Salesforce.com Announces Record Fiscal Third Quarter Results

Salesforce.com Announces Record Fiscal Third Quarter Results

First Software-as-a-Service Company to Exceed $500 Million Annual Revenue Run-Rate

  • Record Revenue of $130M, up 57% year-over-year
  • Net Paying Subscribers Rise a Record 61,000 to 556,000
  • Net Customers Rise a Record 2,300 to 27,100
  • Operating Cash Flow of $30.6M
  • Largest Customer Doubles Deployment to 15,000 Subscribers
  • Company Raises Full Year Fiscal 2007 Guidance
  • Break-even GAAP EPS
  • GAAP EPS was reduced by Approximately $0.06 of Stock-Based Compensation and Amortization of Purchased Intangibles

SAN FRANCISCO, Nov 15, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- Salesforce.com (NYSE: CRM), the market and technology leader in on-demand business services, today announced results for its fiscal third quarter ended October 31, 2006.

"We had a spectacular quarter," said Marc Benioff, chairman and CEO, salesforce.com. "We have doubled our largest customer to 15,000 subscribers demonstrating the scalability of the on-demand model to the world's largest companies."

(Logo: http://www.newscom.com/cgi-bin/prnh/20050216/SFW105LOGO )

Salesforce.com delivered the following results for the third quarter of fiscal year 2007:

Revenue: Total revenue was $130 million, an increase of 57% on a year-over-year basis and an increase of 10% on a quarter-over-quarter basis. Subscription and support revenues were $118 million, an increase of 59% on a year-over-year basis and an increase of 11% on a quarter-over-quarter basis. Professional services and other revenues were $12 million, an increase of 40% on a year-over-year basis and an increase of 1% on a quarter-over-quarter basis.

Earnings per Share: GAAP earnings per share were break-even. This result included approximately $10.2 million in stock-based compensation and approximately $0.6 million in amortization of purchased intangibles related to an acquisition. Together, these items reduced reported GAAP EPS by approximately $0.06 per share. For the basis of GAAP EPS calculations, there was an average of 120 million diluted shares outstanding during the quarter.

Customers and Paying Subscribers: Customers rose approximately 2,300, a new record, during the quarter and totaled approximately 27,100, an increase of 45% from Q3 of the prior year, and an increase of 9% from the prior quarter. Net paying subscribers rose approximately 61,000 during Q3 to exit the quarter at approximately 556,000 total subscribers. This brings total net paying subscriber additions to 163,000 for the first nine months of fiscal 2007.

Cash: Cash from operations for the fiscal third quarter was approximately $30.6 million, an increase of 25% year-over-year. Total cash, cash equivalents and marketable securities finished the quarter at $371 million, up 45% on a year-over-year basis.

Deferred Revenue: Deferred revenue on the balance sheet as of October 31, 2006 was $219 million, an increase of 73% on a year-over-year basis and 8% on a quarter-over-quarter basis.

Based on information as of November 15, 2006, salesforce.com is initiating guidance for its fourth quarter and raising guidance for its full fiscal year 2007 ending January 31, 2007. Salesforce.com is also initiating full year fiscal 2008 guidance.

Q4 FY07: Revenue for the company's fourth fiscal quarter is projected to be in the range of approximately $140 million to approximately $142 million. GAAP diluted EPS is expected to be in the range of approximately negative ($0.02) to break-even. GAAP EPS estimates include the effects of stock-based compensation and the amortization of purchased intangibles. For the fourth fiscal quarter FY07, stock-based compensation expense is expected to be approximately $10 to $12 million, and the expense associated with the amortization of purchased intangibles is now expected to be approximately $0.6 million. Together, these items are expected to reduce GAAP earnings per share by approximately $0.06 to $.07 per share.

Full Year FY07: The company today is raising its revenue outlook for its fiscal year 2007, and now expects full year revenue of approximately $493 million to approximately $495 million. The company is also raising its earnings outlook for the full year, and now expects GAAP diluted EPS to be in the range of approximately negative ($0.02) to breakeven. GAAP EPS estimates include the effects of stock-based compensation and the amortization of purchased intangibles. For the full fiscal year '07, stock-based compensation expense is expected to be approximately $38 to $40 million, and the expense associated with the amortization of purchased intangibles is now expected to be approximately $1.8 million. Together, these items are expected to reduce GAAP earnings per share by approximately $0.22 to $0.23 per share.

Full Year FY08: The company today is initiating revenue guidance for its fiscal year 2008, and now expects full year revenue of approximately $700 million to approximately $710 million. The company plans to provide its expectations for FY08 GAAP EPS on its fourth quarter, FY07 results conference call planned for mid-February, 2007. GAAP EPS for FY08 is expected to be impacted by the effects of stock-based compensation and the amortization of purchased intangibles. For the full fiscal year, stock-based compensation expense is expected to be approximately $60 to $70 million with an expected reduction in reported GAAP EPS of $0.32 to $0.37. The expense associated with the amortization of purchased intangibles is now expected to be approximately $2 million, reducing reported GAAP EPS by approximately $0.01 for the full fiscal year '08.

Quarterly Conference Call

Salesforce.com will host a conference call to discuss its third quarter fiscal 2007 results at 2:00 p.m. Pacific Standard 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 into the conference call can do so by dialing domestically 866-901-SFDC or 866-901-7332 and internationally 706-758-3772. A replay will be available at 800-642-1687 or 706-645-9291, passcode 1115764, until midnight (EST) December 1, 2006.

About salesforce.com

Salesforce.com is the market and technology leader in on-demand business services. The company's Salesforce suite of on-demand CRM applications allows customers to manage and share all of their sales, support, marketing and partner information on-demand. Apex, the world's first on-demand platform, enables customers, developers and partners to build powerful new on-demand applications that extend beyond CRM to deliver the benefits of multi-tenancy and The Business Web across the enterprise. All Apex components and applications can be easily shared, exchanged and installed via salesforce.com's AppExchange directory, available at http://www.salesforce.com/appexchange . Customers can also take advantage of Successforce, salesforce.com's world-class training, support, consulting and best practices offerings.

As of October 31, 2006, salesforce.com manages customer information for approximately 27,100 customers and approximately 556,000 paying subscribers including Advanced Micro Devices (AMD), America Online (AOL), Avis Budget Group, Inc, Dow Jones Newswires, Nokia, Polycom and SunTrust Banks. 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://www.salesforce.com , or call 1-800-NO-SOFTWARE.

"Safe harbor" statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements about expected revenue and GAAP earnings per share for the fourth fiscal quarter of 2007, the full fiscal year 2007, the full fiscal year 2008, related items, and our revenue run rate and future revenue goals, and acceptance of the Apex platform, the achievement of which involve risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions proves incorrect, our 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 our operating results, rate of growth and anticipated revenue run rate, errors, interruptions or delays in our service or our Web hosting, our new business model, our history of operating losses, the possibility that we will not remain profitable, breach of our security measures, the emerging market in which we operate, our relatively limited operating history, our ability to hire, retain and motivate our employees and manage our growth, competition, our ability to continue to release and gain customer acceptance of new and improved versions of our service, customer and partner acceptance of the Apex platform and the AppExchange, successful customer deployment and utilization of our services, unanticipated changes in our effective tax rate, fluctuations in the number of shares outstanding, the price of such shares, foreign currency exchange rates and interest rates.

Further information on these and other factors that could affect our 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 Form 10-Q for the quarter ended July 31, 2006, and our Form 10-K for the fiscal year ended January 31, 2006. These documents are available on the SEC Filings section of the Investor Information section of our 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.

NOTE: Salesforce.com is a registered trademark of, AppExchange and Successforce are trademarks of, salesforce.com, Inc., San Francisco, California. Other names used 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 Nine Months Ended

Oct 31, Oct 31,

2006 2005 2006 2005


Revenues:

Subscription and support $118,433 $74,386 $319,589 $198,214

Professional services and other 11,620 8,287 33,287 20,579

Total revenues 130,053 82,673 352,876 218,793


Cost of revenues (1):

Subscription and support 16,628 10,069 45,178 23,418

Professional services and other 14,732 9,515 39,873 24,368

Total cost of revenues 31,360 19,584 85,051 47,786


Gross profit 98,693 63,089 267,825 171,007


Operating expenses (1):

Research and development 11,450 6,602 31,283 16,374

Marketing and sales 66,526 37,905 178,353 107,095

General and administrative 20,840 12,195 59,711 32,973

Lease recovery 0 0 0 (285)

Total operating expenses 98,816 56,702 269,347 156,157


Income (loss) from operations (123) 6,387 (1,522) 14,850


Interest, net 4,132 2,024 10,281 5,158

Other income (expense) 309 (74) (153) 636


Income before (provision) benefit

for income taxes and minority

interest 4,318 8,337 8,606 20,644


(Provision) benefit for income

taxes (3,418) 5,101 (7,136) 2,640


Income before minority interest 900 13,438 1,470 23,284


Minority interest in consolidated

joint venture (561) (341) (1,505) (767)


Net income (loss) $339 $13,097 ($35) $22,517


Basic net income (loss) per share $0.00 $0.12 $0.00 $0.21


Diluted net income (loss) per

share $0.00 $0.11 $0.00 $0.19


Shares used in computing basic net

income (loss) per share 112,885 107,781 111,889 106,547


Shares used in computing diluted

net income (loss) per share 120,279 118,655 111,889 117,764



(1) Amounts include stock-based

expenses, as follows:

Cost of revenues $1,304 $135 $3,900 $445

Research and development 1,195 77 3,201 256

Marketing and sales 4,826 301 13,026 1,028

General and administrative 2,915 312 7,912 890


Total stock-based

expenses $10,240 $825 $28,039 $2,619



salesforce.com, inc.

Condensed Consolidated Statements of Operations

As a percentage of total revenues:

(Unaudited)


Three Months Ended Nine Months Ended

Oct 31, Oct 31,

2006 2005 2006 2005

Revenues:

Subscription and support 91% 90% 91% 91%

Professional services and other 9 10 9 9

Total revenues 100 100 100 100


Cost of revenues:

Subscription and support 13 12 13 11

Professional services and other 11 12 11 11

Total cost of revenues 24 24 24 22


Gross profit 76 76 76 78


Operating expenses:

Research and development 9 7 9 7

Marketing and sales 51 46 51 49

General and administrative 16 15 16 15

Lease recovery 0 0 0 0

Total operating expenses 76 68 76 71


Income (loss) from operations 0 8 0 7


Interest, net 3 2 3 2

Other income (expense) 0 0 0 0


Income before (provision) benefit for

income taxes and minority interest 3 10 3 9


(Provision) benefit for income taxes (3) 6 (3) 2


Income before minority interest 0 16 0 11


Minority interest in consolidated

joint venture 0 0 0 (1)


Net income (loss) 0% 16% 0% 10%




Stock-based expenses as a percentage

of total revenues, as follows:

Cost of revenues 1% 0% 1% 0%

Research and development 1 0 1 0

Marketing and sales 4 0 4 1

General and administrative 2 1 2 0


Total stock-based

expenses 8% 1% 8% 1%



salesforce.com, inc.

Condensed Consolidated Balance Sheets

(in thousands)


Oct 31, January 31,

2006 2006

(unaudited)

Assets

Current assets:

Cash and cash equivalents $70,324 $99,842

Short-term marketable securities 174,574 107,723

Accounts receivable, net 82,808 76,128

Deferred commissions 15,479 13,186

Prepaid expenses and other

current assets 12,749 6,338


Total current assets 355,934 303,217


Marketable securities, noncurrent 126,380 89,227

Fixed assets, net 28,151 24,216

Deferred commissions, noncurrent 5,319 3,889

Deferred income taxes, noncurrent 20,850 10,416

Goodwill 6,743 0

Other assets 12,312 3,784


Total assets $555,689 $434,749


Liabilities and stockholders' equity

Current liabilities:

Accounts payable $5,660 $10,212

Accrued expenses and other

current liabilities 59,025 48,782

Income taxes payable 4,207 2,650

Deferred income taxes 5,637 3,191

Deferred revenue 219,431 169,175

Current portion of capital lease

obligations 327 615


Total current liabilities 294,287 234,625


Capital lease obligations, net of

current portion 13 184

Long-term lease abandonment

liability and other 1,089 1,155

Minority interest 3,919 2,414


Total liabilities 299,308 238,378


Stockholders' equity:

Common stock 114 111

Additional paid-in capital 294,365 237,010

Deferred stock-based compensation 0 (2,531)

Accumulated other comprehensive

loss (1,949) (2,105)

Accumulated deficit (36,149) (36,114)


Total stockholders' equity 256,381 196,371


Total liabilities and stockholders'

equity $555,689 $434,749



salesforce.com, inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


Three Months Ended Nine Months Ended

Oct 31, Oct 31,

2006 2005 2006 2005

Operating activities:

Net income (loss) $339 $13,097 ($35) $22,517

Adjustments to reconcile net

income (loss) to net

cash provided by operating

activities:

Minority interest 561 341 1,505 767

Depreciation and amortization 3,339 1,490 8,767 4,079

Amortization of deferred

commissions 5,827 3,629 16,605 10,357

Lease recovery 0 0 0 (285)

Expenses related to stock-based

awards 10,240 825 28,039 2,619

Tax benefits from employee

stock plans (4,878) 794 (10,806) 2,712

Changes in assets and

liabilities 15,199 4,395 28,990 13,787



Net cash provided by

operating activities 30,627 24,571 73,065 56,553


Investing activities:

Business combination 0 0 (15,502) 0

Restricted cash 0 3,307 0 3,191

Changes in marketable securities (116,209) 37,750 (103,152) (283)

Capital expenditures (9,085) (5,291) (14,498) (17,820)


Net cash provided by (used

in) investing activities (125,294) 35,766 (133,152) (14,912)


Financing activities:

Proceeds from the exercise of

stock options and warrants 10,149 2,209 21,040 9,651

Tax benefits from employee stock

plans 4,878 0 10,806 0

Collection of notes receivables 0 0 0 727

Principal payments on capital

lease obligations (155) (152) (459) (463)

Repurchase of unvested shares 0 0 (10) (28)


Net cash provided by

financing activities 14,872 2,057 31,377 9,887


Effect of exchange rate changes 127 (179) (808) 96


Net increase (decrease) in cash

and cash equivalents (79,668) 62,215 (29,518) 51,624


Cash and cash equivalents,

beginning of period 149,992 25,140 99,842 35,731


Cash and cash equivalents, end of

period $70,324 $87,355 $70,324 $87,355



salesforce.com, inc.

Additional Metrics

(Unaudited)


Oct 31, July 31, April 30,

2006 2006 2006


Customer and subscriber data:

Approximate number of customers 27,100 24,800 22,700

Approximate number of paying

subscriptions (1) 556,000 495,000 438,000



Full Time Equivalent Headcount 1,807 1,625 1,480



Financial data (in thousands):

Cash, cash equivalents and

marketable

securities $371,278 $334,107 $298,313

Deferred revenue $219,431 $202,836 $182,036


January 31, October 31, July 31,

2006 2005 2005


Customer and subscriber data:

Approximate number of customers 20,500 18,700 16,900

Approximate number of paying

subscriptions (1) 393,000 347,000 307,000



Full Time Equivalent Headcount 1,304 1,116 1,059



Financial data (in thousands):

Cash, cash equivalents and

marketable

securities $296,792 $256,853 $232,710

Deferred revenue $169,175 $127,110 $117,311



Revenues by geography (in thousands):

Three Months Ended Nine Months Ended

Oct 31, Oct 31,

2006 2005 2006 2005


Americas $101,240 $66,021 $276,818 $174,622

Europe 19,821 11,356 52,395 30,777

Asia Pacific 8,992 5,296 23,663 13,394


$130,053 $82,673 $352,876 $218,793


As a percentage of total

revenues:


Americas 78% 80% 78% 80%

Europe 15 14 15 14

Asia Pacific 7 6 7 6


100% 100% 100% 100%



(1) Paying subscriptions are defined as unique user accounts, purchased by customers for use by their employees and other customer-authorized users that have not been suspended for non-payment and for which we are recognizing subscription revenue. The numbers of paying subscriptions were revised as follows for the correction of an error.

                                              Previously


As of Reported Adjusted


July 31, 2005 308,000 307,000


October 31, 2005 351,000 347,000


January 31, 2006 399,000 393,000


April 30, 2006 444,000 438,000


July 31, 2006 501,000 495,000


SOURCE salesforce.com, Inc.

Investor Relations, David Havlek, +1-415-536-2171, or dhavlek@salesforce.com, or
Public Relations, Bruce Francis, +1-415-536-6972, or bfrancis@salesforce.com, both of salesforce.com

http://www.salesforce.com/

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding salesforce.com's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.



About Salesforce

Salesforce, the Customer Success Platform and world's #1 CRM, empowers companies to connect with their customers in a whole new way. For more information about Salesforce (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 applications should make their purchase decisions based upon features that are currently available. Salesforce 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://www.salesforce.com, or call 1-800-NO-SOFTWARE.