Good afternoon. My name is Sharon. I will be your conference operator today. At this time, I would like to welcome everyone to the Salesforce.com fiscal second quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. Mr. John Cummings, Director of Investor Relations you may begin your conference.

Thank you, Sharon, and good afternoon, everyone. Thank you for joining us today to discuss our fiscal second quarter 2014 results. Our second quarter results press release, SEC filings and a webcast replay of today's call can be found on our investor relations website at www.salesforce.com/investor. We will also be posting highlights of today's call on Twitter at the handle @salesforce_ir. With me today are Marc Benioff, Chief Executive Officer and Graham Smith, Chief Financial Officer. Marc and Graham will share a few prepared remarks about our second quarter results. Then we will open the call up for questions. Our commentary today will primarily be in non-GAAP terms. Reconciliations between our GAAP and non-GAAP results and forward guidance can be found in our earnings press release issued about an hour ago. During the call, we may offer incremental metrics to provide additional insight into our business or quarterly results. Please be advised, this detail maybe one-time in nature and may or may not be provided in future. It's also possible we may reference certain unreleased services or features not yet available, because we cannot guarantee future timing or availability of these services or features. We recommend customers listening today make their purchase decisions based on services and features currently available. The purpose of today's call is to provide you with information regarding our fiscal second quarter 2014 results. Some of our discussion and responses to your questions may contain forward-looking statements which are subject to risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize or should our assumptions prove to be incorrect actual company results could differ materially from these forward-looking statements. All these risks, uncertainties and assumptions as well as other information on potential risk factors that could affect our financial results are included in our forms filed with the SEC, including our most recent report on Form 10-Q, particularly under the heading risk factors. With that, I'll turn the call over to Marc. Mark?

Thanks so much, John. I have really never been so excited about Salesforce.com and everything that's going on with the company and that's why I am so delighted to get on the call with everybody today. We are having an outstanding year of growth and I am absolutely delighted to share our second quarter results right now. Revenue for the second quarter rose 31% from a year ago to $957 million, In constant currency, revenue grew even faster at 32%. No other software company, there is no other enterprise software company of our size is growing faster. Deferred revenue rose by more than 30% year-over-year, finishing the quarter at nearly $1.8 billion. Just outstanding. Operating cash flow exceeded a $180 million for the quarter, an increase of more than 30% year-over-year, and the dollar value of booked business on and off the balance sheet now tops $5.6 billion, also up more than 30% year-over-year. Based on these fantastic results, I am thrilled to announce that just four years after delivering our first $1 billion year, we expect to breakthrough our first ever $1 billion quarter in the third quarter of fiscal 2014, our next quarter, an amazing milestone for Salesforce.com and for the entire cloud computing industry. In addition, we are once again raising our full fiscal year 2014 revenue guidance, the high end of our guidance puts us on pace to deliver fiscal year 2014 revenue of $4.025 billion with a full year growth rate of 32%, just spectacular growth. Salesforce has always been a catalyst and evangelist for innovation enterprise software. We pioneered the shift to the cloud, to social, to mobile and we have been recognized for innovation by Forbes Magazine, who just ranks Salesforce.com as the most innovative company in the world for a third year…

All right. Thanks, Marc. We delivered another strong quarter in Q2, driven by solid business fundamentals and we showed great results across key financial metrics, including revenue, deferred revenue, and operating cash flow. In fact, we exceeded the high-end of our revenue guidance even when we exclude the revenue contribution from ExactTarget. Let me provide you with the detail on our second quarter results, starting with revenue. Second quarter revenue was $957 million, up 31% over Q2 last year. Excluding an approximate $7 million FX headwind, second quarter revenue was up 32% year-over-year. ExactTarget contributed $16 million dollars of revenue in the second quarter, which was higher than we had forecast as a result of the transaction closing earlier than we had anticipated. Looking at year-over-year growth, on a regional basis, revenue in the Americas grew 34% to $679 million. Revenue in Europe grew 39% in dollars and 34% in constant currency to $174 million. Revenue in Asia increased 6% in dollars and 19% in constant currency to $105 million. That's a slight improvement for the region. Dollar attrition continued its slow and steady decline in the second quarter marking it the 16th consecutive quarter of sequential decline and remained very solidly in the low double-digit percentage range. Turning to margins. Our Q2 non-GAAP gross margin was 80.7%. That's about 60 basis points lower than Q2 last year. Our second quarter non-GAAP operating margin was 10.2% or about 240 basis points lower than last year. The decline in both the gross and operating margin was due to the acquisition of ExactTarget, as well as increased costs related to the agreement we signed with Oracle during Q2. While the two transactions are impacting near-term profitability, we are working hard to find synergies in cost savings which will mitigate their impact this…

(Operator Instructions). Your first question comes from the line of Kash Rangan with Bank of America Merrill Lynch.

One question for you, Marc. As you have begun to integrate ExactTarget, you have also brought on board two high profile executives from Oracle, Keith Block and Tony Fernicola. I guess my question is, what are the changes that you foresee in the sales organization, go-to-market, as a result of a lot of important developments that have happened this quarter. A question for you, Graham. The ExactTarget, the program, the contribution is a lot higher than we would have expected. I am just wondering if the invoicing terms also change in particular that side of the business and how you foresee that impacting your billings? Thanks very much. That's it from me.

Well, thanks so much for that question, Kash. I want to tell you that as the CEO of Salesforce, I have really got three priorities that are extremely important to me. The first is, the continued development of our flagship products, Salesforce.com, our sales service platform. All I am focused on right now is delivering an incredible new version of Salesforce.com at Dreamforce. An incredible new version that is anchored to the cloud, to mobile and social capabilities. Number two, I am extremely focused on the success of ExactTarget. I couldn't be more excited about this acquisition, about Scott Dorsey, about the leadership team in Indianapolis and also the speed at which the acquisition and the integration is going and how it's going to impact our company and provide our customers the ability to connect with their customers in a whole new way. Number three, I am extremely excited about Keith Block. We are able to bring in a fantastic new executive to help lead our global customer facing operations. Keith, as you know, runs all sales and service and vertical solutions, anything that we are going to market with Keith is responsible for. He has done a phenomenal job and he is completely rebuilding his management team. As you have already seen, he has brought in perhaps the most successful sales executive from Oracle of all time, Tony Fernicola, somebody who we have had a relationship with since we started the company, but never had the motivation to join the company before Keith came in. We are so excited that we are able to say that we are taking what was a world class sales and service organization and taking it to a whole new level under the leadership of Keith and he has put in an incredible new management team. So those are the three things that I am really excited about and I will turn over to Graham for the second part of the question.

Yes, Kash. So obviously there is a haircut on deferred revenue that calculates at around 30%. We haven't yet, I think Scott and the team at ExactTarget are really just at the beginning of implementing some of our annual billing policy. So right now, there is clearly no effect from that. It's very difficult for me to estimate at this point just over a month into this how quickly that will go. We will give you an update on that as things progress.

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

Just a quick follow-up on the go-to market. You have unveiled numerous offerings and I am just curious if you could give us your view of how you are simplifying the packaging in that go-to-market? Whether through the use of social ELAs or it looks like even then the new performance edition coming in November that package is more for a higher price? Can you give us a sense of how you are thinking strategically about that? Thanks.

Sure, that's a great question, Brent. I really appreciate it. Number one, we have simplified our product line into really four critical products which is our sales cloud and it's highly differentiated offering that gets the competition especially with our human performance capabilities at work.com, with our integrated data capabilities with data.com and with the integrated campaign and marketing capabilities of Pardot and of course it is uniquely position as being mobile, social and cloud. Number two, we have really redacted that to not just the sales cloud, but also the service cloud, the marketing cloud and the platform and those four core offerings give us the ability to then package those in a variety of additions ranging from products that are uniquely created for small businesses all the way up to the enterprise. And as we tune those packages, we found opportunities to bundle in a lot of these new features and functions that we have built, but perhaps have not been able to sell or fully delivered to our customers either because they didn't know about it or there wasn't something that was available at their time of purchase, so we have a tremendous upgrade opportunity and that's how we look at the performance addition. It's a phenomenal product, it's an incredible new capability for existing customers to take their capabilities to a new level and it's a tremendous level of optimization on our existing pricing structure.

Your next question comes from the line of Karl Keirstead with BMO Capital.

Yes. Quick question for Graham. Graham, you mentioned that the ExactTarget revenue [contribution] for year would be [140 to 145]. At the time of the deal, you mentioned 128. I'm just wondering what the cause of that delta is versus our performance or anything else? Thanks for any color.

Sure, Karl. It was the $16 million that we recognized in Q2 that related to ExactTarget. When we built the deal model it was tough to know exactly which day the transaction would close on, so we clearly planned conservatively and we got transaction closed much earlier than we anticipated and so picked up about $16 million in Q2. So you add that to the 120 and 125 and a little extra and you get to the 140 to 145.

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

Thank you very much. Marc, regarding Keith Block and the concept of trying to take enterprise sales to the next level, it seems to be challenging to name an enterprise software company that's been more successful than Salesforce.com with enterprise sales. Because in the last 18 months you have closed several transactions that were roughly $100 million each and they have been transformational and Fortune 100 companies and on a scale that seems to be unparallel in this industry, so just wondering how can it be the case that something can be improved there. Also, do you think the Keith Block's impact on ELAs and other large transactions would be positive or neutral or negative in the second half of the fiscal or will the changes happen more in Q1?

Well, thanks for that set of compliments. I really appreciate it. And Salesforce.com has done incredibly well. One of the ways that Salesforce.com has done so well is, that we have a full portfolio of transactions for small, medium and large business. One thing Salesforce.com has never fully optimized for is, enterprise distribution and the ability to reach the largest customers in the world with highly customized solutions for their industries and their verticals. To do that, we have to bring in a team and a leader who is able to speak to the executives the largest and most important companies in the world to show them that it's not just a one-off solution in this industry or with this company, but they can do it for their whole industry and for all the companies of that industry. You saw how Keith executed that strategy extremely well at Oracle over the last 26 years and we look forward to seeing him execute a very similar strategy enhanced for Salesforce and our unique capabilities and we have already seen him make major changes and we are very excited about his strategy. Of course, this is a time of extreme growth for Salesforce we are always doing, which has been so exciting. Here is a quarter, 31% growth quarter, and at the same time, we are bringing in phenomenal new distribution leaders to take the company to a whole new level. And not just at Keith's level or at his direct report level, but in every layer of our distribution team, we have found opportunities for optimization, for change, for growth, for evolution to bring in real enterprise leadership to make this a world class effort, and Keith has all of my support. We have also added him to our Board of Directors and given him the title of Vice Chairman to make it crystal clear to our organization that he is the leader of our distribution organization going forward, and is responsible for all customer facing operations. He is helping us to lead this incredible transformation that's been unbelievably positive so far and we couldn't be more thrilled with having him on board.

Your next question comes from the line of Kirk Materne with Evercore.

Marc, I was just wondering if you could comment really quickly on what we are seeing more broadly around the marketing cloud with the Omnicom and Publicis deal earlier this quarter. I guess what does that say about some of the trends we are seeing in terms of bigger organizations trying to shift to this customer competent paradigm. I guess, how should we view these bigger advertising agencies in relation to CRM, in terms of partnering and/or potentially competing overtime? Thanks.

Well, those are two great organizations. You look at them, these leading marketing agencies, both as the leaders in those field and I have relationships with both of those CEOs. They are phenomenal executives, phenomenal companies. They have a phenomenal presence with these very large customers helping to articulate their strategy. They have grown really dramatically through acquisition. It's a strategy that both companies very much have deployed. I think they are probably at the end of that at this point. I don't know what other companies are going to get combined into those organizations. What our hope is, is that we are going to be able to partner with these marketing agencies to provide them with the technology necessary to enable their customers to connect with their customers in a whole new way. It doesn't take a very big leap to see that these agencies are phenomenal in so many areas. Coupled with our capabilities of delivering world class cloud, social, and mobile solutions, we can really take their customers' capabilities to new level. I view marketing as a huge growth area for Salesforce. By 2017, Gartner says, CMOs will spend more than CIOs on technology. It's one of the reasons we bought ExactTarget and many other companies as we positioned to be the number one player in marketing and you will continue to see us to focus on that effort. As I said, one of my top three priorities is making ExactTarget a major success for Salesforce.com.

Your next question comes from the line of Rick Sherlund with Nomura.

First congratulations on Keith and Tony. Marc, your comments on SAP seemed a little more muted this quarter. You mentioned partnership with Sysco. I am wondering, if perhaps, there is an opportunity for you to do greater product integration with SAP as we just heard about from Oracle. For Graham, you mentioned the billing terms for ExactTarget being different. I wonder if you could share with us what those are?

Well, Rick, I really appreciate that. I will tell you that I think that companies like Oracle and SAP who have not been able to bring their product lines to the cloud, who have not been able to make the movement to social, who have not been able to make the movement to mobile can benefit from alliances with Salesforce.com, with our brand luster, with our innovation and you heard in the quarter a phenomenal call between myself and Larry Ellison, where Oracle has announced that they are going to be using Salesforce.com as their CRM. That was incredible to hear Larry talk about that. Certainly it's my hope and I believe that we will be able to develop and trade a similar alliance with SAP. I believe it's in the interest of their customers and our customers that Salesforce works well with Oracle. It works well with SAP and even works well with Microsoft because our customers have these existing investments that we want to leverage. That SAP relationship is a great relationship with, as I mentioned this quarter, the huge success with Sysco where we were able to take their huge investment in SAP back office and put on a customer facing capability that they badly needed but SAP was not able to deliver for them. I believe there is a lot of SAP customers that are in a similar position, who can use highly customized applications maybe with our force.com platform or even with our primary capabilities of our sales and service cloud and will have the ability to both, those on to these existing SAP infrastructures or even put those on top of these emerging HANA implementations, where we can really bring more value and applications to these data stores.

I was just going to answer Rick's question on the billing terms for ExactTarget. At the moment, a little over half of their billings are done monthly. Then there's around about a quarter of their billing are done quarterly and then the rest is and at least so it looks very different to salesforce and clearly as I mentioned earlier, Scott and his team will be working on transitioning their customers towards annual over time. They have a slightly different revenue make up. They obviously have more services than we do for example and services is typically always build monthly, so I am not sure we will get to exactly the same ratios as the salesforce has, but clearly big opportunity over the next few years to generate strong cash flow and to reduce administration costs by moving them to more to annual billing.

Your next question comes from the line of Terry Tillman with Raymond James.

Good afternoon and thanks for taking my question. Marc, the question for you in terms of post-closing of the ExactTarget transaction. Will your salesforce have pre-range to sell ET products and when do we think about maybe potentially starting to see some revenue synergies from such activity? Thanks.

Well, that's just a fabulous question and I will tell you it's something that we already are seeing revenue synergies. It's something that we are already focused on and our core salesforce which is, as multi-thousand person sales organizations, something that ExactTarget did not have, is getting the key aspects of having that relationship where we are giving our core salesforce the ability to have a sale with ExactTarget is like a sales of any other of our other clouds. I believe that's extremely important for us to be able to truly get the value out of ExactTarget, but there is no difference between selling the salesforce ExactTarget marketing cloud, the sales cloud, the service cloud or the platform if you are a core salesforce.com sales professional and to that extent, we are partnering them very closely with the existing ExactTarget sales organization. We are also working very hard to expand the existing ExactTarget sales organization which is something that's been rather boutique and I believe it has the opportunity to be expanded as well and give us the ability to have that tremendous core confidence and we are doing that by combining our existing marketing cloud sales team with the ExactTarget sales team and having one unified marketing cloud sales team. Now that process will take a period of time to come to a complete fruition, where we have a total synergy, but we've made tremendous gains in the short period of time. And, as I said, it's one of the important things that I work on every day and I expect us to make continued gains this quarter and the following quarter and be able to give some very good updates on that as we start our next fiscal year. Certainly, ExactTarget is a critical part of salesforce.com's growth engine. It's something that every salesforce.com customer wants to know about and we have a huge vision for ExactTarget, where we can really show our customers how they are able to connect with customers not just through their sales force, not just through their customer service organization, but through email, but through text. Through social, through all these other customer touch points that are so critical to them and ExactTarget is a critical part of that and a huge part of our message and we will be tightening that message. By the time, we get to Dreamforce, you will see it fully delivered. You will also see the beginning of that message at the Connections Conference in September with ExactTarget in Indianapolis.

Your next question comes from the line of with Nandan Amladi with Deutsche Bank.

This is actually Jobin sitting in on behalf of Nandan Amladi. Two questions. So you mentioned ExactTarget billings comes from, that a part that comes from your business comes from services. So what portion of ExactTarget's billings comes from services?

It's about 20% Jobin, just over 20%, and obviously just compare with that, it's less than 10%. So what I pointed it now.

Your next question comes from the line of Nathan Schneiderman with Roth Capital.

Marc, it seems like Facebook is enjoying accelerating momentum as an advertising platform and that would seem to be positive for your Buddy Media business. I was curious what metrics you are tracking for Buddy that you can share with us to help us understand the progress with that business line?

Well, we continue to focus on Buddy Media and also another really exciting offering that we have which I am sure you have seen which is social.com, where you can actually buy Facebook apps directly online and help us to deliver that distribution capacity. It is part of and becoming part of, what I call, our complete Salesforce.com ExactTarget marketing cloud. The Salesforce.com ExactTarget Marketing Cloud has to include not just all the capabilities of ExactTarget, which so many folks have become known for their tremendous capabilities with the email, their tremendous capabilities with mobile, their tremendous capabilities in social but also with our ready and fixed asset, with our Buddy Media asset and also with our social.com asset. What you will see emerge is a comprehensive application that allows our customers to manage all aspects of those customer touchpoints. That is going to continue to expand our work with Facebook and you didn't mention it but Twitter is extremely important to us and other social graphs that are providing advertising support. We want our customers to be able to connect with all of these and have a comprehensive solution that manages all of their customer capability.

Your next question comes from the line of Ross MacMillan will Jefferies.

Marc, I am just curious about timing. As you bring ET into the fold, you have obviously had success with Pardot on the Sales Cloud. Is it premature to assume that you would have ET fully integrated into the product lineup by the time your reinforce or should we be really thinking about it being integrated for the next fiscal year? Any color on that would be great. Thanks.

Well, there is different levels of integration. I think you have got to look at integration as a spectrum because today, of course, we have AppExchange integration where we have already done some integration with these products but we can do more. Because we own these assets now, we can do native integration. The first area where we were doing tremendous work and really want to have deeply integrated native capability and this is one that is certainly by Dreamforce, we want to able to show our customers how Pardot is deeply integrated into our Sales Cloud, not just at user interface level, but deeply integrated in to our core as well. Our Chief Technology Officer, this is a major goal for him, for this quarter as to make sure that Pardot is well integrated into our Sales Cloud and that our Sales Cloud customers have the ability to start using that capability as fast as possible and with outstanding integration. Number two, with ExactTarget, this very much is something that not only we see ExactTarget integrated into our core clouds, but we will integrate our core clouds and reverse into ExactTarget. If you have seen ExactTarget capabilities with its Fuel user interface, we have the opportunity to bring in our services from our core clouds. into ExactTarget, a great area where today they don't do a lot of work, for example might be in customer service or maybe in another core area we are able to start to leverage our core services back to ExactTarget and that's something that we are going to want to do overtime as well.

Your next question comes from the line of Phil Winslow with Credit Suisse. Mr. Winslow, your line is open.

We will take the next question, operator. Thanks.

Yes, sir. Your next question comes from the line of Steve Ashley with Robert W. Baird.

The marketing cloud. In terms of capability to support corporate website marketing, I know ET recently acquired iGoDigital, giving them some capability there. Is that a capability that you would look or want to build out further in the future?

Well, there is no doubt that mobile is a critical part of what we are doing. And, whether it's, iGoDigital or some of the other capabilities in those areas as well as our investments in some of these great MDM companies, we are going to find some really great leverage and the ability to deliver a world-class offering through ExactTarget. I think a lot of folks didn't really understand ExactTarget's capabilities. Their technology in this area is probably as deep as anyone or anything that I've ever seen and what we really need to do now is, we need to help them to communicate. It's a tremendous asset that they have and we need to do that through product marketing as well through development of a world-class sales organization.

Your last question comes from the line of David Hilal with FBR.

Marc, regarding the upcoming release of winter 2014, are there a few new features functionality that you think are more than incremental that will help maybe catalyze prospective customers who are on the fence to get on the right side of the fence. Anything you might offer up or maybe have a little more interest with that platform? Thank you.

Well, I think that there is more than a few a few, but you are going to have to wait until June for us to articulate the full value proposition of what we are doing and our exciting new vision for the future and the changes that we have made to our core platform that is going to enable a whole new generation of capabilities in sales and service, in marketing and building custom mobile applications as well. Thanks so much. It's been a great quarter at salesforce. We couldn't be more excited about everything that's going on. We are looking forward to seeing you at Connections, we are looking forward to seeing you at Dreamforce. So I will be on Mad Money tonight with the Jim Cramer and I look forward to seeing you all in Indianapolis.

This concludes today's conference call. You may now disconnect.