Good evening. My name is Jason and I will be your conference operator today. At this time, I would like to welcome everyone to the Salesforce Fiscal Second Quarter Results Conference Call. [Operator Instructions] I would now like to turn the call over to John Cummings, Head of Investor Relations. Sir, you may begin your conference.

Thanks so much, Jason, and good afternoon, everyone, and thanks for joining us for our fiscal second quarter 2015 results conference call. Our second quarter results press release, SEC filings and a replay of today's call can be found on our new IR website, www.salesforce.com/investor. We'll also post highlights of today's call on Twitter at the handle @salesforce_IR. With me on the call today are Marc Benioff, Chief Executive Officer; Keith Block, President and Vice Chairman; Graham Smith, Executive Vice President; and Mark Hawkins, Chief Financial Officer. The team will share a few prepared remarks; then we'll turn the call over for questions. As a reminder, 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 release issued about an hour ago. During today's 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 the timing or availability of these services or features, so recommend that customers listening today make purchase decisions based on services and features currently available. Purpose of this call is to provide you with information regarding our fiscal second quarter results. Some of our comments may contain forward-looking statements, which are subject to risks, uncertainties and assumptions, and 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 factors that could affect our financial results are included in our SEC filings, including our most recent report on Form 10-Q, particularly under the heading Risk Factors. So with that, let me turn the call over to you, Marc.

Okay. Hey thanks so much, John. I really appreciate it. And first, let me tell you I am so pleased to welcome Mark Hawkins, our new CFO, to our team, and he is on the call with us today, and once again, our enduring thanks to Graham Smith for a phenomenal 6 years as CFO. And as you know, Graham is still with us as a full-time adviser to me and Mark, and he is doing that until the end of March. And Graham is also participating on the call today, as well as Keith Block, our Vice Chairman and President. And we're really excited to tell you all the amazing things going on in salesforce.com. First, I want to tell you I spent almost 1/3 of the quarter living in Europe and it was an amazing experience. I know many of you followed my trails on social media. I was -- we did very, very large customer programs in Paris, thousands of customers there, as well as in Munich. We opened our new Paris headquarters. We opened our new Salesforce tower in London, and it was just an incredible time. We profiled our work with amazing companies in Europe, including a huge deal that we launched with Philips, where they are becoming a software company and building their next-generation health applications right on the Salesforce Platform, and I was thrilled to have an incredible press conference with the Philips CEO while I was in Paris. And then we were able to profile some amazing work that we're doing for Louis Vuitton, where we've rolled out a global clientele-ing app, really profiling one of France's most important companies, LVMH, and our incredible work for them. And then we moved on to Germany, and we did the same thing with an…

Thanks, Marc. Listen, Q2 was absolutely an outstanding quarter and we continue to acquire and expand meaningful and strategic relationships with enterprises of all sizes, in every region, across every segment and major industry. In fact, we had significant double-digit growth and a number of large deals in the quarter and -- which was terrific. And a lot of them were net new logos, which is really an indication of the type of success we're seeing in our enterprise growth strategy. I'm incredibly proud of the entire distribution team and what we've achieved together in a very short period of time. And it's pretty clear that customers are choosing Salesforce as the trusted advisor for the customer platform. We're having a huge impact in the marketplace delivering solutions and driving customer success, so we're very, very excited. I'd like to tell you about one of our larger transactions in the quarter, which is 3M, a leading manufacturer with a long history of global innovation. This was a great transaction and really is an example of the energy and the success that our team has been delivering in the marketplace. Salesforce will now be powering 3M's global transformation with Sales Cloud and Service Cloud as their global customer platform across 27,000 employees. Salesforce will be the social and mobile front end to 3M's SAP back office, and it will provide their sales, service and marketing teams with a 360-degree view of the customers. We're very, very excited about this. It's a terrific example of one of many 8-figure transactions in the quarter and a great example of how customers are turning to Salesforce to unlock the value from their legacy systems. We also closed another deal with Safeway. They selected the Salesforce1 Platform to build next-generation applications that will drive greater…

Okay. Thanks, Keith. As you just heard, we had a really strong second quarter. It's great to be handing the CFO role over to Mark, with the company performing at such a high level. As many of you already know, Mark is an exceptional finance executive, and I am fortunate to be transitioning the role to somebody who I've known personally for several years, who I admire and who is really going to be a great fit to Salesforce. Mark understands the challenges of growing an organization at scale. He was with HP on its journey from $3 billion in revenue to more than $50 billion and moved Dell from $25 billion to more than $55 billion. I'm confident Mark will be instrumental in helping the company scale to $10 billion and beyond. As you know, I'll be here until March as an adviser to ensure a seamless transition. I'll be on hand to answer any questions this afternoon. Before I turn the call over to our new CFO, I'd like to thank all of you on the phone for your support during my time at Salesforce. So with that, let me pass to Mark, who will take you through the financial details for the quarter.

Thanks, Graham. I'm excited to be here and build upon the foundation of innovation and customer success that has made Salesforce one of the truly great software companies. I've been in the industry for 3 decades, and in the last 15 years, I've watched Salesforce lead the movement to cloud social mobile. And when I think about Salesforce, I think about an absolute leader and pioneer, and I am delighted to be here and to help guide the company through our next phase of growth. As CFO, I'm going to be focused on 3 things: Driving our strong top line growth, while delivering on our commitment to improving operating margin; number two is ensuring the company's infrastructure and operation to continue to scale as we grow; and number three is working closely with Graham to ensure a smooth transition for the entire Salesforce team. With that, let me take you through the financial highlights of our second quarter. We ended the quarter with revenue, deferred revenue, cash flow and non-GAAP EPS all growing above 30% year-over-year. During the quarter, we also announced the acquisition of RelateIQ. We reached a 1-year anniversary of the acquisition of ExactTarget and showed improvement in our non-GAAP operating margin year-over-year. In terms of Q2 revenue, it was $1.3 billion, up 38% over last year. Now excluding an FX benefit of approximately $9 million, revenue was up 37%, and then non-GAAP EPS for the quarter was $0.13. On a regional basis, Americas grew 39%. EMEA grew 42% in dollars and 36% in constant currency, sustaining a long trend of constant currency growth above 30%. And Asia Pacific grew 25% in dollars and 27% in constant currency, continuing the acceleration that we've seen over the last few quarters. Looking at the second quarter revenue by cloud. Sales…

[Operator Instructions] Your first question comes from Heather Bellini of Goldman Sachs.

Marc, I was wondering the movement in wearables and given the recent partnerships with some of the medical device companies that were highlighted throughout the last couple of months, can you share with us how you see Salesforce participating in the trend of Internet of Things?

Well, thanks so much, Heather. I really appreciate that question, and I'll tell you, it really took me aback, honestly. I was in our Paris Cloudforce program. I think we had 3,000 to 5,000 people there with me. You can watch a video of that on YouTube. And you'll see that we got to the wearables section of the event. And right then, during the wearables section of the event, something amazing happened. And what happened is you hear just an audible gasp from the crowd when they see the Salesforce information appearing on the wearable. And it took me aback. It's taken me aback since we launched the product as well that customers really can see this happening very, very quickly and easily. A lot of them are already wearing wearables on a regular basis. I know that I am. I bet a lot of people on this call are. And these wearables are becoming a lot more sophisticated. They're becoming tethered to our phones. They're also becoming their own phones. And they need to have access to both not only the consumer cloud but to the enterprise information as well. And that's what we are really pioneering with our wearables and software development kits and applications that we're building. You're going to see a lot of that at Dreamforce as well. And when you start to combine it into the different verticals that we are looking at, we can really start to do demonstrations with our customers of what their future looks like, not only in their own productivity but also in how their customers will be automated as well. And you're going to see this become a huge part of the future. I'm confident we're going to see wearables from major providers like Apple and others this year. You've already seen wearables emerge from huge companies like Samsung. And it's going to be a huge part of all of our lives, and Salesforce has to be deeply integrated at part of that, which is why we launched the Salesforce Wear program. And also, I guess I should mention, since the CFO's name is Mark and the CEO's name is Marc, we'll have to come up with some clever way to figure out who the question is for, I just assumed that question was for me.

Your next question comes from Matt Hedberg of RBC Capital Markets.

I was wondering, can you give us a sneak peek at maybe how RelateIQ might form the basis for your analytics cloud? Perhaps what else is needed for that particular product? And then, maybe if you could help us out with the dilution from that acquisition, that would be great.

Well, sure. I will let Mark and Graham handle the dilution question and let me take the top line on the strategy question. As part of my job as the CEO of Salesforce, I'm constantly meeting with and looking at and reviewing startups and new technology and new companies, new entrepreneurs and meeting with visionaries, and I had an amazing experience. I have a dinner that I attend every month with 15 CEOs, mostly very strong and emerging companies, and a lot of them now have become huge companies. And 2 of them looked me in the eye, and this has never happened before, and they go, "You really need to buy RelateIQ." And I said, "Well, why do I need to buy RelateIQ?" And they said, "Well, we use Salesforce but we use RelateIQ also. And it's an incredible complement to your product line, and it can be a huge part of your future." And I started -- I knew about RelateIQ. I'd used it. I started to spend a lot more time with it, and I saw exactly what they were talking about. It's really a vision of how the power of data science and the power of relationship intelligence can be applied to very large data sets. And what we see happening with RelateIQ is unbelievably complementary right now to Salesforce, but we see it just getting Salesforce on steroids. We obviously have a huge vision of RelateIQ. We're currently working closely with the management team and executing that. And I expect that in about 6 months, we'll have some very exciting new products and new capabilities to offer our customers based on the RelateIQ acquisition. And we are very fortunate, as we were with ExactTarget, to be able to acquire this company, these entrepreneurs, and they just have some of the most incredible visionaries and technologists in the company, including the person who invented the very term data science. And this is just a huge win and success for Salesforce. So let me turn over to Mark and Graham on the question of dilution.

You bet. Let me take that, Marc. Matt, in terms of the dilution, there's no effect at all on the non-GAAP basis. So you can -- obviously, we're committed to the 125 to 150 basis points of operating margin improvement, number one. And on a GAAP basis, keep in mind, Matt, that this has just closed, and we'll have calculated the GAAP effect by the end of Q3, but on a non-GAAP basis, no effect.

Your next question comes from Karl Keirstead from Deutsche Bank.

My question is for Mark Hawkins. I just wanted to talk a little bit about the up 30% DR guide for the third quarter. I think that implies about 25% billings growth. I had 2 questions for you. I just wanted to confirm, given that we've lapped ExactTarget, is that a 100% or near 100% organic DR increase? And then secondly, what key assumptions or drivers are you assuming for that October DR guide in terms of large deals or GL strength, any color?

Sure, Karl, first of all, let me just say a couple of things here. One is that we focus on our revenue, obviously, our deferred revenue as such. And I know billings is a number that you look at. That's not something that we focus on in the company. But let me just talk to you in the broader things that you're asking about, which is when we look going forward, our guide represents -- at revenue level represents 31% to 32% revenue guide for the entire year, which gives you a sense of velocity. One of the things you touched on is the ET effectively, and we did lap ET in this quarter. And so when you look in Q3, for example, you can see that. And I think that's -- everybody's factoring that in. So I think the long and the short is you're absolutely right, we've lapped ET. I think you have a good understanding when you look at our revenue growth at 31% to 32%. And, Graham, I don't know if you'd add any other color to that.

Yes, I think we haven't -- in terms of specifically forecasting deferred revenue, obviously, we try and give you a guide on that just because we know it's an important number for you. I would say our methodology of how we actually project that this quarter doesn't change. We have a big, complicated model for that, that we use, and it's been reasonably reliable but there's been no -- it's not working at the deal level. It's basically working at the overall macro levels, new business, attrition. Bill frequency, all those kind of things go into that mix.

Your next question comes from Jason Maynard of Wells Fargo.

I got a question for Marc B. and Keith B. here. Can you just talk a little bit about Europe and Asia? And, Marc, you spent a lot of time over there in Europe, and I'm curious just to get your take and maybe, Keith, you can weigh in on this, where do you think we're at in terms of the European countries starting to make the move to cloud adoption? Because if we look historically, a company of your size, international would be much bigger if we're making comparisons back to the old days of Oracle. And clearly, Europeans have been slow to move to cloud relative to the U.S. So I'm curious, where do you think we're at in that journey? And how do you think about growth rates in each of those regions going forward?

Yes, I really appreciate that, Jason, and I'll tell you that, number one, and we've talked to you about this before, it has been a long-concerted focus on Europe. And this, obviously, is not my first trip to Europe that I just completed. I have been to Europe with Salesforce many, many, many times. And Europe tends to be a laggard when it comes to implementing new technology. And that has not escaped our cloud companies, as well as you can see across the board with all of the cloud companies. That said, the reason why you see accelerated growth rates in Europe for our business and why we have just seen remarkable, remarkable deal growth and sales in Europe over the last several years now is because what you said is true. It is a huge, huge part of our information technology market, and it's a huge part of our CRM market. And they are now deeply committed and, I believe, earnestly adopting cloud in a whole new level. There's no doubt that we are adopting our model to be more successful in Europe. You probably know, we now have a U.K. data center. And while I was in Europe, we also announced a French and German data center. That will be extremely important for each of these countries to have their own "clouds". Germany wants the German cloud, France wants the France cloud and U.K. wants the U.K. cloud. And as you know, our infrastructure investments and ability to deliver infrastructure, the costs for us are extremely minimal. And it's very easy for us to deliver that model to those countries. We've already done that, for example, in the U.S., our dominant market, but we also have also already done that in Japan, where we have a Japan…

Yes, thanks, Marc. Jason, thanks for the question. [indiscernible] I would echo many of the things that Marc has said. When I came onboard just over 12 months ago, one of the things that was obvious to me was just the tremendous opportunity in international, both in EMEA and Japan and Asia Pac. And we have accelerated our investment in those theaters across the board, whether it's people and headcount, whether it's improving our relationship with partners, the SIs, the influencers, the key influencers in those markets, as well as the ISVs. Marc also mentioned data centers. I think that's a demonstration of clear commitment to those countries, that we're very serious about the cloud computing business in their theater. So you wrap up all of those investments, along with our general theme of going to market by industry in selling solutions, and you can see the response in the numbers that our customers internationally, not just domestically anymore, but internationally, absolutely want to embrace our vision for them around a customer platform. So we're very, very excited about the acceleration in the results, and you can see -- you're going to continue to see that happen.

Your next question comes from Brent Thill of UBS.

A question for Mark Hawkins and Graham on the approach to your hiring in the back half of the year. About 1/3 of your workforce has been added just in the past 1.5 year. And I think there's been some questions around are you going to continue at the pace you've been going. Or is there room for pause as you digest those additions that you've made?

Yes, Brent, good to talk to you again. Let me start and maybe Graham can jump in as well here. As you saw last quarter, we did add 900 people. We are glad to do that. We feel like that helps us position us as our company is growing rapidly. We continue to hire. We have -- if you look at our website, we've got lots of stuffs out there for continuing to get those key skills. And I would even add that, obviously, we're having good success in the hiring, I think, in large part with things like being a great destination to be in terms of best place to work and such. But I think the long and the short of it is, Brent, that we continue to hire, we're going to continue to do that within the envelope of delivering our top line growth that we talked to you about with the 31% to 32% and also with the operating margin 125 to 150 basis point improvement, non-GAAP. Graham?

Yes, I would just add, I think we have somewhere over 900 open positions on our website. I think, Brent, you know we've often had a lot of back-end-loaded hiring in our years. This year, we actually got off to a really fast start. Employee attrition has been actually very favorable for us, too. We ended the first half ahead of our headcount plan, which I don't think we've had in my 6 years at the company. So we had a really, really strong organic hiring the first half. So we feel great heading into the back half from a hiring point of view.

Your next question comes from Ed Maguire of CLSA.

A couple of quick questions. One is on -- thank you for providing some of the granularity around the cloud. If you could provide any relative strength across the cloud, that would be great. And also, turning to the industrial side of Internet of Things. You guys have been doing a lot of interesting work with ThingWorx and Etherios and some of those partners. And I'm curious to what extent you expect Service Cloud and Platform to really lead adoption here? What are going to be the obstacle to adoption? And what are the biggest vectors you see driving growth for connected products?

Well, the first thing I would say is that we're very lucky to have a full portfolio of product. Of course, we've got our mainstream Sales Cloud product, and that product continues to do incredibly well and beyond our expectations. And that's one of the key reasons we bought RelateIQ. I mean, it really makes the Sales Cloud so much better, and we couldn't imagine something that could boost us so much so fast. But RelateIQ did that and so we had no choice but to acquire the company and make that happen. Then when we look at the Service Cloud, well, this is our fastest-growing cloud ever. And you can just see the revenue numbers are just awesome. And it's unusual for a software company to have a billion-dollar product line and a multibillion-dollar product line. We have that with Sales Cloud, and now you see it happening again with the Service Cloud, have a multibillion -- second multibillion dollar product line. And that product, as you know, whether -- it doesn't matter what rating agency is rating it, says it's absolutely the best customer service product out there. And then we made it so much better with all of these new capabilities. And when you see what we come out with at Dreamforce, again, you'll be just in shock at the level of quality and capability of the Service Cloud. The Marketing Cloud is a product that very much we've built through acquisition. And we, of course, acquired an incredible company called Radian6. We bought an incredible company called Buddy Media. But all of that was minimized when we bought this unbelievable company last year called ExactTarget. And that company, as you can see, has dramatically accelerated our Marketing Cloud and has given that a very strong trajectory.…

And your final question of this call comes from Kirk Materne of Evercore.

My question's for Keith. Keith, can you maybe provide a bit of an update on the industry strategy, how that's playing out in terms of some of the larger deals you guys have signed this quarter? And I'd be interested if there's any industries in particular you're seeing some of the accelerating traction, whether it's through your own efforts or through your ISV partners' efforts.

Yes, thanks, Kirk, for your question. Our industry strategy continues to gain traction. In fact, if you look at the roster of customers identified in the beginning of the opening comments of the call, they fairly represent all the industries that we're pretty much focusing on. So we continue to get traction. Our customers love the story about our reported view around industry. They love the solution that we're bringing to market. They are enjoying what our partners are collaborating with us on, enabled to help them drive a transformation to their business models in their particular industries. So it's early days and early months, but we continue to see traction. And not only are we seeing this in larger deals and in volume of larger deals, but just getting more meaningful dialogue across the board. So I think the prognosis is good, the early results are good, and we think we'll continue to focus on.

Great. So that concludes our call today, everyone. Thank you so much for joining. We appreciate it. We'll look forward to updating you on our third quarter results in November. And if you have any questions, please you can reach out to us at investor@salesforce.com.

That concludes today's Salesforce fiscal second quarter results conference call. You may now disconnect.