Salesforce, Inc. Form 10-Q Summary
Period note: The request metadata says 2020 Q3, but the supplied filing is for the quarter ended October 31, 2021, Salesforce fiscal 2022 Q3. Comparisons below are to the quarter and nine months ended October 31, 2020.
Business context and reporting period
Salesforce provides cloud-based customer relationship management services and reports as one operating segment. The nine-month results include Slack from its acquisition date, July 21, 2021. The interim financial statements are unaudited.
Key financial metrics
| Metric | Three months ended Oct. 31, 2021 | Three months ended Oct. 31, 2020 | Nine months ended Oct. 31, 2021 | Nine months ended Oct. 31, 2020 |
|---|---|---|---|---|
| Revenue | $6.863 billion | $5.419 billion | $19.166 billion | $15.435 billion |
| Gross profit / margin | $5.019 billion / 73% | $4.025 billion / 74% | $14.154 billion / 74% | $11.476 billion / 74% |
| Operating income / margin | $38 million / 1% | $224 million / 4% | $724 million / 4% | $262 million / 2% |
| Net income | $468 million | $1.081 billion | $1.472 billion | $3.805 billion |
| Diluted EPS | $0.47 | $1.15 | $1.53 | $4.11 |
| Cash from operations | $404 million | $339 million | $4.018 billion | $2.627 billion |
At October 31, 2021, cash, cash equivalents and marketable securities totaled $9.391 billion, versus $11.966 billion at January 31, 2021. Accounts receivable was $4.019 billion; unearned revenue was $10.116 billion. Remaining performance obligation was $36.3 billion, including about $900 million related to Slack.
Total debt principal was $10.698 billion, compared with $2.690 billion at January 31, 2021. Salesforce reported compliance with debt covenants and no borrowings under its $3.0 billion revolving credit facility. Stockholders’ equity was $57.054 billion and total liabilities were $30.382 billion.
Material changes versus prior comparable period
- Quarterly revenue grew 27%; nine-month revenue grew 24%. Subscription and support revenue increased 25% for the quarter and 23% for nine months. Management attributed growth mainly to new business, customer expansions and acquisition activity; pricing was not a significant driver.
- Professional services and other revenue rose 45% in the quarter and 43% for nine months. Its gross margin was negative $25 million for the quarter and negative $72 million for nine months, as Salesforce expanded capacity to support enterprise customers.
- Operating expenses increased 31% in the quarter and 20% for nine months. Higher employee costs, stock-based compensation, service delivery investment and acquired-intangible amortization contributed. Headcount increased 37% year over year.
- Net income was lower despite revenue growth. Strategic investment gains were $363 million in the quarter versus $1.036 billion a year earlier, and $1.177 billion for nine months versus $1.910 billion. The prior-year nine-month results also included a one-time $2.0 billion tax benefit, a major reason for the EPS comparison.
- Operating cash flow increased 53% for nine months. It benefited from a $3.895 billion decrease in accounts receivable, partly offset by a $2.880 billion decrease in unearned revenue.
- The Slack acquisition had preliminary consideration of about $27.1 billion, funded with cash, Salesforce shares and assumed awards. It added $21.220 billion of goodwill and $6.350 billion of intangible assets. Since acquisition, Slack contributed $280 million of revenue and a $619 million pretax loss through October 31.
Outlook, management commentary and risks
- No specific revenue, earnings or cash-flow guidance for a future period is provided in the supplied filing text. Management expects research and development and marketing and sales expenses to increase in absolute dollars; marketing and sales expense may also rise as a percentage of revenue. General and administrative expense is expected to increase in dollars but generally remain consistent as a percentage of revenue.
- Management expects attrition to remain consistent for the rest of fiscal 2022, while noting it could rise over time. The reported attrition rate was 7.5% to 8.0%, excluding specified acquired or not-yet-integrated offerings.
- Management said available liquidity, operating cash flow, contracted but unbilled subscription amounts and the revolving facility should cover working capital, capital expenditure and debt repayment needs over the next 12 months.
- Risks highlighted include COVID-19 and economic uncertainty; cybersecurity, service availability and third-party infrastructure; privacy and evolving regulation; competition and sales-cycle variability; foreign-exchange movements; and challenges realizing Slack integration benefits. Management also warned that strategic-investment gains and losses may cause material earnings volatility.
- Other notable exposures include $1.4 billion of operating leases not yet commenced, $131 million of letters of credit, and a possible tax charge related to integrating acquired Israeli entities whose amount and timing are uncertain. The filing says legal outcomes are inherently uncertain; management did not expect current matters to materially adversely affect results, cash flows or financial position overall.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied document is fiscal 2022 Q3, not 2020 Q3.
- Assess the recurring operating trend separately from strategic-investment gains, acquisition effects and the prior-year $2.0 billion discrete tax benefit.
- Review Slack’s integration progress, contribution to growth and losses, and the final acquisition-date fair values, which remained preliminary.
- Track operating margins, stock-based compensation, acquired-intangible amortization and cash-flow seasonality alongside revenue and remaining performance obligation.
- Evaluate debt service and committed lease obligations against liquidity, particularly after the $8.0 billion July 2021 notes issuance and Slack-related cash outflows.