Salesforce.com Inc CRM
Q4 2013 Earnings Call Transcript
Transcript Call Date 02/28/2013

Operator: Good afternoon. My name is Kim, and I will be your conference operator today. At this time, I would like to welcome everyone to the Salesforce.com's Fiscal Fourth Quarter and Full Year 2013 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you.

I would now like to turn the call over to John Cummings, Director of Investor Relations.

John Cummings - Director, Investor Relations: Thanks Kim. Good afternoon everyone and thank you for joining us today to discuss our fiscal fourth quarter and full year 2013 results. Access to our fourth quarter and full year results press release, historical results, our 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 our call on Twitter at the handle @Salesforce_IR.

Joining me on the call today are Marc Benioff, Chief Executive Officer; and Graham Smith, Chief Financial Officer. Marc and Graham will share a few prepared remarks about the quarter and year and then we'll open the call to your questions. Please note that our commentary today will primarily be in non-GAAP terms. Reconciliations between GAAP and non-GAAP metrics for both reported results and our forward guidance can be found in our earnings press release issued about an hour ago. In addition, we may offer incremental metrics to provide greater insight into the dynamics of our business or our fourth quarter or full year results. Please be advised that the additional 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 in our discussion today, 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 that are currently available.

The primary purpose of today's call is to provide you with information regarding our fiscal fourth quarter and full year 2013 performance. 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 may or 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.'

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

Marc Benioff - Chairman and CEO: Hey thanks so much John. Before we get started I'd like to share some very exciting news I'm thrilled now as just this morning Salesforce was named by Fortune Magazine as the world's number one most admired software company, and I'd just like to congratulate our entire team at salesforce.com for this amazing achievement. Also this morning, we posted on the Apple App Store, our exciting new version of Salesforce Chatter, our world class award winning social enterprise network app and that has some credible new capabilities for all of our customers, so check that out.

I'd like to congratulate the team for their amazing performance in the fourth quarter. We had a spectacular finish, yet another year of exceptional growth. Revenue for the fourth quarter rose 32% from year ago to $835 million and for the full-year we delivered more than $3 billion in revenue, that's an increase of 35% from fiscal year 2012. In constant currency, our full year revenue grew an even faster 37% for the year, that's pretty awesome. I just want to congratulate Salesforce constant currency growth for the full year at 37% and the first enterprise cloud company over $3 billion in revenue, no other top 10 enterprise software company is growing faster and just an awesome job by everyone in the Company. Thank you for all your hard work. Operating cash flow rose to more than $280 million for the quarterly, an increase of 17% year-over-year. For the full-year, we delivered more than $730 million in cash, operating cash up 25% from last year, and deferred revenue grew by 35% year-over-year to roughly $1.9 billion and more than 5.3 billion of booked business on and off the balance sheet up 50% from last year, also incredible.

During the quarter, we closed more seven and eight figure transactions than in the fourth quarter of last year. In all, we signed more than 150 multimillion dollar, that is, we signed more than 150 transactions in the quarter that were more, that were seven figures or more and that included nine eight figure transactions in the quarter. Pretty epic. Given our customer momentum and strong pipeline of new business, I'm absolutely delighted to announce that we are raising again our full fiscal 2014 revenue guidance, which we now project at $3.82 to $3.87 billion and this puts us on pace to reach a $4 billion annual revenue run rate.

During this fiscal year, we absolutely have that $4 billion revenue run rate in sight, and very excited about that and definitely our short-term goal on the way to our $10 billion dream.

Salesforce has always been a catalyst and evangelist for changing enterprise software. We pioneered the shift to the cloud. We pioneered the shift to the cloud, we pioneered the shift to social and we have pioneered the shift to mobile. Today with this next-generation of technology our customers are connecting with their customers in entirely new ways. They are becoming customer companies.

Now more than ever companies are looking to Salesforce.com as their platform for innovation. We are seeing incredible demand from companies who want to leverage today's incredible new shifts in technology. With our core product line Sales Cloud and Service Cloud and Marketing Cloud in our Salesforce Platform, our customers have the tools and are absolutely becoming these customer companies and unlocking greater levels of growth innovation and success.

Now that's why our customers have made Salesforce number one in each of our core four markets and these four core markets are absolutely where we have our focus today. Of course our flagship Sales Cloud continues to be number one app in the world for sales. We are number one in Cloud CRM. Gartner predicts we will displace SAP this year to be the number one CRM market share leader in all of CRM including On Premise.

That's very exciting for us because of course SAP has been the CRM leader according to Gartner for the last decade and we are absolutely delighted to replace SAP as the number one CRM company in the world. This is just the beginning. With more than two-thirds of the CRM market still being delivered On Premise, we've got absolutely plenty of room to grow. The Service Cloud is the world's number one app for customer service and support. Our Service Cloud product line is delivering outstanding growth in the quarter, well positioned to be our next $1 billion product line.

We are recognized in Gartner's Magic Quadrant for service and support as well as the leader in Forrester and Gartner predicts more than 75% of customer service systems we have replaced or upgraded by 2016. Well that's a pretty phenomenal opportunity and that's why we have doubled down with the Service Cloud through the introduction of Desk.com, and with Desk.com we have now Service Cloud for the small business as well as our traditional Enterprise Service Cloud as well. The Marketing Cloud is the world's number app for social marketing and the only social solution that is seamlessly connecting marketing with sales and service, and as the lines between marketing, sales and service blur, we are seeing that CMO become a strategic and critical part of how every company operates. It's on everyone's mind. As Gartner said, that by 2017, Chief Marketing Officers are going to spend more than Chief Information Officers on technology. Just this last week in New York, when I was meeting with some of our largest customers, in tow with them are their Chief Marketing Officers for the first time and this vision is turning into an incredible reality. We definitely saw that when we had incredible story this week with our great friends at Unilever.

The Salesforce Platform is the world's number one Enterprise Cloud Platform. Continues to be our fastest growing product line and companies are absolutely rationalizing how they build applications today. They recognize their old client server tools are dead and they need a new generation of application development deployment tools and they are looking to the cloud, but there is no more secure, more scalable, no more reliable solution than Salesforce's core Force.com Platform, which is what our customers are choosing to build their next-generation enterprise, applications. I even met with a large financial services customer this week and it reinforced to me the tremendous opportunity of the Salesforce Platform with our customers to build applications.

I am thrilled to announce that we now have more than 1 million developers on this platform and over a 3 million apps have already been developed. There is more than 360,000 Force.com apps, more than 2.7 million Heroku apps. I have never been more excited about the future of our platform. The combination of our vision, our clear leadership in each of these four core markets is what's driving our success with customers today. We've had incredible wins and in the quarter there were so many incredible new relationships for Salesforce, but a few I want to mention Royal Philips Health, Royal Philips Electronics, a leader in healthcare, lighting, consumer lifestyle products and a great example how companies are connecting with their customers like never before. Philips selected the Sales Cloud, the Service Cloud and Chatter to connect millions of product on to a single customer network. From toothbrushes and coffee makers to new LED lighting products, all of them are going to be connected through Salesforce and our customer platform.

Customers are new to connect their products, to trusted retailers and entire universe of incredible information, expert's tools, videos, everything they need to be deeply connected with Philips. I'm personally very excited about that. I'm a huge Philips customer personally. I love all of their products from lighting, especially the toothbrushes, and I am looking forward the connected toothbrush.

Unilever; I talked about Unilever in Q3. They selected Salesforce to build an app for more than 7,500 marketers and agencies to connect share, collaborate and in the fourth quarter Unilever went big with us with Chatter. Chatter will be social air for Unilever's entire enterprise, unified more than 80,000 employees around the world and with the Marketing Cloud and Salesforce Platform, Unilever is building this exciting new social apps and these exciting new capabilities to become a customer, company, and when you look at companies like Philips, when you look at companies like Unilever. I'm sure you saw Unilever present this week in New York, it's just an absolutely incredible capability.

In the high technology area, I'm thrilled to announce Intuit, one of the world's largest software companies, and one of our peers. Implemented our Service Cloud in its TurboTax business to enhance customer experience in both its service agents and more than 25 million customers and rapidly deployed Salesforce for 4,000 call center agents, it was very exciting opportunity to work with a great company. We'll continue to see great traction in the automotive industry, and in fact, we had an amazing opportunity this quarter with Renault-Nissan Alliance, the fourth largest automotive group in the world. They selected the Sales Cloud and Service Cloud enabled car owners in key markets to connect the entire Renault and Nissan ecosystem and we see them becoming the next incredible customer Company.

Having drove momentum in the quarter, we signed on a number of incredible enterprises all over the world to become customer companies including ADMAN, Caterpillar, Heidrick & Struggles, Herman Miller, Infosys, KDDI, Lexmark, Novartis, OPTIS, Sony, Sunlight, TATA and I'm delighted to also mention Wal-Mart, and the list goes on and on.

In every one of these examples, companies are transforming their businesses with Salesforce's' next generation of technologies and our ability deeply integrate our social solutions, our social enterprise network and our customer company to replace that traditional enterprise solution from Microsoft, SAP and oracle. There's no better barometer for customer success than usage. Our service continues to support and deliver transactions for customers at an unprecedented scale.

I'm thrilled to announced that in November 2012, Salesforce delivered its first $1 billion transaction day, to putt hat into context, that's more than double the number of posts on twitter every day. We're doing in complex transactions, complex customer transactions where each one of our customers are more exciting, we delivered $250 billion transactions for our customers in the full fiscal year, up $65% in transaction volume, from a year ago to really show you that this is one of the most used pieces of software in the world today. Nothing speaks more to the value of Salesforce to our customers, than the actual usage of our products and the speed, reliability and trust that we're known for.

It's been an amazing year for Salesforce. It's been amazing year for employees. It's been an amazing year for our customers and we are looking forward to being the first Enterprise Cloud Computing Company to help our customers to connect with their customers in an entirely new way to become customer companies. If you wanted to see that incredible presentation that we did in New York, it's now up on YouTube, you can find it on my twitter feed or on my Facebook feed which at twitter.com/Benioff or facebook.com/Benioff.

Now I would like to turn it over to our Chief Financial Officer Graham Smith to tell you about the incredible results of the fiscal year. Graham?

Graham Smith - EVP and CFO: Thanks, Marc. We all delivered a great fourth quarter to conclude another year of record results. In addition, to positing solid top line revenue growth in FY '13, we improved full year operating margins slightly even as we integrated our largest ever acquisition. With attrition continuing its steady decline and a growing product set that expands cross-sell opportunities we are well positioned for another year of strong growth in fiscal 2014.

We take you through our fourth quarter and full year results starting with revenue. Q4 revenue as Marc mentioned was $835 million, up 32% over last year. If you exclude an approximately $6 million FX headwind revenue on a constant currency basis was up 33% over Q4 last year. Full year revenue was $3.05 billion up 35% over FY '12 and again if you exclude and FX headwind of approximately $44 million full year revenue on a constant currency basis was up 37% year-over-year. Our recent acquisition of Buddy Media contributed approximately $11 million to fourth quarter revenue and approximately $20 million to full year revenue consistent with the guidance range we issued June.

The Marketing Cloud product line continues to gain traction and is an important growth lever for us as CMOs look to rapidly transform the entire customer experience for the social era. Excluding revenue from Buddy Media and all our acquisitions beginning with Jigsaw, revenue for the full fiscal year still grew in excess of 30%. Stated differently, revenues from these same acquisitions comprised a little over 5% of total FY '13 revenue. Clearly we expect this proportion to continue to increase over time.

Looking at year-over-year growth on a regional basis, revenue in the Americas grew 34% to $583 million; revenue in Europe grew 39% on a constant currency basis and 37% in dollars to $149 million, another great quarter in Europe. Revenue in Asia increased 22% in constant currency and 17% in dollars to $103 million.

Fourth quarter growth in Asia reflects continued slowing demand from enterprise customers in Japan which does not appear to have fully recovered since the disaster there almost two years ago. Top line revenue continues to benefit from a decline in dollar attrition, which fell for the 14th consecutive quarter and is now at its lowest level since we began measuring dollar attritions 3.5 years ago.

During FY '13, we continued to invest in a variety of customer success measures including our Customers for Life program and our True to the Core initiative. Investments in these areas along with a slow but generally improving macro economy, longer contract durations and increasing enterprise adoption helped drive attrition downwards.

Turning to the income statement; non-GAAP operating income was $108 million in the fourth quarter, up 29% over Q4 last year. Our Q4 non-GAAP operating margin was approximately 12.9% or about 32 basis points lower than Q4 last year. The operating margin decline year-over-year is related to our acquisition of Buddy Media where we are investing significantly for future growth.

Non-GAAP operating income for the full fiscal year was $357 million, that's up 36% over FY '12. This translates to an FY '13 non-GAAP operating margin of 11.7%, up 16 basis points versus FY '12. This improvement in full-year operating margins was driven by greater leverage in G&A, which declined by just over 1 percentage point of revenue, partially offset by the impact of recent acquisitions. We added more than 480 new employees in Q4, and more than 2,000 for the full fiscal year bringing our total year-end headcount to 9,800, up 26% over Q4 last year. Remember during FY '12, we accelerated hiring significantly after a period of slower headcount growth. For fiscal 2014, we expect to continue hiring of roughly the same rate as the FY '13.

Turning to EPS; non-GAAP EPS was $0.51 for the fourth quarter and $1.63 for the full fiscal year. Non-GAAP EPS was about $0.11 above the high-end of the guidance range we provided back in November, approximately $0.08 per share was due to the reinstatement of the U.S. federal R&D tax credit and about $0.03 per share was related to better than expected operating margins on higher than expected top line.

In terms of cash flow; Q4 operating cash flow was $282 million, that's up about 17% over Q4 last year. Operating cash flow for the full fiscal year was $737 million, that's up approximately 25% over last year. Operating cash flow was slightly higher than we anticipated in Q4 as a result of the timing of a particular invoice. Our standard process to issue invoices approximately 30 days in advance of the service period covered by the invoice. This means that the first renewal invoice on an annual buying contract goes out about 11 months after the initial contract date. So, if we sign a significant contract in the very early days of our first quarter then the next annual invoice can be issued, and in some rare cases collected in our fourth quarter. This dynamic can affect the cash receivable, deferred revenue and cash growth.

In the fourth quarter, we billed and collected, an approximately $30 million invoice, that was billed as new business clearly in the first quarter of fiscal 2013.

Looking ahead for FY '14, we expect operating cash flow to grow in the low 20% range, as long as we're investing for significant growth you should expect operating cash flow to grow a bit more slowly than revenue.

CapEx in the fourth quarter was $51 million, that's up 13% over Q4 last year and $176 million for the full fiscal year, that's of about 16% over FY '12. CapEx continues to be driven by new office build outs related to our growing employee base. CapEx as a percentage of revenue was approximately 6% for both the fourth quarter and the full fiscal year. That's down from about 7% last year. So, FY '14 we expect similar CapEx spending as a percent of revenue.

Free cash flow which we defined as operating cash flow less CapEx was $213 million in the fourth quarter, up 18% over Q4 last year. For the full year, free cash flow was $561 million, that's up 28% over 2012.

Turning to the balance sheet, we ended the year with approximately $1.8 billion in cash and marketable securities, that's up from approximately $1.4 billion last year. accounts receivable was up 28%, over last year to $873 million, and our receivables remained in great shape.

Deferred revenue in the fourth quarter was approximately $1.9 billion, up 35% over Q4 last year. Excluding a year over year FX tailwind of approximately $7 million, deferred revenue increased 34%. On a sequential quarter basis, deferred revenue benefitted from an FX tailwind of approximately $13 million. Deferred revenue in the fourth quarter continued to benefit from the shift toward annual billing we initiated in the fourth quarter last year. Approximately 80% of all invoices in Q4 were issued with annual terms about 3 to 4 percentage points higher than Q4 last year. For modeling purposes we expect 1 to 2 percentage points of continued year-over-year improvement in annual invoicing through the third quarter.

The dollar benefit to deferred revenue from the continued shift to annual billing together with the large multiyear invoice we issued in the fourth quarter of last year was approximately $125 million that's down from approximately $155 million in Q4 last year. Keep in mind that the $30 million renewal invoice that I mentioned earlier, also contributed to the increase in deferred revenue this quarter and will obviously affect our sequential deferred revenue comparison in Q1.

For the first quarter we anticipate reported year-over-year deferred revenue to grow in the high 20% range. We have always said that deferred revenue is a difficult number to predict and this quarter was no exception. Invoice timing, duration, FX, new business linearity, ramp deals, annual seasonality and the compounding effects of renewals all influenced deferred revenue balances and the comparability of sequential and year-over-year changes. Unbilled deferred revenue or revenue that is contracted but not yet invoiced and that is off the balance sheet was approximately $3.5 billion in Q4. That's an increase 60% over Q4 last year. Deferred revenue plus this unbilled backlog now exceeds $5.3 billion.

As we continue to become a larger and more strategic partner to our customers both enterprise and commercial accounts are making longer commitments to Salesforce and this is reflected in our growing backlog and declining attrition. In fact, as I referenced earlier, our typical contract length has grown and is now between 12 months and 36 months, and our average contract duration is now more than 24 months.

Before I discuss guidance, I want to emphasize that growth remains a top priority. We continue to see a tremendous opportunity for our products and we will continue to emphasize and distribution capacity and engineering as we grow towards our $10 billion goal.

As you know, acquisitions are becoming an important part of this growth strategy. So where we start every year with a plan to improve operating margins, it's possible that M&A activity this coming year could well impact operating margins just as they did in fiscal 2013.

Turning to our outlook for fiscal 2014, as Marc mentioned we are very pleased to raise our revenue outlook range for fiscal 2014 by $20 million. So we now project FY '14 revenue in the range of $3.82 billion to $3.87 billion. That's a growth range of 25% to 27%. We estimate full year non-GAAP EPS in the range of $1.93 to $1.97. This guidance range implies an increase in non-GAAP operating margins of 50 to 100 basis points, a slightly higher full year effective tax rate of approximately 35% and no meaningful contribution from below the line interest or other income expense.

Just as a reminder, Dreamforce would be in our fiscal fourth quarter this year, and we estimate that the net impact of both GAAP and non-GAAP EPS will be approximately $0.09 which is included in our estimates.

For Q1, we anticipate revenue in the range of $882 million to $887 million including an expected FX headwind versus Q1 last year. We expect non-GAAP EPS in the range of $0.40 to $0.42. As a reminder, all of the underlying assumptions for our non-GAAP and our GAAP guidance on a complete GAAP to non-GAAP reconciliation can be found in our earnings press release issued earlier today.

So to wrap up, we had a great finish to fiscal 2013. We posted strong top line growth and improved our operating margins year-over-year. We continue to manage attrition downward and with rising enterprise adoption and a growing product set that expands cross sell opportunities, we're well positioned for another year of strong growth.

So with that we'll open the call up for questions.

Transcript Call Date 02/28/2013

Operator: Adam Holt, Morgan Stanley.

Adam Holt - Morgan Stanley: My first question is about the Force business and the strength there. Are you seeing higher attach as you're doing more large deals around SFA extensions? Or are you seeing expanded used cases, that's continuing to perpetuate the Force strength?

Marc Benioff - Chairman and CEO: I think it's a great question, and I really appreciate that because we've been focused on building our platform now for many, many years. Of course, we provide a single customer platform, it lets you accomplish what you need to do as sales productivity, it lets you accomplish what you need to do in customer service and support and call center. It allows you to accomplish what you need to do in marketing, whether it's listening, publishing or advertising. We really didn't get into some of the exciting announcements that happened this quarter with the Marketing Cloud, including our exciting relationship with Twitter and being the pioneer of the Twitter API and connecting our new social advertising product with that. What I can tell you is that in each and every customer case, we're seeing expanded use of our platform and I was with a large financial services customer as I mentioned this week in New York and it's a company that has built many applications on our platform and it wasn't really surprising to me that we're starting to talk about it becoming their standard way of building all their applications. It's a faster way to build applications. It's certainly a lower cost way to build applications. It's an easier way. It's elastic as companies change and evolve, the platform can move with them. These are not characteristics that you found in the client server world and I think that's why the platform is so attracted to so many customers. Also, we've really doubled down on our relationships with the large systems integrators. You see them at our show, like in New York, you'll see the big SIs, whether it's the well-known ones like Accenture or even the mid-tier market SIs, many of whom we have a very strong relationship with, having a lot more competency with the platform, this gives customers, an easier time to deploy it. so, I'm very optimistic about the future of the platform. I feel that customers understand it more than ever before. They have universally positive experiences with it and I think that they're going to do more and more with it. I appreciate the question because, it's one of the things that I'm especially excited about.

Operator: Kirk Materne, Evercore Partners.

Kirk Materne - Evercore Partners: Mark, I know you and Michael are spending a lot of time out there talking about CMOs and I was just curious of your perception. Are they ready to take on a full platform approach t so some of the challenges that come about with social media? Or do you see them taking on more of an incremental approach and if it is the more full platform approach, I guess, how do you feel about having all the pieces there to be able to help them solve their challenges?

Marc Benioff - Chairman and CEO: Well that's just an outstanding question and I'll tell you why. When we talk to Chief Information Officers, we talk to them on a very strategic basis in terms of their (decadent) strategy and what they're going to be doing with their companies going forward. But when we are talking to Chief Marketing Officers, of course they are strategic but their needs are much more tactical. They've got campaigns that are executing today. They have needs that they need executed – needs that need to get fulfilled today. They have problems that need to get solved now and those Chief Marketing Officers they may decisions with a different frame than Chief Information Officers. That's why we encourage these CMOs to partner with the CIOs. We are trying to build a muscle at Salesforce that we can talk comfortably with CMOs just like we talk comfortably with Chief Information Officers or Chief Revenue Officers or Chief Service Officers and certainly Chief Executive Officers. Our job is to be able to sit with that management team, something I did several times this week and have a holistic conversation about how their company is connecting with their customer. It doesn't matter who that company is, whether its General Electric, or whether its Philips or whether it's Bank of America, whoever it is in our portfolio of customers. In each and every case they are re-defining, re-conceptualizing and re-energizing their own employees about how they connect their company with their customers and that's why we called it a customer company. The CMO is a relatively new entry into the conversation. That's why we have spent $1 billion buying Radian6 and Buddy Media because we believe strongly in that. We need to find more marketing companies. Honestly there is more for us to do. There's more demand but we need to innovate in this area. We are going to do some of that holistically and organically. We need to do some of that through acquisition. We want to be the company that you turn to in four key areas, in sales, in service, in marketing and as Adam correctly pointed out as well, in the platform. These are our four areas of focus and this is what our customers want to hear and how these four categories are the seminal interest for them in becoming this customer company.

Operator: Laura Lederman, William Blair.

Laura Lederman - William Blair: Can you talk a little bit about a sense of how much the business is non-SFA? More specifically Platform, you mentioned that it was the fastest growing, but if you could give us a sense if it's better than breadbox? Just anyway you are willing to frame it, that would be great?

Graham Smith - EVP and CFO: Laura, I think back in Dreamforce, we talked about that shifts to non-SFA products sort of continuing, as it has done really over the last five years, but it's been a pretty gradual shift. So we actually don't update that number every quarter, but I think – I suspect it's probably pretty close to what we said at Dreamforce, which I think was roughly 55% roughly SFA and 45% non-SFA. So I think as a newly acquired or more recently businesses continue to grow at a faster rate, then the Sales Cloud over time as we would expect that mix to continue to shift away from SFA, but hopefully not too fast. So there's really no news there.

Operator: Kash Rangan, Merrill Lynch.

Kash Rangan - Merrill Lynch: Eight years after the IPO, you guys still keep putting up these big numbers, great to see that. Marc I just wanted to ask you about the Marketing Cloud. Clearly the emphasis of the company has been more on the consumer/social end of things. Do you foresee making a bigger push into the B2B side of marketing and other aspects of marketing automation? Also secondary, related to that, can you talk about if there is any possible halo effect of all this marketing emphasis as it relates to your other businesses? Other sales service in platform clouds getting a bit of a halo effect from that emphasis on marketing?

Marc Benioff - Chairman and CEO: I'll give you a detailed answer because I have to tell you that it's been one of my really delighted surprises that I experienced, specifically this quarter I had the opportunity to present to a very large consumer packaged goods company, and presenting to their management team. That was being led – it was being led by their Chief Marketing Officer, and we had a very good relationship with this company already, and we're going through their use of various things and we are doing a large transaction of them, and evaluating their use the Sales Cloud, valuing their use of the Service Cloud, Marketing Cloud and Chatter. Then the CIO of this company, this is one of the largest companies in the world said this is fantastic we're standardized now on Salesforce's Marketing Cloud, I'm really excited about that. We've been smothering our users and our customers with love on Facebook and Twitter, but have we brought our customer – we've brought our call centers into this equation, have we updated all of our contacts in our software, are we bringing in the customer service software. For the first time, I first hand personally watched in real time the Chief Marketing Officer take over the conversation on customer service, and of course it's completely logical that, that Chief Marketing Officer would say that, but it was a leap for me then to see it happen right in the room, because the CIO was there and the CIO, their job was to, in real time, work with the CMO and the service professionals in the room and say, we're going to have a unified customer strategy. We're going to offer that customer a great experience on the call center, on Facebook, Twitter, on the website, on portals, in the product with our sales organization, and what we have been pitching them is a unified customer record where you're not just managing the customers data, their name addresses phone number, their photo, their connections with their social networks – geographic intelligence around what part of the world they're in and using the mapping technology, but also, we're able to see here's the customer, here's the apps they've downloaded from the app store. Here's the scripts from the customer service website they went to. Here is their tweets on Twitter and their Facebook entries and here's the opportunity to solve them more and here's a comprehensive view of the customer and the person who was interested in that was not the sales officer necessarily or the service officer, leaving the CIO, all of them are, but it's really being driven by the Chief Marketing Officer and that is, I think going to be an increasingly critical part of our strategy as we work to make our customers into these customer companies.

Operator: Rick Sherlund, Nomura Securities.

Rick Sherlund - Nomura Securities: Mark, just a follow-up on the marketing cloud. If we look at Oracles acquisition of Eloqua. I'm wondering if you could just kind of touch on what the holes are you may see in your marketing strategy based on that and is there something that you can fill with just some small acquisitions or does it require something bigger?

Marc Benioff - Chairman and CEO: Well I really think that we are going to buy small and big. We are going to be aggressive. We need to look at everything and I think that we made some smart moves by buying the two leaders and we have bought other companies too. You probably saw we bought this incredible start-up as well last year in this area called GoInstant and we have our first customers now onboard in the beta of that which is this amazing co-browsing technology which is the ability to instantly share my website across devices. We've purchased a lot of different types of companies. I think we have purchased more than two dozen companies and they have been small companies and large companies and the best way to predict the future of our acquisition strategy is to look at the past. Because we have bought small and big, we are going to probably buy small and big and I don't think that we should limit our self in any way. To answer your question specifically and to answer Kash's question specifically, we have to look at B2B marketing, B2C marketing. We have to look at email marketing. We have to look at all aspects of social marketing. I have to tell you that our social advertising businesses maybe I think the fastest-growing business that we have today and advertising was not something that was on our radar a year ago and here we are as a leader in managing apps on Facebook and Twitter. The world is moving fast. Things are changing. It's unpredictable. All I know is that our customers need new ways to manage their relationships with their customers and we need to give him a comprehensive vision and approach and strategy to do that. I will tell you it's hard to articulate not just to you on this call when you ask me specific questions what things do you still need, even when we presented and I don’t know if you had the opportunity to watch the presentation on Tuesday, but we had a broad demonstration of technology there that cuts through a lot of things and it's not as easy as saying, well, we have your SFA solution and it's these 10 features that you really care about. We have your service solution, it's these 10 features. We have your social enterprise network solution with Chatter, we have these 10 new features or this new thing on the app store. We have our platform which has these 10 features, or we have the Marketing Cloud, which has these 10 features. Because the 10 features that we thought that were important with the Marketing Cloud a year ago are still important, but there are some very exciting new things as well. I think other companies are excited about that also and I am very impressed with how a lot of different companies are organizing and reorganizing, then acquiring and so forth. I think those are smart moves because the world is changing quickly, but honestly I think that we're doing the best job in executing this strategy. We have a very clear vision of building this unified customer platform and I don't see any other company doing that. I see companies building appliances, and I see companies building data warehousing solutions and I see companies building hardware. I see companies introducing the next version of their software with another number after it. But the reality is we are the Company that companies are coming to as the Company that's going to connect their customers. This is the area that we've carved out in the industry. This is what's important to us and look, I think, it's just excellent that SAP wants to be the HANA company, Oracle wants to be the Exadata company, Microsoft wants to be the Windows 8 company, Salesforce wants to be the Customer Company. That's how the chips have fallen on the table.

Operator: Heather Bellini, Goldman Sachs.

Heather Bellini - Goldman Sachs: Marc, we're going to be with Wendy Clark and Ed from Coke tomorrow. I'm just wondering where are other leading brand in matching Coke's vision of the customer company that you talked about on Tuesday. I guess, how have you seen the conversations you've started having with CMO and CIOs over the last 12 months change. I guess I'm just trying to get a sense of where they are in getting it, so we can get a sense for how quickly we could see this continue to ramp?

Marc Benioff - Chairman and CEO: It's a really great question, and I'll tell you that we're at the beginning of a journey here, with all of them. This is certainly not – we're not in the second inning on with any company in this area. Great example of Coca-Cola with Ed Steinike, who we have worked with now probably for a decade, who is their global CIO. He is at Coke and then before that he was at General Electric, and then he went to ING and he was our customer there. Then he came back to Coca-Cola and we weren't working with Wendy in the marketing team and other marketers there before, that's relatively new for us, it's exciting and that's a great metaphor for all of our customers. We've built great relationships over the last 14 years. Salesforce is going to be 14 years old on March 8, that's our overnight success. So, in eight days Salesforce is 14 years old. Over that time we've worked to build our sales organization, invest in that, and build relationships, trusted relationships, successful relationships with the world's most important Chief Information Officers and certainly with the top heads of sales. We have good relationships with them all over the world. Over the last few years now we're focused on the service organizations, we're still really much at the beginning of that story when we hired an incredible executive through an acquisition of a French company called InStranet, who is now the President of our Applications and Platform, Alex Dayon, who built the Service Cloud, and so we had sales, we had service, we had our platform with relationships with these executives, the CIOs. Only really in the last year you could argue, 18 months that we're starting to have the conversation with the Chief Marketing Officer and they want to understand all aspects of our message, and this is a new audience for us that the tens of thousands of Chief Marketing Officers inside, our customers, those are not sales calls that we've been making, and we're starting to make those calls. We're starting to build those relationships, buying a company like Buddy Media certainly helps. That was not just buying a technology. That wasn't just buying a product, that was also – an incredible executive, Michael Lazerow and also an ecosystem surrounding that company. I think it's very important to buy the leaders because they're run by the leaders. When we bought Radian6, we got an incredible executive, Marcel LeBrun and when we went to the Consumer Electronics Show just a couple of weeks ago, I was walking around, I bumped into Ed Steinike actually in front of the Sharp booth, we were looking at the incredible new, 8K Sharp TV, which was a spectacular technology achievement, and Ed and I were marveling at that, but I was marveling at, I was bumping into the Global CIO of Coke at the CES show randomly in front of the Sharp booth, and what that said to me was, okay the world is really changing because this is a marketing show, and at that show, we built trade show floor in concert with the Consumer Electronics Association, a huge social media command center, because listening is the first thing that all these marketers want to do. They want to know what are people saying about their brands on Facebook and Twitter and blogs and websites. We are the number one provider of listening solutions in the world and after listening, the second thing that they want to start doing is publishing. I mean they want to publish on all these things in a unified way and the third thing they want to do is advertise on all these things and we are the leader in social advertising. So this is a very important conversation. But as I mentioned before the CMO just isn’t interested in listening, publishing and advertising and some of the other things that Kash and Rick mentioned. There are also very interested in the call center. They are interested in the sales force. They view those as part of their domain. The CMO views the actions of the salesperson and the service professional as part of the brand. We have a comprehensive message and that's why you have seen me pivot from social enterprise to customer company because I needed to embrace those Chief Marketing Officers, Sales Officers, Service Officers and CIOs in a comprehensive message and that was accoladized by our acquisitions of Buddy Media and Radian6 and this is the story of our Company now over the last 14 years. I appreciate that question so thank you.

Operator: Brent Thill, UBS.

Brent Thill - UBS: Graham you gave us some great granularity on the megadeals last Q4 and I was just curious, if there were any anomalies this Q4 and correct me if I am wrong, I believe you are flat year-over-year in terms of the eight-figure transactions?

Graham Smith - EVP and CFO: Yes. I think we were up slightly on the eight-figure transactions. I think we were up comfortably on the overall seven and eight-figure transactions. So we were delighted with the end result.

Operator: Mark Murphy, Piper Jaffray.

Mark Murphy - Piper Jaffray: We are starting to come across more companies which are contemplating using Salesforce.com as their main cloud computing platform and trying to tie that in with a whole host of other applications to try to reenergize and change the way we do business. In some cases, there – they seem to be looking at Salesforce as a transformational vehicle and that sounds really different than just implementing like a back office payroll or financial systems though. I'm wondering what do you think you have to do to drive these customer company transformations past the realm of the early adopters and the thought leaders and try to make this become a more mainstream undertaking in the near term.

Marc Benioff - Chairman and CEO: I think it's – that's squarely in the wheelhouse of where we are today, which is – we're a transformational Company. We've always been a transformational Company. We're a Company that was founded on the concept of transforming the industry and we're a Company that is founded on the concept of transforming our customers. I think now we're a Company that's about transforming our customers' relationship with their customers. How do we do that? In sales service marketing and our platform, helping our customers to sell service market and succeed and connect with their customers in entirely new ways. What you're finding is as we work with these companies, and of course I talk about a lot of different companies. We saw that at the New York City conference this week, we had this incredible retail company, levy up, standup and talk about that their manufacturing process is entirely built on Salesforce. Their service process is on Salesforce. Their sales process is on Salesforce. Their marketing process is on Salesforce. We are their sole platform that they've used to transform their company and they did that in partnership with a local systems integrator. That's the story and of course, we want to do that with every company in the world. It's a journey because maybe company hasn't heard about cloud, maybe they haven't heard about mobile, maybe they haven't heard about social, maybe they haven't heard about social enterprise, maybe they haven't heard about the transformation that need to make to become a customer company, but they all know they need to change, and that's where we are today. It doesn't matter if it's a retailer or a manufacturing company or a high technology company or a financial services company. I don't know a company today and their Chief Executive Officer who doesn't feel a strong desire to transform, that was not true five years ago, that was not true in the -- in the financial crisis, I think people were just trying to hang on in 2008. Today, these companies are like, okay, we're stable, we're good, we know what our business is, now we do transform so that we can grow. This transformation is happening for reason, it's happening because these companies want to grow and they're going to grow with increasing their revenues, these are revenue augmentation solution. So, I completely agree that that's what you're seeing and that's why I believe you're seeing it, it is we're moving into a growth – time of growth in the world.

Operator: Brad Zelnick, Macquarie.

Brad Zelnick - Macquarie (USA) Equities Research: Marc, I was at IBM's Analyst Day today, Virginia Rometty talked about moving more to the front office, becoming more social, more mobile, it's interesting to see such a great company follow your lead, but they also talk a lot about Big Data. I just wanted to get your thoughts on what that means and what the opportunities are to harness the billions of transactions and all the data that lives within your platform?

Marc Benioff - Chairman and CEO: Well, you're opening the door for I think one of the most exciting changes that will happen in not just in our Company but the entire industry. Today, we are a big data provider. We manage huge amounts of data for our customer and we do millions and millions and millions of dashboards for our customers. You've seen the analytics that come out of our system, but you just can look around Silicon Valley right now and see this huge amount of work going on between these entrepreneurs and venture capitalists in this big data area, and I think that they've changed everything. I really take my hands off to the technology industry because over the last 18 months, I've seen the shift in big data analytics. As speed and the level of complete transmutation of what the technology can do, I mean, it used to be that we had to rely on these very expensive technologies to make this happen. Now these are very low cost technologies, and I'm quite confident that it's going to change us and one of my personal goals is that by Dreamforce, we have a more comprehensive and a more detailed and even stronger solution for our customers in this area. We will continue to work with strong partnerships with all of the providers that we work with in the big data analytics area, but we want to do more in that area ourself natively as well.

John Cummings - Director, Investor Relations: All right, well. That about does it for today. Thanks so much everyone for joining us. If you have any follow-up questions you can contact us at investor@salesforce.com Q1 performance in May. Thank you, so much.

Operator: This concludes today's conference call. You may now disconnect.