Salesforce.com Inc. (CRM) reported fourth quarter fiscal 2011 adjusted net income of 12 cents per share, at par with the Zacks Consensus Estimate. The adjusted figure excludes amortization of intangibles and debt discount, but includes stock-based compensation.
Revenues in the quarter were $456.9 million, up 29.0% from $354.0 million in the year-ago quarter. Results exceeded the company’s guidance range of $447.0 million to $449.0 million and the Zacks Consensus Estimate of $453.0 million. The company witnessed robust demand for its products, along with broad-based revenue strength across all geographical regions.
Going by segments, Subscription and Support revenues of $428.5 million escalated 30.9% from the year-ago quarter. Professional Services and Other revenues increased 6.0% from the year-earlier quarter to $28.3 million.
Geographically, on a year-over-year basis, the Americas improved 26.2% to generate $308.5 million, contributing 67.5% to the total revenue, Europe grew 29.5% to $82.9 million, contributing 18.1% and Asia-Pacific leaped 43.1% to $65.4 million, contributing14.3%.
New customers increased sequentially by approximately 5,100 during the quarter. The number of net paying customers at the end of the first quarter was 92,300. During fiscal 2011, Salesforce.com added 19,800 net paying customers, compared to 19,300 in the prior quarter.
Operating Results
Gross profit on a GAAP basis was $364.6 million, up 27.5% year over year, while on a non-GAAP basis was $373.8 million, up 28.2% from the year-ago quarter. The non-GAAP figure excludes amortization of purchased intangibles and stock-based compensation.
GAAP gross margin was 79.8%, down from 80.8% in the year-ago quarter. Non-GAAP gross margin was 81.8%, compared with 82.4% in the year-ago quarter.
Operating expenses rose 40.1% and 37.4% year over year, on a GAAP and non-GAAP basis, respectively. The growth rate was much higher than that of the quarter’s revenue, which resulted in an operating loss during the quarter.
Operating loss, on a GAAP basis, was $0.391 million, compared to operating income of $25.5 million in the year-ago quarter. Operating income on a non-GAAP basis was $48.2 million, down from $54.6 million in the year-ago quarter.
GAAP operating margin was (0.1%) versus 7.2% in the prior-year quarter. Non-GAAP operating margin was 10.5%, compared with 15.4% in the year-ago quarter. The decline in the operating margin was due to increased investments to maintain the company’s technology leadership. Increased headcount during the quarter could be another reason for the margin decline.
GAAP net income in the quarter was $10.9 million, or 8 cents per share, compared with $20.4 million or 16 cents in the comparable quarter last year.
Excluding special items, net income on a non-GAAP basis was $43.1 million or 31 cents per share, compared with $39.5 million or 30 cents in the year-earlier quarter. However, non-GAAP net income including stock-based compensation expense was $16.9 million or 12 cents per share, compared to $22.9 million or 17 cents.
Balance Sheet & Cash Flow
Salesforce.com ended the quarter with cash, equivalents and short-term marketable securities of $497.0 million, down from $769.8 million in the prior quarter. Accounts receivable increased $168.1 million from the prior quarter to $426.9 million. Salesforce.com has no long-term debt. Total deferred revenue in the quarter was $934.9 million, up from $672.4 million in the previous quarter.
Cash from operating activities in the quarter was $165.8 million, compared with $74.0 million in the prior quarter. Capital expenditure increased $9.8 billion from the previous quarter to $30.6 million. Free cash flow surged $81.95 million from the prior quarter to $53.25 million.
Guidance
Salesforce.com has provided guidance for first quarter and fiscal 2012. For the first quarter of 2012, total revenue is expected in the range of $480.0 million to $482.0 million. GAAP loss per share is expected at between 2 cents and a penny, while non-GAAP diluted earnings per share (EPS) will likely be in the range of 26 to 27 cents.
The non-GAAP figure excludes effects of stock-based compensation expense of roughly 33 cents, amortization of purchased intangibles related to acquisitions of approximately 8 cents, and non-cash interest expense related to the convertible senior notes of roughly 2 cents.
For full-year 2012, Salesforce.com raised its revenue outlook to $2.03–$2.05 billion from the previous guidance provided on November 18, 2010. Diluted GAAP EPS is expected in the range of 8 cents to 11 cents, while diluted non-GAAP EPS is projected in the range of $1.35 to $1.38.
The non-GAAP figure excludes the effects of stock-based compensation expense of roughly $1.57 per share, amortization of purchased intangibles related to acquisitions of approximately 28 cents, and non-cash interest expense related to the convertible senior notes of roughly 8 cents.
For both the first quarter and fiscal year, Salesforce.com assumes a GAAP tax rate of 38% and a non-GAAP tax rate of 35%. Moreover, the average diluted share count is expected to be 145 million shares.
The non-GAAP EPS guidance for the first quarter and fiscal 2012 exceeded the Zacks Consensus Estimates of 18 cents and 85 cents, respectively.
Our Take
Salesforce.com reported decent fourth quarter 2011 results. It also provided an encouraging guidance for the first quarter and full-year 2012 based on strong demand for its business software and customer additions.
We, however, caution investors about strong competition in the CRM application and cloud-computing areas. Google Inc. (GOOG) and Microsoft Corp. (MSFT) are worthy of special mention, since they have been fighting to win government clients at local, state and federal levels to use their online e-mail and other applications that fit into the cloud-computing space.
Currently, Salesforce.com has a Zacks #4 Rank, implying a short-term Sell recommendation.
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