Salesforce Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 30, 2022

There are 13 speakers on the call.

Operator

Hello, everyone, and thanks for joining us for our fiscal 2023 First Quarter Results Conference Call. I'm Evan Goldstein, Senior Vice President of Investor Relations. Our 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 Marc Benioff, Chair and Co CEO Brett Taylor, Vice Chair and Co CEO Amy Lieber, Chief Financial Officer and Gavin Patterson, Chief Revenue Officer. As a reminder, our commentary today will primarily be in non GAAP terms.

Operator

Reconciliations between our GAAP and non GAAP results and guidance can be found in our earnings and press release. Some of our comments today may contain forward looking statements that are subject to risks, uncertainties and assumptions, which are subject to change. Should any of these risks materialize or should our assumptions prove 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 is included in our SEC filings, including our most recent report on Form 10 ks. Before I hand the call over to Mark, I'm excited to welcome Mike Spencer to Salesforce.

Operator

As many of you know, I will be taking on a new role here at Salesforce supporting strategic planning in our product organization and Mike has joined Salesforce to lead Investor Relations. Mike is familiar to many of you as he previously led Investor Relations at Microsoft. Thank you, Mark, Brett, Amy, Gavin for allowing meaningful rotations that enable career development. Is one of the many benefits of working at Salesforce. And thank you to the investment community for welcoming me over 2 years ago.

Operator

Leading IR has been one of the most rewarding experiences in my career. And with that, let me hand the call over to Mark.

Speaker 1

Well, hey, thanks so much, Ben, and congratulations on your promotion. It's so well deserved. You've done a phenomenal job in the last 2 years and we're also thrilled for you. And thank you for agreeing to take on this incredible new role at Salesforce and leading these teams. And we could not be more excited for you and we could not be more excited to welcome Mike Spencer to Salesforce.

Speaker 1

I know that many

Speaker 2

of the folks on this call

Speaker 1

have worked with Mike before, Should be a familiar voice and friend and I'm looking forward to working closely with Mike and Mike is going to be based out of our Atlanta headquarters and Really excited about that because our new Chief Information Officer is there as well as a number of other Incredible new executives from Salesforce, including our new Chief Accounting Officer and our Chief Commercial Officer. So, really a cool thing to see Atlanta and our kind of post pandemic reality become such a center of gravity for Salesforce. In fact, we just had our Q1 operations review there and it was exciting to welcome Mike to the team. So with that, let me just tell you, it's been a whirlwind for our management team as you're about to hear on this call. We have been on the road.

Speaker 1

I I was in Sydney, Australia. I was in Tokyo. We were in Atlanta. We were in New York. And last week, we were in Davos, Switzerland.

Speaker 1

And all that was in, I think, the last 4 or 5 weeks. And we've really been all over the world. It's been pretty awesome. We've met with 100 and 100 of customers. And I can tell you that our business, you can see this in the Q1 numbers, can't you, is incredibly healthy.

Speaker 1

And we also you can see we had a great quarter. We're carefully Watching the economic data, I know all of you are doing that as well. And so far, we're just not seeing any material impact from the broader economic World that all of you are in, our demand environment remains very strong. And if you look over the last 23 years Salesforce has proven to be incredibly resilient based on This incredible business model we have and incredible technology model that we have, where we've been through all kinds of dotcom crashes and recessions Financial crises and global pandemics and all of you have watched us go through every possible storm. But we continue to weather these storms The power and strength of our model.

Speaker 1

In 2001, I think it really impacted us, we almost lost our business because we were On monthly contracts, we didn't have the right cash flow structure. Investors just wouldn't give us any money. And so we made a lot of changes then and it's really strengthened our business and made us more durable over time. And there's now no better measure Our durability of the business model, the momentum of the business, the strength of the technology model, then our remaining performance obligation, The future revenue that we have in our contract. In Q1, we had $42,000,000,000 in RPO, up 20% year over year, pretty amazing.

Speaker 1

And in every crisis we've experienced over nearly a quarter of a century, well, I'll just tell you, I think that Salesforce, and I'm sure you all agree, Always at Merje is stronger than ever. We became more strategic and more relevant to our customers because we focus on their success and that continues today. And that's why we've been able to grow our revenue for 72 consecutive quarters through every cycle, a focus on customer success. And it's why Salesforce remains The number 1 in CRM now for the 9th year in a row, growing in share in all CRM segments yet again according to the IDC software tracker. When it comes to our financial results, we had, as you can see, a very strong quarter.

Speaker 1

And you can also know that the dollar Well, I think the dollar might have even had a stronger quarter than we did, which is kind of amazing. And I certainly saw that in my travels over the last month. And although these kind of fluctuations in foreign currency markets had an unexpected impact in the quarter, we still delivered $7,400,000,000 in revenue, up 24% year over year. Foreign exchange movements have resulted in a revenue headwind of about 109 1,000,000 year over year, something we could not have anticipated. Operating cash flow though in the quarter, well, here it is, dollars 3,700,000,000 Up 14% year over year, reflecting very strong performance across the core business.

Speaker 1

And operating margin in the quarter fell down 17.6%. Turning to our revenue guidance. Well, as I mentioned, John presented foreign exchange volatility that increased the year over year headwinds by an additional $300,000,000 For a total of $600,000,000 for the year since we first gave you guidance in our Investor Day. To give you an example, I was in Japan for the first time Since the pandemic, a couple of weeks ago, maybe it was 2 weeks ago, and I couldn't believe the decline in the value of the yen. It was a very good time to be a tourist in Japan.

Speaker 1

But I called our team, I said, this is great to be a tourist to Japan, but it's going to have implications as we Roll this revenue up from the Japanese market to our U. S. Dollars. And in fact, our Japan revenue in the 4th quarter Face the 12% headwind year over year just to this the end historic fall, something I've just never seen. So as a result of these headwinds, We're lowering our fiscal 'twenty three revenue guidance by $300,000,000 to $31,700,000,000 to $31,700,000,000 to $31,800,000,000 or about 20% growth year over year.

Speaker 1

For operating margin, we're raising our fiscal 2023 non GAAP guidance by 40 basis points To 20.4 percent, an expansion of 170 basis points year over year. As all of you know, we're quite committed to consistent margin and cash flow growth as part of this long term plan and model that we have to drive both top and bottom Line performance. And as I said, this demand environment for our Customer 360 platform, as you're about to hear from Brett and from Gavin and from Amy and from others as well, it remains incredibly healthy. Our customer relationships are amazingly strong As evidenced by these hundreds of customers that we've met with just in the last couple of weeks. And I'll tell you, as you hear, some of these incredible stories from the quarter, Companies like State Farm and F1 and Goodyear and even the Department of Commerce, well, I'll tell you, these customers, They're very excited to be able to get not only incredible productivity from our product, but also growth as well.

Speaker 1

So let me say that this is a time when every company, every industry, every government is investing in digital transformation. No company is better Position that we are to help companies transform for the digital future, that was something we fully experienced And Bob was last week and I could not be more grateful to our 77,000 ohana, millions of trailblazers who are making a difference for our customers And the world. And now over to Brett.

Speaker 3

Thanks, Mark. As Mark said, we had a great quarter and we see strong demand across Our clouds, our industries and our regions despite the unprecedented foreign exchange headwinds and our results really demonstrate the power of our strategy. Our products are more relevant than ever before as companies invest in our Customer 360 platform to connect with their customers and to drive cost savings in this new digital economy. Our technology is deeply differentiated with our Hyperforce infrastructure and Einstein artificial intelligence enabling our customers reach global scale with levels of trust that are unmatched in the industry. Einstein is now doing 164,000,000,000 predictions per day, which is just incredible.

Speaker 3

Our ecosystem is unparalleled. We have over 15,000,000 trailblazers creating what IDC estimates will be $1,600,000,000,000 in economic impact for our customers and for our partners. And our business model, as Mark said, is durable. It's diversified across industries, regions, lines of business, ensuring we're resilient in the face of any economic cycle. And finally, our leadership team continues to focus on disciplined execution, which is driving both top line performance and sustained operating margin cash flow expansion.

Speaker 3

As Mark said, we've all been on the road and we've been reconnecting with our customers, our trailblazers and our partners. And the common theme from the customers I've met with, from Singapore to New York to the 30 CEOs I met 1 on 1 with at Davos last week, If the digital transformation trends that dramatically accelerated during the pandemic, they continue full steam ahead despite all the volatility in the global economy. One great example is ADT, the leader in home alarm systems. ADT used our service cloud to execute over 200,000 virtual service visits in its first As a result, the company avoided sending out technicians and trucks in 80% of its service cases. They lowered their costs and they lowered their carbon footprint, all while achieving higher customer satisfaction.

Speaker 3

This is the promise of technology to drive productivity and our Customer 360 platform is relevant whether you're trying to scale growth, increase productivity and profitability or meet your sustainability goals. And all three are increasingly relevant to our customers across the globe. We had strong year over year growth across every region in the quarter, 21% in the Americas, 33% in EMEA and 24% in APAC. We saw strong momentum across every cloud in our Customer 360 platform as well. Sales Cloud continues to accelerate surpassing $1,600,000,000 in the quarter growing 18% year over year with great wins like DoorDash and Stellantis.

Speaker 3

Stellantis, which was formed last year from the merger between Fiat Chrysler and the French PSA Group, decided to standardize the entire company on Salesforce. They replaced more than 2,500 apps with Customer 360. And with Sales Cloud, they now have a single source of truth for all their customer engagement to drive growth while delivering best in class personalized service. Our Service Cloud grew at 17% year over year to $1,760,000,000 in revenue in the quarter. State Farm, a long time Salesforce with a great Service Cloud success story this quarter.

Speaker 3

They're now combining our field service platform with Sales Cloud, Service Cloud, Financial Services Cloud to enhance their entire end to end customer support experience, especially during catastrophic events. We also continue to see strong momentum with our Marketing Cloud with customers like Bose and Colgate Palmolive. Our Marketing Cloud has become even more relevant to CMOs as they navigate the significant changes in mobile operating systems and new privacy regulations around the globe. This is the new cookie less world and it's made growing and measuring consumer engagement harder than ever before. And it's driving investment in our customer data platform, which has become one of the fastest growing products we ever released.

Speaker 3

Bose is using our CDP to unify their customer information hundreds of different sources to drive hyper personalized marketing, multi channel campaign management and real time engagement, all with compliance and trust built in natively. We also saw Commerce Cloud wins at YETI, Loxodon and Goodyear continuing the digital commerce trend that accelerated so rapidly in the pandemic. Together, marketing and commerce grew 22% year over year in the quarter. Our data clouds including MuleSoft and Tableau grew 15% year over year in the quarter. Data is the fuel for every digital interaction and MuleSoft and Tableau continue to be foundational for every multi cloud Customer 360 deal.

Speaker 3

Tableau wins in quarter included ADT, Bose and Lookers Motor Group, a top auto retailer in the UK. MuleSoft was also part of some of our largest deals in the quarter, including NTT and continues to deepen our relationships with existing customers like Rocket Mortgage. As you know, we've been working through some issues on MuleSoft's go to market motion over the past couple of quarters. Amy will get into specifics, but I'm encouraged by the progress we're making and we have a strong pipeline for the back half of the year. I'm also excited to say that Slack continues to exceed our revenue expectations with wins of the self driving car company Cruise and the UK Ministry of Justice.

Speaker 3

This was the 4th consecutive quarter we've seen more than 40% growth in customers spending more than $100,000 with Slack annually. We also continue to see strong momentum across our 12 industry verticals, including financial services, healthcare, consumer goods and manufacturing. Our industry specific clouds were a part of 7 of our top 10 deals this quarter. I'm so grateful for our 15,000,000 trailblazers, all of our partners and our 77,000 employees for helping provide our customers with the innovation, agility and resilience they need to navigate these uncertain times. Our customer success drives our financial success and this unrivaled community is why our customers choose Salesforce as their trusted digital advisor.

Speaker 3

Now over to Gavin to talk about some of the customer success stories from the quarter.

Speaker 2

Thanks, Brett, and thank you everyone for being on the call today. I want to start by talking about the strong demand environment we're in. As Brett and Mark said, even in this volatile environment, companies are continuing to invest in their digital transformations And we're seeing that in our strong pipeline and momentum in the business. I've been on the road this quarter across the U. S, Europe, Asia and most recently in Davos.

Speaker 2

And in all my conversation, there is a real sense of urgency with our customers. In this new all digital work from anywhere world, our customers need to create incredible customer experiences Across every interaction to stay competitive. And at the same time, they need to realize productivity gains, efficiencies and resilience from their technology investments. That's why they're turning to Salesforce as their trusted digital advisors and to the Customer 360 as their digital platform. We're seeing this play out in the growth of transformational deals, customers making longer term Multi cloud investments in Salesforce.

Speaker 2

These Customer 360 transformation deals with 5 or more clouds Grew 21% year over year in the quarter. We again saw strong growth in every region. In the Americas, we grew relationships with BrightSpeed, Blue Shield of California, SHH Hotels, Workday, Covered California and Ferguson, a $23,000,000,000 distributor of plumbing and heating products. Looking at Ferguson in a little more detail, Ferguson has been able to grow its sales during the Supply chain challenges using Customer 360 to give them a single view of their supplier, associates and customer relationships. And in the quarter, Ferguson significantly expanded its relationship with our professional services organization.

Speaker 2

In EMEA, we have significant wins with Lukas, Motor Group, Esprit and one of the largest telecom and media companies in France. They're standardizing on Salesforce to not only speed their time to market and reduce IT costs, but also to deliver an amazing Digital first front end experience for their 45,000,000 subscribers. As I mentioned, we had a great win in the UK with Lookers Motor Group. With the Customer 360, Hookers has a single unified platform driving efficiency within their dealerships and contact centers And improving the overall car buying experience for their customers. Turning to Waypack.

Speaker 2

We continue to deepen our relationships with amazing brands like Kotak, Mahindra Bank, LG and NTT, Which is also a great Tableau and MuleSoft win. In LatAm, we had a significant win with Serasa Experian. It shows Salesforce Marketing Cloud to improve engagement with our current and prospective customers and to increase marketing efficiency. Formula 1 is watched by 1,500,000,000 views and today they're using Salesforce Marketing Cloud, Service Cloud and Sales Cloud To attract new fans, increase fan engagement and convert that fan engagement into brand value and revenue. Salesforce will help Formula 1 leverage customer insights across every channel, both physical and non physical and create an end to end fan experience Strategy powered by an integrated platform and our professional services team will help to manage their technology and implementation.

Speaker 2

In the quarter, the National Telecommunications and Information Administration within the U. S. Department of Commerce Selected Salesforce to support the administration of the $48,000,000,000 in broadband grants to states, territories, Tribal entities and other eligible applicants to create more low cost broadband service options and to address Digital equality and inclusion needs across U. S. Communities.

Speaker 2

And to wrap it up, DoorDash has grown tremendously since the pandemic. They fulfilled more than 400,000,000 orders in the last quarter alone. And as a mobile first business growing at an incredible rate, DoorDash turned to Salesforce to improve the customer experience and to respond to issues in real time for its hundreds of thousands of merchants, customers and dashes. They also selected Sales Cloud and MuleSoft to enable them to bring in new merchants on faster and more efficiently. These are just a few examples from our strong quarter and we're grateful for Customers' continued partnership and trust.

Speaker 2

Amy, over to you to discuss the financial details of the quarter.

Speaker 4

Great. Thank you, Gavin, and good afternoon, everyone. As Mark and Brent said, we had strong financial results this quarter and our pipeline remains We are well positioned to serve our customers in this uncertain macro environment. Let's go through some of our results for Q1 of fiscal 2020 Great. Beginning with top line commentary.

Speaker 4

Total revenue for the Q1 was $7,410,000,000 This is at 24% year over year We're 26% in constant currency. A few key highlights from the quarter. The momentum in Sales Cloud continued in Q1 with revenue with $348,000,000 in Q1 compared to our guide of $330,000,000 The number of customers spending more than $100,000 annually Grew 45% year over year. Our industry's products remain in high demand and are providing out of the box solutions to customers with specific needs. We saw an industry product included in 7 out of our top 10 deals this quarter.

Speaker 4

And from a geographic perspective, And the year performance was strong with particular strength in both the UK and France. Now to provide an update on MuleSoft. Total revenue increased 9% year over year against a strong prior year comparison, Driven by lower than expected new business as we work through the go to market organizational changes we discussed on the last call. As a reminder, on average, 50% of MuleSoft's total contract value is recognized in period, resulting in more quarterly volatility than our core products. And as Brett mentioned, MuleSoft's pipeline remains strong and we still anticipate seeing the benefits from these changes in the back half of fiscal 2023.

Speaker 4

Total company revenue attrition remains at record lows, ending Q1 again between 7% to 7.5%. And as Mark mentioned, our remaining performance obligation representing all future revenue under contract ended Q1 at approximately $42,000,000,000 Up 20% year over year. Current remaining performance obligation or CRPO was approximately $21,500,000,000 Up 21% year over year and 24% in constant currency. SLAP represented approximately 5% or 5 points of that growth, In line with our guidance. This strong RPO performance at our scale reflects the relevance of our product portfolio and strategic relationships with our customers.

Speaker 4

Turning to operating margin for the quarter. For Q1, non GAAP operating margin was 17.6 Q1 GAAP EPS was $0.03 and non GAAP EPS was $0.98 Mark to market accounting Benefited both GAAP and non GAAP EPS by approximately $0.01 Moving to cash flow. For Q1, operating cash flow was $3,700,000,000 up 14% year over year. CapEx was 179,000,000 Resulting in free cash flow of $3,500,000,000 up 14% year over year. Now before turning to our guidance, I'd like to call attention to the impact that foreign exchange is having on our financials.

Speaker 4

As a reminder, our primary currency exposures are to the euro, the Great British pound, the Japanese yen And to a lesser extent, to the Australian dollar. Since we last provided our outlook for fiscal year 2023, the dollar has continued to strengthen against all of these And as such, we are providing increased transparency this quarter into the impact of FX on our guidance. Now let's get to that guidance. For the full year, the change in currencies represents an incremental $300,000,000 year over year headwind On top of the $300,000,000 we provided last quarter, bringing the total year over year FX headwind to 600,000,000 As such, we are now guiding to fiscal 2023 revenue of $31,700,000,000 to $31,800,000,000 or approximately 20% growth year over year. Our guidance continues to assume a $1,500,000,000 contribution from Slack.

Speaker 4

We expect Q2 revenue of $7,690,000,000 to $7,700,000,000 or approximately 21% growth year over year. Our Q2 revenue guidance includes a $200,000,000 year over year headwind from FX and a $360,000,000 contribution from SLAC. For Q2, we expect to deliver CRPL growth of approximately 15% year over year. This includes a 3 point headwind from FX. And as a reminder, Q2 represents SLAC's 5th quarter of contribution to CRPL And therefore, the year on year growth rate is now normalized.

Speaker 4

We expect to constitute GAAP loss per share of negative $0.03 to negative $0.02 And non GAAP EPS of $1.01 to 1 $0.02 For the full year, we expect GAAP EPS of $0.38 $0.40 and non GAAP EPS of $4.74 to $4.76 And please recall that our OIE and EPS Both assume no further mark to market adjustments of our strategic investments portfolio. Turning to operating margin. I am very pleased to announce that we are raising our fiscal 2023 non GAAP operating margin guidance by 40 basis points to 20.4%. This includes 100 to 125 basis points of headwinds from M and A. This guidance increase represents an expansion of 170 basis points year over year and 2 70 basis points over 2 years, All driven by continued focus on disciplined decision making across the organization.

Speaker 4

And as a company, we are committed to continuing to improve Profitability over the long term. With respect to FX, because our regional revenue and expenses are generally in the same currencies, There tends to be a natural hedge in our operating margin. As such, although we've seen FX headwinds to revenue, we don't currently anticipate a material impact to our operating margin for the full fiscal year. Moving to cash flow. We remain well on our way to driving another year of record cash flow generation, And we are reiterating our fiscal 2023 operating cash flow guidance of approximately 21% to 22% growth year over year.

Speaker 4

In addition, our guidance continues to assume a 3 point headwind from cash taxes associated with tax law changes requiring the capitalization of certain R and D We continue to expect CapEx of approximately 2% of revenue in fiscal 2023, Resulting in free cash flow growth of approximately 25% to 27% for the fiscal year. To close, while there is uncertainty in the macro environment, our customers are continuing to come to Salesforce to transform their businesses. The demand we are seeing from our customers is a testament to the strength of these strategic relationships and the relevance of our product portfolio. This gives us confidence in the durability of our business model and we're excited to help our customers navigate in this changing economy. Now before we wrap up, I do want to thank specifically Evan for his incredible leadership of the IR team over the last 2 years.

Speaker 4

His partnership and friendship, I wish him all the best in his overall. And let me say officially welcome to Mike Spencer, who I am delighted to have joining us. And with that, Emma, let's open the line for questions.

Speaker 5

Thank you. Your first question today comes from the line of Mark Murphy with JPMorgan. Your line is now open.

Speaker 6

Yes. Thank you, Mark.

Speaker 4

Hi, Mark. This is Amy. We're having a lot of trouble hearing you.

Speaker 3

Operator, we may need to move on to the next question.

Speaker 4

Yes, let's move on and see if we can come back to Mark.

Speaker 5

Certainly. Your next question comes from the line of Keith Weiss with Morgan Stanley. Your line is now open.

Speaker 7

Excellent. Thank you guys for taking the question and really nice quarter in Q1. Two questions. One on Sales Cloud. This is probably the part of the portfolio that investors have been most worried about maturation and sort The high market share that Salesforce has, you guys have been able to see accelerating growth.

Speaker 7

Can you dig in a little bit on kind of what's driving it? Is it the vertical solutions in particular or something in particular that Has really reinvigorated that line item. And then one for Amy on the operating margins. I don't think anyone was expecting operating margins going up after this quarter. You talk to us a little bit about those initiatives that are enabling better operating margins?

Speaker 7

There's some speculation in the press about maybe Slower headcount growth or some calling of expenses. Is there something programmatic that's enabling you guys to drive that better operating margin on a go forward basis? Thank you.

Speaker 3

Yes, we're really excited about sales growth. Not only did it grow 18% year over year in the quarter, but in constant Currency grew 20%, which I think is a symbolic threshold for as you said the product that MarketPartner built 23 years ago that is still as relevant today as it ever has been. I think 1st and foremost, it speaks to our innovation strategy and the organic innovation coming from our engineering teams at the company. This is an example, late last year we introduced revenue intelligence, which is a deep integration between Tableau and our sales cloud that enables Sales teams to enable every rep to be more efficient, to collect cash faster, to boost growth and really bringing together this entire Customer 360 portfolio to give our customers not only a chance to reimagine their Sales Cloud implementations, but make Sales Cloud relevant to an even broader range of customers. So we're really excited about our innovation strategy.

Speaker 3

When you look at some of the wins that we've talked about on this quarter like ADT or DoorDash, You think about this next generation of selling in this era of flexible work, there's always an opportunity for our customers to reimagine their approach to sales and Sales Cloud continues to be the most innovative platform for opportunity management and lead management. So we're excited about our market leading position and also I just want to say congratulations The engineering teams for continuing to teach an old dog new tricks and continuing to innovate on what is I think really the world's leading CRM platform. Amy, talk about operating margin.

Speaker 4

Sure. I'd love to. So hi, Keith. Thanks for the question. As you noted, I really am very, very pleased about the raise on our operating margin up 20.4% for this fiscal year.

Speaker 4

This is not the result of any single change. It's really driven by disciplined decision making And trying to really unlock incremental efficiencies across the entire business. We've asked each leader to step up, really look across their business and to strategically prioritize their investments. And this is really to make sure that we're getting the highest return for every dollar that we invest. You asked about hiring.

Speaker 4

Again, as a result, we're going to continue to hire. We are hiring, but we're doing it at a much more measured pace and we're focusing the majority of our new on roles that will support customer success and the execution of our top priorities. This focus on margin, this is really over the long term And we are all committed that this is going to make us a stronger company. But I do want to reiterate, this is not just a finance led initiative. This focus on discipline is being applied across our entire organization.

Speaker 4

This is supported by Mark, by Brett, by Gavin and truly by our entire leadership team.

Speaker 5

Your next question comes from the line of Kirk Materne with Evercore. Your line is now open.

Speaker 6

Thanks very much and congrats on the quarter. I don't know who wants to take this, Mark or Brett, but you mentioned Salesforce being able to Sort of performed through economic cycles. I was wondering if there's any change to the go to market playbook in a tougher economic environment, if at all, in terms of Which products might be better to lead with when you start getting in these periods? And then second question would be for Amy. Amy, you basically kept your fiscal year guidance revenue guidance unchanged when adjusting for FX.

Speaker 6

I think everybody is wondering if that guidance probably now So, like, a little bit more conservatism given the more uneven macro backdrop. Could you just comment on that a little bit maybe versus where we were 90 days ago? Thanks.

Speaker 1

Well, I think you're right that in an environment like this, our selling strategy will change. Our narrative will change. And Brett, I think said it really well. We're going to focus more on how we can deliver productivity for the customer and lower their costs. And at a robust time, we talk about the top line advancement.

Speaker 1

Of course, it's different for every customer, you know that. To the last point that we just heard from the previous question, which was a good question, why is Sales Cloud remain So strong and you can see more than 18% growth and Service Cloud more than 17% growth. I mean, it's incredible to see the growth of these core products. Today, I was in a retailer that I like. I have a personal relationship with Brunello Puccinelli and I'm going to have dinner with him this week.

Speaker 1

And I was just kind of Preparing for that and walked in the store and I realized that the retail agent in the store using Sales Cloud and the platform and asking them, hey, how do you like it? What do you think about the solution? And they have it all set in Italian and it's like circa in Salesforce, search in Salesforce. And I'm like, wow, the product, I don't think we ever could have imagined all the different uses that it has today, 24 years ago when we invented it. And I think that that kind of flexibility is really what continues to drive its growth.

Speaker 1

We talked about that retail Use case at AT and T as well has been so important for them. And again, we never really thought that that point of sale environment So dramatic for that incredible product. But when you're working with customers in an environment like this, it really gets down to Really understanding what they're trying to do. Every customer has a slightly different solution. Gavin, do you want to come in here and Give an example of something you've recently put together?

Speaker 2

Well, I think

Speaker 6

in this type

Speaker 2

of environment, the key word is relevance. Listening to your customers, understanding what the challenge, the specific challenge they're facing And making sure that you tailor the approach to that. So in many cases, Sales Cloud is the right lead, particularly with new business and new customers. Other customers is right to go with to lead with Service Cloud and use that as a way of Taking cost out of the business and we've used both. And then we have customers who, as I said in My comments earlier, we were taking the Customer 360.

Speaker 2

Our multi cloud take up this quarter is very strong, they're up 21% with customers taking 5 or more clouds. So I think it's about listening to the customer. It's about being relevant, Understanding that actually we're going through a period now where productivity and cost transformation is more important than the last few quarters and making sure that We carried on messages. Yes.

Speaker 1

And I would add also, it's kind of the relationships matter and that talked about F1 and Gavin was in Monaco over the weekend. And Stefan Mazzoli, who is the CEO of F1 was our Customer at Lamborghini. And of course, we work closely with him and the whole Volkswagen management team. And when they're looking at this Current environment, when everyone's looking at the environment, everybody's going to have a slightly different take. So it's nice to have those high quality relationships at times like this.

Speaker 4

Great. And Dirk, hi. I'll take the second part of your question here on the guide. Look, we feel good about what we're saying. And you've heard that from Mark, from Gavin, from Brett, you've heard about our pipeline.

Speaker 4

But we're mindful of the uncertain macro environment, and that includes continuing FX Volatility. And so I believe that our guidance is appropriately conservative under the circumstances.

Speaker 5

Your next question comes from the line of Mark Murphy with JPMorgan. Your line is now open.

Speaker 8

Yes. Thank you. Brett, our survey work has shown potential for Slack to be adopted by 1 quarter of all employees In the next several years, it looks like a huge number above Google Workspaces and looks like it could be rivaling Zoom. What do you see as the best use of This $4,000,000,000 R and D budget you have to try to accelerate the Slack innovations and Achieve that level of ubiquity and I'm wondering if you would see any opportunity to potentially do more with native video conferencing?

Speaker 3

Well, it's a great question. As I think about our innovation, it's really that all of our clouds work together in a complementary way. Sales and service complement each other, sales, service, digital marketing, e commerce complement each other because it really represents the entire front office. And when I think about our acquisitions like MuleSoft, Tableau and Slack, they really amplify our value proposition for Customer 360. Tableau helps all of our customers see and understand their data, which is more relevant than ever before as every interaction becomes digital.

Speaker 3

MuleSoft enables our customers to integrate all of their legacy and back office systems to Salesforce and really create a strategic platform that accelerates their digital transformation. And Slack, as Gavin and Mark and I heard in Davos last week, is relevant in every single conversation because every single one of our customers is deciding do they succeed in this new era of flexible work? Because every single, particularly office worker isn't coming back to the office 5 days a week. But it's really not an either or question because Slack makes the entire Customer 360 more relevant. In fact, one of the things I'm most excited about from this past quarter is we shift A lot of the integrations between Customer 360 and Slack, whether it's Teams selling and account management, our sales cloud or case swarming in our service cloud, It's actually one of the solutions that DoorDash uses with their service cloud deployment, really using our Slack to amplify their investment Service Cloud and they succeed in this new era where their workforce is working from anywhere.

Speaker 3

So we're really excited to not only invest in Slack is a stand alone platform, which is just incredible. But I'm just excited with how much more relevant our Customer 360 value proposition is now This Slack is in the building. I think it's going to be one of the best acquisitions we ever did and it really makes every customer conversation more relevant in this new era of flexible work.

Speaker 5

Your next question comes from the line of Brad Zelnick with Deutsche Bank. Your line is now open.

Speaker 9

Great. Thanks very much for taking my question and congrats on the strong start to the year. Andy, the business generates a ton of free cash flow. You have almost $14,000,000,000 of cash on the balance sheet and your stock is trading at a really attractive multiple. What would need to happen for you and the Board to consider buying back your stock.

Speaker 4

Brad, hi. Thanks for the question. As you know, Historically, we have not done buybacks. But I will tell you that as a company, we are always looking at our capital allocation Our Board consistently looks at this on a quarterly basis and it's really to assess the best use of cash. Right now, our overall focus is on strengthening

Speaker 5

Your next question comes from the line of Brent Bracelin with Piper Sandler. Your line is now open.

Speaker 10

Thank you for taking the question. Good afternoon. I guess one of the themes we're starting to hear more from customers is this idea of vendor consolidation, Particularly given the tightening business cycle, have you seen any shift in the pipeline relative to the mix of multi cloud deals? Any sort of Color around the customer appetite to consolidate the number of vendors would be super helpful. Thanks.

Speaker 2

I'll take that one. Look, what you've seen is a very strong quarter Across the board, sales, service, marketing, cloud, all posted great numbers. Every region Posted great numbers, 21% up in the U. S, 33% in EMEA, 24% in APAC. We had a strong quarter.

Speaker 2

We got good momentum. And as I look forward, the pipeline looks really strong for the rest of the year. We are cognizant of the environment we're operating in, but at the moment, we don't see that impacting our numbers. But We're vigilant at all times. If there is a consolidation of vendors with our customers, I think we're extremely well placed.

Speaker 2

We are the only ones with the Customer 360. There's nobody else in the market that's able to offer the full suite of clouds. And if that is the case and customers choose to continue to move more of their business to it, We'll welcome it with both arms. And I think you saw some great examples of it in the quarter. The Formula 1 example we've been talking about is a great example of that, Taking multiple clouds from us across sales, service and marketing.

Speaker 2

I love the ADT example as well. Maria Black there is doing an incredible job at driving the business and creating much more intimate customer relationships. And that's all around the Customer 360 and a consolidation of business from other vendors towards Salesforce is part of that story. So Yes. Whether it's a single cloud sale, whether it's the Customer 360, we're very well placed, I think, to take full advantage of that.

Speaker 1

Yes. I would add, I think that one of the highlights in the quarter was Goodyear. Rich Kramer is someone who we've built a really great relationship with over a number of years. They deployed a number of our different products. Now they're deploying our Commerce Cloud.

Speaker 1

And it's a great example by having a full suite of products and also By augmenting those products with our acquisition strategy over the last few years, we really have just a tremendous opportunity with every single customer To extend and expand and land and go. And this is just a moment where I think that There will be some consolidation with vendors and they will rely on the vendors that they have the most trusted relationships with.

Speaker 5

Your next question comes from the line of Brent Thill with Jefferies. Your line is now open.

Speaker 6

Mark, many are asking on the M and A strategy given the pullback in valuations. Do you change your philosophy and be more aggressive here? You're stuck into the playbook and digesting Slack and some of the other past acquisitions?

Speaker 1

Well, it's a great question. I know we're all watching the markets very closely and that we can see Right sizing on a number of valuations, I think that we are all quite suspect of for quite a long time. But for us, We've kind of laid our acquisition strategy down and we're done for a while. You can see that with many of these amazing So we acquired with MuleSoft, with Tableau, with Slack or even what I just mentioned with Commerce Cloud with Demandware. And the reality is there's no finish line when it comes to these acquisitions.

Speaker 1

There are a lot of work. They're hard to integrate. They when you think you're done, you're not done. If they can surprise you and you have to take your time with them, we've realized that right from the beginning with our first ExactTarget acquisition to today. So I would say that for right now, we're not really looking at doing any major acquisitions.

Speaker 1

It's just not part of our playbook right now. We're really focused on Integrating the ones that we have. We have a lot of work to do still and that's our primary focus. Amy, do you want to add to that?

Speaker 4

I think you've got it, Mark. Right now, large scale M and A is just not part of our current plans. Obviously, we're opportunistic as all strategic tech companies are and I never say never, but that is just not something that's on our current radar screen.

Speaker 5

Your next question comes from the line of Kash Rangan with Goldman Sachs. Your line is now open.

Speaker 11

Hi, thank you so much. Congratulations on a terrific quarter. And Mark and others who have been through multiple cycles on the call here, I'm wondering why are you so confident with this economic cycle? I mean, what is so different about this cycle? Certainly, we You talk to CEOs, you meet with them on a daily basis.

Speaker 11

What is top of their mind and why do you feel differently about Salesforce's positioning in this Economic Cycle. And then one for Amy. I just wanted to understand what gives you confidence in I think you've said something Faster cash flow growth and margin growth in the press release, just very assuring just a little bit more detail on how you plan to get there would be great. Thank you so much.

Speaker 1

Well, Kash, I think I'm going to let each one of our executives speak on this because I'll tell you that we have been having a lot of customer interaction right now and An incredible amount. And I'll tell you when I was down in Sydney, Australia about 3 weeks ago or 4 weeks ago and I was just very impressed with the level of economic activity of all of these customers. They're focused on growth, they're focused on market share, they're focused on Expansion, they're focused on digital transformation. And then I went off to Japan and I was in Tokyo and Well, it was the same thing. I was with one of our very large customers, Sampo, one of the largest and not the largest insurance company In Japan with their CEO, Sakurada san, and very impressed with how they're investing and excited about expanding and Going into new areas and looking at a number of our new products, they've been with us for quite a long time and all Customers that I met with were growing and it was just an exciting moment.

Speaker 1

And then we went off to New York, Same thing, same story. Everyone is very motivated. These are customers without a lot of debt on their balance sheet. They have flexibility. They're nimble.

Speaker 1

They know what their product strategies are. They're ready to go. And then when we went down to Atlanta and we reviewed our entire operation, we heard this Consistently from our management team and when we went to Davos last week, again across industry, across geography, while everyone is looking at Rising inflation or supply chain issues or interest rate changes or stock market gyrations or foreign exchange Shifs, at the end of the day, we all have our we all, I think, are in a very different Place than we've really ever been before. And I think a lot of it has to do with the pandemic. I think the pandemic gave everybody the ability to kind of do a reset and think about, Okay.

Speaker 1

Now where am I going over the next decade? And so in the last two years, I think every company We built their strategy. Look at us. We acquired Slack, our largest acquisition ever. We retooled.

Speaker 1

We built our CDP. We augmented our professional services strategy. We changed our management team. We transformed who's running the company and how it's being run. So we're an example of, okay, we're ready for the next decade.

Speaker 1

And I think that that example is probably true For all the customers that we're meeting with. And Brett, do you want to come in and talk about some of your Experiences in Davos?

Speaker 3

Well, you put it well. I had the privilege of having about 30 1 on 1 CEO conversations in Davos, CEOs from different regions around the world, different industries. And I was really pleasantly surprised to just hear How much customers are leaning into their digital investments? Some like the consumer goods companies have been really impacted by both the Supply chain and inflation, we're really focused on how to invest in digital technologies to take down some of their costs to absorb some of that and avoid price increases. And then some other businesses I talked to the CEO of a beauty company that's seen increased demand as we all leave the house for the first time in the past couple of years and was really focused on growth.

Speaker 3

But the theme in all of them was whether you're investing in digital technology to connect with your customers or investing in digital technology to drive productivity, We continue to be one of the most strategic vendors and the trusted digital advisor for all of these CEOs across every industry. So I read the same headlines as everyone else and I'm cognizant of the volatility in the economy. And as Gavin said, we're just focused on being relevant, being the most trusted digital advisor to each of our customers. And as Mark said, we believe that if we Form those trusted relationships, especially in times where our customers need that resilience and need that from us. We will come out of these gaining market share and gaining trust with our customers.

Speaker 1

Brad, I think Brad said it really well, Connecting with our customers, connecting with employees through Slack, connecting with our data, with Tableau, connecting with our partners and These are major themes that we're hearing. Amy, what did you hear in your discussions?

Speaker 4

Yes. Java is fascinating. There's no other opportunity To connect with hundreds of customers across there. One of the things I really heard was a focus on efficiency And companies that are looking for partnerships and looking for companies like Salesforce that can help them both grow and become More efficient as they do it. So it was an incredible week and a great opportunity.

Speaker 1

Gavin, do you want to fill this?

Speaker 2

Yes. I mean, what I heard from customers last week and more generally, I think we're just more important to our customers than we were in previous cycles. We've got a more strategic relationship, a relationship that is more of a trusted advisor. And I think that's because we have a full suite of clouds and a full Customer 360 solution that can solved multiple problems for them. So if their issue is growth, we've got a solution that will allow them to drive growth.

Speaker 2

If it's about productivity and cost transformation and efficiency, we've got the right combination for that as well. So it's about relevance. And we heard this time and time again that increasingly the digital transformation agenda, the The narrative around it is not running out of steam in spite of concerns about the environment. It's becoming more, I think, even more important And we have better placed than any other company to help our customers through that. Yes.

Speaker 1

One of the customers I met with in Davos State Farm, I think about The huge journey that we've made with them, Michael Tippsgaard, the CEO and of course, Keith Block, our good friend is on their We're now. But excited because they're expanding with our field service product. And that product didn't even exist when we first signed our Agreement with them. But Customer 360 continues to expand for them. They're able to take their single source of truth and Bring it to new use cases and I think that that's something that I'm really excited about as we expand with all of these customers.

Speaker 1

Thank you very much for this great question.

Speaker 4

Kash, to follow-up on your question on cash flow. For cash flow, our philosophy is that our OCF and FCF Should increase faster than revenue as we're increasing our operating margin, which we are. In terms of confidence level, Yes, both on the cash and the operating margin, much of this comes back to the focus on disciplined growth. If this is not a passing fad, I'm a huge believer that discipline and constraints make for a stronger and Make for a stronger and more innovative company. And this is a focus across every part of the company.

Speaker 4

So where my confidence It's really seeing all of our leaders at Salesforce stepping up to this challenge and meeting us.

Speaker 5

Your last question today comes from the line of Phil Winslow with Credit Suisse. Your line is now open.

Speaker 12

Hi. Thanks for taking my question. You've touched on sales, marketing and commerce clouds. I wanted to focus on service because you've been pretty vocal about just the transformational changes that are going in On customer service, what are customers telling you right now in terms of where they are in their journeys there in terms of transformation? And also, we've you've seen some big contracts signed from contact center vendors kind of along this theme too.

Speaker 12

So I wonder if you could just talk us through what you're seeing from customers and what your kind of conviction level is And Service Cloud going forward.

Speaker 3

Thank you. That's a great question. Service Complete continues to be the anchor tenant of our Customer 360 for our largest Customers, particularly our long standing customers like State Farm. And what I'm hearing from our customers, I think is really reflected in our product strategy, which is really the completeness of our service portfolio. Customers like State Farm, the reason they expanded in Q1 is because they expanded with field service and We do field service, we do ticketing, we do contact centers, we do digital service, self-service and chatbots.

Speaker 3

And when you think about your customer interactions and you Particularly think about this volatile economic environment, that portfolio not only helps you increase customer satisfaction, but do so in a way that reduces cost. I love that ADT example I gave in the script because it was an example when ADT managed to do 200,000 virtual service visits and avoid sending out trucks 80% of the time. Their customers were happier and they reduced costs. And the reason we can do that is because we have the most lead service portfolio in the market. So we're really excited about that.

Speaker 3

I'm excited. Again, it goes back to our strategy of organic innovation. And as Gavin said, the completeness of our product portfolio, particularly as our customers look to consolidate vendors, The fact that we can really be the entire front office for our customers is incredibly differentiated, and our Customer 360 portfolio continues to be one of the main reasons why our customers choose our product offerings.

Speaker 5

This concludes our Q and A for today. Mr. Evan Goldstein, I turn the call back over to you.

Operator

Thank you for joining us on the call today.

Speaker 1

Evan, I want to congratulate you on 2 great years in IR and we couldn't be more excited for you. So let's end this the way we started it with Some big props and congratulations for you.

Operator

Thanks, Mark, and our leadership team really appreciate it. And if you have any questions for us, Feel free to reach out at investor@salesforce.com and we look forward to talking next quarter.

Speaker 1

All right. We'll be unmanned. Bye bye.

Speaker 5

This concludes today's conference call. Thank you for attending. You may now disconnect.

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Earnings Conference Call
Salesforce Q1 2023
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