Salesforce.com Inc (CRM)

CRM 
$56.03
*  
0.40
0.72%
Get CRM Alerts
*Delayed - data as of Oct. 20, 2014  -  Find a broker to begin trading CRM now
Exchange: NYSE
Industry: Technology
Community Rating:
 
 
Symbol List Views
FlashQuotes InfoQuotes
Stock Details
Summary Quote Real-Time Quote After Hours Quote Pre-market Quote Historical Quote Option Chain
CHARTS
Basic Chart Interactive Chart
COMPANY NEWS
Company Headlines Press Releases Market Stream
STOCK ANALYSIS
Analyst Research Guru Analysis Stock Report Competitors Stock Consultant Stock Comparison
FUNDAMENTALS
Call Transcripts Annual Report Income Statement Revenue/EPS SEC Filings Short Interest Dividend History
HOLDINGS
Ownership Summary Institutional Holdings Insiders
(SEC Form 4)
 Save stocks for next time

salesforce.com, inc. (CRM)

F4Q13 Earnings Call

February 28, 2013 5:00 p.m. ET

Executives

John Cummings - Director of Investor Relations

Marc Benioff - Chairman and Chief Executive Officer

Graham Smith - Chief Financial Officer

Analysts

Kirk Materne - Evercore Partners

Laura Lederman - William Blair

Heather Bellini - Goldman Sachs

Brad Zelnick - Macquarie

Adam Holt – Morgan Stanley

Kash Rangan – Merrill Lynch

Rick Sherlund – Nomura Securities

Brent Thill – UBS

Mark Murphy – Piper Jaffray

Presentation

Operator

Good afternoon. My name is Kim, and I will be your conference operator today. At this time, I would like to welcome everyone to the salesforce.com's Fiscal Fourth Quarter and Full Year 2013 Results Conference Call. (Operator Instructions) I would now like to turn the call over to John Cummings, Director of Investor Relations.

John Cummings

Thanks, Kim, and good afternoon everyone and thank you for joining us today to discuss our fiscal fourth quarter and full year 2013 results. Access to our fourth quarter and full year results press release, historical results, our SEC filings and a webcast replay of today's call can be found on our investor relations website at www.salesforce.com/investor. We will also be posting the highlights of our call on Twitter at the handle @salesforce_ir.

Joining me on the call today are Marc Benioff, Chief Executive Officer; and Graham Smith, Chief Financial Officer. Marc and Graham will share a few prepared remarks about the quarter and year, and then we'll open the call to your questions.

Please note that our commentary today will primarily be in non-GAAP terms. Reconciliations between GAAP and non-GAAP metrics for both reported results and our forward guidance can be found in our earnings press release issued about an hour ago. In addition, we may offer incremental metrics to provide greater insight into the dynamics of our business or our fourth quarter or full year results. Please be advised that the additional detail maybe onetime in nature and may or may not be provided in the future. It's also possible we may reference certain unreleased services or features not yet available in our discussion today. Because we cannot guarantee the future timing or availability of these services or features, we recommend customers listening today make their purchase decisions based on services and features that are currently available.

The primary purpose of today's call is to provide you with information regarding our fiscal fourth quarter and full year 2013 performance. Some of our discussion and responses to your questions may contain forward-looking statements which are subject to risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize or should our assumptions prove to be incorrect, actual company results may or could differ materially from these forward-looking statements. All these risks, uncertainties and assumptions as well as other information on potential risk factors that could affect our financial results are included in our forms filed with the SEC, including our most recent report on Form 10-Q, particularly under the heading Risk Factors.

With that, let me turn the call over to Marc. Marc?

Marc Benioff

Hey, thanks very much, John. I appreciate it. Hey, before we get started I would like to share some very exciting news. I am thrilled to announce that just this morning Salesforce was named by Fortune magazine as the world's number one most admired software company. And I would just like to congratulate our entire team at salesforce.com for this amazing achievement. And also this morning we have posted on the Apple app store our exciting new version of Salesforce Chatter, our world class award winning social enterprise network app and it has some incredible new capabilities for all of our customers so check that out.

I would like to congratulate the team for their amazing performance in the fourth quarter. We had a spectacular finish to yet another year of exceptional growth. Revenue for the fourth quarter rose 32% from the year ago to $835 million and for the full year we delivered more than $3 billion in revenue, that’s an increase of 35% from fiscal year 2012. In constant currency our full year revenue grew in even faster 37% for the year. That’s pretty awesome. I just want to congratulate Salesforce constant currency growth for the full year at 37% and the first enterprise Cloud company over $3 billion in revenue. No other top 10 enterprise software company is growing faster and just an awesome job by everyone in the company. Thank you for all your hard work.

Operating cash flow rose to more than $280 million for the quarter, an increase of 17% year over year. For the full year we delivered more than $730 million in operating cash, up 25% from last year. And deferred revenue grew by 35% year over year to roughly $1.9 billion and more than $5.3 billion of book business on and off the balance sheet up 50% from last year, also incredible.

During the quarter we closed more seven and eight figure transactions than in the fourth quarter of last year. In all, we signed more than 150 multimillion dollar transactions. That is we signed more than 150 transactions in the quarter that were more, that were seven figures or more and that included nine 8- figure transactions in the quarter. Pretty epic. And given our customer momentum and strong pipeline of new business, I am absolutely delighted to announce that we are raising again our full fiscal 2014 revenue guidance which we now project at $3.82 billion to $3.87 billion and this puts us on pace to reach a $4 billion annual revenue run rate. During this fiscal year we absolutely have that $4 billion revenue run rate in sight. Very excited about that and definitely our short term goal on the way to our $10 billion dream.

Salesforce has always been a catalyst and evangelist for change in enterprise software. We pioneered the shift to the Cloud. We pioneered the shift to Social and we’ve pioneered the shift to Mobile and today, with this next generation of technology, our customers are connecting with their customers in entirely new ways. They’re becoming customer companies. Now more than ever companies are looking at Salesforce.com as their platform for innovation. We’re seeing incredible demand from companies who want to leverage today’s incredible new shifts in technology. And with our core product line, Sales Cloud and Service Cloud, Marketing Cloud and our Salesforce platform, our customers have the tools and are absolutely becoming these customer companies and unlocking greater levels of growth innovation and success.

Now that’s why our customers have made Salesforce number one in each of our core four markets and these four core markets are absolutely where we have our focus today. Of course our flagship Sales Cloud continues to be the number one app in the world for sales. We’re number one in Cloud CRM. Gartner predicts we’ll displace ASP this year to be the number one CRM market share leader in all of CRM, including our premise. And that’s very exciting for us because of course ASP has been the CRM leader according to Gartner for the last decade and we are absolutely delighted to replace ASP as the number one CRM company in the world. And this is just the beginning. With more than two thirds of the CRM market still being delivered on premise, we’ve got absolutely plenty of room to grow.

The Service Cloud is the world’s number one app for customer service and support. Our Service Cloud product line is delivering outstanding growth in the quarter. Well positioned to be our next billion dollar product line. And we are recognized in Gartner's Magic Quadrant for sales and support as well as the leader in Forrester and Gartner predicts more than 75% of customer service systems will be replaced or upgraded by 2016. Well, that’s a pretty phenomenal opportunity and that’s why we have doubled down with the Service Cloud through the introduction of Desk.com. And with Desk.com we have now Service Cloud for the small business as well as our traditional enterprise Service Cloud as well.

The Marketing Cloud is the world’s number one app for social marketing and the only social solution that is seamlessly connecting marketing with sales and service and is the line between marketing sales and service blur. We’re seeing that CMO become a strategic and critical part of how every company operates. It’s on everyone’s mind that Gartner says that by 2017 Chief Marketing Officers are going to spend more than Chief Information Officers on technology. And just this last week in New York, when I was meeting with some of our largest customers, in tow with them are their Chief Marketing Officers for the first time and this vision is turning into an incredible reality. We definitely saw that when we had an incredible story this week with our great friends at Unilever.

The Salesforce platform is the world’s number one enterprise platform. Continues to be our best product line and companies are absolutely rationalizing how they build applications today. They recognize their old client server tools are dead and they need a new generation of application development, deployment tools and they are looking to the cloud. But there is no more secure, more scalable, no more reliable solution than salesforce's core Force.com platform which is what our customers are choosing to build there next generation enterprise applications. And I have met with a large financial services customer today -- sorry, this week, and it reinforced to me the tremendous opportunity of the Salesforce platform with our customers to build applications.

I am thrilled to announce that we now have more than a million developers on this platform and over 3 million apps have already been developed, and there is more than 360,000 Force.com apps, more than 2.7 million Heroku. I have never been more excited about the future of our platform. The combination of our vision, our clear leadership in each of these four core markets is what's driving our success with customers today.

We have had incredible wins and in the quarter there were so many incredible new relationships for Salesforce but a few I want to mention. Royal Philips Electronics, a leader in healthcare, lighting, consumer lifestyle products, is a great example how companies are connecting with their customers like never before. Philips selected the Sales Cloud or Service Cloud and Chatter to connect millions of products onto a single customer network. From toothbrushes and coffeemakers, to new LED lighting products, all of them are going to be connected through Salesforce and our customer platform. And customers will be able to connect their products to trusted retailers and entire universe of incredible information, experts tools, videos, everything they need to be deeply connected with Philips. I am personally very excited about that. I am a huge Philips customer personally. I love all of their products from lighting especially to toothbrushes and I am looking forward to the connected toothbrush.

Unilever. I talked about Unilever in Q3. They selected Salesforce to build an app for more than 7,500 marketers and agencies to connect, share, collaborate. And in the fourth quarter Unilever went big with us with Chatter. Chatter will be the social layer for Unilever's enterprise unifying more than 80,000 employees around the world. And with Marketing Cloud and Salesforce platform, Unilever is building this exciting new social apps and these exciting new capabilities to become a customer company.

And when you look at company's like Philips, when you look at company's like Unilever, and I am sure you saw Unilever present this week in New York. It's just an absolutely incredible capability. I am high technology area I am thrilled to announce, Intuit, one of the world's largest software company's and one of peers, implemented our Service Cloud in its TurboTax business to enhance customer care experience in both its service agents and more than 25 million customers and rapidly deployed Salesforce for 4000 call centers agents. So it's a very exciting opportunity to work with a great company. And we will continue to see great traction in automotive industry, and in fact we had an amazing opportunity this quarter with Renault-Nissan alliance, the fourth largest automotive group in the world. They selected the Sales Cloud and Service Cloud to enable car owners and key markets to connect the entire Renault-Nissan ecosystem and we see them becoming the next incredible customer company.

Adding to our momentum in the quarter, we signed on a number of incredible enterprises all over the world to become customer companies, including Adman, Caterpillar, Heidrick & Struggles, Herman Miller, Infosys, KDDI, Lexmark, Novartis, OPTIS, Sony, Sun Life, Tata and I'm delighted to also mention Wal-Mart. And the list goes on and on. In everyone of these examples companies are transforming their businesses with Salesforce's next generation technologies and our ability to deeply integrate our social solutions, our social enterprise network, and our customer company solutions to replace that traditional enterprise solution from Microsoft, SAP and Oracle.

There is no better barometer for customer's success than usage. Our service continues to [pour] support and deliver transactions for customers in an unprecedented scale. I am thrilled to announce that in November 2012, Salesforce celebrated its first one billion transaction day. To put that into context, that’s more than double the number of posts on Twitter every day. We are in dealing in complex transactions, complex customers transactions for each one of our customers and more exciting, we delivered 250 billion transactions for our customers in the full fiscal year, up 65% in transaction volume from a year ago, to really you that this is one of the most used pieces of software in the world today.

Nothing speaks more to the Salesforce to our customers than the actual usage of our products and the speed, reliability and trust that we’re known for. It’s been an amazing year for Salesforce. It’s been an amazing year for our employees. It’s been an amazing year for our customers and we’re looking forward to being the first enterprise Cloud computing company to help our customers to connect with their customers in an entirely new way to become customer companies and if you want to see that incredible presentation that we did in New York, it’s now up on YouTube. You can find it on my Twitter feed or on my Facebook feed which is at Twitter.com/Benioff or Facebook.com/Benioff.

And now I’d like to turn it over to our Chief Financial Officer Graham Smith to tell you about the incredible results for this year. Graham?

Graham Smith

Thanks Marc. We all delivered a great fourth quarter to conclude another year of record results. In addition to posting solid topline revenue growth in FY ’13, we improved full year operating margins slightly, even as we integrated our largest ever acquisition and with attrition continuing its steady decline and a growing product set that expands cross-sell opportunities, we are well positioned for another year of strong growth in fiscal 2014.

Let me take you through our fourth quarter and full year results starting with revenue. Q4 revenue as Marc mentioned was $835 million, up 32% over last year. If you exclude an approximately $6 million FX headwind, revenue on a constant currency basis was up 33% over Q4 last year. And full year revenue was $3.05 billion, up 35% over FY ’12 and again if you exclude an FX headwind of approximately $44 million, full year revenue on a constant currency basis was up 37% year over year. Our recent acquisition of Buddy Media contributed approximately $11 million to fourth quarter revenue and approximately $20 million to full year revenue, consistent with the guidance range we issued in June.

The Marketing Cloud product line continues to gain traction and is an important growth lever for us as CMOs look to rapidly transform the entire customer experience for the social era. Excluding revenue from Buddy Media and all our acquisitions, beginning with Jigsaw, revenue for the full fiscal year still grew in excess of 30%. Stated differently, revenues from these same acquisitions comprised a little over 5% of total FY ’13 revenue and clearly we expect this proportion to continue to increase over time.

Looking at year-over-year growth on a regional basis, revenue in the Americas grew 34% to $583 million. Revenue in Europe grew 39% on a constant currency basis and 37% in dollars to $149 million, another great quarter in Europe. And revenue in Asia increased 22% in constant currency and 17% in dollars to $103 million. Fourth quarter revenue growth in Asia reflects continued slowing demand from enterprise customers in Japan which does not appear to have fully recovered since the disaster there almost two years ago.

Topline revenue continued to benefit from a decline in dollar attrition which fell for the 14th consecutive quarter and is now at its lowest level since we began measuring dollar attrition three and a half years ago.

During FY ’13, we continued to invest in a variety of customer success measures, including our Customers for Life program and our True to the Core initiative. Investments in these areas, along with a slow but generally improving macro economy, longer contract durations and increasing enterprise adoption helped drive attrition downwards.

Turning to the income statement. Non-GAAP operating income was $108 million in the fourth quarter, up 29% over Q4 last year. Our Q4 non-GAAP operating margin was approximately 12.9% or about 32 basis points lower than Q4 last year. The operating margin decline year over year is related to our acquisition of Buddy Media, where we are investing significantly for future growth. Non-GAAP operating income for the full fiscal year was $357 million. That’s up 36% over FY ’12. This translates to an FY ’13 non-GAAP operating margin of 11.7%, up 16 basis points over FY ’12. This improvement in full year operating margins was driven by greater leverage in G&A which declined by just over a percentage point of revenue, partially offset by the impact of recent acquisitions.

We added more than 480 new employees in Q4 and more than 2,000 for the full fiscal year, bringing our total yearend headcount to 9,800, up 26% over Q4 last year. Remember, during FY’12 we accelerated hiring significantly after a period of slower account growth. For fiscal 2014, we expect to continue hiring at roughly the same rate as FY ’13.

Turning to EPS, non-GAAP EPS was $0.51 for the fourth quarter and $1.63 for the full fiscal year. Non-GAAP EPS was about $0.11 above the high-end of the guidance range we provided back in November. Approximately $0.08 per share of the [beat] was due to the reinstatement of the U.S. federal R&D tax credit and about $0.03 per share was related to better than expected operating margins on higher than expected top line.

Turning to cash flow. Q4 operating cash flow was $282 million, that's up about 17% over Q4 last year. Operating cash flow for the full fiscal year was $737 million, that's up approximately 25% over last year. Operating cash flow was slightly higher than we anticipated in Q4 as a result of the timing of a particular invoice. Our standard process to issue invoices approximately 30 days in advance of the service period covered by the invoice. This means that the first renewal invoice on an annual buying contract goes out about 11 months after the initial contract date. So, if we sign a significant contract in the very early days of our first quarter then the next annual invoice can be issued and in some rare cases collected in our fourth quarter. This dynamic can affects accounts receivable, deferred revenue and cash book.

In the fourth quarter we billed and collected an approximately $30 million invoice that was billed as new business early in the first quarter of fiscal 2013. Looking ahead for FY '14, we expect operating cash flow to grow in the low 20ish% range. As long as we're investing for significant growth you should expect operating cash flow to grow a bit more slowly than revenue.

CapEx in the fourth quarter was $51 million, that's up 13% over Q4 last year and $176 million for the full fiscal year, that's up about 16% over FY '12. CapEx continues to be driven by new office build outs related to our growing employee base. CapEx as a percentage of revenue was approximately 6% for both the fourth quarter and the full fiscal year. That's down from about 7% last year. So, for FY '14 we expect similar CapEx spending as a percent of revenue. Free cash flow, which we define as operating cash flow less CapEx, was $231 million in the fourth quarter, up 18% over Q4 last year. For the full year, free cash flow was $561 million, that's up 28% over 2012.

Turning to the balance sheet. We ended the year with approximately $1.8 billion in cash and marketable securities, that's up from approximately $1.4 billion last year. Accounts receivable was up 28% over the last year to $873 million and our receivables [again] remains in great shape.

Deferred revenue in the fourth quarter was approximately $1.9 billion, up 35% over the Q4 last year. Excluding a year-over-year FX tailwind of approximately $7 million, deferred revenue increased 34%. On a sequential quarter basis, deferred revenue benefitted from an FX tailwind of approximately $13 million. Deferred revenue in the fourth quarter continued to benefit from the shift toward annual billing we initiated in the fourth quarter last year. Approximately 80% of all invoices in Q4 were issued with annual terms about 3 to 4 percentage points higher than Q4 last year.

For modeling purposes we expect 1 to 2 percentage points of continued year-over-year improvement in annual invoicing through the third quarter. The dollar benefit to deferred revenue from the continued shift to annual billing together with the large multiyear invoice we issued in the fourth quarter of last year, was approximately $125 million, that's down from approximately $155 million in Q4 last year. Keep in mind that the $30 million renewal invoice that I mentioned earlier, also contributed to the increase in deferred revenue this quarter and will obviously affect our sequential deferred revenue comparison in Q1.

For the first quarter, we anticipate reported year-over-year deferred revenue to grow in the high 20% range. We have always said that deferred revenue is a difficult number to predict and this quarter was no exception. Invoice timing, duration, FX, new business linearity, ramp deals, annual seasonality and the compounding effects of renewals, all influenced deferred revenue balances and the comparability of sequential and year-over-year changes. Unbilled deferred revenue or revenue that is contracted but not yet invoiced and is off the balance sheet was approximately $3.5 billion in Q4. That's an increase of 60% over the Q4 last year. Deferred revenue plus this unbilled backlog now exceeds $5.3 billion.

As we continue to become a larger and more strategic partner to our customers, both enterprise and commercial accounts are making longer commitments to Salesforce and this is reflected in our growing backlog and declining attrition. In fact, as I referenced earlier, our typical contract length has grown and is now between 12 months and 36 months, and our average contract duration is now more than 24 months.

Before I discuss guidance, I want to emphasize that growth remains our top priority. We continue to see a tremendous opportunity for our products and we’ll continue to emphasize investments and distribution capacity and engineering as we grow towards our $10 billion goal.

As you know, acquisitions have become an important part of this growth strategy. So where we start every year with a plan to improve operating margins, it's possible that M&A activity this coming year could well impact operating margins just as they did in fiscal 2013.

Turning to our outlook for fiscal 2014, as Marc mentioned, we are very pleased to raise our revenue outlook range for fiscal 2014 by $20 million. So we now project FY '14 revenue in the range of $3.82 billion to $3.87 billion. That's a growth range of 25% to 27%. We estimate full year non-GAAP EPS in the range of $1.93 to $1.97. This guidance range implies an increase in non-GAAP operating margins of 50 to 100 basis points, a slightly higher full year effective tax rate of approximately 35% and no meaningful contribution from below the line interest or other income expense. And just as a reminder, Dreamforce will be in our fiscal fourth quarter this year and we estimate that the net impact of both GAAP and non-GAAP EPS will be approximately $0.09 which is included in our estimates.

For Q1, we anticipate revenue in the range of $882 million to $887 million, including an expected FX headwind versus Q1 last year. We expect non-GAAP EPS in the range of $0.40 to $0.42. As a reminder, all of the underlying assumptions for our non-GAAP and our GAAP guidance and a complete GAAP to non-GAAP reconciliation can be found in our earnings press release issued earlier today.

So to wrap up, we had a great finish to fiscal 2013. We posted strong top line growth and improved our operating margins year-over-year. We continue to manage attrition downward and with rising enterprise adoption and a growing product set that expands across all opportunities, we're well positioned for another year of strong growth.

So with that we'll open the call up for questions.

Read the rest of this transcript for free on seekingalpha.com