Q1 2023 Salesforce Inc Earnings Call
Between our 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 and assumptions, which are subject to change should any of these risks materialize or should our assumptions prove to be incorrect.
Company results could differ materially from these forward looking statements.
A description of these risks uncertainties and assumptions and other factors that could affect our financial results is included in our SEC filings, including our most recent report on Form 10-K.
Before I hand, the call over to Mark I'm excited to welcome Mike expensive Salesforce.
As many of you know I will be taking on a new role here at Salesforce supporting strategic planning in our product organization and my kids joined Salesforce to lead Investor Relations.
Mike is familiar to many of you as he previously led Investor Relations and Microsoft.
Thank you Mark right, Amy Gavin for allowing meaningful rotations that enable career development is one of the many benefits of working it sells force and thank you to the investment community for welcoming me over two years ago.
<unk> has been one of the most rewarding experiences in my career and with that let me hand, the call over to Mark.
Well, hey, thanks, so much.
<unk> on your promotion and so well deserved you've done a phenomenal job in the last two years I'm also thrilled for you and thank you for agreeing to take on this incredible new role at Salesforce and leading teams and we cannot be more excited for you and we cannot be more excited to welcome Mike Spencer to sales force I know that.
Any of the folks on this call her work with mic before should be a familiar.
Familiar voice and.
Brand.
And looking forward to working closely with Mike and me.
Mike is going to be based out of our Atlanta headquarters and <unk>.
Really excited about that because our new chief information officers there as.
As well as a number of other incredible new executives from Salesforce, including a new Chief accounting officer.
And.
Our chief commercial officer, so really a cool thing to see Atlanta.
Pandemic reality and Tom Central Center of gravity for Salesforce. In fact, we just had our Q1 operations review there and it's exciting to welcome Mike to the team.
With that let me just tell you it's been a whirlwind for our management team as you're about to hear on this call.
We have been on the road I personally with Sydney, Australia I was in Tokyo, We were in Atlanta, where in New York and last week in Davos, Switzerland, and all of that was and I think the last four or five weeks and we've really been all over the world. It's been pretty awesome, we've met with hundreds and hundreds of customers.
And I can tell you that our business and you can see this in the Q1 numbers can't you.
Incredibly healthy and.
We also you can see we had a great quarter.
We're carefully watching the economic data I know all of you are doing that as well and so far we're just not seeing any material impact from the broader economic world that all of you are in.
Our demand environment is very strong and if you look over the last 23 years at Salesforce has proven to be incredibly resist resilient based on this incredible business model, we have an incredible technology model that we have.
We've been through all kinds of dotcom crashes and recessions and financial crises global Pandemics.
All of you watched us go through every possible storm.
But.
No.
We.
We continue to weather these storms through the power and strength of our of our model.
2001, I think it really impacted us the most loss our business because we work on monthly contracts, we didn't have the right cash flow structure.
Investors just would give us any money and so we made a lot of changes and it's really strengthened our business model is more durable over time and there is now no better measure of our durability of the business model the momentum of the business the strength of the technology model than our remaining performance obligation the future revenue that we have in our contracts.
In Q1, we had 42 billion.
<unk> up 20% year over year pretty amazing and then every prices we've experienced over nearly a quarter of a century well I'll just tell you I think with Salesforce and I'm sure. You. All agree on is that merchant is stronger than ever we became more strategic and more relevant to our customers because we focus on their success and that continues today.
Hey.
And that's why we've been able to grow our revenue for 72 consecutive quarters through every cycle.
Focus on customer success, and it's why Salesforce remains the number one in CRM now for the ninth year in a row.
And Sharon I'll CRM segments, yet again, according to the IDC software tracker.
When it comes to our financial results, we had as you can see a very strong quarter.
And can I also know that the dollar well I think the dollar might've, even had a stronger quarter than we did which is kind.
Kind of amazing and I certainly saw that in my travels.
Over the last month and although these kind of fluctuations in foreign currency markets had an unexpected impact in the quarter. We still delivered seven 4 billion in revenue up 24% year over year.
Foreign exchange movements that resulted in a revenue headwind of about $109 million year over year, something we could not have anticipated operating cash flow in the quarter well here. It is $3 7 billion up 14% year over year, reflecting very strong performance across the core business and operating margin.
During the quarter, well that was 17, 6%.
Turning to our revenue guidance as well as I mentioned presented foreign exchange volatility increased.
Increase the year over year headwinds by an additional $300 million for a total of $600 million for the year. Since we first gave you guidance in our Investor Day and give you an example.
And for the first time since the I'll make a couple of weeks ago and it was two weeks ago.
And I Couldnt believe the decline in the value of the yen. It was a very good time to be a tourist in Japan.
I called our team I said.
This is great to be at turns to Japan, but it could have implications as we roll this revenue up from the Japanese market to our U S dollars and in fact, our Japan revenue in the fourth quarter faced a 12% headwind year over year adjusted.
Yeah, and historic fault, something I've just never seen.
As a result of these headwinds we're lowering our fiscal 'twenty three revenue guidance by 300 million to 31, 7% to $31 8 billion or about 20% growth year over year.
For operating margin, we're raising our fiscal 'twenty three non-GAAP guidance by 40 basis points to 24% an expansion of 170 basis points year over year as all of you know, we're we're quite committed to consistent margin and cash flow growth as part of this long term plan and model that we have to do.
Drive both top and bottom line performance.
I've said this demand environment for our customer 360 platform as Youre about to hear from Brad from Gavin and from Amy and from others as well it remains incredibly healthy.
Our customer relationships are amazingly strong as evidenced by these hundreds of customers that we met with just in the last couple of weeks and I'll tell you is even here are some of these incredible stories from the quarter.
Things like state farm and F. One good year and even the department of Commerce, well I'll tell you.
These customers they are very excited.
To be able to get not only incredible productivity from our product, but also growth as well.
So let me say that this is the time when every company every industry every government is investing in digital transformation and no company is better positioned than we are to help companies transform for the digital future of that with something we.
Fully experienced in Davos last week, and I could not be more grateful to our 77 <unk> million.
He is a trailblazer, so we're making a difference for our customers in the world and now.
Over to Brett.
Thanks, Mark as Mark said.
Had a great quarter, and we see strong demand across our clouds, our industry and our regions. Despite the unprecedented foreign exchange headwinds and our results really demonstrate the power of our strategy our products are more relevant than ever before as companies invest in our customer 360 platform to connect with their customers and to drive cost savings in this new digital.
Enemy.
Our technology is deeply differentiated with a hyper forced infrastructure spending artificial intelligence, enabling our customers reached global scale with levels of trust that are unmatched in the industry. Einstein is now doing a 164 billion predictions per day, which is just incredible.
Our ecosystem is unparalleled we have over 15 million trailblazers, creating what IGT estimates will be one six trillion dollars in economic impact for our customers and for our partners.
And our business model as Mark said, it's durable it's diversified across industries and regions lines of business, ensuring were resilient in the face of any economic cycle.
And finally, our leadership team continues to focus on disciplined execution, which is driving both topline performance and sustained operating margin cash flow expansion.
As Mark said, we've all been on the road and we've been reconnected with our customers, our trailblazers and our partners and the common theme from the customers Ive met with from Singapore to New York to the 30 Ceos I met one on one with Davos last week is it digital transformation trends that dramatically accelerated during the pandemic. They continue full steam ahead, despite all the volte.
Utility in the global economy.
One Great example of ADT the leader in home alarm systems.
It is to use our service cloud to execute over 200000 virtual service visits in this first quarter as a result, the company avoided sending our technicians and trucks and 80% of its service cases.
Lowered their costs and they lowered their carbon footprint, all while achieving higher customer satisfaction.
This is the promise of technology to drive productivity and our customer 360 platform as relevant whether youre trying to scale growth increased productivity and profitability or meet your sustainability goals and all three are increasingly relevant to our customers across the globe.
We have strong year over year growth across every region in the quarter, 21% in the Americas, 33% in EMEA and 24% and APAC, we saw strong momentum across every cloud and our customer 360 platform as well.
Cloud continues to accelerate surpassing $1 6 billion in the quarter growing 18% year over year with great wins like door dash and still anthos.
I have to US, which was formed last year from the merger between Fiat Chrysler and the French PSA group decided to standardize the entire company on Salesforce. They replaced more than 2500 apps with customer 360, and with sales cloud. They now have a single source of truth for all of their customer engagement to drive growth, while delivering best in class personalized.
Service.
Our service cloud grew at 17% year over year to $1 $76 billion in revenue in the quarter.
State farm, a longtime salesforce customer with a great service cloud success story of this quarter. They are now combining our field service platform with sales cloud service cloud financial services cloud to enhance their entire end to end customer support experience, especially during catastrophic events.
We also continue to see strong momentum with our marketing cloud with customers like Bose and Colgate Palmolive.
Marketing cloud has become even more relevant to <unk> as they navigate the significant changes in mobile operating systems and new privacy regulations around the globe.
This is the new cookie lift world and it may grow into measuring consumer engagement part of than ever before and it's driving investment in our customer data platform, which has become one of the fastest growing products we've ever released.
<unk> is using our CVP to unify their customer information from hundreds of different sources to drive hyper personalized marketing multichannel campaign management and real time engagement, all with compliance and trust built natively.
We also saw commerce cloud wins at Yeti lots of time in good year, continuing the digital commerce trend that accelerating so rapidly in the pandemic.
Together marketing ecommerce to 22% year over year in the quarter.
Our data cloud, including Youll talk to tableau grew 15% year over year in the quarter.
Data is the fuel for every digital interaction and Youll soft and tableau continue to be foundational for every multi cloud customer 360 deal.
Tableau wins in the quarter included ADT Bose and Lookers Motor group, a top auto retailer in the UK.
<unk> was also part of some of our largest deals in the quarter included MTT and continues to deepen our relationships with existing customers like rocket mortgage as.
As you know we've been working through some issues on <unk> go to market motion over the past couple of quarters, and you will get into specifics, but I am encouraged by the progress, we're making and we have a strong pipeline for the back half of the year.
I'm also excited to say that slot continues to exceed our revenue expectations with wins at the self driving car company crews in the U K Ministry of Justice.
This was the fourth consecutive quarter, we've seen more than 40% growth in customers spending more than $100000 with slack annually.
We also continue to see strong momentum across our 12 industry verticals, including financial services healthcare consumer goods and manufacturing.
Our industry specific cloud, where part of seven of our top 10 deals this quarter.
I'm, so grateful for our 15 million Trailblazers, all of our partners and our 77000 employees for helping to provide our customers with the innovation agility and resilience they need to navigate these uncertain times, our customer success drives our financial success and this unrivaled community is why our customers to salesforce as their trusted digital adviser.
Sure.
Now over to Gavin to talk about some of the customer success stories from the quarter.
Thanks, Bret and thank you everyone for being on the call today.
I want to start by talking about the strong demand environment.
As Brett and Mark said, even in this volatile environment companies are continuing to invest in our digital transformation and we're seeing that in our strong pipeline and momentum in the business.
I've been on the right this quarter.
And of course, the U S Europe Asia administration in Dallas and in all my compensation, there is a real sense of urgency.
With our customers.
In this new all digital.
Anywhere world, our customers need to create incredible customer experiences.
Every interaction to stay competitive.
And at the same time, they need to realize productivity gains efficiencies and resilience to net technology investments.
Why they're turning to salesforce as their trusted digital advisors.
So the customer 360 is that digital platform.
We're seeing this play out in the growth of transformational deals customers, making loans.
Multi client investments in sales force. These customer 360 transformation deals with fiber more clouds grew 21% year over year in the quarter.
We again saw strong growth in every region in the Americas, We grew relationships right speed, New shield in California, and say, Hey, hotels Workday covered California.
Before and yet and Ferguson with $23 billion distributor of plumbing and heating products.
Looking at targets in a little more detail Ferguson has been able to grow its.
Sales June .
During the heart of the supply chain challenges using customer 360 to give them a single view of their supplier.
And customer relationships.
And in the quarter.
And significantly expanded its relationship with a professional services organization.
In EMEA, we had significant wins, we'd look goods made a group of history and one of the largest telecom and media companies and trim.
We're standardizing on Salesforce, so not only speed their time to market and reduce costs, but also to deliver amazing digital for sprint and experience for that 45 million subscribers.
As I mentioned, we had a great win the UK would look is made of crude.
With the customer 368, because in a single unified platform driving efficiency within the dealerships in contact centers and improving.
The car buying experience for their customers.
Turning to APAC, we continue to deepen our relationships with amazing brands like contact Mahindra Bank.
And NTT, which is also a great tableau and yields.
Lynn.
In Latam, we had a significant win with <unk> experience.
Salesforce marketing cloud to improve engagement with their inherent in perspective customers and to increase marketing efficiency.
Formula one by one.
<unk> billion views and today, they're using Salesforce marketing cloud service cloud and sales cloud.
The firms increased spend and engagement and convert that finding.
Brand value and revenue.
Salesforce will help formula one leverage customer insights across every channel and physical annual physical and create an end to end client experience strategy powered by an integrated platform.
And our professional services team will help to manage their technology and implementation.
In the quarter, the National Telecommunications and information administration within the U S Department of Commerce selected Salesforce to support the administration of the $48 million in broadband grants to states territories tribal entities and other eligible applicants.
You create more low cost <unk> service options and to address digital equality and inclusion meets across U S communities.
And to wrap it up dual dash has grown tremendously since dependent.
Fulfilled more than 400 million orders in the last quarter lag.
It is a mobile first business growing at an incredible rate jordache turned to salesforce to improve the customer experience and to respond to issues in real time.
It's hundreds of thousands of merchants customers redemptions. They also selected sales cloud neusoft to enable them to bring in new merchants faster more efficiently.
These are just a few examples from our strong quarter and we're grateful to customers continued partnership and trust.
Amy over to you to discuss the financial details of the courses.
Great. Thank you Catherine and good afternoon, everyone as market breadth that we had.
Financial results this quarter and our pipeline remain strong.
We are well positioned to serve our customer economics unstable macro environment.
Some of our results for Q1 fiscal 'twenty trade beginning with top line commentary total revenue for the first quarter was 741 billion. This is at 24% year over year by 26% in constant currency.
A few key highlights.
Turning the corner.
Momentum in sales cloud continued in Q1 with revenue accelerating to 18% clarity year over year, 20% in constant currency.
Flat again outperformed our revenue expectations with $348 million in Q1 compared to our guide of $330 million.
The number of customers spending more than 100, K annually grew 45% year over year.
Our industry's products remain in high demand and are providing additional box solutions to customer with specific needs retailing industry clients and created in seven out of our top 10 deals had corner.
And from a geographic perspective, EMEA performance was strong with particular strength in both the UK and France.
Now to provide an update on the outside capital.
Total revenue increased 9% year over year against a strong prior period prior year comparison, driven by lower than expected new benchmarks equity books.
Hey, guys market organizational changes, we discussed on the last call as.
As a reminder, on average 50% of total contract value is recognized in period, resulting in more quarterly volatility in our core products and as Brent mentioned <unk> pipeline remains strong and we still anticipate the benefit from the changes in the back half of fiscal 'twenty.
Total company revenue attrition remains at record levels and in Q1 again between seven to seven 5% and as Mike mentioned, our remaining performance obligation representing all future revenue under contract ended Q1 at approximately 42 billion up 20% year over year.
Current remaining performance obligation or CRP IL was approximately 21 five.
21% year over year, and 24% in constant currency flat.
<unk> represented approximately 5% five points of that growth in line with our guidance.
This strong IPO performance at our scale reflects the relevance of our product portfolio and strategic relationships with our customers.
Turning to operating margin for the quarter for Q1, non-GAAP operating margin was 17, 6% Q.
Q1, GAAP EPS was <unk> <unk> and non-GAAP EPS at <unk> 98.
Mark to market accounting at the Companys strategic investments benefited both GAAP and non-GAAP EPS by approximately one Seth.
Moving to cash flow for Q1 operating cash flow was $3 7 billion up 14% year after year.
Capex with $179 million, resulting in free cash flow of $3 type Dalian up 14% year over year.
Now before turning to our guidance I would like to call attention to the impact that foreign exchange is having on our financials.
As a reminder, our primary currency exposures actually euro the great British pound and the Japanese yen and to a lesser extent to the Australian dollar.
Since we last provided our outlook for fiscal year 2003. The dollar has continued to strengthen against our current pace.
And as such we are providing increased transparency into the impact of FX on your guidance.
Now, let's get to that guidance.
For the full year the change in currencies represent an incremental $300 million year over year headwind on top of the 300 million, we provided last quarter, bringing the total year after year FX headwind of $600 million.
As such we are now guiding to 'twenty three revenue of $31 70, $71 8 billion or approximately 20% credit here every year.
Our guidance continues to assume a $1 5 billion dollar contribution from slack.
We expect Q2 revenue of $7 six nine to $7 7 billion or approximately 21% growth year over year. Our Q2 revenue guidance includes a 200 million dollar a year every year headwinds from FX and a $360 million contribution from slack.
For Q2, we expect to deliver CRP outgrowth of approximately 15% year over year. This includes a three point headwind from FX.
And as a reminder, Q2 represents flat this quarter a contribution since the IPO and therefore the year on year growth rate is not normalized.
We expect GAAP loss per share of negative <unk> legacy and.
And non-GAAP EPS of $1, one to $1 <unk>.
For the full year, we expect GAAP EPS of <unk> 38 to 40 cents and non-GAAP EPS of $4 74.
To $4, 76%.
And please recall that our Hawaii and EPS guidance does assume no further mark to market adjustments of our strategic investment portfolio.
Turning to operating 19, I am very pleased to announce that we are raising our fiscal 'twenty three non-GAAP operating margin guidance by 40 basis points to 24%. This includes 100 to 125 basis points of headwind.
Yes.
This guidance increase represents an expansion of 170 basis points year over year, and 270 basis points over two years.
And by continued focus on disciplined decision, making across the organization.
And as a company we are committed to continuing to improve profitability over the long term.
With respect to FX, because our regional revenue and expenses are generally in the same currencies there tends to be a natural hedge in our operating margin as such although we've seen FX headwinds to revenue. We don't currently anticipate a material impact to our operating margin for the full fiscal year.
Moving to cash flow, we remain well on our way to driving another year of record cash flow generation and we are reiterating our fiscal 'twenty, three and operating cash flow guidance at approximately 21%, 22% growth year after year.
In addition, our guidance continues to assume a three point headwind from cash taxes associated with tax law changes required in the capitalization of certain R&D costs.
We continue to expect Capex of approximately 2% of revenue in fiscal 'twenty three.
Resulting in free cash flow growth of approximately 25% to 27%.
For the fiscal year.
To close while there is uncertainty in the macro environment, our customers are continuing to kind of <unk> to transform their businesses. The demand we're seeing from our customers is a testament to the strength of these strategic relationships and the relevance of our product portfolio.
This gives us confidence in the durability of our business model and we're excited to help our customers navigate in this changing economy.
Now before we wrap up I do want to thank specifically Evan project incredible leadership at the IR team over the last two years and partnership and friendship and wish him all the best engine.
Let me say officially welcome Mike Stern Stern, who I'm delighted to have joining us and with that let's open the line for questions.
Thank you.
If you would like to ask a question simply press star followed by the number one on your telephone keypad.
Like to withdraw your question again press the star one.
If you were in queue before the start of the call. Please re queue now.
In a matter of time, we asked today that you limit yourself to one question, we will pause for just a moment to compile the Q&A roster.
Your first question today comes from the line of Mark Murphy with Jpmorgan. Your line is now open.
Yes, Thank you Mark.
Okay.
Thanks.
Got you.
Okay.
Okay.
Okay.
Okay.
Okay.
Yes.
Okay.
Okay.
Okay.
Okay.
Okay.
Hi, Mark this is Amy.
Couple of hearing you.
Apologies.
Okay.
Okay.
Operator, we may need to move on to the next move on and let's see if we can come back to Mark.
Certainly your next question comes from the line of Keith Weiss with Morgan Stanley . Your line is now open.
Excellent. Thank you guys for taking the question and really nice quarter in Q1.
Two questions one on sales cloud.
This is probably the.
Part of the portfolio that investors have been most worried about maturation and sort of the high market share that Salesforce has if you guys have been able to see accelerating growth can you dig in a little bit on kind of what's driving it is it the vertical solutions in particular or something in particular that has really reinvigorated that line item and then one for Amy on the operating margins I don't think anyone.
I was expecting operating margins going up after this quarter can you talk to us a little bit about those initiatives that are enabling better operating margins.
Speculation in the press about Mindy.
Slower head count growth or some some calling of expenses.
Is there something programmatic that that's enabling you guys try to that better operating margin on a go forward basis. Thank you.
Yes.
Excited about sales growth not only did it grow 18% year over year in the quarter, but in constant currency grew 20%, which I think is.
Symbolic threshold for Rajiv.
That market partner about 23 years ago that is still as relevant today as it ever has been I think first and foremost it speaks to our innovation strategy and the organic innovation coming in from our engineering teams at the company just as an example late last year, we introduced revenue intelligence, which is a deep integration between tableau and <unk>.
Sales cloud that enables sales teams to enable every rep to be more efficient to collect cash faster to boost growth and really bringing together this entire customer 360 portfolio to give our customers not only a chance to re imagine their sales cloud implementations, but make sales are relevant to an even broader range of customers. So we're really.
Excited about our innovation strategy when you look at some of the wins that we've talked about on this quarter like ADT or door Dash you think about this next generation of selling in this era of flexible work Theres always an opportunity for our customers to re imagine their approach to sales and sales side continues to be the most innovative platform for opportunity management and lead management. So we're excited.
Our market, leading position and also I just want to say congratulation to the engineering teams were continuing to teach an old dog new tricks and continue to innovate on what is I think really the world's leading CRM platform.
Talk about operating margin sure I'd love to so thanks for the question as you noted I really am very very pleased about the range on our operating margin up to 24% for this fiscal year. Yes. This is not the result of any single change, it's really driven by disciplined decision, making and tundra unlock incremental efficiencies.
Across the entire business with apps each leader to step off the trailing book across their business and to strategically prioritize their investments and this has already mentioned that we're getting the highest return for every dollar that we invest.
You asked about hiring yen as a result, we're going to continue to hire we are hiring but we're doing a much more measured pace and we're focusing the majority of our new hires umbrella that will support customer success and the execution of our top priorities.
Focus on large and this is really over the long term and we are all committed that this is going to make us a stronger company, but I do want to reiterate this is not just a finance lab and that should help desk spoke about discipline is being applied across our entire organization. This is supported by marked by Brett <unk>, Jonathan and truly by our entire leadership team.
Okay.
Your next question comes from the line of Kirk <unk> with Evercore. Your line is now open.
Thanks, very much and congrats on the quarter I don't know lets take that mark or Brad but.
You mentioned sales force being able to sort of perform through economic cycles. I was wondering if theres any change to the go to market playbook in a tougher economic environment. If at all in terms of which products might be better to lead with.
When you start getting in these periods and then second question would be for Amy Amy basically kept your fiscal year guidance unchanged revenue guidance unchanged when adjusting for FX I think everybody is wondering if that guidance, probably now reflects a little bit more conservatism given the more uneven macro backdrop could you just comment on that a little bit maybe versus.
Where we were 90 days ago.
Yeah.
Well I think youre right that in an environment like this our selling strategy will change our narrative will change and Bret I think said it really well we're going to focus more on how we can deliver productivity for the customer and lower their costs and.
At a robust time, we've talked about the topline advancement of course, it's different for every customer you know that.
So the last point that we just heard from the previous question, which was a good question wireless sales cloud remained so strong and you could see more than 18% growth.
Service cloud more than 70% growth I mean, it's incredible to see the growth in these core products.
Today I was in a retailer that I like I have a personal relationship with Bruno Cuccinelli in them.
To have dinner with him this week and I was just kind of preparing for that and walk in the store and I realize that the retail agent of the stored using sales cloud.
And the platform and asking them Hey, how do you like.
What do you what do you think about the solution.
Ed.
But all said.
And then it's like <unk>, and Salesforce search and Salesforce and I'm like Wow, the product, but I don't think we ever could have imagined all the different uses that it has today.
Four years ago, when we invented it and I think that that kind of flexibility is really what continues to drive its growth we've talked about that retail use case at AT&T as well has been so.
<unk> for them and again, we never really never really thought at that point of sale environment will be so dramatic.
Four.
Incredible products, but when you are working with customers in an environment like this it really gets down to really understanding what they are trying to do every customer has a slightly different solution. Gavin do you want to come in here and give an example of somebody recently put together I think.
And this type of environment the keyword is relevance.
Listening to your customers understanding what the challenge specific challenges, they're facing and making sure that you pay to the approach to that so.
Many cases sounds flattish the right lead, particularly with new business new customers.
And our customers is right.
To lead with service cloud and use that as a way of taking cost out of the business and we do so.
Again and then.
We have customers, who as I said in my commentary that we were taking the customer 360 of multi cloud.
This quarter is very strong.
1%.
Estimates, taking fiber more cloud so I think it's about listening to the customer it's about being relevant understanding that actually we're going through a period now where productivity and cost transformation is more important than that in the last few quarters and making sure that we tailor messages accordingly, yeah, I would add also kind of the.
Chips matter in that.
Talked about F. One and Gavin was in Monaco over the weekend.
Stefan with them at a colleague who is the CEO of <unk>.
Of F. One was our customer at <unk>.
Lamborghini and of course, we work closely with him in the whole Volkswagen management team man.
When they are looking at this.
Current environment, one is looking at the environment, everybody is going to have a slightly different take.
Nice to have those high quality relationships at times like this.
Great.
Hi, I'll take the second question second part of your question here on the guide look we feel good about what we're saying and you've heard that remark from Gavin from Brad you've heard about our pipeline, but we're mindful of the uncertain macro environment and that includes continuing FX volatility and so I believe that our guidance for the prep really concerned with that under the circumstances.
Okay.
Your next question comes from the line of Mark Murphy with Jpmorgan. Your line is now open.
Yes.
Yes. Thank you Brett our survey work has shown potential for slack.
To be adopted by one quarter of all employees in the next several years it looks like a huge number above Google Workspaces and it looks like it could be rivaling zoom, what do you see as the best use of this this $4 billion of R&D budget, you have to try to accelerate the slack.
Innovations and achieve that level of ubiquity and I'm wondering if you would see any opportunity to.
Potentially do more of a native video conferencing.
Well, it's a great question as I think about our innovation.
That all of our clouds work together in a complementary way sale.
Sales and service complement each other sale of service digital market and e-commerce complement each other because it really represents the entire front office and when I think about our acquisitions like Newell soft tableau and slack they really amplify our value proposition for the customer 360, tableau helps all of our customers see and understand their data, which is more relevant than ever before.
For us every interaction becomes digital Neil sauce enables our customers to integrate all of their legacy back office systems to Salesforce and really create a strategic platform that accelerates, our digital transformation and slack as governor Mark and I heard in Davos last week is irrelevant and every single conversation because everything one of our customers is deciding how.
Do they succeed in this new era of flexible work because every single.
Particularly office worker isn't coming back to the office five days a week.
But it's really not an either or question because slack makes the entire customer 360 more relevant in fact, one of the things I'm. Most excited about from this past quarter as we shipped a lot of integrations between customer 360, <unk>, whether its teams selling and account management ourselves out or a case, where I'm, even our service cloud, it's actually one of the solutions that door dash users with their service.
Cloud deployment really using our slack to amplify their investment in our service cloud and succeed in this new era, where their workforce is working from anywhere so really excited to not only invest in slack as a standalone platform, which is just incredible but I'm just excited with how much more relevant our customer 360 value proposition is.
Now this lack of in the building I think it's going to be one of the best acquisitions, we ever did and it really makes every customer conversation more relevant in this new era of flexible work.
Your next question comes from the line of Brad Zelnick with Deutsche Bank. Your line is now open.
Great. Thanks, very much for taking my question and congrats on the strong start to the year, Andy the business generates a ton of free cash flow you have almost $14 billion of cash on the balance sheet and your stock is trading at a really attractive multiple what would need to happen for you and the board.
Consider buying back your stock.
Okay.
Brad Hi, Thanks for the question as you know historically, we have not done buybacks, but I will tell you that as a company. We are always looking at our capital allocation strategy. Our board consistently looks at that on a quarterly basis and as it relates to assess the best use of cash.
Right now our focus is on strengthening strengthening our balance sheet to really capitalize on all of the opportunities in front of us.
Okay.
Your next question comes from the line of Brent bracelet with Piper Sandler Your line is now open.
Thank you for taking the question. Good afternoon, I guess one of the themes. We're starting to hear more from customers is this idea of vendor consolidation, particularly given the tightening business cycle have you seen any shift in the pipeline relative to the mix of multi cloud deals any sort of.
Color around the customer appetite.
Consolidate the number of vendors would be super helpful. Thanks.
Yes, I'll take that one.
What <unk> seen is a very strong quarter.
Across the board sales.
Sales service marketing cloud we will.
Posted great.
Great numbers every region.
Great now that's 21% up in the U S, 33% and EMEA, 24% and APAC.
We had a strong quarter and we got good momentum.
And as I look forward.
The pipeline looks really strong for the rest of the year.
So we.
We are cognizant of the environment, we're operating in but at the moment, we don't see that impacting our numbers.
We're vigilant.
If there is a consolidation that does.
With our customers I think we're extremely well placed.
We are the only ones with the customer 360, because there is nobody else in the market table to offer the full suite to the clouds.
And if that is the case and customers choose to continue to.
Our new more of that business to it we're welcoming.
And I think we saw some great examples of that in the quarter. The Formula. One example, we've been talking about it. It's a great example of that.
Taking multiple clouds from us across sales service and marketing.
The ADT example, as well.
Marine at Black there is doing an incredible job but.
Driving the business and creating much more intimate customer relationships.
And thats all around the customer 360, and a consolidation of business.
From other vendors towards Salesforce as part of that story.
Whether it's a single cloud whether it's a customer 360, we're very well placed to.
To take full advantage of that.
I think that one of the highlights from the quarter was good year rich Kramer someone who has built a really great relationship with over a number of years.
We deployed a number of our different products now they are deploying our commerce cloud.
And it's a great example, by having a full suite of products and also <unk>.
Many of those products within our acquisition strategy over the last few years, we really have just a tremendous opportunity with every single customer to extend and expand the land and the land and go.
This is just a moment, where I think that.
There will be some consolidation with vendors and they will still rely on those vendors if they have the most customer relationships.
Your next question comes from the line of Brent Thill with Jefferies. Your line is now open.
Mark many are asking on the M&A strategy given the pullback in valuations do you change your philosophy and be more aggressive here you start going into the playbook.
Digesting slack and something about other past acquisitions.
Well, it's a great question and I know, we're all watching the markets very closely and that we can see.
Ah right sizing on a number of valuations I think that we are all quite suspect, though for quite a long time, but for us we've kind of laid our acquisition strategy down and were done for a while you can see that with.
Many of these amazing companies that we acquired with Neil Shah with tableau with slack or even what I, just mentioned with commerce cloud with demand where and the reality is there is no finish line. When it comes to these acquisitions. There are a lot of work there hard to integrate.
When you think you're done you're not done it. They can surprise you and you have to take your time with them, we realize that right from the beginning with our first the exact target acquisition to today. So I would say that for right now we're not really looking at doing any major acquisitions. It's just not part of our playbook right now.
We focused on integrating the ones that we have we have a lot of work to do still and that's our primary focus.
Do you want to add to that.
I think I think you've got it mark you're right right now.
Large scale M&A is not part of our current plans.
We were opportunistic at all strategic Tech companies are and I never say never but that is just not something that's on our current radar screen.
Your next question comes from the line of Kash Rangan with Goldman Sachs. Your line is now open hi.
Hi, Thank you so much congratulations on a terrific quarter.
Mark and others have been through multiple cycles on the call here.
Im wondering why are you so confident with this economic cycle.
So different about the cycle certainly we.
Are you talking to you as you meet with them daily.
Daily basis, what is top of their mind and why do you feel differently about sales forces positioning in this economic cycle and then one for Amy I just wanted to understand what gives you confidence and I think you've said something faster cash flow growth and margin growth in the press release, just very assuring just a little bit more detail on how you plan to get there would be great. Thank you so much.
Okay. So I think I'm going to let each one of our executives speak on this because I will tell you that.
We have been having a lot of customer interaction right now and it's an incredible amount and I'll tell you when I was down in Sydney, Australia about three weeks ago four weeks ago.
I was very impressed with the level of economic activity.
All of these customers so their focus on growth to focus on market share their focus on expansion their focus on digital transformation.
And then I went off to Japan, and I was in Tokyo.
Well it was the same thing I was with one of our very large customers sample one of the largest if not the largest insurance company in Japan with their <unk> and very impressed with how they are investing in and excited about expanding and going into new areas and looking at a number of our new products they've been with us.
We're quite a long time.
All of the customers that I met with were growing in.
It was just an exciting moment and then we went off to our New York same thing same story, everyone is very motivated.
Customers without a lot of debt on their balance sheet. They have flexibility there nimble they know what their product strategies are there ready to go and then when we went down to Atlanta, and we reviewed our entire operation. We heard this consistently from our management team and when we went to Davos last week.
Again across industry across geography.
Everyone is looking at rising inflation or supply chain issues or interest rate changes.
<unk> market.
<unk> or foreign exchange.
Shifts.
At the end of the day.
We all have we all I think are very different.
Base than we've really ever been before and I think a lot of it has to do with the pandemic I think the pandemic gave everybody the ability to kind of do a reset and think about okay, now where am I going over the next decade and so in the last two years I think every company.
Rebuilt their strategy look at US we acquired slack, our largest acquisition ever we retooled we built our CDP, we augmented our professional services strategy, we changed our management team, we transformed who's running the company and Alex being run so.
We're an example.
Okay, we're ready for the next decade.
And I think that that example.
Probably true for.
All the customers that we're meeting with and Bret do you want to come in and talk about some of your <unk>.
Variances in Davos.
You put it well, yes privilege of having about 31 on one CEO conversations and data.
From different regions around the world different industries.
It's really pleasantly surprised to just hear how much customers are leaning into their digital investments.
Some like the consumer goods companies had been really impacted by both the supply chain and inflation and we're really focused on how to invest in digital technologies to take down some of their cost to absorb some of that and avoid price increases and then some other businesses I talk to the CEO of a beauty company has seen increased demand as we always balance for the first time.
Past couple of years, it was really focused on growth, but the theme in all of them was whether you are investing in digital technology to connect with your customers or investing in digital technology to drive productivity. We continue to be one of the most strategic vendors and the trusted digital adviser for all of these Ceos across every industry.
So I read the same headlines as everyone else and cognizant of the volatility in the economy and as Gavin said, we're just focused on being relevant being the most trusted digital adviser to each of our customers and as Mark said, we believe that if we form those trusted relationships, especially in times, where our customers need that.
And need that from US we will come out of these gaining market share and gaining trust with our customers.
Well, Brad Great High Tech Wells FERC connected alright, alright.
Yeah.
I think Brad said, it really well connected with our customers connecting with employees through slack connecting with our data with tableau connected with our partners and these are major themes that we're hearing Amy what did you hear that in your discussions.
Yes, Tom this afternoon.
Another opportunity to connect with hundreds of customers across cross there one of the things I really heard it was a focus on efficiency and companies are looking for partnerships and looking for companies like Salesforce that can help them best crowd and become more efficient.
Kelly with incredible wages and great opportunity.
Gavin do you want to.
Yes I.
I mean, what are your beds.
From customers last week and more generally I think we're just more important to our customers than we were in previous cycles. We've got at a more strategic relationship a relationship that is more of a trusted advisor.
And I think that's because we have the full suite.
Et cetera.
Customer 360 solution that can.
So multiple problems for them so they're issue its Greg.
We've got a solution that will allow them to drive growth.
Productivity and cost transformation and efficiency, we've got the right combination for that as well. So it is it's about relevance.
And we had this time and time again.
Increasingly the.
Digital transformation agenda.
The narrative around it is not running at a steep spike.
Despite concerns about the environment, becoming more I think even more important and with better priced than any other company.
Help our customers through them.
One of our one of the customers I met with in Davos State Farm I think about.
The huge journey that we've made with them microchip scored the CEO .
Sure.
And of course, Keith block our good friend is on their board now but.
Excited because they're expanding with our field service product.
Product wasn't it didn't even exist when we first signed our.
Agreement with them with customer 360 continues to expand for them, they're able to take their single source of truth and bring it to new use cases, and I think that that's something that.
Im really excited about as we expand with all of these customers. Thank you very much for this great question.
Hey, Kash to follow up on your question on cash flow free cash flow. Our philosophy is that our ocs and FCS showed increased faster than revenue as we are increasing our operating margin, which we are in terms of confidence level. It doesn't have the cash and the operating margin mentioned this comes back to the focus on disciplined to crest.
This is not a passing fad.
Huge believer that discipline and constraints make for a stronger and more innovative company and this is a focus across every part of the company. So when my confidence comes from it's really seeing all of our leaders at Salesforce stepping up to the challenge and meeting.
Yes.
Your last question today comes from the line of Phil Winslow with Credit Suisse. Your line is now open.
Alright, Thanks for taking my question.
On sales marketing and Commerce cloud I wanted to focus on service because you've been pretty vocal about and just the transfer Mitchell's changes that are going on and on customer service what are customers, telling you right now in terms of where they are you in there and their journeys there in terms of transformation and also we've obviously seen some big contract signed from contact center vendors kind of along this theme too. So wondering if you could just talk us through what Youre seeing.
Customers and what are your kind of conviction level is and in service cloud going forward.
Alright, thank you.
Question on service.
<unk> to be the anchor tenant of our customer 360 for our largest customers, particularly our longstanding customers like state farm and what I'm hearing from our customers. I think is really reflected in our product strategy, which is really the completeness of our service portfolio.
Like State farm the reason they expanded in Q1, it because they expanded with field service Center, we do field service, we do ticketing, we do contact centers, we do digital service self service and chat bots and when you think about your customer interaction and you, particularly think about this volatile economic environment that portfolio not only helps to increase customer satisfaction.
Action, but do so in a way that reduces cost I love that 80 example, I gave in the script because it was an example with ADT.
Managed to do 200000 virtual service visits and avoid sending out trucks, 80% of the time. They are customers, we're happier and they reduce costs and the reason we can do that because we have the most complete service portfolio in the market. So we're really excited about that Im excited again, it goes back to our strategy of organic innovation and as Gavin said.
The completeness of our product portfolio in particular as our customers look to consolidate vendors. The fact that we can really be the entire front office for our customers is incredibly differentiated and our customer 360 portfolio continues to be one of the main reasons why our customers choose our product offerings.
This concludes our Q&A for today, Mr. Evan Goldstein I'll turn the call back over to you.
Okay.
Thank you for joining us on the call today.
Okay, and I want to congratulate you on two great years in IR.
And we couldnt be more excited for you, so, let's say and Thats the way we started it with some big.
Props and congratulations for you.
Thanks, Mark and the rest of the leadership team really appreciate it and if you have any questions for us feel free to reach out at industrial Salesforce Dot com and we look forward to talking next quarter.
Alright. This concludes on Mad money.
This.
Today's conference call. Thank you for attending you may now disconnect.
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