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Executives

John Cummings - Senior Director of Investor Relations

Marc Benioff - Chairman, Chief Executive Officer

Graham Smith - Chief Financial Officer, Executive Vice President

Analysts

Kash Rangan - Merrill Lynch

Keith Weiss - Morgan Stanley

Mark Murphy - Piper Jaffray

Raimo Lenschow - Barclays

Heather Bellini - Goldman Sachs

Ross MacMillan - Jefferies

Brent Thill - UBS

Brad Zelnick - Macquarie

Brendan Barnicle - Pacific Crest Securities

Phil Winslow - Credit Suisse

Samad Samana - FBR

salesforce.com, inc. (CRM) F4Q2014 Results Earnings Conference Call February 27, 2014 5:00 PM ET

Operator

Good afternoon. My name is Christie, and I will be your conference operator today. At this time, I would like to welcome everyone to the CRM Q4 FY14 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

Mr. John Cummings, Senior Director of Investor Relations, you may begin your conference.

John Cummings

Thanks so much, Christie. Good afternoon and thanks for joining us today to discuss our fiscal fourth quarter and full-year 2014 results. Our fourth quarter results press release, SEC filings and a webcast replay of today's call can be found on our Investor Relations website at www.salesforce.com/investor. We will also be post the highlights of today's call on Twitter at the handle @Salesforce_IR.

With me today, are Marc Benioff, Chief Executive Officer and Graham Smith, Chief Financial Officer. Marc and Graham will open with a few remarks. Then we will open the call for questions. 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 issued earlier today.

During the call, we may offer additional metrics to provide further insight into our business or results. This detail may or may not be provided in the future. We may also reference certain unreleased services or features not yet available. We cannot guarantee the future timing or availability of these services or features and so recommend that customers make purchase decisions based on services and features currently available.

The purpose of today's call is to provide you with information regarding our fiscal fourth quarter 2014 results. Some of our comments may contain forward-looking statements, which are subject to risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements.

A description of risks, uncertainties, and assumptions and other risk factors that could affect our financial results are included in our SEC filings, included in our most recent report on Form 10-Q, particularly under the heading, Risk Factors.

With all that, I will turn it over to Marc.

Marc Benioff

All right, fantastic. Well, thank you so much. Really appreciate it and first of all, before we get started, John I just wanted to tell everyone that I am thrilled to announce that just this morning salesforce was named by Fortune magazine as the world's number one most admired software company. It's the second year in a row that we have received this tremendous recognition from Fortune magazine. I just want to thank them so much and we are delighted to have that honor. And I would also like to congratulate our team here at salesforce for just an outstanding performance for our fourth quarter and fiscal year. I just want to thank all of our employees, our customers, our partners, everyone, as I am sure everyone can see by our numbers we had a spectacular finish to yet what is absolutely another year of just exceptional growth.

Now, if you haven't had a chance to look at the numbers, you will see that revenue for the fourth quarter rose 37% from year ago to $1.15 billion, and our full fiscal year 2014 revenue grew 33% to more than $4 billion and we are about to push through this $5 billion milestone run rate and any minute you can see that.

No other software company of our size and scale is growing at this speed. Deferred revenue grew by 35% year-over-year to more than $2.5 billion and the dollar value of book business on and off the balance sheet is now $7 billion and I am sure everyone has seen that we have raised our guidance by $100 million, which is really unusual and just really speaks to the acceleration that we have had in our business to $5.3 billion. We are going to get into that detail in a moment.

Now, during the quarter, we significantly grew the number of seven and eight figure transactions compared to the fourth quarter of last year, we had more than 200 transactions in the quarter that were seven figures or more, including more than 10, 8 figure transactions and that is just really exceptional for a software company in the CRM space and CRM to do see more than 200 transactions that were seven figures or greater is just incredible and I know that none of our peers are seeing these large transaction volume like this.

In addition, I am also delighted to announce that we are raising our fiscal year 2015 revenue guidance by $100 million to $5.3 billion, which is the full year growth rate of 30% at the high-end of our range. We couldn't be more happy about that and we are committed to improving non-GAAP profitability by 125 to 150 basis points, which is a huge goal of mine for this year and increasing cash flow growth this year, while also continuing to deliver on this outstanding pace of top line growth.

Just a great job by the company, I just want to congratulate everybody. For 15 years, salesforce has been the catalyst and evangelist for innovation enterprise software and now we can really see the next-generation has occurred. Customers are really connecting with their customers in entirely new ways. We are benefiting from that.

We are absolutely entering this third wave of computing where everything is connected and customer relationship management really is the heart of all this, because behind every [tweet] [ph], behind every app, behind everything is a customer and this is our message as we get out on tour that everything that is happening is about the customer and this vision has opened the door for thousands of companies and empowered them to connect with their customers in a deeper way through this next-generation devices, and apps and products, and if you are at Dreamforce, more than 140,000 people registered to attend and experience the power of Dreamforce this year they saw Salesforce1.

Salesforce1, everyone has used it, for the 250 ISVs that are building on top of it, for all the custom codes that already been deployed on it by our customers, is just a radically new customer platform for the Internet of customers that is social, that is mobile, it is cloud, it connects everything and I use it every day myself and I will tell you the story, we are closing out our fiscal year, it was the end of January and I was invited by a friend of mine Walter Rob who was at Dreamforce [inaudible] to come down and be at a dinner in Arizona and you know everyone of course is enjoying their dinner and under the table I have my iPhone and I am able to see all my analytics and everything exactly how the quarter is closing; I don't think there is probably too many CEOs who have that power today, but it is something that everybody needs, because everybody wants to run their business on their phone and because Salesforce1 was built API first, because it can connect with anything and everything that runs on all these mobile devices completely transforms how you run your business, and I am thrilled to announce that we have more than 250 major ISVs who’ve signed up to build Salesforce1 apps on our AppExchange and more than 30 Salesforce1 apps like Evernote and Dropbox, LinkedIn and HP are live on the AppExchange today that is really exciting.

Our focus on the customer success, the adoption of our technology, making this technology market transitions, the movement to things like mobile, the movement to cloud, the movement to the social, the movement to the world - connected world that really have defined salesforce over last 15 years and is why you see today, the service cloud is the world's number one platform for customer service and support, and in this new Forrester Wave, which I look at these Forrester Wave as my guide to where the industry is going. Forrester is a phenomenal research organization. They really just changed the game when it comes to research in the technology industry. And I was with their CEO at The World Economic Forum. He keynoted and lad the kickoff panel for The World Economic Forum this year. We have really seen this incredible shift.

In addition to our Service Cloud with Desk.com, we are bringing the small customer service concept to small business as well. That has been just an incredible addition to our momentum. The ExactTarget Marketing Cloud is the world's most powerful customer platform for one-to-one marketing, probably one of the really great accomplishments of the year, not just Salesforce1, but also the ExactTarget Marketing Cloud really defining that salesforce as the absolute leader in marketing today.

And I mentioned Forrester, according to them, spending on digital marketing is going to double in five years to represent 30% of total marketing spend by 2017 and I think you have heard me say that I really think that it's imminent that CMO's are going to be spending more on technology than CIOs. Our flagship Sales Cloud is the world's number one platform for sales. Undisputed leader in CRM according to IDC another phenomenal research organization. In addition, we are consistently ranked as well in that area by Forrester as well.

So really cool growth in sales, in service, in marketing which are huge growth areas for our industry and in our platform, the number one platform for developing next generation apps. Of course, we have got this incredible trifecta with force.com, Heroku and Fuel which is the ExactTarget platform, the ability to build these next-generation apps is why more than 1.5 million app developers are now in our platforms, up 50% from last year. Thousand ISVs developing on our platform, so much activity on the AppExchange, so many new mobile apps happening on Salesforce1, so many new marketing apps happening on Fuel, phenomenal productivity of developers with Heroku, especially these Ruby developers that love Heroku.

And now with our next generation of service, marketing, sales and platform technologies these companies have all the tools they need to connect with their customers in these new ways. For example, Humana, who is one of the largest healthcare providers in the U.S. selected our Service Cloud in the quarter. They will get a service button, right inside their apps. We saw that also at Dreamforce. We saw Philips embed a service button right on their ultrasound machine. That's obviously a huge trend and everybody needs a Service Cloud and everybody needs a help button on their product. A physical button or a virtual button.

In the quarter, we also strengthened our partnership with General Electric and their oil and gas group. They’ve selected Service Cloud, ExactTarget Marketing Cloud and the platform to connect drilling and exploration equipment. Great, obviously. I am huge fan of General Electric and their CEO spoke at Dreamforce in the previous year. Maersk, one of the world's largest shipping and transportation companies selected our Service Cloud and Salesforce1 to bring all their customer product and supply chain together.

So the pace at which these companies are embracing our next generation customer platform is phenomenal. Our progress with Salesforce1 is phenomenal. Our progress with the Marketing Cloud is phenomenal. Of course, we also brought in an incredible new distribution leader this year with Keith Block who has completely transformed how we are going to market.

Taking those three things into consideration, I am absolutely thrilled to tell you that our service delivered more than 100 billion transactions in the quarter, up 49% from the year ago, an average of more than 1.7 billion transactions every single business day. Nothing speaks more to the value of salesforce than the actual usage of our products, their adoption, the speed, the reliability, the trust that our customers have come to expect and that customer success is also why I am also very pleased to announce that our attrition is down to the lowest level we have seen in the history of our company, so very exciting progress by our organization in that area.

Look, it has been a spectacular year for salesforce, for our customers, our partners, our employees. We are looking forward to being the first enterprise cloud computing to achieve more than $5 billion in revenue this year. Before I close, I do want to let you know we are out on tour again. We have our Salesforce1 world tour. You may have come to see me, already kick that off in New York, you can come to Philadelphia on March 6, Pennsylvania Convention Center, you could come to Melbourne on March 26, Boston on April 2nd Chicago on April 24th, London on May 22nd, Amsterdam on the 27th Washington DC on May 29th, Atlanta on June 12, Toronto on June 25th, Paris on June 26th, I am going to be really busy this year, but we have got a huge message to get out there that the world is going social, it is going mobile going clouds and it's getting connected. It's an Internet of customers and behind every app, behind every device, behind everything, behind the Internet of everything is the customer and you can connect with that customer in a whole new way.

You can have the same great success with your business that we are having with our business and that we wish that for all of our customers this has been a better year and I am absolutely thrilled to do that and I want to say Graham, your contribution with company success over past six years can't be overstated. It has been amazing and we are announcing your retirement on the call. You are going to be leaving the company a little bit more than a year from now in March of 2015 is something that you and I have talked about for some time, something that you wanted to do and I respect very much, because you just delivered phenomenal success for us and you are leaving our company in an incredibly great financial position and we are thrilled to have one more exciting year for you coming up.

We will be sorry to see go, of course, and we have a world-class set of the financial professionals who worked closely with Graham, but Graham you are a phenomenal CFO, so thank you.

Graham Smith

Okay. Thank you, Marc. Yes. We are all going to have 2015, so that is hopefully going to be just a fantastic year to finish my spell here at salesforce on. Before I get into that, let me just spend a little bit of time on the financial details.

As Marc described, we had just a great year at salesforce. We closed the largest acquisition in our history. We launched our Salesforce1 platform and we added a number of industry-leading executives and our financial results this year were just outstanding with strong growth in revenue, deferred revenue and operating cash flow.

We saw strength across both, our enterprise and commercial businesses and ExactTarget posted just a terrific finish to the year. In addition, we achieved a new milestone for customer success with the attrition dropping to record lows. I will give you little more detail on that in a second.

Let me take you through the highlights for the quarter and the year, starting with revenue and EPS, so fourth quarter revenue was $1.145 billion, that's up from 37% over Q4 last year. If you excluding the FX headwind of approximately $3 million, Q4 revenue is actually up 38%.

ExactTarget contributed approximately $96 million to revenue in the fourth quarter, which was higher than we expected. Non-GAAP EPS for the fourth quarter was $0.07. That was a $0.01 ahead of our expectations. Full year revenue was $4.071 billion. That is up 33% over fiscal '13, excluding an FX headwind of approximately $24 million, full year revenue was up 34% year-over-year.

ExactTarget contributed approximately $194 million for the full year. Full year non-EPS was $0.35. Looking to Q4, year-over-year growth on a regional basis, Americas revenue grew 41% to $821 million. Revenue in Europe grew, also, 41% dollars 35% in constant currency to $210 million and revenue in Asia increased 12% in dollars and 24% in constant currency to $115 million.

As mentioned dollar attrition in the fourth quarter, now that is excluding ExactTarget, it's all attritional, all of this is excluding ExactTarget get below 10%, so it's a high single-digit number of the post office in numerical low in our history company, so just a phasing result process finish the year.

Turning to margins, fourth quarter fourth quarter non-GAAP gross margin was 80% while our Q4 non-GAAP operating margin 6.9%. For the full year non-GAAP gross margin was also 80% and our non-GAAP operating margin was 89%. The reduction in our fully margins reflect the acquisition of ExactTarget, as well as the Oracle license agreements this time during the year. Our Q4 operating margin was further impacted by the occurrence of Dreamforce in November, whereas last year, Dreamforce was included in our Q3 results.

Turning to hiring. We added more than 500 people in the fourth quarter and more than 3,500 new employees in the full fiscal year bringing our total headcount to just over 13,300. That is up 36% over last year.

Turning to the balance sheet. We ended the year with approximately $1.3 billion in cash and marketable securities. That is down from approximately $1.8 billion last year. Accounts receivable was up 56% over last year to approximately $1.4 billion. Deferred revenue ended the year at $2.5 billion, up 35% over last year, including approximately $99 million related to ExactTarget. Excluding approximately $8 million of year-over-year FX headwind, deferred revenue increased 36%. On a sequential quarter basis, deferred revenue also had an FX headwind of approximately $8 million. Deferred revenue continued to benefit from the residual effects of multiyear invoices and from the continued shift toward annual billing. The combined benefit to deferred revenue in Q4 was approximately $75 million, up from $67 million sequentially, but down from $125 million in Q4 last year.

As we had mentioned in Q3, given the declining impact from the shift to annual invoicing we initiated actually over two years ago now, this will be the last time, we provide the specific dollar impact on deferred revenue. However, we do plan to continue to provide the proportion of annual invoices issued in the quarter, excluding ExactTarget or approximately 83% of the value of all subscription of support related invoices that were issued with annual terms in Q4. That is compared with approximately 80% in Q4 last year. For ExactTarget, we are really pleased to see improvements in their mix of annual billing in Q4, which increased approximately 10 points over Q4 last year. So great progress there. Unbilled deferred revenue or revenue that is contracted but not yet invoiced and is off the balance sheet was approximately $4.5 billion in Q4. That's an increase of approximately 29% over the last year.

Turning to cash flow. Q4 operating cash flow was $271 million, down 4% over Q4 last year but actually above our expectations. For the full fiscal year, operating cash flow was $875 million, up 19% over fiscal '13. So very strong result, when you consider that ExactTarget reduced our full year operating cash flow by more than $50 million during the year.

CapEx was $70 million in the fourth quarter, up 38% year-over-year and $299 million for the full year. That's up 70% over last year. The year-over-year increase in CapEx was principally related to new office build outs and to a lesser extent ExactTarget. CapEx as a percentage of revenue in the fourth quarter was 6% unchanged from Q4 of last year.

Free cash flow, which we define as operating cash flow less CapEx, was $201 million in the fourth quarter, down 13% from last year. For the full year, free cash flow was $576 million, up 3% over fiscal '13.

Turning to guidance. With our strong finish to fiscal 2014, we are expected to be raising our full year 2015 revenue outlook by $100 million to $5.25 billion to $5.3 billion. And that gives a year-over-year revenue growth range of 29% to 30%. As you have heard from Marc and me, we are committed to improving non-GAAP margins. We expect full year non-GAAP EPS in the range of the $0.48 to $0.50 which implies an increase in our non-GAAP operating margin of 125 to 150 basis points. That assumes no significant M&A activity during the year. Our FY15 non-GAAP EPS also assumes that other income expense will continue to be a net expense and we are also assuming a non-GAAP tax rate of 36.5%.

We have made some changes to our non-GAAP tax forecasting. So let me just spend a minute to provide some color on that. In an effort to provide more consistency for guidance and reporting purposes, we will be, or I should begin using a fixed long-term non-GAAP predicted tax rate. In this case, 36.5%. This non-GAAP tax rate eliminates the effects of nonrecurring and few specific items which can vary has varied in size and frequency. We will provide updates to this fixed rate annually or if a situation arises, of course, a significant change to our assumptions around the projected rate and continued by reconciliation of our GAAP to non-GAAP tax rate in the detailed financials on the income tax effects and adjustments. For fiscal 2015, we expect operating cash flow to grow in mid-20s percent range and expect CapEx to be approximately 5% to 7%, in line with historical averages.

Turning to Q1, we anticipate revenue in the range of $1.205 billion, to $1.21 billion, representing year-over-year growth 35% to 36%, expect non-EPS in the range of $0.09 to $0.10 and we expect Q1 deferred revenue growth in the low 30% range.

During the first quarter, we are committed to retain in cash an aggregate principal balance of more than $280 million - conversions of our $575 million, 75 basis points senior notes, which we issued in January, just four-and-a-half year ago, due January 2015. We will likely see continued conversions during fiscal 2015, which will have an impact on our cash flow, as well as our financing cash flows and cash balance - financing cash flows throughout the year.

As a reminder, all of the underlying assumptions for our GAAP to non-GAAP guidance and a complete GAAP to non-GAAP reconciliation can be found in our earnings press release issued today.

Just before moving onto Q&A, I want to briefly address my future retirement that Marc talked about and we announced today. I could not be more convinced of salesforce.com's long-term success this year. We will celebrate our 15 anniversary and also our 10th year as a public company and am sure the next decade we will see salesforce.com growth to be one all the very largest software companies in the world and I really enjoy being part of the salesforce team for the past six years and I want to thank everybody who I had worked pretty close within salesforce panel advisors for helping me and the company be so successful. I look forward toward helping executive team with the CFO search process and obviously ensuring at very smooth transition takes 13 months.

With that, we will open the call up for questions.

Marc Benioff

Okay. Before we do that, I just want to come back and just say, Graham, thank you so much contribution of our success for the last six years. I really cannot overstate what you have done to the company and when you are with this retirement, you are going to leave an unbelievable legacy and I could not be more grateful, so thank you very much.

Graham will be speaking next week at the Raymond James conference in Florida, so come and see Graham there and I will also be speaking at the Morgan Stanley conference here in San Francisco on Tuesday at 12:00 pm to 12:40 and I will be also joined by our Chief Accounting Officer. Joe Allanson, so please come and see me and Joe on Tuesday.

All right, so with that I will turn it over to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Kash Rangan with Merrill Lynch.

Kash Rangan - Merrill Lynch

Hi. Thank you very much. Graham, if you are looking for career advice on what to do next, I highly recommend sales side equity research, but Marc, for you, can you talk more about the platform? Obviously you launched Salesforce1 with a mobile-centric approach to the market.

Can you talk about some of the largest transactions that the company is pulling down, especially post Salesforce1 and how does the composition of your business (Inaudible) now vis-à-vis a healthy sales cloud and service cloud all relative to platform. Thank you very much. That's it from me.

Marc Benioff

Well, I really appreciate that question, because it is really the heart of our strategy and something where I will spend a huge amount of my personal time this year getting salesforce1 right.

You know Kash because you follow enterprise software so closely that I do not think there is any company whose enterprise software has moved as well as our has to the phone. Not only do we have a compelling mobile experience for our sales, service, and marketing clouds, but you can also build your own custom applications and deploy whatever you need to automate your company right onto the phone and as an ISV, you can also publish right into Salesforce1.

It looks a lot like Facebook or Twitter does on an iPhone or an Android, but you are running your business and we are the first ones there. It's a huge competitive advantage for salesforce. It's a critical part of every sales cycle and we are moving into a phone world. I have said this on the call before, I strongly believe in the future of phone. I think phones are getting larger, faster and that your software has to run really well on the phone and ours does and perhaps only ours does. I think that's certainly true today. I don't know for how long that will be true for but I haven't seen anyone else really deliver a vision of enterprise software on the phone.

On my phone, I can manage my feed, I manage all of my groups, all my employee information, my analytics and dashboards, my schedules and all the critical ISV apps as well that I use as well as custom apps and in the salesforce we have just some really great apps that we have deployed internally that are custom to us. Everything from managing our IT trouble, tickets, to even giving feedback on Salesforce1 to creating a task for our Customers For Life organization and it's the heart of everything we do.

Now we have got a lot of horses in the race here and we are not a single product company anymore. We are a multi product company and we have got many products. Sales Cloud is certainly a phenomenal success story. It's a multibillion dollar product line. Service Cloud is incredible. Marketing Cloud, you know what those numbers are and you see that growth rate. Platform is right there. So we have got four incredible product lines and that's our focus today, the Sales Cloud, the Service Cloud, the Marketing Cloud and the Platform and it is certainly our goal that each one of those are multibillion dollar products.

That's our strategic direction and we are very focused on the strategies, the communication, the branding, the acquisitions, necessary to make sure that those four things are all multibillion dollar products. And there aren't that many companies in our industry who have been able to deliver that kind of multi product success, but we have and we have a clear strategy. Those are the four legs of our stool and we going to continue to execute on that and we believe that the customer is the heart of that strategy that we have everything necessary to connect with the customers in a whole new way and for these customers who are signing huge deals with us, with Salesforce1 as the core platform, with this Sales, Service, Marketing, Platform strategy, we have got the right story and we have the right solution. You can go to the App Store or Google Play Store right now and download it and use it and try it and you can see it. It's phenomenal.

Operator

Your next question comes from Keith Weiss with Morgan Stanley.

Keith Weiss - Morgan Stanley

Excellent. Thank you guys. Graham, it has been a pleasure working with you over the past six years. I am going to direct the question your way. The reduction in the attrition rate to under 10% is a great accomplishment. I think it talks a lot about business stickiness up, (inaudible) solution and increasing [strategic initiatives] [ph] solutions. But I think it also talks to the operational controls that you guys have put in place. The question after that is, do you think there is room for further improvement in that? As your product offerings get more strategic, then maybe from an operational perspective to get that attrition rate even lower?

Graham Smith

Yes, thanks. We are obviously delighted to see that rate finally drop below 10%. It feels like I think it’s 18 [inaudible]. It has been a long journey, but I think there is certainly still room for improvement. I think we’ve talked in the past about the different programs we have, the early warning systems we have, the shift to enterprise and I think clearly bringing in the new leadership team with Keith Block and Tony Fernicola has certainly I think added to that just absolute credibility in the enterprise space. We frankly see very, very low attrition rates in enterprise. So for us, I think, it's a lot more about working on the big market and small business. I think you will see us continue to do that. I don't think you should expect – you’ve seen the rate of decline has been slow and steady. And I think we will be working hard to basically keep that going over the next few years. It's impossible for me to give you a credible forecast, but I think it certainly can go lower over time if we keep working at it.

Operator

Our next question comes from Mark Murphy with Piper Jaffray.

Mark Murphy - Piper Jaffray

Yes. Thank you very much, Marc. When you consider how the marketing battle is developing and in particular as it relates to Adobe, how are you thinking about some of Adobe's competencies including content management and website analytics and also how do you think that Adobe and maybe Oracle feel about trying to take on salesforce's dominant leadership position in some of the areas that are going to be so synergistic to marketing and in other words, the Sales Cloud and the Service Clouds, do you think it is really feasible to try to become a system of engagement, if you do not own those assets?

Marc Benioff

I love Adobe. I mean, I used their products since I was at Apple, when they created a postscript for the laser partners and those founders who still guide - that company are two of the most visionary people I think in the Industry and it is a great organization. They obviously participate in the marketing market and said do we and so do others because it is a big market.

As we said, CMOs are going to be spending more on technology than CIOs and I don't think that this is not a zero-sum game. I think there is plenty of room for everybody and I have been investing as you probably know for the last two or three years now, because we believe so strongly in this and we have bought quite a few assets and tried a lot of different things, because we had to kind of find our way through this opportunity and we certainly have done that, and you can see we have bought [the premier] [ph] asset in the market last year.

There is just no question we are number one in email marketing or number one in social listen in, we are number one in social publishing. We are number one in social advertising with social.com, which is the number one provider of services to advertisers on Facebook. I think it manages about 10% of Facebook's ad spend approximately and we just see a lot of potential going forward.

One of the most exciting things with ExactTarget is the complete reconceptualization of their product into Journey Builder, and for those of you who have seen us now, demonstrate that it is a whole new vision for the marketer that's getting great response.

As part of the ExactTarget acquisition, I think we also ended up with phenomenal asset called Pardot, which was actually a huge part of the quarter. It was one of the absolute fastest growing products we have ever seen. It's tightly integrated with our Sales Cloud and would be even more tightly integrated. It competes in that lead nurturing marketplace and that's another area. There's a lot of different places to play in marketing and I think that we are absolutely a player in marketing.

I think one of our key assets, of course, is our large and extremely well-run direct sales organization and also that customers want that marketing cloud to be tightly integrated with what they are doing with sales and service, but I want to make it clear. I really think that there is plenty of room here for everybody. There is a lot of great companies out there. Adobe is a great company and we are going to be the number one marketing cloud in the world.

Operator

Your next question comes from the line of Raimo Lenschow with Barclays.

Raimo Lenschow - Barclays

Graham, it's great working with you and maybe don't listen to cash-only career type. Quick one, this quarter, we saw a big increase in large deals. Can you talk a little bit about the drivers there? How much of that was Keith Block already and how much can we expect more from him?

How much was the customers' buying into division of salesforce in terms of the day in force in terms of his employment the extent of product. so, just kind of had a discount at the beginning of the trend will continue. Thank you.

Graham Smith

Thank you. I think if you look at large deals for salesforce, they do tend to be quite seasonal. It's the end of our fiscal year, our sales reps and architect, you know, their own compensation plans to accommodate in a large transaction at the fiscal year of the fiscal year. It's kind of the nature of the enterprise software business, and if you go back and look at we tend to reported at the end of every year the number of the large transactions in the fourth quarter that occur, I think you will see that we have just had really good symmetrical growth of our large transactions, but also our small and medium transactions as well.

We run a full portfolio of business on full portfolio of geographies. There are large enterprises are important, the small business is important, the medium business is important. We have a complex distribution organization which is why we are so fortunate this year to attract a great leader, Keith Block, to run that for us. He is also a member of our Board of Directors and he has done a great job. He has hired a great management team and we know we couldn't be better positioned for continued excellence in distribution.

Graham Smith

And Raimo, just a reminder on the numbers. So we reported more than 200 seven and eight digit transactions this quarter. Q4 a year ago was over 150. So that more or less mirrors that growth irate of 30% plus range. So as Marc says, very symmetric growth.

Marc Benioff

And I think that that's really the most important thing because as the CEO, I want all aspects of the business to be growing with equanimity and that we don't leave any one segment or any one geography behind because the strength of the company and the reason why we see salesforce delivering a 37% growth opportunity here, is because we manage that full portfolio of revenue. We talked about that on a number of calls, but we have done that very well and that's a key part of our strategy. I don't like to overemphasize any one area, but in the enterprise, like I said, I don't know any other company that got close to more than 200 transactions in the seven and eight digit category in customer relationship management enterprise software this quarter or any quarter before this.

Operator

Your next question comes from Heather Bellini with Goldman Sachs.

Heather Bellini - Goldman Sachs

Great. Thank you. Congratulations and yes, Graham I echo everyone's thoughts and you will definitely be missed. My question, Marc, is, I guess I have two questions, one for Marc and one for Graham. Marc, how do you think about the integration of your Marketing Cloud asset and how important will the ultimate integration of these assets be to further inflecting the growth that you are seeing in that cloud to get to the vision that you are talking about a few years down the road? Then I have got a follow-up for Graham.

Marc Benioff

Well, thanks, Heather. As usually, I think that your question is actually something that is very relevant for where we are right now and I will tell you exactly how I think about this. You know, the marketing area, some parts need to be very deeply integrated and some parts can be loosely coupled. In the deeply integrated area, lead nurturing for example, with Pardot, you go to pardot.com and you look at the website, you look at the integration, that we have done so far. I think between now and Dreamforce, you will see an extremely deep integration between salesforce and Pardot. We continue to scale that business and grow it and make sure that it's integrated extremely deep into our core.

With ExactTarget, that unit is a more loosely coupled because many of the key areas that it focuses on do not need to be as deeply integrated as the Pardot asset. Still we can have shared contacts. We can integrate our Service Cloud. We can bring in our consoles, but at the end of the day, I believe that those marketers are going to want a control panel to build and run their business, and I believe that that's going to look a lot like ExactTarget. You can see how we have already integrated salesforce core services and salesforce platform with Journey Builder. You are going to see more things like that. This is just a very, very exciting time for the marketers. You won't hear me say enough that I think we have the premier asset, premier platform and you are going to continue to see some real excellence out of ExactTarget.

Heather Bellini - Goldman Sachs

Okay, great, and just a follow-up for Graham. Graham, I might have missed this but could you give what exact type of target you gave deferred for the quarter?

Graham Smith

Yes, it was $99 million. Right, $99 million.

Operator

Your next question comes from Ross MacMillan with Jefferies.

Ross MacMillan - Jefferies

Thanks a lot, and Graham congratulations on your private salesforce and all the very best for what you do ultimately leave the company. Marc, I had a question also on platform, which I guess is with the success you are seeing with Salesforce1, does that change your view on the timeframe in which the platform could get to $1 billion, where they are and does it change your view on the platform addressable market? Thanks.

Marc Benioff

Well, I think Salesforce1 is accelerator on platform, I also think that Heroku here was accelerator on the platform I think Fuel you from ExactTarget is accelerator platform that these three things together really make a phenomenal platform.

I could not be more excited with Salesforce1 out how it is going for customers. As I said, our own success with that inside the company speaks to what it can do for our customers, to our ability to compete in the market, differentiate ourselves, to make our customer successful in the phone environment.

We are all-in our iOS, we are all-in on android. It's great on phones, it's great on tablets and I know that it. It has got a lot of upside if you have not followed the success of Heroku in the Ruby's world, since we acquired assets, it has been a rocket ship and that continues to be a huge part of our message to developers, especially in building interaction applications.

We saw some great stories, especially in the enterprise this quarter with Heroku. One very large retailer, I don't want to get into the details, because I don't know if we have approval to use their name or not.

Mean it, in a crisis situation to rapidly deploy a very large application and they built and deployed it Heroku and it was a huge success for them. I can tell you with Fuel, that one of the real assets of ExactTarget, is that it is not just an app, but it's a platform and they very much have our strategies integrated with lot of key iOS apps and it is that trifecta Salesforce1, Fuel, and Heroku you just give us three tremendous platform assets to really go after any casting building the custom capability for customer.

Operator

Your next question comes from Brent Thill with UBS.

Brent Thill - UBS

Graham, congrats on a great run. Marc, Keith spoke at Dreamforce about the transition to vertical engagement with customers and I know earlier you had mentioned you didn't want to go more vertical product, but can you just talk about this progression and the potential change in strategy and how do you think this impacts your engagement in the field with customers?

Graham Smith

Well, I think it is a very important our strategy. It is actually strategy that we have executed in the company, but Keith is definitely emphasizing and customers by segment want more value from us and want us to be able to speak to them in their language to build a bring value to them to bring systems integrators and I think a great story is our tremendous success in the pharmaceutical area with Depot.

You could see that's been very much a one of our key focuses, making sure that we have dominant position in pharmaceutical, we have a key ISV that we work with their and it has been a great story talk to big pharmaceutical companies, well that's a model for us for other industries. We want to align ISVs, we won align marketing, branding, we want to bring in the other key resources so that we can the great success by vertical.

I think, Keith has a vision and clarity around that. That's even bigger than we had before he came here and we are letting him run that with all of his gusto.

Operator

Your next question comes from Brad Zelnick - Macquarie.

Brad Zelnick - Macquarie

Thank you very much. Graham, not only would I be an outlier if I didn't echo the sentiment of my peers, but I truly mean it and I wish you the best and congratulations on your achievements.

Marc, question is for you. Can you talk about what you are doing with Edge, Spring and specifically when it comes to Big Data and in-memory analytics, how much of an opportunity is there to embed these capabilities into your existing clouds versus a separate, distinct analytics cloud.

Marc Benioff

Well, thanks for that question because I am a huge believer in Big Data. I am a huge believer in analytics and reporting, dashboards. You will see with salesforce that probably is the most undercovered, underreported story at Dreamforce is what we delivered in analytics and reporting. A lot of that was some of these great new leaders that we acquired this year and if you go and take a look at what we to do for customers today with our new next-generation reporting engine, next-generation dashboards, I don't think there is a company that delivers more dashboards and more reports and more analytics to customers every day than salesforce.

I haven't seen it. I know that in my own cases, I have said in my story of January 31, I am in Arizona, I am at a dinner. It's a great dinner. But I wanted to know how the quarter is doing and I am just able to look down and glance at my phone and I got incredible real-time analytics happening and dashboards and reports and I know exactly what's happening with the quarter. I think every CEO, every head of sales, every head of service, every head of marketing, manager, mid- manager needs that same capability and we are delivering that. In a social world, it shows up in my feed. In a mobile world, it shows up in my phone. In a cloud world, it shows up deeply integrated with our services.

We are definitely evaluating and looking at all the places that we can put those analytics and dashboards and customers have come to us and said that there is more for us to do which is why we have made these investments, and I think that if you go and look at what you have already delivered, you would be hugely surprised and you will see the emergence of some great new capabilities.

Operator

Your next question comes from Brendan Barnicle with Pacific Crest Securities

Brendan Barnicle - Pacific Crest Securities

Thanks so much. Marc, I wanted to ask a follow-up to Brent Thill's question. As you move more into the verticals in the salesforce, how do you make sure that you not perceived as some sort of threat to the next generation of Veeva's in vertical specific ended that might want to build on the platform?

Marc Benioff

Well, I really appreciate that, when there is an ISV or there is someone building on our platform, we want to invest in them and partner with them. We have been a very partner friendly organization. We have a huge investment fund. I think it's probably one of the largest investment funds in the industry. We don't talk about it or brand it, but I can tell you that we invest and we have had great returns. I just reviewed our investment fund returns. We invest in some cloud computing companies that are building on salesforce and our platform. And we want to help these ISVs be successful. We want to give them the seed capital. We want to give them growth capital. We want to help them with distribution relationships. We want to help them with their marketing, with their branding. We want to partner closely with them. And we have got some great success stories. You mentioned Veeva. I am sure you know ServiceMax. I am sure you know Kenandy. I am sure you know FinancialForce. I mean you go to the AppExchange and look under native and look at all the native apps that are there and you will see that we are investing in those companies and one of the reasons they are getting growth is we are aligning to make them successful. We want those native app providers to be successful. And we want to partner with them. We want them to grow and be a core part of our vertical strategy, absolutely.

Operator

Your next question comes from Phil Winslow with Credit Suisse.

Phil Winslow - Credit Suisse

Hi. Congrats guys on another fabulous quarter. Again, Mark, just that you said behind any tweet there is customer, behind any great CEO there is a great CFO. So congrats on you guys' partnership, at least another year of it. But my question is, Marc, on the Service Cloud. A lot of time you have spent on marketing and platform. I wondered if you can touch on just what you are seeing there in terms of trends across both Service Cloud actually and Desk.com? And just what do you think competitively out there? Thanks.

Marc Benioff

I think customer service is absolutely one of the most exciting areas. I mean it has been a big investment area for us. We believe that there is huge opportunity in the enterprise, huge opportunity to mid-market, huge opportunity in the small-market. We have Desk.com, which if you have not seen the new version of Desk that we just released a few weeks ago, it's doing incredibly well and we are continuing to invest in the success of Desk.com, which was an acquisition that we made all over year ago and we also have our Service Cloud, which was an acquisition that we did about five years ago, the leader of that company called InStranet, that was the based in Paris is now the head of our product organization, Alex Dayon, and he has done a phenomenal job building that product.

I am very excited about service, but you know I love all of my children. I love the Sales Cloud, I love the Service Cloud, I love the marketing cloud, and I love the Platform, and I love all of our partners too, so all of ISVs, I would say, I guess that would be the fifth thing fifth thing I probably do not talk about that enough.

Graham Smith

Christie, we have time for one more question.

Operator

Your final question comes from the line of Samad Samana with FBR.

Samad Samana - FBR

Hi. Good afternoon. Marc, Japan had the best time constant currency quarter in a while after struggling in the prior three quarters. Were there any particular strategy changes that drove the improvement or was it just a better demand environment and in that region? Then as a follow-up to that, how penetrated is the core sales cloud outside of the United States?

Marc Benioff

Yes. Well, I think that, I will answer part of this and then I will turn it over to Graham. I really think international remains a huge upside opportunity for salesforce. We have invested very heavily in the United States market, which was a very good decision because it is the mega market for enterprise software.

We really only do business in a few countries, we do business in the United States, in Canada, in the United Kingdom, France, Germany, all which also performed really well this Europe, a great year, we do business in Japan. That has been a great story for us. We just moved into our new headquarters in Japan invited by the government to move into the JP tower the Japan Post our which is a brand new our Marunouchi district and we do business in Australia and that is basically it, so we have a lot more opportunity internationally, but so we have a lot of opportunity in a lot of areas, so every time a dollar comes up for investment, we debate it very closely here where are we going to put it, internationally, in a city, in the country, in a product, because in our industry there is a lot of opportunity for growth and we have been very fortunate to place those dollars correctly and you saw a great outcome here on this fiscal year delivering a 37% growth quarter and 33% a year.

Then the question is, okay, how much more are we going to put in all these various first pieces.

Graham Smith

Yes. Remind people that obviously Asia-Pac, not just Japan, it's Japan and Asia and Australia and New Zealand and certainly we saw a little better sort of executions in Japan and Australia in the fourth quarter, so I think that is really what's helped lift that constant currency growth really good in the fourth quarter.

Samad Samana - FBR

Great. Thanks.

Marc Benioff

Well, thank you very much. Again, I want to just come back before we do end this call. I want to just come back to Graham and thank you again for your great contribution with company for last six years. We are looking forward to working with you for the next 13 months, so, I know you are not going anywhere.

Graham Smith

I am not going anywhere.

Marc Benioff

We want to signal it now, so that we have an orderly transition of power. Many of you followed the salesforce, know that Graham was not our first few Chief Financial Officer. He is our third and he has absolutely done a phenomenal job and as we have gone through the CFO transitions before, we know that investors want to have a lot of heads up and transparency into the process, so that is why I am so thrilled to be able to talk about this today with Graham.

Graham Smith

Yes, Marc. It's obviously been amazing experiences as I stated. I would like to make sure everybody I am going to be working just as other over the next 13 months to make sure that everything goes right.

Marc Benioff

I will be making sure that as well, so don't worry about that. I want to thank everyone for all their support for this fiscal year. We will look forward to seeing you next week at the Raymond James conference or at the Morgan Stanley conference. And please come on the road with us. We have got a great tour coming up. And come and see us in Philly, come and see us in Melbourne of Boston, Chicago, London, Amsterdam and DC, Atlanta, Toronto and Paris. We have got many more that coming. Come and meet our customers, our partners. Come and see Salesforce1 in action and get ready for Dreamforce, because the Dreamforce is coming in October, only a few short months away, the world's largest and most important technology show in the world of cloud computing, social and mobile and enterprise software coming back to San Francisco and we are going to have another incredible Dreamforce this year as well. So thanks everybody, and I will see you next quarter.

Operator

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

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