賽富時 (CRM) 2014 Q3 法說會逐字稿

Good afternoon.

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

At this time I would like to welcome everyone to the salesforce.com fiscal Q3 2014 earnings call.

(Operator Instructions).

Thank you.

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

Sir, you may begin.

Thanks so much, Josh, and good afternoon, everyone.

Thank you for joining us today to discuss our fiscal third-quarter 2014 results.

Our third-quarter results press release, SEC filings, and a webcast replay of today's call can be found on our investor relations website at www.salesforce.com/investor.

We will also be posting the highlights of today's call on Twitter, at the handle @salesforce_IR.

With me on the call today are Marc Benioff, Chief Executive Officer; and Graham Smith, Chief Financial Officer.

Marc and Graham will open with a few prepared remarks; then we'll open the call for questions.

As always, our commentary today will primarily be in non-GAAP terms.

Reconciliations between our GAAP and non-GAAP results and forward guidance can be found in our earnings press release issued an hour ago.

During the call we may offer incremental metrics to provide additional insight into our business or quarterly results.

Please be advised, this detail may be one-time in nature and may or may not be provided in the future.

It's also possible we may reference certain unreleased services or features not yet available.

Because we cannot guarantee the future timing or availability of these services or features, we recommend customers listening today make their purchase decisions based on services and features currently available.

The purpose of today's call is to provide you with information regarding our fiscal third-quarter 2014 results.

Some of our discussion and responses to your questions may contain forward-looking statements which are subject to risks, 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 these risks, uncertainties, and assumptions, as well as other information on potential risk factors that could affect our financial results are included in our forms filed with the SEC, including our most recent report on Form 10-Q, particularly under the heading Risk Factors.

And so, with all that, I'll turn it over to Marc.

Okay.

Hey, thanks, John; and welcome, everyone, to Dreamforce 2013.

And we are coming to you live right here in the Moscone Center in San Francisco.

Today we're kicking off our 11th annual Dreamforce, now the world's largest software conference, with an all-time high of more than 130,000 registered to attend with today's early start; and we expect even more tomorrow.

And I'm thrilled to report a just absolute monster quarter and a new all-time high in our financial results for the third quarter.

Just four years after delivering our first $1 billion year, salesforce is now the first enterprise cloud computing Company to report more than $1 billion in revenue in a single quarter; and we're projecting more than $5 billion in revenue next year.

Pretty awesome.

A phenomenal milestone for salesforce and the entire new cloud industry.

Congratulations to all of our customers, our partners, and our employees for this amazing achievement.

Now let's get to the financial results.

Revenue for the third quarter rose to nearly $1.08 billion, up 36% from a year ago.

There is just no other top-10 enterprise software company that is delivering this kind of growth.

And we are delivering this growth while pushing through the $4 billion revenue milestone, and we're heading right to $5 billion.

I don't know any company who delivered a $1 billion quarter and was growing 36% in our enterprise software industry.

Deferred revenue rose by more than 34% year over year, finishing the quarter at more than $1.7 billion.

And operating cash flow rose to $138 million for the quarter, an increase of 30% year over year.

The dollar value of booked business, on and off the balance sheet, is now nearly $6 billion; and our momentum going into Dreamforce positioned us for a strong finish to the year.

We're increasing our revenue guidance range by $30 million to finish fiscal year 2014 now at over $4.05 billion, a growth of 33% year over year; and we are well placed for even more success next year.

I'm thrilled to announce that we expect to deliver fiscal year 2015 revenue in the range of $5.15 billion to $5.2 billion.

Yes, it's true.

Salesforce.com is going to be the first enterprise cloud Company to deliver more than $5 billion in revenue next year.

Salesforce.com has always been a catalyst and evangelist for innovation in enterprise software.

We pioneered the shift to cloud, social, mobile, and connected.

And today, with the next generation of technology, our customers are connecting with their customers in entirely new ways.

We are now entering the third wave of computing, where everything is connected.

And soon there's going to be 50 billion connected products on the Internet of Things.

And behind every device, every app, everything, is a customer.

That's why customer relationship management has just never been more important than it is today.

You've got to be ready to sell, to service, to market to your customers, regardless of where the customer touchpoint is.

This is really the Internet of Customers: where companies connect to their customers through the next generation of devices, apps, and services.

Here at Dreamforce we're unveiling Salesforce1, a radically new customer platform that was built from the ground up to deliver the speed, agility, and power of salesforce, but reimagined for a social, mobile, and cloud and connected devices world, a world that we call the Internet of Customers.

It's the world's first CRM platform for everyone: for developers, for ISVs, for admins, for end users -- and most of all, for your customers, so you can go social, mobile, cloud, and get connected.

At my keynote, we'll demonstrate how Salesforce1 connects everything -- all your apps, all your devices, all your customer data -- to completely transform the way customers sell, service, market, and innovate.

And you know what?

In today's world, everything has changed.

You know, one of the key tenets of Salesforce1 is that it was built API-first.

It was built mobile-first.

It was built first for the phone.

It was built first for the tablet.

Everything has changed.

And we realize at salesforce.com that we have to completely change ourselves.

And that's why customers have made salesforce the world's number-one CRM platform and clear leader in each of our four core markets, with the Sales Cloud; the Service Cloud; the ExactTarget Marketing Cloud; and the Salesforce1 Platform.

Our flagship Sales Cloud is the world's number-one platform for sales, and it's helping customers drive phenomenal sales performance and the top-line growth that everyone wants.

Gartner has rated the Sales Cloud as the undisputed leader in its Magic Quadrant for sales force automation for seven straight years.

And I'm thrilled that salesforce was recently recognized by CRM Magazine as the number-one CRM solution in every single category again for enterprise, for mid-market, and small business.

And I want to give you a little secret.

If you want to know how salesforce.com delivered that phenomenal growth at this phenomenal scale, it was through the Sales Cloud.

We eat our own dog food at salesforce; and the Sales Cloud is a great example, where it's the key to us growing our business at this incredible rate.

The Service Cloud is the world's number-one platform for customer service and support, and the only platform that ties customer service with sales and social.

And that's why salesforce.com is the recognized leader in Gartner's Magic Quadrant for customer service, as well as the leader in the latest Forrester Wave for customer service.

And you're going to see some phenomenal -- phenomenal -- demonstrations of the Service Cloud and the new version of the Service Cloud, built on Salesforce1, in tomorrow's keynote.

In fact, one of the phenomenal demonstrations you'll see is Philips, who has built an incredible new ultrasound device built with a Service Cloud button right into the product.

You just hit the product, and you go right to our Service Cloud.

So if you're an ultrasound technician and you're in a hospital, and you need help right then and there, the Service Cloud is always available to you.

And the ExactTarget Marketing Cloud is the next-generation customer platform for one-to-one marketing.

It's the only platform that makes it possible for companies to bring in customer data from any source and deliver highly personalized digital marketing to any customer across any channel -- whether it's email, social, web, mobile, or any type of product.

And with the combination of ExactTarget and Radian6, Buddy Media, and Social.com, we have a powerhouse in marketing, which is why Facebook recently gave the ExactTarget Marketing Cloud its award for innovation.

The Salesforce1 platform is the number-one platform for developing next-generation cloud apps, and the only solution rated by Forrester as a leader in every single public cloud platform category.

That's why the growth of our developer and ISV communities has been nothing short of spectacular.

And you're going to see just an increase in that as you see our new Salesforce1 platform, now with 10 times more APIs than ever before.

We now have more than 1.4 million developers on our platform, an increase of 75% from last year.

ISV community grew more than 70% since the third quarter of last year.

And we already have more than 250 major ISVs -- including DocuSign, and Evernote, and LinkedIn -- who have signed up to build next-generation apps on the Salesforce1 AppExchange, in addition to more than 15 ISVs who are live on Salesforce1 today.

Tomorrow you're going to see a phenomenal demonstration using this rocket ship that Sony just released called the PlayStation 4, which has been built on top of the combination of the salesforce.com Marketing Cloud and the Salesforce Platform, giving them the ability to reach their customers in an entirely new way.

And you're going to see that live in the keynote.

The combination of our vision and clear leadership in each of these four core markets is what's driving our success with customers.

And that's why we continue to close some of the most exciting, most strategic transactions in the industry.

Now, first, I'm delighted to announce we've expanded our relationship dramatically with Hewlett-Packard in the quarter.

HP started its sales transformation with the Sales Cloud; and now, with the addition of the Service Cloud on the Salesforce Platform, HP plans to transform the way they connect with their entire ecosystem of customers and partners.

And just moments ago, salesforce and HP also announced a new strategic partnership in cloud computing to jointly develop and market the Salesforce HP Superpod.

The Superpod gives our largest customers the choice to have all the speed and performance of the salesforce multi-tenant software with a dedicated instance running on HP hardware.

And you'll hear more about our partnership tomorrow, when Meg Whitman joins me on stage at my opening keynote to announce the Salesforce HP Superpod.

It is phenomenal what our two companies have done by working together.

Another great capability in the quarter came out of Roche, the global leader in research-focused healthcare.

In the quarter they decided to standardize globally on the Service Cloud for its major divisions to create a 360 Degree of every customer.

Roche will be able to connect their diagnostic equipment with doctors and lab technicians, giving them real-time alerts and notifications on patient tests.

And with Salesforce Communities powered by the Salesforce Platform, Roche will be able to instantly connect sales reps and service engineers with all of their healthcare stakeholders to create a community that puts the patient at the center of their care.

And I'm thrilled to announce that we closed an exciting transaction with Safeway, one of the largest and most important grocery retailers in North America.

And Safeway chose salesforce to be its new email, mobile, push, and notification platform for the Internet of Customers.

Safeway will use the ExactTarget Marketing Cloud to scale its personal customer communications and deliver a consistent experience across their email and mobile channels.

And with the Salesforce Platform, Safeway will be able to connect its entire team of marketers, giving them a single place to manage and track campaigns.

No matter what the customer touchpoint, Safeway will be there to reach them with a consistent, clear message, using the new Salesforce ExactTarget Marketing Cloud and its new capability to connect to the Internet of Customers.

And in every one of these examples, companies are transforming their businesses with salesforce's customer technologies.

Other new or add-on transactions in the third quarter include Ace Hardware, AMEX, Australian Post, Bristol-Myers, Conde Nast, Fujitsu, Intuit, Merck, Nippon, Nissan, Novartis, Pfizer, US Department of Labor.

And we're thrilled to welcome Vanguard as a new customer for salesforce.

The pace at which these companies are using and embracing our sales, service, marketing, and platform technology is phenomenal.

Our service continues to support and deliver transactions for customers at unprecedented scale.

I'm thrilled to announce that we delivered nearly 100 billion transactions in the quarter, up 47% from a year ago -- an average of more than 1.5 billion customer transactions in every day.

And guess what?

That's just salesforce's core service.

It doesn't include the 1 billion transactions every single day in ExactTarget.

Nothing speaks more to the value of salesforce than the actual usage of our products, with the speed, reliability, and trust that we are known for.

I look forward to seeing everyone at our Dreamforce keynote tomorrow at 9 AM Pacific.

And you better get there plenty early if you want a seat, because with 130,000 people arriving here in San Francisco to attend this conference, it's going to be hard to get in pretty much anywhere where some of the world's leading companies -- ADP, HP, Philips, Sony, and others that I've mentioned on this script -- are going to be.

I'm making major announcements and showing some phenomenal new technology in the keynote.

Now, if you can't get there physically, it's also going to be broadcast live on Dreamforce.com, so tune in that way.

It's just like having a front-row seat.

Well, without having one.

(laughter)

Also joining me on this week on that stage will be a number of special guests, including Sheryl Sandberg; Marissa Mayer; Prime Minister of Haiti; motivational guru Deepak Chopra; Wayne Dyer; oncologist David Agus; UCSF Chancellor Sue Desmond-Hellmann; as I mentioned, Meg Whitman.

And don't forget about some phenomenal events that we're going to have this week.

Tomorrow night we're going to host a spectacular evening of entertainment for our annual benefit concert, The Concert for Kids.

We have raised over $6 million for our two Bay Area children's hospitals, the UCSF Benioff Children's Hospital and the Children's Hospital and Research Center, Oakland.

And I'm thrilled that Green Day is going to be headlining this event in its first private concert ever -- awesome -- and special performances by Blondie and also MC Hammer.

This is going to be a spectacular event.

Also, don't forget about our top customer event happening on Wednesday night, featuring Jerry Seinfeld and Tony Bennett.

Look, there's still time to buy tickets at www.theconcertforkids.com.

I'm looking forward to seeing everyone there.

And with that, I'm going to turn this over to Graham to discuss the financial details of our third quarter.

All right.

Thank you, Marc.

We posted another great quarter in Q3, delivering outstanding growth in revenue, deferred revenue, and operating cash flow.

We saw strength across our enterprise and commercial businesses in both the Americas and Europe, with the added bonus of ExactTarget delivering a fantastic first full quarter as part of salesforce.

Let me take you through the highlights, starting with revenue.

Third-quarter revenue was $1.076 billion.

That's up 36% over Q3 last year, or 37% in constant currency.

ExactTarget and Pardot contributed approximately $81 million to revenue in the third quarter, which was well above what we had anticipated.

Their sales and renewals teams executed well.

And, in addition, messaging and professional services revenues were also really strong.

While on the subject of ExactTarget and Pardot, let me just take a moment to provide a quick update on integration efforts.

The sales teams are working well together, with lead process yielding some great new customer wins for ExactTarget and Pardot.

The engineering organizations are coordinating development plans, and you'll see some of the inital results as soon as tomorrow's keynote, with Chatter integrated into the ExactTarget Marketing Cloud.

We're really pleased with progress to date.

Looking at year-over-year growth on a regional basis, revenue in the Americas grew 41% to $769 million.

Revenue in Europe grew 46% in dollars and 39% in constant currency to $195 million.

And revenue in Asia increased 4% in dollars and 17% in constant currency to $112 million.

Dollar attrition continued its slow and steady decline in the third quarter, marking more than four years of sustained improvement, and remains in the very low double-digit percentage range.

Turning to margins, our Q3 non-GAAP gross margin was 79.3%, or about 116 basis points lower than Q3 last year.

Our third-quarter non-GAAP operating margin was 8.6%, or about 118 basis points lower than last year.

This was largely the result of the acquisition of ExactTarget, and also the Oracle license agreement we signed back in May.

From a headcount perspective, we added approximately 200 new employees net in the third quarter, which means we've added about 3,000 year to date, bringing our total headcount to nearly 12,800.

That's up 37% over Q3 last year.

I'd also like to remind people that we did have a reduction in force of approximately 250 people early on during the third quarter.

Third-quarter non-GAAP EPS was $0.09.

Our Q3 non-GAAP effective tax rate came in lower than expected, which offset some of the extra investments in marketing programs we made ahead of Dreamforce and our fourth quarter.

Our third-quarter operating cash flow was $138 million.

That's up 30% over Q3 last year.

Operating cash flow was a little ahead of our expectations, due to strong collections and an improving ExactTarget cash performance.

CapEx in the third quarter was $73 million, up from approximately $51 million in Q3 last year.

The year-over-year increase in CapEx was principally related to ExactTarget capital expenditures and new office buildouts.

CapEx as a percentage of revenue in the third quarter was up slightly to 7% from Q3 last year.

And for the full year, we now expect CapEx overall as a percentage of revenue to be about 7%.

That's a little less than we had previously anticipated.

Free cash flow, which we define as operating cash flow less CapEx, was $65 million in the third quarter.

That's up $10 million or 19% from Q3 last year.

Turning to the balance sheet, we ended the quarter with approximately $1.1 billion in cash and marketable securities.

Accounts receivable was up 44% over last year to $604 million.

Deferred revenue ended the third quarter at $1.73 billion.

That's up 34% over Q3 last year, including approximately $65 million related to ExactTarget and no meaningful impact from year-over-year foreign exchange.

On a sequential quarter basis, deferred revenue benefited from an FX tailwind of approximately $12 million.

Deferred revenue also continued to benefit from the residual effects of our multi-year invoices and from the continued shift toward annual billing.

The combined benefit to deferred revenue in Q3 was approximately $67 million.

That's down from $85 million sequentially, and from $110 million in Q3 last year.

We were delighted to record a strong deferred revenue result for ExactTarget.

When we started our effort to be more deliberate about annual invoicing in the fourth quarter of fiscal 2012, the deferred revenue benefit from the shift was about $150 million, or about 11% of the deferred revenue balance, versus a benefit of approximately 4% of deferred revenue in the third-quarter results we are reporting today.

Given this declining impact, Q4 will be the last quarter -- that's next quarter -- we will provide the specific dollar impacts to deferred revenue.

However, we will continue to give you a sense of the proportion of invoicing issued on annual terms each quarter.

In the third quarter, approximately 72% of all subscription and support-related invoices -- this is excluding ExactTarget -- were issued with annual terms, compared with approximately 65% of invoices in Q3 last year.

Unbilled deferred revenue, or revenue that's contracted but not yet invoiced and is off the balance sheet, was approximately $4.2 billion in Q3.

That's an increase of around 40% from last year.

Turning to guidance, we are delighted to be raising our full-year 2014 revenue outlook by $30 million.

So the range is now $4.05 billion to $4.055 billion.

That's for year-over-year growth of approximately 33%.

This guidance includes approximately $180 million of revenue from ExactTarget and Pardot.

That's up from prior guidance of $140 million to $145 million.

The full-year guidance implies fourth-quarter revenue in the range of approximately $1.124 billion to $1.129 billion.

Again, that's inclusive of ExactTarget, and that represents year-over-year growth of approximately 35%.

As Marc mentioned, we are initiating fiscal 2015 guidance today of $5.15 billion to $5.2 billion.

At the mid-range of the guidance ranges -- at the midpoint, I should say, of the guidance ranges -- this initial view implies fiscal 2015 full-year revenue growth of approximately 28%.

Clearly, this guidance is provided without the benefit of knowing our fourth-quarter new business and attrition numbers, and they can both have a significant impact on the following year, so we will clearly update this in February on our call.

The guidance also assumes that FX rates remain at approximately the same range as they are currently.

We're narrowing the range on our full-year non-GAAP EPS estimate for fiscal 2014 to $0.33 to $0.34.

That's versus $0.32 to $0.34 range we gave on the last call, which implies Q4 non-GAAP EPS in the range of $0.05 to $0.06.

As a reminder, Dreamforce will cost approximately $0.02 of non-GAAP EPS; and, of course, that is reflected in our fourth-quarter guidance.

These EPS estimates assume a full-year non-GAAP tax rate of 35%; a Q4 non-GAAP tax rate of 36%; and a Q4 net interest expense at a similar level to Q3.

For cash flow we reiterate our expectation that fiscal 2014 operating cash flow will grow in the low-teens percentage range year over year.

Excluding ExactTarget, we expect year-over-year deferred revenue growth in the mid- to high-20s% range.

Of course, on top of that we expect ExactTarget to contribute about $70 million to deferred revenue in Q4.

And at our forecast exchange rates, we will also face a roughly 2 percentage point FX headwind for year-over-year deferred revenue growth.

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

All right.

To close, Q3 was just another great quarter for salesforce.

We saw strong execution from our sales and renewals organizations, including ExactTarget.

We were delighted by the many exciting customer wins and expansions, which reflect our broadening role as a strategic CRM solutions provider.

We couldn't be better positioned for a strong finish to fiscal 2014 and for continued strong growth in fiscal 2015.

So with that, we will open the call up for questions.

(Operator Instructions).

Kash Rangan, Merrill Lynch.

(technical difficulty) much.

I think it's the 36th or 37th quarter I'm following you guys as a public company.

Nice to see the $1 billion mark.

We thought some time you could hit the $1 billion in revenue annual, but you're here on a quarterly basis, so congrats on that.

Marc, question for you.

With respect to the Platform business, it looks like we're seeing a big inflection point.

Your number of developers and your optimism surrounding the ISV community seems to be ramping up.

Can you talk a little bit more about what could be the impact of Salesforce1, in terms of incremental new platform opportunities that you can pursue that you couldn't before?

That's it for me.

Thank you.

Well, Kash, you're going to hear about it tomorrow, but let me just give you some highlights.

Salesforce1 is a completely new approach to our Platform as well as to our Sales Cloud, Service Cloud, and Marketing Cloud.

I've been using it myself for the last six months.

It's completely changed how I run salesforce.com.

And I think it will completely change how our customers run their companies and also connect with their customers, as well.

And what I can tell you is the power of Salesforce1 is all the things that our customers expect of salesforce -- that is, the huge ability to manage information; store procedures; store triggers; custom user interfaces -- but things that they did not think we would be able to do, we're doing.

Number one, Visualforce1.

You're going to see that all the huge amount of Visualforce development that our customers have made is going to start running immediately on phones and on tablets.

That's phenomenal.

And you can see that already happening.

All you have to do is go to the App Store or Google Play store now, and you can get the iPhone as well as the Android versions of Salesforce1's mobile app.

But all that Visualforce capability coming right down to mobile devices -- Visualforce is a phenomenal technology for user interfaces, and you're going to see that.

Number two, you'll also see 10 times more APIs now available.

Because if you're going to actually write -- like we did with these mobile apps -- directly to salesforce, you need a huge amount of new API coverage so that you could build super-high functionality in your app.

Number three, not only do you have Visualforce; not only do you have the APIs; you have this phenomenal new Salesforce Publisher, which looks a lot like LINE from Naver.

The idea is that you can have a portfolio of actions and apps to access what Salesforce1 is.

Number one, you can build all your own custom actions, and those actions appear right inside the Publisher.

And number two, you can add apps directly into the Publisher: things like Evernote, and Dropbox, and all kinds of cool ISVs.

And you're going to see new ISVs appear.

We already have a ton of ISVs who have built these custom objects, and it's off the hook.

And then it's not just great for developers, but it's also great for admins.

You will see that there's a new app in the App Store called Salesforce A. And Salesforce A is -- A is for admins.

And that app lets administrators manage their salesforce implementations, for the first time, right from a phone or a tablet.

And you can even customize salesforce directly from Salesforce A. And you're going to see tomorrow the ability to have custom branding right from Salesforce A. So you can make it exactly for your company.

And then it's not just great for developers and admins; it's also great for end users as well, which is super-important.

Because I don't use a laptop anymore.

You know that.

I don't even use an iPad.

I only use this iPhone 5; and I need to run the Company from that, and I do.

And that's the power of Salesforce1, which is just tremendous.

Just tremendous capability.

So you've got tremendous support for developers, tremendous support for ISVs, tremendous support for admins, tremendous support for end users.

And, finally, tremendous support for your customers, because with Salesforce Communities, that is the glue that connects everybody back into Salesforce1.

When you hoist up one of these Salesforce Communities, those Communities automatically then integrate into the social network that's built into Salesforce1.

You're going to see a whole new range of applications.

I don't know any other enterprise software company who has built both core apps and platform ISV support, developer support, and delivered it on the phone.

The phone dominates how we use computing today, but has enterprise software made it to the phone, besides email?

I don't think so.

But Salesforce1 does it, and it's a phenomenal product.

We have already had this in the hands of hundreds of customers over the last six months.

We've been doing extensive testing on it, and the feedback has been phenomenal.

And I expect the feedback will continue to be phenomenal to show, and this is only version 1. So we have plenty more planned over the next year.

Because, as you know, we are doing three releases a year.

Okay, now, I think you have a second -- did you have a second question?

No, that was it.

Okay.

All right, very good.

Thanks, Kash.

Heather Bellini, Goldman Sachs.

Great.

Thank you.

I had a couple questions for Graham, and one for you, Marc.

One, Marc, given how successful you continue to be and the top-line growth that you're posting on top of very large numbers, how do we think about the leverage that you can start flowing through to the model as we look out?

And I know that you probably don't want to give fiscal year 2015 guidance on that, but if you can just share with us some qualitative thoughts.

And then for you, Graham, I was wondering if you could share with us where you are in the process of migrating ExactTarget customers to annual billing terms?

Thank you.

Well, here's how I look at it, which is -- there's a balance between growth and profitability, and we want to continue to do both.

We want to continue to grow and deliver these outrageous growth numbers.

But honestly, we also want to continue to increase our margin.

We continue to want to become more profitable.

Now, there's times when that slows down: when we buy a company, or we go through a hiring surge, or something like that.

But for the most part, our goal is to increase our margin.

And we want to continue to do that in a very strong way.

And we also, though, want to continue to grow this Company and get it over the $10 billion revenue mark.

That's also a super-strong goal of this Company.

So those two things have got to go hand-in-hand.

We've learned a lot about how to do that.

You can see, here we are, Heather.

You were there with me in the client/server world.

You can look back.

How many companies, when they hit the $1 billion revenue line, were delivering a 36% growth quarter?

And one of the reasons we're able to do it is because we've got that balance right.

We have it right, but we also know that there's more that we can do on profitability; and we are absolutely committed to that.

And as I said, the only time that really ever gets slowed down in a serious way is when we acquire something or do one of these hiring surges.

So, Graham?

Yes.

On annual billings, Heather, we were really pleased with what we saw.

I'm not ready to yet give a ton of detail on all of the ExactTarget billings performance yet.

I think we want to see couple of quarters.

But suffice to say, when we look at the new business trends versus last year, the annual billing percentage was up very significantly -- more than -- in fact, on new business, more than we'd seen on our salesforce ship.

So really very exciting on the new business side.

And, of course, that shows up in the deferred revenue number.

We had guided more or less flat on ExactTarget deferred revenue of $45 million, and it came in around $65 million.

So we were delighted to see that.

That's clearly a function of their work on shifting customers to annual billing.

Tom Roderick, Stifel.

So I noticed you spoke very highly about the ExactTarget acquisition, of course; and the numbers keep coming in better than expectation.

Can you just maybe give a little bit more detail in terms of how the top-line synergies have worked here?

What is bringing the numbers in ahead of expectations?

And relative to any potential crossover, particularly thinking about Service Cloud and opportunities in retail, can you talk about how the cross-sales efforts have been going?

Thanks.

Well, that is phenomenal.

And you know, you just -- I have to say, one of the reasons we see this increasing growth -- one of the reasons you see this kind of accelerated revenue growth this year is we got a lot more focused on our core mission, which allowed us to cross-sell more.

You probably remember us, a couple of years ago, that we were really focused on defining the social enterprise.

And that was very exciting to us -- a highly collaborative enterprise built on social technologies.

But what we recognized was, when we went into a customer, who is the buyer of the social enterprise?

And it was a little tricky to find that buyer.

Now, when we go into to find the Sales Cloud buyer or the Service Cloud buyer, the Marketing Cloud buyer, the Platform buyer, we know who they are.

And that has been an accelerator on our growth.

We bundled that together in this approach called The Customer Company.

And that we are really the first enterprise software Company to be focused on customer technologies.

Because we knew who the buyers are in our customers for customer technologies; and that has really been an accelerator for us, a focuser for us.

And to your point, it let us cross-sell, because we have a clear point of focus with our employees that we are The Customer Company; we are the Company that helps you to connect with your customers in a new way with the Sales Cloud, the Service Cloud, the Marketing Cloud, and the Platform, built entirely on Salesforce1.

And once you start to build and deploy on Salesforce1, you can have this phenomenal experience.

I was just with Jeff Immelt a couple of weeks ago.

And he took out his iPhone, and he said, you know, Marc, there's only two apps that I use every single day to run General Electric; and one of them is salesforce.

And he showed me exactly how he uses what is now Salesforce1.

And I'll just tell you, it just completely blew me away that I can use it to run my Company; he can use it to run his company.

We're customer-focused executives.

And when we get that kind of environment, where we're with a company that has a culture so focused on their customers, we know we're going to have phenomenal cross-sell opportunities.

And when you're here at the show, make sure you talk to our customers.

You're going to see, a lot of them are starting to buy multiple clouds.

And that's a huge compensation opportunity, as well, for us with our own account executives.

Jason Maynard, Wells Fargo.

Good afternoon, guys, and congratulations.

Marc, I had a question for you.

Years ago, there was all these doubts about the size of the salesforce automation market, and you clearly expanded the TAM there.

As you move in and start messaging more about the Internet of Customers, can you talk a little bit about how you guys are going to solve what I think you're hearing more in the industry -- this app gap?

All of this sort of unautomated process stuff that happens in companies, that doesn't really benefit from packaged applications?

And maybe touch a little bit on -- what are you guys trying to do to, if you will, drive deeper into these organizations and really close, if you will, that technology gap that so many companies have?

Well, I'll tell you that that's going to be a big part of my keynote tomorrow: that most companies don't know who their customers are, still -- I know that's hard to believe -- and that most companies feel like they're not ready for this social, mobile, cloud world.

And the third one is, there is that app gap, which is that half of all companies who want to build and deploy mobile apps to their employees, or customers, or partners, don't know how.

And we're going to fill that gap, and that's a huge part of Salesforce1.

Brad Zelnick, Macquarie.

Thank you very much, and nice job, guys.

Marc, with Keith Block on board, there's an expectation around his ability to drive more quarters like this one -- particularly by driving large enterprise deals, given his background.

Can you talk at all about the large deals in this quarter and the large deal pipeline?

And also, with all these great things that Keith should be able to deliver, how do you think about the transition risks associated with the changes that he's making?

Thank you.

Well, there's three things that I've been focused on this year.

And the three things that are critical for me are -- that I felt were mission-critical for fiscal year 2014 -- one is Salesforce1, which now I can finally talk about openly, and show tomorrow, and get everybody on.

I think it's an incredible accelerator for this Company and really future-proofs our customers.

It helps them take that huge investment that they've made in our Platform, and they thought was kind of glued to PCs and laptops, and is running now natively and perfectly in the mobile world.

Number two is ExactTarget and the Marketing Cloud.

We had seen this tremendous demand for marketing technology, and we were able to catalyze it together.

And ExactTarget had this monster quarter with us, and we're feeling phenomenal about that acquisition.

And three is Keith Block.

We've been after this guy for a long time; and we were very, very fortunate that he became available.

And he has hired several dozen executives now to come along with him and to reconceptualize and rebuild our customer-facing organization.

He is on our Board of Directors.

He is our President and Vice Chairman.

He is doing a phenomenal job.

And I couldn't be more excited about having him as part of our salesforce management team.

It's been really a joy, and I think he is absolutely the best customer-facing executive I've ever worked with in our industry.

Brent Thill, UBS.

Thanks.

Marc, the regions -- Americas and Europe are growing at twice the rate of Asia-Pacific.

I'm just curious if you could talk through what you're seeing in Asia-Pacific.

Is there some type of macro overhang?

Or is it execution?

How do you think about the gap there that you can close, relative to the other geos that you just posted?

Well, for us, Asia-Pacific really consists of two countries: Australia and Japan.

And Japan has been a massive country for us.

And so as Japan goes, so does our Asia-Pacific revenue.

And we continue to see great execution in Japan of our organization, but we also see tremendous opportunity that still needs to be fulfilled.

I was just in Japan two weeks ago.

I conducted one of our events there, a Customer Company Tour.

We had 4,000 or 5,000 -- 6,000, 7,000 people there.

I don't know how many.

It was our biggest event ever in Japan.

Phenomenal.

And what I see is all the same things I see around the world, which is a phenomenal opportunity for companies to automate themselves in new ways.

And our ability to grow this Asia-Pacific line is really all about our ability to grow Japan.

I think when we look back over the last several years in Japan, it's been tough in the enterprise world there; yet we've grown really well.

It's been much easier in the SMB world.

It's constant flux back-and-forth.

It's about building a full portfolio of customers, which we have done.

And you are going to see it here at this conference.

We have almost 500 guests who have flown from Japan to attend Dreamforce.

And I think that when you talk to them or have an opportunity to interview them, I think you're going to see incredible demand opportunities for Japan.

Our new Japan data center is now open.

Our new office in Japan is also now open in JP Tower, which is a -- the government invited us into one of their buildings in the Marunouchi District, which is traditionally reserved for native Japanese companies.

So they view us very much as a Japanese organization, as do we ourselves.

And I really expect this to be an accelerator for our business there over the next several years.

David Hilal, FBR.

Great, thank you.

Marc, on your comments on Keith, can you share with us some of the plans to go up the enterprise, and more solution selling?

I know you guys talked about verticals.

Maybe timing on when we might see some specific vertical solutions, and just other changes that might help you move even further up the enterprise.

Thanks.

That's definitely part of the strategy.

He has a comprehensive strategy developed that the Board has approved that he's executing.

One of the key parts of his strategy is bringing in a new management team, which he has done.

And that's now in place.

The second part of the strategy is to put in critical new programs, like a focus on verticals.

And there's other key parts of the strategy as well.

I don't want to go through all of it, because it is somewhat, I would say, proprietary and competitive; and would probably let our competitors know some things that we're going to do, which may surprise them.

Mark Murphy, Piper Jaffray.

Thank you.

Marc, I wanted to ask about your potential opportunity to offer big data and analytics in the cloud.

Specifically, if you look back on it, most traditional data warehouses are on-premise technologies.

And so as the applications move to the cloud, do you think that the analytics will follow, and also move to the cloud?

And if it does, do you think there's a bigger opportunity to be providing analytics for HR data, or for customer data, or for financial data?

So in other words, maybe the relative size of that opportunity for Workday versus salesforce versus NetSuite and other companies.

Well, number one, we are the largest provider of cloud-based analytics and dashboarding in the industry.

You just have to look at the millions and millions of dashboards that we deliver to our customers each and every day -- reports, analytics on their customer data.

And you're only going to see that expand and become more detailed with Salesforce1.

You're also going to see phenomenal new graphics capabilities directly within Salesforce1 that will let our customers deliver those dashboards and analytics directly to that device.

Now, to your point, it's not a general-purpose analytics and data warehousing solution, though many customers do use it in that way.

Certainly one of my dreams has been to build and deliver a world-class analytics and data warehousing solution with the same type of acuity that salesforce has on CRM.

And we've tried that approach quite a few times.

We've done a lot of research and development in that area.

We've also bought companies in that area, but we have not yet created a product.

When we find the magic, secret sauce that we somehow can put together at salesforce, where the price and the technology and the ease of use is clearly an order of magnitude better than our competitors -- like you're seeing with Salesforce1 today -- then we will have that type of solution, where we will come to you and say, well, yes, we have a world-class analytics and data warehousing solution.

Today we are 100% focused on sales, service, marketing, and platform.

Those are the only four markets that we are addressing.

And analytics within those four; but not analytics as a fifth, if that answers your question specifically.

Kirk Materne, Evercore.

Yes, thanks very much and congrats on the quarter.

Can you guys just talk a little bit about Europe?

You guys are clearly outperforming most of your peers and the industry overall.

Can you just talk a little bit about what's going on there, and some of the efforts you've done in terms of putting in place new sales capacity?

Thanks.

Europe execution over the last several years has been phenomenal, and I think perhaps some of the best execution I've ever seen in my career.

We're continuing to work in that area.

And a lot of that is because we narrowed our focus in Europe.

We realized that the key markets in Europe were the UK, France, and Germany; and that we needed to double down in those markets.

And we were too prevalent in smaller markets that were not material to our organization.

And when we made that strategic shift that was led by George Hu, our COO, in an analysis that he did that basically yielded our eight-country focus around the world, which impacted Europe the hardest, we saw this acceleration in Europe.

And we continue to see great things ahead there.

And we've talked about that in previous calls -- that we continue to see world-class execution in Europe.

We also had that same phenomenal execution in North America, as well.

Keith Weiss, Morgan Stanley.

I just want to thank you guys for taking my call.

Maybe just one on the overall backdrop, because definitely there's some mixed signals from some larger, legacy vendors out there.

How are you guys feeling about just the overall tone of IT spending heading into your fourth quarter, and particularly your ability to get those very largest deals done in your last quarter?

Well, we just had a -- I don't think we gave out the specific numbers on large deals and all that, but we will probably talk about that next quarter.

But we had a monster quarter, okay?

And it was a monster quarter in big deals, in small deals, in the enterprise and SMB, in Europe, in the US.

And a lot of it has to do with these three things coming together that I talked about.

We have a phenomenal new distribution management team.

We have a phenomenal new acquisition.

And we have a complete refresh of our whole products family.

And we are -- we're ready, and we're excited.

Look, the world has changed.

It's gone cloud; it's gone social; it's gone mobile; and it's gone connected.

The companies that are struggling in the market today have not gone cloud; they have not gone social; they have not gone mobile; they have not gone connected.

They are still trying to sell this same old stuff.

You can see it in this article that was in the Wall Street Journal about Steve Ballmer over the weekend.

This interview that they had, where he basically talks about, well, it was time for him to move on, because he's too representative of the past.

I think for a lot of these companies, that quote could be about them.

I thought that he articulated it really well, that there's an old philosophy of computing.

And those companies that are executing that old philosophy are not growing, and they're not competing, and they're not succeeding.

And the companies that have adopted the new capability -- and you're going to see hundreds of those companies here at the show -- well, they are growing; and we are one of them.

And I expect good things ahead, because we've got the right products that everybody needs right now, and a lot of companies don't.

So my message to them is the same as before, which is: the future is cloud computing; the future is social computing; it's mobile computing.

And it's all about this new connected world, or what we call the Internet of Customers.

And the companies who are aligning with that, I expect, will have tremendous success whether they're small, medium, or large.

But the companies who deny that the world has changed, and that they can continue just to sell this old stuff, and that people still want it -- well, I think that those companies and those CEOs are the ones who are having the problems.

And they should transform, and they should move forward.

Rick Sherlund, Nomura.

Thanks.

Marc, I'm curious whether the issues with the NSA has created any concerns on the part of customers or prospective customers about multi-tenancy.

In your discussion earlier about HP, is this to suggest that you could have a private cloud solution if customers were concerned about having data outside their own firewall, or potentially, outside their country?

Well, first of all, the new Salesforce HP Superpod is a Superpod right in our data center with our other pods.

It's just a pod that is dedicated to a specific customer that is willing to spend a significant amount of what we call AOV with us, or annualized operating value -- that is, the amount of that customer has to be at a certain threshold before we even consider a Superpod.

And the Salesforce HP Superpod is -- first customer is HP, because they have exceeded that threshold.

Now, we have other customers who are also exceeding that threshold.

And this is a phenomenal opportunity for us and these very large customers to align, to offer them our multi-tenant software in a dedicated instance.

Okay?

So this is not, as other companies call it -- you can't get this on your premise.

There's no hybrid.

There's none of this stuff that other people do.

This is our same software, but in a dedicated instance in our data center, and just for you.

And it's our same software, but just -- and those organizations will still have multi-tenants.

So big companies like HP or other companies that use our product, they still have multiple orgs within one pod; but it will be a Superpod or a dedicated pod.

In regards to changes in the marketplace regarding all these news reports and all this stuff -- you know, it's not our world.

We haven't seen it; we don't participate it; we don't hear about it.

We're not -- this is in an area that we are not knowledgeable in.

We don't do communications technology or those types of things.

We are doing sales forecasts and opportunity management, and that just isn't part of the world that you've been hearing about.

So we feel very much extracted from that.

And we have no further questions.

Back to you, John.

Thanks so much.

Thanks, Josh, and thanks, everyone, for joining us today.

If you have any follow-up questions, you can you can email us at investor@salesforce.com.

And we look forward to seeing many of you tomorrow during our Analyst Day tomorrow morning.

And, again, if you want to have a seat in my keynote, I really recommend you get here early.

Also, I am looking forward to seeing you all.

I'll be on Mad Money in about four minutes, so I'll see you then.

Thank you.

Thanks.

Ladies and gentlemen, thank you for your participation.

You may now disconnect.