Q1 2021 Earnings Call
The sales force fiscal 2021 first quarter results conference call. At this time, all participants are going to listen only mode. After the speakers presentation. There will be a question and answer session to ask the question. During the session you will need to press star one on your telephone if youve acquire any further assistance. Please press star Zero I would now like to hand, the conference over to your speaker today.
Mr. Evan Goldstein Senior Vice President Investor Relations, Sir you may begin.
Thanks, Josh Good afternoon, everyone and thanks for joining us for fiscal 2001 first quarter results conference call I'm not been Goldstein senior Vice President of Investor Relations.
Our press release atrophy filings and a replay of todays call can be found on our IR website at www Dot Salesforce dot com slash investor.
With me on the call today, as Marc Benioff, Chairman and CEO, Mark Hawkins, President and CFO.
Miller, President and COO, Gavin Patterson, President and CEO of international.
Hi, Milam President customer success group.
Let me be ever President and Chief legal officer.
As a reminder, or commentary today will primarily be a non-GAAP terms reconciliation reconciliations between GAAP and non-GAAP results and guidance can be found in our earnings press release.
Some of our comments today may contain forward looking statements that are subject to risks uncertainties assumptions in particular, our expectations around the impact of the corporate 18 pandemic on our business results of operations.
Natural condition and out of our customers and partners or on certain subject to change.
Any of these materials or should our assumptions prove to be incorrect actual company results could differ materially from those forward looking statements.
A description of these risks uncertainties assumptions and other factors that could affect our financial results is included are actually see filings, including our most recent report on form 10-K.
With that let me hand, the call over to Mark.
Okay. Thank you so much Evan and thank you everybody for being on the call today I Hope you and your families and colleagues are all healthy and say Werent. We're in a moment in time anything anything any of us well. So we've ever experienced and for instance, usually I'm speaking to you from the top of Salesforce tower.
Oh today I'm speaking to you for my home.
Yes, I suspect many of you already our home as well.
Yeah. It's another reminder of how the pandemic has dramatically affect that all of us our customers and our humanity.
In ways that we could have never imagined.
And my heart is with everyone.
Who has been affected by this virus, especially those who have lost.
This does that make this revealing the culture.
And the core values every company.
And those of you who have followed us closely no.
Salesforce has always been deeply committed to serving all of our stakeholders Wow, We Oh, we have really love this for two decades, and especially overlap 90 days.
The foundation of our company as our four core values Trust customer success innovation and then the quality.
And first and foremost among these is the trust and we have with all of our stakeholders story of our first quarter is very much the story of trust Salesforce and oral Honda rapidly taking action to embrace and invest them all of our stakeholders. Indeed, our financial results for the first quarter reflect the unprecedented long term investment.
That we've made in our employees and our customers and also our communities.
Yeah, that's our fiscal year began we were coming off an amazing fourth quarter capped off another record year for Salesforce in February the first month of our first quarter fiscal year 21 doses continued and amazing growth trajectory might mid March of course, and all you know the virus emerge this global biologic.
Good economic crisis.
We rapidly pivoted the company, who address three priorities in support of our stakeholders.
I agree in our employees healthier safe.
Our customers to navigate this incredibly challenging situation.
14, our communities around the world.
We view this pandemic.
Tim re phases. The first 90 days phase, it's been about rapid response, and investing and all of our stakeholders. We're now entering the second phase reopening safely and the third phase, which we believe will enter next year will be about a new norm.
Want to spend a few minutes on the actions we took.
In the first quarter and phase one.
First we've invested about boys their health.
Well be well this remains our highest priority we closed 160 offices around the world than a moment's notice guided all of our 52000 employees to work from home.
We settled in remote work situations.
As a cloud first company and with our amazing elsewhere platform well this transition was extremely smooth.
Well, we rapidly learn that we can run cells works very effectively.
Even from our homes and we frowns. The overall situation was taking its coal on many of our employees mental health as they sequestered into their own homes.
It's been for many people all over the world.
And so we invested in mental health and mindfulness programs to help them.
Our core programs the well together, which was initially just designed for our employees well we've had to open that up publicly though all of our customers will the whole world because of public demand.
We also invested in our employees financial stability, we committed to no significant layoffs for the first 90 days the crisis and in late March We also gave certainty to ourselves.
Well the onetime guaranteed permission for the first quarter, which we know would close at the height of the crisis, giving them tremendous confidence in our ability to take care of them.
This was a critical investment in the long term success of our amazing distribution organization.
And we invested in our communities in early March were asked by Sam Hoggatt, the Chancellor of you'll see us up to help them acquire E.
You see us up was already running low on <unk>.
Transfer Hog, Ed was looking for ways to protect its doctors and nurses and other frontline workers.
Back then I have to tell you I didn't even know what people. He was it turned in a much larger and more critical effort of almost overnight and as we received many requests from hospitals nursing homes central businesses. The Ceos of some of our largest customers, calling us in dire need well in partnership with you see yourself we.
Helped acquired distribute more than 50 million pieces of E. Over 300 hospitals and first responders globally. Just one example, salesforce and a 767 loaded with P.B., either New York City at the very high to the crisis mass blogs and aprons that we acquired well they were immediately delivered the status.
In addition, habit Javits center.
And I deeply grateful for our relationship with Daniels adequacy of Ali Baba who helped you have to started and make sure that we got the T. P. E that we so badly needed in Europe.
You know at at the same time, we donated funding employee volunteer time services.
Are those most in need focusing on access to care was widely hoods food and security of the digital divide this pad that might cause exposed deep structural inequalities crossed.
Our society that we can't ignore we can see that on TV right now.
But at Salesforce, our core values included our commitment to the quality of everything would be.
This will be part of our work going forward as it has been for all of us.
We also invested in our customers actually quite dramatically.
Even with our employees working from home.
Our culture of innovation continues to thrive.
Coin new products to help customers at this critical moment in time, I was especially inspired by the productivity of our incredible engineering organization and talking with Ceos all over the world. It became apparent very quickly that many were looking to salesforce to help them guide to these unchartered waters.
Companies were working from home leaders have little visibility in their businesses no way to easily connect with their remote employees customers are partners and they turned to sales force.
For some of our customers most severely affected by the unprecedented impact with over 90 and well we've been granted them a temporary financial flexibility. We also created three rapid response elsewhere care products to help companies work to sell to service the market from their homes and we've already had more than 38000 sign.
Apps for Salesforce Air.
Led by versions of salesperson Central's themselves were swept that's been amazing our salesforce care industry solutions for health care manufacturing well they promote provided.
Proved to be crucial for many companies, they're scaling up services. They handle increased demand for patient management pivoting the much needed P. P E ventilators in their factories.
Tableau well they were amazing they they built this incredible free analytics platform the tablet data hub.
Tracking the virus being used by dozens of U.S. Davidson countries around the world you can see it at public thought probably dot com.
You know with tableau tied a hub New York State posted a set of phablet dashboards that providing daily work at the latest testing and confirm case data that both state and county level.
And that data. It's also used by governor Cuomo during his daily briefings, we're able to do all this because our salesforce platform provides the agility and flexibility the speed.
Great solutions nodded months or years, but.
Weeks, even Dave and what everyone shelter in a place you saw tremendous growth also in our Congress clouds the order volume.
Hi, Bob sessions.
Okay were up more than 100% February one.
I'm, sorry predictions increased five times.
Over the time since last year.
We also had an amazing.
Rob happening pivoting from physical events to virtual events, we developed an online leadership program called leading to change its head over 75 million views so far credible.
Program highlights the work our customers have been doing during this crisis. It gives an inspiration guidance also shows themselves were solutions that are available to help them get their jobs done. It's included phenomenal speakers like the sea of Starbucks, Kevin Johnson and also the sea of Accenture Julie suite many more.
The virus continued to spread throughout March we also got a call from a governor General Mando, Rhode Island.
Oh Gee, that's amazing she she needed a way to managed care critical contact racing, which would enable her states health department to track the virus as it spread isolate anyone exposed.
This became an opt in manual process with the citizen can report they've been tested for Coca 19, and identify anyone else they've been in contact with you on those contact that'd be notified of their potential exposure to the virus isolate themselves governor of Mando inspired us to build the now.
Vantage this profit scale efficiently and reliable we're on the phone with her many times and so we did it and just a few weeks on the Salesforce platform.
And in addition to Rhode Island today, we're now helping more than 30 states reduce the spread of Coca 19, including Maryland in Massachusetts, Kentucky, Louisiana, California, and great cities in our country like New York City and other countries too.
This is incredibly important effort or developing the contact Tracy now to Rhode Island, we saw we need to deliver several products now to mitigate the spread of the virus, we need to do it rapidly.
I only for public sector clients, but up or commercial clients as well.
Customers are asking for automation to facilitate the returned to work.
Safely.
Including the contact Tracy shift scheduling.
Workforce.
I Command center for the crisis and this was the Genesis of our work Dot Com platform.
Which has rapidly become a significant part of our public sector pipeline.
Actually a meaningful part of our overall pipeline we've been hugely surprise.
And while all of this was happening we also delivered 4.87 billion in revenue.
Up 30% year over year.
We delivered 1.86 billion, an operating cash flow.
Now that was down slightly year over year too many of the actions that I just reviewed in response to pandemic.
And as I mentioned earlier, we also provided some customers separate financial flexibility.
We also incurred some incremental business expenses, such as the onetime Commission guarantee you for our sales team, but I mentioned, we expect these expenses to be largely or I would say wholly encapsulated in the first work we have great confidence that our investments we already see it in our employees our customers our communities in the first quarter well.
There are benefiting us they're benefiting us now in much the short term the long term with tremendous strength and tremendous growth.
And for the fiscal year 2021 were up they didn't have died of approximately 20 billion, representing 17% projected growth year over year.
We believe this guidance very appropriate given the current biological.
An economic environment worldwide, our ability to execute globally.
Speed through the adverse conditions of March and April well I'll tell you that gave us tremendous confidence we can operate successfully in any environment at any time it was incredible.
We demonstrated that we have the ability to innovate and meet rapidly changing customer demand needs under any circumstance.
And the last few months affirm the strengths, we have an amazing customer relationships and.
And our ability to innovate scale and operate across different industries and geographies companies of all sizes and what customer threesixty.
Well it was clear to us we have the most complete CRM product portfolio to enable digital transformation of any company.
I was excited and see in the quarter.
And with a seven year in a row.
He has ranked Salesforce is the number one CRM.
We gain more share in 2019.
And we're now seeing continuous improvement in our business.
And our bookings and our pipeline month to date.
We've been really surprised by our pipeline growth, it's been incredible and our pipelines for the second quarter fiscal year are really strong.
I've been on more sales calls with more Ceos in the last few months than at any time my career.
And there is universal agreement among them.
No transformation.
This isn't a.
One out it's a must path.
Company isn't organizations and governments around the world have a digital transformation imperative like never before.
And many.
Our accelerating their plans for digital first.
Work from anywhere environment.
For example, in Q1 side, the incredible and that's a deal with 18 Pete.
With the vision of 18, he communication CEO, Jeff Mci L fresh.
Incredible executive somebody who has just been it's completely inspiring to me well ATM cheese is moving to a highly accelerated digital first world to deliver the most amazing Fiveg service with an incredible connected experience for their millions of customers and subscribers across ever.
Customer touch points.
And this includes their media properties, such as Directv and they yeah in terms of sports more but with Salesforce 18 people will further extend this vision of a single view of their customer.
A single source crude really.
You know what every customer touch points Federated on customer Threesixty.
Cross retail sales and call centers on messaging online and in home service and more Salesforce could do that.
Every customer touch points ATM T truck pulls up to my office or my home.
That's going to be Salesforce and.
Hi, walking <unk>, that's gonna be Salesforce and I'm getting the email for me to pad, that's gonna be Salesforce and I'm on the phone with you tend to call center, that's gonna be Salesforce, and we're going to make sure that they have that customer threesixty enhance.
And I'll tell you when we're integrating all that data will meal soft it's going to connect 18 to use different backend systems.
It was can be lumpy ability to understand customer preferences I sign is going to help them sort of more intelligent recommendations and foodservice cases, you know I was on the phone just yesterday with Jeff Mcelfresh reviewing the incredible progress.
The project.
It's clear to me this is going on power ATP to drive more value.
Stronger relationships with every customer and we're going to begin deploying this with Jeff and his team 18 sees a plays.
Very very shortly our goal is by the end of July.
And then to tens of thousands of users.
In the third quarter.
We're thrilled to have also significantly expanded our 15 year partnership with standard Bank group the largest bank in Africa.
The operates across 20 markets, it's an incredibly important thanks to the African economy.
Standard Bank was going to leverage the full power of our customer threesixty, including the financial services cloud the Congress cloud marketing cloud deals soft denied side provide that single view of the customer.
Bill personalized customer journeys deliver amazing client experiences in retail banking across all channels.
Well the livelihoods of.
I don't bank customers were threatened by Coven 19, well, the Utah based bank turned the Salesforce and customer Threesixty.
Virtually support a high volume.
Of loan request, they're using our customer communities and our surface cloud to facilitate conversation with customers automate applications processing.
Provide tracking the visibility to customers waiting for their loans.
Thanks stood up its loan application portal seven days.
Even though the 38th largest bank in the U.S. It became a ninth largest distributor of as you able protection program funds in round, one using salesforce is customer threesixty platform.
You know one of our highest partners and you know well they built in and then solution for us Federal ESPC, a parallel loans for small businesses, all wants salesforce and that process more than $35 billion and loan applications for its banking customers, including key Bank Iberia Bank.
The world's largest credit Union the Navy federal credit Union, all running on self where customers recently.
And what are the unique aspects of Coca 19 crisis is the deepening our ties with the local and federal governments around the world, but public sector action has never been greater.
I mean, I can't believe how many phone calls I've been on with governors.
The public sector, a number of our government customers Youre agencies. If you will they chose salesperson mcwhorter began helping them a dress code the 19 related issues, including some of the very largest federal agencies.
The state level, we formed a new relationship of the state of California is office of emergency services.
You know they implemented salesforce to create the public health ordering system and application that helps the state leverage data.
Urgently needed public health resources across California improved customer service did it in days.
The U.S. census Bureau, well they expanded their long time relationship with tableau.
The agencies data analysis would visualization platform of choice Pablo partners with the census Bureau, and mission critical data applications in support of the 2020 cents some beyond so important.
Internationally, we also had an incredible deal with Commonwealth of Australia.
Partnered with the National Disability insurance authority delivered improved experience for more than 500000 participants that are predicated.
Access disability support by 2025.
Those are some of the highlights from Q1.
Now looking ahead as much of the world is getting to move now into phase two.
Like we like to call reopening safely.
You know our work Dot com platform is going to become a well it's going to fill a huge unmet need.
My staff working in the economy has started to come back to life.
Salesforce is also beginning to reopen its offices first throughout Asia.
It has to be done safely.
Because I'm responsibly.
And it's got to be a complex process.
And the new normal businesses are gonna have a new lifestyle.
And then lifestyle of.
The P P new lifestyle, taking people's temperatures of enforcing social distance in standards, a new lifestyle has seen a current back are you seeing when a new lifestyle of wellness assessments to mitigate international dividers, you can see some of the photos on like Twitter feed of our employees entering some of our offices looks.
Very different than it did just 90 days ago.
We're going to meet a command center to monitor were returned to work readiness, they're going to need shift scheduling because there's not going to bring everyone back at once.
Well.
But you're going to need social distances.
And you're going to need tools for emergency response management.
And you're going to need expert perspectives from were known experts because this is changing on a regular basis and primark credible ecosystem and tools and workforce risks going really well, we bundled all that is.
So this work Dotcom suite you can see it at work that you could see what we built.
How we're starting to roll it out who our partners or it's a platform for enabling our customers to reopen safely and it's the cousins built on our customer Threesixty platform, we're able to spin off this entirely new generation of apps in a matter weeks amazing.
And I just have to give grad credit where credit is due to.
The Cup Governor General Mondo, Rhode Island.
It was hurt call.
Early on in the crisis that inspired us to build work Dot com. She was the visionary that said we need to.
Information technology to mitigate what's happening with the virus and so we have vaccine.
Well I'll tell you at times, even though we have nearly 52000 people at Salesforce.
Ladies and work Dot com felt like many of our early startup days with the speed and scrap units, though the laser focused execution of our management team. It was.
This was the best I've ever seen Salesforce and wordy returning you know to work we're starting to see the return on this investment now it's it's amazing and a very short time work Dot com is generated an enormous interest for businesses and governments at every level from our partnerships and with work Dot com when we people.
Those partnerships with the world's largest systems integrators, including Accenture and Deloitte.
Pwc and I'd be M. and many of our partners are now building solutions.
On work Dot com as well.
No it's incredible to see what they've done with risk management and compliance business continuity and just yesterday workday announced that its going to integrate its employ data directly into work that Tom that make it easier for employers decentralized critical data that's their business is up and running again, we've we've enabled and trained all of our sales people worldwide.
I'll just talk to our customers on how to reopen safely with work Dot com.
I've been thrilled.
And I'm. So thrilled also especially my worked a partnership with a meal well, that's just an amazing company and to make work dot com, even more valuable so many of our joint customers. So thank you Neil for that.
The months ahead, I expect work dot coms ecosystem to rapidly become even more robust was even more relevant solutions I've had so many of our customer contact us on how they can integrate their own products into work dotcom.
So cool.
And as we move deeper into phase two worked dot com is going to become extremely important to all of our customers. We've learned from this crisis just as we have every time, we've been face with major challenges well we saw once again.
How our values create value.
We've seen how our agility.
And our beginners mind.
Has enabled us to quickly pivot.
Take action.
We made investments during Q1 to confront this once in a generation calamity.
Focusing on or employers delivering relevant innovation for customers and supporting our communities with pp of grants and technology, where we could do all of this because the proven strengthened sustainability of our extraordinary business model.
And our extraordinary technology.
And our extraordinary ahana.
We know that when we invest in all of our stakeholders.
We're building the trust relationships, the innovation and our business for the long term.
Pandemic has shown that digital isn't life blood for every organization, whether your public sector.
States.
Country.
Or whether you're a commercial organization or nonprofit and NGL.
The new normal phase three it's going to require organizations of all sizes and shapes geography as.
Well everyone's going to have to adopt new ways Bethany themselves.
Especially their customer relationships.
Especially their sales and service, especially their marketing and commerce, and especially new ways of collaborate skilled workers.
You know every company is gonna have to digitally transform.
Fortunes recent survey a fortune 500 companies found three quarters CB Ceos well. They believed this crisis, it's going to force their companies to accelerate.
Their technological transformation I mentioned, Jeff Mattel fresh of agency well use the first one said that to me. He was the first when I got on the phone with me on said, we're going to accelerate our digital transformation that he TNT.
And I believe that Salesforce has never been more elevated or more mission critical some more organizations no. One is better positioned than salesforce to accelerate out of this crisis and bring customers into the new normal.
Now before I turn it over to Mark I want to make sure you've heard the Gavin Patterson.
The former CEO BT group and our current president and CEO of international will be our new President and Chief revenue Officer beginning.
August 1st.
And you've already heard of Wanna, Gabens Amazing deals and I hope he'll talk about that.
Later on the call.
But I'm so thrilled to have gotten as a member of the team.
He is just an amazing executive we've been friends for many years and he's already had a huge impact on our company and on our management team.
And I could not be happier for GAAP and I couldn't be happier for Salesforce and all barrel Honda and were able to have his experience and this capability as part of our organization.
That I'll turn it over to you Mark.
Okay, well, thank you Mark and before I begin you guys are one express my thoughts and my best wishes Forever, one safety and well being during this historic time.
I'd like to focus my remarks on providing additional disclosures and commentary and the company's our response to the corporate pandemic and our updated fiscal 21 guidance.
As Mark said our actions in Q1, we're focused on investing in our employees, our customers or community and response to Kroger nitrogen and preparing for post pandemic future. We continue to believe that values drive value and these Q1 investments and all of our stakeholders will result in long term equity.
We want to provide visibility into how our actions in response to Kogan 19 affected our financials in Q1 as well as our updated guidance I'll begin with the topline commentary.
Revenue for Q1 was 4.865 billion up 30% over last year, we saw good revenue performance by cloud.
Sales cloud grew 16% and approximately four point.
From significant M&A.
Service cloud grew 23% with two points from significant M&A platform. Another grew 62% were 35 points from significant M&A and marketing and commerce for 27% with four points from significant M&A.
Additionally, we had strong year over year revenue performance by region in constant currency Americas grew 29 for sure Weve 11 points from significant M&A EMEA grew 41% with full points from significant M&A and Asia Pac for 28%.
Additionally, we were pleased to have maintained a revenue attrition rate of less when I first shot at the ended the quarter. In fact, this is actually down year over year and in line sequentially. This speaks to the diversity the diversity of size industry and geography within our customer base as well as whole mission critical.
Our products our to our customers as always we continue to monitor this metric closely to determine how to covert pandemic may impact our customer base going forward.
Our performance a remaining performance obligation representing all future revenues under contract ended the first quarter at approximately 29.3 billion.
18% over last year and as a reminder, this metric includes both new business and renewal contracts and Q1. These contracts were approximately three much shorter in duration on average compared to Q1 of last year and we believe this was the result of the cobot pandemic and we expect us to normalize in the future. Please note.
Note that the contract we started with 80 Mg entirely resides in non current portion of our you know as our updated revenue guidance assumes no contribution from 80 Mg in F. Why 21.
Our current remaining performance fabrication or she our field, which is all the future revenue that is under contract and is expected to be recognized as revenue in the next 12 months was approximately 14.5 billion up 23% year over year, turning to if you adjusted operating margin Q1, GAAP EPS was 11 cents and non Jackie.
Yes, with 70 cents.
There are few items I'd like to discuss as they pertain to the Q1 objective of investing in our employees our customers and our community in response to cope with my team and preparing for the future, which we believe will lead to an even stronger business and company.
First the onetime up partial commission I guarantee I discussed earlier was approximately $140 million as a partial commission guarantee makes it not eligible for capitalization. This expense will reside in Q1 and not in the future periods, given how sodermann severe the pandemic rival was.
In March we chose to take powerful action to care for our employees through this crisis.
Okay due to the cancellation of our physical events. This fiscal year in favor of virtual experiences all of that contracts that included cancellation fees for fiscal 2001 commitments were expensed in the quarter. This amounts to approximately $65 million. We're working with these vendors to renegotiate these contracts as we put it to digital.
Digital virtual experiences, which means we could see some partial reversal later in the year.
Thirdly, we incurred approximately $25 million, a onetime lease impairments due to vacating and subleasing offices, there will likely return below market rent due to the cobot pandemic and finally, we prioritize caring for our community by donated approximately $20 million, which came in the form of PPD and cash grants.
These unique and mostly one time variable items were partially offset by approximately 75 million in savings largely from TV due to shelter in place orders.
But none of these items created approximately 350 basis points of headwind operating margin compared to our expectations and in the quarter.
Regarding our strategic investments, we recorded approximately $192 million and realized and unrealized gains. This was driven by significant realized gains on the sale of public securities, partially offset by unrealized losses within the investment portfolio.
Turning to cash flow operating cash flow was 1.86 billion, which was largely impacted by a delayed payments from customers while shelter in place and some temporary financial flexibility that we granted to certain customers that were most affected by the corporate pandemic, we expect to collect the majority of the balance.
This year and do not expect us to have an impact on our full year cash flow. In addition, we previously described a this partial commissioned guarantee also created a headwind to our operating cash flow or should we not having for these items above our Q1 growth rate would be consistent with historical rates.
Capex for the quarter was 323 million leading to free cash flow defined as operating cash flow less capex of 1.54 billion down 15% year over year.
Turning to guidance for Q2 and fiscal 21.
Revenue is now expected to be 4.89 billion to 4.90 billion in Q2, and approximately 20 billion for the fiscal year. The latter which continues to include 50 million contribution from velocity, which is expected to close on June onest.
There are two important assumptions reflected within the guidance that stem from our assumptions that the I.T. spending growth normalizes next year, which we believe to be appropriately conservative and consistent with our learnings as we successfully navigated through the great financial crisis first.
Guidance assumes our revenue attrition rises from less than 9%, though to less than 10% temporarily for the rest for fiscal year second the guidance reflects the adjustment to our incremental new business expectations that we made due to the coded pandemic.
Another important consideration when thinking about our for 21 guidance with the magnitude of the above when applied for term license products. As a reminder of the term license revenue product typically reports approximately 50% of the contracts TCV immediately to revenue.
With the remaining balance recorded ratably over the contract term this accounting treatment I can create aren't even revenue trends between fiscal periods. As you saw during how to about 420. This helped drive the revenue outperformance in those quarters.
Additionally, we are pleased to have experienced improving trends within our pipeline and close rates between March through today, which leaves us incrementally optimistic about the future. In fact April was better than we anticipated would be when we started that month, we continue to see additional positive trends in may.
For Q2.
GAAP diluted EPS is expected to be minus two cents to minus one cents, while non-GAAP diluted EPS will be 66 to 67 cents.
For fiscal 21, we're expecting GAAP diluted EPS to be minus six to minus four cents, while non-GAAP diluted EPS will be $2, a 93 cents to $2 a 95 cents.
And what did a little bit pandemic and our actions in Q1 to support our customers employees and communities. We expect our fiscal 2001, non-GAAP operating margin to be roughly flat year over year on a percentage basis.
As we prepare for the future our outlook for the rest of fiscal 21 includes incremental discipline and prudence, especially in regards to headcount largely due to lower employee attrition rate than planned as always we continue to monitor our go to market capacity to ensure we allocate the appropriate investments to achieve our targets.
Both this year and the future.
For the remainder of the year, we're focused on making ourselves even stronger upon exiting the pandemic as a reminder, our EPS guidance assumes no future contribution for mark to market accounting as required by a few 2016 or one for operating cash flow, we're reducing our fiscal 2001 operating cash flow guidance to 10% to 11% year over.
Your growth to align with our updated revenue and margin guide, we do not expect to provide incremental temporary financial flexibility. We now expect capex to be approximately 3% of revenue in fiscal 2001, resulting in a free cash flow growth rate of approximately 13% to 14% for the fiscal year.
We expect CRP ought to be approximately 16% to 17% growth year over year, and the second quarter, which we believe is appropriately conservative and consistent with our revenue guide in light of the uncertainty surrounding the corporate pandemic. We are reassessing, our long term revenue target for fiscal 2004, and we're probably not giving an update during the end.
Yesterday to close well the covert kind of dynamic with certain and a once in a generation crisis. We're proud of the investments and relationships, we have deepened with our customers our community and our employees. We are confident our actions in these investments will lead to an even stronger business and company in the future and as we move into phase two.
We're strategically well poised with a strong balance sheet and a durable business model, we're well positioned to continue to leverage the secular tailwind to drive digital transformation.
I'd like to thank our employees our customers our partners are communities and our shareholder.
Although shareholders for their continued support and I wish you should view and your families and your firms safety and wellness and with that we'll open up the call for questions.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad. If he would like to withdraw your question. Please press the pound Keith.
Next question comes from Mark Murphy with JP Morgan. Please go ahead.
Yes, Thank you Mark.
The second week of November should be an interesting one I am wondering what einstein might be telling you about a virtual dreamforce 2020.
Some of US on the call have attended every single one in person that Moscone center, and so just with it going virtual curious how you're going to maximize the impact of Dream force. So it provides the inspiration that it's known for and also that so that it drives the pipeline for Q4 and beyond.
Well, that's such a good question and I'll tell you that to you know course stream forces them, such an incredible part of our culture.
Ah that a we're all going to Miss Dreamforce. This year, but you may see that we've already started some amazing things online and we're getting some phenomenal results. In fact, we as I mentioned, we've already had more than 75 million views and I think what I would assume 100 million views of our leading through change program.
And I didn't know if you've had the opportunity to watcher participate in lead you through change, but it's been incredible.
And that type of virtual program I believe is very much gonna be something that it's going to be a permanent part of our culture, we've really been able to inspire our customers are.
Employee is all of our own Honda, including our account executives and enable them what these programs.
And while we're certainly going to miss being together at Dreamforce This year and that's not something that.
Well any of us could have imagined just 90 days ago.
Well I think that we now see a very clear path to be able to you know how burchill events.
Build pipeline.
Community.
Build brand create the live or new products and.
I have a lot of confidence in our ability to execute without a physical dreamforce this year and not just dreamforce by the way we as Mark mentioned you know, we cancel all of our physical events for this year than we had to pay an extremely large amount of cancellation fees that all got cost into that first quarter number and so all those.
World tours and all these other amazing events, we do a thousand events a year, where we're just moving as many of them to the virtual programs as well and a you know not just the big events or lots of small things happening. So we've got a whole new playbook that where.
We're executing its a great question. Thank you.
Your next question comes from Terry Tillman with Suntrust. Please go ahead.
Yes. Thanks for taking my question I guess my question relates to its great seeing the ATM t. when it seems like Great example, the digital transformation opportunity.
But with customer Threesixty in these larger transformational deals Mark maybe you could give us an update you talked about strengthening pipeline. How does some of these larger transformational deals how do you see that playing out the rest of the year or is that some of that business harder to come by just because it is more complex. Thank you.
Well I'll give you the beginning the answer and then you know I've been very fortunate this quarter that Brian Melhem running our global distribution organization has also running it and the second quarter, while we're bringing the gab, an onboard and Brian's north us for more than 20 years. Many of you know Brian's really been the heart and soul of bar a distribution culture is done.
Phenomenal job.
This quarter and you know I think that you know this what we see reminds us a lot of.
Over a lot of different type times and last one years at Salesforce, where you have to have a full portfolio of products and deals small medium and large that you know, there's an ebb and flow you're never going to make your number on all large deals or all small deals you have to have a portfolio of transactions and you have to have that across yard.
These products segments verticals and that's one thing I had been super proud of the distribution organization their ability.
To deliver that and then see that start to manifest in these really strong pipeline. So Brian you want to comment on that.
Yeah, Mark I think when we made the comment earlier the strengthening of our pipeline over the last last couple of couple of weeks here has been very encouraging for us.
And that's like the pipeline comes and all forms of you said it comes from different segments of our market different regions of our markets our products and so.
We're very encouraged by by the future both the large deals in the small deals that were getting done across our incredible distribution organization. So very very encouraged as we go forward.
Your next question comes from Sarah Hindlian with Macquarie. Please go ahead. Your line is open.
Yes, I think is so much for taking my question and form I Hope everybody is well you know I guess my first question. It's for you Mark Murphy I'm quite you're talking about this nice pick up in the pipeline and I'm, a little bit more color about what you're seeing now.
It is across certain vertical markets products.
Enterprise commercial and then I have a follow up or Mark.
Well, thanks, I'll I'm Gonna have Bret Taylor, a comment on that because he and I were just talking about that today, we have been so a inspired by.
You know kind of connecting the first question, how a lot of our programs that we put in place and I'll tell you. The four dimension. So we've been really focusing on of course, we have a very large scale distribution organization I would say, it's more than half of our company you think about that in terms of all the customer facing organization.
Number one the most important thing is to CAD, everyone, especially when you moved on at home environment is participating participation has been mission critical math, that's really where we focus what percentage of those sales and service professionals managers executives are out there really working with customers and yeah. This is that.
Unusual environment that provide the.
Opportunity for lots of new training, new kind of new ideas.
New programs and the second thing is to enable them with that train them and also introduce some of these new technologies. These products.
The third thing that was absolutely critical.
After participation and then they enable on making sure that they have a relevant position you know I'm sure many of you.
This crisis kind of unfolded you didnt have somebody relevant to say, we didn't have a lot of time for you.
And the reality of Salesforce became incredibly relevant to our customers burst in the core digital transformation and then next was.
Really you know how we could provide tremendous value in reopening safely that became a third leg barstool <unk> support like became.
You know really critical the tactical plays and critical aspects of building that pipeline up so Brett you've been the architect of all of these things and can you talk to us about how you put that into place.
Yeah, Mark Thank you.
I think that one of the things that you said in your opening script that I'm really student from our customers as the digital imperative and you'd across the entire customer Threesixty, we're really seeing that play out in some of both the pipeline numbers on the adoption numbers some of which you mentioned on the call.
For a customer service as an example, our Einstein box functionality, which provides a digital self service, which is more relevant than ever before is up 100%. Just since February you know really reflects that overnight digital transformation of service, there's marketing Einstein's doing.
Over 12 billion predictions per day I'm really represent this mass scale digital personalization because digital is the one channel really remaining for a lot of our customers to engage with their their employees are commerce cloud Jim view is up over 100% year over year as commerce digitized overnight, probably even on industries as Mark mentioned you know this small business.
Administration loans process really came out a lot of banks overnight, we help one of our largest banking customers go live into 72 hours on this is all digital it stops and we're really seeing that relevance point that you mentioned mark I'm being extremely important I mean, I think that every single CEO every single see I already talked about the same methods Richard.
Whatever digital transformation might have left has just accelerated I think because it 19, I think the digital aspects of our customer threesixty platform have become more relevant than ever before and you're seeing that in the pipeline.
Your next question comes from Gary I Clicked with Cowen. Please go ahead.
Oh, Thanks, a question for Mark Hawkins, OCC and implied CR P.O. bookings growth for Q2 looks to be in the mid single digit range. If I have my math right.
Following 20% in Q1, I mean, obviously a lot of companies you're expecting a a tougher Q2, but can you just walk us through the assumptions here, whether there's any pressure points coming from contractions, your churn or pushed out deals or.
Dynamic you'd call there and then I know you don't guide CR P.O. beyond a quarter, but given the constructive commentary on the pipeline any color you can you give on how we should think about a potential recovery and see RPL bookings in the second half.
Sure first of all thank you there for the question happy to do that Ah well, we are for syrupy or when we look at that for a the.
Q2, you should think about it is approximately 16% to 17% growth rate share PEO, So I think that aligns.
Well as we think about the revenue going forward and the current year in this temporary a year of pandemic. If you will should we think it's appropriate line number one I think in terms of the the recovery or the way, we had and you've talked about attrition and things of that nature. We I just wanted to be clear that we're actually very pleased in this.
Instead, our attrition actually went down year over year in Q1.
And so from that standpoint, I think it's good I think what we've tried to do is to be appropriately conservative having going through this pandemic to assume that it would go up some and we called that out and you know store would be we would expect that to be a temporary nature, but we set for this fiscal year would be less than 10% ups on our and that's partly based on their learning from it.
Great financial crisis period before we were very pleased to see what happened in Q1, but that's a little bit of color we had to make recall.
And you know kind of really make sure that were dial and this and in light of the uncertainty that's out there. So I think that would be or something to think about in terms of the recovery. So a from a archie spending standpoint, we think that for you.
We're expecting a recovery.
And that's why 22, which begins for us in February.
Could it be sooner we should companies that are doing that that's just what we're trying to do when we think its appropriately conservative and so that informs us in terms of how we think about the demand environment, but one thing we learned for sure and the great financial crisis is take a good look at whats going I see the temporary situation and then we remember remember how we navigated through it very successfully and on back to our.
Future and we really see that are in this particular case. It. This is a point in time.
Amongst a much bigger opportunity that we all know about including a $170 billion plus town.
It's one of the fastest growing parts that market, but everything is being impacted temporarily with the pandemic. So that's what I would I would say and happy to have if mark I watched anything to that put that help start.
Your next question why is it really like to open that up to Gavin Patterson, our new Chief revenue officer. He has been driving this incredibly strongly from his office in London.
London, and he's going to move into San Francisco a shortly.
You heard about this incredible when that he personally led at this amazing the organization called the standard Bank group, but Gavin can you just fill in the you know how you see this market unfolding right now.
Thank you Mark and then just to stay on I'm very excited to be taking on on the road in the next few months.
I've known cell source as you know that many years.
That's the need for many years as well as a customer BC.
It was the CEO.
And I started my favorite step function Gamble in brand management so.
I know the company recently one of the customer.
And over the last year or so at being more and more bolt.
The company initially building.
Advisory Board in Europe, then lastly, picking up executive responsibilities for international and that's where I helps a steering the Senate bank deal at the end of the Coolset, which was a big wins for us and I think very much a platform deals in Africa as we open up that market. So.
Hum anything type I can bring to this Joe.
Customer viewpoints and international viewpoints Seo viewpoint.
But the one thing is very clear to me is the opportunity to that.
Very clearly and.
Seeing how.
The organization has been able to adapt in the last couple of months to the shelf gives us the virus and then rebuilds and become even more relevant to customers gives me great confidence.
And the opportunities are there and as Mark said, you know the majority of customers, which talking to us, saying, how can accelerate digital transformation and this there's no better to do that would say I think.
Certainly the growth potential I'm not just domestically in the U.S. internationally around the world I think exists for us.
Your next question comes from Kirk Materne Evercore ISI. Please go ahead.
Yes, thanks, very much and mark Thanks for all the work even the team's done to help out in this crisis has done some great things.
My question is for Mark the you know if we think back to the great financial recession, and you think about what eventually turn the tide from customers wanting to talk to you about digital transformation to customers actually spending on digital transformation I mean, I think between you Gavin and Brett you all mentioned that there's a greater interest.
Standing up the imperative to spend on digital transformation today, yet you, obviously had some prudent guidance out there for the second half a year. So when you talk to Ceos, what do you want to start hearing from them that gives you confidence that yeah. Their interest is going to start translating into bookings is it simply just business confidence better understanding of sort of what's going to happen in the fall around.
But just kind of curious so we can keep an eye on some of the broader data points out there and try to translate to your thinking on business momentum. Thanks.
Well I think it's such a good question because you know of course.
When you are addressing a market with a set of products capabilities.
You're gonna have set of strategies as well as a set of tactics.
Are gonna have plays as well as products.
Programs, and you're going to do that differently by geography different by industry.
I think we already know that you know unlike the financial crisis. The way that this has discriminated against different industries.
Is quite different than anything we've ever seen before.
And has been quite shocking.
And spur some industries that will take some time for them to recover.
In other industries, it's actually accelerate.
And it.
Causes them to grow faster than they anticipate as I mentioned with agency.
It's obviously a company that will transform itself during this.
Moment to become more digital.
Become a stronger more customer centric organization, they're going to accelerate into it.
My personal belief as though is that in a moment a crisis you need to invest through it maybe not every company can do that but a lot of company surprisingly can.
That's why you have to offer a full portfolio capability.
I really saw that come together in the first quarter I.
I was really impressed with the bookings that we achieved in the first quarter.
As it kind of started to get.
Crazy in the Middle of March I was like Wow, what is going to happen at the end of March and then through April.
Well this was the fastest salesforce.
This was the best I've ever seen sales were performed I.
I mean, it was just incredible to see all of our Ohio.
The sales organization service engineering across the board.
And then the second quarter, well I as I mentioned that Marty really really a inspired by the bookings numbers that I started to see.
And the pipeline numbers. So no we're quite optimistic about what the future. It's gonna look like for Us and Brian you want to fill in a couple of details for us.
I appreciate that Mark and I appreciate the question for US, it's about being very relevant to our customers. It's about showing up in listening deeply the what there what they're going through and what we're finding is where more relevant than we've ever been to our customers and that's a great place to be I couldn't be happier with the broad portfolio of products that we have to go.
Address the problems our customers are facing today, it's a great product team building incredible products work Dot Coms. A perfect example is something we reacted to very very quickly in are helping our customers address these core issues and when you sit in that position I think it's why we see our pipelines accelerating right now so just very very pleased with that where we sit today.
Last question comes from Brent Thill with Jefferies. Please go ahead. Your line is open.
Thanks.
Mark this back to encouraged by the bookings going into Q2 can you give any color you know what you saw from April into May. Many tech companies are seeing stabilization and improvement or are you seeing similar trends through the month amazing.
And then maybe for Mark Hawkins just on the expense side. Yeah. There are lot of questions that this environment may kind of permanently shift some of the expenses across time do you think theres. Some permanent lasting effect that can you give inherently making more profitable through.
Through this as we exit out thanks.
Well I'd really like to turn back over to Gavin for a second 10, Brian and Ah you know and have them address a you know the customer environment that were seen and then maybe Brett can fill in the in from details on the.
On the pipeline as well.
Kevin.
Yes, sorry, sorry, Melco, so I'm wondering whether you want to front given.
What we're seeing good competence is building almost week by week. So clearly there was a shelf hit the system, particularly in much but as we go in through April and we moved through May.
I would say a bit by bit and it's not.
Given that we're at a different stages in the recovery.
Market by market, it's not the same points in every market yet, but the broad sense that direction is building confidence beginning to see much better visibility. So the bookings not just in Q2, but into Q3 in Q4 as well.
So I can send the competence building in the sales organization, we're not getting carried away with ourselves.
But.
I'm going back to point to be made a couple of times on the cool the relevance of products that particularly with dot com.
It's proving that actually more than ever a products.
Are important to our customers and.
Key to.
Digital Revolution, and transformation that Oh customers are going to.
Going to go through so as I say I'm I'm pretty bullish about what I'm seeing a moment and we'll continue to see it grew I think from here.
Brian you want to fill that it.
Yeah, I would just second to comments I'm, we're seeing tremendous confidence in our sales teams right now pipeline growth that is is very very good year over year and those compares are against a quarter. When we didnt have compare a pandemic and so we're feeling very confident about the pipeline growth as Gavin said appropriately were not.
Getting overconfident, we need to go out and execute but we feel very good about where we said and you know eight to repeat myself, but in that in a time when you need to be relevant you didn't have products that fit the customer need we feel like we're in a very good position right now so I'm very very happy with where we are and ER and the early early months.
The quarter.
Brett.
Yeah I think.
According to book Covenant Brian's comments.
Three customer meetings already today and every single one had one theme, which is everyone's looking past the pandemic towards the next normally when the new normal and I think the all of its have the ability to no. We're not a 100% sure without going to look like but it's all digital its work from anywhere it's a completely new experience for our customers employees and.
There are customers.
And they are looking at our solution as the most relevant platform available to really help their customer healthcare company transition Tibetans your normal. So that's really what we're saying you know I think there's still uncertainty out there, but I think people started this reopening process and you're seeing at the momentum in business.
And I'd like to be pleasantly word and may move either.
I'd love to have a.
And we leave or give us the closing words on her.
Because she has been involved in so many of our customer discussions.
And.
Any can you fill in exactly how you.
Do you see the situation the moving forward.
Yeah.
Well I'm excited to see dismissing for it it has been a well when I was actually a max.
When I look at Black we went trail, where we're going what really stands out its name is that everything we executed during this quarter in every plan that we're making for the future. We're doing it in line with our core values with trust with customer success with innovation and with a quality and I think that we found that these values there.
He said Wow.
Bunker company stronger relationships with our customers stronger relationships that communities.
Really a great position for all our.
Okay, so thrilled to be part of it and looking forward to the next step.
Parker Love for you to wrap it up a you've had the full perspective of 21 years and you've done a phenomenal job developing and delivering works dotcom and customer Threesixty can you give us a your words of wisdom.
Yeah, I think I would just close by saying you know where all in our homes right now as everyone probably listening to this pause in their home.
And yet as a management team I think we've never been closer.
Which is kind of odd that you know we've been tend to our homes and yet we're operating more closely than ever and faster than ever embarking on inside it's kinda like for back to the started up days and yet you know where 50000 plus simply company.
And I've had the same experience as Brad was saying and working with our customers. You know we are no longer walking into our customers offices and suits and having that kind of separation where in their homes with and a and you know they trust us so they're letting us into their homes those were selling.
So down and supporting them in servicing them.
And it's just a sign of you know mark the success that we've had and building that trust with our customers for 21 years and think it's the reason why you never coming through that as we are.
And so I hope all of you out there are also having that then experience and display proud of.
What we've done as a company during this crisis.
Okay back to you haven't.
Okay. Mark you want me to maybe I should just Taco last a part of that Britain question. There and then we'll go to Evan a one.
We definitely are always looking for opportunities as the environment has shifted it for it provides an opportunity for us to take a beginners eyes and everything and we're certainly doing that you heard whether its pipe Jan whether it's a in a re imagining everything we're doing you certainly travel there's so many different examples but we're constantly looking at focusing.
Obviously on delivering growth.
Profitability and cash flow over the long term. We're we're obviously very excited about the long term opportunity to serve a customer and help them and were very aligned.
Workers from it was really often about were very aligned around how to navigate through this and get beyond this point in time and really our seized the opportunity for an unbelievably strategically position.
Situation to serve our customers are long term.
Mark and I went back to you.
Thank you all for joining us for our call today, and we look forward to speaking with you next quarter Hope you roll safe and healthy.
This concludes today's conference call. Thank you participating he may now disconnect.
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