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

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