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salesforce.com (NYSE:CRM)
Q3 2019 Earnings Conference Call
Nov. 27, 2018, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the CRM Q3 fiscal year '19 earnings conference call. At this time, all participants are in a listen-only mode. Following the administrators' prepared remarks, we will host a question and answer session and instructions will be given at that time. If during the conference that you require operator assistance, press * then 0 and an operator will be happy to assist you. As a reminder, this conference call is being recorded for replay purposes. It is now my pleasure to hand the conference over to Mr. John Cummings, Senior Vice President of Investor Relations. Sir, you may begin.

John Cummings -- Vice President, Investor Relations

Thanks so much, Brian. Good afternoon, everyone, and thanks for joining us for our fiscal third quarter 2019 results conference call. Our results press release, SEC filings, and a replay of today's call can be found on our IR website at www.salesforce.com/investor. With me on the call today is Keith Block, Co-CEO; Marc Benioff, Chairman and Co-CEO; Mark Hawkins, President and CFO; and Bret Taylor, President and Chief Product Officer.

As a reminder, our commentary today will primarily be in non-GAAP terms. Reconciliations between our GAAP and non-GAAP results in guidance can be found in our earnings press release. Some of our comments today may contain forward-looking statements, which are subject to risks, uncertainties, and assumptions. Should any of these materialize or should our assumptions prove to be incorrect, actual company results can differ materially from these forward-looking statements. A description of these risks, uncertainties, and assumptions and other factors that could affect our financial results are included in our SEC filings including our most recent report on form 10K. With that, let me hand the call over it you, Keith.

Keith Block -- Co-Chief Executive Officer

Thank you, John, and thanks to everyone for joining us today. As you can see from our results, we had another great quarter as we continue to deliver strong growth, customer success, and execution at scale. Revenue in Q3 was up 26% and given the strength of the quarter and our outlook for Q4, we are raising our FY19 full-year revenue guidance to 13.24 billion at the end of the range. This represents 26% growth this year, though obviously, we are very proud of the quarter and the momentum in our business and our leadership position in the market. We're also initiating revenue guidance for FY20 at 16 billion at the high end of the range representing 21% growth for the year and demonstrating the incredible demand for the solutions only Salesforce can deliver.

We are clearly executing on our vision of transformation and success for our customers, and we are doing it at scale. Every company in the world has a mandate to digitally transform its business. We continue to see this in Q3 with strong performances across every industry, every market segment, and every geography. We grew 25% in the Americas, 26% in APAC and 31% in EMEA in constant currency. Now, since Dreamforce at the end of September, I've traveled around the world meeting with more than 100 CEOs and world leaders. The conversation is consistent everywhere I go. It's about digital transformation. It's about leveraging our technology. It's about our culture. And it's about our values.

This c-level engagement is translating into more strategic relationships than ever. In fact, in Q3 the number of deals generating more than $1 million was up 46% over last year. and the number of $20 million plus relationships we have continues to grow significantly. In fact, in the quarter we renewed and expanded a nine-figure relationship with one of the largest financial services institutions in the world. We're very excited about this. As you know, an overwhelming majority of our revenue is multi-cloud. Customers like DuPont, Citi, Uber, and many others. They're all driving more meaningful relationships with their customers across sales, service, marketing, commerce, integration, and more.

I was recently in Australia where I met with dozens of government officials and CEOs across several industries. Many are being challenged by disruption and all agree they're being closer to their customers and citizens is critical to their growth and their success. And this is not unique to Australia. Digital transformation is a global phenomenon. Now, we had a great quarter in EMEA where we strengthened our relationships with Deutsche Telecom, NG, Dyson, and Koenig. In APAC we expanded with Sulstra and Bajaj FinServ and formed a new relationship with MOC Life Insurance in Japan. We expanded with heavy industrial manufacturer IHI as one of the world's leading auto manufacturers.

Our industry strategy, which is all about speaking the language of the customer, continues to drive exceptional growth. Our strong momentum with Financial Services Cloud continued in Q3. And as I mentioned before, one of the largest financial services institutions in the world selected Financial Services Cloud as well as Einstein. Mutual America Life Insurance also selected Financial Services Cloud and they're leveraging Salesforce Einstein to improve their go-to-market strategy in customer engagement. Heading on Federal Credit Union with nearly two million members is also going all in with Financial Services Cloud as well as Community Cloud, Einstein, and MuleSoft to deliver a best in class member experience.

And the Salesforce platform now powers mission-critical applications across the Department of Veterans Affairs, while the Service Cloud helps ensure veterans can reach a live support agent 24 hours a day, 365 days a year. Very important for those folks. We also expanded with the branch of the United States Armed Forces to transform how they engage with the service members from recruitment to retirement. And with Health Cloud, we formed a new relationship with WorkSafe Victoria in Australia and we expanded our existing relationship with Alcon, one of the world's leading eye care and medical device companies.

Now partners, which are so critical to our growth. They continue to expand our ecosystem, which extends the power of our core offerings. To reinforce, we added Apple to our roster of strategic partners, which we're very excited about. And that roster includes Amazon, Google, IBM, and others. And this quarter, our SI partners were engaged in 64% of our new business globally and continue to invest in their Salesforce practices. Global partner certifications are up 26% year-over-year. That's the 19th consecutive quarter that our partner certifications have grown by double-digits.

Finally, we continue to execute again and again with our proven integration model and as a result, we're already seeing great returns from our acquisitions of MuleSoft and Datarama and Cloud Craze. And speaking of MuleSoft, integration has become a strategic imperative for all of our customers. It has captured the attention of c-level executives in virtually every conversation I have. And in the quarter, companies like Avodelays, WeWork, Michael stores, and it continues. Just love MuleSoft because MuleSoft is able to unlock data from legacy systems and accelerate their digital transformations.

In closing, we are thrilled with our results and our strong momentum heading into Q4 and FY20. It's been an outstanding year-to-date and we are well on our way to achieving our goal of 21 billion to 23 billion in revenue at FY22 faster than any enterprise software company in history. I want to thank our customers, our partners, and employees for their trust and continued support. I also want to take a moment to thank the firefighters and first responders who courageously battled the wildfires here in California. Our thoughts remain with them and all of those who have been affected by these terrible events. With that, I will turn the call over to Marc.

Marc Benioff -- Chairman and Co-Chief Executive Officer

Thank you so much, Keith. Before I start, I do want to just come back to that and thank all of the first responders and everyone who has worked so hard over the last two weeks. We've had a terrible tragedy here in Northern California and also one in Southern California. And certainly here during the holidays, 14,000 families have lost their home, 500 businesses. Half of all first responders lost their home in the fires. It's been a terrible disaster here.

Obviously, we had a terrible fire last year. This one is even worse. It's our worst ever in Northern California. And all of our hearts are with the victims and their families and also all of our gratitude is with the first responders. We had a city here filled with smoke for a couple of weeks and that smoke just reminded us how connected we are; not only to each other here in San Francisco but all the way up to Butte County. Our hearts remain with them during the season.

And we really want to thank not only our employees but also customers; many of them came to our lobbies here where we filled supplies up and brought them up to Butte County and distributed gift cards to many of our customers who are retailers -- helped us procure gift cards for first responders as well as for the families in Butte County. I want to thank them. We're going to continue to work on that. It's still on our mind and we're also giving $2 million initially to these relief efforts and all of us at Salesforce are gonna continue to stand with our neighbors and communities across California as we're rebuilding. Thank you for letting me just talk about that for just a moment because it's been something we've all gone through here over the last several weeks.

With respect to the numbers. Keith said it. This was absolutely a fabulous third quarter. It was incredible. Obviously, we've given guidance for an incredible fourth quarter coming and I am hoping that Keith is gonna improve on that even though the fourth quarter guidance is incredible. And here we are at 16 billion for next year and only two years from our goal of 22 to 23 billion, which is amazing that in fiscal year '22 we have this vision. So thank you to our team and our Ohana for delivering these incredible results. It's just amazing and an incredible moment in history. We are all in this midst here and I just was talking to Jim Cramer and it's like, well what is happening? And so, this is all about the fourth industrial revolution. This is about the cloud, it's about artificial intelligence, machine learning, deep learning.

I mean there are so many technologies that are happening. I read this morning in the newspaper about CRISPR being used to genetic editing of twins in China. We are in a lot of uncharted territory here. We're gonna continue to see incredible expansion. But when it gets right down to digital transformations, every digital transformation starts and ends for all of our customers, with their customer. And CRM has never been more strategic. You can see that in the growth rates for the CRM marketplace. It remains the fastest growing market segment enterprise software. That's a big change from when Keith and I started in the enterprise software industry; both started in 1986 and it was all about other types of technologies that have been downplayed.

Now it's all about the customer, it's about CRM. And this is a big and exciting market. We're obviously the largest player. We have these incredible growth rates that we're putting up. When we look at other companies in the CRM marketplace, a lot of companies are doing very well because this is what it's all about. it's all about the customer. And Salesforce remains this global CRM leader. We're the number one CRM. We continue to take share and outpace the market. You can see that in our results as we 're moving to $16 billion. This is because we're the only company that is dedicated 100% to CRM at this size and scale and we're the only company with a complete customer success platform for both these B2B customers and their B2C companies as well.

For those of you who joined us at Dreamforce, I always look at that as the ultimate manifestation of our company and how we're doing. You saw the huge turnout, especially compared to some of our competitors. I'm not gonna name any names because they're very sensitive. They get upset. But some of our competitors who also had conferences recently didn't have the big huge turnout like this. Better than 71,000 registered attendees, 10 million watched us online, largest Dreamforce ever. Probably everyone at the call was at Dreamforce. It was incredible. And we saw all these amazing companies, whether Marriott and Brunello Cucinelli and Unilever was here from the United Kingdom and everyone connecting with their customers in a whole new way.

We also saw my friend to the right here -- did an incredible new product, Bret Taylor, launched his customer 360 -- customers are blown away. Connecting all of our clouds together, giving our customers a single 360-degree view of their customers across every touch point, across sales or across service marketing and commerce. But really, thinking now especially with MuleSoft, how do we give these customers the 360-degree view that they so badly want? And that's why it's one of the biggest announcements in the remade and I hope Bret will talk about it later on the call. And of course, you can see the acceleration in our business. And also, in our positioning and our relationship with our customers and MuleSoft, the number one integration cloud giving customers extraordinary power of integration. Bringing together vast amounts of data across all kinds of systems in this incredible API architecture.

I always loved this company and I love it more now as part of Salesforce. They're right here with us now in Salesforce power. Greg and the team just incredible job and we saw that not just at Dreamforce but also through the whole quarter. And I think both companies are just hugely surprised at how well it's come together but also their execution is dynamite. And then you also saw the release again, Bret came up with this with Parker, Einstein voice. Amazing and you saw these amazing demonstrations of voice -- not just interactive voice response but now Salesforce can actually parse the data and actually insert it correctly in the customer database automatically so anyone can talk to Salesforce.

Makes every employed customer more productive, amazing, and Einstein talking to Siri. Einstein and Siri are now friends. Hopefully, they're gonna become best friends because we had Apple for the first time, strategic relationship. Something we've always wanted. At Dreamforce. Amazing to have this great relationship with Tim Cook; probably the best executive in our whole industry. Thank you, Tim, for your leadership and what you've done, the relationship to Salesforce. We're very grateful. And as we roll out these new mobile apps, our customers are expecting more innovation to come. Now, you also saw that we're strengthening our relationships with amazing companies in the cloud world, including Amazon and Google and IBM delivering these incredible innovations. And our customers are just loving what the amount of innovation that's happening in our industry, especially as the cloud becomes mainstream.

And at Dreamforce, we were thrilled to announce a new strategic partnership -- again, just expanding that capability and giving us that capability to have it not only with Amazon and Google but Apple as well, and other companies. Okay. Let's talk about Einstein for a second. I told you Einstein was delivering 3 billion products insides every day in the last quarter. Now, a few months later, we are doing 4 billion Einstein predictions every single day, exceeding our expectations. The transformation of all of our products; artificial intelligence, all of our products getting smarter. All of our products having Einstein built in that Einstein is at the heart at the customer's success platform, making it more powerful and more capable every day. You look at the many layers of our customer success platform.

The center is the customer, then, of course, everything is going in and out of Einstein with Einstein making the customer smarter, being our partner every day. I know I used that. That's incredibly important to me. Surrounded by this full range of capabilities, whether it's sales or service or marketing or commerce or platform or integration or community or enablement or engagement. All levels of the customer success platform have been made better by Einstein and then wrapped by this amazing trailblazer community. So awesome. Now, we really saw it this weekend. I'll tell you, during Black Friday and Cyber Monday, of course, our customers have deployed this customer success platform. So you're wondering what's going on, I just got this amazing report. I can't talk about it because it's a public company and we're working very closely with who have this massive success over this weekend and they're in the retail industry but I look at all these companies and we're powering more than 20 million orders on the customer success platform -- double-digit growth and amazing.

But one thing that really stood out for us was 50% of the orders are placed on the phone. Wow. Mobile traffic to retail sites reaching 67%. So obviously, that's a huge transformation that we've gone through and our customers, especially retail customers, are going through that. Just like to touch base briefly on our trailblazers. At the outer ring of our platform, our Ohana is so important to us, but especially our trailblazers and we've got a million of these trailblazers who are powered and enabled with all this capability and they're doing that on Trailhead. For those of you who've not been on Trailhead.com, please get on trailhead.com. This is our free online learning platform. It's letting everybody go through the workforce development they need to get into the fourth industrial revolution, to have their place in the digital economy.

This is central to our strategy. And you can see that because a quarter of these customers on Trailhead have self-reported that they have changed jobs because of skills they've gotten on the platform and the jobs they're getting are these phenomenal six-figure jobs. And we're so excited for all of our trailblazers and our goals are to get to millions and millions of these trailblazers. So we're really excited. We also saw that we have received to continually get some great recognition and of course paramount to Salesforce is our culture, Keith and I work on that hand in hand every day. That's reflected in our core values of trust, of customer success, of innovation, of equality, but our culture is very important for those who have been to any of our towers around the world, whether it's here in San Francisco or Indianapolis or London or Tokyo or New York.

I can tell you-you can feel it when you walk in. The culture is so important to us and we're trying to cultivate a great culture but thank you Fortune magazine ranking Salesforce again with the number one best place to work in the world. And that is not just true globally but in so many of the cities, also, that we do business in. we've been called out by Fortune magazine so thank you for that. That's so important to us. and I also want to thank Harvard Business, a review called out Salesforce and obviously they -- top CEOs in the world but really calling us out as number six top company in the world, Harvard Business Review. And number one American company for best performance for 2018. So thank you Harvard Business Review. We're very grateful as well to you.

We saw this quarter how the two parts of our mission at Salesforce changing the way the world does business and improving the state of the world go hand in hand. At the Global Climate Summit in San Francisco, many of you were this Salesforce United with 21 other tech companies in the step up declaration to decarbonize our company. We realize what's more important. World Economic Forum says that by 2050, we're gonna have more plastic in the ocean than fish. Who wants a plastic ocean? I don't. We're deforesting, losing one acre of forest every single second. Who wants a planet without the forest? I don't. we need the forest right now more than ever, and this was evangelized by Jane Goodall at the conference because of the carbon situation. So we have got to improve our situation with our climate. So we've continued to focus with others in our industry to decarbonize and to improve our relationship with the climate. Onward to public education.

Moving into the fourth industrial revolution we've got to bring the kids with us. that's why we've now put more than $50 million in our local San Francisco and Oakland public schools. This is halfway to our short-term target of 100 million. And everyone knows that we are thrilled that San Francisco passed Proposition C. Amazing. And record turnout -- incredible turnout -- San Francisco coming to the polls realizing that we can do something together, which is passing Proposition C. Spoke to the mayor this morning and we are very excited moving forward with Proposition C. The city will begin collecting the tax January 1st and looking forward to getting that into the hands of the amazing NGOs that we have here in San Francisco, like Hamilton Families, like Larkin Street, like Glide, like Catholic charities, so many people here helping our terrible, horrible homeless situation.

And we experience it every day being here and I know many people who live in cities in the United States are experiencing that homelessness. And there are so many things that we can do. We learned so much during Prop C and saw so many great insights. But the number one thing that every homeless person needs is a home. And at this time of the year during the holidays, all of those homeless people are on our minds more than ever. Thank you for your strong support here in San Francisco. But large to the most successful businesses all coming out for the good of the homeless. And thank you to Twilio now for giving $1 million and thank you to AirBnB for giving $5 million to homelessness.

Since Prop C, others are now able to root coming in to support the homeless situation and we plan for another major announcement this week regarding the homeless so be on the lookout for that. It's another reminder that the business does not exist in a bubble. We're part of a city, we're part of a community, we're part of Ohana, we're part of our planet. And we realize we're all connected, we're all one, but our companies are only as strong as these connections in our communities and that's something that Keith and I are talking about all the time, how Salesforce can be a light unto the nations and be a beacon for others and show what is possible when business becomes one of the greatest platforms for change. And with that, let me turn it over to the financial officer to talk about how the company did during the quarter. Mark?

Mark Hawkins -- President and Chief Financial Officer

Thank you very much, Marc. As you've heard, we delivered strong third quarter results as we continue to execute at scale. Third quarter revenue grew 26% in dollars and in constant currency. Despite experiencing a year-over-year FX headwind to revenue of 15 million and a sequential FX headwind to revenue of 19 million. MuleSoft contributed 128 million to total revenue net of purchase accounting adjustments. Looking at the year-over-year subscription and support revenue by cloud, sales cloud grew 11%, Service Cloud grew 24%. Platform and other grew 51% including approximately 105 million of MuleSoft. And marketing and commerce grew 37%. Dollar attrition exited the quarter below 10%. Operating cash flow was 143 million up 14% over last year. Third quarter OCF included our first buy coupon payment of approximately 44 million on the MuleSoft acquisition debt.

Unearned revenue ended the quarter at nearly 5.4 billion up 25% in dollars and 26% in constant currency with MuleSoft contributing approximately 103 million. Unearned revenue was impacted by year-over-year FX headwind of 34 million and a sequential headwind of 39 million, inventory quarter. We've always said that unearned revenue can be lumpy due to invoice timing, renewal timing, duration changes, etcetera. And we saw that in the third quarter where unearned revenue came in a bit better than our guidance. This had the effect of reducing the quarter-on-quarter sequential decline and unearned revenue from Q2 to Q3 we had historically seen. This also has an impact on the sequential change from Q3 to Q4, which I'll discuss in a moment. Total remaining performance obligation, which represents all future revenues under contract ended Q3 at 21.2 billion up 34% over last year.

MuleSoft contributed approximately 300 million to the balance in the quarter. The current portion of the remaining performance obligation, businesses billed and unbilled and it's expected to be recognized as revenue in the next 12 months, was $10 billion up 27% year-over-year. Moving onto guidance, we came off with strong third-quarter results. We are now once again raising our full fiscal year 2019 revenue guidance to 13.23 billion to 13.24 billion for 26% year-over-year growth. This guidance includes approximately 375 million from MuleSoft. We expect to deliver non-GAAP operating margin improvements of approximately 50 basis points at the high end of our prior guidance range, even while the demand environment gives us the confidence to continue investing in MuleSoft and other growth initiatives.

We are raising our FY19 GAAP diluted EPS guidance to $1.06 and a $1.07. Our non-GAAP diluted EPS guidance to $2.60 to $2.61. And keep in mind this guidance does not take into account the possible future impact related to ASU 201601. We are maintaining our full year fiscal 2019 operating cash flow growth guidance, so 15-16% year-over-year. And as we discussed previously, this guidance includes a headwind of approximately 150 million related to our acquisition of MuleSoft. For Q4 we're expecting revenue of 3.551 billion to 3.561 billion. GAAP diluted EPS of $0.08 to $0.09 and non-GAAP EPS of $0.54 to $0.55. Turning to unearned revenue, we expect fourth quarter year-over-year unearned revenue growth of approximately 17%. This implies a sequential growth rate of approximately 52%.

And let me take a moment to provide some additional context to this UR guidance. First, the FX environment has changed significantly over last year and we now anticipate a year-over-year FX headwind 2UR of approximately $200 million in Q4 versus an FX tailwind of approximately 130 million in Q4 of last year for a $330 million FX swing year-over-year. that represents about five percentage points of growth. Secondly, as you may recall, in Q4 of last year we had an extremely strong renewal quarter including some of the largest renewals in history. This drove outsized growth in our billed and unbilled deferred revenue in Q4 of last year. And thirdly and finally, as we discussed at the most recent investor day, the timing of invoices and renewals can impact the UR balance in any given quarter.

Third quarter UR came in ahead of our guidance and as a result of this dynamic, which has a direct impact on the UR balance of successive quarters and the related sequential changes. As a reminder, this is the last quarter we'll provide unearned revenue guidance. That said, when we report our fourth quarter results, you will have two full years of data on the current remaining performance obligation, which we think is a more complete metric because it's contract-based versus invoice-based. Moving onto FY20 guidance. As you've heard from Keith, our demand environment remains very strong.

And as a result, we're initiating fiscal 2020 revenue guidance of 15.9 billion to 16 billion for a year-over-year growth of 20-21%. Keeping us on track to deliver our target of 21-23 billion of revenue in FY22, now a little bit more than two years away. We will provide our cash flow EPS and non-GAAP operating margin guidance for FY20 when we report our fourth quarter and full year results in February 2019. To close, we delivered another strong quarter of results and we have great momentum as we look to close out the year. I want to thank our employees, our customers, our partners, and our shareholders for your continued support. And I wish you all a wonderful holiday season. And with that, let's open up the call for questions.

Questions and Answers:

Operator

Ladies and Gentlemen: at this time, if you would like to ask a question over the phone, press * and then 1 on your telephone keypad. To everyone participating in today's Q&A session, you are limited to one question. If your questions have been answered and you wish to remove yourself from the queue, please press the # key. Our first question will come from the line of Karl Keirstead with Deutsche Bank.

Karl Keirstead -- Deutsche Bank -- Analyst

Thank you very much. Maybe a question for Keith and Marc. Keith, you did mention you've been in front of a lot of customers of late. I'm just wondering whether the tone of those conversations has changed much in the last few months. Just not so much in terms of their Salesforce protected spend, that sounds like it's very strong. But just their broader view of the economy and the macro. Don't want to force you into being an economic forecaster but just wondering if the tone has shifted at all.

And then maybe a follow-up for Mark Hawkins. Mark, given that the performance on operating cash flow through the first nine months. You only need about 5% operating cash flow growth in 4Q to hit your 16% growth target. You obviously much higher than that last fourth quarter. I know it's hard to predict and it's based on the timing of invoice payments. But just curious if there's anything you'd like for us. Thanks so much.

Keith Block -- Co-Chief Executive Officer

I have been on the road quite a bit actually in the quarter. So I've had the opportunity to spend a lot of time out in the front lines with the troops and our customers. Here's the message I'm hearing. It's all about digital transformation. I am not gonna make any comments about the macro environment for what we see. It's all good. And this is the CEO level agenda.

This transformation is important. The sense I get regardless of any speculation around the economy is that this has really become a mandate. And this wave of innovation, this wave of technology that is sweeping the globe is imperative for these CEOs to be those chief transformation officers. And that's what's going on the market and that's why you see the results with us.

Marc Benioff -- Chairman and Co-Chief Executive Officer

Let me just add to that. I said this a little bit already, at Dreamforce as well, which is -- and I've said this recently on TV. When I speak to CEOs and that happens probably every single day, especially since these tax cuts that have happened. CEOs have been investing aggressively and the economy has literally been ripping. I think that a lot of the forecast that I've seen at the 4% level in the United States, we felt that before that happen and we were talking about the economy was ripping even before those aggressive growth estimates. When we look out for next year, I'm not sure I could see it going faster than it is now because I'm not sure where we're gonna get all the people to hire that we need to hire. It's amazing what's happening and not just for us but for everybody.

But maybe there's a modest reduction growth. If it's 2-3% in the GDP, I wouldn't be hugely surprised, but I don't see some huge c-change in the economy. I continue to see strong growth because I've seen so much investment this year. it's gonna pay out for these companies going forward. So I see, still, several years ahead of good solid growth for the economy. And where that gets tempered -- I think I've mentioned this before -- is when I talk to your PNCEOs. They tend to be more conservative and some of those CEOs, they may be specified in their region are not as optimistic potentially as I would say American or Asian or CEOs based in Asia. So that's how I still look at it. We are still in the economy right now and look at these numbers that are ripping and we still see very much a huge investment focus going on.

Mark Hawkins -- President and Chief Financial Officer

Let me just jump in the second part of the question, Karl, thank you for that. Yes, we're obviously pleased with our operating cash flow performance year-to-date as you've called out. We're very much tracking the fiscal year number that we have been driving toward ever since we acquired MuleSoft, which as we called out the 150 million impact that would be negative in the first two year of the acquisition, mainly due to debt expense and some lost interest income.

But the other factor to look at besides the fact that we're absolutely tracking our fiscal year -- its Q4 as one of the biggest quarters of the year for us and obviously we'll know more as we get to the end of that. We feel that this is appropriate to stay with the fiscal number. Especially in light of the fact that Q4 there's clearly an FX headwind if you just look at the FX rates year-on-year. That's another factor to be considered. We're staying on track for the year. we'll know more at the end of the quarter but given the FX headwind, I think this is totally appropriate.

Operator

Thank you. And our next question will come from the line of Philip Winslow with Wells Fargo. Your line is now open.

Philip Winslow -- Wells Fargo -- Analyst

Thank you guys for taking my question and congrats on a great quarter. I just really wanted to focus on this concept of the front office suite. Obviously, you guys were talking about that for several years now. And we're obviously believers. If you think about this year, we've seen probably north of 15 billion of M&A from some of your competitors try to build out different pillars of a suite. What are you hearing from, from your customers in terms of the competitive landscape? It's actually sort of post this M&A. And even beyond the M&A. Some of the data sharing initiatives out there between frenemies. What are you hearing from customers how you think about how the landscape's change?

Keith Block -- Co-Chief Executive Officer

I think we should ask our President of Products, Bret Taylor, who's here to give his vision of where we're going with our customer success platform.

Bret Taylor -- President and Chief Product Officer

I think our strategy as it relates to competition is really reflected in our Dreamforce announcement, particularly customer 360. When we talk to our customers, they're not looking to buy a piece of technology, they're looking to transform their business. Our strategic advantage is that we're the number one in sales, the number one in service, the number one in platform, the number one in marketing. And as you look at Black Friday, I think you can really see this in the way our customers are using every single one of those technologies to transform their customer experience. You might send out a promotion for your Black Friday sale through a text message or via email on our Marketing Cloud. You transact in our commerce cloud. You provide service through our Service Cloud.

We are the only company that can provide all of the solutions in an integrated way. And now with customer 360, you have a single view of your customer through all of the touch points. And so, our strategic advantage relative to competitors who are trying to catch up by acquiring the second place product in each of these spaces, is that we are an integrated solution. And keep an eye, I've talked a lot about this. Our customers are looking for an integrated solution to their business problems. Not just pieces of technology. And as a strategic advantage of our product portfolio.t

Marc Benioff -- Chairman and Co-Chief Executive Officer

Bret, you've done a great job. When we look at that product portfolio and we look at what you've built up with the customer success platform, cloud, of course, sales, you've got service and field service, you've got marketing, you've got B2C and B2B commerce. You've got engagement with Heroku, which still remains on its air. You've got platform and this incredible ecosystem. You've got integration, not just with customer 360.

This work with MuleSoft. You've got advanced analytics. The work industries -- you saw how well Financial Services Cloud did this quarter. You've got partners and communities, enablement, collaboration, and on top of all that, you have that whole trailblazer community. I don't think there's any company that has built out a comprehensive customer success platform like that. When you've got the Dreamforce and saw it all tied together with customer 360, what was your biggest surprise?

Bret Taylor -- President and Chief Product Officer

My biggest takeaway was the importance of Trailhead and that trailblazer community. It's interesting; when one of our customers decides to deploy our technology, we're not the only person they're helping them. Our partner ecosystem is there with them. And that partner ecosystem is fueled by Trailhead. One of the things that you mentioned, Marc, in your opening that I think is really powerful.

There are over one million people learning for free on Trailhead and one in four have gotten a new job on the other side of that because they're developing new skills. The way you should think about it from our customers' perspective and the thing that you see in spade the Dreamforce is, when someone decides to deploy Salesforce, they have the best ecosystem of support and the best partner community around them. That's what's driving the success of our customers with our technology, which is the thing that we are exclusively focused on.

Operator

Thank you. And our next question will come from the line of Derrick Wu with Cowen and Company.

Derrick Wu -- Cowen and Company -- Analyst

Great, thanks. Keith, one of the things that we commonly heard at Dreamforce is that partners are finding it harder to hire and build up Salesforce certified resources to meet the demand, which is I guess essentially saying that demand is outstripping supply from a consulting and implementation standpoint. Do you hear this as a trend in the field from your partners and do you ever see it weighing on pipeline convergence cycles? And then, you were just talking about Trailhead. I know it's been in the market for a little bit. How effective do you view Trailhead in helping to virally cultivate resources and can it help maybe populate talent in a quicker fashion than you've historically seen?

Keith Block -- Co-Chief Executive Officer

Thanks for the question. So, as you know, the relationship that we have with our partners is very strategic to our business. You heard me talk about in the call that they're involved in about 64% of our go-to-market efforts. And the certifications -- 19 consecutive quarters of double-digit certification growth. If you talk to any of these firms, whether it's PWC or Deloitte or Accenture or IBM and ask them what their fastest growing practice is at scale, it's Salesforce. And this is great news for our customers because we wake up every day, as a company, and we think about what's important for our customers.

And the partner ecosystem is certainly a big part of that. We are very focused on our partners. And we have plans with them to not only increase their capacity but also to enhance their capability. And the centerpiece for that is Trailhead. And offering and extending Trailhead for them to make sure that they get the right skills at the right time so that they can convert and cannibalize their practices from their legacy providers. And that's been a part of their strategy. We also encourage the growth of boutiques but it's not just in the enterprise business it's also in the mid-market and the SMB.

We invest as part of our funds with Salesforce ventures to provide start-ups the opportunity to build and cultivate these boutique practices to help with the SMB. So we've got a pretty comprehensive strategy to build out these SMB consulting firms, these accentors of the world, etcetera. In my entire career, I've never seen a closer relationship with the SI ecosystem like the one that we have at Salesforce. We do a lot of joint planning, there's a lot of collaboration, they're very integrated with everything that we do inside this company. And again, they're a big part of our future and we're very optimistic that they will continue to expand and convert the resources they need to drive success for our customers.

Bret Taylor -- President and Chief Product Officer

So Keith let me ask you a question, let's say there's an entrepreneur who's listening on the call today and they're hearing what you're saying, are you saying that if I'm an entrepreneur and I want to start a new company, starting the company providing these kinds of boutique services in the Salesforce ecosystem, that's a good business opportunity? And is Salesforce investing in those companies? Are you gonna invest?

Keith Block -- Co-Chief Executive Officer

That is a fantastic business opportunity. That's one of the reasons why we've got the consulting funds that have been set up with Salesforce ventures around the world.

Bret Taylor -- President and Chief Product Officer

And then we've seen so many of those boutiques get acquired by the mainstream outsize and motivate and grow their practices aggressively.

Keith Block -- Co-Chief Executive Officer

Absolutely. The important thing for us to continue to do is to keep cultivating and growing those practices at the mid-market space.

Bret Taylor -- President and Chief Product Officer

You look at some of these companies that were strong independent companies like Blue Wolf is a great example. But they've been acquired now by the very largest and most important systems integrator and so this remains a great opportunity for everybody.

Operator

Thank you. And our next question will come from Kash Rangan with Bank of America Merrill Lynch. Your line is now open.

Kash Rangan -- Bank of America Merrill Lynch -- Analyst

Congratulations to the Salesforce team. I have a bit of a philosophical question. you're sitting on some big markets, massive TAM -- 145 billion. But only one of your clouds is really dominant in terms of market share in its industry, which is sales cloud. I am curious, at what point -- like, so the demanding technology companies in the yesteryears of Oracle and the database market or Microsoft and the operating system market, where they defined the market.

So at what point are we -- how close are we to a tipping point where service, marketing, commerce, platform. All these markets really start to tip in the old way that it's not so much output -- of course, there's always gonna be output selling motion but the market really starts to come to you. you start to get these dominant shares in the other markets so you can start to realize your $145 billion TAM in a more significant way. That's it for me. Thank you and happy holidays in advance.

Marc Benioff -- Chairman and Co-Chief Executive Officer

I think you see this in growth rate that we're reporting on all of the clouds. So this is not anything that we're trying to keep from you. You can see it in the numbers that we're -- it's an abundance of riches at Salesforce. And yes, we have a great product with sales cloud that's doing just fine but we also have phenomenal service business and field service business and service add-on business that's also growing extremely well. We also have an amazing Marketing Cloud business that's growing extremely well and an extreme of commerce.

And I mentioned Heroku and it doesn't get reported but it's part of our platform, obviously a very important part of our platform integrated, which is also great business. And now we have an integration business, which is also an unbelievable business and we have an analytics cloud that's an unbelievable business. And we have industries that Keith has cooked up with financial services and Health Cloud, which is also an unbelievable business. By the way, we acquired Bret Taylor's company, Quip, which is an unbelievable business.

And just did a huge deal with Citibank for the quarter. That was awesome to see what Citi did with Quip, enabling all of their employees around the world. So congratulations to Bret and Kevin helping Citi work together faster in this incredible productivity environment. It's a product I use every day. If you haven't downloaded it, it's what Amazon uses, it's what Apple uses, Citibank uses to manage their productivity. You saw it at Dreamforce we now have Quip slides, which is incredible. But it's an abundance of riches. The key organizing principle though for us is the customer. So yes, we're in all these areas but there are other companies in service and there are other companies in marketing.

There are other companies in a lot of these areas but our organizing principle is that we're here to tie it all together to give you a 360-degree view of your customer. And that's what's unique for Salesforce. Every company has it's own organizing principle, as you know because you cover all these companies and you know what ours is and you know what our answer is gonna be that it all -- everything begins and ends with the customer. Bret, do you want to add to that?

Bret Taylor -- President and Chief Product Officer

I think Marc put it exactly right. And the backdrop that I'm really excited about and the reason why I think you see such amazing growth in Service Cloud platform, Marketing Cloud and good growth in our sales cloud is, these products aren't at standstill. The fourth industrial revolution is transforming each of these markets. Take Service Cloud, which is an amazing product with an amazing growth rate. Right now, artificial intelligence is completely transforming that industry and is driving every CEO to Salesforce to say, hey, how can you help me transform my customer service experience?

Which is really the tip of the spear as it relates to customer experience. And that's why our Service Cloud growing 24% year-over-year, one of our largest and fastest growing businesses, and you're seeing this in every single cloud. So as a technologist here was exciting for me is not just really can but also seeing the motion of change in each of these businesses and how we can help our customers navigate these technology changes happening around them.

Operator

Thank you. And our next question will come from the line of Pat Walravens with JMP Securities. Your line is now open.

Pat Walravens -- JMP Securities -- Analyst

Great, thank you and let me add my congratulations. MuleSoft is clearly proving to have been a great decision for you. What sorts of things might make sense for Salesforce to buy next and then Marc, I'd love to hear your thoughts if it fits in there on SAP's acquisition of Qualtrics?

Marc Benioff -- Chairman and Co-Chief Executive Officer

I can just tell you that there are a lot of things that Salesforce can do because this customer opportunity is much bigger and more striding I think that anybody really ever realized, but for MuleSoft this is a company that I loved for years. It's a company that I helped lead our early investing in and helped them go public and so forth. I wanted to buy them for years. Unfortunately, I have a very strong and stubborn management team that's sitting around the table and they're not that easy to deal with and they make it hard for me to do what I wanna do but I did get that one over the line. So thank God for that. There's a lot of others that I would love to see that I think that our customers would love to have more tightly integrated, more part of our product, it's really important.

And look, other companies -- I don't know if you've seen the front of the Wall Street Journal lately, but we put a market share graph of CRM on the cover of the Wall Street Journal. Have you seen it? I don't know if we also put it in our slide deck for you. Because it's our number one marketing graphic. Not everyone is as doing as well as we are in CRM. Not everyone is doing as well as we are in cloud, and you know that. So every year they've got some new thing, whatever, and I can't follow them all because they're all so difficult and they're by companies I've never heard of so I can't really comment on them. God bless them. And I hope that they're successful in CRM because it's been good for us.

Operator

Thank you. Our next question will come from the line of Alex Zukin with Piper Jaffray. Your line is now open.

Alex Zukin -- Piper Jaffray -- Analyst

Hey, guys. Let me add my congratulations to the quarter. I want to ask a question about verticals -- maybe Keith. You talk about some amazing success in financial services, the big deal with the financial institution with the success being driven by Financial Service Cloud, which we also picked up in our fieldwork. I wanted to understand -- could you talk about what is the incremental kind of value prop in features that are available to customers that go from generic Service Cloud to Financial Service Cloud and any commentary on the financial uplift that Salesforce sees through those migrations? Would be appreciated.

Keith Block -- Co-Chief Executive Officer

I'm happy to get into a feature function conversation with you if you'd like but here's the way I would think about Financial Services Cloud. First, in the beginning of time, there was the Service Cloud, right? And then, on the seventh day, God created something else and said it was Financial Services Cloud and then Financial Services Cloud started out in wealth management. And it went from wealth management to retail banking. Then it went to consumer banking and then it'll go to commercial banking and the list will go on and on. And by the way, Financial Services Cloud has made great integration points with partners like Hardwire and Velocity as well.

So those are compelling solutions for our customers. At the end of the day, this is a capability that customers want to buy off the shelf software. They don't want to be customizing and building their own capabilities because in a sense it's just retaining the cop out. It's like refresh but really you're not retiring your legacy debt and that's why customers want these capabilities embedded in our technology. And that's exactly what we're doing. We're responding to our customers in these industries by providing very rich functionality that is specific to what those customers are looking for. And that's been the strategy. Now, we can do that two ways.

One is that we can enhance our product so that these customers get commercially available off the shelf software. Or we could go partner with an ISV like a nCino or Velocity or the others that are mentioned. That has been our strategy. You can see the results. If you think about the pace of financial services -- arguably is the most successful cloud that we've ever launched and is established very deep in meaningful relationships with our customers. The roster of financial services company that we're doing business with now -- they all want Financial Services Cloud. And we just continue to win and win and win in that space. So it's very sudden for us.

Marc Benioff -- Chairman and Co-Chief Executive Officer

And for the previous question where there was a question about how we're doing with our competitors. I put on my Twitter feed for you the market share information so you can get that directly.

Keith Block -- Co-Chief Executive Officer

I do want to make a comment about the competitors because listening to Marc and Bret talk about this. A lot of these companies have been in the business a very long time. They've been in the legacy business. They have not been in the cloud business. They claim that they could be cloud companies because maybe they have an architecture that suggests they're part of the cloud. But it's not just about the architecture. It's also about the business model.

But most importantly, it's about the culture of the company and the focus on customer. And since the day this company was started, everything that we do is focused on the customer. If you go look at some of these legacy companies that are trying to get in the game of the front office and say that they're now CRM companies -- it's not in their DNA. So as Marc said, we wish them luck. We'll see you in the marketplace but please don't underestimate the importance of having the customer as part of your culture.

Marc Benioff -- Chairman and Co-Chief Executive Officer

And I have really had to start to curtail my comments as I'd love to talk about specific companies and other CEOs, every time I do I get a phone call. They're very sensitive. I don't want to hurt anybody's feelings during the holidays. I'm really holding back on this call. I'm just gonna do that one tweet.

Operator

Thank you. Our next question's coming from the line of Tom Roderick with Stifel. Your line is now open.

Tom Roderick -- Stifel -- Analyst

Hi, gentlemen. Thank you for taking my questions. Question from Marc Benioff. Marc, you're constantly in touch with global tech leaders, partners. Going back to Dreamforce, you certainly had some nice updates relative to Google as a partner. Some of the things you're working on there.

They, of course, have had some changes with the leadership at the top. I'd love to hear a little bit more -- if you could talk about how that partnership has progressed. And now that they are going through some new leadership changes at the top, what sort of opportunities exist to further extend that partnership? AWS has been fantastic. This one has a nice start off the ground with the analytics side. Where you can you take it from here?

Marc Benioff -- Chairman and Co-Chief Executive Officer

You just mentioned two great companies, Amazon and Google, who both have phenomenal cloud offerings. They both had very strong COs. Andy Jassy is amazing and also Sundar is amazing. They're both doing extremely well in our customer base. We see lots of action with both of those customers and partners and specific to Google, Bret, obviously is the creator of Google Maps and worked with Google for a while. I don't know if you want to touch on how you -- you have a unique perspective in all of this.

Bret Taylor -- President and Chief Product Officer

It's such a great privilege to have such amazing partners. We really worked backward from customer success and what our customers need to be successful. When I look at Amazon Web Services, Apple, Google, we're really saying, who are the companies that our customers want to partner with and who do they want us to partner with to drive success? When I look at Google, every single one of our Marketing Cloud customers, commerce cloud customers, has a deep relationship with Google because of the prominence of Google search.

Their ad network, marketing, analytics, and so I really view this is as an amazing opportunity to bring the best of both companies to bear when we're trying to provide these solutions to our customers. And our customer response has just been fantastic. And I hope to keep that relationship in the future and just make sure that when we provide these solutions to our customers the products work together. Our companies work together. Our customers have an amazing experience.

Operator

Thank you. And our next question will come from the line of Jennifer Lowe with UBS. Your line is now open.

Jennifer Lowe -- UBS -- Analyst

Great, thank you. As you start to talk with CEOs and senior decision makers about these big strategic digital transformation projects -- and you mentioned many of them are multi-year in scope. It strikes me that these touch a lot of systems, a lot of processes, and it's a challenge to sort of figure out what comes first. But as you sort of start through that participation process, how often are you going in and creating a new application that didn't exist before versus replacing legacy off the shelf software versus custom app development replacing legacy custom applications? How has that evolved as you increase your strategic value to those customers?

Keith Block -- Co-Chief Executive Officer

That's a great question. The way I would think about this is that the whole environment is just ripe for innovation. The innovation could be something that's custom developed with our technology or it could be something that's using our standard products. Obviously, customers like to take advantage of the selection building that our products provide and they want to model their processes aligned with our technology rather than building custom apps themselves.

The power of technology is such nowadays that you can do amazing things that you couldn't have done before. So it's kind of hard to give you an apples to apples comparison. But it's really an interesting phenomenon because the way the innovation it is just so impressive in what we're seeing in the marketplace. And that innovation is supported by our platform, it's supported by our Service Cloud, our whole customer success platform. It's hard to give you an exact number but it's all about innovation and creating your impossible.

Marc Benioff -- Chairman and Co-Chief Executive Officer

As we bring our class to a close, I want to thank everybody for participating in today's call. As I opened the call I also mentioned our hearts remain with everyone who suffered during the horrible fires. And I'd like to bring your attention to our local organization who is doing so much and has done so much support already, which is our North Valley Community Foundation, which is providing tremendous support for the Camp Fire relief. If you could support them we would appreciate it.

It's nvcf.org as in Nancy, Victor, Charlie, Frank .org. North Valley Community Foundation. And our hearts are with the entire community of Paradise and the surrounding areas affected by the Camp Fire. We would love for you to please consider a tax-deductible donation to the Camp Fire relief fund and to assist in the many community organizations who are serving evacuees and especially our tremendous first responders. Thank you, everybody and we look forward to talking to you again next quarter.

Operator

Ladies and Gentlemen: thank you for your participation in today's conference. This will conclude our program and we may all disconnect. Everybody have a wonderful day.

Duration: 60 minutes

Call participants:

John Cummings -- Vice President, Investor Relations

Keith Block -- Co-Chief Executive Officer

Marc Benioff -- Chairman and Co-Chief Executive Officer

Mark Hawkins -- President and Chief Financial Officer

Karl Keirstead -- Deutsche Bank -- Analyst

Philip Winslow -- Wells Fargo -- Analyst

Bret Taylor -- President and Chief Product Officer

Derrick Wu -- Cowen and Company -- Analyst

Kash Rangan -- Bank of America Merrill Lynch -- Analyst

Pat Walravens -- JMP Securities -- Analyst

Alex Zukin -- Piper Jaffray -- Analyst

Tom Roderick -- Stifel -- Analyst

Jennifer Lowe -- UBS -- Analyst

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