CFO RoundtableVancouverDecember 9th, 2015

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Topics for Today

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• Current Market Trends and Multiples• Sales Modeling and Efficiency• Business Intelligence & Analytics ---

tools, team, best practices• Budget Process• Headcount – churn and hiring

Top of News

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Day's Range: 11.90 - 12.24

52wk Range: 9.00 - 14.78

Volume: 1,075,743

Avg Vol (3m): 6,912,410

Market Cap: 3.87B

P/E (ttm): N/A

EPS (ttm): -1.13

Div & Yield: N/A (N/A)

Lower development, support and maintenance

costs

Predictability allows longer-term thinking

No quarter-end pricing games

Oh yeah, investors give you a higher

valuation

Downside: longer ramp to scale from lack

of up front license fee

At scale, subscription models are

superior in every aspect

“Ultimate Software will never make money.”

- Competitor CEO in 2002 … just as ULTI stock price was on the cusp of a 12 year, 14-fold

advance

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INTROSubscription goes mainstream…

• 30-50 subscription software IPO’s over the next two years seems reasonable.

• Hottest areas:• Vertical SaaS• Security/Systems Software• Analytics• Next Generation Marketing

• Caution:• High valuations allow features

to think they’re companies.

0

10

20

30

40

50

60

2005 2010 Today

Number of Public Saas Companies

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• Bookings / New ARR• Gross Customer Churn• Mix of S&M spend that is growth

oriented

• New ARR = forward year increase in subscription revenue + gross dollars churned in current year

• Assume all S&M spend is driving new ARR• S&M Efficiency = $ S&M Spend / $ New

ARR• Range of Public SaaS Companies: $0.67 -

$2.30

DATA WE DON’T GET HOW WE THINK ABOUT IT

SLIDE HEADERS&M Efficiency: a challenge for public investors

Conclusion: the trend line is up

2012 2013 2014 2015E 2016EAverage S&M / $ARR $0.99 $1.02 $1.18 $1.27 $1.40Based on Canaccord Genuity analysis of the 30 largest SaaS companies; leverages SEC filings, Capital IQ estimates, and Canaccord Genuity estimates

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• Bookings / New ARR• Gross Customer Churn• Mix of S&M spend that is growth

oriented

• New ARR = forward year increase in subscription revenue + gross dollars churned in current year

• Assume all S&M spend is driving new ARR• S&M Efficiency = $ S&M Spend / $ New

ARR• Range of Public SaaS Companies: $0.67 -

$2.30

DATA WE DON’T GET HOW WE THINK ABOUT IT

SLIDE HEADERS&M Efficiency: CAC Data points

Conclusion: the trend line is up

2012 2013 2014 2015E 2016EAverage S&M / $ARR $0.99 $1.02 $1.18 $1.27 $1.40Based on Canaccord Genuity analysis of the 30 largest SaaS companies; leverages SEC filings, Capital IQ estimates, and Canaccord Genuity estimates

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S&M Efficiency

Best in Class 2015EVeeva $0.67Descartes $0.76Q2 Holdings $0.80Ultimate Software $0.94Constant Contact $0.95Analysis based on SEC filings, Capital IQ estimates, and Canaccord Genuity estimates

Best in class

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The level to which operating margins asymptotically approach if you were to cull all growth spend

2014A 2015E 2016ESubscription Services Revenue $5,014 $6,055 $7,295

Growth 31% 21% 20%Subscription Gross Margin 83.4% 83.7% 84.5%

Subscription Gross Proft $4,182 $5,068 $6,164

R&D Expense (672) (819) (997)G&A Expense (577) (672) (780)

Recurring Gross Profit $2,933 $3,577 $4,388Recurring Profit Margin 58.5% 59.1% 60.1%

* Based on Canaccord Genuity projections

Salesforce.com: Top of the Pack and Improving

C2015E Sub Rev

Recurring Profit Margin

1 CRM 6,055 3,577 59.1%2 N 599 347 57.9%3 PAYC 201 113 56.2%4 CSOD 306 165 54.1%5 NOW 830 428 51.5%6 VEEV 308 158 51.2%7 LOCK 560 279 49.8%8 SPSC 142 69 48.3%9 MKTO 182 87 48.1%

10 OPWR 133 64 48.0%11 CVT 173 83 47.7%12 ULTI 515 242 47.0%13 CTCT 374 169 45.3%14 HUBS 155 70 45.2%15 SQI 102 45 43.8%

Recurring Proft Margin

Analysis based on SEC filings, Capital IQ consensus, and Canaccord Genuity estimates

Recurring Profit Margin

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Starts with Gross Margin

Analysis based on SEC filings, Capital IQ estimates, and Canaccord Genuity estimates

Best in class

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INTRORetention: most powerful lever to LTV

Today, Salesforce.com’s gross churn is about 10%...

What if it improved to 7%?Salesforce.com

Annual Gross Churn Rate: 10% Implied Customer Life (years): 10.02012A 2013A 2014A 2015E 2016E

Subscription Services Revenue $2,869 $3,825 $5,014 $6,055 $7,295Growth 35% 33% 31% 21% 20%

Subscription Gross Margin 85.5% 84.2% 83.4% 83.7% 84.5%Subscription Gross Proft $2,453 $3,220 $4,182 $5,068 $6,164

R&D Expense (353) (516) (672) (819) (997)G&A Expense (364) (505) (577) (672) (780)

Recurring Gross Profit $1,736 $2,199 $2,933 $3,577 $4,388Recurring Profit Margin 60.5% 57.5% 58.5% 59.1% 60.1%

New ARR Approximation $1,243 $1,572 $1,543 $1,846 $2,189S&M Expense (1,404) (1,872) (2,406) (2,858) (3,475)

Cost / $ARR (CAC) $1.13 $1.19 $1.56 $1.55 $1.59

LTV / $ARR $6.05 $5.75 $5.85 $5.91 $6.01LTV / CAC 5.4x 4.8x 3.8x 3.8x 3.8x

Salesforce.comAnnual Gross Churn Rate: 7% Implied Customer Life (years): 14.3

2012A 2013A 2014A 2015E 2016ESubscription Services Revenue $2,869 $3,825 $5,014 $6,205 $7,481

Growth 35% 33% 31% 24% 21%Subscription Gross Margin 85.5% 84.2% 83.4% 83.7% 84.5%

Subscription Gross Proft $2,453 $3,220 $4,182 $5,194 $6,322

R&D Expense (353) (516) (672) (819) (997)G&A Expense (364) (505) (577) (672) (780)

Recurring Gross Profit $1,736 $2,199 $2,933 $3,703 $4,545Recurring Profit Margin 60.5% 57.5% 58.5% 59.7% 60.8%

New ARR Approximation $1,157 $1,457 $1,543 $1,710 $2,021S&M Expense (1,404) (1,872) (2,406) (2,858) (3,475)

Cost / $ARR (CAC) $1.21 $1.29 $1.56 $1.67 $1.72

LTV / $ARR $8.64 $8.21 $8.36 $8.53 $8.68LTV / CAC 7.1x 6.4x 5.4x 5.1x 5.0x

Note: we estimate that a 3% improvement in retention could drive a ~16% increase in C2015 operating profit – an incremental $150M at subscription GMs

Analysis based on SEC filings, Capital IQ consensus, and Canaccord Genuity estimates

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It’s no wonder that investors value net dollar retention.• Most public companies don’t provide gross

customer retention• Instead, they give net dollar retention,

which is inclusive of upsell

TickerDollar-Based

Retention1 VEEV 138%2 BOX 126%3 NOW 125%4 HDP 125%5 QTWO 122%6 ZEN 120%7 NEWR 120%8 ULTI 110%9 PAYC 110%

10 MKTO 109%

VEEV

BOX NOWHDP

QTWOZEN NEWR

ULTI PAYCMKTO

WK CSLT

AMBR DWRE

OPWR

ECOM

FIVN

RNGCVTMRIN

SQI BNFT

CSOD SPSC HUBS

ILCRM

LOCK

CARB

LOGM

CTCT

70%

80%

90%

100%

110%

120%

130%

140%

1.0x 3.0x 5.0x 7.0x 9.0x 11.0x

Dolla

r Bas

ed R

eten

tion

EV/C2015E Revenues

DBR is based on most recently available publicly stated information

Valuation based on Capital IQ consensus and Canaccord Genuity estimates

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Value of Customer Success

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• In March 2014, investors transitioned

from GAAP to GARP– That means from “Growth at any Price”

to “Growth at a Reasonable Price”

• A quick trick we like to use: Revenue Growth + FCF Margin

– Gold, Silver, Bronze: 50%, 40%, 30%– Change in G+M is an important

indicator as well Many trending down as growth rates

decelerate faster than margins ramp

An Easy Screen:

growth + margin

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Acquire• How do you model• How do you compensate

• How do you drive efficiency in your sales org

• Accelerate, digest or pull back

77%of respondents sell primarily through

a direct sales approach

52%use a self service model

65%offer their prospects a free

trial period 20%However, only 47% said

less than 20% convert from free trial to customer

Acquire: Selling Approach

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Acquire: Marketing Vs. Sales Costs

Industry Verticals31%

Customer Rev26%

#Employees21%

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Acquire: Bookings growth 29% < 20%29% 20 – 60%17% 60 –

100%25% > 100%

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Acquire: Revenue growth

29% 20 – 60%17% 60 –

100%25% > 100%

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Acquire: Revenue growth by size of Company

29% 20 – 60%17% 60 –

100%25% > 100%

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Acquire: Revenue growth by GTM Strategy

29% 20 – 60%17% 60 –

100%25% > 100%

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AcquireWhat percentage of your total sales opportunities close?

1-2% 3-5% 6-10%

>10%

5%

37%

21%

36%

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Acquire: How to model ramp?

30 days 60 days 90 days > 4 mos21% 24% 41% 14%

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Acquire: How to model sales cycle

10 days

4%30

days16%

60 days

32%120 days

29%

19%@tylersloat

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Acquire: How to model quota attainment

> 40 %

12% 10%

40 – 60%

39%

60 – 80%

31%

80 – 100%

7%

> 100%

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Acquire: What’s your over-assign

100Min quota on the

street

35% >$90MEXPECT36% $80-90MEXPECT25% $70-80MEXPECT2% $50-70MEXPECT2% <

$50MEXPECT

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ACQUIRE: What is OTE to quota?16% < 150k26% < 200k35% < 250k13% < 300k10% > 300k

$1M

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Acquire: What’s your quota based on?

19%

18%

47%

15%

MRRTCVACVOther

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Acquire: What are your commission rates?

9% 5%35% 6-

10%37% 11 - 15% 12% 20%

CHEAPSKATES

THE NORM

THE NORM

BREAKING THE BANK

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42%

51%

7%Who Manages Upsells?

Customer Success Team

Sales Reps

Other

35%

65%

Do you pay for results?

noyes

Expand

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Expand: Upsells as a % of ACV

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Expand: Top Growers Rely on Upsell

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Thank you.