Salesforce, Inc. (CRM) Q4 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and thank you for standing by. Welcome to the Salesforce Q4 and Fiscal Year ‘19 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we will host a question-and-answer session and our instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. It is now my pleasure to hand the conference over to John Cummings, Senior Vice President of Investor Relations. Sir, you may begin.

Thanks so much, Brian. Good afternoon, everyone and thanks for joining us for our fiscal fourth quarter and full year 2019 results conference call. Our results press release, SEC filings and a replay of today’s call can be found on our IR website at salesforce.com/investor. With me on the call today is Marc Benioff, Chairman and Co-CEO; Keith Block, Co-CEO; Mark Hawkins, President and CFO; and Bret Taylor, President and Chief Product Officer. As a reminder, our commentary today will primarily be in non-GAAP terms. Reconciliations between our GAAP and non-GAAP results and guidance can be found in our earnings press release. Some of our comments today may contain forward-looking statements which are subject to risks, uncertainties and assumptions. Should any of these materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. A description of these risks, uncertainties and assumptions and other factors that could affect our financial results are included in our SEC filings, including our most recent report on Form 10-K. So, with that, let me turn the call to you, Marc.

Thank you, John, and thank you everybody for being on the call today. As you can see from our results, Q4 capped off another record year for Salesforce. Revenue in the quarter rose to more than $3.6 billion, up 27% in constant currency, truly amazing for a company of our size. And for the full year, we delivered more than $13.2 billion in revenue, making Salesforce the fastest enterprise software company ever to reach $13 billion. Based on our outstanding fiscal year ‘19 results, we are raising our fiscal year ‘20 revenue guidance to $16.05 billion at the high-end of the range, representing 21% projected growth year-over-year. And we expect this incredible growth to continue which is why we are now initiating a revenue target for fiscal year ‘23 of $26 billion to $28 billion organically doubling our revenue again in the next 4 years. I have never been more excited about the opportunity ahead for Salesforce. Around the world, more and more companies are investing in their digital transformations which start and end with the customer. Earlier this year, I was at the World Economic Forum at Davos where I met with hundreds of global customers. And I have also been on the road meeting with customers across the U.S. And everywhere I go, I hear the same thing. Companies are continuing to make incredible investments in their customer experience. They know they need to invest in becoming more customer-centric, more efficient and more automated. And when they invest, they are looking to do it with companies they trust, and that’s why they are looking to Salesforce. Salesforce is not only the number one CRM, but we are really their most trusted enterprise software vendor. And whether they are B2B or B2C, they are now becoming a B2B to C company. They are all transforming to connect with their customers in all new better way and we are the only company with an intelligent customer success platform for both B2B and B2C companies. Salesforce is the number one CRM. And as you all know, with MuleSoft, we are now the number one integration platform. We are also a leader in sales and service and marketing and in digital commerce. And in fact, service is on its way to becoming our largest cloud. That’s incredible. That is allowing us to deliver a level of digital transformation never before possible. It’s redefined the CRM experience for so many of our customers. And over the last 20 years, no other company has been more focused on customer relationships. We have not only remained totally focused on CRM. We have constantly redefined and expanded what CRM means. CRM is the largest and fastest growing market of enterprise software today, bigger than operating systems, ERPs and databases and we continue to take share and outpace this market. According to Edge IDC, Salesforce commands 20% of the overall CRM market, more than the next three competitors combined. With Dreamforce, we introduced the Salesforce intelligent Customer 360 giving our customers a unified 360-degree view of their customers across every touchpoint in sales, service, marketing, commerce, communities and more. And we have a tremendous vision for the next decade with our intelligent Customer 360, a major growth engine for Salesforce moving forward. We are operating at a tremendous scale at Salesforce. Just look at some of the daily milestones our customers have helped us achieve on our intelligent Customer Success platform. Everyday, 3 million sales opportunities and 3.2 million leads created in sales cloud, everyday 9.7 million cases logged in service cloud, and everyday, 1.9 billion emails sent from marketing cloud, amazing. Everyday, 44 million reports and dashboards created in Einstein Analytics and now, everyday, more than 6 billion predictions in Salesforce Einstein on our AI. During the holiday shopping season, the Commerce Cloud processed more than 4.2 million orders and supported 690 million e-commerce page views in a single day. No other vendor provides CRM at scale and it’s why Salesforce has been named one of the world’s most innovative companies 8 years in a row by Forbes. Take Salesforce Lightning, we have revolutionized the Salesforce user experience with a redesigned, intelligent and intuitive new platform that is now making millions of users more productive. And Lightning makes it easy for them to build incredible innovation, customer experience, with Clicks, not Code. With Salesforce Essentials, we are now making it possible for millions of small businesses to tap into this innovation and deliver incredible customer experiences. But as we all know, every digital transformation isn’t just a customer transformation, it’s also an AI transformation. It’s an automation transformation. This is a big shift for our customers. And the industry is undergoing it everywhere. That’s why we built Salesforce Einstein AI innovation deeply into the Salesforce platform. I am thrilled with the adoption of Einstein, which as I said, is now delivering more than 6 billion predictions every day. Now, with Einstein, we are enabling our customers to interact with Salesforce as easily and as naturally as they think and as they talk. Just as Salesforce brought our customers the cloud, social, mobile and AI, we are bringing them voice as well. In fact, half of the U.S. households already have a voice activated device. It’s going to become a dominant user interface. But Salesforce is no exception. We have taken these consumer voice experiences and we have brought them to our customers and make them more productive at work. Now and very, very soon, every Salesforce app that has ever been built will have Einstein available to it. The power of voice isn’t just getting information it’s getting information into your database and into your CRM system. It has to be fully interactive. With Einstein Voice, customers will be able to update all of their data in Salesforce with voice command. AI is critical to every customer transformation. And the automation it delivers is driving the next generation of efficiency for companies. It’s also radically transformation in the nature of work. And it’s why all of the CEOs I have met with are talking about rebalancing and rescaling their workforce for the future. As automation impacts the workforce, we recognize we have a responsibility to deliver our solutions to help people scale up for the jobs of tomorrow, especially for jobs in the amazing Salesforce economy that is growing around us, one that will create more than 3 million new jobs and more than 850 billion in GDP impact by 2022. That’s why we created Trailhead, a personal learning cloud that empowers everyone regardless of their background, to learn and demand skills for free. We now have more than 1.2 million learners on Trailhead and are changing people’s lives everyday. This week, as we celebrate another record year, we are also celebrating another great milestone, Salesforce’s 20th birthday on March 8. In 1999, Parker and I could not have imagined that Salesforce would be the company it is today. What I am most proud of is the trust we have of all of our stakeholders. There is a clear connection between customer success and the company’s values and that’s why trust is the heart of our culture. And we have seen this as we have grown our company over the last 20 years, focused on our culture as a key part of who we are as an organization, because we realize exactly as Drucker told us, our culture eats our strategy for breakfast. People are drawn to Salesforce, yes, because we are focused on customer success, but it’s also because of our culture. Companies are excited to do business with us. They trust us to deliver the innovation they need to succeed in this fourth industrial revolution. In fact, Ethisphere just named Salesforce one of the most ethical companies again. Well, all of this is so exciting as we turn 20. Now, together, we build trust with our communities through the impact we have made. And over the past 20 years, together with our foundation and Salesforce.org, we have now given out $260 million in grants, 40,000 non-profits and NGOs use our software for free. And our employees have volunteered nearly 4 million hours in their local communities. I could not be more proud of them. And as Parker and I reflect back on the last 20 years, there is one word that comes to mind, that’s gratitude. To close, I want to thank all of our employees, our customers, our partners, our shareholders, our investors, our analysts and all of our trailblazers and communities around the world, who joined us in this amazing journey over the last 20 years. I am so deeply grateful and I hope you all celebrate with us on March 8. Now, let me turn over to our Co-CEO, Keith Block. Keith?

Thanks, Marc. Good afternoon, everybody. As Marc said, we delivered outstanding results. As we continue to take share and lead the market Salesforce pioneered 20 years ago. It’s been an incredible journey to $13 billion in revenue and our relentless focus on delivering innovation and customer success has fueled our growth and solidified our leadership in the market. We continue to grow internationally, expand across industries, and leverage our partner ecosystem as we drive toward our new revenue target of $26 billion to $28 billion in FY ‘23. Salesforce has redefined the customer experience. We have become mission-critical to companies of every size and industry and we are deepening our relationships strategically all over the world. In fact, our $20 million plus relationships grew 48% compared to last year. This includes two 9-figure renewal expansions in the quarter. Our enterprise class relationships absolutely reflect the unprecedented mindshare and trust we have with CEOs. Take Barclays as an example. At the World Economic Forum in January, their CEO, Jes Staley proudly said that with Salesforce, they have just signed the largest technology agreement in their 300-year history. We are very, very proud to be Barclays’ trusted partner in digital transformation as they deliver faster, more convenient services to their 48 million customers. I remember when our goal was to have the top 10 banks running their business on Salesforce. Then the goal was the top 20 banks. Well now, we do business with nearly every financial institution in the Fortune 500. We also significantly deepened our relationship with one of the world’s largest telecommunications companies. They are leveraging Service Cloud, Marketing Cloud, Einstein and MuleSoft to personalize in-store and online engagement for more than 100 million subscribers. And we are thrilled that today, 96% of the media and communications companies from the Fortune 500 are our customers. And this is just the beginning. I recently spoke with the head of one of the largest consulting firms who said that roughly 85% of their top 50 customers are just getting started on their digital transformations. So clearly, that’s an indication that we have tremendous runway ahead of us. And this opportunity is global. In Q4, we strengthened our relationships with some of the leading companies around the world from expanding with Toyota, National Australia Bank in Telstra and in Japan and Australia to form a brand new relationship, also in Germany with BASF, the world’s largest chemical maker. These global strategic relationships are driving our year-over-year revenue growth 26% in the Americas, 26% in APAC and 31% in EMEA in constant currency. We continue this momentum and better serve our multinational customers. 42% of our new hires in the fourth quarter were in regions outside of the Americas. Our thriving partner ecosystem is fueling our growth worldwide and making our customers more successful. In Q4, the total number of global partner certifications increased 41% year-over-year. And in FY ‘19, net new partners grew 79% in APAC and 110% in EMEA compared to last year. In fact, I have met with the leaders of our top 5 consulting partners in the last month. And they have all said they are doubling their Salesforce practices over the next few years. So, not only are our partners investing more in their Salesforce practices, they are also running their business on us. Three of our top SIs expanded their relationship with Salesforce in Q4. We also significantly expanded our relationship with Google. We are excited to support their increased adoption to deliver more connected customer, employee and partner experiences at scale. And we are thrilled with the innovation we are delivering to make our customers more productive, including the integrations between the Salesforce platform and Google Cloud. Also in Q4, we became a reseller of Google Analytics 360, enabling marketers to act on insights and drive smarter engagements with our integrated solutions. Google Analytics remains the number one analytics solutions with our customers which we are very, very excited about. Vertical solutions, Health Cloud, and Financial Services Cloud, they continue to deepen our relationships across industries. Now, earlier I had mentioned Barclays and financial services, but with Health Cloud, in Q4, we had significant expansion with leading biotech company, Amgen. And they are using Salesforce across their business from improving patient outcomes to building apps for commercial applications with Heroku. Overall, we increased our business with Fortune 500 healthcare customers by 22% year-over-year. Now, we are coming up on 1 year since our acquisition of MuleSoft and we are absolutely thrilled by their outstanding performance and the value we are creating for customers like SunTrust, State of Colorado and Unilever. And to keep pace with increasing demand, we hired more than 450 additional MuleSoft employees in FY ‘19 and we nearly tripled the MuleSoft architects driving our customers’ digital transformations. We added nearly 2,000 MuleSoft developers to that ecosystem. So, it’s something we are very, very excited about. And based on my conversations with our largest SIs, they are also very excited about the growth of their MuleSoft practices. Now, core to our customer success and to our future success is our people. And recruiting and developing talent is the top priority for us as we head into FY ‘20. We are very, very proud of the strength of our culture. It’s what drives our growth and innovation. It’s one of the reasons companies of every size and industry want to do business with us. And that’s why we are recently recognized by Fortune as the Best Company to Work For, for the 11th year in a row. Again, something we are very, very proud of. So, I want to thank our customers, our partners, our employees for another outstanding year. And I am looking forward to what we will accomplish together in FY ‘20. With that, I will turn the call over to Mark Hawkins.

Thanks, Keith. We delivered another year of outstanding financial performance, continuing to trend strong, durable top line and operating cash flow growth. We also delivered non-GAAP operating margin expansion for the fifth consecutive year while integrating the biggest acquisition in our history. Let me discuss the highlights for Q4 in FY ‘19. Fourth quarter revenue grew 26% in dollars and 27% in constant currency. Our revenue had a year-over-year FX headwind of $38 million and an immaterial sequential headwind. For the full year, revenue grew 26% in both dollars and constant currency. MuleSoft continued its strong execution as part of Salesforce, contributing $181 million to total revenue in the fourth quarter. Of the $156 million of subscription and support revenue from MuleSoft, roughly 60% was licensed revenue. For the full year, MuleSoft added $431 million in total revenue net of purchase accounting adjustments. This came in far ahead of our initial guidance as we quickly executed on our plans to integrate MuleSoft and accelerate digital transformation projects for customers around the world. Let me quickly discuss MuleSoft’s revenue contribution and how to think about it going forward. As you know, the fourth quarter is MuleSoft’s largest quarter of the year and you can see that in the results. However, as you build your models keep in mind that due to the license component, MuleSoft revenue is a bit more seasonal than our core products and can experience sequential revenue declines from Q4 to Q1 similar to the seasonality we see with Marketing Cloud. Our portfolio of industry leading products continued to deliver strong year-over-year subscription and support revenue growth in the fourth quarter. Sales Cloud grew 11% at a run-rate of more than $4.2 billion. Service Cloud grew 22% at a run-rate of more than $3.8 billion. Platform and Other grew 54%, including approximately $156 million from MuleSoft and is now at a run-rate of more than $3.3 billion and Marketing and Commerce Cloud grew 34% crossing a $2.1 billion run-rate. Dollar attrition remained below 10% at the end of the year. Turning to margin, I am very pleased that we are able to drive continued operating leverage in the business while integrating MuleSoft and other acquisitions and investing in our growth initiatives. For the full year, we delivered 57 basis points of non-GAAP operating margin improvement, the fifth consecutive year of improvement. Fourth quarter GAAP EPS was $0.46, coming in much higher than our expectation. EPS benefited in large part from approximately $0.17 related to the net benefit of tax adjustments and $0.12 related to the mark-to-market adjustments of our strategic investments as required by ASU 2016-01 as well as the outperformance in the quarter. Turning to cash flow, we had a very strong cash collection in the fourth quarter driving operating cash flow of $1.33 billion, up 27% year-over-year. For the full year, we delivered $3.4 billion of operating cash flow, up 24% over last year, an outstanding result that I am very pleased with, especially considering the impact from the MuleSoft acquisition cost. This translated to an operating cash flow yield of 25.6%. And with these strong collections, we chose to payback our $500 million term loan about 6 months early, saving on future interest expense. CapEx for the year was $595 million, approximately 4.5% of revenue, down from 5.1% of revenue last year. For FY ‘20, we anticipate CapEx to be approximately 12% of revenue. Free cash flow defined as operating cash flow less CapEx was $1.16 billion in Q4, up 27% over last year. And for the full year, free cash flow grew 27% year-over-year to $2.8 billion. Unearned revenue this year ended at $8.5 billion, up 22% in dollars and 24% in constant currency, excluding an FX headwind of $104 million. On a sequential basis, unearned revenue had an FX tailwind of $42 million. Remaining performance obligation representing all future revenues under contract ended Q4 at $25.7 billion, up 25% over last year, including $450 million from MuleSoft. Currently, RPO a business that is both billed and unbilled and is expected to be recognized as revenue in the next 12 months was $11.9 billion, up 24% year-over-year. Moving on to guidance, we are raising our FY ‘20 revenue guidance by $50 million to $15.95 billion to $16.05 billion for 20% to 21% growth year-over-year. With a great opportunity in front of us, we remain on track to deliver the $21 billion to $23 billion of revenue in FY ‘22. And we are establishing a new long-term organic revenue target of $26 billion to $28 billion in FY ‘23, representing growth of more than 21% year-over-year in FY ‘23 at the high-end of the range. This long-term target is consistent with the durable growth that we’ve been delivering year after year. With this consistent durable growth, we expect to continue to deliver non-GAAP operating margin in FY ‘20 of 125 to 150 basis points year-over-year driven by continued improvement in operating leverage. We are adjusting our fixed long-term non-GAAP tax rate to 22.5% for FY ‘20 from 21.5% in FY ‘19. The increase is due to several factors, including changes to our forecasted geographic mix of earnings. We expect OIE to be a net expense of approximately $70 million for FY ‘20. And we expect FY ‘20 GAAP diluted EPS of $0.66 to $0.68 and non-GAAP diluted EPS of $2.74 to $2.76. Our OID and EPS guidance assumes no contribution from mark to market accounting as required by ASU 2016-01. Finally, we expect FY ‘20 operating cash flow growth of 20% to 21% year-over-year. For Q1, we’re expecting revenue of $3.67 billion to $3.68 billion, GAAP diluted EPS of $0.10 to $0.11, and non-GAAP diluted EPS of $0.60 to $0.61. Now, based on your feedback, we will provide the guidance for current remaining performance obligation going forward. And in that context, we expect to see RPO growth of approximately 24% year-over-year in Q1. To close, we delivered another outstanding year of financial performance, durable top-line growth, a fifth consecutive year of non-GAAP operating margin expansion, strong cash flow generation, and the integration of the biggest acquisition in our company’s history. I’d like to thank our employees, our customers, our partners, and our shareholders for your continued support. And with that, we’ll open up the call for questions.

Thank you, sir. [Operator Instructions] And our first question will come from the line of Brad Zelnick with Credit Suisse. Your line is now open.

Great. Thanks so much and congrats on a fantastic and to a phenomenal year, guys. Your new fiscal ‘23 guidance implies you will organically double the size of the company over the next four years, add massive scale and implying you’ll be able to sustain a roughly 20% compounded growth rate. What gives you both the confidence and visibility, especially as just about every macroeconomic forecast out there has some degree of economic downturn between now and then? Thanks.

Let me start, Brad. First of all, thank you. One of the things that I would say of course, you know we look at a long-range plan. It’s based on the market. We happen to be, as we know, in the hottest part of enterprise software market and CRM, number one. Number two, the TAM in FY ‘22 alone is over $142 billion for all addressable market for us. Number three, our competitive position and differentiation continues to accelerate. You can see that in the market share when you add up the next three most notable competitors. And it’s less than our market share which persists and continues to grow. We feel like we’re in the full position with a great product offering, most importantly with our true north, the customer. I would start with that, Marc or Keith?

And I think that when you couple those core aspects of our model, including that the majority of revenue is deferred, and you look at this incredible off-balance basically, the RPO, and then you look at what’s happening in the market today, we see three incredible levels of focus with our customers which, number one, is the movement to the cloud. I don’t think there’s been a more exciting macrotrend in both business and technology where so many companies realized that they can get much great acuity and speed in their business by moving to cloud-based systems. Number two Digital transformation, I don’t think there’s a company that I’ve met with of size and scale that isn’t going through a dramatic digital transformation. And each one of those transformations begins and ends with the customer, just as I said. And it doesn’t matter if they’re a B2B company or a B2C company they are all becoming B2B to C companies. And it’s requiring them to fundamentally transform their entire approach to what I would say is the third major trend, the customer. Those three things together, the cloud, digital transformation, and the customer become three dramatic trends that are moving all of our customers forward and have really taken the CRM market and made it the most important market in enterprise software. Last week, I was on the road all week in the United States. And I had the opportunity on Thursday and Friday to meet with hundreds of the largest companies in the world and their CEOs and I continue to see incredible optimism for the year and for the economy. Those CEOs are all talking about growth in investment. And they don’t have what I would call economic anxiety, certainly not in the United States. When I was in the World Economic Forum in Europe, while I also saw a lot of confidence, European CEOs definitely have more anxiety. Yet, they are also continuing to invest aggressively. The reason why they’re investing so dramatically in these areas is this is critical for their future growth. IT is not an optional area of investment for them. It’s how they’re going to achieve their future results. And I’ll tell you and I’ll end with this. It’s not just about digital transformation. It’s really about digital automation. And that level of digital automation is not just AI. It’s not just RPA. It’s just a broad rethinking of their entire company structures and rebalancing their workforces based on a new level of automation that’s available to chief executives to reevaluate how they run their businesses fundamentally. And that is something that we have really adjusted our company for. That’s why you’ve seen us make major investments in Einstein. And that has really paid out so well for our customers and has kept them really competitive, right at the very top of all digital transformations. The level of AI now in place with our customers is dramatic. And it’s given them the ability to create new levels of efficiency in their organization as well as they’ve seen dramatic increases in their revenues because of it. And I think as all of these trends continue to play out over the next 48 months, you’re going to see us have this dramatic increase in our revenue that we’re forecasting today. And by the way, of course, that’s a midterm forecast in terms of the growth of our business. In the very short-term, I’m excited that not only are we going to do more than $16 billion this year, but you can see we’re rapidly approaching the $20 billion revenue mark for Salesforce. That is absolutely amazing.

I would just add one more comment to that. Marc is absolutely spot-on with respect to the digital transformation. I think if you take a look at the way companies have budgeted their IT spend with a balance of innovation versus maintenance just a few short years ago, for example, in the financial services industry, you would see that 90% of the IT spend was focused on maintenance. And now what you see in financial services is a drive toward more of a 50-50 spend between maintenance and innovation. So, this level of digital transformation is an imperative. And I’ll go back to my opening comments as well. When we have one of our leading partners, one of the best firms in the world talking about how 85% of their top customers are just beginning to think about and strategize and embark on digital transformation that just gives us a lot of runway and confidence.

Thank you. Our next question will come from the line of Walter Pritchard with Citi. Your line is now open.

Hi. Questions for Mark Hawkins, [indiscernible] we have gotten pretty accustomed to doing the analysis around billings. And I know in the past, you’ve even said you don’t manage the business for billings. But focusing us on RPO, could you help us understand some of the factors that drive volatility in that number? And as we calculate it, we’re looking at maybe bookings growth calculated off RPO that would imply growth below what revenue grew in both Q3 and Q4. I’m just trying to reconcile that with understanding the drivers [indiscernible]. Thanks.

Walter, thank you. Certainly, glad to talk about RPO. And again, everyone, and when we think about Dreamforce presentation, I want to put that out as a reference for folks too. But the way to look at that, obviously, is we have all - that’s all the revenue under contract both for the current RPO which is the next 12 months that will show up and also beyond the next 12 months which is the long-term RPO, all making up the RPO. The factors that can impact that for sure are the timing of renewals. The attrition can affect that. There’s a number of different things can affect that consistent with our Dreamforce presentation that we talked about. And one of the things when you look at RPO for this particular period, again, as we called out last year in Q4 ‘18, we had a that’s when we were in pre-606 where we had billed and unbilled figure which is not perfectly comparable as we know with the transition, but we had 8 of the biggest 10 renewals in the history of the company. And we called that out distinctly. The other thing that could impact things, at least on the long-term RPO, is the weighted average term length as well. That’s why we like to focus the most on the current RPO which is the next 12 months that’s coming. These would be some of the factors. The thing that we look at is once you get over a really unusual compare, which we called out last year both in Q4 of last year and at Dreamforce for Q4 of last year, you quickly see a normalization when you come back to Q4 of this year. And we think the 25% growth rate with $25.7 billion of RPO is a strong number and very consistent with the durable growth that we are delivering going forward. So, Walter, those are a few of the things that I would look at. Obviously, there’s some FX headwind even in Q4 even on top of that. But the 25% with a $25.7 billion RPO is a number we’re glad to see.

Thank you. Our next question will come from the line of Keith Bachman with the Bank of Montreal. Your line is now open.

Hi. Thank you very much. I wanted to ask either Mark or Keith about Einstein. You mentioned that the uptake rates have been very strong in usage. I wanted to see if you could speak on monetization. Our conversations with customers, including our own bank, are that interest level is very high but, in fact, Salesforce is pricing incrementally that makes it harder to purchase it. And I just wanted to see how are you thinking about monetization. If you could speak more directly about uptake rates associated with payment on Einstein, thanks very much.

Alright, great. I’d love to address that. And I think I’ll ask Bret to take that on and to give us his response. He’s listening to us from Australia. Bret?

Yes. It’s a great question. First and foremost, our strategy with Einstein is to improve the value that our customers are getting from our products. And I’m going to give you a very concrete example of this. One of the major retailers I just spent time with a couple weeks ago, over 60% of their customer service cadences are now completely automated thanks to Einstein. They’re doing that with actually improved customer satisfaction scores. So, it means that they can actually use their agents in more productive and for more complex. So, when we talk about Einstein, their satisfaction is through the roof because they’ve been able to take their human capital and spend it in more valuable ways for their customers. Similarly, as I think you’re aware, with products like the Einstein capabilities built into our Commerce Cloud, the value we get and the value our customers get are very aligned because our Einstein capabilities are choosing how to rank product listings and suggest products in a way that improves and increases the gross merchandising value from the retailers which improves the revenue that we get from those customers and improves the quality of our customers’ business by enabling them to sell more. So, across our clouds, we’re trying to align our Einstein capabilities with our customer value and make sure that our pricing is aligned with our customer value because fundamentally, as our relationship with our customer evolves from that of a vendor to that of a strategic partner, we want to make sure our monetization is aligned with our customer’s value. And that’s the strategy that we’re taking. It will vary across our B2B and B2C products. We just want to make sure our packaging and pricing of our intelligence is aligned with the value that our customers get from the products.

Thank you. Our next question will come from the line of Keith Weiss with Morgan Stanley. Your line is now open.

Excellent. Thank you, guys, for taking the question. And very nice quarter. I think it’s pretty remarkable we’re seeing Service Cloud sustaining its 20%-plus growth into the end of FY ‘19. And like you said, it’s well-positioned to become the biggest cloud into FY ‘20. Can you talk to us a little bit about the drivers of that scale it’s almost twice the growth of what you’re seeing in Sales Cloud and to what extent the vertical solutions that you guys have in the market are driving service cloud more so than a Sales Cloud or the like?

Well, hi, Keith. So, look. I’ve long said that especially in this fourth industrial revolution, as our customers think about digital transformations, really, the way that they differentiate themselves and take share is providing the world-class experience to their customers. And that starts with service. So, this is really the heartbeat of a lot of digital transformation. And that’s why you’re seeing such great results with our service cloud. And that’s why we continue to take share in service cloud. The other area that obviously is dragging that is that when we in a positive way, when we go to market, we go to market by industry solution. And so, customers don’t really think about buying point solutions or point products. We’re talking about a solution for their enterprise that will drive a different set of experiences for their customers. And when you think about Financial Services Cloud and Health Cloud and also some of the partnerships we have with other companies like Velocity, those also drag and put at the front and center of any of these transformation service clouds. So, we’ve got a very, very good strategy around our industry solutions. And Service Cloud is really the heartbeat of digital transformation.

Thank you. And our next question will come from the line of Mark Murphy with JPMorgan. Your line is now open.

Yes, thank you. And I will add my congrats. So, when we see this abnormal growth and scale, what crosses my mind is that your competitors are trying to sell software tools to the IT department. And in contrast, you’re really selling transformations at the top levels of the org chart. I don’t think any other software company has ever had this kind of vision of transformation selling. So, I’m curious where are you in that journey of building that muscle across your sales teams. And is that something that’s helping you convert these nine-figure relationships?

So, again, we are in a very enviable position. And there’s been a lot of work on this over time to really change the game in terms of our strategic relationships. And that’s why we do have these trusted advisor type of relationships with CEOs. And it’s very interesting because they’re CEOs from basically every industry and every geography. And they want to talk to us about transformation. We spoke earlier about the Barclays deal. And you’ve heard me talk about this on earlier calls, how CEOs like Jes Staley have brought their entire executive team out to speak with us. I was on the phone with a CEO in Australia last week who is going to bring his entire executive team all the way from Sydney to talk to us about digital transformation. So, we put ourselves in this enviable position because we’re driving transformation. We’re driving value. And they trust us. Obviously, trust is our number one value as well as far as our company goes. So, there’s a lot of work that goes into this. It’s a lot of building muscle and capability and process and methodology. But at the end of the day, a lot of this is our customers trust us. And we have great products and solutions and incredible innovation. Again, it’s one of our core values. And that’s why you’re seeing these great relationships that we enjoy with other CEOs.

Thank you. Our next question will come from the line of Raimo Lenschow with Barclays. Your line is now open.

Hey, thanks for squeezing me in. Can I stay on that subject, Keith? If you think about, for example, the deal that Barclays is closing versus if you look at some of our customers, you are the guys who’re driving the additional transformation around customers. But there’s no other vendor that is anywhere close to your market reach and scope. So, where are we on the journey then for the other guys because to me that sounds like a massive opportunity. Can you talk to that? Thank you.

So, thank you for the question. Look, I think this is early days. We’ve talked about the Fourth Industrial Revolution for a couple of years. And I still think we’re trying to get our arms around that as an industry and as a society, I mean, there’s a lot of implications across the board. Marc talked about rescaling the workforce and rebalancing workforces. There’s a lot that goes into this, a lot of things that, again, we’re just trying to understand in the beginning. But as far as these transformations go, when you have one of the largest consulting firms in the world say that 85% of their largest customers are just beginning this, and that’s anywhere from having the dialog to planning these transformations. There is a lot of room for us to run, and we are in a unique position. There is no other company like us that has these sort of trusted relationships and earns the trust of these senior executives on a daily basis. And again, I go back to our culture. I go back to the caliber and quality of our solutions. I go back to the levels of talent that we have in the company. And all of these things have come together to put us in this market-leading position and we have really a very bright future.

I’ll just also add to that – I’ll add to that, that I think that one of the really strong parts of what’s happening in the market today is when you are talking to these CEOs, they are all prioritizing digital transformation as one of the most important things they’re doing. At the same time, the line of business buyers are still out there buying sales, service, marketing, and these other capabilities. It’s an incredible pairing of opportunity for us, and it’s really kind of a nod, which I’m about to give to some of these next-generation products like we’ve mentioned in the call like Einstein and Service Cloud, Sales Cloud and MuleSoft, all of these things together building this intelligent Customer 360. And Bret, you’re in Sydney and you’re – you have – you’re sold out, you have over 11,000 people registered to attend your event tomorrow at the ICC Exhibition Hall. Can you give us some insights into what kind of messages and what you’re preparing to say there?

Yes. I mean, it’s perfect timing to be here in Sydney. I actually just got off of a Product Roadmap Tour, where I visited 8 cities and 200 customers and shared our roadmap and talked to them about how they’re applying our technologies. And it’s exactly what you said, which is we have some customers who are just starting on this digital transformation journey who are really looking to us as a strategic consultant. One great example here in Sydney is a mattress company that was a traditional B2B seller. And because of a number of direct-to-consumer digital-first company, they’re looking to us to help them become a B2C company. And what’s really unique about that I think really represents the opportunity that you spoke about is, we’ve had a multi-year almost decade-long relationship with this company with our traditional B2B products like Sales Cloud. And now they come to us and say, build on that trust that they have built with us and say, help us transform not just our technology, but transform our business model. And that’s the kind of relationship that I think Keith is talking about where we have this privilege of having earned the trust over many years with these companies. And they’re coming to us with problems that I know kind of geek in the room can look like a technology problem, but to the CEO, it’s a business problem. And I think that gives us the types of relationships that we’re talking about. And as I think Marc said very eloquently in the introduction, the fact that we’re both B2B and B2C and that we are on the forefront of these business model transformations that are happening in every industry give us a very unique vantage point. So, that’s the keynote tomorrow that’s what we’ll be talking about and the customers that we’re highlighting I think are a very interesting combination of B2B and B2C, and as Marc said, B2B2C. And I think that every one of these companies wants to understand their customer and get that intelligent Customer 360, and we’re in a very unique position to be able to provide that uniquely in the marketplace.

Thank you. Our next question will come from the line of Ross MacMillan of RBC Capital Markets. Your line is now open.

Thanks so much, and my congrats as well. I actually just, Keith, wanted to get your sense of two things around digital transformation and where we are. One is international versus U.S. So, is it fair to say that international markets are a little later on that curve or is that an incorrect statement? And then just by vertical industry, I’m curious as to – similar question, which vertical industries do you think have got the most opportunity ahead in this journey on digital transformation? Thank you.

Yes. Our strategy as you know has been as we’ve moved into the enterprise to make sure that we’ve had a strong international push and so we’ve made those investments, that’s why 42% of the employees that we hired were outside the Americas in the fourth quarter. That’s because we’re seizing upon the opportunity and working very closely with our customers. I think rather than look at it geographically, I think really to your point, really your second question, you have to look at it on an industry-by-industry basis because some industries are just further ahead, it’s just the way it is. So, for example, a lot of financial services companies historically have thought of themselves as technology firms, so, they’re further ahead. And that is an industry that is ripe for digital transformation and we see it on our results. Another industry that is ripe for digital transformation is the public sector, the governments around the world. And that obviously is a huge opportunity for us to work with the government and to provide higher levels of service through digital transformation. So, I think about financial services, I think about public sector, I think about healthcare. These are all industries that are going through a lot of transformation, retail, but at the end of the day, no industry is immune from digital transformation. If you’re a CEO and if you’re not thinking about your digital transformation strategy, you’re going to miss the market, and that’s playing out all over the world in every geography because it really to me is industry-based.

Thank you. Our next question will come from the line of Phil Winslow with Wells Fargo. Your line is now open.

Hey, yes, thanks guys for my question, and congrats on a great end of the year. Just wanted to focus on Marketing Cloud, we’ve talked a little about Service and Sales Cloud. Marketing Cloud still seems to be for MarTechs having great momentum. Can you give us just some color on sort of what’s driving that? And then a question specifically for Marc, when you think about MarTech and AdTech and you mentioned Google in the prepared remarks. Where does sort of MarTech end and AdTech begin? And how do you see Salesforce from a sort of competitive or partnership perspective in those areas?

Well, you’re right. You can see it in the numbers. Marketing Cloud has been a tremendous growth driver for us and this year has been no exception. The numbers have been really incredible. And it’s been driven by many things. Of course, as you know, it really is a product line that we have put together through many exciting acquisitions, including companies like ExactTarget, as well as Demandware. And what it’s resulted in is probably the most comprehensive solution for companies, who are building that one-on-one relationship with their customer. The most powerful part of our Marketing Cloud I really already hit and I’ll have Bret touch on it in a second is that it’s both a great Marketing Cloud for B2C companies and one that can operate at scale, tremendous scale as I mentioned in my comments, I’m sure you saw, when we’re sending out that many emails or addressing that many cases, no one else can really deliver that type of opportunity, but it’s not just for B2C companies, it’s also great for B2B companies too. And in one of the core areas of our Marketing Cloud, which is our Commerce Cloud, you saw how not only do we, for example, run all of the B2C interactions for a major customer like Adidas, but with the most recent acquisition with CloudCraze, we’ll also be able to step in and provide incredible B2C capabilities. On top of that, we’ve really added tremendous analytics capabilities and that’s in partnership with Google. As you know Google Analytics is really the number 1 analytics solution for companies trying to understand their relationship with their customers. And Google Analytics continues to gain market share with our customers and that’s why we’ve tightened our integration with Google Analytics. And in addition to that, we’ve added our own comprehensive analytics solution, which integrates with that, as well as with all of our clouds which is why we acquired Datorama, which is the Israeli-based company who provides really marketers the ability to have really a mission-critical dashboard that shows them exactly how to invest and how to move forward based on the successes of all their marketing organization. So Bret, would you like to just touch on some of the success of Marketing Cloud this year?

Yes. I think Marketing Cloud has really been driven by these trends that keep us talking about this Fourth Industrial Revolution. One of the very unique value propositions of our Marketing Cloud is that, it completely uniquely in the marketplace can do personalization at scale. Now what that means is, every single engagement that you have in our Marketing Cloud whether it’s a push notification or an email or a page that you see in our Commerce Cloud, it is personalized to you and your preferences. And to do that at scale essentially demands the technology that we’ve invested in as a platform like Einstein, so that we can not only know how to reach you, but what message to send and understand all of your previous interactions in this intelligent Customer 360 to provide that personalized experience. And you mentioned MarTech and AdTech, I think it’s a good question. We really view it as a continuum. We want to enable you to discover these products from our customers, we want to engage you, we want to drive you towards a transaction, and then we want to enable our customers to create loyal customers, and we really think of it as a cycle. And as Marc said, thanks to I think our very strategic acquisition strategy here, we have the most complete solution to drive that entire continuum, everything from discovery to loyalty. And that’s why that cloud is growing so quickly because our customers don’t just want the point technology solution, they want to enable themselves to compete with these digital-first retail customers that are really driving the consumer experience in this area, and our cloud is uniquely capable of doing so.

And Bret, as you are building this intelligent Customer 360, which is really the next wave of the product line and as you march towards Dreamforce this year to show customers what that next-generation intelligent Customer 360 looks like, what are some of the extensions that we would see to the Marketing Cloud that kind of demonstrate why that vision is so important?

Yes, that’s a great question. I think historically, people have thought of things like Commerce and Marketing as separate, but with the intelligent Customer 360, we think of them in a very integrated way, and I’ll give you a very practical example of this. With the intelligent Customer 360, once you’ve purchased a product on our Commerce Cloud, your subsequent email journey will be personalized based on your product history, and that’s enabled by this Customer 360. Similarly, if you added something to your shopping cart and you forgot to actually purchase it, you can be put on a journey to remind you to go back and purchase it. All this drives personalized experience for consumers which is a wonderful consumer experience and for our customers it improves their revenue and it improves their relationship with their customers. And really this vision for this intelligent Customer 360, the reason it’s so strategic, you’ve heard Mark Hawkins talk a lot about the strategy of multi-cloud engagements and how strategic they are to our business. For our customers, it means can we provide a truly integrated customer experience, so you don’t see the seams between your different departments, you don’t see the seams between these different technologies, and that’s really what we’re trying to create with the intelligent Customer 360.

The customer that comes to mind when you’re talking about that and I think I’m just cueing off of Keith’s comment is, you saw that Dreamforce that when you see a CEO show up at Dreamforce like Brunello Cucinelli was there, the reason why he’s able to partner so close to Salesforce is and why we become their digital transformation partner is, we’re not there for just one silo of their business, sales or service or marketing or commerce. We’re there to really help him bring his entire company together. And it’s really the comprehensiveness of the solution that then really yields that result for them. And I think that’s what has really given us so much satisfaction especially this year when we see a company like that or like when Keith talks about Jes Staley’s ability to partner at the CEO level and for them to know that we’re going to be able to bring all of these assets to bear and they’re not going to have to just go to individual silo organizations within the customer segment that we’re able to bring that entire CRM solution to them.

Yes, I agree. I just would add one last comment. With all the innovation that Bret talked about with Marketing Cloud and Marc talked about with Marketing Cloud and the Google partnership, Marc that you and Bret had talked about, what strikes me is 37% growth. We’re growing at multiples of the market. And that’s something I’m encouraged to see at a fiscal year level for Marketing Cloud.

Thank you. Our next question will come from the line of Jennifer Lowe with UBS. Your line is now open.

Great. Thank you. We spend a lot of time hearing about how some of the biggest and leading – most leading companies are using Salesforce technology to engage in their digital transformations. But the smaller and midsize businesses have been a pretty big part of your bread and butter historically as well. Can you talk a little bit about how – what you’re seeing sort of in the volume of your business in terms of how they’re thinking about digital transformation? Are they even starting to dream about that at this point or is it still a ways out? And as you think about that longer-term target of $26 billion to $28 billion, how instrumental is the companies outside of those biggest companies going to be in achieving that?

Well, I think that as you look at where we’re going –we’re certainly excited to initiate our 4-year guidance. And as we kind of head to $26 billion to $28 billion as we kind of work toward this year guidance of $16 billion and our very short-term guidance of $20 billion, which are just enormous numbers for any technology company. In all of these cases, I think it’s going to really get back to one very important thing and that is something that our company has been very fortunate to build which is a relationship with all of our stakeholders. When we look at all of our employees here at Salesforce and our customers, when we look at our partners, when we look at our trailblazers, our MVPs or like we say at Salesforce when we bring all of these together, it’s really our ohana. And we’re still grateful to be able to have all these relationships with them that we together have been able to build these trusted relationships, that we have been able to focus on customer success, that we’ve been able to deliver this incredible innovation and be recognized for it so broadly, and also at the same time to build a culture here at Salesforce that has been able to stand for so many incredible things especially quality.

But I just want to end the call by saying this, that as we approach Salesforce’s 20th birthday on Friday March 8th, that it’s really our fifth core value gratitude that comes to mind, because we are very deeply grateful for everything that has been given to us every single day over the last 20 years. And we want to thank you, thank you for everything that you have done for us. We want to thank all of our ohana, who are listening to us on the call and all those who have done so much over 2 decades, because this business is very much a team sport and we couldn’t be more grateful for all of you. So, thank you very much. And we’ll look forward to talking to you next quarter.

Ladies and gentlemen, thank you for your participation on today’s conference. This does conclude our program, and we may all disconnect. Everybody have a wonderful day.