Salesforce.com Announces Fiscal Second Quarter Results

First Enterprise Cloud Computing Company to Exceed $2.1 Billion Annual Revenue Run Rate

-- Record Quarterly Revenue of $546 Million, up 38% Year-Over-Year

-- Raises FY12 Revenue Guidance to $2.22 Billion - $2.23 Billion

-- Deferred Revenue of $935 Million, up 37% Year-Over-Year

-- Operating Cash Flow of $83 Million, up 9% Year-Over-Year

-- Company Record 6,300 Net New Customer Additions

-- Total Customers Rise to 104,000, up 21,600 or 26% Year-Over-Year

Aug 18, 2011, 16:05 ET from salesforce.com

SAN FRANCISCO, Aug. 18, 2011 /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, 2011.

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

“We’re expecting over 40,000 people to register for Dreamforce which takes place in San Francisco later this month.  It’s the cloud event of the year where attendees can learn how to supercharge their relationships with employees and customers using social, mobile and open cloud technologies,” said Marc Benioff, Chairman and CEO, salesforce.com. “We hope to see you there.”

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

Revenue: Total Q2 revenue was $546 million, an increase of 38% on a year-over-year basis.  Subscription and support revenues were $509 million, an increase of 38% on a year-over-year basis.  Professional services and other revenues were $37 million, an increase of 44% on a year-over-year basis.  

Earnings per Share:  Q2 GAAP net loss per share was ($0.03), and non-GAAP diluted earnings per share increased 3% year-over-year to $0.30. These GAAP and non-GAAP results include a one-time charge of $0.04 per diluted share associated with the legal settlement disclosed in the Form 8-K filed on June 15, 2011. The company’s non-GAAP results exclude the effects of approximately $55 million in stock-based compensation expense, approximately $19 million in amortization of purchased intangibles, and approximately $3 million in net non-cash interest expense related to the company’s convertible senior notes.  Non-GAAP EPS calculations are based on 143 million diluted shares outstanding during the quarter, including approximately 4 million shares associated with the convertible senior notes and warrants. GAAP EPS calculations are based on a basic share count of approximately 135 million shares.  

Customers: Net paying customers rose approximately 6,300 during the quarter to finish at approximately 104,000.  This was a quarterly record for the company.  Since July 31, 2010, the company added 21,600 net paying customers, an increase of 26% on a year-over-year basis.  As discussed on May 19, 2011, the company will no longer provide the customer metric on a quarterly basis, but expects to provide periodic updates on achievement of customer milestones in the future.  

Cash: Cash generated from operations for the fiscal second quarter was $83 million, an increase of 9% on a year-over-year basis. Total cash, cash equivalents and marketable securities finished the quarter at approximately $1.3 billion.

Deferred Revenue: Deferred revenue on the balance sheet as of July 31, 2011 was $935 million, an increase of 37% on a year-over-year basis.

As of August 18, 2011, salesforce.com is initiating guidance for its third quarter of fiscal year 2012. In addition, the company is raising its prior full fiscal year 2012 revenue guidance and updating its projected full fiscal year 2012 GAAP and non-GAAP EPS guidance previously provided on May 19, 2011.

Q3 FY12 Guidance:  Revenue for the company’s third fiscal quarter is projected to be in the range of approximately $568 million to approximately $570 million.

For the third fiscal quarter, the company expects to report a GAAP net loss per share of approximately ($0.06) to ($0.05), while diluted non-GAAP EPS is expected to be approximately $0.30 to $0.31. The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $60 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $18 million, and net non-cash interest expense related to the company’s convertible senior notes, expected to be approximately $3 million. EPS estimates assume a GAAP tax rate of 54%, and a non-GAAP tax rate of 33%. For the purpose of the EPS calculation, the company assumed an average basic share count of approximately 137 million shares, and an average diluted share count of approximately 146 million shares.

Full Year FY12 Guidance:  Revenue for the company’s full fiscal year 2012 is projected to be in the range of approximately $2.22 billion to approximately $2.23 billion.

For the full fiscal year 2012, the company expects to report a GAAP net loss per share of approximately ($0.11) to ($0.09), while diluted non-GAAP EPS is expected to be approximately $1.30 to $1.32.  The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $241 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $64 million, and net non-cash interest expense related to the convertible senior notes, expected to be approximately $11 million. EPS estimates assume a GAAP tax rate of 72%, and a non-GAAP tax rate of 32%. For the purpose of the EPS calculation, assume an average basic share count of approximately 136 million shares, and an average diluted share count of approximately 145 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 2012

Q3

FY2012

GAAP EPS*

($0.06) - ($0.05)

($0.11) - ($0.09)

Plus

Amortization of purchased intangibles

$0.12

$0.44

Stock-based expense

$0.41

$1.67

Amortization of debt discount, net

$0.02

$0.07

Less

Income tax effect of certain Non-GAAP items

($0.19)

($0.77)

Non-GAAP diluted EPS

$0.30-$0.31

$1.30-$1.32

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

137

136

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

146

145

* For Q3 & FY12 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 2012 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 webcast 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 64853124.  A replay will be available at 800-642-1687 or +1 706-645-9291, passcode 88793161, until midnight (Eastern Time) September 16, 2011.

About Salesforce.com

With more than 100,000 customers, Salesforce.com is the enterprise cloud computing company that is leading the shift to the social enterprise. Social enterprises leverage social, mobile and open cloud technologies to put customers at the heart of their business. Based on salesforce.com’s real-time, multitenant architecture, the company’s platform and application services include:

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 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 amortization of debt discount on the company’s convertible senior notes are being excluded from the company’s FY12 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.  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 FY12:

  • Stock-Based Expenses:  The company’s compensation strategy is to use stock-based compensation to attract and retain key 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, 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 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 coupon interest rate 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 is lower than the estimated GAAP effective tax rate due to the exclusion 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 2012 and the full fiscal year, the company’s expected tax rates, stock-based compensation expenses, amortization expenses, and shares outstanding.  The achievement or success of the matters covered by such forward-looking statements involve 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; rate of growth and anticipated revenue run rate; 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 company’s plans to build our new global headquarters in San Francisco, California and the associated costs; 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 fiscal quarter ended July 31 2011, and our Form 10-K filed for the fiscal year ended January 31, 2011.  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.

©2011 salesforce.com, inc.  All rights reserved. Salesforce.com, Salesforce, Chatter, Sales Cloud, Service Cloud, Radian6, Jigsaw, AppExchange, Force.com, Heroku, and all associated logos are trademarks of salesforce.com, inc. in the United States and other countries.  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,

2011

2010

2011

2010

Revenues:

Subscription and support

$509,279

$368,951

$982,783

$719,663

Professional services and other

36,723

25,421

67,583

51,522

Total revenues

546,002

394,372

1,050,366

771,185

Cost of revenues (1):

Subscription and support

89,144

48,981

164,387

93,038

Professional services and other

31,766

28,809

59,589

56,333

Total cost of revenues

120,910

77,790

223,976

149,371

Gross profit

425,092

316,582

826,390

621,814

Operating expenses (1):

Research and development

73,393

42,930

138,685

83,052

Marketing and sales

283,001

182,401

537,472

358,268

General and administrative

84,446

61,569

168,784

117,762

Total operating expenses

440,840

286,900

844,941

559,082

Income (loss) from operations

(15,748)

29,682

(18,551)

62,732

Investment income

5,112

8,735

13,167

16,610

Interest expense

(3,846)

(7,185)

(7,517)

(14,245)

Other expense

(3,231)

(1,765)

(4,031)

(3,738)

Income (loss) before benefit (provision) for income taxes and noncontrolling interest

(17,713)

29,467

(16,932)

61,359

Benefit (provision) for income taxes

13,445

(12,884)

13,194

(24,900)

Consolidated net income (loss)

(4,268)

16,583

(3,738)

36,459

Less: Net loss attributable to noncontrolling interest

0

(1,839)

0

(3,970)

Net income (loss) attributable to salesforce.com

($4,268)

$14,744

($3,738)

$32,489

Basic net income (loss) per share attributable to salesforce.com common shareholders

($0.03)

$0.11

($0.03)

$0.25

Diluted net income (loss) per share attributable to salesforce.com common shareholders

($0.03)

$0.11

($0.03)

$0.24

Shares used in computing basic net income per share

135,093

129,462

134,273

128,747

Shares used in computing diluted net income per share

135,093

134,176

134,273

133,437

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

Cost of revenues

$    4,379

$    3,186

$    8,030

$    6,260

Research and development

11,188

4,041

19,027

8,143

Marketing and sales

27,114

12,317

50,901

24,527

General and administrative

11,913

7,071

24,194

14,153

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,

2011

2010

2011

2010

Revenues:

Subscription and support

93%

94%

94%

93%

Professional services and other

7

6

6

7

Total revenues

100

100

100

100

Cost of revenues (1):

Subscription and support

16

13

15

12

Professional services and other

6

7

6

7

Total cost of revenues

22

20

21

19

Gross profit

78

80

79

81

Operating expenses (1):

Research and development

13

11

13

11

Marketing and sales

52

46

52

47

General and administrative

16

16

16

15

Total operating expenses

81

73

81

73

Income (loss) from operations

(3)

7

(2)

8

Investment income

1

2

1

2

Interest expense

(1)

(2)

0

(2)

Other expense

0

0

0

0

Income (loss) before benefit (provision) for income taxes and noncontrolling interest

(3)

7

(1)

8

Benefit (provision) for income taxes

2

(3)

1

(3)

Consolidated net income (loss)

(1)

4

0

5

Less: Net loss attributable to noncontrolling interest

0

0

0

(1)

Net income (loss) attributable to salesforce.com

(1%)

4%

0%

4%

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

Cost of revenues

1%

1%

1%

1%

Research and development

2

1

2

1

Marketing and sales

5

3

5

3

General and administrative

2

2

2

2

salesforce.com, inc.

Condensed Consolidated Balance Sheets

(in thousands)

July 31,

January 31,

2011

2011

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$449,794

$424,292

Short-term marketable securities

127,582

72,678

Accounts receivable, net

342,397

426,943

Deferred commissions

66,092

67,774

Deferred income taxes

33,915

27,516

Prepaid expenses and other current assets (see additional metrics)

95,042

55,721

Total current assets

1,114,822

1,074,924

Marketable securities, noncurrent

709,282

910,587

Property and equipment, net (see additional metrics)

470,070

387,174

Deferred commissions, noncurrent

47,574

48,842

Deferred income taxes, noncurrent

64,219

41,199

Capitalized software, net (see additional metrics)

198,291

127,987

Goodwill

671,570

396,081

Other assets, net (see additional metrics)

145,500

104,371

Total assets

$3,421,328

$3,091,165

Liabilities, temporary equity and stockholders' equity

Current liabilities:

Accounts payable

$22,321

$18,106

Accrued expenses and other liabilities (see additional metrics)

389,853

345,121

Deferred revenue

917,755

913,239

Convertible senior notes, net

484,128

0

Total current liabilities

1,814,057

1,276,466

Convertible senior notes, net

0

472,538

Income taxes payable, noncurrent

34,777

18,481

Long-term lease liabilities and other

46,088

25,487

Deferred revenue, noncurrent

17,511

21,702

Total liabilities

1,912,433

1,814,674

Temporary equity

90,772

0

Stockholders' equity:

Common stock

135

133

Additional paid-in capital

1,243,472

1,098,604

Accumulated other comprehensive income

7,219

6,719

Retained earnings

167,297

171,035

Total stockholders' equity

1,418,123

1,276,491

Total liabilities, temporary equity and stockholders' equity

$3,421,328

$3,091,165

salesforce.com, inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

Three Months Ended July 31,

Six Months Ended July 31,

2011

2010

2011

2010

Operating activities:

Consolidated net income (loss)

$   (4,268)

$   16,583

$   (3,738)

$   36,459

Adjustments to reconcile net income (loss) to net

cash provided by operating activities:

Depreciation and amortization

40,239

17,793

69,832

32,298

Amortization of debt discount and transaction costs

2,077

5,533

4,332

10,984

Amortization of deferred commissions

24,916

18,106

49,591

37,595

Expenses related to stock-based awards

54,594

26,615

102,152

53,083

Excess tax benefits from employee stock plans

(2,086)

(22,902)

(4,120)

(32,190)

Changes in assets and liabilities:

Accounts receivable, net

(66,076)

(41,413)

90,051

97,538

Deferred commissions

(26,137)

(20,248)

(46,641)

(39,556)

Prepaid expenses and other current assets

(9,611)

181

(18,994)

10,120

Other assets

(1,913)

(2,703)

(4,626)

(4,142)

Accounts payable

4,121

5,583

2,984

3,925

Accrued expenses and other current liabilities

47,624

57,378

(18,017)

37,394

Deferred revenue

19,453

15,590

(355)

(24,229)

Net cash provided by operating activities

82,933

76,096

222,451

219,279

Investing activities:

Business combinations, net of cash acquired

(285,335)

(151,503)

(298,670)

(151,503)

Land activity and building improvements

(5,422)

0

(6,436)

0

Strategic investments

(7,782)

(2,000)

(13,215)

(2,500)

Changes in marketable securities

21,662

(234,030)

148,120

(729,973)

Capital expenditures

(45,051)

(27,831)

(72,365)

(39,521)

Net cash used in investing activities

(321,928)

(415,364)

(242,566)

(923,497)

Financing activities:

Purchase of subsidiary stock

0

0

0

(1,273)

Proceeds from the exercise of stock options

42,282

34,127

74,568

71,643

Excess tax benefits from employee stock plans

2,086

22,902

4,120

32,190

Contingent consideration payment related to prior business combinations

(13,400)

0

(16,200)

0

Principal payments on capital lease obligations

(10,549)

(2,123)

(14,111)

(4,041)

Net cash provided by financing activities

20,419

54,906

48,377

98,519

Effect of exchange rate changes

3,758

3,493

(2,760)

4,318

Net increase (decrease) in cash and

cash equivalents

(214,818)

(280,869)

25,502

(601,381)

Cash and cash equivalents, beginning of period

664,612

690,794

424,292

1,011,306

Cash and cash equivalents, end of period

$ 449,794

$ 409,925

$ 449,794

$ 409,925

salesforce.com, inc.

Additional Metrics

   (Unaudited)

Jul 31,

Apr 30,

Jan 31,

Oct 31,

Jul 31,

Apr 30,

2011

2011

2011

2010

2010

2010

Full Time Equivalent Headcount

6,352

5,513

5,306

4,758

4,447

4,106

Financial data (in thousands):

Cash, cash equivalents and marketable

  securities

$1,286,658

$1,522,285

$1,407,557

$1,802,440

$1,858,928

$1,901,548

Deferred revenue, current and noncurrent

$935,266

$915,133

$934,941

$694,557

$683,019

$664,529

Selected Balance Sheet Accounts (in thousands):

Jul 31,

Jan 31,

2011

2011

Prepaid Expenses and Other Current Assets

    Deferred professional services costs

$15,138

$17,908

    Prepaid income taxes

14,780

720

    Prepaid expenses and other current assets

65,124

37,093

$95,042

$55,721

Property and Equipment, net

    Land

$248,263

$248,263

    Building improvements

24,269

10,115

    Computers, equipment and software

195,991

115,736

    Furniture and fixtures

23,687

20,462

    Leasehold improvements

113,148

100,380

605,358

494,956

    Less accumulated depreciation and

       amortization

(135,288)

(107,782)

$470,070

$387,174

Capitalized Software, net

    Capitalized internal-use software development

       costs, net of accumulated

       amortization

$32,983

$29,154

    Acquired developed technology, net of

       accumulated amortization

165,308

98,833

$198,291

$127,987

Other Assets, net

    Deferred professional services costs,

       noncurrent portion

$8,022

$10,201

    Long-term deposits

13,715

12,114

    Purchased intangible assets, net accumulated

       amortization

47,114

31,660

    Acquired intellectual property, net of

       accumulated amortization

13,559

5,874

    Strategic investments

40,283

27,065

    Other

22,807

17,457

$145,500

$104,371

Accrued Expenses and Other Current Liabilities

    Accrued compensation

$130,693

$148,275

    Accrued other liabilities

126,076

112,840

    Accrued income and other taxes payable

82,832

49,135

    Accrued professional costs

23,796

12,548

    Accrued rent

26,456

22,323

$389,853

$345,121

Three Months Ended July 31,

Six Months Ended July 31,

2011

2010

2011

2010

Revenues by geography (in thousands):

Americas

$                                   366,916

$                                   274,669

$                                   706,934

$ 533,953

Europe

102,056

65,545

196,451

132,387

Asia Pacific

77,030

54,158

146,981

104,845

$                                   546,002

$                                   394,372

$                                1,050,366

$ 771,185

As a percentage of total revenues:

Revenues by geography:

Americas

67

%

70

%

67

%

69

%

Europe

19

17

19

17

Asia Pacific

14

13

14

14

100

%

100

%

100

%

100

%

Supplemental Revenue Analysis

Three Months Ended

Three Months Ended

Three Months Ended

July 31, 2011

April 30, 2011

July 31, 2010

compared to Three Months

compared to Three Months

compared to Three Months

Ended July 31, 2010

Ended April 30, 2010

Ended July 31, 2009

Revenue constant currency growth rates (as compared to the comparable prior periods)

Americas

34%

31%

22%

Europe

36%

36%

30%

Asia Pacific

33%

29%

53%

Total growth

34%

32%

26%

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 exchange rates in effect at the end of each quarter for growth rate calculations presented, rather than the actual exchange rates in effect during that period.

Supplemental Diluted Sharecount Information

(in thousands)

Three Months Ended July 31,

Six Months Ended July 31,

2011

2010

2011

2010

Weighted-average shares outstanding for basic earnings per share

135,093

129,462

134,273

128,747

Effect of dilutive securities:

Convertible senior notes

2,753

349

2,581

349

Warrants associated with the convertible senior note hedges

1,160

0

919

0

Employee stock awards

4,450

4,365

4,563

4,341

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

143,456

134,176

142,336

133,437

Supplemental Cash Flow Information

Free cash flow analysis, a non-GAAP measure

(in thousands)

Three Months Ended July 31,

Six Months Ended July 31,

2011

2010

2011

2010

Operating cash flow-

GAAP net cash provided by operating activities

$                                     82,933

$                                     76,096

$                                   222,451

$ 219,279

Less:

Capital expenditures

(45,051)

(27,831)

(72,365)

(39,521)

Free cash flow

$                                     37,882

$                                     48,265

$                                   150,086

$ 179,758

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 the building of our new global headquarters and strategic investments.

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,

2011

2010

2011

2010

Gross profit

GAAP gross profit

$ 425,092

$ 316,582

$ 826,390

$ 621,814

Plus:

Amortization of purchased intangibles (b)

16,373

3,891

25,468

5,570

Stock-based expenses (c)

4,379

3,186

8,030

6,260

Non-GAAP gross profit

$ 445,844

$ 323,659

$ 859,888

$ 633,644

Operating expenses

GAAP operating expenses

$ 440,840

$ 286,900

$ 844,941

$ 559,082

Less:

Amortization of purchased intangibles (b)

(2,306)

(1,225)

(3,546)

(2,050)

Stock-based expenses (c)

(50,215)

(23,429)

(94,122)

(46,823)

Non-GAAP operating expenses

$ 388,319

$ 262,246

$ 747,273

$ 510,209

Income from operations

GAAP income (loss) from operations

$ (15,748)

$   29,682

$ (18,551)

$   62,732

Plus:

Amortization of purchased intangibles (b)

18,679

5,116

29,014

7,620

Stock-based expenses (c)

54,594

26,615

102,152

53,083

Non-GAAP income from operations

$   57,525

$   61,413

$ 112,615

$ 123,435

Non-operating income (a)

GAAP non-operating income (loss)

$   (1,965)

$      (215)

$     1,619

$   (1,373)

Plus:  Amortization of debt discount, net

2,712

5,533

5,470

10,984

Non-GAAP non-operating income

$        747

$     5,318

$     7,089

$     9,611

Net income attributable to salesforce.com

GAAP net income (loss) attributable to salesforce.com

$   (4,268)

$   14,744

$   (3,738)

$   32,489

Plus:

Amortization of purchased intangibles

18,679

5,116

29,014

7,620

Stock-based expenses

54,594

26,615

102,152

53,083

Amortization of debt discount, net

2,712

5,533

5,470

10,984

Less:

Income tax effect of Non-GAAP items

(28,635)

(13,274)

(49,926)

(25,493)

Non-GAAP net income attributable to salesforce.com

$   43,082

$   38,734

$   82,972

$   78,683

Diluted earnings per share

GAAP diluted earnings (loss) per share (d)

$     (0.03)

$       0.11

$     (0.03)

$       0.24

Plus:

Amortization of purchased intangibles

0.13

0.04

0.20

0.06

Stock-based expenses

0.38

0.20

0.72

0.40

Amortization of debt discount, net

0.02

0.04

0.04

0.08

Less:

Income tax effect of  Non-GAAP items

(0.20)

(0.10)

(0.35)

(0.19)

Non-GAAP diluted earnings per share attributable to salesforce.com

$       0.30

$       0.29

$       0.58

$       0.59

Shares used in computing diluted net income per share

143,456

134,176

142,336

133,437

a)    Non-operating income consists of investment income, interest expense and other expense  

b)  Amortization of purchased intangibles were as follows:  

Three Months Ended July 31,

Six Months Ended July 31,

2011

2010

2011

2010

Cost of revenues

$   16,373

$     3,891

$   25,468

$     5,570

Marketing and sales

2,306

1,225

3,546

2,050

$   18,679

$     5,116

$   29,014

$     7,620

c)   Stock-based expenses were as follows:  

Three Months Ended July 31,

Six Months Ended July 31,

2011

2010

2011

2010

Cost of revenues

$     4,379

$     3,186

$     8,030

$     6,260

Research and development

11,188

4,041

19,027

8,143

Marketing and sales

27,114

12,317

50,901

24,527

General and administrative

11,913

7,071

24,194

14,153

$   54,594

$   26,615

$ 102,152

$   53,083

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

The following reflects the calculation of Basic and Diluted Net Income (loss) Per Share

(in thousands, except per share data)

   (Unaudited)

Three Months Ended July 31,

Six Months Ended July 31,

2011

2010

2011

2010

GAAP Basic Net Income (loss) Per Share

Net income (loss) attributable to salesforce.com

$ (4,268)

$ 14,744

$ (3,738)

$ 32,489

Basic net income (loss) per share attributable to salesforce.com common stockholders

($0.03)

$0.11

($0.03)

$0.25

Shares used in computing basic net income per share attributable to salesforce.com common stockholders

135,093

129,462

134,273

128,747

Three Months Ended July 31,

Six Months Ended July 31,

2011

2010

2011

2010

Non-GAAP Basic Net Income Per Share

Non-GAAP net income attributable to salesforce.com

$ 43,082

$ 38,734

$ 82,972

$ 78,683

Basic Non-GAAP net income per share attributable to salesforce.com common stockholders

$0.32

$0.30

$0.62

$0.61

Shares used in computing basic net income per share attributable to salesforce.com common stockholders

135,093

129,462

134,273

128,747

Three Months Ended July 31,

Six Months Ended July 31,

2011

2010

2011

2010

GAAP Diluted Net Income (loss) Per Share

Net income (loss) attributable to salesforce.com

$ (4,268)

$ 14,744

$ (3,738)

$ 32,489

Diluted net income (loss) per share attributable to salesforce.com common stockholders

($0.03)

$0.11

($0.03)

$0.24

Shares used in computing diluted net income per share attributable to salesforce.com common stockholders

135,093

134,176

134,273

133,437

Three Months Ended July 31,

Six Months Ended July 31,

2011

2010

2011

2010

Non-GAAP Diluted Net Income Per Share

Non-GAAP net  income attributable to salesforce.com

$ 43,082

$ 38,734

$ 82,972

$ 78,683

Diluted  Non-GAAP net income per share attributable to salesforce.com common stockholders

$0.30

$0.29

$0.58

$0.59

Shares used in computing diluted net income per share attributable to salesforce.com common stockholders

143,456

134,176

142,336

133,437

SOURCE salesforce.com



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