Salesforce.com (CRM) reported first quarter 2011 EPS of 17 cents, missing the Zacks Consensus estimate by 1 cent.
Revenues for the first quarter were $376.8 million, an increase of 24.0% from $304.9 million in the year-ago quarter. This exceeded the company’s guidance range of $365.0 million to $367.0 million. The company saw a positive impact in the turnaround of the macroeconomic environment, which resulted in a pickup in demand — especially with the company’s commercial customers, who contributed about 78% of Salesforce’s revenue.
This apart, solutions revenue, including enterprise servers and networking as well as storage, also moved up substantially, aided by the acquisition of Perot Systems. The company also witnessed very strong demand in emerging countries around the world.
Subscription and Support revenues of $351.0 million increased 24.0% from the year-ago quarter. Professional Services and Other revenues of $26.0 million increased 13.0% from the year-ago quarter. Geographically, the Americas contributed 68.8% of first quarter 2010 revenues, growing 17.5% year over year. Europe contributed 18.3%, growing 29.5% year over year. Asia-Pacific contributed 13.0%, growing 18.2% year-over-year.
Customers
Net paying customers increased by 4,800 during the quarter, bringing the total to 77,300. This was an increase of 30.0% from the year-ago quarter. This apart, the company added 18,000 net new customers during the quarter.
Operating Results
Gross margin was 81.0% in the first quarter compared to 80.0% in the year-ago quarter. This minimal increase in gross margin is attributable to around half a point of gross margin improvement in the company’s Subscription and Support business, which was helped by Salesforce achieving greater scale and increased efficiency through the deployment of new services in storage. Also, a mix shift away from professional services to Subscription and Support also had a positive impact on the gross margin.
The operating margin was 9.0% in the quarter, versus 10.0% in the year-ago quarter. Operating margin declined, as the company invested for growth this year, although it remained cautious in the year-ago quarter. This happened as a result of increase in headcount, as the company added 137 customers in the first quarter. The company expects to increase headcount again in the second quarter.
The fully diluted EPS on a GAAP basis for the first quarter was $0.13 compared to $0.15 in the year-ago quarter. Earnings per share were in-line with the company’s guidance of $0.12 to $0.13. Earnings per share on a GAAP basis includes approximately $26.0 million in stock-based compensation expense, $2.5 million in the amortization of purchased intangibles and approximately $5.5 million of non-cash interest expense. So the non-GAAP EPS comes to $0.30. Adjusted EPS excluding stock based compensation comes to $0.17.
Balance Sheet and Cash Flow
Salesforce.com generated $143.2 million in cash from operating activities in the first quarter of 2010 versus $92.0 million in the previous quarter. The company ended the quarter with $951.7 million in cash and cash equivalents and marketable securities (both current and non-current) versus $1.7 billion in the previous quarter. Salesforce.com has no long-term debt. Deferred revenue for the quarter was $647.5 million, down from $704.0 million in the previous quarter.
Guidance
Management has provided guidance for the second quarter and full year. Revenues for the second quarter are projected in the range of $381.0 million to $383.0 million and GAAP-based EPS in the range of $0.07 to $0.08, while non-GAAP fully diluted EPS is expected to be in the range of $0.26 to $0.27. The company has provided its full-year 2011 guidance and expects revenues to be in the range of $1.545 to $1.555 billion. The company now expects GAAP based EPS in the range of approximately $0.38 to $0.40, while non-GAAP EPS is expected in the range of $1.13 to $1.15.
Salesforce.com has reported decent first quarter 2011 results, although it missed the Zacks Consensus estimate by 1 cent. It has provided an encouraging guidance for the second quarter and full year 2011. This apart, the company has recently extended the reach of its Force.com site through value-added resellers, which is expected to generate additional revenue.
We, however, caution investors about strong competitors in the CRM application and cloud computing areas. IT spending is showing signs of revival and the company has slowly started reaping the benefits.
We reiterate our Neutral rating on the stock.
Read the full analyst report on “CRM”
Zacks Investment Research
