John Cummings - Senior Vice President & Head, Investor Relations Marc Benioff - Chairman and Chief Executive Officer Keith Block - Vice Chairman, President and Chief Operating Officer Mark Hawkins - President and Chief Financial Officer Bret Taylor - President and Chief Product Officer

Phil Winslow - Wells Fargo Mark Grant - Goldman Sachs Brad Zelnick - Credit Suisse Keith Weiss - Morgan Stanley Walter Pritchard - Citi Adam Holt - MoffettNathanson Kash Rangan - Bank of America Merrill Lynch Mark Murphy - JP Morgan Alex Zukin - Piper Jaffray

Good afternoon. My name is Erica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Salesforce Q1 Fiscal 2019 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session [Operator Instructions]. Mr. John Cummings, you may begin your conference.

Thank you, Erica, thanks so much. Good afternoon, everyone. Thanks for joining us for our fiscal first quarter 2019 results conference call. Our results press release and SEC filings, including our Form 8-K which contains re-casted financial information under new accounting standards ASC 606 and ASC 340-40 and a replay of today's call can be found on our IR Web site at www.salesforce.com/investor. With me on the call today is Marc Benioff, Chairman and CEO; Keith Block, Vice Chairman, President and COO; 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 and guidance can be found in our earnings press release. Additionally, our commentary and our guidance today are under accounting standards, ASC 606, ASC 340-40 and ASC 2016-01, all of which we adopted in the first quarter. 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 proved to be incorrect, actual company results could 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 10-Q. With that, let me turn the call over to you, Marc.

Well, thank you so much, John. And thank you to everyone on today’s call for being here with us. And look, as you’ll recall fiscal 2018 was a record year for Salesforce and Q4 was our best quarter ever. In fact, the most recent Fortune 500 ranking, Salesforce has moved up nearly 200 positions over last two years and based on last year's revenue, we’re now the 285th largest company in United States. And we’re thrilled that our phenomenal momentum continued right now in the first quarter of fiscal year ’19. Revenue for the quarter rose to more than $3 billion, up 25%, putting us on $12 billion revenue run rate that was just amazing. And we now have $20.4 billion of future revenues under contract, which is the remaining transaction price, that’s up 36% from a year ago. Based on these strong results, we’re raising our full year top line revenue guidance to $13.125 billion at the high end of our range, 25% growth for this year. And just as we’ll be fastest enterprise software company to reach $13 billion, we’re well on our way to surpassing the $20 billion revenue goal faster than any other enterprise software company in history. With another quarter of amazing growth, we’ve strengthened our position as the world's leading CRM Company. Earlier this month IDC named Salesforce the number one CRM provider for the fifth consecutive year. In fact, according to IDC, we increased our CRM market share in 2017 by more percentage points than the rest of the top 20 CRM vendors combined. We’re the number one in sales, number one in service, number one in marketing, and we have the number one CRM platform. We continue to be the fastest growing of all the top five enterprise software companies. And these incredible results are because of our relentless focus on customer success. In fact, I’ve just returned from a series of meetings with customers around the world. I was in Tokyo, Minneapolis, Chicago, New York, I was in Washington DC. And I’ll tell you, everywhere I go, every CEO wants to talk about digital transformation, which begins and ends with the customer. Only Salesforce can deliver a highly personalized engaged B2B and B2C customer experiences, powered by the world's number one CRM customer success platform, across sales, across service, across marketing, commerce, communities, analytics and even application development through our platform. Only Salesforce is giving customers an intelligent 360 degree view of their customer. And this month, we closed our acquisition of MuleSoft, giving us the industry’s leading integration platform as well. Well, integration has never been more strategic. So many of the CEOs I spoke with told me that data remains locked in their legacy systems, and is holding them back. With MuleSoft, we’re now enabling our customers to connect all of their data across any public or private cloud, and on-premise, to radically enhance innovation and create incredible customer experiences. So we couldn’t be more excited to welcome MuleSoft to Salesforce. And just this morning, Forbes named Salesforce again one of the world’s most innovative companies for the eighth year in a row. Since Forbes started listing in 2011, Salesforce was placed in the top three every single year. In fact, our innovation in artificial intelligence is delivering incredible value to our customers. Salesforce Einstein now delivers nearly 2 billion predictions every day, and that's a doubling of our daily predictions just last quarter. This is the most strategic technology for our customers. How are we growing so consistently quarter-after-quarter, as I've described before, it's about staying true to our values, including customer success and innovation. But our number one value at Salesforce is trust, earning and keeping the trust of our stakeholders, our employees, our customers, our partners, our shareholders and all of our communities. That's why I called for a national privacy law to protect the personal data of American consumers, and to help restore trust in the tech industry similar to what's happening in Europe with GDPR. In closing, as I've pointed out before, CRM is the fastest growing enterprise software category. It's a massive $120 billion market opportunity and we are determined to continue leading the way for our customers and for their success. And we're keeping our eye focused on the future after record world tours in New York, Washington DC, Amsterdam, Toronto, London, and Paris. We're looking forward to welcoming 10,000 attendees to Connections in Chicago in two weeks. I hope you all attend. It will be the digital marketing, commerce and customer success event of the year. And as I said before, we're well on our way to surpassing $20 billion in revenue and doing it faster than any other enterprise software company in the history you can see that in the numbers from this quarter, the trajectory is clear. Anybody who sees the numbers and these financial results could see it's going to happen and we could not be more excited. So we're incredibly proud of another quarter of remarkable growth. Of course, none of this would be possible without the partnership and dedication of all of our stakeholders, especially our 30,000 Salesforce employees, the world's largest team dedicated to CRM, thank you. Thank you. Thank you to all of our Ohana. We're number one in CRM because our employees, our customers are number one, and to all of them and to all of our Ohana again, I say thank you. And with that, I'll hand it over to Keith.

Thanks Marc. Good afternoon, everybody. As Marc said, we're off to a fast start to the year and we're taking share through our relentless focus on the customer. We continue to grow internationally and expand across industries and leverage our partners on this drive towards $20 billion and beyond. Our momentum from Q4 carried over into Q1, and we signed several significant deals in the quarter, including the largest transaction in the Company's history. And we delivered outstanding performance across all of our clouds. Sales Cloud grew at 16%, 33% faster than the market, a clear indicator of our strength of our core business, and we are taking share. Service Cloud grew 29% in the quarter as creating connected customer experiences to become a priority for every company all over the world. Field Service Lightning is a key part of that growth. In fact, one of the world's largest food and beverage companies selected Field Service Lightning for retail execution to boost employee productivity and improve customer experiences. Retail execution is the life-blood of consumer packaged goods companies. Marketing and Commerce grew 41%. In Q1, we strengthened our relationship with Citi, which is rolling out marketing cloud across their business in Asia. And we also continue to see incredible momentum with Commerce Cloud as more and more customers select our platform as part of their broader engagement with Salesforce. We had notable expansions with another leading athletic apparel maker, who is enhancing and expanding their direct-to-consumer business. We also deepened our relationships with one of the largest luxury groups in the world who is transforming their retail experience with Commerce Cloud. And finally, our Lighting Platform grew 36% as customers continue to build intelligent, connected apps fast with Lightning App Builder and Heroku, and leverage the power of Einstein. In fact, one of the largest media and entertainment companies in the world is using Einstein Analytics to get deeper business insights and build more personalized customer experiences. Now, we not only delivered strong growth across our clouds but across all of our key regions. EMEA grew 31% in constant currency, fueled by expanding relationships with brands like Philips and Santander UK as our international investments continue to pay off. In May, we opened our first European innovation center at Salesforce tower in London, and announced plans to expand our datacenter capacity in the UK to support our growing customers in the region. APAC grew 30% in constant currency, driven by remarkable growth in Japan where we strengthened our relationships with SoftBank and luxury e-commerce site LUXA. In Asia, we also expanded with Cathay Pacific Airways and Lazada, the leading ecommerce player in Southeast Asia. Our ability to speak the language of customers is deepening our relationships with the most important companies in the world, and you can see that in our results. In Financial Services, we expanded with Manulife in Canada and formed a new relationship with Investors Bank. And we continue to see incredible momentum with Financial Services Cloud. In Q1, we had a significant expansion with a Fortune 50 financial services firm that is clearly vetting their digital transformation on us, and is now one of our largest customers. The public sector continues to be a huge opportunity for us as well. We had our most significant public sector win ever with U.S. Department of Agriculture, and they are using service cloud to transform how they engage with constituents across the country. We also deepened our relationship with one of the largest federal agencies in the United States, and they’re deploying Service Cloud and Einstein Analytics to improve the services they provide to millions of Americans every single day. Our strong ecosystem is helping us gain lion share and drive success for our customers as well. In Q1, partners help generate 59% of new business, and we’re involved in 75% of our largest deals. And Salesforce continues to be the growth lever for our partners. In fact, the top five global FIs increased their Salesforce practices by more than 70% year-over-year. In Q1 alone, Bluewolf, an IBM Company, increased the number of certified consultants by more than 200%, a huge indication of demand. We’re also seeing tremendous momentum in our driving ISV community, which grew 52% year-over-year. Now, let me give you a quick update on our most recent acquisitions. First, every company launched that delivered the same buying experience to businesses that they provide to consumers. And to capture this opportunity, we acquired long time partner CloudCraze, a leading B2B ecommerce platform, similar to our acquisition of SteelBrick and CloudCraze both natively on the Salesforce platform. So we’re up to a good start on that integration. Second, as Marc said, unlocking data is critical to accelerating our customer’s digital transformation. Just last week, I was with a CEO of a major corporation and has data trapped in disparate legacy systems, it is a huge barrier to innovation. But through acquisition of MuleSoft, Salesforce now provides one of the world’s leading platforms for building application networks that connects enterprise apps, data and devices across any cloud on-premise whether they connect with Salesforce or not. And that integration is going extremely well. We have received in overwhelmingly positive response for our customers and those who’ve been incorporated MuleSoft into global strategic events, including world tours and Dreamforce, this has been highly successful thus far. And we’ll continue to invest further MuleSoft’s distribution capacity and R&D to build innovative products that enable our customers’ success. So to close, I want to thank our customers, our partners, our employees, for their continued trust in us and for very, very special start to the year. Now, I would like to turn the call over to Mark Hawkins, who will discuss our financial execution and updates to our accounting standards. Mark?

Great. Thanks, Keith. Before discussing the results, I want to remind everyone that the results were released today are under the new accounting standards ASC 606, ASC 340-40 and ASC 2016-01. Additionally with our release today, we provided re-casted financial results under the full retrospective method for the full year of fiscal 2017, fiscal 2018 and each quarter of fiscal 2018 under ASC 606 and ASC 340-40. With that, let me turn to the first quarter results. First quarter revenues grew 25% in dollars and 22% in constant currency, reflecting continued strength in the demand environment, strong organic growth and keeping us on pace to achieve the FY22 target of $21 billion to $23 billion, including MuleSoft. Now, the dollar attrition exited the first quarter below 10%, it was down a bit from Q1 of last year. First quarter GAAP EPS was $0.46 compared with the breakeven last year, and non-GAAP EPS was $0.74, up 155% over the last year. Mark-to-market accounting for our strategic investment portfolio as required by ASC 2016-01 benefitted GAAP EPS by approximately $0.25 and non-GAAP EPS by approximately $0.22 in the first quarter. We had a record quarter of operating cash flow, delivering $1.47 billion in the first quarter, up 19% over year-over-year. And I'm very pleased with this result, especially coming up our strong collections and cash flow quarter in Q4 of last year. Free cash flow, defined as operating cash flow less CapEx, was $1.34 billion in the first quarter, up 25% over last year. Turning to the balance sheet. As a result of the new accounting standards, we now report unearned revenue in place of deferred revenue. And as you know, the new revenue standard has us recognizing certain revenues sooner than under prior standards. And therefore, reduces unearned revenue at a faster rate than historical deferred revenue. This causes our unearned balance to be lower than our historically reported differed revenue. Unearned revenue ended the quarter at $6.2 billion, up 25% in dollars and 23% in constant currency. As we've always said, deferred revenue was an imperfect growth predictor as it was impacted by a number of factors, including invoicing timing and billing terms. To provide more transparency and a better indication of our future revenues, we are providing a new disclosure called, remaining transaction price, which represents all future revenues that are under the contract. Essentially, our prior billed and unbilled deferred revenue. This balance is broken down into the amounts we expected to recognize as revenue in the next 12 months or current our remaining transaction price, and the amount we expect to recognize as revenue beyond 12 months, which we’re calling non-current remaining transaction price. At the end of the first quarter, our total remaining transaction price was $20.4 billion, up 36% over last year. And the current remaining transaction price was $9.6 billion, up 26% year-over-year. Now, keep in mind this balance is not impacted by invoicing terms unlike deferred revenue was. We believe that this metric will be a better indicator of our future revenue than unearned or differed revenue. Before turning to guidance, let me take a minute to discuss MuleSoft's accounting practices going forward. During the transaction close process, we made the decision to conform MuleSoft's revenue recognition policy to Salesforce's policy under the new accounting standard ASC 606. Through this process, it was determined that a portion of the revenue related to on-premise implementations will be recognized as license revenue going forward. As we will be providing MuleSoft results separately for the remainder of the year, this license revenue will be included in our subscription and support line for FY19 and will be recognized upfront upon delivery. Moving onto guidance. With our strong first quarter results giving us a fast start to the full year, we’re raising our full year 2019 revenue guidance to $13.075 billion to $13.125 billion for 24% to 25% year-over-year growth. The guidance includes approximately $315 million from our acquisition of MuleSoft, which closed on May 2nd. Turning to operating margin. With the close of the MuleSoft acquisition, we now expect our year-over-year non-GAAP operating margin improvement to be flat to plus 25 basis points. This guidance includes approximately 125 basis points headwind from MuleSoft. We are updating our FY19 GAAP diluted EPS guidance to $0.49 to $0.51, and our non-GAAP diluted EPS guidance to $2.29 to $2.31. Keep in mind that that guidance does not take into account the possible future impact from mark-to-market adjustments related to ASC 2016-01, which may cause EPS volatility based on the market conditions. We now expect full-year 2019 operating cash flow of 14% to 15% year-over-year for an operating cash flow yield of approximately 24%. This guidance includes a headwind of approximately $150 million related to the MuleSoft acquisition. For Q2, we’re expecting revenues of $3.22 billion to $3.23 billion, GAAP loss per share of minus $0.09 to minus $0.08, and a non-GAAP diluted EPS of $0.46 to $0.47. As I mentioned previously, we believe the current remaining transaction price provides you a better looking metric than unearned revenue. However, given the limited historical remaining transaction price data, we're going to provide incremental transparency by temporarily providing guidance for unearned revenue for the remainder of this year. In context, we expect year-over-year unearned revenue growth of 22% to 23% in Q2, excluding MuleSoft. Once we have full year comparables numbers, we will expect to stop providing unearned revenue guidance. To close, we delivered a strong first quarter that positioned us well for another year of durable growth. I’d like to thank our customers, our partners, our employees, and our shareholders for your continued support. And with that, we’ll open up the call for questions.

[Operator Instructions] And your first question comes from Phil Winslow with Wells Fargo.

Congrats on a great start to the year and a particular shout out to Hawkins for the awesome 606 data historically, super helpful. A question for Marc B on MuleSoft, I mean obviously, nobody knows CRM data better than salesforce.com. But wondering if you could talk about Einstein and MuleSoft, and that in the AI context, because obviously you’re delivering already 2 billion predictions? How do you think MuleSoft, or how do you see MuleSoft, augmenting that? And what kind of uptick you think you’ll see their insight customers?

Well, as we go deeper into our vision with so many of our customers, the key thing that we are focused on is their single view of their customer. We just talked about so many of our key wins in the quarter. I mean, it could be carrying with their reprocessing incredible brands like Gucci, or Bottega or Yves Saint Laurent, the UFDA and their relationship with their farmers and ranchers, it could be the work that we’re doing with the [Align] [ph], giving their orthodontist the ability to connect with their consumers in a whole new way, or it could be the incredible work that you’re seeing with Adidas. In each and every case, they’re working to understand and have a 360 degree view of their customer. And the power of that is really augmented by our suite of CRM applications that do that for them. Things like our sales, commerce, service, communities, analytics, our core platform, collaboration, marketing and exactly what you said, by adding integration in that, it helps us bring in data from multiple public clouds, because many of our customers are now using multiple public clouds and/or they might be, let's say for example, the healthcare company seeking data from the healthcare system itself like an insurance system, or maybe some other type of key databank associated with the healthcare industry, integration is mission-critical for our customers to gain that 360 degree view of their customer. Now, we’ve always known that at Salesforce, that's why we built up an open system. And that’s why we’ve had an application program interface. That’s why we’ve had an AppExchange. That's why we focused on ISVs and had relationships with companies like MuleSoft. But it has become more important for our customers to be able to have and rely on an integration cloud. This idea of deeply embedded inside our products, they can rely on this technology to be able to integrate all the key data so they can build that single view of the customer. And we have Bret Taylor here who is our President and Chief Product Officer. And Bret, do you want to just touch on that and your -- I know you’ve been traveling the country and talking to hundreds of our customers about their vision for integration. Can you tap that for us?

Yes, sure. When we talk to our customers, they talk about three main priorities as it relates to integration. They want to create customer experiences that transcend individual customer touch points. They want to integrate sales, service, and marketing into a single seamless customer experience. They want to make sure that they have multiple acquisitions and multiple regulatory climates, because they exist across international borders that they can accomplish that with our platform. And they want to unlock the data from other legacy systems, and bring it into these customer systems. So they can do these transformations around their customers. And about the point you’re asking about Einstein is very insightful. They know that their AI is only as powerful as data it has access to. And so when you think of MuleSoft think unlocking data. The data is trapped in all these isolated systems on-premises, private cloud, public cloud, and MuleSoft they can unlock this data and make it available to Einstein and make a smarter customer facing system. And that’s what we’re hoping to achieve with MuleSoft. And I think the thing you heard from Marc that I’ve heard over and over again from customers is that integration is a strategic priority for our customers, because without it they can't move fast enough on their customer facing systems. So we’d like to say it unlocks the clock speed of innovation, and that’s what we’re really seeing from our customers. And I hope we’ll accelerate our ambitions with Einstein.

And Bret I just want to ask before we go on. When we look at this next generation of intelligence, obviously, Salesforce has done it a little bit differently than other companies, because we've taken a consistent artificial intelligence platform, Einstein, and we've now allowed all of our applications to flow through that. So whether it's our Commerce Cloud our Sales Cloud, or our Service Cloud, they're all augmented now through Einstein. And I guess one of the major results that I'm so proud of your team, and our engineering teams, is 2 billion predictions a day. Where do you see that going?

Well, I think the reason why Einstein has gotten so much adoption, so much traction is because it’s simple to use. The power of the Salesforce platform is you just turn it on. And with things like our Commerce Cloud, you can do very simple things with Einstein to sort the products differently in your product listings, and you'll drive more GMV and drive more transactions, because of the better customer experience showing better products to the right people at the right time. Every single one of our cloud benefits from Einstein in this way. And by making it easy to adopt and easy to use, our customers are actually seeing the value of AI without hiring a legion of data scientists, and that's really the promise of Einstein and really our philosophy behind building AI for CRM is our ability to make it easy for our customers to use and adopt, and benefit from this revolution we're seeing in AI.

So what you're saying is just by turning on Einstein our Commerce Cloud customers for example, have seen some incredible increase, what is it 15% or 20% in revenue, just by turning on artificial intelligence the ability for that AI to start working with consumers who are using those Commerce Cloud Services?

That's absolutely right. I mean, we see one of the biggest barriers for our customers in adopting AI is just how challenging it is to understand and use. And we view the value of Einstein and the value of integrating it deeply into our platform is that ease of turning it on and actually seeing the impact on your business immediately. And that's what we aspired to achieve with Einstein.

It's not a programmatic interface -- I mean, it is programmatic it can be, but it's really declarative. It’s easy to just get going. Okay, great. Thanks so much.

And your next question comes from Heather Bellini with Goldman Sachs.

Mark Grant here on for Heather, just a quick one for me. You saw some acceleration in Service Cloud growth in the quarter. Can you give us a sense of how those conversations are going with customers, specifically around that cloud? And maybe an update on the appetite you're seeing in the market for some of those larger transformative multi-cloud deals?

This is, Keith, let me try to address this. So generally speaking, if you think about how companies differentiate themselves, they do it on service and they do it specifically around the consumer experience. And so that's why we're seeing quite an uptick in our Service Cloud business. Now, also another piece of that is Field Service Lightning. So we see an incredible amount of demand for Field Service Lightning. Again, because customer are taking advantage of these amazing technologies to drive and gather insights around what their customers are doing. Service Cloud reached about $3.4 billion run-rate in Q1, that's more than double the market, which is pretty amazing. And as Marc has indicated in his early comments, we're number one in the market and we continue to take share in a very, very strategic market for us and our customers. So that differentiation by service is very, very strategic for these customers, many times service is at the core of our all their digital transformations, which obviously peaks the interest of the CEOs that we're having these conversations with. And it's not just service it's all of our other core products that rotate around service that allows to drive these transformations, and that's where you see these very, very large multi-cloud deals that I talked about earlier.

Keith, I want to ask you a question about -- in the quarter, you closed one of our largest transactions ever, and also just an incredible transaction with a very large insurance company. And one of the things about working with that company is you’re really building a complete family of applications around the customer, like I mentioned. That is, they’re using just one cloud, right? They’re really looking to us to bring together the entire customer experience. And we see that, I mean, insurance is a great example of an industry where we’ve seen incredible transformation across all different types of insurance, and globally too, not just here in the United States, but in Japan and Europe, et cetera. How is that idea that we’re able to come in with a complete customer experience differentiate you in the marketplace?

I mean, first of all, their blown away when these data capabilities that we have. I was with, just a couple of weeks ago, with the CEO of one of the largest insurance companies in the world. And we’re having a conversation about changing their business model and transformation around how their agents could be more productive, how they can retire all these legacy systems, so that they have a single unified view of the customer, how they can leverage Einstein for artificial intelligence and insights, issues around locking or unlocking the legacy data from their legacy systems. And all of these things together, we’re the only company and the industry that can provide solutions as it relates to that 360 degree holy grail of the customer. And that’s why -- I mean, insurance is obviously a sweet spot for us but all financial services there is sweet spot for us. And that’s why we’re having so much momentum in that industry.

So you’re able to put together many different types of solutions to offer to that customer then that 360 customer view?

That’s exactly right.

And your next question comes from Brad Zelnick with Credit Suisse.

I have a question for Marc B on the Marketing Cloud, which obviously had a great quarter in Q1. But one of your competitors in the space is now adding commerce functionality by way of an acquisition, which I think as many investors comparing the different strategies in the market. And if we look out in the future when Salesforce is 20 billion plus in-size and then reflect back and how you got there. How of the battle will have been won in B2C versus B2B, and do you think you need to be deeper in content management to get there?

I think that as we’ve expand our vision of what the customer experiences and where the market is going, of course, we’ve inspired other competitors to think about the future as well. And that’s our job too is to create followers, and we’ve seen a lot of other companies, smaller companies like the one you’re talking, really try to look at where they’re going in the future. And I think that that’s great, because of course we want a competitive environment. So our approach is really different, because we really see every B2B company and every B2C company becoming a B2B to C company, and I see that over and over and over. Again I mean, I gave a great example of Adidas. So I think you know -- when you look at a huge commerce story, like Adidas, of course, when there is new shoe like the Yeezy 350 is launching, we have to go to provide that tremendous customer experience with highly differentiated for Adidas on our Commerce Cloud. But of course that’s not the only cloud that Adidas is using with us, because they need to build to provide many different types of services to their customers. And that’s really where we’re going to build to jump in and offer them great success. But of course with an example of a company like that, you’re going to find that maybe only 20% of their revenue is in that B2C commerce experience. Many of those companies, 80% of their revenues then complicated in the B2B commerce experience this is why one of the most exciting acquisitions that we did in the quarter was a relatively small company that have been built natively on our platform called CloudCraze, because it really all of a sudden extended us in not just B2C commerce but B2B commerce as well. And I don’t think anybody can really touch the tremendous success we've had since acquire and demand where it's been an awesome journey in just a couple years. But it's really because we've provided that complete experience around the customer. Now when you think about that, there is three major components to that. There is the system of record of course, which is where Salesforce started. And I would say that we probably have the strongest system of record experience in the industry. Then there is the system of engagement itself, whether it's internal users or externally. Again, we have such tremendous capability whether it's a Heroku or communities, or even our commerce. And three is the system of intelligence, Bret touched on it with Einstein with AI. But even look at our advanced analytics capabilities that we now bring to bear, no one else can provide that experience. Now, we’re not a close solution, we're going to work with every company, of course we have to, because our customers have many different types of solutions in their companies, and so we're going to do that. But when you look at some of these core areas, like the customer experience; the ability to provide enablement, like you've seen with our Trailhead capabilities; the ability to have that deep engagement, like I just mention, the level of intelligence; and now integration having the number one integration cloud in the world; it really helps when we walk in to our customer and say look, we’re the number one sales cloud in the world; the number one service cloud in the world; we’re the number one marketing cloud in the world according to IDC; and we've done all that in a flash of an eye. And I think that that's why you can see a very fast line. I mean, you guys were all tremendous financial analyst. You can put the numbers together and figure out when we're going to get to $20 billion. We think that we're going to get there as faster than we could have imagined. And that's why we're so excited about our business. And then we're going on by the way. This is not -- this is I think the most exciting ever in our industry. I've never seen customers more excited about investing, especially in their digital transformation and their customer transformation. And we're well positioned as the number one CRM provider in the world. I hope that answers your question.

And your next question comes from Keith Weiss with Morgan Stanley.

A question press for Bret and maybe one for Mr. Hawkins as well. I was wondering if we could get an update on the product strategy around MuleSoft, now that's disclosed. I guess, maybe some time frames on when we should see the integration cloud, the Salesforce.com integration cloud rolling out. The product plans for the course of the existing MuleSoft platform that they have. And then maybe one for Mr. Hawkins, any plans on expense reduction, or any expense synergies you plan to get out of the MuleSoft platform as you do the integration with Salesforce.com?

So to start to talk about our integration cloud and MuleSoft, our focus right now is bringing MuleSoft to in the Company and making sure that were consulting with every single one of our customers and every single one of our engagements about their integration strategy. Just helping them knowing that every digital transformation starts and ends with the customer, how can we help them set up an application network and unlock this data to transform their customer experience, is not starting now. MuleSoft has just incredible customers success, and so we're looking to accelerate that with our amazing distribution team, all the deep customer relationships we've had. And really attaching to the strategy that Keith’s team has around speaking language of our customer and talking through the lens of healthcare, through the lens of finance and really helping people realize and transform their customer experience, you need to unlock the data from every system at your company. We’ll be adding to that over the course of connections and Dreamforce with out-of-the-box solutions for across our cloud built on MuleSoft and built on the integration cloud over the course of the year.

Thanks Keith on that point, a couple of things here. One is that, as called out, we know that as per normal protocol, we’ll have the headwind in the current year in FY19 do to things such as deal costs, integration costs, purchase accounting and the entire deal write down. We’re taking all that on board within the guide. And then of course we’re going to invest to accelerate the success of this to really help drive the reality of helping our customer do all the things that customer wants in their success. So we’ll make the appropriate investment. The key point to your question is yes, we will be driving appropriate progress and synergy over time after we get through the -- bring them on board get them integrated and plugged-in, much like we did with ExactTarget and Demandware. And when you look back and see what the effect was and you see -- you fast forward a little bit, these both penciled out very, very nicely. We pick up gains across where we need and this will be part of the picture where we continue to expand profit, while we grow as well. So you should expect that over the longer term, yes.

And your next question comes from Walter Pritchard with Citi.

Question for Keith Block, just on large deals. It sounds like this Q1 maybe it was stronger from a large deal perspective, and it’s not usually a quarter with that as a driver. Could you help us understand, are you seeing an uptick in large deals generally that you expect to sustain this year and what's driving that?

So obviously, we have this terrific fiscal year last year, we had this amazing Q4 that momentum, has absolutely carried into Q1. I’d say that is a little bit different than the typical Q1. And we are very, very pleased with all these transactions and these relationships that we’ve expanded and created in the quarter. Again, I just think it's an indication of our position in the marketplace what our customers are looking for and our ability to answer the bell for those customers, and paint a vision around the 360 degree view of their customers. And that is just become more and more important with these amazing technologies. This notion of the 360 degree view of the customer is the holy-grail and we’ve been talking about it for a very, very long time. And as I said earlier, we’re really the only CRM platform that can deliver on that promise to our customers. So the new wave of digital transformation is all about the customer, everything starts and begins, and ends at the customer. So we’re just in a tremendous position and we have very, very strong execution, and that’s why you’re seeing these results.

And then for Mark Hawkins, just curious on the MuleSoft contribution to Q2, or the year. Any possibility giving us that just so we can calibrate our modeling?

Walter, I think a couple of things you should think about. For the revenue -- top line revenue of $315 million, additive Q2 through Q4, that’s on top of a powerful core growth where you can see we did an organic raise separate from that so $315 million at the top. And again as per expectoration, we’ll have the 125 basis points impact on our operating margin would otherwise be. We’re fully taking that on board with all the deal costs, purchase accounting, a lot of those types of things that you would expect and positioning it for the years ahead. We’re pleased with this, especially post close. I think we like what we see. So that would be the effect there. On the cash flow side, Walter, we would expect about $150 million impact on the headwind, on the cash flow. Again, putting it together, you think about our core cash flow, absolutely on track with a very attractive cash flow margin. Even with this temporary impact of some of the more transitional issues you would expect with an M&A integration and deal cost and such, we still have an operating margin yield of roughly 24%. So those will be the attributes that will impact us this year, and we look forward to having this also continue to progress much like ExactTarget and Demandware.

And your next question comes from Adam Holt with MoffettNathanson.

Just a follow-up on Walter’s question, first for Mark. Could you maybe narrow that commentary around Mule for the second quarter specifically, that was very helpful for the year. But just for the second quarter? And then secondly, for maybe Marc Benioff or Keith. You had another really good quarter on the platform side standalone, 35% growth, now you’re layering in Mule and we’re doing much more big deals. Could we talk -- why don’t you just talk us through the synergies and symbiotic relationships between the larger customer relationships when it might be more integration, more middleware, more what have you have and the business, because it seem like you’re doing so well, both at the standalone and now that you layer in Mule. Thank you.

Adam, I guess a couple of things here. One is that we’re pretty much giving you the attributes for the full year. We haven’t broken it down to guide every single quarter on that side of it. So just to let you know think about the full picture of the year is the view that we’re taking. That would be what I would say there. And I’ll just leave it at that.

And I’ll just fill in for you on -- I think that when we, walk-in I was in Europe last week and I was with the CEO of a very large life insurance company. And they’re a very large service cloud customer. And he actually has the service cloud running at his desk and we were going through that. And turned out he is also a very large MuleSoft customer as well. And it expands our relationship with that customer, and it makes us much more strategic with them. And then at that point, my ability to consult with that customer is really around, okay, now let’s look at each one of your policyholders and your ability to have 360 degree vision with them. And that goes everything from their internal systems and their policy management systems, to even their capabilities that they have in other public clouds that they’re using. We’re going to wrap all of those things with all of our customer capabilities, because what he is mostly focused on is what are his customer relationships and how is he driving those customer relationships forward. And that ability to have that conversation, well, it just gets extended each and every year. I mean, I was even able to start to talk to that CEO about enablement, that we have this tremendous platform, called Trailhead, where we’re giving this opportunity to enable so many of our customers. And now giving that platform to them as well, the ability for them to enable their employees and their customers, it becomes a very critical part of our story. And gives our customers the ability to realize that we are strategic part of their future, and we’re going to help them become more successful than ever through that fully integrated complete CRM platform.

One thing I might add on to just one tack on here thing that might help you, Adam, is that one attribute that might help you in Q2 is just to know that when we guided UR, we guided it off of our core which excluded the MuleSoft. And the one thing you should think about is that we think about URs adding for MuleSoft, $75 million to $100 million. So that might be useful to you as one other attribute that might be helpful.

And your next question comes from Kash Rangan with Bank of America Merrill Lynch.

When you look at these mega transactions that's happened in Q1, can you talk about what the pipeline for these mega transactions looks like? Is it from existing customers that had a longest period of run time with Salesforce.com? And this largest deal that you did today, if I heard it right, can you talk -- you've not already spoken about that customer. Can you give us a little bit more color on the deployment what exactly are they looking to achieve, and how much of a driver of digital transformation. I want to wrap it up, but Mark Hawkins. Previously when you announced Q4 results, you gave guidance for deferred revenue growth rate of 23%. Can you -- if you were to recap the unearned reported in Q1 in the light of deferred revenue growth rate, what would did that have looked like? Thank you so much.

Mark, why don't you take that last part?

Sure, let me take the last part. Thank you Kash on all accounts here. First thing that I would say here is when you look at our UR, you look at a growth rate of 25%. And again, as described in UR, it's basically DR less the cumulative effect of revenue pull forwards related to the ASC-606 revenue implementation. So by definition, UR, in this particular case, is less than DR. And so one of the things that you could see is when you look our growth rate on an apples-to-apples basis growing 25% adjusted for this accounting change, that's obviously a number that we're happy with. And so in that respect, just look at the growth rate of UR that we're actually reporting compared to the DR apples-to-apples growth rate that we’ re guiding, and we’re actually pleased with the outcome.

Kash, this is Keith, just to answer the first part of your question. We're looking at this market that we've created and we're really driving. And if you go out to 2021, this is a $120 billion plus marketplace. And if you look at every category in that market, whether it's sales or service or marketing or commerce or platform or analytics, et cetera, we are vastly outstripping the market in terms of growth. Again, whether it's sales or service or marketing, in some cases nearly 3 times the pace of the market. So why is that? Well, number one, it starts with the fact that we’re one of the world's most innovative companies. Number two is that with all this amazing technology, again these CEOs are looking for transformation opportunities around the customer, which is the new frontier. And we're basically the market leader and the only one that can provide the 360 degree view of the customer and the insights associated with that. So we have become and continue to become very, very strategic to these customers. And lastly they trust us. They trust our brand. They trust our platform. They trust our partner. And as they think about their future and the future relationships that they want to have with our customers, they're turning to us. And that's why you're seeing these very, very large deals. Now, I would love to tell you that we wake up every day and we need a new customer and we sign one of these large deals. But the reality is that we work very, very hard. The team is doing incredible job of establishing that trust, speaking languages of customer, having a global scale and thinking a vision for the future. And that's why you see these large deals. They really represent the customers’ endorsement and trust of us to bring them into the future.

And your next question comes from Mark Murphy with JP Morgan.

Thank you, congratulations. Question for Marc Benioff. Where do you stand philosophically on positioning as 100% pure cloud architecture versus being open minded, which you seem to be acute, crossing over into the edge of the hybrid cloud once in a while if it make sense. And I’m asking in the context of MuleSoft and your future plans for it, because MuleSoft seem to succeed by offering a mix of cloud and on-prem deployments. And I’m just wondering, is that going to be the exception to the rule? Or do you think that your infrastructure layer would actually increasingly have more of a hybrid cloud feel to it?

I think that’s a great question and -- yes, MuleSoft, because of the nature of MuleSoft and the nature of integration itself and the ability to do complex integration, which is what MuleSoft is really excellent at and building tremendous integration layer, we call a bus across the enterprise, the ability to have an application interface to that bus, the ability to accelerate innovation, the ability to build the mobile apps or other kind of capabilities, while unifying all these services to provide this 360 degree customer, this is what MuleSoft excels at. I mean, we think it’s absolutely the best in category, and that’s what our customers have said. Of course, we’ve been involved with the company almost from its very start where we were very early investors in the company, and carried it all the way through to IPO. And it has an architecture where it runs partly on-premise. And that’s one of the reason it's able to do everything that it can do from an integration layer. From Salesforce’s core platform, we’re still 100% public cloud. I don’t see that changing. There's going to be little instances here and there, especially when we acquire a company like MuleSoft or maybe other things in the future. I think that we’ve talked about, we begin and end our day at Salesforce with a beginners mind, and what the Japanese call shoshin, the idea, that look, we’re not attached to any kind of religious dogma around the cloud. We’re going to do what’s best for our customers and what’s best for our company. And in the case of MuleSoft, I think it very much reflects that vision, that idea that we’re going to be able to deliver the best integration cloud. Bret, how do you see this?

I think, MuleSoft is interesting, because the power of integration, as you can integrate every system, every device and every user you want to reach, every customer. And that means you have to go wherever your systems are, on-prem, on mobile devices, everywhere. So we are extremely committed to the neutrality of the MuleSoft platform. When I say neutrality, it means it connects every system, whether or not the system is related to Salesforce, because that’s the power of integration. And we want to unlock data from every system and bring all of that data to wherever your customers are, on every device. And so I think MuleSoft is special in that respect, because that’s the power of integration. And as Marc said, from technology standpoint, we’re committed to the cloud, because it means we can deliver innovation to the customers faster, three times a year, consistently since the company was founded. And we think that’s the power of the cloud. But as you'll see what MuleSoft is, if our customers need us to have different architectures to unlock innovation, we'll go there. And I think you're seeing that with integration. And then we’ll continue to have that beginners' mind, which I think is vital for innovation. But we're committed to the cloud, we're committed to that piece of innovation delivery, which is really the reason why we’ve seen so many customers recommit to us over the years, it's because, they know they are just getting the product through us today, but the products that we’ll be delivering over the coming years.

And I think you can see that also in how we deliver our product. Of course, we have many first party datacenters where we have our own proprietary datacenter and capability. But in other cases, we've partnered with great companies like Amazon, like Google and IBM, in many cases at the customers’ request, to be able to deliver an alternative delivery experience. And so if you’re using Salesforce in Canada for example, you're using that on the back of AWS, and there is so many other examples of what we're doing with different type of cloud deployments. And it's really driven by what our customers want for flexibility. And the ability to have great relationships with great alliances with companies like Amazon, or with Google and with IBM, give us even more capability to deliver this, kind of, what I would say, highly flexible execution environment for the customer.

And your last question comes from Alex Zukin with Piper Jaffray.

Marc, maybe two quick one’s for you, you mentioned GDPR and you mentioned the push for data privacy law domestically. I wanted to ask what impacts, if any, have you seen or anticipated on your marketing cloud business? And then maybe bigger picture then as we think about the move from systems of record to systems and intelligence. How are you positioning the Company as a system of automation for customers as well?

Well, I think it's a great question. And as we head towards Dreamforce and as we head towards -- if you don’t have it on your calendar, it's the week of September 24th here in San Francisco, it feels like we are just at Dreamforce. But Dreamforce is approaching very fast, and you should all plan coming back to San Francisco for our biggest and best Dreamforce ever. I think about how does that look for customers, and things are changing and some of that has been induced by our industry, where for the first six months I think that in many aspects of our industry, we’ve been going through a crisis of trust. And where the headlines in many of the newspapers have been about vendors who are having trust issues with their customers, we saw that a little bit last year in San Francisco and this year we've seen it again. I think from the European perspective the way they look at data is data belongs to you, it's your data. Now for us at Salesforce, we understand that. We've had that position from the beginning. Our customers’ data belongs to them, it's their data. I think in some cases, the companies that are start-ups and next generation technologies here in San Francisco, they think that data is theirs. I think the Europeans with GDPR have really flipped the coin, especially in advertising but in another areas saying hey, this data belongs to the consumer or to the customers, you guys have to pivot back to the consumer, you have to pivot back to the customer. We need a national privacy law here in the United States that probably looks a lot like GDPR. This is going to help our industry. It's going to set the guardrails around trust, around safety. It's going to provide the ability for the customers to interact with great next generation technologies in a safe way. I think that this is going to accelerate with artificial intelligence. We saw that recently with an AI demonstration from our industry where average customers could not tell, were they’re interacting with a computer or were they interacting with a human being, that starts to cross the line on what is trust. And that's where our industry really has to come forward and say we're going to make sure that these technologies are trust-based. And I think the Europeans definitely got that figured out. And I think the rest of the regulators in the world are looking strongly at that. When it comes to the advertising industry and companies that serve the advertising industry exclusively, honestly, while I think that that advertising is a model that will continue to be successful and digital advertising, well, I think that the idea that you need to build a one-on-one relationship with your customer, something that we've been saying now for almost 20 years, is probably more true than ever. Because ultimately your ability to have success with your customer will be able to sell or service, or market to them, or conduct with them in a one-on-one way based on the system of record that you have with that customer. Salesforce is a system of record oriented company, that’s where we started. And then we evolved in the system of engagement. We evolved in the system of intelligence. And in many of way, we’re becoming a system of systems, which I think will show you at Dreamforce. But at the end of the day, where we see the world going is, we have -- we're providing to our customers the ability for them to have that unique customer experience. To say that you’re going to have this fully anonymized relationship with your customer, and if that’s the future, I’m really not buying into that. I know Bret you used to travel both worlds. Where do you think is going?

I think the thing that I’ve noticed from the industry is the confluence of the controversy is driving a lot of technology companies and Silicon Valley recently with GDPRs making trust really the number one topic for a lot of our customers with us. And you’ve heard us talk a lot about trust in the context of our customers’ trust in our platforms. We also want our platform to be a mechanism that our customers can use to engender trust with their consumer and with their customers. As you are a multinational right now, you're dealing with different regulatory frameworks in different regions. And one of the strengths of our platform is to be able to not only have maybe in personalized marketing and commerce experience with your consumers, but do so in a trusted way. They can handle all the different regulatory permutations that you deal with on a daily basis as a multinational company. And when you think of the strength of having one platform for your system of records for your customers, I think it's really the rapidly changing regulatory landscape and the rapidly changing expectation of consumers, is really striking our position with our customers right now, because it’s so challenging for any company to navigate. And I think that really comes with -- that really amplify the value of proposition of Salesforce, because you can build these systems of engagement and systems of record in a way that actually follow consumer trust, and follows the evolving regulatory landscape. So I think it’s really trending to something that we are really trying to lean into, and really lean into the value of trust is our number one value.

Amy, you’ve done so much work with GDPR and you’re helping so many of our customers around the world implement GDPR. And of course, Saleforce has now become a system that is allowing our customers implement GDPR. Where do you see this going from a legal and privacy point of view?

I think this is really a critical point for the U.S. with privacy law. We’re seeing the global conversion around the important of privacy. And it’s going to be important for the U.S. to be a leader now, and not just a follower. I think you’re tracing that we really have to focus on as a country. One is insisting that organizations are transparent about the data practices that’s what's collected, how it’s used, who it’s been shared with. The second is giving individuals more rights to control about their personal data. As Marc said, it starts with individuals, their privacy and their right. And then the third that’s holding organizations is it’s truly accountable for the privacy practices. And I think that this is going to be a key for our entire industry and establishing trust.

Amy, you see a big movement here in California. There’s a group of very well respected executives, not just from our industry, but also from the privacy and legal community trying to build the California GDPR. We’ve called for a U.S. version of GDPR, a national privacy law. How do you see these things coming together, what is your dream for privacy in the United States?

Well, I don’t think that there’s any doubt that federal privacy law is the best for the go. One of the nice things about GDPR is that it replace the patchwork of laws throughout Europe. Now it may be necessary to have a state-by-state implementation in the United States as a practical step forward, but the idea is really to get us to one national privacy law that we can all agree to.

What can Salesforce do to help customers implement GDPR today?

I think we can do a lot. We had spent the last year working very-very carefully with our customer's data. We have some terrific resources, two things I would steer to, first, if you go to salesforce.com/gdpr, there’s a trove of resources on that. There’s frequently asked questions, there are white papers, there’s information about all of our system. I can also send people to Trailhead and over 22,000 people have already earned Trailhead badges on the EU privacy basics.

So for financial analysts and other people on this call, if they actually want to take a course on GDPR and get up to speed, they can do that right on our Trailhead platform?

Absolutely, it’s a terrific place to start.

And you just go to Trailhead and do a search on GDPR and that trail will come up and you can get badged and certify a GDPR, terrific. Alright, well thank you so much everybody, and we’re looking forward to see you at Connections in Chicago in a couple of weeks, which will be marketing event of the year. Bret is going to be doing an amazing keynote there and demonstrating -- I think our vision for customer 360 and the integration cloud, and then we’ll see you again at Dreamforce in September.

This concludes today’s conference call. You may now disconnect, thank you for your participation.