Salesforce.com Announces Record Fiscal First Quarter Results

SAN FRANCISCO, May 16 /PRNewswire-FirstCall/ -- Salesforce.com , the market and technology leader in on-demand business services, today announced results for its fiscal first quarter ended April 30, 2007.

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"The momentum for our industry-leading on-demand applications and platform was truly global in our fiscal first quarter, as large enterprises around the world entrusted their futures to Salesforce," said Marc Benioff, chairman and CEO, salesforce.com. "Just two quarters ago, we were the first on-demand company to cross the significant threshold of a $500 million annual revenue run rate. Now, we have surpassed the $600 million run rate -- another step closer to our $1 billion goal. We believe that this makes salesforce.com the fastest growing software company of our size today."

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

GAAP EPS Policy: When comparing reported company EPS results with Thomson Financial First Call estimates, it should be noted that salesforce.com presents EPS results in GAAP terms only. Thomson estimates for salesforce.com are currently reported in non-GAAP terms, which exclude certain recurring items, such as stock based compensation and amortization of purchased intangibles. Revenue: Total Q1 revenue was $162.4 million, an increase of 55% on a year-over-year basis and an increase of 13% on a quarter-over-quarter basis. Subscription and support revenues were $147.7 million, an increase of 56% on a year-over-year basis and an increase of 12% on a quarter-over-quarter basis. Professional services and other revenues were $14.7 million, an increase of 44% on a year-over-year basis and an increase of 21% on a quarter-over-quarter basis. Earnings per Share: Q1 GAAP earnings per share were $0.01. This result reflects approximately $12.0 million in stock based compensation and approximately $1.0 million in amortization of purchased intangibles related to previously announced acquisitions. Q1 diluted GAAP EPS calculations are based on an average of 121 million diluted shares outstanding during the quarter. Customers: Net paying customers rose approximately 2,500 during the quarter to approximately 32,300, an increase of 42% or 9,600 from Q1 of the prior year, and an increase of 8% from the prior quarter. Cash: Cash from operations for the fiscal first quarter was approximately $37 million, an increase of 197% year-over-year. Total cash, cash equivalents and marketable securities finished the quarter at approximately $448 million, an increase of approximately $150 million year-over-year. Deferred Revenue: Deferred revenue on the balance sheet as of April 30, 2007 was $296 million, an increase of 62% on a year-over-year basis and 4% on a quarter-over-quarter basis.

Based on information as of May 16, 2007, salesforce.com is initiating guidance for its second quarter, fiscal year 2008, and raising its revenue guidance for the full fiscal year 2008.

Q2 FY08: Revenue for the company's second fiscal quarter is projected to be in the range of approximately $171 million to $173 million. GAAP diluted EPS is expected to be in the range of approximately breakeven to $0.01. GAAP EPS estimates include the effects of stock based compensation and the amortization of purchased intangibles. For the second fiscal quarter FY08, stock based compensation expense is expected to be approximately $13 million to $15 million, and the expense associated with the amortization of purchased intangibles is now expected to be approximately $1.5 million. For the purposes of Q2 GAAP EPS calculation, the company is expecting an average diluted shares count of 122 million shares, and a GAAP tax rate of 70%. Full Year FY08: The company today is raising the revenue outlook provided on February 21, 2007, with revenue now expected to be approximately $722 million to approximately $728 million. The company is also reiterating earnings outlook for the full year, expecting GAAP diluted EPS to be in the range of approximately $0.07 to $0.09. 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 $60 million to $70 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 124 million shares, and a GAAP tax rate of 65%. Quarterly Conference Call

Salesforce.com will host a conference call to discuss its first 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 706-758-3772. A replay will be available at (800) 642- 1687 or (706) 645-9291, passcode 7943492, until midnight (EDT) May 25, 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 April 30, 2007, salesforce.com manages customer information for approximately 32,300 customers including America Online (AOL), Dow Jones Newswires, Japan Post, Kaiser Permanente, KONE, Sprint Nextel, Staples 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, and concerning 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 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 our Form 10-K for the fiscal year ended January 31, 2007. These documents are available on the SEC Filings section 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.

NOTE: 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 April 30, 2007 2006 Revenues: Subscription and support $147,690 $94,493 Professional services and other 14,722 10,193 Total revenues 162,412 104,686 Cost of revenues (1): Subscription and support 20,184 12,775 Professional services and other 18,983 11,785 Total cost of revenues 39,167 24,560 Gross profit 123,245 80,126 Operating expenses (1): Research and development 14,121 8,825 Marketing and sales 83,925 52,016 General and administrative 25,085 19,405 Total operating expenses 123,131 80,246 Income (loss) from operations 114 (120) Interest, net 5,007 2,979 Other income (expense) 169 (599) Income before provision for income taxes and minority interest 5,290 2,260 Provision for income taxes (3,842) (2,005) Income before minority interest 1,448 255 Minority interest in consolidated joint venture (718) (484) Net income (loss) $730 ($229) Basic net income (loss) per share $0.01 $0.00 Diluted net income (loss) per share $0.01 $0.00 Shares used in computing basic net income (loss) per share 114,987 110,957 Shares used in computing diluted net income (loss) per share 120,635 110,957 (1) Amounts include stock-based expenses, as follows: Cost of revenues $1,774 $1,154 Research and development 1,277 720 Marketing and sales 5,619 3,482 General and administrative 3,342 2,250 Total stock-based expenses $12,012 $7,606 salesforce.com, inc. Condensed Consolidated Statements of Operations As a percentage of total revenues: (Unaudited) Three Months Ended April 30, 2007 2006 Revenues: Subscription and support 91% 90% Professional services and other 9 10 Total revenues 100 100 Cost of revenues: Subscription and support 12 12 Professional services and other 12 11 Total cost of revenues 24 23 Gross profit 76 77 Operating expenses: Research and development 9 8 Marketing and sales 52 50 General and administrative 15 19 Total operating expenses 76 77 Income (loss) from operations 0 0 Interest, net 3 3 Other income (expense) 0 (1) Income before provision for income taxes and minority interest 3 2 Provision for income taxes (2) (2) Income before minority interest 1 0 Minority interest in consolidated joint venture (1) 0 Net income (loss) 0% 0% Stock-based expenses as a percentage of total revenues, as follows: Cost of revenues 1% 1% Research and development 1 1 Marketing and sales 3 3 General and administrative 2 2 Total stock-based expenses 7% 7% salesforce.com, inc. Condensed Consolidated Balance Sheets (in thousands) April 30, January 31, 2007 2007 (unaudited) Assets Current assets: Cash and cash equivalents $87,492 $86,608 Short-term marketable securities 162,881 165,816 Accounts receivable, net 105,013 128,693 Deferred commissions 22,970 22,072 Deferred income taxes 240 228 Prepaid expenses and other current assets 21,537 15,679 Total current assets 400,133 419,096 Marketable securities, noncurrent 197,698 160,088 Fixed assets, net 33,849 30,155 Deferred commissions, noncurrent 8,723 9,478 Deferred income taxes, noncurrent 19,499 20,625 Capitalized software 22,225 10,983 Goodwill 6,705 6,705 Other assets 9,137 7,702 Total assets $697,969 $664,832 Liabilities and stockholders' equity Current liabilities: Accounts payable $11,606 $8,870 Accrued expenses and other current liabilities 68,718 77,327 Income taxes payable 1,321 6,739 Deferred revenue 295,672 284,063 Total current liabilities 377,317 376,999 Income taxes payable 4,635 0 Long-term lease abandonment liability and other 1,358 1,408 Minority interest 5,377 4,634 Total liabilities 388,687 383,041 Stockholders' equity: Common stock 115 115 Additional paid-in capital 346,466 319,496 Accumulated other comprehensive loss (2,087) (2,187) Accumulated deficit (35,212) (35,633) Total stockholders' equity 309,282 281,791 Total liabilities and stockholders' equity $697,969 $664,832 salesforce.com, inc. Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited) Three Months Ended April 30, 2007 2006 Operating activities: Net income (loss) $730 ($229) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Minority interest 718 484 Depreciation and amortization 4,848 2,325 Amortization of deferred commissions 9,039 5,127 Expenses related to stock-based awards 12,012 7,606 Excess tax benefits from employee stock plans (6,286) (2,600) Changes in assets and liabilities 15,769 (297) Net cash provided by operating activities 36,830 12,416 Investing activities: Business combination 0 (15,502) Changes in marketable securities (34,212) 27,208 Capital expenditures (15,957) (2,595) Net cash provided by (used in) investing activities (50,169) 9,111 Financing activities: Proceeds from the exercise of stock options and warrants 8,300 5,503 Excess tax benefits from employee stock plans 6,286 2,600 Principal payments on capital lease obligations (157) (151) Net cash provided by financing activities 14,429 7,952 Effect of exchange rate changes (206) (748) Net increase in cash and cash equivalents 884 28,731 Cash and cash equivalents, beginning of period 86,608 99,842 Cash and cash equivalents, end of period $87,492 $128,573 salesforce.com, inc. Additional Metrics (Unaudited) April 30, Jan 31, Oct 31, July 31, April 30, Jan 31, 2007 2007 2006 2006 2006 2006 Full Time Equivalent Headcount 2,243 2,070 1,807 1,625 1,480 1,304 Financial data (in thousands): Cash, cash equivalents and marketable securities $448,071 $412,512 $371,278 $334,107 $298,313 $296,792 Deferred revenue $295,672 $284,063 $219,431 $202,836 $182,036 $169,175 Three Months Ended April 30, 2007 2006 Revenues by geography (in thousands): Americas $124,452 $83,025 Europe 25,574 14,950 Asia Pacific 12,386 6,711 $162,412 $104,686 As a percentage of total revenues: Revenues by geography: Americas 77% 79% Europe 16 14 Asia Pacific 7 7 100% 100%