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Q3 2012 Earnings Call

November 17, 2011 5:00 pm ET


Graham V. Smith - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Marc Benioff - Co-Founder, Chairman and Chief Executive Officer

David Havlek -


Richard G. Sherlund - Nomura Securities Co. Ltd., Research Division

Brent Thill - UBS Investment Bank, Research Division

Adam H. Holt - Morgan Stanley, Research Division

Tom Roderick - Stifel, Nicolaus & Co., Inc., Research Division

Laura Lederman - William Blair & Company L.L.C., Research Division

Mark R. Murphy - Piper Jaffray Companies, Research Division

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

Thomas Ernst - Deutsche Bank AG, Research Division

Karl Keirstead - BMO Capital Markets U.S.

Jason Maynard - Wells Fargo Securities, LLC, Research Division

Kash G. Rangan - BofA Merrill Lynch, Research Division

John S. DiFucci - JP Morgan Chase & Co, Research Division

Heather Bellini - Goldman Sachs Group Inc., Research Division

Philip Winslow - Crédit Suisse AG, Research Division

Walter H. Pritchard - Citigroup Inc, Research Division

Brendan Barnicle - Pacific Crest Securities, Inc., Research Division



Good afternoon. My name is Tamara, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 Fiscal Results Conference Call. [Operator Instructions] I would now like to turn the conference over to our host, Mr. David Havlek, SVP Investor Relations. Sir, you may begin your conference.

David Havlek

Thanks Tamara, and welcome, everyone, to today's call. Earlier this afternoon, issued a press release detailing its third quarter fiscal year 2012 results. In addition to the press release, the company results can also be found in the Form 8-K filed with the SEC. Joining me today to discuss our third quarter are Marc Benioff, Chairman and CEO; and Graham Smith, CFO. [Operator Instructions]

Our commentary will primarily be in non-GAAP terms today. Reconciliations between GAAP and non-GAAP metrics for both our reported results and our forward guidance can be found in our earnings press release. At times in our prepared comments or in responses to your questions, we may offer incremental metrics to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that this additional detail may be onetime in nature, and we may or may not provide an update in the future on these metrics.

With that, let me make this call official with a brief Safe Harbor. The primary purpose of today's call is to provide you with information regarding our fiscal third quarter 2012 performance. Some of our discussion and responses to questions may contain forward-looking statements. These statements 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.

All of these risks, uncertainties and assumptions, as well as other information on potential factors that could affect our financial results are included in our reports filed with the SEC, including our most recent report on Form 10-Q, particularly under the heading Risk Factors.

To access our third quarter press release, including the GAAP or non-GAAP reconciliations or historical results, any of our SEC filings, a webcast replay of today's call or simply to learn more about, I encourage you to visit our Investor Relations website.

Finally, before I turn the call over to Marc, please be advised that during today's discussion, we may reference certain unreleased services or features not yet currently available. We may not -- we cannot guarantee the future timing or availability of these services or features and thus recommend the customers who purchase our services make their purchase decisions based on services and features that are currently available.

With that, let me turn the call over to Marc.

Marc Benioff

Hey, David. I am absolutely delighted to share these amazing third quarter results, and I'll begin by briefly reviewing some of our financial highlights from the quarter.

First, revenue of $584 million rose by amazingly 36%. Our annual revenue run rate is now more than $2.3 billion, and it makes us the first enterprise cloud company to reach this milestone. Non-GAAP EPS of $0.34 was absolutely above our guided range, and we delivered that while hosting a world-class Dreamforce here in San Francisco. But now, it is the largest enterprise software event in the world of more than 46,000 registered attendees.

Deferred revenues increased by 32% that finished the quarter at $918 million, and third quarter operating cash flow rose by 74% year-over-year to $129 million in the quarter. We exited the quarter with approximately $1.3 billion in cash and equivalents on our balance sheet.

Now in fiscal year 2012, we became the first enterprise cloud company to surpass a $2 billion annual revenue run rate. And today, I'm delighted to announce that we expect to reach a $3 billion annual revenue run rate during our next fiscal year. That is just spectacular growth. Our financial success in the third quarter was powered by a tremendous response from customers to our new social enterprise strategy. We're now engaged with customers at a higher and more strategic level than ever before, and we've seen more large deals this quarter as a result of that strategy than we have seen in other quarters this year.

At Dreamforce, we showed how some of the world's best companies such as Burberry, Toyota, Verizon are all transforming into social enterprises. In fact, I'm delighted to share with you one of our largest transactions in the quarter was Verizon, who signed up for 80,000 subscribers of Chatter, 7,000 subscribers of the Sales Cloud and Now Verizon's vision for the social enterprise is to build an employee social network connecting retail stores and office-based employees, fueling a new level of global collaboration. And by mobilizing their workforce on iPads, Verizon plans to delight customers in an entirely new way. Today, we're seeing customers buy a broader selection of our services as evidenced by growth of all of our product lines.

For the Sales Cloud, we signed Maersk, one of the world's largest shipping companies in the world based in Europe. And they swapped out Oracle and selected Salesforce to their entire global sales team. We also won deals against Oracle with Bayer, Eli Lilly, Telstra, Fuji Xerox, Japan Post, Unisys, PTC Parametric and Diebold Securities, all strong wins against Oracle. But in Q3, we also won against Microsoft, closing major deals with Pfizer, AXA, CenturyLink, American Teleconferencing Services, Gates Corp., Banca Civica, Orion, Vbimps [ph] M&G and Tripwire. Other newer add-on transactions for the Sales Cloud from the third quarter included Adobe, Avaya, Sompo and Kaspersky Labs.

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