• 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, Calif. – August 29, 2013 – 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.
“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:
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.
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.
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