Salesforce on Monday raised its first-quarter and full-year guidance due to its adoption of new revenue recognition rules.
Jan. 1 was the deadline for most public companies to implement the new rules — codified as ASC 606 and ASC 340-40 — both of which address the accounting for contracts with customers.
“Under the new standard, costs related to obtaining new revenue contracts are anticipated to be amortized on a straight-line basis over four years, which, although longer than the typical initial contract period, reflects the average period of benefit, including expected contract renewals,” Salesforce said in a news release.
The customer-relations management software company also expects to amortize capitalized costs for renewals and success fees paid to partners over two years.
As a result of the accounting changes, Salesforce raised its forecast for first-quarter adjusted earnings per share to between 46 cents and 47 cents and for revenue to between $2.935 billion and $2.945 billion, compared with its previous guidance of EPS of 43 cents to 44 cents and revenue of $2.925 billion to $2.935 billion.
For fiscal 2019, it now expects adjusted EPS of $2.25 to $2.27 and revenue of $12.66 billion to $12.71 billion, up from with the previous outlook of EPS of $2.02 to $2.04 and revenue of $12.60 billion to $12.65 billion.
The new standards aim to improve comparability by implementing a single revenue recognition model across industries and across the globe, more closely aligning U.S. GAAP with International Financial Reporting Standards, or IFRS.
They had been expected to boost the first-quarter results of many life-sciences and technology companies that license their products.
Salesforce said that for 2017 and 2018, “ASC 606 is currently expected to have an immaterial benefit to the company’s revenue. ASC 340-40 is currently expected to materially benefit the company’s reported operating results for fiscal year 2017 and fiscal year 2018, as it requires additional types of costs to be capitalized and amortized over a longer period.”