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Salesforce Announces Fiscal 2015 Third Quarter Results

Nov 19, 2014

- Revenue of $1.38 Billion, up 29% Year-Over-Year, 30% in Constant Currency
- Deferred Revenue of $2.22 Billion, up 28% Year-Over-Year, 31% in Constant Currency
- Unbilled Deferred Revenue of Approximately $5.40 Billion, up 29% Year-Over-Year
- Guides FY15 Revenue of Approximately $5.365 Billion to $5.370 Billion
- Initiates FY16 Revenue Guidance of Approximately $6.45 Billion to $6.50 Billion

SAN FRANCISCO, Nov. 19, 2014 /PRNewswire/ -- Salesforce (NYSE: CRM), the Customer Success Platform and world's #1 CRM company, today announced results for its fiscal third quarter ended October 31, 2014.

"Salesforce continues to be the fastest growing top 10 software company, with constant currency revenue and deferred revenue growth of 30% or more year-over-year," said Marc Benioff , Chairman and CEO, Salesforce. "Given the tremendous response to our Customer Success Platform, I'm delighted to announce a fiscal 2016 revenue projection of $6.5 billion at the high end of the range."

Salesforce delivered the following results for its fiscal third quarter:       

Revenue:  Total Q3 revenue was $1.38 billion, an increase of 29% year-over-year, and 30% in constant currency.  Subscription and support revenues were $1.29 billion, an increase of 28% year-over-year.  Professional services and other revenues were $95 million, an increase of 33% year-over-year. 

Earnings per Share:  Q3 diluted GAAP loss per share was ($0.06), and diluted non-GAAP earnings per share was $0.14. The company's non-GAAP results exclude the effects of $139 million in stock-based compensation expense, $35 million in amortization of purchased intangibles, $16 million in gains on sales of land and building improvements, $10 million in net non-cash interest expense related to the company's convertible senior notes, including the related loss on conversions of our convertible 0.75% senior notes, due 2015, and are based on a projected long-term non-GAAP tax rate of 36.5%.  GAAP EPS calculations are based on a basic share count of approximately 630 million shares. Non-GAAP EPS calculations are based on approximately 659 million diluted shares outstanding during the quarter, including approximately 18 million shares associated with the company's convertible 0.75% senior notes due 2015.    

Cash:  Cash generated from operations for the fiscal third quarter was $123 million, a decrease of 11% year-over-year.  Total cash, cash equivalents and marketable securities finished the quarter at $1.83 billion.

 

Deferred Revenue:  Deferred revenue on the balance sheet as of October 31, 2014 was $2.22 billion, an increase of 28% year-over-year, and 31% in constant currency. Unbilled deferred revenue, representing business that is contracted but unbilled and off balance sheet, ended the third quarter at approximately $5.4 billion, up 29% year-over-year.

As of November 19, 2014, Salesforce is initiating revenue and EPS guidance for its fourth quarter of fiscal year 2015. In addition, the company is affirming its full fiscal year 2015 EPS guidance and raising its full fiscal year 2015 operating cash flow guidance previously provided on August 21, 2014. The company is also initiating revenue guidance for its fiscal year 2016.

 

Q4 FY15 Guidance:  Revenue for the company's fourth fiscal quarter is projected to be approximately $1.436 billion to $1.441 billion, an increase of 25% to 26% year-over-year.

GAAP loss per share is expected to be in the range of ($0.10) to ($0.09), while diluted non-GAAP EPS is expected to be in the range of $0.13 to $0.14.  The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $151 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $35 million, and net non-cash interest expense related to the convertible senior notes, including loss on conversions, expected to be approximately $8 million.  EPS estimates assume a GAAP tax rate of approximately negative 24%, which reflects the estimated quarterly 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 636 million shares, and the non-GAAP EPS calculation assumes an average fully diluted share count of approximately 669 million shares.

Full Year FY15 Guidance:  Revenue for the company's full fiscal year 2015 is projected to be approximately $5.365 billion to $5.370 billion, an increase of 32% year-over-year.

GAAP loss per share is expected to be in the range of ($0.42) to ($0.41) while diluted non-GAAP EPS is expected to be in the range of $0.51 to $0.52.  The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $564 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $150 million, gains on sales of land and building improvements of approximately $16 million, and net non-cash interest expense related to the convertible senior notes, including loss on conversions, expected to be approximately $47 million.  EPS estimates assume a GAAP tax rate of approximately negative 24%, 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 656 million shares.

Operating cash flow growth for the company's full fiscal year 2015 is projected to be approximately 27% to 28% year-over-year.

 

Full Year FY16 Guidance: Revenue for the company's full fiscal year 2016 is projected to be approximately $6.45 to $6.50 billion, an increase of 20% to 21% year-over-year, which includes an FX headwind of approximately $125 million to $150 million. The company will provide its expectations for FY16 GAAP and non-GAAP EPS and operating cash flow when it announces its fourth quarter and full fiscal year 2015 results in February 2015.

The following is a per share reconciliation of GAAP EPS to diluted non-GAAP EPS guidance for the fourth quarter and full fiscal year:

 

 

 


Fiscal 2015


Q4

FY2015




GAAP EPS Range*

 ($0.10) - ($0.09) 

 ($0.42) - ($0.41) 

Plus



Amortization of purchased intangibles

$                       0.05

$                       0.23

Stock-based expense

$                       0.23

$                       0.86

Amortization of debt discount, net

$                       0.01

$                       0.07

Less



Gain on sales of land and building improvements

$                            -

$                     (0.02)

Income tax effects and adjustments**

$                     (0.06)

$                     (0.21)

Non-GAAP diluted EPS

 $0.13 - $0.14 

 $0.51 - $0.52 




Shares used in computing basic net income per share (millions)

636

624

Shares used in computing diluted net income per share (millions)

669

656




* For Q4 & FY15 GAAP EPS loss, basic number of shares used for calculation.

** Beginning in FY15, the company's non-GAAP tax provision uses a long-term projected tax rate of 36.5%. 

Quarterly Conference Call

 

Salesforce will host a conference call at 2:00 p.m. (PT) / 5 p.m. (ET) to discuss its financial results with the investment community.  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. A live dial-in is available domestically at 866-901-SFDC or 866-901-7332 and internationally at 706-902-1764, passcode 25729060.  A replay will be available at (800) 585-8367 or (855) 859-2056 until midnight (ET) Dec. 19, 2014.

About Salesforce

Salesforce, the Customer Success Platform and world's #1 CRM company, empowers companies to connect with their customers in a whole new way. Salesforce has headquarters in San Francisco, with offices in Europe and Asia, and trades on the New York Stock Exchange under the ticker symbol "CRM."
For more information about Salesforce (NYSE: CRM), visit: www.salesforce.com.

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 items:  stock-based compensation, amortization of acquisition-related intangibles, the net amortization of debt discount on the company's convertible senior notes, and gains/losses on conversions of the company's convertible senior notes, gains/losses on sales of land and building improvements, 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 expense items.  The company reports a projected long-term tax rate to eliminate 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 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, gains/losses on the sales of land and building improvements, and gains/losses on conversions of the company's convertible senior notes, are being excluded from the company's FY15 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, real estate activity, 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 real estate activity, 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 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 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.

  • Non-Cash Gains/Losses on Conversion 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.

  • Gain on sales of land and building improvements: The Company views the non-operating gains associated with the sales of the land and building improvements at Mission Bay to be a discrete item. Management believes that the exclusion of the gains provides investors an enhanced view of the Company's operational performance.

  • Income Tax Effects and Adjustments: During fiscal 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. During fiscal 2015, the Company began to compute and utilize a fixed long-term projected non-GAAP tax rate in order to provide better consistency across the interim reporting periods by eliminating the effects of non-recurring and period-specific items such as changes in the tax valuation allowance and tax effects of acquisitions-related costs, since each of these can vary in size and frequency. When projecting this long-term rate, the Company evaluated a three-year financial projection that excludes the impact of the following non-cash items: Stock-Based Expenses, Amortization of Purchased Intangibles, Amortization of Debt Discount, Gains/Losses on the sales of land and building improvements, and Gains/Losses on Conversions of Debt. The projected rate also assumes no new acquisitions in the three-year period, and takes into account other factors including the Company's current tax structure, its existing tax positions in various jurisdictions and key legislation in major jurisdictions where the Company operates. The non-GAAP tax rate for fiscal 2015 is 36.5%. The Company intends to re-evaluate this long-term rate on an annual basis or if any significant events that may materially affect this long-term rate occur. This long-term rate could be subject to change for a variety of reasons, for example, significant 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 our financial results, which may include expected GAAP and non-GAAP financial and other operating and non-operating results, 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 conversions of debt, gains/losses on the sales of land and building improvements, 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; 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 revolving credit facility; 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.  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.

© 2014 salesforce.com, inc.  All rights reserved.  Salesforce, Sales Cloud, Service Cloud, Marketing Cloud, AppExchange, Salesforce1, and others are trademarks of salesforce.com, inc.  Other brands featured herein may be trademarks of their respective owners.

 

 

salesforce.com, inc.


Condensed Consolidated Statements of Operations


(in thousands, except per share data)


(Unaudited)





Three Months Ended October 31,



Nine Months Ended October 31,



2014



2013



2014



2013


Revenues:












Subscription and support

$

1,288,513



$

1,004,476



$

3,668,406



$

2,749,541


Professional services and other

95,142



71,558



260,572



176,220


Total revenues

1,383,655



1,076,034



3,928,978



2,925,761


Cost of revenues (1)(2):












Subscription and support

238,746



198,809



666,611



513,267


Professional services and other

94,465



69,378



266,736



181,631


Total cost of revenues

333,211



268,187



933,347



694,898


Gross profit

1,050,444



807,847



2,995,631



2,230,863


Operating expenses (1)(2):












Research and development

195,460



170,690



586,927



450,708


Marketing and sales

709,643



581,229



2,020,956



1,528,340


General and administrative

167,383



153,859



498,565



434,143


Total operating expenses

1,072,486



905,778



3,106,448



2,413,191


Loss from operations

(22,042)



(97,931)



(110,817)



(182,328)


Investment income

2,622



1,110



7,055



8,851


Interest expense

(17,682)



(22,929)



(56,355)



(54,468)


Gain on sales of land and building improvements

15,625



0



15,625



0


Other expense

(372)



(4,291)



(15,095)



(6,843)


Loss before benefit from (provision for) income taxes

(21,849)



(124,041)



(159,587)



(234,788)


Benefit from (provision for) income taxes

(17,075)



(393)



(37,336)



119,236


Net loss

$

(38,924)



$

(124,434)



$

(196,923)



$

(115,552)


Basic net loss per share

$

(0.06)



$

(0.21)



$

(0.32)



$

(0.19)


Diluted net loss per share

$

(0.06)



$

(0.21)



$

(0.32)



$

(0.19)


Shares used in computing basic net loss per share

629,548



600,467



619,748



594,346


Shares used in computing diluted net loss per share

629,548



600,467



619,748



594,346




(1)  Amounts include amortization of purchased intangibles from business combinations, as follows:



  Cost of revenues

$

20,351



$

33,844



$

70,294



$

77,699


  Marketing and sales

15,095



15,211



44,708



22,147




(2)  Amounts include stock-based expenses, as follows:



  Cost of revenues

$

14,118



$

12,119



$

38,905



$

32,778


  Research and development

26,868



27,935



87,264



78,396


  Marketing and sales

72,892



73,296



210,510



189,231


  General and administrative

25,582



28,186



76,284



66,336


 

 

 

 

salesforce.com, inc.


Condensed Consolidated Statements of Operations


As a percentage of total revenues:


(Unaudited)





Three Months Ended October 31,



Nine Months Ended October 31,



2014



2013



2014



2013


Revenues:












Subscription and support

93%



93%



93%



94%


Professional services and other

7



7



7



6


Total revenues

100



100



100



100


Cost of revenues (1)(2):












Subscription and support

17



19



17



18


Professional services and other

7



6



7



6


Total cost of revenues

24



25



24



24


Gross profit

76



75



76



76


Operating expenses (1)(2):












Research and development

14



16



15



15


Marketing and sales

52



54



51



52


General and administrative

12



14



13



15


Total operating expenses

78



84



79



82


Loss from operations

(2)



(9)



(3)



(6)


Investment income

0



0



0



0


Interest expense

(1)



(2)



(1)



(2)


Gain on sales of land and building improvements

1



0



0



0


Other expense

0



(1)



0



0


Loss before benefit from (provision for) income taxes

(2)



(12)



(4)



(8)


Benefit from (provision for) income taxes

(1)



0



(1)



4


Net loss

(3)%



(12)%



(5)%



(4)%





(1)  Amortization of purchased intangibles from business combinations as a percentage of total revenues, as follows:


Cost of revenues

1%



3%



2%



3%


Marketing and sales

1



1



1



1



(2)  Stock-based expenses as a percentage of total revenues, as follows:


Cost of revenues

1%



1%



1%



1%


Research and development

2



3



2



3


Marketing and sales

5



7



5



6


General and administrative

2



3



2



2


 

 

 

 

salesforce.com, inc.

Condensed Consolidated Balance Sheets

(in thousands)



October 31,
 2014



January 31,
 2014


(unaudited)




Assets





Current assets:





Cash and cash equivalents

$

846,325



$

781,635

Restricted cash

114,935



0

Short-term marketable securities

79,779



57,139

Accounts receivable, net

794,590



1,360,837

Deferred commissions

172,717



171,461

Prepaid expenses and other current assets

287,612



309,180

Land and building improvements held for sale

143,197



0

Total current assets

2,439,155



2,680,252

Marketable securities, noncurrent

901,173



482,243

Property and equipment, net

1,109,816



1,240,746

Deferred commissions, noncurrent

136,699



153,459

Capitalized software, net

448,088



481,917

Goodwill

3,782,569



3,500,823

Other assets, net

595,163



613,490

Total assets

$

9,412,663



$

9,152,930

Liabilities, temporary equity and stockholders' equity





Current liabilities:





Accounts payable, accrued expenses and other liabilities

$

935,942



$

934,324

Deferred revenue

2,192,655



2,473,705

Convertible 0.75% senior notes, net

179,755



542,159

Term loan, current

0



30,000

Total current liabilities

3,308,352



3,980,188

Convertible 0.25% senior notes, net

1,064,683



1,046,930

Term loan, noncurrent

0



255,000

Revolving credit facility

300,000



0

Deferred revenue, noncurrent

31,322



48,410

Other noncurrent liabilities

915,810



757,187

Total liabilities

5,620,167



6,087,715

Temporary equity

1,882



26,705

Stockholders' equity:





Common stock

631



610

Additional paid-in capital

4,331,314



3,363,377

Accumulated other comprehensive income (loss)

(1,251)



17,680

Accumulated deficit

(540,080)



(343,157)

Total stockholders' equity

3,790,614



3,038,510

Total liabilities, temporary equity and stockholders' equity

$

9,412,663



$

9,152,930

 

 

 

 

salesforce.com, inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)



Three Months Ended October 31,



Nine Months Ended October 31,


2014



2013



2014



2013

Operating activities:











Net loss

$

(38,924)



$

(124,434)



$

(196,923)



$

(115,552)

Adjustments to reconcile net loss to net cash provided by operating activities:











Depreciation and amortization

111,954



114,347



330,358



254,610

Amortization of debt discount and transaction costs

9,420



13,343



31,160



36,207

Gain on sales of land and building improvements

(15,625)



0



(15,625)



0

Loss on conversions of convertible senior notes

1,340



0



10,230



0

Amortization of deferred commissions

65,371



48,008



186,526



139,864

Expenses related to employee stock plans

139,460



141,536



412,963



366,741

Excess tax benefits from employee stock plans

(1,221)



(1,578)



(3,447)



(2,166)

Changes in assets and liabilities, net of business combinations:











Accounts receivable, net

39,792



(4,502)



566,306



332,090

Deferred commissions

(64,280)



(57,968)



(171,022)



(120,798)

Prepaid expenses and other current assets and other assets

6,588



23,822



34,501



14,542

Accounts payable, accrued expenses and other liabilities

(1,933)



40,404



(44,894)



(126,154)

Deferred revenue

(129,431)



(55,119)



(298,642)



(175,153)

Net cash provided by operating activities

122,511



137,859



841,491



604,231

Investing activities:











Business combinations, net of cash acquired

38,071



0



38,071



(2,614,732)

Proceeds from land activity, net

192,240



0



223,240



0

Deposit for purchase of building and land

(114,935)



0



(114,935)



0

Strategic investments

(12,852)



(9,017)



(47,905)



(17,831)

Purchases of marketable securities

(154,560)



(99,050)



(690,024)



(419,795)

Sales of marketable securities

46,908



16,820



197,293



1,022,470

Maturities of marketable securities

22,288



427



46,248



21,031

Capital expenditures

(73,426)



(72,702)



(205,100)



(229,261)

Net cash used in investing activities

(56,266)



(163,522)



(553,112)



(2,238,118)

Financing activities:











Proceeds from borrowings on convertible senior notes, net

0



0



0



1,132,750

Proceeds from issuance of warrants

0



0



0



84,800

Purchase of convertible note hedge

0



0



0



(153,800)

Proceeds from term loan, net

0



0



0



298,500

Proceeds from revolving credit facility, net

297,325



0



297,325



0

Proceeds from employee stock plans

91,337



110,710



226,561



217,429

Excess tax benefits from employee stock plans

1,221



1,578



3,447



2,166

Payments on convertible senior notes

(89,645)



0



(387,229)



0

Principal payments on capital lease obligations

(10,345)



(12,440)



(61,280)



(33,047)

Payments on term loan

(270,000)



(7,500)



(285,000)



(7,500)

Net cash provided by (used in) financing activities

19,893



92,348



(206,176)



1,541,298

Effect of exchange rate changes

(14,538)



5,184



(17,513)



(2,906)

Net increase (decrease) in cash and cash equivalents

71,600



71,869



64,690



(95,495)

Cash and cash equivalents, beginning of period

774,725



579,881



781,635



747,245

Cash and cash equivalents, end of period

$

846,325



$

651,750



$

846,325



$

651,750

 

 

 

salesforce.com, inc.

Additional Metrics

(Unaudited)



Oct 31,
 2014



Jul 31,
2014



Apr 30,
2014



Jan 31,
2014



Oct 31,
2013



Jul 31,
2013

Full Time Equivalent Headcount

15,458



15,145



14,239



13,312



12,770



12,571

Financial data (in thousands):

















Cash, cash equivalents and marketable securities

$

1,827,277

(1)


$

1,671,758



$

1,529,888



$

1,321,017



$

1,085,307



$

930,008

Deferred revenue, current and noncurrent

$

2,223,977



$

2,352,904



$

2,324,615



$

2,522,115



$

1,734,619



$

1,789,648

Principal due on convertible senior notes, term loan, and revolving credit facility

$

1,631,635

(2)


$

1,691,280



$

1,712,472



$

2,003,864



$

2,017,356



$

2,024,890



(1)  Excludes $114.9 million of restricted cash.



(2)  On October 6, 2014 the Company paid in full the outstanding balance of its term loan of $262.5 million and borrowed $300.0 million from its new revolving credit facility.

 

 

 

 

Selected Balance Sheet Accounts (in thousands):





October 31,
 2014



July 31,
 2014



January 31,
 2014


Prepaid Expenses and Other Current Assets









Deferred income taxes, net

$

45,738



$

51,395



$

49,279


Prepaid income taxes

20,847



21,511



23,571


Customer contract asset (3)

28,073



39,540



77,368


Prepaid expenses and other current assets

192,954



183,915



158,962



$

287,612



$

296,361



$

309,180


Property and Equipment, net









Land and building improvements (4)

$

0



$

137,653



$

297,835


Computers, equipment and software

1,133,701



1,066,947



931,171


Furniture and fixtures

69,542



67,733



58,956


Leasehold improvements

362,170



341,372



296,390


Building in progress - leased facility

102,975



73,219



40,171



1,668,388



1,686,924



1,624,523


Less accumulated depreciation and amortization

(558,572)



(496,994)



(383,777)



$

1,109,816



$

1,189,930



$

1,240,746


Capitalized Software, net









Capitalized internal-use software development costs, net of accumulated amortization

$

89,106



$

82,399



$

72,915


Acquired developed technology, net of accumulated amortization

358,982



367,100



409,002



$

448,088



$

449,499



$

481,917


Other Assets, net









Deferred income taxes, noncurrent, net

$

8,128



$

8,815



$

9,691


Long-term deposits

19,597



20,270



17,970


Purchased intangible assets, net of accumulated amortization

349,665



386,121



416,119


Acquired intellectual property, net of accumulated amortization

10,844



10,792



11,957


Strategic investments

132,150



120,289



92,489


Customer contract asset (3)

3,747



6,384



18,182


Other

71,032



51,885



47,082



$

595,163



$

604,556



$

613,490





(3)  Customer contract asset reflects future billings of amounts that were contractually committed by ExactTarget's existing customers as of the acquisition date. As the Company bills these customers this balance will reduce and accounts receivable will increase.





(4)  During the nine months ended October 31, 2014, the Company sold approximately 5.2 net acres of its undeveloped real estate. As of October 31, 2014 the remaining portion of the land and building improvements, approximately 8.8 net acres, was reclassified as land and building improvements held for sale which is included in current assets on the condensed consolidated balance sheet.






October 31,
 2014



July 31,
 2014



January 31,
 2014


Accounts Payable, Accrued Expenses and Other Liabilities









Accounts payable

$

88,794



$

83,604



$

64,988


Accrued compensation

339,982



308,901



397,002


Accrued other liabilities

314,311



324,011



235,543


Accrued income and other taxes payable

141,388



109,936



153,026


Accrued professional costs

17,597



22,111



15,864


Customer liability, current (5)

19,737



27,820



53,957


Accrued rent

14,133



14,679



13,944



$

935,942



$

891,062



$

934,324


Other Noncurrent Liabilities









Deferred income taxes and income taxes payable

$

106,759



$

107,510



$

108,760


Customer liability, noncurrent (5)

2,546



4,403



13,953


Financing obligation, building in progress - leased facility

102,975



73,219



40,171


Long-term lease liabilities and other

703,530



680,145



594,303



$

915,810



$

865,277



$

757,187














(5) Customer liability reflects the legal obligation to provide future services that were contractually committed by ExactTarget's existing customers but unbilled as of the acquisition date.













Selected Off-Balance Sheet Account














October 31,
2014



July 31,
2014



January 31,
2014


Unbilled Deferred Revenue, a non-GAAP measure

$

5.4bn



$

5.0bn



$

4.5bn














Unbilled deferred revenue represents future billings under our non-cancelable subscription agreements that have not been invoiced and, accordingly, are not recorded in deferred revenue.


The balances as of October 31, 2014, July 31, 2014, and January 31, 2014 exclude the remaining amount related to the fair value of unbilled deferred revenue associated with the acquisition of ExactTarget, which was initially recorded as part of business combination accounting, because these amounts are reflected on the balance sheet under "accounts payable, accrued expenses and other liabilities" and "other noncurrent liabilities".

 

 

Supplemental Revenue Analysis




Subscription and support revenue by cloud service offering (in millions):

Three Months Ended
 October 31, 2014



Nine Months Ended
 October 31, 2014


Sales Cloud

$

625.0



$

1,811.7


Service Cloud

339.6



953.1


Salesforce1 Platform and Other

192.4



538.7


Marketing Cloud

131.5



364.9



$

1,288.5



$

3,668.4


 

 


Three Months Ended October 31,



Nine Months Ended October 31,



2014



2013



2014



2013


Total revenues by geography (in thousands):












Americas

$

995,331



$

769,400



$

2,812,654



$

2,079,043


Europe

252,982



194,932



730,324



531,463


Asia Pacific

135,342



111,702



386,000



315,255



$

1,383,655



$

1,076,034



$

3,928,978



$

2,925,761


As a percentage of total revenues:












Total revenues by geography:












Americas

72%



72%



72%



71%


Europe

18



18



18



18


Asia Pacific

10



10



10



11



100%



100%



100%



100%


 

 

Revenue constant currency growth rates

(as compared to the comparable prior periods)

Three Months Ended
October 31, 2014
compared to Three 
Months Ended October 31, 2013


Three Months Ended
July 31, 2014
compared to Three Months
Ended July 31, 2013


Three Months Ended
October 31, 2013
compared to Three 
Months Ended October 31, 2012

Americas

29%


39%


41%

Europe

34%


36%


39%

Asia Pacific

25%


27%


17%

Total growth

30%


37%


37%


We present constant currency information to provide a framework for assessing how our underlying business performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the weighted average exchange rate for the quarter being compared to for growth rate calculations presented, rather than the actual exchange rates in effect during that period.

 

 


October 31, 2014
compared to
October 31, 2013


July 31, 2014
compared to
July 31, 2013


January 31, 2014
compared to
January 31, 2013

Deferred revenue, current and noncurrent constant currency growth rates (as compared to the comparable prior periods)






Total growth

31%


32%


36%


We present constant currency information for deferred revenue, current and noncurrent to provide a framework for assessing how our underlying business performed excluding the effects of foreign currency rate fluctuations.  To present the information above, we convert the deferred revenue balances in local currencies in previous comparable periods using the United States dollar currency exchange rate as on the most recent balance sheet date.

 

 

 

 

Supplemental Diluted Share Count Information


(in thousands)





Three Months Ended October 31,



Nine Months Ended October 31,



2014



2013



2014



2013


Weighted-average shares outstanding for basic earnings per share

629,548



600,467



619,748



594,346


Effect of dilutive securities (1):












Convertible 0.75% senior notes

5,333



15,288



7,175



13,943


Warrants associated with the convertible 0.75% senior note hedges

12,857



10,631



12,714



8,746


Employee stock awards

10,800



13,681



12,639



12,888


Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share

658,538



640,067



652,276



629,923




(1)  The effects of these dilutive securities were not included in the GAAP calculation of diluted net loss per share for the three and nine months ended October 31, 2014 because the effect would have been anti-dilutive.

 

 

 

 

Supplemental Cash Flow Information

Free cash flow analysis, a non-GAAP measure

(in thousands)


















Three Months Ended October 31,



Nine Months Ended October 31,



2014



2013



2014



2013


Operating cash flow
















GAAP net cash provided by operating activities

$

122,511



$

137,859



$

841,491



$

604,231


Less:
















Capital expenditures

(73,426)



(72,702)



(205,100)



(229,261)


Free cash flow

$

49,085



$

65,157



$

636,391



$

374,970


















Our free cash flow analysis includes GAAP net cash provided by operating activities less capital expenditures. The capital expenditures balance does not include any costs related to the purchase and activities related to land activity, building improvements, building in progress - leased facilities, and strategic investments.

































Comprehensive Income (Loss)

(in thousands)

(Unaudited)


















Three Months Ended October 31,



Nine Months Ended October 31,



2014



2013



2014



2013


Net loss

$

(38,924)



$

(124,434)



$

(196,923)



$

(115,552)


Other comprehensive income (loss), before tax and net of reclassification adjustments:












Foreign currency translation and other gains (losses)

(13,692)



5,590



(15,876)



(1,601)


Unrealized gains (losses) on investments

1,278



(450)



(3,055)



1,388


Other comprehensive income (loss), before tax

(12,414)



5,140



(18,931)



(213)


Tax effect

0



427



0



(118)


Other comprehensive income (loss), net of tax

(12,414)



5,567



(18,931)



(331)


Comprehensive loss

$

(51,338)



$

(118,867)



$

(215,854)



$

(115,883)


 

 

 

 

salesforce.com, inc.


GAAP RESULTS RECONCILED TO NON-GAAP RESULTS


The following table reflects selected salesforce.com GAAP results reconciled to non-GAAP results


(in thousands, except per share data)


(Unaudited)





Three Months Ended October 31,



Nine Months Ended October 31,



2014



2013



2014



2013


Gross profit












GAAP gross profit

$

1,050,444



$

807,847



$

2,995,631



$

2,230,863


Plus:












Amortization of purchased intangibles (a)

20,351



33,844



70,294



77,699


Stock-based expenses (b)

14,118



12,119



38,905



32,778


Non-GAAP gross profit

$

1,084,913



$

853,810



$

3,104,830



$

2,341,340


Operating expenses












GAAP operating expenses

$

1,072,486



$

905,778



$

3,106,448



$

2,413,191


Less:












Amortization of purchased intangibles (a)

(15,095)



(15,211)



(44,708)



(22,147)


Stock-based expenses (b)

(125,342)



(129,417)



(374,058)



(333,963)


Non-GAAP operating expenses

$

932,049



$

761,150



$

2,687,682



$

2,057,081


Income from operations












GAAP loss from operations

$

(22,042)



$

(97,931)



$

(110,817)



$

(182,328)


Plus:












Amortization of purchased intangibles (a)

35,446



49,055



115,002



99,846


Stock-based expenses (b)

139,460



141,536



412,963



366,741


Non-GAAP income from operations

$

152,864



$

92,660



$

417,148



$

284,259


Non-operating income (loss) (c)












GAAP non-operating income (loss)

$

193



$

(26,110)



$

(48,770)



$

(52,460)


Plus: Amortization of debt discount, net

8,638



12,547



28,838



34,139


Plus: Loss on conversion of debt

1,339



0



10,229



0


Less: Gain on sales of land and building improvements

(15,625)



0



(15,625)



0


Non-GAAP non-operating loss

$

(5,455)



$

(13,563)



$

(25,328)



$

(18,321)


Net income












GAAP net loss

$

(38,924)



$

(124,434)



$

(196,923)



$

(115,552)


Plus:












Amortization of purchased intangibles (a)

35,446



49,055



115,002



99,846


Stock-based expenses (b)

139,460



141,536



412,963



366,741


Amortization of debt discount, net

8,638



12,547



28,838



34,139


Loss on conversion of debt

1,339



0



10,229



0


Less:












Gain on sales of land and building improvements

(15,625)



0



(15,625)



0


Income tax effects and adjustments

(36,729)



(21,096)



(105,678)



(210,307)


Non-GAAP net income

$

93,605



$

57,608



$

248,806



$

174,867









Three Months Ended October 31,



Nine Months Ended October 31,



2014



2013



2014



2013














Diluted earnings per share












GAAP diluted loss per share (d)

$

(0.06)



$

(0.21)



$

(0.32)



$

(0.19)


Plus:












Amortization of purchased intangibles

0.05



0.08



0.18



0.16


Stock-based expenses

0.21



0.22



0.63



0.58


Amortization of debt discount, net

0.01



0.02



0.04



0.05


Loss on conversion of debt

0.00



0.00



0.02



0.00


Less:












Gain on sales of land and building improvements

(0.02)



0.00



(0.02)



0.00


Income tax effects and adjustments

(0.05)



(0.02)



(0.15)



(0.32)


Non-GAAP diluted earnings per share

$

0.14



$

0.09



$

0.38



$

0.28


Shares used in computing diluted net income per share

658,538



640,067



652,276



629,923



a)  Amortization of purchased intangibles were as follows:



Three Months Ended October 31,



Nine Months Ended October 31,



2014



2013



2014



2013


Cost of revenues

$

20,351



$

33,844



$

70,294



$

77,699


Marketing and sales

15,095



15,211



44,708



22,147



$

35,446



$

49,055



$

115,002



$

99,846



b)  Stock-based expenses were as follows:



Three Months Ended October 31,



Nine Months Ended October 31,



2014



2013



2014



2013


Cost of revenues

$

14,118



$

12,119



$

38,905



$

32,778


Research and development

26,868



27,935



87,264



78,396


Marketing and sales

72,892



73,296



210,510



189,231


General and administrative

25,582



28,186



76,284



66,336



$

139,460



$

141,536



$

412,963



$

366,741





c)  Non-operating income (loss) consists of investment income, interest expense and other expense.




d)  Reported GAAP loss per share was calculated using the basic share count.  Non-GAAP diluted earnings per share was calculated using the diluted share count.


salesforce.com, inc.








COMPUTATION OF BASIC AND DILUTED GAAP AND NON-GAAP NET INCOME (LOSS) PER SHARE


(in thousands, except per share data)


(Unaudited)





Three Months Ended October 31,



Nine Months Ended October 31,



2014



2013



2014



2013


GAAP Basic Net Loss Per Share












Net loss

$

(38,924)



$

(124,434)



$

(196,923)



$

(115,552)


Basic net loss per share

$

(0.06)



$

(0.21)



$

(0.32)



$

(0.19)


Shares used in computing basic net loss per share

629,548



600,467



619,748



594,346















Three Months Ended October 31,



Nine Months Ended October 31,



2014



2013



2014



2013


Non-GAAP Basic Net Income Per Share












Non-GAAP net income

$

93,605



$

57,608



$

248,806



$

174,867


Basic Non-GAAP net income per share

$

0.15



$

0.10



$

0.40



$

0.29


Shares used in computing basic net income per share

629,548



600,467



619,748



594,346















Three Months Ended October 31,



Nine Months Ended October 31,



2014



2013



2014



2013


GAAP Diluted Net Loss Per Share












Net loss

$

(38,924)



$

(124,434)



$

(196,923)



$

(115,552)


Diluted net loss per share

$

(0.06)



$

(0.21)



$

(0.32)



$

(0.19)


Shares used in computing diluted net loss per share

629,548



600,467



619,748



594,346















Three Months Ended October 31,



Nine Months Ended October 31,



2014



2013



2014



2013


Non-GAAP Diluted Net Income Per Share












Non-GAAP net income

$

93,605



$

57,608



$

248,806



$

174,867


Diluted Non-GAAP net income per share

$

0.14



$

0.09



$

0.38



$

0.28


Shares used in computing diluted net income per share

658,538



640,067



652,276



629,923


 

 

 

SOURCE salesforce.com

John Cummings, Salesforce, Investor Relations, 415-778-4188, jcummings@salesforce.com, or Chi Hea Cho, Salesforce, Public Relations, 415-281-5304, chcho@salesforce.com

Contact us

The Landmark @ One Market,
Suite 300 San Francisco, CA 94105
Tel: +1-415-536-6250
investor@salesforce.com

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