Salesforce, Inc. — Form 10-K Summary
Reporting-period clarification: The request identifies “2019 Q4,” but the supplied filing is Salesforce’s Form 10-K for the fiscal year ended January 31, 2021 (fiscal 2021), filed March 17, 2021. Figures below are in U.S. dollars.
Business context
Salesforce sells cloud-based customer relationship management software and related professional services worldwide, primarily through subscriptions. Subscription and support generated 94% of fiscal 2021 revenue. The company reports as one operating segment. Fiscal 2021 included the acquisition of Vlocity; the Tableau acquisition, completed in fiscal 2020, also contributed to year-over-year growth.
Key financial metrics
| Metric | Fiscal 2021 | Fiscal 2020 |
|---|---|---|
| Revenue | $21.252 billion | $17.098 billion |
| Subscription and support revenue | $19.976 billion | $16.043 billion |
| Gross profit / margin | $15.814 billion / 74% | $12.863 billion / 75% |
| Operating income / margin | $455 million / 2% | $297 million / 2% |
| Net income | $4.072 billion | $126 million |
| Diluted EPS | $4.38 | $0.15 |
| Cash provided by operations | $4.801 billion | $4.331 billion |
| Cash used in investing | $3.971 billion | $2.980 billion |
| Cash provided by financing | $1.194 billion | $164 million |
At January 31, 2021, cash, cash equivalents and marketable securities totaled $11.966 billion, versus $7.947 billion a year earlier; accounts receivable was $7.786 billion. Unearned revenue was $12.607 billion, up from $10.662 billion, and remaining performance obligation was $36.1 billion, up 17%. Outstanding debt principal was $2.690 billion; the company had no borrowings under its $3.0 billion revolving credit facility and reported compliance with debt covenants. Current liabilities were $17.728 billion and current assets were $21.889 billion.
Changes, outlook and notable items
- Revenue rose 24% year over year; subscription and support revenue increased 25%, and professional services and other revenue increased 21%. Growth reflected new business, expansions and acquisitions; management said pricing was not a significant driver.
- Operating income increased to $455 million, but remained 2% of revenue. Gross margin declined to 74% from 75%, with higher service-delivery costs and amortization of acquired intangibles among the factors.
- Reported net income and EPS were materially affected by a $2.0 billion discrete tax benefit from an intra-entity intangible-property transfer and $2.170 billion in net strategic-investment gains, including $1.7 billion of unrealized gains related to two investee IPOs. These items make headline earnings less representative of underlying operating performance.
- Operating cash flow grew 11%, but management reported it was lower than historical trends, citing changed billing frequencies and customer payment flexibility during COVID-19 and investment in go-to-market efforts. The company also recorded approximately $216 million of real-estate lease asset impairments.
- Management expected to continue investing in product development, sales capacity, data-center infrastructure and international and enterprise growth. It anticipated higher marketing and sales expenses and gradual increases in travel-related costs in the second half of fiscal 2022. The filing does not provide a clear numerical revenue or earnings forecast in the supplied text.
- Salesforce announced a pending Slack acquisition for estimated consideration of $15.6 billion in cash and 45 million Salesforce shares, expected to close in the second quarter of fiscal 2022, subject to approvals and other conditions. The filing described committed acquisition financing, including a $3.0 billion term loan and a bridge facility commitment reduced to $4.0 billion in February 2021.
- COVID-19 created uncertainty around customer spending, renewals, collections, sales cycles, employee productivity and operations. Other significant risks include cybersecurity and service availability, competition, acquisition integration and financing, privacy and cross-border data rules, foreign exchange, strategic-investment volatility, litigation, and climate or natural-disaster disruption.
Important facts for investors to verify
- Separate recurring operating results from the one-time tax benefit and strategic-investment gains; assess the sustainability of earnings and the effective tax position.
- Review underlying cash generation and working-capital trends, including billing changes, receivables, unearned revenue and remaining performance obligation.
- Track the Slack transaction’s closing conditions, final financing, share issuance, integration costs and realized benefits.
- Assess the concentration and valuation volatility of strategic investments: two public holdings represented 53% of their portfolio’s carrying value at year-end.
- Review the full financial statements and notes for lease commitments, acquisition-related amortization, stock-based compensation, tax assumptions and legal contingencies. Ernst & Young issued unqualified opinions on the financial statements and internal controls.