Salesforce.com Announces Record Fiscal Second Quarter 2008 Results

Exceeds Q2 Revenue and EPS Guidance and Raises Full Year Outlook
Surpasses 800,000 subscribers and $700 Million Annual Revenue Run Rate

  • Record Revenue of $177M, up 49% Year-Over-Year
  • GAAP Net Income Surges to $3.7M, up 412% Sequentially
  • GAAP EPS of $0.03, Above High End of Company Guidance
  • Net Paying New Customers Rise a Record 3,000 to 35,300
  • Two Largest Deployments Now Exceed 30,000 Subscribers Each
  • Record Q2 Operating Cash Flow of $35M, Up 15% Year-over-Year

SAN FRANCISCO, Calif. – August 15, 2007 – Salesforce.com (NYSE: CRM), the market and technology leader in on-demand business services, today announced results for its second fiscal quarter ended July 31, 2007.

“Our business continues to show incredible momentum: a year ago, our largest customer had roughly 7,500 subscribers. Today, our installed base includes 2 customers with more than 30,000 subscribers; 4 customers with 20,000 or more subscribers; 5 customers with over 10,000 and a remarkable 68 customers with more than 1,000 subscribers—a greater than 40% increase in the number of customers with 1,000 or more subscribers versus 6 months ago,” said Marc Benioff, chairman and CEO, salesforce.com. “Now with an annual revenue run rate of more than $700 million, our company is well-positioned to take on-demand even further into the enterprise.”

Salesforce.com delivered the following results for the second fiscal quarter 2008:

Revenue: Total Q2 revenue was $176.6 million, an increase of 49% on a year-over-year basis and an increase of 9% on a quarter-over-quarter basis. Subscription and support revenues were $160.0 million, an increase of 50% on a year-over-year basis and an increase of 8% on a quarterover-
quarter basis. Professional services and other revenues were $16.6 million, an increase of 45% on a year-over-year basis and an increase of 13% on a quarter-over-quarter basis.

Earnings per Share: Q2 diluted GAAP earnings per share were $0.03. This result includes approximately $13 million in stock based compensation and approximately $1.5 million in amortization of purchased intangibles related to previously announced acquisitions, as well as a 50% tax rate. Q2 diluted GAAP EPS calculations are based on an average of 121 million diluted shares outstanding during the quarter.

Customers: The company achieved a new record in Q2 by adding approximately 3,000 net paying customers in a quarter for the first time in its history. These additions pushed total net paying customers in the second quarter to 35,300, an increase of approximately 10,500 or 42% from Q2 of the prior year, and an increase of approximately 9% from the prior quarter. Net paying subscribers rose to more than 800,000 subscribers as of quarter end, an increase of more than 60% year over year.

Cash: Cash from operations for the fiscal second quarter was approximately $35 million, an increase of 15% year-over-year. Total cash, cash equivalents and marketable securities finished the quarter at approximately $497 million, an increase of approximately 49% or $163 million yearover- year.

Deferred Revenue: Deferred revenue on the balance sheet as of the end of the fiscal second quarter was roughly $322 million, an increase of 59% on a year-over-year basis and 9% on a quarter-over-quarter basis.

Based on information as of August 15, 2007, salesforce.com is initiating guidance for its third quarter, fiscal year 2008, and raising its guidance for the full fiscal year 2008.

Q3 FY08: Revenue for the company’s third fiscal quarter is projected to be in the range of approximately $187 million to $189 million. GAAP diluted EPS is expected to be in the range of approximately $0.01 to $0.02. GAAP EPS estimates include the effects of stock based compensation and the amortization of purchased intangibles. For the third fiscal quarter FY08, stock based compensation expense is expected to be approximately $14 million to $16 million, and the expense associated with the amortization of purchased intangibles is now expected to be approximately $1.5 million. For the purposes of Q3 GAAP EPS calculation, the company is expecting an average diluted shares count of 123 million shares, and a GAAP tax rate of 58%.

Full Year FY08: The company is raising its full fiscal year 2008 revenue and EPS outlook provided on May 16, 2007. Revenue is now expected to be approximately $727 million to approximately $732 million. The company now expects GAAP diluted EPS to be in the range of approximately $0.08 to $0.10. GAAP EPS estimates include the effects of stock based compensation and the amortization of purchased intangibles. For the full fiscal year 2008, stock based compensation expense is expected to be approximately $55 million to $60 million, and the expense associated with the amortization of purchased intangibles is currently expected to be approximately $5.0 million. For the purposes of the full fiscal year 2008 GAAP EPS calculation, the company is expecting an average diluted shares count of 123 million shares, and a GAAP tax rate of 58%.

Quarterly Conference Call
Salesforce.com will host a conference call to discuss its second quarter fiscal 2008 results at 2:00 p.m. (PDT) 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 706-902-1764. A replay will be available at (800) 642-1687 or (706) 645-9291, passcode 12424692, until midnight (EDT) August 24, 2007.

“Safe harbor” statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements including but not limited to statements regarding our expected future revenue, GAAP diluted earnings per share, expected tax rate, anticipated shares outstanding, further adoption of our on-demand business services by enterprises, and the potential market for our existing service offerings. All of our forward looking statements 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 and cash flows, 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 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 contained in our SEC filings, including our most recent reports on Form 10-K and 10-Q, particularly under the heading "Risk Factors." These documents are available in the SEC Filings portion 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.

“Safe harbor” statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements including but not limited to statements regarding our expected future revenue, GAAP diluted earnings per share, expected tax rate, anticipated shares outstanding, further adoption of our on-demand business services by enterprises, and the potential market for our existing service offerings. All of our forward looking statements 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 and cash flows, 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 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 contained in our SEC filings, including our most recent reports on Form 10-K and 10-Q, particularly under the heading "Risk Factors." These documents are available in the SEC Filings portion 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.