Q3 2021 Salesforce.Com Inc Earnings Call
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Yes.
Welcome to fill fourth fiscal 2021 third quarter results conference call. At this time all participants are in a listen only mode. After the speakers presentation, there will be a question and answer session.
Good question during the session you don't need to press Star one on your telephone. Please be advised that todays conference is being recorded if you require any further assistance. Please press star zero.
Like to hand over the conference to your Speaker Mr., Evan Guo Senior Vice President Investor Relations, Sir you may begin.
Bunch on Tom Hello, everyone. Thanks for joining us for our fiscal 21 third quarter results Conference call All moving <unk> Senior Vice President of Investor Relations.
Our results press release.
<unk> and a replay of today's call can be found on our IR website at www Dot Salesforce Dot com Flushing Buster.
We all the coal block Mark the meal churn CEO, Mark Hawkins, President and CFO, Taylor, President and COO, Gavin Patterson, President and Chief revenue Officer.
President and Chief Legal officer as a reminder, our commentary today will be primarily be in non-GAAP terms reconciliations of GAAP and non-GAAP results can be found in our earnings press release.
All of our comments today may contain forward looking statements that are subject to risks uncertainties and assumptions in particular, our expectations on the impact of colder bunching pandemic. Although this is a.
Results of operations and financial condition, and none of our customers and partners on certain subject to change.
At any of these materialize.
Or should our assumptions prove to be incorrect.
Bill company results could differ materially from these forward looking statements.
The description of these risks uncertainties and assumptions and other factors that could affect our financial results.
David.
Including our most recent report on form 10-K.
But let me hand, the call to Mark.
All right well. Thank you so much of an interest thanks, everyone for being on the call today I Hope you understand my colleagues are all safe and healthy and preparing for the holiday season by Chris been cold here in San Francisco, and we can feel a Christmas the protein as Tom.
In the air.
As the season approaches I with the with the very best to you. It's been such an unbelievable year in so many ways for so many of US and you know we really had to Reimagine every part of our business in our lives.
Also work with so many of our customers and really even our family. The very same thing in the past has really gone.
All feel that and the future is coming we can see there. So certainly a light at the end of the the Tom all especially with these incredible vaccine announcements, but here. We are in this price involvement yeah, well there are so many things happening and so many exciting things to talk to you about on this call today and we're.
Magazine, our entire business worry about getting our industry and where are you going to worry about the dreamforce. So many of you have emailed me and called me and talk to me about your ideas for Dreamforce, but.
But I'll tell you what it really comes right down to it.
Dreamforce is different this year just as you know, it's it's not the dreamforce that we want it it's the dreamforce that we got the Dreamforce, though we wanted the dream works with all of you you know all of our trail Blazers and all of our Ohio and all of our friends from all the world. The best part of Dreamforce is being together in person and there was a little.
Like Thanksgiving all by ourselves last week and here. We are again, it's kind of dream force by ourselves. So we Murray imagine Dreamforce and the first thing we did as we said well you know what we're going to have reports for each and every customer and we've already reached out to thousands and thousands of our customers, we're creating custom dreamforce is.
Exactly for them, we break down almost 5000 of those three boxes, which has.
Has been our prototype and we hope to do over 100000 Dream horses before we're done and these are unique presentations exactly for our most important customers in the world that we have a huge conference coming in a couple of weeks, which is our Dream Force Trailblazer conference, which gives our ability for all or trailblazer.
To come together and then tomorrow, we've got a phenomenal phenomenal event with myself with with many of our executives Bret is going to join me.
Onstage as well it's got to be lives.
Francisco, that's going to be called we're going to be doing it outside I think Bret holding the camera for wild and I'm holding the camera for a while it's basically.
We're following it all these protocols and we're trying to stay as safe as we can you know we've all been tested and were ready to go and it's going to be very excited we're going to have some very very special guests tomorrow, the great customer and some really outstanding be music, you're not going to want to mess that presentation and by the way if you'd like to have.
Imports to you. Please contact our sales force executives and we will arrange dreamforce for your company you'll be shocked at the dropped incredible custom presentation that were able to bring for you and we worry about is how to do a conference we're not doing it like everybody else. We have our own unique approach of course, you would expect nothing less of sales.
Sports and the one thing that's really cool.
As the stream, how well Dreamforce, Steve is going to want to thank my entire Dreamforce team I've definitely.
Got them working much harder than they should be working especially during this holiday season as well.
Well.
Look we're going to have some exciting announcements surprises you're not going to want to mess. It all of you need to tune into that but the key though again is just one part of an amazing month of Dreamforce 2020. It's reported to you were powering every account executives in our company to do this it's going to be amazed me and then you're going to love it.
Look, let's get right into it and to the numbers that get out of this opening.
This was an unbelievable year add.
And if I was an unbelievable quarter Q3, well it was our strongest Q3 ever.
Record revenues and margins and.
Deals just unbelievable and it follows the strongest Q2 in our history and.
So for US this has never been stronger look at our core organic growth. It's just incredible what the numbers say revenue has rose rhythm within the 5.42 billion up 19% year over year in constant currency by the way if you looked at that sequential growth from the second quarter at 515 billion to 5.4.
For 2 billion incredible and.
This is up 90% year over year in constant currency and we are raising our full year fiscal 21 guidance as you remember in the first quarter.
Mark was heading and we didn't know what was going on we were hiding and everyone like everyone else under our debt then we realized wait a minute we can succeed through this and here's our guidance and Mark I think it's dark items is now higher than our original guidance for the year, we're actually delivering guidance at 21.11 billion at the high end of the range represent.
Steve.
23% growth so not only do we come back we came back stronger and no other enterprise software companies growing at this rate, especially in our core and organically. We expect our revenue to continue expanding growing from 21, one this year to now over 25 $5 billion in price.
Those of you who are.
Walking the enterprise software industry over the last I don't know four or five decades, I don't think there's been an enterprise software company in history. That's gone from 21 billion or 21 1 billion to 25 $5 billion and we're all modeling I'm sure right now what the fiscal year 23 number is right. So when you look at those numbers while you just.
Yep.
Jeff can find.
Find any other company like that and with the strength of our core products across sales across service across marketing commerce, we're growing year over year the size of Empire companies.
So.
We have a lot of great companies in cloud computing, but you could see how we're kind of just stacked one of those right on top of US here. So sales force has never been more relevant more strategic to our customers. An example of this is what weve already seen this past week with incredible scale reliability strength.
Of our customers grew 60 platform. This weekend, we were up all weekend.
Cyber week it was incredible from Black Friday, cyber Monday, we process more than 31 million orders it was up 62% year over year Mark.
Thank you to our engineering team John.
Yes, absolutely World class performance and execution by them huge high Fives Commerce cloud marketing cloud.
No those were started as acquisitions and now Weve turned it into a multibillion dollar business and now with top low well our customers are able to leverage all the data coming in spotting the trends it's been a phenomenal phenomenal weekend with these holiday insights you probably talks that on line, you've probably seen some of our incredible tableau.
Dashboards, we put together and on any given day now you can see our customers are delivering an average of 2.6 billion marketing messages 4 million sales leads logging nine point that 19.7 customer service conversation Hi, Syed.
Delivered more than 80 billion AI powered predictions every day across customer 360 incredible and so forth that takes all of that in sales service and marketing platform and analytics and conversation in channels and collaboration and weak.
Lock it into a single source a key for our customer connect.
Connecting customer data across systems apps and devices and for our customers who have now seen this next generation architecture, and you're going to see our next generation platform tomorrow, but I don't want to give away too much of what Bret Taylor has bill, but it's incredible, but let me say that idea of the single source of truth, well no one else has ever Tom.
To do such a thing and it's why for the seventh year grow we've now been ranked the world's number one CRM by ITC.
That's why competence of every size and every industry are building amazing digital experiences for their customers with our scalable flexible customer Threesixty technology and you look at this quarter, great customers, great customers like Prudential Accenture Nbcuniversal Telefonica Xoom.
David, California, I made American family insurance.
Keith I mean, so many great companies so many great.
Customers and it's why 43 states the United States are working with US on their response now to the Coca 19 pandemic you probably saw we even helped over fully eradicate Tony.
In some places in the world, including Great State of Victoria in Australia, where they had a terrible situation and use work dot com and they have now announced that they've eradicate the virus and I wish that we could work more closely with more government.
More deeply.
To do that exactly the same thing because the combination.
Mac, wearing and social distancing and and religious contract racy well boom you can eradicate the virus well very exciting to see them and congratulations to the state of the Tory I also this quarter was in Singapore.
As the name our 1100 O'connor, there and I'll tell you they've radical at the virus. There you can see the chart unbelievable now our customers are benefiting from the fast time to value, we deliver with customer Threesixty, which has been critical during this pandemic and it's going to remain so going forward and what you will soften tableau every comp.
And it can easily unlock any data from any source, let's see and understand in ways that are leading these after smarter decisions and the customer reactions. When they see these customer 300, sixtys. So eyes are lighting up because they never seen their business quite like this are well now let me just tell you what I'm really excited about.
Slack I couldn't be more excited about what Bret Taylor to put together, while I mean, when they came to me and broadly this idea of the Salesforce in fact to come together.
My eyes lit up I said this is the next generation of the customer 60. This is our ultimate vision of how to use this incredible user interface on top of all of these surfaces of all these channels and all the collaboration running on all of these devices that integration interactions and the ecosystem and the industry.
That has been created around it and all the applications.
And I'll, let me just say also I've watched Stuart slack grow up over the last six years, it's been amazing its reminded me of another great Company sales force I have to be honest.
And I get to look right out my window do you know what I see.
Slack slack logo, because black bill either right next to my building and I'm looking into their building all the time store just waving at me now and wave at weighted average.
Now were given each other big Cogs when the pandemic is over but that idea that these two kind of great companies are right next to each other and Salesforce Park is amazing.
Stuart and this team has built one of the most beloved platform and bringing them.
Okay and technology in the software industry and its a perfect match for both of US that's going to extend our companies make us both stronger and look we spent more than a decade focusing on this vision that we've had for social enterprise, everyone, probably remember members and nausea.
All of the social enterprise presentations that I've delivered in my career. This makes it all real this.
This makes it all true.
This brings the best of both worlds the integration. It's a marriage made and have have it's amazing and we spent more than.
Brad I can't even think about how many conversations Parker and I have had on the vision and then to see steward come in with Brad and make it all real well, that's just awesome and we see an slack a once in a generation company and platform. It's the central nervous system of so many companies on this call and our company and so many of our great.
Customers connecting everyone and everything and now we could go even bigger.
Better more exciting and it brings all the companies people the data tools together and you can see all the CRM information.
The sales customer interaction you probably saw flat net which extends the pent up the slack. The boys can securely were collaborating with partners supplier, especially important for us customers.
That's the game changer, and when I've seen this incredible story line that with Bret and store to put together. It is like Wow. This is bigger than I've ever thought it to be.
At when I've looked at companies from around the World, we're implementing slack from the fastest growing start up the fortune 500 companies and Starbucks and target and HP and what they're doing and then when we integrate that with the single source of truth Oh Boy.
It's.
It's a super charger so.
We already know more than 90% of slack enterprise customers are also salesforce customers, but we also see how much farther they can go because we just use ourselves as an example, yes, we're a great flat customer, but we could be doing so much more but when it's integrated with bill towards like Wow, and that's what I plan to bring that net.
It's for all my friends.
All these Ceos that I work with all over the world to help them transform their business and grow their businesses.
Helping them to survive and succeed during this pandemic well, we're going to make sure that they just have this incredible single source of truth experience.
As well look we've already shown with.
Exact target with Demandware York's off with Tablo, how we acquire how we can integrate how extend acquisitions, how we transform our own product line. How we can develop compelling models for our customers to get value and will expand black as well in the enterprise not just.
Among salesforce customers not just by lighting up our tens of thousands of sales people. That's not what this is all about.
What this is all about is the value social enterprise and creating this incredible idea that you have this amazing hub of productivity of collaboration and integration applications that now leverage all of its amazing data.
And I know you probably saw if you watch the Tablo conference ish. This.
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Your vision they have had for cash flow integrated I mean, it's absolutely incredible and by the way.
Look at Whats zoom is doing with slack is absolutely incredible and you look at that product. I mean are you that you are talking about my productivity environment every day.
No.
Slack and Pablo and sales.
Thing I used to run my business.
It's all sales force now EPS.
Everything on my desktop.
I've got my computer in front of me right now.
And everything is sales force and I'm like Whoa. This is just absolutely Inc.
Incredible so congratulations Stewart Bret.
Brent I just want to give you a huge call out because often what you have done and I never thought it was impossible never was it wasn't even in my consciousness that it could be possible.
And you did it now before I turn this over to Mark Hawkins I'm sure you've now already see that.
Absolutely one of our very best Cfos, we have ever had is retiring and it's just sad.
To see Mark go I'm.
Going to try to keep them around in the company as long as I can I think I'm going to have some good success.
Because let me just tell you.
He is absolutely I really think mark your EPS I mean, I don't want to.
We have.
Especially Steven Graham out there such Craig So spreads have all of our mine in New York well Mark.
But mark Wow, you really have done yourself.
What a career you had sales force and I'm just so grateful.
For everything that you have done for the company and I am so grateful Mark for everything that you've done for the industry and also your relationships, obviously opposed when I look at your incredible CFO conference that you run at Davos when I look at your work that you have done as well Prince Charles with sustainable accounting when I see the values that you have.
Average for the whole world not just the sales force not just in the industry, but in the world with these new sustainable accounting standards, Mark I am deeply grateful to you.
So I want to tell you that mark is going to remain our CFO through the end of our fiscal year, which is going to end January 31 have been mark to I believe you are going to stay on as an advisor hopefully for quite some time.
And then at that point I am absolutely delighted to announce.
Our new Chief Financial Officer, who has been on a few of our calls here as you. All know her she is an amazing person a core part of our.
Executive team a core part of our entire company core with our board of directors, Mike core consistently aerie anyway. So.
So Amy congratulations with our new Chief Financial Officer, I couldn't be happier for you and I know that Mark also joins me and sending you. Congratulations we'll hear from him in a second and Amy will become our president and our Chief Financial Officer effective February one next year. So congratulations Amy you are.
Now going to become our fifth CFO at Salesforce. So then.
Probably the five best Cfos in the World I can't imagine you are joining this incredible group and you Amy.
Amy to have you as our CFO I mean unbelievable and Mark. Thank you again, because I will.
Always be so grateful for your tenure and.
I'm sure we're going to have a smooth transition of power and looking forward to hearing your announcement of your new cabinet.
And Mark when I look at how you have been such an important part of our success over the last six years with revenue growing.
Five time to over $20 billion actually 21, one this year Mark.
And a market cap, reaching more than 200 billion employs grind over 54000, a day and Mark you set the foundation that you know this is just the beginning and you're lighting up my 50 billion dollar dream, So aggressively and we all know it takes a great CFO to help scale accompanied.
That well.
I'm very grateful for this and Amy.
You've been that trusted advisor I mean, it's all one family. So I know this is going to be a seamless transition, but my heart is really filled with gratitude and I'll, Let me turn this over to.
Our Chief Financial Officer, Mark Hawkins.
Well Mark first of all I can make sure enough and I'm going to come back to those comments at the end but.
To say, there's gratitude is huge understatement to me to say that to you personally.
You've been amazing and for the entire sales force team and I'll talk a little bit more at the end and I couldn't be more.
We're excited to be working with Andrew.
Talk more about as well as just an amazing executive an amazing friend and partner. So we're going to come back to it but I just have to say that mark real time, I am incredibly grateful.
Deeply.
Come back to that I want to say that I hope everyone has a safe and enjoyable Thanksgiving just price is challenging times and.
As Mark described we delivered another record quarter in Q3 with durable topline revenue growth as well as strong operating margin performance. Let me take you through some of the results for Q3 I will begin with top line commentary total.
Total revenue for the third quarter was $5.42 billion up 20% year over year and up 19% in constant currency.
Looking at the drivers of growth, we have strength across geographies and across clubs, our subscription and support revenue growth backlog was as follows.
Sales grew 12% service grew 21% marketing and Commerce grew 25% platform and other grew 24%.
I would say also that revenue attrition in Q3 remained between nine and 10% range and continues to remain modestly better than we were guiding during our Q1's earnings call.
Our remaining performance obligation representing all future revenues under contract ended Q3 at approximately $30.3 billion up 17% year over year and as a reminder, this metric includes both new business and renewable contracts.
Current remain in performance obligation or CRP show is all the future revenue under contract that is expected to be recognized as revenue in the next 12 months.
It was approximately 15 point threebillion up 19% in constant currency.
Our Q3, GAAP EPS was $1.15 and our non-GAAP EPS was $1.74.
The outperformance in the quarter was driven primarily by higher revenue as well as realized and unrealized gains on the strategic investment portfolio, notably due to snow for like and they IPO their vision.
These mark to market adjustments benefited GAAP EPS by approximately 83 cents and non-GAAP by approximately 86 cents.
Turning to cash flow operating cash flow was $339 million up 14% year over year.
Capex for the quarter was 124 million, leading to a free cash flow defined as operating cash flow less capex of $215 million of 68% year over year.
Now turning to guidance for Q4 fiscal 21.
Coming off a strong Q3 results. We are pleased to be raising our full year fiscal 21 revenue guidance to 21.1 billion to 21.11 billion, representing approximately 23% year over year growth there.
This guidance includes approximately 120 million of revenue from velocity and $20 million, an increase from velocity and the prior announcement.
For Q4, we expect revenue to be 5.665 billion.
The 5.675 billion, representing approximately 17% growth.
We are proud to be raising our revenue guidance back to our previous pandemic expectations and Mark is absolutely right at the high end is slightly higher than we started the year with work.
Were thankful to all of our customers and our partners for their success and now as we enter Q4, which is our largest quarter of the year, we were going to build on the momentum from future interest rate, but.
Depend on Mic has also helped us to re imagine how we operate in this work from anywhere digital world earlier in the year, we shared with you our pandemic strategy of investing in our customers are community and our employees. This included pp donations bonuses to our sales or pivoting away from physical events.
Scaling our organization, while holding forward growth hiring into this year.
In Q3, we continue to re imagine our operations after analyzing our global lease commitments, we now plan to consolidate and subway select locations.
This acceleration of our personal digital transformation in the post private world was happening. We do expect this should result in a onetime Q4 charge of approximately 80 to 100 million.
Please note that these charges represent an immaterial amount of our global portfolio and do not include our headquarter locations.
After incorporating these and our updated revenue guidance, we are maintaining our fiscal 21, non-GAAP operating margin guidance of 17.6%, which was year over year improvement of 75 basis points. As you can see this year's performance margin is a choice.
When we met these pandemics driven investments against Teeny savings, that's a pandemic produced.
Results reported operating margin headwind of approximately 50 basis points for the year. However in these times of crisis is more important than ever to invest and support our stakeholders our customers our community and our employees. Therefore.
Therefore, our fiscal 2001, GAAP EPS will be $4.14 to $4.15, while non-GAAP diluted EPS will be $4.62 to $4 or 63 cents.
For Q4, GAAP diluted EPS is expected to be five to six cents, while non-GAAP diluted EPS will be 73 to 74 cents and as a reminder, our EPS guidance assumes no future contribution for Mark to Mark accounting as required by ask you 2016 or one.
For operating cash flow, we're maintaining our fiscal 21 guidance of 12% to 13% year over year, and we continue to expect our capex to be approximately 3% interest or 21, resulting in a free cash flow growth rate of approximately 15% to 16% for the fiscal year.
We expect operating cash cash flow to continue to be impacted by the growth in investments that we described last quarter.
We expect share PEO to grow approximately 16% year over year in Q4, which is consistent with our initial revenue projections for next year after excluding the acquisitions slack enactment solutions.
Additionally, the pandemic continues to result in modestly higher revenue attrition than our pre conservative expectations assume and therefore will be a very slight headwind to near term growth.
Regarding our fiscal 22 revenue guidance, we projected to be 25.45 billion to 25.55 billion, representing 21% growth there.
This includes the contribution from slack of 600 million net of purchase accounting and assumes a closing date in late Q2.
Acumen solutions, the assumption is $150 million net of purchase accounting, which assumes a closing day within Q2 both.
Both of these acquisitions will be fantastic additions to our Honda as we will greatly benefit our strategic priorities our customer Threesixty industries.
I'd also like to provide some additional insight into our revenue guidance for Q1 of fiscal 22, which we expect to be 5.68 billion to 5.715 billion up approximately 17% year over year. As a reminder, we're providing this guidance given that our our term life.
This revenue Theres a set if you will soften tableau, having more seasonal revenue profile in the first quarter.
To close we delivered a strong Q3, despite the pandemic, we're proud of our ability to successfully partner with our customers through this diversity, while continuing to serve all of our stakeholders around the world.
Additionally, I'd like to encourage all junior firms to join US on December Eightth for our annual Investor Day.
And now for some personal comments as Mark mentioned I made a decision to retire as an operating officer and from sales force amazingly crumbled are grateful and proud of having the opportunity to be 40 years and technology I'm excited to begin my next journey spending time with my family.
Some voluntary and doing some incremental board work, but first of course, there is a really important matter of Q4, and then also really stronger supporting this transition.
But I just want to say that I am excited about the future for Salesforce and I am excited also about the next leg of the journey for myself I really deeply believe we're in a great position of strength and we are getting stronger as a company were so many indicators to to evidence side.
I will be the company's strongest advocate once we go through this nearly a year ago transmission, which I'm excited to be a part of.
Good day, who worked hand in hand, with a dear friend, Amy Weaver, who I have the utmost respect for as an executive as a partner and who is going to be an amazing CFO.
Before concluding my personal remarks, I do want to say a special thank you to.
To all the sales force Kohona a special thank you to my boss, Marc Benioff, who is a great friend and somebody I will always treasure the relationship with Andrew.
Andrew it's been incredibly kind to me Andrew my team into the broader company and I want to thank our investors for all your support over a long period of time, so public CFO.
So many others to think that you will see in the board, but I'll stop at that Andrew Let me turn it over to Amy Amy I can't wait I'm, just going to tell you the same that can't wait to.
Really began this next leg of the journey with you and I'd give you I'll give you a virtual hug if I can but.
We're going to it's going to be an exciting year heavier so any over to you.
Thanks, Michael.
Hi, John tighten our let's open the line.
Okay that line in the back Harris poking about before Alan.
Yeah, Michael competitive in line lifecycle can't track.
I guess like I think things will barack to join sales for second World War.
Hi, Jeff Index that comparison fall and have not price points are one dollar back.
Good day, we now at 154000 employees guiding over 21.
And with Tristate Americans that week so.
So Mike Kraft how bill.
Nice price cuts will take us to point back on line for next we continue to ground as well as the scale of the business line.
I am very nice Michael Troy continuing to raise price.
Higher thoughtful pull on our board of directors as well thanks.
Okay.
Hi, Keith.
Hi, Great Trust for interest applicable.
Hello.
I'm incredibly excited about the future.
And without ever what shall we open up the call for questions.
As a reminder to ask a question we need to press star one on your telephone.
Your question comes from the calendar Sosh Keith.
Allow time for everyone to ask the question Steve.
Please limit yourself to one question. Please come by when we compiled acuity roster.
Our first question comes from David Hynes with Canaccord Genuity. Your line is open.
Hey, Thanks, very much for taking the questions and Mark Hawkins Congrats on the well deserved retirement years and going out with the bank here and.
David just question for Marc Benioff sounds like maybe Bret given you is kind of the the architect of the slack deal I'm curious it.
It looks like it's going to give you access to huge amounts of rich conversational customer data, how do you see that kind of advancing your efforts around AI and I guess, maybe just related to that.
I think we all know what block is today, what's your vision for what it could be with Salesforce in three to five years from now.
Well, let me give you two minutes and then our minute and let me have Brett and then an ex bill on the details.
When I look back at the dreams that we've had with the social enterprise means over the last couple of decades, it's a very rich user interface that kind of front ends all of our services and kind of in the way graphical user interfaces were a major momentum in our computer industry I think these collaborative interfaces.
And video based interface is sort of the next major moment in our industry, but underneath those services and you kind of teed it up by asking the question. This way you have so many rich services Apple.
Application integrations artificial intelligence and fundamentally bake big data lakes and the idea is how can you take all of that and bring it to.
The user to the to the power purpose.
Professional to the worker to the knowledge user or even though he is the CEO and turn it into a powerful experience and now this combination of slack and Salesforce exactly as I mentioned Mark.
My whole world is on.
The platform and we call it customer 360, but the idea that heat number one there's never been a more important time for sales and b to B sales I see that with our customers every day you know I'd.
Look at our sales force obviously, it's enormous.
But our ability to call at every level, our ability to call into the field level easily our ability to have much higher levels of productivity with our sales organization, how we had to move our call centers and customer service organizations on a moment's notice into their homes, our ability to deliver record levels of marketing and marketing.
Interactions like we did that this weekend.
The analytics that are needed and you probably saw the analytics that we published around the holiday well now all of that completely coupled with this incredible collaborative interest and that is the math and that is what is so exciting thats been our dream.
Now with our reality and I want to introduce you to the person who put all of these things together and Thats Bret Taylor. So Brett do you want to take this to another level yes.
Yeah. Thanks, Mark I think you really contextualize it well I mean fundamentally we really see the world has fundamentally haven't shifted this year, we're in that period and into this all digital work anywhere World average executives that I talk to an average industry is doing this not as something temporary but really.
The moment that accelerated the digitization of the autonomy country.
Consumer day have gone from retailers to direct to consumer medical care has gone from doctors offices to Tele health Retailo gone from brick and mortar to curbside pickup marketed as Mark mentioned this last weekend is the perfect indication of this we saw mobile Cushman modifications go up 131% Bill.
So industrial 171% behind all of this is fundamental shifts in the way we work fundamental consumer behaviors.
Fundamental changes in behaviors and every interaction and I think we really do.
Block is really the system of engagement for every employee for every partner for average customer interaction and I think it is all digital work anywhere world. When you think what does it need to be successful in sales what does it mean to be successful in customer service and Mark ecommerce. It really is about this facilitate in this all digital work from anywhere.
World to enable team so and to enable people to contact center to swarmed medication digitally whether or not you are in the same building to enable marketers to clinic and paying to enable merchandisers to plan what goes on the front page of a commerce out for Commerce website, and we believe we're going to spray is really this is the operating system to the new way to work.
And our customers are coming to us now recognizing that because the economy has shifted so dramatically. So quickly they are pivoting from saying how do we respond to the crisis to how do we grow and how do we thrive in this new normal and we fundamentally think this combination is that operating system for growth for every company in the world.
Our next question comes from Derrick Rose.
Hey, your line is open.
Thanks, John I wanted to touch on the operational plans for Onboarding Slack, maybe could you could compare and contrast, the strategy to integrate slack versus what you've done with tablo or meal shot and then.
Mark Mark Hawkins.
Thanks, Thanks for the EPS guidance, but but I know theres a lot of below the operating income line factors. So can you give us any any goal posts around how to think about how slack impacts operating margins and how to think about margins next year.
[noise] I'm happy to take the operating margin discussion of perhaps right. He may want to talk about the operating.
Planned integration I'm happy to ship in there as well that's helpful. Derek first of all thank you for the question we are going to.
Be factoring in.
Slacks business profile.
To our overall business for next year for the operating margin will get the operating margin and the cash flow growth for the entire company for normal tradition in the Q4 call for sure yes.
And see because as a public company its profile is different and sales force.
He will be dilutive to our operating margin in aggregate.
And then nobody to purchase accounting side of it but we'll give you very specific and Q4, there not only on the operating margin, but the cash flow and uneven related revenue growth in Q4.
On the integration plan.
But I don't know if you want to touch on that a happy as vicious Mark I appreciate it.
I think our philosophy is very similar to our block with the Bill soften tableau, which is number one starting with our mutual customers and started for how can we help every one of our customers benefit from the combination of these two technologies were not really recognizing that slack.
Fundamentally if you look at the happiest customers, who do stock that is really the central nervous system for their company and Thats really connected every single application of their company not just stock has an independent for British.
British single company and integration.
Every single system at the.
Andrew or company, while also making sure that it really to choose a vision the mark talked about which is it really becomes sort of the user interface to the customer through 60. It helps all of our customers.
The successful they try to create a single source of truth for the customer data Im really happy with the strategy has really been effective with our integration between companies like you will soften tableau that have continued to thrive.
And it continued to be technology agnostic will also becoming a really integrated part of <unk>.
Our value proposition to our customers.
Our next question comes from Heather Bellini with Goldman Sachs. Your line is open.
Great. Thank you so much for taking my question.
It's been great working with you over the years.
And for Marc Benioff, I mean sales force in slide together. It seems like this is going to become the hub that connects all of the different sales force applications together and offer even more value for your customers. How do you see in the context of the 90% customer overlap you mentioned, how do you see this evolving.
The digital transformation messages to customers that you're already sharing and I guess the other piece is is when you think about the pieces of the sales force puzzle. If you will would you say despite your efforts with chatter and that this was one of the biggest remaining pieces here we're missing thanks so much.
Well I mean, I'll start with the end, which is there is no doubt that.
Slack just has in a credible approach to collaboration in a way that we really could never have imagined, especially in regards to the integrations and applications and ecosystem that are built on top of it certainly like Chattered had the collaborative interface and will benefit from that because.
As we have done such deep work in our own architecture embarked shattering hi, Alan So many other key parts of our core system.
But when you look at what happens when you put slack Salesforce together you know the.
Fundamental experience for the customer it just changes of course, you're already doing wall to wall and the enterprise, which is very exciting for sales forces beyond just sales or service or marketing efforts into every department, we've already seen a lot of that with tableau.
And the ability for tableau to go wall to wall and tableau is another product that.
Users just love Tablo users just low slack when we start to bring our customer 360 into that.
Ability to build applications with lightning, our ability to light up our own work flow and build workflows to our customers and expose those through these channels well, that's where the fundamental expression of salesforce and how it looks whether it's on a phone or an I pad or.
On your desktop it's.
Deeply modernize it and.
Brent would you like to bill that Ed.
Yes.
Mark I, even when I think about the opportunity for customer addition, but I could evolve with could benefit from this capability.
Past quarter, one of their customers I have the privilege of work there with those Ferguson, which is the largest.
Commercial and residential plumbing supplies.
And this is a classic customer threesixty relationship.
Michael Jordan were really trying to connect.
Good thing from day to be in DTC comp.
Im curious to customer service to their platform.
Think about the vision of that that company and I think about the opportunity to comments Steve.
So the company is going through this digital transformation in trying to really say, how do we build the perfect digitally augmented experience with customers. This is the ultimate system of engagement. This is the ultimate way to connect every employee so no way that had been work would there be to be partners is going both ways. You can transform your team is working on unit due to.
Customer engagement.
Income from where we look at the opportunity for our customers and we look at the opportunity for Sox customers, we really think that bringing these things together it gives us such a complete value proposition I think that's really exciting.
Our next question comes from front line.
Jefferies. Your line is open.
Thanks for Mark Hawkins, just on the billings for the quarter. There were some question marks just as it relates to the deceleration and I'm curious.
If there was anything behind the scenes that we should be aware of we know we had a difficult comp and you're coming into a.
Seasonally strong quarter anything to call out there in the billings number thank you.
Sure Brian first of all thank you for the question and.
Well first of all we we.
We don't really have billings is not a metric that we focus a lot on we think.
Share PEO helps us a bit more in terms of actually managing the business and Thats a metric that we track carefully.
We feel like this just makes sense, it's consistent with the revenue guidance for next year.
And obviously in prior quarter, we lapped tableau, but.
But we're we feel really good about this number we feel great about the demand environment. Obviously, that's why we raised again.
Revenue for the year and we were we initiated a.
I think a really appropriate guide for next years revenue number many companies do five quarters in advance so we feel good about the demand environment, but.
But we just think this is consistent with all of that and and look forward to executing on that.
Thanks Mark.
You bet Bret.
Our next question comes from Keith.
Keith Weiss with Morgan Stanley Your line is open.
Excellent. Thank you guys for taking the question and Mark Hawkins has been a pleasure working with you congratulations on the retirement.
I wouldn't net.
On the Slack acquisition is really a two part question on on the front end maybe for Bret can you talk to us about what.
You guys can do as slack by owning it versus partnering because one of the things that has slacked differentiates with their open integration is the fact that the integrated with that everybody. So why is it necessary to own the asset and then on the backside Alan as just about the price tag.
On the last conference call Mr. venue. If you you talked about it being a tough environment for M&A for stuff being expenses and making it hard to make these acquisitions financially work out for you guys. What is it about this one like how do you garner the confidence that this 20 billion dollar price tag is the right price tag and financially this is going to make sense for us.
Sales force over time.
Thank you for the question I'll start on the just talking a little bit about why it's important and why it's valuable for our customers through this to be a part of our portfolio.
The journey that we've been on over the past decade is really going from a company with a single value proposition around sales automation through really this vision for customer Threesixty.
Conduct sales service marketed E Commerce analytics platform and when you look at all of our largest deals are happiest customers are healthiest customers with lowest attrition there not just using one of our products. They are really using this entire platform to get the single source interest to their customers and we see this incredible.
Isn't as Mark said, it's been something we've been working at night thinking about for a long time mobile form I, even join this company about how do you think that all of these experiences how do you actually trade a seamless customer experience screen customer experience customer service and marketing, which every single retailer in the world was worried about this past weekend.
How did the to be companies I'm really focused on not just selling the customer success, which is really connecting the entire customer threesixty and when we talk about slacked really becoming the user interface with the customer through 60. This is what we've made I really think this is the way of delivering that vision to our customers and for them to deliver.
Our customers to deliver a vision to their partners and their customers through technologies like stock index.
There is really really meaningful and really really in it and I think it captures candidly is a new way that most of our customers think about their customer relationships. It's not so I would buy department anymore. It's really an end to end journey and to really achieve that we think that slashing the tool that facilitates got in a really unique way earlier help accelerate our customers.
We're going through this transformation.
And Oh, Mark Smith of you want to comment a bit on your college last earnings call just to offer my perspective, we've been clear consistently that when we look at our M&A strategy enter enter Dentek acquisition strategy. It's fundamentally we have to be opportunistic we have to make sure that we respond.
Onto new conditions from our customers in the market.
And this year is there anything else, it's been hard to predict and this was an opportunity that we saw we've talked a lot about this shift in the economy.
Relevance of slack to our customer base, but there's obviously a dramatically increased over the course of the year. So I.
I do think that we the market very unusual this year, but we have to make sure that we as a company able to beginners mind about where innovation could come from and recognize that we have to take timing when its available to us as we evaluate these inorganic opportunities.
Oh, Yeah, I would like threat that which is that I think what's very exciting is.
This vision that Stuart and Bret have put together and I think that when I look back and Keith.
I don't think I could have ever imagined any acquisitions happening. This year. We're in this endemic were in this all digital environment. We are just kind of route foresee net right through where we're making as many sales calls as we can and we're.
Collaborating.
Collaborating very deeply as a company and all of a sudden.
Brett Stewart come together and say, yes, we can do this and.
When we look at the resulting vision, it's a wild it's it's like something that we could have never imagined and when we look at acquisitions today, we do have a little bit of a swagger of course, we've done probably over 60 deals small medium and very large.
On the whole our transactions have been extremely successful and when we look at our very large transactions, especially exacttarget tableau, we look at how our what we've learned our ability to integrate companies to make one plus one equals three.
We look at this and we say Wow. This is a game changer, and we know how to pull it off and we.
We have a lot of our former executives for example at slack already so we know a lot of those players we.
Works, so deeply with the company both in a business development perspective, but because they're our neighbor and we're like Oh boy the value we can bring to customers.
Is much stronger.
As one company than is too and when you look at the difference in partnering versus owning it really means that we are able to do things with our technology that we just could not do as partners and that's the demos divisions.
That Bret and store to put together and look when they presented this to me I was sold and I am sold and I can't wait to get out on the road and presented to customers because I know that they are going to be absolutely blown away about what this looks like for them.
Yes.
Our next question comes from Alex.
RBC capital markets. Your line is open.
Hey, guys. Thanks for taking the question.
In line, maybe just for Mark and for Gavin.
Ask about the demand environment, particularly how it looks from a pipeline perspective through to the fourth quarter and Mark Gavin how are you seeing the priorities change through this pandemic. How do you think about that for next year as you look at the opportunity to solve these pain points and Mark I guess the other follow up to Keith question is why now.
On slide why not before and why not next year.
Well, it's a good question and let me kind of I'll tell you and two stories, but the first story as well.
We started out this year I think everyone remembers lew through as their dramatic transformation and our management team.
Keith decided to retire which I fully supported and.
We knew that we were going to go through a big shift in distributions.
Strategy, our team members themselves and what we Didnt have written into that was the global pandemic. So.
So I hope that.
In the first quarter, what was happening at Salesforce was distribution transformation and global pandemic and that shook our confidence you might remember that I also said hi.
Type line appeared to be really strong so even though in the middle of the quarter, we blended the global locked down March and April we think we're going to come out pretty strong and we were very fortunate starting in the second quarter with number one.
Onboarding, a fantastic new CRM BPO, Gavin Patterson, former Chief Executive Officer of BT, who.
Who is working with us to I've known for so many years and.
Coming in as our CRM, our president Tom.
Taking his position, which you know he was doing so much with us already but then really leading our global distribution operation and then we.
We built our entire distribution management.
Margins revenue.
It is a cash.
Cash flow.
Second quarter to the third quarter, we passed now we're happy to talk about an unbelievable quarter I mean, it was just remarkable.
I would never have imagined it.
Mark when it started now I'm line.
You know a lot more a lot of confidence.
And where we're going now when we look at the fourth quarter rich pipeline.
We have tremendous outlooks, we feel very good about them.
We Architected dream boards.
Thats always incredibly well and we look at net.
Next year, nor like Wow, we've never been more competitive we've never been able to succeed more aggressively with our customers. We have solutions that are not only horizontal but vertical we're strong in every one of our key categories from sales to service to marketing the commerce platform.
To analytics integration, we're able to deliver tremendous value when I look at what we've done with key customers and I mentioned 80, NPL in the last call, but when I look at what we've done with their management team with their competitiveness with the results that they're getting it just gives us a lot of.
A lot of.
I would say a gratitude and our ability to transform a company like that any company and world and do it worldwide and then when we bring in slack.
Well you know with these acquisitions you never know exactly when they're going to happen and we couldnt Didnt know when tablo, what's going to happen of course, we always looked at.
Adamant Christian before that we Didnt know an exact target was going to happen, we've always loved Scott and we didn't know when Stewart and slack would happen and when the when the moment when the opportunity arises you have to look and ask yourself are you strong can you do something like this or.
Already weak or is it a moment, where you just don't have the swagger and let's face. It look at these numbers that we just delivered sales force has never been stronger never been more capable. It's never had a more competitive position, it's never been able to execute with more acuity look at the ITC numbers I don't have to go through them.
Sales and service and marketing across the board there very very impressive and when we've gone up against tough competitors. We have done just fine and I think that we bring a lot of value to slack right now at their size as you know they are selling basically entering from the billion to 2 billion dollar phase, which I know extremely well.
And this is a moment, where we can offer a lot of value. There we've lived that life.
And we're going to come in and we're going to help them not just.
The successful there any net we're going to help them to redefine the entire industry and that dream and that vision that Brad and Stuart have is really unlike anything I've ever seen as any company any product anywhere and when you see it all laid out you will.
Just be blown away I mean, I was and I have a lot of confidence that you will be as well.
Okay. So I should just add some comments as well mark yes.
Hey, Steve gathering Q3, yeah, what we saw in Q3 was a continuation of the strong demand that we saw in Q2.
And it's a very well relative performance across all the clouds and Bose.
Both in the us and internationally we've seen.
Strong demand around the world.
And as we look into Q4 beyond the pipeline continues to be very encouraging so I guess, what I'm seeing and you've heard it from Bret knock as well is that.
I think the core of what we offer.
You know to be the trusted advisor.
Digital transformation.
She is an imperative to every company and every organization.
In the U.S. and around the world.
Conversations become more urgent.
And were finding that were getting very very good access probably at least twice the access to decision makers, who want to have that conversation I want to get on and make that transformation and juices that Tom and so.
The business is I think in really good in pretty good shape.
We are confident going into next year.
As Mark Mark says I think slack really rounds out in that position.
And I think it's going to.
We feel very encouraged and very optimistic about maintaining his performance going influence.
Yes, and I want to ask your question because I think it's appropriate.
Look you've been running this business now so well now for several quarters, but just give us.
One more level of insight what has been your greatest surprise fewer we've been friends along time.
Youre a customer or are you going to partner you know in a lot of our executives now you're deep inside the machine what has been your biggest surprise working inside sales force now working with our customers and doing you see transactions that you've been doing.
[noise] well.
As you said I've been a customer and I still said you will tell sales could do for my business and so we.
We were reasonably effective at it.
But it hasn't hasn't been until I came into the company it wasn't silicon into the company and I realize it's actually there is so much more you can get if you a line you'll complete business.
Behind the sales force.
[noise] CRM system in the wider set of client that's probably the single most inc.
Important thing I've learned.
Yes, the shift attention.
Getting to a single source of truth.
Operating the custom is 360 and I see so much more potential in customers, who really embraced our vision.
And yes, some get get it today and we've got some great taste studies demonstrate that better.
But others still have that opportunity I think going forward. So there's plenty of potential left in the business.
On all the clouds.
And I'd say, the second big I called out it's actually how Craig very Big company, how anti all of the businesses.
And how.
How we've been able to maintain the.
The agility and risk as a small company, while managing to cut it to 24 21 plus billion in its sales and a 25% take on it yet.
It is quite remarkable decisions can be taken quickly.
We can respond to changing customer needs.
Not as being quickly too because I think if I look back over these last six months.
Making sure that we remain relevant to our customers.
So that we can.
Help them through these difficult times make sure that.
With that too to guide them and how tight the transformation.
Demonstrate where they can to listen and respond to Tim to day the propositions we offer.
Anything I think quite remarkable so it's been it's been quite a ride and certainly been a privilege to be part of it.
No I think there is a long way still to go and another another too few chapters so that to the next book in it.
Well I think that we can say now with delivering this guidance at 21 line and looking at next year as well Gavin I just want to thank you because I don't think there is a more successful sales executive and enterprise software certainly at the size and scale that we're operating in than you are and your leverage your experience as a.
Chief Executive officer of a very large hundred thousand person company BT I mean, you've done a phenomenal job. So thank you.
Thank you.
Ladies and gentlemen, we have reached the end of the line time for questions I will turn the call back over to Evan for closing remarks.
Thank you for joining us on the call today.
If you have any follow up questions. Please email us sort of investor at Salesforce Dot Com and we look forward to speaking with you next week at our Investor day. Thank you.
This concludes today's conference call you may now disconnect.
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Hi.
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