賽富時 (CRM) 2009 Q1 法說會逐字稿

Good afternoon.

My name is Christian, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Salesforce.com Q1 2009 financial results conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session.

(OPERATOR INSTRUCTIONS).

Thank you.

I would now like to turn today's call over to Mr.

David Havlek, Vice President of Investor Relations.

Please go ahead, sir.

Thanks, Christian.

And welcome, everyone, to today's call.

Earlier today Salesforce.com released its results for his first fiscal quarter 2009.

A full disclosure can be found on our Q1 press release as well in our form 8-K filed earlier with the SEC.

Additional financial information beyond what is provided on the press release may be found on our website.

Joining me today to discuss our first quarter performance are Chairman and Chief Executive, Marc Benioff, and Chief Financial Officer, Graham Smith.

Following Marc and Graham's prepared remarks, we'll open the call up for questions.

Before we begin, I want to remind you that all of our financial commentary today will refer to GAAP results unless otherwise stated.

Also please note that the primary purpose of today's call is to provide you with information regarding our first quarter, fiscal year 2009 performance.

However, some of our discussions or responses to your questions may contain forward-looking statements.

These statements are subject to risks, uncertainties or assumptions, should any of these risks or uncertainties materialize, or should our assumptions prove incorrect, actual company results could differ materially from these forward-looking comments.

All of the risks, uncertainties, and assumptions, as well as other information on potential factors that could affect our financial results are included in our reports filed with the SEC including our most recent on Form 10-K, particularly under the heading, Risk Factors.

I also remind you that today's call is being webcast and a replay will be available shortly following the conclusion of the call through the 13th of June.

To access the press release, the financial detail, the webcast, ir any of our SEC disclosures I encourage you to visit our investor relations website at salesforce.com/investor, and should you have any questions following the call, please contact me directly or send an e-mail to investor@salesforce.com.

Lastly, before I turn things over to Marc, please be reminded that any unreleased services or features referenced in today's discussion or in other public statements are not currently available and may not be delivered on time or at all.

Customers who purchase our services should make their purchases based on features that are currently available.

With that, here is Marc to tell you about our outstanding first quarter.

Thanks, David, and welcome everyone, no matter where we go in the world today, we're seeing an amazing transformation of the software industry.

Salesforce.com has been the leader of the software to service movement, the appeal is as simple as it is compelling.

For companies of all sizes, it costs less and is easier to use.

Just a few years ago, our motto, "the end of software" was a bold prediction, but now it's an apt description of current events in our business.

Just last week, Aberdeen Group surveyed almost 5,000 business decision makers.

The result, Salesforce.com ranks in the top 10 influential technology vendors for 2008, along with Microsoft, Oracle, SAP, IBM, Cisco, HP, Dell, EMC and Sun.

And nothing speaks louder than peer recognition.

Just last night, we were thrilled to be recognized at the 23rd annual Software and Information Industry Association's 23rd annual Cody Award event here in San Francisco.

The Codys are the Oscar of software, and we took top honors for best software to service, best on-demand platform and best relationship management solutions.

In fact we have now won in the customer relationship management category for seven years in a row.

I would like to congratulate my cofounder Parker Harris, and his amazing technology team on this prestigious award.

As you can see clearly from our results, Salesforce.com is now preparing to exceed $1 billion of revenue in fiscal 2009, an important milestone for any technology company.

We're also about to start our second decade of business, a decade in which we plan to extend our leadership of the software to service industry and to find a new one, platform as a service.

But before I get into the future, let's talk about today.

Our fiscal first quarter set records for Salesforce.com in revenue, operating profit, and cash flow.

Revenue of $248 million was well above our outlook, rising by 52% from the year-ago quarter.

Significantly, that growth is translating into record profitability and cash flow.

GAAP operating margin rose more than 6 points from a year ago, and that contributed to GAAP earnings per share of $0.08, up significantly from $0.01 a year ago, and higher than our outlook.

And, our growing profitability is fuelling some pretty amazing cash generation.

Operating cash flow of $84 million set a company record, growing by more than 128% from a year ago.

For the trailing four quarters, we have now generated roughly $0.75 billion of operating cash, and roughly $200 million in free cash.

That translates into roughly $2 a share of operating cash, or roughly $1.60 a share of free cash.

Cash generation remains a strength of our software service model here at Salesforce.com.

Customer additions in the first quarter were the most of any first quarter in our history.

In all, we add more than 2,600 customers for over 43,600 customers worldwide.

We believe Salesforce.com was the winner of the largest and most important CRM transactions of the quarter in all of the major markets that we are serving.

In our first quarter, success begins in the United Kingdom with Mysis, the UK-based software developer which is rolling out our call center service and our customer portal service to more than 50,000 internal and partner employees.

I would like to personally think my Mysis CEO, Mike Lowry, for choosing sales force.

As the former CEO of Siebel, he knows more than anyone what makes a great CRM application.

In Paris, in a head-to-head battle against SAP, Salesforce.com won Areva, France's nuclear power leader.

As an aside, the European momentum was in evidence at our first-ever Reinforced Europe event earlier this month.

More than 2,200 attendees packed the [Fibercon] center in London.

With the Areva and Mysis wins, we now have more than 7,000 customers in Europe.

Our competitive victories were not limited to Europe by any means.

We are also thrilled to have won the largest CRM transaction in Japan, Nippon Telephone and Telegraph.

NTT will be converting over 5,000 subscribers from Siebel to Salesforce.com.

They follow a chain of Siebel's former large customers, including Merrill Lynch, Cisco, Symantec, and many others who have moved from legacy client-server systems to the leader in software as a service.

And here in the United States, we displaced Siebel yet again this time at Thomson Reuters, to push their total deployment to roughly 4,000 subscribers.

Paychex also signed up to begin a rollout that is expected to be more than 3,000 subscribers at maturity.

These customers join a long list of new business in thE United States this quarter that included Sterling, Symantec, Xerox, Electronic Arts, Carestream Health, Harrah's Entertainment, Auto Desk, Wells Fargo, and Trans-America Insurance.

While we are proud to outgun the competition, it is important to remember that our customers choose us for only one reason, success.

Just last week, on their Q4 earnings call, Compuware highlighted their global Salesforce.com deployment as key to their recent business success and their corporate transformation.

Nothing speaks to the power of software as a service and platform as service more than stories like Compuware's.

What is so exciting about our new business is that customers are using us not only in sales, but also in a broad range of our services.

For example, partner edition, our partner relationship management offering is showing remarkable traction.

This quarter I'm thrilled to report that one of our largest sales customers, Symantec, has selected Salesforce.com partner edition to help them manage the network of more than 10,000 of their partners.

In all, we did more than 150 new partner relationship management transactions in the first quarter, including ones at EMC, Amateur, Bayer, and Red Hat.

As we mentioned earlier, the first decade of Salesforce.com has been about defining software as a service and building a leadership role as a killer app company.

As we enter our second decade, a new era is beginning platform as a service.

In the next 10 years, we plan to not only to continue to develop the most innovative on-demand applications, but also to lead this new category known as platform as a service.

The shift to platform as a service disrupts a new class of companies, just like software-as-as-service has disrupted companies like Siebel, SAP, and Microsoft.

No longer will enterprises and IFCs have to buy Visual Basic, or Lotus Notes, or SQL server or Web Logic, as well as other application servers and databases.

Instead, they'll be able to use services designed to build and deliver applications for both consumers and enterprises alike.

And we're not alone in this new wave of platform as a service innovation.

Take a look at Google app engine for Python developers, and Amazon EZ2 and S3 for LAN developers, and Facebook for consumer apps.

By our count, there are 20 other platform as a service vendors already online.

We're proud to take an early lead in this emerging market, targeting the enterprise.

Gartner last week placed Force.com, our platform as a service, in the top right-hand of the visionaries quadrant of its magic quadrant for application servers.

It is the first peer-service ever to be placed on Gartner's application server industry report.

The good news for customers and developers is that unlike the last generation of platforms, these new platforms as a service easily work together to empower application developers to their fullest.

A prime example of what -- of that interoperability is our strategic global partnership with Google, which we expanded in the first quarter.

With Salesforce.com for Google apps, the industry's two leaders in cloud computing are coming together to make it possible to run your entire business in the cloud.

Now Salesforce.com's applications are tightly integrated with Google docs, spreadsheets, mail, presentations, and talks.

Because it's all delivered as a service, customers and developers around the world can use this technology instantly.

I want to thank Eric Schmidt and his team to their contributions to Fantastic Launch, an incredible partnership.

And while we are enthusiastic about the potential of the platforms to create a huge market in the future, it's important to note that customers are already embracing this new model.

As of the close of this quarter, our platform edition customer list has grown to include Ryder, NBC Universal, Matsushita , Adecco, and CBRichard Ellis.

These innovative customers along with the Japan close, our largest subscriber deployment customer, are powering their next-generation applications in the cloud, via force.com.

One thing that has always distinguished salesforce.com from our client-server competitors is our obsession with adoption and success.

The Force.com platform as a service is no exception.

Customers and ISBs are embracing this new technology as fast as we can deliver it, and allow me to give you a few proof points.

450 ISBs are selling more than 800 applications on the AppExchange, more than 80,000 developers are part of our community, roughly twice what it was a year ago.

They have already written more than 1.6 million lines of Apex code and 11,000 custom interfaces have been developed with our Visual Force technology, and our data center processes roughly 150 million transactions a day with more than half of the them using our API.

We have been taking this message of innovation, not infrastructure on the road, and we hope that you are going to join us when we come to your city in the coming quarters, and if you were one of the thousands of people who attended one of our Tour de Force events in the past two months, thank you for sharing your enthusiasm for platform as a service.

Of course, the foundation for our force.com platform is our hardware and software infrastructure, and we're scaling it to stay ahead of the needs of our customers, so I'm also excited today to announce the location of our third production data center, our East and West coast U.S.-based data centers will soon be joined by a new facility in Singapore.

This represents an important commitment to our international customer community, particularly in Asia, where we see tremendous opportunity to grow.

In all, we're now spending more than $100 million annually on infrastructure, so that our customers don't have to.

To close, our first quarter was a great way to begin the year, at a time when our competitors are still trying to make sense of software as a service, we're extending our leadership and staking our claim to the new frontier, platform as a service, and while our vision has never been bolder, our business has never generated more revenue, profit, or cash, that's what I call a great quarter.

Now let me turn it over to Graham for more detail on our Q1 financial performance.

Thanks, Marc.

Q1 performance was a great way to start fiscal 2009.

Revenue margin and cash momentum continued and we had another solid quarter of new business.

Revenue for the first quarter was $247.6 million, an increase of 52% from the year-ago quarter, and up 14% from Q4.

This was a strong performance and well above our outlook.

Our business continues to be strong in all major geographies, Americas revenue rose 43% from the year-ago quarter, to $178.4 million.

At this level, our annual revenue run rate in the Americas alone is now more than $700 million.

In Europe, growing aware of the SaaS business model pushed revenue to $45.2 million, a 77% increase year-over-year in dollars and up 53% in local currency.

And finally, growth in Asia continued its rapid pace, with revenue up 94% in dollars from the year-ago quarter to roughly $24 million.

Local currency growth in Asia was 78%.

While we didn't expect it entering the quarter, Q1 benefited from a continuing weakening of the dollar from Q4, and in aggregate, currency contributed roughly 5% to our year-over-year growth.

International grew to 28% of total Q1 revenue.

That's up from 23% a year ago.

We believe that international share will continue to increase as we are still in the early stages of the overall market opportunity.

As Marc noted, our European Dreamforce customer event earlier this month exceeded even our own ambitious attendance scores, and the new data center that we just announced in Singapore represents an important and necessary commitment to customer success in Asia.

Given the huge international opportunity ahead, these kind of investments will remain a priority for us in the years to come.

Our mix of revenue didn't change much from a year ago, roughly 90% of our revenue continues to come from subscription service and support, and about 10% from professional services.

The overall revenue mix among small, medium, and large businesses, has also remained constant over the long term at roughly one-third, one-third, and one-third.

We will see some variation in this mix from quarter to quarter.

Subscriber attrition remains at less than 1% of net paying subscribers each month.

For the first quarter, gross margin was 79%, an increase of more than 3 points from a year ago, and up almost a full point from Q4.

The biggest drive was our professional services business.

After several years of building capacity, we are now able to focus more on expanding our services partners, and improving billable utilization.

In addition, the deferral of revenue and expense required by EITF 0021 was less punitive to our results than in the early quarters of last year.

All of these factors contributed to better professional services financials for the second quarter in a row.

On a gross margin basis, our professional services business is now almost break even, an improvement of almost $4 million of incremental gross profit versus a year ago.

However, given the interrelationship between new services bookings, consulting hiring and billable utilization,it may be a while before our professional services business is consistently profitable.

Subscription gross margins continue to benefit from our growing scale and good cost management.

Finishing at 87%, up nearly a point from last year.

Operating expenses were once again well controlled during the quarter, finishing at 73% of revenue.

This result was roughly flat compared with Q4 but shows improvement by almost 3 points over Q1 of last year, primarily due to sales and marketing expenses.

During the first quarter, we grew headcount by more than 250 people, to finish with approximately 2,850 full-time employees globally, an increase of more than 600 from a year ago.

Our customer, business, and financial success continues to allow us to attract and retain the best people in the industry.

With more than 70% of revenue being spent on operating expenses, improving productivity in all of our functions was a key lever in our profitability improvement plans going forward.

These productivity gains continue to drive margin expansion in our business in Q1.

GAAP operating margin for the first quarter was 6.2%, an increase of more than a full point for Q4.

This was a great performance, when you consider we were essentially break-even just a year ago.

And remember, our Q1 GAAP operating results, include roughly $18 million of stock-based compensation, which represents just over 7% of revenue, so excluding the impact of stock-based compensation, our operating margin is already in the low teens.

Finally, and not unexpectedly, a low interest rate environment reduced our rate of return on cash which dampened interest income a bit this quarter.

Our investment strategy has been and continues to be focused on capital preservation and liquidity.

We're achieving this objective by investing our high quality diversified portfolios.

Our first quarter tax rate was 48%, which is down a couple of points from our fiscal 2008 rate, and was in line with our expectation.

We believe that over time, our tax rate will continue to fall as profitability improves, particularly outside of the U.S., where we can take advantage of lower corporate income tax rate.

Our strong fourth quarter and improving profitability translated in to another quarter of record cash generation in Q1.

Operating cash flow of $83.8 million was up more than 128% from a year ago, and represented 34% of Q1 revenue.

And as Marc mentioned earlier, we generated more than a $0.75 billion in operating cash over the past year, or roughly $2 a share, and expanding our operate margin has allowed us to grow cash even more rapidly than revenue.

Capital expenditures totaled $24.2 million in the quarter.

Most of our regular ongoing CapEx is the leasehold improvements, furniture and equipment necessary to support our growth.

Together with some internally developed software that we capitalized in accordance with GAAP.

This quarter, CapEx also included $8 million for the purchase of some third-party software, which is an important component of our delivery infrastructure.

Even with the slightly higher CapEx this quarter, free cash flow still finished at a very strong $59.6 million, or roughly 24% of revenue.

That's up from 13% of revenue a year ago, and just 9% of revenue two years ago.

Given the ratable nature of our revenue recognition model, we believe that free cash flow is an important measure of financial performance for Salesforce.com, and is a key focus for the company going forward.

Strong cash generation in the first quarter, increased our cash balance to slightly more than $0.75 billion in cash and marketable securities.

That's an increase of more than $300 million from Q1 of last year, and our total assets exceeded $1.1 billion.

On the working capital side of things, receivables declined significantly in Q1, following the spike in invoicing we typically see in Q4.

We have done a great job of managing our collections, as you saw in our cash flow this quarter.

Our total deferred revenue, which includes off balance sheet unbilled backlog increased in the first quarter and is now well in excess of $1 billion.

Our on balance sheet deferred revenue was $470 million, that's up 59% year-over-year, although we did see a small sequential decline of $10 million.

Because our business is seasonally stronger in Q4 than Q1, invoicing levels are at their highest in Q4.

The cumulative effect of this annual patent over the years resulted in deferred revenue amortization that exceeded new invoicing in Q1.

Because our install base continues to grow, and because this patent is well established, we expect to see a sequential decline in deferred revenue from the fourth quarter to the first quarter in the future.

Before I close with an update to our outlook, I would like to make clear our financial priorities for fiscal 2009.

First, our top priority remains growth.

We view the overall market opportunities for our application services and platform as massive.

As such, we will continue to invest in the sales, marketing, and development capacity together with the infrastructure necessary to optimize growth and extend our industry leadership.

Second, given the ratable nature of our revenue recognition model, we believe that free cash flow is one of the best measures of our operating performance.

No other on-demand company has been able to match our cash generation.

In that context, while we remain on track to deliver approximately 300 basis points of operating margin improvement this year, we are also very focused on disciplined cash management.

With that said, let me close with our outlook for Q2 and for the remainder of the year.

For the second quarter we project -- sorry -- for the second quarter we project revenue of $258 million to $259 million.

GAAP EPS is expected to be in the range of $0.7 to $0.08, assuming a tax rate of approximately 48% and a fully diluted share count for the 125 million shares.

This estimate includes roughly $19 million of stock-based compensation, and $1.3 million of amortization of purchase intangibles.

For the full year we project revenue of $1.060 billion to $1.065 million, and GAAP EPS of $0.33 to $0.34, assuming a tax rate of approximately 48% and a fully diluted share count of 125 million shares.

This estimate includes roughly $83 million of stock-based compensation, and approximately $5.2 million of amortization of purchased intangibles.

To close, Q1 was a really strong start to our fiscal '09.

We achieved record revenue, record operating income, and record operating cash flow.

We raised our full year revenue and EPS outlook, and are on track to achieve our operating margin goals.

I look forward to describing our progress against these objectives in the quarters ahead.

With that, let me turn the call back to the operator, and we'll open things up for questions.

(OPERATOR INSTRUCTIONS).

Christian, this is David from Salesforce.

Before we get started I would like to just ask the analyst's community if we could this quarter to keep their questions to a single question, we have lots of people in the queue already, and we want to get to as many folks as possible.

So ask for people's cooperation on that front.

Our first question comes from the line of Brent Thill with Citi.

Thanks.

Graham, you mentioned there was a pretty strong balance between small, mid and large.

Were there any difference particularly in the large enterprise deals this quarter with the current weak economic view that you saw shifting towards small and mid or any noticeable trends would be helpful?

We didn't see any particular changes.

Clearly, we didn't do as many larger deals in the first quarter as we did in the fourth quarter, but our Q1 was no different how we saw Q1 last year.

Thank you.

Our next question comes from the line of Heather Bellini with UBS.

Hi.

Thanks.

Graham, I think this might be a question for you.

I know you guys haven't given cash flow guidance in the past, but cash flow was obviously tremendous in Q4.

It was even better this quarter.

I think one question people might be wondering is just like this quarter, we saw the first sequential decline in deferreds for the reasons that you discussed and the size of the business and the seasonality.

Are we at a point, where we didn't see the seasonality this quarter, but you might want to point people to that come your second quarter?

Thank you.

Well, we don't give guidance on -- on cash flow.

We obviously think we're doing a great job in terms of generating cash from our business model.

I think -- clearly the way to look at -- if you want to model our operating cash flow is to look at our receivables, and you can make assumptions about what cash is going to look like in any particular quarter.

Clearly we had huge receivables entering Q1, and that collected a lot of cash, our receivables in -- for the end of Q1 are clearly low, so it would be unlikely that we would collect the same amount of cash in --

So I guess just then to follow up on that, I think the net change in receivables, if we look at your adjusted DSOs versus what you did last year from quarter-to-quarter, it added maybe about $18 million to your cash flow number.

Would that be the right way to think about it on a normalized basis?

I don't want to try to get in to calculating these things on the fly, Heather.

I mean -- I'm sure you are able to do a good job of projecting our cash flow for the second quarter.

Next question, please.

Our next question is from the line of Charles DiBona with Sanford Bernstein.

Marc, I was wondering, you gave some interesting metrics about developer adoption of Force, and maybe bring that back to the customer side.

Maybe talk about what you are seeing in terms of numbers of customers adopting Force as a stand-alone platform, and sort of what you are seeing on the revenue side, there.

Well, we're -- you know, I spent a tremendous amount of the quarter myself on the road, doing the Tour de Force programs, I don't know if you attended one of them.

And I'll also be on the road for the rest of the year doing a lot of those.

And I of course, have seen a couple of things.

The first thing, of course, is we're seeing huge crowds in New York, I think we had thousand people in the room, and we had, I think, 3 or 4 ,000 people over the six weeks we were on the road attend a combination of about 5 event, not including Dreamforce in London.

And these customers, which is primarily customers and some independent software developers as well, are tremendously focused and interested in finding new tools to replace their client-server development systems.

So whether they are trying to get rid of Lotus Notes or IBM WebSphere or Microsoft Visual Basic, they are looking for things that are modern and new, and that are service oriented, and we have got some tremendous technology, and that has resulted in the generation of quite a few exciting new customers, some of them, I of course described in this, and -- and quite a bit new platform deals are appearing in our pipeline.

I of course can't go through those with you because of the competitive situation, and finally, the other thing of course that's been really clear to our salespeople and to our prospects is the platform has become our number one differentiator, as the rest of the competitors try to deliver kind of a first generation software as a service solution, when our salespeople go in to customer sites, they are demonstrating these tremendously highly customized, systems because of course our -- all of our applications are built on our platform technology.

So it's been a very, very exciting time for the platform, and as we head towards Dreamforce this year, which will be in November, you are going to see us show you a lot of new exciting things with the platform that you probably didn't expect it to be ability to do.

Our next question is from the line of Kash Rangan with Merrill Lynch.

Hi.

Thank you very much.

One question for you, Graham, on the off balance sheet backlog, you mentioned that it was up sequentially.

I would assume that it probably goes up sequentially anyway, not just this quarter, but going from Q4 to Q1 over the past couple of years.

Just wondering if there was anything in particular that made you mention the comment?

Was there any one particular transaction that could have skewed things one way or the other from Q4 to Q1 or ended up closing way late in Q1 to really having an impact on the balance sheet to Q1 on the revenue side?

No Kash -- I mean, there were no unusual size transactions, and all of those sort of things that we look at each quarter was very typical in Q1.

I mention it because we typically had mentioned it in the past on our call, with our total deferred, which includes the unbilled backlog.

Maybe if I could ask you about the CapEx, if you exclude the one-time items that we should be thinking about in our models?

That's it for me.

Thanks.

The total CapEx for the quarter was -- let me just grab that number.

I think 24.

25.

What's that?

As I mentioned 8 million of that related to one -- one item, that was the software purchase, so we spent 16 and -- you know, absent that in Q1 and we spent, oh, about 8 in Q4 so it's sort of tough to give you a run rate cash, and obviously we don't give guidance, but probably Q1 was a reasonably large-sized quarter, but we just don't give guidance on CapEx.

We have too many projects going on.

Next question, please.

Our next question is from Laura Lederman with William Blair.

Can you talk about whether you have seen Microsoft's new dynamics live product?

I know they are delaying the rollout, but have you seen that at all?

And real quickly, how do you tell the difference between seasonality in Q1 versus any potential slowdown in economy.

So I apologize.

It was two.

Okay.

Well in regards to -- in regards to Microsoft, I personally -- and I'm not aware -- but there must be, right?

Because it's a huge market, but I don't know where they are with the new product.

I haven't seen it.

I haven't been up against it in a customer or prospect site.

I haven't been asked about it while I have been on the road at all.

No press or journalists have contacted me regarding it, and I don't really understand it in terms of what is going on with it.

I -- of course I follow the industry like you do, so I saw the press release and so forth and some of the initial news clips, but any startup can get that.

So I don't know, and if we see it to becoming con sequential or we lose a deal to it, I'm sure Microsoft would let us know, but we of course have not seen that from them.

So I think the problem really is that, Microsoft is trying to -- as I said kind of deliver first generation product at a time when we are looking at third generation technology today, and especially with the platform and the service capabilities that are in our new summer release, which is about to go online, there is very little comparison between any technology they have on premise or online and what we are able to offer customers.

And also, don't underestimate, that customers want an open solution, and of course, Salesforce works with all of Microsoft's products, Microsoft Office and Exchange and so forth, but we also work with all of Google's products.

And of course, Salesforce's products, we work of course with Microsoft, mobile devices, but we also work with the BlackBerry and the iPhone.

But when you choose a Microsoft product, you choose all Microsoft.

It only works with Exchange, not Google.

It only works with their PDA, not BlackBerry or iPhone, and on and on and on and on and you get locked in to that world, and I think that turns a lot of customers off in today's environment, especially when these other vendors have so many cool things that you can bring in to your corporate environment, and I think that's why Microsoft has not done very well in enterprise software overall, and why a lot of their tactics and traditional marketing techniques have failed in the Dynamics product line, not just in CRM, but throughout.

In regards to SAP, that of course -- their ole on-demand strategy is a huge train wreck, and we, of course, have saw originally SAP server on-demand, which that now disavow that they ever announced or offered, but that whole press release and announcement which was a year or two years ago, I can't remember when they had some of their prospects or customers announcing that product, but those are now our customers who are live on our service, and you see their largest customers now, standardized on our service, and the -- one of the very largest deals globally this use with Areva, know that -- and I was very nervous, because their new CEO he lives right there in Paris, he was involved in the transaction, and they of course lost the deal to us, and that's because their product is really pretty bad, and that's -- know what, that's not me.

I think I -- I won't use the term on the fall, that their Chairman used in a debate with me describing with his own CRM product but it started with an S and ended with an Y.

And finally, in regards to the economy, I have TNN in my office running right now, and of course economic conditions are not the best, but when we wrote our business plan for this year, we didn't take those conditions into consideration, and we were ahead of our business plan in the first quarter on -- on all of the various metrics that we measure.

So we were very excited about that, and of course, these results are -- you know, way beyond our expectation.

So we're very excited about where we are and our positioning in the market, and where we're going.

Graham, do you want follow up quickly?

Just to echo what Marc said we didn't see anything unusual in terms of seasonality, and as Marc said, we executed well against our plan.

Our next question is from the line of Thomas Ernst with Deutsche Bank.

Yes, actually this is Greg on behalf of Tom.

The last two quarters we have seen a pretty significant acceleration in the business, moving North of 50% organic growth year on year.

How would you rank order, a contribution between that acceleration between kind of just the international growth, platform expansion and just the core, kind of SSA?

Well, it's a very good question, which is what are the primary drivers for our growth?

And, when you are running a new business -- and we are not really a new business anymore, so I probably can't use that as an excuse, we'll be 10 years old on March 8th of next year, so we're in our 9th year.

You have to do a number of things to continue the growth.

Because of course we're larger than a lot of other certainly software service companies, and yet we are growing faster than they are, and the reason why is because we're trying to do more, that's the net.

And when we're trying to do more to all of the things you just mentioned and other things too.

Is it international, is it the platform?

Is it the full portfolio of customers that we try to reach from small medium to large?

Is it the scalability?

Is it our focus on selling more in to our install base.

That was a big focus for this quarter.

We wanted to sell more in to existing customers.

So when you hear about more than 100 new platform deals, that doesn't show up in the customer number, but we become stickier.

We become more deeply entrenched inside existing customers, that's a major focus.

There are many different major focuses, and all of those have resulted in the last two quarters being at greater than 50% growth, which is pretty awesome for an enterprise software company for the current season.

So we're very excited about that, and we're going to continue to do all of those things, and a lot more as well.

Our next question from the line of Philip Rueppel with Wachovia Securities.

To dig in a little bit more on the platform-as-a-service initiative, You talked a lot about wins in house with customers.

Are you seeing the same kind of interest with ISVs.

I appreciate the gestation period might take longer, but is that something we might look to see some major ISVs announce using Force as a platform.

Along those lines are you seeing are you seeing a different set of competitors such as Cisco's WebEx division, as you start to sell the Force.com?

Thanks.

In specific in terms of the platform, I think that the big threshold that has happened with the platform is we're able to articulate to our customers what platform as a service is, and also we're not alone in the market, we're not, one man, a monkey and a bell.

We have got basically, competitors in the platform as a service area.

We have Google with Google app engine, we have got Amazon with EZ2 and S3, and there are about 20 companies, and I put them on our slides because the cool thing about platform as a service, it is the future.

You can talk to the Gartner platform analysts, they are doing a whole new report on platform as a service.

The existing platform vendors have pooh-poohed it and said it's not real, don't think about it.

But the customers and ISVs are really coming to town, saying okay, we recognize we need these next generation solutions.

And what we're really doing is we're really focused, number 1 on this seven-layer architecture that we have articulated.

That's that is really our global infrastructure as a service, number 1.

Our integration layer, and the through-put and the depth of our API.

In regards to our infrastructure layer, I'm sure you more than 150 million transactions a day, and the uptime is spectacular, and all the information you can see at trust.salesforce.com, the API, I think we're doing something like 2 billion or more transactions a month.

The work flow, and also our new virtual machine that lets our customers run their code on our servers, and we're seeing that as a threshold event for customers.

The user interface, so you can build your own user interface on top of it.

This is about to go in to production.

Customers as I mentioned have built 11,000 customer interfaces on iPhones and kiosks, and PDAs, and replacing our tab-based interface with the interface of their choice, and we have shown some new interfaces including one that's built by Dolby for the rollout of their new 3D theater systems, and on top of that user interface of course, we have our AppExchange where you can package this up and offer it for sale around the world, and the seventh layer is our new Metadata API where you can take the eclipse development browser, wrap all of our servers, and if you are an eclipse developer using eclipse to build or deploy on other apps, it is now, you are now programming over servers using eclipse, which is a tremendous opportunity for software developers.

Now when we roll that out to customers, the largest CIOs in the world, and the smallest, they are very interested, and they are looking at how they can build and deploy.

And we have seen a lot of customers, of course already do a lot of things with our platform.

I think customers have deployed over 60,000 custom application objects already, but we're seeing them -- finally, really get, you know, that it's more than building a recruiting app.

For example, you -- you are dealing with branch offices, and you need to automate all of your branch offices, you are not going to put servers and enterprise software in every branch office, you don't have the IT personnel.

You can do all of this can custom applications, and office productivity in the branch office environment, and that becomes extremely exciting.

In terms of traditional or large ISBs, we're talking to some of the largest ISBs in the world right now about potentially become their SaaS strategy.

A lot of very large ISBs have kind of ignored SaaS to their peril and their growth rate.

With our infrastructure in 6 months or less, we can probably take a lot of the enterprise applications that these companies have built and port them, port them to our platform and we're talking to those large ISBs about doing that.

One of them that's out there is a unit for Aggresso, their division Coda, who is a 30--year-old company.

The number 2 ERP solution in Europe, and we have been take them on stage and showing that they built an [APAR GL] in less than a year on our platform, and we're really excited about that.

They are claiming it will be production by our November Dreamforce.

And they are already signing up their first customer.

That's just an example.

But we're really working hard talking to the world's largest ISBs about porting to force.com, and then finally, in regards to Cisco WebEx, we're very excited about our relationship with Cisco as a customer of ours, and we work hard to demonstrate to our customers how Webex integrates very easily, all of their services with our services.

One of the great things about these platforms as a service, is the ease of interoperability is what lead to our Google partnership this quarter, it's what will lead to a lot of new partnerships that you'll hear about this year, but the ability to pull.

You don't have to use our platform, you can use our seven layers.

Maybe you want to use Google app engine for something, maybe you want to use EZ2 or S3 for something from Amazon or others, and you can combine this to build your application, and we'll -- so you'll be seeing some pretty cool stuff coming in the next few months on the March to Dreamforce from us in this area.

So platform as a service obviously has got my full attention.

We have worked hard to design software as a service.

In the next decade, of course, we're going to continue to focus on software as a service, but we're going to be also focused on platform as a service, because we believe it is the next thing, we think it is web 3.0.

This is what will be known at web 3.0 for platforms, and we want to be a leader in that, just as we have been a leader as software as a service.

Thank you for the question.

Our next question is from the line of Rick Baldry with Canaccord Adams.

Last quarter you gave an explicit dollar amount of about $425 million that you think the venture community has put into partners.

I was wondering if you have any update on that number?

And then maybe qualitatively discuss where you think that group of companies is in terms of having actual products developed and moving in to a sales process that would drive revenue for Salesforce?

And then maybe a light comment on the balance sheet, and maybe thoughts to -- as you close in on almost $1 billion, whether you put that to work on either buybacks or acquisitions.

Thanks.

So in regards to the -- in regards to the venture community, I don't think venture capitalists are funding any more software companies.

I said that for a while, that I don't really believe they are funding anymore enterprise application, or enterprise application companies, that most of it so software as a service companies, so the numbers only have to be increased.

You would have to come up with it on your own.

But number 2, in the same case, I don't think venture capitalists are funding any new platform companies, right?

Nobody is buying new software platforms to install, and that's a very important concept as well, that the next generation platforms will be services also, and I think that will only accelerate that investment by venture capitalists.

In regards to your question about cash, we're only -- having a -- of course we have now increased our cash by about $0.25 billion in the last year, and until we get over $1 billion in cash, we won't be look at strategic things to do with that cash.

Instead we continue to look at a lot of these small tactical acquisitions or things that we can do, and, ust have the cash as a strategic asset for the company.

Couple more questions.

Our next question is from the line of Mark Murphy with Piper Jaffray.

Thank you, wondering if you could estimate the mix of your non-SFA bookings as a percentage of the total?

Or perhaps offer any future targets that would help us assess the diversification of the business?

And if you don't want to quantify it, could you qualitatively maybe talk about how the platform is impacting our application deals?

I would give you the numbers if I had them, but we just don't really have that.

We will look to give you quantitative measures sometimes in the future.

There isn't a deal that we do that doesn't include the platform today.

I mean, every demonstration, every transaction, every customer simply augmenting the -- the platform.

The reason that we're winning, why we have such a strong win rate and why these competitors have failed to get traction against us over the years of announcements, of new products and capabilities that they have, is really -- I think it gets down to the platform.

It's because when they come in to a competitive situation with us, when we demo our product, you know, for prospects, I have said this once before, but when you look at -- when Japan Post looks at doing CRM, and Merrill Lynch looks at doing CRM, or Cisco looks at doing CRM, or AREVA, the nuclear experts of France are doing CRM, or Citibank is doing CRM, it's not the same CRM.

It's not like e-mail.

It's not like some generic app that we all are on CRM.

When we move around from company to company, we are doing CRM.

CRM is kind of your business processes, very complex applications, work flow, business logic, integration, that empowers those -- those workers, front office and back office, to have better customer relationship success and integrate with the ERP on the back end.

And to -- that is highly customized and integrated, and for those -- for those competitors who have mocked us, they have done it at their own peril, because the reality is that this is what customers need.

And this is what gives us adoption and gets us the renewal, because don't forget in our model we're only successful if the customer is successful.

And, you know, what I like to do when I meet people and talk to them about our business, and I encourage this of all of you, is make a list.

How many people do you personally who are users of Salesforce, or companies that you know who are users of Salesforce, or our platform or our various offerings, and then make a list if you can of other CRMs and -- Oracles, the smaller companies, and so forth, and see which list is longer, and I think at the end of the day, you're going to find our list is longest, because this is what customers need to be successful this s this platform, and that is why it's so hot.

And the derivative, of course, and the secondary gain is it has brought us in to become the recruiting standard of the Electronic Arts, or at Morgan Stanley, or so many other custom applications that we have delivered, , for customers all over the world.

We only have time here for one more question.

So operator, we'll take one last

Our final question is from the line of Brendan Barnicle with Pacific Crest Securities.

Two quick ones.

First, Marc you mentioned more ISBs going to Force and going Force native, wondered if you had any more numbers or any more color you could give us on numbers there.

I know we talked about some of those companies in the past.

And second as you continue to build out the international effort, which seems to be going well, how are you in terms of staffing of the international sales force and how much more growth do you need on that side?

Thanks so much.

We need a lot more salespeople, so that is the same of the game is distribution capacity, because, you can't win a war in the software industry without an army, and we are signing up recruits every day, it's inherently critical and essential part of our business, because what we're doing is so strange, weird, and different than anybody else, that we need really smart people to explain it to customers of why it is the right thing.

That takes the traditional hand-to-hand combat -- of ours have not -- you know, that have been the traditional strength of the computer industry channel have not worked for other SaaS vendors is you have to be an evangelical and entrepreneurial approach to closing these transactions, and in regards to the updated numbers, I would encourage you to get my slides from the Dreamforce Europe presentation, because they had all of the current statistics that we're delivering, but thank you very much.

And I would like to thank everyone for participating on the call today.

Thank you very much.

If you have any follow-ups please contact me directly or investor@Salesforce.com.

Thank you, and have a good day.

Ladies and gentlemen, this concludes today's conference call.

You may now disconnect.