Executives: John Cummings - Director of IR Marc Benioff - Chairman and CEO Keith Block - President and Vice Chairman Graham Smith - EVP and

CFO
Analysts: Jason Maynard - Wells Fargo Securities Rick Sherlund - Nomura Securities Brent Thill - UBS Kash Rangan - BofA/Merrill Lynch Mark Murphy - Piper Jaffray Heather Bellini - Goldman Sachs Karl Keirstead - Deutsche Bank Pat Walravens - JMP Group Steve Ashley - Robert W. Baird Keith Weiss - Morgan Stanley Brad Zelnick - Macquarie Walter Pritchard - Citigroup Richard Davis -

Canaccord
Operator: Good afternoon. My name is Hannah, and I will be your conference operator today. At this time, I would like to welcome everyone to the CRM Q1 FY15 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, I will now turn the call over to John Cummings, Director of Investor Relations. Sir, you may begin your conference.

John Cummings: Thanks so much, Hannah and good afternoon everyone and thanks for joining us for our fiscal first quarter 2015 results conference call. Our first quarter results press release, SEC filings and a replay of today's call can be found on our Web site at www.salesforce.com/investor.

We will also post the highlights of today's call on Twitter at the handle @salesforce_IR. With me on the call today, are Marc Benioff, Chief Executive Officer, Keith Block, President and Vice Chairman and Graham Smith, Chief Financial Officer. We’ll start the conversation with a few prepared remarks and then we will turn the call for questions. As a reminder our commentary today will be in the 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. And 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 timing or availability of these services or features so we recommend customers listening today to make purchase decisions based on services and features currently available. The purpose of the call today is to provide you with information regarding our fiscal first quarter 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, including our most recent report on Form 10-K, particularly under the heading, Risk Factors. So with that, let me turn the call over to Marc.

Marc Benioff: Okay, hey thanks so much John, I really appreciate it and I am absolutely delighted to be with you once again and so have been over 15 years of customer success here at salesforce.com.

This quarter was a very important birthday for us, it gave us an opportunity to look back, and how we’ve helped shape this new world of enterprise software. How we’ve grown to be the world’s largest CRM company and the world’s largest provider of enterprise cloud computing and as you can see from these results the fastest growing top-10 software company in the world today. All in just 15 short years. It’s been an exceptional journey and we’re very grateful to all of you who’ve been with us through this incredible decade and a half. The new world of enterprise software the world is in the cloud it’s a world of mobile, it’s a world of social and it’s a world that’s connected.

Our customers are connecting with their customers in entirely new ways. They’re consistently turning the companies like salesforce to make this customer connection. And this has driven this incredible business for us. Whether you are looking for solutions for sales, for service, for marketing, for engagement, or building custom apps, salesforce has consistently delivered the world’s best customer platform. And I’m proud of our employees, our customers and partners and what they’ve accomplished over the last 15 years and I’m looking forward to our very bright future.

We’re delighted this quarter to be once again chosen by Fortune magazine as the world’s most admired software company for the second year in a row. An incredible accomplishment, and earlier this year salesforce was recognized by Fortune as the world’s seventh place to work, seventh best place to work and we were Forbes magazine most innovative company in the world three years in a row. And through our pioneering 111 model, we’ve now delivered more than 700,000 hours of community service, a little bit more than $50 million in grants, and are running more than 20,000 non-profit organizations in our service-for-free. Through all of this, through all of these accomplishments nothing is more important to us than the trust and success of our customers. This deep commitment to our customers and their success is why salesforce delivered these exceptional results especially now in this first quarter.

Revenue grew by 37% from a year ago to more than 1.2 billion, pretty incredible. Deferred revenue grew by 34% year-over-year to more than 2.3 billion. Operating cash flow grew by 67% from year ago to more than 470 million. And the dollar value book business on and off the balance sheet grew by 34% from last year to 7.1 billion. And while we delivered world class growth we also grew operating margins sequentially this quarter which is why we’re able to deliver non-GAAP EPS of $0.11 exceeding our guidance.

And we’ll deliver 125 to 150 basis points of operating margin improvement this year. Given our strong financial results and pipeline of new business, we’re once again raising our full fiscal year 2015 guidance by 40 million to reach 5.34 billion. With billions of users all over the world now using cloud services, mobile devices and software networks the technology world has deeply changed. And salesforce continues to lead this change in enterprise software. Today, I run my business from my phone.

I could never have imagined that just a few years ago. I don’t need a PC, a laptop, a desktop, to connect with my customers, employees or partners. I just need my phone. And that certainly isn’t where software was a decade ago. At salesforce we go with flow of our services, under the new Salesforce1 Platform giving our customers the ability to use phones, tablet PCs or whatever they choose to manage and share all of their customer information.

The Salesforce1 Platform has far exceeded our wildest dreams and has accelerated the success of our customers, our ISDs, our developers, our administrators, and their ability to be successful in this new world. And it’s why our flagship Sales Cloud and Service Cloud, our ExactTarget Marketing Cloud and our platforms are all leaders in the categories and growing faster than their competition. Our Sales Cloud is once again the undisputed leader in Gartner’s Magic Quadrant for Salesforce Automation in fact we extended our lead this last year according to Gartner, our multichannel sales now larger than the three next competitors combined. Service Cloud is the clear leader in both vision and execution in Gartner’s most recent Magic Quadrant for Customer Service and with Salesforce1 Platform we are bringing our world class customer service solutions to small businesses as well as to enterprises. The ExactTarget Marketing Cloud doubled its market share, according to the recent Gartner report adding more share than any other top-10 marketing vendor.

And the Salesforce1 Platform is the only solution rated by Forrester as a leader in every single platform category and recognized leader in Gartner’s first ever Magic Quadrant for Enterprise Platforms. Now I am delighted to welcome our Vice Chairmen and President, Keith Block, to the earnings call and I would like to ask Keith to introduce himself, but also to give me a review of the quarter’s results. We are very fortunate to bring in Keith over a year ago now. He is a member of our Board and runs our distribution organization which represents more than half of our inflows. Keith?

Keith Block: Hi.

Thanks Marc, it’s great to be here and I have to say that salesforce is an absolutely incredible Company. Over the past year I have spent a great deal of time speaking with customers and partners all around the world, and the feedback has been overwhelmingly consistent, it’s been about great vision, it’s been about great products, and it’s been about great people. And it’s really rare to find a Company whose customers and partners, has such a high degree of respect and admiration on a consistent basis. And the great news is, our customers and our partners, they want more from us. They want us to go deeper with them, they want us to have a more strategic relationship, they want us to help them innovatively transform their business models, they want us to help them scale their business for the future, and ultimately at the end of the day they want us to be their trusted advisor on their journey to connect with customers in entirely new ways.

And this applies to every customer, from the smallest to the largest enterprises in the world. Now in the quarter we had some terrific success with companies of all sizes and across all industries, everywhere in the world, and I would like to just share a few thoughts with you. For example, we entered into a new relationship with Manulife, one of the world’s largest insurance and financial services providers. They selected the Service Cloud to create a single customer engagement platform and delivered personalized service across all of their life insurance wealth management and investment products, just a terrific story. Meiji Yasuda Life Insurance, one of the oldest and largest insurance in Japan, we’re thrilled to have that brand as part of our family.

They selected salesforce in the quarter and this will be the first enterprise-wide cloud implementation in Japan’s life insurance industry, absolutely excited about this. They selected our Service Cloud that allow agents to close deals and service customers right from their phones and they are also building out their next generation apps on Salesforce1, very-very exciting. And in communications and media, Sky Italia selected Service Cloud, the Salesforce1 Platform, Salesforce communities, all of which for an engine for the company’s B2C communications business from call centers to self-service department channels. In healthcare, another great brand that fit us started sales transformation with our Sales Cloud and in the quarter they expanded with ExactTarget Marketing Cloud delivering to the power of social and connect directly with millions of people shopping for insurance. Many-many-many stories that we can go on to, but again some terrific brands and terrific story and I certainly want to congratulate the team for their outstanding accomplishments in Q1 and I also want to thank our customers and our partners for their continued commitment to our collective success and features, and I do want to say again that I’m absolutely thrilled to be part of this just outstanding organization.

So with that I will turn the call over to Graham.

Graham Smith: Thanks Keith. And we started fiscal 2015 as you have heard with a really strong first quarter, growing revenue, deferred revenue and operating cash flow at more than 30% and coming in ahead of our EPS guidance. We are well positioned to deliver another year of industry-leading growth. Let me take you through the financial highlights of our first quarter starting with the income statement.

First quarter revenue was $1.23 billion, that’s an increase of 37% and which did include an FX benefit of approximately $6 million. Non-GAAP EPS for the first quarter was $0.11. On a regional basis revenue in the Americas grew 39% to $876 million, revenue in Europe grew 42% in dollars and 35% in constant currency to $231 million and revenue in Asia Pacific increased 21% in dollars and 26% in constant currency to $120 million, that’s a nice uptick in growth after some of our recent quarters. In Asia-Pac dollar attrition continued its slow and steady decline for the 19th consecutive quarter and remains in the high single-digits percentage range. Our non-GAAP growth and operating margins continued to reflect the acquisition of ExactTarget last year, gross margins was 79.5% in Q1 that’s down 70 basis points from Q1 last year and non-GAAP operating margin was 9.7% which was down 80 basis points from Q1 last year, but actually up 280 basis points sequentially.

In the first quarter we added more than 900 people that’s our most significant organic hiring quarter ever, and brings our total headcount at the end of the quarter to just over 14,200 that’s up 38% over Q1 last year. Turning to balance sheet we ended the quarter with approximately $1.5 billion in cash and marketable securities. During the quarter we paid approximately $280 million in principle related to conversions of our senior notes that are due in January 2015. This amount was partially offset by an approximately $30 million deposit we received for the potential sale of four of our eight lots we owned in Mission Bay. Deferred revenue ended the quarter up more than $2.3 billion up 34% over the last year; excluding approximately 13 million of year-over-year FX benefit deferred revenue increased 33%.

On a sequential quarter basis deferred revenue also had an FX benefit of approximately $9 million. We expect Q2 deferred revenue to be approximately flat sequentially from Q1. Approximately 68% of the value of all subscription and support related invoices and that includes ExactTarget were issued with annual terms in Q1 compared with approximately 68% Q1 last year. Keep in mind however that our billing frequency percentage last year did not include ExactTarget, if you exclude ExactTarget from this close calculation we saw a year-over-year increase in the proportion of invoices issued with annual terms but is consistent with the fiscal 2014 average that was around 5 percentage points improvement. Unbilled deferred revenue or revenue that is contracted but not yet invoiced and is off the balance sheet was approximately $4.8 billion in Q1, that’s an increase of 33% over last year.

Turning to cash flow, we have an outstanding start for the year as we talked about for sometime Q4 has historically always been our largest new business quarter and as a result have also become our largest renewals quarter. The seasonality of our invoicing has become more pronounced each year because of the compounding effects of the new business seasonality. The Q4 is our largest invoicing quarter it follows the Q1 has become our largest collections and operation cash flow quarter. So in the first quarter operating cash flow was $473 million that’s up 67% over the last year. We anticipate our second quarter operating cash flow growth to be lower at approximately 10% year-over-year growth and continue to expect our full year operating cash flow to grow in the mid 20s percentage range year-over-year that we talked about on the call in February.

CapEx was $60 million in the first quarter up 11% year-on-year, CapEx as a percentage of revenue in the first quarter was 5% that’s down from 6% in Q1 last year and we continue to expect our full year CapEx to be in the range of 5% to 7% of revenue. Free cash flow which we define as operating cash flow less CapEx was $413 million in the first quarter, that’s up 80% from last year. Turning to guidance with our solid results in the first quarter, we’re delighted to be raising our full fiscal 2015 revenue outlook by $40 million that’s new range of $5.3 billion to $5.34 billion for year-over-year revenue growth of 30% to 31%. We’re raising our full year non-GAAP EPS guidance to reflect the Q1 beef and now expect it to be in the range of $0.49 to $0.51. And as Marc mentioned we are still committed to increasing our full year non-GAAP operating margins by 125 to 150 basis points.

But clearly that assumes no significant M&A activity during the year. FY15 non-GAAP EPS also assumes that other income expenses will continue to be a net expense and assumes a non-GAAP tax rate of 36.5%. For Q2 we anticipate revenue in the range of $1.285 billion to $1.29 billion representing year-over-year growth of approximately 34% to 35% and we expect non-GAAP EPS in the range of $0.11 to $0.12. And as a reminder all of the underlying assumptions for our GAAP and non-GAAP guidance is on complete GAAP to non-GAAP reconciliation can be found in our earnings press release issued earlier today. So to close Q4 and a great start for the year to salesforce, a really good solid execution across the business sets us up well to deliver another year of amazing industry-leading growth.

So with that, we’ll open the call up for questions. Question:
and:

Operator: (Operator Instructions) And your first question comes from the line of Jason Maynard. Jason Maynard : Good afternoon guys and congratulations on the quarter. I have a question that’s probably for Marc and I would assume maybe for Keith as well. I’d love to get your perspective when you look out over the next 12 months really kind of two parts here one is do you believe you are fully penetrated in sales automation and that the majority of the growth or the incremental growth is going to come from up-selling the Sales Cloud and Marketing Cloud and Platform? And then maybe Keith on the distribution side, what do you need to do to turn some of your accounts that maybe you’re spending a couple of million dollars with you today into accounts that maybe can spend upwards of $10 million a year with you on a recurring basis? Thanks.

Wells

Fargo Securities: Good afternoon guys and congratulations on the quarter. I have a question that’s probably for Marc and I would assume maybe for Keith as well. I’d love to get your perspective when you look out over the next 12 months really kind of two parts here one is do you believe you are fully penetrated in sales automation and that the majority of the growth or the incremental growth is going to come from up-selling the Sales Cloud and Marketing Cloud and Platform? And then maybe Keith on the distribution side, what do you need to do to turn some of your accounts that maybe you’re spending a couple of million dollars with you today into accounts that maybe can spend upwards of $10 million a year with you on a recurring basis? Thanks.

Marc Benioff: Well, I think you have to keep all this in perspective where -- obviously our namesake Sales Cloud product is just a huge part of our Company and it will continue to be a huge part of our Company for the foreseeable future. And we have a lot of other great growth drivers in the Company as well especially with our Service Cloud and our Marketing Cloud and our Platform and also our new engagement capabilities and community’s capabilities.

But the sales product remains to be such a dominate part of the Company’s success that there is no doubt that future growth will also be driven significantly by it.

Keith Block: Yes Jason, [indiscernible] so a couple of things, I think there is still significant opportunity across all of our cloud certainly the Sales Cloud is our flagship, but as you know we have put in place multi-prong strategy to really change the relationship that we have with our customers and those are customers whether it’s in the SMD space or whether it’s in the enterprise space and it really starts with our focus on industries. One of the theses of feedback that I have heard over and over again from the customer base is how important it is to speak the language of industry and to build that trust based relationship and solve the business problems around an industry. So we have obviously launched our industry business unit to help assemble those solutions while ultimately will give us the opportunity to gain a lot more line share and having more strategic relationships with these customers. We have also launched the strong initiative around our partners both our SI and the ISV ecosystem which is very-very important with our strategy and very important with our customers.

We’re getting incredible traction across all three of those of funds as well as focusing on international expansion. So when you really coupled the industry and partners together, it really raises our relevance within these accounts which will give the opportunity to continue drive momentum there.

Graham Smith: And Jason, this is Graham, just one more thing I have to add. I think one of the things we’ve seen over the last few years is the continued underestimation of the market sizes I think directionally clearly we’ve shown huge increase in share velocity use and consistent gains in shares, but I think the other exciting thing is then the trend all constant optimization of the market size. So I think that obviously gives us more confidence around continued growth with the Sales Cloud.

Operator: Your next question comes from the line of Rick Sherlund. Rick Sherlund : Yes, hi, thanks. Two questions first Keith, actually, both for Keith. Can you talk about the changes you’ve made to the sales organization? And did it have any impact in Q1 so did you do well despite changes if you could kind of talk about that a bit? And also I think we’re all waiting for nine figure deals is that realistic and is there -- are there deals of that magnitude in the pipeline we should look forward to over the balance of this year?

Nomura Securities: Yes, hi, thanks. Two questions first Keith, actually, both for Keith.

Can you talk about the changes you’ve made to the sales organization? And did it have any impact in Q1 so did you do well despite changes if you could kind of talk about that a bit? And also I think we’re all waiting for nine figure deals is that realistic and is there -- are there deals of that magnitude in the pipeline we should look forward to over the balance of this year?

Keith Block: Hi, Rick. Thanks for the question. So a couple of things the question has before. There were no major reorganizations. We put strategy in place about six months ago around our industry growth plan and our partners and international stands and focus on continuation around the tracking retaining the best talent in the industry our most strategic accounts in specialized sales and really solving business problems as a person just necessarily selling products.

And since those things have been in play for awhile, it really mitigated any sort of risk around reorganization that I think most people always are worried about when you start the fiscal year. So these plans were put a little bit while ago and we continue to see traction. We actually saw traction in the second half of the year and we certainly saw that traction continue and the momentum continue Q1. Listen as far as large deal sizes go, I think the net-net of this thing as we continue to execute and we did a terrific job, and I am very proud of the team and the Company for how we executed in Q1 is only natural to assume that our relationships with these customers will become more meaningful and more strategic overtime and that will just translate into continue growth and we’re excited about it.

Operator: Your next question comes from the line of Brent Thill.

Brent Thill : Thanks. For Marc, may be if you could just talk a little bit about Salesforce1 platform, it seems like there is a lot of really new interesting applications are being built that require the rest of the platform to be deployed to the helpers, if you will, on reinforcing the whole enterprise build out. Can you just give us a sense of what you are seeing from some of the larger commitments on the platform?
UBS: Thanks. For Marc, may be if you could just talk a little bit about Salesforce1 platform, it seems like there is a lot of really new interesting applications are being built that require the rest of the platform to be deployed to the helpers, if you will, on reinforcing the whole enterprise build out. Can you just give us a sense of what you are seeing from some of the larger commitments on the platform?

Marc Benioff: Well, thanks for that question.

We have made a huge investment on the Salesforce1 platform over the last couple of years and so many customers now have deployed it. And as a user myself, I can tell you how dramatically changed out how I work, as I mentioned I work in parallel with my phone but more than that I think it’s, because we completely re-architected our product on a whole family of APIs and delivered a full range of services, it’s really opened up the opportunity for our customers to build applications like that we have never really thought they were going to build before. One of the applications that I saw that got deployed this quarter was with Home Depot where they rolled out this amazing new, How-To application. And right on that, you got to right on homedepot.com, you will see our platform poking through where it gives them the ability to have deep engagement with all of their customers who are building and cloud sourcing and interacting with Home Depot employees and all in real-time and it’s really all possible by the platform. In addition to that we continue to see really strong support from the ISV community and if you go to the AppExchange, you will see more applications available for Salesforce1 than ever before and some of them are just incredibly well reviewed.

I mean you will see hundreds or in some cases thousands of reviews around these apps and these are enterprise apps. I don’t think there is another AppExchange or app store in the industry like that and so many new apps emerging for Salesforce1. The combination of this just gives us a tremendous competitive advantage with our customers and I will tell you why. A lot of our competitors, it’s not that they haven’t move to the phone, they have moved into cloud and here we are, we have a solution that’s not only runs great as a service, as cloud service, running of billions of transactions every single day, two, that service is available in whatever device you are using. And three, it runs the way the any other cell-phone network would work like a Facebook or Twitter but it’s your own private company network or with your partners or with customers.

And then finally, we are seeing now where companies can take all of this and build their own apps well that’s really exceeded our, exceeded what could happen. So, we are very excited and we are feeling great about where Salesforce1 is and I really think it’s given us this huge leg-up against the competition.

Operator: Your next question comes from the line of Kash Rangan from Merrill Lynch. Kash Rangan : Hi, thank you very much. Marc, the off balance sheet backlog growth rate is just simply stunning.

And I am curious if you could talk to which particular products the portfolio are driving that superb strength? And also with respect to Salesforce1, can you specifically talk about how the industry solution’s strategy in the six verticals are going to be differentiated and facilitated with Salesforce1 in particular? Thank you very much. BofA/

Merrill Lynch: Hi, thank you very much. Marc, the off balance sheet backlog growth rate is just simply stunning. And I am curious if you could talk to which particular products the portfolio are driving that superb strength? And also with respect to Salesforce1, can you specifically talk about how the industry solution’s strategy in the six verticals are going to be differentiated and facilitated with Salesforce1 in particular? Thank you very much.

Graham Smith: Hi, Kash, great to see you, so, let me just talk a little bit about the industry strategy and Salesforce1, I think Marc have touched on it.

We are incredibly excited about the adoption of Salesforce 1 and how our ISV community is responding to it. And specific to industry, you may have seen a press release that we issued the other day with Deloitte and our partnership with Deloitte in financial services around financial services solutions, all built on our platform. And so there is enormous enthusiasm for the Salesforce1, our ISV community is rallying for the cause and that obviously is an integral part of our strategy. The other thing that I think is important to understand here is that as we continue our transformation, one of the things that we are trying to accomplish here is to solve business problems for our customers. Whereas traditionally we will go to market by product and we will obviously continue to do that.

I think the important thing is to listen to our customers and bring a point of view around an industry solution, again the example would be what we did, the press release that we did with Deloitte. And when you sale solution, you bring multiple clouds, so it’s not necessarily one cloud or two cloud, it’s a multi-cloud solution and that is certainly the momentum that we enjoyed over Q3 and Q4 and certainly saw that carry over in Q1 and that multi-cloud solution approach is really paying off for us and it looks very, very strong for us in the future.

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

Piper Jaffray: Marc, your counselors and partners sound very excited about a product called Communities that for some reason it doesn’t seem to be as widely recognized in the investment community. And we’ve been told that it’s capable of going wall to wall and really touching every employee in an organization.

Could you walk us through what is happening under the radar with Communities and maybe any comment on how strategically significant the offering can be?

Marc Benioff: Yes, I’d really be delighted to, and we announced this product at Dreamforce and we now have started rolling it out. I just mentioned it in my comments about Home Depot for example, which is a core part of the platform they’ve rolled out which is Communities. But imagine if you will that I am using my phone, like I do, and I’m using Salesforce1 and I'm going through my social network and I’m reviewing what’s happening with employees, what’s happening on my deals, customer service issues, quotes, and my feed is going by and able to kind of roll between different apps that I am using. Maybe I’m issuing a request, maybe I am giving an employee appraise. All of this is happening inside Salesforce1.

Now all of the sudden right inside the feed something appears and it says well, did you know that Frank Blake at Home Depot just commented on the product that you’re working on. And what has happened is, is that externally on my website I’m in a community of all of my customers. Now you could go -- you could see this right now if you go to I think success.salesforce.com is our community site. So if you go to success.salesforce.com, you will see what Communities looks like and you will see how we’ve deployed Communities. So if there’s customers that I’m following, if there is a product I’m following, events I’m following, whatever I’m working on and now I’m a customer.

I come in this site. I’m automatically integrated to the Salesforce employees. And honestly I don’t know a customer who doesn’t need this, whether its partner communities, whether it’s for customer service, whether and even this is for employee communities and so we’re very excited and this is in the category of engagement. So today it can also work this product the kind of tagline is Salesforce, sales service market to feed and you really see it evolve to be sales service market and engage. And the reason why is because of exactly we are saying -- it has been a tremendous success for us.

We continue to see all customers to be very excited with this. This all started with Chatter if you remember that. That was kind of the brand. Now we’ve kind of dropped the brand Chatter and it’s all Salesforce1 now because it’s also deeply integrated into our platform. You can’t separate our core collaboration capabilities from our sales service or marketing platform applications and services.

So that’s where we are right now. It’s very exciting. You will see more Dreamforce and you’re going to see us really continue to focus and expand this. I did want to make one key point, which is that this is not some separate app. This is really a core part of our platform and that we’ve worked very, very hard to make sure that these are core platform services and the collaboration is at the very heart of who we are at Salesforce.

Hope that answers your question.

Operator: Your next question comes from the line of Heather Bellini with Goldman Sachs. Heather Bellini -

Goldman Sachs: I had two questions, one for Marc and one for Keith. I guess Keith to start out with you, you mentioned the vertical solutions and this business problems that you are trying to solve as a result of your verticalization. How do we think about how long it takes for you to really take your stride to serve the customers in the way that you’re thinking about it? And kind of back to Rick’s question, how do we think about how deal sizes scale as you become that trusted solution provider if you use your past history as a guide? And then the question I have for Marc just in regards to marketing cloud, a lot of the customers we talk to, talk about big desire to have one integrated dashboard for marketing so they could open app instead of opening multiple apps to kind of find out what they’re doing, how they’re doing with new products and with their customers.

I’m just wondering where you are as a company in terms of kind of pursuing that vision?

Keith Block: Yes. Hi Heather. So, I think it’s very interesting; the industry focus for us is obviously very, very important and we saw, after only being organized around industries for I will say six months. We started to see that traction hit in Q4. I think you may remember that we pretty much had a run on retail banks in Q4, and that was all around our management solution that was put together by the industry business unit.

That continued into Q1 where we -- to a certain extent we had a run on insurance companies. So again part of that is because of our ability to speak the language of industry, which is all about solving customer business problems. So as we continue to roll those solutions out, I think you’ll see us gain mind share again, build those strategic relationships, partner with the SI, partner with our ISVs and really being more meaningful and take on that trust advisor role. So it’s only natural to assume and to expect that as all those things continue to gain momentum that there will be more mind share, there will be more [indiscernible] share, there will be more market share. So again very, very pleased with the kind of early returns in Q4 and Q1 but I think that we certainly have significant opportunity and I think that’s how you’ll see things scale overtime.

Operator: Your next question comes from the line of Karl Keirstead with Deutsche Bank. Karl Keirstead -

Deutsche Bank: My question is for Graham. Graham, the operating cash flow growth 67%, pretty stellar. I think I understand the seasonality but I’m just curious if there were any other kickers that made the quarter particularly strong on that front and if your confidence in your mid-20s operating cash flow growth for the full year has increased as a result of the good Q1 performance. Thank you.

Graham Smith: Yes. I think it feels great to get a good start. So clearly confidence in mid-20 if I say is incrementally higher because of our strong start. So just to reiterate, this compounding effect just our large fourth quarter -- really has been going on over a long period of time? And then I think you layer on top of that. Clearly we’ve also been expanding our annual billings.

And then we saw some margin expansion sequentially from Q4 to Q1. Q4 was still affected by short-term cash flows from Dreamforce, those kind of things. And so you kind of roll that up and we saw really strong first quarter result. So as I said, I would expect this would be more of our trend in the future that we’ll have this huge receivables number at the end of the fourth quarter and then a very large collections number in Q1. So very happy to get a strong start on the year here.

Operator: Your next question comes from the line of Pat Walravens with JMP Group. Pat Walravens -

JMP Group: Two questions. I guess Graham can you tell us what the contribution was from ExactTarget in the quarter? And then Marc now that you have over 14,000 employees, it’s got to be harder to maintain the same culture you had when you were smaller. How are you going about doing that?

Marc Benioff: Well I’ll take that one first, and also I didn’t answer Heather’s question. First, so why don’t I hit that real quickly.

Heather is absolutely right. Our plan is to build a comprehensive marketing cloud and to do that we’ve acquired several different companies recruiting, Radian6, Buddy Media and ExactTarget and we’re integrating those into one integrated application which our customers will have used to comprehensively manage their marketing and you’ll see the evolution of that product at Dreamforce. What I would say is that to really understand where we’re going and how we’re maintaining this culture, you have to look at our product. And I am sure that that must sound a little bit strange but I use Salesforce1 every day and I’m communicating and collaborating with our employees. We have an environment that’s filled with transparency and that transparency has created an environment of trust.

And that much communication or what I call over communication is kind of part of what we’re doing all the time. We over communicate, we over align, we’re constantly working on what we call V2MOM which is kind of our internal business process service, which lets us work on our visions, our values, our methods, obstacles and measurements. All of that is built into our application. And then at the core is our philanthropy model. When we first started the company we put 1% of our equity and 1% of our profit and 1% of all of our employees’ time into a 501(c)(3) charity.

As I mentioned in the script, that produces amazing results, like the 700,000 hours of community service and more than 50 million in grants and 20,000 nonprofits. But one thing that’s interesting is in your first day of employment at Salesforce we show you where your desk is, we show you where the kitchen is and then you go out and do something for other people. And you go to one of our soup kitchens here in San Francisco, you go to one of our homeless shelters, you go to one of our hospitals. And that really sets the tone of our culture. And it also provides the referential integrity for our culture.

And our culture is different than other technology companies. And when and as we’ve grown our Company, we’ve been able to maintain that culture by starting -- making sure that its philanthropy first and that has really set the values that are so important to us. So when we look at values like trust, values like giving back, like service and then of course we have tremendous execution. That’s also a key value that we do we say we’re going to do. We delivered obviously a great quarter this quarter but this is not our first great quarter.

We’ve had a lot of great quarters. And those things are the things that have really cemented our culture and that’s why it continues to be what it is today. So I hope that answers your question.

Keith Block: And just on your second question we don’t intend to provide a breakout of the exact target going forward on either the P&L or the balance sheet.

Operator: Your next question comes from the line of Steve Ashley with Robert W.

Baird. Steve Ashley - Robert W. Baird: My question is for Keith. Keith, you mentioned you’ve been earlier talking to customers and what message is it that you wanted to convey to them? What did you want them to take away from your meetings?

Keith Block: Well, I think there are several messages that are important, not the least of which is our corporate messages around the Internet of customers and connected customers and how we sell and service in market and how we are a company of system engagement. So those are all very strong messages that certainly resonate with our customers and our partners.

But the other set of conversations that take place are around a dialog around having a strategic relationship with those customers and what does that mean. And that is all around predictability and transparency, some of the values that Marc talked about earlier. It’s about trust, it’s about being an advisor. It’s about how do those contribute to how our customers unleash the power of social and cloud and mobile in our technologies to change their business models, to transform their businesses and really unshackle them from old technologies. Because if you really think about what’s happened in the marketplace, companies have had business processes around selling and servicing and marketing to their customers that have really been hindered slash shackled by old technologies and we are providing them with a path forward here in that guidance.

So these are messages that truly resonate with customers. They want these conversations. They want this impact that we can bring to the table and they’re excited about our opportunity to partner with them.

Operator: The next question comes from the line of Keith Weiss with Morgan Stanley. Keith Weiss -

Morgan Stanley: Two questions from Graham.

One related to headcount, definitely a big increase in headcount this quarter. Should we think about this in any extent in terms of sort of a pull forward of hiring, of getting a lot of the hiring done upfront or what kind of pace should we think about throughout the year? And question number two, if we look back seasonally, you typically see deferred revenues up 2 to 3 percentage point’s quarter on quarter into Q2 and your guidance is approximately flat. Does that sort of hold with the normal seasonality or should we be thinking about a different seasonality this year versus prior years?

Graham Smith: Thanks Keith. So, on the headcount question, typically we’ve often had slow starts to our hiring in the year and then we’ve sort of built on organic hiring versus people we bring in through acquisitions through the year and we really have tried to focus hard this year on getting off to a fast start and have slightly more linear hiring and it actually seems to have worked really well. So we’re just pleased that I don’t view this necessarily as an intentional pull forward generally but I think we are -- we’ve got a lot of fantastic news coming out of the Company, able to see some of our facilities announcements are super exciting in San Francisco and I think it’s fair to say we’re still very much as the destination employer and I think our reputation out there is great and our hiring in Q1 sort of reflects that profile.

On your second question, I think generally, clearly we’ve said in the past, deferred revenues always got a little bit of -- it’s a tough number to forecast super accurately. I think there is a sort of general scene that relates to what I talked about earlier around the compounding effect of our fourth quarter and because Q4 is largely a business quarter it becomes a large renewals quarter and it just becomes more and more dominant in terms of its invoicing. And as you know, invoicing drives deferred revenue. So I think gradually over time that Q4 spike of deferred revenue and then a more flattish profile through the year is gradually going to change over the year. It’s tough to know how quickly but we haven’t changed anything in the methodology, the way we forecast deferred revenue, and clearly as I said it’s tough to get super accurate on either a $2.3 billion number but I’d say that that overall trend that I described is probably will play out over the next few years.

Operator: Your next question comes from the line of Brad Zelnick with Macquarie. Brad Zelnick - Macquarie: Dr. Benioff, congrats on a good quarter but I really also have to congratulate you on receiving your honorary Doctorate degree last week from USC in recognition of your great achievements, particularly your philanthropy. So congratulations. I really just wanted to -- I wanted to ask about the marketing cloud, Marc.

When you acquired ExactTarget, you said we shouldn’t expect any large deals for a while as you digested the acquisition. But I just wanted to check in and see how do you feel today about the completeness of the marketing cloud and what’s your appetite to further build it out through acquisitions?

Marc Benioff: Well, I think that we have done a fantastic job building our marketing cloud and it’s a very important market. It’s something our customers have pushed us to and you saw us start with the Region 6 where we moved in the social listening of Buddy Media with social publishing. But then with ExactTarget, which is really a comprehensive application and that is really go into a whole new level with our journey builder capabilities. And if you have seen some of the demonstrations that I’ve done on the Salesforce1 tour, you will notice that ExactTarget marketing cloud has just gone leaps and bounds from when we really first started working on it.

Now, as we kind of go forward, there is still gaps in terms of things that we want to fill-in. When we’ll fill those in, what the right companies are? It’s not as easy and not straight forward as it was. We honestly got the best company. I don’t think we could have ended up with a better company than ExactTarget and they have so much product and capability that it’s really kept us incredibly satiated. And I don’t really see that pace like you saw that we were really going through resuming.

That said, we are always looking for great new companies and when we see a great entrepreneur or we see a great company or we see a great revenue stream or we see a great way to cement our position in our market, which is all customer facing applications, we’re going to take that.

Operator: Your next question comes from the line of Walter Pritchard with Citigroup. Walter Pritchard - Citigroup: Hi Graham, I’m wondering if you could talk a bit about -- you have talked for a few years about this matrix with growth and profits as sort of the two coordinates and it feels like you are sort of solidly into the growth part of your matrix here versus high growth or maturity and in that phase you were talking about 100 to 300 basis points of margin expansion. And you’ve given guidance for the year I think of a 125 to 150 basis points of margin expansion. You still are absorbing some of the ExactTarget expenses that are on-board here.

I’m wondering if you could just talk to, do you feel like you are really within the high end of that range, if we were to consider ExactTarget? And any sort of commentary as we move throughout the year, with most of that solution behind us and then look at next year, how we should think about you on this matrix?

Graham Smith: Thanks, Walter. I think my recollection of the model, I don’t have it in front of me but basically we have said, if we are growing at 30% plus, so I think yes, people could reasonably expect, absent very significant M&A, they could reasonably expect a 100 basis points plus of margin improvement in a year. We’ve sort of committed to a little higher than that this year and clearly we will get -- it’s a little backend loaded because as you say, really the effects of all the purchase accounting related ExactTarget pulled away after the first half and then we get sort of the bulk of the revenue write-downs done and clearly we’re sort of -- we're forecasting quite a strong second half EPS performance year and overall our EPS performance this year, we’re forecasting at sort of 50% type increase in overall non-GAAP EPS. So I think we feel that model works. I think as long as we are growing that top line more than 30%, I think, again absent major M&A, we feel good about delivering a 100 basis points plus a year and hopefully this year we’ll do little better than that.

We’ll see.

Operator: Your last question comes from the line of Richard Davis with Canaccord. Richard Davis - Canaccord: I realized it’s somewhat small but what you kind of think about drawing the line on HR because I guess right now it’s ripple social performance management but do you need to get deeper into HR to fully monetize that purchase? I am just wondering how your thoughts on that component are? Thanks.

Marc Benioff: We’re not an HR software company. We’re the CRM, we’re really a customer relationship management software company and all of our focus is customer facing applications, sales, service, marketing, engagement.

And our -- any HR capabilities that we have inside our product are really just -- allow our employees to collaborate and share in the engagement world. So whether its employee profiles or the performance management that’s built into the field, that’s where our focus is then. But we’re not really interested in the HR software market. We will let others worry about that one.

John Cummings: All right.

Hannah, thank you so much for hosting us today. Thanks everyone on the call for joining us. And we’ll look forward to updating you on our second quarter results in summer.

Operator: This does conclude today’s conference call. You may now disconnect.