賽富時 (CRM) 2012 Q4 法說會逐字稿

Good afternoon.

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

At this time, I would like to welcome everyone to the salesforce.com Q4 and full-year fiscal 2012 results conference call.

(Operator Instructions).

After the speaker's remarks, there'll be a question-and-answer session.

(Operator Instructions).

I would now like to turn the call over to Mr.

David Havlek, had Investor Relations.

Sir, you may begin your conference.

Thanks, David, and welcome, everyone, to today's call.

Earlier this afternoon, salesforce.com issued a press release detailing its fourth-quarter fiscal year 2012 results.

In addition to the press release, the Company's results can also be found on Form 8-K, filed with the SEC.

Joining me today to discuss our outstanding fourth quarter are Marc Benioff, Chairman and CEO; and Graham Smith, our CFO.

Following our prepared remarks, we'll open things up to your questions.

As always, I ask you that you limit yourself to a single question, so we can get to as many of you as possible today.

Our commentary will primarily be in non-GAAP terms today.

Reconciliation between GAAP and non-GAAP metrics for both our reported results and our forward guidance can be found in our earnings press release.

At times in our prepared comments or responses to your questions, we may offer incremental metrics to provide greater insight into the dynamics of our business or our quarterly results.

Please be advised that this additional detail may be one-time in nature, and we may or may not provide an update in the future.

With that, let me make this call official with a brief Safe Harbor.

The primary purpose of today's call is to provide you with information regarding our fiscal fourth-quarter 2012 performance.

Some of our discussion or responses to your questions may contain forward-looking statements.

These statements are subject to risks and uncertainties and assumptions.

Should any of these risks or uncertainties materialize, or should our assumptions prove to be incorrect, actual Company results could differ materially from these forward-looking statements.

All of these 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 report on Form 10-Q, particularly under the heading Risk Factors.

To access our Q4 press release, including the GAAP to non-GAAP reconciliation, our historical results, any of our SEC filings, a webcast replay of today's call, or simply to learn more about salesforce, I encourage you to use our Investor Relations website.

Finally, before I turn the call over to Mark, please be advised that during today's discussion, we may make reference certain unreleased services or features not yet currently available.

Because we can't guarantee a future timing or availability of these services or features, we recommend customers make their purchase decisions based on services and features that are currently available.

With that, let me turn the call over to Marc.

Thanks, David.

Our fourth quarter was a really gorgeous finish to an amazing year of growth for salesforce.com, and the first quarter is already off to a spectacular start.

I'm going to get to that in just one moment.

Revenue for the fourth quarter rose 38% from a year ago to $632 million.

For the full year, we delivered approximately $2.27 billion in revenue, with an annual revenue run rate that now exceeds $2.5 billion.

And our full-year revenue grew 37% from fiscal year '11.

Look, David, no other enterprise software company of our size is growing faster.

Deferred revenue increased by 48% year over year, propelling deferred revenue past the $1 billion milestone for the first time ever.

And we now have more than $3.5 billion of booked business on and off the balance sheet.

We also set a Company record for cash flow in the quarter, exceeding $200 million operating cash.

That's an increase of 45% year over year.

For the full year, operating cash flow rose 29% to nearly $600 million.

Finally, we added approximately 2500 employees around the world in fiscal year '12, including nearly 2000 of them right here in the United States of America.

During the quarter, we closed more than four times the number of seven-figure transactions than Q4 of last year, including the largest transaction in our history, which was quickly usurped by another transaction that I'll soon mention.

In all, we signed more than 100 seven-figure transactions and nine eight-figure transactions in the quarter.

And as I've been foreshadowing, I'm thrilled to announce that since closing the fourth quarter, we've already topped ourselves by signing our first-ever nine-figure transaction in the opening days of Q1.

Now, I want to be really clear with everyone before I continue.

This nine-figure transaction is not reflected in any of these numbers that we are talking about today, and is not currently reflected in our income sheet or balance sheet that we are publishing today.

And we're going to be discussing the details of this nine-figure transaction on our first-quarter call.

I just want to let everyone know how excited we are about that transaction, and it's with a very large insurance company.

We couldn't be more excited about this.

Now, given our customer momentum and a strong pipeline of new business, I'm delighted to announce that we are raising our full-year fiscal year 2013 revenue guidance, which we now project at $2.92 billion to $2.95 billion.

And our guidance puts us on pace to reach a $3 billion annual revenue run rate during this fiscal year, finishing the year with a growth rate of approximately 30%.

Now, our outstanding financial success this quarter was powered by the momentum of our social enterprise strategy, which has differentiated us in the market and is driving our ability to become a more strategic partner to our customers.

And, as a result, we now see a growing number of companies standardizing their entire front office on salesforce.com.

A great example is Hewlett-Packard, who embarked on a transformation with salesforce.com to become a social enterprise -- connecting employees, customers, and partners using our Sales Cloud, Service Cloud, Chatter, and Force.com to become our largest deal in the fourth quarter.

Time Warner Cable is creating a social enterprise for its B2B business using Radian6, the Sales Cloud, the Service Cloud, the Social cloud, Data.com, and Heroku.

And their vision is to build an employee social network for sales and support reps that provides real-time customer insights on mobile devices, fueling a new level of collaboration with customers.

Now, many of you know of the company NVIDIA, which is another great win for us in the quarter.

They are swapping out .net, an old client server software product, as part of its cloud first strategy, with an enterprise-wide deployment of Force.com.

And by linking Force.com with its SAP back-office, NVIDIA, like so many other SAP customers all over the world, will be able to now power its social enterprise workforce with next-generation social and mobile apps.

And finally, Activision, the creator of the very popular video games World of Warcraft and Call of Duty, is on a mission to revolutionize the gamer experience and is live with salesforce.com at the heart of its transformation.

It's got Radian6, Chatter, Sales Cloud, and Service Cloud.

And they are building an employee and social network, they are building a customer social network, and they are building a product social network, entirely based on Force.com and Chatter, that will help the company delight its 40 million avid gamers in completely new ways.

Now, for those of you who have been following us in the last few calls, you'll realize something amazing with this win.

We now have all three big gaming companies -- Activision, Electronic Arts, and Zynga, who have all unplugged and turned off Oracle RightNow in favor of salesforce.com.

Each and every one of them found that Oracle RightNow could not serve them with the scale and the reliability and the availability of these large gaming companies and their need for big data.

In each case, they chose salesforce for our ability to deliver big data for customer service on a flexible, multi-tenant, shared innovative platform that allowed them to create new games and new customer experiences at the scale and speed of gaming itself.

Other transactions from the fourth quarter included Chevron and BMW, AT&T, and McKesson; Sprint, Motorola, and, in Japan, NTT; Symantec, and in Europe, Philips; Sony, Gannett, VMware, LinkedIn and Coach; Foster's, Heineken, Wiley, and the list goes on and on and on.

With the social enterprise, we are now closing our largest, most exciting, strategic deals in this enterprise software industry.

Customers are buying multiple servers from us, and as a result, delivering our most diverse quarter ever.

In fact, more than 40% of our new business in the quarter came from services other than our namesake Sales Cloud.

This has created amazing momentum for each of our clouds, and I'd like to highlight a few milestones.

First, our flagship Sales Cloud delivered strong growth this year as we continued to take share from Oracle and SAP.

In fact, according to the latest IBC report, salesforce.com now has the second largest market share in CRM.

We displaced SAP.

We did it for the very first time.

Salesforce, according to IBC, is now number-two CRM provider in the world, cloud or software of any type.

Of course, we were already number-one in cloud.

That wasn't the point.

We are now number two overall.

Service Cloud momentum also continued to rise, as more and more companies looked for ways to connect with their customers in traditional and social media channels.

In the fourth quarter alone, we added nearly $100 million in new annual business for the Service Cloud.

And Chatter -- well, Chatter has become the most widely adopted enterprise social network ever, with more than 150,000 active networks.

Radian6 grew at a triple-digit pace in Q4 compared to last year, and closed its largest deal ever this quarter with Sony.

Momentum for our platform business continues to build as companies demand more social, mobile, and cloud ops options to serve their customers and employees.

In fiscal year '12, our platforms achieved truly impressive milestones.

The salesforce platform, which includes products like Force.com and Heroku and [side force].

New business for standalone Force.com roughly doubled from last year.

Force.Com now has more than 480,000 developers to build more than 275,000 cloud apps.

That's an incredible growth of 43% year on year.

We have more than 2 billion lines of Apex code that we are managing for our customers in Force.com.

And developers on Heroku, which is the incredible multi-language application development and deployment environment that we purchased last year -- well now, developers on Heroku have now built more than 1 million apps.

That's 10 times growth since we bought them.

And our ISV ecosystem is also growing at an incredible pace.

We doubled the number of ISVs on the AppExchange, and have more than 2000 partners operating our customers outstanding social and mobile business apps.

Finally, nothing speaks more to the value of our services than usage.

Just take a look at trust.salesforce.com.

I'm thrilled to announce that we delivered another record number of transactions in the fourth quarter.

Nearly 45 billion transactions during the quarter -- 45 billion.

All you have to do is ask Microsoft, Oracle, or SAP how many billion transactions that they deliver in the cloud this quarter.

Well, we delivered 45 billion transactions.

That's an increase of 68% from a year ago.

That's nearly 700 million transactions every business day.

That's a core competency of salesforce.com that no other company in the world has.

It's been an amazing year of growth.

We're looking forward to being the first enterprise cloud computing company to surpass a $3 billion annual revenue run rate this year.

Now before I close, I want to remind you that we are just three weeks away from our largest Cloudforce ever.

And if you want to see all of this come to life, then come to San Francisco, because I'm telling you, on March 15 there's going to be 14,000 people here.

And we're kicking off our Cloudforce social enterprise tour, and we are including our new Cloudstock conference for developers.

It's going to bring thousands of developers together.

We are all going to be coding the social enterprise.

With hundreds of social enterprise solutions under one roof at our Expo, it's going to be an amazing start to the year.

And I look forward to seeing you all there at Moscone Center in San Francisco on March 15 at 8 AM.

Okay.

With that, I'd like to turn this over to Graham, and let's get into the financial details of our fourth quarter.

Graham?

Thanks, Mark.

We capped off a great fiscal 2012 with an outstanding fourth quarter.

The strong new business pipeline we discussed back in Q3 enabled us to deliver results that exceeded our expectations in Q4, including revenue, cash flow, and EPS.

Let me cover a few highlights starting with revenue.

Q4 revenue increased to $632 million, up 38% over Q4 last year.

Fourth-quarter revenue benefited from a small FX tailwind of just $2 million.

In addition to the strong new business Marc discussed, we continued to benefit from a sustained decline in dollar attrition, which fell for the 10th consecutive quarter to end the year still in the mid-teens percentage range.

For the full fiscal year, revenue increased to $2.27 billion.

That's up 37% over last year.

Excluding an FX benefit of approximately $37 million, full-year revenue, on a constant currency basis, grew 35% over last year.

Each of our regions posted solid fourth-quarter revenue growth.

Revenue in the Americas grew 41% to $436 million.

In Europe, revenue was $108 million.

That's up 30% in dollars and 32% in constant currency, helped by strong renewals.

And in Asia, revenue was $88 million.

That's an increase of 34% in dollars and 28% in constant currency.

Japan continues to improve when compared with the first half of the year.

Overall, we were pleased with the balance of regional revenue growth in the fourth quarter and for the full year, particularly when we take into account that the Americas growth rate gets an additional benefit from recent acquisitions.

On the subject of acquisitions, let me take a moment to briefly discuss the impact of our acquired businesses.

Over the past two years, we've made 11 acquisitions with Jigsaw, Heroku, and Radian6 being the most significant from a financial point of view.

Excluding the revenue effect of these 11 acquisitions, organic revenue growth for fiscal 2012 was still in excess of 30%.

While the contribution from our acquisitions represented less than 5% of total revenues in fiscal 2012, we expect these fast-growing businesses to contribute a greater proportion of revenue over time.

As Marc mentioned, our business mix is more diverse than ever.

We are pleased to see Service Cloud and platform deliver very strong growth alongside solid Sales Cloud growth.

Three years ago, our non-Sales Cloud new business was just 25% of total.

Today, non-Sales Cloud new business represents more than 40% of the total, and we expect this to continue to diversify.

Turning to the income statement, Q4 and full-year non-GAAP gross margins were 82%, essentially unchanged from last year.

Non-GAAP subscription and support gross margin was down slightly from Q4 last year.

For the full year, subscriptions support gross margin was 86%, down two points compared with FY '11.

This decline was primarily the result of the acquisitions I just mentioned, as well as data center investments.

Non-GAAP professional services gross margins were 10% in the quarter and approximately 14% for the full year, a significant improvement over last year, primarily as a result of our mandatory compliance with the EITF 0801 accounting standard.

Moving on to non-GAAP operating expenses, operating expenses as a percent of revenue was 69% in Q4.

That's down two points from last year.

For the full year, operating expenses as a percent of revenue were 70% compared with 68% last year.

This two-point increase was primarily due to an increase in sales and marketing expense, a result of adding significant distribution capacity during the year.

While R&D and G&A expenses as a percent of revenue remained flat, we continued to hire aggressively in Q4, adding more than 800 people, to finish the year with approximately 7700 employees.

That's up 47% from last year.

550 of those additions came from acquisitions.

Fourth-quarter non-GAAP operating margins rose by two points year over year to 13%.

For the full year, non-GAAP operating margins fell 2 points to 12% from last year.

Non-GAAP EPS was $0.43 for the fourth quarter and $1.36 for the full year.

Our share count and tax rate both finished a bit lower than our projections entering the quarter.

Together, those benefits contributed roughly $0.02 to fourth-quarter EPS.

Turning to cash flow -- operating cash flow for the fourth quarter, as Marc already mentioned, was well over $200 million, at $240 million.

That's an increase of 45% over last year.

For the full year, operating cash flow was up 29% over last year.

Our cash performance was higher than we projected at the start of the quarter, for a couple of reasons.

First, invoicing; on prior earnings calls, we have discussed the fact that year-over-year changes in invoicing cycles have generally been insignificant.

However, when we analyzed the trend over a longer period, five years, it became clear that these relatively insignificant year-over-year changes, combined with the huge increase in invoicing dollars, were causing a cumulative drag on our invoicing and cash flow that was becoming more meaningful.

As a result, during Q4 we were much more deliberate about requesting annual invoicing for both new business and renewals.

Our customers responded well; and, as a result, invoicing and cash flow benefited sooner than we expected.

The percentage of annual invoices in Q4 was higher than in recent fourth quarters, but only slightly higher than in Q4 of fiscal 2008.

A full-year annual invoice percentage was just under 65%, and that compares with the two-thirds proportion that we've discussed as a rule of thumb in the past.

Second, one of the large transactions Marc mentioned earlier included a multiyear invoice that was partially collected during the quarter, which increased operating cash flow by approximately $25 million in Q4.

Looking to FY '13, we expect operational excellence around annual invoicing to benefit cash flow.

We project FY '13 operating cash flow will grow in the low 20% range.

If we continue to increase the percentage of annual invoicing, cash generation is obviously going to benefit.

CapEx spending for the quarter was approximately $45 million -- that's up 46% over Q4 last year.

The increase was primarily related to our leasehold improvements spend, which tracks fairly closely to headcount growth, and to a lesser extent, capitalized software development costs.

Free cash flow, defined as operating cash flow less CapEx, was approximately $196 million.

That's up 45% over last year.

For the full year, free cash flow was approximately $440 million; that's up 19% from fiscal 2011.

Looking ahead, we expect hiring related leasehold improvement costs to increase CapEx slightly faster than operating cash flow next year.

As a result, we expect free cash flow to grow a little slower than operating cash flow in fiscal 2013.

Turning to the balance sheet, our strong cash generation in fiscal 2012 was mostly offset by M&A activity during the year.

As a result, cash and cash equivalents, including marketable securities, finished the year at just over $1.4 billion, up about $40 million from last year.

Accounts receivable at year-end was up 60% to $684 million, primarily as a result of the two factors I just discussed that benefited invoicing and cash flow.

As a result, DSO for Q4 was 100 days.

That's up from 86 days last year.

But if you exclude the impact of the two factors I mentioned, DSO would have been at a similar level to last year.

Now turning to deferred revenue, we exited the year with approximately $1.38 billion of deferred revenue on the balance sheet, up 48% from last year, including an approximate $3 million dollar currency headwind over last year.

Off-balance-sheet backlog, which represents business that is booked but not yet invoiced, grew from approximately $1.5 billion to approximately $2.2 billion this year.

As a result, our total booked business, including both the on-balance-sheet deferred and off-balance-sheet backlog, now exceeds $3.5 billion.

That's more than double where we were just two years ago.

Going forward, we plan to provide this off-balance-sheet backlog each quarter in order to provide you with a greater level of visibility.

With the operational excellence around annual invoicing contributing to our strong growth in current deferred revenue, the multiyear invoice caused the increase in long-term deferred revenue.

If you exclude these two factors, we estimate that the total revenue on the balance sheet increased approximately 31% year over year.

Looking ahead -- because of the seasonal nature of invoicing, and with Q4 being, by far, our largest invoicing quarter -- expect to see a sequential drop, as we have in several previous years, in deferred revenue in Q1 of approximately $40 million to $50 million on a constant currency basis.

Turning to FY '13 guidance -- as Marc mentioned, we're delighted to raise our revenue outlook range by $30 million.

We now project FY '13 revenue in the range of $2.92 billion to $2.95 billion.

That's an increase of 29% to 30% over last year.

In addition to delivering solid topline growth in FY '13, we are also targeting an increase in non-GAAP operating margins of 75 to 100 basis points.

We estimate full-year non-GAAP EPS in the range of $1.58 to $1.62.

This implies a non-GAAP effective tax rate of approximately 38%.

For Q1, we anticipate revenue in the range of $673 million to $678 million.

For year-over-year growth of approximately 34%.

We expect non-GAAP EPS in the range of $0.33 to $0.34.

All of the underlying assumptions for our non-GAAP guidance, as well as our GAAP guidance and a complete GAAP to non-GAAP reconciliation, can be found in our earnings press release issued today.

To conclude, we had a great year with some huge wins.

Clearly, our social enterprise vision is resonating with customers and prospects.

Our pipeline is strong, our value proposition is increasingly strategic, and our deals are becoming larger and more diverse.

We exit the year in a very strong competitive position, and we couldn't be happier about our prospects for continued strong revenue growth and improving profitability.

We look forward to discussing progress in 90 days.

And with that, I'll turn the call over to the operator for questions.

(Operator Instructions).

Brent Thill, UBS.

Marc, just on the large deal front, obviously you saw an incredible pickup.

Can you just help us understand, now that you're passing the nine-figure mark, what you're starting to see in the pipeline?

And I had one quick follow-up for Graham.

Well, honestly, we've just never seen a pipeline like this.

We talked about this all through the year -- you know, it's been building through the year.

Every quarter this year has been a great quarter.

You know I feel that way.

We had a great first quarter; we had a great second quarter; we had a great third quarter.

And that completely built the pipeline up for the fourth quarter, and we did not clean the pipeline out in the fourth quarter by any means.

There is plenty of -- plenty more in the fourth quarter.

To the evidence of that, already in the first quarter we've closed our first nine-digit transaction ever, which was with a large Illinois-based insurance company.

This social enterprise strategy, Brent, the thing about this is, is that we are now coming into companies and our message is, we want to listen to you, and we want to understand what -- where you're trying to go strategically.

Because as the world is moving to social, as the world is moving to mobile, as the world is moving to cloud, our customers are saying, how do they build their employee social network, their customer social network, and their product social networks?

And we are becoming a trusted advisor.

And through our thousands of salespeople all over the world, we want to have that trusted, interactive relationship with them where we can sit down.

And in that process, the deals are getting bigger.

Because we're not just selling an FSA solution anymore, or not just a service solution anymore or just a platform decision, or just a social monitoring decision, or just a collaboration.

We put it all together, because as you know, because you've followed us for a long time, this is one integrated service.

This is not a bunch of acquired software stacks, like other vendors roll in with, that all look different and act different and are architected different.

This is one platform, and that gives customers the ability to do some pretty exciting -- and as you can see from this quarter -- large-scale implementations with us.

And when you look a great company like Hewlett-Packard, I mean, when Meg Whitman announced that she had gone to salesforce.com at her sales kickoff, she got a standing ovation.

They could not wait to get off the Siebel.

And that's how it is when we roll in to these prospects and these customers.

They applaud us as we are coming in to take out these old software products that aren't mobile, aren't social, and are not cloud.

That's what's happening.

Jason Maynard, Wells Fargo.

Congratulations on an amazing finish.

Marc, can you maybe talk a little bit more about social, in terms of where you're seeing the initial uptake?

Is it collaboration for internal workers?

Are you starting to see some traction beyond Radian6 for external customer engagement?

What's the path, if you will, that companies are taking on the social enterprise journey?

And how is it driving then, if you will, standardization around you, as the front office system of record?

What I can tell you is, really, it aligns with what I have been saying now for about two years, which is it starts with Chatter.

The phenomenon that has happened in the world is the creation of this unbelievable company called Facebook.

And behind it, Twitter.

And you've got 1 billion users who have conditioned themselves, on their iPhones and on their iPads and on their Blackberrys, and on Android phones, that they are on these social networks all day long.

And then they roll into their SAP system, or their Oracle system, or their Microsoft system, and they're like, what is this?

And they want to rebuild and re-architect their enterprises through this same metaphor.

They wanted Facebook for the enterprise.

They wanted Twitter for the enterprise.

And that's what we are working on delivering.

And it started with Chatter.

But Chatter is not some tack-on or add-on to salesforce.

As you know, we rebuilt our architecture, and it was difficult, and it was painful for us.

But we rebuilt salesforce, and deep within all of our systems, and our APIs and deep inside our database, we added status updates and feeds.

And we added profiles, and we added real-time capabilities, and we added all the things that you need to basically create social networks.

And then we'll are we are able to apply it, as I said before, to the employee social network, or the customer social network, or the product social network.

And it's evolving into these incredible systems and applications.

And it's not, you know, one system with all your data that runs outside the firewall, and one data with all your system running inside the firewall.

It's a perfect, symbiotic system that the customer data and the employee data is all in one database, and it provides an incredible application.

But I can tell you that when we roll in to do these demonstrations, that it's highly differentiated against our competitors, who are still mostly pitching the stuff that was built a decade ago.

They haven't -- they still don't get it.

I think customers want change, and they are demanding change, and salesforce.com is the change that they can believe in.

Heather Bellini, Goldman Sachs.

Thank you, and I'll echo my congratulations to the team.

Marc, I was wondering if you could talk a little bit about Heroku, and what's driving the ramp in that business.

What are you seeing from people, given some of the growth that you talked about in your prepared remarks?

Also, I just wanted to know, if you had to look out for this year, or even the next two years, and you look at the Service Cloud business -- is that kind of the next big pillar of growth that can surprise to the upside, given all those old call-center deployments that were out there from the last decade?

Well, let's start there first.

It is an awesome product.

There's no doubt.

That Service Cloud is -- has a huge amount of momentum.

They've become our next bull multibillion dollar product line at salesforce.

We all feel that way.

It had another unbelievable year that where it more than doubled this year.

We've done a great job with Service Cloud.

And not just enterprise Service Cloud, but now we have our new SMB Service Cloud called desk.com.

And I don't know if you've desk.com, but that's another huge area that we are just starting, which is based on the acquisition we made with Assistly.

We were able to get take desk.com and say, okay, now we can bring Service Cloud down for the rest of us.

So yes, I agree that Service Cloud is a great, a great level of a momentum, but I have to tell you, we have a lot of different product lines that are on fire.

And it's kind of hard for one of them to beat out another, because the sales product is still doing great.

Service is doing great.

Collaboration is doing great.

Marketing -- in Radian6, and the work we're doing there with Marcel and his team, they're doing unbelievable, and the platform is doing unbelievable.

So that's where it's hard to say, oh, well, the next one is going to be this.

When the reality is, the next one is all of them working together, and the next big one, if you want me to pick one, is social enterprise.

The social enterprise and the social enterprise license agreement, which is what we introduced at Dreamforce, that is the big one.

And that is what customers really want.

They want to come in and say, give us a social enterprise.

And yes, service, Heather, is a key part of that.

But sales is part of it, and employee social network -- all of these things are part of it.

To your first question, what's getting Heroku going?

There are two answers.

One, of course, this is the only thing out in the market that has Java as a service.

So if you want Java as a service, and Ruby as a service, and Clojure as a service, you go to Heroku, you can immediately deploy your apps -- and we are just at the beginning of the revenue story with Heroku.

Because we still have Heroku enterprise coming, and then we've got this deep Facebook integration.

So if you are at the f8 Conference, if you're in Facebook -- inside Facebook -- and you go to build an application, it says, do you want to build it with Heroku?

Inside the Facebook app.

I don't think a lot of analysts and other people were following that announcement at the f8 conference.

Because there are millions of developers who are inside the Facebook APIs and who are going to find out about Heroku, which has been integrated by Facebook into their architecture.

Facebook has been an incredible story for salesforce.com, because of course, they are running so many aspects of their business on the backend with us.

And now we have been integrated into their platform as well.

But that was a huge catalyst for Heroku.

Mark Murphy, Piper Jaffray.

Congrats on a great quarter.

I wanted to ask you a question on the Radian6 social monitoring product.

How is it changing the game when you can walk through the door and meet with a prospect and demonstrate that you know more about certain aspects of their business than they do?

I can't imagine there's really any other company in the world that can do that.

And if you can open a company's eyes to what is being said about them on the social web, is that, in turn, accelerating adoption of all your other products so that the customer can engage and respond?

Well, when I look at Radian6, the power of Radian6 -- this is big data social analytics.

We are building this massive data warehouse of all these real-time social interactions, this huge service, and customers can come in and plug into that and say, okay, what is going on with my brand, my company, my executives, my competitors, my employees?

And get this incredible analysis.

But if you were in our New York event, you saw us roll out something new, which is the really, truly, awesome thing, which is still coming -- is social hub.

We have this incredible CEO leader of Radian6, Marcel LeBrun, who has designed this social hub where you basically put in all of these various triggers and queries and reports, and you can move and say, everyone who is unhappy with my product, okay, or who is complaining about this price increase, or who has this issue with this brand who's on the social networks -- move them and create cases into the Service Cloud, which is this perfect integration between CRM and Radian6.

When you get these two things working together, that reinforces the social enterprise story.

And that's where, again, we differentiate against the competition.

It's not that we are coming in saying, we are the only ones with social monitoring.

It's we are the only ones who have the social enterprise story and can make it real.

And it's not coming in, as I said, with a bunch of siloed legacy client/server stacks.

We are coming in with this integrated service.

And that integrated service, a key component, as you're mentioning, is social monitoring.

But the key is, the social monitoring is part of a total story.

And you're going to see more of that.

I'll give you a great example.

You can put your employee database in the Radian6, and you could be monitoring -- here's all my former employees, here's all my current employees.

I don't think it's that far away where all of a sudden, you're doing social monitoring and you see that your former employee, who is maybe at one of your competitors, is talking on Facebook or talking on Twitter to one of your current employees, about a job at this company.

And I think it's not a huge leap that you could see a phone call come in from corporate retention saying, hey, it's corporate retention.

We just want to find out how you're doing, and are you happy here at this company?

Radian6 gives you that kind of social intelligence and gives you a level of performance and capability that you're just not going to have in any other way.

Adam Holt, Morgan Stanley.

Like everyone in front of me, I will also echo the congratulations on the mind-bending end of the year.

My question, I guess, Marc, is to you.

You've been pretty steadfast in your commitment to investing in the growth opportunities in front of you.

Obviously, that's bearing out with terrific numbers this quarter.

You did, however, guide to margins going up next year for the first time in several years.

Can you give us your latest thoughts, in terms of how you're thinking about the balance between growth and margin expansion?

I'm very committed to increasing our margins.

I am trying to push as much as I absolutely can do it.

And I feel it's very, important for the future of our business, that we continue to expand our margins.

What I do is, I just play that against -- all right, hey, I just delivered a 37% growth year and a 38% growth quarter.

And I've done that because we are spending.

And if we brought margins way, way, way up and slowed spending, then are we going to be satisfied, like, with a lot of other cloud companies at 25% growth or 26% growth?

I think it's a mistake to be delivering 25% or 26% or 27% growth today, because this is the heyday of the cloud.

This is the Renaissance.

We are in the great time.

This is the time to create all this amazing new technology.

We've all changed the devices we use, we are all changing how we use computers.

There needs to be an enterprise company that's going to come in and deliver this at scale with the number of salespeople and service organizations and the products -- and that's why we spend.

But at the same time, I'm committed to raising margins because I think it's important for the Company.

I'm also committed to delivering very strong cash performance, as you can see.

The cash performance for the year is awesome.

And for the quarter.

So we're trying to do it all, and doing it all is hard, okay?

But we are doing it I think as well as anyone, and we have been doing it.

You know how I feel.

I feel even like last quarter we were doing it.

And I feel that this quarter we've been doing it, I feel we've had consistent, excellent execution all year.

And I feel the end of this year was just a solid ending.

And then we have this spectacular beginning to the new year with this nine-digit transaction -- we're going, whoa!

Let's open a door for -- even for our own employees, going, yes, the social enterprise strategy.

We can see how this can become seminal in these companies.

Brad Zelnick, Macquarie.

Marc, the large deal metrics are unbelievable.

Obviously, a nine-figure deal doesn't happen overnight.

And it refutes all of the bears in thinking that salesforce is really only a midmarket company and really can't penetrate the large enterprise.

With that said, clearly, something has changed.

Something has changed in the willingness for large enterprises to make enterprise-wide, not just department level commitments to salesforce as a platform.

But can you maybe speak -- what does the pipeline of those large deals look like?

How do you think about the mix of your business looking one, two years out, in terms of large enterprise, mid-market and SMB?

Here's the beautiful thing about this business.

These big deals don't matter to us.

We don't really care about the big deals.

It's just icing on the cake.

And if you've been following our business for a while, that's not the business we've built.

We are all about -- basically, we are all about transactions, and we are all about throughput.

We serve a wide portfolio of customers -- small, medium, and large.

These big deals, which we roll out, we have eight-figure transactions, nine-figure transactions.

It's immaterial.

It is.

The most important thing is that we have a broad book of business and that we are not dependent on any one transaction or any one customer as part of who we are as a Company.

I don't think any -- I don't think even our largest customer, even represents 1% of our revenue.

That's very unusual.

And I think that the power of the Company is that it is a balanced portfolio business -- small, medium, and large.

It's a balanced geography of business, and we talked about Asia, the US, and Europe.

And it's a balanced product line -- coming back to Heather's point, it's sales, it's service, it's collaboration, it's platform, it's marketing.

So that's what I've been focusing on, as CEO, for a number of years, is to make sure that our customers and our Company basically get this kind of level of equanimity.

We are not all about the enterprise and the high-end.

We are not all about the small business and the low-end.

We are about including everyone.

We want to get everyone in the social enterprise boat.

That's really our goal.

Just one quick follow-up to a point you made.

Salesforce, up until now, has a very focused geographic approach, only operating, if I'm not mistaken, or really selling it to 10 in 12 countries.

So there are obviously many more markets, globally, that you can go after.

What does this year's plan have in store in terms of international?

Thank you.

This year's plan really looks a lot like last year's plan.

Let me tell you -- I mean, I address this issue all the time with our own employees.

You know, the software market in the world -- it's not the same as selling PCs or servers, for example.

The technology industry is very, very different by sector.

And one thing that I can tell you is -- I'll give you an example.

You probably saw Steve Ballmer did this huge rant in Beijing about three or six months ago, where he was saying our Chinese revenues are less than our revenues in the Netherlands, I think it was.

And he said, but I have spent billions in China, and I have got tens of thousands of Chinese employees, and I just can't get my revenues going.

And the reason why that is, is because really, the most important software markets in the world, the top seven or eight markets -- no more than 10 markets -- really represent 85% to 90% of the total market.

You need to be focused when you're in a new category like cloud, because the US is obviously tipped the cloud, but Europe has not quite tipped -- I would say Japan is getting there.

The US and the UK and Japan -- these are the three biggest software markets in the world.

You've got to dominate these markets if you're in software.

Then you can move on to other markets like, for example, France, Germany, Australia, Canada.

But a lot of these smaller markets -- that has not been a focus for us.

You know, I get questions all the time from our Board, whatever, well, what are you doing about this emerging country or that emerging country?

We really look at an emerging country like Minneapolis -- to us, that's an emerging country, because the Minneapolis software market is bigger than Brazil.

We're asking ourselves, what are we doing in Minneapolis?

That's why I just was in Minneapolis.

That's why I just did a seminar in Minneapolis.

That's why I'm working so closely with customers in Minneapolis, because that is actually a major software market.

Detroit, Atlanta, Washington, DC, -- and we still don't have enough coverage.

You look at a great comfort customer of ours, General Electric, it's an incredible company.

And we have great relationships, with GE Health, and GE Energy, and GE Capital, and NBC Universal, and on and on and on.

But the thing is about GE -- GE, as a company, is bigger than the software market of Brazil or India.

So you'd better be focused on selling into General Electric.

And that's where we are today.

We're still working on doubling down on the core of the software industry.

And until we are really done with that, we won't be ready to move into the more discrete, smaller markets.

I hope that explains the international strategy.

Kash Rangan, Merrill Lynch.

I just have to say, wow.

Marc, for you, when I look at the broader CRM market, it's a $17 billion, $18 billion market.

The SaaS portion of it is about a quarter.

And although you guys continue to put up very, very impressive results, there's nevertheless some doubt in some corner of the market that CRM is tapped out, and sales automation is only as good as it gets with these kinds of numbers.

Can you help us understand, given that SaaS is only a quarter of your core CRM market, what does it take for you to start gaining share in the broader CRM market -- granted that you have been doing so.

But when I look at the rest of the market, it's much, much bigger than SaaS.

So when does that on-premise market really become cloud?

And if it does, obviously, you may be poised for pretty significant growth.

So that's one thing I'd love to get your thoughts on.

And also, platform -- if you look at your days at Oracle, databases became the standard that (inaudible) applications started writing to.

Could there be a platform-type effect for your Force product?

And are you seeing traction for Force outside of your core sales and marketing areas?

I think that, number one, to your point -- cloud is a very small, emerging part of the total software industry.

And multi-tenant shared systems like the ones that offer -- that salesforce.com offers, is still one of the smallest, most discrete parts of the software industry.

We are by no means mainstream, right?

You still see the huge intellectual debates out on the Internet about multi-tenancy and shared systems.

eBay and Amazon or Google are decades old, and still, people are arguing about the future of software.

That has to be upside for us -- it has to be that the vast majority of companies still are not using this model, but they are going to be.

And as devices change, and as new features and capabilities are required by customers, it's going to come through this model.

So we are still at the very, very beginning.

We are in the first inning of cloud computing.

This is still the Renaissance.

See, I had this great dinner last night with a dozen CEOs of young companies.

All these guys are in their 20s and 30s.

They are amazing, and these companies are just incredible.

And of course, all these companies are social, mobile, and cloud.

No one is starting a new software company today.

It's not like you go to dinner here with someone in San Francisco -- gee, yeah, I'm building my SQL Server application or I'm building my .net application.

Oh, I'm so excited, I just bought an Oracle database.

That is not what people are saying.

What people say is, I'm building this great new shared service -- everybody's got multi-tenant.

Everybody's mobile first.

Everybody's cloud first.

Everybody's social first.

And it's yielding these incredible new companies.

I know you know that, because you use these things.

And that is what really gives me this kind of passion around that we are at the beginning of cloud.

And I think the cool thing about Force.com, to answer your second question, is no one has built a multi-tenant platform that is social in mobile and cloud.

Force.Com is the only social mobile and cloud platform.

There is nobody else.

When we go to our customers and they are like, looking at platforms, we are it.

It's not like we are in a heavy competition against other cloud providers who have built this incredible thing.

And by the time we get to Dreamforce and you see the work that we've done, and we announced it at the last Dreamforce with Touch -- that all of our apps and all of our platform -- everything will be mobile and running on tablets.

And all of our customers' apps will instantly change over.

It won't be like moving from R/3 to mySAP or whatever they call it.

Or, like, oh my gosh, I'm going through this Oracle upgrade here of our general ledger to release 12, and it's taking like two years, and it's like Accenture, and it's like -- gobs of money that kind of get it done.

That's not how it is at all.

All of our customers will just transform into mobile on that moment.

And that's the power of the platform, and that's why I am a huge bull on our platform.

Because it lets our customers innovate more rapidly.

So I hope that answers your question.

Ed Maguire, CLSA.

There's been quite a lot of activity on M&A around some of your competitors.

I was just wondering how this has changed the conversations you have with your customers?

Well, I don't really get what the competitor is doing, honestly.

I mean I kind of do.

There's two people I don't really understand.

I don't really understand why these CEOs of these relatively little companies are selling out at these high growth rates to, like, I don't understand the SuccessFactors-SAP deals.

At some level, I understand that SAP's HR product kind of sucks, and they have no market share, and they're losing deals to Workday.

And so they need to shore up and they don't know what to do.

So they need to buy Lars' company.

But why does Lars want to sell his company to SAP?

Did he not see what happened with Shai Agassi?

Did he not see what happened with John Chen?

He's going to be controlled by this German union.

I don't get it.

I don't understand why you would sell your company.

You know, he had a great company, and now it's gone.

And it's into this German boar kind of thing.

It's like gone.

And, Taleo I kind of understand, because it was kind of a piece of junk, and they were trying to sell it for a couple of years, but okay.

Oracle felt like they had to respond.

But then what is Oracle's message around Fusion?

Didn't they already have HR?

Like, when Oracle buys RightNow, didn't they already have CRM?

What is the message now?

Which am I supposed to buy from Oracle?

Do I buy Oracle Fusion HR?

Do I buy Taleo?

I mean, we've seen this thing, and I think that it's mostly a reaction to these larger software companies with Oracle and SAP -- their organic license growth rates are pretty pathetic, and our organic license growth rate was, before acquisitions for this quarter, were over 30%.

Oracle and SAP's license growth rates are single digits.

It's not pretty, and that's why I think they have to buy these things.

It's certainly not giving them a cloud platform.

We know that.

Taleo and SuccessFactors and RightNow --they are not cloud platforms if they are not giving them a strategy going forward.

I view these as very tactical acquisitions, and in many cases, grasping for straws.

I don't see how it's going to turn into something more than that, and I think that for these entrepreneurs who sold their companies and a $200 million or $300 million revenue level, I think they mostly -- especially Lars, made a mistake.

Tom Ernst, Deutsche Bank.

Calling here from the emerging market in Minneapolis today.

Marc, just follow up on that question, do you change anything strategically because we are seeing M&A start to pick up in the SaaS industry?

Maybe specific with the competition, because I think the change directionally for SAP is the most aggressive.

Does this change the way, perhaps, you might compete or cooperate with them in the market, do you think, looking forward?

I think at the end of the day, we actually have very good relationship -- Oracle and SAP.

You have to, in our industry, be able to partner and compete at the same time.

And in our industry, you can't take these things personally.

You can't get angry about these things, because customers demand that you work together.

We look at our big SAP customers -- many of the ones that I mentioned, and others -- we are probably in, now, every major SAP customer in the world.

And as we look at these big SAP customers, whether we are in there in a big way or a little way or an emerging way, they want us to be able to work with SAP.

I have a very good working relationship with Bill McDermott.

My job is to make my customer successful.

So on one side, I'm happy to give you my direct and unedited feedback on how I view their strategy and how screwed up I think they are in cloud computing.

On the other side, when the call ends, I have to go make sure that Coke is successful, and Burberry is successful, and Sony is successful, and that requires me to work with them very closely.

And we get that.

And of course, when they say something crazy about the cloud, I don't get upset about it, or angry -- it's like rhetoric.

But I move back into, okay, how are we going to make these customers successful?

Because at the end of the day, these customers are becoming social enterprises.

We are becoming their front office.

And SAP is kind of their legacy back-office, and we need to hook those two things together.

That's a critical thing for us to be able to do.

So we can roll in with sales and service and collaboration and marketing, we've got to be ready to hook that into SAP's general ledger, payables and receivables, and we've demonstrated that ability continuously.

And we'll continue to focus on that.

Laura Lederman, William Blair.

Thanks for taking my question, and my congratulations as well.

Can you talk a little bit about how customers are accepting database.com, and also the acquisition of Rypple.

And maybe on the subject of Rypple, give us a sense of your broader, high-level thinking on your HR strategy in general?

Well, database.com has been a fantastic strategy.

And all you have to do is go to the database.com website to see the huge customer success, the amount of transactions that are being executed, the number of databases that are getting spun up.

With Rypple, we are at the beginning of a very exciting story with HR -- I was just on Rypple, actually, about an hour ago.

With Rypple, you have the ability to go in and to basically start working with your people in a whole new way.

And it's all about performance management, it's about being able to do reviews, it's about being able to get feedback, it's about being able to do praise.

And that will evolve into native HRMS, and other key features.

We will also have some great relationships with some terrific HRMS vendors like Workday, where we'll tightly integrate Rypple in with their systems and with other providers, and you're going to find a perfect balance between what our ISVs are doing and what technologies are available from Rypple.

You'll also probably know we hired incredible executive, John Wookey, who was at SAP for several years building their next generation technology, and before that was 15 years at Oracle, building the e-business suite.

And he is leading this HRMS effort.

And you'll be seeing in our March 15 date -- and I hope you'll be there, Laura, here at Cloudforce in San Francisco, where we are going to have 15,000 people, and we are going to be showing some of that integration for the very first time.

Why that's so important is because it is the social enterprise.

We want to be able to show our customers that social profile -- an employee social profile, the customer social profile.

We want to be able to show them the ability to collaborate, the ability to sell the service, and the ability to work together, through praise and the recognition, and through this palpable concept of whole concept of reinforcement.

And then building the custom applications and the social monitoring -- the social marketing, the analytics, the data warehousing.

And getting the products onto the social network, like the way Activision has done so beautifully with our product to build and deliver that social enterprise, that transformational piece that accelerates the revenue for our customers and their profitability, using these new tools that are really dominating our industry.

And this is our vision, and I think we are really different from everybody else, and we continue to execute it and we couldn't be happier with how this year has turned out.

We feel every corner has been graded.

We're working harder than ever, and we're coming into an exciting new year this year.

And, hey, we only expect the world to go lower more social this year with the Facebook IPO, more global with iPhone 5 and iPad 3 and more cloud with all these great new companies that are emerging that I'm seeing.

So we are doubled down on our strategy, and we're working to go faster than ever.

We only have time for a couple more questions.

So we'll try to get those in this quick as we can.

Rick Sherlund, Nomura.

Congrats as well.

Just to follow up on Laura's question, Marc.

To further leverage the momentum of social enterprise, outside of the front office, how aggressive should we think that you would be over the next couple of years in expanding, perhaps, more broadly into talent management or other segments of the market?

And I just wanted to hear from Graham -- I'm curious on if you could quantify the impact of this change in the billing terms to annual invoicing?

What's the impact on the deferred from that?

Is a big number, a small number?

Well, I'll go first, Rick.

Thanks for the question.

Yeah, we wanted to give you an chance to speak once in a while, too, Graham.

That's kind of you.

The total impact during the quarter of the change to annual bill frequency -- I mean, it depends what you view as your starting point.

What we did was, we compared the percentage of annual invoicing with last year's fourth quarter, which was low.

We estimate the impact was roughly $80 million in the fourth quarter, somewhere around there.

As I said earlier, if you compare it with where we were four or five years ago, it's actually not that different.

So we had seen this steady, very slow degradation in annual invoicing over the last few years.

And we're really just -- we've got a real program now to, obviously, reverse that trend.

Brendan Barnicle, Pacific Crest Securities.

Graham, I just want to follow up with a tactical question.

With the move to more annual bill, would you guys look at working with a finance partner or something like that -- with a Tech Data or Ingram or someone to be able to facilitate that move for folks?

May make that transition a little smoother?

That's not in our current plans.

We executed really well in the fourth quarter around this initiative.

And I think, given the response that we got from our customers, I don't see a need to involve third party.

I think the response was good, regardless of whether it was small, medium or large customers.

That wraps up our call for today.

Unfortunately, we don't have any more time.

I see there's more than 15 of you still in the queue, so I apologize for not being able to get everybody.

Before we close, I'd like to remind everyone about our upcoming Cloudforce event scheduled for March 15 at Moscone West here in San Francisco.

There's no better way to learn about the social enterprise.

So we'll look to see you all there.

To register, go to our main website and click on the events tab, or you can give us a call here at Investor Relations.

That concludes our call today.

Thanks for joining us, and we look forward to seeing you soon at the salesforce event.

Bye-bye now.

Ladies and gentlemen, this does conclude today's conference.

Thank you for your participation.

You may now disconnect.