Salesforce.com Announces Record Fiscal Second Quarter 2008 Results

SAN FRANCISCO, Aug. 15 /PRNewswire-FirstCall/ -- Salesforce.com , the market and technology leader in on-demand business services, today announced results for its second fiscal quarter ended July 31, 2007.

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"Our business continues to show incredible momentum: a year ago, our largest customer had roughly 7,500 subscribers. Today, our installed base includes 2 customers with more than 30,000 subscribers; 4 customers with 20,000 or more subscribers; 5 customers with over 10,000 and a remarkable 68 customers with more than 1,000 subscribers-a greater than 40% increase in the number of customers with 1,000 or more subscribers versus 6 months ago," said Marc Benioff, chairman and CEO, salesforce.com. "Now with an annual revenue run rate of more than $700 million, our company is well-positioned to take on-demand even further into the enterprise."

Salesforce.com delivered the following results for the second fiscal quarter 2008:

Revenue: Total Q2 revenue was $176.6 million, an increase of 49% on a year-over-year basis and an increase of 9% on a quarter-over-quarter basis. Subscription and support revenues were $160.0 million, an increase of 50% on a year-over-year basis and an increase of 8% on a quarter-over-quarter basis. Professional services and other revenues were $16.6 million, an increase of 45% on a year-over-year basis and an increase of 13% on a quarter-over-quarter basis. Earnings per Share: Q2 diluted GAAP earnings per share were $0.03. This result includes approximately $13 million in stock based compensation and approximately $1.5 million in amortization of purchased intangibles related to previously announced acquisitions, as well as a 50% tax rate. Q2 diluted GAAP EPS calculations are based on an average of 121 million diluted shares outstanding during the quarter. Customers: The company achieved a new record in Q2 by adding approximately 3,000 net paying customers in a quarter for the first time in its history. These additions pushed total net paying customers in the second quarter to 35,300, an increase of approximately 10,500 or 42% from Q2 of the prior year, and an increase of approximately 9% from the prior quarter. Net paying subscribers rose to more than 800,000 subscribers as of quarter end, an increase of more than 60% year over year. Cash: Cash from operations for the fiscal second quarter was approximately $35 million, an increase of 15% year-over-year. Total cash, cash equivalents and marketable securities finished the quarter at approximately $497 million, an increase of approximately 49% or $163 million year-over-year. Deferred Revenue: Deferred revenue on the balance sheet as of the end of the fiscal second quarter was roughly $322 million, an increase of 59% on a year-over-year basis and 9% on a quarter-over-quarter basis.

Based on information as of August 15, 2007, salesforce.com is initiating guidance for its third quarter, fiscal year 2008, and raising its guidance for the full fiscal year 2008.

Q3 FY08: Revenue for the company's third fiscal quarter is projected to be in the range of approximately $187 million to $189 million. GAAP diluted EPS is expected to be in the range of approximately $0.01 to $0.02. GAAP EPS estimates include the effects of stock based compensation and the amortization of purchased intangibles. For the third fiscal quarter FY08, stock based compensation expense is expected to be approximately $14 million to $16 million, and the expense associated with the amortization of purchased intangibles is now expected to be approximately $1.5 million. For the purposes of Q3 GAAP EPS calculation, the company is expecting an average diluted shares count of 123 million shares, and a GAAP tax rate of 58%. Full Year FY08: The company is raising its full fiscal year 2008 revenue and EPS outlook provided on May 16, 2007. Revenue is now expected to be approximately $727 million to approximately $732 million. The company now expects GAAP diluted EPS to be in the range of approximately $0.08 to $0.10. GAAP EPS estimates include the effects of stock based compensation and the amortization of purchased intangibles. For the full fiscal year 2008, stock based compensation expense is expected to be approximately $55 million to $60 million, and the expense associated with the amortization of purchased intangibles is currently expected to be approximately $5.0 million. For the purposes of the full fiscal year 2008 GAAP EPS calculation, the company is expecting an average diluted shares count of 123 million shares, and a GAAP tax rate of 58%. Quarterly Conference Call

Salesforce.com will host a conference call to discuss its second quarter fiscal 2008 results at 2:00 p.m. (PDT) today. A live audio webcast of the conference call, together with detailed financial information, can be accessed through the company's Investor Relations Web site at http://www.salesforce.com/investor. In addition, an archive of the webcast can be accessed through the same link. Participants who choose to call into the conference call can do so by dialing domestically 866-901-SFDC or 866-901-7332 and internationally 706-902-1764. A replay will be available at (800) 642-1687 or (706) 645-9291, passcode 12424692, until midnight (EDT) August 24, 2007.

About salesforce.com

Salesforce.com is the market and technology leader in on-demand business services. The company's Salesforce suite of on-demand CRM applications allows customers to manage and share all of their sales, support, marketing and partner information on-demand. The Salesforce Platform, the world's first on-demand platform, enables customers, developers and partners to build powerful new on-demand applications that extend beyond CRM to deliver the benefits of multi-tenancy and The Business Web across the enterprise. The Salesforce Platform allows applications to be easily shared, exchanged and installed with a few simple clicks via salesforce.com's AppExchange directory, available at http://www.salesforce.com/appexchange. Customers can also take advantage of Successforce, salesforce.com's world-class training, support, consulting and best practices offerings.

As of July 31, 2007, salesforce.com manages customer information for approximately 35,300 customers including ABN AMRO, Dow Jones Newswires, Japan Post, Kaiser Permanente, KONE, Sprint Nextel and SunTrust Banks. 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://www.salesforce.com/, or call 1-800-NO-SOFTWARE.

"Safe harbor" statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements including but not limited to statements regarding our expected future revenue, GAAP diluted earnings per share, expected tax rate, anticipated shares outstanding, further adoption of our on-demand business services by enterprises, and the potential market for our existing service offerings. All of our forward looking statements involve risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions proves incorrect, our 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 our operating results and cash flows, rate of growth and anticipated revenue run rate, errors, interruptions or delays in our service or our Web hosting, our new business model, our history of operating losses, the possibility that we will not remain profitable, breach of our security measures, the emerging market in which we operate, our relatively limited operating history, our ability to hire, retain and motivate our employees and manage our growth, competition, our ability to continue to release and gain customer acceptance of new and improved versions of our service, customer and partner acceptance of the AppExchange, successful customer deployment and utilization of our services, unanticipated changes in our effective tax rate, fluctuations in the number of shares outstanding, the price of such shares, foreign currency exchange rates and interest rates.

Further information on these and other factors that could affect our financial results is contained in our SEC filings, including our most recent reports on Form 10-K and 10-Q, particularly under the heading "Risk Factors." These documents are available in the SEC Filings portion of the Investor Information section of our website at http://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.

Salesforce.com is a registered trademark of salesforce.com, and AppExchange, The Business Web, IdeaExchange and Successforce are trademarks of salesforce.com, Inc., San Francisco, California. Other names used 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 Six Months Ended July 31, July 31, 2007 2006 2007 2006 Revenues: Subscription and support $159,998 $106,663 $307,688 $201,156 Professional services and other 16,581 11,474 31,303 21,667 Total revenues 176,579 118,137 338,991 222,823 Cost of revenues (1): Subscription and support 22,375 15,775 42,559 28,550 Professional services and other 19,037 13,356 38,020 25,141 Total cost of revenues 41,412 29,131 80,579 53,691 Gross profit 135,167 89,006 258,412 169,132 Operating expenses (1): Research and development 15,096 11,008 29,217 19,833 Marketing and sales 90,216 59,811 174,141 111,827 General and administrative 26,508 19,466 51,593 38,871 Total operating expenses 131,820 90,285 254,951 170,531 Income (loss) from operations 3,347 (1,279) 3,461 (1,399) Interest, net 5,615 3,170 10,622 6,149 Other income (expense) 280 137 449 (462) Income before provision for income taxes and minority interest 9,242 2,028 14,532 4,288 Provision for income taxes (4,653) (1,713) (8,495) (3,718) Income before minority interest 4,589 315 6,037 570 Minority interest in consolidated joint venture (854) (460) (1,572) (944) Net income (loss) $3,735 ($145) $4,465 ($374) Basic net income (loss) per share $0.03 $0.00 $0.04 $0.00 Diluted net income (loss) per share $0.03 $0.00 $0.04 $0.00 Shares used in computing basic net income (loss) per share 116,294 111,838 115,637 111,397 Shares used in computing diluted net income (loss) per share 121,333 111,838 120,993 111,397 (1) Amounts include stock-based expenses, as follows: Cost of revenues $1,965 $1,442 $3,739 $2,596 Research and development 1,510 1,286 2,787 2,006 Marketing and sales 6,265 4,718 11,884 8,200 General and administrative 3,691 2,747 7,033 4,997 Total stock-based expenses $13,431 $10,193 $25,443 $17,799 salesforce.com, inc. Condensed Consolidated Statements of Operations As a percentage of total revenues (Unaudited) Three Months Ended Six Months Ended July 31, July 31, 2007 2006 2007 2006 Revenues: Subscription and support 91% 90% 91% 90% Professional services and other 9 10 9 10 Total revenues 100 100 100 100 Cost of revenues: Subscription and support 12 13 13 13 Professional services and other 11 12 11 11 Total cost of revenues 23 25 24 24 Gross profit 77 75 76 76 Operating expenses: Research and development 9 9 9 9 Marketing and sales 51 51 51 50 General and administrative 15 16 15 18 Total operating expenses 75 76 75 77 Income (loss) from operations 2 (1) 1 (1) Interest, net 3 3 3 3 Other income (expense) 0 0 0 0 Income before provision for income taxes and minority interest 5 2 4 2 Provision for income taxes (2) (2) (2) (2) Income before minority interest 3 0 2 0 Minority interest in consolidated joint venture (1) 0 (1) 0 Net income (loss) 2% 0% 1% 0% Stock-based expenses as a percentage of total revenues, as follows: Cost of revenues 1% 1% 1% 1% Research and development 1 1 1 1 Marketing and sales 4 4 4 4 General and administrative 2 3 2 2 Total stock-based expenses 8% 9% 8% 8% salesforce.com, inc. Condensed Consolidated Balance Sheets (in thousands) July 31, January 31, 2007 2007 (Unaudited) Assets Current assets: Cash and cash equivalents $122,949 $86,608 Short-term marketable securities 184,881 165,816 Accounts receivable, net 114,046 128,693 Deferred commissions 25,150 22,072 Deferred income taxes 2,106 228 Prepaid expenses and other current assets 28,039 15,679 Total current assets 477,171 419,096 Marketable securities, noncurrent 189,361 160,088 Fixed assets, net 36,690 30,155 Deferred commissions, noncurrent 8,675 9,478 Deferred income taxes, noncurrent 22,620 20,625 Capitalized software 23,956 10,983 Goodwill 6,705 6,705 Other assets 10,601 7,702 Total assets $775,779 $664,832 Liabilities and stockholders' equity Current liabilities: Accounts payable $7,215 $8,870 Accrued expenses and other current liabilities 81,358 77,327 Income taxes payable 1,689 6,739 Deferred revenue 321,852 284,063 Total current liabilities 412,114 376,999 Income taxes payable, noncurrent 5,007 0 Long-term lease abandonment liability and other 1,371 1,408 Minority interest 6,231 4,634 Total liabilities 424,723 383,041 Stockholders' equity: Common stock 117 115 Additional paid-in capital 384,510 319,496 Accumulated other comprehensive loss (2,094) (2,187) Accumulated deficit (31,477) (35,633) Total stockholders' equity 351,056 281,791 Total liabilities and stockholders' equity $775,779 $664,832 salesforce.com, inc. Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited) Three Months Ended Six Months Ended July 31, July 31, 2007 2006 2007 2006 Operating activities: Net income (loss) $3,735 ($145) $4,465 ($374) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Minority interest 854 460 1,572 944 Depreciation and amortization 6,045 3,103 10,893 5,428 Amortization of deferred commissions 9,644 5,651 18,683 10,778 Expenses related to stock-based awards 13,431 10,193 25,443 17,799 Excess tax benefits from employee stock plans (8,920) (3,328) (15,206) (5,928) Changes in assets and liabilities 9,865 14,088 25,634 13,791 Net cash provided by operating activities 34,654 30,022 71,484 42,438 Investing activities: Business combination 0 0 0 (15,502) Purchase of subsidiary stock 0 0 0 0 Changes in marketable securities (13,735) (14,151) (47,947) 13,057 Capital expenditures (10,104) (2,818) (26,061) (5,413) Net cash used in investing activities (23,839) (16,969) (74,008) (7,858) Financing activities: Proceeds from the exercise of stock options and warrants 15,404 5,388 23,704 10,891 Excess tax benefits from employee stock plans 8,920 3,328 15,206 5,928 Principal payments on capital lease obligations (6) (153) (163) (304) Repurchase of unvested shares 0 (10) 0 (10) Net cash provided by financing activities 24,318 8,553 38,747 16,505 Effect of exchange rate changes 324 (187) 118 (935) Net increase in cash and cash equivalents 35,457 21,419 36,341 50,150 Cash and cash equivalents, beginning of period 87,492 128,573 86,608 99,842 Cash and cash equivalents, end of period $122,949 $149,992 $122,949 $149,992 salesforce.com, inc. Additional Metrics (Unaudited) July 31, April 30, Jan 31, 2007 2007 2007 Full Time Equivalent Headcount 2,302 2,243 2,070 Financial data (in thousands): Cash, cash equivalents and marketable securities $497,191 $448,071 $412,512 Deferred revenue $321,852 $295,672 $284,063 Oct 31, July 31, April 30, 2006 2006 2006 Full Time Equivalent Headcount 1,807 1,625 1,480 Financial data (in thousands): Cash, cash equivalents and marketable securities $371,278 $334,107 $298,313 Deferred revenue $219,431 $202,836 $182,036 Three Months Ended July 31, Six Months Ended July 31, 2007 2006 2007 2006 Revenues by geography (in thousands): Americas $133,343 $92,553 $257,795 $175,578 Europe 29,160 17,624 54,734 32,574 Asia Pacific 14,076 7,960 26,462 14,671 $176,579 $118,137 $338,991 $222,823 As a percentage of total revenues: Revenues by geography: Americas 76 % 78 % 76 % 79 % Europe 16 15 16 15 Asia Pacific 8 7 8 6 100 % 100 % 100 % 100 %