Salesforce.com 2013 Annual Report Download - page 37

Seasonal Nature of Deferred Revenue and Accounts Receivable
Deferred revenue primarily consists of billings to customers for our subscription service. Over 90 percent of
the value of our billings to customers is for our subscription and support service. We generally invoice our
customers in either annual or quarterly cycles. In the fourth quarter of fiscal 2012, we introduced greater operational
discipline around annual invoicing, for both new business and renewals which resulted in an increase in deferred
revenue. The fourth quarter of fiscal 2013 marks the one year anniversary of this operational shift, therefore the
incremental benefit to deferred revenue from annual invoicing was lower than it was in the fourth quarter of fiscal
2012. Occasionally, we bill customers for their multi-year contract on a single invoice which results in an increase
in noncurrent deferred revenue. We typically issue renewal invoices 30 days in advance of the renewal service
period, and depending on timing, the initial invoice for the subscription and services contract and the subsequent
renewal invoice may occur in different quarters. This may result in an increase in deferred revenue and accounts
receivable. There is a disproportionate weighting towards annual billings in the fourth quarter, primarily as a result
of large enterprise account buying patterns. Our fourth quarter has historically been our strongest quarter for new
business and renewals. The year on year compounding effect of this seasonality in both billing patterns and overall
new and renewal business causes the value of invoices that we generate in the fourth quarter for both new business
and renewals to increase as a proportion of our total annual billings.
Accordingly, the sequential quarterly changes in accounts receivable and the related deferred revenue during
the first three quarters of our fiscal year are not necessarily indicative of the billing activity that occurs in the
fourth quarter as displayed below:
(in thousands)
April 30,
2012
July 31,
2012
October 31,
2012
January 31,
2013
Fiscal 2013
Accounts receivable, net ................. $ 371,395 $ 446,917 $ 418,590 $ 872,634
Deferred revenue, current and noncurrent .... 1,334,716 1,337,184 1,291,703 1,862,995
(in thousands)
April 30,
2011
July 31,
2011
October 31,
2011
January 31,
2012
Fiscal 2012
Accounts receivable, net ................. $ 270,816 $ 342,397 $ 312,331 $ 683,745
Deferred revenue, current and noncurrent .... 915,133 935,266 917,821 1,380,295
(in thousands)
April 30,
2010
July 31,
2010
October 31,
2010
January 31,
2011
Fiscal 2011
Accounts receivable, net ................. $ 183,612 $ 228,550 $ 258,764 $ 426,943
Deferred revenue, current and noncurrent .... 664,529 683,019 694,557 934,941
Unbilled Deferred Revenue
The deferred revenue balance on our consolidated balance sheet does not represent the total contract value
of annual or multi-year, non-cancelable subscription agreements. Unbilled deferred revenue represents future
billings under our subscription agreements that have not been invoiced and, accordingly, are not recorded in
deferred revenue. Unbilled deferred revenue was approximately $3.5 billion as of January 31, 2013 and
approximately $2.2 billion as of January 31, 2012. Due to our sales to large enterprise accounts, we are
experiencing longer contractual commitments by our customers which is reflected in our growing unbilled
deferred revenue. Also as a result, our average contract length has grown and is now between 12 and 36 months.
This has a positive impact on our renewal rate. We expect that the amount of unbilled deferred revenue will
change from quarter to quarter for several reasons, including the specific timing and duration of large customer
subscription agreements, varying billing cycles of subscription agreements, the specific timing of customer
renewals, foreign currency fluctuations, the timing of when unbilled deferred revenue is to be recognized as
revenue, and changes in customer financial circumstances. For multi-year subscription agreements billed
annually, the associated unbilled deferred revenue is typically high at the beginning of the contract period, zero
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