Salesforce Inc (CRM) — Q1 2018 Earnings Call Transcript

Thanks so much, Victoria. Good afternoon, everyone, and thanks for joining us for our fiscal first quarter 2018 results conference call. Our first 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 on the call today 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 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 reports on Form 10-K and 10-Q. With that, let me turn the call over to you, Marc.

All right. Thank you, John, and welcome everyone to the call. We're thrilled to have you with us, and I'm personally very eager to present these exceptional first quarter figures. The results are impressive, showing substantial top and bottom line performance. Revenue for the quarter increased to nearly $2.4 billion, representing a 25% growth. This marks the fastest growth among any of the top 5 enterprise software companies, and no company in the history of enterprise software has reached our scale as quickly or at this growth rate. Our non-GAAP earnings per share for the quarter climbed to $0.28, an increase of 17%, and deferred revenue grew to over $5.04 billion, up 26%, which is exciting. The total value of booked business, both on and off the balance sheet, now exceeds $14.6 billion, a 26% increase from last year, adding more than $3 billion since last year. Operating cash flow for the quarter was $1.23 billion, up 17%, and we are keeping our full year operating cash flow guidance at a growth rate of 21% at the high end of the range. Given these strong outcomes, we're raising our full year revenue guidance by $100 million to $10.3 billion this year, reflecting a 23% growth. Additionally, we're increasing our non-GAAP EPS guidance by $0.01 to $1.30 at the high end of the range, which is a 29% growth year-over-year. We have consistently demonstrated strong top and bottom line growth, driven by our leading CRM product line, and the strength of our financial and operating model has persisted this quarter. Our ongoing improvement in non-GAAP operating margin over the past three years has allowed us to triple our free cash flow while doubling our revenue, which is a significant achievement for Salesforce. This success over the past three years, where we've tripled our cash flow and doubled our revenue, is something we take great pride in. We are on track to achieve our fourth consecutive year of non-GAAP operating margin improvement this year, targeting 150 basis points at the high end of our range. Our robust revenue performance demonstrates the strength of our entire product portfolio. Each of our four major clouds, treated as separate companies, would rank among the top 10 pure-play cloud software companies globally. Our organic revenue growth is strong across all product sales, with cloud revenue rising at 14%, Service Cloud at 21%, Platform at 32%, and Marketing Cloud at 32%, excluding Demandware. Our portfolio has strengthened not only because we’ve strategically invested in our business but also because we've acquired impressive companies over the past year, and their integrations with us have been remarkably successful. I extend my gratitude to all Salesforce employees for welcoming these new companies and also to these new partners for their tremendous efforts during the integration process. A prime example is Demandware, which served over 500 million shoppers and generated over $4 billion in total gross merchandise value in the first quarter, marking a 31% increase from last year, which is impressive. I was recently in Las Vegas with the Salesforce Commerce Cloud team, where over 1,500 people attended our Commerce Cloud conference, showcasing the current dynamics in the retail industry and how many retailers are striving for enhanced customer success through online channels or hybrid solutions. This shift is further energizing our B2C CRM product line within the already strong Marketing Cloud. As retailers transition from traditional brick-and-mortar models to online settings, they are increasingly emphasizing personalized, one-on-one customer relationships, leveraging artificial intelligence to enhance their capabilities and deliver exceptional customer experiences both in-store and on mobile platforms. Salesforce is at the forefront of these transformations. Our competitive position is stronger than ever, as highlighted by recent data from leading industry analysts, IDC, indicating that Salesforce has increased its overall market share more than any other CRM vendor. According to IDC, we rank #1 in CRM, sales applications, customer service applications, and marketing applications for 2016. This remarkable data is also shared on my Twitter feed with a helpful chart using IDC statistics. Salesforce is gaining market share at a faster pace than our competitors, as shown in that chart, where we outpaced the market share increase of the rest of the top 10 CRM vendors combined in 2016, which is an impressive achievement. Gartner has corroborated similar findings, ranking Salesforce as #1 in CRM and total software revenue for 2016 for the fifth consecutive year in its latest worldwide CRM market share report. Moreover, the same report identifies Salesforce as #1 in application Platform-as-a-Service for the fourth consecutive year, #1 sales provider for eight years straight, and #1 customer service and support provider for three years running. All of these areas in which we are focusing are yielding outstanding results. With our strong market leadership and diversified product portfolio, we closed some of the largest deals in Salesforce’s history this quarter, which Keith will elaborate on further. We've also strengthened our partnerships with remarkable brands such as Visa, who are fully adopting our Salesforce automation technology, as well as Delta Airlines and 21st Century Fox, which is embarking on a significant deployment of Quip to replace their Microsoft Office setup. We're thrilled about these developments, and I congratulate all Salesforce teams involved. No other company is securing more strategic CRM deals. CRM is currently the fastest-growing enterprise software category, and by 2021, it will represent the largest spending area in enterprise software, according to Gartner. We are very excited about this promising opportunity to continually enhance our growth and leadership in CRM and to expand the Salesforce economy. Our ecosystem of customers, partners, and developers is contributing hundreds of billions of dollars to GDP and creating millions of new jobs. Amidst the significant changes occurring in the world and the critical aspects of workforce development, we are pleased to see so many individuals turning to Salesforce for new job opportunities. There are currently hundreds of thousands of job openings seeking Salesforce skills, with Salesforce developers and administrators being among the highest-paid roles in the United States today. This is an exhilarating time for Salesforce, where we expect to grow to nearly 30,000 employees globally this fiscal year, a fact that fills me with pride. Each employee is fully dedicated to CRM, with a primary focus on our customers' success, which is of utmost importance to Salesforce. Our commitment to customer success is evident this quarter as we launched a global advertising campaign featuring several amazing customers. You will continue to see remarkable stories unfold, including the partnership between Salesforce and Amazon Web Services, illustrating how AWS utilizes Salesforce to thrive. This has been a thrilling partnership, supported by fantastic video testimonials available on YouTube, including those from Farmers Insurance, Intuit, and numerous other exceptional brands featured in our campaign as we aim to raise Salesforce's profile in the market. Today in London, we hosted a sold-out world tour with over 10,000 attendees and will hold similar events in Boston, Paris, and Chicago within the next month. We also look forward to our second annual TrailheaDX developer event happening on June 28 and 29 in San Francisco. I hope to see you at any of these events or join me in Tokyo on July 4 as we continue to communicate our message to the Asian market and showcase Salesforce's substantial success in Japan. Now, let’s turn things over to Keith.

All right. Thanks, Marc. We delivered incredible results in the first quarter across all of our geographies, industries and clouds. As you can see from our numbers, the investments that we have made, and continue to make in international expansion and industries and our partner ecosystem, continue to pay off. More importantly, we are deepening our customer relationships. We're engaging with them in more strategic ways, some of which Marc alluded to, and we are acting as a true trusted adviser to their businesses. We had some of the largest transactions in the company's history this quarter, starting with an iconic technology brand who is standardizing on Salesforce to bring together sales, service and marketing for thousands of employees worldwide. More to come on that next week. And another large transaction in Q1 was with a major telecommunications company who is using Service Cloud and Marketing Cloud and the Salesforce Platform to transform the shopping experience for its customers. Very, very strategic. Now this company sees Salesforce as the key component to their retail growth strategy, and with this win, now 10 of the top 15 global telecommunications companies rely on Salesforce. Very impressive. Now while our market-leading core products continue to see great traction and drive success for our customers, we're also seeing momentum with our new additions to the portfolio such as Commerce Cloud, Krux, and Quip. Marc gave you an example of 21st Century Fox who's rolling out Quip to 20,000 employees, helping them co-create documents, streamline approval processes, and collaborate in real-time. Looking at our revenue internationally this quarter. We delivered strong results in all of our geographies, as we had constant currency revenue growth of 29% in EMEA and 26% in APAC. Expansion outside the U.S. is key to serving our global customers. It's a key part of our strategy and achieving our goal of $20 billion of revenue. And this starts with investing in our go-to-market resources, our partner ecosystem and our infrastructure. We made amazing progress on this front in Q1, starting with our announcement in March that we are leveraging AWS to deliver Salesforce services to customers in Australia, which I just returned from a couple of days ago. We also announced the opening of our second data center in Japan in April. And in Europe, we had customer expansions with Banca IFIS, Adecco and Group Atlantic. In Japan, we landed wins with major brands such as SoftBank, Japan Asia Group and Mizuno. And in Australia, we expanded our relationship with AMT, a leading wealth management company. They are turning to Salesforce as many wealth management companies are reimagining their client advisory relationship for the digital age. Now turning to industries. We continue our strong showing in Q1 yet again. In fact, as Marc talked about, if you were in Vegas this week, you've seen Salesforce hosting our XChange conference for the retail industry, a great reception there. And at the conference, we announced an expansion of our relationship with iconic fashion brand, Diane von Furstenberg. We also had a major expansion this quarter with Ralph Lauren. They've been very active in the press, and they have a new vision for growth and customer engagement that is powered by Salesforce Commerce Cloud. They believe that Salesforce will create a best-in-class experience in all of their markets around the world. And with these wins, today 8 of the top 10 U.S. retailers, nearly half of the top 20 global retailers, rely on Salesforce to power their business. In the public sector, the team recently unveiled Impact Level 4, IL4, provisional authorization for government cloud, enabling even more federal government agencies to benefit from Salesforce. And in the quarter, we expanded our relationship with the United States Army and the United States Air Force. In state and local government, we drove an amazing win with the state of Florida. They're using Salesforce to implement a travel management system that will include authorization requests and approvals and expense reporting. And by streamlining all these processes with Salesforce, the state will be able to better analyze the amount of funding spent on travel and ultimately save taxpayer dollars, which is a good thing. Finally, in financial services, we're thrilled to expand our relationship in Q1 with Northern Trust, a leading provider of wealth and asset management services. And with the addition of Salesforce CPQ and Shield, they're enhancing customer trust and building a 360-degree view of their clients. And today, 9 of the top 10 global wealth management firms rely on Salesforce. On the partner front, we continue to work with the largest and most strategic SIs and ISVs in the world, reaching new markets, building amazing applications on the AppExchange and ultimately growing our impact with customers because it is all about customer success. And in Q1, we expanded our relationship with Accenture. As you know, they're a long-standing and strategic partner for us, and this quarter, they grew their deployment of Sales Cloud to thousands of their consultants worldwide. But it's not just about the SIs. We're also seeing momentum across our thriving ISV ecosystem, and earlier this month, we announced that Quintiles IMS, a leader in life sciences, is building new clinical trial applications on the Salesforce Platform. And just last week, you saw that we launched a new AppExchange partner program and a $100 million platform fund to empower millions of developers and ISVs to create new applications. So it's never been a better time to build on the Salesforce Platform. At the end of the day, our strategy of international growth and building the world's greatest cloud ecosystem and speaking the language of our customers continues to fuel our results. I'd like to thank our customers and our partners for their trust in us and our employees for strong results for the year, and of course, now over to you, Mark.

Thanks, Keith. I'm really pleased with our first quarter results. We continued strong top line and bottom line growth and our record operating cash flow in the quarter. Revenue grew 25% in both dollars and constant currency, excluding a year-over-year FX headwind of approximately $11 million. Sequentially, we benefited from an FX tailwind of approximately $15 million. Each of our clouds demonstrated strong revenue growth in the quarter as Sales Cloud grew 14%, Service Cloud grew 21%, Platform and Other grew 32% and Marketing Cloud, excluding Demandware, now Commerce Cloud grew 32%. The Commerce Cloud started FY '18 very strong, contributing $57 million in total revenue and with $46 million in subscription and support revenue. Dollar attrition in the first quarter, excluding Marketing Cloud and other acquired businesses, remained below 9%. As you know, our fourth quarter is our largest new business from renewals quarter and Q1 is our largest cash collection quarter. And as a result, we delivered a record operating cash flow in the first quarter of $1.23 billion, up 17% over last year. This is more operating cash flow than we delivered in all of FY '15. Deferred revenue ended the quarter at $5.04 billion, up 26% in dollars and 27% in constant currency, excluding an FX headwind of $21 million. On a sequential basis, deferred revenue benefited from an FX tailwind of $41 million. Commerce Cloud contributed $50 million to deferred revenue in Q1, up from $49 million in Q4. Moving on to guidance. With strong results to start our fiscal year, we're very pleased to be raising our full year FY '18 revenue guidance to $100 million to $10.25 billion to $10.3 billion or 22% to 23% growth year-over-year. This guidance includes approximately $50 million to $100 million of FX headwind. And we're also raising our FY '18 non-GAAP diluted EPS guidance to $1.28 to $1.30. Please keep in mind that Dreamforce is in Q4 this year versus Q3 last year. And as you update your models for the second half, we anticipate slightly more EPS to come in the third quarter than in the fourth. We continue to expect to deliver 125 to 150 basis points of non-GAAP operating margin improvement in FY '18, our fourth consecutive year of improvement. We're also maintaining our full year operating cash flow guidance of 20% to 21% year-over-year. For Q2, we're expecting revenue of $2.51 billion to $2.52 billion, non-GAAP diluted EPS of $0.31 to $0.32 and year-over-year deferred revenue growth of approximately 22%. This deferred revenue guide reflects the increasing seasonality that we've discussed over the last several years. Before I close, let me give you a quick update on our future adoption of the new revenue standard ASC 606 starting in Q1 of next year. We will adopt this using a full retrospective method, which will result in recasting our results in FY '17 and FY '18. We're on track with the preparations to address the accounting changes. Regarding commissions, we anticipate capitalizing more selling-related costs, and our amortization of these costs will be over the customer life rather than the contract term. While we expect to increase our disclosures for revenue backlog, deferred revenue, and other customer contract information, we have not yet quantified the impact on revenue. However, we do not expect these changes to have any impact on our operating cash flow results upon adoption in FY '19. All these changes are required under the new standard. We plan to provide you with a thorough review of these changes and the anticipated accounting impact later this year. So to wrap up, our first quarter results position us well for another year of strong financial performance. I'd like to thank all of our employees, customers, partners, and our stockholders for their continued support. And with that, we'll open the call for questions.

Question for Mark Hawkins, just on how front-end loaded the investment spend will be this year. I noticed you and Marc updated the full year operating margin improvement of 125 to 150, but it looks like in Q1, operating margins were down year-over-year and it looks like R&D was up quite a bit. So I'm just curious whether Salesforce is front-end loading your OpEx investments and what would drive the operating margin improvement in the second half.

Thank you, Karl, it’s great to talk. Last year, we mentioned that we benefited from a leap year, which, while it balances out over the year, has a significant revenue impact of about $20 million to $25 million in the first quarter. That's an important consideration. Additionally, we haven't yet fully annualized the integration costs associated with major acquisitions like Demandware and others, which is affecting the front-end as well. These two factors contribute to the quarter-by-quarter overview. For the full year, our operating margin goal of 125 to 150 remains intact and is based on higher revenue projections, which is why we've also increased our EPS for the year. Overall, we feel positive about our position. Moving on to research and development, we are transitioning some personnel from our industries division to the product development area to enhance our focus on R&D. This is merely a reallocation of resources, and overall, we are in a good place. That's an update on our situation in Q1 regarding these two items.

Actually a couple of questions. One for you, Marc Benioff. It looks like there's a lot of business coming through on the government side. And I'm also hearing, really over the last several quarters of conference calls, a decided shift in the business towards more B2C-centric industries. Can you talk about the business strategically, Marc, given that we know that according to statistics that the government actually spends the most amount of money on software. It's, by far, the vertical that commands the biggest share of what's spent on software. Can you talk about how the company views this opportunity ahead in the context of the Platform business, which also has the potential to be a multibillion-dollar business? And I guess I'll save the question for Mark Hawkins if you can get through this, that will be fine.

Okay, Kash, it's Keith. You mentioned the progress we're making in the government sector. We have made significant strides in our focus on public sector business. This quarter, we had an important announcement regarding IL4, which is making a difference for us. We have also expanded our partnership with the U.S. Air Force and the U.S. Army, seeing this as a great opportunity as the government works on modernizing and transforming its operations and technology. There is a lot of potential in this area. I also mentioned our notable win with the state of Florida, along with impressive work for one of the largest cities. Stay tuned for updates on this major city that many are familiar with. Our industry strategy is yielding great results, not only in our market approach but also, as Mark Hawkins pointed out, in how we orient our product offerings. Last year, we launched the Financial Services Cloud and the Health Cloud following our acquisitions of Krux and Demandware, now known as Commerce Cloud. We have a strong B2C story, as exemplified by Ralph Lauren, a company undergoing significant transformation and utilizing us as its growth platform for B2C. We see immense opportunity and potential, and we are committed to understanding our customers, enhancing our platform, expanding our partner ecosystem, and investing in tailored solutions for specific industries.

Question for Marc Benioff. Wanted to focus on the Sales Cloud because obviously, a lot of attention has been given to the growth over the past couple of quarters and Service and Marketing. But if you look at the growth in Sales Cloud, that's actually gotten accelerated over the past couple of quarters here. How do you think about Sales Cloud in terms of where we are in the life cycle, pricing, upsell potential, just walk us through just your thoughts on where we are.

Well, Sales Cloud has become one of the largest products not just at Salesforce, but in the entire software industry, and it has far exceeded our expectations. And as you can see, as Salesforce, Sales Cloud specifically kind of heads towards that, these kind of incredible revenue levels, I think Sales Cloud has really accelerated because we kind of have a had a breakthrough in how we think about Sales Cloud and the ability to grow that revenue stream. And that you saw with our acquisition, for example, of SteelBrick. When we acquired SteelBrick, it also gave us the ability then to extend Sales Cloud with CPQ-type functionality, which just was something that we did not have previous to that, previous to the acquisition, and we are able to organically grow the product. And that has been a big revelation for us as we look to all the options and all the things that our Sales Cloud customers need that previously we didn't have. And in addition to that, we continue to close very large new Sales Cloud licenses. I mentioned Visa, for example, which went wall to wall with Sales Cloud this year. But there's been so many other exciting Sales Cloud customers, as you know. And as Keith mentioned, combined with the vertical strategy, it's really opened up all these new opportunities. I think a great example is financial services where we have the Wealth Cloud, which is built, of course, on the Sales Cloud. And now, 9 out of the 10 largest financial institutions of the world are using Sales Cloud and Wealth Cloud to manage their wealth advisory firms. That's pretty cool and another example of where we're growing Sales Cloud. So we take this very, very seriously that when we look at Sales Cloud and Service Cloud, which are huge products, 2 of the biggest products in the software industry and 2 of our biggest products, we want to continue their strong organic growth. And we have been able to put together a whole portfolio of strategies to do that. And it's working. And I hope that it will continue to work and we're trying to do a lot of cool things this year to make that happen. And I think that we look and talk to Alex or you talk to Keith or I, we're extremely aligned on this breakthrough and we're executing it.

Maybe for Marc Benioff or Keith. You guys continue to sign some very large transactions in the quarter. So I guess, as you think about the strategic imperative of growing your wallet share within these Fortune 500 accounts, how should we think about a very large customer that you are for this along with in terms of that percentage of their overall budget or spending on you versus your average? And how does that compare with an Oracle, SAP or Microsoft at this point?

It's a very good question. Do you want to handle this?

Well, it's Keith. Let me give this a try. We have a well-diversified business portfolio, encompassing both large and small deals across various industries, geographies, and segments. We are particularly proud of a couple of significant transactions, as these are among the largest in our company's history. The reason behind these companies entering into such transactions and building these relationships is that their CEOs are forward-thinking. They aim to transition their companies into the digital age and have a strong growth imperative, believing we are the only technology platform capable of facilitating that growth. Once these relationships are formed, as they begin to derive increasing value, we continue to innovate. With new offerings like Quote-to-Cash or SteelBrick, we have the opportunity to revisit these large customers and introduce further innovations. These large deals create a foundation for ongoing innovation and connection, which is integral to our strategy. In terms of IT spending, a recent IDC study indicates that by 2020, CRM will be the largest and fastest-growing category of enterprise software. Our results show that we are growing significantly faster than the market rate, suggesting that we are gaining market share and wallet share, which directly impacts IT budgets and the consideration of our offerings among CEOs. We have a compelling product, we are leading the market, capturing share from competitors, and gaining the attention of CEOs, resulting in greater penetration of IT budgets.

And I think the other point you kind of didn't mention that I think they love to hear about is these top 10 customers just continue to grow. I mean, it's kind of amazing and I think it surprised us, right, to see how big our largest customers are becoming and how committed they are to our technology, especially our platform. Do you want to illuminate that further?

Yes, I think it's kind of an interesting statistic that we talk at the board level is if you look at the top 10 companies and the barrier to get into what we referred to as the top 10 club. If you look at what that barrier was 4 years ago and then you fast forward to where we are today, particularly at the end of this first quarter, to get into that top 10, you'd have to be spending more than 2.5x what you did before 4 years ago. So we have not only grown these relationships, but we also have new members into this, what we call the top 10 club. So again, it's an indication that these companies are adopting our technology and they're transforming our business.

When we spoke earlier, you noted that during the pre-growth phase, we only had one or two products to offer these companies. Now, however, we provide a comprehensive range of services that assist them with customer focus, sales, service, marketing, community, analytics, apps, platform, commerce, and more. Do you believe that the digital transformation of these companies is contributing to this growth? What do you think is driving these changes?

There's no question that there is a laser focus on digital transformation by the CEOs of these organizations. And when you think about the evolution of our company, we have a strategy that we refer to as seeding growth, where we initially penetrate and we drive value, typically, with Sales Cloud. So this reacceleration of Sales Cloud is obviously a great thing. And then once we drive success for those customers, as Marc was talking about, then we're able to say, 'Okay, now the walls between sales, service and marketing are coming down.' So now we have an opportunity to provide a 360-degree view of the customer with service and with marketing. And take that now one step further, as we've moved from systems of record to systems of engagement to now systems of intelligence. And that's where Einstein, which we're all very excited about and customers are excited about comes into play. So it's an expansion of our capabilities and our opportunity to drive transformation with these customers.

Question for Keith. You mentioned the rollout of AWS in Australia. I'm curious if the AWS partnership and your ability to store customer data in more locations will help your international pipeline in the long run, or if there's been any noticeable impact so far.

I recently returned from Australia, where there is considerable excitement surrounding our Australian data center and our partnership with AWS. This is strategically significant for us as a company and is also important for our customers. We are very enthusiastic about it.

Yes. And I think at Salesforce, we really strongly believe that the enemy of my enemy is my friend, and I think that makes Amazon Web Services our best friend.

This question is actually for Marc Benioff. Marc, I was wondering if you could share with us how you've seen Einstein start to impact deal sizes. And what's the general, I guess, adoption curve look like for machine learning and AI now that you have it embedded into your products?

I can share from my personal experience that in this quarter, our Einstein technology is now integrated into all our capabilities. We've become one of the first and fastest users of it. A feature called Einstein Guidance, which we haven't rolled out to our customers yet, has greatly enhanced my effectiveness as a CEO. I utilize it in my weekly staff meetings, where I discuss forecasts and quarterly analyses with our top executives. I consult Einstein for insights, asking it to evaluate our performance and guide our team's focus on specific executives needing attention. This capability has significantly improved Salesforce's performance and my decision-making processes. I can ask Einstein anything, allowing me to gather unbiased data-driven insights rather than relying solely on my team’s perspectives. Moreover, this technology is transforming the experiences of individual salespeople, enabling them to prioritize calls effectively and assisting retailers by improving shoppers' decision-making. A recent demonstration with Deckers and their UGG brand showcased how Einstein personalizes shopping experiences by recommending products based on customers' preferences. We see Einstein's impact across our analytics, commerce, and sales products, and it will also play a significant role in our service offerings, especially with the rise of bots to handle customer inquiries. We've pioneered the integration of AI into our products, which is vital as AI is evolving faster than many anticipated. This technology is becoming the foundation for all future applications, similar to how cloud and mobile technologies emerged. AI will fundamentally transform customer experiences, and Salesforce aims to lead this transformation by helping CEOs globally adapt and transform their businesses using AI. This is why I’m enthusiastic about Salesforce Einstein.

Also a question for Marc Benioff. Given the board-level attention that you're receiving, I'm curious what inning you think we're in, in terms of digital transformation. In other words, how many Global 2000 types of firms are seriously considering a digital transformation? And also when you do see a company engage in using Salesforce as the centerpiece for one of those projects, how does their level of spending with Salesforce change?

I appreciate your question, as it addresses a significant topic for Salesforce. For instance, just yesterday in Las Vegas, we hosted thousands of customers while simultaneously holding another event in London with an equal number of participants. This accomplishment highlights our ability to manage two large-scale events in different locations at once. During my time in Las Vegas, I met with a major furniture manufacturer that has not utilized much automation. This vast company, which employs tens of thousands, operates as both a B2B and B2C business. They manufacture, design, and create furniture for partners and resellers, and they also sell directly through their stores and online. They expressed their desire to digitally transform their operations and acknowledged their need for both B2B and B2C enhancements. I reassured them that Salesforce stands out as the only company capable of offering a comprehensive suite of technology, services, and partnerships to facilitate their transformation in both areas. This interaction was significant to me, as it reflected our evolving perspective at Salesforce. We continue to lead in B2B with products like Sales Cloud and Service Cloud. Recent IDC data also shows that we are #1 in B2C with our Marketing Cloud. This is critical, especially with the advancements we've made in Commerce Cloud and our digital marketing platform introduced recently. We excel at connecting these solutions to provide customers with personalized and intelligent experiences through Einstein. We spent an hour brainstorming with that customer, outlining their necessary steps for transformation, and we can likely achieve their goals within 90 to 180 days. An example of our effectiveness is a major customer currently struggling with SAP Hybris, which is outdated on-premise software. Retailers are under pressure to act quickly and cannot afford the risks associated with legacy systems like SAP Hybris. This underscores the rapid growth of our Commerce Cloud. Being cloud-native, social, mobile, and now AI-driven enables us to provide faster and better services to our customers. The IDC report illustrates how we've eclipsed SAP in the CRM space because customers urgently need transformation, and we're prepared to meet that demand. This progress makes me proud of our company, especially in instances like my meeting with the furniture manufacturer in Las Vegas, where we can fully support their needs.

Keith, another really nice quarter in Europe for you all. Just 2 quick questions on that region for you. Can you just talk about where you think Europe is versus the U.S. in terms of your mind share with senior executives that are thinking about digital transformation? Do you feel like you have sort of the same sort of brand awareness over there as you do in the U.S.? Or is there still some opportunities on that front? And then second, any concerns at all about the new GDPR regulation that's coming up around data privacy, maybe slowing down decisions on cloud technology as that deadline gets closer?

Kirk, thanks for the question. Let me address the first part. Our President and General Counsel is here to discuss the second part. We had another strong quarter in EMEA, which is part of our growth strategy for international expansion. We see opportunities everywhere, both in the U.S. and internationally, particularly as CEOs are embracing digital transformation. I spent some time in Europe about a month ago and can share two examples. One is with the CEO of one of the largest consumer banks who is exploring how to use our technology, including Einstein, for digital transformation within the bank. This is very important as financial services face significant disruption. Another example is a visit to Finland with our President of EMEA, Miguel Milano, where we met the CEO of Koenig. This is a company that views itself as a B2C business, moving a billion people daily, and they are focusing on digital transformation to enhance their service. They are utilizing our technology to gain predictive insights into customer behavior and improve the consumer experience with their escalators and elevators. The opportunities are vast and only limited by creativity in using this technology. I find that industrial manufacturers in Europe are quite progressive in adopting digital transformation. Many financial services organizations around the world, such as AMP in Australia and the consumer bank I mentioned in Europe, are also forward-thinking. In terms of the manufacturing sector, EMEA shows a very progressive approach to embracing digital transformation. This is evident every year at The World Economic Forum in Davos. Regarding your second question, I'll turn it over to Amy Weaver for an update.

Great. Thanks for asking about this. So the GDPR, for anyone who does not know, is the new EU General Data Protection Regulation. And that's going to come into effect in about 1 year from now in May of 2018. And what this is going to do is this going to replace the current attach work of national data protection laws in the European Union and at the same time strengthening privacy rights. And at Salesforce, we really welcome the GDPR as an important step forward in streamlining all of these processes. And we're committed to making certain that our customers can continue to use our services while compliant to GDPR. It's something we are looking at very closely, and we will have further updates to the market and to all of our customers throughout the year as we get closer to its implementation deadline.

So we thought at the New York City world tour, the company announced it was lowering the rev share for ISVs back to pre-2015 levels. What's the strategy behind that decision? And maybe related to that, can you give us an idea of what the revenue from ISVs represents as a percentage of total platform revenue? And overall what percentage of new ACVs coming from the partner ecosystem generally versus direct sales?

This is Keith. Let me try to address that as best as I can. Look, at the end of the day, we think we have the most compelling platform in the marketplace. I gave the example of Quintiles IMS, who's building a mission-critical application. Clinical trial application, it's pretty serious stuff and they're going to be building that on top of our platform. Great example of an ISV. Another example obviously is Accenture. Vlocity, I mean, there's a roster that we've given here. And we want to drive proliferation and usage and adoption in the marketplace, and we want to make sure they're priced to value, and that's why we made an announcement in New York and also why we made the announcement around our fund, which we're very, very excited about to be able to invest in these ISVs. As far as breakout of ISVs, revenue and ACV and all that stuff, we don't disclose that. Mark Hawkins, I don't know if you want to...

Yes. In fact, just we concur, we don't, but I totally agree with your points there. I would add, Samad, that this is, as you know, is an exciting offering. Our Platform app grew 31%. It's another $1 billion, $1.5 billion cloud that's growing and rapidly towards $2 billion. So it's an exciting thing. And I think this change, Keith, is just simply part of amplifying the opportunity for our customers. So that would be the net of it.

A lot of mine have been answered, but the one I wanted to talk to you about is now this year, you're going to hit the $10 billion in revenue and only very few software companies have achieved that. Now that your eyes are kind of moving on towards the $20 billion, can you talk a little bit about the changes you need to think about in terms of organization and we need to think about as well because obviously, it's a completely different skill again then and it's something that kind of requires kind of careful planning?

I'm happy to discuss that. Everyone at Salesforce is thrilled to see our run rate approach $10 billion in revenue. The key highlight of this call is the deferred revenue, which stands at $14.6 billion, growing by 26%. You can use this information to update your financial models for next year, which is exciting. We also have a 5-year long-range plan and budget influenced by these deferred revenues, helping us chart our company's direction. Our finance team has done a great job creating these models, allowing us to deliver our quarterly results as we aim for higher figures. We're excited about reaching $20 billion, and you'll notice Salesforce transforming in several areas. Government is a major business opportunity for us, along with financial services and healthcare. Keith has discussed this transformation extensively. Our focus on the top 10 enterprises and our growing commercial business unit are also key factors. Additionally, we've driven growth through acquisitions like ExactTarget, Krux, and Demandware, which have enhanced our Salesforce Marketing Cloud and B2C capabilities. In sectors like government, financial services, healthcare, and more, we have a strong performance strategy across all our regions, as evidenced by our quarterly numbers in Europe, Asia-Pacific, and Latin America. I'd like Mark to elaborate on this as well.

Sure, I'd like to add to what Marc covered regarding international aspects. The point that stands out to me, and I appreciate Raimo bringing up the question about scaling from $10 billion to $20 billion, is about the concept of doubling the company. We're accustomed to this challenge, having successfully doubled our company in the last three years. We've been laying the groundwork to achieve this again, and that has become a reality for us. Clearly, we have extended our planning to make it happen once more. A key aspect to consider is that our innovations and offerings play a crucial role in ensuring our customers' success, which in turn drives our revenue growth. We are seeing progress in market share as well. However, it is indeed challenging to achieve progress, customer success, market share growth, operating margin improvement, and effective cash flow all simultaneously, but we are currently managing to do so and aim to continue this in our long-term plans.

Yes, and I think that really just touches on our core values in our company, which starts with customer success. And I think is more important than the trust and customer success that we continue to focus on. I think you'll continue to see that be amplified as we head towards $20 billion. We hire people who are focused on customer success. We have a culture of customer success and trust. We also hire people who want to build a growing business. These are people who like to work hard and who enjoy growth and who relish that. And that's important to us. And third, I would say innovation. We continue to deliver world-class innovation, both organically. You've seen that with Einstein, with Lightning. And inorganically, we've seen that with Commerce Cloud and Krux and Quip. And this kind of perfect combination of that has created an amazing innovation inside our company. And we hire people who are focused on equality because I think we all realize that we're in a world today where we have to focus on equality, that this is a time when each and every one of us has a personal responsibility to look at the world and ask, 'What value are we going to provide back to the world?' And that's why you hear me talk extensively about the importance of K-12 education because I strongly believe education is equality. And you'll hear me talk more about that this weekend. And Saturday, we open our Indianapolis Tower, Salesforce Tower in Indiana where we become the largest tech employer. And that's a place where equality has become a very important and core value of Salesforce.