There's always something happening at Salesforce.

Salesforce Announces Fiscal 2016 Second Quarter Results

Aug 20, 2015

-- Quarterly Revenue of $1.63 Billion, up 24% Year-Over-Year, 28% in Constant Currency
-- Deferred Revenue of $3.03 Billion, up 29% Year-Over-Year, 33% in Constant Currency
-- Unbilled Deferred Revenue of Approximately $6.2 Billion, up 24% Year-Over-Year
-- Operating Cash Flow of $304 Million, up 24% Year-Over-Year
-- Initiates Third Quarter Revenue Guidance of $1.69 Billion to $1.70 Billion
-- Raises FY16 Revenue Guidance to $6.60 Billion to $6.625 Billion

SAN FRANCISCO, Aug. 20, 2015 /PRNewswire/ -- Salesforce (NYSE: CRM), the Customer Success Platform and world's #1 CRM company, today announced results for its fiscal second quarter ended July 31, 2015.

www.salesforce.com.

"Salesforce has now blown past the $6.5 billion annual revenue run rate faster than any other enterprise software company, and we are once again raising our fiscal year 2016 revenue guidance to $6.625 billion at the high end of our range," said Marc Benioff, Chairman and CEO, Salesforce. "That puts us on pace to reach a $7 billion run rate later this year, and our goal is to be the fastest to reach $10 billion in annual revenue."

"In addition to delivering outstanding top-line growth in the second quarter, we also expanded our year-over-year non-GAAP operating margin for the fifth consecutive quarter," said Mark Hawkins, CFO, Salesforce. "We also delivered more than $1 billion in operating cash flow in the first half of the year, an increase of 44% over last year."

Salesforce delivered the following results for its fiscal second quarter 2016:       

Revenue:  Total Q2 revenue was $1.63 billion, an increase of 24% year-over-year, and 28% in constant currency.  Subscription and support revenues were $1.52 billion, an increase of 23% year-over-year.  Professional services and other revenues were $113 million, an increase of 32% year-over-year.

Earnings per Share:  Q2 GAAP earnings per share was approximately $0.00, and non-GAAP diluted earnings per share was $0.19.

Cash:  Cash generated from operations for the fiscal second quarter was $304 million, an increase of 24% year-over-year. Total cash, cash equivalents and marketable securities finished the quarter at $2.07 billion.

Deferred Revenue:  Deferred revenue on the balance sheet as of July 31, 2015 was $3.03 billion, an increase of 29% year-over-year, and 33% in constant currency. Unbilled deferred revenue, representing business that is contracted but unbilled and off balance sheet, ended the quarter at approximately $6.2 billion, up 24% year-over-year.  

As of August 20, 2015, the company is initiating revenue, earnings per share, and deferred revenue guidance for its third quarter of fiscal year 2016. In addition, the company is raising its full fiscal year 2016 revenue and earnings per share guidance previously provided on May 20, 2015.

Q3 FY16 Guidance:  Revenue for the company's third fiscal quarter is projected to be approximately $1.69 billion to $1.70 billion, an increase of 22% to 23% year-over-year.

GAAP loss per share is expected to be in the range of ($0.02) to ($0.01), while diluted non-GAAP earnings per share is expected to be in the range of $0.18 to $0.19.

On balance sheet deferred revenue growth for the third fiscal quarter is projected to be in the mid-20s percentages year-over-year.

Full Year FY16 Guidance:  Revenue for the company's full fiscal year 2016 is projected to be approximately $6.60 billion to $6.625 billion, an increase of 23% year-over-year.

GAAP loss per share is expected to be in the range of ($0.17) to ($0.15), while diluted non-GAAP earnings per share is expected to be in the range of $0.70 to $0.72.

Operating cash flow growth for the company's full fiscal year 2016 is projected to be approximately 24% to 25% year-over-year.

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


Fiscal 2016


Q3

FY2016




GAAP EPS range*

 ($0.02) - ($0.01) 

 ($0.17) - ($0.15) 

Plus



Amortization of purchased intangibles

$              0.06

$                0.23

Amortization of acquired leases

$                    -

$                0.01

Stock-based expense

$              0.21

$                0.88

Amortization of debt discount, net

$              0.01

$                0.04

Less



Gain on sale of land and building improvements

$            (0.03)

$               (0.03)

Lease termination resulting from purchase of office building

$                    -

$               (0.05)

Income tax effects and adjustments**

$            (0.05)

$               (0.21)

Non-GAAP diluted EPS

 $0.18 - $0.19 

 $0.70 - $0.72 




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

664

662

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

679

675




* For Q3 & FY16 GAAP EPS loss, basic number of shares used for calculation, and expected tax rates of 95% and 245%, respectively.

** The Company's non-GAAP tax provision uses a long-term projected tax rate of 36.5%. 

  

  

For additional information regarding non-GAAP financial measures see the reconciliation of results and related explanations below.

Quarterly Conference Call
Salesforce will host a conference call at 2:00 p.m. (PT) / 5:00 p.m. (ET) today to discuss its financial results with the investment community.  A live web broadcast of the event will be available on the Salesforce Investor Relations website at 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 97654633.  A replay will be available at (800) 585-8367 or (855) 859-2056 until midnight (ET) Sept. 18, 2015.

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, visit: www.salesforce.com.

"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), earnings per share, operating cash flow growth, expected revenue run rate, expected tax rates, stock-based compensation expenses, amortization of purchased intangibles, amortization of acquired leases 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, termination of operating lease, 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 and strategic investments; 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.

© 2015 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 July 31,


Six Months Ended July 31,


2015


2014


2015


2014

Revenues:








Subscription and support

$

1,521,319



$

1,232,587



$

2,926,606



$

2,379,893


Professional services and other

113,365



85,964



219,245



165,430


Total revenues

1,634,684



1,318,551



3,145,851



2,545,323


Cost of revenues (1)(2):








Subscription and support

292,737



218,918



566,978



427,865


Professional services and other

112,647



88,913



220,208



172,271


Total cost of revenues

405,384



307,831



787,186



600,136


Gross profit

1,229,300



1,010,720



2,358,665



1,945,187


Operating expenses (1)(2):








Research and development

234,100



203,109



456,228



391,467


Marketing and sales

793,691



671,958



1,530,629



1,311,313


General and administrative

181,685



169,087



357,496



331,182


Operating lease termination resulting from purchase of 50 Fremont, net

0



0



(36,617)



0


Total operating expenses

1,209,476



1,044,154



2,307,736



2,033,962


Income (loss) from operations

19,824



(33,434)



50,929



(88,775)


Investment income

3,283



2,655



7,844



4,433


Interest expense

(18,096)



(18,314)



(34,771)



(38,673)


Other income (expense) (1)(3)

1,947



(3,876)



1,029



(14,723)


Income (loss) before provisions for income taxes

6,958



(52,969)



25,031



(137,738)


Provisions for income taxes

(7,810)



(8,119)



(21,791)



(20,261)


Net income (loss)

$

(852)



$

(61,088)



$

3,240



$

(157,999)


Basic net income (loss) per share

$

0.00



$

(0.10)



$

0.00



$

(0.26)


Diluted net income (loss) per share

$

0.00



$

(0.10)



$

0.00



$

(0.26)


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

659,366



617,016



656,636



614,797


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

659,366



617,016



672,231



614,797


____________________

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



Three Months Ended July 31,


Six Months Ended July 31,


2015


2014


2015


2014

Cost of revenues

$

20,839



$

21,271



$

40,529



$

49,943


Marketing and sales

19,002



14,648



39,029



29,613


Other non-operating expense

1,301



0



2,116



0



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



Three Months Ended July 31,


Six Months Ended July 31,


2015


2014


2015


2014

Cost of revenues

$

16,340



$

12,977



$

31,721



$

24,787


Research and development

33,732



33,112



64,974



60,396


Marketing and sales

71,724



70,485



142,258



137,618


General and administrative

25,983



25,837



51,386



50,702



(3)    Amount includes approximately $8.5 million loss on conversions of our convertible 0.75% senior notes due January 2015 recognized during the six months ended July 31, 2014.


 

salesforce.com, inc.

Condensed Consolidated Statements of Operations

(As a percentage of total revenues)

(Unaudited)










Three Months Ended July 31,


Six Months Ended July 31,


2015


2014


2015


2014

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

18


17


18


17

Professional services and other

7


6


7


7

Total cost of revenues

25


23


25


24

Gross profit

75


77


75


76

Operating expenses (1)(2):








Research and development

14


16


14


15

Marketing and sales

49


51


49


51

General and administrative

11


13


11


13

Operating lease termination resulting from purchase of 50 Fremont, net

0


0


(1)


0

Total operating expenses

74


80


73


79

Income (loss) from operations

1


(3)


2


(3)

Investment income

0


0


0


0

Interest expense

(1)


(1)


(1)


(1)

Other income (expense) (1)

0


0


0


(1)

Income (loss) before provisions for income taxes

0


(4)


1


(5)

Provisions for income taxes

0


(1)


(1)


(1)

Net income (loss)

0%


(5)%


0%


(6)%

____________________








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










Three Months Ended July 31,


Six Months Ended July 31,


2015


2014


2015


2014

Cost of revenues

1%


2%


1%


2%

Marketing and sales

1


1


1


1

Other non-operating expense

0


0


0


0









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










Three Months Ended July 31,


Six Months Ended July 31,


2015


2014


2015


2014

Cost of revenues

1%


1%


1%


1%

Research and development

2


3


2


2

Marketing and sales

4


5


4


5

General and administrative

2


2


2


2

  

salesforce.com, inc.

Condensed Consolidated Balance Sheets

(in thousands)



July 31,
2015


January 31,
 2015


(unaudited)



Assets




Current assets:




Cash and cash equivalents

$

1,089,351



$

908,117


Short-term marketable securities

81,118



87,312


Accounts receivable, net

1,067,799



1,905,506


Deferred commissions

211,314



225,386


Prepaid expenses and other current assets

330,291



280,554


Land and building improvements held for sale

136,914



143,197


Total current assets

2,916,787



3,550,072


Marketable securities, noncurrent

896,494



894,855


Property and equipment, net

1,725,184



1,125,866


Deferred commissions, noncurrent

143,871



162,796


Capitalized software, net

414,035



433,398


Goodwill

3,804,288



3,782,660


Strategic investments

477,886



175,774


Other assets, net

415,432



452,546


Restricted cash

0



115,015


Total assets

$

10,793,977



$

10,692,982


Liabilities and stockholders' equity




Current liabilities:




Accounts payable, accrued expenses and other liabilities

$

1,098,054



$

1,103,335


Deferred revenue

3,014,940



3,286,768


Total current liabilities

4,112,994



4,390,103


Convertible 0.25% senior notes, net

1,082,799



1,070,692


Loan assumed on 50 Fremont

198,813



0


Revolving credit facility

0



300,000


Deferred revenue, noncurrent

20,051



34,681


Other noncurrent liabilities

843,517



922,323


Total liabilities

6,258,174



6,717,799


Stockholders' equity:




Common stock

660



651


Additional paid-in capital

5,165,892



4,604,485


Accumulated other comprehensive loss

(28,144)



(24,108)


Accumulated deficit

(602,605)



(605,845)


Total stockholders' equity

4,535,803



3,975,183


Total liabilities and stockholders' equity

$

10,793,977



$

10,692,982










  

salesforce.com, inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)



Three Months Ended July 31,


Six Months Ended July 31,


2015


2014


2015


2014

Operating activities:








Net income (loss)

$

(852)



$

(61,088)



$

3,240



$

(157,999)


Adjustments to reconcile net income (loss) to net cash provided by operating activities:








Depreciation and amortization

131,675



107,596



259,602



218,404


Amortization of debt discount and transaction costs

7,291



9,949



13,152



21,740


50 Fremont lease termination, net

0



0



(36,617)



0


Loss on conversions of convertible senior notes

0



361



0



8,890


Amortization of deferred commissions

76,679



61,300



153,834



121,155


Expenses related to employee stock plans

147,779



142,411



290,339



273,503


Excess tax benefits from employee stock plans

133



6,815



(4,091)



(2,226)


Changes in assets and liabilities, net of business combinations:








Accounts receivable, net

(141,418)



(150,168)



837,752



526,514


Deferred commissions

(70,745)



(65,846)



(120,837)



(106,742)


Prepaid expenses and other current assets and other assets

(18,072)



23,636



(29,346)



27,913


Accounts payable, accrued expenses and other liabilities

193,771



142,638



(45,301)



(42,961)


Deferred revenue

(21,830)



28,289



(286,459)



(169,211)


Net cash provided by operating activities

304,411



245,893



1,035,268



718,980


Investing activities:








Business combinations, net of cash acquired

(18,451)



0



(30,921)



0


Purchase of 50 Fremont land and building

0



0



(425,376)



0


Deposit for purchase of 50 Fremont land and building

0



0



115,015



0


Non-refundable amounts received for sale of land available for sale

3,432



1,000



6,284



31,000


Strategic investments

(150,434)



(18,807)



(294,896)



(35,053)


Purchases of marketable securities

(136,196)



(284,928)



(343,421)



(535,464)


Sales of marketable securities

130,922



71,073



323,106



150,385


Maturities of marketable securities

1,833



16,762



16,279



23,960


Capital expenditures

(64,883)



(71,576)



(135,970)



(131,674)


Net cash used in investing activities

(233,777)



(286,476)



(769,900)



(496,846)


Financing activities:








Proceeds from employee stock plans

114,799



61,429



269,814



135,224


Excess tax benefits from employee stock plans

(133)



(6,815)



4,091



2,226


Payments on convertible senior notes

0



(13,692)



0



(297,584)


Principal payments on capital lease obligations

(41,074)



(40,341)



(57,899)



(50,935)


Payments on revolving credit facility and term loan

0



(7,500)



(300,000)



(15,000)


Net cash provided by (used in) financing activities

73,592



(6,919)



(83,994)



(226,069)


Effect of exchange rate changes

3,169



(5,664)



(140)



(2,975)


Net increase (decrease) in cash and cash equivalents

147,395



(53,166)



181,234



(6,910)


Cash and cash equivalents, beginning of period

941,956



827,891



908,117



781,635


Cash and cash equivalents, end of period

$

1,089,351



$

774,725



$

1,089,351



$

774,725


  

salesforce.com, inc.

Additional Metrics

(Unaudited)



Jul 31,
2015


Apr 30,
2015


Jan 31,
 2015


Oct 31,
 2014


Jul 31,
2014


Apr 30,
2014

Full Time Equivalent Headcount

17,622



16,852



16,227



15,458



15,145



14,239


Financial data (in thousands):












Cash, cash equivalents and marketable securities

$

2,066,963



$

1,922,476



$

1,890,284



$

1,827,277



$

1,671,758



$

1,529,888


Strategic investments

$

477,886



$

318,716



$

175,774



$

132,150



$

120,289



$

102,439


Deferred revenue, current and noncurrent

$

3,034,991



$

3,056,820



$

3,321,449



$

2,223,977



$

2,352,904



$

2,324,615


Unbilled deferred revenue, a non-GAAP measure (1)

$

6,200,000



$

6,000,000



$

5,700,000



$

5,400,000



$

5,000,000



$

4,800,000


Principal due on our outstanding debt obligations

$

1,350,000



$

1,350,000



$

1,450,000



$

1,631,635



$

1,691,280



$

1,712,472



(1) 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.

 

 

Selected Balance Sheet Accounts (in thousands):



July 31,
2015


April 30,
2015


January 31,
2015

Prepaid Expenses and Other Current Assets






Deferred income taxes, net

$

45,032



$

44,342



$

35,528


Prepaid income taxes

20,763



21,362



21,514


Customer contract asset (1)

6,172



10,492



16,620


Other taxes receivable

28,625



25,592



27,540


Prepaid expenses and other current assets

229,699



209,195



179,352



$

330,291



$

310,983



$

280,554


Property and Equipment, net






Land

$

183,888



$

183,888



$

0


Buildings

581,036



572,164



125,289


Computers, equipment and software

1,231,106



1,203,411



1,171,762


Furniture and fixtures

77,240



75,726



71,881


Leasehold improvements

419,040



394,674



376,761



2,492,310



2,429,863



1,745,693


Less accumulated depreciation and amortization

(767,126)



(692,769)



(619,827)



$

1,725,184



$

1,737,094



$

1,125,866


Capitalized Software, net






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

$

109,022



$

102,430



$

96,617


Acquired developed technology, net of accumulated amortization

305,013



318,893



336,781



$

414,035



$

421,323



$

433,398


Other Assets, net






Deferred income taxes, noncurrent, net

$

8,576



$

8,930



$

9,275


Long-term deposits

18,627



19,163



19,715


Purchased intangible assets, net of accumulated amortization

296,861



317,565



329,971


Acquired intellectual property, net of accumulated amortization

13,868



15,595



15,879


Customer contract asset (1)

136



407



1,447


Other

77,364



74,002



76,259



$

415,432



$

435,662



$

452,546


















(1)

Customer contract asset reflects future billings of amounts that are contractually committed by ExactTarget's existing customers as of the acquisition date in July 2013 that will be billed in the next 12 months. As the Company bills these customers this balance will reduce and accounts receivable will increase.



















July 31,
2015


April 30,
2015


January 31,
 2015

Accounts Payable, Accrued Expenses and Other Liabilities






Accounts payable

$

99,286



$

60,227



$

95,537


Accrued compensation

345,833



308,589



457,102


Accrued other liabilities

462,573



380,227



321,032


Accrued income and other taxes payable

131,475



128,734



184,844


Accrued professional costs

28,781



27,814



16,889


Customer liability, current (2)

9,645



10,561



13,084


Accrued rent

12,933



11,953



14,847


Financing obligation, building in progress-leased facility, current

7,528



0



0



$

1,098,054



$

928,105



$

1,103,335


Other Noncurrent Liabilities






Deferred income taxes and income taxes payable

$

111,294



$

106,499



$

94,396


Customer liability, noncurrent (2)

97



288



1,026


Financing obligation, building in progress - leased facility

157,562



145,255



125,289


Long-term lease liabilities and other

574,564



618,009



701,612



$

843,517



$

870,051



$

922,323








(2)

Customer liability reflects the legal obligation to provide future services that were contractually committed by ExactTarget's existing customers but unbilled as of July 2013.





 

Supplemental Revenue Analysis


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

Three Months Ended July 31,


Six Months Ended July 31,


2015


2014


2015


2014

Sales Cloud

$

671.0



$

610.1



$

1,301.4



$

1,186.7


Service Cloud

445.2



318.7



852.9



613.5


Salesforce1 Platform and Other

247.2



181.4



471.2



346.3


Marketing Cloud

157.9



122.4



301.1



233.4



$

1,521.3



$

1,232.6



$

2,926.6



$

2,379.9




Three Months Ended July 31,


Six Months Ended July 31,


2015


2014


2015


2014

Total revenues by geography (in thousands):








Americas

$

1,202,173



$

940,946



$

2,317,293



$

1,817,323


Europe

286,904



246,532



545,709



477,342


Asia Pacific

145,607



131,073



282,849



250,658



$

1,634,684



$

1,318,551



$

3,145,851



$

2,545,323


As a percentage of total revenues:








Total revenues by geography:








Americas

74

%


71

%


74

%


71

%

Europe

17



19



17



19


Asia Pacific

9



10



9



10



100

%


100

%


100

%


100

%



Revenue constant currency growth rates

(as compared to the comparable prior periods)

Three Months Ended
July 31, 2015
compared to Three Months 
Ended July 31, 2014


Three Months Ended
April 30, 2015
compared to Three Months 
Ended April 30, 2014


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

Americas

28%


27%


39%

Europe

29%


28%


36%

Asia Pacific

25%


27%


27%

Total growth

28%


27%


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.



July 31, 2015 compared to
July 31, 2014


April 30, 2015 compared to
April 30, 2014


January 31, 2015
compared to
January 31, 2014

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






Total growth

33%


36%


35%


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

(share data in thousands)



Three Months Ended
July 31,


Six Months Ended
July 31,


2015


2014


2015


2014

Weighted-average shares outstanding for GAAP basic earnings per share

659,366



617,016



656,636



614,797


Effect of dilutive securities (1):








Convertible senior notes (2)

1,456



7,698



728



8,097


Warrants associated with the convertible senior note hedges (2)

0



12,066



0



12,643


Employee stock awards

11,805



11,010



14,867



12,819


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

672,627



647,790



672,231



648,356




(1)

The effects of these dilutive securities were not included in the GAAP calculation of diluted net loss per share for the three months ended July 31, 2015 and 2014 and six months ended July 31, 2014 because the effect would have been anti-dilutive.

(2)

Upon maturity in fiscal 2015, the convertible 0.75% senior notes and associated warrants were settled. The 0.25% senior notes were not convertible, however there is a dilutive effect for shares outstanding for the three and six months ended July 31, 2015.



Supplemental Cash Flow Information

Free cash flow analysis, a non-GAAP measure

(in thousands)



Three Months Ended July 31,


Six Months Ended July 31,


2015


2014


2015


2014

Operating cash flow








GAAP net cash provided by operating activities

$

304,411



$

245,893



$

1,035,268



$

718,980


Less:








Capital expenditures

(64,883)



(71,576)



(135,970)



(131,674)


Free cash flow

$

239,528



$

174,317



$

899,298



$

587,306



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 the purchase of 50 Fremont, which includes the underlying land, building in progress - leased facilities and strategic investments.


Comprehensive Loss

(in thousands)

(Unaudited)



Three Months Ended July 31,


Six Months Ended July 31,


2015


2014


2015


2014

Net income (loss)

$

(852)



$

(61,088)



$

3,240



$

(157,999)


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








Foreign currency translation and other (losses)

(5,391)



(5,299)



(7,246)



(2,184)


Unrealized gains (loss) on investments

5,599



1,164



3,210



(4,333)


Other comprehensive gain (loss), before tax

208



(4,135)



(4,036)



(6,517)


Tax effect

0



0



0



0


Other comprehensive gain (loss), net of tax

208



(4,135)



(4,036)



(6,517)


Comprehensive loss

$

(644)



$

(65,223)



$

(796)



$

(164,516)


 

salesforce.com, inc.

GAAP RESULTS RECONCILED TO NON-GAAP RESULTS

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

(in thousands, except per share data)

(Unaudited)



Three Months Ended July 31,


Six Months Ended July 31,


2015


2014


2015


2014

Gross profit








GAAP gross profit

$

1,229,300



$

1,010,720



$

2,358,665



$

1,945,187


Plus:








Amortization of purchased intangibles (a)

20,839



21,271



40,529



49,943


Stock-based expense (b)

16,340



12,977



31,721



24,787


Non-GAAP gross profit

$

1,266,479



$

1,044,968



$

2,430,915



$

2,019,917


Operating expenses








GAAP operating expenses

$

1,209,476



$

1,044,154



$

2,307,736



$

2,033,962


Less:








Amortization of purchased intangibles (a)

(19,002)



(14,648)



(39,029)



(29,613)


Stock-based expense (b)

(131,439)



(129,434)



(258,618)



(248,716)


Plus:








Operating lease termination resulting from purchase of 50 Fremont, net

0



0



36,617



0


Non-GAAP operating expenses

$

1,059,035



$

900,072



$

2,046,706



$

1,755,633


Income from operations








GAAP income (loss) from operations

$

19,824



$

(33,434)



$

50,929



$

(88,775)


Plus:








Amortization of purchased intangibles (a)

39,841



35,919



79,558



79,556


Stock-based expense (b)

147,779



142,411



290,339



273,503


Less:








Operating lease termination resulting from purchase of 50 Fremont, net

0



0



(36,617)



0


Non-GAAP income from operations

$

207,444



$

144,896



$

384,209



$

264,284


Non-operating loss (c)








GAAP non-operating loss

$

(12,866)



$

(19,535)



$

(25,898)



$

(48,963)


Plus:








Amortization of debt discount, net

6,110



9,216



12,169



20,200


Amortization of acquired lease intangible

1,301



0



2,116



0


Loss on conversion of debt

0



361



0



8,890


Non-GAAP non-operating loss

$

(5,455)



$

(9,958)



$

(11,613)



$

(19,873)


Net income








GAAP net income (loss)

$

(852)



$

(61,088)



$

3,240



$

(157,999)


Plus:








Amortization of purchased intangibles (a)

39,841



35,919



79,558



79,556


Amortization of acquired lease intangible

1,301



0



2,116



0


Stock-based expense (b)

147,779



142,411



290,339



273,503


Amortization of debt discount, net

6,110



9,216



12,169



20,200


Loss on conversion of debt

0



361



0



8,890


Less:








Operating lease termination resulting from purchase of 50 Fremont, net

0



0



(36,617)



0


Income tax effects and adjustments

(65,916)



(41,134)



(114,207)



(68,949)


Non-GAAP net income

$

128,263



$

85,685



$

236,598



$

155,201











Three Months Ended July 31,


Six Months Ended July 31,


2015


2014


2015


2014

Diluted earnings per share








GAAP diluted income (loss) per share (d)

$

0.00



$

(0.10)



$

0.00



$

(0.26)


Plus:








Amortization of purchased intangibles

0.06



0.06



0.12



0.12


Amortization of acquired lease intangible

0.00



0.00



0.00



0.00


Stock-based expense

0.22



0.22



0.43



0.42


Amortization of debt discount, net

0.01



0.01



0.02



0.03


Loss on conversion of debt

0.00



0.00



0.00



0.01


Less:








Operating lease termination resulting from purchase of 50 Fremont, net

0.00



0.00



(0.05)



0.00


Income tax effects and adjustments

(0.10)



(0.06)



(0.17)



(0.08)


Non-GAAP diluted earnings per share

$

0.19



$

0.13



$

0.35



$

0.24


Shares used in computing diluted net income per share

672,627



647,790



672,231



648,356

















a) 

Amortization of purchased intangibles were as follows:
































Three Months Ended July 31,


Six Months Ended July 31,



2015


2014


2015


2014

    Cost of revenues

$

20,839



$

21,271



$

40,529



$

49,943


    Marketing and sales

19,002



14,648



39,029



29,613




$

39,841



$

35,919



$

79,558



$

79,556




b) 

Stock-based expense was as follows:





Three Months Ended July 31,


Six Months Ended July 31,



2015


2014


2015


2014

    Cost of revenues

$

16,340



$

12,977



$

31,721



$

24,787


    Research and development

33,732



33,112



64,974



60,396


    Marketing and sales

71,724



70,485



142,258



137,618


    General and administrative

25,983



25,837



51,386



50,702




$

147,779



$

142,411



$

290,339



$

273,503




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 and reported GAAP income per share was calculated using the diluted 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 July 31,


Six Months Ended July 31,


2015


2014


2015


2014

GAAP Basic Net Income (loss) Per Share








Net income (loss)

$

(852)



$

(61,088)



$

3,240



$

(157,999)


Basic net income (loss) per share

$

0.00



$

(0.10)



$

0.00



$

(0.26)


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

659,366



617,016



656,636



614,797



Three Months Ended July 31,


Six Months Ended July 31,


2015


2014


2015


2014

Non-GAAP Basic Net Income Per Share








Non-GAAP net income

$

128,263



$

85,685



$

236,598



$

155,201


Basic Non-GAAP net income per share

$

0.19



$

0.14



$

0.36



$

0.25


Shares used in computing basic net income per share

659,366



617,016



656,636



614,797



Three Months Ended July 31,


Six Months Ended July 31,


2015


2014


2015


2014

GAAP Diluted Net Income (loss) Per Share








Net income (loss)

$

(852)



$

(61,088)



$

3,240



$

(157,999)


Diluted net income (loss) per share

$

0.00



$

(0.10)



$

0.00



$

(0.26)


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

659,366



617,016



672,231



614,797



Three Months Ended July 31,


Six Months Ended July 31,


2015


2014


2015


2014

Non-GAAP Diluted Net Income Per Share








Non-GAAP net income

$

128,263



$

85,685



$

236,598



$

155,201


Diluted Non-GAAP net income per share

$

0.19



$

0.13



$

0.35



$

0.24


Shares used in computing diluted net income per share

672,627



647,790



672,231



648,356


 

 

Non-GAAP Financial Measures:  This press release includes information about non-GAAP earnings per share and non-GAAP tax rates (collectively the "non-GAAP financial measures").  These non-GAAP financial measures are measurements of financial performance that are not prepared in accordance with U.S. generally accepted accounting principles and computational methods may differ from those 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. Management uses both GAAP and non-GAAP measures when planning, monitoring, and evaluating the company's performance.

The primary purpose of using non-GAAP measures is to provide supplemental information that may prove useful to investors who wish to consider the impact of certain non-cash or non-recurring items, such as certain one-time charges, on the company's operating performance. While strategic decisions, such as those related to the issuance of equity awards (resulting in stock-based compensation), mergers and acquisitions, real estate activity or the issuance of debt securities, 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, management believes that supplementing GAAP disclosure with non-GAAP disclosure that excludes items that are not directly related to performance in any particular period provides management and investors with a more complete view of the company's operational performance. Further, to the extent that other companies use similar methods in calculating non-GAAP measures, the provision of supplemental non-GAAP information can allow for a comparison of the company's relative performance against other companies that also report non-GAAP operating results.

Non-GAAP earnings per share excludes the impact of the following items:  stock-based compensation, amortization of acquisition-related intangibles, amortization of acquired leases, 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, and termination of office leases, as well as income tax adjustments.  These items are excluded because the decisions which gave rise to these items were not made to increase revenue in a particular period, but were made for the company's long-term benefit over multiple periods. 

The purpose of the non-GAAP tax rate is to quantify the excluded tax adjustments and the tax consequences associated with the above excluded 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, such as, 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. 

Specifically, management is excluding the following items from its non-GAAP earnings per share for Q2 and its non-GAAP estimates for Q3 and FY16:

  • 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 and Acquired Leases: The company views amortization of acquisition- and building-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, and acquired lease intangibles, 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 $1.15 billion of convertible senior notes due 2018 that were issued in a private placement in March 2013. The imputed interest rate was approximately 2.5% for the convertible notes due 2018, while the actual coupon interest rate of the notes is 0.25%. 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.
  • 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.
  • 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.
  • Lease Termination Resulting From Purchase of Office Building: The company views the non-cash, one-time gain associated with the termination of its lease at 50 Fremont to be a discrete item.
  • Income Tax Effects and Adjustments: 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 acquired leases, amortization of debt discount, gains/losses on the sales of land and building improvements, gains/losses on conversions of debt, and termination of office leases. 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 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, such as significant changes in the geographic earnings mix including acquisition activity, or fundamental tax law changes in major jurisdictions where the company operates.

 

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To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/salesforce-announces-fiscal-2016-second-quarter-results-300131529.html

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

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