Good afternoon. My name is Hannah, and I will be your conference operator today. At this time, I would like to welcome everyone to the CRM Q1 FY 'fifteen Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer
session.
Thank you. I will now turn the call over to John Cummings, Director of Investor Relations. Sir, you may begin your conference.
Thanks so much, Hannah, and good afternoon, everyone, and thanks for joining us for our fiscal Q1 2015 results conference call. Our Q1 results, press release, SEC filings and a replay of today's call can be found on our website at www.salesforce.com/investor. Officer Keith Block, President and Vice Chairman and Grant Smith, Chief Financial Officer. We'll start the conversation with a few prepared remarks, and then we'll turn the call over for questions. As a reminder, our commentary today will be in the non GAAP terms.
Reconciliations between our GAAP and non GAAP results and guidance can be found in our earnings press release issued earlier today. During the call, we may offer additional metrics to provide further insights into our business or results, and this detail may or may not be provided in the unreleased services or features not yet available. We cannot guarantee the timing or availability of these services or features, so we recommend customers listening today make purchase decisions based on services and features currently available.
The purpose of the call is
to provide you with information regarding our fiscal Q1 results. Some of our comments may contain forward looking statements, which are subject to risks, uncertainties and assumptions. Should any of these risks, uncertainties materialize us or should our assumptions prove to be incorrect, actual company results could differ materially from these forward looking statements. A description of risks, uncertainties and assumptions and other factors that could affect our financial results are included in our SEC filings, including our most recent report on Form 10 ks, articulating under the heading Risk Factors. With that, let me turn the call over to Mark.
Okay. Hey, thanks so much, John. I really appreciate it. And I'm absolutely delighted to be with you once again. And celebrating over 15 years of customer success here at salesforce.com.
This quarter was a very important birthday
for us. It gave us an opportunity
to look back and how we've helped shape this new world of enterprise software, how we've grown to be the world's largest CRM company and the world's largest provider of enterprise cloud computing. And as you can see from these results, the fastest growing top 10 software company in the world today, all in just 15 short years. It's been an exceptional journey and we're very grateful to all of you who have been with us through this incredible decade and a half. The new world of enterprise software is the world that's in the cloud. It's a world that's mobile.
It's a world that's social. And it's a world that's connected. Our customers are connecting with their customers in entirely new ways. They're consistently turning to companies like Salesforce to make this customer connection. This has driven this incredible business for us.
Whether they're looking for solutions for sales, for service, for marketing, for engagement or building custom apps, Salesforce has consistently delivered the world's best customer platform. And I'm proud of our employees, our customers and partners and what they've accomplished over the last 15 years and I'm looking forward to our very bright future. We're delighted this quarter to be once again chosen by Fortune Magazine as the world's most admired software company for the 2nd year in a row, an incredible accomplishment. And earlier this year, Salesforce was recognized by Fortune as the world's 7th place to work 7th best place to work. And we were Forbes Magazine most innovative company in the world 3 years in a row.
And through our pioneering 111 model, we've now delivered more than 700,000 hours of community service, delivered more than $50,000,000 in grants and are running more than 20,000 non profit organizations on our service for free. Through all of this, through all these accomplishments, nothing is more important to us than the trust and success of our customers. This deep commitment to our customers and their success is why Salesforce delivered these exceptional results, especially now in this Q1. Revenue grew by 37% from a year ago to more than $1,200,000,000 pretty incredible. Deferred revenue grew by 34% year over year to more than $2,300,000,000 Operating cash flow grew by 67% from a year ago to more than $470,000,000 And the dollar value of book business on and off the balance sheet grew by 34% from last year to $7,100,000,000 And while we delivered world class growth, we also grew operating margin sequentially this quarter, which is why we're able to deliver non GAAP EPS of $0.11 exceeding our guidance.
And we'll deliver 125 basis points to 150 basis points of operating margin improvement this year. Given our strong financial results and pipeline of new business, we're once again raising our full fiscal year 2015 guidance by $40,000,000 to reach $5,340,000,000 With billions of users all over the world now using cloud services, mobile devices and social networks, the technology world has deeply changed. And Salesforce continues to lead this change in enterprise software. Today, I run my business from my phone. I could never have imagined that just a few years ago.
I don't need a PC, a laptop, a desktop to connect with my customers, employees or partners. I just need my phone. And that certainly isn't where software was a decade At Salesforce, we've rebuilt all of our services under the new Salesforce 1 platform, giving our customers the ability to use phones, tablets, PCs or whatever they choose to manage and share all of their customer information. The Salesforce One platform has far exceeded our wildest dreams and has accelerated the success of our customers, our ISVs, our developers, our administrators and their ability to be successful in this new world. And it's why our flagship sales cloud and service cloud, our ExactTarget Marketing Cloud and our platform are all leaders in the categories and growing faster than their competition.
The sales cloud is once again the undisputed leader in Gartner's Magic Quadrant for Salesforce Automation. In fact, we extended our lead this last year according to Gartner. Our market share and sales now larger than the 3 next competitors combined. Service Cloud is the clear leader in both vision and in both vision and execution in Gartner's most recent Magic Quadrant for customer service. And with desk.com, we're bringing our world class customer service solutions
to small businesses as well
to enterprise. The ExactTarget Market in cloud doubles its market share according to the recent Gartner report, adding more share than any other top 10 marketing vendor. The Salesforce 1 platform is the only solution rated by Forrester as a leader in every single category platform category and recognized leader in Gartner's first ever Magic Quadrant for Enterprise Platforms. Now, I'm delighted to welcome Vice Chairman and President, Keith Block, to the earnings call. And I'd like to ask Keith to introduce himself, but also to give you a review of the quarter's results.
We're very fortunate to bring in Keith over a year ago now. He's a member of our Board and runs our distribution organization, which represents more than half of all of our employees. Keith? Thanks, Mark. It's great to be here.
And I have to say that Salesforce is an absolutely incredible company. Over the past year, I've spent a great deal of time speaking with customers and partners all around the world and the feedback has been overwhelmingly consistent. It's been about great vision. It's been about great products and it's been about great people. It's really rare to find a company whose customers and partners has such a high degree of respect and admiration on a consistent basis.
And the great news is our customers and our partners, they want more from us. They want us to go deeper with them. They want us to have a more strategic relationship. They want us to help them innovate as they transform their business models. They want us to help them scale their business for the future.
And ultimately, at the end of the day, they want us to be their trusted advisor on their journey to connect with customers in entirely new ways. And this applies to every customer, from the smallest to the largest enterprises in the world. Now in the quarter, we had some terrific success with companies of all sizes across all industries everywhere in the world and I'd like to just share a few thoughts with you. For example, we entered into a new relationship with Manulife, one of the world's largest insurance and financial services providers. They selected the Service Cloud to create a single customer engagement platform and delivered personalized service across all of their life insurance, wealth management investment products.
Just a terrific story. Meijayusuda Life Insurance, one of the oldest and largest insurance in Japan. We're thrilled to have that brand as part of our family. They selected Salesforce in the quarter and this will be the 1st enterprise wide cloud implementation in Japan's life insurance industry. Absolutely excited about this.
They selected our service cloud to allow agents to close deals and service customers right from their phones and they will also be building out their next generation apps on Salesforce 1, very, very exciting. In Communications and Media, Sky Italia selected Service Cloud, the Salesforce 1 platform, Salesforce Communities, all of which for an engine the company's B2C communications business from call centers to self-service to partner channels. In Healthcare, another great brand started sales transformation with our sales cloud and in the quarter they expanded with ExactTarget Marketing Cloud to leverage the power of social and connect directly with millions of people shopping for insurance. Many, many, many stories that we can go on to, but again, some terrific brands, some terrific stories. And I certainly want to congratulate the team for their outstanding accomplishments in Q1.
And I also want to thank our customers and our partners for their continued commitment to our collective success and futures. And I do want to say again that I'm absolutely thrilled to part of this just outstanding organization. So with that, I'll turn the call over to Graham.
Thanks, Keith. We started fiscal 2015, as you've heard, with a really strong Q1, growing revenue, deferred revenue and operating cash flow at more than 30% and coming in ahead of our EPS guidance. We are well positioned to deliver another year of industry leading growth. Let me take you through the financial highlights of our Q1, starting with the income statement. First quarter revenue was $1,230,000,000 that's an increase of 37%, which did include an FX benefit of approximately $6,000,000 Non GAAP EPS for the Q1 was $0.11 On a regional basis, revenue in the Americas grew 39 percent to $876,000,000 Revenue in Europe grew 42% in dollars 35% in constant currency to $231,000,000 And revenue in Asia Pacific increased 21% in dollars 26% in constant currency to $120,000,000 That's a nice uptick in growth after some of our recent quarters in Asia Pac.
Dollar attrition high single digits percentage range. Our non GAAP gross and operating margins continue to reflect the acquisition of ExactTarget last year. Gross margins were 79 point 5 percent in Q1, that's down 70 basis points from Q1 last year. And non GAAP operating margin was 9.7%, which was down 80 basis points from Q1 last year, but actually up 2 80 basis points sequentially. In the Q1, we added more than 900 people.
That's our most significant organic hiring quarter ever and brings our total headcount at the end of the quarter to just over 14,200. That's up 38% over Q1 last year. Turning to the balance sheet. We ended the quarter with approximately $1,500,000,000 in cash and marketable securities. During the quarter, we paid approximately $280,000,000 in principal related to conversions of our senior notes that are due in January 2015.
This amount was partially offset by an approximately $30,000,000 deposit we received for the potential sale of 4 of our 8 lots we own in Mission Bay. Deferred revenue ended the quarter at more than $2,300,000,000 up 34% over last year, Excluding approximately $13,000,000 of year over year FX benefit, deferred revenue increased 33%. On a sequential quarter basis, deferred revenue also had an FX benefit of approximately $9,000,000 We expect Q2 deferred revenue to be approximately flat sequentially from Q1. Approximately 68% of the value of all subscription and support related invoices, and that includes ExactTarget, were issued with annual terms in Q1 compared with approximately 68% in Q1 last year. Keep in mind, however, that our billing frequency percentage last year did not include ExactTarget.
If you exclude exact target from this quarter's calculation, we saw a year over year increase in the proportion of invoices issued with annual terms that is consistent with the fiscal 2014 average that was around 5 percentage points improvement. Unbilled deferred revenue or revenue that is contracted but not yet invoiced and is off the balance sheet was approximately $4,800,000,000 in Q1. That's an increase of 33% over last year. Turning to cash flow. We had an outstanding start for the year.
As we talked about for some time, Q4 has historically always been our largest new business quarter and as a result has also become our largest renewals quarter. The seasonality of our invoicing has become more pronounced each year because of the compounding effects of the new business seasonality. The Q4 is our largest invoicing quarter. It follows that Q1 has become our largest collections and operating cash flow quarter. So in the Q1, operating cash flow was $473,000,000 That's up 67% over last year.
We anticipate our 2nd quarter operating cash flow growth to be lower at approximately 10% year over year growth and continue to expect our full year operating cash flow to grow in the mid-twenty percent range year over year that we talked about on the call in February. CapEx was $60,000,000 in the first quarter, up 11% year over year. CapEx as
a percentage of revenue in the
Q1 was 5%. That's down from 6% in Q1 last year. We continue to expect our full year CapEx to be in the range of 5% to 7% of revenue. Free cash flow, which we define as operating cash flow less CapEx, was $413,000,000 in the Q1. That's up 80% from last year.
Turning to guidance. With our solid results in the Q1, we are delighted to be raising our full fiscal 2015 revenue outlook by $40,000,000 That's a new range of $5,300,000,000 to $5,340,000,000 for year over year revenue growth of 30% to 31%. We're raising our full year non GAAP EPS guidance to reflect the Q1 beat
and now expect it to be in
the range of $0.49 to 0.51 dollars And as Mark mentioned, we're still committed to increasing our full year non GAAP operating margins by 125 basis points to 150 basis points. Clearly, that assumes no significant M and A activity during the year. FY 'fifteen non GAAP EPS also assumes that other income and expenses will continue to be a net expense and assumes a non GAAP tax rate of 36 0.5%. For Q2, we anticipate revenue in the range of $1,285,000,000 to $1,290,000,000 representing year over year growth of approximately 34% to 35%. And we expect non GAAP EPS in the range of $0.11 to 0 point 12 dollars And as a reminder, all of the underlying assumptions for our GAAP and non GAAP guidance and a complete GAAP to non GAAP reconciliation can be found in our earnings press release issued earlier today.
So the closed Q4 is a great start to the year for sales force. Our really good solid execution across the industry leading growth. So with that, we'll open the call up for questions.
And your first question comes from the line of Jason Maynard.
Good afternoon, guys, and congratulations on the quarter. I have a question that's probably for Mark and I would assume maybe for Keith as well. I'd love to get your perspective when you look out over the next 12 months, really kind of 2 parts here. One is, do you believe you're fully penetrated in Keith on the distribution side, what do you need to do to turn some of your accounts that maybe you're spending a couple of $1,000,000 with you today into accounts that maybe can spend upwards of $10,000,000 a year with you on a recurring basis? Thanks.
Well, I think you have to keep all this in perspective, where obviously, our namesake sales cloud product is just a huge part of our company, and it will continue to be a huge part of our company for the foreseeable future. And we have a lot of other great growth drivers in the company as well, especially with our service cloud and our marketing cloud and our platform and also our new engagement capabilities and communities capabilities. But the sales product remains to be such a dominant part of the company's success that there's no doubt that future growth will also be driven significantly by it. Yes. Jason, nice to hear from you.
So a couple of things. I think there is still significant opportunity across all of our cloud, certainly the sales cloud is our flagship. But as you know, we've put in place a multi pronged strategy to really change our focus on industries. One of the pieces of feedback that I've heard over and over again from the customer base is how important it is to speak the language of industry and to build that trust based relationship and solve the business problems around an industry. So we have obviously launched our industry business unit to help assemble those solutions, will ultimately will give us the opportunity to gain a lot more mind share and have a more strategic relationship with these customers.
We've also launched a strong initiative around our partners, both our SIs and
the ISV ecosystem,
which is very, very important to our strategy and very important with our customers. We're getting incredible traction across all three of those fronts, as well as focusing on our international expansion. So when you really couple the industries and the partners together, it really raises our relevance within these accounts, which will give us the opportunity to continue to drive momentum there.
And Jason, this is Grant. Just one more thing I'd add. I think one of the things we've seen over the last few years is a continual underestimation of the market sizes. I think directionally, clearly, we've shown huge increase in share over the last few years and consistent gains in shares. But I think the other exciting thing has been the trend of constant upward revision of the market sizes.
So I think that obviously gives us more confidence around continued growth at the sales cloud.
Your next question comes from the line of Rick Sherwin.
Hi, thanks. Two questions. First, Keith, actually both for Keith. Can you talk about the changes you've made to the sales organization? And did it have
any impact in Q1? So did you
do well despite changes, if you could kind of talk about that a little bit? And also, I think we're all waiting for 9 figure deals. Is that realistic? And is there are there deals of that magnitude in the pipeline we should look forward to over the balance of this year?
Yes. Hi, Rick. Thanks for the question. So couple of things. A discussion question has come up before.
There were no major reorganizations. We put a strategy in place about 6 months ago around our industry growth plans and our partners and the international expansion, a focus on continuation around attracting and retaining the best talent in the industry, our most strategic accounts and specialized sales and really solving business problems as opposed to just necessarily selling product. And since those things have been in play for a while, it really mitigated any sort of risk around a reorganization that I think most people always are worried about when you start the fiscal year. So these plans were pushed a while ago, and we continue to see traction. We actually saw traction in the second half of the year, and we certainly saw that traction continue and then momentum continue in Q1.
Listen, as far as large deal sizes go, I think the net net of this thing is that as we continue to execute and we did a terrific job and I'm very proud of the team and the company for how we've executed in Q1. It's only natural to assume that our relationships with these customers will become more meaningful and more strategic over time. And that will just translate into continued growth and we're excited about it.
Your next question comes from the line of Brent Thill.
Thanks. For Mark, maybe if you could just talk a little bit about the Salesforce One platform. It seems like there's a lot of really new interesting applications are being built that require the rest of the platform to be deployed to be helpers, if you will, reinforcing the whole enterprise build out. Can you just give us a sense of what you're seeing from some of the larger commitments on the platform?
Well, thanks for that question. We've made a huge investment on the Salesforce platform over the last couple of years and so many customers now have deployed it. And as a user myself, I can tell you how it's dramatically changed how I work. As I mentioned, I work entirely from my phone. But more than that, I think it's because we completely re architected our product on a whole family of APIs and delivered a full range of services, it's really opened up the opportunity for our customers to build applications like that we've never really thought they were going to build before.
One of the applications that I saw that got deployed this quarter was with Home Depot, where they rolled up this amazing new how to application. And right on that, if you go to right on homedepot.com, you'll see our platform poking through where it gives them the ability to have deep engagement with all of their customers who are building and crowd sourcing and interacting with Home Depot employees and all in real time. And it's really all possible by the platform. In addition to that, we continue to see really strong support from the ISV community. And if you go to the AppExchange, you'll see more applications available for Salesforce 1 than ever before.
And some of them are just incredibly well reviewed. I mean, you'll see 100 or in some cases of thousands of reviews around these apps. And these are enterprise apps. I don't think there's another app, AppExchange or App Store in the industry like that and so many new apps emerging for Salesforce 1. The combination of this just gives us a tremendous competitive advantage with our customers and I'll tell you why.
A lot of our competitors, not that they haven't moved to the phone, they haven't moved to the cloud. And here we are, we have a solution that's not only runs great as a service, it's a cloud service running billions of transactions every single day. 2, that that service is available in whatever device you're using and 3, it runs the way that any other social network would work like a Facebook or Twitter, but it's your own private company network or with your partners or with your customers. And then finally, what we're seeing now where companies can take all of this and build their own apps, well, that's really exceeded our exceeded what we thought could happen. So we're very excited and we're feeling great about where Salesforce 1 is.
And I really think it's given us this huge leg up against the competition.
Your next question comes from the line of Kaush Srinivas from Merrill Lynch.
Hi, thank you very much, Mark. That off balance sheet backlog growth rate is just simply stunning. I'm curious if you could talk to which particular products in the portfolio are driving that superb strength? And also with respect to Salesforce 1, can you specifically talk about how the industry solution strategy in the 6 verticals are going to be differentiated and facilitated with Salesforce 1 in particular? Thank you very much.
Yes. Hi, Josh. Nice to see you. So let me just talk a little bit about the industry strategy in Salesforce 1. I think Mark had touched on this.
We're incredibly excited about the adoption of Salesforce 1 and how our ISV community is responding to it. And specific to industry, you may have seen a press release that we issued the other day with Deloitte and our partnership with Deloitte in financial services around financial services solutions all built on our platform. And so there is enormous enthusiasm for the for Salesforce Force 1. Our ISV community is rallying to the cause. And that obviously is an integral part of our strategy.
The other thing that I think is important to understand here is that as we continue our transformation, one of the things that we're trying to accomplish here is to solve business problems for our customers. Whereas traditionally, we would go to market by product and we'll obviously continue to do that. I think the important thing is to listen to our customers and bring a point of view around an industry solution. Again, the example would be what we did the press release that we did with Deloitte. And when you sell a solution, you bring multiple clouds.
So it's not necessarily 1 cloud or 2 clouds, it's a multi cloud solution. And that is certainly the momentum that we've enjoyed over Q3 and Q4 and certainly saw that carryover into Q1. And that multi cloud solution approach is really paying off for us and it looks very, very strong for us in the future.
Your next question comes from the line of Mark Murphy with Piper Jaffray.
Yes, thank you. Congrats on the results, Mark. Your customers and partners sound very excited about a product called Communities that for some reason it doesn't seem to be as widely recognized in the investment community. And we've been told that it's capable of going wall to wall and really touching every employee in an organization. Could you walk us through what is happening under the radar with communities and maybe any comment on how strategically significant the offering can be?
Yes. I'd really be delighted to. And we announced this product at Dream Force, and we now have started rolling it out. I just mentioned it in my comments about Home Depot, for example, which is a core part of the platform that they've rolled out, which is communities. But imagine, if you will, that I'm using my phone like I do and I'm using Salesforce 1 and I'm going through my social network and I'm reviewing what's happening with my employees, what's happening on my deals, customer service issues, quotes and my feed is going by.
I'm able to kind of roll between different apps that I'm using. Maybe I'm issuing an IT trouble ticket request. Maybe I am giving an employee appraise. All of this is happening inside Salesforce 1. Now all of a sudden, right inside the feed, something that appears and it says, well, did you know that Frank Blake at Home Depot just commented on the product that you're working on.
And what has happened is that externally on my website, I am running a community of all of my customers. Now you can go as you can see this right now, if you go to, I think it's success. Salesforce.com is our community site. So if
you go to success.
Salesforce.com, you'll see what communities look like. And you'll see how we've deployed communities. So if there's customers that I'm following, if there's products I'm following, events I'm following, whatever I'm working on. And now I'm a customer and I come in this site, I'm automatically integrated to the Salesforce employees. And honestly, I don't know if a customer doesn't need this, whether it's partner communities, whether it's for customer service, whether even if it's for employee communities.
And we're very excited. And this is in the category of engagement. So today Salesforce's product kind of tagline is Salesforce, Salesforce, Salesforce market succeed. And you'll really see it evolve to be sales service market and engage. And the reason why is because of exactly what you're saying, this has been a tremendous success for us.
We continue to see all customers be very excited with this. This all started with Chatter, if you remember that. That was kind of the brand that we've kind of dropped the brand Chatter and that it's all Salesforce 1 now because it's also deeply integrated into our platform. You can't separate our core collaboration capabilities from our sales service or marketing or platform applications and services. So that's where we are right now.
It's very exciting. You'll see more Dreamforce And you're going to see us really continue to focus and expand this. I do want to make one key point, which is that this is not some separate app. This is really a core part of our platform and that we've worked very, very hard to make sure that these are core platform services and the collaboration is at the very heart of who we are at Salesforce. Okay.
I hope that answers your question.
Your next question comes from the line of Heather Bellini with Goldman Sachs.
Great. Thank you. I had two questions, one for Mark and one for Keith. I guess, Keith, to start out with you, I mean, you mentioned the vertical solutions and the business problems that you're trying to solve as a result of your verticalization. How do we think about how long it takes for you to really hit your stride to serve the customers in the way that you're thinking about it?
And also kind of back to Rick's question, how do we think about how deal sizes scale as you become that trusted solution provider if you use your past history as a guide? And then the question I have for Mark, just in regards to Marketing Cloud, a lot of the customers we talk to see talk about a big desire to have one integrated dashboard for marketing so they could open one app instead of opening multiple apps to kind of find out what they're doing, how they're doing with new products and with their customers. I'm just wondering where you are a company in terms of kind of fulfilling that vision?
Yes. Hi, Heather. So I think it's very interesting. The industry focus for us is obviously very, very important. And we saw after only being organized around industries for, I will say, 6 months, we started to see that traction hit in Q4.
I think you may remember that I said we pretty much had a run on retail banks in Q4. And that was all around our lead referral management solution that was put together by the industry business unit. That continued into Q1 where we, to a certain extent, we had a run on insurance companies. So again, part of that is because of our ability to speak the language of industry, which is all about solving
a customer business problem. So as
we continue to roll those solutions out, I think you'll see us gain mindshare, again, build those strategic relationships, partner with the SIs, partner with our ISVs and really be more meaningful and take on that trusted advisor role. So it's only natural to assume and to expect
that as all those things continue
to gain momentum that there will be more mind share, there will be more wallet share, there will be more market share. So again, very, very pleased with kind of the early returns in Q4 and Q1, but I think that we certainly have significant opportunity in that space. And I think that's obviously things scale over time.
Your next question comes from the line of Karl Keirstead with Deutsche Bank.
My question is to Graham. Graham, that's operating cash flow growth 67%, pretty stellar. I think I understand the seasonality, but I'm just curious if there were any other kickers that made the quarter particularly strong on that front and if your confidence in your mid-20s operating cash flow growth for the full year has increased as a result of the good Q1 performance? Thank
you. Yes. Thanks, Karl.
Yes, I think it's always great to get a good start to the year. So, clearly, confidence in mid-20s, I'd say, is incrementally higher because of our strong start. So, just to reiterate, there's this compounding effect of just our large 4th quarters that really has been going on over a long period of time. And then I think you layer on top of that, clearly, we've also been expanding our annual billings. And then we saw some nice margin expansion sequentially from Q4 to Q1, right?
Q4 was still affected by, I'm sure, some cash flows from Dreamforce, those kind of things. And so you kind of roll all that up and we saw a really strong Q1 result. So but as I say, I would expect this would be more of our trend in the future that we'll have this huge receivables number at the end of the Q4 and then a very large collections number in Q1. So yes, very happy to get a strong start on the year here.
Your next question comes from the line of Pat Walravens with JAP Group.
Great. Thank you. Two questions,
I guess. Liam, can you tell us what the contribution was from ExactTarget in the quarter? And then Mark, now that you have over 14,000 employees, it's got to be harder to maintain the same culture you had when you were smaller. How are
you going about doing that?
Well, I'll take that one first. And also, I didn't answer Heather's question first. So why don't I hit that real quickly. Heather is absolutely right. Our plan is to build a comprehensive marketing cloud.
And to do that, we've acquired several different companies, including Radian6, Buddy Media and ExactTarget, And we're integrating those into 1 integrated application, which our customers will have used to comprehensively manage their marketing. And you'll see the evolution of that product at Dreamforce.
I
what I would say is that to really understand where we're going and how we're maintaining this culture, you have to look at our product. And I'm sure that, that must sound a little bit strange, but I use Salesforce 1 every day. And I'm communicating and collaborating with our employees. We have an environment that's filled with transparency and that transparency has created an environment of trust. And that much communication or what I call over communication is kind of part of what we're doing all the time.
We over communicate. We over align. We're constantly working on what we call V2MOM, which is kind of our internal business process service, which lets us work on our visions, our values, our methods, obstacles and measurements, all of that is built into our application. And then at the core is our philanthropy model. When we first started the company, we put 1% of our equity and 1% of our profit and 1% of all of our employees' time into a 501c3 charity.
As I mentioned in the script, that produces amazing results, like the 700,000 hours of community service and more than $50,000,000 in grants and 20,000 nonprofits. But one thing that's interesting is, in your first day of employment at Salesforce, we show you where your desk is, we show you where your where the kitchen is. And then you go out and do something for other people. And you go to one of our soup kitchens here in San Francisco. You go to one of our home shelters.
You go to one of our hospitals. And that really sets the tone of our culture. And it also provides the referential integrity for our culture. And our culture is different than other technology companies. And when and as we've grown our company, we've been able to maintain that culture by starting making sure that it's philanthropy first.
And that has really set the values that are so important to us. So when we look at values like trust, like values like giving back, like service. And then, of course, we have tremendous execution. That's also a key value that we do what we say we're going to do. We delivered, obviously, a great quarter this quarter, but this is not our 1st great quarter.
We've had a lot of great quarters. And those things are the things that have really cemented our culture
and that's why it continues to be what it is today. So I hope that answers your question. And just on your second question, we're not intending to provide a breakout of exact targets going forward on either the P and L or the balance sheet.
Your next question comes from the line of Steve Ashley with Robert W. Baird.
My question is for Keith. Keith, you've been talking to customers. And what message is it that you wanted to convey to them? What did you want them to take away from your meetings? Well, I think there are several messages that are very important, not the least of which is our corporate messages around the Internet of customers and connected customers and how we sell and service the market and how we are a company of system engagement.
So those are all very strong messages that certainly resonate with our customers and our partners. But the other set of conversations that take place are around a dialogue around having a strategic relationship with those customers and what does that mean. And that is all around predictability and transparency, some of the values that Mark talked about earlier. It's about trust. It's about being an advisor.
It's about how do those contribute to how our customers unleash the power of social and cloud and mobile in our technologies to change their business models, to transform their businesses and really unshackle them from old technologies. Because if you really think about what's happening in the marketplace, companies have had business processes around selling and servicing and marketing to their customers that have really been hindered shackled by old technologies. And we are providing them with a path forward here in that guidance. So these are messages that truly resonate with the customers. They want these conversations.
They want this impact that we can bring to the table and they're excited about our opportunity to partner with them.
Your next question comes from the line of Keith Weiss with Morgan Stanley.
Excellent. Thank you guys for taking my question and a very nice quarter. Two questions for Graham. One related to headcount, definitely a big increase in headcount this quarter. Should we think about this in any extent in terms of sort of pull forward of hiring of getting a lot of the hiring done upfront?
Or what kind of pace should we think about throughout the year? And question number 2, if we look back seasonally, you typically see deferred revenues up 2 to 3 percentage points quarter on quarter into Q2. And your guidance of approximately flat, does that sort of with the normal seasonality? Or should we be thinking about a different seasonality this year versus prior years?
Thanks, Keith. So on the headcount question, I think typically, we've often had slow starts to our hiring in the year and then we sort of built on our organic hiring versus people we bring in through acquisitions through the year. And we really have tried to focus hard this year on getting off to a fast start and have slightly more linear hiring, and it actually seems to have worked really well. So we're just pleased. I don't view this as an intentional pull forward generally.
But I think we are we've got a lot of fantastic news coming out of the company. Obviously, some of our facilities announcements are super exciting in San Francisco. And I think it's fair to say we're still very much a sort of destination employer. And I think that our reputation out there is great. And our hiring in Q1 sort of reflects that profile.
On your second question, I think generally, clearly, we've said in the past deferred revenues always got a little bit of it's a tough number to forecast super accurately. I think there is a sort of general theme that relates to what I talked about earlier around the compounding effect of our 4th quarter. And because Q4 is the large new business quarter, it becomes a large renewals quarter, and it just becomes more and more dominant in terms of its invoicing. And as you know, invoicing drives deferred revenue. So I think gradually over time that Q4 spike of deferred revenue and then a more flattish profile through the year is going to is gradually going to change over the years.
Tough to know how quickly. But I we haven't changed anything in the methodology the way we forecast deferred revenue. And clearly, as I say, it's tough to get super accurate on a $2,300,000,000 number. But I'd say that, that overall trend that I described is probably will play out over the next few years.
Your next question comes from the line of Brad Zelnick with Macquarie.
Excellent. Thank you. Doctor. Benioff, congrats on a good particularly your philanthropy. So congratulations.
Thank you. I really just wanted to ask about the Marketing Cloud, Mark. When you acquired ExactTarget, you said we shouldn't expect any large deals for a while as you digested the acquisition. But I just wanted to check-in and see how do you feel today about the completeness of the Marketing Cloud and what's your appetite to further build it out through acquisitions?
Well, I think that we have done a fantastic job building our marketing cloud, and it's a very important market. It's something our customers have pushed us to. And you saw it start with the ratings 6 where we moved into social listening, with buddy media, with public social publishing, but then with ExactTarget, which is really a comprehensive application. And that is really going to a whole new level with our Journey Builder
capabilities. And if you've seen some
of the demonstrations that I've done on the Salesforce Montour, you'll notice that ExactTarget Marketing Cloud has just gone leaps and bounds from when we really first started working on it. Now as we kind of go forward, there's still gaps in terms of things that we want to fill in. When we'll fill those in, what the right companies are, it's not as easy and as straightforward as it was. We honestly got the best company. I don't think we could have ended up with a better company than ExactTarget.
And they have so much product and capability that it's really kept us incredibly satiated. And I don't really see that pace like you saw that we were really going through resuming. That said, we're always looking for great new companies. And when we see a great entrepreneur, when we see a great company or we see a great revenue stream, when we see a great way to cement our position in our market, which is all customer facing applications, we're going to take that.
Your next question comes from the line of Walter Pritchard with Citigroup.
Hi, Graham. I'm wondering if you could talk a bit about, you've talked for a few years about this matrix with growth and profits as sort of the two coordinates. And it feels like you're sort of solidly into the growth part of your matrix here versus high growth or maturity. And in that phase, you were talking about 100 to 300 basis points of margin expansion. And you've given guidance for the year, I think, of 125 basis points to 150 basis points of margin expansion.
You still are absorbing some of the exact target expenses that are on board here. I'm wondering if you could just talk to, do you feel like you're really within the high end of that range if we were to consider exact target and any sort of commentary as we move throughout the year with most of that dilution behind us and then look at next year how we should think about you on this matrix?
Yes. Thanks, Walter. I think my recollection of the model, I don't have it in front of me, but basically, we've said if we're growing at 30% plus, I think, yes, people could reasonably expect, absent sort
of very significant M and A,
they could reasonably expect 100 basis points plus of margin improvement in a year. We've sort of committed to a little higher than that this year. And clearly, we will get it's a little back end loaded because as you say, really the effects of all the purchase accounting related to that target, fall away after the first half and then we get sort of the bulk of the deferred revenue write downs done. And clearly, we're sort of we're forecasting quite a strong second half EPS performance here. And overall, our EPS performance this year, we're forecasting a sort of 50% type increase in overall non GAAP EPS.
So I think we feel that model works. I think as long as we're growing that top line more than 30%, I think again absent major M and A, we feel good about delivering 100 basis points plus a year. And hopefully, this year, we'll do a little better than that. We'll see.
Your last question comes from the line of Richard Davis with Canaccord.
Hey, thanks. I realize it's somewhat small, but what do you kind of think about drawing the line on HR? Because I guess right now it's Ripple Social Performance Management, but do you need to get deeper into HR to fully monetize that purchase? Just wondering how your thoughts on that component are. Thanks.
We're not an HR software company. I mean, we're the CRM. We're really customer relationship management software company. And the only all of our focus is customer facing applications, sales, service, marketing, engagement. And our any HR capabilities that we have inside our product are really just allow our employees to collaborate and share in the engagement world.
So whether it's employee profiles or the performance management that's built in the feed, that's where our focus has been. But it's we're not really interested in the HR software market. That's we'll let others worry about that one.
All right. Hannah, thank you so much for hosting us today. Thanks, everyone, on the call for joining us. And we'll look forward to updating you on our Q2 results this summer.
This does conclude today's conference call. You may now disconnect.