Salesforce, Inc. — Form 10-K Summary
Period clarification: The filing is for the fiscal year ended January 31, 2015 (fiscal 2015), not 2013 Q4 as stated in the request metadata. Comparisons below are primarily with fiscal 2014.
Business context
Salesforce provides subscription-based enterprise cloud software, principally CRM, alongside professional services. Its offerings include Sales, Service and Marketing Cloud, the Salesforce1 Platform, and newer Community and Analytics Cloud offerings. Subscription and support generated approximately 93% of fiscal 2015 revenue. The company reports one operating segment.
Key financial metrics
| Metric | Fiscal 2015 | Fiscal 2014 | Change / context |
|---|---|---|---|
| Total revenue | $5.374 billion | $4.071 billion | Up 32% reported; 33% in constant currency |
| Subscription and support revenue | $5.014 billion | $3.825 billion | Up 31% |
| Professional services and other revenue | $359.8 million | $246.5 million | Up 46%; services costs exceeded related revenue by $4.8 million |
| Gross profit / margin | $4.084 billion / 76% | $3.103 billion / 76% | Margin unchanged |
| Operating loss / margin | $(145.6) million / (3%) | $(286.1) million / (7%) | Loss narrowed by $140.4 million |
| GAAP net loss / diluted loss per share | $(262.7) million / $(0.42) | $(232.2) million / $(0.39) | Net loss widened; fiscal 2014 included a substantial tax benefit |
| Non-GAAP operating profit | $574.1 million | $363.7 million | Up 58%; excludes specified items, including stock-based expense and purchased-intangible amortization |
| Net cash from operating activities | $1.174 billion | $875.5 million | Up $298.2 million |
| Cash, cash equivalents and marketable securities | $1.890 billion | $1.321 billion | Excludes $115.0 million restricted cash |
| Working capital | $(840.0) million | $(1.300) billion | Negative, with deferred revenue a major current liability |
| Debt principal outstanding at year-end | $1.450 billion | $2.004 billion | Includes $1.15 billion 0.25% convertible notes and $300 million revolver borrowing |
Revenue by geography was $3.868 billion in the Americas, $984.9 million in Europe and $520.3 million in Asia Pacific. The company reported $3.321 billion of current and noncurrent deferred revenue and approximately $5.7 billion of unbilled deferred revenue at year-end; the latter is a non-GAAP measure and is not recorded as revenue or deferred revenue on the balance sheet.
Material changes versus fiscal 2014
- Revenue increased 32%, partly because fiscal 2015 included a full year of ExactTarget revenue, while fiscal 2014 included it only from its July 2013 acquisition date, as well as growth from new customers, upgrades and additional subscriptions.
- Operating loss narrowed, while the GAAP net loss widened. Fiscal 2015 included a $49.6 million tax provision; fiscal 2014 recorded a $125.8 million tax benefit, including a partial release of a deferred-tax valuation allowance associated primarily with ExactTarget.
- Operating cash flow rose to $1.174 billion. Investing cash outflow fell to $698.4 million from $2.432 billion, largely because fiscal 2014 included major acquisition spending.
- Marketing and sales expense declined to 51% of revenue from 53%; gross margin remained 76%. Stock-based expense increased to $564.8 million from $503.3 million.
- Fiscal 2015 included a $15.6 million gain on sales of land and building improvements and $10.3 million of losses related to extinguishing converted 0.75% notes. The 0.75% notes matured in January 2015; the company repaid $568.9 million of principal in cash and issued shares for conversion value above principal.
- Salesforce acquired RelateIQ for approximately $340.2 million in August 2014, primarily in stock. In February 2015, after year-end, it acquired 50 Fremont Street for a stated purchase price of $629.3 million.
Outlook, management commentary and risks
- Management said it expected to remain focused on improving operating margins in fiscal 2016, while continuing substantial investment in sales, marketing, research and development, personnel and data-center capacity. No specific fiscal 2016 revenue or earnings guidance is provided in the supplied filing text.
- Management expected marketing and sales to remain a substantial share of revenue and research and development expense to rise in absolute dollars. Attrition was 9%–10% in fiscal 2015; management expected it to remain in that range.
- Management cited a stronger U.S. dollar as a headwind to international revenue in fiscal 2016. Approximately 28% of fiscal 2015 revenue came from outside the Americas.
- Stock-based compensation remains material: fiscal 2015 expense was $564.8 million, with $1.4 billion of unamortized awards expected to be expensed over a weighted-average period of two years. GAAP losses therefore remain possible, according to management.
- Liquidity risks include negative working capital, substantial lease and capital-lease commitments, and debt obligations. The company had $300 million drawn on a $650 million revolving facility and said it was in compliance with its covenants. Management believed available cash, short-term investments and operating cash flow would cover needs for the next 12 months.
- Key business risks include service outages or security breaches, competition, customer nonrenewals, execution and integration of acquisitions, privacy and data-transfer regulation, foreign-exchange movements, and the ability to scale operations. The company also disclosed a patent-infringement allegation from a large technology company; no lawsuit had been filed, and management did not expect a material adverse effect on financial condition, though a particular quarter’s results or cash flows could be affected.
- The company had $2.027 billion of facilities operating-lease obligations and $651.3 million of capital-lease obligations in the contractual-obligations table. A further San Francisco office lease was expected to require approximately $560 million over 15.5 years beginning in fiscal 2018.
Most important facts for investors to verify
- Confirm the reporting period: this is fiscal 2015, ended January 31, 2015, rather than 2013 Q4.
- Reconcile GAAP losses with the positive non-GAAP profit measures, including the $564.8 million stock-based expense and the company’s non-GAAP exclusions.
- Assess the quality and durability of cash generation, including the effects of annual billing seasonality, collections, deferred revenue and unbilled deferred revenue.
- Review debt maturities, convertible-note conversion and dilution terms, revolver covenants, and total lease and capital commitments.
- Evaluate the contribution from acquired businesses—particularly ExactTarget—and the integration, goodwill and amortization implications of acquisitions.
- Monitor foreign-exchange effects, renewal and attrition trends, service reliability and security, and the status of the disclosed patent claim.