Salesforce - Earnings Call - Q3 2012
November 17, 2011
Transcript
Speaker 6
Good afternoon. My name is Jamaria and I will be your conference operator today. At this time, I would like to welcome everyone to the Salesforce.com Q3 fiscal results 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 one 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 conference over to our host, Mr. David Havlek, with Salesforce.com Investor Relations. Sir, you may begin your conference.
Speaker 5
Thanks, Jamaria, and welcome everyone to today's call. Earlier this afternoon, Salesforce.com issued a press release detailing its third quarter fiscal year 2012 results. In addition to the press release, the company results can also be found in a Form 8-K filed with the SEC. Joining me today to discuss our third quarter are Marc Benioff, Chairman and CEO, and Graham Smith, CFO. Following our prepared remarks, we'll open things up to your questions. As a courtesy to your fellow analysts, I ask that callers limit themselves today to a single question. Our commentary will primarily be in non-GAAP terms today. Reconciliations between GAAP and non-GAAP metrics for both our reported results and our forward guidance can be found in our earnings press release.
At times in our prepared comments or in responses to your questions, we may offer incremental metrics to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that this additional detail may be one-time in nature and we may or may not provide an update in the future on these metrics. With that, let me make this call official with a brief safe harbor. The primary purpose of today's call is to provide you with information regarding our fiscal third quarter 2012 performance. Some of our discussion and responses to your questions may contain forward-looking statements. These statements are subject to risks, uncertainties, and assumptions. Should any of these risks or uncertainties materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements.
All these risks, uncertainties, and assumptions, as well as other information on potential factors that could affect our financial results, are included in our reports filed with the SEC, including our most recent report on Form 10-Q, particularly under the heading Risk Factors. To access our third quarter press release, including the GAAP or non-GAAP reconciliations, our historical results, any of our SEC filings, a webcast replay of today's call, or simply to learn more about Salesforce.com, I encourage you to visit our Investor Relations website. Finally, before I turn the call over to Marc, please be advised that during today's discussion, we may reference certain unreleased services or features not yet currently available. We cannot guarantee the future timing or availability of these services or features and thus recommend that customers who purchase our services make their purchase decisions based on services and features that are currently available.
With that, let me turn the call over to Marc.
Speaker 0
Hey, David. I am absolutely delighted to share these amazing third quarter results, and I'll begin by briefly reviewing some of our financial highlights from the quarter. First, the revenue of $584 million rose by amazingly 36%. Our annual revenue run rate is now more than $2.3 billion, and it makes us the first enterprise cloud company to reach this milestone. Non-GAAP EPS of $0.34 was absolutely above our guided range, and we delivered that while hosting a world-class Dreamforce here in San Francisco. It is now the largest enterprise software event in the world with more than 46,000 registered attendees. Deferred revenues increased by 32% to finish the quarter at $918 million, and third quarter operating cash flow rose by 74% year over year to $129 million in the quarter. We exited the quarter with approximately $1.3 billion in cash and equivalents on our balance sheet.
In fiscal year 2012, we became the first enterprise cloud company to surpass a $2 billion annual revenue run rate, and today I'm delighted to announce that we expect to reach a $3 billion annual revenue run rate during our next fiscal year. That is just spectacular growth. Our financial success in the third quarter was powered by a tremendous response from customers to our new social enterprise strategy. We're now engaging customers at a higher, more strategic level than ever before, and we've seen more large deals this quarter as a result of that strategy than we have seen in other quarters this year. At Dreamforce, we showed how some of the world's best companies, such as Burberry, Toyota, Verizon, are all transforming into social enterprises.
In fact, I'm delighted to share with you that one of our largest transactions in the quarter was Verizon, who signed up for 80,000 subscribers of Chatter, 7,000 subscribers of the Sales Cloud and Data.com. Verizon's vision for the social enterprise is to build an employee social network connecting retail stores and office-based employees, fueling a new level of global collaboration. By mobilizing their workforce on iPads, Verizon plans to delight customers in an entirely new way. Today, we're seeing customers buy a broader selection of our services, as evidenced by growth of all of our product lines. For the Sales Cloud, we signed Maersk, one of the world's largest shipping companies in the world, based in Europe, and they swapped out Oracle and selected Salesforce.com for their entire global sales team.
We also won deals against Oracle with Bayer, Eli Lilly, Telstra, Fuji Xerox, Japan Post, Unisys, PTC Parametric, and Diebold Securities, all strong wins against Oracle. In Q3, we also won against Microsoft, closing major deals with Pfizer, AXA, CenturyLink, American Teleconferencing Services, Gates Corp, Banca Civica, Orion, Vivint, M&G, and Tripwire. Other new or add-on transactions for the Sales Cloud from the third quarter included Adobe, Avaya, Sampo, and Kaspersky Labs. As exciting as our Sales Cloud momentum is, perhaps nowhere is the social enterprise message as critical as it is in customer service. In fact, five of our top 10 transactions of the quarter included the Service Cloud. A great example is Electronic Arts, who wanted to create a next-generation customer service center before the release of their highly anticipated video game, Battlefield 3.
Electronic Arts was able to deploy an employee social network with 1,200 agents in just six weeks, allowing them to manage dozens of portals, serving up over 20 million site page views, and handling 150,000 cases in the first week alone. A really great win for Salesforce.com against Oracle. Other new or add-on Service Cloud transactions from the third quarter include Australia Post, Frontier Communications, GE, Funom, Western Digital, Investech Asset Management, and KDDI. Chatter, which is at the heart of our social enterprise strategy, continued to drive our success in the third quarter. Another great example is Avaya, who plans to deploy more than 17,000 subscribers of Chatter and the Sales Cloud. Avaya will be rolling out an employee social network to improve collaboration and boost productivity.
They also plan to replace their legacy content management systems with a next-generation social portal built on our application development and deployment platform, Force.com. GE signed up for 20,000 subscribers of Chatter. In just three weeks, GE created a private customer social network called GE Edge, where their customers can collaborate with peers and get access to experts and research. Other Chatter wins in the quarter included Toyota with 10,000 subscribers of Chatter and Bechtel with 5,000 subscribers of Chatter. While Chatter helps companies collaborate internally on private social networks, Radian6 is helping companies to listen and engage with customers on public social networks, redefining what it means to do social monitoring. We're thrilled with the success that Radian6 has seen with major customers around the world. Wins from the quarter included Condé Nast, Delta Airlines, LinkedIn, Nestlé, New York Times, and Warner Brothers.
Force.com achieved some truly impressive milestones in the quarter, delivering triple-digit growth year over year. Today, nearly 450,000 developers have built and deployed more than 260,000 cloud apps on Force.com, and usage of the platform continues to increase. Force.com delivered 40 billion transactions, up 10% quarter over quarter and 62% from a year ago. Phenomenal. That's more than 600 million transactions on Force.com every business day. One of the great Force.com wins for the quarter is with USAA. They are standardizing on Force.com to power a range of employee-facing social apps such as property management, claim tracking, recruiting, and more. Other new or add-on Force.com transactions from the quarter include Amgen, Japan Post, Toyota, City of New York, and Yahoo. In addition, new ISVs like Concur, Infor, Canandy, and Workday join our developer community to deliver next-generation apps on Force.com.
The AppExchange crossed a new milestone with more than 1 million apps installed by our customers worldwide, another amazing milestone that was crossed during the quarter. Over the last year, we extended our platform strategy beyond Force.com with Database.com and Heroku and Data.com, giving developers solutions to replace legacy tools. This quarter, Database.com became generally available, and Heroku added support for five additional languages, including Java. Heroku also became the first and, to date, the only cloud platform built right into Facebook's development center. Right from within Facebook, you can start building Heroku applications in Java and Python and Ruby and Clojure or the language of your choice. Within 24 hours of the announcement at Facebook's F8 conference, Facebook developers had built more than 30,000 new apps on Heroku. Phenomenal. Recently, we announced some exciting acquisitions of new products.
In the third quarter, you saw us acquire Assistly, a pioneer in the world of customer service and help desk applications for small businesses. We also launched the public data of Do.com, a social project management system for small businesses. Earlier this week, we announced our intent to acquire Model Metrics, which is expected to close during the fiscal quarter. Model Metrics is a strategic services company that is helping to empower our global partner ecosystem with their outstanding mobile and social capabilities. We've seen so many of our top customers go to Model Metrics to build custom mobile and social applications. We're delighted to welcome them to the Salesforce.com family. I want to remind all of you that on November 30, we're hosting CloudForce New York City at the Javits Convention Center.
We expect more than 10,000 people to register to attend this event, making it the largest cloud computing event held on the East Coast and our largest event ever in New York City. If you have not yet registered, please contact David Havlek and we'd love to see you there at CloudForce New York on November 30. Also, on December 14 and 15, we're taking the CloudForce Roadshow to Tokyo, Japan, where we will continue to share our vision for the social enterprise with an additional 10,000 registered attendees and events with Neil Young and will.i.am. We're looking forward to seeing you at CloudForce Tokyo on December 14 and 15. With that, I'll turn this over to Graham to discuss the financial details of the third quarter.
Speaker 3
Thanks, Bob. Q3 was another great quarter. We executed well to deliver strong revenue growth, outstanding cash flow, and earnings above guidance. Revenue for the quarter was $584 million, an increase of just over 36% year over year. Top line revenue was strong for three primary reasons. First, as Marc indicated, Q3 was another strong new business quarter and exceeded our expectations heading into the quarter. Second, attrition on a dollar basis declined for the ninth consecutive quarter and remains in the mid-teens % range. Third, we continued to benefit from a weaker dollar, which in Q3 provided a tailwind of approximately $9 million. Constant currency revenue growth was 34%. In terms of our third quarter, year-over-year revenue growth by geography, revenue in the Americas grew 36% to $397 million. In Europe, Q3 revenue was $104 million. That's up 36% in dollars and 29% in constant currency.
In Asia, Q3 revenue rose roughly 39% in dollars and 31% in constant currency to $83 million. Our Japan business continued on its recovery and posted strong new business growth in the third quarter. Turning now to revenue mix, Q3 revenue was roughly 94% subscription and support and 6% professional services. I mentioned on our last call and at our Dreamforce analyst session that we could see our business mix show a slight shift toward professional services over the next few quarters as we invest in additional consulting skills to accelerate the shift to the social enterprise. The acquisition of Model Metrics supports this acceleration by bringing on a team of highly skilled mobile and social cloud designers to work on social enterprise projects. Moving on to the rest of the income statement, our non-GAAP gross margin was 82%, essentially unchanged from Q2 and from the year-ago quarter.
Non-GAAP subscription and support gross margins were flat, sequentially at 86%, but down a couple of points from last year. The small decline was primarily the result of data center capacity expansion. Non-GAAP professional services gross margins finished at 13%. While margins in this business continue to fluctuate quarter to quarter, the adoption of EITF 08-01 has led to an overall improvement this year. Moving on to operating expenses, total non-GAAP operating expenses represented 71% of revenue in Q3, up four percentage points from last year. The increase was the result of two principal factors. First, over the past 12 months, we've acquired several businesses, notably Heroku, Radian6, and most recently Assistly, which have added nearly 500 people to our company. We're continuing to invest aggressively in those businesses.
Second, over the same period, we added approximately 1,700 people through organic hiring, with 550 of them being added in Q3 alone. As a result of organic hiring and acquisitions, we added 600 people in Q3 to bring total Q3 ending headcount to nearly 7,000, an increase of 46% over last year. Our organic hiring efforts continue to focus on adding sales and engineering capacity, which we believe is critical to future growth. We expect Q4 to be another record quarter for organic hiring as we look to continue our strong momentum into fiscal 2013. Within specific expense categories, sales and marketing continues to be our largest operating expense at roughly 47% of revenue. This was up about three points from last year.
As you know, increasing sales capacity is one of our most important goals, so I'd like to take a moment to review its financial impact on our operating model. While a salesperson typically takes two to three quarters to start closing new business, on average, it takes six to nine quarters before a salesperson and his or her supporting team reaches break-even on a P&L basis. This lag between investment and profitability occurs for two main reasons. First, ratable revenue recognition means revenue from new business ramps slowly. Second, while we capitalize and amortize commission expense for the salesperson against the related contract term, all of the sales engineering and management costs, including their commissions and bonuses, are recognized as period expenses. As long as the trend for overall sales productivity is flat or increasing, we're going to continue to hire aggressively.
Marketing expenses in Q3 also rose significantly as we continue to evangelize our cloud computing and social enterprise messages. In the third quarter, we hosted Dreamforce at a net cost of roughly $0.05 per share. In addition, we hosted large CloudForce events in both London and Munich. While sales and marketing remained our largest expense line item, R&D was our fastest growing expense category in Q3, increasing 47% from a year ago. With a broadening product portfolio and our goal to dominate enterprise cloud computing, ongoing investment in R&D is critical. As a result, R&D now represents 11% of revenue compared with 10% a year ago. G&A was our slowest growing expense category. As a % of revenue, G&A expense was flat year over year, 13%. As a result of higher operating expenses, our non-GAAP operating margin was 11%, up slightly from Q2, but down four points from last year.
Due to the lower interest rate environment and an increase in the number of higher yielding investments that have come to maturity over the past few quarters, other income and expense, or OIE, was $4 million in the third quarter. That's down from roughly $9 million in Q3 last year. Similarly, looking to FY13, we expect OIE to be lower than in FY12. Non-GAAP EPS was $0.34 compared with $0.32 in Q3 last year. EPS was higher than we guided for two main reasons. First, our effective non-GAAP tax rate for Q3 was 29%, lower than our guided rate of 33%. This was the result of favorable adjustments driven by stock option exercises and additional tax benefits related to recent acquisitions. The lower tax rate contributed about $0.02 to Q3 non-GAAP EPS.
Second, the lower average share price in the quarter drove a smaller dilutive effect from our convertible note this quarter. This lowered our average share count and contributed about $0.01 to non-GAAP EPS. We currently expect our Q4 non-GAAP effective tax rate to increase to roughly 32%. Looking to FY13, we currently estimate that our effective tax rate will increase to approximately 40%. This higher tax rate is driven by two main factors. First, we will no longer benefit from a one-time $40 million foreign tax deduction in the U.S. for Canadian taxes. This Canadian tax payment is a one-time event which arose as a result of the Radian6 transaction. The actual tax payment of $40 million in Canada is scheduled for Q1 next year. I just want to point out, clearly that will have an impact on our first quarter operating cash flow.
Second, the federal R&D tax credit will expire at the end of calendar 2011. We do not anticipate the legislation being renewed, or we cannot, I should say, anticipate the legislation being renewed in our forecast effective tax rate. Obviously, we hope the Congress will eventually extend these important tax incentives. Turning next to cash flow, operating cash flow was $129 million during the quarter, up 74% from last year. Year-to-date cash flow from operations was up approximately 20% over the first nine months of last year. We had a strong collections quarter, and our Q3 DSO was 49 days, down from 55 days a year ago. For the full year, we expect operating cash flow in the mid-teens % range. This implies slower growth in Q4 than Q3, primarily as a result of the significant hiring ramp that we're seeing in the second half.
For CapEx, we finished the quarter at roughly $35 million. As we discussed on the last call, capital spending was driven by three factors. First, roughly half of all CapEx this year is a result of leasehold improvements. With year-over-year employee growth of 46%, we expect to continue significant spending in this area. Second, as I mentioned earlier, we continue to invest in data center capacity. As we build out new infrastructure with a wholesale data center model, we incur CapEx relating to power cages and racking. Last, capitalized software for service delivery and internal IT projects makes up the balance. This can vary from quarter to quarter depending on the timing and scale of deployments. We expect CapEx in Q4 to be similar to Q2 levels. Free cash flow, which we define as operating cash flow minus CapEx, was approximately $94 million in Q3.
That's up 77% from last year. For the nine months year-to-date, we've generated $244 million in free cash flow. Moving on to the balance sheet, cash and marketable securities ended the quarter at just under $1.3 billion. Cash has remained relatively flat year-over-year due to acquisitions over the previous 12 months, which represent just over $600 million in cash outflows. Deferred revenue was $918 million at quarter end. That was up 32% from last year. Adjusting for an approximate $5 million FX tailwind, constant currency growth for deferred revenue was 31%. This compares with constant currency growth rates of 33% in both Q1 and Q2. I'd like to remind people that quarter-end deferred revenue is a function of invoicing and is influenced by several factors, including invoice timing, invoice duration, new business linearity within the quarter, annual seasonality, and the compounding effects of renewals.
As we discussed at the Dreamforce analyst session, some of our recent acquisitions, such as Heroku and Radian6, bill monthly and don't contribute significantly to the deferred revenue balance at all. Although for all the reasons I just described, deferred revenue is a tough number to predict, we expect Q4 revenue to grow at approximately 30%. Turning to our outlook, we feel good about our compelling social enterprise vision, our great market position, and our strong pipeline entering Q4. There are two things to note about this guidance I'm going to give you. First, we're on track to transition Radian6 revenue recognition from a cash basis to an invoice basis in the fourth quarter. This will add around $5 million of extra revenue in the fourth quarter as we go through that transition. We discussed this back in May, actually, when we announced the acquisition.
Second, we are assuming that the acquisition of Model Metrics will close in December in our guidance. After taking these factors into account, we now project Q4 revenues to be in the range of $620 to $624 million, and non-GAAP EPS in the range of $0.39 to $0.40. For full year 2012, we estimate revenue in the range of $2.255 billion to $2.259 billion, representing growth of approximately 36%. Looking forward to fiscal 2013, we currently anticipate revenue to be in the range of $2.88 billion to $2.92 billion. This assumes we close the acquisition of Model Metrics in Q4. The midpoint of this guidance range implies just over about 28.5% revenue growth for FY13. We'll provide you with further details of our FY13 operating model on our fourth quarter call in February.
Before we turn the call over to the operator for questions, I also want to encourage all of you to join us in New York on November 30th for what is shaping up to be an amazing CloudForce event. With that, let me turn the call over to the operator for questions.
Speaker 6
At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. To withdraw your question, press the pound key. As a reminder, per the host of the call, there is a limit of one question per analyst. We'll pause for just a moment to compile the Q&A roster. Your first question will come from the line of Kash Rangan with Bank of America.
Speaker 1
Hi. Thank you very much. Nice quarter. I was just looking to get a little bit more clarity on the deferred revenue commentary, Graham. I think if you look at the billings calculation, the way we do it on the street, it's been well above 30% the last four quarters, five quarters actually. Is there something of a change with respect to contract durations or invoicing terms that represents a new way in which we should be thinking about the so-called billings growth rate? Is there something of a temporary nature that explains why the billings may have been lower than what people's expectations were? Also, to get clarified, I think you said 30% growth in Q4. I wasn't sure if you meant revenue or deferred revenue growth rate. Thanks. That's it for me.
Speaker 3
First, yeah, we think deferred revenue in Q4 will grow approximately 30%. Obviously, I've said for all the reasons that I listed, it's a tough number for us to predict accurately. I think first of all, just to put this in perspective, I think we've raised our guidance for Q4. We've obviously initiated, I think, pretty exciting guidance for next year. If you look at the trend of constant currency deferred revenue growth, Q1's 33%, Q2's 33%, Q3 was 31%. That's why we have avoided, I think, talking about your calculation of billings. I think your number is a lot more volatile. We tend to, you know, I think deferred revenue is a number that goes on our balance sheet, and we feel clearly that it's subject to this volatility for all those reasons that I listed around invoice duration and so on.
The last thing I'd remind you, Kash, is that some of these newer businesses like Radian6 and Heroku, they're not really contributing to deferred revenue balance. They contribute to the revenue number, but they don't contribute to the deferred revenue number in any significant way. We did highlight that at our analyst session at Dreamforce as something to, as a potential shift in how that billings calculation that you do may work. We feel we couldn't be happier with where our business is and where we're going in Q4 next year. That's sort of our commentary.
Speaker 0
Yeah, I think that when you look at what is the best predictor of our future revenues, we're able to really take a strong look at our guidance. You've seen for this year that we've really been right on that in terms of where we're going as an organization. As we look to other metrics in our balance sheet, like deferred revenue, the problem is that that's a metric that's rapidly evolving as we start to do more acquisitions, as there are fluctuations in invoicing periods, currency changes. At the end of the day, our best predictor of where our revenue is going is our guidance. When we get down to the deferred revenue, it's not a metric that we manage internally. It's really only a metric that we report at the end of the quarter.
In terms of our sales and our numbers for the quarter, our bookings for the quarter, we've kind of stayed away from those quarterly numbers. We can look at something like our customer counts, which for this quarter were above where we expected them to be, and were actually a record number that we've ever had in the history of the company.
Speaker 6
Your next question will come from the line of Heather Bellini with Goldman Sachs.
Speaker 2
Hi. Good evening. Hi. I just had a question following up on kind of what Kash was talking about. At Dreamforce, I think one of the things that came out of it is that typically you guys have thought of it as a big deal closing event. I think that's what some of the confusion is, given seasonality and deferred was a little bit below what you guys have done over the last couple of quarters. I was just wondering kind of how you saw the deal closing activity versus your expectations coming out of Dreamforce, or is that still, do you think, more of a Q4 event for you?
Speaker 0
Our pipelines are fantastic. We had a Q3 that was an amazing quarter for us, and we expect another amazing and spectacular quarter in the fourth quarter. Our pipelines have never been bigger. Our customer accounts have never been higher. The number of net new customers for the quarter was higher than it ever was. We couldn't be more excited about our business. A lot of that came out of the fourth quarter. As we look to the next fiscal year, we look at hitting this $3 billion annual revenue run rate, which is critical for us. You can also see how we see the fourth quarter playing out in terms of revenue, where we're raising our revenue guidance to $2.258 billion. All indications to us are that our business remains unbelievably strong and pipeline strong. The number of deals that are closing are at record levels.
If we zero back down to this deferred number, it's going to continue to fluctuate. It's not a great indicator of the current performance of the company. The best indicator of the performance of the company, of course, is the revenue. The best indicator of the future performance of the company is the guidance that we're giving on the call today.
Speaker 3
Heather, I did mention early on in my comments that we did exceed our own expectation in terms of where our new business was going to close for the quarter in Q3.
Speaker 6
Your next question will come from the line of Adam Holt with Morgan Stanley.
Speaker 7
Terrific. Thank you. As you look into the fiscal 2013 guidance, what would you expect the contribution of acquisitions to be? Do you think that cash flow will grow in line with revenue next year, or how do you view the cash flow growth rate relative to revenue? Thanks.
Speaker 3
Adam, we traditionally haven't broken out those numbers. At this point in the year, as you know from previous years, we don't give any other guidance than just the first blush revenue. We haven't finished our operating model for next year. We haven't finished a lot of the detailed plans, and therefore, clearly, haven't finished our cash flow guidance either. I'm afraid I'm just going to pass on that for the moment.
Speaker 6
Your next question will come from the line of Mark Murphy with Piper Sandler.
Speaker 4
Yes, thank you. Marc, I wanted to ask you about the time frame for customers to adopt social enterprise technologies versus what you experienced historically with the Sales Cloud and the Service Cloud. Would you expect social enterprise adoption curve would be faster because you have greater awareness and buzz of social technologies? Or do you think it's going to be slower because it could involve a customer mindset transformation and adoption of a broader range of solutions as opposed to a single application?
Speaker 0
We have been selling really the concept of social enterprise without the word social enterprise, which we've only had now for about six weeks, probably since Dreamforce 2008. If you go back to Dreamforce 2008, you'll remember I was on stage with Sheryl Sandberg doing demonstrations of Facebook, tightly integrated with Salesforce.com. That rolled into 2009, which is when we really started to announce Chatter, 2010, where we had rolled out Chatter as kind of the foundation of the social enterprise. Now in 2011, of course, we called basically Dreamforce Welcome to Social Enterprise. We are working with literally thousands of our customers around the world in defining what social enterprise means to them. When we look at social enterprise, we see what is the customer's social profile. What does it look like from a collaboration platform?
How are they building and deploying the Sales Cloud, the Service Cloud, custom applications, social applications, which is kind of what we see with Heroku, social monitoring, like with Radian6. We start to build product social networks. This week, I was in Las Vegas on Monday with our customer Toyota, rolling out to all of their dealers and distributors our vision for Toyota Friend and demonstrating Toyota Friend to them on the iPad. It was an amazing experience. When we look at the customers that we're closing in this quarter and the pipelines that we have, we have a lot of social enterprise transformations underway because it has become the primary way that we're selling. I would say that we've evolved from being a Salesforce automation company and then adding the platform into being what I would call an SFA platform or even a CRM platform.
We really introduced the Service Cloud where we became a true CRM platform with sales and service. Of course, we've added in Radian6. We see the emergence of the marketing cloud with Heroku, with these social marketing applications, with Radian6, and really with the thousands of websites that we run for our customers all over the world. You can really start to see that when you combine all of that with Chatter and other core technologies that we've deployed, we really see the social enterprise as our primary value proposition to the customers.
I would suggest to you, if you talk to our customers or talk to recent customers that we've signed, a lot of the reasons that we're able to close deals is because we are substantially ahead of the competition in not only being able to define, articulate, but also build and deploy for our customers social enterprise applications. It was a fantastic Dreamforce for us. I expect the same at CloudForce in New York and Tokyo. I expect that our pipelines will continue to be full of social enterprise capabilities. Specifically, to your point on speed, I believe that our industry is going faster than ever before and that we're going to see this uptake, as already evidenced by the deal flow, as happening faster than ever before because customers need new solutions. They're trying to redefine themselves. The opportunity is right now.
It's not two or three years from now. This is about being aware of what's going in the market today and how to deliver that.
Speaker 6
Your next question will come from the line of Laura Leederman with William Blair.
Speaker 2
Yes, thank you for my question. Can you talk a little bit about when you're selling social enterprise, namely Chatter? Is it the monetization at that point in time is relatively small versus the Sales Cloud and the Service Cloud? Over time, as people live in Salesforce.com, they would develop more apps and they'd end up paying you more. I guess what I'm trying to get at is you're selling a lot of your social enterprise stuff to clients. You spend a lot of time in the quarter doing so. Does that lead to less short-term revenues than the other clouds, even though you sell the seat? They're not as expensive, which is sort of a different way of also asking Mark Murphy's question.
Speaker 0
No. In fact, we had more larger transactions in this quarter, Laura, really, than we've ever had in the third quarter. We had really spectacular deal flow. Those large enterprise transactions are architected around being social enterprises. As we look at what's happening in the fourth quarter in the fiscal year 2013, we're seeing more and more social enterprise transactions. They're not really at what I would say slower uptake. I would just say that we have a highly differentiated product. We're able to architect much larger transactions and deliver to our customers a much broader solution.
When you look at some of these large transactions that we closed in the quarter, like Verizon, Electronic Arts, or GE, Maersk USA, some of the big premier transactions, I think that what you'd see is that they really all signed with us because we're able to deliver to them this social platform and that other companies aren't ready to deliver that to them today.
Speaker 6
Your next question will come from the line of Brent Thill with UBS.
Speaker 1
Thanks. Graham, just on the guidance for fiscal 2013, you set the revenue well above where the street had you modeled. Obviously, there's a disconnect with the deferred. I guess the only way where we would point to is a contracted not billed backlog. I understand you don't give that number, but I was wondering if you could just give us a sense. Obviously, that seemed like it was very strong. The reason not to give earnings for next year is that just given you're still working that plan out, I guess would you assume just a flat operating margin consistent with what you were talking about at the Analyst Day if we were modeling that forward from this current year?
Speaker 3
Sure. Yeah, I mean, unbilled deferred, we disclose that once a year on the fourth quarter call. Certainly, it's been trending up very strongly. We're very pleased with how unbilled deferred has been trending this year. We've never given earnings guidance on this first view of the following year. Certainly, in any of the years I've been at the company, I think we have good visibility, you know, into our revenue for next year because of our business model and the sales capacity that we've added during the course of this year and we plan to add in the fourth quarter. I think we have great visibility into our revenue.
That's an easier number for us to give you a view into than working through all of the detail of the P&L and the cash flows and so on that we'll be doing over the next few months as we close out Q4. We're not really doing anything different here to what we've done in previous years.
Speaker 6
Your next question will come from the line of Tom Roderick with Stifel Nicolaus.
Speaker 1
Hi. Good afternoon. Thanks for the opportunity to ask a question here. I'm interested for your take on the Service Cloud side, your nearest competitor, kind of pure play competitor being RightNow Technologies, recently acquired by Oracle. I'm interested for what you're seeing in real time and customer commentary as any feedback from that Oracle RightNow acquisition and what you think it might mean for the marketplace on the Service Cloud side next year.
Speaker 0
We have a great product with the Service Cloud, as you know. One of the exciting parts of our Service Cloud product, of course, is that it's deeply part of our core platform. It's not just a standalone application. It's part of the, as Laura was indicated, part of the social enterprise, number one. Number two, it's part of our platform. It's not really a separate piece of code. It's a deeply integrated part of the platform. That core parts of that offering, like, for example, knowledge management or the ability to do case management, you know, that's an application that we deliver to customers. It's also part of our platform that we deliver to developers. It's also deeply integrated into our Sales Cloud and into our Marketing Cloud.
That's really one of the strengths of Salesforce.com is that we haven't acquired hodgepodge, all these other little companies and every little thing like Oracle has. We've been delivering really from the ground up. When we have a technology vacuum, like we did a few years ago in knowledge management, we acquired a company called Instranet. That was an on-premise technology company that then we rewrote deeply into our platform, into the multi-tenant architecture and the shared system, make it available through our API. A great evidence of that is the win this quarter with Electronic Arts. As you know, Electronic Arts and Battlefield 3 is probably the biggest, highest volume customer service release of the quarter for any vendor. It was a replacement of competitive technology.
I think that when you look at that, it's evidence that we have what it takes to win those transactions, to go head to head against Oracle, and to beat them consistently. That's why they continue to draw straws, buy different companies, but nothing is going to be able to go up against a deeply integrated platform like we have that can do application development as well as the end-user application capability across the board. That's the power of Force.com.
Speaker 6
Your next question will come from the line of Philip Winslow with Credit Suisse.
Speaker 1
Hi, guys. Thanks for the question. I just wanted to focus back on the Marketing Cloud. Mark, you mentioned sort of the evolution of that, obviously, with Radian6. How do you see or to see that progressing in future years and then also kind of integrating that back into the Sales and Service Clouds? Thanks.
Speaker 0
I think that what we see really is the main interest of our customers today is in social marketing. I think that traditionally, customers have really looked at what is campaign management or what is my ad spend in the quarter. I think it's really moved to what are my customers saying about me? How do I deeply integrate my website and my Facebook presence and my Twitter presence? How is that related back to my sales and service capability and even the traditional WWW address? All of that, we really look at the evolution of what we've been calling the Marketing Cloud. I call it the social marketing cloud internally. Because when I look at the social marketing cloud, what I see is really the opportunity for customers to use products like Radian6 for social monitoring, Heroku for building interactive applications.
On Facebook, a great example that we've been talking about is facebook.com/disneyland, where you can see this deeply integrated interactive application. You are going to start to see us deploy new—I don't want to get ahead of where we're going for CloudForce New York, where you're going to see us do a lot of announcements in this area. The ability to take Force.com, the ability to take the Service Cloud, the ability to take the Sales Cloud and the Marketing Cloud and deploy highly customized applications back out to customers. When we talk and look at competitive offerings from Oracle, from SAP, from the companies that they're buying every other week, you know they just can't do that. You just don't see that level of integration, the level of scale, the level of throughput.
I guess a great stat that we didn't use in our script that we probably could have is we've delivered more than 300 million pages to Zynga's customer service application since we deployed it in April. That's amazing. You just don't see other companies doing that level of scale and throughput and reliability. When we look at a company like Zynga, we see them deploying other aspects of our technology as well to become a true social enterprise. All of that comes back to the Marketing Cloud, the Service Cloud, the Sales Cloud as an integrated strategy for delivering the customer's social enterprise.
Speaker 6
Our next question will come from the line of Tom Ernst with Deutsche Bank.
Speaker 7
Good afternoon. Thank you for taking my question. Graham, you mentioned the ramp to productivity for salespeople and hiring. Your investment in headcount has been pretty aggressive this year. I think the headcount is up roughly 46% year on year. Do you mean to invest even more aggressively as we look forward to next year? Are you looking to further accelerate that hiring? Is your point that it takes a while for what you've done already to ramp? Thank you.
Speaker 3
No, I was just reminding people really that the basics of our model. I know we've obviously gone through it with you, Tom, a lot of times. I think we've always said, I think Marc and I and certainly David, that when we're in this mood, when we're hiring as aggressively as we are, it means we feel really good about our business. We've just had a record quarter of hiring. We expect we're going to have another record in Q4. We see we have the visibility, obviously, into the pipeline and the sales productivity and our sales capacity. That's what we're focused on building for next year. That's really all I'm trying to imply.
Speaker 0
Yeah, I think that what we're excited about, Tom, is, and as you know, if you follow us, you listen to these calls, we're all about building greater distribution capacity. We know we have the winning product. We know we have the winning strategy. We just don't have as large a Salesforce.com as Oracle and SAP and Microsoft. How do we build that as fast as possible? What we're getting excited about is we finish this fiscal year 2012, our fundamental distribution capacity, that is the number of pure play account executives across all of our product lines, will be up almost 50%. That's very exciting for us. That includes acquisitions, obviously. That includes our core development. We've got our eye on that ball. It's important for us to grow distribution capacity, to invest in it, because without an army, you're not going to win a war in enterprise software.
A lot of this is hand-to-hand battle. As you go after these mega transactions, like the ones we've been talking about, the call, and so many others, whether it's a large bank like Wells Fargo, whether it's a large telecom company like Verizon, whether it's a large entertainment company like Electronic Arts, whether it's a large insurance company like Chartist or others, you just aren't going to win unless you've got the feet on the street and you're ready to jump in the foxhole and really battle it out at the competition. We have to communicate something that you maybe intuitively understand at this point because you've been to maybe 20 events with us. Most customers obviously haven't. That core distribution capacity is critical. It's our number one investment category for this fiscal year and the next one as well.
Speaker 6
Your next question will come from the line of Jason Maynard with Wells Fargo.
Speaker 7
Hey, guys. Good afternoon. I was looking through the revenue growth rates by region. The Americas look like it's accelerating year over year and sequentially. Europe saw a bit of a dip. I'm curious if there's anything more we should read into Europe. Maybe a bigger picture question, what are you thinking about the opportunity for adoption in Europe and actually putting some of those distribution capabilities in that region? Thank you.
Speaker 0
We had a really strong quarter in Europe. We had revenue growth of 36% in dollars and 29% in constant currency. I think one of our marquee transactions of the quarter was a head-to-head win against Oracle at Maersk, which was one of the very largest Siebel customers in Europe now getting converted over to us. We also just hired one of Oracle's top Senior Vice Presidents, Miguel Milano, to be our new Head of Europe. I was just there in London at CloudForce, and I had to add a second day because demand was so strong for my presentation that I had to do two keynotes. Honestly, we could have probably done three or more. Graham actually had to go to Munich and do CloudForce Munich, which I was not able to attend because it had such a strong attendance. Europe is an exciting growth region for us.
It's been an exciting growth story for us. We saw strong demand, as you can see in all of our numbers, or mid-double-digit growth in all geographic regions, which is just an exciting time for the company. We feel good about where Europe is today. Graham, do you want to add to that? You were just there.
Speaker 3
Yeah, no, I mean, there was amazing excitement in Munich, literally more than a double from a year ago in terms of attendance. I think with Miguel on board as well, we're going to have a great year there next year.
Speaker 6
Your next question will come from the line of Brendan Barnacle with Pacific Crest Securities.
Speaker 7
Thanks so much, guys. Graham, just a quick one. Given all the strong metrics in the quarter, is it safe to assume that unbilled deferred grew much faster than the deferred revenues in the quarter?
Speaker 3
We don't give that metric. I'm pretty sure it grew faster than the off-balance sheet grew faster than the on-balance sheet in Q3. As I say, we will give you that number more precisely in Q4. You'll be able to see what the trend has been over the year.
Speaker 6
Your next question will come from the line of Walter Pritchard with Citi.
Speaker 7
Hi, thanks. I'm wondering if you could maybe just walk us through in terms of the factors that impact your billings next year. Wondering, you mentioned the change in Radian6 accounting. If there's anything else that's impacting the revenue number. I know coming into this year, you had the ITF issue that was a small drag on or a small, actually, boost to revenue growth coming into 2012.
Speaker 3
There really isn't anything. Obviously, Radian6 will do the transition this quarter. They'll be on a sort of an invoice basis, just like all of our other businesses for next year. EITF has had a relatively small impact this year. It'll be for the whole year, sort of somewhere around $20 million, I think, across all four quarters that it's increased revenue by. I think next year, EITF is pretty neutral. In fact, it might even be a small headwind next year. There's nothing else that's going to be an unusual adjustment to revenue, either positive or negative, that I'm aware of right now.
Speaker 6
Your next question will come from the line of Carl Carofel with BMO Capital Markets.
Speaker 7
Yeah, hi. Thank you. Question for Marc. Marc, on the last earnings call and at Dreamforce, you gave us all some very good color around the overall demand backdrop based on your client conversations. Since Dreamforce, obviously, Europe and the banking sector are a little weaker, I'm just wondering if you could offer some updated color. Are you as confident now as you were at Dreamforce? Thank you.
Speaker 0
Yeah, I'd like to do that. I think that maybe it wasn't the last call, but the call before when I was asked to comment on, did I think we were going into a recessionary environment or that we were going into a recession? I know at that time, a lot of forecasters felt that we were. I felt that we were not. I still feel that way. I don't feel like we're going into a recession. I'll tell you that one of the, I think, bifurcations for Salesforce.com is that the way that businesses are buying may be a little bit different than the way consumers are buying. We're primarily a B2B company. As you know, we're not selling to that consumer. I don't think that we have really experienced the same level of fluctuations in market demand that maybe B2C companies have.
As a B2B company, we've seen, I think, as you see by these numbers, which are pretty unbelievable, extraordinary performance in the U.S., first and foremost. Those numbers have surprised us. It's why revenue guidance has essentially been raised every single quarter of this year. It's why we are, I think, ahead of everyone coming into next year, primarily the U.S. Now, number two, let's not forget Japan, which has not had a great couple of quarters economically since the disaster. Our business in Japan has actually been quite good. Of course, we had an initial drop-off as kind of everybody wasn't sure what was going on in country. As things stabilized, we saw an acceleration of demand for cloud-based solutions. Of course, we offered our product for free to anybody affected by the disaster. We've also picked up additional work with the government and with other related companies.
I hope that many of you will come to Tokyo because I think that it is Salesforce.com's second biggest market in the world. We just added a second session of my keynote there. I think that you're going to find that to be a very robust buying environment and opportunity for Salesforce.com on a going forward basis. When we went to Europe, I think that for sure, you could see that people in Europe have not been sure what's going on with them because of the banking crisis. At the end of the day, businesses are buying. You can see with our delivery of essentially what I would call strong double-digit, mid-double-digit growth year over year, as well as the signing of strong deals in the quarter across the continent. I even mentioned one of the deals that happened in Eastern Europe with Kaspersky.
I view the opportunity in Europe as continuing to be a very good opportunity. It has to get characterized against the U.S., which is off the hook. When you look at the enterprise software market overall, and Gartner just released all of their numbers for the top, you know, I don't know, 30 or 40 or 50 countries in the world. I actually have them here. You really have to look to the U.S., Japan, the U.K., France, Germany, Canada, and Australia, which has been a very strong grower for us as well, as really the top seven domineering countries for enterprise software where we focused our resources. We've obviously experimented in other regions, including India and other places. At the end of the day, it's those seven countries that have been really awesome for us.
We remain really strong in the three most important countries in enterprise software, which remain the U.S., the U.K., and Japan. I would continue to say when you looked at the beginning of this calendar year, people were very worried about the U.S. I'm sure we all have short memories and forget that. The U.S. has been a great grower for Salesforce.com and really for others this year. Japan, you could not have expected what had happened. Obviously, they have monetary issues that they have to work through in terms of their currency. Europe, obviously, I think psychologically is affected a lot by the banking crisis. I see companies growing there. I see them adding.
Where we saw, and the reason that we felt good that we were not in a recessionary environment, and we would call that out, is when we see existing customers cutting, that's or existing customers even not adding is really the dominant number that we look at. We go, is our add-on business flat? When we don't see customers adding, that's when we know we're in a recessionary environment because they're not growing their sales and customer-facing organizations, which is where everybody wants to invest in today's market. From our perspective, existing customers are adding on, and we're signing new customers. That's exciting for us. What we've tried to do in the last six months is redefine what is the customer front office. I don't think other competitors have done that. We've given that a name with the social enterprise.
We've redefined the front office in many cases as the whole company. When you look at Chatter, when you look at the Sales Cloud, the Service Cloud, the Platform, and that continues to be why Salesforce.com is absolutely one of the very fastest growing enterprise software companies in the world and why we continue to see that next year.
Speaker 6
Your next question will come from the line of John Difucci with J.P. Morgan.
Speaker 7
Thank you. Graham, I'd like to sort of circle back to, I think, what's on everybody's mind and sort of why your stock's down after the close here. In the past, you've talked to us about how deferred revenue can bounce around some, and it makes sense. You've also spoken today and reminded us about the recent acquisitions and how the revenue is being recognized up front right now. You even said that off-balance sheet grew faster deferred revenue than on-balance sheet. Even two years ago, when deferred revenue declined sequentially in the October quarter, accounts receivable actually increased. That's another indicator of business signings, at least towards the end of the quarter. This year, that actually declined too. I mean, why shouldn't we be a little concerned that perhaps we're seeing a little bit of slowing business momentum? Perhaps it's even a macro thing.
I know Marc said we're not in a recession. We're not going to go into one. You don't think we are. There are signs in these results that make it look that way a little bit.
Speaker 3
First of all, I just want to make sure I'm very clear on these new businesses. We're not recognizing any revenue up front. You used that word, recognizing revenue up front. We don't recognize any revenue up front. The newer businesses like Heroku and Radian6 bill monthly. Therefore, if they're billing for a very short time period based on usage, typically, my point is simply that those businesses don't affect deferred revenue, not that we recognize revenue up front. We just simply recognize it each month when it's billed. I just wanted to be clear on that. I think clearly we had a great collections quarter. If you look at our DSOs going from 55 days down to 49 days, that clearly has something to do with the AR balance being what it is.
We wanted to make sure that we delivered a strong operating cash flow quarter, and that's what we did. Like I say, Marc said earlier, we don't manage deferred revenue. That's why we've continued to highlight as often as we can that there are these fluctuations from quarter to quarter. We have, on a constant currency basis, we're talking about a trend that's gone 33, 33, 31. Clearly, we are looking at a strong fourth quarter from our perspective and a strong year next year. That's sort of how we join the dots.
Speaker 0
Yeah, and I would add, we don't traditionally manage metrics associated with deferred revenue like invoice timing or invoice duration. Those are not things that we are in there trying to dial up with customers. What we're trying to dial up with customers is getting them on board, closing their deals, getting the contract length correct, getting them implemented, making them successful, and looking at the long-term monetary value of these customers over time. As we broke through more than 100,000 core customers in the last quarter, what we really saw was we continue to see very, very strong revenue growth. We are doing a good job of predicting how our business is performing. We're going to be able to continue to do that. We have to be a little bit cautious in regards to this concept of quarter-end deferred is still absolutely, you know, it's a function of invoicing.
It's also influenced by other factors that Graham has mentioned, including things like invoice timing, invoice duration, new business linearity within the quarter, annual seasonality, these acquisitions, compounding effects of renewals. Those are things that we, as a certainly, I could speak in terms of the sales organization, we're focused on beating the competition and signing deals. In terms of those specific metrics, that's not where our eyes are. You can see variations in deferred revenue over time, which is why at Dreamforce, Graham called that out in the analyst day. He basically said to be aware of those types of fluctuations in the future.
Speaker 3
Maybe, John, just to add a couple more points. Clearly, we've talked in the past about roughly two-thirds of our invoicing being on an annual basis and roughly a quarter of our invoicing being quarterly, and the rest being semi-annual and monthly. I've, again, on previous calls, said that those proportions, which do affect deferred revenue, move around from quarter to quarter. It, frankly, is at a level of sort of noise that it feels kind of weird on a $900 million plus number to be saying, oh, this quarter, we gained X million from a little movement in this proportion. Next quarter, we've lost a little because of that proportion changing. We've tended to just try and sensitize people to the fact that there are these fluctuations and just try and communicate that we're not out there trying to influence them.
We roll with them each quarter rather than trying to get people too wound up in the news shy of that balance sheet number.
Speaker 0
Yeah, at a higher level, I just want to come back to what I've said every quarter this year, which is we're focused on top line growth. You can see what we're excited about is we're going to get into that $3 billion annual revenue run rate next year. We're looking at how fast we can get to $10 billion in revenue. We feel absolutely that we're on track for a great year next year. We're working hard to have a great year every year until we can get to that $10 billion number because we just see nothing but growth and opportunity for the enterprise, cloud computing, their need to move off of these traditional enterprise software and hardware systems that they've had for a couple of decades.
When you look at the big wins this quarter, you see that with Maersk, with Electronic Arts, with Verizon and others, they're all like, let's get into the cloud. That's what's exciting to us. As a proof point to that, you saw it at Dreamforce, the energy and the excitement, the scale. You're going to see that again in New York. You're going to see that again in Tokyo, I think.
Speaker 6
for everybody to come and assess it firsthand, and you're going to continue to see a great performance of Salesforce.com.
Speaker 5
We only have time for a couple more questions.
Speaker 0
Our next question will come from the line of Steve Ashley with Robert W. Baird.
Speaker 3
Thanks so much for taking my question. I was just going to ask about Model Metrics and what your thinking is around the game plan there. Obviously, they have been differentiated in a very strong mobile offering, very strong social offering. Is that something where you bring it in-house, create best practices around it, try to roll it back out to other partners, get them to adopt it? They were also unique in creating this new professional design capability that I think is getting some traction. I'm wondering, is that something you try to keep centralized, or is that something you also urge your partners to adopt? Just wondering how you're thinking about that.
Speaker 6
This is absolutely related back to really Laura's question, which I thought was right on, and others around the momentum of the social enterprise. As the social enterprise has gotten more and more momentum this year, what we've seen is a gap in our ability to rapidly deploy to our customers certain key aspects regarding the strategic services around the social enterprise. That gap obviously has been picked up by some of our partners like Accenture, like Deloitte, like Capgemini. One of the partners that we saw do an outstanding job in a very strategic area, which is mobile applications and in social networks, is Model Metrics. We specifically saw that when we signed Toyota, you know, what we saw the ability was, how do we rapidly start to build and deploy an application for them? Many of our partners were not able to deliver on the mobility piece.
We saw Model Metrics be able to jump in. We've seen that with other customers. We said, you know, strategically, this is a core part of the services we want to be in. As you know, a very small percentage of Salesforce.com's total revenue is services. It's not part of our strategy. It's not what we talk about on the call. In fact, we really didn't talk about professional services or consulting at all on this call. You know, we're all about the delivery of more and more customers and more licenses. When we want to scale an organization, we don't want to scale pro serve. We want to scale our distribution organization. That's our strategy. That said, in this one area, strategic services, we want more competency.
We made a strategic decision to do something that we have not had the need to do before, which is to pick up a relatively small professional services organization that's an expert in social, mobile, and cloud, Model Metrics based in Chicago. That's the deal that we announced. I think it makes us a much stronger organization in being able to close and accelerate the social enterprise transactions.
Speaker 5
All right, we have time for one last question.
Speaker 0
Your final question will come from the line of Rick Sherland with Nomura Securities.
Speaker 3
Thanks, Marc. I want to go back to a couple of the earlier questions on the social enterprise. I'm curious if you're seeing an increase in the sales cycle, either associated with the time that's being spent by the Salesforce.com evangelizing as opposed to closing, you know, maybe revenues. Is the sales cycle lengthening? I know you've got big customers. Does that take longer to sell? Is there anything in the dynamics of what's being sold or the size customer that would affect near-term billings?
Speaker 6
We really haven't. We've seen a lot of transactions close in this quarter. We've seen transactions close in this quarter that get paid out for us in quarters to come. I'm not going to go into that detail, but it's been very exciting for us to see customers make these very big commitments to us over time. The social enterprise has provided a very, very high level of differentiation. I think when customers go through a demonstration of our technology, as I'm sure you have done and you will see again in New York and Tokyo, it's highly differentiated against the competition. Customers can start where they are. Social enterprise is not something that anybody buys. It's not a product. It's not on our price list. Of course, we have a social enterprise license agreement where they can buy an ELA, where they can take all of our products down.
The reality is most customers come in with a specific business need that we're looking to fulfill and then give them a vision in their mind of where they can go beyond that. That remains our core strategy. When I work with customers and I help them to define what is their social enterprise for the future, I think a lot about where is their employee social network today, where is their customer social network today, where is their product social network, and how can we elevate their consciousness about the ability to deploy more of that. I think one of the most exciting things in the release of our technology that we just put out is that now inside Chatter is Salesforce.com's customer groups. You can create a group not only of employees, but you can now create a group and you can bring in employees and customers.
That could provide an exponential effect on Chatter. Every Chatter user can go out and create a group and then bring outside customers into that group to collaborate and create a portal and share information within that group. We've just never seen technology like that. Salesforce.com's technology has primarily been myopic. It's been within the enterprise. Maybe we had a portal for your customers. Now we're including the customer into that. That's an exciting next step in enterprise software. I think it's an accelerator for customers on the social enterprise. We continue to see strong deal flow. We have to see all of our sales cycles to be highly normalized in terms of their close rates.
Speaker 5
All right, great. I want to thank everyone for joining us today. I want to encourage everyone to join us for CloudForce New York on the 30th, or we'll be in Tokyo, as Marc said, later in the month of December. There's really no better way to learn about the social enterprise, our services, or our building ecosystem in the mix with our customers and our partners. To register, you can go to our main site and click on the Events tab, or you can contact Investor Relations. We look forward to seeing all of you at one of our events. Thanks again for joining us today. We'll talk soon. Bye-bye now.
Speaker 0
Ladies and gentlemen, thank you for your participation in today's Salesforce.com Q3 Fiscal Results Conference Call. You may now disconnect.
