Arik Hesseldahl

Recent Posts by Arik Hesseldahl

Salesforce Q2 Results Beat Expectations, Cutting Jobs in Canada

marc_benioff_380Shares of Salesforce.com are rising after hours after the company reported quarterly results that beat the expectations of analysts.

In an announcement that crossed the wires a few minutes ago, Salesforce reported non-GAAP earnings of nine cents, slightly better than the seven cents that had been expected. Sales were $957 million, better than the $940 million expected. Deferred revenue was $1.8 billion, up by more than 34 percent from the year-ago quarter.

Sales were helped by ExactTarget, the email marketing firm for which Salesforce paid $2.5 billion earlier this summer. It looks like those worries about the currency effects from the company’s exposure to Japan didn’t materialize, but I expect management will have more to say about that when the conference call gets under way shortly.

The other good news for Salesforce shareholders is that the company expects to report sales of between $4 billion and $4.03 billion for the year. The shares are up by more than seven percent on that news.

One bit of bad news that did materialize — at least for those affected — is that Salesforce will be cutting about 200 jobs in Canada. CBC reported, and Salesforce later confirmed it on the conference call, that the jobs will come in the Nova Scotia and New Brunswick operations of Radian6, the social media monitoring company it acquired back in 2011. Part of the reason for the cuts is overlap with ExactTarget.

Here’s the original announcement.

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 (CRM), the world’s #1 CRM platform (http://www.salesforce.com/), today announced results for its fiscal second quarter ended July 31, 2013.

“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.


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