Salesforce, Inc.

Good day ladies and gentlemen and thank you for standing by and welcome to the Salesforce Q4 and fiscal year 19 earnings conference call. At this time all participants are in a listen only mode. Following management's prepared remarks we will host a question answer session and our instructions will be given at that time. If during the conference day you require operator assistance press star then zero and an operator will be happy to assist you. As a reminder this conference call is being recorded for replay purposes. It is now my pleasure to hand the conference over to John Cummings, Senior Vice President of Investor Relations. Sir you may begin.

Thanks so much Brian. Good afternoon everyone and thanks for joining us for our fiscal fourth quarter and full year 2019 results conference call. Our results press released, SEC filings and a replay of today's call can be found on our IR website at salesforce.com slash investor. With me on the call today is Mark Benioff, Chairman and Co-CEO. Keith Block, Co-CEO. Mark Hawkins, President and CFO and Brett Taylor, President and Chief Product Officer. As a reminder our commentary today will primarily be in non-GAAP terms. Reconciliation between our GAAP and non-GAAP results and guidance can be found in our earnings press release. Some of our comments today may contain forward looking statements which are subject to risks, uncertainties and assumptions. Should any of these materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward looking statements. The description of these risks, uncertainties and assumptions and other factors that could affect our financial results are included in our SEC filings including our most recent report on 410K. So with that let me turn the call to you Mark.

Thank you John and thank you everybody for being on the call today. As you can see from our results Q4 tapped off another record year for salesforce. Revenue in the quarter rose to more than $3.6 billion up 27% in constant currency. Truly amazing for a company of our size. And for the full year we delivered more than $13.2 billion in revenue making salesforce the fastest enterprise software company ever to reach $13 billion. Based on our outstanding fiscal year 19 results we're raising our fiscal year 20 revenue items to $16.05 billion at the high end of the range. Representing 21% projected growth year over year. And we expect this incredible growth to continue which is why we're now initiating a revenue target for fiscal year 23 to 26 sorry fiscal year 23 of $26 to $28 billion organically doubling our revenue again in the next four years. I've never been more excited about the opportunity ahead for salesforce. Around the world more and more companies are investing in their digital transformations which start and end with the customer. Earlier this year I was at the world economic forum in Davos where I met with hundreds of global customers and I've also been on the road meeting with customers across the US. And everywhere I go I hear the same thing. Companies are continuing to make incredible investments in their customer experience. They know they need to invest in becoming more customer centric, more efficient and more automated. And when they invest they're looking to do it with companies they trust and that's why they're looking to salesforce. Salesforce is not only the number one CRM but we're really their most trusted enterprise software vendor. And whether they're B2B or B2C they're now becoming a B2B2C company. They're all transforming to connect with their customers in a whole new way and we're the only company with an intelligent customer success platform for both B2B and B2C companies. Salesforce is the number one CRM and as you all know with MuleSoft we're now the number one integration platform. We're also a leader in sales and service and marketing and in digital commerce and in fact service is on its way to becoming our largest cloud. That's incredible. That is allowing us to deliver a level of digital transformation never before possible. It's redefined the CRM experience for so many of our customers. And over the last 20 years no other company has been more focused on customer relationships. We've not only remained totally focused on CRM, we've constantly redefined and expanded what CRM means. CRM is the largest and fastest growing market of enterprise software today, bigger than operating systems, ERPs and databases. And we continue to take share and outpace this market. According to IDC, Salesforce commands 20% of the overall CRM market, more than the next three competitors combined. At Dreamforce we introduce the Salesforce Intelligent Customer 360, giving our customers a unified 360 degree view of their customers. Across every touch point in sales, service, marketing, commerce, communities and more. And we have a tremendous vision for the next decade with our Intelligent Customer 360, a major growth engine for Salesforce moving forward. We're operating at a tremendous scale at Salesforce. Just look at some of the daily milestones our customers have helped us achieve on our Intelligent Customer Success platform. Every day 3 million sales opportunities and 3.2 million leads created in Salescloud. Every day 9.7 million cases logged in Servicecloud. And every day 1.9 billion emails sent from Marketingcloud. Amazing. Every day 44 million reports and dashboards created in Einstein Analytics. And now every day more than 6 billion predictions in Salesforce Einstein on our AI. During the holiday shopping season, the Commercecloud processed more than 4.2 million orders and supported 690 million e-commerce page views in a single day. No other vendor provides CRM at scale. And it's why Salesforce has been named one of the world's most innovative companies eight years in a row by Forbes. Take Salesforce Lightning. We've revolutionized the Salesforce user experience with a redesigned, intelligent, and intuitive new platform that is now making millions of users more productive. And Lightning makes it easy for them to build incredible innovation, customer experience with clicks not code. With Salesforce Essentials, we're now making it possible for millions of small businesses to tap into this innovation and deliver incredible customer experiences. But as we all know, every digital transformation isn't just a customer transformation. It's also an AI transformation. It's an automation transformation. This is a big shift for our customers and the industry is undergoing it everywhere. That's why we've built Salesforce Einstein AI innovation deeply into the Salesforce platform. I'm thrilled with the adoption of Einstein, which as I said is now delivering more than 6 billion predictions every day. Now with Einstein, we're enabling our customers to interact with Salesforce as easily and as naturally as they think and as they talk. Just as Salesforce brought our customers to cloud, social, mobile, and AI, we're bringing them voice as well. In fact, half of the US households already have a voice activated device. It's going to become a dominant user interface. But Salesforce is no exception. We've taken these consumer voice experiences and we've brought them to our customers and made them more productive at work. Now and very, very soon, every Salesforce app that has ever been built will have Einstein available to it. The power of voice isn't just getting information. It's getting information into your database and into your CRM system. It has to be fully interactive. With the Einstein voice, customers will be able to update all of their data in Salesforce with a voice command. AI is critical to every customer transformation and the automation delivers is driving the next generation of efficiency for companies. It's also radically transformed the nature of work and it's why all of the COs I've met with are talking about rebalancing and reskilling their workforce for the future. As automation impacts the workforce, we recognize we have a responsibility to deliver our solutions to help people scale up for the jobs of tomorrow. Especially for jobs in the amazing Salesforce economy that is growing around us. One that will create more than 3 million new jobs and more than 850 billion in GDP impact by 2022. That's why we created Trailhead, a personal learning cloud that empowers everyone, regardless of their background, to learn and demand skills for free. We now have more than 1.2 million learners on Trailhead and are changing people's lives every day. This week, as we celebrate another record year, we're also celebrating another great milestone, Salesforce's 20th birthday on March 8th. In 1999, Parker and I could not have imagined that Salesforce would be the company it is today. What I'm most proud of is the trust we have with all of our stakeholders. There's a clear connection between customer success and a company's values and that's why trust is the heart of our culture. And we've seen this as we've grown our company over the last 20 years. We focused on our culture as a key part of who we are as an organization because we realized exactly as Drucker told us, our culture eats our strategy for breakfast. People are drawn to Salesforce, yes, because of our focus on customer success, but it's also because of our culture. Companies are excited to do business with us. They trust us to deliver the innovation they need to succeed in this fourth Industrial Revolution. In fact, Enthusphere just named Salesforce one of the most ethical companies again. Well, all of this is so exciting as we turn 20. Now, together, we build trust with our communities for the impact we've made. And over the past 20 years, together with our foundation and Salesforce.org, we've now given out $260 million in grants. 40,000 nonprofits and NGOs use our software for free and our employees have volunteered nearly 4 million hours in our local communities. I could not be more proud of them. And as Parker and I reflect back on the last 20 years, there's one word that comes to mind. That's gratitude. To close, I want to thank all of our employees, our customers, our partners, our shareholders, our investors, our analysts, and all of our trailblazers and communities around the world. Join us in this amazing journey over the last 20 years. I'm so deeply grateful and I hope you all celebrate with us on March 8th. Now, let me turn over to our Co-CEO, Keith Laugh.

Keith? Thanks, Mark. Good afternoon, everybody. As Mark said, we delivered outstanding results as we continue to take share and lead the market Salesforce pioneer 20 years ago. It's been an incredible journey to 13 billion in revenue and our relentless focus on delivering innovation and customer success has fueled our growth and solidified our leadership in the market. We continue to grow internationally, expand across industries, and leverage our partner ecosystem as we drive toward our new revenue target of 26 to 28 billion in FY23. Salesforce has redefined the customer experience. We have become mission critical to companies of every size and industry and we're deepening our relationships strategically all over the world. In fact, our $20 million plus relationships grew 48% compared to last year. This includes two nine-figure renewal and expansions in the quarter. Our enterprise class relationships absolutely reflect the unprecedented mindshare and trust we have with CEOs. Take Barclays as an example. At the World Economic Forum in January, their CEO, Jess Staley, proudly said that with Salesforce, they had just signed the largest technology agreement in their 300-year history. We're very, very proud to be Barclays' trusted partner in digital transformation as they deliver faster, more convenient services to their 48 million customers. I remember when our goal was to have the top 10 banks running their business on Salesforce. Then the goal was the top 20 banks. Well now, we do business with nearly every financial institution in the Fortune 500. We also significantly deepened our relationship with one of the world's largest telecommunications companies. They're leveraging Service Cloud, Marketing Cloud, Einstein, and MuleSoft to personalize in-store and online engagement for more than 100 million subscribers. And we're thrilled that today, 96% of the media and communications companies in the Fortune 500 are our customers. And this is just the beginning. I recently spoke with the head of one of the largest consulting firms. He said that roughly 85% of their top 50 customers are just getting started on their digital transformation. So clearly, that's an indication that we have tremendous runway ahead of us. And this opportunity is global. In Q4, we strengthened our relationships with some of the leading companies around the world, from expanding with Toyota, National Australia Bank, and Kelsra, and in Japan and Australia, to form a brand new relationship also in Germany with BASF, the world's largest chemical maker. These global strategic relationships are driving our -over-year revenue growth, 26% in the Americas, 26% in APAC, and 31% in EMEA in constant currency. To continue this momentum and better serve our multinational customers, we have increased 42% of our new hires. In the fourth quarter, we're in regions outside of the Americas. Our thriving partner ecosystem is fueling our growth worldwide and making our customers more successful. In Q4, the total number of global partner certifications increased 41% -over-year. And in FY19, net new partners grew 79% in APAC and 110% in EMEA compared to last year. In fact, I've met with the leaders of our top five consulting partners in the last month, and they have all said they are doubling their Salesforce practices over the next few years. So not only are our partners investing more in their Salesforce practices, they're also running their business on us. Three of our top SIs expanded their relationship with Salesforce in Q4. We also significantly expanded our relationship with Google. We're excited to support their increased adoption to deliver more connected customer, employee, and partner experiences at scale.

And we're

thrilled with the innovation we're delivering to make our customers more productive, including the integrations between the Salesforce platform and Google Cloud. Also in Q4, we became a reseller of Google Analytics 360, enabling marketers to act on insights and drive smarter engagements with our integrated solutions. Google Analytics remains the number one analytics solution with our customers, which we're very, very excited about. Vertical Solutions, Health Cloud and Financial Services Cloud, they continue to deepen our relationships across industries. Now, earlier I had mentioned Barclays and Financial Services, but with Health Cloud, in Q4 we had significant expansion with leading biotech company Amgen and they're using Salesforce across their business, from improving patient outcomes to building apps for commercial operations with Heroku. Overall, we increased our business with Fortune 500 healthcare customers by 22% year over year. Now, we're coming up on one year since our acquisition of MuleSoft, and we're absolutely thrilled by their outstanding performance and the value we're creating for customers like SunTrust, the state of Colorado and Utilever. At the key pace with increasing demand, we hired more than 450 additional MuleSoft employees in FY19 and we nearly tripled the MuleSoft architects driving our customers' digital transformations. We added nearly 2,000 MuleSoft developers to that ecosystem, so it's something we're very, very excited about. And based on my conversations with our largest SIs, they are also very excited about the growth of their MuleSoft practices. Now, core to our customer success and to our future success is our people. And recruiting and developing talent is a top priority for us as we head into FY20. We're very, very proud of the strength of our culture. It's what drives our growth and innovation. It's one of the reasons companies of every size and industry want to do business with us. And that's why we were recently recognized by Fortune as the best company to work for for the 11th year in a row. Again, something we're very, very proud of. So I want to thank our customers, our partners, our employees for another outstanding year. And I'm looking forward to what we'll accomplish together in FY20. With that, I'll turn the call

over to Mark Lockins. Thanks, Keith. We delivered another year of outstanding financial performance, continuing to trend the strong, durable top line in operating cash flow growth. We also delivered non-GAAP operating margin expansion for the fifth consecutive year while integrating the biggest acquisition in our history. Let me discuss the highlights for Q4 and FY19. Fourth quarter revenue grew 26% in dollars and 27% in constant currency. Revenue had a -over-year FX headwind of $38 million and an in-material sequential headwind. For the full year, revenue grew 26% in both dollars and constant currency. Mulesoft continued its strong execution as part of Salesforce, contributing $181 million to total revenue in the fourth quarter. Of the $156 million of subscription and support revenue from Mulesoft, roughly 60% was licensed revenue. For the full year, Mulesoft added $431 million in total revenue net of purchase accounting adjustments. This came in far ahead of our initial guidance as we quickly executed on our plans to integrate Mulesoft and accelerate digital transformation projects for customers around the world. Let me quickly discuss Mulesoft's revenue contribution and how to think about it going forward. As you know, the fourth quarter is Mulesoft's largest quarter of the year, and you can see that in the results. However, as you build your models, keep in mind that due to the license component, Mulesoft revenue is a bit more seasonal than our core products and can experience sequential revenue declines from Q4 to Q1, similar to the seasonality we see with Marketing Cloud. Our portfolio of industry-leading products continue to deliver strong -over-year subscription and support revenue growth in the fourth quarter. Sales Cloud grew 11% at a run rate of more than $4.2 billion. Service Cloud grew 22% at a run rate of more than $3.8 billion. Platform and Other grew 54%, including approximately $156 million from Mulesoft and is now at a run rate of more than $3.3 billion. And Marketing and Commerce Cloud grew 34%, crossing a $2.1 billion run rate. Dollar attrition remained below 10% at the end of the year. Turning to margin, I'm very pleased that we were able to drive continued operating leverage in the business while integrating Mulesoft and other acquisitions and investing in our growth initiatives. For the full year, we delivered 57 basis points of non-GAAP operating margin improvement, the fifth consecutive year of improvement. Fourth quarter GAAP EPS was $0.46, coming in much higher than our expectation. EPS benefited a large part from approximately $0.17 related to the net benefit of tax adjustments and $0.12 related to the -to-market adjustments of our strategic investments as required by ASU 2016-01 as well as the outperformance in the quarter. Turning to cash flow, we had a very strong cash collections in the fourth quarter, driving operating cash flow of $1.33 billion, of 27% -over-year. For the full year, we delivered $3.4 billion of operating cash flow, up 24% over last year, an outstanding result that I'm very pleased with, especially considering the impact from the Mulesoft acquisition cost. This translated to an operating cash flow yield of 25.6%. And with these strong collections, we chose to pay back our $500 million term loan about six months early, saving on future interest expense. CapEx for the year was $595 million, approximately .5% of revenue, down from .1% of revenue last year. For FY20, we anticipate CapEx to be approximately 4% of revenue. Free cash flow defined as operating cash flow less CapEx was $1.16 billion, IQ4, up 27% over last year. And for the full year, free cash flow grew 27% -over-year to $2.8 billion. Unearned revenue this year ended at $8.5 billion, up 22% in dollars and 24% in constant currency, excluding an FX headwind of $104 million. On a sequential basis, unearned revenue had an FX tailwind of $42 million. Remaining performance obligation, representing all future revenues under contract, ended IQ4 at $25.7 billion, up 25% over last year, including $450 million from Mielsoft. Currently, RPO, a business that is both billed and unbilled and is expected to be recognized as revenue in the next 12 months, was $11.9 billion, up 24% -over-year. Moving on to guidance, we are raising our FY20 revenue guidance by $50 million to $15.95 billion to $16.05 billion, for 20% to 21% growth -over-year. With the great opportunity in front of us, we remain on track to deliver the $21 billion to $23 billion of revenue in FY22. And we're establishing a new long-term organic revenue target of $26 billion to $28 billion in FY23, representing growth of more than 21% -over-year in FY23 at the high end of the range. This long-term target is consistent with the durable growth that we've been delivering year after year. With this consistent, durable growth, we expect to continue to deliver non-GAAP operating margin improvement in FY25 and FY20 of 125 to 150 basis points -over-year, driven by continued improvement in operating leverage. We are adjusting our fixed long-term non-GAAP tax rate to .5% for FY20 from .5% in FY19. The increase is due to several factors, including changes to our forecasted geographic mix of earnings. We expect OIE to be in that expense of approximately $70 million for FY20. And we expect FY20 GAAP diluted EPS of 66 to 68 cents and non-GAAP diluted EPS of $2.74 to $2.76. OID and EPS guidance assumes no contribution from -to-market accounting as required by ASU 2016-01. Finally, we expect FY20 operating cash flow growth of 20 to 21% -over-year. For Q1, we're expecting revenue of $3.67 billion to $3.68 billion, GAAP diluted EPS of 10 to 11 cents, and non-GAAP diluted EPS of 60 to 61 cents. Now, based on your feedback, we will provide the guidance for current remaining performance obligation going forward. And in that context, we expect CRPO growth of approximately 24% -over-year in Q1. To close, we delivered another outstanding year of financial performance, durable top-line growth, a fifth consecutive year of non-GAAP operating margin expansion, strong cash flow generation, and the integration of the biggest acquisition in our company's history. I'd like to thank our employees, our customers, our partners, and our shareholders for your continued support. And with that, we'll open up the call for questions.

Thank you, sir. Ladies and gentlemen, at this time, if you would like to ask a question over the phone, please press star and then one on your telephone keypad. To everyone participating in today's Q&A session, you will be limited to one question. If your question has been answered, or you wish to move yourself to the queue, simply press the pound key. And our first question will come from Brad Zelnick with Credit Suisse. Your line is now open.

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

Let me start, Brad. First of all, thank you. One of the things that I would say, of course, you know we look at a long-range plan. It's based on a market. We happen to be, as we know, in the hottest part of enterprise software market in CRM, number one. Number two, the TAM and FY23, or 22 alone, is over $142 billion for all the addressable market for us. Number three, our competitive position in differentiation continues to accelerate. You can see that in the market share when you add up the next three most notable competitors, and it's lots on our market share which persists and continues to grow. We feel like we're in the full position with a great product offering, most importantly with our TrueNorth, the customer. I would start with that, Mark or Prateek?

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

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

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

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

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

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

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

All right, great. I'd love to address that. I think I'll ask Brett to take that on and to give us his response. He's listening to us from Australia. Brett?

Yeah, it's a great question. First and foremost, our strategy with Einstein is to improve the value that our customers are getting from our products. I'm going to give you a very concrete example of this. One of the major retailers I just spent time with a couple of weeks ago, over 60% of their customer service cadences are now completely automated thanks to Einstein. Not only they're doing that with actually improved customer satisfaction scores, so it means that they can actually use their agents in more productive and for more complex. So when we talk about Einstein, their satisfaction is through the roof because they've been able to take their human capital and spend it in more valuable ways for their customers. Similarly, as I think you're aware, with products like the Einstein capabilities built into our commerce cloud, the value we get and the value our customers get are very aligned because our Einstein capabilities are choosing how to rank product listings and suggest products in a way that improves and increases the gross merchandising value from these retailers, which improves the revenue that we get from those customers and improves the quality of our customers' business by enabling them to sell more. So across our clouds, we're trying to align our Einstein capabilities with our customer value and make sure that our pricing is aligned with our customer value because fundamentally as our relationship with our customer evolves from that of a vendor to that of a strategic partner, we want to make sure our monetization is aligned with our customer's value. And that's the strategy that we're taking. It will vary across our B2B and B2C products. We just want to make sure our packaging and pricing of our intelligence is aligned with the value that our customers get from the products.

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

Thank you guys for taking the question and very nice quarter. I think it's pretty remarkable we're seeing service cloud sustain in this 20% plus growth into the end of FY19. Like you say, it's well positioned to become the biggest cloud into FY20. Can you talk to us a little bit about sort of the drivers of that scale? It's almost like twice the growth we're using in sales cloud. And to what extent the vertical solutions that you guys have in the market are driving service cloud more so than say like a sales cloud or the like?

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

Thank you. And our next question will come from Mark Murphy with JP Morgan. Your line is now open.

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

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

and

incredible innovation. Again, it's one of our core values. And that's why you're seeing these great relationships that we enjoy with other CEOs.

Thank you. Our next question will come from Rami Alencha with Barclays. Your line is now open.

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

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

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

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

Thank you. Our next question will come from Ross McMillan with RBC Capital Markets. Your line is now open.

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

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

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

Hey, thanks for my question. Congrats on a great end to the year. I just wanted to focus on marketing cloud. We've talked a little about service and sales cloud. Marketing cloud seems to be from our checks having great momentum. Can you give us just some clarity on what's driving that? And then a question specifically for Mark. When you think about MarTech and AdTech, and you mentioned Google and their prepared remarks, where does sort of MarTech and AdTech begin? How do you see Salesforce from a sort of competitive or partnership perspective in those areas?

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

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

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

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

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

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

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

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

I think that as you look at where we're going, we're certainly excited to initiate our four-year guidance. As we head to $26 billion to $28 billion, as we work toward this year's guidance of $16 billion and our very short-term guidance of $20 billion, which are just enormous numbers for any technology company, in all of these cases, I think it's going to really get back to one very important thing, and that is something that our company has been very fortunate to build, which is our relationship with all of our stakeholders. When we look at all of our employees here at Salesforce and our customers, when we look at our partners, when we look at our trailblazers, our MVPs, or as we like to say at Salesforce, when we bring all of these together, it's really our ohana. And we're so grateful to be able to have these relationships with them that we together have been able to build these trusted relationships, that we have been able to focus on customer success, that we've been able to deliver this incredible innovation and be recognized for it so broadly, and also at the same time to build a culture here at Salesforce that has been able to stand for so many incredible things, especially equality. But I just want to end the call by saying this, that as we approach Salesforce's 20th birthday on Friday, March 8th, that it's really our fifth core value, gratitude, that comes to mind, because we are very deeply grateful for everything that has been given to us. Every single day over the last 20 years. And we want to thank you. Thank you for everything that you have done for us. We want to thank all of our ohana who are listening to us on the call and all those who have done so much over two decades, because this business is very much a team sport, and we couldn't be more grateful for all of you. So thank you very much, and we'll look forward to talking to you next quarter.

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