Salesforce Inc (CRM) — Q3 2017 Earnings Call Transcript

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 building 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 on the first floor; 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 is delivering this kind of growth at this scale and size, and we are already off to a great start. Deferred revenue in the third quarter grew to $3.5 billion, up 25% in constant currency from a year ago. The dollar value of booked business on, off the balance sheet is 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 Yeezy 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 is 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 and Heroku, companies like Macy’s, Toyota, and we are operating at incredible scale and now an incredible level of momentum as well. Over the 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 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 packed house, but more than 15 million joined online. That was a huge surprise for us. And at Dreamforce, you also saw 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 the 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, and 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 have 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 spreadsheets 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 helping them streamline operations across all their primary lines of businesses so 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 packaged 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 a 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 win 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 equipment, they will be able to provide more proactive service and respond 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 with Velocity to show them an integrated solution in their industry and then the testimony of the power of our industry 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 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 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, $0.01 from an investment gain in Q3, and $0.01 from an anticipated investment gain in Q4. This guidance 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.

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 a 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 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, markets, segments, and industries. So, again, I think it is a quarter of execution and I am very, very proud of how the team responded.

I want to start by discussing the different clouds. Can you explain how you observed their performance? Clearly, the Sales Cloud performed well, especially with the introduction of the high-value SKUs. The Service Cloud saw a slight moderation. Could you provide some context on that? And Keith, I have a question for you as well.

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. 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 an 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 a 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 just becomes more and more compelling. So, we definitely have the wins that are back in our sales and we’re super excited about the execution and 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 see 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 serviced 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 financial institution, 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 balanced 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 to is this whole market share thing, 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 the portfolio point.

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 think when we consider innovations like Einstein, it's clear that there are significant shifts in technology from the perspective of our customers. We had the chance to meet with major banks in New York this week. Areas such as customer service, sales, and marketing are poised for remarkable changes, which is quite surprising to me. Reflecting on our journey since founding this company 17 or 18 years ago, our current position was unexpected. From a technical standpoint, I've shown customers how our user interface operates entirely on mobile devices. I’ve demonstrated to CEOs of Fortune 100 companies that I run my entire business from my phone, which often astonishes them. The volume of information and insights accessible through this approach is astounding. Also, we've successfully integrated business intelligence; both Mark Hawkins and I demonstrated Wave on our phones to a Fortune 10 CEO, and their reaction was one of disbelief. Moreover, AI is evolving to become smarter and is aiding users in identifying paths to success—this is particularly exciting. We’re enhancing this with the speed of our platform, exceptional mobility, and the productivity offered by Quip. This represents a major breakthrough for our customers, who are encouraged by the comprehensive platform we provide. Einstein plays a crucial role in this, and you can expect it to be thoroughly integrated into all our offerings. Customers recognize that Einstein stands apart from other AI solutions. I've spoken with tech leaders and cloud CEOs, and while many have AI capabilities, that's become a baseline expectation. Our distinct advantage lies in how we deliver these tools to millions rather than just a select few programmers. We aim to empower those without coding experience or low-code capabilities—citizen developers—through our artificial intelligence and mobility features. This makes the Salesforce platform truly exciting, and since our core applications like sales and service are built on it, this differentiation is evident in our win rates and competitive positioning, which is stronger than ever.

Mark Hawkins, I guess I’m wondering if you could talk a bit about the synergies that you’re starting to see or are you 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.

I mean Keith you agree, don’t you?

Yes, we can’t believe it. First of all, Keith was having a company in Boston.

But, Walter, I appreciate the question because 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 great detail on all of that about where we’re going to 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 from Demandware. So, watch this frame to come but the overall performance, I love what I see.

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 if there has been decelerating in marketing cloud. And one of the things we are hearing all about is in the marketplace is increasing competition potentially from the alignment of Microsoft and Adobe. Is that having any impact on Marketing Cloud given any pressure on that business and causing the slowdown there?

I think it's important to note that we sold more CRM software this quarter than Microsoft has in the last decade, which speaks volumes about our performance compared to them. Additionally, in terms of our marketing cloud, I feel we are constrained in our distribution. We have an abundance of products across various markets, including sales, service, marketing, communities, analytics, application development like App Cloud, commerce, IoT, and productivity with Quip. Salesforce is set to leverage this full portfolio, and we've observed that in our results over the past five years, with consistent fluctuations in our cloud performance linked to our distribution capabilities. Keith, as the leader of the distribution organization, can provide a unique perspective on this.

Look, I think the bottom line is that we have an abundance of riches particularly as it relates to our product portfolio. And if I look at our field organization and the value proposition and the solutions that they can put in front of a customer, whether it’s a line of business executive or 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 are 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 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?

Keith, it's important to highlight some key relationships. You have established partnerships with leading systems integrators and are building impressive practices approaching $1 billion, which is remarkable. We had discussions with CEOs of these top systems integrators at user conferences this quarter, though we won't disclose names due to the sensitivity in this industry. These significant players attend other conferences and question the energy, momentum, growth, and innovation they see, which leads them to turn back to us. This is encouraging because we can collaborate with large systems integrators, including respected companies like Deloitte and Accenture, who are developing rapidly growing practices. Customers are noticing this as well. Would you agree?

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 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 attention from the CEO and board level compared to when we sold it? I never reached out to a CEO or board member. I’m not sure how many you contacted; you were probably there longer than I was. But just to put it in perspective.

I think it’s very simple; these companies, these CEOs have an agenda of growth. Our story is about growth; their 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...

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.

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?

I truly appreciate that, Heather. I genuinely believe that at the core, I should revisit my comments about the balanced portfolio in our platform. Our capability is unique, as we have an integrated platform. This is exciting because we not only offer the number one Sales Cloud in the world and the number one Service Cloud in the world, but we also provide the leading declarative platform, along with other capabilities like mobility, AI, and analytics. When I reflect on the remarkable things our customers have accomplished, it's evident that they creatively combine these features to build and deploy apps internally, always seeking speed. They desire productivity, intelligence, and mobility along with that core platform. I believe we’ve developed it well, supported by strategic acquisitions that enhance our core, such as our marketing cloud, commerce cloud, and Quip. With Lightning, we have an impressive UI layer that is unprecedented in componentized application development, resembling a visual ETL. Customers are now integrating everything at the UI and data layers, which I believe will propel us forward. This platform is key. As we aim for our short-term goal of reaching that $20 billion milestone, I assume you have your own projections regarding when we will achieve it. However, I don’t know exactly when we’ll double the company. My aspiration is to double the Company within the next three to four years. That goal is incredibly important to me.

Not at all, Marc.

I think so. We are performance-oriented, and we have a great team and culture, as you know. Our brand reputation with customers is strong. We maintain a high level of transparency with financial analysts and media. When you come to Dreamforce, you are free to engage with our customers, and you can feel the energy. You're welcome to join all of our events. I will be back in three weeks, visiting Tokyo, and I encourage those who haven't been to Japan to come and witness something incredible. For those not going to Tokyo, we will have a large event in New York, which is our world tour. This is very exciting. The world tour in Tokyo and San Francisco will occur on the same day, so expect to see significant market momentum this quarter. Keith, as we approach the fourth quarter, are you ready?

Oh, I’m ready, Marc. Don’t worry.

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 appreciate this question. We exist in a world where concepts like speed, mobility, productivity, innovation, and intelligence are crucial. These factors have become essential for being part of the next generation of successful companies. When considering the existing challenges for any consumer packaged goods company, it's evident that they must establish a connection with the end consumer. Often, this connection is made through retailers or distributors, whether the company is a traditional industrial entity or a consumer goods firm like Unilever. They seek that direct link to the consumer. Therefore, maintaining B2B relationships while creating a new B2C model is vital for their future. We are in what is referred to as the age of the customer, influenced by cloud technology, mobile access, social media, data science, IoT, analytics, and artificial intelligence. These elements have led to the rapid emergence of new companies and a reduction in barriers to market entry. If businesses aren't considering their future engagement strategies with customers—be it B2B or B2C—they risk facing significant challenges. This dialogue is increasingly relevant for us at Salesforce, particularly due to the Commerce Cloud. This component of our portfolio is integral to facilitating these transformations. The conversation surrounding this shift is becoming a standard part of our discussions, as exemplified by a recent significant win with one of the leading CPG companies, which is focused on transitioning from B2B to B2C.

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 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. There are a couple of important points to mention. First, you all know that in the second quarter, we faced a mix of challenges, not just with foreign exchange issues stemming from Brexit and the Pound, which we have continued to struggle with all year. Our numbers would be even more impressive if it weren't for that, right Mark? What have we recorded for foreign exchange this year?

For FY17 Marc, we had to absorb between $100 million and $150 million headwind.

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 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 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 just 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.

There are several factors at play here. We are all familiar with the story from the second quarter, so I won’t go into that. However, during the last earnings call, we expressed a strong confidence in our Q3 results, and we certainly delivered on that. We also stated our high confidence in Q4 and made the necessary adjustments. I want to echo Marc’s remarks about our distribution organization; it truly is the best in the industry. This allows us to engage with our customers about how they can adapt their approach to selling, servicing, and marketing to their own customers.

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

We live with them and this is what we do.

In terms of the election, I think it's really important to acknowledge that some of us may not be satisfied with the outcome while others are. In my opinion, that's behind us now. We’re looking ahead at Salesforce with an open heart and mind, and we anticipate positive outcomes. We promote positivity in all our endeavors. We’ve discussed our approach of maintaining a beginner's mind, which applies not only to our business operations but also to adapting during changing times like elections. Despite the changes, we remain optimistic about the future and are committed to nurturing that optimism in our business practices. I’ve spoken with various customers this week and have met with CEOs from some of the largest companies globally, and all of them are focused on moving forward. We understand our tasks and know how to execute them. I believe the challenges of 2008 are behind us, and I remain optimistic about growth in 2017 and beyond, contrary to many global economists. I genuinely hope we’ve moved past the impacts of 2008 and that with the election behind us, we can look forward to a brighter future. Mark and Keith are here with me, and I encourage them to share their thoughts as well.

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 a $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 milestones 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, 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.

Keith, could you talk about the deal dynamics you're observing, especially considering the significant growth in annual contract value from existing customers? Is this growth coming from deeper penetration into various cloud services, an increase in the number of seats, pricing adjustments, or are you noticing a faster adoption rate 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 consolidated selling or net new logos and positioning the solutions for growth.

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 of years. And to me that seems 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 been implementing over the last 3.5 years. It focuses on understanding our customers and targeting our offerings by industry, ensuring that our messaging and product portfolio are designed to address specific customer challenges. In this quarter, we've seen a notable trend in the financial services sector, as seven leading financial institutions chose Salesforce for their transformation efforts. One of these deals involved a prominent wealth management firm that is fully adopting our financial services cloud, which is one of our first industry-specific products. This partnership is aimed at addressing a particular challenge in that sector. For instance, the solution we developed with Telecom Argentina, in collaboration with Velocity, represents a significant advancement for the telecommunications industry and marks a substantial success for both parties. This outcome might not have been possible without our focus on industry-specific solutions. Whether it's the stories from PNC, Citigroup, or the wealth management firm, we are still in the early stages, whether it’s through our own products or our partner ecosystem. Our strategy is closely aligned with our partners, system integrators, and independent software vendors, as we have organized our sales teams to better serve the market. Ultimately, everything is built on our platform, which is fundamental to leveraging its strengths. I believe this is our competitive advantage. Our industry strategy is yielding results at the highest levels, engaging with CEOs and capturing their attention, market position, and share of wallet through our approach of understanding customer needs. We are gaining momentum and are enthusiastic about these developments.

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.