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Press release from PR Newswire

Salesforce.com Announces Fiscal 2014 Second Quarter Results

Thursday, August 29, 2013

Salesforce.com Announces Fiscal 2014 Second Quarter Results

16:05 EDT Thursday, August 29, 2013

- Revenue of $957 Million, up 31% Year-Over-Year
- Deferred Revenue of $1.8 Billion, up 34% Year-Over-Year
- Unbilled Deferred Revenue of Approximately $3.8 Billion, up 36% Year-Over-Year
- Operating Cash Flow of $183 Million, up 34% Year-Over-Year
- Initiates Third Quarter Revenue Guide of $1.050 - $1.055 Billion
- Raises FY14 Revenue Guide to $4.000 - $4.025 Billion

SAN FRANCISCO, Aug. 29, 2013 /PRNewswire/ -- Salesforce.com (NYSE: CRM), the world's #1 CRM platform (http://www.salesforce.com/), today announced results for its fiscal second quarter ended July 31, 2013.

(Logo: http://photos.prnewswire.com/prnh/20130612/SF30598LOGO)

"Salesforce.com continues to be the fastest growing software company of its size with year-over-year growth of more than 30% in revenue, deferred revenue, and operating cash flow," said Marc Benioff, Chairman and CEO, salesforce.com. "I'm delighted to announce that just four years after delivering our first $1 billion revenue year, we are now poised to deliver our first $1 billion revenue quarter in the third quarter of fiscal 2014."

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

Revenue:  Total Q2 revenue was $957 million, an increase of 31% on a year-over-year basis, benefited in part by the acquisition of ExactTarget which closed in July 2013.  Subscription and support revenues were $903 million, an increase of 31% on a year-over-year basis.  Professional services and other revenues were $54 million, an increase of 23% on a year-over-year basis. 

Earnings per Share:  Q2 diluted GAAP earnings per share was $0.12, and diluted non-GAAP earnings per share was $0.09. Q2 GAAP results were benefited by an approximate $129 million partial release of the tax valuation allowance. The company's non-GAAP results exclude the effects of $110 million in stock-based compensation expense, $27 million in amortization of purchased intangibles, and $12 million in net non-cash interest expense related to the company's convertible senior notes, and is based on a non-GAAP tax rate of approximately 40%.  GAAP and non-GAAP EPS calculations are based on approximately 625 million diluted shares outstanding during the quarter, including approximately 20 million shares associated with the company's convertible 0.75% senior notes due 2015.    

Cash:  Cash generated from operations for the fiscal second quarter was $183 million, an increase of 34% on a year-over-year basis.  Total cash, cash equivalents and marketable securities finished the quarter at $930 million. During the quarter, the company raised $300 million from a term loan utilized in connection with the acquisition of ExactTarget.

Deferred Revenue:  Deferred revenue on the balance sheet as of July 31, 2013 was $1.79 billion, an increase of 34% on a year-over-year basis, benefited in part by the acquisition of ExactTarget. Current deferred revenue increased by 37% year-over-year to $1.73 billion, benefited in part by longer invoice durations.  Non-current deferred revenue decreased by 20% year-over-year to $55 million. Unbilled deferred revenue, representing business that is contracted but unbilled and off balance sheet, ended the second quarter at approximately $3.80 billion, up 36% on a year-over-year basis. In addition, the company recorded approximately $137 million related to the fair value of unbilled deferred revenue from acquisitions in "Customer liability, current and noncurrent" on the balance sheet under "Accounts payable, accrued expenses and other liabilities" and "Other noncurrent liabilities".

As of August 29, 2013, salesforce.com is initiating revenue and EPS guidance for its third quarter of fiscal year 2014. In addition, the company is raising its full fiscal year 2014 revenue and non-GAAP EPS guidance previously provided on June 4, 2013.

Q3 FY14 Guidance:  Revenue for the company's third fiscal quarter is projected to be in the range of $1.050 billion to $1.055 billion, an increase of 33% to 34% year-over-year.

GAAP net loss per share is expected to be in the range of ($0.19) to ($0.18), while diluted non-GAAP EPS is expected to be in the range of $0.08 to $0.09.  The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $139 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $49 million, and net non-cash interest expense related to the convertible senior notes, expected to be approximately $13 million.  EPS estimates assume a GAAP tax rate of approximately negative 4%, which reflects the estimated quarterly change in the tax valuation allowance, and a non-GAAP tax rate of approximately 39%.  The GAAP EPS calculation assumes an average basic share count of approximately 601 million shares, and the non-GAAP EPS calculation assumes an average fully diluted share count of approximately 641 million shares.

Full Year FY14 Guidance:  Revenue for the company's full fiscal year 2014 is projected to be in the range of $4.000 billion to $4.025 billion, an increase of 31% to 32% year-over-year.

GAAP net loss per share is expected to be in the range of ($0.44) to ($0.42) while diluted non-GAAP EPS is expected to be in the range of $0.32 to $0.34.  The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $511 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $146 million, and net non-cash interest expense related to the convertible senior notes, expected to be approximately $47 million.  EPS estimates assume a GAAP tax rate of approximately 31%, which reflects the estimated annual change in the tax valuation allowance, and a non-GAAP tax rate of approximately 38%. Note that the tax valuation allowance adds complexity, causing potential volatility in our forecasted GAAP tax rate.  The GAAP EPS calculation assumes an average basic share count of approximately 598 million shares, and the non-GAAP EPS calculation assumes an average fully diluted share count of approximately 635 million shares.

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

 

Fiscal 2014

Q3

FY2014

GAAP EPS Range*

 ($0.19) - ($0.18) 

 ($0.44) - ($0.42) 

Plus

Amortization of purchased intangibles

$                   0.08

$                    0.23

Stock-based expense

$                   0.22

$                    0.81

Amortization of debt discount, net

$                   0.02

$                    0.07

Less

Income tax effects and adjustments**

$                 (0.05)

$                  (0.35)

Non-GAAP diluted EPS

 $0.08 - $0.09 

 $0.32 - $0.34 

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

601

598

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

641

635

* For Q3 & FY14 GAAP EPS loss, basic number of shares used for calculation

** The company's non-GAAP tax provision excludes the tax effects of expense items described above and certain tax items not directly related to the current fiscal year ordinary operating results.  Examples of such tax items include, but are not limited to, changes in the valuation allowance related to deferred tax assets, certain acquisition-related costs and unusual or infrequently occurring items. 

 

Quarterly Conference Call

Salesforce.com will host a conference call to discuss its fiscal second quarter 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: http://www.salesforce.com/investor.  In addition, an archive of the audiocast can be accessed through the same link.  Participants who choose to call in to the conference call can do so by dialing domestically 866-901-SFDC or 866-901-7332 and internationally at +1 706-902-1764, passcode 28431505.  A replay will be available at 800-585-8367 or +1 855-859-2056, passcode 28431505, until midnight (Eastern Time) September 29, 2013.

About salesforce.com

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

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

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

The primary purpose of these non-GAAP measures is to provide supplemental information that may prove useful to investors who wish to consider the impact of certain non-cash items on the company's operating performance.  Non-cash stock-based compensation, amortization of acquisition-related intangible assets, and the net amortization of debt discount on the company's convertible senior notes are being excluded from the company's FY14 financial results because the decisions which gave rise to these expenses were not made to increase revenue in a particular period, but were made for the company's long-term benefit over multiple periods.  While strategic decisions, such as those related to the issuance of equity awards, resulting in stock-based compensation, the acquisitions of companies, or the issuance of convertible senior notes, are made to further the company's long-term strategic objectives and impact the company's statement of operations under GAAP measures, these items affect multiple periods and management is not able to change or affect these items in any particular period.  As such, supplementing GAAP disclosure with non-GAAP disclosure using the non-GAAP measures provides management with an additional view of operational performance by excluding expenses that are not directly related to performance in any particular period, and management uses both GAAP and non-GAAP measures when planning, monitoring, and evaluating the company's performance.

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

Specifically, management is excluding the following items from its non-GAAP EPS for Q2 and its non-GAAP estimates for Q3 and FY14:

  • Stock-Based Expenses:  The company's compensation strategy includes the use of stock-based compensation to attract and retain employees and executives.  It is principally aimed at aligning their interests with those of our stockholders and at long-term employee retention, rather than to motivate or reward operational performance for any particular period.  Thus, stock-based compensation expense varies for reasons that are generally unrelated to operational decisions and performance in any particular period. 
  • Amortization of Purchased Intangibles:  The company views amortization of acquisition-related intangible assets, such as the amortization of the cost associated with an acquired company's research and development efforts, trade names, customer lists and customer relationships, as items arising from pre-acquisition activities determined at the time of an acquisition.  While these intangible assets are continually evaluated for impairment, amortization of the cost of purchased intangibles is a static expense, one that is not typically affected by operations during any particular period.
  • Amortization of Debt Discount:  Under GAAP, certain convertible debt instruments that may be settled in cash (or other assets) on conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate.  Accordingly, for GAAP purposes we are required to recognize imputed interest expense on the company's $575 million of convertible senior notes due 2015 that were issued in a private placement in January 2010 and the company's $1.15 billion of convertible senior notes due 2018 that were issued in a private placement in March 2013.  The imputed interest rates were approximately 5.9% for the convertible notes due 2015 and approximately 2.5% for the convertible notes due 2018, while the actual coupon interest rates of the notes were 0.75% and 0.25%, respectively.  The difference between the imputed interest expense and the coupon interest expense, net of the interest amount capitalized, is excluded from management's assessment of the company's operating performance because management believes that this non-cash expense is not indicative of ongoing operating performance.  Management believes that the exclusion of the non-cash interest expense provides investors an enhanced view of the company's operational performance.
  • Income Tax Effects and Adjustments: The company's non-GAAP tax provision excludes the tax effects of expense items described above and certain tax items not directly related to the current fiscal year's ordinary operating results.  Examples of such tax items include, but are not limited to, changes in the valuation allowance related to deferred tax assets, certain acquisition-related costs and unusual or infrequently occurring items.  Management believes the exclusion of these income tax adjustments provides investors with useful supplemental information about the company's operational performance.

"Safe harbor" statement under the Private Securities Litigation Reform Act of 1995:  This press release contains forward-looking statements about expected GAAP and non-GAAP financial and other operating results for the third fiscal quarter and the full fiscal year of 2014, including revenue, net income (loss), EPS, expected revenue run rate, expected tax rates, stock-based compensation expenses, amortization of purchased intangibles and debt discount, non-cash interest expense, shares outstanding, and changes in deferred tax asset valuation allowances.  The achievement or success of the matters covered by such forward-looking statements involves risks, uncertainties and assumptions.  If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, the company's results could differ materially from the results expressed or implied by the forward-looking statements we make.

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

Further information on these and other factors that could affect the company's financial results is included in the reports on Forms 10-K, 10-Q and 8-K and in other filings we make with the Securities and Exchange Commission from time to time, including the company's Form 10-Q that will be filed for the second quarter ended July 31, 2013, and our Form 10-K filed for the fiscal year ended January 31, 2013.  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.

© 2013 salesforce.com, inc.  All rights reserved.  Salesforce, Sales Cloud, Service Cloud, Marketing Cloud, AppExchange, Salesforce Platform, and others are trademarks of salesforce.com, inc.  Other brands featured herein may be trademarks of their respective owners.

 

salesforce.com, inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)

Three Months Ended July 31,

Six Months Ended July 31, 

2013

2012

2013

2012

Revenues:

Subscription and support

$    902,844

$          687,493

$ 1,745,065

$       1,342,713

Professional services and other

54,250

44,156

104,662

84,403

Total revenues

957,094

731,649

1,849,727

1,427,116

Cost of revenues (1)(2):

Subscription and support

160,908

118,519

314,458

227,263

Professional services and other

56,809

43,899

112,253

86,706

Total cost of revenues

217,717

162,418

426,711

313,969

Gross profit

739,377

569,231

1,423,016

1,113,147

Operating expenses (1)(2):

Research and development

148,079

99,442

280,018

194,218

Marketing and sales

480,621

380,160

947,111

749,949

General and administrative

150,534

103,095

280,284

204,695

Total operating expenses

779,234

582,697

1,507,413

1,148,862

Loss from operations

(39,857)

(13,466)

(84,397)

(35,715)

Investment income

4,387

7,173

7,741

11,634

Interest expense

(19,656)

(8,033)

(31,539)

(14,403)

Other income (expense)

(1,678)

294

(2,552)

(416)

Loss before benefit from income taxes

(56,804)

(14,032)

(110,747)

(38,900)

Benefit from income taxes (3)

133,407

4,203

119,629

9,596

Net income (loss) 

$    76,603

$             (9,829)

$         8,882

$           (29,304)

Basic net income (loss) per share (4)

$        0.13

$               (0.02)

$           0.02

$               (0.05)

Diluted net income (loss) per share (4)

$        0.12

$               (0.02)

$           0.01

$               (0.05)

Shares used in computing basic net income (loss) per share (4)

593,955

557,700

591,210

555,156

Shares used in computing diluted net income (loss) per share (4)

624,656

557,700

623,865

555,156

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

Cost of revenues

$   22,550

$            17,668

$       43,855

$            35,116

Marketing and sales

4,476

2,407

6,936

5,834

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

Cost of revenues

$      9,981

$               7,864

$       20,659

$            15,117

Research and development

26,032

16,089

50,461

31,756

Marketing and sales

56,133

44,781

115,935

86,768

General and administrative

18,330

16,683

38,150

33,042

     (3) Amount includes a partial release of the tax valuation allowance as follows:

$  128,828

$                     0

$    128,828

$                    0

     (4) Prior period results have been adjusted to reflect the four for one stock split through a stock dividend which occurred in April 2013 (See Supplemental Diluted Share Count Information for additional details).

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,

2013

2012

2013

2012

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)(2):

Subscription and support

17

16

17

16

Professional services and other

6

6

6

6

Total cost of revenues

23

22

23

22

Gross profit

77

78

77

78

Operating expenses (1)(2):

Research and development

15

14

15

14

Marketing and sales

50

52

51

53

General and administrative

16

14

15

14

Total operating expenses

81

80

81

81

Loss from operations

(4)

(2)

(4)

(3)

Investment income

0

1

0

1

Interest expense

(2)

(1)

(2)

(1)

Other income (expense)

0

0

0

0

Loss before benefit from income taxes 

(6)

(2)

(6)

(3)

Benefit from income taxes (3)

14

1

6

1

Net income (loss)

8%

(1)%

0%

(2)%

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

Cost of revenues

2%

2%

2%

2%

Marketing and sales

0

0

0

0

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

Cost of revenues

1%

1%

1%

1%

Research and development

3

2

3

2

Marketing and sales

6

6

6

6

General and administrative

2

2

2

2

     (3) Amount includes a partial release of the tax valuation allowance as follows:

13%

0%

7%

0%

salesforce.com, inc.

Condensed Consolidated Balance Sheets

(in thousands)

July 31,

January 31,

2013

2013

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$               579,881

$          747,245

Short-term marketable securities

43,610

120,376

Accounts receivable, net

599,543

872,634

Deferred commissions

119,503

142,311

Prepaid expenses and other current assets (see additional metrics)

355,628

133,314

Total current assets

1,698,165

2,015,880

Marketable securities, noncurrent

306,517

890,664

Property and equipment, net (see additional metrics)

1,184,861

604,669

Deferred commissions, noncurrent

105,864

112,082

Capitalized software, net (see additional metrics)

537,380

207,323

Goodwill

3,503,681

1,529,378

Other assets, net (see additional metrics)

633,428

168,960

Total assets

$            7,969,896

$       5,528,956

Liabilities, temporary equity and stockholders' equity

Current liabilities:

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

$               764,083

$          597,706

Deferred revenue

1,734,841

1,798,640

Convertible 0.75% senior notes, net

534,391

521,278

Term loan, current

30,000

0

Total current liabilities

3,063,315

2,917,624

Convertible 0.25% senior notes, net

1,035,271

0

Term loan, noncurrent

270,000

0

Deferred revenue, noncurrent

54,807

64,355

Other noncurrent liabilities

687,355

175,732

Total liabilities

5,110,748

3,157,711

Temporary equity

40,499

53,612

Stockholders' equity:

Common stock (1)

596

586

Additional paid-in capital (1)

2,908,914

2,410,892

Accumulated other comprehensive income 

11,239

17,137

Accumulated deficit

(102,100)

(110,982)

Total stockholders' equity

2,818,649

2,317,633

Total liabilities, temporary equity and stockholders' equity

$            7,969,896

$       5,528,956

(1)

Prior period results have been adjusted to reflect the four for one stock split through a stock dividend which occurred in April 2013 (See Supplemental Diluted Share Count Information for additional details).

salesforce.com, inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

Three Months Ended July 31,

Six Months Ended July 31,

2013

2012

2013

2012

Operating activities:

Net income (loss)

$      76,603

$       (9,829)

$       8,882

$     (29,304)

Adjustments to reconcile net income (loss) to net

cash provided by operating activities:

Depreciation and amortization

77,966

49,999

140,263

99,440

Amortization of debt discount and transaction costs

13,194

6,371

22,864

11,040

Amortization of deferred commissions

46,189

35,783

91,856

72,029

Expenses related to employee stock plans

110,476

85,417

225,205

166,683

Excess tax benefits from employee stock plans 

1,278

(14,702)

(588)

(25,745)

Changes in assets and liabilities, net of business combinations:

Accounts receivable, net

(33,297)

(75,522)

336,592

237,138

Deferred commissions

(45,347)

(35,222)

(62,830)

(67,340)

Prepaid expenses and other current assets

(2,990)

(35,747)

(10,862)

(56,096)

Other assets

60

(891)

1,582

864

Accounts payable, accrued expenses, and other liabilities

(70,750)

128,071

(166,558)

(16,189)

Deferred revenue

9,801

2,469

(120,034)

(43,111)

Net cash provided by operating activities

183,183

136,197

466,372

349,409

Investing activities:

Business combinations, net of cash acquired

(2,592,571)

(10,078)

(2,614,732)

(58,991)

Land activity and building improvements

0

0

0

(4,106)

Strategic investments

(3,698)

(1,129)

(8,814)

(3,794)

Purchases of marketable securities

(56,458)

(107,101)

(320,745)

(594,904)

Sales of marketable securities

893,910

472,710

1,005,650

548,232

Maturities of marketable securities

6,046

47,188

20,604

84,887

Capital expenditures

(102,549)

(29,304)

(156,559)

(74,025)

Net cash provided by (used in) investing activities

(1,855,320)

372,286

(2,074,596)

(102,701)

Financing activities:

Proceeds from borrowings on convertible senior notes, net

0

0

1,132,750

0

Proceeds from issuance of warrants

0

0

84,800

0

Purchase of convertible note hedge

0

0

(153,800)

0

Proceeds from term loan, net

298,500

0

298,500

0

Proceeds from employee stock plans

40,195

33,824

106,719

127,391

Excess tax benefits from employee stock plans

(1,278)

14,702

588

25,745

Principal payments on capital lease obligations

(12,108)

(7,479)

(20,607)

(15,053)

Net cash provided by financing activities

325,309

41,047

1,448,950

138,083

Effect of exchange rate changes 

(1,281)

10,415

(8,090)

8,655

Net increase (decrease) in cash and cash equivalents

(1,348,109)

559,945

(167,364)

393,446

Cash and cash equivalents, beginning of period

1,927,990

440,785

747,245

607,284

Cash and cash equivalents, end of period

$   579,881

$ 1,000,730

$  579,881

$ 1,000,730

salesforce.com, inc.

Additional Metrics

(Unaudited)

Jul 31,

Apr 30,

Jan 31,

Oct 31,

Jul 31,

Apr 30,

2013

2013

2013

2012

2012

2012

Full Time Equivalent Headcount

12,571

(1)

10,283

9,801

9,319

8,765

8,335

Financial data (in thousands):

Cash, cash equivalents and marketable securities 

$    930,008

(2)

$ 3,079,457

(3)

$ 1,758,285

$ 1,416,050

$ 1,804,265

$ 1,657,089

Deferred revenue, current and noncurrent

$ 1,789,648

$ 1,733,160

$ 1,862,995

$ 1,291,703

$ 1,337,184

$ 1,334,716

Principal due on convertible senior notes and term loan

$ 2,024,890

$ 1,724,890

$    574,890

$    574,890

$    574,890

$    574,890

(1)

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

(2)

Reflects the acquisition of ExactTarget for cash in July 2013.

(3)

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

Selected Balance Sheet Accounts (in thousands):

Jul 31,

Apr 30,

Jan 31, 

2013

2013

2013

Prepaid Expenses and Other Current Assets

     Deferred income taxes, net

$       14,157

$         6,794

$         7,321

     Prepaid income taxes

25,965

25,785

21,180

     Customer contract asset (4)

150,498

0

0

     Prepaid expenses and other current assets

165,008

121,535

104,813

$    355,628

$    154,114

$    133,314

Property and Equipment, net

     Land

$    248,263

$    248,263

$    248,263

     Building improvements

49,572

49,572

49,572

     Computers, equipment and software

877,175

346,280

328,318

     Furniture and fixtures

51,687

42,225

38,275

     Leasehold improvements

252,828

216,686

193,181

1,479,525

903,026

857,609

     Less accumulated depreciation and amortization

(294,664)

(279,342)

(252,940)

$ 1,184,861

$    623,684

$    604,669

Capitalized Software, net

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

$       66,578

$       62,666

$       59,647

     Acquired developed technology, net of accumulated amortization

470,802

129,763

147,676

$    537,380

$    192,429

$    207,323

Other Assets, net

     Deferred income taxes, noncurrent, net

$         8,189

$       19,358

$       19,212

     Long-term deposits

13,917

12,730

13,422

     Purchased intangible assets, net of accumulated amortization

448,976

50,494

49,354

     Acquired intellectual property, net of accumulated amortization

12,820

13,854

13,872

     Strategic investments

65,984

56,207

51,685

     Customer contract asset (4)

48,029

0

0

     Other

35,513

37,980

21,415

$    633,428

$    190,623

$    168,960

(4) Customer contract asset reflects future billings of amounts that were contractually commited by ExactTarget's existing customers as of the acquisition date.  

Accounts Payable, Accrued Expenses and Other Liabilities

     Accounts payable

$       66,859

$       31,522

$       14,535

     Accrued compensation

239,961

205,922

311,595

     Accrued other liabilities

227,626

167,533

138,165

     Accrued income and other taxes payable

93,767

98,524

120,341

     Accrued professional costs

16,751

11,908

10,064

     Customer liability, current (5)

106,075

0

0

     Accrued rent

13,044

11,671

3,006

$    764,083

$    527,080

$    597,706

Other Noncurrent Liabilities

     Income taxes payable, noncurrent

$       86,658

$       49,239

$       49,074

     Long-term lease liabilities and other

570,114

137,049

126,658

     Customer liability, noncurrent (5)

30,583

0

0

$    687,355

$    186,288

$    175,732

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

Selected Off-Balance Sheet Accounts

Unbilled Deferred Revenue, a non-GAAP measure

Unbilled deferred revenue was approximately $3.8 billion as of July 31, 2013, $3.6 billion as of April 30, 2013 and $3.5 billion as of January 31, 2013.   The balance as of July 31, 2013 excludes the amount related to the fair value unbilled deferred revenue associated with the acquisition of ExactTarget becuase this amount is reflected on the balance sheet under "accounts payable, accrued expenses and other liabilities" and "other noncurrent liabilities".  Unbilled deferred revenue represents future billings under our non-cancelable subscription agreements that have not been invoiced and, accordingly, are not recorded in deferred revenue.

Supplemental Revenue Analysis

Three Months Ended July 31, 

Six Months Ended July 31, 

2013

2012

2013

2012

Revenues by geography (in thousands):

Americas

$    678,535

$    507,974

$ 1,309,643

$    992,927

Europe

173,705

124,609

336,531

242,903

Asia Pacific

104,854

99,066

203,553

191,286

$    957,094

$    731,649

$ 1,849,727

$ 1,427,116

As a percentage of total revenues:

Revenues by geography:

Americas

71%

69%

71%

70%

Europe

18

17

18

17

Asia Pacific

11

14

11

13

100%

100%

100%

100%

Three Months Ended 

Three Months Ended 

Three Months Ended 

July 31, 2013

April 30, 2013

July 31, 2012

compared to Three Months

compared to Three Months

compared to Three Months

Ended July 31, 2012

Ended April 30, 2012

Ended July 31, 2011

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

Americas

34%

30%

38%

Europe

34%

38%

40%

Asia Pacific

19%

17%

28%

Total growth

32%

30%

37%

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

July 31, 2013

April 30, 2013

January 31, 2013

compared to 

compared to 

compared to 

July 31, 2012

 April 30, 2012

 January 31, 2012

Deferred revenue, current and noncurrent constant currency growth rates

 (as compared to the comparable prior periods)

Total growth

34%

31%

34%

Supplemental Diluted Share Count Information (1)

(in thousands)

Three Months Ended July 31, 

Six Months Ended July 31, 

2013

2012

2013

2012

Weighted-average shares outstanding for basic earnings per share 

593,955

557,700

591,210

555,156

Effect of dilutive securities (2):

Convertible senior notes

12,977

10,168

13,270

10,660

Warrants associated with the convertible senior note hedges

7,394

3,464

7,804

4,148

Employee stock awards

10,330

13,444

11,581

14,844

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

624,656

584,776

623,865

584,808

(1)

Following the stockholders' approval, the Company amended its certificate of incorporation on March 20, 2013, to increase the number of authorized shares of common stock from 400.0 million to 1.6 billion and effect a four for one stock split of the common stock through a stock dividend. Accordingly, all share and per share data presented herein reflect the impact of the increase in authorized shares and the stock split.

(2)

The effects of these dilutive securities were not included in the GAAP calculation of diluted net loss per share for the three and six months ended July 31, 2012 because the effect would have been anti-dilutive.

Supplemental Cash Flow Information

Free cash flow analysis, a non-GAAP measure

(in thousands)

Three Months Ended July 31, 

Six Months Ended July 31, 

2013

2012

2013

2012

 Operating cash flow 

 GAAP net cash provided by operating activities 

$    183,183

$    136,197

$    466,372

$    349,409

 Less: 

 Capital expenditures 

(102,549)

(29,304)

(156,559)

(74,025)

 Free cash flow 

$       80,634

$    106,893

$    309,813

$    275,384

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

Comprehensive Income (Loss)

(in thousands)

(Unaudited)

Three Months Ended July 31, 

Six Months Ended July 31, 

2013

2012

2013

2012

 Net income (loss) 

$       76,603

$       (9,829)

$         8,882

$     (29,304)

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

 Foreign currency translation and other gains (losses) 

(1,431)

10,135

(7,191)

6,947

 Unrealized gains (losses) on investments 

117

(961)

1,838

159

 Other comprehensive income (loss), before tax 

(1,314)

9,174

(5,353)

7,106

 Tax effect 

(1,173)

359

(545)

(59)

 Other comprehensive income (loss),  net of tax 

(2,487)

9,533

(5,898)

7,047

 Comprehensive income (loss) 

$       74,116

$           (296)

$         2,984

$     (22,257)

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,

2013

2012

2013

2012

Gross profit

GAAP gross profit

$739,377

$569,231

$1,423,016

$1,113,147

Plus:

Amortization of purchased intangibles (a)

22,550

17,668

43,855

35,116

Stock-based expenses (b) 

9,981

7,864

20,659

15,117

Non-GAAP gross profit

$771,908

$594,763

$1,487,530

$1,163,380

Operating expenses

GAAP operating expenses

$779,234

$582,697

$1,507,413

$1,148,862

Less:

Amortization of purchased intangibles (a)

(4,476)

(2,407)

(6,936)

(5,834)

Stock-based expenses (b) 

(100,495)

(77,553)

(204,546)

(151,566)

Non-GAAP operating expenses

$674,263

$502,737

$1,295,931

$   991,462

Income from operations

GAAP loss from operations

$ (39,857)

$ (13,466)

$    (84,397)

$    (35,715)

Plus:

Amortization of purchased intangibles (a)

27,026

20,075

50,791

40,950

Stock-based expenses (b) 

110,476

85,417

225,205

166,683

Non-GAAP income from operations

$  97,645

$  92,026

$   191,599

$   171,918

Non-operating income (loss) (c)

GAAP non-operating loss

$ (16,947)

$     (566)

$    (26,350)

$     (3,185)

Plus: Amortization of debt discount, net

12,352

6,207

21,592

11,090

Non-GAAP non-operating income (loss)

$   (4,595)

$    5,641

$     (4,758)

$      7,905

Net income

GAAP net income (loss) 

$  76,603

$   (9,829)

$      8,882

$    (29,304)

Plus:

Amortization of purchased intangibles (a)

27,026

20,075

50,791

40,950

Stock-based expenses (b)

110,476

85,417

225,205

166,683

Amortization of debt discount, net

12,352

6,207

21,592

11,090

Partial release of the tax valuation allowance (f)

128,828

0

128,828

0

Less:

Income tax effects and adjustments 

(298,990)

(41,154)

(318,039)

(74,249)

Non-GAAP net income 

$  56,295

$  60,716

$   117,259

$   115,170

Diluted earnings per share (e)

GAAP diluted income (loss) per share (d)

$     0.12

$    (0.02)

$        0.01

$       (0.05)

Plus:

Amortization of purchased intangibles

0.04

0.03

0.08

0.07

Stock-based expenses

0.18

0.15

0.36

0.29

Amortization of debt discount, net

0.02

0.01

0.03

0.02

Partial release of the tax valuation allowance

0.21

0.00

0.21

0.00

Less:

.

.

Income tax effects and adjustments 

(0.48)

(0.07)

(0.50)

(0.13)

Non-GAAP diluted earnings per share 

$     0.09

$     0.10

$        0.19

$        0.20

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

624,656

584,776

623,865

584,808

a)

Amortization of purchased intangibles were as follows:

Three Months Ended July 31,

Six Months Ended July 31,

2013

2012

2013

2012

Cost of revenues

$  22,550

$  17,668

$     43,855

$     35,116

Marketing and sales

4,476

2,407

6,936

5,834

$  27,026

$  20,075

$     50,791

$     40,950

b)

 Stock-based expenses were as follows:

Three Months Ended July 31,

Six Months Ended July 31,

2013

2012

2013

2012

Cost of revenues

$    9,981

$    7,864

$     20,659

$     15,117

Research and development

26,032

16,089

50,461

31,756

Marketing and sales

56,133

44,781

115,935

86,768

General and administrative

18,330

16,683

38,150

33,042

$110,476

$  85,417

$   225,205

$   166,683

c) 

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

d) 

 Reported GAAP loss per share was calculated using the basic share count.

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

e)

Prior period results have been adjusted to reflect the four for one stock split through a stock dividend which occurred in April 2013 (See Supplemental Diluted Share Count Information for additional details).

f)

One-time, non-cash benefit to income tax expense to release a portion of our valuation allowance against a significant portion of deferred tax assets.  The valuation allowance was established in the fiscal third quarter 2013.

salesforce.com, inc.

COMPUTATION OF BASIC AND DILUTED GAAP AND NON-GAAP NET INCOME (LOSS) PER SHARE (1)

(in thousands, except per share data)

(Unaudited)

Three Months Ended July 31,

Six Months Ended July 31,

2013

2012

2013

2012

GAAP Basic Net Income (Loss) Per Share

Net income (loss) 

$76,603

$ (9,829)

$    8,882

$ (29,304)

Basic net income (loss) per share 

$    0.13

$   (0.02)

$     0.02

$    (0.05)

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

593,955

557,700

591,210

555,156

Three Months Ended July 31,

Six Months Ended July 31,

2013

2012

2013

2012

Non-GAAP Basic Net Income Per Share

Non-GAAP net income 

$56,295

$60,716

$117,259

$115,170

Basic Non-GAAP net income per share 

$    0.09

$    0.11

$     0.20

$     0.21

Shares used in computing basic net income per share 

593,955

557,700

591,210

555,156

Three Months Ended July 31,

Six Months Ended July 31,

2013

2012

2013

2012

GAAP Diluted Net Income (Loss) Per Share

Net income (loss) 

$76,603

$ (9,829)

$    8,882

$ (29,304)

Diluted net income (loss) per share 

$    0.12

$   (0.02)

$     0.01

$    (0.05)

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

624,656

557,700

623,865

555,156

Three Months Ended July 31,

Six Months Ended July 31,

2013

2012

2013

2012

Non-GAAP Diluted Net Income Per Share

Non-GAAP net income 

$56,295

$60,716

$117,259

$115,170

Diluted Non-GAAP net income per share 

$    0.09

$    0.10

$     0.19

$     0.20

Shares used in computing diluted net income per share

624,656

584,776

623,865

584,808

(1)

Prior period results have been adjusted to reflect the four for one stock split through a stock dividend which occurred in April 2013 (See Supplemental Diluted Share Count Information for additional details).

 

 

SOURCE salesforce.com

For further information: John Cummings, salesforce.com, Investor Relations, 415-778-4188, jcummings@salesforce.com, or, Jane Hynes, salesforce.com, Public Relations, 415-901-5079, jhynes@salesforce.com

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