Salesforce.com Announces Fiscal Third Quarter Results

Company Initiates Fiscal Year 2013 Revenue Guidance of $2.880 - $2.920 Billion

- Record Quarterly Revenue of $584 Million, up 36% Year-Over-Year

- Deferred Revenue of $918 Million, up 32% Year-Over-Year

- Operating Cash Flow of $129 Million, up 74% Year-Over-Year

- Non-GAAP Diluted EPS of $0.34, up 6% Year-Over-Year

- Raises FY12 Revenue Guidance to $2.255 - $2.259 Billion

- Initiates FY13 Revenue Guidance of $2.880 - $2.920 Billion

Nov 17, 2011, 16:05 ET from salesforce.com

SAN FRANCISCO, Nov. 17, 2011 /PRNewswire/ -- Salesforce.com (NYSE: CRM), the enterprise cloud computing (http://www.salesforce.com/cloudcomputing/) company, today announced results for its fiscal third quarter ended October 31, 2011.

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

"Salesforce.com is the first enterprise cloud computing company to exceed a $2.3 billion annual revenue run rate," said Marc Benioff, Chairman and CEO, salesforce.com. "And today, we're excited to announce that we expect to reach a $3.0 billion annual revenue run rate during our fiscal year 2013."

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

Revenue: Total Q3 revenue was $584 million, an increase of 36% on a year-over-year basis.  Subscription and support revenues were $549 million, an increase of 36% on a year-over-year basis.  Professional services and other revenues were $35 million, an increase of 34% on a year-over-year basis.  

Earnings per Share: Q3 GAAP net loss per share was ($0.03), and non-GAAP diluted earnings per share increased 6% year-over-year to $0.34. The company's non-GAAP results exclude the effects of approximately $57 million in stock-based compensation expense, approximately $18 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 142 million diluted shares outstanding during the quarter, including approximately 3 million shares associated with the convertible senior notes and warrants. GAAP EPS calculations are based on a basic share count of approximately 136 million shares.  

Cash: Cash generated from operations for the fiscal third quarter was $129 million, an increase of 74% 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 October 31, 2011 was $918 million, an increase of 32% on a year-over-year basis.

As of November 17, 2011, salesforce.com is initiating guidance for its fourth quarter, fiscal year 2012.  For its fiscal year 2012, the company is raising the guidance provided on August 18, 2011. In addition, the company is initiating revenue guidance for fiscal year 2013.

Q4 FY12 Guidance: Revenue for the company's fourth fiscal quarter is projected to be in the range of approximately $620 million to approximately $624 million.

For the fourth 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 $0.39 to $0.40. The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $79 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $19 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 46%, and a non-GAAP tax rate of 32%. For the purpose of the EPS calculation, the company assumed an average basic share count of approximately 138 million shares, and an average diluted share count of approximately 144 million shares.

Full Year FY12 Guidance: The company is raising its full fiscal year 2012 revenue guidance to be in the range of approximately $2.255 billion to approximately $2.259 billion. For the full fiscal year 2012, the company expects to report a GAAP net loss per share of approximately ($0.12) to ($0.11), while diluted non-GAAP EPS is expected to be approximately $1.32 to $1.33.  The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $238 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $67 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 62%, and a non-GAAP tax rate of 31%. For the purpose of the EPS calculation, the company assumed an average basic share count of approximately 136 million shares, and an average diluted share count of approximately 143 million shares.

Full Year FY13 Guidance: The company is initiating revenue guidance for fiscal year 2013 with projected revenue in the range of approximately $2.880 billion to approximately $2.920 billion.  This guidance includes projected revenue for the company's recently announced acquisition of Model Metrics, which the company expects to close during its fiscal fourth quarter.  The company will provide its expectations for FY13 GAAP and non-GAAP EPS, when it announces its fourth quarter, fiscal year 2012 results in February, 2012.

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

Fiscal 2012

Q4

FY2012

GAAP EPS Range*

($0.06) - ($0.05)

($0.12) - ($0.11)

Plus

Amortization of purchased intangibles

$0.13

$0.47

Stock-based expense

$0.55

$1.67

Net amortization of debt discount

$0.02

$0.08

Less

Income tax effect of certain Non-GAAP items

(0.25)

(0.78)

Non-GAAP diluted EPS

$0.39-$0.40

$1.32-$1.33

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

138

136

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

144

143

* For Q4 & FY12 GAAP EPS loss, basic number of shares used for calculation

Quarterly Conference Call

Salesforce.com will host a conference call to discuss its third 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 24669052.  A replay will be available at 800-642-1687 or +1 706-645-9291, passcode 24669052, until midnight (Eastern Time) December 16, 2011.

About Salesforce.com

With 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 net amortization of debt discount on the company's convertible senior notes, as well as the tax consequences associated with these items.  The purpose of the non-GAAP tax rate is to quantify the excluded tax consequences of the excluded expense items.  These non-GAAP estimates are not measurements of financial performance prepared in accordance with U.S. generally accepted accounting principles.  The method used to produce non-GAAP financial measures is not computed according to GAAP and may differ from the methods used by other companies.  Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with the company's consolidated financial statements prepared in accordance with GAAP.

The primary purpose of these non-GAAP measures is to provide supplemental information that may prove useful to investors who wish to consider the impact of certain non-cash items on the company's operating performance.  Non-cash stock-based compensation, amortization of acquisition-related intangible assets, and the net amortization of debt discount on the company's convertible senior notes are being excluded from the company's 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 Q3 and its non-GAAP estimates for Q4 and FY12:

  • Stock-Based Expenses:  The company's compensation strategy includes the use of stock-based compensation to attract and retain employees and executives.  It is principally aimed at aligning their interests with those of our stockholders and at long-term employee retention, rather than to motivate or reward operational performance for any particular period.  Thus, stock-based compensation expense varies for reasons that are generally unrelated to operational decisions and performance in any particular period.  
  • Amortization of Purchased Intangibles:  The company views amortization of acquisition-related intangible assets, such as the amortization of the cost associated with an acquired company's research and development efforts, trade names, customer lists and customer relationships, as items arising from pre-acquisition activities determined at the time of an acquisition.  While it is continually viewed for impairment, amortization of the cost of purchased intangibles is a static expense, one that is not typically affected by operations during any particular period.
  • Amortization of Debt Discount:  Under GAAP, certain convertible debt instruments that may be settled in cash (or other assets) on conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate.  Accordingly, for GAAP purposes we are required to recognize imputed interest expense on the company's $575 million of convertible subordinated notes that were issued in a private placement in January 2010.  The imputed interest rate is approximately 5.9%, while the 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 fourth fiscal quarter of 2012 and the full fiscal year, the company's expected revenue run rate and revenues in fiscal 2013, the company's expected tax rates, stock-based compensation expenses, amortization 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; the company's 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 and expand the company's 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 October 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 October 31,

Nine Months Ended October 31,

2011

2010

2011

2010

Revenues:

Subscription and support

$ 549,182

$ 402,948

$ 1,531,965

$ 1,122,611

Professional services and other

35,078

26,139

102,661

77,661

   Total revenues

584,260

429,087

1,634,626

1,200,272

Cost of revenues (1):

Subscription and support

96,306

54,089

260,693

147,127

Professional services and other

32,259

28,042

91,848

84,375

   Total cost of revenues

128,565

82,131

352,541

231,502

Gross profit

455,695

346,956

1,282,085

968,770

Operating expenses (1):

Research and development

76,049

47,305

214,734

130,357

Marketing and sales

304,571

200,544

842,043

558,812

General and administrative

85,232

63,951

254,016

181,713

   Total operating expenses

465,852

311,800

1,310,793

870,882

Income (loss) from operations

(10,157)

35,156

(28,708)

97,888

Investment income

5,136

11,699

18,303

28,309

Interest expense

(3,859)

(7,374)

(11,376)

(21,619)

Other income (expense)

30

(921)

(4,001)

(4,659)

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

(8,850)

38,560

(25,782)

99,919

Benefit (provision) for income taxes

5,094

(16,192)

18,288

(41,092)

Consolidated net income (loss)

(3,756)

22,368

(7,494)

58,827

Less: Net loss attributable to noncontrolling interest

0

(1,296)

0

(5,266)

Net income (loss) attributable to salesforce.com

$   (3,756)

$   21,072

$      (7,494)

$      53,561

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

$     (0.03)

$       0.16

$        (0.06)

$          0.41

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

$     (0.03)

$       0.15

$        (0.06)

$          0.40

Shares used in computing basic net income per share

135,847

130,888

134,824

129,461

Shares used in computing diluted net income per share

135,847

137,044

134,824

135,007

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

Cost of revenues

$     4,138

$     2,357

$      12,168

$        8,617

Research and development

12,197

3,976

31,224

12,119

Marketing and sales

29,123

11,969

80,024

36,496

General and administrative

11,548

7,330

35,742

21,483

salesforce.com, inc.

Condensed Consolidated Statements of Operations

As a percentage of total revenues:

(Unaudited)

Three Months Ended October 31,

Nine Months Ended October 31,

2011

2010

2011

2010

Revenues:

Subscription and support

94%

94%

94%

94%

Professional services and other

6

6

6

6

   Total revenues

100

100

100

100

Cost of revenues (1):

Subscription and support

16

13

16

12

Professional services and other

6

6

6

7

   Total cost of revenues

22

19

22

19

Gross profit

78

81

78

81

Operating expenses (1):

Research and development

13

11

13

11

Marketing and sales

52

47

52

47

General and administrative

15

15

15

15

   Total operating expenses

80

73

80

73

Income (loss) from operations

(2)

8

(2)

8

Investment income

1

3

1

2

Interest expense

(1)

(2)

(1)

(2)

Other income (expense)

0

0

0

0

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

(2)

9

(2)

8

Benefit (provision) for income taxes

1

(4)

1

(3)

Consolidated net income (loss)

(1)

5

(1)

5

Less: Net loss attributable to noncontrolling interest

0

0

0

(1)

Net income (loss) attributable to salesforce.com

(1)%

5%

(1)%

4%

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

Cost of revenues

1%

0%

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)

October 31,

January 31,

2011

2011

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$    502,987

$    424,292

Short-term marketable securities

142,861

72,678

Accounts receivable, net

312,331

426,943

Deferred commissions

71,799

67,774

Deferred income taxes

38,834

27,516

Prepaid expenses and other current assets (see additional metrics)

79,428

55,721

Total current assets

1,148,240

1,074,924

Marketable securities, noncurrent

650,845

910,587

Property and equipment, net (see additional metrics)

504,827

387,174

Deferred commissions, noncurrent

48,616

48,842

Deferred income taxes, noncurrent

70,857

41,199

Capitalized software, net (see additional metrics)

199,413

127,987

Goodwill

732,062

396,081

Other assets, net (see additional metrics)

156,418

104,371

Total assets

$ 3,511,278

$ 3,091,165

Liabilities, temporary equity and stockholders' equity

Current liabilities:

Accounts payable

$      28,265

$     18,106

Accrued expenses and other liabilities (see additional metrics)

409,150

345,121

Deferred revenue

905,055

913,239

Convertible senior notes, net

490,119

0

Total current liabilities

1,832,589

1,276,466

Convertible senior notes, net

0

472,538

Income taxes payable, noncurrent

30,204

18,481

Long-term lease liabilities and other

52,559

25,487

Deferred revenue, noncurrent

12,766

21,702

Total liabilities

1,928,118

1,814,674

Temporary equity

84,771

0

Stockholders' equity:

Common stock

136

133

Additional paid-in capital

1,330,735

1,098,604

Accumulated other comprehensive income

3,977

6,719

Retained earnings

163,541

171,035

Total stockholders' equity

1,498,389

1,276,491

Total liabilities, temporary equity and stockholders' equity

$ 3,511,278

$ 3,091,165

salesforce.com, inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

       (Unaudited)

Three Months Ended October 31,

Nine Months Ended October 31,

2011

2010

2011

2010

Operating activities:

Consolidated net income (loss)

$   (3,756)

$   22,368

$   (7,494)

$   58,827

Adjustments to reconcile net income (loss) to net

cash provided by operating activities:

Depreciation and amortization

41,553

19,710

111,385

52,008

Amortization of debt discount and transaction costs

2,138

6,655

6,470

17,639

Amortization of deferred commissions

26,862

19,959

76,453

57,554

Expenses related to stock-based awards

57,006

25,632

159,158

78,715

Excess tax benefits from employee stock plans

(6,892)

(14,578)

(11,012)

(46,768)

Changes in assets and liabilities:

     Accounts receivable, net

30,101

(30,212)

120,152

67,326

     Deferred commissions

(33,611)

(25,687)

(80,252)

(65,243)

     Prepaid expenses and other current assets

9,035

(16,583)

(9,959)

(6,463)

     Other assets

4,693

(5,263)

67

(9,405)

     Accounts payable

5,944

2,575

8,928

6,500

     Accrued expenses and other current liabilities

13,081

57,926

(4,936)

95,320

     Deferred revenue

(17,445)

11,538

(17,800)

(12,691)

     Net cash provided by operating activities

128,709

74,040

351,160

293,319

Investing activities:

Business combinations, net of cash acquired

(66,115)

(3,834)

(364,785)

(155,337)

Land activity and building improvements

(6,654)

(8,000)

(13,090)

(8,000)

Strategic investments

(21,508)

(4,000)

(34,723)

(6,500)

Changes in marketable securities

39,167

280,340

187,287

(449,633)

Capital expenditures

(34,678)

(20,790)

(107,043)

(60,311)

     Net cash provided by (used in) investing activities

(89,788)

243,716

(332,354)

(679,781)

Financing activities:

Purchase of subsidiary stock

0

(150,970)

0

(152,243)

Proceeds from the exercise of stock options

15,794

44,353

90,362

115,996

Excess tax benefits from employee stock plans

6,892

14,578

11,012

46,768

Contingent consideration payment related to prior business combinations

0

0

(16,200)

0

Principal payments on capital lease obligations

(7,685)

(3,116)

(21,796)

(7,157)

     Net cash provided by (used in) financing activities

15,001

(95,155)

63,378

3,364

Effect of exchange rate changes

(729)

(2,223)

(3,489)

2,095

Net increase (decrease) in cash and

cash equivalents

53,193

220,378

78,695

(381,003)

Cash and cash equivalents, beginning of period

449,794

409,925

424,292

1,011,306

Cash and cash equivalents, end of period

$ 502,987

$ 630,303

$ 502,987

$ 630,303

salesforce.com, inc.

Additional Metrics

(Unaudited)

Oct 31,

Jul 31,

Apr 30,

Jan 31,

Oct 31,

Jul 31,

2011

2011

2011

2011

2010

2010

Full Time Equivalent Headcount

6,953

6,352

5,513

5,306

4,758

4,447

Financial data (in thousands):

Cash, cash equivalents and marketable

  securities

$                                  1,296,693

$                                  1,286,658

$                                 1,522,285

$  1,407,557

$  1,802,440

$  1,858,928

Deferred revenue, current and noncurrent

$                                     917,821

$                                     935,266

$                                    915,133

$     934,941

$     694,557

$     683,019

Selected Balance Sheet Accounts (in thousands):

Oct 31,

Jan 31,

2011

2011

Prepaid Expenses and Other Current Assets

    Deferred professional services costs

$                                     13,563

$                                     17,908

    Prepaid income taxes

13,137

720

    Prepaid expenses and other current assets

52,728

37,093

$                                     79,428

$                                     55,721

Property and Equipment, net

    Land

$                                    248,263

$                                   248,263

    Building improvements

34,974

10,115

    Computers, equipment and software

223,288

115,736

    Furniture and fixtures

24,622

20,462

    Leasehold improvements

125,838

100,380

656,985

494,956

    Less accumulated depreciation and amortization

(152,158)

(107,782)

$                                   504,827

$                                   387,174

Capitalized Software, net

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

$                                     35,475

$                                     29,154

    Acquired developed technology, net of accumulated amortization

163,938

98,833

$                                   199,413

$                                   127,987

Other Assets, net

    Deferred professional services costs, noncurrent portion

$                                       5,707

$                                     10,201

    Long-term deposits

13,887

12,114

    Purchased intangible assets, net of accumulated amortization

45,410

31,660

    Acquired intellectual property, net of accumulated amortization

13,895

5,874

    Strategic investments

55,035

27,065

    Other

22,484

17,457

$                                   156,418

$                                   104,371

Accrued Expenses and Other Current Liabilities

    Accrued compensation

$                                   145,116

$                                   148,275

    Accrued other liabilities

134,741

112,840

    Accrued income and other taxes payable

78,819

49,135

    Accrued professional costs

22,836

12,548

    Accrued rent

27,638

22,323

$                                   409,150

$                                   345,121

Three Months Ended October 31,

Nine Months Ended October 31,

2011

2010

2011

2010

Revenues by geography (in thousands):

Americas

$                                   397,118

$                                   292,540

$                                1,104,052

$    826,493

Europe

103,864

76,464

300,315

208,851

Asia Pacific

83,278

60,083

230,259

164,928

$                                   584,260

$                                   429,087

$                                1,634,626

$ 1,200,272

As a percentage of total revenues:

Revenues by geography:

Americas

68

%

68

%

68

%

69

%

Europe

18

18

18

17

Asia Pacific

14

14

14

14

100

%

100

%

100

%

100

%

Supplemental Revenue Analysis

Three Months Ended

Three Months Ended

Three Months Ended

October 31, 2011

July 31, 2011

October 31, 2010

compared to Three Months

compared to Three Months

compared to Three Months

Ended October 31, 2010

Ended July 31, 2010

Ended October 31, 2009

Revenue constant currency growth rates (as compared to the

    comparable prior periods)

Americas

36%

34%

26%

Europe

29%

36%

38%

Asia Pacific

31%

33%

53%

Total growth

34%

34%

31%

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 October 31,

Nine Months Ended October 31,

2011

2010

2011

2010

Weighted-average shares outstanding for basic earnings per share

135,847

130,888

134,824

129,461

Effect of dilutive securities (2):

Convertible senior notes

2,190

1,513

2,451

993

Warrants associated with the convertible senior note hedges

372

0

737

0

Employee stock awards

3,762

4,643

4,330

4,553

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

142,171

137,044

142,342

135,007

(2) The effects of these dilutive securities were not included in the GAAP calculation of diluted earnings/loss per share for the three and nine months ended October 31, 2011 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 October 31,

Nine Months Ended October 31,

2011

2010

2011

2010

Operating cash flow:  

GAAP net cash provided by operating activities

$                                   128,709

$                                     74,040

$                                   351,160

$    293,319

Less:

Capital expenditures

(34,678)

(20,790)

(107,043)

(60,311)

Free cash flow

$                                     94,031

$                                     53,250

$                                   244,117

$    233,008

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 October 31,

Nine Months Ended October 31,

2011

2010

2011

2010

Gross profit

GAAP gross profit

$ 455,695

$ 346,956

$ 1,282,085

$ 968,770

Plus:

Amortization of purchased intangibles (b)

17,469

4,168

42,937

9,738

Stock-based expenses (c)

4,138

2,357

12,168

8,617

Non-GAAP gross profit

$ 477,302

$ 353,481

$ 1,337,190

$ 987,125

Operating expenses

GAAP operating expenses

$ 465,852

$ 311,800

$ 1,310,793

$ 870,882

Less:

Amortization of purchased intangibles (b)

(953)

(1,013)

(4,499)

(3,063)

Stock-based expenses (c)

(52,868)

(23,275)

(146,990)

(70,098)

Non-GAAP operating expenses

$ 412,031

$ 287,512

$ 1,159,304

$ 797,721

Income from operations

GAAP income (loss) from operations

$ (10,157)

$   35,156

$    (28,708)

$   97,888

Plus:

Amortization of purchased intangibles (b)

18,422

5,181

47,436

12,801

Stock-based expenses (c)

57,006

25,632

159,158

78,715

Non-GAAP income from operations

$   65,271

$   65,969

$    177,886

$ 189,404

Non-operating income (a)

GAAP non-operating income

$     1,307

$     3,404

$        2,926

$     2,031

Plus:  Amortization of debt discount, net

2,721

5,665

8,191

16,649

Non-GAAP non-operating income

$     4,028

$     9,069

$      11,117

$   18,680

Net income attributable to salesforce.com

GAAP net income (loss) attributable to salesforce.com

$   (3,756)

$   21,072

$      (7,494)

$   53,561

Plus:

Amortization of purchased intangibles

18,422

5,181

47,436

12,801

Stock-based expenses

57,006

25,632

159,158

78,715

Amortization of debt discount, net

2,721

5,665

8,191

16,649

Less:

Income tax effect of Non-GAAP items

(25,383)

(13,197)

(75,311)

(38,690)

Non-GAAP net income attributable to salesforce.com

$   49,010

$   44,353

$    131,980

$ 123,036

Diluted earnings per share

GAAP diluted earnings (loss) per share (d)

$     (0.03)

$       0.15

$        (0.06)

$       0.40

Plus:

Amortization of purchased intangibles

0.13

0.04

0.33

0.09

Stock-based expenses

0.40

0.19

1.13

0.58

Amortization of debt discount, net

0.02

0.04

0.06

0.12

Less:

Income tax effect of  Non-GAAP items

(0.18)

(0.10)

(0.53)

(0.28)

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

$       0.34

$       0.32

$          0.93

$       0.91

Shares used in computing diluted net income per share

142,171

137,044

142,342

135,007

a)

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

b)

Amortization of purchased intangibles were as follows:

Three Months Ended October 31,

Nine Months Ended October 31,

2011

2010

2011

2010

Cost of revenues

$   17,469

$     4,168

$      42,937

$     9,738

Marketing and sales

953

1,013

4,499

3,063

$   18,422

$     5,181

$      47,436

$   12,801

c)

Stock-based expenses were as follows:

Three Months Ended October 31,

Nine Months Ended October 31,

2011

2010

2011

2010

Cost of revenues

$     4,138

$     2,357

$      12,168

$     8,617

Research and development

12,197

3,976

31,224

12,119

Marketing and sales

29,123

11,969

80,024

36,496

General and administrative

11,548

7,330

35,742

21,483

$   57,006

$   25,632

$    159,158

$   78,715

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 October 31,

Nine Months Ended October 31,

2011

2010

2011

2010

GAAP Basic Net Income (loss) Per Share

Net income (loss) attributable to salesforce.com

$ (3,756)

$ 21,072

$   (7,494)

$   53,561

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

(0.03)

0.16

(0.06)

0.41

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

135,847

130,888

134,824

129,461

Three Months Ended October 31,

Nine Months Ended October 31,

2011

2010

2011

2010

Non-GAAP Basic Net Income Per Share

Non-GAAP net income attributable to salesforce.com

$ 49,010

$ 44,353

$ 131,980

$ 123,036

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

0.36

0.34

0.98

0.95

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

135,847

130,888

134,824

129,461

Three Months Ended October 31,

Nine Months Ended October 31,

2011

2010

2011

2010

GAAP Diluted Net Income (loss) Per Share

Net income (loss) attributable to salesforce.com

$ (3,756)

$ 21,072

$   (7,494)

$   53,561

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

(0.03)

0.15

(0.06)

0.40

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

135,847

137,044

134,824

135,007

Three Months Ended October 31,

Nine Months Ended October 31,

2011

2010

2011

2010

Non-GAAP Diluted Net Income Per Share

Non-GAAP net income attributable to salesforce.com

$ 49,010

$ 44,353

$ 131,980

$ 123,036

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

0.34

0.32

0.93

0.91

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

142,171

137,044

142,342

135,007

SOURCE salesforce.com



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