Salesforce.com Announces Fiscal 2015 Second Quarter Results

- Revenue of $1.32 Billion, up 38% Year-Over-Year

- Deferred Revenue of $2.35 Billion, up 31% Year-Over-Year

- Unbilled Deferred Revenue of Approximately $5.0 Billion, up 32% Year-Over-Year

- Operating Cash Flow of $246 Million, up 34% Year-Over-Year

- Raises FY15 Revenue Guidance by $30 million to $5.34 - $5.37 Billion

21 Aug, 2014, 16:05 ET from salesforce.com

SAN FRANCISCO, Aug. 21, 2014 /PRNewswire/ -- Salesforce.com (NYSE: CRM), the world's #1 CRM platform (http://www.salesforce.com/), today announced results for its fiscal second quarter ended July 31, 2014.

"Salesforce.com continues to be the fastest growing top 10 software company with 38% year-over-year growth in revenue, and more than 30% year-over-year growth in deferred revenue and operating cash flow in the second quarter," said Marc Benioff, Chairman and CEO, salesforce.com. "I'm delighted to announce that we are once again raising our fiscal year 2015 revenue guidance by $30 million, to reach $5.37 billion at the high end of our range, which is a full year growth rate of 32%. We have now raised our fiscal 2015 revenue guidance by $170 million since we first initiated guidance last year."

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

Revenue:  Total Q2 revenue was $1.32 billion, an increase of 38% year-over-year.  Subscription and support revenues were $1.23 billion, an increase of 37% year-over-year.  Professional services and other revenues were $86 million, an increase of 58% year-over-year. 

Earnings per Share:  Q2 diluted GAAP loss per share was ($0.10), and diluted non-GAAP earnings per share was $0.13. The company's non-GAAP results exclude the effects of $142 million in stock-based compensation expense, $36 million in amortization of purchased intangibles, $10 million in net non-cash interest expense related to the company's convertible senior notes, including the related loss on conversions of our convertible 0.75% senior notes, due 2015, and is based on a projected long-term non-GAAP tax rate of 36.5%.  GAAP EPS calculations are based on a basic share count of approximately 617 million shares. Non-GAAP EPS calculations are based on approximately 648 million diluted shares outstanding during the quarter, including approximately 20 million shares associated with the company's convertible 0.75% senior notes due 2015.    

Cash:  Cash generated from operations for the fiscal second quarter was $246 million, an increase of 34% year-over-year.  Total cash, cash equivalents and marketable securities finished the quarter at $1.67 billion.

Deferred Revenue:  Deferred revenue on the balance sheet as of July 31, 2014 was $2.35 billion, an increase of 31% year-over-year. Unbilled deferred revenue, representing business that is contracted but unbilled and off balance sheet, ended the second quarter at approximately $5.0 billion, up 32% year-over-year.

As of August 21, 2014, salesforce.com is initiating revenue and EPS guidance for its third quarter of fiscal year 2015. In addition, the company is raising its full fiscal year 2015 revenue guidance and its EPS guidance previously provided on May 20, 2014.

Q3 FY15 Guidance:  Revenue for the company's third fiscal quarter is projected to be in the range of $1.365 billion to $1.370 billion, an increase of 27% year-over-year.

GAAP loss per share is expected to be in the range of ($0.13) to ($0.12), while diluted non-GAAP EPS is expected to be in the range of $0.12 to $0.13.  The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $147 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $36 million, and net non-cash interest expense related to the convertible senior notes, including loss on conversions, expected to be approximately $10 million.  EPS estimates assume a GAAP tax rate of approximately negative 30%, which reflects the estimated quarterly change in the tax valuation allowance, and a projected long-term non-GAAP tax rate of 36.5%.  Note that the tax valuation allowance adds complexity, causing potential volatility in our forecasted GAAP tax rate.  The GAAP EPS calculation assumes an average basic share count of approximately 630 million shares, and the non-GAAP EPS calculation assumes an average fully diluted share count of approximately 664 million shares.

Full Year FY15 Guidance:  Revenue for the company's full fiscal year 2015 is projected to be in the range of $5.340 billion to $5.370 billion, an increase of 31% to 32% year-over-year.

GAAP loss per share is expected to be in the range of ($0.48) to ($0.46) while diluted non-GAAP EPS is expected to be in the range of $0.50 to $0.52.  The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $580 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $151 million, and net non-cash interest expense related to the convertible senior notes, including loss on conversions, expected to be approximately $47 million.  EPS estimates assume a GAAP tax rate of approximately negative 19%, which reflects the estimated annual change in the tax valuation allowance, and a projected long-term non-GAAP tax rate of 36.5%. Note that the tax valuation allowance adds complexity, causing potential volatility in our forecasted GAAP tax rate.  The GAAP EPS calculation assumes an average basic share count of approximately 624 million shares, and the non-GAAP EPS calculation assumes an average fully diluted share count of approximately 657 million shares.

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

Fiscal 2015

Q3

FY2015

GAAP EPS Range*

 ($0.13) - ($0.12) 

 ($0.48) - ($0.46) 

Plus

Amortization of purchased intangibles

$                       0.05

$                       0.23

Stock-based expense

$                       0.22

$                       0.88

Amortization of debt discount, net

$                       0.02

$                       0.07

Less

Income tax effects and adjustments**

$                     (0.04)

$                     (0.20)

Non-GAAP diluted EPS

 $0.12 - $0.13 

 $0.50 - $0.52 

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

630

624

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

664

657

* For Q3 & FY15 GAAP EPS loss, basic number of shares used for calculation.

** Beginning in FY15, the company's non-GAAP tax provision uses a long-term projected tax rate of 36.5%. 

Quarterly Conference Call

Salesforce.com will host a conference call at 2:00 p.m. (PDT) / 5 p.m. (EDT) to discuss its financial results with the investment community.  A live audio webcast of the conference call, together with detailed financial information, can be accessed through the company's Investor Relations Web site: http://www.salesforce.com/investor.  A live web broadcast of the event will be available on the salesforce.com Investor Relations website at www.salesforce.com/investor.  A live dial-in is available domestically at 866-901-SFDC or 866-901-7332 and internationally at 706-902-1764, passcode 81878539.  A replay will be available at (800) 585-8367 or (855) 859-2056 until midnight (EDT) September 25, 2014.

About salesforce.com

Salesforce.com is the world's largest provider of customer relationship management (CRM) software. For more information about salesforce.com (NYSE: CRM), visit: www.salesforce.com.

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, the net amortization of debt discount on the company's convertible senior notes, and gains/losses on conversions of the company's convertible senior notes, as well as income tax adjustments.  The purpose of the non-GAAP tax rate is to quantify the excluded tax adjustments and the tax consequences associated with the above excluded non-cash expense items.  The company reports a projected long-term tax rate to eliminate the effects of non-recurring and period specific items which can vary in size and frequency. This projected long-term non-GAAP tax rate could be subject to change in the future for a variety of reasons, for example, significant changes in the company's geographic earnings mix including acquisition activity, or fundamental tax law changes in major jurisdictions where the company operates. These non-GAAP financial measures 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, the net amortization of debt discount on the company's convertible senior notes, and gains/losses on conversions of the company's convertible senior notes, are being excluded from the company's FY15 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 related to the issuance of equity awards, resulting in stock-based compensation, the acquisitions of companies, or the issuance of convertible senior notes, are made to further the company's long-term strategic objectives and impact the company's statement of operations 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, such as certain one-time charges.  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 FY15:

  • 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 these intangible assets are continually evaluated 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 senior notes due 2015 that were issued in a private placement in January 2010 and the company's $1.15 billion of convertible senior notes due 2018 that were issued in a private placement in March 2013.  The imputed interest rates were approximately 5.9% for the convertible notes due 2015 and approximately 2.5% for the convertible notes due 2018, while the actual coupon interest rates of the notes were 0.75% and 0.25%, respectively.  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.
  • Non-Cash Gains/Losses on Conversion of Debt: Upon settlement of the company's convertible senior notes, we attribute the fair value of the consideration transferred to the liability and equity components of the convertible senior notes.  The difference between the fair value of consideration attributed to the liability component and the carrying value of the liability as of settlement date is recorded as a non-cash gain or loss on the statement of operations.  Management believes that the exclusion of the non-cash gain/loss provides investors an enhanced view of the company's operational performance. Beginning in the second quarter of FY15, this will be included in the Amortization of Debt Discount line.
  • Income Tax Effects and Adjustments: During fiscal 2014, the Company's non-GAAP tax provision excludes the tax effects of expense items described above and certain tax items not directly related to the current fiscal year's ordinary operating results. Examples of such tax items include, but are not limited to, changes in the valuation allowance related to deferred tax assets, certain acquisition-related costs and unusual or infrequently occurring items. Management believes the exclusion of these income tax adjustments provides investors with useful supplemental information about the Company's operational performance. During fiscal 2015, the Company began to compute and utilize a fixed long-term projected non-GAAP tax rate in order to provide better consistency across the interim reporting periods by eliminating the effects of non-recurring and period-specific items such as changes in the tax valuation allowance and tax effects of acquisitions-related costs, since each of these can vary in size and frequency. When projecting this long-term rate, the Company evaluated a three-year financial projection that excludes the impact of the following non-cash items: Stock-Based Expenses, Amortization of Purchased Intangibles, Amortization of Debt Discount, and Gains/Losses on Conversions of Debt. The projected rate also assumes no new acquisitions in the three-year period, and takes into account other factors including the Company's current tax structure, its existing tax positions in various jurisdictions and key legislation in major jurisdictions where the Company operates. The non-GAAP tax rate for fiscal 2015 is 36.5%. The Company intends to re-evaluate this long-term rate on an annual basis or if any significant events that may materially affect this long-term rate occur. This long-term rate could be subject to change for a variety of reasons, for example, significant changes in the geographic earnings mix including acquisition activity, or fundamental tax law changes in major jurisdictions where the Company operates.

"Safe harbor" statement under the Private Securities Litigation Reform Act of 1995:  This press release contains forward-looking statements about our financial results, which may include expected GAAP and non-GAAP financial and other operating results for the fiscal third quarter and the full fiscal year of 2015, including revenue, net income (loss), EPS, expected revenue run rate, expected tax rates, stock-based compensation expenses, amortization of purchased intangibles and debt discount, non-cash interest expense and gains/losses on the conversions of debt, shares outstanding, and changes in deferred tax asset valuation allowances.  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, including ExactTarget; 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 company's ability to realize benefits from strategic partnerships; the emerging markets in which the company operates; 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; factors affecting the company's outstanding convertible notes and term loan; fluctuations in the number of shares we have outstanding and the price of such shares; foreign currency exchange rates; collection of receivables; interest rates; factors affecting our deferred tax assets and ability to value and utilize them, including the timing of when we once again achieve profitability on a pre-tax basis; the potential negative impact of indirect tax exposure; the risks and 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, 2014, and our Form 10-K filed for the fiscal year ended January 31, 2014.  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.

© 2014 salesforce.com, inc.  All rights reserved.  Salesforce, Sales Cloud, Service Cloud, ExactTarget Marketing Cloud, AppExchange, Salesforce1, and others are trademarks of salesforce.com, inc.  Other brands featured 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,

2014

2013

2014

2013

Revenues:

Subscription and support

$

1,232,587

$

902,844

$

2,379,893

$

1,745,065

Professional services and other

85,964

54,250

165,430

104,662

Total revenues

1,318,551

957,094

2,545,323

1,849,727

Cost of revenues (1)(2):

Subscription and support

218,918

160,908

427,865

314,458

Professional services and other

88,913

56,809

172,271

112,253

Total cost of revenues

307,831

217,717

600,136

426,711

Gross profit

1,010,720

739,377

1,945,187

1,423,016

Operating expenses (1)(2):

Research and development

203,109

148,079

391,467

280,018

Marketing and sales

671,958

480,621

1,311,313

947,111

General and administrative

169,087

150,534

331,182

280,284

Total operating expenses

1,044,154

779,234

2,033,962

1,507,413

Loss from operations

(33,434)

(39,857)

(88,775)

(84,397)

Investment income

2,655

4,387

4,433

7,741

Interest expense

(18,314)

(19,656)

(38,673)

(31,539)

Other expense

(3,876)

(1,678)

(14,723)

(2,552)

Loss before benefit from (provision for) income taxes

(52,969)

(56,804)

(137,738)

(110,747)

Benefit from (provision for) income taxes (3)

(8,119)

133,407

(20,261)

119,629

Net income (loss)

$

(61,088)

$

76,603

$

(157,999)

$

8,882

Basic net income (loss) per share

$

(0.10)

$

0.13

$

(0.26)

$

0.02

Diluted net income (loss) per share

$

(0.10)

$

0.12

$

(0.26)

$

0.01

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

617,016

593,955

614,797

591,210

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

617,016

624,656

614,797

623,865

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

Cost of revenues

$

21,271

$

22,550

$

49,943

$

43,855

Marketing and sales

14,648

4,476

29,613

6,936

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

Cost of revenues

$

12,977

$

9,981

$

24,787

$

20,659

Research and development

33,112

26,032

60,396

50,461

Marketing and sales

70,485

56,133

137,618

115,935

General and administrative

25,837

18,330

50,702

38,150

(3)   The three and six months ended July 31, 2013 include a $128.8 million tax benefit recorded during the three months ended July 31, 2013 as a result of the partial release of the Company's tax valuation allowance.

 

 

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,

2014

2013

2014

2013

Revenues:

Subscription and support

93%

94%

94%

94%

Professional services and other

7

6

6

6

Total revenues

100

100

100

100

Cost of revenues (1)(2):

Subscription and support

17

17

17

17

Professional services and other

6

6

7

6

Total cost of revenues

23

23

24

23

Gross profit

77

77

76

77

Operating expenses (1)(2):

Research and development

16

15

15

15

Marketing and sales

51

50

51

51

General and administrative

13

16

13

15

Total operating expenses

80

81

79

81

Loss from operations

(3)

(4)

(3)

(4)

Investment income

0

0

0

0

Interest expense

(1)

(2)

(1)

(2)

Other expense

0

0

(1)

0

Loss before benefit from (provision for) income taxes

(4)

(6)

(5)

(6)

Benefit from (provision for) income taxes

(1)

14

(1)

6

Net income (loss)

(5)%

8%

(6)%

0%

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

Cost of revenues

2%

2%

2%

2%

Marketing and sales

1

0

1

0

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

Cost of revenues

1%

1%

1%

1%

Research and development

3

3

2

3

Marketing and sales

5

6

5

6

General and administrative

2

2

2

2

 

 

 

salesforce.com, inc.

Condensed Consolidated Balance Sheets

(in thousands)

July 31,  2014

January 31,  2014

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$

774,725

$

781,635

Short-term marketable securities

69,850

57,139

Accounts receivable, net

834,323

1,360,837

Deferred commissions

169,247

171,461

Land and building improvements held for sale

160,181

0

Prepaid expenses and other current assets (see additional metrics)

296,361

309,180

Total current assets

2,304,687

2,680,252

Marketable securities, noncurrent

827,183

482,243

Property and equipment, net (see additional metrics)

1,189,930

1,240,746

Deferred commissions, noncurrent

141,260

153,459

Capitalized software, net (see additional metrics)

449,499

481,917

Goodwill

3,492,713

3,500,823

Other assets, net (see additional metrics)

604,556

613,490

Total assets

$

9,009,828

$

9,152,930

Liabilities, temporary equity and stockholders' equity

Current liabilities:

Accounts payable, accrued expenses and other liabilities (see additional metrics)

$

891,062

$

934,324

Deferred revenue

2,316,574

2,473,705

Convertible 0.75% senior notes, net

265,102

542,159

Term loan, current

30,000

30,000

Total current liabilities

3,502,738

3,980,188

Convertible 0.25% senior notes, net

1,058,737

1,046,930

Term loan, noncurrent

240,000

255,000

Deferred revenue, noncurrent

36,330

48,410

Other noncurrent liabilities (see additional metrics)

865,277

757,187

Total liabilities

5,703,082

6,087,715

Temporary equity

6,178

26,705

Stockholders' equity:

Common stock

619

610

Additional paid-in capital

3,789,942

3,363,377

Accumulated other comprehensive income

11,163

17,680

Accumulated deficit

(501,156)

(343,157)

Total stockholders' equity

3,300,568

3,038,510

Total liabilities, temporary equity and stockholders' equity

$

9,009,828

$

9,152,930

 

salesforce.com, inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

Three Months Ended July 31,

Six Months Ended July 31,

2014

2013

2014

2013

Operating activities:

Net income (loss)

$

(61,088)

$

76,603

$

(157,999)

$

8,882

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

107,596

77,966

218,404

140,263

Amortization of debt discount and transaction costs

9,949

13,194

21,740

22,864

Loss on conversions of convertible senior notes

361

0

8,890

0

Amortization of deferred commissions

61,300

46,189

121,155

91,856

Expenses related to employee stock plans

142,411

110,476

273,503

225,205

Excess tax benefits from employee stock plans

6,815

1,278

(2,226)

(588)

Changes in assets and liabilities, net of business combinations:

Accounts receivable, net

(150,168)

(33,297)

526,514

336,592

Deferred commissions

(65,846)

(45,347)

(106,742)

(62,830)

Prepaid expenses and other current assets and other assets

23,636

(2,930)

27,913

(9,280)

Accounts payable, accrued expenses and other liabilities

142,638

(70,750)

(42,961)

(166,558)

Deferred revenue

28,289

9,801

(169,211)

(120,034)

Net cash provided by operating activities

245,893

183,183

718,980

466,372

Investing activities:

Business combinations, net of cash acquired

0

(2,592,571)

0

(2,614,732)

Nonrefundable deposits received for land

1,000

0

31,000

0

Strategic investments

(18,807)

(3,698)

(35,053)

(8,814)

Purchases of marketable securities

(284,928)

(56,458)

(535,464)

(320,745)

Sales of marketable securities

71,073

893,910

150,385

1,005,650

Maturities of marketable securities

16,762

6,046

23,960

20,604

Capital expenditures

(71,576)

(102,549)

(131,674)

(156,559)

Net cash used in investing activities

(286,476)

(1,855,320)

(496,846)

(2,074,596)

Financing activities:

Proceeds from borrowings on convertible senior notes, net

0

0

0

1,132,750

Proceeds from issuance of warrants

0

0

0

84,800

Purchase of convertible note hedge

0

0

0

(153,800)

Proceeds from term loan, net

0

298,500

0

298,500

Proceeds from employee stock plans

61,429

40,195

135,224

106,719

Excess tax benefits from employee stock plans

(6,815)

(1,278)

2,226

588

Payments on convertible senior notes

(13,692)

0

(297,584)

0

Principal payments on capital lease obligations

(40,341)

(12,108)

(50,935)

(20,607)

Principal payments on term loan

(7,500)

0

(15,000)

0

Net cash provided by (used in) financing activities

(6,919)

325,309

(226,069)

1,448,950

Effect of exchange rate changes

(5,664)

(1,281)

(2,975)

(8,090)

Net decrease in cash and cash equivalents

(53,166)

(1,348,109)

(6,910)

(167,364)

Cash and cash equivalents, beginning of period

827,891

1,927,990

781,635

747,245

Cash and cash equivalents, end of period

$

774,725

$

579,881

$

774,725

$

579,881

 

 

salesforce.com, inc.

Additional Metrics

(Unaudited)

Jul 31, 2014

Apr 30, 2014

Jan 31, 2014

Oct 31, 2013

Jul 31, 2013

Apr 30, 2013

Full Time Equivalent Headcount

15,145

14,239

13,312

12,770

12,571(1)

10,283

Financial data (in thousands):

Cash, cash equivalents and marketable securities

$

1,671,758

$

1,529,888

$

1,321,017

$

1,085,307

$

930,008(2)

$

3,079,457(3)

Deferred revenue, current and noncurrent

$

2,352,904

$

2,324,615

$

2,522,115

$

1,734,619

$

1,789,648

$

1,733,160

Principal due on convertible senior notes and term loan

$

1,691,280

$

1,712,472

$

2,003,864

$

2,017,356

$

2,024,890

$

1,724,890

(1)

Includes approximately 1,900 full time equivalents from the acquisition of ExactTarget.

(2)

Reflects the acquisition of ExactTarget for cash in July 2013.

(3)

Includes $1.1 billion of net proceeds from the convertible 0.25% senior note offering and hedge transactions in March 2013.

 

 

Selected Balance Sheet Accounts (in thousands):

July 31,  2014

April 30,  2014

January 31,  2014

Prepaid Expenses and Other Current Assets

Deferred income taxes, net

$

51,395

$

48,556

$

49,279

Prepaid income taxes

21,511

22,838

23,571

Customer contract asset (4)

39,540

54,360

77,368

Prepaid expenses and other current assets

183,915

187,854

158,962

$

296,361

$

313,608

$

309,180

Property and Equipment, net

Land and building improvements (5)

$

137,653

$

297,835

$

297,835

Computers, equipment and software

1,066,947

961,675

931,171

Furniture and fixtures

67,733

65,021

58,956

Leasehold improvements

341,372

313,535

296,390

Building in progress - leased facility

73,219

52,931

40,171

1,686,924

1,690,997

1,624,523

Less accumulated depreciation and amortization

(496,994)

(439,997)

(383,777)

$

1,189,930

$

1,251,000

$

1,240,746

Capitalized Software, net

Capitalized internal-use software development costs, net of accumulated amortization

$

82,399

$

77,169

$

72,915

Acquired developed technology, net of accumulated amortization

367,100

378,650

409,002

$

449,499

$

455,819

$

481,917

Other Assets, net

Deferred income taxes, noncurrent, net

$

8,815

$

9,738

$

9,691

Long-term deposits

20,270

18,027

17,970

Purchased intangible assets, net of accumulated amortization

386,121

400,962

416,119

Acquired intellectual property, net of accumulated amortization

10,792

11,967

11,957

Strategic investments

120,289

102,439

92,489

Customer contract asset (4)

6,384

10,989

18,182

Other

51,885

45,968

47,082

$

604,556

$

600,090

$

613,490

(4)    Customer contract asset reflects future billings of amounts that were contractually committed by ExactTarget's existing customers as of the acquisition date. As the Company bills these customers this balance will reduce and accounts receivable will increase.

(5)    A portion of the land and building improvements was reclassified as land and building improvements held for sale which is included in current assets as of July 31, 2014.

July 31,  2014

April 30,  2014

January 31,  2014

Accounts Payable, Accrued Expenses and Other Liabilities

Accounts payable

$

83,604

$

36,723

$

64,988

Accrued compensation

308,901

259,517

397,002

Accrued other liabilities

324,011

274,792

235,543

Accrued income and other taxes payable

109,936

123,292

153,026

Accrued professional costs

22,111

19,309

15,864

Customer liability, current (6)

27,820

38,077

53,957

Accrued rent

14,679

14,891

13,944

$

891,062

$

766,601

$

934,324

Other Noncurrent Liabilities

Deferred income taxes and income taxes payable

$

107,510

$

106,420

$

108,760

Customer liability, noncurrent (6)

4,403

8,897

13,953

Financing obligation, building in progress - leased facility

73,219

52,931

40,171

Long-term lease liabilities and other

680,145

634,679

594,303

$

865,277

$

802,927

$

757,187

(6)

Customer liability reflects the legal obligation to provide future services that were contractually committed by ExactTarget's existing customers but unbilled as of the acquisition date.

 

Selected Off-Balance Sheet Account

July 31,  2014

April 30,  2014

January 31,  2014

Unbilled Deferred Revenue, a non-GAAP measure

$ 5.0bn

$ 4.8bn

$ 4.5bn

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.

The balances as of July 31, 2014, April 30, 2014, and January 31, 2014 exclude the remaining amount related to the fair value of unbilled deferred revenue associated with the acquisition of ExactTarget, which was initially recorded as part of business combination accounting, because these amounts are reflected on the balance sheet under "accounts payable, accrued expenses and other liabilities" and "other noncurrent liabilities".

 

Supplemental Revenue Analysis

Subscription and support revenue by cloud service offering (in millions):

Three Months Ended  July 31, 2014

Six Months Ended  July 31, 2014

Sales Cloud

$

610.1

$

1,186.7

Service Cloud

318.7

613.5

Salesforce1 Platform and Other

181.4

346.3

ExactTarget Marketing Cloud

122.4

233.4

$

1,232.6

$

2,379.9

 

 

Three Months Ended July 31,

Six Months Ended July 31,

2014

2013

2014

2013

Total revenues by geography (in thousands):

Americas

$

940,946

$

678,535

$

1,817,323

$

1,309,643

Europe

246,532

173,705

477,342

336,531

Asia Pacific

131,073

104,854

250,658

203,553

$

1,318,551

$

957,094

$

2,545,323

$

1,849,727

As a percentage of total revenues:

Total revenues by geography:

Americas

71%

71%

71%

71%

Europe

19

18

19

18

Asia Pacific

10

11

10

11

100%

100%

100%

100%

 

 

Revenue constant currency growth rates

(as compared to the comparable prior periods)

Three Months Ended July 31, 2014 compared to Three Months Ended July 31, 2013

Three Months Ended April 30, 2014 compared to Three Months Ended April 30, 2013

Three Months Ended July 31, 2013 compared to Three Months Ended July 31, 2012

Americas

39%

39%

34%

Europe

36%

35%

34%

Asia Pacific

27%

26%

19%

Total growth

37%

37%

32%

We present constant currency information to provide a framework for assessing how our underlying business performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the weighted average exchange rate for the quarter being compared to for growth rate calculations presented, rather than the actual exchange rates in effect during that period.

 

July 31, 2014 compared to July 31, 2013

April 30, 2014 compared to April 30, 2013

January 31, 2014 compared to January 31, 2013

Deferred revenue, current and noncurrent constant currency growth rates (as compared to the comparable prior periods)

Total growth

32%

33%

36%

 

 

Supplemental Diluted Share Count Information

(in thousands)

Three Months Ended July 31,

Six Months Ended July 31,

2014

2013

2014

2013

Weighted-average shares outstanding for basic earnings per share

617,016

593,955

614,797

591,210

Effect of dilutive securities (1):

Convertible 0.75% senior notes

7,698

12,977

8,097

13,270

Warrants associated with the convertible 0.75% senior note hedges

12,066

7,394

12,643

7,804

Employee stock awards

11,010

10,330

12,819

11,581

Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share

647,790

624,656

648,356

623,865

(1)

The effects of these dilutive securities were not included in the GAAP calculation of diluted net loss per share for the three and six months ended July 31, 2014 because the effect would have been anti-dilutive.

 

 

Supplemental Cash Flow Information

Free cash flow analysis, a non-GAAP measure

(in thousands)

Three Months Ended July 31,

Six Months Ended July 31,

2014

2013

2014

2013

Operating cash flow

GAAP net cash provided by operating activities

$

245,893

$

183,183

$

718,980

$

466,372

Less:

Capital expenditures

(71,576)

(102,549)

(131,674)

(156,559)

Free cash flow

$

174,317

$

80,634

$

587,306

$

309,813

Our free cash flow analysis includes GAAP net cash provided by operating activities less capital expenditures. The capital expenditures balance does not include any costs related to the purchase and activities related to land activity, building improvements, building in progress - leased facilities, and strategic investments.

 

Comprehensive Income (Loss)

(in thousands)

(Unaudited)

Three Months Ended July 31,

Six Months Ended July 31,

2014

2013

2014

2013

Net income (loss)

$

(61,088)

$

76,603

$

(157,999)

$

8,882

Other comprehensive loss, before tax and net of reclassification adjustments:

Foreign currency translation and other losses

(5,299)

(1,431)

(2,184)

(7,191)

Unrealized gains (losses) on investments

1,164

117

(4,333)

1,838

Other comprehensive loss, before tax

(4,135)

(1,314)

(6,517)

(5,353)

Tax effect

0

(1,173)

0

(545)

Other comprehensive loss, net of tax

(4,135)

(2,487)

(6,517)

(5,898)

Comprehensive income (loss)

$

(65,223)

$

74,116

$

(164,516)

$

2,984

 

 

salesforce.com, inc.

GAAP RESULTS RECONCILED TO NON-GAAP RESULTS

The following table reflects selected salesforce.com GAAP results reconciled to non-GAAP results

(in thousands, except per share data)

(Unaudited)

Three Months Ended July 31,

Six Months Ended July 31,

2014

2013

2014

2013

Gross profit

GAAP gross profit

$

1,010,720

$

739,377

$

1,945,187

$

1,423,016

Plus:

Amortization of purchased intangibles (a)

21,271

22,550

49,943

43,855

Stock-based expenses (b)

12,977

9,981

24,787

20,659

Non-GAAP gross profit

$

1,044,968

$

771,908

$

2,019,917

$

1,487,530

Operating expenses

GAAP operating expenses

$

1,044,154

$

779,234

$

2,033,962

$

1,507,413

Less:

Amortization of purchased intangibles (a)

(14,648)

(4,476)

(29,613)

(6,936)

Stock-based expenses (b)

(129,434)

(100,495)

(248,716)

(204,546)

Non-GAAP operating expenses

$

900,072

$

674,263

$

1,755,633

$

1,295,931

Income from operations

GAAP loss from operations

$

(33,434)

$

(39,857)

$

(88,775)

$

(84,397)

Plus:

Amortization of purchased intangibles (a)

35,919

27,026

79,556

50,791

Stock-based expenses (b)

142,411

110,476

273,503

225,205

Non-GAAP income from operations

$

144,896

$

97,645

$

264,284

$

191,599

Non-operating income (loss) (c)

GAAP non-operating loss

$

(19,535)

$

(16,947)

$

(48,963)

$

(26,350)

Plus: Amortization of debt discount, net

9,216

12,352

20,200

21,592

Plus: Loss on conversion of debt

361

0

8,890

0

Non-GAAP non-operating loss

$

(9,958)

$

(4,595)

$

(19,873)

$

(4,758)

Net income

GAAP net income (loss)

$

(61,088)

$

76,603

$

(157,999)

$

8,882

Plus:

Amortization of purchased intangibles (a)

35,919

27,026

79,556

50,791

Stock-based expenses (b)

142,411

110,476

273,503

225,205

Amortization of debt discount, net

9,216

12,352

20,200

21,592

Loss on conversion of debt

361

0

8,890

0

Less:

Income tax effects and adjustments

(41,134)

(170,162)

(68,949)

(189,211)

Non-GAAP net income

$

85,685

$

56,295

$

155,201

$

117,259

Diluted earnings per share

GAAP diluted income (loss) per share (d)

$

(0.10)

$

0.12

$

(0.26)

$

0.01

Plus:

Amortization of purchased intangibles

0.06

0.04

0.12

0.08

Stock-based expenses

0.22

0.18

0.42

0.36

Amortization of debt discount, net

0.01

0.02

0.03

0.03

Loss on conversion of debt

0.00

0.00

0.01

0.00

Less:

Income tax effects and adjustments

(0.06)

(0.27)

(0.08)

(0.29)

Non-GAAP diluted earnings per share

$

0.13

$

0.09

$

0.24

$

0.19

Shares used in computing diluted net income per share

647,790

624,656

648,356

623,865

a)    Amortization of purchased intangibles were as follows:

Three Months Ended July 31,

Six Months Ended July 31,

2014

2013

2014

2013

Cost of revenues

$

21,271

$

22,550

$

49,943

$

43,855

Marketing and sales

14,648

4,476

29,613

6,936

$

35,919

$

27,026

$

79,556

$

50,791

b)    Stock-based expenses were as follows:

Three Months Ended July 31,

Six Months Ended July 31,

2014

2013

2014

2013

Cost of revenues

$

12,977

$

9,981

$

24,787

$

20,659

Research and development

33,112

26,032

60,396

50,461

Marketing and sales

70,485

56,133

137,618

115,935

General and administrative

25,837

18,330

50,702

38,150

$

142,411

$

110,476

$

273,503

$

225,205

c)

Non-operating income (loss) consists of investment income, interest expense and other expense.

d)

Reported GAAP loss per share was calculated using the basic share count.  Non-GAAP diluted earnings per share was calculated using the diluted share count.

 

 

salesforce.com, inc.

COMPUTATION OF BASIC AND DILUTED GAAP AND NON-GAAP NET INCOME (LOSS) PER SHARE

(in thousands, except per share data)

(Unaudited)

Three Months Ended July 31,

Six Months Ended July 31,

2014

2013

2014

2013

GAAP Basic Net Income (Loss) Per Share

Net income (loss)

$

(61,088)

$

76,603

$

(157,999)

$

8,882

Basic net income (loss) per share

$

(0.10)

$

0.13

$

(0.26)

$

0.02

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

617,016

593,955

614,797

591,210

Three Months Ended July 31,

Six Months Ended July 31,

2014

2013

2014

2013

Non-GAAP Basic Net Income Per Share

Non-GAAP net income

$

85,685

$

56,295

$

155,201

$

117,259

Basic Non-GAAP net income per share

$

0.14

$

0.09

$

0.25

$

0.20

Shares used in computing basic net income per share

617,016

593,955

614,797

591,210

Three Months Ended July 31,

Six Months Ended July 31,

2014

2013

2014

2013

GAAP Diluted Net Income (Loss) Per Share

Net income (loss)

$

(61,088)

$

76,603

$

(157,999)

$

8,882

Diluted net income (loss) per share

$

(0.10)

$

0.12

$

(0.26)

$

0.01

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

617,016

624,656

614,797

623,865

Three Months Ended July 31,

Six Months Ended July 31,

2014

2013

2014

2013

Non-GAAP Diluted Net Income Per Share

Non-GAAP net income

$

85,685

$

56,295

$

155,201

$

117,259

Diluted Non-GAAP net income per share

$

0.13

$

0.09

$

0.24

$

0.19

Shares used in computing diluted net income per share

647,790

624,656

648,356

623,865

 

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SOURCE salesforce.com



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