Salesforce, Inc. (CRM) Q4 2011 Earnings Report, Transcript and Summary

Good afternoon. My name is Marvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the fiscal's Q4 and full-year results conference call. [Operator Instructions] I'll now turn the call over to our host, Mr. David Havlek. Vice President of Investor Relations. Sir, you may begin.

Thanks, Marvin, and welcome everyone to Salesforce.com's Fourth Quarter Fiscal Year 2011 Earnings Call. Joining us remotely today is Marc Benioff, Chairman and CEO. And here in San Francisco, I'm joined by Graham Smith, our CFO. Following our prepared remarks today, we'll open things up for your questions. We are going to try to get to as many of you as possible, so as a courtesy to your peers, please limit yourself to one question today. A complete disclosure of our fourth quarter results can be found in our press release issued about an hour ago, as well as in our Form 8-K filed with the SEC. Additional financial information, including detailed historical financial statements and facts, is also available on our website. Our commentary today will primarily be in non-GAAP terms. Reconciliation between GAAP and non-GAAP metrics for both our reported results and our forward guidance can be found in our press release. At times in our prepared comments or in responses to your questions today, we may offer incremental metrics to provide a greater understanding of our business or our quarterly results. Pleased be advised that some of these disclosures are onetime in nature and we may or may not update these metrics in the future. With that, let me make this call official with a brief Safe Harbor. The primary purpose of today's call is to provide you with information regarding our fiscal fourth quarter 2011 performance. Some of our discussion or responses to your question may contain forward-looking statements. These statements are subject to risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize or should our assumptions proved to be incorrect, the actual company results could differ materially from these forward-looking statements. All the risk, uncertainties and assumptions, as well as other as well as other information on potential factors that could affect our financial results, are included in our reports filed with the SEC, including our most recent Form 10-Q particularly under the heading Risk Factors. To access our Q4 press release, including the GAAP to non-GAAP reconciliations, our historical results, any of our SEC disclosures or simply to learn more about www.salesforce.com, I encourage you to visit our Investor Relations website at www.salesforce.com/investor. In addition to the webcast, today's call will be available for 90 days, and a dial-in replay will be made available through March 23. Finally, before I turn the call over to Marc, please be advised that we may reference certain unreleased services or features that are not currently available on today's discussion. We can't guarantee the future timing or availability of these services or features as such customers who purchase our services should make the purchase decision based on services and features that are currently available. With that, let me turn the call over to Marc to discuss our Q4. Marc?

Thanks, David. Our fourth quarter was an extremely strong finish to a fantastic year. And let me begin by briefly reviewing some of our financial highlights. Revenue for the fourth quarter was 29% from the year ago to $457 million. For the full year, we delivered approximately $1.66 billion, an increase of 27% from fiscal year '10, and we exited the year with an annual revenue run rate that now exceeds $1.8 billion. Non-GAAP EPS of $0.31 rose 3% from the year-ago period, even as we accelerated our investment in key areas of growth. We also set a company record for cash flow in the quarter delivering approximately $170 million in operating cash, an increase of more than 80% year-over-year. For the full year, operating cash flow rose approximately 70% to roughly $460 million or 28% of revenue in fiscal year '11. Our multi-products strategy is really taking off. Not only was Q4 the best quarter in our history, we also signed more new business from each of our sales, service, collaboration and platform clouds than ever before. In the fourth quarter alone, we signed two eight-figure transactions, including our largest deal ever, and more than 30 seven-figure deals. Also, we added approximately 5,100 net new customers in the quarter, excluding customers from Heroku and Dimdim, taking our global customer community to more than 92,300. For the full year, we added approximately 20,000 net new customers and more than 1 million net new subscribers. We now have a global community of more than 3 million net gain subscribers. Given strong Q4 demand and a strong pipeline of new business, we're pleased to be able to raise revenue guidance of $2.03 billion to $2.05 billion for fiscal year '12. This will make Salesforce.com the first enterprise cloud-computing company to generate more than $2 billion in revenue by the end of this year. As you know, we kicked off the fourth quarter with an amazing Dreamforce, more than 23,000 customers, partners and developers attended our eighth annual event. I have to tell you, I'm rarely felt such excitement from a crowd. Truly a testament to how our strategic vision, our customers view Salesforce.com in their enterprises. We're our customers' path for the next phase of cloud computing, which we call Cloud 2. Cloud 2 is a new paradigm for computing that is inherently social, mobile and open. It redefines teams, pushes out information in real time and works with revolutionary devices, including the iPad, iPhone, BlackBerry and smartphones using Android. Salesforce.com is leading the effort to bring Cloud 2 to the enterprise, infusing everything we offer to customers with the social collaboration, mobility and openness that are the hallmark of this brave new world. As you know, Chatter is at the heart of our efforts to lead the enterprise into Cloud 2. We see social computing as a strategic new enterprise category, which is why this year you've seen us deliver Chatter, Chatter Plus, Chatter Mobile, Chatter Free and, at the Super Bowl, Chatter.com. And leveraging the social features popularized by Facebook and Twitter such as profiles, status updates and real time feeds, Chatter provide a private and secure corporate social network for companies of all sizes. And because it is at the core to the Force.com platform, its social capabilities are an integral part of every Salesforce product. Today, you can sign up directly at Chatter.com. And all Chatter customers can upgrade with a single button for our full range of services. Today, more than 80,000 of our 92,300 paying customers have deployed Chatter since its release in June. This makes Salesforce.com the largest provider of enterprise social networks in the world. And now with Chatter.com, the free and viral version of the service, we're looking to introduce the power of the cloud to employees at every company around the world. We've already added more than 10,000 new networks since introducing Chatter.com in our first-ever Super Bowl ad only a few weeks ago to get the momentum going. Our Super Bowl ad marks a milestone in how enterprise software companies can accelerate important new services and brands like Chatter.com. New Chatter deployments in the fourth quarter included Analog Devices, Avaya, Avis Budget, Citrix, Epson, McAfee and 3M. Customers also deployed Chatter into new departments and functions across the enterprise and companies purchasing additional subscriptions to Chatter included BSkyB, Sony, Trend Micro and Wachovia. In addition, SunGard will deploy Chatter across the entire enterprise, replacing its existing enterprise social network, just as Dell did before them. Both are now standardized enterprise-wide on Salesforce's Chatter. Customers using Chatter tell us they're thrilled of the productivity gains and the open communication it brings to their organizations. In a recent survey, we commissioned more than 6,000 global Salesforce.com customers. Users reported 28% fewer medians, 33% less email, and a 49% increase in finding information after deploying Chatter. Those are amazing statistics. Customers that have deployed Chatter within our sales and service clouds also have shown higher log in rates and higher usage rates as their employee spend more time and do more work within our applications. These are amazing results from a technology that is literally just months old. We are so delighted to see such strong results from the Chatter technology. Our customer momentum was powered by our flagship Sales Cloud, which added more new business in Q4 than in any quarter in our history. Customers buy new or additional subscription to the Sales Cloud included Groupon, Juniper Networks, Staples and Tyco Health Care Group. Against Oracle, we want significant new or add-on business this quarter with customers such as AT&T, Citi, Telefonica, and Xerox. And companies also prefer our Sales Cloud over Microsoft CRM, which just is not kept pace with the social, mobile and open technologies the rest of the world has embraced and offers customers no competitive advantage. Q4 wins for new or add-on business against Microsoft include Abbott, Gannett, Hilton and Scripts. We also saw a strong momentum in our Service Cloud, which racked up record new business. Approximately 15,000 companies now use our Service Cloud as they look for ways to connect with their customers both against traditional and new service channels, including social media, the web, email and telephone. Major wins or expansions of the Service Cloud include Huntington, Net Assets, NTT, Thomson Reuters and Valiant. In addition, we see momentum building in the platform as a service category as companies demand more social, mobile and open applications to serve their employees and customers. We have the only platform for building quality applications that is a trusted, proven solution for the enterprise. And with our strategic news towards an open multi-language, multi-develop strategy in the last 90 days, we believe Force.com is positioned to be long-term leader in the platform as a service category. We introduced our revolutionary Database.com, the first enterprise database built for the cloud, which allows developers to write apps in any language on any platform for any device. We also acquired Heroku, the leading platform as a service for writing apps in Ruby on Rails. And now developers have the freedom to use any Ruby app for writing social and mobile cloud apps on Heroku, Java for creating sophisticated enterprise apps with VMforce, and Apex for building native apps on Force.com. And Force.com achieved some truly impressive milestones. This year, we attracted an additional 100,000 developers creating a global customer community of more than 340,000 developers writing on the Salesforce.com platform. And I'm excited to tell you today, that as of today, developers have now written more than 1 billion lines of Apex code. That is Apex, which is our language that runs within Force.com providing stored procedures and triggers to our Force.com developers. With this 1 billion lines of Apex code, the Salesforce.com community has really grown. Combined with more than 6 million Java developers and 1 million Ruby developers, shows that we have the opportunity to harness a vibrant ecosystem as the platform as a service market heats up, and allowing our customers to fully customize and deeply integrate our customer information systems into all of their corporate information and data. And we've already seen it, while the Service Cloud was our fastest-growing product for the full year, the Platform business edged out the Service Cloud as the fastest growing business within the fourth quarter. Customers that are now building on the Force.com platform or have extended their deployments include AIG, Facebook, Genentech, Honda, Mizuho, Novartis and Sony. Of course, products are only great if people use them. And that's why adoption is such an important indicator of customer success. During the fourth quarter, the Force.com platform delivered roughly 30 billion transactions, an increase of nearly 80% from the year ago. That's 30 billion transactions delivered by the Force.com platform. Nothing speaks more to the value of our platform than usage. I want to remind you that at the start of fiscal year '12, Q1, we changed how we count transactions. When we introduce Chatter Desktop in October 2010, we included pings from the desktop to the servers when we reported our transactions. As more people adopt Chatter desktop, we think a better way is no longer to count those pings, and you see these changes directly at Salesforce.com, as well as all of our performance and security information, and reliability information as well. We believe the market for our applications and platform is tremendous. IBC predicts companies worldwide will spend more than $40 billion in 2014 on cloud computing services. Our growth opportunity has never been more exciting, and we intend to build out our presence and our lead in every one of our core markets. In fiscal 2011, we grew our sales distribution capacity by approximately 40%, after holding it steady in fiscal 2010. And we're being more aggressive with acquisitions, fueling innovation by buying great companies with great technologies. With Heroku, we now have the leading platform as a service for writing apps in Ruby on Rails, which is the leading language for creating apps that are on social, mobile and open. It's the very definition of Cloud 2. But the reason we bought Heroku is that it's much more than a Ruby development platform. In the future, it's open and scalable technologies will support other popular languages providing a roadmap for the Salesforce platform that our competitors will be hard-pressed to match. And that our developers will be excited to build applications in whatever language they're working in. Dimdim brought us technology we will use to immediately accelerate the development of Chatter, adding vital communication capabilities such as screen sharing, messaging and presence, to mirror the proven Facebook models combining communication and collaboration into an integrated service. Of course, we take that one step further by integrating those capabilities with business information. And Etacts will help us make contacts more social, at the heart of our service is our contacts, capability and contact management used by almost all our customers, Etacts is going to take that technology to another level. And finally, the deal we closed earlier this month, we acquired the number one app in the Google app marketplace, Manymoon. Its project management application already helps more than 50,000 organizations and individuals organize complex tasks. We're very excited to be innovating at the small business as well. I'd like to quickly recap our fiscal 2011 because it highlights many of our operating principles. We started last year with a revenue expectation of roughly $1.5 billion and beat this estimate by more than $100 million. We reinvested that money to help grow our sales capacity by more than 40% and to help offset the cost of three of the largest and most strategic acquisitions in our history. And even with the strategic investments in future growth, we ended fiscal 2011 within $0.03 of the $1.25 to $1.27 target that we set in February 2010, although on lower operating margins. Well, we think this is the right trade-off, because we're exiting fiscal year '11 far stronger than we began with a much higher growth trajectory and significantly greater distribution and product capabilities. It's been an amazing year, just amazing. We saw that at the Dreamforce. We see that every day at Salesforce.com, and we're looking forward to being the first cloud computing company to deliver more than $2 billion in revenue this year. And you should expect us to continue to invest in growth in fiscal year '12 as we start to focus on our next milestone, $3 billion. It's coming. Before I close, I want to take this opportunity to invite you to join me next week at the First Cloudforce of 2011 on March 3. It's going to be at the Javits Center in New York City. And outside of Dreamforce, this is our biggest customer event of the year. We're going to be expecting more than 2,500 customers, more than 3,000 have already registered to attend this event. This will be our largest domestic event outside of Dreamforce ever. I hope to see you there. And with that, I'll hand it back over to Graham.

Thanks, Marc. In addition to delivering an excellent quarter across all key financial measures, particularly cash and deferred revenue, we accelerated our pace of investment in people and technology, positioning us for continued growth in fiscal 2012. I'll begin with some of the financial highlights of the quarter. Fourth quarter revenue of $457 million was well above our outlook entering the quarter, primarily the result of a strong new business quarter Marc has already discussed. Approximately 94% of fourth quarter revenue was generated by subscription and support. That's up from 93% a year ago. As we move increasingly towards a partner-based model for implementation consulting, we expect the percentage of professional services revenue to gradually decline. Dollar attrition fell for the sixth consecutive quarter. Our dollar attrition rate expressed as the amount of annual order value lost as a percentage of the prior year order value remains in the mid-teens range as it was in the third quarter. Given that approximately half of the value of our annual invoicing occurs in the fourth quarter, strong Q4 renewals will help our top line growth in FY12. Turning to pricing, when we compare the net price per seat for the professional enterprise and unlimited service additions over the past eight quarters, we continue to see very little change. While others in our market compete largely on price, we continue to focus on value and technologies, like Chatter, Jigsaw, to differentiate our products. A slightly weaker dollar in Q4 added a nominal $1 million to our sequential revenue performance. But the year-over-year comparison included a currency headwind of approximately $4 million. In local currency terms, fourth quarter revenue grew 30% year-over-year. We showed excellent growth in all regions. In the Americas, revenue rose by 26% to approximately $309 million. In Europe, revenue of roughly $83 million was up 30% in dollars and 41% in local currency. And in Asia, revenue of $65 million rose 43% in dollars and 35% in local currency. In total, international revenue comprised 32% of total revenue, and that's versus 31% in fiscal 2010. Growing our International business is an important goal for Salesforce.com, and we continue to focus our sales and marketing resources in the largest software markets in the world. Our product mix is also becoming more diversified over time. To give you one Q4 data point led by our service and platform cloud, approximately 35% of new business in the quarter came from non-sales cloud services, and that compares with 30% in Q4 of last year. Turning to the income statement. Non-GAAP gross margins were at 82% in the fourth quarter, unchanged from both Q3 and the year-ago quarter. Turning next to OpEx, which I will discuss in non-GAAP terms, at 71%, Q4 operating expenses as a percentage of revenue trended higher from the year-ago quarter. Sales and marketing expenses increased to 46% of revenue, up from 44% in FY '10, primarily as a result of three things. First, sales headcount additions; second, commission expense, because we had a significantly higher percentage of our sales teams being above quota on accelerated commission rates; and third, of course, the biggest Dreamforce in our history, which as predicted, had a net EPS impact of around $0.05 in the quarter. R&D expenses increased to 11% of revenue versus 9% a year ago, primarily as a result of increased headcount, both through organic hiring as well as by our acquisitions. And finally, G&A expenses as a percentage of revenue remains flat at 14% of revenue. During the quarter, we added roughly 550 people, to finish the quarter with just over 5,300 employees. Approximately 65 of those additions came via acquisitions that closed in Q4. Year-over-year, our employee population has grown by over 1,300, including just over 200 from acquisitions. The great majority of our hiring continues to be in growth critical functions like sales and R&D. Non-GAAP operating margin of 11% was down from 15% a year ago in Q4. But last year, we added about 160 people in the fourth quarter. And as I just said, this year we added 550 people. So hopefully, it's clear what's changed. Importantly for the fourth quarter, we still delivered non-GAAP EPS at the high end of our guidance range. At the beginning of Q4, we guided non-GAAP EPS at $0.27 to $0.28, and then reduced that range by $0.03 as a result of our acquisitions of Heroku and Dimdim. Our $0.31 non-GAAP EPS results for Q4 included a onetime tax benefit of approximately $8 million or approximately $0.055 associated with the extension of the federal R&D tax credit. We ended the year with a non-GAAP effective tax rate of 35%. Moving on to cash flow, operating cash flow for the fourth quarter was just over $166 million, an increase of roughly 81% from a year ago. Our fourth quarter results included approximately $25 million in a onetime benefit related to a recent tax change on the accounting treatment of employee stock expense. I'd like to emphasize that this should be really viewed as a windfall on affecting our overall cash performance for the quarter and the year and our growth rate for fiscal 2012. For the full year, we generated more than $459 million in operating cash flows, that's an increase of more than 69% from a year ago. Capital expenditure for the quarter was just under $31 million. The primary drivers of CapEx was certain components of our data center build-outs, primarily here in the U.S. and also leasehold improvements to support our growing employee population. Free cash flow, defined as operating cash flow less capital expenditures, was also strong at just over $135 million. And that's an increase of roughly 60% from last year. For the full year, our free cash flow was just over $368 million, an increase of 70% from fiscal 2010. Looking to fiscal 2012, we think operating cash flow will grow in the low to mid-teens percentage-wise for three principal reasons: First, the onetime tax benefit of $25 million that I just mentioned; second, our headcount increase of 850 people in the second half of FY '11 was nearly 3x the number we added in the second half of FY '10, these late year headcount additions will cause cash compensation expenses to grow much more rapidly in the early part of fiscal 2012 than in the corresponding period in fiscal 2011; and finally, company overperformance in Q4 and fiscal 2011 generally will result in higher commission of bonus payouts in Q1 when compared with last year. Longer term, we continue to expect operating cash flow to grow at about the same rate as revenue. Focusing on Q1, we expect operating cash flow to be lower than last year for the second and third reasons that I just mentioned a few moments ago. Turning to the balance sheet. Cash and cash equivalents, including marketable securities, finished the quarter at approximately $1.4 billion. Despite our strong operating cash performance, cash and equivalents declined by nearly $400 million during the quarter, primarily due to acquisition-related payments totaling approximately $250 million for Heroku and Dimdim, and approximately $270 million paid for our land purchase here in San Francisco. These same two factors were the primary drivers of the significant increases to goodwill and property and equipment, respectively, in the quarter. Our strong fourth quarter new business pushed deferred revenue to $935 million. That's an increase of 33% year-over-year. This was our strongest growth rate in nine quarters. The result included a $1 million foreign exchange benefit year-over-year and an approximately $3 million sequential headwind on currency. Invoiced durations remain consistent with historical trends. And consistent with the last several years, we expect seasonal invoicing patterns to reduce deferred revenue from Q4 to Q1. And as another Q4 data point, our unbilled deferred revenue, which is off balance sheet, was approximately $1.5 billion, and that's an increase of roughly 50% from the previous year end amount. Turning to the outlook. We discussed in the past our goal of improving non-GAAP operating margins by 100 to 300 basis points each year. Clearly, the six acquisitions in total that we made in fiscal 2011 had a significant impact to margins, adding roughly $15 million of revenue or $45 million of expense. So we came in under that goal but we think for the very best reasons. What you can see reflected in our third quarter, and of course our year end deferred revenue balances, was a significant uptick in demand and amazing sales execution against that demand. And as Marc described earlier when he discussed our operating principles, we decided to use that overachievement to dramatically increase our sales and development capacity in the fourth quarter. So with that context, we now expect 2012 revenue in the range of approximately $2.03 billion to $2.05 billion, while non-GAAP EPS for the full year is expected to be at $1.35 to $1.38. Earnings are expected to be somewhat more back-end loaded during the year due to the aggressive second half hiring that I've already discussed. We expect a non-GAAP effective tax rate of approximately 35% for fiscal 2012. For Q1, we're projecting revenue in the range of approximately $480 million to $482 million and non-GAAP EPS in the range of $0.26 to $0.27. One other important change to note this year is the timing of Dreamforce. This year, Dreamforce will be in Q3 instead of Q4 as it has been for the past two years. To be clear, that net cost will now move from Q4 to Q3 and will likely have about a $0.06 impact on Q3 EPS in fiscal 2012. That range is likely to keep Q3 non-GAAP EPS approximately flat year-over-year and result in Q4 EPS being the highest of the year. All of the underlying assumptions for our non-GAAP guidance as well as our GAAP guidance and the complete GAAP to non-GAAP reconciliation can be found on our earnings press release. With that, let me thank you all for joining us today, and I'd like to open the call up for questions.

[Operator Instructions] And our first question comes from the line of Heather Bellini with ISI Group.

Marc, I was wondering, you mentioned that the platform edged out Service as the second fastest growing product for you guys. I'm just wondering, did that surprise you at this stage? And I'm wondering kind of what your expectations are for if that can continue this year, and what do you think the key drivers of it are?

Well, I think the number one thing is that the Service Cloud numbers also are getting quite big. So that gives the platform a little bit more opportunity to grow faster. But both of these are such fast-growing products, it's really impossible for me to know. I mean, we've just seen spectacular growth of the Service Cloud, as you probably know, in the last two years. Since we purchased InStranet, it's been a huge accelerator for the Service Cloud. We also bought a tremendous new product called Activa, which adds chat capabilities to the Service Cloud. And we just have great leadership on that team. It's been a tremendous transformation for the company, and the speed of growth has been awesome. And then we have the platform. And with the platform, of course, we also just added Heroku, which was an incredible acquisition. It's technology like I've never seen. You've already seen it delivering Ruby on Rails as a service, and you're going to start to see some amazing capabilities from that group as we head towards Dreamforce. And so both of these are just very fast-growing product lines. Graham, would you like to add to that?

Sure. I think the other thing is we've also added product specialists, Heather, in those two areas. So we obviously have a large account exec teams focused on managing all of our accounts around the world. But we've, in the last year, added some significant resource for additional support to those teams. So I think that certainly helped those results as well.

So if last year was the year of Service Cloud, is this year the year of the platform, Marc, in your view? Not to diminish Service Cloud at all.

Well, that's a great question. You probably know we just finished up our business planning for the year, and we've issued our V2MOM, which is our vision and values, methods and obstacles and measures, to our worldwide teams and given them their goals. And we think that it's neither the Service Cloud this year or the platform. We think this is really the year of Cloud 2. Heather, what's going on with our customers is they are just seeing this dramatic shift to a new type of IT. Some of them calling it the consumerization of IT. I really call it Cloud 2. Where Cloud 1 was really about low cost and fast and easy to use, now we really see this huge shift to the next version of Cloud 2, which is social, driven a lot by a billion people on Facebook and Twitter and mobile with -- you see iPad's growth has been unbelievable, and analysts saying that they are going to see another 50 million tablets in use this year, sold this year in addition to what's already been sold. And then we're going to see really open systems. And I think this has been a huge opportunity for us. A lot of our customers had been very worried about the old vendors, Microsoft, Oracle, SAP, locking them in to their old proprietary standards like .NET and C#. And they've been looking for these new open standards like Ruby and Java, and that's where we've really tried to deliver. And we're really focused on this next paradigm of computing and moving customers to that as quickly as possible, and the uptake has been awesome. And then when customers look to build those apps, they're using our platform because our platform lets you build these apps that are inherently social, mobile and open. And that's why I think the platform is exciting. That's also why I think the Service Cloud is exciting as well. And I think as we head to next week, it's going to be a big week. On March 2, we're going to see the next iPad release, which will be awesome. And then on March 3, we're going to talk about our strategy and our vision for how to take their growth and their acceleration and their momentum with that product and others and help CIO succeed. We're seeing more CIO interest in deploying iPads in the enterprises than ever before. It's phenomenal. Hope that answers your question.

Our next question comes from the line of Adam Holt with Morgan Stanley.

My first question is for Graham. I think you've just noted that you had a 50% year-on-year increase in that off balance sheet backlog, which is obviously a terrific number. What goes into that number, and what would be behind such a significant increase? Is that about longer durations? Or what will be behind such a strong number?

Yes, Adam, that's what goes into that number. It's essentially the contract, the unbilled invoice consumer contracts. If you think about it, if we're billing somebody quarterly, it could be quarterly invoices because it might be we billed somebody the first quarter and the other three quarters worth of invoices are off balance sheet. Or it could be a three-year or four-year and sometimes a five-year contract where we bill the first year and we have the other four yet to bill. So it's a mixture, and we certainly even incented our salespeople this year with some commission kickers to sign longer contracts, and it certainly appears to be working pretty well.

Our next question comes from the line of Brent Thill with UBS.

Just a follow-up to Adam. Can you just mention what the average contract length is, Graham? And Marc, you obviously outperformed significantly on the deferred revenue. I guess, is there any category where you felt like you outperformed relative to your expectation? Or would you characterize this as a fairly broad-based recovery from your perspective?

Well, I would say this is very broad-based. All of our groups and product lines and geographies did fantastic. It was a monster quarter. And the deal flow in the quarter was just awesome. And a lot of that, I think, really has to do with a couple of things. First, I think we have seen a broad recovery from a couple of years ago, where existing customers were not adding new users. And I think that we can safely say we're over that hurdle, and that really contributed to this recovery. Two, we continue to see just really strong demand from existing customers. You've seen existing customers go enterprise-wide, where before we were at point solution, like with Dell, we had 30,000 users. We've got 100-and-something thousand users there now because of Chatter. So we're helping to transform our customers' business. We want our customers to be more successful, and we can give them an enterprise-wide transformational story about how to bring in these new technologies like their tablets and their mobile devices and their social paradigm and become better companies. And that is just being really well received. And when you compare that against what our competitors' position, it's pretty and completely highly differentiated. I mean, it's a different story. So I think that you see a broad recovery where you get existing customers adding again, which is great because we have almost 100,000 customers so every time you have one customer add a user, it's tremendous. Two, you've got a situation where our product is helping our customers go enterprise-wide. And three, we've got a tremendously well differentiated solution against the competition. And those three things, I think, are really working well together, and that's what we've really worked for this year. And you're going to see us, as we head towards Dreamforce in August, you're going to see us continue to enhance that going forward.

And Brent, just to answer your question, we don't disclose the exact length of our average contract. It certainly did lengthen during the year. And then you sort of combine that with sort of the deferred revenue growth generally, and it's not difficult to see how we get to the 50% growth.

Our next question comes from the line of Kash Rangan with Merrill Lynch.

It looks like all your forward-looking indicators are pointing to the right, tremendous backlog, tremendous billing re-acceleration. Your headcount growth in sales is up 40%. It looks like your revenue guidance and cash flow guidance don't quite measure up with the forward-looking indicators that are looking very solid. Any comments on that?

I really appreciate that, Kash. I think you are reading the numbers correctly, and we had a monster quarter. And that's why you're seeing just tremendous growth across-the-board. And you ask this question on the call at the beginning of Q1 every year, and I think the reason that you ask it is because we just don't want to get too far ahead of ourself. We are realistic and appropriate in our guidance, and we think that this is where we should be at. And we think that, that's the prudent route. Graham, do you want to add to that?

Yes, a couple of things, Kash. I think first, obviously, our Q1 revenue guidance is a little more aggressive. Clearly, it's 28%, and then we've tapered that towards the back half of the year. And I think, clearly, we have less visibility to the back half of the year than Q1 and Q2. And I think it's fair to say we're anticipating, and I think recent events would support our theory, that it's still going to -- we live in a very volatile world, so we've sort of taken a little more of a cautious view on FX this year. Because I think we all view the euro as being a very volatile sort of currency right now against the dollar, or you could say it the other way around, I think. There's a lot of volatility. And then secondly, I think yes, we've added a huge amount of sales capacity. But obviously, as we talked about at length at our analysts events and so on, there's a ramp time for salespeople. So we've hired a lot in the second half, but we'll be working hard to get them productive. So we'll see them really come on stream in terms of revenue more in the second half of the year. And then, Kash, I think you've just got to -- I'll emphasize again that $25 million that ended up in Q4, and that's kind of unusual, single, onetime item. I think it's really best to assess our cash guidance and our commentary taking that number out. That gives you a better sense of really what's going on, and I gave you several other reasons why we just think first half cash flow is going to be a little tighter than it was in the same period last year.

Our next question comes from the line of Brendan Barnicle with Pacific Crest Securities.

You've made great progress on the international front. I was wondering, Marc, if there are some new geos that you're going to be targeting this year? I think last year, you identified 10 that you expanded in, and what the distributing plans are for increasing the distribution in those markets.

Yes, I really appreciate that question. We do have a radically different distribution strategy from a lot of our competitors and peers. We are focused only on a limited number of countries around the world. I think we've talked about that extensively with you before. The reason why we think that is true is because we, of course, have a limited amount of resource, ourself, for growth. And when we make major distribution enhancements, like the 40% growth in distribution that we made this year with our account executives, we want to put those executives into the markets where we think there's the most buyers and there's the most revenue upside. So we've really focused on the very top of the world markets, and that's why you see us spend a lot of time, work on, focus, build our brand in these core markets. We are not as focused on the emerging markets. We're really only in one emerging market, and really only in a minor way, and that's in India. We're really focused on core markets such as United States, United Kingdom, France, Germany, Canada, Australia. And of course, Japan is a huge and important market for us. And those eight markets really are the majority of our revenue and our bookings. And then we look at where do we go from here. And so we see, obviously, lots of opportunities, and there's a lot of upside in the rest of the world for Salesforce.com. And so we slowly test those new markets, and then we add them into our top countries.

Our next question comes from the line of Laura Lederman with William Blair. Laura Lederman - William Blair & Company L.L.C.: Can you talk about those big deals and were they sort of multiple clouds that were taken? Or maybe talk about them at a high level in terms of what products they included and what the competitive placement of products, just to get a sense of those big deals. I remember in the past, some of the really, really big deals, the eight-figure deals, were [indiscernible] and that sort of thing in Japan. So any color you can provide on those will be helpful.

So you want to hear some color on the big deals that we've closed, is that what you're saying? Laura Lederman - William Blair & Company L.L.C.: Yes.

We have closed a number of very large transactions this quarter. I mentioned some numbers specifically. When we close a large transaction, it's rare that we're going into an account for the first time and closing a large deal without them really knowing us. Our philosophy has really been kind of a tryout. But first of all, we go in and we seed the account. We look to plant as many seeds as possible. We want to nurture that success. And that could be in departments, that could be in divisions of our company. And then we want to grow that success, and that could be on midsize or mid-markets transactions that take place in the subsequent year or a couple of years following those initial seeds. For example, when the economy got very poor several years ago, we really went to an aggressive seeding program. Because existing customers were not adding users and for us to add additional revenue, we really just went and tried to close as many small seeds as possible. Then as that emerges or goes forward, we start to see us becoming a strong point solution in that customer. It could be a strong sales solution. It could be a strong service solution. It could be a collaboration. It could, in some cases, platform. And then at the end of the day, what we move to is to our ELA strategy. And what we want to do is, we want to be able to bring those customers to an enterprise license agreement. And with our largest customers, that's exactly what we're doing. Graham, do you want to add to that?

Just that we did in the fourth quarter, I think we did about 15 ELAs, among those big deals that we talked about. So we're very pleased with the sort of momentum we're seeing on the enterprise license agreement.

And our next question comes from the line of Mark Murphy with Piper Jaffray.

Marc, Heroku has attracted a pretty passionate developer community, and they've done it without any real sales and marketing engine behind it. I'm wondering how materially you plan to ramp that activity? And also, just given that Heroku has already earned the trust of all of these Ruby developers, would you ever consider using Heroku to power multiple languages over time, perhaps including Java or other languages, if your customers were to request that from you?

Well, I think it's a very good question. And the reality is, you're right, I mean, Heroku is an amazing technology, an amazing company, tremendous founders. The company is really only a few blocks away from our headquarters. And when you walk into the office, when you meet the founders, when you hear about the technical vision, it's just stunning. And it's computer science that I've just never seen before. Using this kind of strong development model organized around the Jet with Ruby on Rails has given these Ruby developers the ability to build and deliver applications just more rapidly and more successfully than ever before. And I think they're adding about 3,000 new apps a week, if I am correct in that. I don't think we mentioned in the script, I mean, I have to check the exact number, but that's the last thing that I remember from Byron [Sebastian]. And I'll tell you that the reason, of course, that we bought the technology is not just that we're huge fans of Ruby, but we're really huge fans of Heroku. And what we saw there was them running multiple languages already. And we're not ready to announce new languages. We're not ready to talk about what they are. We're not ready to start revealing which languages are next down the Heroku pipeline, but we do hope to have a full range of languages on Heroku by the time we get to Dreamforce. And we're empowering and enabling that team. We're running that as an independent organization. We're giving them the autonomy and authority. We certainly do not pretend to be experts in managing and working with developers. That's why we did do the largest acquisition of our time because we think it's a game changer on Platform as a Service. And for the customers that we've rolled it out to, to the customers they already have, they agree. And if you haven't checked out Heroku and if your company's not building apps on Heroku, you should definitely give it a look.

Our next question comes from the line of Ajay Kasargod with Morgan Keegan.

Marc, just digging inside the customer demographics and looking at utilization trends, can you talk to us about how larger customers versus medium versus smaller customers are using overall SFA or different parts of the -- or the different clouds? And is there a discrepancy in utilization rates?

One of the things that's really unique about Salesforce, and for those of you who have studied our technology in depth, you probably know Salesforce, the Sales Cloud, the Service Cloud, the Collaboration Cloud and the platform. When we talk about it as kind of separate clouds or separate product lines, it's not. It's one integrated service. And mostly, we communicated using these brand names because that's what customers usually expect from other vendors. They get a server or multiple servers and their independent code basis. And the thing that's interesting about our technology is that they are really one-code based and they're one integrated offering. That's why when we do a major upgrade, everything gets upgraded at the same time, three or four times a year. And it's very often that a Sales Cloud user will start to integrate and use knowledge management from the Service Cloud, or a Service Cloud user will obviously start to use contact and account functionality from the Sales Cloud. And both of those guys, for sure, are going to draw from the platform to customize and to build that Apex Code that provides the referential integrity of the stored procedures. We have a deeply integrated data management technology, deeply integrated application development and deployment functionality. And then, collaboration. When we built Chatter, Chatter is deeply integrated into these services. It's in the database, it's in the platform, it's in all of the apps and it's its own independent app. And the power of that is, if you're building on Database.com you can tap into profiles and feeds. If you're in Salesforce, in the Sales Cloud, you're going to be using Chatter. If you're in the Service Cloud, you're using Chatter. And these are not independent technology steps, it's all one integrated thing. And so what you end up seeing is this broad uptick of this technology across-the-broad. And then when we find killer new technology that just really works, like Apex or like Chatter is the best example, you just see it take off throughout all the customers. That's why over 80,000 of them are now running the Chatter. And the only things that we have that are independent tend to be things that we buy, and then we try to integrate those very rapidly so that it's the same unified experience. In some cases, we're going to keep them lightly coupled. Like, for example, with Jigsaw, we're providing native integration in Salesforce.com, but the core Jigsaw service is separate. That's been a huge home run for us. We just can't believe the success we've seen with the Jigsaw capability. It's one of the core differentiators of the Sales Cloud in addition to the platform, in addition to Chatter, in addition to our iPad and our mobility support. Or Heroku is probably the best example right now with service that's truly independent and fully disintermediated from all of our other services. But even with Heroku, you're going to see tighter and tighter integration into all of our services because that's the way we architect that Salesforce.

Our next question comes from the line of Brad Zelnick with Macquarie.

Marc, it's amazing to hear that more than 80,000 customers have rolled out Chatter. But when we think about signing new business, you've spoken in the past about penetrating customer organizations beyond the 30% or so of employees that are in sales and service functions. Can you give us a sense of how much of a driver this has been in recent quarters' performance and where you see it going?

I mean, since we first conceptualized Chatter, which was at the end of 2008, we've been able to build and have delivered and put into production for so many customers around the world. And I've obviously been a huge cheerleader and fan of the technology. But at the end of the day, we really saw two things that really motivated us. One was just the huge support of Facebook and Twitter. I mean, combined, those guys have got almost a billion users, and they're training people on how to use these services. And we know that, that's the way customers want to operate inside these organizations today. You look at those benefits of using Chatter, email use down a third in Chatter organizations. That's incredible. Median is down 25%, access to customer information up 50%. Those are some unbelievable numbers. I've never seen technology do that before. And then two, we saw here the independent social networks emerge, and some of those emerging inside our customers. But the reason we've been able to replace those, like, for example, in Dell and SunGard and others, is because they're not integrated with the corporate data. They're not integrated in the data, they're not integrated in the applications, they're not integrated into the fundamental business processes of our customers. And when we show them the combination of those two things and then running them in the mobile world, it's been a game changer. The only thing I use to run Salesforce is Chatter on the iPad. I mean, I get everything I need from that. And it's been transformational for me, and I know for so many of our customers as well.

Our last question comes from the line of Patrick Walravens with JMP Securities.

So I mean, managing this level of growth has got to be quite a challenge, and you've got eight different clouds now. How are you guys making sure you're investing in the right places?

Well, first of all, we don't have eight clouds. We have four core product lines. I think that, that was kind of one of the things that got misunderstood at Dreamforce and I'll talk more about that next week in New York. But our four core product lines are the Sales Cloud, the Service Cloud, the Platform and, of course, the Collaboration Cloud. And these are our four core areas of focus for the company, and continue to be. As part of that, of course, there's other products that fit into that. Like for example, we have Jigsaw, which is a huge part of the Sales Cloud. We've got Heroku, which is a huge part of the platform. As is our Remedy Force, which is our efforts with BMC. They've built, as you know, natively on our platform for the last several years and have now delivered Remedy, which is help desk as a service, moving their mainstream product over to the Force.com platform. And that power of those four clouds, I really think that it's this unified strategy that we are really helping our customers to manage and share all their customer information in the cloud. I mean, at the end of the day, that is our vision. That's what we're helping our customers do. They look to us to manage and share that customer information in ways that they never did before, and we're making it better with Chatter. We're helping them to augment them, in many cases, with custom applications using our platform. But over and over again, we're the source of the customer information in our customers' databases. And they look to us to manage that data really well for them, whether it's the Sales Cloud, whether it's the Service Cloud, whether it's Collaboration, whether it's platform. And those are our four points of investment. I think because we have that clarity of focus, we've been able to do so well. I think it's why we've been able to make the right acquisitions this year. When you look at the Sales Cloud, we've made core acquisitions there like with Jigsaw and Etacts. When we look at the Service Cloud, as I mentioned, the core acquisitions like InStranet and Activa. When we look at the platform, core acquisitions like Symbian and like Heroku. And even in the Collaboration space, when we look at core acquisitions like we just did with Dimdim. That's how we think about our business around those four clouds moving forward. And because they're tightly integrated, the customers just tremendously benefit from that innovation and technology momentum.

All right, fantastic. Before we close up here, I'd like to remind everybody about our event next week. I encourage everyone to register for Cloudforce 2011 in New York City next Thursday, March 3. Mac, of course, will be sharing some exciting new news at his 10:00 a.m. keynote. If you haven't already registered, you can do so by logging in to www.salesforce.com, clicking on the Events tab or by contacting Investor Relations. So I want to thank everyone for joining us today. Have a great day, and we look forward to seeing you next week in New York. Goodbye now.

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