Raises FY15 Revenue Guidance to $5.25 - $5.30 Billion, up 29% - 30% Year-Over-Year
• Quarterly Revenue of $1.15 Billion, up 37% Year-Over-Year
• Full Year Revenue of $4.07 Billion, up 33% Year-Over-Year
• Deferred Revenue of $2.52 Billion, up 35% Year-Over-Year
• Unbilled Deferred Revenue of Approximately $4.50 Billion, up 29% Year-Over-Year
• Full Year Operating Cash Flow of $875 Million, up 19% Year-Over-Year
• Initiates First Quarter Revenue Guide of $1.205 - $1.210 Billion
• Initiates FY15 Non-GAAP EPS Guidance of $0.48 - $0.50
• CFO to Retire in March 2015
SAN FRANCISCO, Calif. – February 27, 2014 – Salesforce.com (NYSE: CRM), the world’s #1 CRM platform (http://www.salesforce.com/), today announced results for its fiscal fourth quarter and full fiscal year ended January 31, 2014.
“I’m delighted to announce that we are raising our fiscal year 2015 revenue guidance by $100 million, to reach $5.3 billion, which is a full year growth rate of 30% at the high end of our range,” salesforce.com Chairman and CEO Marc Benioff said.
Salesforce.com delivered the following results for its fiscal fourth quarter and full fiscal year 2014:
Revenue: Total Q4 revenue was $1.15 billion, an increase of 37% year-over-year, benefited in part by the acquisition of ExactTarget which closed in July 2013. Subscription and support revenues were $1.08 billion, an increase of 37% year-over-year. Professional services and other revenues were $70 million, an increase of 43% year-over-year.
Full fiscal year 2014 revenue was $4.07 billion, an increase of 33% year-over-year. Subscription and support revenues were $3.82 billion, an increase of 33% year-over-year. Professional services and other revenues were $246 million, an increase of 36% year-over-year.
Earnings per Share: Q4 GAAP loss per share was ($0.19), and diluted non-GAAP earnings per share was $0.07. The company’s non-GAAP results exclude the effects of $137 million in stock-based compensation expense, $47 million in amortization of purchased intangibles, and $13 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 36%. GAAP EPS calculations are based on a basic share count of approximately 607 million shares. Non-GAAP EPS calculations are based on approximately 650 million diluted shares outstanding during the quarter, including approximately 29 million shares associated with the company’s convertible 0.75% senior notes due 2015.
For the full fiscal year 2014, GAAP loss per share was ($0.39), and non-GAAP diluted earnings per share was $0.35. The company’s non-GAAP results exclude the effects of $503 million in stock-based compensation, $147 million in amortization of purchased intangibles, and $47 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 35%. GAAP EPS calculations are based on a basic share count of approximately 598 million shares. Non-GAAP EPS calculations are based on approximately 636 million diluted shares outstanding during the year, including approximately 24 million shares associated with the company’s convertible 0.75% senior notes due 2015.
Cash: Cash generated from operations for the fiscal fourth quarter was $271 million, a decrease of 4% year-over-year. For the full fiscal year 2014, operating cash flow totaled $875 million, up 19% year-over-year. Total cash, cash equivalents and marketable securities finished the quarter at $1.32 billion.
Deferred Revenue: Deferred revenue on the balance sheet as of January 31, 2014 was $2.52 billion, an increase of 35% year-over-year, benefited in part by the acquisition of ExactTarget. Current deferred revenue increased by 38% year-over-year to $2.47 billion, benefited in part by longer invoice durations. Non-current deferred revenue decreased by 25% year-over-year to $48 million. Unbilled deferred revenue, representing business that is contracted but unbilled and off balance sheet, ended the fourth quarter at approximately $4.50 billion, up 29% year-over-year.
As of February 27, 2014, salesforce.com is initiating revenue and EPS guidance for its first quarter of fiscal year 2015, and initiating EPS guidance for its full fiscal year 2015. In addition, the company is raising its full fiscal year 2015 revenue guidance previously provided on November 18, 2013.
Q1 FY15 Guidance: Revenue for the company’s first fiscal quarter is projected to be in the range of $1.205 billion to $1.210 billion, an increase of 35% to 36% year-over-year.
GAAP loss per share is expected to be in the range of ($0.23) to ($0.22), while diluted non-GAAP EPS is expected to be in the range of $0.09 to $0.10. The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $129 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $44 million, net non-cash interest expense related to the convertible senior notes, expected to be approximately $11 million, and loss on debt derecognition related to the convertible senior notes, expected to be approximately $8 million. EPS estimates assume a GAAP tax rate of approximately negative 52%, which reflects the estimated quarterly change in the tax valuation allowance, and a projected long-term non-GAAP tax rate of 36.5%. The GAAP EPS calculation assumes an average basic share count of approximately 613 million shares, and the non-GAAP EPS calculation assumes an average fully diluted share count of approximately 655 million shares.
Full Year FY15 Guidance: Revenue for the company’s full fiscal year 2015 is projected to be in the range of $5.25 billion to $5.30 billion, an increase of 29% to 30% year-over-year.
GAAP loss per share is expected to be in the range of ($0.53) to ($0.51) while diluted non-GAAP EPS is expected to be in the range of $0.48 to $0.50. The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $577 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $149 million, net non-cash interest expense related to the convertible senior notes, expected to be approximately $39 million, and loss on debt derecognition related to the convertible senior notes, expected to be approximately $8 million. EPS estimates assume a GAAP tax rate of approximately negative 40%, which reflects the estimated annual change in the tax valuation allowance, and a projected long-term non-GAAP tax rate of 36.5%. 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 624 million shares, and the non-GAAP EPS calculation assumes an average fully diluted share count of approximately 667 million shares.
The following is a per share reconciliation of GAAP EPS to diluted non-GAAP EPS guidance for the first quarter and full fiscal year:
CFO - Future Retirement
Salesforce.com also announced today that Graham Smith, chief financial officer, has decided to retire in March 2015. Smith has been CFO since March 2008. The Company will initiate a search for a new CFO and Smith will help to ensure a smooth transition of his duties after a new CFO is appointed. “Graham has made an enormous contribution to the success of salesforce.com and he has been instrumental in helping to scale our business from $750 million annual revenue when he joined the company in 2007 to over $5 billion annual revenue which we are projecting for fiscal year 2015,” said Marc Benioff, Chairman and CEO. “We will miss him following his retirement in 2015 and wish him the best.”
"My more than six years at salesforce.com have been a fantastic experience -- working with so many talented people to transform the enterprise software industry,” said Smith. “Heading into fiscal 2015, salesforce.com has never been better positioned, and I look forward to ensuring a smooth transition over the next thirteen months."
Quarterly Conference Call
Salesforce.com will host a conference call to discuss its fiscal fourth quarter and full fiscal year 2014 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 55834103. A replay will be available at 800-585-8367 or +1 855-859-2056, passcode 55834103, until midnight (Eastern Time) March 31, 2014.
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, the net amortization of debt discount on the company’s convertible senior notes, gains/losses on the derecognition of 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. Beginning in FY 2015, the company intends to compute and provide a fixed long-term non-GAAP tax rate. The projected long-term rate eliminates the effects of non-recurring and period specific items which can vary in size and frequency. This projected long-term non-GAAP tax rate could be subject to change in the future for a variety of reasons, for example, significant structural changes in the company’s geographic earnings mix including acquisition activity, or fundamental tax law changes in major jurisdictions where the company operates. 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, the net amortization of debt discount on the company’s convertible senior notes and gains/losses on the derecognition of 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 changes in the 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 Q4 and FY14 and its non-GAAP estimates for Q1 and FY15:
• 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 recognize imputed interest expense on the company’s $575 million of convertible senior notes due 2015 that were issued in January 2010 and the company’s $1.15 billion of convertible senior notes due 2018 that were issued 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.
• Non-Cash Gains/Losses on Derecognition of Debt: Upon settlement of the company’s convertible senior notes, we attribute the fair value of the consideration transferred to the liability and equity components of the convertible senior notes. The difference between the fair value of consideration attributed to the liability component and the carrying value of the liability as of settlement date is recorded as a non-cash gain or loss on the statement of operations. Management believes that the exclusion of the non-cash gain/loss provides investors an enhanced view of the company’s operational performance.
• Income Tax Effects and Adjustments: During FY 2014, 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. Beginning in FY 2015, the company intends to compute and provide a fixed long-term projected non-GAAP tax rate. When projecting this long-term rate, the company excluded the income tax effects of the non-cash items described above. Additionally, the company evaluated its current long-term projections, current tax structure and other factors such as the company’s existing tax positions in various jurisdictions and key legislations in major jurisdictions where the company operates. The company intends to re-evaluate this long-term rate only on an annual basis. This long-term non-GAAP tax rate eliminates the effects of non-recurring and period specific items which can vary in size and frequency, and will provide better consistency within the interim reporting periods. Examples of the non-recurring and period specific items include but are not limited to changes in the valuation allowance related to deferred tax assets, effects resulting from acquisitions, and unusual or infrequently occurring items. This long-term rate could be subject to change for a variety of reasons, for example, significant structural changes in the geographic earnings mix including acquisition activity, or fundamental tax law changes in major jurisdictions where the company operates
“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 fiscal first quarter and the full fiscal year of 2015, 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 and gains/losses on the derecognition of debt, 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 company’s ability to realize benefits from strategic partnerships; 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 potential negative impact of indirect tax exposure; 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-K that will be filed for the fiscal year ended January 31, 2014. 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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