The news as of the first coffee this morning, and the music is Mussorgsky's Pictures At An Exhibition -- orchestrated -- recorded by Carlo Maria Giulini and the Royal Concertgebouw Orchestra:
You might have missed salesforce.com's second quarter fiscal year 2007 financial results conference call late last week -- personal confession: First Coffee did. However, Seeking Alpha has put up an excellent transcript. It's long -- 22 pages -- but there are highlights:
Marc Benioff noted that "revenue for the second quarter was $118 million, up 64% from the second quarter of last year, and up 13% from Q1. Our second quarter revenue performance was excellent, particularly in a quarter where other large enterprise software companies, like SAP, stumbled."
It's important to get those anti-SAP digs in. As well as the anti-Oracle, anti-Siebel and anti-Microsoft digs. All were duly digged in Benioff's comments.
In the first quarter, Benioff said, "we surpassed the $400 million run rate revenue level by achieving the first-ever $100 million revenue quarter for an on-demand software company. Now we are poised to surpass the $500 million revenue run rate level during our next fiscal quarter, Q3," making them "the fastest-growing software company of our size anywhere in the world today."
And compared with a year ago, "we have added 7,900 customers, an increase of 47%," Benioff said, pointing out Sprint Nextel, which has deployed AppExchange Mobile to approximately 2,800 salespeople.
Oh, and you were wondering who salesforce.com would hire to replace CFO Steve Cakebread? Turns out it was… Steve Cakebread. "Steve has agreed to save his retirement for a later day," Benioff said.
Cakebread reported that non-GAAP operating income for the second quarter was $9.5 million, an increase of 84% over a year ago, and a sequential increase of 25%, saying "we essentially broke even on a GAAP basis for the quarter."
Then it was time for questions. Jason Maynard from Credit Suisse asked "can you maybe talk a little bit about how you're thinking about balancing your resources across both the large end organizations, as well as some of the very small organizations?"
Benioff answered by saying "as we rolled out our product about one-third of our subscribers were in small companies; approximately one-third of our subscribers were in medium-sized companies; and about one-third of our subscribers were in large companies. That surprised us. But probably the most surprising thing is that now, even after this quarter, that mix really hasn't changed at all."
Rick Sherlund from Goldman Sachs said "I know you would like to dissuade us from looking too closely at the net new subscribers on a quarterly basis, but that was a pretty big increase. I'm just wondering in terms of setting our own expectations for next quarter, was there something unusual in that number?"
Benioff said in his opinion, "there is not anything unusual in that number. We have a number of different editions, as you know, Rick. We have our Team Edition. We have our Professional Edition, Unlimited Edition, our Enterprise Edition. We also have our OEM Edition, and we have our Partner Edition. All of these different products address slightly different markets and different customer requirements. At the end of the quarter we add up all the subscribers that we have sold from all these different editions and that is the number."
Laura Lederman from William Blair asked Benioff to "talk a little bit about competition," and following up on Sherlund's question, noted "were there just two deals over 1,000 seats that were added in the quarter, the ones you mentioned earlier? Or was there a greater big deal content? "
Benioff, of course, used the question about competition to flail away at a certain large software producer in the Pacific Northwest: "There is one competitor that I was reading about how they have this new on-demand product. It is a big software company -- and I won't name names here -- I was talking to the reporter, and I said, well, can you tell me what is the URL for their on-demand offering? In the on-demand world the difference between the software world and the on-demand world is we have these URLs. So ours are Salesforce.com and AppExchange.com. What is their URL?"
The reporter said they don't have one. "Then they probably don't have an on-demand product either," Benioff noted, adding "it is kind of amazing to me, because this vendor had announced an on-demand product every year for the last five years in press releases, press tours, demonstrations, but there's no URL. Where's the URL? How do you log on?
Kash Rangan from Merrill Lynch tossed Benioff a big, meaty softball question about the "small software company based in the Pacific Northwest," saying "let's say hypothetically they are going to be launching a product sometime next year. How do you see the market shaking out?"
Noting that salesforce.com is a multi-tenant shared service, and "there is really just only one copy of it in our data center, and it is running all of our customers," and that eBay and Amazon are like that too. But with Microsoft, Benioff said, "to install their product you had to buy SQL Server. You had to buy Active Directory. You had to buy almost every piece of software Microsoft has ever made… you had to buy their application server, IIS. You had to buy their security technology, on and on."
And "then somehow they said partners could then take that thing and then host it for you. Well, I really don't know one example of that. After five years, I don't know of one customer running in the hosted environment. I'm sure it must exist. It has to," Benioff said, no doubt smirking.
For five years, Microsoft has announced they are going to "have the software product and the hosted product, or the on-demand product, or whatever their nomenclature is of the year. But it just has not played out that way," Benioff said. "We just don't see it. Where's their on-demand product? I know they have a software product, but where's the on-demand offering?
Brendan Barnicle from Pacific Crest Securities asked about which applications are seeing the most traction and the most appeal, and "which you see potentially as being the biggest growth and most successful on AppExchange?"
Benioff said if you want to know what the most popular are, , "you can go to AppExchange.com, and you will see a list of the most popular applications -- that is put together by the system, not by us -- as well as new postings that happen every week."
And he used the question to reiterate his recent theme that "salesforce has evolved past just CRM… as we move into a world of match-ups and all these other new technologies, AppExchange is really well poised to show how the future of software looks.
Brent Thill from Citigroup noted that "there was some concern in the quarter over pricing promotions," and wanted Benioff to "talk about the uptake rate that you saw with the promotions for the subs in this quarter."
Benioff's answer was that "you may see us do various promotions or programs or pricing events, addressing some specific niche that we're in. It really, as you can see from the numbers, doesn't necessarily impact one part of the business or another part of the business… [they're] part of our standard business as usual that we have always done."
During the presentation Benioff kept hitting the trust.salesforce.com site's numbers, what he called "our reliability numbers and our transaction volumes and our performance numbers. Those indicate usage, and how many pages we're delivering every day, the number of API calls that are being made."
In Benioff's view, those are the most important numbers discussed by the company. "There's other numbers that we make available, the number of applications on the AppExchange, the number of ISVs that are available. These are important metrics as well. And of course, the subscriber number showing we give you more transparency than any other enterprise software vendor… I think we're even one of the only software companies in the world to report net subscribers numbers. As far as I know, I don't know of any other publicly-traded enterprise software company that gives net subscribers number by quarter."
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