John Cummings – Director of Investor Relations
Marc Benioff – Chairman and Chief Executive Officer
Graham Smith – Executive Vice President and Chief Financial Officer
Scott D. Dorsey – Co-Founder, Chairman and Chief Executive Officer
Phil Winslow – Credit Suisse
Rick Sherlund – Nomura Securities
Heather Bellini – Goldman Sachs
John DiFucci – JPMorgan
S. Kirk Materne – Evercore Partners
Brendan Barnicle – Pacific Crest Securities
Jason Maynard –Wells Fargo Securities
Tom Roderick – Stifel, Nicolaus & Co., Inc.
Kash Rangan – Bank of America Merrill Lynch
salesforce.com, inc. (CRM) ExactTarget Acquisition Conference Call June 4, 2013 8:30 AM ET
Good morning. My name is Tamara and I will be your conference operator today. At this time, I would like to welcome everyone to the salesforce.com ExactTarget Acquisition 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) I will now turn the conference call over to Mr. John Cummings, Senior Director of Investor Relations. Please go ahead, Sir.
Thanks Tamara and good morning everyone. Earlier this morning, salesforce.com announced its intended acquisition of ExactTarget. The details of this transaction can be found in the press release issued at approximately 7.30 AM Eastern Time this morning. Joining me today to discuss the transaction are Marc Benioff, Chairman and CEO, Graham Smith, Chief Financial Officer and Scott Dorsey, ExactTarget’s CEO, Chairman and Co-Founder.
The purpose of today’s call is to discuss the acquisition of ExactTarget. Marc and Graham will review the proposed acquisition and the terms of the transaction including the estimated impact on our fiscal second quarter and full-year fiscal 2014 guidance which we gave on our most recent results call in May.
After Marc and Graham’s comments, we’ll turn the call over to your questions. You should be aware that our discussion and responses to your questions may contain forward-looking statements related to the acquisition of ExactTarget and estimated results of the company which are subject to risks, uncertainties and assumptions.
All statements other than historical facts included in our discussion including but not limited to statements regarding the timing and closing of the transaction, the expected benefits of the transaction, expected performance and future business plans and any assumptions underlying any of the foregoing, are forward-looking statements. Should any of these risks or uncertainties materialize or should our assumptions prove to be incorrect, actual company results and actual effects of the transaction on salesforce.com could differ materially from these forward-looking statements.
The discussion of risks, uncertainties and assumptions related to the acquisition and the estimated impact of the company as well as the other information on potential risk factors that could affect our financial results are included in the periodic reports filed by salesforce.com and ExactTarget filed with the SEC including ours and ExactTarget’s most recent reports on Form 10-Q and Form 10-K respectively particularly under the headings Risk Factors and the Tender Offer statement on schedule TO and other offer documents to be filed by salesforce.com and a Solicitation Recommendation Statement on Schedule 14d-9 to be filed by ExactTarget.
Please be aware that any unreleased services or features referenced in today’s discussion for other public statements are not yet available and may not be delivered on time or at all, customers who purchased our services should make these decisions based on features that are currently available.
Finally the intended acquisition of ExactTarget includes a Tender Offer made by salesforce.com and a subsidiary. Tender Offer has not yet commenced, the discussion regarding the acquisition is for informational purposes only and it’s neither an offer to purchase, nor solicitation of an offer to sell any securities.
At the time, the Tender Offer is commenced, salesforce.com will file with the Securities and Exchange commission a Tender Offer statement on schedule TO and ExactTarget will file a Solicitation Recommendation Statement on Schedule 14d-9 with respect to the Tender Offer.
ExactTarget’s stockholders and other investors are strongly advised to read the Tender Offer materials including the offer to purchase and related letter of transmittal and certain other Tender Offer documents that have yet to be filed and the Solicitation Recommendation Statement when they become available as they will contain important information which should be read carefully for any decision is made with respect to the Tender Offer.
The Tender Offer statement and the Solicitation Recommendation Statement will be available for free at the SEC’s website at www.sec.gov. Free copies of these materials and other Tender Offer documents will also be made available by the information agent for this Tender Offer. So with all that, let me turn things over to Marc.
Well thanks so much John and you know this is really a historic day for Cloud Computing and we are just absolutely thrilled to have this call with you, it’s something that we’ve been planning for sometime and I have never been more excited about anything that I’ve ever done at salesforce.com and let me tell you why that is.
salesforce.com wants to be the number one CRM company in the world. That’s what we’ve absolutely wanted from the very beginning and just a few weeks ago, Gartner said that we are and that was a huge milestone for us, but when we look out at the CRM marketplace, we recognize that for us to continue to be number one in CRM. We’ve of course have to be number one in sales, which we are. We have to number in service, which we are. But we also need to work even harder to become number one at marketing.
And marketing is rapidly evolving, as you know Gartner says that by 2017, CMOs are going to spend more on technology than CIOs. Now we found that out personally, because as we travel the world that our Customer Company Tours, many of which you’ve attended, or network customers individually, we continue to hear and see them invest in major new ways of marketing.
I was just at one of our large customers in New York at Bank of America and you could see it firsthand. Sure, we’re doing tremendous work with Wealth Advisory. Yes, we’re doing incredible work on Twitter. We’re running BofA health. But I’ll tell you that there was other great company there, doing amazing work with them with mobile with mobile and e-mail and connecting the customer in incredible new ways and that company was ExactTarget.
And when you look at other customers and what they are doing, common customers between salesforce.com and ExactTarget, companies not only like Bank of America, but Coca-Cola and GAP and some of the others, what you see is this perfect synergy, an addition of capabilities that helps our customers to connect with their customers in incredible new ways.
There is no doubt our whole industry is changing, and the opportunity to create solutions in sales and service and marketing that are unified, that are mobile, that are social, that are in the cloud, that this combination of these two companies positions us in a way as never before.
Now over the past couple of years, salesforce has broadened its marketing area quite considerably. We’ve of course acquired a tremendous company of Radian6. We’ve also acquired a tremendous company Buddy Media. And we’ve learned more and met more CMOs and talked to more CMOs and learned more about what they’re doing then we could possibly imagine.
But we’ve never been more inspired. We’ve never been more excited. We’ve never been more motivated about what we can do for these executives, for these new lines of business and how we’re going to automate this incredible new part of CRM. And we have the perfect partners of a company that we’ve known since their founding, a company who has been along the ride with sales force, since their start. What we saw, was a perfect partnership and that’s why I’ve been so thrilled to work with Scott Dorsey and his team and creating this transaction that we’re announcing today.
And we’re happy to answer questions in a few moments. Scott is also here, and we’re just completely thrilled that we finally gotten to this point. And now, we’re ready to get these great, great companies together. Graham?
All right; thank you, Marc. Good morning everyone. Before I get into the financial details of our proposed acquisition of ExactTarget, let me give you a short, high level view of the company. ExactTarget was founded in 2000, went public in March of 2012 and it’s currently traded on the New York Stock Exchange on the particular symbol ET. Based in Indianapolis, ExactTarget has offices in the Americas, Europe, Asia and Australia; employees’ nearly 2,000 employees and supports more than 6,000 customers worldwide.
Under the terms of the definitive agreement, we’ve agreed to acquire ExactTarget for approximately $2.5 billion in an all-cash transaction. This represents a per share price of $23.75 for all of ExactTarget’s outstanding shares. We exited Q1 with approximately $3.1 billion in cash and marketable securities and we’ll finance the transactions through cash on hand, along with a term loan to provide greater financial flexibility in the near-term.
The acquisition will be structured as a Tender Offer, as John said, for all of ExactTarget’s outstanding shares followed by a merger. We expect the transaction in close somewhere around the middle of July. That will be subject to expiration of the HSR waiting period In the US, and other closing conditions.
Assuming the transaction closes as planned, we estimate ExactTarget would contribute approximately $120 million to $125 million in incremental revenue for the remainder of our fiscal 2014. The investment includes an approximately $65 million to $70 million fair value adjustment to ExactTarget build deferred revenue and unbilled backlog, as well as other adjustments related to our combined customer base in a company revenue elimination and a provision for a modest level of business disruption in the weeks after the acquisition closes.
Including ExactTarget’s expected revenue contribution, we now anticipate full year revenues in the range of $3.955 billion to $4 billion. From an earnings perspective, ExactTarget’s standalone financial plan generates operating losses for the year and we anticipate additional integration cost and transaction fees of approximately $40 million to $45 million.
As a result, we expect the acquisition to reduce full-year 2014 non-GAAP EPS by approximately $0.16, resulting in an updated FY14 non-GAAP EPS estimate range of $0.31 to $0.33. This assumes a full-year non-GAAP EPS, sorry, this assumes a full-year non-GAAP tax rate of 36% that’s up slightly from our prior guidance.
We expect about $0.05 of the $0.16 non-GAAP EPS reduction to fall into the second quarter, most of that’s related to due-diligence, banking fees and other transaction related costs along with two weeks worth approximately of operating losses for ExactTarget.
This results in an updated second quarter non-GAAP EPS estimate of $0.06 to $0.07 and then for the remaining $0.11 EPS impact a little more than half will fall in Q3 and a bit less than half will fall obviously in Q4.
We’re not able to give you an accurate forecast for the full-year GAAP EPS changes until we finish all of the purchase accounting after transaction closes, we expect to be able to provide this update when we release our second quarter results, however we should expect that the impact on GAAP EPS will of course be higher than through our non-GAAP EPS which is the additional stock amortization charges.
Turning to cash flow, in the near-term we estimate the acquisition of ExactTarget will reduce salesforce.com’s operating cash flow by approximately $75 million to $80 million in fiscal 2014. As a result, we now expect FY14 year-over-year operating cash flow growth for the combined company in the low teens versus our prior estimate of low 20% range.
As you heard from Marc, no other company is better positioned than Salesforce to capitalize on the dramatic changes affecting marketing organizations today. By acquiring ExactTarget, we believe we are significantly expanding our growth opportunity for the long-term, interactive marketing including e-mail marketing and marketing automation will exceed $15 billion by 2016.
Over the coming months, we’ll focus on driving revenue and expense synergies along with some cash flow improvements including leveraging salesforce’s existing distribution capacity, sell ExactTarget products, reducing dollar attrition by applying salesforce’s renewals management expertise, leveraging salesforce’s professional services partners to engage with ExactTarget’s customers, increasing the proportion of subscription revenue for ExactTarget over time, celebrating geographic expansion by leveraging ExactTarget’s footprint in Brazil and salesforce.com’s presence in Europe and Asia, obviously rationalizing where we can with real estate.
And improving operating cash flow by integrating our accounting processes and moving customers to annual billings over time, however, product integration between Salesforce and ExactTarget together with the systems work, we’ll need to do for sales integration and back office integration for finance and HR will also require some substantial investment, we’re hoping that the combination of revenue and expense synergies will more or less offset the cost of these investments and enable ExactTarget to continue on its path to break-even by the end of fiscal 2015.
That’s our fiscal 2015, of course. We’re very excited to start working with this impressive company and propelling the combined team of Salesforce and ExactTarget to extend our overall CRM market leadership position.
So with that, we’ll open up the call up to questions.
(Operator Instructions) Your first response is from Phil Winslow. Please go ahead.
Phil Winslow – Credit Suisse
Congratulations on the deal. Obviously, ExactTarget’s got a long history on the campaign management side, but it also recently acquired Pardot on marketing automation. Marc, just wanted to get your thoughts on how both of these two with salesforce.com, the campaign management side, but also just sort of how you’ll be marketing automation that’s place inside a salesforce.com salesforce.com? Thanks.
Well that’s just an absolutely great question and I’ll tell you. We have been looking for perfect company to complement salesforce.com’s marketing efforts and you know that we’ve been super strong in a number of really critical areas and that is we’ve been strong in listening with Radian6. We’ve been really strong at publishing with Buddy Media and we’ve been really strong in advertising with Social.com.
But we recognize that we have to get stronger in critical areas like e-mail and also to a key point in area of marketing automation at lead nurturing. That’s an area that’s very fast growing for our customers. And when we looked around, we wanted to really make one large purchase that really brought all of these things together and that’s the power of ExactTarget.
ExactTarget not only is number one in e-mail, but have the fasting growing marketing automation at lead nurturing company as well, which is Pardot. And Pardot, you can see it on the app exchange is probably the highest rate that evolves market automation companies. And we couldn’t be more thrilled thus part of the acquisition and that will become part of our salesforce family of products, branded and deeply integrated, natively into our – so we can offer that directly to our customers. And Scott, you want to add onto that.
Scott D. Dorsey
Thanks Marc. I think Marc covered it really, really well. ExactTarget, we have a long history indeed to see marketing automation and help many amazing brands all around the world, leverage our technology to drive engagement with our customers through channels like e-mail, mobile, social and the web.
Our acquisition of Pardot in October has been outstanding. Pardot as Marc indicated, really loved by their clients, highly rated on the app exchange and just dynamite tools for managing the whole lead management, lead nurturing process. Tight integration in the salesforce has been a key part of their differentiation and obviously together, we can take this to an entirely new level for our clients and we couldn’t more excited.
Your next response is from the line of [Kash Chandra] of Morgan Stanley.
Kash, please proceed with your question.
Kash, let’s move on.
(Operator Instructions) We have a response from the line of Rick Sherlund of Nomura.
Rick Sherlund – Nomura Securities
Hi, yeah Rick Sherlund here. Couple of questions, first, Scott are you staying on? Second was this a competitive bidding process, I’m curious? And third I’m curious of customer overlap here and whether the bigger opportunity is to sell Exact to salesforce’s customers or salesforce to Exact customers, how we should think about the complement there?
Scott D. Dorsey
Thank you for your question, I’m very excited to continue to lead ExactTarget into the future and to partner with Marc and a great leadership team at salesforce.com to really create the marketing platform of choice for CMOs. So incredibly excited. We have an amazing amount of client overlap. In fact, we have worked with many of the amazing brands in the world, Marc referenced Bank of America.
We start looking at the rest of our clients Burberry and many others, we have kind of tremendous synergy but there is also brand new opportunity to cross-sell our solutions into the base of salesforce.com clients.
So I really see great opportunity across both synergy of helping our joint clients take their technology in their marketing to a new level, but then also there is just tremendous opportunity to cross-sell our solutions into the great portfolio of salesforce.com clients.
And I’m just going to pile on that Rick you know we couldn’t have a better leader in Scott. We are going to make sure that he is completely happy as the leader of ExactTarget working in directly for me and partnering into the future to create an even greater salesforce.com and I think that what I can tell you about this process is this is incredible asset, it’s a unique asset and this was a very competitive process and we’re thrilled to be the victors here.
Thank you. Your next response is from Heather Bellini of Goldman Sachs.
Heather Bellini – Goldman Sachs
Great, good morning and congratulations on the acquisition, I just had two quick questions, I guess Marc I was wondering if you could give us a sense for how you see ExactTarget changing the ramps that you are expecting previously for salesforce’s marketing cloud business plan, how much does this accelerate, your go to market and your ability to kind of build this towards the next billion dollar cloud and also I had a question if we look out this is your biggest deal to date, I’m just wondering given this has been pretty anticipated, should we expect kind of the – this to be the last your M&A pace I guess to slow from here, so you have time to digest. That’s it. Thank you.
Yeah. Let me take that the end of that first. You’re absolutely right, Heather I mean this is our largest and most important acquisition ever and this is going to dramatically slow our M&A pace going forward. I really think what you’re going to see is probably us taking a vacation from M&A for anywhere between probably 12 and 18 months and that’s really because we’re going to double down and focus on the success of ExactTarget.
We see a tremendous opportunity here with our customers in the marketing, in B2C CRM, in e-mail marketing, in lead automation and marketing automation and lead nurturing as well as in the fundamental marketing to next generation connected products and connected devices, all of these things are made possible through ExactTarget as well as Pardot and we are going to really double down and focus here for a while, I can’t imagine us really having any opportunity to do anything else for some time and I’ll tell you why because it’s what you said, now we have a clear trajectory for a billion dollar marketing product lines.
We’ve discussed with you before and our financial analyst on our calls and in other forums, our marketing efforts are very healthy and expect it to be in the early nine digits this year but that was really the beginning. Here, we have what I would say is not an early stage company, but a very much so ongoing concern that we can add on into our existing marketing our products and together get to that $1 billion faster than the faster than we ever could expected.
We absolutely have a huge goal. Of course, we have a multibillion-dollar sales product line. We’ve got our service cloud coming into a $1 billion product line. We have a clear trajectory in the third product line heading into $1 billion very rapidly, which is our platform and now we have a fourth.
And this is a clear product strategy for salesforce to take it into the future. It’s a clear message to our customers. It’s highly synergistic, its common customers, common platforms. Many of these customers are already using ExactTarget. Some of them are using solutions from other companies and we would expect those companies to honestly, consider the solutions from ExactTarget now, even more competitive than before.
Putting it all together, you can expect it to go to much higher level. If you seen the incredible capabilities of ExactTarget’s integrated marketing hub, this is a vision for the future of BSE CRM. This is the future of providing marketing directly to a connected device world and connected products world of the Internet of everything that we have been talking about on our Customer Company Tour.
The opportunity to build the communicate and market and share to customers, whether they are in cars, whether they have wearable or whether they have another type of connected product, well, now all that’s possible through the combination of salesforce and ExactTarget.
So we’ve got an incredible new level and a new opening for salesforce.com to be not only that number one in sales service, but to be the number one in marketing and to be the number one in B2B CRM as well as the number one in B2C CRM. This is our long-term vision. This is our long-term direction. This is our future strategy and that’s why these companies are so complementary and having a great partner and visionary like a Scott Dorsey and his team and his other leaders that we work closely with in this acquisition process. This is what so exciting for all of us here. And I’ll tell you this was a very competitive process, because this is a very unique asset in our industry and we are thrilled to be the – once who came out on top here.
(Operator Instructions) Your next response is from John DiFucci of JPMorgan.
John DiFucci – JPMorgan
Thank you, congratulations. I guess a question for Graham, first. This acquisition could be big part of your cash and I think you said you’re going to get a term loan here. But how should we think of that going forward? Is this going to be about $2.5 billion out of that you have about $3.1 billion in cash and marketable securities?
Well, I think we certainly have said we’re going to put in place the term loan, just to give us a little bit of flexibility of around the closing date. And I think this year, we’ll see some drag effect on our cash flows I mentioned in the guidance. I think will anticipate operating cash were down growing somewhere in the low teens percentage.
I think we’re going to work with Scott’s team to try and apply some of the practices we’ve learned over the last couple of years, we’ve done a lot of work in our own customer base just sort of move them over time to annual billing cycles we will see obviously that’s a big opportunity here with ExactTarget. Most of the customers I think roughly half, while two-thirds are build monthly. So, I think there is an opportunity there first, certainly next year start some of the operating cash flow from ExactTarget. Obviously, we’ll give you an update on that as we progress through the next couple of quarters.
John DiFucci – JPMorgan
Okay. Thanks and then if I could just a follow-up. I guess Marc with ExactTarget you get the established leader in cross channel interact marketing and kind of going back to Phil’s question a little bit, and I get maybe this question for Scott. You also get a promising net marketing automation vendor but that just started for Scott, with the Pardot acquisition. I guess the question is for Scott. Are you still on track to apply Pardot to the enterprise level, enterprise customers by the second half somewhere later this year, I know you’ve been working towards that?
Scott D. Dorsey
Hi, John. Hey, thanks for the question. We absolutely our Pardot is really leading platform for small medium sized organizations with super strong technology around lead management and lead nurturing, as you know John from covering ExactTarget, we’ve been working with Pardot team to really bring your technology up into the Enterprise segment with more advanced roles and permissions and enterprise architecture and that’s very much on track by joining closely with salesforce.com, we’ll be able to even accelerate that move into the enterprise and certainly accelerate the integration into the salesforce.com platform. So, we are incredibly excited about the opportunity ahead of us and certainly Pardot and B2B marketing automation plays a very big role.
And I’ll just add on to that, we’re super excited about the Pardot capabilities. A fantastic acquisition done by Scott and his team, but I’ll tell you that we absolutely anticipate after a full review by our technical team that we’re in six months, we’ll have superior functionality, capability and made an integration to Salesforce than any other marketing automation vendor and that we’re going to have a world-class highly competitive solution for our customers and we have a great new choice in marketing automation and lead nurturing.
Thank you. (Operator Instructions) Your next response is from Kirk Materne of Evercore Partners.
S. Kirk Materne – Evercore Partners
Yeah. Thanks very much. I will echo my congratulations. Marc it seems in the marketing space, people had been buying more point solutions solving business prompts to start this acquisition, it seems you all might have an opportunity to really push it more towards a sweet purchase. I am just curious giving a lot of your discussions around the customer company tour. Is that where you see this enabling you to go meaning, do CMOs want to talk to one vendor, is that starting that to move in that direction, it sounds to us that they still want to sell business prompts first but with ExactTarget, key starts and move this whole, I guess area of the market more towards a sweet purchase around marketing?
Well it’s a great question and let me give you my insights on that, which is that, when we’re dealing with the customer, it could be a large customer or mid or small customer, let’s take a large enterprise, you’re dealing with a sales buyer, you know he is looking for Salesforce automation solution, that’s a unique buoyant process, you’ve got a service buyer, they’re looking for a call center, contact center, customer service, customer engagement solution that’s unique buyer and now you’re looking for a marketing automation vendor and marketing service provider, that’s also unique buyer.
Now, I’ll tell you that there is new buyers that are also emerging in products. So product managers and ISVs are building next-generation products, the ability to manage apps, the ability to manage kind of you name that connected consumer electronics products, connected industrial products that’s another buyer, of course since the CIO.
In all cases, salesforce has really worked hard through our customer company towards and before that through our social enterprise towards to become a trusted advisor to these three really core areas of sales, service and marketing that. To be there to advice and suggest and control kind of art direction and of course we’ve have world class solutions in sales and service.
But we found through this process is that there is this tremendous next-generation opportunity at marketing and that is what motivated us initially to acquire Radian6, acquire Buddy Media to do more in building out of marketing suite. But what we realize is we didn’t have all pieces that we wanted, there were some big pieces that were missing. And if we’re going to make acquisition, we can’t just keep making the small acquisitions that strategy was just taking honestly too long.
We needed to do something of consequence and we need to do something strategic and we need to do something now. This opportunity is happening as we speak. You don’t have the (inaudible) than the conference last week with all things digital to see the huge shift in connected products or the Consumer Electronics Show. All of these things is a tremendous opportunity for marketers to be connected with their customers in incredible new ways.
When you’re connected to customer in probably new ways, it means that you better be prepared to communicate with them in a new way and that means not just having the great customer platform like sales force, but really the automation capabilities of Exact to marketing hub.
And what you’ll see with the ExactTarget integrated marketing hub is the ability to really have that dynamic amount of control of that customer, whether you’re talking to them their app, whether you’re talking to them in their product, whether you’re talking to them in e-mail, whether you’re talking to them in mobile through SMS or through some other type of push mechanism or whether you are talking to them through social channels and engagement channels.
All of these things integrated as a unique, a common service while that serves in two and build to deliver at scale and reliably and securely this is what’s making this connection so exciting. No one will doubt that salesforce is number one in sales and service, but now there are no one will doubt that salesforce is now number one in enterprise marketing.
Thank you. (Operator Instructions) Your next response is from Brendan Barnicle of Pacific Crest Securities. Please go ahead.
Brendan Barnicle – Pacific Crest Securities
Thanks so much. Marc and Scott congratulations. I had just two quick ones. Marc, you’ve mentioned some of the other vendors you’d worked with an app exchange in the past, will all those vendors still remain and will they still be listed on app exchange and how are those relationship change given your relationship now with ExactTarget? And second as you know, ExactTarget has done some very interesting stuff in data management, big data, I’m wondering how you might be able to leverage some of that technology going forward as well?
Well, it’s two great questions. One is and the app exchange is a dynamic marketplace that’s people are constantly coming and going like any marketplace and we’re constantly evaluating the correct and appropriate way to build position to our customers to the ecosystem and we understand that and you can see how it changes and evolved over time as any other ecosystem and based on how we are working with our partners, whether we’re competing with them, whether we’re partnering with them, whether they are complementary to us whether they are complement our strategy, that ecosystem has changed and has changed since it was introduced.
And on second side of the Big Data side of course, ExactTarget is operating with many of its customers in terms of transaction scale at a higher level than even salesforce.com. I’ve talked on our last earnings call about how Salesforce is one of the only vendors that provides transaction data and that our transaction data is extremely impressive with more than a billion complex transactions a day.
Of course these are database transactions that create, reads, updates, deletes from the database with active users. Target also has a very high transaction volume. ExactTarget has customers with tens of millions in some cases hundreds of millions of customers or consumers in their database. They are doing tens of billions of transactions, sometimes for specific customers. It’s a phenomenal environment; it’s a highly proven enterprise class application. They have not only their balance of e-mail marketing customers, but there we have now more than 200 customers live on their integrated marketing hub which is really their next generation platform that’s well beyond proof of concept stage at this point and really looks like a tremendous traction for them in the future.
So, in terms of proof of scale they’ve got it and that’s super important for these very large customers that they have like Coke, Gap and Nike and I know that because those executives at high level and we have great relationships with those companies where obviously we sell and have relationships at the C level and in many of those companies and this is just an opportunity to take their solution to an even higher place than it was before. Scott would you like to add to that?
Scott D. Dorsey
Be happy to – hey Brendan we’re incredibly excited about really pioneering theorem from B2C organizations, our data capabilities are very unique, very robust as Marc mentioned we’re managing tens of millions or even hundreds of million of consumer records at scale in real time, driving a realtime engagement through our audience builder platform.
So, we’re incredibly excited to collaborate with the Salesforce team and really taking those data capabilities to the next level and the future is very, very bright.
(Operator Instructions) Your next response is from Jason Maynard of Wells Fargo. Please go ahead.
Jason Maynard –Wells Fargo Securities
Hey good morning guys. I had one fairly simple question around product integration and how you plan on going to market. And I was curious, Marc, if you could talk a little bit about how ExactTarget gets melded into the marketing cloud and how the organization comes together under whose leadership whether it’s going to be existing Salesforce people, ExactTarget will this all become if you will one single group that will build and go executing into this opportunity. Thanks.
Yeah. That’s a great question Jason. I really appreciate and obviously the one executive that will be running the marketing cloud in salesforce will be myself. But the one person who is running is Scott Dorsey, who will be working directly for me.
And as I said, I felt right from the beginning that one of the most important parts of this deal is not just retaining Scott, but making him one of my five or six director force that I have with salesforce.com to have in part of my Exec Com every Monday, to work with have him hand-in-hand and building or marketing capabilities into that point to really a next question, and having him with me and my other core executives fully rationalized our organizational structure, because we do have other marketing assets and distribution capabilities and marketing, and that will require us to do that.
Now that is honestly tremendous opportunities for synergy between the companies that we recognized. I see some great synergy opportunities as does Graham and we planned to execute those and make that in even stronger sales force. And ExactTarget brings in assets that we cannot ignore. And bringing those capabilities in with our existing marketing cloud and specifically with Scott’s leadership, we’re going to get to an incredible new place.
I’d love to add Marc, since our founding, we really modeled our business after salesforce.com from our focus on growth, client success, creating a great place to work, we’ll focus on philanthropy alignment is just tremendous. Inversely, we’ve been running our business on saleaforce.com also since our founding. So an opportunity to collaborate with Marc and a leadership team with salesforce.com is awesome.
And Marc’s personal commitment to the marketing cloud gets a very, very excited. The synergy is extraordinary and be able to kind of redefine the future of marketing automation and do together with such an excellent company and excellent leadership team is just a tremendous opportunity for us.
Thank you. Your next response is from the line of Tom Roderick of Stifel.
Tom Roderick – Stifel, Nicolaus & Co., Inc.
Hi, gentlemen good morning and congratulations to all other deal. Graham, I think I heard you say that the expected dilution to cash flow from operators this year was about $75 million to $80 million. So a) maybe you can confirm that I heard that right, b) to the extent that is right that sort of orders of magnitude higher than what we were modeling for ExactTarget on a standalone basis? Can you give us some initial parts as you where the incremental investment dollars will be put? Thank you.
Yes, Tom, really a couple of areas. First is obviously bunch of transaction related costs that unfortunately, most of them had operating cash flows, so fees, legal fees, banking fees, professional fees, et cetera. And then the second big component is we’ll want to get off to a fast start, in terms of some of the integration efforts I talked about.
And they’re particularly on the backside ExactTarget is significant public company in its own right. They’ve got a lot of work to do. Obviously to bring our financial systems together, we just want to get head of that, get off to the past as I said. So that’s our best guess. Obviously, it’s early days, we’ve moved very, very quickly through this process and so in a world will be getting into more detail over the next few weeks as we planned integration.
Yeah, to the point I’ll just say, one of these really exciting areas for salesforce and ExactTarget is salesforce has a robust distribution organization, not only in the United States, but in many critical countries. As you know, as in Japan last week that’s an area were ExactTarget does not have operations. We will plan to have a fully Japanized product and double byte support as fast as we can hopefully by the end of the calendar year, offer that through our distribution organization throughout Japan.
ExactTarget doesn’t have operations of any consequence in France or Germany and we plan to go to bring their product and into that market very aggressively, they already have French and German support. Salesforce has really strong operations in Australia where ExactTarget is very strong and also Salesforce has very strong operations in the U.K., where ExactTarget is also very strong and interestingly, ExactTarget has a company in Brazil where we do not currently do business.
So, Salesforce will be evaluated, what that means to us going forward and so we have an exciting new Brazil company on our hands and that’s been a market that we’ve been extremely excited in to add in to our top-10 countries that we do business with. So again some really great synergy areas for the two companies together will leverage our organizational structures.
Thank you. Next response is from Kash Rangan of Merrill Lynch.
Kash Rangan – Bank of America Merrill Lynch
Hi, I’ll keep this brief since, I’ve got a noisy background. Question for you Graham, how should we think about impact to cash flow growth and billings growth after you’re done for stimulating ExactTarget. Marc, I will save my questions for you at the keynote. Thank you.
So, Kash, I think clearly, it’s early days, we’ve, you see us execute around policy of moving customers more and more to annual billings over time and that’s been very successful for us.
ExactTarget today is running more or less cash, operating cash flow neutral and we’ve just as I said on the call look to bring our experience and have practices into sort of ExactTarget’s business and clearly over time, we’re going to be selling and billing all of those and so I think you’ll see over time some significant leverage on the operating cash flow front as we execute on that. I think the precise timing of that that will be difficult to predict certainly right now, I think we’ve been delighted with the progress we had made on our own billing practices, I think we generally gone a little faster than we thought we would.
So hopefully, we’ll see the same with ExactTarget, but obviously we haven’t started to implement this yet. So we’ll give you a sense so I certainly would hope and I think while we’ll see an operating cash flow hit this year allows me to do with the cost per transactions I said in the integration efforts. Next year, I think you’ll see hopefully some lifts, certainly versus the models throughout there for ExactTarget standalone operating cash flow today, I think will be to make progress against that certainly in our fiscal 2015.
And I just to like to add over that in this 14-year operating history has really, I’d say was discovered, tuned, optimize some great business of practices in cloud computing of course you see our kind of best of practice, capabilities whether it’s invoicing, billing, cash flow, we’ve even started to make changes to that a year ago. So we made us a stronger company, a stronger income statement, a stronger balance sheet.
We’ve really tuned and we’re finding and got into new place at our own operations and those best practices when we look at ExactTarget, well that remind us of where we were and the opportunity to now apply that and take them to where we are now. So we want to have a consisted set of policies for all salesforce customers and we think that will have a tremendous impact on the quality of everything for our ExactTarget’s cash flow to contract quality to relationships with the customers are best business with in cash flow and in attrition, in billing across the Board.
I’ll address that with you cash in more detail at 2015. I’ll be on the stage with cash during the Q&A at the San Francisco Ritz-Carlton and hope to see all of you there and continue the communications on this transaction. And I’ll also be on Mad Money tonight with Jim Cramer and continue the communications about the transaction as well. Tonight, we want to give you as much information as we can, we want to help you understand why we’re so excited? Why we are so motivated? Why we’re so expired around the two companies coming together. And Scott you want to add to that.
Scott D. Dorsey
I’d just add, just share Marc’s excitement and vision for the future. There is so much synergy between our organizations. Our technology is extraordinarily complementary. This is going to be wonderful for our clients, this is going to be wonderful for the future of marketing and we just couldn’t more excited to be joining forces in creating and building this marketing platform a choice for CMOs. So really appreciate the opportunity.
All right that looks like, it’s about all the time we have today for questions. Thank you very much for joining us today. If you any follow-up questions, you can reach out to us at Investor Relations at salesforce and you can e-mail us at investor@ salesforce.com. And we look for updating you on our progress when we issue our second quarter release in the coming months. Thank you very much.
Thank you, this concludes today’s conference call. You may now disconnect.