Salesforce Announces Record Q2 Earnings, Surpasses $10B Run Rate Milestone Faster Than Any Enterprise Software Company in History

SAN FRANCISCO, Aug. 22, 2017 /PRNewswire/ -- Salesforce (NYSE: CRM), the global leader in CRM, today announced results for its fiscal second quarter ended July 31, 2017.

"We had a phenomenal quarter of growth, reaching a huge milestone for the company, becoming the first enterprise cloud software company to break the $10 billion revenue run rate," said Marc Benioff, chairman and CEO, Salesforce. "We did this faster than any other enterprise software company in history. Our continued momentum as the leader in CRM, the fastest-growing segment of our industry, combined with more than $15 billion in billed and unbilled deferred revenue, puts us well on the path to $20 billion and beyond."

Salesforce delivered the following results for its fiscal second quarter 2018:

Revenue: Total Q2 revenue was $2.56 billion, an increase of 26% year-over-year, and 25% in constant currency. Subscription and support revenues were $2.37 billion, an increase of 26% year-over-year. Professional services and other revenues were $193 million, an increase of 28% year-over-year.

Earnings per Share: Q2 GAAP diluted earnings per share was $0.02, and non-GAAP diluted earnings per share was $0.33.

Cash: Cash generated from operations for the second quarter was $331 million, an increase of 32% year-over-year. Total cash, cash equivalents and marketable securities finished the quarter at $3.50 billion.

Deferred Revenue: Deferred revenue on the balance sheet as of July 31, 2017 was $4.82 billion, an increase of 26% year-over-year, and 25% in constant currency. Unbilled deferred revenue, representing business that is contracted but unbilled and off balance sheet, ended the second quarter at approximately $10.4 billion, up 30% year-over-year. This includes approximately $625 million related to unbilled deferred revenue from Demandware.

As of August 22, 2017, the company is initiating revenue, earnings per share, and deferred revenue guidance for its third quarter of fiscal year 2018. In addition, the company is raising its full fiscal year 2018 revenue and earnings per share guidance, and maintaining its operating cash flow guidance, previously provided on May 18, 2017.

Q3 FY18 Guidance: Revenue is projected to be $2.64 billion to $2.65 billion, an increase of 23% to 24% year-over-year.

GAAP diluted earnings per share is projected to be $0.04 to $0.05, while non-GAAP diluted earnings per share is projected to be $0.36 to $0.37.

On balance sheet deferred revenue growth is projected to be 18% to 19% year-over-year.

Full Year FY18 Guidance: Revenue is projected to be $10.35 billion to $10.40 billion, an increase of 23% to 24% year-over-year.

GAAP diluted earnings per share is projected to be $0.07 to $0.09, while non-GAAP diluted earnings per share is projected to be $1.29 to $1.31.

Operating cash flow growth is projected to be 20% to 21% year-over-year.

The following is a per share reconciliation of GAAP diluted earnings per share to non-GAAP diluted earnings per share guidance for the next quarter and the full year:


                                               Fiscal 2018
                                               -----------

                                                   Q3            FY2018
                                                   ---           ------


    GAAP diluted EPS
     range*                                      $0.04 - $0.05    $0.07 - $0.09

    Plus

    Amortization of
     purchased
     intangibles                                         $0.10             $0.39

    Stock-based expense                                  $0.33             $1.35

    Amortization of
     debt discount, net                                  $0.01             $0.04

    Less

    Income tax effects
     and adjustments**                                 $(0.12)          $(0.56)
                                                        ------            ------

    Non-GAAP diluted
     EPS                                         $0.36 - $0.37    $1.29 - $1.31


    Shares used in
     computing basic
     net income per
     share (millions)                                      719               716

    Shares used in
     computing diluted
     net income per
     share (millions)                                      736               733


    * For Q3 GAAP diluted EPS, diluted number of shares used for
     calculation and expected tax rate of 55%.

    For FY18 GAAP diluted EPS, diluted number of shares used for
     calculation and expected tax rate of 54%.


    ** The Company's non-GAAP tax provision uses a long-term
     projected tax rate of 34.5%.

For additional information regarding non-GAAP financial measures see the reconciliation of results and related explanations below.

Quarterly Conference Call
Salesforce will host a conference call at 2:00 p.m. (PT) / 5:00 p.m. (ET) today to discuss its financial results with the investment community. A live web broadcast of the event will be available on the Salesforce Investor Relations website at www.salesforce.com/investor. A live dial-in is available domestically at 866-901-SFDC or 866-901-7332 and internationally at 706-902-1764, passcode 61976849. A replay will be available at (800) 585-8367 or (855) 859-2056 until midnight (ET) Sept. 22, 2017.

About Salesforce
Salesforce, the global leader in CRM, empowers companies to connect with their customers in a whole new way. Salesforce has headquarters in San Francisco, with offices in Europe and Asia, and trades on the New York Stock Exchange under the ticker symbol "CRM." For more information about Salesforce, visit: www.salesforce.com.

"Safe harbor" statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements about our financial results, which may include expected GAAP and non-GAAP financial and other operating and non-operating results, including revenue, net income, diluted earnings per share, operating cash flow growth, operating margin improvement, deferred revenue growth, expected revenue run rate, expected tax rates, stock-based compensation expenses, amortization of purchased intangibles, amortization of debt discount and shares outstanding. The achievement or success of the matters covered by such forward-looking statements involves risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, the company's results could differ materially from the results expressed or implied by the forward-looking statements we make.

The risks and uncertainties referred to above include -- but are not limited to -- risks associated with possible fluctuations in the company's financial and operating results; the company's rate of growth and anticipated revenue run rate, including the company's ability to convert deferred revenue and unbilled deferred revenue into revenue and cash flow, and ability to maintain continued growth of deferred revenue and unbilled deferred revenue; foreign currency exchange rates; errors, interruptions or delays in the company's services or the company's Web hosting; breaches of the company's security measures; the financial and other impact of any previous and future acquisitions; the nature of the company's business model, including risks related to government contracts; the company's ability to continue to release, and gain customer acceptance of, new and improved versions of the company's services; successful customer deployment and utilization of the company's existing and future services; changes in the company's sales cycle; competition; various financial aspects of the company's subscription model; unexpected increases in attrition or decreases in new business; the company's ability to realize benefits from strategic partnerships and strategic investments; the emerging markets in which the company operates; unique aspects of entering or expanding in international markets, including the compliance with United States export control laws, the company's ability to hire, retain and motivate employees and manage the company's growth; changes in the company's customer base; technological developments; regulatory developments; litigation and any related claims, negotiations and settlements, including with respect to intellectual property matters or industry-specific regulations; unanticipated changes in the company's effective tax rate; factors affecting the company's outstanding convertible notes, term loan, and revolving credit facility; fluctuations in the number of company shares outstanding and the price of such shares; collection of receivables; interest rates; factors affecting the company's deferred tax assets and ability to value and utilize them; the potential negative impact of indirect tax exposure; the risks and expenses associated with the company's real estate and office facilities space; and general developments in the economy, financial markets, credit markets and the impact of current and future accounting pronouncements and other financial reporting standards.

Further information on these and other factors that could affect the company's financial results is included in the reports on Forms 10-K, 10-Q and 8-K and in other filings we make with the Securities and Exchange Commission from time to time. These documents are available on the SEC Filings section of the Investor Information section of the company's website at www.salesforce.com/investor.

Salesforce.com, inc. assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

© 2017 salesforce.com, inc. All rights reserved. Salesforce and other marks are trademarks of salesforce.com, inc. Other brands featured herein may be trademarks of their respective owners.


    salesforce.com, inc.

    Consolidated Statements of Operations

    (in thousands, except per share data)

    (Unaudited)


                                                   Three Months Ended July 31,                   Six Months Ended July 31,

                                               2017                               2016        2017                     2016
                                               ----                               ----        ----                     ----

    Revenues:

    Subscription and support                           $2,368,499                        $1,886,080                         $4,569,407  $3,661,573

    Professional services and
     other                                  193,090                              150,538                 379,761                291,648
                                            -------                              -------                 -------                -------

    Total revenues                        2,561,589                            2,036,618               4,949,168              3,953,221

    Cost of revenues (1)(2):

    Subscription and support                493,879                              376,456                 956,800                727,557

    Professional services and
     other                                  176,788                              149,123                 364,422                295,003
                                            -------                              -------                 -------                -------

    Total cost of revenues                  670,667                              525,579               1,321,222              1,022,560

    Gross profit                          1,890,922                            1,511,039               3,627,946              2,930,661

    Operating expenses (1)(2):

    Research and development                386,447                              291,506                 762,528                552,476

    Marketing and sales                   1,170,749                              934,931               2,280,253              1,830,791

    General and administrative              282,933                              252,051                 543,254                462,857

    Total operating expenses              1,840,129                            1,478,488               3,586,035              2,846,124

    Income from operations                   50,793                               32,551                  41,911                 84,537

    Investment income                         8,754                               11,916                  14,020                 20,038

    Interest expense                       (21,629)                            (20,708)               (43,825)              (42,719)

    Other income (expense) (1)              (7,465)                                 524                 (4,616)              (13,282)

    Gains from acquisitions of
     strategic investments                        0                                    0                       0                 12,864
                                                ---                                  ---                     ---                 ------

    Income before benefit from
     (provision for) income taxes            30,453                               24,283                   7,490                 61,438

    Benefit from (provision for)
     income taxes                          (12,717)                             205,339                   1,039                206,943
                                            -------                              -------                   -----                -------

    Net income                                            $17,736                          $229,622                             $8,529    $268,381
                                                          =======                          ========                             ======    ========

    Basic net income per share                              $0.02                             $0.34                              $0.01       $0.40

    Diluted net income per share                            $0.02                             $0.33                              $0.01       $0.39

    Shares used in computing basic
     net income per share                   712,039                              681,126                 709,157                678,929

    Shares used in computing
     diluted net income per share           729,386                              695,968                 726,222                691,714


    (1)       Amounts include amortization of purchased intangibles from business combinations, as follows:


                                                     Three Months Ended July 31,                Six Months Ended July 31,

                                                       2017                              2016                   2017                  2016
                                                       ----                              ----                   ----                  ----

    Cost of revenues                                                       $43,483                                        $25,544          $87,069  $47,759

    Marketing and sales                              30,563                                      23,151                            61,207    38,537

    Other non-operating expense                         376                                         642                               751     1,348


    (2)       Amounts include stock-based expense, as follows:


                                                   Three Months Ended July 31,               Six Months Ended July 31,

                                                       2017                              2016                   2017                  2016
                                                       ----                              ----                   ----                  ----

    Cost of revenues                                                       $32,202                                        $23,495          $63,712  $50,129

    Research and development                         66,644                                      38,624                           130,559    73,792

    Marketing and sales                             120,550                                      86,323                           239,546   181,797

    General and administrative                       37,089                                      33,868                            74,237    65,511


    salesforce.com, inc.

    Consolidated Statements of Operations

    (As a percentage of total revenues)

    (Unaudited)


                                          Three Months Ended July 31,        Six Months Ended July 31,

                                             2017                     2016                 2017          2016
                                             ----                     ----                 ----          ----

    Revenues:

    Subscription and support                  92%                          93%                         92%    93%

    Professional services and
     other                                      8                             7                            8       7
                                              ---                           ---                          ---     ---

    Total revenues                            100                           100                          100     100

    Cost of revenues (1)(2):

    Subscription and support                   19                            18                           19      18

    Professional services and
     other                                      7                             8                            8       8
                                              ---                           ---                          ---     ---

    Total cost of revenues                     26                            26                           27      26

    Gross profit                               74                            74                           73      74

    Operating expenses (1)(2):

    Research and development                   15                            14                           15      14

    Marketing and sales                        46                            46                           46      46

    General and administrative                 11                            12                           11      12
                                              ---                           ---                          ---     ---

    Total operating expenses                   72                            72                           72      72

    Income from operations                      2                             2                            1       2

    Investment income                           0                             0                            0       1

    Interest expense                          (1)                          (1)                         (1)    (1)

    Other income (expense) (1)                  0                             0                            0       0

    Gains from acquisitions of
     strategic investments                      0                             0                            0       0


    Income before benefit from
     (provision for) income taxes               1                             1                            0       2

    Benefit from (provision for)
     income taxes                               0                            10                            0       5
                                              ---                           ---                          ---     ---

    Net income                                 1%                          11%                          0%     7%
                                              ===                           ===                          ===     ===


    (1)       Amortization of purchased intangibles from business combinations as a percentage of total revenues, as follows:


                                                  Three Months Ended July 31,                   Six Months Ended July 31,

                                                                         2017                                         2016        2017  2016
                                                                         ----                                         ----        ----  ----

    Cost of revenues                                                       2%                                                 1%       2%    1%

    Marketing and sales                                                     1                                                   1         1     1

    Other non-operating expense                                             0                                                   0         0     0


    (2)     Stock-based expense as a percentage of total revenues, as follows:


                                                  Three Months Ended July 31,                   Six Months Ended July 31,

                                                                         2017                                         2016        2017  2016
                                                                         ----                                         ----        ----  ----

    Cost of revenues                                                       1%                                                 1%       1%    1%

    Research and development                                                3                                                   2         3     2

    Marketing and sales                                                     5                                                   4         5     5

    General and administrative                                              1                                                   2         1     1


    salesforce.com, inc.

    Consolidated Balance Sheets

    (in thousands)


                                   July 31,               January 31,
                                         2017                        2017
                                         ----                        ----

                                  (unaudited)

    Assets

    Current assets:

    Cash and
     cash
     equivalents                               $1,949,110                    $1,606,549

    Marketable
     securities                     1,552,135                       602,338

    Accounts
     receivable,
     net                            1,569,322                     3,196,643

    Deferred
     commissions                      302,528                       311,770

    Prepaid
     expenses
     and other
     current
     assets                           438,246                       279,527

    Total
     current
     assets                         5,811,341                     5,996,827

    Property and
     equipment,
     net                            1,866,576                     1,787,534

    Deferred
     commissions,
     noncurrent                       224,232                       227,849

    Capitalized
     software,
     net                              140,703                       141,671

    Strategic
     investments                      657,687                       566,953

    Goodwill                        7,294,381                     7,263,846

    Intangible
     assets
     acquired
     through
     business
     combinations,
     net                              965,887                     1,113,374

    Other
     assets, net                      457,996                       486,869

    Total assets                              $17,418,803                   $17,584,923
                                              ===========                   ===========

    Liabilities, temporary equity
     and stockholders' equity

    Current liabilities:

    Accounts
     payable,
     accrued
     expenses
     and other
     liabilities                               $1,576,822                    $1,752,664

    Deferred
     revenue                        4,818,634                     5,542,802

    Convertible
     0.25%
     senior
     notes, net                     1,130,729                             0
                                    ---------                           ---

    Total
     current
     liabilities                    7,526,185                     7,295,466

    Convertible
     0.25%
     senior
     notes, net                             0                     1,116,360

    Term loan                         497,796                       497,221

    Loan assumed
     on 50
     Fremont                          198,403                       198,268

    Revolving
     credit
     facility                               0                       196,542

    Other
     noncurrent
     liabilities                      727,882                       780,939
                                      -------                       -------

    Total
     liabilities                    8,950,266                    10,084,796
                                    ---------                    ----------

    Temporary equity:

    Convertible
     0.25%
     senior
     notes                             17,223                             0

    Stockholders' equity:

    Common stock                          719                           708

    Additional
     paid-in
     capital                        8,889,441                     8,040,170

    Accumulated
     other
     comprehensive
     income
     (loss)                            17,535                      (75,841)

    Accumulated
     deficit                        (456,381)                    (464,910)
                                     --------                      --------

    Total
     stockholders'
     equity                         8,451,314                     7,500,127
                                    ---------                     ---------

    Total
     liabilities,
     temporary
     equity and
     stockholders'
     equity                                   $17,418,803                   $17,584,923
                                              ===========                   ===========


    salesforce.com, inc.

    Consolidated Statements of Cash Flows

    (in thousands)

    (Unaudited)


                                                                Three Months Ended July 31,                    Six Months Ended July 31,

                                                            2017                                  2016        2017                       2016
                                                            ----                                  ----        ----                       ----

    Operating activities:

    Net income                                                         $17,736                             $229,622                                $8,529    $268,381

    Adjustments to reconcile net income to net cash
     provided by operating activities:

    Depreciation and amortization                        192,257                                 149,361                   377,365                 282,133

    Amortization of debt discount and
     issuance costs                                        7,753                                   6,868                    15,470                  14,053

    Gains from acquisitions of
     strategic investments                                     0                                       0                         0                (12,864)

    Amortization of deferred
     commissions                                         107,868                                  88,783                   214,010                 177,297

    Expenses related to employee stock
     plans                                               256,485                                 182,310                   508,054                 371,229

    Changes in assets and liabilities, net of business
     combinations:

    Accounts receivable, net                           (129,447)                               (73,167)                1,628,060               1,234,145

    Deferred commissions                               (116,703)                               (70,643)                (201,152)              (134,162)

    Prepaid expenses and other current
     assets and other assets                              32,296                                 (9,728)                (151,115)               (66,399)

    Accounts payable, accrued expenses
     and other liabilities                               187,042                                (46,666)                (114,200)              (332,894)

    Deferred revenue                                   (224,018)                              (206,062)                (724,168)              (499,179)
                                                        --------                                --------                  --------                --------

    Net cash provided by operating
     activities                                          331,269                                 250,678                 1,560,853               1,301,740
                                                         -------                                 -------                 ---------               ---------

    Investing activities:

    Business combinations, net of cash
     acquired                                                  0                             (2,798,194)                  (19,781)            (2,799,993)

    Strategic investments, net                          (42,958)                                  (390)                 (43,416)               (22,451)

    Purchases of marketable securities                 (501,333)                              (285,795)              (1,199,894)               (875,131)

    Sales of marketable securities                       139,628                               1,610,724                   243,465               1,833,658

    Maturities of marketable securities                    9,420                                  27,253                    13,270                  50,538

    Capital expenditures                               (128,388)                               (96,030)                (284,990)              (179,331)
                                                        --------                                 -------                  --------                --------

    Net cash used in investing
     activities                                        (523,631)                            (1,542,432)               (1,291,346)             (1,992,710)
                                                        --------                              ----------                ----------              ----------

    Financing activities:

    Proceeds from term loan, net                               0                                 495,550                         0                 495,550

    Proceeds from employee stock plans                   183,009                                 133,878                   342,816                 223,019

    Principal payments on capital lease
     obligations                                        (65,731)                               (12,795)                 (75,174)               (62,763)

    Payments on revolving credit
     facility                                                  0                                       0                 (200,000)                      0
                                                             ---

    Net cash provided by financing
     activities                                          117,278                                 616,633                    67,642                 655,806
                                                         -------                                 -------                    ------                 -------

    Effect of exchange rate changes                        (710)                                (8,736)                    5,412                 (7,973)
                                                            ----                                  ------                     -----                  ------

    Net increase (decrease) in cash and
     cash equivalents                                   (75,794)                              (683,857)                  342,561                (43,137)

    Cash and cash equivalents,
     beginning of period                               2,024,904                               1,799,083                 1,606,549               1,158,363
                                                       ---------                               ---------                 ---------               ---------

    Cash and cash equivalents, end of
     period                                                         $1,949,110                           $1,115,226                            $1,949,110  $1,115,226
                                                                    ==========                           ==========                            ==========  ==========


    salesforce.com, inc.

    Additional Metrics

    (Unaudited)


                                   Jul 31,              Apr 30,        Jan 31,         Oct 31,                Jul 31,          Apr 30,
                                       2017                   2017        2017               2016                2016          2016
                                       ----                   ----        ----               ----                ----          ----

    Full Time Equivalent
     Headcount (1)                   27,155                   26,213            25,178                 23,939         23,247            21,119

    Financial data (in thousands):

    Cash, cash equivalents
     and marketable
     securities                              $3,501,245              $3,219,550                   $2,208,887                 $1,751,130        $1,719,946 $3,715,452

    Strategic investments                      $657,687                $639,191                     $566,953                   $555,968          $548,258   $520,750

    Deferred revenue (2)                     $4,818,634              $5,042,652                   $5,542,802                 $3,495,133        $3,823,561 $4,006,914

    Unbilled deferred
     revenue, a non-GAAP
     measure (3)                            $10,400,000              $9,600,000                   $9,000,000                 $8,600,000        $8,000,000 $7,600,000

    Principal due on our
     outstanding debt
     obligations (4)                         $1,850,000              $1,850,000                   $2,050,000                 $1,850,000        $1,850,000 $1,350,000


    (1) Full time equivalent headcount
     for July 31, 2016 includes 1,050
     from the acquisition of
     Demandware, Inc.

    (2) Prior period balances include
     deferred revenue current and
     noncurrent.

    (3) Unbilled deferred revenue
     represents future billings under
     our non-cancelable subscription
     agreements that have not been
     invoiced and, accordingly, are not
     recorded in deferred revenue.

    (4) In July 2016, the Company
     borrowed $500.0 million under a
     term loan facility to partially
     fund the acquisition of
     Demandware, Inc.


    Selected Balance Sheet Accounts (in thousands):


                                                   July 31,              April 30,               January 31,
                                                         2017                       2017                 2017
                                                         ----                       ----                 ----

    Prepaid Expenses and Other
     Current Assets

    Prepaid income taxes                                         $75,031                               $69,134                      $26,932

    Other taxes receivable                             36,634                       33,687                          34,177

    Prepaid expenses and other
     current assets                                   326,581                      344,826                         218,418
                                                      -------                      -------                         -------

                                                                $438,246                              $447,647                     $279,527
                                                                ========                              ========                     ========

    Property and Equipment, net

    Land                                                        $183,888                              $183,888                     $183,888

    Buildings and building
     improvements                                     623,411                      621,950                         621,377

    Computers, equipment and
     software                                       1,555,572                    1,503,140                       1,440,986

    Furniture and fixtures                            125,858                      122,435                         112,564

    Leasehold improvements                            741,466                      696,902                         627,069
                                                                                  -------                         -------

                                                    3,230,195                    3,128,315                       2,985,884

    Less accumulated
     depreciation and
     amortization                                 (1,363,619)                  (1,281,902)                     (1,198,350)
                                                   ----------                   ----------                      ----------

                                                              $1,866,576                            $1,846,413                   $1,787,534
                                                              ==========                            ==========                   ==========

    Intangible Assets Acquired
     Through Business
     Combinations, net

    Acquired developed
     technology                                                 $427,870                              $471,016                     $514,232

    Customer relationships                            531,065                      562,125                         589,579

    Trade names and trademarks                          3,581                        4,091                           4,601

    Territory rights and other                          2,690                              3,096                           3,530

    50 Fremont lease
     intangibles                                          681                        1,056                           1,432

                                                                $965,887                            $1,041,384                   $1,113,374
                                                                ========                            ==========                   ==========

    Other Assets, net

    Deferred income taxes,
     noncurrent, net                                             $29,926                               $29,312                      $28,939

    Long-term deposits                                 24,305                       23,874                          23,597

    Domain names and patents,
     net of accumulated
     amortization                                      30,662                       34,784                          39,213

    Customer contract asset                           229,597                      255,387                         281,733

    Other                                             143,506                      131,877                         113,387

                                                                $457,996                              $475,234                     $486,869
                                                                ========                              ========                     ========

    Accounts Payable, Accrued
     Expenses and Other
     Liabilities

    Accounts payable                                            $148,279                              $128,065                     $115,257

    Accrued compensation                              517,433                      434,899                         730,390

    Non-cash equity liability                          55,394                       60,870                          68,355

    Accrued other liabilities                         452,398                      463,218                         419,299

    Accrued income and other
     taxes payable                                    196,670                      192,434                         239,699

    Accrued professional costs                         46,579                       38,098                          38,254

    Accrued rent                                       21,384                       22,777                          19,710

    Capital lease obligation,
     current                                          118,888                       99,630                         102,106

    Financing obligation -
     leased facility, current                          19,797                       19,695                          19,594
                                                       ------                                                      ------

                                                              $1,576,822                            $1,459,686                   $1,752,664
                                                              ==========                            ==========                   ==========

    Other Noncurrent
     Liabilities

    Deferred income taxes and
     income taxes payable                                       $111,404                              $106,303                      $99,378

    Financing obligation -
     leased facility                                  199,539                      200,129                         200,711

    Long-term lease
     liabilities and other                            416,939                      496,302                         480,850
                                                      -------                      -------                         -------

                                                                $727,882                              $802,734                     $780,939
                                                                ========                              ========                     ========


    Supplemental Revenue Analysis


    Subscription and
     support revenue by
     cloud service
     offering (in
     millions):                               Three Months Ended July 31,                          Six Months Ended July 31,

                                        2017                          2016         2017                       2016
                                        ----                          ----         ----                       ----

    Sales Cloud                                      $886.4                                 $754.9                             $1,716.0    $1,479.5

    Service Cloud                      698.5                                 575.4                        1,349.7                1,115.5

    Salesforce Platform
     and Other                         466.5                                 353.4                          897.6                  679.3

    Marketing and
     Commerce Cloud                    317.1                                 202.4                          606.1                  387.3


                                                   $2,368.5                               $1,886.1                             $4,569.4    $3,661.6
                                                   ========                               ========                             ========    ========



                                            Three Months Ended July 31,                     Six Months Ended July 31,

                                        2017                          2016         2017                       2016
                                        ----                          ----         ----                       ----

    Total revenues by geography (in
     thousands):

    Americas                                     $1,854,169                             $1,495,201                           $3,609,527  $2,908,430

    Europe                           464,371                               347,320                        873,986                675,174

    Asia Pacific                     243,049                               194,097                        465,655                369,617
                                     -------                               -------                        -------                -------

                                                 $2,561,589                             $2,036,618                           $4,949,168  $3,953,221
                                                 ==========                             ==========                           ==========  ==========


    Total revenues by geography as a
     percentage of total revenues:

    Americas                             72%                                  73%                           73%                   74%

    Europe                                18                                    17                             18                     17

    Asia Pacific                          10                                    10                              9                      9
                                         ---                                   ---                            ---                    ---

                                        100%                                 100%                          100%                  100%
                                         ===                                   ===                            ===                    ===


    Revenue constant
     currency growth
     rates (as compared
     to the comparable
     prior periods)        Three Months Ended           Three Months Ended           Three Months Ended
                             July 31, 2017                April 30, 2017               July 31, 2016
                        compared to Three Months     compared to Three Months     compared to Three Months
                          Ended July 31, 2016          Ended April 30, 2016         Ended July 31, 2015
                          -------------------          --------------------         -------------------

    Americas                                     24%                          24%                          24%

    Europe                                       31%                          29%                          32%

    Asia Pacific                                 27%                          26%                          29%

    Total growth                                 25%                          25%                          26%

We present constant currency information to provide a framework for assessing how our underlying business performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the weighted average exchange rate for the quarter being compared to for growth rate calculations presented, rather than the actual exchange rates in effect during that period.


    Deferred
     revenue
     constant
     currency
     growth rates
     (as compared
     to the
     comparable
     prior
     periods)     July 31, 2017     April 30, 2017     July 31, 2016
                   compared to        compared to       compared to
                  July 31, 2016     April 30, 2016     July 31, 2015
                  -------------     --------------     -------------

    Total growth                25%                27%               27%

We present constant currency information for deferred revenue to provide a framework for assessing how our underlying business performed excluding the effects of foreign currency rate fluctuations. To present the information above, we convert the deferred revenue balances in local currencies in previous comparable periods using the United States dollar currency exchange rate as on the most recent balance sheet date.


    Supplemental GAAP and Non-GAAP Diluted Share Count Information

    (share data in thousands)


                                               Three Months Ended July 31,            Six Months Ended July 31,

                                                  2017                   2016            2017                   2016
                                                  ----                   ----            ----                   ----

    Weighted-average
     shares outstanding
     for basic earnings
     per share                                 712,039                        681,126                       709,157  678,929

    Effect of dilutive securities:

    Convertible senior
     notes                                       4,336                          2,977                         3,863    1,961

    Employee stock awards                       13,011                         11,865                        13,202   10,824
                                                ------                         ------                        ------   ------

    Adjusted weighted-
     average shares
     outstanding and
     assumed conversions
     for GAAP and Non-
     GAAP diluted earnings
     per share                                 729,386                        695,968                       726,222  691,714
                                               =======                        =======                       =======  =======


    Supplemental Cash Flow Information

    Free cash flow analysis, a non-GAAP measure

    (in thousands)


                                                 Three Months Ended July 31,                       Six Months Ended July 31,

                                              2017                     2016            2017                             2016
                                              ----                     ----            ----                             ----

    Operating cash flow

    GAAP net cash
     provided by
     operating
     activities                                       $331,269                              $250,678                         $1,560,853  $1,301,740

    Less:

    Capital
     expenditures                        (128,388)                           (96,030)                 (284,990)              (179,331)
                                          --------                             -------                   --------               --------

    Free cash flow                                    $202,881                              $154,648                         $1,275,863  $1,122,409
                                                      ========                              ========                         ==========  ==========

Our free cash flow analysis includes GAAP net cash provided by operating activities less capital expenditures. The capital expenditures balance does not include our strategic investments.


    Comprehensive Income

    (in thousands)

    (Unaudited)


                                                 Three Months Ended July 31,                      Six Months Ended July 31,

                                              2017                    2016            2017                   2016
                                              ----                    ----            ----                   ----

    Net income                                        $17,736                              $229,622                           $8,529  $268,381

    Other comprehensive income, before tax
     and net of reclassification
     adjustments:

    Foreign currency
     translation and other
     gains (losses)                         16,384                           (10,407)                    30,408                (151)

    Unrealized gains
     (losses) on marketable
     securities and
     strategic investments                 (8,362)                            25,896                     62,968               36,980
                                            ------                             ------                     ------               ------

    Other comprehensive
     income, before tax                      8,022                             15,489                     93,376               36,829

    Tax effect                                   0                              1,873                          0                1,873
                                               ---                              -----                        ---                -----

    Other comprehensive
     income, net of tax                      8,022                             17,362                     93,376               38,702
                                             -----                             ------                     ------               ------

    Comprehensive income                              $25,758                              $246,984                         $101,905  $307,083
                                                      =======                              ========                         ========  ========


    salesforce.com, inc.

    GAAP Results Reconciled to non-GAAP Results

    The following table reflects selected GAAP results reconciled to non-GAAP results.

    (in thousands, except per share data)

    (Unaudited)


                                               Three Months Ended July 31,                Six Months Ended July 31,

                                             2017                                 2016        2017                  2016
                                             ----                                 ----        ----                  ----

    Non-GAAP gross profit
    ---------------------

    GAAP gross
     profit                                          $1,890,922                          $1,511,039                       $3,627,946    $2,930,661

    Plus:

    Amortization of
     purchased
     intangibles (a)                       43,483                                 25,544                  87,069               47,759

    Stock-based
     expense (b)                           32,202                                 23,495                  63,712               50,129
                                           ------                                 ------                  ------               ------

    Non-GAAP gross
     profit                                          $1,966,607                          $1,560,078                       $3,778,727    $3,028,549
                                                     ----------                          ----------                       ----------    ----------

    Non-GAAP operating expenses
    ---------------------------

    GAAP operating
     expenses                                        $1,840,129                          $1,478,488                       $3,586,035    $2,846,124

    Less:

    Amortization of
     purchased
     intangibles (a)                     (30,563)                              (23,151)               (61,207)            (38,537)

    Stock-based
     expense (b)                        (224,283)                             (158,815)               (444,342)            (321,100)

    Non-GAAP
     operating
     expenses                                        $1,585,283                          $1,296,522                       $3,080,486    $2,486,487
                                                     ----------                          ----------                       ----------    ----------

    Non-GAAP income from operations
    -------------------------------

    GAAP income from
     operations                                         $50,793                             $32,551                          $41,911       $84,537

    Plus:

    Amortization of
     purchased
     intangibles (a)                       74,046                                 48,695                 148,276               86,296

    Stock-based
     expense (b)                          256,485                                182,310                 508,054              371,229

    Non-GAAP income
     from operations                                   $381,324                            $263,556                         $698,241      $542,062
                                                       --------                            --------                         --------      --------

    Non-GAAP non-operating loss (c)
    -------------------------------

    GAAP non-
     operating loss                                   $(20,340)                           $(8,268)                       $(34,421)    $(23,099)

    Plus:

    Amortization of
     debt discount,
     net                                    6,423                                  6,264                  12,806               12,490

    Amortization of
     acquired lease
     intangible                               376                                    642                     751                1,348

    Less:

    Gains from
     acquisitions of
     strategic
     investments                                0                                      0                       0             (12,864)
                                              ---                                    ---                     ---              -------

    Non-GAAP non-
     operating loss                                   $(13,541)                           $(1,362)                       $(20,864)    $(22,125)
                                                       --------                             -------                         --------      --------

    Non-GAAP net income
    -------------------

    GAAP net income                                     $17,736                            $229,622                           $8,529      $268,381

    Plus:

    Amortization of
     purchased
     intangibles (a)                       74,046                                 48,695                 148,276               86,296

    Amortization of
     acquired lease
     intangible                               376                                    642                     751                1,348

    Stock-based
     expense (b)                          256,485                                182,310                 508,054              371,229

    Amortization of
     debt discount,
     net                                    6,423                                  6,264                  12,806               12,490

    Less:

    Gains from
     acquisitions of
     strategic
     investments                                0                                      0                       0             (12,864)

    Income tax
     effects and
     adjustments                        (114,168)                             (297,107)               (234,734)            (388,921)
                                         --------                               --------                --------             --------

    Non-GAAP net
     income                                            $240,898                            $170,426                         $443,682      $337,959
                                                       ========                            ========                         ========      ========



                                               Three Months Ended July 31,                Six Months Ended July 31,

                                             2017                                 2016        2017                  2016
                                             ----                                 ----        ----                  ----

    Non-GAAP diluted earnings per share
    -------------------------------

    GAAP diluted net
     income per
     share                                                $0.02                               $0.33                            $0.01         $0.39

    Plus:

    Amortization of
     purchased
     intangibles                             0.10                                   0.07                    0.20                 0.12

    Amortization of
     acquired lease
     intangible                              0.00                                   0.00                    0.00                 0.00

    Stock-based
     expense                                 0.35                                   0.26                    0.70                 0.54

    Amortization of
     debt discount,
     net                                     0.01                                   0.01                    0.02                 0.02

    Less:

    Gains from
     acquisitions of
     strategic
     investments                             0.00                                   0.00                    0.00               (0.02)

    Income tax
     effects and
     adjustments                           (0.15)                                (0.43)                 (0.32)              (0.56)
                                            -----                                  -----                   -----

    Non-GAAP
     diluted
     earnings per
     share                                                $0.33                               $0.24                            $0.61         $0.49
                                                          =====                               =====                            =====         =====

    Shares used in
     computing Non-
     GAAP diluted
     net income per
     share                                729,386                                695,968                 726,222              691,714


    a)             Amortization of purchased intangibles were as follows:


                                                         Three Months Ended July 31,                             Six Months Ended July 31,

                                                       2017                           2016                     2017                 2016
                                                       ----                           ----                     ----                 ----

    Cost of revenues                                            $43,483                                      $25,544                                      $87,069   $47,759

    Marketing and sales                              30,563                           23,151                             61,207                             38,537
                                                     ------                           ------                             ------                             ------

                                                                $74,046                                      $48,695                                     $148,276   $86,296
                                                                =======                                      =======                                     ========   =======



    b)             Stock-based expense was as follows:


                                                       Three Months Ended July 31,                        Six Months Ended July 31,

                                                       2017                           2016                     2017                 2016
                                                       ----                           ----                     ----                 ----

    Cost of revenues                                            $32,202                                      $23,495                                      $63,712   $50,129

    Research and development                         66,644                           38,624                            130,559                             73,792

    Marketing and sales                             120,550                           86,323                            239,546                            181,797

    General and administrative                       37,089                           33,868                             74,237                             65,511
                                                     ------                           ------                             ------                             ------

                                                               $256,485                                     $182,310                                     $508,054  $371,229
                                                               ========                                     ========                                     ========  ========


    c)             GAAP non-operating loss consists of investment income, interest expense, other expense and gains from acquisitions of strategic investments.


    salesforce.com, inc.

    Computation of Basic and Diluted GAAP and non-GAAP Net Income Per Share

    (in thousands, except per share data)

    (Unaudited)


                                          Three Months Ended July 31,                Six Months Ended July 31,

                                        2017                           2016        2017                 2016
                                        ----                           ----        ----                 ----

    GAAP Basic Net Income Per
     Share

    Net income                                   $17,736                        $229,622                         $8,529  $268,381

    Basic net
     income per
     share                                         $0.02                           $0.34                          $0.01     $0.40

    Shares used
     in
     computing
     basic net
     income per
     share                           712,039                          681,126               709,157              678,929


                                        Three Months Ended July 31,           Six Months Ended July 31,

                                        2017                           2016        2017                 2016
                                        ----                           ----        ----                 ----

    Non-GAAP Basic Net Income
     Per Share

    Non-GAAP
     net income                                 $240,898                        $170,426                       $443,682  $337,959

    Basic Non-
     GAAP net
     income per
     share                                         $0.34                           $0.25                          $0.63     $0.50

    Shares used
     in
     computing
     basic Non-
     GAAP net
     income per
     share                           712,039                          681,126               709,157              678,929


                                        Three Months Ended July 31,           Six Months Ended July 31,

                                        2017                           2016        2017                 2016
                                        ----                           ----        ----                 ----

    GAAP Diluted Net Income Per
     Share

    Net income                                   $17,736                        $229,622                         $8,529  $268,381

    Diluted net
     income per
     share                                         $0.02                           $0.33                          $0.01     $0.39

    Shares used
     in
     computing
     diluted net
     income per
     share                           729,386                          695,968               726,222              691,714


                                        Three Months Ended July 31,           Six Months Ended July 31,

                                        2017                           2016        2017                 2016
                                        ----                           ----        ----                 ----

    Non-GAAP Diluted Net Income
     Per Share

    Non-GAAP
     net income                                 $240,898                        $170,426                       $443,682  $337,959

    Diluted Non-
     GAAP net
     income per
     share                                         $0.33                           $0.24                          $0.61     $0.49

    Shares used
     in
     computing
     diluted
     Non-GAAP
     net income
     per share                       729,386                          695,968               726,222              691,714

Non-GAAP Financial Measures: This press release includes information about non-GAAP diluted earnings per share, non-GAAP tax rates, non-GAAP free cash flow, and constant currency revenue and constant currency deferred revenue growth rates (collectively the "non-GAAP financial measures"). These non-GAAP financial measures are measurements of financial performance that are not prepared in accordance with U.S. generally accepted accounting principles and computational methods may differ from those used by other companies. Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with the company's consolidated financial statements prepared in accordance with GAAP. Management uses both GAAP and non-GAAP measures when planning, monitoring, and evaluating the company's performance.

The primary purpose of using non-GAAP measures is to provide supplemental information that may prove useful to investors and to enable investors to evaluate the company's results in the same way management does. Management believes that supplementing GAAP disclosure with non-GAAP disclosure provides investors with a more complete view of the company's operational performance and allows for meaningful period-to-period comparisons and analysis of trends in the company's business. Further, to the extent that other companies use similar methods in calculating non-GAAP measures, the provision of supplemental non-GAAP information can allow for a comparison of the company's relative performance against other companies that also report non-GAAP operating results.

Non-GAAP diluted earnings per share excludes the impact of the following items: stock-based compensation, amortization of acquisition-related intangibles, amortization of acquired leases, the net amortization of debt discount on the company's convertible senior notes, gains/losses on conversions of the company's convertible senior notes, gains/losses on sales of land and building improvements, gains/losses on company-initiated acquisitions of entities in which the company held an equity investment, and termination of office leases, as well as income tax adjustments. These items are excluded because the decisions which gave rise to these items were not made to increase revenue in a particular period, but were made for the company's long-term benefit over multiple periods.

Specifically, management is excluding the following items from its non-GAAP earnings per share, as applicable, for the periods presented in the Q2 FY18 financial statements and for its non-GAAP estimates for Q3 and FY18:

    --  Stock-Based Expenses: The company's compensation strategy includes the
        use of stock-based compensation to attract and retain employees and
        executives. It is principally aimed at aligning their interests with
        those of our stockholders and at long-term employee retention, rather
        than to motivate or reward operational performance for any particular
        period. Thus, stock-based compensation expense varies for reasons that
        are generally unrelated to operational decisions and performance in any
        particular period.
    --  Amortization of Purchased Intangibles and Acquired Leases: The company
        views amortization of acquisition- and building-related intangible
        assets, such as the amortization of the cost associated with an acquired
        company's research and development efforts, trade names, customer lists
        and customer relationships, and acquired lease intangibles, as items
        arising from pre-acquisition activities determined at the time of an
        acquisition. While these intangible assets are continually evaluated for
        impairment, amortization of the cost of purchased intangibles is a
        static expense, one that is not typically affected by operations during
        any particular period.
    --  Amortization of Debt Discount: Under GAAP, certain convertible debt
        instruments that may be settled in cash (or other assets) on conversion
        are required to be separately accounted for as liability (debt) and
        equity (conversion option) components of the instrument in a manner that
        reflects the issuer's non-convertible debt borrowing rate. Accordingly,
        for GAAP purposes we are required to recognize imputed interest expense
        on the company's $1.15 billion of convertible senior notes due 2018 that
        were issued in a private placement in March 2013. The imputed interest
        rate was approximately 2.5% for the convertible notes due 2018, while
        the actual coupon interest rate of the notes is 0.25%. The difference
        between the imputed interest expense and the coupon interest expense,
        net of the interest amount capitalized, is excluded from management's
        assessment of the company's operating performance because management
        believes that this non-cash expense is not indicative of ongoing
        operating performance.
    --  Gains on Acquisitions of Strategic Investments: The company views gains
        on sales of its strategic investments resulting from acquisitions
        initiated by the company in which an equity interest was previously held
        as discrete events and not indicative of operational performance during
        any particular period.
    --  Income Tax Effects and Adjustments: The company utilizes a fixed
        long-term projected non-GAAP tax rate in order to provide better
        consistency across the interim reporting periods by eliminating the
        effects of items such as changes in the tax valuation allowance and tax
        effects of acquisitions-related costs, since each of these can vary in
        size and frequency. When projecting this long-term rate, the company
        evaluated a three-year financial projection that excludes the direct
        impact of the following non-cash items: stock-based expenses,
        amortization of purchased intangibles, amortization of acquired leases,
        amortization of debt discount, gains/losses on the sales of land and
        building improvements, gains on sales of strategic investments, and
        termination of office leases. The projected rate also assumes no new
        acquisitions in the three-year period, and considers other factors
        including the company's tax structure, its tax positions in various
        jurisdictions and key legislation in major jurisdictions where the
        company operates. This long-term rate could be subject to change for a
        variety of reasons, such as significant changes in the geographic
        earnings mix including acquisition activity, or fundamental tax law
        changes in major jurisdictions where the company operates. The company
        re-evaluates this long-term rate on an annual basis or if any
        significant events that may materially affect this long-term rate occur.
        The non-GAAP tax rate for fiscal 2018 is 34.5 percent.

The company defines the non-GAAP measure free cash flow as GAAP net cash provided by operating activities, less capital expenditures. For this purpose, capital expenditures does not include our strategic investments, nor does it include any costs or activities related to our purchase of 50 Fremont land and building, and building - leased facilities.

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