SalesForce ($CRM) reported QE April 2012 financial results on May 17.
The quarterly CRM sales pitch and revival conference call has concluded. Frankly, CEO Mark Benioff’s fervor was at a lower level and that familiar fever pitch has been a part of the charm of past earnings calls, though a disconnect from GAAP reality. SalesForce reported a 6th consecutive GAAP operating loss, a 4th consecutive GAAP net loss, and a current GAAP loss per share of -$0.14 for the QE April 2012. SalesForce touts “better” Non-GAAP financial results (see explanation below), which exclude significant expenses. Please note Apple and Microsoft report only GAAP results and don’t even bother with Non-GAAP data. Unless otherwise noted, results below are GAAP. Cutting through the hype, the SalesForce GAAP earnings (loss) per share performance is thus:
SalesForce did beat their guidance for a GAAP loss per share of -$0.19 to -$0.18, at a current -$0.14. If you utilize the Mark Benioff Financial Reporting Method and take out some hefty expenses, including his, you can get to a Non-GAAP earnings per share of +$0.37, which beat their guidance of +$0.33 to +$0.34.
The Benioff Method: “The company’s non-GAAP results exclude the effects of $81 million in stock-based compensation expense, $21 million in amortization of purchased intangibles, and $5 million in net non-cash interest expense related to the company’s convertible senior notes. Non-GAAP EPS calculations are based on approximately 146 million diluted shares outstanding during the quarter, including approximately 4 million shares associated with the company’s convertible senior notes. GAAP EPS calculations are based on a basic share count of approximately 138 million shares”. In other words, Benioff prefers to exclude his and others stock compensation when he tells you how much money SalesForce is making. If he included these material costs, he’d have to spin a much more complex tale and we would all end up very confused.
The Case of the Missing Customer Count: I’m still waiting for one of Benioff’s analyst disciples to ask about this: “Your Eminence, you’ve stopped touting the number of customers and related quarterly increase therein since the quarter ended October 2011. Exactly how many customers does SalesForce have?” Benioff has moved on to touting Non-GAAP “unbilled deferred revenue”, instead of customer count (this guy is good!): “Unbilled deferred revenue was approximately $2.7 billion as of April 30, 2012 and $2.2 billion as of January 31, 2012. Unbilled deferred revenue represents future billings under our non-cancelable subscription agreements that have not been invoiced and, accordingly, are not recorded in deferred revenue”.
Yes, even a jaded auditor, analyst, and malcontent such as myself has a heart (ok, maybe it’s the size of a BB) and because Mr. Benioff seemed not quite so enthusiastic, I will show some compassion. I have noted in previous posts that I think Benioff is a cloud visionary and evangelist plus a consummate promoter. (Now for the disclaimer) But translating this to financial performance to maximize shareholder wealth (ours, not his) is not really part of his divine dispensation. Shareholders, other than him and his team, are bothersome in his grander revelation.
The gist of CEO Benioff’s spiel is ever-increasing revenues, integration of Facebook (how many times did he say Facebook in this latest earnings call?) and Twitter into his platform, beating Oracle, promoting his tent revivals (conferences), and a general ‘onwards and upwards forevermore’ tone, including ultimately $10B annual revenues. Benioff’s enthusiasm and entertainment talent is contagious, you cheer for him and hope he can fulfill his vision, but realize you are not ultimately part of the benefits of that vision if you are an outside shareholder.
SalesForce.com (CRM) Outlook QE July 2012 Revenue for the company’s second fiscal quarter is projected to be in the range of $724 million to $728 million, an increase of 33% year-over-year. GAAP net loss per share is expected to be in the range of ($0.10) to ($0.09), while diluted non-GAAP EPS is expected to be in the range of $0.38 to $0.39.
SalesForce.com (CRM) Income Statement QE April 2012 (GAAP) SalesForce.com (CRM) reported total revenues of $695.5 million, a net loss of -$19.5 million, and a loss per share of -$0.14. From the prior QE January 2012, these were +10%, -378%, and -367%, respectively. From the prior year QE April 2011, these were +38%, -3775%, and -140%, respectively. Gross margin of 78.2% was flat QoQ, decreased YoY, and is below the historical average of 79.6%. Both the operating (-3.2%) and net (-2.8%) margins deteriorated QoQ and YoY to multi-year, if not all-time, lows. Cash flow from operations of $1.54 dipped below the prior quarter multi-year, if not all-time, high of $1.76. The operating expense ratio of 81.4% continues extremely high and well above the historical average of 75.5%. Subscriptions and Support continue at 94% of total revenues.
SalesForce.com (CRM) Balance Sheet QE April 2012 (GAAP) SalesForce.com’s (CRM) total assets decreased slightly to $4.156 billion, from the prior quarter record $4.164 billion. The capital to assets ratio increased to 43.5%. The current ratio is a less liquid 38%, but does not include $947 million in noncurrent marketable securities. SalesForce.com (CRM) is liquid with reasonable capital. The return on assets peaked in QE October 2009 at 5.13% and has declined for 10 consecutive quarters to the current, dismal -1.14%. The $1.66 billion cash, cash equivalents, and marketable securities (current and noncurrent), are 40% of total assets. The accumulating net losses plus these lower-yielding liquid assets are pulling down the ROA.