Salesforce.com Announces Fiscal 2013 Second Quarter Results - Quarterly Revenue of $732 Million, up 34% Year-Over-Year

- Quarterly Operating Cash Flow of $136 Million, up 64% Year-Over-Year

- Deferred Revenue of $1.34 Billion, up 43% Year-Over-Year

- Unbilled Deferred Revenue Increases to Approximately $2.8 Billion

- Raises FY13 Revenue Guidance to $3.025 - $3.035 Billion

SAN FRANCISCO, Aug. 23, 2012 /PRNewswire/ -- Salesforce.com (NYSE: CRM), the enterprise cloud computing (http://www.salesforce.com/cloudcomputing/) company, today announced results for its fiscal second quarter ended July 31, 2012.

(Logo: http://photos.prnewswire.com/prnh/20050216/SFW105LOGO)

"Our second quarter revenue growth was outstanding at 34% in dollars and 37% in constant currency," said Marc Benioff, Chairman and CEO, salesforce.com.  "Salesforce.com's social enterprise strategy is enabling companies to connect with customers, partners, and employees in completely new ways – and it's creating new opportunities for their growth and ours." 

Salesforce.com delivered the following results for its fiscal second quarter:       

Revenue:  Total Q2 revenue was $732 million, an increase of 34% on a year-over-year basis.  Subscription and support revenues were $687 million, an increase of 35% on a year-over-year basis.  Professional services and other revenues were $44 million, an increase of 20% on a year-over-year basis. 

Earnings per Share:  Q2 GAAP net loss per share was ($0.07), and non-GAAP diluted earnings per share was $0.42.  The company's non-GAAP results exclude the effects of $85 million in stock-based compensation expense, $20 million in amortization of purchased intangibles, and $6 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 3 million shares associated with the company's convertible senior notes.  GAAP EPS calculations are based on a basic share count of approximately 139 million shares. 

Cash:  Cash generated from operations for the fiscal second quarter was $136 million, an increase of 64% on a year-over-year basis.  Total cash, cash equivalents and marketable securities finished the quarter at $1.8 billion.

Deferred Revenue:  Deferred revenue on the balance sheet as of July 31, 2012 was $1.34 billion, an increase of 43% on a year-over-year basis. Current deferred revenue increased by 38% year-over-year to $1.27 billion, benefited in part by longer invoice durations.  Non-current deferred revenue increased by 293% year-over-year to $69 million. Unbilled deferred revenue, representing business that is contracted but unbilled and off balance sheet, ended the second quarter at approximately $2.8 billion, up from approximately $2.7 billion at the end of the fiscal first quarter. 

As of August 23, 2012, salesforce.com is initiating revenue, GAAP EPS and non-GAAP EPS guidance for its fiscal third quarter of fiscal year 2013. In addition, for the full fiscal year 2013, the company is raising its revenue and non-GAAP EPS guidance previously provided on June 4, 2012, and initiating GAAP EPS guidance.

Q3 FY13 Guidance:  Revenue for the company's third fiscal quarter is projected to be in the range of $773 million to $777 million, an increase of 32% to 33% year-over-year.

GAAP net loss per share is expected to be in the range of ($0.27) to ($0.26), while diluted non-GAAP EPS is expected to be in the range of $0.31 to $0.32.  The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $99 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $27 million, and net non-cash interest expense related to the convertible senior notes, expected to be approximately $6 million.  EPS estimates assume a GAAP tax rate of approximately 37%, and a non-GAAP tax rate of approximately 35%.  The GAAP EPS calculation assumes an average basic share count of approximately 142 million shares, and the non-GAAP EPS calculation assumes an average fully diluted share count of approximately 151 million shares.

Full Year FY13 Guidance:  Revenue for the company's full fiscal year 2013 is projected to be in the range of $3.025 billion to $3.035 billion, an increase of 33% to 34% year-over-year.

For the company's full fiscal year 2013, GAAP net loss per share is expected to be in the range of ($0.75) to ($0.72) while diluted non-GAAP EPS is expected to be in the range of $1.48 to $1.51.  The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $382 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $95 million, and net non-cash interest expense related to the convertible senior notes, expected to be approximately $24 million.  EPS estimates assume a GAAP tax rate of approximately 30%, and a non-GAAP tax rate of approximately 37%.  The GAAP EPS calculation assumes an average basic share count of approximately 141 million shares, and the non-GAAP EPS calculation assumes an average fully diluted share count of approximately 150 million shares.

The following is a per share reconciliation of GAAP EPS to non-GAAP diluted EPS guidance for the third quarter and full fiscal year:


Fiscal 2013


Q3

FY2013




GAAP EPS Range*

 ($0.27) - ($0.26) 

 ($0.75) - ($0.72) 

Plus



Amortization of purchased intangibles

$               0.18

$               0.64

Stock-based expense

$               0.66

$               2.54

Amortization of debt discount, net

$               0.04

$               0.16

Less



Income tax effect of certain Non-GAAP items

$              (0.30)

$              (1.11)

Non-GAAP diluted EPS

 $0.31 - $0.32 

 $1.48 - $1.51 




Shares used in computing basic net income per share (millions)

142

141

Shares used in computing diluted net income per share (millions)

151

150




* For Q3 & FY13 GAAP EPS loss, basic number of shares used for calculation

Quarterly Conference Call

Salesforce.com will host a conference call to discuss its second quarter fiscal year 2013 results at 2:00 p.m. Pacific Time today.  A live audio webcast of the conference call, together with detailed financial information, can be accessed through the company's Investor Relations Web site at http://www.salesforce.com/investor.  In addition, an archive of the audiocast can be accessed through the same link.  Participants who choose to call in to the conference call can do so by dialing domestically 866-901-SFDC or 866-901-7332 and internationally at +1 706-902-1764, passcode salesforce.com or 17262326.  A replay will be available at 800-585-8367 or +1 855-859-2056, passcode 17262326, until midnight (Eastern Time) September 23, 2012.

About salesforce.com:
Founded in 1999, salesforce.com is the enterprise cloud computing company that is leading customers in their transformation to become social enterprises. Social enterprises are able to connect with customers, partners and employees in entirely new ways. Based on salesforce.com's real-time, multitenant architecture, the company's platform and application services give customers the tools to create a true social front office and revolutionize the way they sell, service, market, collaborate, work, and innovate.

 

Any unreleased services or features referenced in this or other press releases or public statements are not currently available and may not be delivered on time or at all. Customers who purchase salesforce.com applications should make their purchase decisions based upon features that are currently available. Salesforce.com has headquarters in San Francisco, with offices in Europe and Asia, and trades on the New York Stock Exchange under the ticker symbol "CRM." For more information please visit http://salesforce.com, or call 1-800-NO-SOFTWARE.

Non-GAAP Financial Measures:  This press release includes information about non-GAAP EPS and non-GAAP tax rates (collectively the "non-GAAP financial measures").  Non-GAAP EPS estimates exclude the impact of the following non-cash items:  stock-based compensation, amortization of acquisition-related intangibles, and the net amortization of debt discount on the company's convertible senior notes, as well as the tax consequences associated with these items.  The purpose of the non-GAAP tax rate is to quantify the excluded tax consequences of the excluded expense items.  These non-GAAP estimates are not measurements of financial performance prepared in accordance with U.S. generally accepted accounting principles.  The method used to produce non-GAAP financial measures is not computed according to GAAP and may differ from the methods used by other companies.  Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with the company's consolidated financial statements prepared in accordance with GAAP.

The primary purpose of these non-GAAP measures is to provide supplemental information that may prove useful to investors who wish to consider the impact of certain non-cash items on the company's operating performance.  Non-cash stock-based compensation, amortization of acquisition-related intangible assets, and the net amortization of debt discount on the company's convertible senior notes are being excluded from the company's FY13 financial results because the decisions which gave rise to these expenses were not made to increase revenue in a particular period, but were made for the company's long-term benefit over multiple periods.  While strategic decisions, such as those to issue stock-based compensation, acquire a company, or issue convertible senior notes, are made to further the company's long-term strategic objectives and impact the company's income statement under GAAP measures, these items affect multiple periods and management is not able to change or affect these items in any particular period.  As such, supplementing GAAP disclosure with non-GAAP disclosure using the non-GAAP measures provides management with an additional view of operational performance by excluding expenses that are not directly related to performance in any particular period, and management uses both GAAP and non-GAAP measures when planning, monitoring, and evaluating the company's performance.

In addition, the majority of the company's industry peers report non-GAAP operating results that exclude certain non-cash or non-recurring items.  As significant unusual or discrete events occur, the results may be excluded in the period in which the events occur. Management believes that the provision of supplemental non-GAAP information will enable a more complete comparison of the company's relative performance. 

Specifically, management is excluding the following items from its non-GAAP EPS for Q2 and its non-GAAP estimates for Q3 and FY13:

  • Stock-Based Expenses:  The company's compensation strategy includes the use of stock-based compensation to attract and retain employees and executives.  It is principally aimed at aligning their interests with those of our stockholders and at long-term employee retention, rather than to motivate or reward operational performance for any particular period.  Thus, stock-based compensation expense varies for reasons that are generally unrelated to operational decisions and performance in any particular period. 
  • Amortization of Purchased Intangibles:  The company views amortization of acquisition-related intangible assets, such as the amortization of the cost associated with an acquired company's research and development efforts, trade names, customer lists and customer relationships, as items arising from pre-acquisition activities determined at the time of an acquisition.  While it is continually viewed for impairment, amortization of the cost of purchased intangibles is a static expense, one that is not typically affected by operations during any particular period.
  • Amortization of Debt Discount:  Under GAAP, certain convertible debt instruments that may be settled in cash (or other assets) on conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate.  Accordingly, for GAAP purposes we are required to recognize imputed interest expense on the company's $575 million of convertible subordinated notes that were issued in a private placement in January 2010.  The imputed interest rate is approximately 5.9%, while the actual coupon interest rate of the notes is 0.75%.  The difference between the imputed interest expense and the coupon interest expense, net of the interest amount capitalized, is excluded from management's assessment of the company's operating performance because management believes that this non-cash expense is not indicative of ongoing operating performance.  Management believes that the exclusion of the non-cash interest expense provides investors an enhanced view of the company's operational performance.
  • Income Tax Effects:  The company's estimated non-GAAP effective tax rate excludes the tax effect of the expense items described above. 

 

"Safe harbor" statement under the Private Securities Litigation Reform Act of 1995:  This press release contains forward-looking statements about expected GAAP revenue and GAAP and non-GAAP EPS for the third fiscal quarter of 2013 and the full fiscal year, the company's expected revenue run rate and revenues in fiscal 2013, the company's expected tax rates, stock-based compensation expenses, amortization of purchased intangibles and debt discount, and shares outstanding.  The achievement or success of the matters covered by such forward-looking statements involves risks, uncertainties and assumptions.  If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, the company's results could differ materially from the results expressed or implied by the forward-looking statements we make.

The risks and uncertainties referred to above include - but are not limited to - risks associated with possible fluctuations in the company's financial and operating results; the company's rate of growth and anticipated revenue run rate, including the company's ability to convert deferred revenue and unbilled deferred revenue into revenue and, as appropriate, cash flow, and the continued growth and ability to maintain deferred revenue and unbilled deferred revenue; errors, interruptions or delays in the company's service or the company's Web hosting; breaches of the company's security measures; the financial impact of any previous and future acquisitions; the nature of the company's business model; the company's ability to continue to release, and gain customer acceptance of, new and improved versions of the company's service; successful customer deployment and utilization of the company's existing and future services; changes in the company's sales cycle; competition; various financial aspects of the company's subscription model; unexpected increases in attrition or decreases in new business; the emerging markets in which we operate; unique aspects of entering or expanding in international markets, the company's ability to hire, retain and motivate  employees and manage the company's growth; changes in the company's customer base; technological developments; regulatory developments; litigation related to intellectual property and other matters, and any related claims, negotiations and settlements; unanticipated changes in the company's effective tax rate; fluctuations in the number of shares we have outstanding and the price of such shares; foreign currency exchange rates; collection of receivables; interest rates; the expenses associated with the company's real estate and office facilities space; and general developments in the economy, financial markets, and credit markets.

Further information on these and other factors that could affect the company's financial results is included in the reports on Forms 10-K, 10-Q and 8-K and in other filings we make with the Securities and Exchange Commission from time to time, including the company's Form 10-Q that will be filed for the second quarter ended July 31, 2012 and our Form 10-K filed for the fiscal year ended January 31, 2012.  These documents are available on the SEC Filings section of the Investor Information section of the company's website at www.salesforce.com/investor.

Salesforce.com, inc. assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

Copyright © 2012 salesforce.com, inc.  All rights reserved.  Salesforce, Chatter, Sales Cloud, Service Cloud, Marketing Cloud, Rypple, AppExchange, Salesforce Platform, and others are trademarks of salesforce.com, inc.  Other names used herein may be trademarks of their respective owners.

 

salesforce.com, inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)






















Three Months Ended July 31,


Six Months Ended July 31,





2012


2011


2012


2011













Revenues:










Subscription and support

$ 687,493


$ 509,279


$ 1,342,713


$ 982,783



Professional services and other

44,156


36,723


84,403


67,583




Total revenues

731,649


546,002


1,427,116


1,050,366













Cost of revenues (1)(2):










Subscription and support

118,519


89,144


227,263


164,387



Professional services and other

43,899


31,766


86,706


59,589




Total cost of revenues

162,418


120,910


313,969


223,976













Gross profit

569,231


425,092


1,113,147


826,390













Operating expenses (1)(2):










Research and development

99,442


73,393


194,218


138,685



Marketing and sales

380,160


283,001


749,949


537,472



General and administrative

103,095


84,446


204,695


168,784




Total operating expenses

582,697


440,840


1,148,862


844,941













Loss from operations

(13,466)


(15,748)


(35,715)


(18,551)













Investment income

7,173


5,112


11,634


13,167


Interest expense

(8,033)


(3,846)


(14,403)


(7,517)


Other income (expense)

294


(3,231)


(416)


(4,031)













Loss before benefit from income taxes 

(14,032)


(17,713)


(38,900)


(16,932)













Benefit from income taxes

4,203


13,445


9,596


13,194













Net loss 

$    (9,829)


$    (4,268)


$     (29,304)


$    (3,738)













Basic net loss per share 

$      (0.07)


$      (0.03)


$          (0.21)


$      (0.03)













Diluted net loss per share

$      (0.07)


$      (0.03)


$          (0.21)


$      (0.03)













Shares used in computing basic net loss per share

139,425


135,093


138,789


134,273













Shares used in computing diluted net loss per share

139,425


135,093


138,789


134,273
























(1) Amounts include amortization of purchased intangibles from business combinations, as follows:









Cost of revenues

$   17,668


$   16,373


$       35,116


$   25,468




Marketing and sales

2,407


2,306


5,834


3,546













(2) Amounts include stock-based expenses, as follows:











Cost of revenues

$      7,864


$      4,379


$       15,117


$      8,030




Research and development

16,089


11,188


31,756


19,027




Marketing and sales

44,781


27,114


86,768


50,901




General and administrative

16,683


11,913


33,042


24,194


 

 

salesforce.com, inc.

Condensed Consolidated Statements of Operations

As a percentage of total revenues:

(Unaudited)










Three Months Ended July 31,


Six Months Ended
July 31,




2012


2011


2012


2011

Revenues:









Subscription and support

94%


93%


94%


94%


Professional services and other

6


7


6


6



Total revenues

100


100


100


100











Cost of revenues (1)(2):









Subscription and support

16


16


16


15


Professional services and other

6


6


6


6



Total cost of revenues

22


22


22


21











Gross profit

78


78


78


79











Operating expenses (1)(2):









Research and development

14


13


14


13


Marketing and sales

52


52


53


52


General and administrative

14


16


14


16



Total operating expenses

80


81


81


81











Loss from operations

(2)


(3)


(3)


(2)











Investment income

1


1


1


1

Interest expense

(1)


(1)


(1)


0

Other income (expense)

0


0


0


0











Loss before benefit from income taxes

(2)


(3)


(3)


(1)











Benefit from income taxes

1


2


1


1











Net loss 

(1%)


(1%)


(2%)


0%































(1) Amortization of purchased intangibles from business combinations as a percentage of total revenues, as follows:










Cost of revenues

2%


3%


2%


2%



Marketing and sales

0


0


0


0











(2) Stock-based expenses as a percentage of total revenues, as follows:










Cost of revenues

1%


1%


1%


1%



Research and development

2


2


2


2



Marketing and sales

6


5


6


5



General and administrative

2


2


2


2

 

 

 

salesforce.com, inc.

Condensed Consolidated Balance Sheets

(in thousands)












July 31,



January 31,





2012



2012





(unaudited)













Assets







Current assets:








Cash and cash equivalents


$  1,000,730



$     607,284



Short-term marketable securities


106,933



170,582



Accounts receivable, net


446,917



683,745



Deferred commissions


94,921



98,471



Deferred income taxes


56,723



31,821



Prepaid expenses and other current assets (see additional metrics)


146,901



80,319










Total current assets


1,853,125



1,672,222










Marketable securities, noncurrent


696,602



669,308


Property and equipment, net (see additional metrics)


556,776



527,946


Deferred commissions, noncurrent


77,010



78,149


Deferred income taxes, noncurrent


108,031



87,587


Capitalized software, net (see additional metrics)


173,456



188,412


Goodwill


840,531



785,381


Other assets, net (see additional metrics)


148,039



155,149










Total assets


$  4,453,570



$  4,164,154










Liabilities, temporary equity and stockholders' equity







Current liabilities:








Accounts payable


$       69,339



$        33,258



Accrued expenses and other liabilities (see additional metrics)


482,888



502,442



Deferred revenue


1,268,407



1,291,622



Convertible senior notes, net


508,533



496,149










Total current liabilities


2,329,167



2,323,471










Income taxes payable, noncurrent


47,165



37,258


Long-term lease liabilities and other


49,790



48,651


Deferred revenue, noncurrent


68,777



88,673


Total liabilities


2,494,899



2,498,053










Temporary equity


66,357



78,741










Stockholders' equity:








Common stock


139



137



Additional paid-in capital


1,742,286



1,415,077



Accumulated other comprehensive income 


19,730



12,683



Retained earnings 


130,159



159,463










Total stockholders' equity


1,892,314



1,587,360










Total liabilities, temporary equity and stockholders' equity


$  4,453,570



$  4,164,154