CRM - Q4 2014 Salesforce.Com, Inc

THOMSON REUTERS STREETEVENTS EDITED TRANSCRIPT CRM - Q4 2014 Salesforce.com, Inc. Earnings Conference Call

EVENT DATE/TIME: FEBRUARY 27, 2014 / 10:00PM GMT

OVERVIEW: CRM reported FY14 revenues of $4.071b and non-GAAP EPS of $0.35. 4Q14 revenues were $1.145b and non-GAAP EPS was $0.07. Expects FY15 revenues to be $5.25-5.30b and non-GAAP EPS to be $0.48-0.50. Expects 1Q15 revenues to be $1.205-1.210b and non-GAAP EPS to be $0.09-0.10.

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CORPORATE PARTICIPANTS John Cummings Salesforce.com Inc - Senior Director, IR Marc Benioff Salesforce.com Inc - CEO Graham Smith Salesforce.com Inc - CFO

CONFERENCE CALL PARTICIPANTS Kash Rangan BofA Merrill Lynch - Analyst Keith Weiss Morgan Stanley - Analyst Mark Murphy Piper Jaffray & Co. - Analyst Raimo Lenschow Barclays Capital - Analyst Heather Bellini Goldman Sachs - Analyst Ross MacMillan Jefferies & Company - Analyst Brent Thill UBS - Analyst Brad Zelnick Macquarie Securities - Analyst Brendan Barnicle Pacific Crest Securities - Analyst Phil Winslow Credit Suisse - Analyst Samad Samana FBR Capital Markets - Analyst

PRESENTATION Operator Good afternoon. My name is Christy, and I will be your conference operator today. At this time, I would like to welcome everyone to the CRM Q4 FY14 earnings conference call.

(Operator Instructions)

Thank you. Mr. John Cummings, Senior Director of Investor Relations, you may begin your conference.

John Cummings - Salesforce.com Inc - Senior Director, IR Thanks so much, Christy.

Good afternoon, and thanks for joining us to discuss our fiscal fourth-quarter and full-year 2014 results. Our fourth-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 post the highlights of today's call on Twitter at the handle @Salesforce_IR.

On the call today are Marc Benioff, Chief Executive Officer, and Graham Smith, Chief Financial Officer. Marc and Graham will open with a few remarks, and then we will open the call for questions.

Our commentary today will primarily be in non-GAAP terms. Reconciliations between our GAAP and non-GAAP results and guidance can be found in our earnings press release issued earlier today.

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During the call, we may offer additional metrics to provide further insight into our business or results. This detail may or may not be provided in the future.

We may also reference certain unreleased services or features not yet available. We cannot guarantee future timing or availability of these services or feature, and so recommend that customers make purchase decisions based on services and features currently available.

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

A description of risks, uncertainties and assumptions and other risk factors that could affect our financial results are included in our SEC filings, included in our most recent report on Form 10-Q, particularly under the heading risk factors.

So with that, I will turn the call over to Marc.

Marc Benioff - Salesforce.com Inc - CEO All right. Fantastic.

Well, thank you so much, really appreciate it. And I -- first of all, before we get started, John, I just want to tell everyone that I am thrilled to announce that just this morning Salesforce was named by Fortune magazine as the world's number one most admired software company. It is the second year in a row that we have received this tremendous recognition from Fortune Magazine. I just want to thank them so much, and we are delighted to have that honor.

And I would also like to congratulate our team here at Salesforce for just an outstanding performance for our fourth quarter and fiscal year. I just want to thank all of our employees, our customers, our partners, everyone, we, as I am sure everyone can see by our numbers, we had a spectacular finish to yet another what is absolutely another year of just exceptional growth.

Now if you hadn't had a chance to look at the numbers, you will see that revenue for the fourth quarter rose 37% from a year ago to $1.15 billion, and our full fiscal year 2014 revenue grew 33% to more than $4 billion. And we are about to push through this $5 billion milestone run rate any minute, you can see that. No other software company of our size and scale is growing at this speed.

Deferred revenue grew by 35% year over year to more than $2.5 billion, and the dollar value of booked business on and off the balance sheet is now at $7 billion. And I am sure everyone has seen that we have raised our guidance by $100 million, which is really unusual, and just really speaks to the acceleration that we have had in our business to [$5.3] billion. We are going to get into that detail in a moment.

Now during the quarter, we significantly grew the number of seven and eight-figure transactions, compared to the fourth quarter of last year. We had more than 200 transactions in the quarter that were seven-figures or more, including more than 10 eight-figure transactions. And that is just really exceptional for a software company in the CRM space, and CRM to do -- see more than 200 transactions that were seven-figures or greater is just incredible. I know that none of our peers are seeing these large transaction volume like this.

In addition, I am also delighted to announce that we are raising our FY15 revenue guidance by $100 million to $5.3 billion, which is the full-year growth rate of 30% at the high end of our range. We couldn't be more happy about that, and we are committed to improving non-GAAP profitability by 125 to 150 basis points, which is a huge goal of mine for this year, and increasing cash flow growth this year, while also continuing to deliver on this outstanding pace of top line growth. So just a great job by the Company and I just want to congratulate everybody.

For 15 years, Salesforce has been the catalyst and evangelist for innovation enterprise software, and now we can really see the next-generation has occurred. Customers are really connecting with their customers in entirely new ways, we are benefiting from that.

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We are absolutely entering this third wave of computing, where everything is connected, and the customer relationship management really is the heart of all of this, because behind every tweet, behind every app, behind everything, is a customer. And this is our message, as we get out on tour, that everything that is happening is about the customer.

And this vision has opened a door for thousands of companies, and empowered them to connect with their customers in a deeper way, through this next-generation devices, apps and products. If you were at Dreamforce, more than 140,000 people registered to attend Experience the Power of Dreamforce this year, and they saw Salesforce1. And Salesforce1, for everyone who has used it, for the 250 ISVs who are building on top of it, for all the custom code that has already been deployed on it by our customers. It is just a radically new customer platform for the Internet of customers, that is social, it is mobile, it is cloud, and it connects everything.

I use it everyday myself, and I will tell you a story. We were closing out our fiscal year. It was end of January, and I was invited by a friend of mine, Walter Robb, who uses Dreamforce -- he is [co-CEO] of Whole Foods to come down and be in a dinner in Arizona. Everyone, of course, is enjoying their dinner, and under the table I have my iPhone and I am able to see with all my analytics, and everything exactly how the quarter is closing out.

I don't think there is probably too many CEOs who have that power today. But it is something that everybody needs, because everybody wants to run their business on their phone. Because Salesforce1 was built to API first, because it can connect with anything and everything. It runs in all these mobile devices, completely transforms how you run your business.

And I am thrilled to announce that we have more than 250 major ISVs who have signed up to build Salesforce1 apps on our App Exchange, and more than 30 Salesforce1 apps like Evernote and Dropbox and LinkedIn and HP are live on the App Exchange today. That is really exciting.

Our focus on the customer success, the adoption of our technology, making these technology market transitions, the movement to things like mobile, the movement to cloud, the movement to social, the movement to the world -- connected world. That really has defined Salesforce over the last 15 years. And it is why you see today, the Service Cloud is the world's number-one platform for customer service and support.

And in this new Forrester Wave, which I looked at these Forrester Waves as my guide to where the industry is going, Forrester is just a phenomenal research organization. They have really just changed the game, when it comes to research in the technology industry.

I was with their CEO at the World Economic Forum. He keynoted, and led the kickoff panel for the World Economic Forum this year. I mean, we have really seen this incredible shift.

In addition to our Service Cloud, with desk.com, we are bringing this whole customer service concept to small businesses as well, and that has been just an incredible addition to our momentum.

The ExactTarget Marketing Cloud is the world's most powerful customer platform for one-to-one marketing, probably one of the really great accomplishments of the year. Not just Salesforce1, but also the ExactTarget Marketing Cloud, really defining the Salesforce as the absolute leader in marketing today.

And I mentioned Forrester, according to them, spending on digital marketing was going to double in five years and represent 30% of total marketing spend by 2017. And I think you have heard me say, that I really think that it is imminent that CMOs are going to be spending more on technology then CIOs.

Our flagship Sales Cloud is the world's number one platform for sales. Undisputed leader in CRM, according to IDC, another phenomenal research organization. And in addition, we are consistently ranked as well in that area by Forrester as well.

So really cool growth in sales, in service, in marketing, which are huge growth areas for industry, and in our platform, the number one platform for developing next-generation apps. Of course, we have this incredible trifecta with Force.com, Heroku and Fuel, which is the ExactTarget platform. And the ability to build these next generation apps is why more than 1.5 million app developers are now on our platforms, up 50% from last year, thousands of ISVs developing on our platforms, so much activity on the App Exchange.

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So many new mobile apps happening on Salesforce1. So many new marketing apps happening on Fuel. Phenomenal productivity of developers with Heroku, especially these Ruby developers just love Heroku.

And now, with our next-generation of service marketing, sales and platform technologies, these companies have all the tools they need to connect with their customers in these new ways. And for example, Humana, who is one of the largest healthcare providers in the US selected our Service Cloud in the quarter to embed a service button right inside their apps.

We saw that also at Dreamforce, we saw Phillips embed a service button right on their ultrasound machine. That is obviously a huge trend. And everybody needs a Service Cloud, and everybody needs a help button on their product, a physical button or a virtual button.

In the quarter, we also strengthened our partnership with General Electric, in their oil and gas group. They selected Service Cloud, ExactTarget Marketing Cloud, and the platform to connect drilling and exploration equipment. Great, obviously, a huge -- I am a huge fan of General Electric, and their CEO spoke at Dreamforce in the previous year. Maersk, one of the world's largest shipping and transportation companies selected our Service Cloud and Salesforce1 to bring all their customer products and supply chain together.

So the pace at which these companies are embracing our next-generation customer platform is phenomenal. Our progress with Salesforce1 is phenomenal, our progress with the Marketing Cloud is phenomenal. And of course, we also brought in an incredible new distribution leader this year with Keith Block, who has completely transformed how we are going to market. And taking those three things into consideration, I am absolutely thrilled to tell you that our service delivered more than 100 billion transactions in the quarter, up 49% from year ago, an average of more than 1.7 billion transactions every single business day.

And nothing speaks more to the value of Salesforce, than the actual usage of our products, their adoption, the speed, the reliability, the trust that our customers come to expect. And that customer success is why I am also pleased to announce that our attrition is down to the lowest levels we have seen in the history of our Company.

So very exciting progress by our organization in that area. Look, it has been a spectacular year for Salesforce, for our customers, our partners, our employees. We are looking forward to being the first enterprise cloud company to achieve more than $5 billion in revenue this year.

And before I close, I do want to let you know we are out on tour again. We have our Salesforce1 world tour. You may have come to see me, already kicked that off in New York.

You can come to Philadelphia on March 6, to the Pennsylvania Convention center. You can come to Melbourne on March 26, Boston on April 2, Chicago on April 24, London on May 22, Amsterdam on May 27, Washington, DC on May 29, Atlanta on June 12, Toronto on June 25, Paris on June 26.

I am going to be really busy this year, but we have got a huge message to get out there, that the world is going social. It is going mobile. It is going cloud, and it is getting connected.

That it is an Internet of customers, that, behind every app, behind every device, behind everything, behind the internet of everything, is a customer. If you can connect with that customer in a whole new way, you can have the same great success with your business, that we are having with our business. And we wish that for all of our customers. It has been a banner year, and I am absolutely thrilled to do that.

And I want to just say, Graham is about to give his comments. And Graham, your contribution to the Company of success over the past six years can't be overstated. It has been amazing, and we are announcing your retirement on the call.

You are going to be leaving the Company in a little bit more than a year from now, in March of 2015. It is something that you and I have talked about for some time. It is something that you want to do, and I respect very much, because you just delivered phenomenal success for us, and you are leaving our Company in an incredibly great financial position. And we are thrilled to have one more exciting year for you coming up.

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We will be sorry to see you go, of course, and we have a world-class set of financial professionals who work so closely with Graham. But Graham, you are a phenomenal CFO. So thank you for everything you did for the Company.

Graham Smith - Salesforce.com Inc - CFO All right. Thank you, Marc.

Well, yes, it is, we are going to have an epic 2015. And so, that is a great, hopefully going to be just a fantastic year to finish my spell here at Salesforce.com. But before I get into that, let me just spend a little bit of time on the financial details.

As Marc has described, we had just a great year at Salesforce, we closed the largest acquisition in our history. We launched our Salesforce1 platform, and we added a number of industry-leading executives to the team.

And our financial results this year were just outstanding, with strong growth in revenue, deferred revenue and operating cash flow. We saw strength across both our enterprise and commercial businesses, and ExactTarget posted just a terrific finish to the year.

In addition, we achieved a new milestone of customer success with attrition dropping to record lows. I will give you a little more detail on that in a second.

Let me take you through the highlights of the quarter and the year, starting with revenue and EPS. So fourth-quarter revenue was $1.145 billion, that is up 37% over Q4 last year. If you exclude the FX headwind of approximately $3 million, Q4 revenue was actually of 38%.

ExactTarget contributed approximately $96 million to revenue in the fourth quarter, which was higher than we expected. Non-GAAP EPS for fourth quarter was $0.07, that was $0.01 ahead of our expectations.

Full-year revenue was $4.071 billion, that is up 33% over fiscal 2013. Excluding an FX headwind of approximately $24 million, full-year revenue was up 34% year over year. ExactTarget contributed approximately $194 million to revenue for the full year. Full year non-GAAP EPS was $0.35.

Looking at Q4, year-over-year growth on a regional basis, Americas revenue grew 41% to $821 million. Revenue in Europe grew also 41% in dollars, 35% in constant currency to $210 million, and revenue in Asia increased 12% in dollars, and 24% in constant currency to $115 million.

As mentioned, dollar attrition in the fourth quarter, now that is excluding ExactTarget, the dollar attrition in all our business excluding ExactTarget dipped below 10%. So it is a high single-digit number for the first time. That is a new record low in the history of the Company. So just an amazing result for us, to finish the year.

Turning to margins, fourth quarter non-GAAP gross margin was [80]%, while our Q4 non-GAAP operating margin was 6.9%. For the full year non-GAAP gross margin was also [80]%, and our non-GAAP operating margin was [8.9]%. The reduction in our full-year margins reflect the acquisition of ExactTarget, as well as the Oracle license agreement we signed during the year.

Our Q4 operating margin was further impacted by the occurrence of Dreamforce in November, where as last year Dreamforce was included in our Q3 results.

Turning to hiring, we added more than 500 people in the fourth quarter, and more than 3,500 new employees in the full fiscal year, bringing our total headcount to just over 13,300. That is up 36% over last year.

Turning to the balance sheet, we ended the year with approximately $1.3 billion in cash and marketable securities. That is down from approximately $1.8 billion last year. Accounts receivable was up 56% over last year to approximately $1.4 billion.

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Deferred revenue ended the year at $2.5 billion, up 35% over last year, including approximately $99 million related to ExactTarget. Excluding approximately $8 million of year-over-year FX headwind, deferred revenue increased 36%. On a sequential quarter basis, deferred revenue also had an FX headwind of approximately $8 million.

Deferred revenue continued to benefit from the residual effects of multiple year invoices from the continued shift toward annual billing. The combined benefit to deferred revenue in Q4 was approximately $75 million, up from $67 million sequentially, but down from $125 million in Q4 last year.

As we mentioned in Q3, given the declining impact from the shift to annual invoicing we initiated actually over two years ago now, this will be the last time we provide the specific dollar impact on deferred revenue. However, we do plan to continue to provide the proportion of annual invoices issued in the quarter.

Excluding ExactTarget, approximately 83% of the value of all subscriptions support-related invoices were issued with annual terms in Q4. That is compared with approximately 80% in Q4 last year. And for ExactTarget, we were really pleased to see improvements in their mix of annual billing in Q4, which increased approximately 10 points over Q4 last year. So great progress there.

Unbilled deferred revenue, or revenue that is contracted but not yet invoiced and is off the balance sheet was approximately $4.5 billion in Q4. That is an increase of approximately 29% over the last year.

Turning to cash flow, Q4 operating cash flow was $271 million, down 4% over Q4 last year, but actually above our expectations. And for the full fiscal year, operating cash flow was $875 million, up 19% over fiscal 2013. So a very strong result, when you consider that ExactTarget reduced our full-year operating cash flow by more than $50 million during the year.

CapEx was $70 million in fourth quarter, up 38% year over year, and $299 million for the full year, that is up 70% over last year. The year-over-year increase in CapEx was principally related to new office build-outs, and to a lesser extent ExactTarget. CapEx as a percent of revenue in the fourth quarter was 6% unchanged from Q4 last year.

Free cash flow, which we define as operating cash flow is CapEx was $201 million in fourth quarter, down 13% from last year. For the full-year, free cash flow was $576 million, up 3% over FY13.

Turning to guidance. With our strong finish to FY14, we are delighted to be raising our full-year 2015 revenue outlook by $100 million to $5.25 billion to $5.3 billion. And that gives year-over-year revenue growth range of 29% to 30%.

As you heard from Marc and me, we are committed to improving our non-GAAP margins. We expect full-year non-GAAP EPS in the range of $0.48 to $0.50, which implies an increase in our non-GAAP operating margins of 125 to 150 basis points, and that assumes no significant M&A activity during the year. Our FY15 non-GAAP EPS also assumes that other income expense will continue to be a net expense, and we are also assuming a non-GAAP tax rate of 36.5%.

We made some changes to our non-GAAP tax forecasting, so let me just spend a minute to provide some color on that. In an effort to provide more consistency for guidance and reporting purposes, we will begin using a fixed, long-term non-GAAP projected tax rate, in this case 36.5%. This non-GAAP tax rate eliminate the effects of non recurring and period-specific items, which can vary and have certainly varied in size and frequency.

We will provide updates to this fixed rate annually, or if a situation arises or causes significant change to our assumptions around the projected rate, and continue to provide a reconciliation of our GAAP to non-GAAP tax rate in the detailed financials, under income tax effects and adjustments.

For FY15, we expect operating cash flow to grow in the mid-20% range, and expect CapEx to be approximately 5% to 7% of revenue, in line with historical averages.

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Turning to Q1, we anticipate revenue in the range of $1.205 billion to $1.21 billion, representing year-over-year growth of 35% to 36%. We expect non-GAAP EPS in the range of $0.09 to $0.10, and we expect Q1 deferred revenue growth to be in the low 30%s range.

During the first quarter, we are committed to repaying in cash an aggregate principal balance of more than $280 million related to conversions of our $575 million 75 basis points senior notes which we issued in January, just 4.5 years ago, so they are due January 2015. And we will likely see continued conversions during fiscal 2015, which will have an impact on our cash flow as well as our financing cash flows, (inaudible) actually on cash balance, as our financing cash flows is spread throughout the year.

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

Just before moving on to Q&A, I want to briefly address my future retirement, that Marc talked about, that we announced today. I could not be more convinced of Salesforce.com's long-term success.

This year, we will celebrate our 15th anniversary, and also pass our 10th year as a public company, and I am sure over the next decade we will see Salesforce.com to grow to be one of the very largest software companies in the world. And I have really enjoyed being part of the Salesforce team for the past six years, and I want to thank everybody who have I worked with, both within Salesforce and our advisors for helping me and the Company be so successful. And I look forward to helping the executive team with the CFO search process and oversee ensuring a very smooth transition for the next 13 months.

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

Okay. Before we do that, I just want to come back and just say, Graham, thank you so much for your contribution to our success of the last six years. I really can't overstate what you have done for the Company, and when you are, with this retirement, you are going to leave an unbelievable legacy, and I couldn't be more grateful. So thank you very much.

And Graham will be speaking next week at the Raymond James conference in Florida, so come and see Graham there. And I will also be speaking at the Morgan Stanley conference here in San Francisco on Tuesday, at 12 PM to 12.40 PM, and I will be also joined by our Chief Accounting Officer, Joe Allanson. So please come, and see me and Joe on Tuesday. All right.

And so, with that, I will turn it over to questions.

QUESTIONS AND ANSWERS Operator (Operator Instructions)

Your first question comes from Kash Rangan with Merrill Lynch.

Kash Rangan - BofA Merrill Lynch - Analyst Hi, thank you very much. Graham, if you are looking for career and advice on what to do next, I highly recommend sell-side equity research. But Marc for you. Can you talk more about the platform? Obviously, you launched Salesforce1 with a mobile-centric approach to the market. Can you talk about some of the largest transactions that the Company is pulling down, especially post Salesforce1? And how does the composition of your business look two or three years from now, vis-a-vis a healthy Sales Cloud and Service Cloud all relative to the platform? Thank you very much. That's it for me.

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Marc Benioff - Salesforce.com Inc - CEO Well, I really appreciate that question, because it really is the heart of our strategy, and something to I spend a huge amount of my personal time this year, getting Salesforce1 right. You know, Kash, because you follow enterprise software so closely that I don't think there is any company whose enterprise software has moved as well as ours has to the phone. And not only do we have a compelling mobile experience for our sales service and Marketing Clouds, but you can also build your own custom applications, and deploy whatever you need to automate your company right onto the phone. And as an ISV, you can also publish right into Salesforce1. It looks a lot like Facebook or Twitter does on an iPhone or an android, but you are running your business.

We are the first ones there. It is a huge competitive advantage for Salesforce. It is a critical part of every sales cycle, and we are moving into a phone world. I have said this on the call before, I strongly believe in the future of the phone. I think phones are getting larger, faster, and that your software has to run really well on the phone and ours does, and perhaps only ours does.

I think that is certainly true today. I don't know for how long that will be true for but I haven't seen anyone else really deliver a vision of enterprise software on the phone. On my phone, I can manage my feed, I can manage all of my groups, my -- all my employee information, my analytics dashboards, my schedules. And all the critical ISV apps as well that I use, as well with custom apps. I mean, at Salesforce, we have just some really great apps that we have deployed internally that are custom to us. Everything from managing our IT trouble tickets, to even giving feedback on Salesforce1 to create a task for customers for life organization. And it is the heart of everything we do.

Now we have got a lot of horses in the race here, and we are not a single product company anymore. We are a multi-product company and we have got many product sales. Cloud is certainly a phenomenal success story, it is a multi-billion-dollar product line and Service Cloud is incredible. Marketing Cloud, you know what those numbers are, and you see that growth rate, platform is right there. So, we have got four incredible product lines and that is our focus today. The Sales Cloud, the Service Cloud, the Marketing Cloud and the platform. And it is certainly our goal that each one of those are multi-billion-dollar products. That is our strategic direction.

We are very focused on the strategies, the communications, the branding, the acquisitions necessary to make sure that those four things are all multi-billion-dollar products. And there aren't that many companies in our industry who been able to deliver that kind of multi-product success, but we have. We have a clear strategy. And those are kind our, kind of the four legs of our stool, and we are going to continue to execute on that. And we believe that the customer is the heart of that strategy, that we have everything necessary to connect with the customers in a whole new way. And for these customers, who are signing these huge deals with us, the Salesforce1 is the core platform, with this sales service marketing platform strategy. We have got the right story, and we have the right solution, and you can go to the App Store, or GooglePlay store right now and downloaded, and use it and try it and you can see it. It is phenomenal.

Operator Your next question come from Keith Weiss with Morgan Stanley.

Keith Weiss - Morgan Stanley - Analyst Excellent. Thank you, and Graham, it has been a pleasure working with you over the past six years. And I am going to direct a question in your way. The reduction in the attrition rate to under 10%, it is a great accomplishment. I think it talks a lot about sort of the stickiness of the Salesforce.com solution increasing the strategic-ness of the solution, but I think it and also talks to sort of the operational controls that you have put in place. The question after that is, do think there is room for further improvement in that? As your product offerings get more strategic, and maybe from an operational perspective to get that attrition rate even lower?

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Graham Smith - Salesforce.com Inc - CFO Yes, thanks. We are obviously delighted to see that rate finally drop below 10%. It feels like -- I think it is 18 points -- it has been a long journey, but I think there is certainly still room for improvement. And I think, we have talked in the past about the different programs we have, the early warning systems we have, the shift to enterprise. And I think, clearly bringing in the new leadership team, with Keith Block and Tony Fernicola, has certainly added to that just absolute credibility in the enterprise space. And we frankly, see very, very low attrition rates in enterprise.

And so for us, it is a lot more about working on the mid market and small business, and I think you will see us continue to do that. I don't think you should expect that -- you have seen that the rate of decline has been slow and steady. And I think we will l be working hard to keep that basically keep that going over the next few years. I don't really -- it's impossible for me to give your a credible forecast, but it think it can certainly can go lower over time, if we keep working at it.

Operator Your next question comes from Mike -- Mark Murphy with Piper Jaffray.

Mark Murphy - Piper Jaffray & Co. - Analyst Yes. Thank you very much, Marc. When you consider how the marketing battle is developing, and in particular as it relates to Adobe, how are you thinking about some of Adobe's competencies including content management and website analytics. How do you think Adobe and maybe Oracle feel about taking on Salesforce's dominant leadership position in some of the leadership areas that are going to be so synergistic to marketing? In other words, the Sales Cloud and the Service Cloud, do think it's really feasible to try to become a system of engagement, if you don't own those assets?

Marc Benioff - Salesforce.com Inc - CEO Well, I love Adobe. I have used their products since I was at Apple, when they created postscript for the laser printers. And those founders who still guide that company are two of the most visionary people, I think in the industry, and it is a great organization. They obviously participate in the marketing of the market and so do we, and so do others because it's a big market. And as we said, CMOs are going to be spending more on technology than CIOs.

And I think that this is not a zero-sum game. I think there is plenty of room for everybody. And I have been investing, as you probably know for two or three years now, because we believe so strongly in this, and we bought quite a few assets, and tried a lot of different things. Because we had to kind of find our way through this opportunity, and we certainly have done that. And you can see we bought the premier asset in the market last year. There is just no question. We are number one in email marketing, we are number one in social listening. We are number one in our social publishing. We are number one and social advertising, with social.com, which is the number one provider of services to advertisers on Facebook. I think it manages about 10% of Facebook's ad spend, approximately, and we just see a lot of potential going forward.

One of the most exciting things with the ExactTarget, is the complete reconceptualization of their product into Journey Builder. And for those who have seen us now demonstrate that, it is a whole new vision for the marketer that is getting a great response. As part of the ExactTarget acquisition, I think we also ended up with a phenomenal asset called Pardot, which was actually a huge part of the quarter. It was one of the absolute fastest growing products we have ever seen. It is a tightly integrated with our Sales Cloud, and will be even more tightly integrated. It competes in that lead nurturing marketplace and that's another area.

There is a lot of different places to play in marketing, and I think that we are absolutely a player in marketing. I think one of our key assets, of course, is our large and extremely well-run direct sales organization. Also, that customers want that Marketing Cloud to be tightly integrated with what they are doing with sales and service. But I want to make it clear, I really think that there is plenty of room here for everybody. There is a lot of great companies out there. Adobe is a great company, and we are going to be -- we are going to be the number one marketing cloud in the world.

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Operator Your next question comes from Raimo Lenschow with Barclays.

Raimo Lenschow - Barclays Capital - Analyst Thank you. Graham, it was great working with you, and maybe don't listen to Kash on the career advice. A quick one. This quarter we saw a big increase in large deals. Can you talk a little bit about the drivers there? How much of that was Keith Block already, and how much can we expect more from him? And how much was customers buying into division of Salesforce, in terms of Salesforce1 and the [Xana] product. So we just kind of had, is this just kind of the beginning a trend that will continue? Thank you.

Marc Benioff - Salesforce.com Inc - CEO Well, thank you. I think if you look at large deals for Salesforce, they do tend to be quite seasonal. you will see in the end of our fiscal year. Our sales reps tend to architect their own compensation plans to culminate in a large transaction at the end of the fiscal year is kind of the nature of the enterprise software business. If you go back and look at, we tend to report at the end of every the year, a number of large transactions in the fourth quarter that occur. I think you will see that we have just had really good symmetrical growth of our large transactions, but also our small and medium transactions as well. We have run a full portfolio of business, a full portfolio of geographies.

The large enterprise business is important, the small businesses is important, the medium business is important. We have a complex distribution organization, which is why we are so fortunate to this year to attract a great leader, Keith Block to run that for us. He is also a member of our Board of Directors. He has done a great job. He has hired a great management team, and we couldn't I think be better positioned for continued excellence in distribution.

Graham Smith - Salesforce.com Inc - CFO And Raimo, just a reminder on the numbers. So we reported more than 207 eight digit transactions this quarter. Q4 a year ago was over a 150, so that more or less narrows that growth rate in the 30%-plus range. So Mark says, very kind of symmetric growth.

Marc Benioff - Salesforce.com Inc - CEO I think that's really the most important thing. Because as the CEO, I want all aspects of the business to be growing with equanimity, and that we don't leave anyone segment or any one geography behind. Because the strength of the company and the reason why you see Salesforce delivering a 37% growth opportunity here, is because we manage that full portfolio of revenue. We have talked about that on a number of calls. But we have done that very well, and that is a key part of our strategy. And I don't like to overemphasize any one area. But in the enterprise, like I said, I don't know any other company that has gotten close to more than 200 transactions in the seven- and eight-digit category in customer relationship management enterprise software, this quarter or any quarter before this.

Operator Your next question comes from Heather Bellini with Goldman Sachs.

Heather Bellini - Goldman Sachs - Analyst Great, thank you. Congratulations, and yes, Graham, I echo everyone's thoughts and you will definitely be missed. My question, Marc is, I guess I have two questions, one for Marc and one for Graham. Marc, how do you think about the integration of your Marketing Cloud assets? And how

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©2014 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. FEBRUARY 27, 2014 / 10:00PM, CRM - Q4 2014 Salesforce.com, Inc. Earnings Conference Call important will the ultimate of these assets be to further inflect in the growth, that you are seeing in that cloud to kind of get to the vision that you are talking about a few years down the road? And then, I have got a follow-up for Graham.

Marc Benioff - Salesforce.com Inc - CEO Well, thanks, Heather. As usual, I think your question is actually something that is very relevant for where we are right now, and I will tell you exactly how I think about this. In the marketing area, some parts need to be very deeply integrated and some parts can be loosely coupled. In the deeply integrated area, lead nurturing for example with Pardot, if you go to pardot.com, and you go to Pardot.com, land you look at the website and you look at the integration that we are -- have done so far, I think the between now and Dreamforce, you will see a extremely deep integration between Salesforce and Pardot.

We continue to scale that business and grow it, and make sure that it is integrated extremely deeply to our core. With ExactTarget, that unit is more loosely coupled, because many of the key areas that it focuses on, do not need to be as deeply integrated as the Pardot asset. Still, we can have shared contacts, we can integrate our Service Cloud, we can bring in our consoles. But at the end of the day, I believe that those marketers are going to want a control panel to build and run their business, and I believe that's going to look a lot like ExactTarget. You can see how we have already integrated Salesforce core services and Salesforce platform with Journey Builder. You are going to see more things like that. And it is just a very, area exciting time for the marketers, and you won't hear me say it enough, that I think we have the premier asset, premier platform, and we are going to continue to see some excellence out of ExactTarget and our Indianapolis team.

Heather Bellini - Goldman Sachs - Analyst Okay, great. And just a follow-up for Graham would be, Graham, I might have missed it. But did you give what ExactTarget did for deferred in the quarter?

Graham Smith - Salesforce.com Inc - CFO Yes. It was $99 million, right, $99 million.

Marc Benioff - Salesforce.com Inc - CEO Thank you.

Operator Your next question comes from Ross MacMillan with Jefferies.

Ross MacMillan - Jefferies & Company - Analyst Thanks, Marc, and Graham, congratulations on your time at Salesforce, and all the very best for when you do ultimately leave the Company. Marc, I had a question also on platform, I guess is with the success you are seeing with Salesforce1, does that change your view on the time frame on which the platform can get to $1 billion of ARR? And does it change your view on the platform addressable market? Thanks.

Marc Benioff - Salesforce.com Inc - CEO Well, I think Salesforce1 is an accelerator on the platform. I also think that Heroku is an accelerator on the platform. I think Fuel from ExactTarget is an accelerator on the platform. That these three things together really make a phenomenal platform. I couldn't be more excited with Salesforce1

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©2014 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. FEBRUARY 27, 2014 / 10:00PM, CRM - Q4 2014 Salesforce.com, Inc. Earnings Conference Call and how it is going for our customers. As I have said, our own success with that, inside the Company speaks to what it can do for our customers, to our ability to compete in the markets, differentiate ourselves, to make our customers successful in the phone environment.

We are all-in on iOS, we are all-in on Android. It is great on phones, it is great on tablets. I know that it has got a lot of upside. If you haven't followed the success of Heroku in the Ruby world. Since we acquired that asset, it has been a rocket ship.

And that continues to be a huge part of our message to developers, especially in building interaction applications. We saw some great stories, especially in the enterprise of this quarter with Heroku. One very large retailer, I don't want to get into the details. Because I don't know if we have approval to use their name or not, needed in a crisis situation to rapidly deploy a very large application, and they built it and deployed it in Heroku, and it was a huge success for them. I can tell you with Fuel, that one of the real assets of ExactTarget is that it is not just an app, but it is a platform, and that they very much have our strategy. It is integrated with a lot of key ISV apps. And it is that trifecta of Salesforce1, Fuel and Heroku that just give us three tremendous platform assets, to really go after any task in building a custom capability for the customer.

Operator Your next question comes from Brent Thill with UBS.

Brent Thill - UBS - Analyst Graham, congrats on a great run. Marc, Keith spoke at Dreamforce about the transition to vertical engagement with customers. I know earlier, you had mentioned you didn't want to go more vertical with the product, but can you talk about this progression, and the potential change in strategy, and how you think this impacts your engagement in the field with customers?

Marc Benioff - Salesforce.com Inc - CEO Well, I think it's a very important strategy. It's actually a strategy that we have executed in the Company, but Keith is definitely emphasizing it. And customers by segment want more value from us, and want us to be able to speak to them in their own language, to be able bring value to them, to bring systems integrators. I think a great, our story is our tremendous success in the pharmaceutical area with Veeva. You can see that has been very much one of our key focuses, making sure that we have a dominant position in pharmaceutical.

The key ISV that we have worked with there, and it has been a great story. You talk to those big pharmaceutical companies, well, that is a model for us for other industries. We want to align ISVs, we want to align marketing, branding. We want to bring in other key resources, so that we can create success by vertical. I think Keith has a vision and clarity around that, that is even bigger than we had before he came here, and we are letting him run that with all of his gusto.

Operator Your next question comes from Brad Zelnick with Macquarie.

Brad Zelnick - Macquarie Securities - Analyst Thank you very much. Graham, not only would I be an outlier if I didn't echo the sentiment of my peers. But I truly mean it, and wish you the best and congratulations on your achievements. Marc, the question is for you. Can you talk about what you are doing with EdgeSpring, and specifically when it comes to Big Data and new memory analytics, how much of an opportunity is there to embed these capabilities into your existing clouds versus a separate distinct analytics cloud?

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Marc Benioff - Salesforce.com Inc - CEO Well, thanks for that question, because, I am a huge believer in Big Data. And I am a huge believer in analytics and reporting dashboards. You will see with Salesforce, that probably was the most undercovered, underreported story of Dreamforce, is what we delivered in analytics and reporting, a lot of that, with some of these great new leaders that we acquired this year. If you go and take a look, at what we could do for customers today with our new next-generation reporting engine, next-generation dashboards, I don't think there is a Company that delivers more dashboards and more reports and more analytics to customers every day than Salesforce. I haven't seen it.

We are -- I know that in my own case, as I said in my story, January 31, I am in Arizona, I am at dinner, it is a great dinner. But I want to know how the quarter is doing, and I am just able to look down and glance at my phone, and I have got incredible realtime analytics happening and dashboards and reports. And I know exactly what is happening with the quarter. And I think, every CEO, every head of sales, every head of service, every head of marketing manager, mid-manager needs that same capability. And we are delivering that in a social world.

It shows up in my feed. In a mobile world, it shows up in my phone. In a cloud world, it shows up deeply integrated with our services. And we are definitely evaluating and looking at all the places that we can put those analytics and dashboards. Customers have come to us and said that there's more for us to do, which is why we have made his investments. And I think if you go and look at what we have already delivered, you will be hugely surprised, and you will see the emergence of some great new capabilities at Salesforce.

Operator Your next question comes from Brendan Barnicle with Pacific Crest.

Brendan Barnicle - Pacific Crest Securities - Analyst Thanks so much. Marc, I wanted to ask a follow-up to Brent Thill's question. As you move more into the verticals and the Salesforce, how do you make sure that you are not perceived as some sort of threat to the next generation of Veeva's and vertical specific vendors that might want to build on the platform?

Marc Benioff - Salesforce.com Inc - CEO So, I really appreciate that. When there is an ISV or there is someone building on our platform, we want to invest in them and partner with them. We have been a very partner-friendly organization. We have a huge investment fund. I think it is probably one of the largest investment funds in the industry. We don't talk about it or brand it. But I can tell you that we invest and we have had great returns. I just reviewed our investment fund returns and we invest in the cloud competing companies that are building on Salesforce, and on our platform and we want to help these ISVs be successful.

We want to give them the seed capital. We want to give them growth capital. We want to help them with distribution relationships. We want to help them with their marketing, their branding. We want to partner closely with them, and we have got some great success stories. We mentioned Veeva. I am sure you know ServiceMax. I am sure you know Kenandy, I am sure you know FinancialForce. I mean, you go to the App Exchange and look under native, and look at all the native apps that are there, and you will see that we are investing in those companies. And that is one of the reasons they are getting growth, is we are aligning to make them successful. We want those native apps providers to be successful, and we want to partner with them and we want them to grow and be a core part of our vertical strategy, absolutely.

Operator Your next question comes from Phil Winslow with Credit Suisse.

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Phil Winslow - Credit Suisse - Analyst Hello, congrats on another fabulous quarter. And again, Marc, just as you said, behind any tweet, there is a customer. Well, behind any great CEO, there is a great CFO. So congrats on your partnership, at least another year of it. But my question is, Marc, on the Service Cloud. A lot of times it has been a marketing on platform. What if you touch on what you are seeing in terms of trends across both Service Cloud actually, and desk.com, and just what are you seeing competitively out there? Thanks.

Marc Benioff - Salesforce.com Inc - CEO Well, I think customer services service is absolutely one of the most exciting areas. I mean, it is a big -- it has been a big investment area for us. We believe that there is huge opportunity in the enterprise, huge opportunity in the mid market, huge opportunity in the small market. We are -- we have a lot -- we have desk.com, which if you haven't seen the new version of desk that we released a few weeks ago, it is doing incredibly well. We are continuing to invest in the success of desk.com, which was an acquisition that we made over a year ago.

And we also have our Service Cloud, which was an acquisition that we did about five years ago. The leader of that company called InStranet, that was based in Paris, is now the head of our product organization, Alex Dayon and he has done a phenomenal job building that product, and I am very excited about the service. But I love all -- I love all of my children. I love the Sales Cloud, I love the Service Cloud, I love the Marketing Cloud and I love the platform. And I love all of our partners too, so all of our ISVs I would say. I guess, that would be the fifth thing. I probably don't talk about that enough.

John Cummings - Salesforce.com Inc - Senior Director, IR Chris, we have time for one more question.

Operator Your final question comes from the line of Samad Samana of FBR.

Samad Samana - FBR Capital Markets - Analyst Hello, good afternoon. Marc, Japan had the best constant currency quarter in a while after struggling in the prior few quarters. Were there to particular strategy changes that drove the improvement, or was it just a better demand environment in that region? And then as a follow-up to that, how penetrated is the core Sales Cloud outside the United States?

Marc Benioff - Salesforce.com Inc - CEO Yes. Well, I think that I will answer part of this, and then I will turn it over to Graham. I really think international remains a huge upside opportunity for Salesforce. We have invested very heavily in the United States market, which was a very good decision, because it is the mega market for enterprise software. We really only do business in a few countries. We do business in the United States, in Canada, in the United Kingdom, France, Germany. All which also performed really well. This year, Europe had a great year.

We did business in Japan. That has been a great story for us. We just moved into new headquarters in Japan, invited by the government to move into the JP Tower, the Japan Post Tower, which is a brand-new tower in the Marunouchi district. And we do business in Australia, and that is basically it. So we have a lot more opportunity and internationally, but we have a lot of opportunity in a lot of areas.

And so, every time a dollar comes up for investment, we debate it very closely here. Where we going to put it, internationally, in a city, in a country, and a product? Because in our industry, there is a lot of opportunity for growth, and we have been very fortunate to place those dollars correctly,

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©2014 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. FEBRUARY 27, 2014 / 10:00PM, CRM - Q4 2014 Salesforce.com, Inc. Earnings Conference Call and you saw a great outcome here on this fiscal year, delivering a 37% growth quarter, and a 33% year. And that is -- then the question is, okay, how much more are we going to put in all these various pieces? Graham, do you want to ? (Multiple Speakers).

Graham Smith - Salesforce.com Inc - CFO Yes, to remind people that obviously, Asia Pac is not just Japan, it is Japan and Asia and Australia, New Zealand. And certainly, we saw a little better execution in Japan and Australia in the fourth quarter. So I think that is really what has helped lift that constant currency growth rate a bit in the fourth quarter.

Samad Samana - FBR Capital Markets - Analyst Great. Thanks.

Marc Benioff - Salesforce.com Inc - CEO Thank you very much. And again, I just want to come back before we do and this call and I want to come back to Graham, and thank you again for your great contribution to the Company over the last six years. We are looking forward to working with you for the next 13 months. So I know you are not going anywhere.

Graham Smith - Salesforce.com Inc - CFO To [any where]. (Laughter).

Marc Benioff - Salesforce.com Inc - CEO But, we just -- we wanted to signal it now, so that we have an orderly transition of power. Many of you who have followed Salesforce know that Graham was not our first Chief Financial Officer. He is our third and he has absolutely done a phenomenal job. As we have gone through these CFO transitions before, we know that investors want to have a lot of heads up and transparency into the process. And s, that is why I'm so thrilled to be able to talk about this today with Graham.

Graham Smith - Salesforce.com Inc - CFO Great. Yes, Marc, it has obviously been just an amazing experience, as I have said. I can assure everybody, I am going to be working just as hard over the next 13 months, to make sure that everything goes right.

Marc Benioff - Salesforce.com Inc - CEO I will be making sure of that, as well. So no worries about that. (Laughter). I want to thank everyone for all their support for this fiscal year. We look forward to seeing you next week at the Raymond James conference, or at the Morgan Stanley conference, and please come on the road with us. We have got a great tour coming up.

Come and see us in Philly, come and see us in Melbourne, in Boston, Chicago, London, Amsterdam, in DC, Atlanta, Toronto, Paris. We have got many more, we got many more, come and meet and meet our customers, our partners. Come see Salesforce1 in action, and get ready for Dreamforce. Because Dreamforce is coming, in October, only a few short months away. The world's largest and most important technology show in the world of cloud computing, social and mobile and enterprise software is coming back to San Francisco. And we are going to have another incredible Dreamforce this year as well. So thanks, everybody, and we will see you next quarter.

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

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