Good day. My name is Victoria, and I will be your conference operator. At this time, I would like to welcome everyone to the CRM Q4 2017 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the call over to John Cummings, Vice President of Investor Relations. Sir, you may begin.
Thanks so much, Victoria. Good afternoon, everyone, and thanks for joining us for our fiscal fourth quarter and full year 2017 results conference call. Our fourth quarter results press release, SEC filings, and a replay of today's call can be found on our investor relations website at www.salesforce.com/investor. With me on the call today is Marc Benioff, Chairman and CEO, Keith Block, Vice Chairman, President and COO, and Mark Hawkins, CFO. As a reminder, our commentary today will primarily be in non-GAAP terms. Reconciliations between our GAAP and non-GAAP results and guidance can be found in our earnings press release. Some of our comments today may contain forward-looking statements which are subject to risks, uncertainties, and assumptions about them. Should any of these materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements.
A 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 Form 10-K. With that, let me turn the call over to Marc.
Okay. Hey, thanks, John. You know what? This is really an exciting call for us. I'm just going to tell you right now why we're so excited. This is our 50th quarter as a public company, and we couldn't be more thrilled to be on the call with everybody today. In 2004, when we went public, we had $46 million in quarterly revenue. Now in the fourth quarter alone, we delivered $2.3 billion in revenue. For this fiscal year, we are guiding to more than $10 billion in revenue. I just had the opportunity to review the financial numbers and details, as I'm sure all of you have.
When you look at operating cash flow up 50% year-over-year at these extraordinary rates to $706 million, or that we now have $14.5 billion of booked business on and off the balance sheet, up 28%, and it's just beyond our expectations. We are absolutely thrilled with the performance of the company, and these are clear financial indicators of how well we're doing and also how well we're going to do in the future. Look, I'm incredibly grateful to our employees, our customers, our board members, our shareholders, the Salesforce community, all of our stakeholders over the last 18 years who have been on this path together with us. Thank you to each and every one of you for everything that you have done for us. We are absolutely grateful.
I am extremely proud as well of this amazing recognition that we received from Fortune Magazine, which ranked Salesforce as the 20th most admired company in the world. That is something we could have never anticipated, and the number 1 workplace for giving back, so thank you very much for that. Now, we've proven over the last 18 years that a company can do good in the world and also do well, and I'm going to go through some of our fourth quarter financial highlights to hit some of these incredible numbers. Revenue for the quarter rose to nearly $2.3 billion. That's up 27% year-over-year. It's amazing. Of course, this has not been an easy foreign exchange environment this year, has it, Mark?
It has not.
No.
For sure.
Those numbers would be even higher if we did not see things that have happened in Brexit and pressure on the great British pound. Also just amazing how we saw revenue for the full fiscal year was nearly up $8.4 billion, up 26%. Incredible. No other enterprise software company of our size and scale is growing at this rate, and we've continued to balance this top-line growth with improvement in non-GAAP operating margin, which I'm going to have Mark talk a little bit more about in just a second. Deferred revenue grew to more than $5.5 billion, up 29%. Pretty awesome. Dollar value of booked business on and off the balance sheet, now more than $14.5 billion. I just touched on that. I'm sure that you all realize that means that we have added more than $3 billion since last year.
Now, looking ahead to fiscal year 2018, you can see why we are raising to $10.2 billion at the high end of our range. This incredible fast growth is the result of how we are uniquely addressing the needs of more than 150,000 of our customers from around the world, building a single view of their customers. No company like this has ever been created before. A company in enterprise software singularly focused on the customer. No other company has 25,000 employees solely focused on CRM and helping to build deeper and more intelligent relationships with their customers. We are so well positioned for the future. We're the clear leader in the fastest-growing enterprise software segment, CRM. Here's something kind of amazing. CRM, I'm sure you saw this incredible report from Gartner. The enterprise software marketplace is really sliced into four key pieces.
One, operating systems, which are in decline. Two, ERP, which is slightly up. Databases, slightly up. CRM, which is now, by 2020, will be the largest segment of the enterprise software market. That's incredible. We're the largest player in that market. We're also the leaders in our core markets in that sector, in sales and service and marketing, commerce, and platform. We're exiting fiscal year 2017 with the strongest portfolio of products we have ever had, including some amazing technology and teams that we have also been able to bring under our wing over last year, including these great organizations like Demandware, Krux, and Quip. Okay. I can tell you I've never been more excited about the future, and we are really well positioned to take advantage of this very, very fast-growing CRM market as this quarter results indicate.
You're going to hear now Keith talk about some amazing customer wins. Now, before we get on to Keith and the customer success stories, I want you all to mark down March 7th. March 7th, in only a week, we are going to have a worldwide webcast to 2 million of our customers and users, and it's going to come to you from our new building at Salesforce East in San Francisco. That will be right next to Salesforce Tower, that I'm sure a lot of you have seen is rising high in the sky here in the city. If you can come to March 7th, you're going to see some amazing customer announcements, product announcements, partnership announcements, and we have got some incredible stuff to talk to you about. We will hopefully see you in one week here in San Francisco.
You're going to also see the latest in what we're talking about with Einstein, with our spring and summer 2017 product releases. Some of our largest customers are going to be there as well, talking about some of their expansions. Some that we're talking about on the call here, and others that we're holding until March 7, you can have some news a week from now on Salesforce as well. Okay, Keith, go ahead.
All right. Thanks, Mark. Obviously, this was an exceptional quarter. Salesforce is the fastest-growing top five enterprise software company in the world. This year we expect to deliver more than $10 billion in revenue. That will reach the milestone that we have been talking about being faster than any other enterprise software company in history to that $10 billion mark. In FY 2017, we drove tremendous execution, growth at scale, and delivered unprecedented customer success. We did this while integrating Demandware, our largest acquisition ever, launching innovative new products, including Einstein, and adding more than 5,000 employees. When I joined Salesforce nearly four years ago, Mark and I put together a plan to become more strategic to our customers and to become more of an enterprise scale company. That plan really had three parts to it. Number 1 was a focus on industry.
This is all about speaking the language of the customer, and bringing industry expertise and launching industry products in the marketplace. The second was expanding our international reach to serve our global customers. Very, very important. The last was building the world's strongest ecosystem in the cloud, and that was with our SI partners and our ever-expanding ISV community. Today, we have strategic relationships with the largest and most successful companies in the world. We are inspiring companies of all sizes, all industries, and all geographies. We have clearly become the trusted advisor to our customers for their digital transformations. All of this is translating to our results, including a record number of big transactions. In fact, we hit a huge milestone this fiscal year, which we're incredibly proud of, and that was achieving 100 $110 million-plus relationships on an annual basis.
The number of $20 million-plus relationships has nearly doubled in just one year. Pretty incredible progress. Let's talk about some of the highlights from the quarter, starting with our industry strategy, again, one of our growth pillars. We had strong growth in Q4 in all of our target industries. In fact, the largest deal of the quarter was a massive expansion with one of the world's leading CPG brands based in Europe, using Marketing Cloud, Sales Cloud, and Service Cloud to deliver personalized consumer experiences. We expanded our relationships in Q4 with three of the four, excuse me, three of the five largest CPG companies in the world, all of them running on Salesforce. As you recall from last quarter, our momentum is continuing in financial services. In Q4, we expanded relationships with U.S. Bank, SunTrust, TD Bank, and many, many more.
We're also building on a very strategic relationship with Farmers Insurance. That's from our early days in helping them modernize their customer self-service to bringing more synergy across their customer, agent, employee, and partner channels. Healthcare continues to be strong for us. In Q4, we expanded relationships with Anthem, athenahealth, and one of the largest healthcare companies in the U.S., Humana. Just a quick update on Financial Services Cloud and Health Cloud. It's been less than a year since they've been GA, and we've already seen great traction. In fact, more than 70% of customers who have purchased one of these industry solutions are net new logos to Salesforce in this fiscal year. All of these are proof positive around the power of speaking the language of the customer. Onto international, our second growth strategy.
Each of our regions grew more than 25% in constant currency for the full year. In fact, EMEA and Asia-Pac both grew 29% year-over-year in constant currency. Today, nearly 30% of our revenue is outside of the Americas, and this represents a huge, huge growth opportunity for us, and we'll continue to accelerate our international expansion to meet our customers' demand. I fully expect our revenue mix to be more balanced over time. This is, again, something that we're very, very focused on and very excited about. To that end, we expanded relationships in Q4 with some amazing brands like Shell, Michelin, Emirates, and Maersk in Europe. We drove strong financial services momentum as well, again, in the industry with 5 of the top 15 banks in Europe this quarter, including Banco Santander and BNP Paribas, again, all running their business on Salesforce.
We had other huge international wins in the quarter with BRF, Latin America's largest food company, also with the Japanese Cabinet Secretary for Social Security and Tax, and Fujisawa, all in Japan. Great progress again on the international front. As far as partner momentum, we continue to strengthen our partner ecosystem. We are seeing partners grow their Salesforce practices by more than 50%. Today, every single one of the top 5 SIs in the world run their business on Salesforce. Great example of this is Deloitte. We have an incredible partnership with them. They expanded their relationship with us, rolling out sales, service, analytics, and of course, the Salesforce platform. We're also seeing strong momentum in our ISV community, and the innovation around our platform in that community. Today, nearly 90% of the Fortune 100 are running apps from the AppExchange.
These are apps that are being installed by customers at a rate of more than 1 per minute every single day, which is pretty incredible. Before I wrap up, I want to say how proud I am of the company and our ability to integrate more than a dozen acquisitions in FY 2017, while still delivering really record-breaking results. Look, this operational excellence, it's already paying off. We're driving incredible value and innovation for our customers. This quarter, we had a huge set of Commerce Cloud wins with Levi's, and The Gap, and YETI, and many, many others. Commerce Cloud grew customer gross merchandise value by 26% in constant currency from a year ago. An acceleration from Q3. Look, in summary, I would tell you that no other technology company is building the relationships that we are. We are driving incredible innovation.
We're bringing huge value to our customers. We continue to inspire our customers. We continue to paint a vision for their success. As I said, we are executing at scale across every part of the company and delivering success to our customers better than anybody else in the world. With that, I'll hand it over to Marc.
Thanks, Keith. As you've heard, we've delivered another year of strong financial performance in FY 2017, with outstanding top-line growth, continued operating margin expansion, and excellent cash flow. Over the last three years, we've actually doubled our revenue. We've increased our non-GAAP operating margin by more than 400 basis points, which has translated into nearly tripling of our free cash flow. I'm especially pleased with our cash flow performance and operating margin improvement, even as we've been making critical investments in our long-term growth. Now let me discuss Q4 and FY 2017. Q4 revenue grew 27% in dollars and 28% in constant currency, excluding a year-over-year FX headwind of approximately $30 million. For the full year, the revenue grew 26% in dollars and 27% in constant currency, with the revenue from companies that we acquired in FY 2017 contributing approximately 2.5% to year-over-year top-line revenue growth.
Driving this strong top-line growth was the performance of our portfolio of clouds throughout the year. A couple of highlights. Sales Cloud grew 13% for the full year, becoming the first $3 billion cloud. Service Cloud grew 28% for the full year. Platform and other grew 39% for the full year. Marketing Cloud, excluding Demandware and Krux, grew 25% for the full year. Demandware performed strongly in the first six months, contributing approximately $63 million in revenue for the quarter and $120 million for the year. Note, this was at the high end of our initial guidance, despite adjustments due to purchase accounting. Dollar attrition for the fourth quarter, excluding Marketing Cloud and other acquired businesses, remained below 9%. Before I turn to cash flow and balance sheet, let me spend some time on margins.
Full-year non-GAAP gross margins were down 126 basis points over last year, primarily due to revenue adjustments due to purchase accounting, increased investments in acquired companies, and thirdly, a slightly higher mix of professional services revenue due to a large increase in our strategic transactions. Despite this, our full-year non-GAAP operating margin was up 78 basis points over last year and slightly ahead of our prior guidance of approximately 70 basis points. These results included a headwind of approximately 150 basis points related to FX and the acquisition of Demandware. This operating margin improvement helped drive a record cash flow for Salesforce, as we delivered more than $2.1 billion in operating cash flow, up 29% over last year. This translated into an operating cash flow yield of 25.8%, which was slightly higher than FY 2016.
Given that cash flow is my number one priority, I'm very pleased with these results considering the headwinds from both FX and M&A activity. CapEx for the year was $464 million, or approximately 5.5% of revenue. This was primarily driven by leasehold improvements and continued investment in data centers globally. For FY 2018, we anticipate CapEx to be between 4%-6% of revenue, which is in a lower range than in prior years. Deferred revenue grew by 29% in dollars and in constant currency, ending the quarter at $5.54 billion. On a sequential basis, deferred revenue had an FX tailwind of approximately $23 million. Demandware contributed approximately $49 million to deferred revenue in Q4, up from $30 million in Q3. Before I move on to the guidance, a quick reminder regarding seasonality and the impact on operating cash flow and deferred revenue.
As we shared with you at the last two analyst days, invoicing seasonality continues to deepen. This Q4 was especially strong from an invoicing standpoint. In fact, the sequential change to deferred revenue in Q4 was 59%, up from 45% three years ago. This contributed to the outperformance in cash flow and deferred revenue in the quarter. Moving on to guidance. Coming off a record fourth quarter, we are pleased to be raising our full-year FY 2018 revenue guidance to $10.15 billion-$10.2 billion for 21%-22% growth year-over-year. This includes approximately $125 million-$150 million of FX headwind. We are also initiating our FY 2018 non-GAAP diluted EPS guidance of $1.27-$1.29. In context, we expect to deliver approximately 125-150 basis points of non-GAAP operating margin improvement in FY 2018.
Keep in mind, this continued integration of Demandware, along with FX headwinds of approximately 50 basis points, is expected to slightly pressure our operating margin in fiscal 2018. This margin improvement will help us drive another strong year of operating cash flow, and we expect year-over-year growth of 20%-21% and an operating cash flow yield similar to FY 2017. Let me quickly touch on non-GAAP tax rates. We previously said we would reevaluate this rate annually and/or if a significant event occurs that may materially affect this rate. As we become more profitable, which is a good thing, especially internationally, we expect our long-term tax rate to decrease. As a result, we are lowering our long-term projected non-GAAP tax rate to 34.5% for FY 2018.
For Q1, we're expecting revenues of $2.34 billion-$2.35 billion, year-over-year deferred revenue growth of 22%-23%, and non-GAAP diluted EPS of $0.25-$0.26. A few quick notes on our Q1 guide. First, you will recall that in FY 2017 was a leap year. As a consequence, we have one fewer day of revenue in the first quarter of FY 2018. At our current scale, that one day of revenue represents approximately $25 million, which is reflected in our Q1 guidance. Bear in mind, this is purely a timing issue and has no impact on the full year revenue guidance. Secondly, due to the acquisition-related margin pressures in the first half, we expect our FY 2018 profitability EPS to be a bit more second-half weighted than in prior years.
Thirdly, as we discussed, due to continued deepening of our invoice seasonality, we expect the sequential change on deferred revenue from Q4 to Q1 to be a bit steeper than in prior years, which is not unexpected. To wrap up, we had an outstanding quarter, and that drove a strong finish to an outstanding 2017. We delivered our third consecutive year of non-GAAP operating margin improvement, even in the face of FX and M&A headwinds. We delivered our first-ever $2 billion operating cash flow, and going forward, we will continue to focus on improving our non-GAAP operating margin cash flow while balancing our investments required to ensure growth, customer success, and shareholder value. On that, I'd like to thank our employees, customers, partners, and shareholders for their continued support. With that, I'd like to open up the call for questions.
At this time, if you'd like to ask a question, please press star, then the number one on your telephone keypad. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Mark Murphy with JPMorgan.
Yes, thank you very much. Congrats on a spectacular finish to the year. My question is for Marc Benioff. I wanted to ask you about the acceleration that we're seeing in the Sales Cloud. It does seem rare to see a revenue stream that is so large accelerate like this, so I'm wondering what you think might be breathing new life into the Sales Cloud, whether it's the Lightning UI upgrades or the layering on of artificial intelligence capabilities, or perhaps the pricing environment and competitive environment is becoming less intense, or something else. If I may, I have a quick follow-up for Mark Hawkins.
Well, thanks so much. Yeah, Sales Cloud has become one of the very largest software products in the entire industry. Of course, all by itself, I think it's probably the largest cloud computing company. Is that right, Mark? It is. It's over $3 billion, Mark. Yeah, it's over $3 billion, so that's bigger than Sales Cloud is bigger than, what? Workday, ServiceNow, NetSuite. Correct. It's bigger than Oracle's entire cloud business, that type of thing. Anyway, yeah, Sales Cloud is amazing, and it has re-accelerated. You're right. We've seen the numbers. You're also right, it has to do with that we've completely rebuilt our Sales Cloud. Not just a new user interface with Lightning, not just an incredible new CPQ platform with SteelBrick.
Of course, you saw today, Salesforce1, which is the mobile extension of Sales Cloud, won the Mobile App for Businesses of the Year at Mobile World Congress. That exceeds our expectation, but it really demonstrates that Sales Cloud works incredibly well in the mobile environment, the best business mobile app. Pricing, as you know, last year, we enhanced our pricing and made changes based on customer feedback. That's been received incredibly well. You saw that we introduced Dreamforce Einstein, which is giving Salesforce artificial intelligence and giving Sales Cloud artificial intelligence. That gives our customers the ability to take this incredible power of machine intelligence, machine learning, deep learning, and it's available now inside Sales Cloud. That's incredible for our customers.
There's no other Sales Force Automation solution in the world that's as successful as Sales Cloud, has the market share of Sales Cloud, has the growth of Sales Cloud, but also is as innovative and competitive as Sales Cloud. It has, after 18 years
to remain number one in innovation and capability. That is incredible. As I pointed out with this acceleration that is going on in the CRM market, I think that that's part of it. If you look at that partner chart that they publish, dividing up operating systems, databases, ERP, and CRM, you can see CRM has accelerated because Sales Force Automation is an essential part of CRM that's also accelerating, and we have this incredibly innovative product. We're well set up on Sales Cloud. I hope that answers your question.
Your next question comes from the line of Ross MacMillan with RBC Capital Markets.
Thanks a lot. This is also for Marc Benioff, and congrats from me as well. As you think about Einstein, it is now in market on Sales Cloud. Maybe you could just touch on how we should expect to see the artificial intelligence get rolled out across sales and marketing and other parts of the platform, and what sort of timing should we expect to see that happen in? Thanks.
We actually have already begun the rollout of Einstein into all of our clouds. We have made a number of announcements, but we have also released products. Our customers in our spring release have this capability embedded inside many of those clouds, including Sales Cloud, including Marketing Cloud, including Commerce Cloud. We saw the announcement last week on Service Cloud and Service Cloud Einstein. That is so exciting to see this intelligence start to move across. Einstein is an incredible AI capability. I have to tell you one amazing story. We are going to talk about this more next week, and encourage all of you to come to the March 7th event or watch it on video. We had a call from a major customer of ours, they are a CPG company, and they have a big issue.
The issue that they have is in their stores, they have a lot of shift happening on inventory, and they also have a competitive situation as well. They want to know what is going on. They want to know if competitive products are ending up in their shelves, which is supposed to be merchandised only with their own proprietary products. We showed them, just by using a cellphone camera and using Einstein and our deep learning capabilities, which have benchmarked, I think, as high as many of the other AI clouds. I am sure many of you are following that work. All of a sudden, what we showed them was with a simple camera, they were able to do real-time inventory analysis of their retailer shelves, and they were able to, based on that analysis that is happening from those cameras, understand the competitive environment, number one.
Number two, understand their own environment. Number three, when they are seeing a level of depletion on the shelves that they want to replace, they can just roll trucks automatically using Salesforce Einstein. Of course, that also can create customer service cases. It can create sales opportunities automatically. Automatically, with no one else involved. All of a sudden, salespeople and service people and marketing people, and even truck drivers, are all alerted to changes that are happening in the retail environment, which up to this point, have not really been monitored very well, and certainly not efficiently. That is kind of what AI and Einstein are giving us now in the current state of play. That is, a very low-cost camera, coupled with Einstein, gives us incredible intelligence into their customer's environment, their customer is the retail store.
This vision of the future that AI is going to make our customers more successful, this is playing out now. It also helped us close a very large deal in the fourth quarter. You'll hear about it March 7th.
Your next question comes from the line of Heather Bellini with Goldman Sachs.
Great. Thank you. This is another one for Marc Benioff. Marc, you launched analytics obviously a few years ago, at Dreamforce this past year, Alex sounded as if that product had found the right mix of capabilities at the right price points. Can you share with us how you see this opportunity being layered into your installed base? What's your expectation of traction in this regard for the coming fiscal year?
Well, thanks, Heather. I mean, analytics had a great year. We're very excited about the analytics offering. We have had this product now in the market for about two years. I'm speaking really about our Analytics Cloud and our Wave platform, which now, you know that we've also augmented and extended with Einstein. That really changed the game on analytics. I'll just tell you that how I run my own business has dramatically changed based on this product, and that is very simple that, we have, like a lot of companies, every Monday, we all sit together, about 20 of us, and we go through how the quarter is doing and what the major issues are in the company. It's our staff meeting. There's one extra seat left at the table. That's not for Elijah. The extra seat that we're leaving is for Einstein.
That chair, which has a little Einstein doll in it, I turn to in the meeting, and I can say, "Einstein, tell me, how is the quarter doing?" Usually, I have to say that to Keith Block, okay? Now I have Einstein, who goes back and looks at all of our fiscal year results over a long period of time.
Looks at all of our account executives, opportunities, and deal flow, look at all of our global pipelines, then all of a sudden says, "Yes, you're going to make the quarter," or, "No, you're going to exceed the quarter by $10 million," or, "You're going to miss the quarter by $10 million." I can tell you, it's kind of a funny story, because this quarter, which is the first quarter that we're using Einstein, which is based on this incredible Salesforce Analytics Cloud with Wave and Einstein, and this guidance capability.
All of a sudden, one of our sales managers, who was actually doing fine in the quarter and was forecasting in the month of the Monday meeting saying, "Oh, I'm going to have a fine quarter." Einstein started to say, "No, actually." This is actually, I'll tell you what, it's a kind of a funny story, because he actually made his number and had a world-class quarter, which was our European business. It said to about our European business, Einstein said, "Very sorry, but you're not going to make your number this quarter. You're going to miss by $10 million," approximately. This really got him upset, actually.
I think that it kind of spurred him into action a little bit because it was said because of, this variable is not right, and this isn't right, and this isn't right, you're going to have this result. All of a sudden, he became kind of, I would say, inspired, and went out there. He had a great quarter. Maybe he would've had a great quarter anyway, but this is a new player on the management team, Salesforce Einstein. This is really coming out of this AI cloud. We could not have anticipated this three years ago when we built Wave. Wave has had huge secondary gain because in our core platform, and I had that first question on Sales Cloud. It's not just Lightning and AI and CPQ and Salesforce1 and pricing that's in Sales Cloud.
We have this incredible analytics capability, our baseline analytics, which is better than ever, and is built into Sales Cloud. Our customers have never been as satisfied with our core capabilities and dashboards and reporting, and now artificial intelligence. That's analytics. Then we, of course, have our Analytics Cloud, which I believe is the most competitive and most exciting and most innovative Analytics Cloud in the CRM market. I'm very excited about it. I believe it will continue to be a good, strong growth driver for the business. It's still an early product. It's hard because when you have a product like Sales Cloud doing $3 billion and a product like Service Cloud, which is doing how much now, Mark?
$2.5 billion.
$2.5 billion, you have Marketing Cloud doing-
Approaching $1 billion.
$1 billion. You have a new product that you've kind of built organically, internally coming up. It's hard to give it as much of the limelight, but the technology and the customer acceptance and how we use it internally has been awesome.
Your next question comes from line of Kash Rangan with Bank of America.
Hi, thank you very much. Congratulations on the spectacular finish. One for Keith. If you could talk about the tweaks that you're contemplating on the go-to-market side, given that you had an infusion of some fantastic technology and acquisitions in the past 12 months. One for Benioff. How do you think, Marc, that AI would allow you to go upsell back on an install base? Can you just quantify how that might play out? Thirdly, for Mark Hawkins, not to leave you off, but as you execute Marc's plans to double the size of the company, how should we be thinking about the margin profile? Is there a nonlinear element to the margin growth in the next three to four years as you get scale? Thank you very much.
Kash, hi, it's Keith. Thank you for the complex multi-part question. I'll lead off with this part. As you know, we did a dozen plus acquisitions in FY 2017. The integration has gone incredibly well as we continue to operate the company at scale and grow. We have a standard template and process when we integrate these companies, in all lines of business. For example, in the go-to-market business, or aspect of the company, we try to keep these companies together because we want to incubate them, we want to grow them, we want to nurture them, we want to bring them into our culture. We also want to make sure that we put them in a position where we can attach to the install base and the customers, so they can get the power of Salesforce when they come into the company.
We've seen some great success. A good example of that is the Demandware acquisition now called Commerce Cloud. The GMV growth was excellent. We signed up some great business in the quarter, but it's because we have a standard model from an operational perspective on how we bring these companies in so that we minimize disruption, and we try to get them to hit the ground running as fast as we can.
Let me take the second one in terms of the operating margin as we go to take the company forward. Kash, happy to talk about that. One of the ways to think about the operating margin is, number one, we'll be thinking about it consistent with our revenue operating margin framework. That will guide us as we continue to absolutely propel forward the growth and also expand the operating margins and drive the cash flow at the same time. One of the things that's interesting, though, Kash, about your question, if that's the forward-looking kind of thought about it, let's look at this year. This year, we've really effectively been in the middle of the framework when you take 78 basis points of year-on-year improvement, if you think of the 150 basis points of headwind that we took.
Those things we kind of think about a few of those together in 2017. Going forward, again, we'll certainly be committed to the framework. You can certainly see what we've done in the last three years when you talk about doubling the company, Kash. The last time we did it, if you think about 2014 to 2017, we literally doubled the revenue of the company. We increased operating margins by approximately 430 basis points, while nearly tripling the free cash flow. You can see what we've done in the past. You can see what our most recent year is, and you can see the framework to guide us forward for the future. I really appreciate the other question about Einstein, I thought we should bring Einstein onto the earnings call, we'll let Einstein answer that for you.
No, we're not going to do that, but that would be a good part of this, wouldn't it? Yeah, Einstein is an upsell opportunity into the installed base, but that's not our primary goal with it. For some of our customers, they will receive Einstein as part of their platform. For other of our customers, they will pay for Einstein. I think the most important part of Einstein for us is its differentiation against other CRM products. Now that Salesforce has shipped Einstein into its core platform and released it to its customers worldwide, and now that so many customers are using Einstein, and we have so many exciting stories about Einstein, which is only going to accelerate through the year.
Salesforce is the only CRM platform in sales, service, marketing, commerce, community, and analytics, as I mentioned, that has this deep artificial intelligence capability available to it, and that is going to accelerate this year, not only in innovation, but also in customer use. I know how much customers love this platform and how much they're going to use it going forward. Marc, do you want to add to that?
I think the Einstein is just, for me personally, super interesting, Marc, because as you know, I use Wave all across the company. I instrument literally every aspect of finance that you can think with Wave. I probably legitimately have more than 50 dashboards. I think about, Marc, some of the application of Einstein to each one of those dashboards. As a big use case for a Fortune 500 company, I just see a really interesting opportunity going forward with Einstein.
Keith, do you want to add any thoughts about what you're seeing with customers and Einstein?
I think it's pretty clear the company, over the last 18 years, has had an incredible vision, consistently has delivered new innovation to the marketplace. Obviously, pioneering cloud and bringing Sales Cloud to the market 18 years ago was a great start. It was a first act. Many companies never get beyond that first act. We've gotten beyond the first act, the second act, the third act, the fourth act. We're well into our fifth act plus around innovation, Einstein is certainly a great example of that. If I look at use cases for Einstein, just overall, I would tell you that this is really bringing insight to action across sales and service and marketing and commerce. If you think about opportunity insights or account insights, predictive lead scoring, et cetera. I can go through every one of the lines of business.
At the end of the day, yet again, we are painting a vision for our customers and providing them with very compelling technology to get insights about their customers and what sort of use cases that technology can be applied to. Every customer that I've spoken with is hugely excited about the potential for Einstein and what it means to their business models and their business. We're just starting to see the beginning of it.
I think you're going to see that next week when we introduce you to several of these customers who completed extremely large transactions with us and increased their strategic relationship with us. Many of those are based on Einstein. We want to hold back some of those demonstrations and reveal some of those technologies and deals so that we can really emphasize them appropriately.
Your next question comes from the line of Karl Keirstead with Deutsche Bank.
Thanks. This question is for Mark Hawkins. Mark, I had a question on the Q1 DR guide and hence the implied billings guide. Mark, this always happens when you post a big 4Q DR number, the math means that the sequential DR decline is large, and it obviously has the effect of making billings growth look perhaps less than what some investors wanted. Is that merely this sequential DR math dynamic at work, maybe made a little bit worse by this steady increase in 4Q, 1Q seasonality, which you've been flagging for a while? Is there anything else that you could call out? Thank you.
Yeah, I really appreciate the question, Karl. I think you've absolutely nailed it. I think, as you said, we've been calling this out for years. You can see the mathematical symmetry of what's happening. Again, our thesis is that other companies that eventually get to the scale of, as SaaS companies, will see this similar kind of phenomenon. Our Q4s get bigger and bigger for lots of reasons. It's our biggest renewal quarter. It's our biggest new book of business quarter. People want to consolidate their deals as they continue to grow their strategic relationship with Salesforce, which is happening, as Keith had called out. You can see exactly what you talked about. Our DR was very strong in Q4. We had very strong invoicing, very strong demand.
That, of course, has the effect of the sequential growth goes higher and higher, and then in the next Q1, it goes lower and lower, very mathematically symmetrical to what we would have expected. Really, the sound bite on this thing, separate from the leap year, which we called out last year, just to make sure people have that reminder, is fundamentally our demand environment is exactly as Keith and Marc have described, and I've described. It is very strong. We just finished a really strong year, and as a result, we raised our guidance for the whole year. That is really the point that we're trying to make, but I think you understand it perfectly, Karl.
Your next question comes from the line of Alex Zukin with Piper Jaffray.
Thanks, guys, for taking my question. Congratulations on the quarter. Marc or Keith, how would you categorize what % of your sales force is currently fully trained to sell Service Cloud? Given that this market has five to six times more seats than Sales Cloud, what kind of share do you think you can get over time in the market?
Hi, Keith. Let me take this. Look, we put a premium on what we refer to as enablement, right? We bring a lot of people into the company, 5,000-plus people this year. We spend an incredible amount of focus time making sure that all of our people are brought up to speed on the features and functions of any of our clouds. Take Service Cloud as an example, since it's the one that you asked about. We take advantage of some amazing technology. Trailhead is an example for making sure that we can bring people up to speed and hit the ground running very quickly. This is an ongoing thing. We don't just train somebody once and then that's it. There's no end of job when it comes to training and enablement.
As I said, I think it's one of the reasons why we're so different than the rest of the marketplace in terms of the effectiveness of our go-to-market teams. Specifically on Service Cloud, look, we're the market leader, okay? We had amazing growth in the Magic Quadrant. We're the market leader of the Magic Quadrant with Gartner, if you take a look at that. This is a $2.5 billion run rate business. After Sales Cloud, it is the largest cloud, I guess you could say, company in the world in terms of size and scale. Again, we're taking market share. We're number one in the marketplace. We've got incredible capabilities. We continue to improve the product. We're enabling our sales teams, and our customer success teams. I think it shows up in our results.
Your next question comes from the line of Philip Winslow with Wells Fargo.
Hey, guys. Thanks, guys, for taking my question. Actually one question for Mark Hawkins, just as a point of clarification. Unfortunately, the conference call, I think, broke up when you were giving the high end of your margin expectations for this year, and it wasn't in the transcript either. Wondering if you could reiterate that. Then sort of a follow-on for both Keith and Mark off of that. Obviously, you've gotten questions about upsell, cross-sell, and just the framework you've given for margin. As you're increasingly attached, as Keith, you were just talking about Service Cloud or Marketing Cloud, which is one that I'd particularly like you all to double click on. How are you thinking about that as far as just sort of where you are in that process in terms of just training up the sales force to do that?
How is that contributing the leverage and the framework, just call it more attach of clouds per customer?
Got it. Let me, Keith, if something comes up, then I'll kind of tag team on this. Let me just address that. First of all, Phil, thank you for alerting me that it broke up during that. I'm pleased to report, that in addition, our revenue, taking that up to $10.2 billion for the year. The operating margin, we've expanded it from 125 basis points to 150 basis points for fiscal year 2018, and that is despite the fact that we expect 50 basis points of pressure associated with FX. We're still going to take it up between 125 and 150, irrespective of that additional points of pressure, Phil. Point number one. Point number two, Keith, I think he's asked a little about cloud cross-sell and opportunities from that standpoint. If you want to address that, then I'll talk about the margin at the end.
Yeah, let me talk about that. We're in an enviable position where we're a market leader in every cloud that we make and produce and bring to the market, and that drives incredible amounts of customer success into the marketplace for our customers. That is where we are laser-focused. When we go to market, we go to market on a solution basis, which is typically a multi-cloud solution. That could be by industry, that could be by line of business. When I think about, for example, the top 10 deals in the quarter, I can tell you that eight of the top 10 deals in our quarter in Q4 had multi-cloud solutions. That means it wasn't just Sales Cloud, it was Sales Cloud and Service Cloud, or it was Marketing Cloud and Communities, or it included Analytics, et cetera.
Again, customers are buying solutions. They buy solutions because they're looking to solve a business problem, and we are uniquely positioned to solve those business problems in the marketplace as it relates to customer engagement. We're in a great product position. We have an excellent execution strategy, which I outlined in the call earlier. Just to give you an example, I talked a lot earlier about the level of relationships that we're establishing with these customers, when I talked about achieving this goal of 100 $10 million-plus relationships, and doubling the number of $20 million-plus relationships. Just to put that into perspective, if you go back to, I joined the company back in FY 2014, and again, I have the privilege of working with an amazing team and an amazing company.
To put that in perspective, fast-forward to where we are today, we have three times the $10 million-plus relationships with customers than we had back in FY 2014. We have five times the $20 million-plus relationships that we had back in FY 2014. How did that happen? It happened because we had a compelling vision. It happened because we had a multi-cloud portfolio that added a lot of value, incredible value, that allowed these customers to drive digital transformation and engage with their customers in entirely new ways, in unprecedented ways. There is an incredible amount of opportunity, on an attached basis, across all of our clouds. We're seeing more and more demand for it, and we are uniquely positioned to provide that for our customer base.
I think this is really, kind of get back to the upsell comment before, which is, in terms of upsell and cross-sell and kind of selling these CRM cocktails, when we're going in to a customer, I think it's important that we are talking to them about what are they trying to accomplish with their customers. We're not there to sell them a Salesforce automation solution, or a service solution, or marketing, or platform. I think our first question is, tell us about your customer strategy. How are you going to connect with your customers in a whole new way? How are you going to build a one-to-one
relationship with your customer? How do you create more collaboration across your enterprise and with your partners and with your customers? How do you build communities with your customers? I think through these probing and question answering and really asking these questions in the customer's language, specific by vertical. That is, we're trying to speak to the customer these questions in their own language. That's an incredible transformation that Keith has led over the last four years. You can see that now when we talked about, we've got five out of the top five banks, five of the top systems integrators. We talked about Deloitte. You know who all the other systems integrators are, and they're all using Salesforce. You look at the top tech companies who aren't our specific head-to-head competitors. They are using our products. You look at the media companies.
That's very exciting, what has happened, this transformation with Salesforce. We're not just selling them SFA, we're selling them a broad set of solutions. Einstein is a huge differentiator. Mobility is a huge differentiator. Platform is a huge differentiator, because our competitors just don't offer these capabilities. They just don't have it. I think that that has really become an incredible thing. This cross-cloud vision, which is a vision we've had for a long time, but I think we're executing it now better than ever. When you look at these very large customers getting much, much larger with us, it's because they are embracing all of our clouds. They trust us. They know we're going to make them successful. We're there for them. We're deeply committed to our customers, and we're going to deliver success for them, which means for them, growth.
They want customer growth, and that's what we're going to deliver on. Wouldn't you say that's really what we're talking about?
Absolutely. I think it's listening. Listening is very, very important, but also it's bringing a point of view, whether it's an industry perspective or a line of business perspective, as I said before. At the end of the day, let's use consumer packaged goods. In a quarter, three out of the top five consumer packaged goods companies in the world, and these are massive companies. These are brands that we all know. We'll talk a little bit about that next week.
Yeah.
They are expanding their relationship. They are betting their business on Salesforce. That's pretty compelling.
Very exciting. Mark, how have you seen this play out in the financials?
Well, I think on the financial side, one of the things, I spend a lot of time, Marc, as you know, with a lot of the top banks all over the world. Obviously we see people, customers who respond very favorably to that. We've announced big bank after big bank after big bank, who I think, this whole vertical side, Keith Block and I talk, we spent time in Davos with a number of the absolute top banks in the world. Marc, this whole language of what do they need? What do they need for wealth management? What do they need for other applications? We're able to actually meet that need and build a long, trusted relationship with them. That is happening.
I think that really gets down to why. If you talk to me, talk to Keith Block, Marc, we've never been more excited about Salesforce and our opportunity, our relationship with our customers, the potential with our customers. Also, we've never been more excited about the CRM market. To see the CRM market itself accelerate and become larger than the operating system and ERP and database market is because it has these really important, critical growth drivers of our industry. Not just Sales Cloud, not just Service Cloud, not just Marketing Cloud, like messaging and email marketing, not just Commerce Cloud. All of these things and so much more.
We still feel, even though we're forecasting $10.2 billion for the year, even though we've tripled the company, doubled the company in the last three years, tripled the cash flow, increased operating margin every year, like Marc has said, we've just never been more excited about the future and what the opportunity holds for Salesforce and for our customers specifically. You're going to see that on March 7th as well. Okay, John? One more question.
Our next question comes from the line of Derrick Wood with Cowen and Company.
Great. Thanks, and congrats on the quarter. I wanted to go back to the billings guidance. I know I'm going to get a lot of questions on this tomorrow, maybe just to diffuse concerns on pipeline and obviously how you guys are talking today about your customer opportunities and everything, it sounds like things are great. Keith or Marc, we'd love to just get your view on the macro right now and how you see overall IT spending environment trending as we enter 2017.
Yeah. This is Keith. Look, we talked a little bit about this earlier. CRM is the fastest-growing enterprise market. We are the market leader. We're taking share in the marketplace. We continue to separate from the rest of the marketplace. There's a number of reasons for that. Obviously, it starts with a compelling vision and incredible execution and operations at scale. We topped off the year with a fantastic quarter. We're certainly very, very proud of the entire company and are very thankful to our employees and really all of our stakeholders. We have some momentum carrying into the quarter. I think that's reflected in our forward guide, which Marc and Marc talked about. There's a lot of momentum. We're very excited.
We've got a great story, a compelling vision for our customers. We continue to execute in an unprecedented way better than anybody else in the marketplace. Marc, I don't know if you want to-
No, I just would add, I think that's exactly right, Derrick. Just fundamentally, the point is that we've raised our revenue for the year. We've actually, because of what we saw in Q4, we've raised the entire guide for the year. We obviously feel very good about the demand environment.
Great. Thank you.
All right. I think that's all the time we have for calls today. We appreciate everyone tuning in. Obviously, we look forward to seeing many of you on March 7th, and of course, updating you at our next results call at the end of Q1.
Great. Thank you.
This concludes today's conference call. You may now disconnect. Thank you for your participation.