News Column

VEEVA SYSTEMS INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

June 6, 2014

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and notes thereto appearing elsewhere in this report. In addition to historical condensed consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report, including those set forth under "Risk Factors" and "Special Note Regarding Forward-Looking Statements." Overview Veeva provides industry-specific, cloud-based software solutions for the life sciences industry, which we refer to as Industry Cloud solutions. Our Industry Cloud solutions enable pharmaceutical and other life sciences companies to realize the benefits of modern cloud-based architectures and mobile applications for their most critical business functions, without compromising industry-specific functionality or regulatory compliance. Our customer relationship management solution, Veeva CRM, and the applications that complement Veeva CRM, enable our customers to increase the productivity and compliance of their sales and marketing functions. Our regulated content management and collaboration solutions, Veeva Vault, enable our customers to manage a range of highly regulated, content-centric processes across the enterprise. Our customer master solution, Veeva Network, which includes our proprietary database of healthcare provider and healthcare organization data, enables our customers to create and maintain accurate customer data. Veeva CRM was our first commercially available solution and has made up the vast majority of our revenue historically. For instance, in our fiscal year ended January 31, 2014, we derived approximately 95% of our subscription services revenues from our Veeva CRM and Veeva CRM complementary solutions. In the quarter ended April 30, 2014, total revenues associated with our Veeva Vault and Veeva Network solutions, comprised in excess of 10% of our total revenues. The contribution of revenues associated with Veeva Vault and Veeva Network is expected to increase as a percentage of total revenue going forward. However, we have less experience selling Veeva Vault, Veeva Network and our newer commercial applications that complement Veeva CRM. To the extent that these more recently introduced solutions do not achieve significant market acceptance, our business and results of operations may be adversely affected. In particular, certain of our Veeva Vault solutions are offered to segments of the life sciences industry to which we have less experience marketing, including the research and development organizations of life sciences companies and emerging biotechnology companies. We must be successful in marketing to these and other potential newer industry segments. We intend to increase the adoption of our solutions by increasing the size of our sales force. However, the timing and effectiveness of any increase in our sales organization is difficult to predict. Our solutions are accessed through an internet connection and a web browser, or using our proprietary applications for mobile devices, such as the iPad. We market our solutions and services primarily through our global direct sales force. We currently operate in three principal regions: North America, Europe and Asia Pacific and are expanding our sales and services coverage for the Latin America region. The majority of our revenues from international sales are invoiced from and collected by our U.S. entity and recognized as a component of income before taxes in the United States as opposed to a foreign jurisdiction. However, we measure our revenues by geographic area on the basis of the estimated location of the end users for subscription services revenues and the estimated location of the users for which the services were performed for professional services revenues. The primary purpose of our professional services organization is to promote customer success and effective deployments of our Industry Cloud solutions. This component of our revenues can be variable period to period depending on a number of factors, including the achievement of milestones in our professional services arrangements, and the requirements, complexity and timing of our customer's implementation projects. Historically, professional services revenues have represented a material portion of our total revenues. For example, professional services revenues were 30% of total revenues in the fiscal year ended January 31, 2014. For the three months ended April 30, 2014 and 2013, total revenues were $66.7 million and $42.8 million, respectively, representing period-over-period growth of 56%. For the three months ended April 30, 2014 and 2013, our subscription services revenues were $48.5 million and $27.9 million, respectively, representing period-over-period growth of 74%. We generated net income of $7.2 million and $4.8 million for the three months ended April 30, 2014 and 2013, respectively. 18



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Key Factors Affecting Our Performance

Investment in Growth. We have invested and intend to continue to invest aggressively in expanding the breadth and depth of our Industry Cloud for life sciences. We expect to invest in research and development to expand existing and build new solutions, sales and marketing to promote our solutions to new and existing customers and in existing and expanded geographies, professional services to ensure the success of our customers' implementations of our solutions, and other operational and administrative functions to support our expected growth and new requirements associated with becoming a public company. We anticipate that our headcount will increase as a result of these investments. We expect our total operating expenses will increase over time, and, in some cases, have short-term negative impacts on our net income margin. Adoption of Our Solutions by Existing and New Customers. Most of our customers initially deploy our solutions to a limited number of users within a division or geography and may only initially deploy a limited set of our available solutions. Our future growth is dependent upon our existing customers' continued success and renewals of subscriptions to our solutions, deployment of our solutions to additional users around the world, and the purchase of subscriptions to additional solutions. Our growth is also dependent on the adoption of our solutions by new customers. In particular, our Veeva Vault solutions are offered to segments of the life sciences industry to which we have less experience marketing, including the research and development organizations of life sciences companies as well as emerging biotechnology companies, and we must be successful in marketing to these and other potential new segments. Subscription Services Revenue Retention Rate. A key factor to our success is the renewal and expansion of our existing subscription agreements with our customers. We calculate our annual subscription services revenue retention rate for a particular fiscal year by dividing (i) annualized subscription revenue as of the last day of that fiscal year from those customers that were also customers as of the last day of the prior fiscal year by (ii) the annualized subscription revenue from all customers as of the last day of the prior fiscal year. Annualized subscription revenue is calculated by multiplying the daily subscription revenue recognized on the last day of the fiscal year by 365. This calculation includes the impact on our revenues from customer non-renewals, deployments of additional users or decreases in users, deployments of additional solutions or discontinued use of solutions by our customers, and price changes for our solutions. Historically, the impact of price changes on our subscription services revenue retention rate has been minimal. For our fiscal years ended January 31, 2014, 2013 and 2012, our subscription services revenue retention rate was 166%, 187% and 159%, respectively. Mix of Subscription and Professional Services Revenues. We believe our investments in professional services have driven customer success and facilitated the further adoption of our solutions by our customers. During the initial period of deployment by a customer, we generally provide a greater amount of configuration, implementation and training than later in the deployment. At the same time, many of our customers have historically purchased subscriptions for only a limited set of their total potential users during their initial deployments. As a result of these factors, the proportion of total revenues for a customer associated with professional services is relatively high during the initial deployment period. Over time, as the need for professional services associated with user deployments decreases and the number of users often increases, we have observed and continue to expect the mix of total revenues to shift more toward subscription services revenues. As a result, we expect the proportion of our total revenues from subscription services to increase over time.



Components of Results of Operations

Revenues

We derive our revenues primarily from subscription services fees and professional services fees. Subscription services revenues consist of fees from customers accessing our Industry Cloud solutions. Professional services revenues consist primarily of fees from implementation services, configuration, training and managed services related to our solutions. For the three months ended April 30, 2014, subscription services revenues constituted 73% of total revenues and professional services and other revenues constituted 27% of total revenues. New subscription orders typically have a one-year term and automatically renew unless notice of cancellation is provided in advance. If a customer adds users or solutions to an existing order, such additional orders will generally be coterminous with the initial order, and as a result, orders for additional users or solutions will commonly have a term of less than one year. Subscription orders are generally billed at the subscription commencement date in annual or quarterly increments. Because the term of orders for additional users or solutions is commonly less than one year and payment terms may be quarterly, the annualized value of the orders we enter into with our customers will not be completely reflected in deferred revenue at any single point in time. Accordingly, we do not believe that change in deferred revenue is an accurate indicator of future revenues for any given period of time. 19



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Subscription services revenues are recognized ratably over the order term beginning when the solution has been provisioned to the customer. Our subscription services agreements are generally non-cancellable during the term, although customers typically have the right to terminate their agreements for cause in the event of material breach. Subscription services revenues are affected primarily by the number of customers, the number of users (or other subscription usage metric) at each customer that uses our solutions and the number of solutions subscribed to by each customer.



Our professional services engagements are primarily billed on a time and materials basis and revenues are typically recognized as the services are rendered. Professional services revenues are affected primarily by our customers' demands for implementation services, configuration, training and managed services in connection with our solutions.

Cost of Revenues

Cost of subscription services revenues primarily consists of fees paid to salesforce.com, inc. for our use of the Salesforce Platform and the associated hosting infrastructure and data center operations that are provided by salesforce.com, other third-party expenses related to data center capacity, personnel related costs associated with hosting our subscription services and providing support, operating lease expense associated with computer equipment and software and allocated overhead, amortization expense associated with capitalized internal-use software related to our subscription services and amortization expense associated with purchased intangibles related to our subscription services. Cost of subscription services revenues for our Veeva Vault and Veeva Network solutions do not include fees to salesforce.com because the Salesforce Platform is not used in those solutions. We intend to continue to invest additional resources in our subscription services to broaden our product offerings and increase our delivery capacity. For example, we may open additional data centers, expand our current data centers in the future and continue to make investments in the availability and security of our solutions. The timing of when we incur these additional expenses will affect our cost of revenues in absolute dollars in the affected periods. Cost of professional services and other revenues consists primarily of employee-related expenses associated with providing these services, including salaries, benefits and stock-based compensation expense, the cost of subcontractors, travel costs and allocated overhead. The cost of providing professional services is significantly higher as a percentage of the related revenues than for our subscription services due to the direct labor costs and costs of subcontractors. Operating Expenses We accumulate certain costs such as office rent, utilities and other facilities costs and allocate them across the various departments based on headcount. We refer to these costs as "allocated overhead." Research and Development. Research and development expenses consist primarily of employee-related expenses, third-party consulting fees and allocated overhead. We continue to focus our research and development efforts on adding new features and applications, increasing the functionality and enhancing the ease of use of our cloud-based applications.



Sales and Marketing. Sales and marketing expenses consist primarily of employee-related expenses, sales commissions, customer-focused events, travel-related expenses and allocated overhead. Sales commissions and other incremental costs to acquire contracts are expensed as incurred.

General and Administrative. General and administrative expenses consist of employee-related expenses for our executive, finance and accounting, legal, human resources, management information systems personnel and other administrative employees. In addition, general and administrative expenses include legal costs, professional fees, other corporate expenses and allocated overhead.

Other Income (Expense), Net



Other income (expense), net consists primarily of transaction gains or losses on foreign currency, net of interest income and amortization of investments.

Provision for Income Taxes

Provision for income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions. See Note 7 of the notes to our condensed consolidated financial statements. 20



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Results of Operations

The following tables set forth selected condensed consolidated statements of operations data and such data as a percentage of total revenues for each of the periods indicated: Three Months Ended April 30, 2014 2013 (in thousands)



Consolidated Statements of Income Data:

Revenues:

Subscription services $ 48,521 $



27,937

Professional services and other 18,200 14,851 Total revenues 66,721 42,788 Cost of revenues(1):

Cost of subscription services 12,040



6,950

Cost of professional services and other 13,910 10,759 Total cost of revenues 25,950 17,709 Gross profit 40,771 25,079 Operating expenses(1): Research and development 8,992 5,527 Sales and marketing 12,814 7,662

General and administrative 6,408

3,717 Total operating expenses 28,214 16,906 Operating income 12,557 8,173 Other expense, net (30 ) (499 )

Income before income taxes 12,527



7,674

Provision for income taxes 5,306

2,829 Net income $ 7,221$ 4,845



(1) Includes stock-based compensation as follows:

Three Months Ended April 30, 2014 2013 (in thousands) Cost of revenues: Cost of subscription services $ 53 $ 3 Cost of professional services and other 582 93 Research and development 887 195 Sales and marketing 776 183 General and administrative 958 261 Total stock-based compensation $ 3,256 $ 735 21



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Table of Contents Three Months Ended April 30, 2014 2013



Consolidated Statements of Income Data:

Revenues:

Subscription services 72.7 %



65.3 %

Professional services and other 27.3

34.7 Total revenues 100.0 100.0 Cost of revenues:

Cost of subscription services 18.0



16.2

Cost of professional services and other 20.8

25.1 Total cost of revenues 38.8 41.3 Gross profit 61.2 58.7 Operating expenses: Research and development 13.5 12.9 Sales and marketing 19.2 17.9

General and administrative 9.6

8.7 Total operating expenses 42.3 39.5 Operating income 18.9 19.2 Other expense, net - (1.2 )

Income before income taxes 18.9



18.0

Provision for income taxes 8.0

6.6 Net income 10.9 % 11.4 % Three Months Ended April 30, 2014 2013 % Change (dollars in thousands) Revenues: Subscription services $ 48,521$ 27,937 74 % Professional services and other 18,200 14,851 23 Total revenues $ 66,721$ 42,788 56 Percentage of revenues: Subscription services 72.7 % 65.3 % Professional services and other 27.3 34.7 Total revenues 100.0 % 100.0 % Total revenues for the three months ended April 30, 2014 increased $23.9 million from the prior year period, of which $20.6 million was from subscription services revenues and $3.3 million from professional services and other revenues. Subscription services revenues were 73% of total revenues for the three months ended April 30, 2014, compared to 65% of total revenues for the prior year comparable period, reflecting the growth in our subscription services revenues as our customers expanded their use of our solutions across new divisions and geographies, and adopted our newer products. Four percent of the increase in subscription services revenues was attributable to orders from existing customers that were placed on or prior to April 30, 2013 and the renewal of such orders through April 30, 2014. Ninety-six percent of the increase in subscription services revenues was attributable to new orders placed after April 30, 2013 to deploy our solutions to additional users within our existing customer base and to new users at new customers. New orders from existing customers consisted of expanded use of our solutions within a given customer and the addition of solutions not previously utilized by a given customer. Subscription services revenues from North America, as measured by the estimated location of the end users for 22



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subscription services, made up 56% of subscription services revenues in the three months ended April 30, 2014 and 64% of subscription services revenues in the three months ended April 30, 2013. This shift in geographic revenue mix was primarily due to the more rapid rate of revenue growth from deployments in both Europe and Asia as compared to North America. Professional services and other revenues for the three months ended April 30, 2014 increased $3.3 million from the prior year period. Ninety-six percent of the professional services and other revenues was attributable to existing customers that signed agreements with us on or prior to April 30, 2013 and 4% of the professional services and other revenues was attributable to customers that signed agreements with us after April 30, 2013. Professional services revenues from North America, as measured by the estimated location of the user for which the services were performed, made up 57% of professional services revenues in the three months ended April 30, 2014, as compared to 54% in the prior year period.



Cost of Revenues and Gross Profit Percentage

Three Months Ended April 30, 2014 2013 % Change (dollars in thousands) Cost of revenues: Cost of subscription services $ 12,040$ 6,950 73 % Cost of professional services and other 13,910 10,759 29 Total cost of revenues $ 25,950$ 17,709 47 Gross margin percentage: Subscription services 75.2 % 75.1 % Professional services and other 23.6



27.6

Total gross margin percentage 61.1 % 58.6 % Gross profit $ 40,771$ 25,079 63 % Cost of revenues for the three months ended April 30, 2014 increased $8.2 million from the prior year period, of which $5.1 million was related to cost of subscription services. The increase in cost of subscription services was primarily due to an increase of users of our Veeva CRM solution, which drove an increase of $3.7 million in salesforce.com fees combined with a $0.5 million increase in employee compensation-related costs, and a $0.4 million increase in amortization of purchased intangible assets. We expect cost of subscription services revenues to increase in absolute dollars in the near term and to decrease as a percentage of total subscription services revenues over time with the continued growth in the revenue contribution from Veeva Vault and Veeva Network, as these products have a slightly higher subscription services gross margin than Veeva CRM. Cost of professional services and other revenues for the three months ended April 30, 2014 increased $3.1 million from the prior year period, primarily due to a $3.1 million increase in employee compensation-related costs, which includes an increase of $0.5 million in stock-based compensation, resulting from a 43% year-over-year increase in the headcount of our professional services team.



We expect cost of professional services and other revenues to increase in absolute dollars in the near term and to increase slightly as a percentage of professional services and other revenues.

Gross profit as a percentage of total revenues for the three months ended April 30, 2014 and 2013 were 61% and 59%, respectively. The increases compared to the prior periods are largely due to an increase in the proportion of total revenues attributable to subscription services revenues, which have higher gross margins than professional services and other revenues, and to a lesser extent due to the increased revenue contribution of our Veeva Vault and Veeva Network solutions, which have a slightly higher subscription services gross margin than Veeva CRM. 23



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Operating Expenses and Operating Margin

Operating expenses include research and development, sales and marketing and general and administrative expenses. As we continue to invest in our growth though hiring additional headcount and expansion of our headquarters, we expect operating expenses to increase in absolute dollars and as a percentage of revenue in the near term which may result in a slight decrease in our operating margin. Research and Development Three Months Ended April 30, 2014 2013 % Change (dollars in thousands) Research and development $ 8,992$ 5,527 63 % Percentage of total revenues 13.5 % 12.9 % Research and development expenses for the three months ended April 30, 2014 increased $3.5 million from the prior year period, primarily as a result of an increase of $3.3 million in employee compensation-related costs, which includes an increase of $0.7 million in stock-based compensation. The increase in employee compensation-related costs resulted from annual merit increases, a headcount increase of 61% as well as an increase in employer payroll tax expense related to the exercise and subsequent sale of nonqualified stock options after the lock-up expiration.



We expect research and development expenses to increase in absolute dollars in the near term, primarily due to higher headcount as we continue to add developers and invest in our solutions.

Sales and Marketing Three Months Ended April 30, 2014 2013 % Change (dollars in thousands) Sales and marketing $ 12,814$ 7,662 67 % Percentage of total revenues 19.2 % 17.9 % Sales and marketing expenses for the three months ended April 30, 2014 increased $5.2 million from the prior year period, primarily due to an increase of $3.8 million in employee compensation-related costs, which includes an increase of $0.6 million in stock-based compensation, and an increase of $0.8 million in marketing program costs. The increase in employee compensation-related costs resulted from annual merit increases, a headcount increase of 56% as well as an increase in employer payroll tax expense related to the exercise and subsequent sale of nonqualified stock options after the lock-up expiration. We expect sales and marketing expenses to continue to grow in absolute dollars in the near term, primarily driven by employee-related expenses as we increase our headcount to support our sales and marketing efforts associated with our newer research and development-focused solutions and our continued expansion of our international sales capacity across all our solutions. General and Administrative Three Months Ended April 30, 2014 2013 % Change (dollars in thousands) General and administrative $ 6,408$ 3,717 72 % Percentage of total revenues 9.6 % 8.7 % General and administrative expenses for the three months ended April 30, 2014 increased $2.7 million from the prior year period, primarily due to an increase of $1.7 million in employee compensation-related costs, which includes an increase of $0.7 million in stock-based compensation, and an increase of $0.8 million in third-party professional services costs. The increase in employee compensation-related costs resulted from annual merit increases, a headcount increase of 60% as well as an increase in employer payroll tax expense related to the exercise and subsequent sale of nonqualified stock options after the lock-up expiration. We expect general and administrative expenses to increase in absolute dollars in the near term, primarily due to higher headcount and additional expenses, such as professional services from third-party providers, including legal and accounting fees to address public company requirements and ongoing litigation, as described in "Legal Proceedings" in this report, and to provide increased administrative support to our foreign operations. 24



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Table of Contents Other Expense, Net Three Months Ended April 30, 2014 2013 % Change (dollars in thousands) Other expense, net $ (30 ) $ (499 ) (94 )% Other expense, net for the three months ended April 30, 2014 decreased by $0.5 million from the prior year period, primarily due to a decrease in foreign currency loss of $0.4 million resulting from fluctuations in foreign exchange rates for our foreign currency denominated transactions as compared to the prior period, and an increase of $0.4 million in interest income, offset by an increase in investment amortization of $0.3 million. The higher interest income and investment amortization compared to the prior year period was primarily attributable to our higher cash and investment balances. Provision for Income Taxes Three Months Ended April 30, 2014 2013 % Change (dollars in thousands) Income before income taxes $ 12,527$ 7,674 63 % Provision for income taxes 5,306 2,829 88 Effective tax rate 42.4 % 36.9 % Provision for income taxes for the three months ended April 30, 2014 increased by $2.5 million from the prior year period, primarily due to the expiration of the federal research and development tax credit and a reduction of the domestic production activities deduction caused by the increased stock option activity.



Our effective tax rate was 42.4% and 36.9% for the three months ended April 30, 2014 and 2013, respectively.

Liquidity and Capital Resources

Three Months Ended April 30, 2014 2013 (in thousands) Net cash provided by operating activities $ 18,130$ 13,023 Net cash used in investing activities (131,771 ) (833 ) Net cash provided by financing activities 40,058 274 Effect of exchange rate changes on cash and cash equivalents (36 ) - Net change in cash and cash equivalents $ (73,619 )



$ 12,464

As of April 30, 2014, our principal sources of liquidity for working capital purposes were cash, cash equivalents and short-term investments totaling $345.5 million, of which $10.3 million represented cash and cash equivalents held outside of the United States. We have financed our operations primarily through cash generated from operations. We believe our existing cash, cash equivalents and short-term investments generated from operations will be sufficient to meet our working capital and capital expenditure needs over at least the next 12 months. Our future capital requirements will depend on many factors including our growth rate, subscription renewal activity, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the ongoing investments in data centers, the introduction of new and enhanced solutions and the continuing market acceptance of our solutions. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies and intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results and financial condition would be adversely affected. On March 31, 2014, we closed our follow-on offering of 13,800,000 shares of Class A common stock (inclusive of 1,800,000 shares sold upon the full exercise of the over-allotment option granted to the underwriters), which included 1,390,000 shares sold by us and a total of 12,410,000 shares sold by certain selling stockholders. The public offering price of the shares sold in the offering was $26.35 per share. We did not receive any proceeds from the sales of shares by the selling stockholders. Our proceeds from the offering were approximately $35.3 million after deducting underwriting discounts and commissions, and before deducting total estimated offering expenses in connection with the offering of $0.8 million. As of April 30, 2014, we had received net cash proceeds of $35.0 million, which does not reflect $0.5 million of the estimated offering expenses not yet paid that are included as accrued expenses on the condensed consolidated balance sheet. 25



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Cash Flows from Operating Activities

Our largest source of operating cash inflows is cash collections from our customers for subscription services. We also generate significant cash flows from our professional services arrangements. Our primary uses of cash from operating activities are for employee-related expenditures, fees to salesforce.com, taxes, third-party professional services costs, employee travel and leased facilities. Net cash provided by operating activities was $18.1 million for the three months ended April 30, 2014. Our cash provided by operating activities during the three months ended April 30, 2014 primarily reflected our net income of $7.2 million, and adjustments for non-cash items including $3.3 million of stock-based compensation expense and $0.9 million of depreciation and amortization expense. Additional sources of cash were from changes in our working capital, which included a $7.5 million increase in deferred revenue resulting primarily from increased orders from new and existing customers and a $5.3 million increase in accrued expenses, which reflects timing of payments primarily related to employee compensation related accruals and accruals for our salesforce.com fees associated with our subscription services revenues. These sources of cash were partially offset by a $2.8 million increase in accounts receivable in part related to the timing of billings and collections and a $2.7 million increase in our income tax obligations related to the timing of tax payments.



Cash Flows from Investing Activities

The cash flows from investing activities primarily relate to cash used to purchase marketable securities, net of maturities. We also use cash to invest in capital assets to support our growth.

Net cash used in investing activities was $131.8 million for the three months ended April 30, 2014 resulting primarily from $131.2 million in net purchases of marketable securities.



Cash Flows from Financing Activities

The cash flows from financing activities relate to proceeds from our follow-on offering of Class A common stock, stock option exercises and early stock option exercises. Net cash provided by financing activities was $40.1 million for the three months ended April 30, 2014 resulting primarily from the net proceeds from our follow-on offering of $35.0 million, combined with $4.4 million in excess tax benefits from employee exercise of options. 26



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Commitments

Our principal commitments primarily consist of obligations for minimum payment commitments to salesforce.com and leases for office space. On March 3, 2014, we amended our agreement with salesforce.com. The agreement, as amended, requires that we meet minimum order commitments of $500 million over the term of the agreement, which ends on September 1, 2025, including "true-up" payments if the orders we place with salesforce.com have not equaled or exceeded the following aggregate amounts within the timeframes indicated: (i) $250 million for the period from March 1, 2014 to September 1, 2020 and (ii) the full amount of $500 million by September 1, 2025. As of April 30, 2014, the future non-cancellable minimum payments under these commitments were as follows: Payments Due by Period More than Total Less than 1 Year 1 -3 Years 3 - 5 Years 5 Years (in thousands) Purchase commitments $ 496,747 $ 3,344 $ - $ - $ 493,403 Operating lease obligations 6,722 1,990 3,616 1,109 7 Total $ 503,469 $ 5,334 $ 3,616$ 1,109$ 493,410 During the remainder of the fiscal year ending January 31, 2015, we anticipate leasing additional office space in various locations around the world to support our growth. In addition, our existing lease agreements often provide us with an option to renew. We expect our future operating lease obligations will increase as we expand our operations.



Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. 27



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