Salesforce.com, Inc. Q3 2009 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Kash Rangan - Merrill Lynch - Analyst : Hi, thank you very much. Graham, just a clarification on a question for you. So adjusting for the one-time items in Q3 that impacted the cash flow from operations, we come up with the cash flow as a percentage of revenue for the first nine months of the fiscal year about 20%, 21%. Should we think roughly of cash flows from operations being in that ballpark for the rest of the -- not so much for the fourth quarter, but the blended fiscal '09 numbers? Because that's been the trend, and I'm just looking [back to see] -- when you implied some sort of cash flow rebound in Q4, are we still targeting that 20%, 21% of revenue conversion into cash flow for this year? And also when you look at next year, obviously a lot of uncertainties in the economy. How do you think it plays out with collection cycles? Are we still going to be able to invoice and collect from the small businesses for the same six months, and the medium businesses for the 12 months, and the large enterprises between one to two years? In other words, how do you think the potential credit crisis could impact payment terms and therefore cash flows for the company next fiscal year? That's it. Thank you very much.

Question: Laura Lederman - William Blair & Co. - Analyst : Thank you for taking my question. Can you talk about the economic impact you're seeing on enterprise versus middle market versus small companies, any detectable weakness in vertical markets sort of by company size? And the same thing with churn, I know the whole churn has not changed, but what about in any given segment? Thank you. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Brent Thill - Citigroup - Analyst : Thanks, good afternoon. Your fiscal '10 guidance of 27% growth, just curious in terms of if you can articulate how much of that is already booked versus new business that needs to be added? Just give us a sense in terms of what type of visibility you already have on that number? And then I guess, Graham, just for Q3's guidance, 3% sequential growth I think is the low end of your guidance, and in our model you haven't done 3% sequential -- I don't know how long back we would have to go. But just in terms of what you're looking at for Q4, if you could walk through that as well?

Question: Tom Roderick - Thomas Weisel Partners - Analyst : Good afternoon. Thank you. So Marc and Graham, I know you don't want to guide specifically on cash flows, but perhaps you could help us think about some parameters for deferred revenue for next quarter, just in light of the fact that last year there was such a big spike from Q3 to Q4, and you've talked about some of the seasonality trends. When we think about the deferred revenue growth on a year-on-year basis, should we think about it in the same ballpark as revenue growth, or is it a different way you would encourage us to think about it? And then also should we expect -- you had the landmark Dell deal, I think, in the second quarter. Should we expect that to begin hitting on a full basis here in Q4 into the balance sheet, as well as the P&L? Thanks.

Question: Tom Ernst - Deutsche Bank - Analyst : Good afternoon. Thanks for taking my question. Graham, to follow up on that last question, I think you did give us a new metric this quarter that I don't believe I've heard before. If I heard you right, you said that in the fourth quarter your annual invoicing outnumbers -- or perhaps outdollars other invoicing by a 3 to 1 margin. So the simple math would suggest that if you grew deferred revenue by $134 million last year, that roughly $100 million of that was annual invoicing. And I guess if that's correct, the follow up would be we would expect those annual invoice customers to be reinvoiced annually again here in this coming Q4, and that's before you start with new bookings. Is that simple math right?

Question: Tom Ernst - Deutsche Bank - Analyst : Fair enough. But you did, just to be clear, say on the call that your annual invoices were 3 to 1 versus all others in Q4.

Question: Michael Huang - ThinkEquity Partners - Analyst : Thanks very much. So could you help update us on the early activity that you're seeing with InStranet? Are customers waiting for the application to be ported to the salesforce platform before they commit to the offering, and have you seen this open up some doors at higher-volume B2C organizations? Thanks.

Question: Philip Rueppel - Wachovia Securities - Analyst : Yes. Thank you very much. Marc, you mentioned a number of additional big wins in Force.com. Could you talk about perhaps some early projects from any customers that have actually rolled into production? And you mentioned the 5% of bookings; is that something that sort of gets customers their first pilot programs up and running and increases as they roll their own projects into their own production, or is it something that stays reasonably fixed for the foreseeable future?

Question: Richard Baldry - Canaccord Adams - Analyst : Thanks. Given the fact that it looks like you believe that you can accelerate sort of market adoption in a weaker macro environment, can you maybe talk about the trade-off in using cash to do something like a buyback, given the share valuations, which could also simultaneously let you accelerate your spending and still hold your earnings in line? Whether something of that strategy could be something to think about as you go into your heaviest cash generation quarters? Thanks.

Question: Brendan Barnicle - Pacific Crest Securities - Analyst : Thanks so much. Graham, on last quarter's call you'd given us some indication on growth of the off balance sheet, and combined sort of on balance sheet and off balance sheet, sort of a total billings broken up on a several quarter basis. Do you have that number for us again this quarter?

Question: Karl Keirstead - Kaufman Brothers - Analyst : Hi, good afternoon. Thanks for taking the question. You mentioned that the currency hit for the upcoming January quarter is about $7 million if I heard you correctly, which would equate to about a 3% growth rate hit. Graham, as we look out into fiscal '10, your 27% dollar denominated guidance, should we assume that there will be something close to that 3% growth rate hit from currency? In other words, your constant currency growth is a little bit more like 30%? Thank you.

Question: Keith Weiss - Morgan Stanley - Analyst : Thank you, guys. This is actually Keith Weiss sitting in for Adam Holt. A very impressive quarter, especially in the environment, adding 4,100 new customers, and a real validation of your guys' value proposition. But economic realities are economic realities. So when you're looking at -- when you're giving FY10 guidance, and considering how big a customer base you have, to what degree are you guys factoring in stuff like unemployment rate, that looks like it is definitely going up, could reach as high as 10%, small business bankruptcies are probably going to be on their are way up as well. Could you talk to us about to what extent those factors are baked into the guidance that you just gave us?

Question: Brad Witt - American Technology - Analyst : Hey, guys, thanks for taking my questions. Appreciate the metrics on your noncore SFA business, I think you said at 25% of new business, and also the Force.com metric, 5% of new business. Just curious as to how you expect this to trend over the next several quarters, and whether you'll be providing those metrics going forward? Thanks.

Question: Nathan Schneiderman - Roth Capital Partners - Analyst : Thanks for sneaking me in there. Why don't I throw out a two-part question, since I'm the last one. I was curious on the sequential decline in revenue from Europe. I don't think we've ever seen that. And what were the dynamics that drove that? Was there just weakness in Europe or something else? And then I was also hoping you could share with us the percent of your revenue mix from financial services, and also the percent from high-tech?