Salesforce.com Announces Fiscal 2013 Third Quarter Results
• Quarterly Revenue of $788 Million, up 35% Year-Over-Year
• Deferred Revenue of $1.29 Billion, up 41% Year-Over-Year
• Unbilled Deferred Revenue Increases to Approximately $3 Billion
• Raises FY13 Revenue Guidance to $3.041 - $3.046 Billion
• Initiates FY14 Revenue Guidance of $3.80 - $3.85 Billion
SAN FRANCISCO, Calif. – November 20, 2012 – Salesforce.com (NYSE: CRM), the enterprise cloud computing (http://www.salesforce.com/cloudcomputing/) company, today announced results for its fiscal third quarter ended October 31, 2012.
“Salesforce.com is the first enterprise cloud computing company to exceed a $3 billion annual revenue run rate, with outstanding third quarter revenue growth at 35% in dollars and 37% in constant currency,” said Marc Benioff, Chairman and CEO, salesforce.com. “Given the strong customer response to our next generation social and mobile cloud technologies, I’m delighted to announce that we expect to surpass a $4 billion annual revenue run rate during our fiscal year 2014.”
Salesforce.com delivered the following results for its fiscal third quarter:
Revenue: Total Q3 revenue was $788 million, an increase of 35% on a year-over-year basis. Subscription and support revenues were $741 million, an increase of 35% on a year-over-year basis. Professional services and other revenues were $48 million, an increase of 36% on a year-over-year basis.
Earnings per Share: Q3 GAAP net loss per share was ($1.55), and non-GAAP diluted earnings per share was $0.33.
The company recorded a one-time, non-cash charge to income tax expense in the third quarter of fiscal 2013 in the amount of $149 million to establish a valuation allowance against a significant portion of its deferred tax assets. This accounting treatment reflects the company’s assessment of whether the deferred tax assets will be realizable in the near-future, but has no effect on the company’s ability to utilize deferred tax assets, such as loss carryforwards and tax credits, to reduce future cash tax payments. The Company will continue to assess and record any necessary quarterly changes to the valuation allowance and the corresponding income tax expense or benefit.
The company’s non-GAAP results exclude the effects of the $149 million charge related to the establishment of the tax valuation allowance, $26 million related to the quarterly change in the tax valuation allowance, $105 million in stock-based compensation expense, $26 million in amortization of purchased intangibles, and $6 million in net non-cash interest expense related to the company’s convertible senior notes. GAAP EPS calculations are based on a basic share count of approximately 142 million shares. Non-GAAP EPS calculations are based on approximately 150 million diluted shares outstanding during the quarter, including approximately four million shares associated with the company’s convertible senior notes.
Cash: Cash generated from operations for the fiscal third quarter was $106 million, a decrease of 18% on a year-over-year basis. Total cash, cash equivalents and marketable securities finished the quarter at $1.4 billion.
Deferred Revenue: Deferred revenue on the balance sheet as of October 31, 2012 was $1.29 billion, an increase of 41% on a year-over-year basis. Current deferred revenue increased by 35% year-over-year to $1.23 billion, benefited in part by longer invoice durations. Non-current deferred revenue increased by 414% year-over-year to $66 million. Unbilled deferred revenue, representing business that is contracted but unbilled and off balance sheet, ended the third quarter at approximately $3 billion, up from approximately $2.8 billion at the end of the fiscal second quarter.
As of November 20, 2012, salesforce.com is initiating revenue, GAAP EPS and non-GAAP EPS guidance for its fiscal fourth quarter of fiscal year 2013. In addition, for the full fiscal year 2013, the company is raising its revenue and non-GAAP EPS guidance and lowering its GAAP EPS guidance previously provided on August 23, 2012. The company is also initiating revenue guidance for fiscal year 2014.
Q4 FY13 Guidance: Revenue for the company’s fourth fiscal quarter is projected to be in the range of $825 million to $830 million, an increase of 31% year-over-year.
GAAP net loss per share is expected to be in the range of ($0.25) to ($0.23), while diluted non-GAAP EPS is expected to be in the range of $0.38 to $0.40. The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $107 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $21 million, and net non-cash interest expense related to the convertible senior notes, expected to be approximately $6 million. EPS estimates assume a GAAP tax rate of approximately negative 7%, and a non-GAAP tax rate of approximately 40%, which reflect the estimated quarterly change in the tax valuation allowance. The GAAP EPS calculation assumes an average basic share count of approximately 145 million shares, and the non-GAAP EPS calculation assumes an average fully diluted share count of approximately 155 million shares.
Full Year FY13 Guidance: Revenue for the company’s full fiscal year 2013 is projected to be in the range of $3.041 billion to $3.046 billion, an increase of 34% year-over-year.
For the company’s full fiscal year 2013, GAAP net loss per share is expected to be in the range of ($2.02) to ($2.00) while diluted non-GAAP EPS is expected to be in the range of $1.50 to $1.52. The lowering of the GAAP net loss per share range is a result of the non-cash tax expenses in Q3, as discussed above. The non-GAAP estimate excludes the effects of the fiscal third quarter charge to establish a tax valuation allowance of approximately $149 million, stock-based compensation expense, expected to be approximately $379 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $88 million, and net non-cash interest expense related to the convertible senior notes, expected to be approximately $24 million. EPS estimates assume a GAAP tax rate of approximately negative 114%, and a non-GAAP tax rate of approximately 37%, which reflect the estimated annual change in the tax valuation allowance. Due to the valuation allowance, however, the GAAP tax rate is volatile and difficult to forecast. The GAAP EPS calculation assumes an average basic share count of approximately 141 million shares, and the non-GAAP EPS calculation assumes an average fully diluted share count of approximately 149 million shares.
Full Year FY14 Guidance: Revenue for the company’s full fiscal year 2014 is projected to be in the range of approximately $3.80 billion to approximately $3.85 billion. The company will provide its expectations for FY14 GAAP and non-GAAP EPS when it announces its fourth quarter fiscal year 2013 results in February 2013.
The following is a per share reconciliation of GAAP EPS to non-GAAP diluted EPS guidance for the fourth quarter and full fiscal year:
Quarterly Conference Call
Salesforce.com will host a conference call to discuss its third quarter fiscal year 2013 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 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 salesforce.com or 51384041. A replay will be available at 800-585-8367 or +1 855-859-2056, passcode 51384041, until midnight (Eastern Time) December 20, 2012.
To view the remainder of the FY13Q2 financials on this press release, please click here to download the PDF.
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, certain one-time, non-cash tax charges, quarterly changes to the valuation allowance, 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 net amortization of debt discount on the company’s convertible senior notes are being excluded from the company’s FY13 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 to issue stock-based compensation, acquire a company, or issue 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 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 Q3 and its non-GAAP estimates for Q4 and FY13:
• 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 subordinated notes that were issued in a private placement in January 2010. The imputed interest rate is approximately 5.9%, while the actual coupon interest rate of the notes is 0.75%. 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.
• One-time Tax Charge: As a result of the company assessing the realizability of its deferred tax assets, the company recorded a one-time, non-cash charge to income tax expense to establish a valuation allowance against a significant portion of those assets. The company applied significant judgment as part of this analysis including considering the company’s past operating results, cumulative losses and forecasts of future taxable income. As part of establishing a valuation allowance with respect to the company’s deferred tax assets, the company will assess and record any necessary quarterly changes to the valuation allowance and the corresponding income tax expense or benefit. Management believes that the exclusion of this non-cash charge is appropriate to provide investors with a better view of the company’s operational performance.
• Quarterly Change in Valuation Allowance: As part of establishing a valuation allowance, the company records a quarterly charge related to the change in the valuation allowance. Management believes that the exclusion of any quarterly charge related to the change in the valuation allowance is appropriate to provide investors with a better view of the company’s operational performance.
• Income Tax Effects: The company’s estimated non-GAAP effective tax rate adjusts for the tax effect of the expense items described above.
“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 EPS for the fourth fiscal quarter of 2013 and the full fiscal year, the company’s expected revenue run rate and revenues in fiscal 2014, the company’s expected tax rates, stock-based compensation expenses, amortization of purchased intangibles and debt discount, shares outstanding, and 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.
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