10-QPeriod: Q3 FY2007

Salesforce, Inc. Quarterly Report for Q3 Ended Oct 31, 2006

Filed November 17, 2006For Securities:CRM

Summary

Salesforce, Inc. (CRM) reported its third-quarter results for the period ending October 31, 2006. The company demonstrated strong revenue growth, with total revenues increasing by 57% year-over-year to $130.1 million. This growth was primarily driven by its subscription and support services, which saw a significant rise in paying subscriptions, reaching approximately 556,000. Despite the revenue growth, the company reported a slight operating loss of $123,000 for the quarter. This was largely influenced by substantial investments in expanding its business operations, including data center capacity and increased headcount in sales, R&D, and professional services. A significant factor impacting profitability was the adoption of SFAS 123R, which requires expensing of stock-based compensation, accounting for $10.2 million of the quarter's expenses. While the company's cash position remained robust at $371.3 million in cash, cash equivalents, and marketable securities, the report highlights ongoing strategic investments aimed at future growth and market expansion.

Key Highlights

  • 1Total revenues reached $130.1 million for the three months ended October 31, 2006, a 57% increase year-over-year.
  • 2Subscription and support revenues continued to be the primary revenue driver, accounting for 91% of total revenues.
  • 3The number of paying subscriptions grew to approximately 556,000, up from 347,000 in the prior year's comparable period.
  • 4The company reported an operating loss of $123,000 for the quarter, contrasted with an operating income of $6.4 million in the prior year.
  • 5Stock-based compensation expenses, recognized under SFAS 123R, amounted to $10.2 million for the quarter, significantly impacting profitability.
  • 6Cash, cash equivalents, and marketable securities totaled $371.3 million as of October 31, 2006, indicating a strong liquidity position.
  • 7Deferred revenue increased significantly to $219.4 million, reflecting strong future revenue commitments from customers.

Frequently Asked Questions

Salesforce reported a net income of $339,000 for the three months ended October 31, 2006. This was a substantial decrease compared to the $13.1 million net income reported in the same period of the prior year. The decrease was influenced by significant investments in growth and the adoption of new stock-based compensation accounting standards (SFAS 123R).

The adoption of SFAS 123R, which requires expensing of stock-based compensation, had a material impact. For the three months ended October 31, 2006, stock-based expenses amounted to $10.2 million, contributing significantly to the operating loss. For the nine-month period, these expenses totaled $28.0 million.

Salesforce demonstrated robust revenue growth, with total revenues increasing by 57% year-over-year to $130.1 million for the quarter. This growth is primarily driven by the subscription and support services segment, fueled by a consistent increase in the number of paying subscriptions, which reached approximately 556,000 by the end of the quarter. The company is also seeing strong growth in international markets.

Salesforce maintained a strong liquidity position with $371.3 million in cash, cash equivalents, and marketable securities as of October 31, 2006. Net cash provided by operating activities was $30.6 million for the quarter, supporting ongoing investments in expanding data center capacity, sales and marketing activities, and research and development. The company also made strategic acquisitions, such as Sendia Corporation for $15.5 million.