, chairman and co-CEO, Salesforce. "As companies of all sizes turn to Salesforce, we're enabling them to put the customer at the center of their digital transformation through our intelligent Customer 360 platform. I've never been more excited about the opportunity ahead."

"Our relentless focus on delivering innovation and customer success has fueled our growth and solidified our leadership in the enterprise," said Keith Block, co-CEO, Salesforce. "This is just the beginning, which is why we're now targeting $26 to $28 billion in revenue by FY23 organically doubling our revenue again in the next four years."

Salesforce delivered the following results for its fiscal fourth quarter and full fiscal year 2019:

Revenue: Total fourth quarter revenue was $3.60 billion, an increase of 26% year-over-year, and 27% in constant currency. Subscription and support revenues were $3.38 billion, an increase of 26% year-over-year. Professional services and other revenues were $228 million, an increase of 16% year-over-year.

Full fiscal year 2019 revenue was $13.28 billion, an increase of 26% year-over-year, and 26% in constant currency. Subscription and support revenues were $12.41 billion, an increase of 27% year-over-year. Professional services and other revenues were $869 million, an increase of 12% year-over-year.

Earnings per Share: Fourth quarter GAAP diluted earnings per share was $0.46, and non-GAAP diluted earnings per share was $0.70. GAAP diluted earnings per share benefited by $0.17 related to the net benefit of tax adjustments. Mark-to-market accounting of the company's strategic investments, required by ASU 2016-01, benefited GAAP diluted earnings per share by $0.12 based on the US tax rate of 25% and non-GAAP diluted earnings per share by $0.12 based on our non-GAAP tax rate of 21.5%.

For fiscal year 2019, GAAP diluted earnings per share was $1.43, and non-GAAP diluted earnings per share was $2.75. Mark-to-market accounting of the company's strategic investments, required by ASU 2016-01, benefited GAAP diluted earnings per share by $0.52 based on the US tax rate of 25% and non-GAAP diluted earnings per share by $0.55 based on our non-GAAP tax rate of 21.5%.

Cash: Cash generated from operations for the fourth quarter was $1.33 billion, an increase of 27% year-over-year. Cash generated from operations for the full fiscal year 2019 was $3.40 billion, an increase of 24% year-over-year. Total cash, cash equivalents and marketable securities ended the fourth quarter at $4.34 billion.

Remaining Performance Obligation: Remaining performance obligation, representing future revenues that are under contract but have not yet been recognized, ended the fourth quarter at approximately $25.7 billion, an increase of 25% year-over-year. This includes approximately $450 million related to the remaining performance obligation from MuleSoft. Current remaining performance obligation, which represents the future revenues under contract expected to be recognized over the next 12 months, ended the fourth quarter at approximately $11.9 billion, an increase of 24% year-over-year.

Unearned Revenue: Unearned revenue on the balance sheet as of January 31, 2019 was $8.56 billion, an increase of 22% year-over-year, and 24% in constant currency.

As of March 4, 2019, the company is initiating revenue, earnings per share and current remaining performance obligation growth guidance for its first quarter of fiscal year 2020. For the full fiscal year 2020, the company is raising its revenue guidance previously provided November 27, 2018, and is initiating earnings per share guidance and operating cash flow growth guidance. The guidance below assumes no change to the value of our strategic investment portfolio resulting from ASU 2016-01 as it is not possible to forecast future gains and losses. While historically our investment portfolio has had a positive impact on our financial results, that may not be true for future periods, particularly in periods of significant market fluctuations that affect the publicly traded companies within our strategic investment portfolio. The impact of future gains or losses from our strategic portfolio could be material. In addition, the guidance below is based on estimated GAAP tax rates that reflect the company's currently available information, and exclude discrete tax items such as excess tax benefits from stock-based compensation. The GAAP tax rates may fluctuate due to future acquisitions or other transactions.

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