Salesforce.com 2008 Annual Report Download - page 41

Table of Contents
arrangement fee ratably over the term of the subscription contract. Approximately 7 percent and 8 percent of our total deferred revenue as of January 31, 2009
and 2008 respectively, related to deferred professional services revenue.
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 quarterly or annual cycles, with a disproportionate weighting towards
annual billings in the fourth quarter, primarily as a result of large enterprise account buying patterns. Additionally, our fourth quarter has historically been our
strongest quarter for new business. The year on year compounding effect of this seasonality in both billing patterns and overall new business is causing the
value of invoices that we generate in the fourth quarter for both new and existing customers 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.
The following table sets forth our accounts receivable and deferred revenue balances as of the end of each fiscal quarter:
(in thousands)
April 30,
2008
July 31,
2008
October 31,
2008
January 31,
2009
Fiscal 2009
Accounts receivable, net $ 143,909 $ 146,982 $ 157,680 $ 266,555
Deferred revenue, current and noncurrent 470,297 479,546 469,534 594,026
April 30,
2007
July 31,
2007
October 31,
2007
January 31,
2008
Fiscal 2008
Accounts receivable, net $ 105,013 $ 114,046 $ 121,961 $ 220,061
Deferred revenue, current and noncurrent 295,672 321,852 340,808 480,894
April 30,
2006
July 31,
2006
October 31,
2006
January 31,
2007
Fiscal 2007
Accounts receivable, net $ 72,337 $ 75,704 $ 82,808 $ 128,693
Deferred revenue, current and noncurrent 182,036 202,836 219,431 284,063
Cost of Revenues and Operating Expenses
Cost of Revenues. Cost of subscription and support revenues primarily consists of expenses related to hosting our service and providing support, the
costs of data center capacity, depreciation or operating lease expense associated with computer equipment, costs associated with website development
activities, allocated overhead and amortization expense associated with capitalized software related to our application service and acquired technology. We
allocate overhead such as rent and occupancy charges based on headcount. Employee benefit costs and taxes are allocated based upon a percentage of total
compensation expense. As such, general overhead expenses are reflected in each cost of revenue and operating expense category. Cost of professional
services and other revenues consists primarily of employee-related costs associated with these services, including stock-based expenses, the cost of
subcontractors and allocated overhead. The cost of providing professional services is significantly higher as a percentage of revenue than for our enterprise
cloud computing subscription service due to the direct labor costs.
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