Salesforce.com Announces Fiscal First Quarter Results

First Enterprise Cloud Computing Company to Exceed $1.5 Billion Annual Revenue Run Rate

  • Record Quarterly Revenue of $377 Million, up 24% Year-Over-Year
  • Record Operating Cash Flow of $143 Million, rises 46% Year-Over-Year
  • Deferred Revenue of $665 Million, up 21% Year-Over-Year
  • Record 4,800 Net New Customers in Quarter
  • GAAP EPS of $0.13, down 13% Year-Over-Year
  • Non-GAAP EPS of $0.30 rises 7% Year-Over-Year
  • Company Raises FY11 Revenue Guidance to $1.545 Billion to $1.555 Billion

SAN FRANCISCO, Calif. – May 20, 2010 – Salesforce.com (NYSE: CRM), the enterprise cloud computing company, today announced results for its fiscal first quarter ended April 30, 2010.

“We are delighted to report that revenue grew 24% to propel salesforce.com past the $1.5 billion annual revenue run rate,” said Marc Benioff, chairman and CEO, salesforce.com. “Operating cash flow grew to a record $143 million, and we added 4,800 net new customers during the quarter, also a new record. It was an outstanding quarter for salesforce.com.”

Salesforce.com delivered the following results for the first quarter:
Revenue: Total Q1 revenue was $376.8 million, an increase of 24% on a year-over-year basis. Subscription and support revenues were $351 million, an increase of 24% on a year-over-year basis. Professional services and other revenues were $26 million, an increase of 13% on a year-over-year basis.
Earnings per Share: Q1 GAAP diluted earnings per share decreased 13% year-over-year to $0.13, while non-GAAP diluted earnings per share rose 7% year-over-year to $0.30. The company’s non-GAAP results exclude the effects of $26 million in stock-based compensation expense, approximately $2.5 million in amortization of purchased intangibles, and $5.5 million in non-cash interest expense related to the convertible senior notes. All EPS calculations are based on 132 million fully diluted shares outstanding during the quarter.
Customers: Net paying customers rose approximately 4,800 during the quarter to finish at approximately 77,300. Since April 30, 2009, the company has added approximately 18,000 net paying customers, an increase of roughly 30%.
Cash: Cash generated from operations for the fiscal first quarter was $143 million, up 46% year-over-year. Total cash, cash equivalents and marketable securities finished the quarter at $1.9 billion, an increase of approximately $918 million from the year prior including approximately $500 million in net proceeds from the company’s convertible senior note financing in January 2010.
Deferred Revenue: Deferred revenue on the balance sheet as of April 30, 2010 was $665 million, an increase of 21% on a year-over-year basis.

As of May 20, 2010, salesforce.com is initiating guidance for its second quarter, fiscal year 2011. For fiscal year 2011, the company is updating the guidance it provided on February 24, 2010.
Effect of Acquisitions on Guidance: On May 7, 2010, the company closed the acquisition of Jigsaw Data Corporation. The acquisition is expected to reduce both GAAP and non-GAAP EPS performance for fiscal year 2011 by approximately $0.20 and $0.11, respectively.
In addition, the company currently anticipates closing two small technology-related asset acquisitions in the second quarter that it currently anticipates will reduce fiscal year 2011 GAAP EPS by an estimated $0.03 and non-GAAP EPS by approximately $0.02.
Together, the accounting for the Jigsaw acquisition and anticipated asset acquisitions are expected to reduce fiscal second quarter EPS by approximately $0.07 on a GAAP basis, and approximately $0.03 on a non-GAAP basis. These amounts are reflected in the company’s guidance, which follows.

Q2 FY11 Guidance: Revenue for the company’s second quarter is projected to be in the range of approximately $381 million to approximately $383 million.
GAAP fully diluted EPS is expected to be in the range of approximately $0.07 to approximately $0.08, while non-GAAP fully diluted EPS in Q2 is expected to be in the range of approximately $0.26 to approximately $0.27. The company’s non-GAAP EPS estimate excludes the effects of stock-based compensation expense, expected to be approximately $28 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $7 million, and non-cash interest expense related to the convertible senior notes, expected to be approximately $6 million. EPS estimates assume a GAAP tax rate of 43%, and a non-GAAP tax rate of 39%. All EPS estimates assume an average fully diluted share count of approximately 135 million shares.

Full Year FY11 Guidance: The company is raising its full fiscal year 2011 revenue guidance from the guidance previously provided on February 24, 2010. Revenue for the company’s full fiscal year 2011 is projected to be in the range of approximately $1.545 billion to approximately $1.555 billion.
For the company’s full fiscal year 2011, fully diluted GAAP EPS is expected to be in the range of approximately $0.38 to approximately $0.40, while fully diluted non-GAAP EPS is expected to be in the range of approximately $1.13 to approximately $1.15. The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $117 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $25 million, and non-cash interest expense related to the convertible senior notes, expected to be approximately $23 million. For purposes of the full fiscal year 2011 GAAP and non-GAAP EPS calculation, the company is expecting an average diluted share count of approximately 136 million shares, a GAAP tax rate of approximately 41%, and a non-GAAP tax rate of approximately 38%.
The following is a per share reconciliation of GAAP diluted EPS to non-GAAP diluted EPS guidance:

 
Fiscal 2011
     
 
Q2'11
FY'11
     
GAAP diluted EPS range $0.07-$0.08 $0.38-$0.40
Plus    
Amortization of purchased intangibles 0.05 0.18
Stock-based expense 0.21 0.86
Amortization of debt discount 0.04 0.17
Less    
Income tax effect of certain Non-GAAP items (0.11) (0.46)
Non-GAAP diluted EPS range $0.26-$0.27 $1.13-$1.15
     
     
Shares used in computing diluted net income per share (millions) 135 136

Quarterly Conference Call
Salesforce.com will host a conference call to discuss its first quarter fiscal year 2011 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 706-902-1764. A replay will be available at (800) 642-1687 or (706) 645-9291, passcode 72289157, until midnight (ET) June 11, 2010.

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

The primary purpose of these non-GAAP measures is to provide supplemental information that may prove useful to investors who wish to consider the impact of certain non-cash items on the company’s operating performance. Non-cash stock-based compensation, amortization of acquisition-related intangible assets, and the amortization of debt discount on the company’s convertible notes are being excluded from the company’s FY11 financial results because the decisions which gave rise to these expenses were not made to drive revenue in a particular period, but rather were made for the company’s long-term benefit over multiple periods. While strategic decisions, such as the decisions to issue stock-based compensation, to acquire a company, or to issue convertible senior notes, are made to further the company’s long-term strategic objectives and do 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 within 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.

Secondarily, 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 Q1 and its estimated non-GAAP estimates for Q2 and FY2011:

  • Stock-Based Expenses: The company’s compensation strategy is to use stock-based compensation to attract and retain key employees and executives. It is principally aimed at aligning their interests with those of our stockholders and at long-term employee retention, rather than to motivate or reward operational performance for any particular period. Thus, stock-based compensation expense varies for reasons that are generally unrelated to operational decisions and performance in any particular period.
  • Amortization of Purchased Intangibles: The company views amortization of acquisition-related intangible assets, such as the amortization of an acquired company’s research and development efforts, customer lists and customer relationships, as items arising from pre-acquisition activities. These are costs that are determined at the time of an acquisition. While it is continually viewed for impairment, amortization of the cost is a static expense, one that is typically not 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 0.75% convertible subordinated notes that were issued in a private placement in January 2010. The imputed interest is at a rate of approximately 5.9%. The difference between the imputed interest expense and the coupon interest expense is excluded from management’s assessment of the company’s operating performance because management believes that this is not indicative of ongoing operating performance and because it is a non-cash expense. 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.

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“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 earnings per share for the second fiscal quarter of 2011 and the full fiscal year, and the company’s expected tax rates, stock-based compensation expenses, amortization expenses, and shares outstanding, the achievement of which 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 – the possibility that the company does not consummate certain acquisitions that we currently anticipate, that such acquisitions will be on different terms or have different accounting implications than the company currently anticipates, or that the company will consummate other acquisitions not currently anticipated, as well as risks associated with possible fluctuations in the company’s financial and operating results, rate of growth and anticipated revenue run rate; errors, interruptions or delays in the company’s service or the company’s Web hosting; breaches of the company’s security measures; the financial impact of any 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 market 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 or related dispute settlements, including the patent litigation with Microsoft; unanticipated changes in the company’s effective tax rate; and fluctuations in the number of shares we have outstanding, the price of such shares, foreign currency exchange rates, interest rates, 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 quarter ended April 30, 2010 and our Form 10-K filed for the fiscal year ended January 31, 2010. 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.

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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.

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