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Salesforce.com Announces Fiscal 2014 Second Quarter Results
- Revenue of $957 Million, up 31% Year-Over-Year
- Deferred Revenue of $1.8 Billion, up 34% Year-Over-Year
- Unbilled Deferred Revenue of Approximately $3.8 Billion, up 36% Year-Over-Year
- Operating Cash Flow of $183 Million, up 34% Year-Over-Year
- Initiates Third Quarter Revenue Guide of $1.050 - $1.055 Billion
- Raises FY14 Revenue Guide to $4.000 - $4.025 Billion

SAN FRANCISCO, Aug. 29, 2013 /PRNewswire/ -- Salesforce.com (NYSE: CRM), the world's #1 CRM platform (http://www.salesforce.com/), today announced results for its fiscal second quarter ended July 31, 2013.

(Logo: http://photos.prnewswire.com/prnh/20130612/SF30598LOGO)

"Salesforce.com continues to be the fastest growing software company of its size with year-over-year growth of more than 30% in revenue, deferred revenue, and operating cash flow," said Marc Benioff, Chairman and CEO, salesforce.com. "I'm delighted to announce that just four years after delivering our first $1 billion revenue year, we are now poised to deliver our first $1 billion revenue quarter in the third quarter of fiscal 2014."

Salesforce.com delivered the following results for its fiscal second quarter:       

Revenue:  Total Q2 revenue was $957 million, an increase of 31% on a year-over-year basis, benefited in part by the acquisition of ExactTarget which closed in July 2013.  Subscription and support revenues were $903 million, an increase of 31% on a year-over-year basis.  Professional services and other revenues were $54 million, an increase of 23% on a year-over-year basis. 

Earnings per Share:  Q2 diluted GAAP earnings per share was $0.12, and diluted non-GAAP earnings per share was $0.09. Q2 GAAP results were benefited by an approximate $129 million partial release of the tax valuation allowance. The company's non-GAAP results exclude the effects of $110 million in stock-based compensation expense, $27 million in amortization of purchased intangibles, and $12 million in net non-cash interest expense related to the company's convertible senior notes, and is based on a non-GAAP tax rate of approximately 40%.  GAAP and non-GAAP EPS calculations are based on approximately 625 million diluted shares outstanding during the quarter, including approximately 20 million shares associated with the company's convertible 0.75% senior notes due 2015.    

Cash:  Cash generated from operations for the fiscal second quarter was $183 million, an increase of 34% on a year-over-year basis.  Total cash, cash equivalents and marketable securities finished the quarter at $930 million. During the quarter, the company raised $300 million from a term loan utilized in connection with the acquisition of ExactTarget.

Deferred Revenue:  Deferred revenue on the balance sheet as of July 31, 2013 was $1.79 billion, an increase of 34% on a year-over-year basis, benefited in part by the acquisition of ExactTarget. Current deferred revenue increased by 37% year-over-year to $1.73 billion, benefited in part by longer invoice durations.  Non-current deferred revenue decreased by 20% year-over-year to $55 million. Unbilled deferred revenue, representing business that is contracted but unbilled and off balance sheet, ended the second quarter at approximately $3.80 billion, up 36% on a year-over-year basis. In addition, the company recorded approximately $137 million related to the fair value of unbilled deferred revenue from acquisitions in "Customer liability, current and noncurrent" on the balance sheet under "Accounts payable, accrued expenses and other liabilities" and "Other noncurrent liabilities".

As of August 29, 2013, salesforce.com is initiating revenue and EPS guidance for its third quarter of fiscal year 2014. In addition, the company is raising its full fiscal year 2014 revenue and non-GAAP EPS guidance previously provided on June 4, 2013.

Q3 FY14 Guidance:  Revenue for the company's third fiscal quarter is projected to be in the range of $1.050 billion to $1.055 billion, an increase of 33% to 34% year-over-year.

GAAP net loss per share is expected to be in the range of ($0.19) to ($0.18), while diluted non-GAAP EPS is expected to be in the range of $0.08 to $0.09.  The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $139 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $49 million, and net non-cash interest expense related to the convertible senior notes, expected to be approximately $13 million.  EPS estimates assume a GAAP tax rate of approximately negative 4%, which reflects the estimated quarterly change in the tax valuation allowance, and a non-GAAP tax rate of approximately 39%.  The GAAP EPS calculation assumes an average basic share count of approximately 601 million shares, and the non-GAAP EPS calculation assumes an average fully diluted share count of approximately 641 million shares.

Full Year FY14 Guidance:  Revenue for the company's full fiscal year 2014 is projected to be in the range of $4.000 billion to $4.025 billion, an increase of 31% to 32% year-over-year.

GAAP net loss per share is expected to be in the range of ($0.44) to ($0.42) while diluted non-GAAP EPS is expected to be in the range of $0.32 to $0.34.  The non-GAAP estimate excludes the effects of stock-based compensation expense, expected to be approximately $511 million, amortization of purchased intangibles related to acquisitions, expected to be approximately $146 million, and net non-cash interest expense related to the convertible senior notes, expected to be approximately $47 million.  EPS estimates assume a GAAP tax rate of approximately 31%, which reflects the estimated annual change in the tax valuation allowance, and a non-GAAP tax rate of approximately 38%. Note that the tax valuation allowance adds complexity, causing potential volatility in our forecasted GAAP tax rate.  The GAAP EPS calculation assumes an average basic share count of approximately 598 million shares, and the non-GAAP EPS calculation assumes an average fully diluted share count of approximately 635 million shares.

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

 


Fiscal 2014


Q3

FY2014




GAAP EPS Range*

 ($0.19) - ($0.18) 

 ($0.44) - ($0.42) 

Plus



Amortization of purchased intangibles

$                   0.08

$                    0.23

Stock-based expense

$                   0.22

$                    0.81

Amortization of debt discount, net

$                   0.02

$                    0.07

Less



Income tax effects and adjustments**

$                 (0.05)

$                  (0.35)

Non-GAAP diluted EPS

 $0.08 - $0.09 

 $0.32 - $0.34 




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

601

598

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

641

635




* For Q3 & FY14 GAAP EPS loss, basic number of shares used for calculation


** 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 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. 

 

Quarterly Conference Call

Salesforce.com will host a conference call to discuss its fiscal second quarter results at 2:00 p.m. Pacific Time today.  A live audio webcast of the conference call, together with detailed financial information, can be accessed through the company's Investor Relations Web site: http://www.salesforce.com/investor.  In addition, an archive of the audiocast can be accessed through the same link.  Participants who choose to call in to the conference call can do so by dialing domestically 866-901-SFDC or 866-901-7332 and internationally at +1 706-902-1764, passcode 28431505.  A replay will be available at 800-585-8367 or +1 855-859-2056, passcode 28431505, until midnight (Eastern Time) September 29, 2013.

About salesforce.com

Salesforce.com is the world's largest provider of customer relationship management (CRM) software. For more information about salesforce.com (NYSE: CRM), visit: www.salesforce.com.

Any unreleased services or features referenced in this or other press releases or public statements are not currently available and may not be delivered on time or at all. Customers who purchase salesforce.com applications should make their purchase decisions based upon features that are currently available. Salesforce.com 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 please visit http://salesforce.com or call 1-800-NO-SOFTWARE.

Non-GAAP Financial Measures:  This press release includes information about non-GAAP EPS and non-GAAP tax rates (collectively the "non-GAAP financial measures").  Non-GAAP EPS estimates exclude the impact of the following non-cash items:  stock-based compensation, amortization of acquisition-related intangibles, and the net amortization of debt discount on the company's convertible senior notes, as well as income tax adjustments.  The purpose of the non-GAAP tax rate is to quantify the excluded tax adjustments and the tax consequences associated with the above excluded non-cash expense items.  These non-GAAP financial measures are not measurements of financial performance prepared in accordance with U.S. generally accepted accounting principles.  The method used to produce non-GAAP financial measures is not computed according to GAAP and may differ from the methods used by other companies.  Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with the company's consolidated financial statements prepared in accordance with GAAP.

The primary purpose of these non-GAAP measures is to provide supplemental information that may prove useful to investors who wish to consider the impact of certain non-cash items on the company's operating performance.  Non-cash stock-based compensation, amortization of acquisition-related intangible assets, and the net amortization of debt discount on the company's convertible senior notes are being excluded from the company's FY14 financial results because the decisions which gave rise to these expenses were not made to increase revenue in a particular period, but were made for the company's long-term benefit over multiple periods.  While strategic decisions, such as those related to the issuance of equity awards, resulting in stock-based compensation, the acquisitions of companies, or the issuance of convertible senior notes, are made to further the company's long-term strategic objectives and impact the company's statement of operations under GAAP measures, these items affect multiple periods and management is not able to change or affect these items in any particular period.  As such, supplementing GAAP disclosure with non-GAAP disclosure using the non-GAAP measures provides management with an additional view of operational performance by excluding expenses that are not directly related to performance in any particular period, and management uses both GAAP and non-GAAP measures when planning, monitoring, and evaluating the company's performance.

In addition, the majority of the company's industry peers report non-GAAP operating results that exclude certain non-cash or non-recurring items, such as certain one-time charges.  As significant unusual or discrete events occur, such as the changes in valuation allowance against the company's deferred tax assets, the results may be excluded in the period in which the events occur. Management believes that the provision of supplemental non-GAAP information will enable a more complete comparison of the company's relative performance. 

Specifically, management is excluding the following items from its non-GAAP EPS for Q2 and its non-GAAP estimates for Q3 and FY14:

  • Stock-Based Expenses:  The company's compensation strategy includes the use of stock-based compensation to attract and retain employees and executives.  It is principally aimed at aligning their interests with those of our stockholders and at long-term employee retention, rather than to motivate or reward operational performance for any particular period.  Thus, stock-based compensation expense varies for reasons that are generally unrelated to operational decisions and performance in any particular period. 
  • Amortization of Purchased Intangibles:  The company views amortization of acquisition-related intangible assets, such as the amortization of the cost associated with an acquired company's research and development efforts, trade names, customer lists and customer relationships, as items arising from pre-acquisition activities determined at the time of an acquisition.  While these intangible assets are continually evaluated for impairment, amortization of the cost of purchased intangibles is a static expense, one that is not typically affected by operations during any particular period.
  • Amortization of Debt Discount:  Under GAAP, certain convertible debt instruments that may be settled in cash (or other assets) on conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate.  Accordingly, for GAAP purposes we are required to recognize imputed interest expense on the company's $575 million of convertible senior notes due 2015 that were issued in a private placement in January 2010 and the company's $1.15 billion of convertible senior notes due 2018 that were issued in a private placement in March 2013.  The imputed interest rates were approximately 5.9% for the convertible notes due 2015 and approximately 2.5% for the convertible notes due 2018, while the actual coupon interest rates of the notes were 0.75% and 0.25%, respectively.  The difference between the imputed interest expense and the coupon interest expense, net of the interest amount capitalized, is excluded from management's assessment of the company's operating performance because management believes that this non-cash expense is not indicative of ongoing operating performance.  Management believes that the exclusion of the non-cash interest expense provides investors an enhanced view of the company's operational performance.
  • Income Tax Effects and Adjustments: The company's non-GAAP tax provision excludes the tax effects of expense items described above and certain tax items not directly related to the current fiscal year's ordinary operating results.  Examples of such tax items include, but are not limited to, changes in the valuation allowance related to deferred tax assets, certain acquisition-related costs and unusual or infrequently occurring items.  Management believes the exclusion of these income tax adjustments provides investors with useful supplemental information about the company's operational performance.

"Safe harbor" statement under the Private Securities Litigation Reform Act of 1995:  This press release contains forward-looking statements about expected GAAP and non-GAAP financial and other operating results for the third fiscal quarter and the full fiscal year of 2014, including revenue, net income (loss), EPS, expected revenue run rate, expected tax rates, stock-based compensation expenses, amortization of purchased intangibles and debt discount, non-cash interest expense, shares outstanding, and changes in deferred tax asset valuation allowances.  The achievement or success of the matters covered by such forward-looking statements involves risks, uncertainties and assumptions.  If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, the company's results could differ materially from the results expressed or implied by the forward-looking statements we make.

The risks and uncertainties referred to above include - but are not limited to - risks associated with possible fluctuations in the company's financial and operating results; the company's rate of growth and anticipated revenue run rate, including the company's ability to convert deferred revenue and unbilled deferred revenue into revenue and, as appropriate, cash flow, and the continued growth and ability to maintain deferred revenue and unbilled deferred revenue; errors, interruptions or delays in the company's service or the company's Web hosting; breaches of the company's security measures; the financial impact of any previous and future acquisitions, including ExactTarget; the nature of the company's business model; the company's ability to continue to release, and gain customer acceptance of, new and improved versions of the company's service; successful customer deployment and utilization of the company's existing and future services; changes in the company's sales cycle; competition; various financial aspects of the company's subscription model; unexpected increases in attrition or decreases in new business; the emerging markets in which the company operates; unique aspects of entering or expanding in international markets, the company's ability to hire, retain and motivate  employees and manage the company's growth; changes in the company's customer base; technological developments; regulatory developments; litigation related to intellectual property and other matters, and any related claims, negotiations and settlements; unanticipated changes in the company's effective tax rate; factors affecting the company's outstanding convertible notes and term loan; fluctuations in the number of shares we have outstanding and the price of such shares; foreign currency exchange rates; collection of receivables; interest rates; factors affecting our deferred tax assets and ability to value and utilize them, including the timing of when we once again achieve profitability on a pre-tax basis; the risks and expenses associated with the company's real estate and office facilities space; and general developments in the economy, financial markets, and credit markets.

Further information on these and other factors that could affect the company's financial results is included in the reports on Forms 10-K, 10-Q and 8-K and in other filings we make with the Securities and Exchange Commission from time to time, including the company's Form 10-Q that will be filed for the second quarter ended July 31, 2013, and our Form 10-K filed for the fiscal year ended January 31, 2013.  These documents are available on the SEC Filings section of the Investor Information section of the company's website at www.salesforce.com/investor.

Salesforce.com, inc. assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

© 2013 salesforce.com, inc.  All rights reserved.  Salesforce, Sales Cloud, Service Cloud, Marketing Cloud, AppExchange, Salesforce Platform, 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, 






2013


2012


2013


2012













Revenues:











Subscription and support


$    902,844


$          687,493


$ 1,745,065


$       1,342,713


Professional services and other

54,250


44,156


104,662


84,403



Total revenues


957,094


731,649


1,849,727


1,427,116













Cost of revenues (1)(2):










Subscription and support


160,908


118,519


314,458


227,263


Professional services and other

56,809


43,899


112,253


86,706



Total cost of revenues


217,717


162,418


426,711


313,969













Gross profit



739,377


569,231


1,423,016


1,113,147













Operating expenses (1)(2):










Research and development


148,079


99,442


280,018


194,218


Marketing and sales


480,621


380,160


947,111


749,949


General and administrative


150,534


103,095


280,284


204,695



Total operating expenses


779,234


582,697


1,507,413


1,148,862













Loss from operations


(39,857)


(13,466)


(84,397)


(35,715)













Investment income


4,387


7,173


7,741


11,634

Interest expense



(19,656)


(8,033)


(31,539)


(14,403)

Other income (expense)


(1,678)


294


(2,552)


(416)













Loss before benefit from income taxes

(56,804)


(14,032)


(110,747)


(38,900)













Benefit from income taxes (3)


133,407


4,203


119,629


9,596













Net income (loss) 


$    76,603


$             (9,829)


$         8,882


$           (29,304)













Basic net income (loss) per share (4)

$        0.13


$               (0.02)


$           0.02


$               (0.05)













Diluted net income (loss) per share (4)

$        0.12


$               (0.02)


$           0.01


$               (0.05)













Shares used in computing basic net income (loss) per share (4)

593,955


557,700


591,210


555,156













Shares used in computing diluted net income (loss) per share (4)

624,656


557,700


623,865


555,156

























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






Cost of revenues


$   22,550


$            17,668


$       43,855


$            35,116



Marketing and sales


4,476


2,407


6,936


5,834













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










Cost of revenues


$      9,981


$               7,864


$       20,659


$            15,117



Research and development


26,032


16,089


50,461


31,756



Marketing and sales


56,133


44,781


115,935


86,768



General and administrative


18,330


16,683


38,150


33,042













     (3) Amount includes a partial release of the tax valuation allowance as follows:

$  128,828


$                     0


$    128,828


$                    0













     (4) Prior period results have been adjusted to reflect the four for one stock split through a stock dividend which occurred in April 2013 (See Supplemental Diluted Share Count Information for additional details).



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,






2013


2012


2013


2012

Revenues:











Subscription and support


94%


94%


94%


94%


Professional services and other

6


6


6


6



Total revenues


100


100


100


100













Cost of revenues (1)(2):










Subscription and support


17


16


17


16


Professional services and other

6


6


6


6



Total cost of revenues

23


22


23


22













Gross profit



77


78


77


78













Operating expenses (1)(2):










Research and development

15


14


15


14


Marketing and sales


50


52


51


53


General and administrative

16


14


15


14



Total operating expenses

81


80


81


81













Loss from operations


(4)


(2)


(4)


(3)













Investment income


0


1


0


1

Interest expense



(2)


(1)


(2)


(1)

Other income (expense)


0


0


0


0













Loss before benefit from income taxes 

(6)


(2)


(6)


(3)













Benefit from income taxes (3)


14


1


6


1













Net income (loss)



8%


(1)%


0%


(2)%





































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



Cost of revenues


2%


2%


2%


2%



Marketing and sales


0


0


0


0













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










Cost of revenues


1%


1%


1%


1%



Research and development

3


2


3


2



Marketing and sales


6


6


6


6



General and administrative

2


2


2


2













     (3) Amount includes a partial release of the tax valuation allowance as follows:

13%


0%


7%


0%




















salesforce.com, inc.

Condensed Consolidated Balance Sheets

(in thousands)







July 31,



January 31,







2013



2013







(unaudited)














Assets









Current assets:









Cash and cash equivalents



$               579,881



$          747,245


Short-term marketable securities



43,610



120,376


Accounts receivable, net



599,543



872,634


Deferred commissions



119,503



142,311


Prepaid expenses and other current assets (see additional metrics)


355,628



133,314











Total current assets




1,698,165



2,015,880











Marketable securities, noncurrent



306,517



890,664

Property and equipment, net (see additional metrics)


1,184,861



604,669

Deferred commissions, noncurrent



105,864



112,082

Capitalized software, net (see additional metrics)


537,380



207,323

Goodwill





3,503,681



1,529,378

Other assets, net (see additional metrics)


633,428



168,960











Total assets





$            7,969,896



$       5,528,956











Liabilities, temporary equity and stockholders' equity






Current liabilities:









Accounts payable, accrued expenses and other liabilities (see additional metrics)

$               764,083



$          597,706


Deferred revenue




1,734,841



1,798,640


Convertible 0.75% senior notes, net


534,391



521,278


Term loan, current




30,000



0











Total current liabilities




3,063,315



2,917,624











Convertible 0.25% senior notes, net



1,035,271



0

Term loan, noncurrent




270,000



0

Deferred revenue, noncurrent


54,807



64,355

Other noncurrent liabilities



687,355



175,732

Total liabilities




5,110,748



3,157,711











Temporary equity




40,499



53,612











Stockholders' equity:









Common stock (1)




596



586


Additional paid-in capital (1)



2,908,914



2,410,892


Accumulated other comprehensive income 


11,239



17,137


Accumulated deficit




(102,100)



(110,982)











Total stockholders' equity




2,818,649



2,317,633











Total liabilities, temporary equity and stockholders' equity


$            7,969,896



$       5,528,956







(1)

Prior period results have been adjusted to reflect the four for one stock split through a stock dividend which occurred in April 2013 (See Supplemental Diluted Share Count Information for additional details).





salesforce.com, inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)








Three Months Ended July 31,


Six Months Ended July 31,








2013


2012


2013


2012

Operating activities:












Net income (loss)





$      76,603


$       (9,829)


$       8,882


$     (29,304)

Adjustments to reconcile net income (loss) to net










cash provided by operating activities:












Depreciation and amortization




77,966


49,999


140,263


99,440


Amortization of debt discount and transaction costs


13,194


6,371


22,864


11,040


Amortization of deferred commissions



46,189


35,783


91,856


72,029


Expenses related to employee stock plans


110,476


85,417


225,205


166,683


Excess tax benefits from employee stock plans 


1,278


(14,702)


(588)


(25,745)


Changes in assets and liabilities, net of business combinations:










Accounts receivable, net



(33,297)


(75,522)


336,592


237,138



Deferred commissions



(45,347)


(35,222)


(62,830)


(67,340)



Prepaid expenses and other current assets


(2,990)


(35,747)


(10,862)


(56,096)



Other assets




60


(891)


1,582


864



Accounts payable, accrued expenses, and other liabilities

(70,750)


128,071


(166,558)


(16,189)



Deferred revenue




9,801


2,469


(120,034)


(43,111)

















Net cash provided by operating activities


183,183


136,197


466,372


349,409















Investing activities:












Business combinations, net of cash acquired



(2,592,571)


(10,078)


(2,614,732)


(58,991)

Land activity and building improvements




0


0


0


(4,106)

Strategic investments





(3,698)


(1,129)


(8,814)


(3,794)

Purchases of marketable securities




(56,458)


(107,101)


(320,745)


(594,904)

Sales of marketable securities




893,910


472,710


1,005,650


548,232

Maturities of marketable securities




6,046


47,188


20,604


84,887

Capital expenditures





(102,549)


(29,304)


(156,559)


(74,025)

















Net cash provided by (used in) investing activities

(1,855,320)


372,286


(2,074,596)


(102,701)















Financing activities:












Proceeds from borrowings on convertible senior notes, net


0


0


1,132,750


0

Proceeds from issuance of warrants




0


0


84,800


0

Purchase of convertible note hedge




0


0


(153,800)


0

Proceeds from term loan, net




298,500


0


298,500


0

Proceeds from employee stock plans


40,195


33,824


106,719


127,391

Excess tax benefits from employee stock plans



(1,278)


14,702


588


25,745

Principal payments on capital lease obligations



(12,108)


(7,479)


(20,607)


(15,053)

















Net cash provided by financing activities


325,309


41,047


1,448,950


138,083















Effect of exchange rate changes 




(1,281)


10,415


(8,090)


8,655















Net increase (decrease) in cash and cash equivalents


(1,348,109)


559,945


(167,364)


393,446















Cash and cash equivalents, beginning of period


1,927,990


440,785


747,245


607,284















Cash and cash equivalents, end of period



$   579,881


$ 1,000,730


$  579,881


$ 1,000,730





























salesforce.com, inc.

Additional Metrics

(Unaudited)


















Jul 31,


Apr 30,


Jan 31,


Oct 31,


Jul 31,


Apr 30,




2013


2013


2013


2012


2012


2012















Full Time Equivalent Headcount


12,571

(1)

10,283


9,801


9,319


8,765


8,335





























Financial data (in thousands):














Cash, cash equivalents and marketable securities 


$    930,008

(2)

$ 3,079,457

(3)

$ 1,758,285


$ 1,416,050


$ 1,804,265


$ 1,657,089


Deferred revenue, current and noncurrent


$ 1,789,648


$ 1,733,160


$ 1,862,995


$ 1,291,703


$ 1,337,184


$ 1,334,716


Principal due on convertible senior notes and term loan


$ 2,024,890


$ 1,724,890


$    574,890


$    574,890


$    574,890


$    574,890















(1)

Includes approximately 1,900 full time equivalents from the acquisition of ExactTarget.

(2)

Reflects the acquisition of ExactTarget for cash in July 2013.

(3)

Includes $1.1 billion of net proceeds from the convertible 0.25% senior note offering and hedge transactions in March 2013.















Selected Balance Sheet Accounts (in thousands):














Jul 31,


Apr 30,


Jan 31, 










2013


2013


2013








Prepaid Expenses and Other Current Assets














     Deferred income taxes, net


$       14,157


$         6,794


$         7,321








     Prepaid income taxes


25,965


25,785


21,180








     Customer contract asset (4)


150,498


0


0








     Prepaid expenses and other current assets


165,008


121,535


104,813










$    355,628


$    154,114


$    133,314






















Property and Equipment, net














     Land


$    248,263


$    248,263


$    248,263








     Building improvements


49,572


49,572


49,572








     Computers, equipment and software


877,175


346,280


328,318








     Furniture and fixtures


51,687


42,225


38,275








     Leasehold improvements


252,828


216,686


193,181










1,479,525


903,026


857,609








     Less accumulated depreciation and amortization


(294,664)


(279,342)


(252,940)










$ 1,184,861


$    623,684


$    604,669






















Capitalized Software, net














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


$       66,578


$       62,666


$       59,647








     Acquired developed technology, net of accumulated amortization


470,802


129,763


147,676










$    537,380


$    192,429


$    207,323






















Other Assets, net














     Deferred income taxes, noncurrent, net


$         8,189


$       19,358


$       19,212








     Long-term deposits


13,917


12,730


13,422








     Purchased intangible assets, net of accumulated amortization


448,976


50,494


49,354








     Acquired intellectual property, net of accumulated amortization


12,820


13,854


13,872








     Strategic investments


65,984


56,207


51,685








     Customer contract asset (4)


48,029


0


0








     Other


35,513


37,980


21,415










$    633,428


$    190,623


$    168,960






















(4) Customer contract asset reflects future billings of amounts that were contractually commited by ExactTarget's existing customers as of the acquisition date.  
















Accounts Payable, Accrued Expenses and Other Liabilities














     Accounts payable


$       66,859


$       31,522


$       14,535








     Accrued compensation


239,961


205,922


311,595








     Accrued other liabilities


227,626


167,533


138,165








     Accrued income and other taxes payable


93,767


98,524


120,341








     Accrued professional costs


16,751


11,908


10,064








     Customer liability, current (5)


106,075


0


0








     Accrued rent


13,044


11,671


3,006










$    764,083


$    527,080


$    597,706






















Other Noncurrent Liabilities














     Income taxes payable, noncurrent


$       86,658


$       49,239


$       49,074








     Long-term lease liabilities and other


570,114


137,049


126,658








     Customer liability, noncurrent (5)


30,583


0


0










$    687,355


$    186,288


$    175,732






















(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 Accounts



























Unbilled Deferred Revenue, a non-GAAP measure

























Unbilled deferred revenue was approximately $3.8 billion as of July 31, 2013, $3.6 billion as of April 30, 2013 and $3.5 billion as of January 31, 2013.   The balance as of July 31, 2013 excludes the amount related to the fair value unbilled deferred revenue associated with the acquisition of ExactTarget becuase this amount is reflected on the balance sheet under "accounts payable, accrued expenses and other liabilities" and "other noncurrent liabilities".  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.





















Supplemental Revenue Analysis
















Three Months Ended July 31, 


Six Months Ended July 31, 








2013


2012


2013


2012





Revenues by geography (in thousands):














Americas


$    678,535


$    507,974


$ 1,309,643


$    992,927






Europe


173,705


124,609


336,531


242,903






Asia Pacific


104,854


99,066


203,553


191,286






















$    957,094


$    731,649


$ 1,849,727


$ 1,427,116



















As a percentage of total revenues:



























Revenues by geography:














Americas


71%


69%


71%


70%





Europe


18


17


18


17





Asia Pacific


11


14


11


13





















100%


100%


100%


100%





















Three Months Ended 


Three Months Ended 


Three Months Ended 




July 31, 2013


April 30, 2013


July 31, 2012




compared to Three Months


compared to Three Months


compared to Three Months




Ended July 31, 2012


Ended April 30, 2012


Ended July 31, 2011

Revenue constant currency growth rates (as compared to the comparable prior periods)













Americas


34%


30%


38%


Europe


34%


38%


40%


Asia Pacific


19%


17%


28%


Total growth


32%


30%


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, 2013


April 30, 2013


January 31, 2013




compared to 


compared to 


compared to 




July 31, 2012


 April 30, 2012


 January 31, 2012

Deferred revenue, current and noncurrent constant currency growth rates












 (as compared to the comparable prior periods)



























Total growth


34%


31%


34%





























Supplemental Diluted Share Count Information (1)












(in thousands)
















Three Months Ended July 31, 


Six Months Ended July 31, 








2013


2012


2013


2012




















Weighted-average shares outstanding for basic earnings per share 


593,955


557,700


591,210


555,156






Effect of dilutive securities (2):














Convertible senior notes


12,977


10,168


13,270


10,660






Warrants associated with the convertible senior note hedges


7,394


3,464


7,804


4,148






Employee stock awards


10,330


13,444


11,581


14,844






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


624,656


584,776


623,865


584,808



















(1)

Following the stockholders' approval, the Company amended its certificate of incorporation on March 20, 2013, to increase the number of authorized shares of common stock from 400.0 million to 1.6 billion and effect a four for one stock split of the common stock through a stock dividend. Accordingly, all share and per share data presented herein reflect the impact of the increase in authorized shares and the stock split.















(2)

The effects of these dilutive securities were not included in the GAAP calculation of diluted net loss per share for the three and six months ended July 31, 2012 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 July 31, 


Six Months Ended July 31, 








2013


2012


2013


2012






 Operating cash flow 














 GAAP net cash provided by operating activities 


$    183,183


$    136,197


$    466,372


$    349,409






 Less: 














 Capital expenditures 


(102,549)


(29,304)


(156,559)


(74,025)






 Free cash flow 


$       80,634


$    106,893


$    309,813


$    275,384



















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 and strategic investments. 















Comprehensive Income (Loss)













(in thousands)

(Unaudited)


Three Months Ended July 31, 


Six Months Ended July 31, 








2013


2012


2013


2012






 Net income (loss) 


$       76,603


$       (9,829)


$         8,882


$     (29,304)






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














 Foreign currency translation and other gains (losses) 


(1,431)


10,135


(7,191)


6,947






 Unrealized gains (losses) on investments 


117


(961)


1,838


159






 Other comprehensive income (loss), before tax 


(1,314)


9,174


(5,353)


7,106






 Tax effect 


(1,173)


359


(545)


(59)






 Other comprehensive income (loss),  net of tax 


(2,487)


9,533


(5,898)


7,047






 Comprehensive income (loss) 


$       74,116


$           (296)


$         2,984


$     (22,257)



















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 July 31,


Six Months Ended July 31,




2013


2012


2013


2012


Gross profit










GAAP gross profit


$739,377


$569,231


$1,423,016


$1,113,147


Plus:










Amortization of purchased intangibles (a)


22,550


17,668


43,855


35,116


Stock-based expenses (b) 


9,981


7,864


20,659


15,117












Non-GAAP gross profit


$771,908


$594,763


$1,487,530


$1,163,380












Operating expenses










GAAP operating expenses


$779,234


$582,697


$1,507,413


$1,148,862


Less:










Amortization of purchased intangibles (a)


(4,476)


(2,407)


(6,936)


(5,834)


Stock-based expenses (b) 


(100,495)


(77,553)


(204,546)


(151,566)












Non-GAAP operating expenses


$674,263


$502,737


$1,295,931


$   991,462












Income from operations










GAAP loss from operations


$ (39,857)


$ (13,466)


$    (84,397)


$    (35,715)


Plus:










Amortization of purchased intangibles (a)


27,026


20,075


50,791


40,950


Stock-based expenses (b) 


110,476


85,417


225,205


166,683












Non-GAAP income from operations


$  97,645


$  92,026


$   191,599


$   171,918












Non-operating income (loss) (c)










GAAP non-operating loss


$ (16,947)


$     (566)


$    (26,350)


$     (3,185)


Plus: Amortization of debt discount, net


12,352


6,207


21,592


11,090












Non-GAAP non-operating income (loss)


$   (4,595)


$    5,641


$     (4,758)


$      7,905












Net income










GAAP net income (loss) 


$  76,603


$   (9,829)


$      8,882


$    (29,304)


Plus:










Amortization of purchased intangibles (a)


27,026


20,075


50,791


40,950


Stock-based expenses (b)


110,476


85,417


225,205


166,683


Amortization of debt discount, net


12,352


6,207


21,592


11,090


Partial release of the tax valuation allowance (f)


128,828


0


128,828


0


Less: