Salesforce, Inc. (CRM) Q3 2017 Earnings Report, Transcript and Summary

Good afternoon, my name is Doris and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Salesforce Q3 Earnings 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. [Operator Instructions] Thank you. I will now turn the call over to our host Mr. John Cummings, SVP of Investor Relations. Sir, please go ahead.

Thanks so much, Doris. Good afternoon, everyone and thanks for joining us for our fiscal third quarter 2017 results conference call. Our third quarter results press release, SEC filings, and a replay of today’s call can be found on our IR website at www.salesforce.com/investor. With me today on the call is Marc Benioff, Chairman and CEO; Keith Block, Vice Chairman, President, and COO; and Mark Hawkins, CFO. 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 press release. Also, some of our comments today may contain forward-looking statements, which are subject to risks, uncertainties, and assumptions. Should any of these materialize or should our assumptions prove to be incorrect, actual Company results could differ materially from these forward-looking statements. A description of these 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. So, with that, let me turn the call over to Marc.

Hey, thanks John and thanks to everybody for joining us on the call today. We are coming live to you from New Jersey where we have the whole team and we spent the whole week here in New York and having a great time. And it’s been great to be here. We just opened our new Salesforce Tower which is the former MetLife though at Bryant Park, really cool, great new space for customers, partners, employees, love to invite all of you there to see what we are going to do with this incredible new building in New York. And Salesforce Tower New York is open and all the signage is going to be going up over the next six months. We are really thrilled. And we’re in the first floor, it’s really -- I couldn’t be more excited to be here. We are looking forward to having you all visit us there. Okay, let’s get right to it. You can see from our results, we had an exceptional third quarter. Revenue rose to more than $2.1 billion, up 27% in constant currency from a year ago. You know already, there is no other top 10 software company delivering that 27% number. And what I am really excited about is we expect to deliver more than $10 billion in revenue in fiscal 2018. I think we initiated guidance at $10.15 billion at the high end of our range. And now, we are setting our sights on our next goal, $20 billion. Look, no other software company, no enterprise software company’s delivering this kind of growth at this scale, size, and we are already off to a great start. Deferred revenue in third quarter grew to $3.5 billion, up 25% in constant currency from a year ago. Dollar value of booked business on, off the balance sheet more than $12 billion, up 27% year-over-year. That’s a great predictor for next year and why we are so aggressive about giving this incredible $10.1 billion to $10.15 billion number now because we have that $12 billion on the balance sheet, this in the deferred. So, let’s talk about this. We are really well-positioned for the future. Everyone at Dreamforce saw that. We are having an incredible year. We are growing in this mid- to high-20s range and we have scaled from $4 billion three years ago to $8 billion this year. We see tremendous opportunity ahead. Now, today, we are trusted by a global community of 1 billion customers, consumers, citizens, partners and employees, and that’s a huge responsibility on our shoulders. What we are excited about is serving all these incredible people all over the world with our services. And just look at our new Commerce Clouds supporting 300 million unique shoppers a month. And you saw adidas and I love this story. 10,000 pairs of easy shoes, Kanye West, you did a great job on the shoe in a single hour through the Salesforce Commerce Cloud. Thank you, Kanye, thank you adidas. That’s amazing. And our Marketing Cloud processing 600 million social posts and more than 1 billion messages a day, really, really exciting, and 400 million consumers are using that service. So, you just look at customer facing apps, global Salesforce, Heroku, companies like Macy’s, Toyota, and we are operating at incredible scale and now an incredible level of momentum as well. Over past several months, I have been spending a lot of time on the road with our customers. I love being with our customers and this week of course was no exception. I’ll tell you what I continue to see is this incredible community that surrounds us and it’s been awesome to experience that. I just went through that. I just did the Dreamforce keynote again yesterday, here in New York and just having all of these customers so excited about our future, understanding this amazing platform that we’ve built, the future and B2B and B2C CRM. And you saw this come to life at our sold out Dreamforce conference in September, which was way beyond our expectations. I know a lot of the conferences this year have not delivered their results, but Dreamforce did; that was awesome. And you saw not just 170,000 people registered and everyone was there and you saw a pack, but more than 15 million joining online. That was a huge surprise for us. And at Dreamforce, you also how we’re continuing to innovate with Lightning, with Einstein, it’s been really, really awesome. Of course, probably the most exciting announcement at Dreamforce for a lot of our customers has been Salesforce Einstein. We’ve extended our Salesforce platform, not just with this incredible UI with Lightning, not just with this incredible BI layer with Wave, but now we’ve extended our Salesforce platform once again with an AI layer with Einstein and it’s really world’s easiest AI, that is all of these partners, all of these customers are able to easily inherit, all of the most state of the art, artificial intelligence, whether it’s machine, learning machine intelligence, deep right inside the Salesforce platform through Einstein. And we’re extending that Salesforce platform with amazing new capabilities, with new technologies, new talent, new platform, functionality and you saw that again this quarter where we have acquired this incredible DMP Krux extending our Marketing Cloud. And of course everybody knows, if you been around, you see how our whole Company now has 20,000 users on Quip. And of course Facebook has thousands of users on Quip and other incredible companies like electronic arts and many others have thousands of users now on Quip. And if you don’t have Quip on your phone yet and you haven’t experienced Quip, you should just go to the app store right now and download Quip, it will change your life. I’ll tell you, you can really experience next generation productivity but live, collaborate, documents and spread sheets on our platform, integrated media. It is really cool. And Bret Taylor, Former CTO of Facebook is now with Salesforce and of course the former legendary product manager at Google Maps, he and Kevin Gibbs, co-founder did a just a beautiful job on that. Anyway, I could go on and on and on about our products and technology and on how exciting this quarter was. But let me turn it over to Keith. And Keith thanks for coming down from Boston and being here for the call.

Thanks, Marc Thanks to everybody for joining the call. Listen, Q3 was an outstanding quarter. We had excellent execution from the entire team and all of our key geographies and industries. We’re really, really thrilled with the results. We also delivered very strong performance in large deals this quarter. Not only did we close a record number of seven figure plus transactions in Q3, but the value of those transactions grew significantly. We continue to spend a lot of time with CEOs. And at Dreamforce, our CEO summit brought together some amazing thought leaders, and they’re all looking to drive a new level of innovation in their industries around customer engagement. And they recognize that they need an intelligent, customer engagement platform that will help them stay ahead of rapidly changing customer expectations. Now, this level of dialog and engagement with these CEOs of some of the most incredible companies in the world, they have put their trust in us and that has been reflected in our results. So for example, this quarter we saw huge strength in financial services, where we signed strategic agreements with seven of the premier financial services institutions in the United States, including Citi and PNC Bank. And we are very, very excited about these stories. So, let me tell you a little bit about PNC. This is a new relationship for Salesforce, and we are hoping them streamline operations across all their primary lines of businesses that they can reimagine the banking experience for nearly 11 million customers. All their retail call centers and branches will now be powered by Salesforce and that will help them respond to customers faster. And they will also use Salesforce to mobilize their corporate and institutional banking team, giving them access to customer information on the go. Salesforce also signed a strategic agreement with Citi in the quarter. And this is Citi’s global consumer bank that will utilize Salesforce for all client facing personnel in their U.S. retail bank, enabling Citi to better serve clients while lowering costs and improving analytics and efficiency. It really is an incredible vision to transform the global consumer bank with a very highly differentiated customer experience. We had a landmark win with one of the world’s largest consumer package goods companies who needed a complete CRM and ecommerce platform to help them transform from B2B to a B2C business. Now, I am having a lot of conversations with customers about this particular type of transformation. And this relationship was the result of excellent collaboration between Salesforce and the Commerce Cloud, which grew its comparable customer gross merchandise value by 22% in constant currency from year ago. This is an early sign of the power of our combined businesses and it is creating unmatched value. Other commerce wins in the quarter included GNC and Shiseido. Amazon is a great in the quarter as well. We formed a strategic relationship in Q1 as you all know and in Q3 that relationship has expanded and may have even more services throughout the Company. International continues to be an important cornerstone of our growth strategy. In Europe, we had a great win with KONE, one of the world’s largest elevator companies. And just last week I spoke with KONE’s CEO, Henrik Ehrnrooth and his team about our partnership to transform the multibillion dollar field service industry together, very exciting. Their vision is excellent and they are using Salesforce to mobilize more than 20,000 service technicians. With real time customer information and service data from connected equipments, they will be able to provide more proactive service and response to service requests faster than ever. Telecom Argentina, also new to the Salesforce family, they selected Salesforce to power all their call centers and upgrade the in-store and online experience for more than 25 million customers. We partnered very closely at velocity to show them an integrated solution in their industry and then the testimony of the power of our industry’s strategy coupled with Salesforce’s ecosystem and our ability to work effectively with our partners. It is also proof positive that our ecosystem is absolutely blossoming. So, it’s pretty clear that our enterprise strategy coupled with our continued operational focus is working, our investments in key industries, our partner ecosystem and our top international regions are paying off, and we are very well-positioned for strong fiscal, the remainder of the fiscal 2017. So, at this point, I would like to hand the call over to Mark Hawkins and he can share some more detail around our financial highlights for the quarter. Mark?

Thanks, Keith. And I am very pleased with our financial results for the third quarter, let me just say that. Total revenue for the quarter was up 25% in dollars and 27% in constant currency, excluding the year-over-year FX headwind of $32 million. The Commerce Cloud is off to a great start and had an excellent quarter, contributing $49 million to total revenue after adjusting for purchase and accounting. Our dollar attrition for the third quarter, which excludes Marketing Cloud, and other acquired businesses remained below 9%. Looking at revenue by cloud. Sales Cloud grew 13% year-over-year. Service Cloud grew 26%, App Cloud and other grew 38%. Marketing Cloud grew 46% but then if you exclude approximately $42 million of subscription and support revenue related to Demandware, Marketing Cloud grew 21%. In our region, we delivered another strong quarter of year-over-year constant currency revenue growth in EMEA by growing 27% and Asia Pac by growing 29%. Now, before I move on to cash flow and deferred revenue, I want to remind you that invoicing seasonality is affecting both of these metrics. As we discussed at the last two analyst days, we continue to see an increase in the seasonality of invoicing, primarily as a result of compounding and to a lesser extent contract returning and a shift toward annual invoicing in Q4. In that context, third quarter cash flow was $154 million, down 5% over last year. Deferred revenue ended the quarter at $3.5 billion, up 23%. Deferred revenue includes approximately $30 million related to our acquisitions of Demandware, up from $23 million in Q2. On a constant currency basis, deferred revenue was up 25% when excluding a year-over-year FX headwind of about $49 million. On a sequential basis, deferred revenue had an FX headwind of $33 million. In the quarter, approximately 80% of all subscription and support related invoices were issued with annual terms excluding Demandware. The Q3 benefit to deferred revenue from the change in billing frequency was less than 1 percentage point of growth. Now, moving on to guidance. I’m pleased to be raising our full year revenue guidance to $8.365 billion to $8.375 billion, despite absorbing approximately $100 million to $150 million of FX headwind this year. This implies year-over-year growth for FY17 of approximately 25%. We expect Demandware and other acquired assets to contribute about 1 to 2 percentage points of growth year-over-year. We are also raising our full year non-GAAP diluted EPS guidance by $0.03 to $0.97 to $0.98. This raise includes $0.01 from operational outperformance and $0.01 from an investment gain in Q3 and $0.01 from an anticipated investment gain in Q4. This guide continues to imply approximately 70 basis points of full year non-GAAP operating margin improvement. We continue to anticipate full year operating cash flow growth of 20% to 21% year-over-year. For Q4, we are initiating guidance of $2.267 billion to $2.277 billion, non-GAAP diluted EPS of $0.24 to $0.25, and year-over-year deferred revenue growth of 22% to 23%. And as you heard from Marc, we’re excited to deliver our first $10 billion revenue milestone next year, as we are initiating fiscal 2018 revenue guidance of $10.1 billion to $10.15 billion. This implies year-over-year growth of approximately 21%. We plan to provide additional details about our outlook for FY18 on our fourth quarter call in February. To close, we had a strong third quarter and we are well positioned for a great finish to FY17 and this sets us up for another strong 20% plus growth year in FY18. At this time, I’d like to thank all of our nearly 24,000 employees for their dedication to customer success and driving these outstanding results. And with that we’ll open up the call for questions. Operator?

[Operator Instructions] Our first question is from the line of Brent Thill with UBS.

In Q2, you noted some U.S. weakness. It looks like in Q3 that came back. I was curious if you could just talk about the performance in the U.S. and Keith you were clear that these deals were delayed not lost, did they come back in the quarter?

Glad to answer that question. So, we did discuss on the last call that at the very end of Q2, we did have some weakness in the United States that was attributed to execution issues. And as I said on the last call, we did a very detailed and very disciplined operational review. We made some minor adjustments to our playbook and some changes down the ranks. And I am very, very pleased with the results. This is a high-performing team, it’s been a very high-performing team for number of years, and they have responded in time. As far as deals, in any given quarter, deals, I mean there is an ebb and flow, some come in, some come out. But I am very, very pleased with the execution in the quarter, particularly around these large seven figure transactions. Again, these brands are absolutely fantastic. You talk about a company like PNC Bank or Citigroup, even Amazon in the quarter, KONE, Telecom Argentina, many of these brands are world-class brands. And our performance was strong globally, across all theaters, all markets, all segments, all industry. So, again, I think it is a quarter of execution and very, very proud of how the team responded.

Our next question is from the line of Raimo Lenschow with Barclays.

Can you -- I want to begin a little bit into the different clouds. Can you speak a little bit, how you saw the performance? Obviously platform was, the Sales Cloud continued to be better with the high value SKUs that you introduce. The Service Cloud moderated a little bit. Can you just kind of frame it, how you see it? And maybe, Keith, question for you here.

Yes. So, again, we are very fortunate, based on the vision of our CEO, who is sitting right here, to have an incredible product in set of clouds that is second to none. Obviously, we’re the market leader in virtually every one of these clouds and super excited about the vision that we put for our customers. And obviously based on these results, our customers are super excited as well. And they serve as the inspiration and motivation for a lot of the vision along with of course with Marc and rest of the team comes up with here. But, I’ll tell you that we are very pleased with our Sales Cloud execution, we are very pleased with our Service Cloud execution. And proof positive around Service Cloud is that example I gave on KONE. This is a best in class service oriented company, even though they are industrial manufacturer. And they look to us to help them transform their business around field service, because this is a way for them to differentiate their products. Service is very strategic in their future. And it’s just one example of how companies are looking at a Service Cloud. Our platform continues, our ISV strategy is very, very strong, our execution around ISVs has been very strong, which speaks to how strong the platform is. We look at Marketing Cloud as a very strong product. We look at some of these acquisitions that we’ve made, the Commerce Cloud. We had a very large global CPG company and very, very recognizable brand. And that deal happened because Commerce Cloud onto itself was very compelling, but when combined with our core products, made us even more compelling to envision for that particular company. So, we love our product strategy, we love our vision, our customers obviously love our vision. This is only reinforced at Dreamforce, which was just an incredible event this year and we say it every year, but it was just incredible event. And then when you start adding things like Einstein into the mix which really is about the future, it’s just becomes more and more compelling. So, we definitely have the wins at are back in our sales and we’re super excited about the execution in our vision for our customers.

And Keith, I just want to add to that, and I’m sure everybody realizes, especially people who were at Dreamforce, this is a balanced portfolio. And we have really a balanced portfolio and what’s great about that is, of course we’ve talked about having a balanced portfolio geographically, we have a balanced portfolio in regard to our small and medium business, as well as our enterprise business, we also have balanced portfolio when it comes to our products. And you can see that in the numbers. Of course, Sales Cloud is one of the largest products in our industry, not just CRM but in the software industry. And to it growing at 13%, I mean, I just think that is incredible to see that reacceleration. And it’s pretty awesome. And I am really excited about that. Again, we service at 29%, we saw App Cloud and other 43%, marketing 28%. But what I really focus on is that we have a balanced portfolio of offerings because as the Salesforce kind of gets different levels of comfort and by geography and by market segment, we see that shift quarter-to-quarter. But like a portfolio manager in a big institution, it’s big financial institution, and they’re keeping a balanced portfolio, so are we. And through that balanced portfolio, that’s how we’re achieving these high performance results.

In fact, Marc, I just would like to add on to that. I really see that when you look at the entire balance portfolio Marc and you look at the growth rate that we’re putting out, which nobody is doing in our industry at this size and scale, what it translates in is this whole market share thing, Marc where we gain market share, we gained 150 basis points at last report and we just continue to watch our competitors fall behind in this respect. And then lastly Marc, to your point on portfolio, 27% growth in the Americas, 27% growth in constant currency in Europe and 29% growth in constant currency in Asia Pac. Marc, I think that underscores portfolio point.

Our next question is from the line of Kash Rangan with Bank of America Merrill Lynch.

One question for both Marks. Marc Benioff, with respect to Einstein, when is the product going to be in GA and how are you as a company going to be gearing the sales organization go-to-market strategy around Einstein? And then one for Mark Hawkins. I want to actually finish up the first question before.

I think when you look at things like Einstein, you look at kind of these incredible directions, the shifts that are going on and technology, from a customer perspective, and we had an opportunity to meet with all the largest banks here in New York this week. Customer service, sales, marketing, these things -- it’s going to have an incredible shift. And that is really what is just surprising to me. I don’t think -- when you look back, we started this company 17, 18 years ago. And where we are now, I mean, this was unexpected. And from a technical perspective, and I went through some of those things, but whether it’s our UI -- the demos that I did with customers today were entirely on my phone that was -- I’ve given CEOs of Fortune 100 companies, hey, I run my whole business on my phone that surprises a lot of people. And to see the amount of information and insights that you can get from that is just incredible; and not just the UI, but business intelligence as well, I have Wave running on my phone. Mark Hawkins has Wave running on his. We both gave a Fortune 10 CEO a demo on our phones, and they just couldn’t believe that. And then, I’ll tell you that it’s now this -- AI, artificial intelligence where everything is getting just smarter and is helping all these users to actually point the direction of success. They know where to go. That is what is so cool. And of course, we’re complementing that with the speed of our platform, with this unbelievable mobility, with this productivity from Quip. I think I talked about that earlier but that’s a huge game changer for our customers. This is really awesome and they see it as the integrated platform that our Company -- our customer can execute against is very motivating for them. And I think that that’s really cool. And of course Einstein is a huge part of it and you’re going to see Einstein of course deeply integrated in everything that we do. And customers get that Einstein is different than other AI solutions. I’ve met with all the tech CEOs of course, the cloud CEOs, and they all have AI. It’s table stakes AI. AI is table stakes, you all know that; everybody has got it programmatically; we’ve got the best AI, no, we’ve got the best AI, we’ve got -- okay, fine; but have declaratively, through our platform, because we need to bring it to millions of people, not just a few -- there’s only 15 million programmers in the world. We’re much bigger than that. We have to bring this to people who don’t code or low coders or citizen developers, need to have the power of our artificial intelligence, they need the power of mobility; that’s why Salesforce platform is exciting and that our core app -- cloud like sales and service are built on it; that is a huge differentiator for us and it’s -- you can see it just in our win rates and also our competitive position has never been stronger.

Our next question is from the line of Walter Pritchard with Citi.

Mark Hawkins, I guess I’m wondering if you could talk a bit about the synergies that you’re starting to see or if you’re starting to see synergies out of Demandware principally from a revenue perspective. And I’m curious, in your Q4 guidance if you’ve embedded anything additional to what you were maybe thinking three to six months ago?

Let me just jump on that and anybody else can add in if they’d like. We’re so pleased with Demandware; we’re so pleased to have this asset. It rounds us out, it’s a unique asset…

That was just good fortune.

Oh, my gosh Marc...

I mean Keith you agree, don’t you?

Yes...

We can’t believe it. First of all, Keith was having a company in Boston. So, [Multiple Speakers]

He’s got a big smile on his face, but Walter, I appreciate the question because…

Are you wearing the easy shoes [Multiple Speakers]

I’m going to go get them right now, Marc. [Multiple Speakers]

But, Walter, I think what’s interesting about this is we put out in the stub period announcement $49 million in revenue. And of course you know that it was haircut by about a third. We snapped this in and we talk about execution. Everybody has been on it. We have a great team that’s been joining us. They’re working in with our broader company and we’re starting to see the momentum pick up. And Marc alluded to that in some of the activities but we see lots and lots of opportunity. And from a synergy standpoint, we have a plan, we can’t go into a great detail on all of that about where we’re going take this long-term including as you’d expect Walter, lifting the company and synergies and really leveraging some of the best practices of Salesforce and some of the best practices of Demandware. So, watch this frame to come but the overall performance, I love what I see.

Our next question is from the line of Keith Weiss with Morgan Stanley.

One of the areas that we’re seeing really nice acceleration in over the past couple of quarters has been the application platform. Anything in particular that’s kicking in gear there, is it the SIs building, helping to build applications on it, is Wave starting to be a more material contributor? Can you give us any incremental color on what’s really working there? And then mainly on the flip side, wondering there has been decelerating in marketing cloud. And one of the things we are hearing all about it’s in the marketplace is increasing competition potentially from the alignment of Microsoft and Adobe. Is that having any of an impact on Marketing Cloud given any pressure on that business and causing the slowdown there?

Well, I mean I think number one, when you look at Microsoft, we sold more CRM software this quarter than Microsoft has sold in last decade. It’s just empirical. And that is what is really awesome about our performance against Microsoft. And I’ll tell you also, when you look at marketing cloud, I really look at that against we have so many undeliverable products, I just -- Keith knows I feel this way, and I’m going to ask Keith to come in. I really feel we’re distribution constraint. We have so much products, we are in so many amazing markets whether it’s sales, service, marketing, communities, analytics, application development like you talk App Cloud, whether it’s commerce, whether it’s IoT, whether it’s productivity with Quip. And the Salesforce is going to have that full portfolio of products and they are going to move back in forth against those. And we’ve seen that. Look at our results over the last five years and you are going to see that constant up and down of those clouds based on that distribution organization performance. But, Keith, you are the absolute leader of the distribution organization and you probably have unique perspective on this.

Look, I think the bottom line is that we have an abundance of riches [ph] particularly as it relates to our product portfolio. And if I look at our field organization and the value preposition and the solutions that they can put in front of a customer, whether it’s a line of business executive whether it’s from an industry perspective, it is incredibly compelling. And that is really manifesting itself from these results. So, I would echo with Marc’s sentiment about what people have to carry in their bag and what they can put in front of customers. I also want to go back to the part of the question around the platform and why we’re seeing such great results in the platform. There is a bunch of reasons for this. And let me start with the systems integrator. I think as everybody knows, we have really emphasized the importance of having an incredible partner ecosystem and particularly over the last 3.5 years. And that has just paid dividends when you are talking about the largest SIs of the boutiques. And we still have work to do there but the team has really done a fantastic job there. But those SIs are really recognizing the value of the platform and what it can bring to their client. So that’s one point I would raise. The second point that I would raise is that initially when we sell our position of products with customer, like Sales Cloud or Service Cloud, customers are overwhelmed by how incredible it is but then they realize that the power of the platform extending sales and extending service and that just lends itself to more usage adoption and utilization of the platform product. And then, finally back to my partner comment, we have had a huge emphasis on ISVs and the growth of the ISVs and making sure that we reinvigorate our app exchange. But particularly around our industry ISVs, we are seeing tremendous success. And why is that? Number one, they love our platform, they see all the capabilities, they see all the potential and they want to build mission critical applications on top of that platform. So, we do have a lot of great products in the portfolio that our sales team can deliver and our service teams can provide service to and our partners can deploy. But we also have an incredible platform and that is a lot of the secret sauce that we have in the company.

Keith, I love your comment of abundance of products, abundance of riches [ph] in that way, just adding Heroku, even on the B2C side and it’s been added to all the things that you talked about. And then one of the things I see with customers is this whole notion of using force.com. And I would like to self brand and they add-on using force.com which is really need that they can do?

And Keith, I think you also have to really hit on some of these specific relationships, you have the world’s top SIs, you’ve built phenomenal practices, heading toward $1 billion practices which is incredible for them with these unbelievable service organizations. And you and I had meetings with CEOs of these top SIs who are at other user conferences this quarter, we are not going to mention any names because the CEOs are very sensitive in this industry. But this bigger sides go into these other conferences and they say where is the energy, where is the momentum, where is the growth, where is the innovation and they are pivoting back to us. And that’s exciting to us, because we can bring a large systems integrator and we have talked -- and by the way standardized on us internally, companies like Deloitte, Accenture and so many others who are building these incredible fast growing practices. And customers are paying attention to that as well. Is that right?

Yes, these SIs, critical part of our strategy, these SIs are in the boardroom along with us and they are key influencers. In fact Marc, you and I have presented to a quite a few with their boards. Now, I don’t believe that Microsoft or SAP or Oracle are being asked to present in the boards of these incredible SIs. So, it’s a big part of our strategy. If you look at their growth and their practices, I mean they are exploding. And they can’t get enough talent. So, they are cannibalizing the legacy practices of the companies that I mentioned earlier.

So, why is that Keith, why do we have so much CEO and board level attention compared to like when we sold it, Oracle -- I never made a call to a CEO or board member. I don’t know how many of those you made; you were there probably longer than I was. But just put it in perspective.

I thinks it’s very simple, these companies, these CEOs have an agenda of growth. Our story is about growth, they are imperative is about growth. And we are uniquely qualified as a company with this product portfolio and quite frankly our culture is an example of how to grow.

Right, because we’re a double digit grower and all these other software companies are just single digit growers, and they can’t break out of that.

Yes, it’s really…

And this is what these customers want; they want to be double growers.

That’s exactly right. And we have the product portfolio and the vision to help them do that.

I am smiling, Marc. I was looking at Keith, we were in Dallas, I won’t mention the name. One of the biggest SIs that you talked about in the world, talking about standardizing on Salesforce. And Keith, you remember that discussion and just that all came to be and it’s great to see that not only partnering with us but using.

Yes, I mean just to that point and both of you guys have mentioned this, it’s one thing to build a practice but when you also bet on your business, because you are running Salesforce to run your business. I think that speaks volumes, and all the major players do.

Our next question is from a line of Heather Bellini with Goldman Sachs.

Hey. This question is for Marc Benioff. Marc, it wasn’t long ago that you set a $10 billion target and obviously, you’re going to achieve that next year based on your guidance. It does seem like you have a very good crystal ball versus others. And I guess, I am just wondering, if you were to fast forward to Salesforce hitting your new goal of $20 billion, what do you think would’ve been the biggest drivers if you were to look back, which products do you think would be giving you or driving the most incremental revenue, if you had to guess? And how would you think about the margin trajectory of the Company as you surpassed that feat?

Well, I really appreciate that, Heather. And I’ll tell you that I really think that in my core, I think that I’ll get back to my comment about that balance portfolio in our platform. It’s unique, Heather, about our capability, and you know this is that we have an integrated platform. And the integrated platform is exciting, because not only is the number one Sales Cloud in the world, not only is the number one Service Cloud in the world, not only is it the number one declarative platform, but it has all of these other capabilities, mobility and AI and so forth, analytics and so forth. And so, I think that when I look at the most incredible things that our customers have done, they weave these things together in really smart and creative ways, build these, they build these apps, they deploy these things internally and they look for speed. They’re looking for speed. Of course they want productivity, of course they want intelligence, of course they want mobility, they want that core platform. And that because I think we built it right and of course we’ve also bought some great things that are outside of our core that we’re integrating into our core like our marketing cloud, like our commerce cloud, like Quip. But with Lightning that’s an incredible UI layer that no one has ever seen anything like this componentized application development UI layer, it’s almost like a visual ETL. These customers are now integrating this stuff together at the UI layer and of course at the data layer, but that is what I think is going to really drive us forward. I think it’s going to be our platform. And I think that when you look out, and obviously we have short-term goals around that $20 billion number, I mean you have -- I am sure you have your own model of when you think we’re going to hit it. But I think that for us, we want to make sure that -- I don’t know exactly when we’re going to double the company by, but my dream certainly is to double this -- I would just tell you, my dream is to double this Company within the next three to four years for sure. That’s really important to me. Amy Weaver is here who works directly for me as my General Counsel, and she doesn’t want me to go any far. Amy, do you want to comment on that.

Not at all, Marc.

Anything you want to say?

No, I think you’ve said.

I think so. But obviously, we have -- we’re performance oriented and we’ve got a great team, we have great culture, you know that. We have a great brand reputation with our customers. We also have a transparent -- a level of transparency with you, the financial analysts and media that cover us, when you come to Dreamforce, you’re untethered. We want you to go and talk to and be with our customers. And you can feel the vibe. And you know you can come to all of our events. I am going be back. In three weeks, I am going to be in Tokyo. So, please come and see, for those of you who still have not come to Japan. You really should come and see something incredible in Tokyo that we have in three weeks. And then for those of you who don’t want to go Tokyo in three weeks, we’re going to back here in New York for a multi-thousand person event, which is our world tour. So, that’s so exciting. The world tour, Tokyo and San Francisco are on the same day for all the types of purposes. So, you’re going to see a lot of market momentum this quarter as well as Keith you’ve got the fourth quarter coming up, are you ready?

Oh, I’m ready Marc. Don’t worry.

You are working out, aren’t you? [Multiple Speakers]

Our next question is from the line of Tom Roderick with Stifel.

Keith, a question for you; you made a comment that your big CPG win was driven by a customer whose desire was I think to shift from B2B more to B2C. So, can you talk a little bit more about that deal in particular and are you seeing other customers trying to make that shift? Also with your portfolio now, with Demandware and ExactTarget fully integrated, is that something they’re coming to you and asking particularly for your help? Just talk a little bit more about that transition with your customer set out there.

I love this question. So, listen, we live in a world where -- and Marc talked about this, where speed, mobility and productivity, innovation, intelligence are paramount. This has become table stakes. If you want to be part of the next wave of great companies, and if you think about the classic business problems that any consumer package goods company has right now is they have to have a connection with that end consumer. Many times they go through a retailer or distributor or whether it’s a classic industrial company or whether it’s a consumer package goods company like a Unilever, they want that direct connection to the consumer. So, moving that shift, keeping the B2B relationships but also establishing a new model of B2C is very critical to their future. I mean, think about -- we live in this world, we call the age of the customer. And think about cloud, mobile, social, data science, IoT, analytics and artificial intelligence, all coming together, new companies have born overnight. Barriers to entry into markets are being brought down. And if you’re not thinking about the future and how you’re going to engage with your customer, whether you’re a B2B company or a B2C customer, you’re going to be in trouble. So, this is becoming a regular dialog and even more meaningful for us at Salesforce because of the Commerce Cloud. So, this is just another part of our portfolio that really helps to complete the package around these transformations. So, it is becoming a regular part of the conversation and that particular win that I mentioned earlier. This is one of the world’s greatest CPG companies in many regards and it is exactly about moving from B2B to B2C.

Our next question is from line of Karl Keirstead with Deutsche Bank.

This question is for Marc Benioff or Keith Block. I know forecasting deal timing is awfully tough but you’ve been generally pretty bullish about the fourth quarter. And I’m curious if you’ve got any different confidence level about those deals in the pipeline dropping in the fourth quarter. And I know it’s very early but based on your recent customer conversations, I’m just wondering if the business uncertainty is stemming from recent political events, might have any bearing good or bad on the timing of large enterprise deals closing this quarter?

Okay. I think Keith and I both want to talk about that. I think there’s a couple of things going on that are very important. And I want to make a few different comments. Number one, you all know that in the second quarter, we experienced bifurcated headwind which was not just in foreign exchange which came out of Brexit and the Great British pound which we’ve continued to kind of suffer all year, that is our numbers would be even more incredible if we didn’t -- right Mark? What have separated for foreign exchange this year?

For FY17 Marc, we had to absorb between a 100 million and 150 million headwind. [Multiple Speakers]

So, number one, in that second quarter, we have this with the Brexit and the Great British pound situation and then at the very tail end of the second quarter as we discussed, we saw a little bit of weakness. And to Keith’s credit, and he said this, but I think it’s a very subtle. So, I think it’s worth amplifying. He made a number of changes. We made a number of changes I think that really let us perform well in the third quarter because we did see the market shift a little bit in the second quarter, we told everybody that. And it’s not the first time that we’ve seen that in our careers. Keith and I have been through -- have been to this road even before and the selling motion had to change. I think in companies that you’ve seen report in the last month or so who kind of saw or seen in that kind of market shift, they also will change in the coming quarters their selling motion because the selling motion has had to change in fiscal year 2017. We changed you can see the results incredible even with this foreign exchange headwind. So that’s number one. Number two, in regards to specifically to our fourth quarter, we don’t talk about this specifically but one of the reasons that we do have confidence around the fourth quarter is a certain percentage of that revenues is kind of contracts we have already signed that is we know we are going to get bookings in the fourth quarter because we have signed these agreements. And so that is coming in. And so that gives us a leg up. And then Keith has an incredible focus through the sales organization, which is as you centrally half of our Company is in sales, customer facing and that customer facing organization, which is I think the best in the world, all wants to have a great fourth quarter. And they are focused and we have made these cool adjustments. So, do you want to jus amplify any of that or augment or highlight any of that because I actually think there is a lot to learn. You and I have been coaching CEOs on how to kind of survive some of the ebb and flow because I think that we both have a lot of confidence that we’re going to see a lot of exciting things happen.

I think, there is a number of things going on here. I mean, we all know the story of the second quarter, I don’t think we need to talk about that but at the last earnings call we said that we had a high degree of confidence in our Q3. And obviously we delivered the goods and we said we also had high degree of confidence in Q4 and we did make those adjustments. I do think that we -- I’ll echo Marc’s comments; I think that we do have the best distribution organization in the world in certainly in this industry. But it also allows us to talk to our customers about the things that they can do and adjust the way that they think about their customers and how they can sell to their customers and service to their customers and market to their customers.

We’re not abstracted from our customers, we are with these people every moment.

We are and this is what…

We’re living with them.

We live with them and this is what we do.

And I’ll tell you the other thing is and in regards to the election, I think is really important. Look, some of us many not have had the outcome that we want, some of us have the outcome we did want. In my view, it’s in the past. We’re moving forward and we have, at Salesforce, an open heart, we have an open mind and we also expect the best. That’s what we’re positive. And we talk about that in everything we do. We’ve talked about how we cultivated beginners mind. You’ve heard us talk about, well, it’s not just in regards to running our business but even when there is an election, things have change -- yes, everything is changing but we have a beginners mind and we have a sense of optimism for the future and we’re going to cultivate that optimism and we ‘re going to manifest it into our business because that is how we operate here. We are positive people. And we are moving forward. And I have talked to now a number of customers this week, and I have met with CEOs of some of largest companies in the world this week. And in each and every case, all of them are moving forward, okay? And that is -- we all have our -- we know what we have to do and we know how to execute. So, I hope as I said the 2008 is behind us, okay? I’ve said this before. I have been optimistic about 2017 on growth. I have been counter to a lot of the global economists and I am going still continue to feel positive about growth in the coming years because I really hope that 2008 tail that we’re finally through it. And now that this election is also behind us and I hope absolutely for the best now for everything going forward, this is what I want in. Mark and Keith are here with us in the room here and you guys weigh in here on this.

Thank you. I’d love to add on that. Because when we talk about that market, that looking forward and the view and the tail that you talked about, and Keith hit something really key building on this confidence in Q4 Keith that you talked about. But one of the things that we have chatted about and I think it’s good to share on the call is when we execute the Q4, we are going to exit with a $9 billion rough run rate in terms of revenue run rate. So, we are not only achieving our plan but we are actually going to exit with a run rate of $9 billion. It’s going to position us in the guidance you heard for next year is going to be $10.15 billion at the high end. So that’s another really big milestone. But Marc, this guidance for the year with a confidence you have talked about also implies two other milestones we have never hit in the history of the company; one is that in this FY17, our guidance implies $1 billion plus operating margin non-GAAP milestone. This is something we have aspired to, and that’s going to achieve with this particular guidance for this year, Marc. And the last thing we are going to achieve is another milestone we have never ever done which is $2 billion plus on the operating cash flow. So these are things Marc that I think quantitatively are milestone to support this idea. Keith, I don’t know if you have a comment.

Yes. Look, I think the results speak for themselves. There is a lot of dialog out there. Marc mentioned about the tail from 2008, the presidential election. Looking at the end of the day, at Salesforce, our story is about growth, our message is about growth, our products and vision inspire growth, what CEO does not like growth? And I think that says it all. So, I think we are well positioned…

This is best for our employees…

Absolutely.

Our customers, for our partners, for shareholders and for our community and all the organizations that we support, we want that, we want the best for everybody.

Our next question is from the line of Abhey Lamba - Mizuho Securities.

Keith, can you please discuss deal dynamics as you are seeing very strong growth in annual contract value from existing customers? Is it coming from greater penetration of various clouds, more seats or pricing or any color on what -- if you’re seeing accelerated pace of adoption of multiple clouds?

Yes. Thank you for the question. So, go back to what Marc said about a balanced portfolio and that is really what this is all about. Each of our individual clouds are best in class and together it’s even more powerful, and this is a balanced portfolio. And we are out there selling solutions to real business problems and opportunities for these customers. So, it’s a very balanced portfolio, it’s installed base selling, it’s net new customers, I mentioned a few of these who are new customers to us, company like PNC is a brand new logo and it’s a pretty good brand new logo. So, we’re super excited about it. So, it’s just great execution with an excellent platform for customers with our consolidate selling or net new logos and positioning the solutions for growth.

Our last question is from the line of Kirk Materne with Evercore ISI.

Thanks very much for fitting me in. Keith, you mentioned a couple times in the presentation just the breadth of your portfolio now. But you not only have a broad portfolio but you guys have been verticalizing your go to market motion at the same time. So, can you just talk to us about how differentiated it is to be able to, not only take a broad product portfolio, but also shape it in a way that you can talk about how customer service transformation differs in the financial services industry versus the telecommunications industry? To me that seems like a massive moat that’s very difficult to get over, and I know you guys have been working on it for a couple years. And to me that seem to be one of the reasons maybe these bigger deals are happening at a faster cadence today versus one to two years ago.

As you know, this is one of our core strategies that we’ve trying to put in place over the last 3.5 years. It’s really to speak the language of the customer and go to market by industry and make sure our messaging and our products and entire portfolio is really in many ways taking this incredible platform of products and portfolio of products and reorient them to solve the specific customer problem. In this particular quarter, we’re seeing something in Q3 around financial services where again the seven of these premier financial services institutions decided to go with Salesforce as they think about their transformation. One of these deals was with a premier wealth management company. And they are going wall to wall with our financial services cloud, which is one of our first vertical products that we have ever had in the Company. And [indiscernible] since March, but this firm is going to wall to wall and that’s because we are targeting a specific problem area in a specific industry. I mean you think about the Telecom Argentina solution that we partnered as part of our ecosystem, with this company like velocity, And this is transformational for the telecommunications industry. It’s a huge win for both of us. And this is probably not the same sort of outcome that we would have gone, if we had not had something that was industry specific. So, whether it’s the PNC story or the Citigroup story or the wealth management story that I referenced, the Telecom Argentina. We are in very early days here, whether it’s organically with our products, with financial services cloud may help or whether it’s with our partner ecosystem. But this is really a hand in glove strategy with our partners, our SIs, our ISVs, the way that we’ve organized our field teams around going to market. And at the end of the day, all comes back to the platform because everything is built on that platform and leverages the strength of that platform. So, again I think that is the secret sauce. But this vertical and industry strategy is certainly playing off in terms of the level that we call on in the account, these are all very much CEO level sales, the mind share and market share and wallet share that we’re getting as a result of speaking the language of the customer. So, we’ve got some momentum here and we’re excited about it.

We are excited and we are going to tell you some more details about our strategy and our plans for the future, because we’re right here in New Jersey at CNBC headquarters and we’re about to walk into the studio with Jim Cramer. So, if you turn on CNBC, you’re going to see us coming and talk to Jim.

Thanks everybody. Bye, bye now.

Ladies and gentlemen, this does conclude today’s conference call. You may now disconnect.