Salesforce (CRM) 8-K Salesforce.com Announces Record Fiscal Second Quarter Results

Exhibit 99.1

David Havlek

salesforce.com

Investor Relations

415-536-2171

dhavlek@salesforce.com

Bruce Francis

salesforce.com

Public Relations

415-536-6972

bfrancis@salesforce.com

Salesforce.com Announces Record Fiscal Second Quarter Results

Crossing the Threshold of Half-Million Subscribers

• Record Revenue of $118M, up 64% year-over-year

• Company Raises Full Year Fiscal 2007 Guidance

• Net Paying Subscribers rise a record 57,000 to 501,000

• Net Customers rise 2,100 to 24,800, up 47% year-over-year

• GAAP EPS approximately break-even

• Fully Diluted Non-GAAP EPS of $0.06

• Operating cash rises to $30M, up 133% year-over-year

SAN FRANCISCO, Calif. – August 16, 2006 – Salesforce.com (NYSE: CRM), the market and technology leader in on-demand business services, today announced results for its fiscal second quarter ended July 31, 2006.

“As we soar past the half-million paying subscriber mark, we stand on the cusp of another remarkable achievement: a half-billion dollar annual run rate. These are historic milestones for salesforce.com and the industry that we are leading,” said Marc Benioff, chairman and CEO of salesforce.com. “Few software companies achieve this scale and momentum. As we head towards one million subscribers and one billion dollars in revenue, I want to thank our 24,800 customers, partners, and our 1,625 employees for creating this amazing community of success on the Business Web.”

Salesforce.com delivered the following results for the second quarter of fiscal year 2007:

Revenue: Total revenue was $118 million, an increase of 64% on a year-over-year basis and an increase of 13% on a quarter-to-quarter basis. Subscription and support revenues were $106.7 million, an increase of 63% on a year-over-year basis and an increase of 13% on a quarter-to-quarter basis. Professional services and other revenues were $11.5 million, an increase of 82% on a year-over-year basis and an increase of 13% on a quarter-to-quarter basis.

Earnings per Share: GAAP earnings per share were approximately break-even. Non-GAAP earnings per diluted share, excluding the effects of stock based compensation and amortization of purchased intangibles related to acquisitions, were $0.06. For the basis of non-GAAP EPS calculations, a diluted share count of 119 million shares was used.

Customers and Paying Subscribers: Net paying subscribers rose approximately 57,000 during Q2 to exit the quarter at approximately 501,000 total subscribers. This ending total represents an increase of 63% from Q2 of the prior year, and an increase of 13% from the prior quarter. Customers rose approximately 2,100 during the quarter and totaled approximately 24,800, an increase of 47% from Q2 of the prior year, and an increase of 9% from the prior quarter.

Cash: Cash from operations for the fiscal second quarter was approximately $30 million, an increase of 133% year-over-year.

Deferred Revenue: Deferred revenue on the balance sheet as of July 31, 2006 was $202.8 million, an increase of 73% on a year-over-year basis and 11% on a quarter-to-quarter basis.

Based on information as of August 16, 2006, salesforce.com is initiating guidance for its third quarter fiscal 2007 ending October 31, 2006, and updating guidance for its full fiscal year 2007 ending January 31, 2007.

Q3 FY07: Revenue for the company’s third fiscal quarter is projected to be in the range of approximately $126 million to approximately $128 million. Non-GAAP diluted EPS is expected to be in the range of approximately $0.04 to $0.05, and GAAP EPS is expected to be in the range of approximately breakeven to a loss of $0.02 for the third quarter. Non-GAAP EPS estimates exclude the effects of stock based compensation, which is now expected to be approximately $0.05 to $0.06 per share, and the amortization of purchased intangibles which are now expected to be a small fraction of $0.01 per share. Non-GAAP estimates further assume an estimated average of 121 million diluted shares outstanding and an estimated non-GAAP effective tax rate of 45%.

Full Year FY07: The company today is raising its revenue outlook for its fiscal year 2007, and now expects full year revenue of approximately $488 million to approximately $493 million. The company is also raising it’s earnings outlook for the full year, and now expects non-GAAP diluted EPS to be in the range of approximately $0.19 to $0.21, with GAAP EPS expected to be in the range of approximately breakeven to a loss of $0.04. Non-GAAP EPS estimates exclude the effects of stock based compensation, which is now expected to be approximately $0.20 to $0.22 per share, and the amortization of purchased intangibles which are now expected to be approximately $0.01 per share. Non-GAAP estimates further assume an estimated average of 121 million diluted shares outstanding and an estimated non-GAAP effective tax rate of 45%.

Quarterly Conference Call

Salesforce.com will host a conference call to discuss its second quarter fiscal 2007 results at 2:00 p.m. Pacific Daylight Time today. A live audio webcast of the conference call, together with detailed financial information, can be accessed through the company’s Investor Relations Web site at http://www.salesforce.com/investor. In addition, an archive of the webcast can be accessed through the same link. Participants who choose to call into the conference call can do so by dialing 866-901-SFDC or 866-901-7332. International participants may dial 706-758-3772. A replay will be available until midnight Eastern Daylight Time on September 1, 2006 and can be accessed by dialing, (800) 642-1687 or (706) 645-9291, passcode 3911289.

About salesforce.com

Salesforce.com is the market and technology leader in on-demand business services. The company’s Salesforce suite of on-demand applications enables customers to manage and share all of their sales, support, marketing and partner information on-demand. AppExchange, salesforce.com’s on-demand platform, allows customers and partners to build powerful new applications quickly and easily, customize and integrate the Salesforce suite to meet their unique business needs, and distribute and sell on-demand apps at www.appexchange.com. Customers can also take advantage of Successforce, salesforce.com’s world-class training, support, consulting and best practices offerings.

As of July 31, 2006, salesforce.com manages customer information for approximately 24,800 customers and approximately 501,000 paying subscribers including Advanced Micro Devices (AMD), America Online (AOL), Avis/Budget Rent A Car (Cendant Rental Car Group), Dow Jones Newswires, Nokia, Polycom and SunTrust. Any unreleased services or features referenced in this or other press

releases or public statements are not currently available and may not be delivered on time or at all. Customers who purchase salesforce.com applications should make their purchase decisions based upon features that are currently available. Salesforce.com 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 please visit http://www.salesforce.com, or call 1-800-NO-SOFTWARE.

###

“Safe harbor” statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements about expected revenue and GAAP and Non-GAAP earnings per share for the third fiscal quarter of 2007, the full fiscal year 2007, and our revenue run rate and future subscriber goals, the achievement of which involve risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions proves incorrect, our 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 our operating results, rate of growth and anticipated revenue run rate, errors, interruptions or delays in our service or our Web hosting, our new business model, our history of operating losses, the possibility that we will not remain profitable, breach of our security measures, the emerging market in which we operate, our relatively limited operating history, our ability to hire, retain and motivate our employees and manage our growth, competition, our ability to continue to release and gain customer acceptance of new and improved versions of our service, customer and partner acceptance of the AppExchange, successful customer deployment and utilization of our services, unanticipated changes in our effective tax rate, fluctuations in the number of shares outstanding, the price of such shares, foreign currency exchange rates and interest rates.

Further information on these and other factors that could affect our 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, including Form 10-Q for the quarter ended April 30, 2006, and our Form 10-K for the fiscal year ended January 31, 2006. These documents are available on the SEC Filings section of the Investor Information section of our 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.

Salesforce.com is a registered trademark of, and The Business Web, AppExchange and Successforce are trademarks of, salesforce.com, Inc., San Francisco, California. Other names used may be trademarks of their respective owners.

salesforce.com, inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

      (Unaudited)

	Three Months Ended July 31,						Six Months Ended July 31,
	2006			2005			2006			2005
Revenues:
Subscription and support	$	106,663		$	65,638			201,156		$	123,828
Professional services and other		11,474			6,305			21,667			12,292
Total revenues		118,137			71,943			222,823			136,120
Cost of revenues (1):
Subscription and support		15,775			8,013			28,550			13,349
Professional services and other		13,356			8,224			25,141			14,853
Total cost of revenues		29,131			16,237			53,691			28,202
Gross profit		89,006			55,706			169,132			107,918
Operating expenses (1):
Research and development		11,008			5,470			19,833			9,772
Marketing and sales		59,811			34,688			111,827			69,190
General and administrative		19,466			11,355			38,871			20,778
Lease recovery		0			0			0			(285	)
Total operating expenses		90,285			51,513			170,531			99,455
Income (loss) from operations		(1,279	)		4,193			(1,399	)		8,463
Interest, net		3,170			1,693			6,149			3,134
Other income (expense)		137			666			(462	)		710
Income before provision for income taxes and minority interest		2,028			6,552			4,288			12,307
Provision for income taxes		(1,713	)		(1,310	)		(3,718	)		(2,461	)
Income before minority interest		315			5,242			570			9,846
Minority interest in consolidated joint venture		(460	)		(202	)		(944	)		(426	)
Net income (loss)		($145	)	$	5,040			($374	)	$	9,420
Basic net income (loss) per share	$	0.00		$	0.05		$	0.00		$	0.09
Diluted net income (loss) per share	$	0.00		$	0.04		$	0.00		$	0.08
Shares used in computing basic net income (loss) per share		111,838			106,614			111,397			105,918
Shares used in computing diluted net income (loss) per share		111,838			117,974			111,397			117,181
——————
(1)    Amounts include stock-based expenses, as follows:
Cost of revenues	$	1,442		$	160		$	2,596		$	310
Research and development		1,286			91			2,006			179
Marketing and sales		4,718			365			8,200			727
General and administrative		2,747			322			4,997			578
Total stock-based expenses	$	10,193		$	938		$	17,799		$	1,794

salesforce.com, inc.

Condensed Consolidated Statements of Operations

            As a percentage of total revenues:

            (Unaudited)

	Three Months Ended July 31,				Six Months Ended July 31,
	2006		2005		2006		2005
Revenues:
Subscription and support	90	%	91	%	90	%	91	%
Professional services and other	10		9		10		9
Total revenues	100		100		100		100
Cost of revenues:
Subscription and support	13		11		13		10
Professional services and other	12		12		11		11
Total cost of revenues	25		23		24		21
Gross profit	75		77		76		79
Operating expenses:
Research and development	9		7		9		7
Marketing and sales	51		48		50		51
General and administrative	16		16		18		15
Lease recovery	0		0		0		0
Total operating expenses	76		71		77		73
Income (loss) from operations	(1	)	6		(1	)	6
Interest, net	3		2		3		2
Other income (expense)	0		1		0		1
Income before provision for income taxes and minority interest	2		9		2		9
Provision for income taxes	(2	)	(2	)	(2	)	(2	)
Income before minority interest	0		7		0		7
Minority interest in consolidated joint venture	0		0		0		0
Net income (loss)	0	%	7	%	0	%	7	%
——————
Stock-based expenses as a percentage of total revenues, as follows:
Cost of revenues	1	%	0	%	1	%	0	%
Research and development	1		0		1		0
Marketing and sales	4		1		4		1
General and administrative	3		0		2		0
Total stock-based expenses	9	%	1	%	8	%	1	%

salesforce.com, inc.

Condensed Consolidated Balance Sheets

(in thousands)

	July 31, 2006			January 31, 2006
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	149,992		$	99,842
Short-term marketable securities		116,697			107,723
Accounts receivable, net		75,704			76,128
Deferred commissions		13,870			13,186
Prepaid expenses and other current assets		13,401			6,338
Total current assets		369,664			303,217
Marketable securities, noncurrent		67,418			89,227
Fixed assets, net		24,842			24,216
Deferred commissions, noncurrent		4,627			3,889
Deferred income taxes, noncurrent		17,512			10,416
Goodwill		7,239			0
Other assets		10,049			3,784
Total assets	$	501,351		$	434,749
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	6,026		$	10,212
Accrued expenses and other current liabilities		49,250			48,782
Income taxes payable		3,736			2,650
Deferred income taxes		4,393			3,191
Deferred revenue		202,836			169,175
Current portion of capital lease obligations		475			615
Total current liabilities		266,716			234,625
Capital lease obligations, net of current portion		20			184
Long-term lease abandonment liability and other		1,138			1,155
Minority interest		3,358			2,414
Total liabilities		271,232			238,378
Stockholders’ equity:
Common stock		112			111
Additional paid-in capital		268,855			237,010
Deferred stock-based compensation		0			(2,531	)
Accumulated other comprehensive loss		(2,360	)		(2,105	)
Accumulated deficit		(36,488	)		(36,114	)
Total stockholders’ equity		230,119			196,371
Total liabilities and stockholders’ equity	$	501,351		$	434,749

salesforce.com, inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

      (Unaudited)

	Three Months Ended July 31,						Six Months Ended July 31,
	2006			2005			2006			2005
Operating activities:
Net income (loss)		($145	)	$	5,040			($374	)	$	9,420
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Minority interest		460			202			944			426
Depreciation and amortization		2,562			1,468			4,798			2,589
Amortization of deferred commissions		5,651			3,326			10,778			6,728
Amortization of purchased intangibles		541			0			630			0
Lease recovery		0			0			0			(285	)
Expenses related to stock-based awards		10,193			938			17,799			1,794
Tax benefits from employee stock plans		(3,328	)		1,918			(5,928	)		1,918
Changes in assets and liabilities		14,088			1,180			13,791			9,392
Net cash provided by operating activities		30,022			14,072			42,438			31,982
Investing activities:
Business combination, net		0			0			(15,502	)		0
Restricted cash		0			(22	)		0			(116	)
Changes in marketable securities		(14,151	)		(31,518	)		13,057			(38,033	)
Capital expenditures		(2,818	)		(3,372	)		(5,413	)		(12,529	)
Net cash used in investing activities		(16,969	)		(34,912	)		(7,858	)		(50,678	)
Financing activities:
Proceeds from the exercise of stock options and warrants		5,388			5,290			10,891			7,442
Tax benefits from employee stock plans		3,328			0			5,928			0
Collection of notes receivables		0			0			0			727
Principal payments on capital lease obligations		(153	)		(171	)		(304	)		(311	)
Repurchase of unvested shares		(10	)		(24	)		(10	)		(28	)
Net cash provided by financing activities		8,553			5,095			16,505			7,830
Effect of exchange rate changes		(187	)		281			(935	)		275
Net increase (decrease) in cash and cash equivalents		21,419			(15,464	)		50,150			(10,591	)
Cash and cash equivalents, beginning of period		128,573			40,604			99,842			35,731
Cash and cash equivalents, end of period	$	149,992		$	25,140		$	149,992			25,140

salesforce.com, inc.

Additional Metrics

      (Unaudited)

	July 31, 2006		April 30, 2006		January 31, 2006		October 31, 2005		July 31, 2005		April 30, 2005
Customer and subscriber data:
Approximate number of customers		24,800		22,700		20,500		18,700		16,900		15,500
Approximate number of paying subscriptions (1)		501,000		444,000		399,000		351,000		308,000		267,000
Full Time Equivalent Headcount		1,625		1,480		1,304		1,116		1,059		876
Financial data (in thousands):
Cash, cash equivalents and marketable securities	$	334,107	$	298,313	$	296,792	$	256,853	$	232,710	$	217,004
Deferred revenue	$	202,836	$	182,036	$	169,175	$	127,110	$	117,311	$	104,645

	Three Months Ended July 31,						Six Months Ended July 31,
	2006			2005			2006			2005
Revenues by geography (in thousands):
Americas	$	92,553		$	57,689		$	175,578		$	108,601
Europe		17,624			10,038			32,574			19,421
Asia Pacific		7,960			4,216			14,671			8,098
	$	118,137		$	71,943		$	222,823		$	136,120
As a percentage of total revenues:
Revenues by geography:
Americas		78	%		80	%		79	%		80	%
Europe		15			14			15			14
Asia Pacific		7			6			6			6
		100	%		100	%		100	%		100	%

(1) Paying subscriptions are defined as unique user accounts, purchased by customers for use by their employees and other customer-authorized users that have not been suspended for non-payment and for which we are recognizing subscription revenue.

salesforce.com, inc.

GAAP / Non-GAAP Reconciliation

(in thousands, except per share data)

      (Unaudited)

	Three Months Ended July 31, 2006									Three Months Ended July 31, 2005
	GAAP Reported			Adjustments			Non-GAAP Results			GAAP Reported			Adjustments			Non-GAAP Results
Revenues	$	118,137					$	118,137		$	71,943					$	71,943
Cost of revenues (1) (2)		29,131			(1,925	)		27,206			16,237			(160	)		16,077
Gross profit		89,006			1,925			90,931			55,706			160			55,866
Operating expenses (1):
Research and development		11,008			(1,286	)		9,722			5,470			(91	)		5,379
Marketing and sales (2)		59,811			(4,776	)		55,035			34,688			(365	)		34,323
General and administrative		19,466			(2,747	)		16,719			11,355			(322	)		11,033
Lease recovery (3)		0			0			0			0						0
Total operating expenses		90,285			(8,809	)		81,476			51,513			(778	)		50,735
Income (loss) from operations		(1,279	)		10,734			9,455			4,193			938			5,131
Interest, net		3,170			0			3,170			1,693						1,693
Other income (expense)		137			0			137			666						666
Income before provision for income taxes and minority interest		2,028			10,734			12,762			6,552			938			7,490
Provision for income taxes (4)		(1,713	)		(4,030	)		(5,743	)		(1,310	)		(188	)		(1,498	)
Income before minority interest		315			6,704			7,019			5,242			750			5,992
Minority interest in consolidated joint venture		(460	)		0			(460	)		(202	)					(202	)
Net income (loss)	($	145	)	$	6,704		$	6,559		$	5,040		$	750		$	5,790
Basic net income (loss) per share	$	0.00		$	0.06		$	0.06		$	0.05		$	0.01		$	0.06
Diluted net income (loss) per share	$	0.00		$	0.06		$	0.06		$	0.04		$	0.01		$	0.05
Shares used in computing basic net income (loss) per share		111,838			111,838			111,838			106,614			106,614			105,221
Shares used in computing diluted net income (loss) per share		111,838			118,825			118,825			117,974			117,974			116,367

To supplement our consolidated financial statements presented on a GAAP basis, salesforce.com uses non-GAAP measures of net income and earnings per share, which are adjusted to exclude certain costs, such as stock-based expenses and the effect of business combination entries related to acquisitions, and income that we believe are appropriate to enhance the overall understanding and comparison with our past financial performance and trends and also our prospects for the future. These adjustments to our GAAP results are made with the intent of providing both management and investors a more complete understanding of salesforce.com’s underlying operational results and trends and our performance.

salesforce.com, inc.

GAAP / Non-GAAP Reconciliation

(in thousands, except per share data)

      (Unaudited)

	Six Months Ended July 31, 2006									Six Months Ended July 31, 2005
	GAAP Reported			Adjustments			Non-GAAP Results			GAAP Reported			Adjustments			Non-GAAP Results
Revenues	$	222,823					$	222,823		$	136,120					$	136,120
Cost of revenues (1) (2)		53,691			(3,158	)		50,533			28,202			(310	)		27,892
Gross profit		169,132			3,158			172,290			107,918			310			108,228
Operating expenses (1):
Research and development		19,833			(2,006	)		17,827			9,772			(179	)		9,593
Marketing and sales (2)		111,827			(8,268	)		103,559			69,190			(727	)		68,463
General and administrative		38,871			(4,997	)		33,874			20,778			(578	)		20,200
Lease recovery (3)		0						0			(285	)		285			0
Total operating expenses		170,531			(15,271	)		155,260			99,455			(1,199	)		98,256
Income (loss) from operations		(1,399	)		18,429			17,030			8,463			1,509			9,972
Interest, net		6,149						6,149			3,134						3,134
Other income (expense)		(462	)					(462	)		710						710
Income before provision for income taxes and minority interest		4,288			18,429			22,717			12,307			1,509			13,816
Provision for income taxes (4)		(3,718	)		(6,505	)		(10,223	)		(2,461	)		(302	)		(2,763	)
Income before minority interest		570			11,924			12,494			9,846			1,207			11,053
Minority interest in consolidated joint venture		(944	)					(944	)		(426	)					(426	)
Net income (loss)	($	374	)	$	11,924		$	11,550		$	9,420		$	1,207		$	10,627
Basic net income (loss) per share	$	0.00		$	0.11		$	0.10		$	0.09		$	0.01		$	0.10
Diluted net income (loss) per share	$	0.00		$	0.10		$	0.10		$	0.08		$	0.01		$	0.09
Shares used in computing basic net income (loss) per share		111,397			111,397			111,397			105,918			105,918			105,918
Shares used in computing diluted net income (loss) per share		111,397			119,386			119,386			117,181			117,181			117,181

To supplement our consolidated financial statements presented on a GAAP basis, salesforce.com uses non-GAAP measures of net income and earnings per share, which are adjusted to exclude certain costs, such as stock-based expenses and the effect of business combination entries related to acquisitions, and income that we believe are appropriate to enhance the overall understanding and comparison with our past financial performance and trends and also our prospects for the future. These adjustments to our GAAP results are made with the intent of providing both management and investors a more complete understanding of salesforce.com's underlying operational results and trends and our performance.

The presentation of non-GAAP financial results is not meant to be considered in isolation or as a substitute for net income or earnings per share prepared in accordance with generally accepted accounting principles in the United States. Investors should be aware that non-GAAP financial measures have inherent limitations and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.

Explanation of adjustments

(1) The non-GAAP adjustments include stock-based expenses, as follows:

	Three Months Ended July 31,				Six Months Ended July 31,
	2006		2005		2006		2005
Cost of revenues	$	1,442	$	160	$	2,596	$	310
Research and development		1,286		91		2,006		179
Marketing and sales		4,718		365		8,200		727
General and administrative		2,747		322		4,997		578
Total stock-based expenses	$	10,193	$	938	$	17,799	$	1,794
(2)    Acquisition charges include the amortization of purchased intangible assets.
	Three Months Ended July 31,				Six Months Ended July 31,
	2006		2005		2006		2005
Cost of revenues	$	483	$	0	$	562	$	0
Marketing and sales		58		0		68		0
Total amortization of purchased intangible assets	$	541	$	0	$	630	$	0

(3) The lease recovery relates to the reduction in accruals associated with the San Francisco, California office space that we abandoned in December 2001. We believe this income amount to be outside of our core results and thus appropriate to exclude from our financial results.

(4) The tax impact of the non-GAAP adjustments described above.