Salesforce.com Q1'16 Earnings Conference Call: Full Transcript

Operator:

Good day my name is Victoria and I will your conference operator. At this time I would like welcome everyone to the salesforce.com, inc. CRM First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' there will be question-and-answer session. If you would to ask a question during this time simply press star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key. Thank you. 

I would now like to turn the call over to John Cummings, Vice President of Investor Relations. Sir you may begin.

 

John Cummings:Senior Director, Investor Relations:

Thanks so much Victoria and good afternoon everyone and thanks for joining us for our fiscal first quarter 2017 results conference call. Our first quarter results press release, SEC filings and the replay of today's call can be found on our IR website at www.Salesforce.com/inverstor. And with me today on the call is Marc Benioff, Chairman and CEO, Keith Block, Vice Chairman President 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 also contain forward-looking statements, which are subject to risks, uncertainties and assumptions. Should any of these materialize or should any of our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. 

A description of our risks, uncertainties, assumptions and other factors that could affect our financial results are included in our SEC filings, including our most recent report on Forms 10-Q and 10-K.

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

 

Marc Benioff:Chairman and Chief Executive Officer:

Well thanks John and really excited to be here, really excited for the first quarter and I we have got some great people here for the call Keith Block here our new Chief Officer, really excited to have Keith here we have Mark Hawkins our Chief Financial Officer and you've all seen the press release we just had an awesome Q1 it's the best Q1 we have ever seen there is some incredible members that you are going to see including the cash flow number. Revenue for the First quarter as you saw grew nearly to $2 billion that was up 20% in constant currency that was just above our expectations. Deferred revenue also grew to more than $4 billion, up 32% in constant currency that was also above our expectations to see deferred revenue growth to grow with three in front this size and scale. Dollar value of booked business on and off the balance sheet at $11.6 billion, up 28% from year ago. 

We improved our non-GAAP operating margin was Mark is going to talk about and it drove the $1 billion in operating tax flow as I mentioned that's 43% from the year ago pretty great. 

I am also saw the national raising full year revenue guidance and $80 million raising guidance we are feel really excited about that $8.2 billion the high end of our range and our current outlook puts us on the clear path we are see now that we are going to realize very shortly a $10 billion dream. We are well positioned for another great year this is amazing I think that one of the reasons that we are doing so is because Oracle and SAP doing so poorly in the cloud. They just have not been able to make that transformation, that we have that other companies have made and we just continue to take market share from them and gain customers at a record levels and you can see that there growth numbers are nothing like they're putting here as we deliver our first quarter and that's happening because Salesforce is really the only company totally focused on companies help you to connect with their customers in way we are in the mid to massive generational shift. 

A new generation of customers and consumers is clearly emerging. We have been calling them here at Salesforce feed generation customer. Customer generation consumer generation these are people who want it now, they want it fast, they want it easy and their mobile, their social, they're always and our customers are working to connect with the feed generation in new ways very exciting. I mean this is really part of huge shift that's happening and computing we have gone we have gone from the first generation of computing which was very much of our systems of record to the second generation which was systems of engagement we've talked about that on these calls many times over the last ten years and we are clearly moving into this incredible world that the system was intelligece that's all yielding this incredible systems of customers or C-generation customers that are that our customers are connecting to and that's we are so excited about. 

I know you all want to hear more about those shifts that are going on and I'll encourage you to come to our world tour events in London tomorrow we will have 15,000 people in figure than most companies user conferences for us it's just another visit to great city in the world. And then next week we are going to be in New York. So world tour in New York which is already sold out. So we will be excited to see you there and then San Francisco on June 7th and 8th we're going to be hosting TrailheadDX which is our brand new developer conference it also I believe is already sold out. 

But it's going to be an amazing event we are going to have plenty of opportunities to watch it online. Hard to find venues around the world to host these large events TrailheadDX are going to see the next generation of softwares, sales forces, software development capabilities including our new lightening systems, component based development as well as the ability to go one on one journeys with customers and a huge focus a huge focus at TrailheadDX on how to rapidly and easily build mobile applications and really excited to visit with all the Salesforce customers and developers who are coming to TrailheadDX. 

Okay well finally, let me tell you we've got Dreamforce coming in October 4th to 7th I have two details, I know the bands that are playing, I know what's going on I'm not going to give you too much of that yet I can just say it's going to be the biggest and most exciting Dreamforce ever and it's going to be also just a great year and year a huge part of maintenance such a great year I think we are getting ready to celebrate your third anniversary at Salesforce is that right that's right one is that going to be so I can have the cupcakes ready. June 2nd alright well we're going to get those cup cakes ready but please before we do I will be just congrats you on a quarter, congratulate you on your promotion, your excellent leadership in the company and let me tell us what happened with customers this quarter.

 

Keith Block:Vice Chairman, President and Chief Operating Officer:

Alright thanks, Marc and thank everyone for joining us this call. I think as you heard from Marc we had an extremely fast start to the year and that is terrific on to itself by it is of the fantastic Q4. So we saw great execution across the board. We fined to our go to market approach, we've aligned our operation to bring our resources closer to our customers, because at the end of the day it is all about driving success for those customers and all these investments that we've made over the last few years the innovation of our industries building out our partner ecosystem, expanding internationally all that is really paying off and often our results. 

So we begin fiscal 2017 with a record number of large transactions more than any other first quarter in our history as the company the value of these large transactions across our clouds continues to increase. We've build on our tremendous momentum from Q4 and in fact we close yet again another nine figure transactions in the first quarter so we're very-very proud of that. It's obvious this positive the scale and depth of relationships that we're building and continue to build with our customers worldwide, everywhere, all shapes and sizes, geographies, industries. An example in Q1 we signed a significant and strategic agreement with Amazon. 

We are now that company wide customer platform and this with a huge expansion of our relationship with them and we plan to use more Amazon services in the future. one of the worlds 's great innovative companies another expansion in the quarter they are an incredible innovator with off the chart growth. They selected Salesforce to be their global customer success platform. So they can build one-to-one journeys of scale from millions of Uber riders worldwide. 

This is one of the most innovative companies as I said and they are driving their innovation by leveraging our customers success platform. 

Samsung another great brand decided to standardize their B2B business on Salesforce in Q1. So they can engage with their customers anytime from anyplace and run their businesses right from their Galaxy phones. Another great brand is New York Life they have selected Salesforce to power their digital transformation and they are planning to mobilize their field agents with Salesforce and enhance the service they deliver to their customers. 

In Europe, one of world's leaders and pioneers and robotics decided to go with Salesforce to advance the digital transformation of their business. Now Mark alluded to this, but this is strategic partnership where we completely replace SAP with every cloud in our portfolio to drive their customers success with our product suite. So not only with our customer success platform, but Salesforce will be their IoT platform connecting all the robotic devices to open up new services and apps and create new experiences to their customers. 

There are many, many more examples and an everyone of these companies are turning to Salesforce as their company advisors to redefine their customers strategy and take their businesses into the future. And we are delivering the global customer success at sale and across the entire portfolio. I want thank our customers for their continued trust and their commitment and always their inspiration and our partner ecosystem which is second for their ongoing investment in our customer success and last but not least and I want to thank everybody at Salesforce for again another outstanding performance in the quarter. 

So I would like to had this over to Mark who will talk a little bit more about financial execution in the quarter. Mark? 

 

Mark Hawkins:Chief Financial Officer:

Great. Thanks, Keith. As you heard we had a great start to the fiscal year with very strong results across the board. Our total revenue was up 28% in constant currency when excluding year-over-year FX headwind of $20 million. 

Sequentially we saw a $4 million FX headwind. Sales Cloud accelerated in the quarter with a 15% year-over-year growth. Service Cloud grew 32%, Marketing Cloud grew 29%, App Cloud and other grew 45%. 

In the region EMEA grew 33% and APAC continues to accelerate at 29% both on a constant currency basis year-over-year. Dollar attrition for the first quarter remained below 9%. While we continue to deliver this outstanding top line performance we also continue to improve our bottom line as well. In the quarter we delivered 283 basis points of year-over-year non-GAAP operating margin improvement our eighth consecutive quarter of expansion. 

This help to drive record operating cash flow this quarter as we delivered more than $1 billion of operating cash flow up 43% over the last year. I am very pleased with these outstanding results. 

Our first $1 billion cash flow of quarter very exciting. These outstanding results reflect the continued compounding of our invoice in Q4 in to a lesser extent the early adoption of ASU 2016-09 which benefited operating cash flow by approximately $25 million in Q1. Deferred revenue ended the quarter at more than $4 billion. This was up 32% in constant currency when excluding our year-over-year FX headwind of $10 million. 

Sequentially deferred revenue had an FX tailwind of $51 million. We also continue to drive an increase in annual billing from the quarter with 79% of all subscription and support related invoices issued with annual terms. This benefited year-over-year deferred revenue growth by approximately 1 percentage point. 

Moving on to guidance, with our strong start in Q1 we are raising our FY '17 revenue guidance to $8.16 billion to $8.2 billion. We're also raising our FY '17 non-GAAP diluted EPS guidance to $1.102. We are now expect year-over-year operating cash flow growth of 25% to 26%. 

For Q2 we're expecting revenues of $2.005 billion to $2.015 billion, non-GAAP diluted EPS of $0.24 to $0.25 and a year-over-year deferred growth of 26% to 28%. Could close we had an outstanding quarter and we're off to a great start for FY '17. I would like to thank the entire Salesforce team for these great results. 

With that I'd like to open up the call for questions.

 

Question & Answer

 

 

Operator:

As a reminder if you would like to ask a question please press star then the number on your telephone keypad. That's star, one on your telephone keypad. Your first question comes from the line of Brent Thill with UBS.

 

Brent Thill:UBS:

Good afternoon. Marc your largest revenue cloud to sales cloud accelerate to the best growth in over five quarters. Can you just highlight what's driving that outperformance and you did have a small price increase there has been questions among investors is that price hike having any impact in the short term?

 

Mark Hawkins:

Well I think that we have really been focused on how do we accelerate the sales cloud I mean it's a huge number of the revenue numbers incredible and the growth rate is also incredible and the areas where the sales cloud is really accelerated are number one we have done a huge amount of innovation with sales cloud starting with lightening we probably know we've completely rebuild our core platform of Salesforce which we now called lightning and we have rebuild how the sales cloud is manifest to do our customers especially in regards to mobile technologies you can see that if you go on apps store and download our Salesforce one which now millions of users millions are using that to access Salesforce. Two we've also created some amazing new capabilities for the sales cloud probably the most popular is our capability which is the part of the sales cloud very exciting accelerator for us as well as and these things and others really have what us to kind of what I would say almost reboot the sales cloud, recreate the sales cloud, re-energize it and this kind of accelerated revenue growth for that something that we are very, very excited about.

 

Brent Thill:

Thank you.

 

Operator:

Your next question comes from the line of Bhavan Suri with William Blair.

 

Bhavan Suri:William Blair:

Hey guys thanks for taking my question. Just two quick ones for me first when we look at the force platform again it posted really, really healthy growth, a fastest growth again of five quarters and also look that growth just some color on the mix of how much is coming from sort of existing highest season customers expanding on the platform or net new customers that are choosing force.com for speed for whatever versus any other platform just sense of how that's playing out and then you touched a little bit on the IoT cloud just a little more color some adoption obviously that's a huge market, but just sort of how you're thinking about the growth trajectory for that business. Thank you.

 

Marc Benioff:

Well I think when you look at our platform when you want understand it's growth you just have to look at the recent garner and magic quadrant for noble application development and deployment I mean we ranked as the leader and so many other work analysis by these independent analyst agencies. They marked our platform as the leader and I will tell you why that is because there is a whole segment of the developer population that we are speaking to who want to rapidly built and deploy applications especially and I said this in the previous answer. In the mobile environment an only Salesforce is let you rapidly build and expanding create these applications using lighting and deploy them on all these different devices and for those of you who will try to more seen in the traffic around it on social networks like Twitter and others know we have had a huge home run in regards to lightning. We have our customers imagination for those of you who attended the February 2nd event with the same reason you heard Accenture who is deploy in this technology not just towards customers but internally the tens of thousands of users almost 100,000 users and how they have accelerated. 

Their application development capability internally by turning to lightning and so that is what is driving the power. We have rebooted our core platform and you are seeing that reflected in our sales cloud and our service cloud, in our platform, in our community, in our core applications that are running currently on that lightning platform that's been a huge growth driver and I believe that because lightning is so unique and so special in the industry let's our customers build these applications quickly at a very low cost and deploy them across so many different platforms that we are going to see continued growth in these core clouds.

 

Operator:

Your next question comes from the line of Kash Rangan with Bank of America Merrill Lynch.

 

Kash Rangan:Bank of America Merrill Lynch:

Hey guy's congrats on the quarter. One question for Benioff and one for Howkins. One for you Marc Benioff, the platform business again it feels like even the sales cloud at this size when it was roughly to say as a platform did not growth as fast so are we finding at the point where we're getting that inflection this is requires to be firmly business specially larger could be one of your could it be the largest cloud and it still how does it help the vertical strategy. One for you Mr. 

Hawkins, three deals in the nine figure range, when will you start to build and when it will start to actually show up in deferred revenue suspect given how large these deals are you're not yet invoicing this customers? Thank you very much. 

 

Mark Hawkins:

Regards to the sales, number one, you know already this is one of the largest software products by revenue in the industry period. Not just the around not just Salesforce automation where its number one but in the industry and to see this acceleration this is something that we have been working on I said and I believe that this is true for innovation reasons of innovation and it's also reason to specialization as you know Keith Block, has been working on his vertical strategy and Keith you want to speak to that and also kind of some of the exciting things that have happened with the vertical strategy in the Sales Cloud and you been able to address some new markets which is part of the acceleration. Keith. 

 

Keith Block:

So a couple of things, first of all the acceleration Sales Cloud this is what as Marc said this is one of the most successful products in the history of technology and one of the great thing about this company as it continues to innovate and this is been a refocused point for us to continue to innovate and accelerate innovation around Sales Cloud you see that in the results and we have leverage that great innovation in that base to drive vertical specialization as you know we announce in mid for GA available financial services Cloud and health could in Q1 and we had several customers line up in the quarter. 

So we're starting gain a lot of momentum. So we have been talking about for while as part of industry strategy is been around messaging and then releasing this first vertical products focused on financial services industry and Healthcare industry and lifescience industry and again you do that with amazing technology with force you did with major technology leveraging the underlying cloud and ad specialization to it and that's why we are getting to see these results in the acceleration. 

 

Mark Hawkins:

So let me jump in, I also catch with the second question. Around three nine-figure deals which obviously we're very pleased with, where we have other reasons to keep in mind and I am want to talk about and you are absolutely right in the sense that these big deals are multi-year deals and so what happens is the first year gets billed and that will show up in our deferred revenue and then radically recognized overtime. But the multi-year aspect to that does not show up in our DR it shows up in our unbilled DR. What's amazing about that is when you put our billed and unbilled book of business together we have $11.6 billion now growing at 27% year-on-year. 

So you're picking up some of that really-really good business that's going to show but hasn't been built yet, but it will overtime. Great question. 

 

Operator:

Your next question comes from line of Heather Bellini with Goldman Sachs.

 

Heather Bellini:Goldman Sachs:

Hi great. I have question for Marc Benioff, and then a question for Keith. I guess Marc you have had this $10 billion goal for quite sometime it now is looks like you'll triple over it over soon and obviously a great accomplishment. As you look ahead and rarely the company into the future can you show the what's the next big rally in point or what's the next big you have for the company and then the follow-up for Keith would be how do you size the potential for these nine-figure deals as you look into your customer base. 

Thank you. 

 

Marc Benioff:

Well you're right. I know that you have created and keep comprehensive financial model and Salesforce in half for number of years as well as many of the financial analysts on the call. I am sure that all of you can figure out exactly approximately based on our deferred revenue numbers and adjusting your models around when we think we are going to have $10 billion. That is an exciting movement it's an exciting movement because for the software industry and specifically in enterprise applications there is really only been two other companies that have really hit that kind of number. 

So I would say, excuse me, I would say that our are already looking forward lasting right through that and getting the next level and I am excited the Salesforce doesn't show any signs of slowing down as we kind of get to these level. We are moving rapidly in the world that and we have talked about of course many transformations in our industry which is a world of the cloud of course that Salesforce's growth for many years. We are still feel that drove Salesforce's growth for many years and also mobility and that's also currently driving Salesforce's growth. When I learning kind of the next major trend for Salesforce and our industry that will drive tremendous growth it's going to be artificial intelligence. 

And as we look out into the future and we start to look at extreme improvements and advances in artificial intelligence whether its machine learning, whether it's deep learning, whether its machine intelligence itself I think that those kind of capabilities appearing inside our applications that is going to be a major growth capability going forward. And one other area that I think will advance that is that we can bring this type of new technology very much to everyone and that's going to be the power of Salesforce that's certainly what we were doing and with mobility today that's what we will in AI as we shifts Salesforce to be in an AI first company. You can see the beginning of this in one of our most exciting new products of the quarter and also part of the sales cloud growth for sure because there is not just SalesforceIQ if you can get on the app store, but also our new product Salesforce inbox. And Salesforce inbox is very exciting, because it uses artificial intelligence and machine intelligence. 

So work with our users, to work with our email, to work with your calendars, and to work with your CRM data to give them perspective ideas on exactly how to be more efficient in the sales, service and marketing processes of their companies and when you look at technologies like SalesforceIQ and like Salesforce inbox. Well and I am sure you know those came out of an incredible acquisition we did approximately two years ago where IQ which just a world class teammate that we were able to pick up that's based in then you can see that this is another major growth factor because it will appear in sales, it will appear in service, it will appear in marketing when you saw actually last week if you attended our connections conference. You saw our new predictive journeys capability and this kind of predictive capabilities that appeared in our marketing cloud that was driven out of our new SalesforceIQ services. 

You'll also see it a course in communities, you see it in our platform, you're going to see it in mobility, you're going to see it in our analytics of course as a core. This is a very practical next generation technology so Heather when I look forward what I see as an AI first world royal and for every customer it's going to be able to get our home other generation of productivity out of our additional intelligence, machine learning and deep learning.

 

Marc Benioff:

So you want to ad to that. 

 

Keith Block:

Just to your second question, large deals were certainly indication of deep these relationships are becoming with these customers but they are not the only indication. I mean certainly in Q4 we have two of the largest 9 figure deals that we've had history of the company. In Q1 we signed up again another very strategic long-term relationship but our business is based on a balanced portfolio across all market segments whether it's the F&B or mid market or the enterprise states and there is a lot of room there. So there is an expectation from our customer to play a more significant role across the board and certainly the enterprise and such market met with the couple of CEO's yesterday. 

Who were talking to us about how they bring their companies into kind of this age of the customer and drive digital transformation and that's becoming a regular dialogue but this is both a mindshare and a market share gain and we strive for balance in our execution balance in our portfolio of business and customers again it starts from top to bottom SMB all the way have to enterprise. So we got great momentum, we expect that to continue and I think we've got a terrific within incredible portfolio products that satisfy our customer needs.

 

Operator:

Your next question comes from the line of Sierra Hamblin with Macquarie. 

 

Sierra Hamblin:Macquarie:

Hi, thank you guys so much for taking my question and congratulations on a really extraordinary quarter. I had a couple for you. I am wondering where will you be expanding your usage of AWS beyond through and the components of our IoT that are build on that and I was wondering what's really driving that vision and then secondly on how do you think about the size of the sales cloud market given the number of sort of custom built in house solution that still exists out there. Where are we in terms of having that run rate for you guys and then I'll try to sneak a third here but if you could talk a little bit about wave analytics and what we are seeing there that will be fantastic as well?

 

Mark Hawkins:

Well thanks for that question. Number one, I would say we and Amazon we have got a great relationship with Amazon. There are huge user of Salesforce and that certainly has been a huge part of this quarter as well is it a very significant and very large transaction with the Amazon and Jeff Bezos and I have a great meaning of the minds of the future of the cloud I think that its been a great relationship and partnership for us, we want to continue to grow that and expand that strategically we are definitely exploring ways that we can use AWS more aggressively with Salesforce of course you know that we run one of the largest application development capabilities in the world on AWS which is Heroku. 

We also are building our new IoT cloud on AWS. We also introduced new capabilities for our marketing cloud last week on AWS and we have done a lot of research and development capabilities in AWS. When you look at Amazon today there is no public cloud that is more sophisticated more values by enterprises and one that has more robust capabilities than Amazon. They have done a spectacular job in defining this kind of infrastructure as a service market they of course dominated I think you know they are doing themselves more than $10 billion a year in it and we are very happy to be so tightly aligned with the Amazon and AWS.

In regards to kind of future capabilities that you're going to see with other parts of Salesforce well as we head towards our developer conference and as we head towards Dreamforce I think you continue to see more announcements between Salesforce and Amazon and you'll see our partnership and strategic alliances with them continue to grow and develop and Jeff and I have a lot of very exciting ideas on what the next steps are. 

 

Mark Hawkins:

Okay. Absolutely take the next question. 

 

Marc Benioff:

Let me may be I could jump in here. On the one other thing is you touched on was the a little funnier. The way you'd ask a little bit about that so and we are seeing nice growth with the way again we're very pleased with the way that's progressing and by the way the big deals that Keith has just called out in terms of AWS is using wave while nation is using wave we can get big customers after big customers using wave by the wave as we have run a Fortunate 500 company and absolutely love it. So I love the growth rates, I love the large deal penetration with this, I love the momentum keep in mind that Fortune one but the thing I call out and may be Mark or Keith want to about this but we are just super happy to have Bob here he is I think going to be beyond version one and that's just really exciting to me on and that's the way we come from my stand point. 

And just the last point was around you'd asked around the sales cloud market size and representing other additional thoughts there.

 

Keith Block:

I am just say it again I mean this is one of the most successful products in the history of technology and lot of companies as you all know when they come up with the great first product if you will. They leave it behind and they don't continue to innovate, but this is a company that is keeping innovation is part of the DNA and we have reinvigorated this product set and we are a very pleased with the results and customers are loving it.

 

Operator:

Your next question comes from the line of Steve Ashley with Robert W. Baird and Company.

 

Steve Ashley:Robert W. Baird and Company:

Great. I was just like to drill down on the sales cloud question again. You saw the accelerated growth 14.9%, but if we would appeal kind of parts that out look at it from enterprise maybe medium, small businesses look at it layers. 

If you fill back that enterprise layer where I am sure large deals are really helping. Are you seeing improved growth it some of the lower layers in the mid-market and smaller business market for the sales cloud. Thanks.

 

Marc Benioff:

Yes we are and I will tell you why that is I mean touched on it the number of times but I will circle back one more time because I think it is important. I think it's important because I think for a lot of companies to get this level of the product the kind of putted on maintenance they look another way and they hope to kind of bring the next horizon. They look to kind of get more commentary on what is the next wave or whatever and they move to that next product for us we're not we have that of course we have multiple successful multi-billion products in the company everybody knows that. But we have not give it up on sales cloud because there is so much more that we can do and you saw that this quarter in that we have rebuild this core with lightning so that it works better on mobility. 

We have Salesforce1 which now has millions of users on it and I use it everyday. It's never been faster, easier it the level of acuity with Salesforce1 is phenomenal we have skill break which our customers love just kind of CPQ kind of capability to build new core, orders and all this incredible new stuff that still that's still natively on our lightning platform. We have SalesforceIQ which is artificial intelligence front end machine learning front end to sales cloud which is incredible. We have sales cloud, we have Salesforce inbox which is an email front end of the sales cloud. 

That's incredible and we have many, many other things coming many that you'll see the many more you are going to see at Dreamforce we have a not ban in sales cloud, we have doubled, we have tripled down on sales cloud and because of that we have accelerated our growth rate and it's exciting and our visions for sales cloud have not yet been fully revised. I mean we know that there is not just as cloud there is not just as incredible powered vision for sales cloud, not just incredible social vision you all know its been build on this incredible engagement platform, build on our chatter core and then extended into Salesforce1. Of course it has incredible mobility the best of any enterprise application in the world of more mobile users on it than any other application that I am aware of. 

And we are now introducing this new AI rapper that you can see that artificial intelligence is becoming part of sales cloud you can see that already in SalesforceIQ, Salesforce inbox, you can see that in predictive journeys, you're going to start to see that more aggressively and because we are innovating so aggressively on sales could. 

You are going to continue to see great results, because what customer does not want or need the stability to grow their top line and that's what sales cloud is giving them in this tough environment and by the way all those same things that I just mentioned worked with service cloud they work with our platform, they work with our community. We are have one very solid core platform that is extended through this work that we're doing. So I never been more about capabilities in the company and what our developers are doing, what are innovators are doing I mean it's so exciting 

 

Keith Block:

Marc I agree and the thing I would adding Steve is that not only is it accelerate this quarter. This is the fourth consecutive quarter of sales cloud accelerating in terms of year-on-year growth and so all those step in Mark talking about it taking hold. The other thing keep in mind and I know you know this is US dollar growth that we are talking about not even foreign exchange because you alluded to growth coming from in fact that's another point to be aware of. But the third thing I would say is when you look all the innovation Mark is talking about and you look at market shares and you probably seen the growth in our data they just came out again we took market share again in sales cloud, but even more importantly, we took market share at the CRM level number one again I took a 150 basis points and our key competitors are falling behind and actually loosing market share and so that's exciting to but this is a continuing trend it is not just one acceleration quarter Steve.

 

Mark Hawkins:

Just final comment on the acceleration of sales cloud. If you think about the agenda of every CEO and certainly the most progressive CEO it is about growth, it is about shareholder value, it is about stakeholder value and this is why we aligned so well with our customers and this is why they are interested in our sales comp. Because they want to grow, they want engage with our customers and this is the market leading platform and that's why we are seeing a reacceleration we are aligned beautifully with the agenda of the CEO of the best companies in the world and they are looking for solutions and this is best solution in the market place.

 

Marc Benioff:

Yes and I would just get back to my competitive comments which when you look at these other vendors and what they have done with their technology in this category it's been pretty poor and that's why when you saw that magic quadrant from Gartner we are way high up in to the right because everyone else is kind of branding their technology in this are and the kind of they give it a lot of lift service, but the reality there is just no comparison between what we have and what the other vendors have at this point its incredible and it comes through on our demos, it comes through our wins and it comes through in the core customer success.

 

Operator:

Your next question comes from line of Raimo Lenschow with Barclays.

 

Raimo Lenschow:Barclays;

Hey thanks for taking my question and congrats on the great quarter. Two quick questions first one is Keith can you talk a little bit about the linearity in the quarter. We saw Q1 obviously a very terrible earnings season followed the old time software company,I just wanted to see if that's timing or the market share comments that you can laid out in the first question and then the second one is since we talk about London and the event there tomorrow and I saw like the European growth accelerated again could you talk a little bit about where you see the maturity of that market versus the U.S. market? Thank you 

 

Keith Block:

Yes thanks for the question. Let me just start with the international market since it was the second part of the question. The it is been a big focus area for us over the last three years as part of our one of the three growth levers again expanding our part of ecosystems speaking the language of industries and focusing our resources internationally obviously we made investments with data centers in Europe which we are very-very excited about our customers are obviously excited about that just responding to our customers in that regard. 

But we have also invested more in terms of customer facing assets internationally because our customers want to engage with us more deeply they want us more strategic relationships. So we are just seeing the results of this investment that we have made over the last three years. As quarters the market trends there is a lot of legacy on premise providers out there quite frankly that is still trying to figure out if and how they can possibly transition to the cloud which is very difficult. A lot of companies will claim that they are a cloud company. 

But the reality is being a cloud company is about technology it is about a business model and it is about the cultural driving customer success and these companies that have had four results or five results they represent the path and they do not have these three pillars that really the foundation for software Salesforce 17 years ago and that's why we continue to drive success for our customers and we see great results in the marketplace we are taking share quite frankly these other companies are loosing share as we gain shares, so we creating separation with them in the market and we have the right vision, we have the right story, we have the right product execution we have great partners and we have great customers and that's why you're seeing these results. 

 

Operator:

Your next question comes from the line of Phil Winslow with Credit Suisse

 

Phil Winslow:Credit Suisse:

Hi guys I just want to give my congrats on a really the huge quarter. We have talked a lot about sales cloud and platform those are phenomenal to but we haven't touch on the marketing cloud yet, our checks picked that you guys continue to increasingly good job in cross selling into big sales cloud based and obviously just the product itself is evolve pretty rapidly with past 12 months. Wanted to if you just give us some color there and as you think about the rest of the fiscal '17 just how do you think about the outlook for the marketing cloud in particular and then just one quick follow up to that.

 

Keith Block:

Well we just came of with connection you know we had this incredible event last week in Atlanta where we had a record number of customers shop for this event and a lot of great CMOS, lot of great C-level Executives they love our messaging, they love our vision and we've done a very, very nice job of integrating not only integrating I would say that acquisition that we made almost three years ago in June of exact target but we continue to strengthen the product. So it is a natural adjacent fee to customer engagement around with sales cloud and service cloud, we continue to invest in the product and we've continue to invest in the marketing assets as well as field assets and we are driving the results and the message continues to resonate.

 

Mark Hawkins:

Yes and I would ad in on that one to Keith. I think you guys have planned some amazing big deals in the marketing cloud, it's been really productive in that way as well. So it's really nice to see those attributes marketing clouds and it come it along really nicely. 

 

Phil Winslow:

Great and then just a follow up for to Marc Be service could is obviously been a phenomenal success and it's a big dollar number and continues to grow rapidly. It seems like the customer service market as whole is pretty hard right now and we have heard some new players start to talk about coming into this space even just this week. We do think about your positioning in sort of what you bring in the market here for this is some of the existing credits but also these new ones trying to get into the market. How do you think about your positioning what advantages do you have and you do you think about specially the new entrance. 

 

Marc Benioff:

Yes service is a huge focus of Salesforce and we I will immediately kind of default to again my comment on innovation and as evidenced in the innovation Gartner's lead analyst just publish their magic quadrant on customer engagement if you haven't seen it you should get it and contact Gartner and you will see when you get it that Salesforce has move farther up into the right have any product that I have ever seen in the history of Gartner magic quadrant. So you'll have to take a look at that and we're not done because where we platforming service completely on the lightning which will done by Dreamforce. We are continuing to add an extend service. It remains one of our most exciting fastest growing products. 

It is chasing sales cloud to be our largest cloud I mean it's an exciting market. Now service is a huge and exciting market there will be many players in service just as a many players in sales, just as there is many players in platform we are in mega markets. And I like those innovation in service and competition service and makes the markets bigger, but it doesn't change our position as being the number one most important provider of service solutions in the world with the largest market shares that is where we want to be and where we will continue be.

 

Keith Block:

And just add to that just in case you haven't seen a report year so we gain 330 basis points in the report that just came out I mean it's pretty major share shift to add on to our already number one position.

 

Operator:

Your next question comes from the line of Mark Murphy with JPMorgan.

 

Mark Murphy:JPMorgan:

Thank you. My congrats question for Marc Benioff in recent months we have seen a lot of evidence for the major consulting firms such as Accenture and Deloitte and PwC moving pretty aggressively to build out their Salesforce practices they have been doing it both organically and through acquisitions and they seems to be centering their entire digital transformation strategy around Salesforce and we've seen them converging their services with apps from multiple of your app change partners and they are kind of rapping that around Salesforce and it seems to be resulting in part in this growth trajectory that you've got. So I am curios does the past even beyond $10 billion and maybe to $15 billion and $20 billion in revenue seem any clear to your as you have these consulting firms around Salesforce for their digital transformation strategies.

 

Marc Benioff:

Okay well this is great question and I am going to go the Keith pretty quickly on this, but you saw in my February 2 presentation where we highlighted Accenture and we also now around the world you've seen the videos on you tube between Salesforce and Accenture if you haven't great opportunity go and check that out there as well as the demos you heard from the CIO and their CEO, from their President of Salesforce is they're fastest and most strategic growing factors and in this transformation factors that is the key cloud factors. You will also see that some of the other major SIs as well. 

I am especially proud of our work with the way, I am especially proud of our work with Cap Gemini and you know from the fourth quarter PWC work just an awesome relationship that is emerging and we are delighted with that as well. All of these players have our full attention. 

Now for all of them they are trying to competing to grow to be the fastest grower with Salesforce of ecosystem because all of our customer want service capabilities because Salesforce itself provides actually only strategic services we don't really provide this kind of core implementation services. So these large players have acquired many of the key parts of our ecosystem and you just saw that with IBM they just brought and they are very good company. That they have all made strategic based on and they are trying to acquire our ecosystem as fast as possible. We're continue to invest in these companies into these ecosystem company we want to start more companies that provides service capabilities regionally, in the United States, in Europe and Japan and Australia and other places in the world and these companies grow up and they get acquired by these large companies that's a great model for us. 

Of course our venture firm has made a incredible return on that strategy over the last10 years. 

Now on top of that, I will tell you that I don't think that there is a strategic systems integrator who isn't making massive investments in Salesforce right now a lot of that has been led by Keith and I'm going to turn it over to him, he is really given us a partner focus, like we did not have before and Keith can you try to tell us how you've double down on that and how you provided some straight leadership around the systems integrator.

 

Keith Block:

Yes so this is again this is been one of our growth strategies to really drive this part of ecosystem in many fronts and Mark mentioned a lot of the large and significant players I mean these are firms that have deep relationships in the board room of company's all shapes and size of all over the world the wide has we branded to the wide digital and really when you look at the center piece that everything that's a wide range for the table in terms of digital transformation and it starts with Salesforce they've done a terrific job there. 

I just last week I addressed the global partners forum at Accenture in Munich and talked about digital transformation and how Accenture and Salesforce are doing so well together and just to give you an example of Accenture we just don't have a go-to-market relationship with them which is terrific and they continue to build their practice. They are also a very large customer wise. So they are leveraging they lighting fast, they rolling it out very aggressively, they getting all the benefits of it and they are building products on top of our platform. So with the beautiful 360 degree relationship with Accenture that has really served as a model for all of this great systems integrators, I am going to be with Cap Gemini next week to explore how we accelerate going to market with Cap Gemini we collaborate with them very regularly about how to drive the market together I was when the Vice Chairman of PwC a couple of weeks ago talking about our growth strategies together and our job is really to work very closely with these, very trusted advisors to listen to them to help feed and drive the ecosystem because it's the huge part of our strategy. 

 

Operator:

Your next question comes from the line of John Difucci from Jefferies. 

 

John Difucci:Jefferies:

Thanks for taking my question. I think this question is for Keith. This is been two quarters I mean Salesforce is being putting up numbers that are good numbers for a while but this these last two quarters looked us to be really strong and strong primarily it looks anyway from the enterprise I mean the S&D seems that have been pretty consistent for quite some time. But subject themes have changed with the enterprise the enterprise customers. 

So Keith can you talk about what's driving this, what's happening our enterprise is just more willing to engage with SaaS venders and specifically Salesforce and some of the processes that you came in Marc said it's your third year anniversary coming up you obviously made some changes and put some things in place they just starting to really thinking right now and I guess how sustainable is this we have seen it now for a couple of quarters.

 

Keith Block:

Yes John thanks for the question. So I think a couple of things number one just honestly this has been 17 years in the making I mean this is an incredible company with incredible people, incredible sort of products and customers that I alluded to earlier and we have been able to gain incredible market share and momentum starting with Marc's vision for cloud computing 17 years ago. So we have been able to capitalize on that so that's kind of point number one. 

Point number two is that we find ourselves in a world where this conversions of cloud and mobile and social and data science and IoT all coming together and we kind of lift the match again with Marc's vision 17 years ago and we have been able to reinforce that vision by driving success to our customers. And then in over the last there is the third point is over the last three years as successful as the company has always been we have put a particular emphasis on the enterprise and a focus on expansion in our international markets becoming by speaking the language of the customer around industries and building on our ecosystem kind of how I answer the question about our SI partners before. So although these things are come together we are both the last that's been part of the strategy from 17 years back and I think in the last three years as I said obvious these thoughts are just augmenting, but it always been a great company with great products and great leadership and incredible employees and customers.

 

Operator:

Your next question comes from the line of Ed Maguire, with CLSA.

 

Ed Maguire:CLS

Hi good afternoon. I would like just ask a question about the source of demand that is drive acceleration in the platform. Would you characterize that more as a push to find demand where you are building a developer ecosystem and with of the new features and lightning etcetera or are you actually starting to see more pole demand as this broad ecosystem of all the clouds works together and attracts more business to the platform.

 

Keith Block:

Yes. So this is Keith. So this is really a multi things number one our job is to pain division for our customers around driving success and customer engagement and then we have to back it up by driving that success and one of the ways we do it is with the industry leading products and that's starts with our platform. So that platform is really the secrete thoughts that allows us to drive this customer engagement levels for all of our customer base in the market. 

So we create a vision if you will we can create demand, but there is also is timing in market as I talk about earlier between this conversions with cloud and mobile, social, data science and I have see all coming together. So customers are seeing the need because the market is light for disruption with all these technologies our platform is amazing so we are able to deliver on that promise and then we have build out this incredible ecosystem of ISVs who are building on our platform and they are driving success for our customers by building unique solutions they love the vision of lightning and the reality of lightning and so all those things are coming together, so it's kind of a push, pull effect the market has been created and we feel that and it's very cyclical and as a result you see the results in our platform. 

 

John Cummings:

Alright. I think that's all the time we have for question for today. So I want to thank everyone for joining us on our call this quarter. We look forward updating you on our Q2 results in August and remember if you registered for TrailheaDX event here in San Francisco, June 7 and 8, and of course gear up for Dreamforce October 4 to 7. 

So we will look forward to talking to all in a few months. Thanks so much. 

 

Operator:

This does concludes today's conference call, you may now disconnect. Thank you for your participation.

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