Salesforce.com Inc. (CRM) reported first quarter fiscal 2012 adjusted net income of 6 cents per share, a penny ahead of the Zacks Consensus Estimate. The adjusted figure excludes amortization of intangibles and debt discount, but includes stock-based compensation.
Revenues
Revenues in the quarter were $504.4 million, up 33.9% from $376.8 million in the year-ago quarter. Results exceeded the company’s own guidance range of $480.0 million to $482.0 million and the Zacks Consensus Estimate of $483.0 million. Salesforce enjoyed robust demand for its products, along with broad-based revenue strength across all regions.
Segment wise, Subscription and Support revenues of $473.5 million escalated 35.0% from the year-ago quarter. Professional Services and Other revenues increased 18.4% from the year-earlier quarter to $30.9 million.
Geographically, on a year-over-year basis, revenues in the Americas improved 31.1% to $340.0 million, contributing 67.4% to the total, Europe shot up 41.3% to $94.4 million, contributing 18.7% and the Asia-Pacific grew 38.0% to $70.0 million, contributing 13.9%.
As many as 5,400 paying customers were added since the prior quarter. The number of net paying customers at the end of the first quarter was 97,700.
Operating Results
Gross profit on a GAAP basis was $401.3 million, up 31.5% year over year, while on a non-GAAP basis was $414.0 million, up 33.6% from the year-ago quarter. The non-GAAP figure excludes amortization of purchased intangibles and stock-based compensation.
The GAAP gross margin was 79.6%, down from 81.0% in the year-ago quarter. Non-GAAP gross margin was 82.1%, compared with 82.3% in the year-ago quarter. The gross margin deterioration was attributed to higher investments in its U.S. data centers and costs required to build out the Japan data center.
Operating expenses rose 48.5% and 44.8% 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.
Operating loss, on a GAAP basis, was $2.8 million, compared to operating income of $33.1 million in the year-ago quarter. Operating income on a non-GAAP basis was $55.1 million, down from $62.0 million in the year-ago quarter.
GAAP operating margin was (0.6%) versus 8.8% in the prior-year quarter. Non-GAAP operating margin was 10.9%, compared with 16.5% in the year-ago quarter. The decline in the operating margin was due to increased R&D investments to maintain the company’s technology leadership. Increased headcount also added to costs.
GAAP net income in the quarter was $0.5 million compared with $17.7 million in the comparable quarter last year. On a per share basis, the company just broke even compared with earnings of 13 cents a year ago.
Excluding special items, net income on a non-GAAP basis was $39.9 million or 28 cents per share, compared with $39.9 million or 30 cents in the year-earlier quarter. However, non-GAAP net income including stock-based compensation expense was $9.0 million or 6 cents per share, compared with $22.8 million or 17 cents.
Balance Sheet & Cash Flow
Salesforce.com ended the quarter with cash, equivalents and short-term marketable securities of $763.8 million, up from $497.0 million in the prior quarter. Accounts receivable decreased $156.1 million from the prior quarter to $270.8 million. Salesforce.com has no long-term debt. Total deferred revenue in the quarter was $915.1 million, down from $934.9 million in the previous quarter.
Cash from operating activities in the quarter was $139.5 million, compared with $165.8 million in the prior quarter. Capital expenditure decreased $3.3 billion from the previous quarter to $27.3 million. Free cash flow surged $58.9 million from the prior quarter to $112.2 million.
Guidance
Salesforce.com has provided guidance for the second quarter and fiscal 2012. For the second quarter of 2012, total revenue is expected in the range of $526.0 million to $528.0 million. GAAP loss per share is expected at between 1 cent and break-even, while non-GAAP diluted earnings per share (EPS) is expected to be in the range of 29 cents to 30 cents.
For full-year 2012, Salesforce.com raised its revenue outlook to $2.15–$2.17 billion from $2.03–$2.05 billion. Diluted GAAP EPS is expected in the range of negative 3 cents to negative 1 cent (previously 8 cents to 11 cents), while diluted non-GAAP EPS is projected in the range of $1.30 to $1.32 (previous expectation was $1.35 to $1.38).
For both the second quarter and fiscal year, Salesforce.com assumes an average diluted share count of 145 million.
The non-GAAP EPS guidance for the second quarter and fiscal 2012 exceeded the Zacks Consensus Estimates of 3 cents and 30 cents, respectively.
Our Take
Salesforce.com reported decent first quarter 2012 results. It also provided an encouraging guidance for the second 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 #3 Rank, implying a short-term Hold recommendation.
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