dreamforce 2013 investment community presentation

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The $10 Billion Playbook Graham Smith, CFO David Havlek, SVP, Finance November 19, 2013

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Presentation from the analyst day at Dreamforce 2013

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Page 1: Dreamforce 2013 Investment Community Presentation

The $10 Billion Playbook

Graham Smith, CFO David Havlek, SVP, Finance

November 19, 2013

Page 2: Dreamforce 2013 Investment Community Presentation

Safe Harbor

Safe harbor statement under the Private Securities Litigation Reform Act of 1995: This presentation may contain forward-looking statements that involve risks, uncertainties, and assumptions. If any such uncertainties materialize or if any of the assumptions proves incorrect, the results of salesforce.com, inc. could differ materially from the results expressed or implied by the forward-looking statements we make. All statements other than statements of historical fact could be deemed forward-looking, including any projections of product or service availability, subscriber growth, earnings, revenues, or other financial items and any statements regarding strategies or plans of management for future operations, statements of belief, any statements concerning new, planned, or upgraded services or technology developments and customer contracts or use of our services. The risks and uncertainties referred to above include – but are not limited to – risks associated with developing and delivering new functionality for our service, new products and services, our new business model, our past operating losses, possible fluctuations in our operating results and rate of growth, interruptions or delays in our Web hosting, breach of our security measures, the outcome of any litigation, risks associated with completed and any possible mergers and acquisitions, the immature market in which we operate, our relatively limited operating history, our ability to expand, retain, and motivate our employees and manage our growth, new releases of our service and successful customer deployment, our limited history reselling non-salesforce.com products, and utilization and selling to larger enterprise customers. Further information on potential factors that could affect the financial results of salesforce.com, inc. is included in our annual report on Form 10-K for the most recent fiscal year and in our quarterly report on Form 10-Q for the most recent fiscal quarter. These documents and others containing important disclosures are available on the SEC Filings section of the Investor Information section of our Web site. Any unreleased services or features referenced in this or other presentations, press releases or public statements are not currently available and may not be delivered on time or at all. Customers who purchase our services should make the purchase decisions based upon features that are currently available. Salesforce.com, inc. assumes no obligation and does not intend to update these forward-looking statements.

Page 3: Dreamforce 2013 Investment Community Presentation

The Internet of Customers

ConnectedCustomers

ConnectedPartners

ConnectedProducts Connected

Devices

cloudsocial mobile

ConnectedEmployees

Page 4: Dreamforce 2013 Investment Community Presentation

The Age of the Customer

1900 1960 1990 2010

Age of manufacturing Age of distribution Age of information Age of the customer

Mass manufacturing makes industrial powerhouses successful

Global connections and transportation systems make distribution key

Connected PCs and supply chains mean those that control Information dominate

Empowered buyers demand a new level of customer obsession

Source: Forrester Research, Inc.; Competitive Strategy in The Age Of The Customer, October 10, 2013

Page 5: Dreamforce 2013 Investment Community Presentation

David Havlek SVP, Finance

Financial Update

Page 6: Dreamforce 2013 Investment Community Presentation

The First Cloud Computing Company to Deliver a $1 Billion Quarter. . .

Q113 Q213 Q313 Q413 Q114 Q214 Q314

$695 $732

$788 $835

$893

$957

$1,076

$ millions

36% Q3’14

growth y/y

37% Q3’14 CC

growth y/y

$81M Q3’14 contribution

from ET

Page 7: Dreamforce 2013 Investment Community Presentation

Americas Remains the Dominant Geography

Note: Percentages represent FY’14 YTD constant currency revenue growth. Dollars represent FY’14 YTD revenue by region.

EMEA +37% $531M

APAC +18%

$315M

Americas +35% $2.1B

Page 8: Dreamforce 2013 Investment Community Presentation

Transactions Growth Outpaces Revenue Growth

47% Q3’14 growth

y/y

99.9% average availability

in Q3’14

>40% of transactions are

from API calls Q411 Q412 Q413 Q314

100

0

Transaction volume in billions

Page 9: Dreamforce 2013 Investment Community Presentation

Greater Customization Leads to Greater Usage

FY09 FY10 FY11 FY12 FY13 FY14 YTD

Standard Objects Custom Objects

1/4

2/3 Proportion of custom objects to total objects 64%

total object count growth y/y

Our Innovation

Our Customers’ Innovation

Page 10: Dreamforce 2013 Investment Community Presentation

Note: Chart reflects dollar attrition as a percentage of revenue when compared to the year-ago period for Sales Cloud, Service Cloud and the Force.com Platform.

Q411 Q412 Q413 Q314

Usage and Customization Drive Declining Attrition

17 straight quarters

of decline

<1/2 Enterprise attrition

compared to Commercial attrition

20%

10%

0%

Page 11: Dreamforce 2013 Investment Community Presentation

-$1

$0

$1

$2

$3

FY11 FY12 FY13 YTD FY14

Customer Base Supports Continued Revenue Growth

Ratio of Average Annual Attrition to Add-On/Upgrade Sales

Note: Excludes Renewal Business.

For every $1 of attrition, we add

more than $2 of new business from our existing customers

$1 of Attrition

Page 12: Dreamforce 2013 Investment Community Presentation

Strong Growth in Deferred Revenue Continues. . .

$ millions

Q113 Q213 Q313 Q413 Q114 Q214 Q314

$1,335 $1,337 $1,292

$1,863 $1,733

$1,746 $1,670

$44 $65

$1,790

34% Q3’14

growth y/y

34% Q3’14 CC

growth y/y

ExactTarget deferred revenue

$1,735

Page 13: Dreamforce 2013 Investment Community Presentation

…and Shift to Annual Invoicing Continues

Note: Annual invoicing dollars as a percent of total invoicing dollars, excluding Heroku and ExactTarget Marketing Cloud.

Q112 Q113 Q114 Q212 Q213 Q214 Q312 Q313 Q314

57% 63%

68%

56%

64% 69%

57%

65% 72%

7 point improvement

Q3’14 y/y

Page 14: Dreamforce 2013 Investment Community Presentation

Off-Balance Sheet Backlog Evidence of Increasing Strategic Role

Note: Backlog represents approximate balance of business that is contracted but not invoiced, rounded down to nearest $100M. 1. Represents total booked business on- and off-balance sheet.

Q113 Q213 Q313 Q413 Q114 Q214 Q314

$2.7 $2.8 $3.0

$3.5 $3.6

$3.8 $4.2

$ billions

~40% Q3’14

growth y/y

>24mo avg. contract

length

~$6B Q3’14

booked business1

Page 15: Dreamforce 2013 Investment Community Presentation

Non-GAAP Margins Reflect Growth Investment Choices

75%

80%

85%

90%

FY10 FY11 FY12 FY13 FY14 YTD

0%

5%

10%

15%

FY10 FY11 FY12 FY13 FY14 YTD

• M&A • Oracle Agreement • Services Mix

• Hiring • M&A • Events

CRM Total

Sub & Support

Note: Non-GAAP measures exclude the effects of stock-based compensation, amortization of purchased intangibles, and net non-cash interest expense. A complete reconciliation of GAAP to non-GAAP measures can be found at www.salesforce.com/investor.

80.0% FY’14 YTD gross

margin

9.7% FY’14 YTD

operating margin Gross Margin Operating Margin

Page 16: Dreamforce 2013 Investment Community Presentation

Employee Base has Doubled Since FY11

FY10 FY11 FY12 FY13 Q314

3,969

5,306

7,785

9,801

12,770 37% Q3’14

y/y growth

~2,100 from acquisitions

YTD

Full-time employee headcount

Page 17: Dreamforce 2013 Investment Community Presentation

Real Estate Remains Largest Single CapEx Category

$45

$ millions

$29

$51 $51 $54

$103

$73

1. Includes data centers, hardware, internally developed software, ExactTarget, IP licensing and other capital expenditures.

CapEx Drivers •Real estate •Cap. software •Datacenters

Q113 Q213 Q313 Q413 Q114 Q214 Q314

Real Estate Other 1

Page 18: Dreamforce 2013 Investment Community Presentation

Strong Operating Cash Flow Growth with Consistent Yield

1. Estimated FY’14 impact to operating cash flow from the acquisition of ExactTarget as of June 4, 2013.

FY10 FY11 FY12 FY13 YTD FY14

YTD OCF Q3 YTD CapEx % of Revenue $ millions

Q3 YTD OCF Yield

$271

$459

$592 $604

$737 33% growth ytd

y/y

19% 24% 21% 21% 21%

5% 5% 7% 6%

8%

Q4 OCF

Low-teens percentage growth

FY’14 OCF guide

~$80M FY’14 OCF impact from ExactTarget1

Page 19: Dreamforce 2013 Investment Community Presentation

Operating Model Framework

Page 20: Dreamforce 2013 Investment Community Presentation

Revenue Growth is Our Priority

1. Op. Margin is non-GAAP. Non-GAAP measures exclude the effects of stock-based compensation, amortization of purchased intangibles, and net non-cash interest expense.

Note: Framework does not take into consideration the impact from potential future acquisitions.

High Growth

Top Line

Priority

>30%

Revenue Growth

Flat to Up Slightly

Op. Margin1

OCF Growth < Revenue Growth

Growth

Top & Bottom Line

Priority

20%-30%

Revenue Growth

+100-300bps

Op. Margin1

OCF Growth ~ Revenue Growth

Low Growth

Bottom Line

Priority

<20%

Revenue Growth

+200-400bps

Op. Margin1

OCF Growth > Revenue Growth

Mid-30% op margin at maturity

Page 21: Dreamforce 2013 Investment Community Presentation

Fastest Growing Enterprise Software Company

Growth has always been our top priority

. . .and it shows

Note: Represents Top 20 largest enterprise software companies by revenue. Growth rates based on analyst consensus.

Page 22: Dreamforce 2013 Investment Community Presentation

Now the Eighth Largest Enterprise Software Company

But we have much larger ambitions,

and scale matters

Note: Represents Top 20 largest enterprise software companies by revenue. Revenue estimates based on analyst consensus.

Page 23: Dreamforce 2013 Investment Community Presentation

We Are Defining an Industry

Largest enterprise software companies

characterized by:

Platform standard Best-in-class apps Broad ecosystem

Note: Represents Top 20 largest enterprise software companies by revenue. Revenue estimates based on analyst consensus.

Page 24: Dreamforce 2013 Investment Community Presentation

Graham Smith CFO

The $10 Billion Playbook

Page 25: Dreamforce 2013 Investment Community Presentation

Investing For Continued Growth

Technology Markets Distribution

Page 26: Dreamforce 2013 Investment Community Presentation

ERP: $36.8B CRM: $22.1B

The Enterprise Software Landscape in 2013

BI: $22.7B

HCM

$2.9B 6.9%

IT Helpdsk

$1.5B 6.2%

Finance Mgmt

$10.7B 7.2%

SCM

$9.2B 10.4%

HRMS

$4.3B 6.9%

Travel Exp Mgmt

$0.7B 6.9%

Asset Mgmt

$1.5B 6.7%

Manufg / Ops

$6.0B 7.6%

Analytic Apps

$5.1B 8.7%

BI Tools

$9.0B 6.5%

Sales

$5.5B 14.2%

Service

$7.5B 12.8%

Marketing

$4.4B 21.0%

E-comm

$3.5B 13.2%

Collaboration: $8.5B

Platform: $21.1B

Web Conferencing $2.3B 10.4%

Enterprise Content Mgmt $5.0B 10.5%

App Development / Deployment $17.0B 7.8%

Account & Contact Data $1.2B / 4.9%

Data Integration & Quality $4.1B 10.5%

DBMS – Relational

$8.6B 7.2%

Current TAM Emerging TAM TAM (2013) $xxB Not Addressed CAGR (’13-’17) xx%

Team Collaboration $1.2B 14.7%

Market Market or Submarket

Source: Gartner, Inc., Enterprise Software Markets, Worldwide 2010-2017, 3Q13 Update 9.16.13.

Page 27: Dreamforce 2013 Investment Community Presentation

Our TAM Continues to Grow

Source: TAM includes Sales, Service, Marketing, Platform, Chatter, Data.com and Work.com. Market size data is sourced from Gartner, Inc., Enterprise Software Markets, Worldwide, 2010-2017, 3Q13 Update 9.16.13.

$58B 2017 estimate in

2013

$40B 2017 estimate

in 2012

14% #1 CRM market share in 2012 2013 2014 2015 2016 2017

$30 $32

$34 $37

$40 $37

$41

$46

$52

$58

2012 TAM 2013 TAM

Salesforce.com Total Addressable Market

Page 28: Dreamforce 2013 Investment Community Presentation

Marketing Automation

Page 29: Dreamforce 2013 Investment Community Presentation

ExactTarget Expands Salesforce TAM. . .

ERP: $36.8B

HCM

$2.9B 6.9%

IT Hlpdsk

$1.5B 6.2%

Finance Mgmt

$10.7B 7.2%

SCM

$9.2B 10.4%

HRMS

$4.3B 6.9%

Travel Exp Mgmt

$0.7B 6.9%

Asset Mgmt

$1.5B 6.7%

Manufg / Ops

$6.0B 7.6%

Collaboration: $8.5B

Platform: $21.1B

Web Conferencing $2.3B 10.4%

Enterprise Content Mgmt $5.0B 10.5%

App Development / Deployment $17.0B 7.8%

Data Integration & Quality $4.1B 10.5%

Team Collaboration $1.2B 14.7%

BI: $22.7B

BI Tools

$9.0B 6.5%

DBMS – Relational

$8.6B 7.2%

Analytic Apps

$5.1B 8.7%

CRM: $22.1B

Sales

$5.5B 14.2%

Service

$7.5B 12.8%

Mktg

$4.4B 21.0%

E-comm

$3.5B 13.2%

Account & Contact Data $1.2B / 4.9%

Page 30: Dreamforce 2013 Investment Community Presentation

. . .and Marketing Automation is the Fastest Growing Segment

20% of 2013 CRM

market

>2x market size

by 2017

2013 2014 2015 2016 2017

$3.4 $3.8

$4.2 $4.7

$5.2

$4.4

$5.3

$6.5

$7.8

$9.5

2012 TAM 2013 TAM

Salesforce ExactTarget Marketing Cloud Total Addressable Market

Source: Gartner, Inc., Enterprise Software Markets, Worldwide, 2010-2017, 3Q13 Update 9.16.13.

Page 31: Dreamforce 2013 Investment Community Presentation

Every Consumer is Now a Customer. . .

Connected

Customers

Connected

Employees

Web Stadium Store Community

Connected

Partners

Email Social Mobile Product

Connected

Experiences

Page 32: Dreamforce 2013 Investment Community Presentation

5 Billion Smartphones by 2017

Your Bank

. . .and They Are Always Connected

Page 33: Dreamforce 2013 Investment Community Presentation

ExactTarget: Early Success Leveraging Salesforce Distribution

>60% of total opportunities from lead pass are

net-new

>50 deals closed from lead pass to date

Net-New ExactTarget Customer

Net-New Salesforce & ExactTarget Customer

Net-New ExactTarget Customer

Page 34: Dreamforce 2013 Investment Community Presentation

Pardot: Early Success Leveraging Sales Cloud and Distribution

~60% of total opportunities from lead pass are

net-new

>80 deals closed from lead pass to date

Net-New Pardot customers since acquisition

Page 35: Dreamforce 2013 Investment Community Presentation
Page 36: Dreamforce 2013 Investment Community Presentation

Every App Needs to be Connected

1. Source: 2013 State of the CIO Survey; CIO Magazine, January 2013

Complexity Dev. Costs Security Maintainence

65% 65% 63%

48%

CIOs’ Mobility Challenges2

#1 priority of mobility

in CIO survey1

2. Vanson Bourne for Mobile Helix: Survey of 300 UK and US CIOs at firms over 1001 employees; August 2013. Source: eWeek, Mobile Application Deployment Hampered by Cost, Security Concerns; Nathan Eddy, 08.01.2013

Best in class apps connected through APIs

Page 37: Dreamforce 2013 Investment Community Presentation

Sales Service Marketing AppExchange

Cloud . Social . Mobile . Connected

1 Platform for connecting the next

generation of devices, apps, and customers

Introducing the Salesforce1 Platform

Page 38: Dreamforce 2013 Investment Community Presentation

We Built Salesforce1 With an API First Approach

Metadata & UI APIs Organize Salesforce data, UI & layouts

Data APIs Query core CRM object data

APIs Data in / Data out

10X increase in API

functionality

230+ calls, services and methods

+100 core developers

to build S1

Page 39: Dreamforce 2013 Investment Community Presentation

Salesforce1 is THE Next Generation Customer Platform

Build Apps, Connect Devices New Salesforce1 APIs

Unify Your Salesforce Experience New Salesforce1 App

Connect Every Customer 1:1 New Customer Engagement Engine

Page 40: Dreamforce 2013 Investment Community Presentation

10%

12%

14%

Q113 Q213 Q313 Q413 Q114 Q214 Q314

Salesforce1 and ExactTarget Drive R&D Investment

35% R&D headcount

growth y/y

Note: Non-GAAP measures exclude the effects of stock-based compensation, amortization of purchased intangibles, and net non-cash interest expense. A complete reconciliation of GAAP to non-GAAP measures can be found as www.salesforce.com/investor.

Non-GAAP R&D Expense as a % of Revenue

Page 41: Dreamforce 2013 Investment Community Presentation
Page 42: Dreamforce 2013 Investment Community Presentation

Proven Enterprise Success with Large Untapped Opportunity

1.Based on Fortune Magazine’s annual ranking of the top 500 corporations worldwide, measured by revenue.

~50% Global 5001 pay us

$0 a year

<700 Customers pay us >$1 million a year

Page 43: Dreamforce 2013 Investment Community Presentation

Proven Distribution Leadership

President and Vice Chairman

President, Global Enterprise Sales

EVP, Worldwide Alliances & Channels

EVP, Industries

Keith Block

Tony Fernicola Tyler Prince EVP, Commercial Sales

Brian Millham Vivek Kundra

Page 44: Dreamforce 2013 Investment Community Presentation

Industry Strategy: Speak Our Customers’ Language

Public Sector

Rapid Response 311

Mobile Communities

Financial Services

Capital Markets

Retail Banking

Healthcare

Healthcare Providers

Medical Devices

Automotive Retail Communication/Media

Connected Cars

Dealer Communities

Customer Networks

Clienteling Applications

Agent Console

Ad Management

Page 45: Dreamforce 2013 Investment Community Presentation

SIs Accelerate Vertical Penetration

“This year, salesforce.com will overtake Oracle Siebel

as the most deployed CRM application by large

consultants and SIs.“ – Gartner2

5x increase in certifications

over 3 years

~200%-400% y/y growth in bookings, pipeline and

trained resources for SI partners

~$5.2B IT service market for SIs related to

salesforce.com solutions1

1. Gartner Competitive Landscape 2. Gartner: CRM Applications Deployed by Consultancies

Page 46: Dreamforce 2013 Investment Community Presentation

ISVs Extend Vertical Solutions

Healthcare & Life Sciences

+80%1

Mfg & Supply Chain

+228%1

Public Sector

+122%1

Financial Services

+109%1

900 ISVs >2,000 Apps

>2,000,000 Installs

1. Percentages represent growth in number of apps during FY13.

Page 47: Dreamforce 2013 Investment Community Presentation

ISVs Extend Horizontal Reach

900 ISVs >2,000 Apps

>2,000,000 Installs

Page 48: Dreamforce 2013 Investment Community Presentation

ISVs Building Revenue Momentum

>125 ISVs paying >$100k annually 15

2 yrs Time from launch to $100K 3 yrs

>15 ISVs paying >$1M annually 1

900 Signed ISV partners 200

>20K Net-new deals closed by ISVs 7K

FY12 FY14 YTD

Page 49: Dreamforce 2013 Investment Community Presentation

$1 Billion Quarter on Way to $10 Billion Decade

Q405 Q406 Q407 Q408 Q409 Q410 Q411 Q412 Q413 Q314

Quarterly Revenue

$35m

$1.08b

Page 50: Dreamforce 2013 Investment Community Presentation

Investing for Continued Growth

Innovation

Secures our future

Speeds up innovation

Depth

Focus on solutions

Enterprise penetration

Breadth

Expands opportunity

Increases customer value

Page 51: Dreamforce 2013 Investment Community Presentation