Q2 2023 Salesforce Inc Earnings Call
We began to start to see in July .
Everyone I've talked to is taking a more measured approach to their business. We expect these trends to continue in the near term and we've reflected this in our guidance given the significant impact of foreign exchange and buyers be more measured we're revising our fiscal 'twenty three revenue guidance to 39 billion to $31 billion or.
17% growth year over year or 20% in constant currency at the same time, we're maintaining our fiscal year 'twenty three operating margin guide of 24% an expansion of 170 basis points year over year. This is further evidenced that we made we remain deeply committed to consistent disciplined margin.
Cash flow and revenue growth as part of our long term plan to drive both top and bottom line performance. We have the right team the right products the right playbook for getting to $50 billion in revenue in fiscal year 2006.
I always get questions about our M&A strategy and what company, we're going to acquire next and what we're going to do next from the acquisition cycle I think we get this question every single.
Earnings call that we do like this.
And it's always one of my favorite parts of the call and I am excited to tell you. We have found a great cloud company growing revenue for 73 consecutive quarters through every economic cycle. It's got great cash flow number one market share and incredible brand one of the most admired companies in the world great values fantastic community of $17 million.
<unk> fantastic commitment to its community runs across 90 countries and that company is Salesforce. We're thrilled that our board of directors has authorized up to $10 billion in our first ever share repurchase. This reflects the confidence we have in our business and in our approach to generating shareholder value brand name Youre going to.
Span in more detail about the broader capital allocation strategy in a moment.
And you'll also hear about some amazing customer wins in the quarter.
We're especially proud of a major deal we closed in the quarter with the U S Department of Veterans Affairs, and it's one of our most meaningful partnerships.
The VA is a relationship that we've been building for over six years and now Salesforce is becoming the digital front door for our veterans and their families. We couldnt be more proud to do our part in helping those who have made sacrifices and serving the nation.
It's been an incredible year, so far being able to connect with our customers in person again has been just amazing we've done 63 marketing events. So far this year hosting over 250000, trailblazers and counting but not as more exciting on every level than dream force and we're hoping to see all of you as we celebrate our 20th stream for us.
September 20th through the 20 <unk> right here in San Francisco, It's a celebration of our trailblazers and we're going to expect 150000 people to be here and registered to attend and we will also be streaming the entire three days on salesforce, plus and expect millions more to tune in.
We have an amazing lineup of product announcements and innovations and speakers and giving back it's going to be a big dream for us it's going to be really the biggest dream force ever our 20-F ever Dream Force and we're also we also going to be celebrating the impact Salesforce. This add to our 111 philanthropic model as we've now surpassed over a half of $1 billion in <unk>.
Grants 7 million hours of volunteerism and more than 50000 nonprofits using salesforce for free.
Turning forest Amazing Red Hot Chili peppers that Anthony and his entire band fleet, everyone Theyre going to be performing at our annual benefit concert with a 100% of the proceeds go into our children's hospitals right here in San Francisco.
And in Oakland. So please tell your friends tell your firms tell your vendors tell everybody to get sponsorships to dream first because it's going to be incredible and of course, you're all invited to our Investor Day. During Dream Force on September 21, Amy are they invested even if they don't do the stream first sponsorship.
Yes.
Gotcha.
Alright look youre not going to want to Miss it looked before handing it off to Brad I would like to congratulate Brian Miller, our new Chief operating officer, Brian as employee number 13 in has been helping us to build this company from its earlier days as Chief operating officer, Brian is going to continue to lead our customer success organization and now adds global sales to his responsibilities bringing on.
Our incredible customer success ecosystem with sales cloud <unk> sales, even closer under Brian who will help us to deliver the full power salesforce to every one of our customers in the new economy and we're so fortunate that Gavin Patterson has taken on this important new role as Chief strategy officer, helping us to guide our strategic direction and thank you and congratulations.
To Gavin.
For the Galvin, who for the last two years during the pandemic has overseen one of sales forces most rapid growth periods and sales versus history.
I look back the last three years I saw it was really only two years ago in fiscal year 'twenty. One when we did our proud I think it was about $5 1 million is that $5 $1 billion is that right, Mike something like that and then last year I think for Q2 did something like $6 3 billion and now we're doing $7 $7 billion I get the numbers right.
I mean, it's an incredible trajectory of growth from over the last 24 months and I couldnt be more proud of Gavin to help us during that period and now Brian in your CFO role, congratulations to Brian and Gavin and with that I'm going to turn it over to Brad. Thanks, Marc Congratulations Brian and Gavin as Mark said, we had another strong.
Quarter, delivering strong top and bottom line performance.
Our results demonstrate the durability of our business model and the strength of our strategy.
Our customer 360 product portfolio as the industry standard in the market leader a leader in 12 current Gartner Magic Quadrant reports and the platform is helping hundreds of thousands of companies in every industry to digitally transform.
Our technology is also deeply differentiated Einstein artificial intelligence platform is now doing over 175 billion predictions every day just incredible.
Our go to market capability is also unmatched in the industry the diversity of the industry's regions and lines of business. We serve has driven the durability and resilience mark talked about and you've seen in our business over the past 23 years.
And finally, our ecosystem is unparalleled in enterprise software at 150000 Trailblazers joined US for Dream Force next month, they represent a global community of developers administrators and <unk> 17 million strong that are driving with IDC estimates to be one six trillion dollars of new business revenues by 2026.
As you heard from Marc we are in a more measured by an environment.
Executive teams are scrutinizing, all purchasing decisions and we are seeing some deals take longer to close.
Personally met with over 100 Ceos this quarter in my travels across Latin America, Europe , and North America, and digital transformation remains our top priority, but the focus of the conversation has shifted meaningfully towards productivity efficiency and time to value.
In this environment, our customer 360 portfolio is uniquely positioned to enable our customers to deliver both growth and cost savings and you can see it in this quarter's results.
Sales cloud revenue grew 15% year over year, a healthy 19% in constant currency, including customer wins at CDW, Zee scalar and Schneider electric.
Using our sales cloud and CRM analytics Schneider reduced their close time by 30%.
And with Neusoft, they saved 40000 hours of employees time, and save $2 7 million and it costs.
Service cloud grew 14% year over year or 18% in constant currency, including customer wins with the U S Department of Veterans Affairs Workday on Uber.
Our digital service product line in particular accelerated as customers pivoted their spend to digital technologies that reduce customer service cost <unk> is a great example.
<unk> saw a 20% improvement in productivity across E mail chat and phone support channels with our service cloud and more importantly, where their investment in our Einstein AI chat bots, they improve their call deflection by 30%.
Our marketing and Commerce cloud grew together, 17% year over year or 22% in constant currency, including significant expansion of our relationships with live nation L'oreal and tapestry.
And our commerce cloud, we are seeing <unk> growth decelerate in line with the rest of the year and commerce industry as consumers settle back down to pre pandemic norms.
Platform, including slack grew 53% or 56% in constant currency, including great slack expansions that organizations like the national weather service Coursera and Mercado Libre.
The National weather service selected <unk> as its platform to connect over 4300 employees with emergency managers public safety decision makers and local media partners nationwide.
I'm also excited to say that we will have over 12 slack product integrations with our customer 360 platform live and generally available by Dream Force, where we have an incredible opportunity to help every one of our customers build their digital HQ and slack in this new era of flexible work.
Data, which.
Which includes meal soft and tableau grew 12% year over year or 13% in constant currency with wins at brands like Atlassian, Siemens Energy CBRE group, and King power, which is Thailand's leading travel retailer.
I am heartened by the progress we're seeing in our go to market transformation of Neil soft we are on track to have Neil soft returned to being a tailwind for revenue growth in the back half of the year.
And finally, our 12 industry clouds were another bright spot in the quarter growing faster than our line of business clouds as our customers are increasingly focused on time to value and reducing their implementation costs.
The out of the box industry processes, we've built into our industry clouds are a compelling value proposition in this more measured by an environment and I am excited about the new processes, we brought to market in the first half of the year, including trade promotion management for consumer goods and our virtual assistant for our financial services cloud.
As we head towards Dream force, our pace of organic innovation has never been stronger and our summer release alone. We delivered key innovation like revenue intelligence for predictive forecasting the ability to talk to your data through tableau <unk> robotic process automation and a new Lake House architecture for our customer data platform.
And just this week, we launched Salesforce easy.
New all in one self service suite for sales marketing service and commerce that is going to transform how small businesses get engage with salesforce.
As you'll hear more from Amy we're committed to durable growth at scale, we're committed to our 24% operating margin this year and I'm excited that we're announcing our first over $10 billion share repurchase program today.
Our capital allocation strategy is simple we will continue to expand our free cash flow margin as we scale.
We will invest in our organic innovation, we will reduce the impact of dilution both by offsetting stock based compensation and by maintaining a healthy balance sheet to fund any future M&A.
I'm, so grateful to our 17 million Trailblazers, all of our partners and most importantly, our employees for helping provide our customers with the innovation agility and resilience they need to navigate these uncertain times now over to Amy to discuss the financial details of the quarter.
Great. Thank you, Brian and congratulations Brian .
I'm pleased to report strong top and bottom line financial results for Q4 in Q2.
<unk> three point strong top and bottom line financial results and Q2.
As you've heard from Mike and Brian and diversified portfolio remains well positioned to help our customers.
And to drive efficiencies in our business.
They are relying on us more than ever to be their trusted that voluntary partnering with them on their it gets you about that.
Now, let me walk through our results for Q2 of fiscal 'twenty, three beginning with top line commentary.
Total revenue for the second quarter was $7 72 billion up 22% year over year or 26% in constant currency.
FX continues to represent a headwind as the dollar continued to strengthen throughout the quarter.
In Q2, the headwind from FX was about $15 million more than we acquired it.
A few highlights from the quarter sales cloud continues to be a critical piece of our customer success, helping companies drive more productive growth.
Q2 sales cloud grew 15% year over year and 19% in constant currency.
Service cloud grew 14% year over year and 18% in constant currency.
As we help our customers realize efficiencies and cost savings.
As customers focus on digital strategy and transformation, we continue to see growing multi cloud adoption.
The number of customers to purchase five or more cloud again grew and capital Ghansham.
And flat continued to outperform our revenue expectations with revenue was $381 million.
<unk> continues to gain traction with customers and in Q2 seven of our top 10 deals included slack.
And for the fifth consecutive quarter, the number of customers spending greater than $100000 with slack.
By more than 40% year over year.
Now for a quick update on data and.
I am pleased to say that data past 100, alright.
$1 billion of revenue corner and without all of our five clouds are now generating more than $1 billion in revenue a quarter.
David relative 12% or 13% in constant currency was driven by Nilsson to total revenue growth of 15% and tableau growth of 1%.
As a reminder, approximately half of New York stock and tablet is total contract value is recognized in period, resulting in more quarterly volatility than our other products.
Turning to revenue attrition rates remain at record lows ending Q2 at approximately seven am 100%.
Q2, non-GAAP operating margin was 19, 9% driven by our continued focus on disciplined decision, making and higher transmission.
Q2, GAAP EPS was <unk>, seven and non-GAAP EPS was $1 19.
Mark to market accounting of the Companys strategic investments benefited GAAP EPS by three and non-GAAP EPS by <unk> <unk>.
Operating cash flow was $334 million in Q2 down 13% year over year Capex of $203 million, resulting in free cash flow of the $131 million down 24% year over year.
Now before getting choice Rps performance and guidance I'd like to address the current economic environment.
As both Mark and Brad mentioned, we're starting to see more measured buying behavior from our customers, which began in the last month the corner.
This resulted in stretched sales cycles additional deal approval layers NGL compression in.
In addition, we saw slowing in our create and close slacks officers and F&B businesses, which tend to be leading indicators.
Geographically this behavior was most pronounced in north American in major European markets.
Japan was relatively more resilient.
From an industry perspective, retail consumer goods and communications and media with American pattern, while high Tech energy and financial services stays more consistent during the quarter.
And from a product perspective, commerce and marketing some more pronounced deceleration while sales and service remains strong.
Turning to remaining performance obligation or RPM, which represents all future revenue under contract.
Ended Q2 at approximately $41 6 billion up 15% year over year.
Current remaining performance obligation or CRP.
With approximately $21 5 billion up 15% year over year and 19% in constant currency. This includes one point of incremental FX headwind beyond our Q2 guidance.
Moving to Q3 guidance.
We expect revenue of $7 82 to 783 billion or approximately 14% growth year over year and 18% in constant currency.
This reflects a $250 million FX headwind.
We also expect a 380 million dollar contribution from slack as a reminder, Q3 represents the fifth quarter of slack contributions to revenue therefore, the year over year growth rates will be normalized.
<unk> growth is expected to be approximately 12% year over year or 15% in constant currency.
And we expect GAAP EPS of nine to 10 and.
And non-GAAP EPS of $1 20 to $1 in 'twenty one.
Now turning to our full year fiscal 'twenty three guidance, we're now guiding to fiscal 'twenty three revenue of $38 nine to 31.0 billion or approximately 17% growth year over year, 20% in constant currency.
This incorporates the trends and customer behavior that we saw that beginning in July .
The total year over year FX headwind is now $800 million, an incremental $200 million year over year since our previous guidance.
As a reminder, the currencies most impacting our revenue are the euro the British pound, the Japanese yen and to a lesser extent the Australian dollar.
Our guidance continues to assume a $1 5 billion contribution from slack.
As a company we remain committed to profitability over the long term and while we see a more deliberate customer buying behavior I am pleased to hold our fiscal 'twenty three non-GAAP operating margin guidance at 24% an increase of 170 basis points year over year. This margin guidance includes roughly 100.
Basis points of headwind from slack.
As a reminder, because our regional revenue and expenses are generally in the same currencies there tends to be a natural FX hedge in our operating margin.
For the full year, we expect GAAP EPS of <unk> 38 to 40.
And non-GAAP EPS of $4 71 to $4 73.
And please recall that our Hawaii and EPS guidance assumes no further mark to market adjustments of our strategic investment portfolio.
We are updating our fiscal 'twenty three operating cash flow guidance to approximately 16% to 17% growth year over year.
Guidance continues to assume a three point headwind from cash taxes associated with tax law changes requiring the capitalization of certain R&D costs.
We expect capex to be slightly above 2% of revenue in fiscal 'twenty three.
<unk> increase over last quarter's guide, reflecting the revised full year revenue guidance.
This results in free cash flow growth of approximately 18% to 19% for the fiscal year.
So to close as our customers and their executive teams, including the CEO CIO and CFO focused on their digital investment strategy, we are well positioned with our diversified product portfolio to help drive efficiencies and growth.
And we are laser focused on disciplined decision, making with a commitment to achieving our operating margin guidance.
Lastly, let me Echo Brad and Mark we are very very pleased to be announcing a new share repurchase program. Today. This step as a reflection of the confidence that we have in the future and sales force.
And I look forward to seeing everyone at the Investor Day on September 21st where we will go into even more detail on our capital allocation strategy.
Emma let's open up the call for questions.
Thank you Andrew.
As a reminder, if you would like to ask a question press star followed by the number one on your telephone keypad.
Yesterday that you limit yourself to one question. Please.
Your first question comes from the line of Keith Weiss with Morgan Stanley .
Your line is now open.
Excellent. Thank you guys for taking the question.
What's really on top of everybody's mind right now is the takedown in the full year revenue guide in.
Whats, causing that you've talked a lot about on the macro side of the equation and we definitely see that all around us we definitely see that in our checks as well.
But I think what people want to understand is there anything more to do so is there anything more execution related perhaps your go to market and as the change in sales leadership from from Gavin to Brian is this in any way meant to address any any shortcoming on the distribution strategy.
That's part one part two on the expense side equation.
Very impressive to be able to gain 24% operating margin target even with the revenue is coming down.
I guess for Andy is there another level of what kind of expense reductions or sort of another gear that you had to sort of go into to be able to sustain that operating margin expansion and does that impact your ability to sort of invest in the business to sustain those operating margins. Thank you.
Yeah.
Yes, I'm so happy to.
Keith and I will tell you that you're right we took the guide down.
Around two points one is the foreign exchange environment is obviously, just unprecedented and we talked about that last quarter as well I think maybe we were one of the first to really see what was going on somehow.
Just being on the ground in some of these countries that have been so dramatically hit but.
To look at where we are right now with the yen will look where we are right now with the Euro I think the euro maybe just growth parity yesterday.
We're really in an unprecedented moment in foreign exchange and on the other side.
As I said and.
I think as the team has really emphasized really starting in July we started to see some metrics or like.
Where do we exactly want to be for the year and what is appropriate for us and how do we correctly characterize where the businesses and that is really how we kind of put together. This guide, which we think is the appropriate way to communicate the status of the business because we want to be in a place where we're communicating exactly where.
We are so I'm sure amy's going to amplify that as well.
Sure Mark I think I think you nailed on that when you look at the guide I believe you guys are appropriate under the circumstances, we're seeing right now and as you noted there are two key drivers in the first part is actually the key currencies the euro the pound the yen weakened to near historic levels, and we're seeing that impact on our top line as well.
Look forward to the rest of the year.
The remaining part is we called out there was a distinct shift in customer buying behavior that we saw near the end of the quarter and for purposes of the guide we're assuming that those conditions enjoyed through the back half of the year.
Now turning to your second part of your question, which I think was on op margin. As you know that was very happy that we are committed to 'twenty, four and holding that despite bringing down the top line.
This is largely coming from a more disciplined approach is not a result of one single change we are continuing to unlock incremental efficiencies across the business, we're asking each leader to step up and look at their businesses and prioritize I do believe that we are continuing to invest into growth, which still remains our number one.
In terms of the specific drivers definitely continuing to take a measured approach in a very deliberate approach on hiring on TNT, we're prioritizing for customer facing travel.
And again, we are continuing to benefit from some of the decisions. We've made over the last few years on real estate.
Your next question comes from the line of Brent Thill with Jefferies. Your line is now open.
Good afternoon, Mark and I am curious if you could talk about Brian .
New role and I think Theres a lot of concern as new head of sales comes in there is some transition period and can you just address this transition period and I know you've been with the company for over 20 years and highly regarded but theres a lot of investors that they would love to hear your perspective on this.
Okay.
Well that would be my pleasure I mean, I think a lot of you know Brian he's been.
Yes.
Trusted part of our management team for over 20 years.
And look the last time he was the head of sales was only two years ago.
Went into the pandemic and went through the transition with Keith you May remember I put Brian in for I think one or two quarters to run global sales did a fantastic job.
He.
Didn't want to continue with it.
We ask Gavin to step up from his role of.
Yes.
It was international chairman of our European Chairman I cant remember honestly and.
Really proud of Gavin for the last now two years.
And then.
Brian .
Right here.
Brian If you would come in and.
Take this forward and he agreed and I couldnt be more grateful to that.
No. We have just a trusted hand in terms of the transition period, I Couldnt imagine anybody who will operate the organization, so seamlessly and transparently and with ease and.
Everybody has such a good relationship already with Brian and he's already runs our forecast calls he has already been a key part of our.
Sales program I don't expect any transition period at all and I am holding them to that actually.
The other thing I just wanted to add is.
Brian has been running our customer success professional services in partnership organization for a long time and I think the stories of the pandemic has been our historically low attrition rates and our focus on customer outcomes and I'm really excited about the opportunity to bring in our global sales organization together with our customer success.
Yes.
And it's a really important part of our philosophy and I think this move I will leave it as definitely surprise both of US right about how low attrition, Brian has been able to get in.
Job and deeply connecting that success motion door sales motion I think reflects a philosophical view from Mark and me about really are for Brian could you just step out of the room.
Do you want to just comment on this one.
Mobile data opportunity and Marty your comments.
I've been very close to this business for the past two and a half years working side by side with Gavin.
<unk> operating in a CLO role for him.
Running this business and I think it's critical as we look at sort of the second half of this year and beyond this motion of customer success and sales together.
We will drive the outcomes that we're looking for and our customers are looking for and so I'm thrilled thrilled with the results we've seen on the attrition side through the results the customers are getting from the investment, they're making in our technology and.
So excited to lead the sales and can you can you just address branch direct question on.
Transition time, how hard of a transition is going to be I think it was measured in hours actually mark.
I've been running forecast calls already in the business.
Traveling to see customers most of our customers yesterday, there will be no transition time.
There are no big changes that we're going to be making in our go to market other than getting closer to our customers and ensuring that we're delivering value to them. In every single transaction that we're working on with them. So very excited to take this on with zero.
At this time.
Okay.
Your next question comes from the line of Raimo <unk> with Barclays. Your line is now open. Thank you.
<unk>.
Can you.
The the slowdown that we're seeing or the limb length.
Lengthening of sales cycles. There is nothing that is kind of unique to you guys for you heard from other vendors as well can you talk a little bit about what you see in terms of client prioritization in terms of certain projects because I do remember from.
All times that.
<unk> always had higher priority because its revenue generating et cetera.
Seeing that now happening as well and can you speak to that thank you.
Yeah. Thanks for the question.
First I'll tell you I think that trend continues digital transformation remains our customers' top priority in digital transformation starts and ends with the customer and fundamentally all of our customers are really investing into the secular trend of the digitization of their customer experience their employee experience.
With our portfolio we are at the top of that list I think what Youre seeing is an increased focus on I'd say three things one is time to value.
Other is ensuring that these projects drive cost savings in addition to customer satisfaction.
And top line growth and then the third is reducing complexity and vendor consolidation.
The story as I mentioned like Uber eats I think are great. Examples because it's really about how do you put up things like digital service technology, whether it's chat bots or self service to really take out costs and make these projects pay for themselves as opposed to having protracted multiyear implementations.
I think vendor consolidation is also a trend that we're seeing and if you look at some of the innovation, we're bringing out like our sales cloud Unlimited addition, or Salesforce easy, which I mentioned earlier in my script, we're really efforts to enable our customers to do more with less to enable them to use salesforce as their sole vendor.
Pick out some point solutions that perhaps aren't getting the return on investments our customers are looking for and sort of taking advantage of this opportunity to be the most strategic vendor for our customers right now as they look to really hold their technology to highest standards, which is to drive topline and Bottomline performance. Brian is there anything you want to add.
Great question, Raimo and I agree with you that front office is the priority you heard both mark and Brad and I am feeling as to when we're out talking to Ceos.
Total transformation remains our number one priority.
And we need to make sure that we're delivering for them and we're also seeing it in the demand environment. We are still seeing very good generation of pipeline in our business right now and while we are facing some longer sales cycles and additional layers of deal approval and potentially some deal compression.
The demand environment is solid and so you are spot on that we are seeing the front office is a priority for every CEO out there.
Thanks, Rocco we will go to the next question.
Your next question comes from the line of Brad Sills with Bank of America. Your line is now open.
Oh, great. Thanks for taking my question.
Thanks for all the color on where you saw the macro impact it sounds like SMB marketing commerce, but the core sales and service looks to have held in nicely you didn't call. It enterprise. So any specific color on how the core business in the large enterprise those bigger expansion deals in the core attract this quarter. Thank you so much.
Hi.
I'll start and then Brian I'd Love your commentary as well as you said I think the story actually the past number of quarters had been the strength of our core CRM business.
Sales cloud growing at 19% in constant currency as remarkable this was the product that Marc and Parker built 23 years ago doing.
So much revenue growing at 19% is incredible and Youre seeing it just in.
The continued strength in our core business.
The other thing I want to call it as our attrition rate being at historical lows as well and I think it really reflects the strength of our business and so.
EMEA articulated.
As it relates to SMB GM via DSL duration, we're seeing things settled down to pre pandemic norms, but still see incredible strength in our core CRM business in the enterprise and as I said I think the durability of our business really raised.
Rests on the durability and diversity of our portfolio the diversity of the industries that we serve and the diversity of the segments that we serve Brian is there any color you want to add.
On the sales and service cloud as sort of the centerpiece of our digital transformation for our customers and you saw the growth in the quarter and we expect that to continue.
We are seeing some compression in some of the larger transactions in our enterprise business and it's not a surprise at Liberty three. These these cycles before and you can see that maybe people will take a more measured approach to their digital transformation, maybe starting with a smaller piece, but a land and expand strategy is something we've used for many many years seed and grow it.
The strategy, we've used and so.
Despite the fact that maybe some of these some of these engagements are a bit smaller we do see acceleration in these customers.
In quarters to come so.
Yes, it was compression out there and some of the business, but we are very confident that we can go execute against the opportunity in front of us in these large enterprise accounts going forward with digital transformation being a top priority.
Your next question comes from the line of Kash Rangan with Goldman Sachs. Your line is now open.
Thank you very much lots of lots of exciting news for Salesforce Congrats on all the changes.
My question, maybe Brian Congrats to you as well in your new position.
What would you do to turnaround the data cloud clearly.
<unk> had some very significant momentum.
But I can some sense you look at the new guidance versus the old and save a lot of that Delta is basically the slowdown the growth rate and the data cloud that is a tableau to yourself business, Brian wanted to get your opinion on that and just the management team as you talk to customers Mark you've been through these cycles before.
What are customers, saying as to when they might reengage at the same level of enthusiasm with salesforce be deal size of close rates. What are the things that they were looking for from macro perspective, or leading indicators in their business. So it could be back to re engaging the way they used to reengage with salesforce. Thank you so much.
First of all cash thanks for the question and appreciate it.
Comments.
On the data business, it's a unique business for us because some of it is license based and you can tend to see some of the headwinds we saw in July show up more immediately there we feel very good about where both those businesses are right now, particularly in <unk> offset as you heard Brett say is on a great trajectory and we will be a tailwind to our revenue growth in the second half of this year.
We feel great about that.
<unk> is a critical component.
Component of our digital transformation with every customer wanting to leverage data to have better insights to the way they operate their business. So.
A lot of focus on these businesses.
Because it is such a critical component of every digital transformation, we feel great about that both of those.
With integration and analytics as a category for accelerated growth in the second half so no no big concerns there at all.
I would say.
On your second question.
We are not economists and so we're not going to guide on where when people are going to feel like they're coming out of this we think we're being appropriate with our guide for the second half of the year based on based on what we saw at <unk>.
Inspire in July .
Mark and Brad can incomes.
Well I think the main piece that I would really.
Focus on is really going to be spending as much time as I can with customers a dream for us This is our opportunity to really.
Understand deeply across a wide spectrum of our customers' geographies verticals. What it is that they are seeing in their own businesses well I think when you look at these customers. We mentioned one l'oreal. This has just been an incredible success story for US we see the PTC story, they're using marketing cloud.
Commerce cloud and service cloud the Commerce cloud story is incredible where they have almost 200 sites globally now for for all of their brands.
<unk> got highly customized experiences on the web and mobile and in store.
Sure.
I'm sure a lot of you use the <unk> brand, it's a great product they have an old new skin hub, they've been with us they've really re imagine their business using customer 360.
It's a company that we're going to feature in focus and talk about and inspire others Dream Force.
When you see stories like that when you look at all of the stories that we've seen especially during this pandemic surge over the last two years is incredible with folks have done with their businesses. When we get to this moment I don't think its a huge surprise that cut.
<unk> are more measured everybody is like wondering exactly where the economy is going and how things are moving forward. So this is a point where people are taking a little bit of a breath and then they will reassess and then when they get their confidence.
<unk>.
Full vision for the next stage of their company they come in and until then it's a lot of the transactional business that we would normally see and move forward with.
Yes.
Your next question comes from the line of Karl Keirstead with UBS. Your line is now open.
Thank you maybe I'll direct this to Mark Canadian it's about the $10 billion share repurchase so maybe a two parter mark maybe for you.
Why do you think this is the right time in the company's development to move forward with your first large repurchase and then secondly should everybody in the line interpret this as a signal that perhaps large M&A maybe off the table for now thanks, so much.
Well, it's a great question and I will tell you this.
This was kind of a I look at this quarter very much as kind of a milestone.
I am a big fan of SAP.
Have you had a lot of I have a lot of respect for their business and what they've done in the market over the last 40, almost 50 years and.
To see our business.
In July do more than they reported in June in terms of revenue that was very meaningful to me and I'm very grateful and proud of our team for kind of hitting this tremendous level of scale, but at that same moment I kind of also can say hey, what are some changes that we can make in one of the things we have such a massive cash flow.
So that I think it's completely appropriate for us to look at how we're handling our dilution for example, I think thats been on the table for a while and a lot of my conversations with investors. They bring it up we've waited for that moment I think now is the right moment, where we can say we're going to directly address this with our first ever share repurchase 10.
Billion.
I am very excited about it at the same time.
I don't think that that takes M&A off the table I think that we continue to look for opportunities, we want to be able to use our cash <unk>.
Constructively this.
Important for us.
Doesn't mean that we're not going to have different kind of guardrails for M&A.
Brett do you want to just address that yes, I think mark you articulate it well.
I mentioned this before but the pillars of our capital allocation strategy.
Our number one we're going to continue to become more profitable to generate expanded free cash flow over time, that's what mark. Thank you for saying you created a great business model and software as a service market and I think there are also committing to this we are committing to the margin for the year, so critical as well for them, but it is a number to where to invest in organic innovation.
We talked a bit on there's a question to Amy earlier on investment I am so proud of our investment in organic innovation, you will see a lot more of a dream for us, but I think we have a better pace of organic innovation that we've had in our history.
But and then finally, we want to reduce the impact of dilution, which is feedback I've gotten from all of you and we're focused on offsetting our stock based compensation and we're also focused on maintaining a healthy balance sheet, because we understand that's an incredible piece of leverage we have for future M&A. So I think this is a way to that we can continue to acquire in the future.
It's been a big part of our company's history, it will be a big part of our future, but do so in a way that minimizes the impact of dilution a dozen or more shareholder friendly way and you can see like we've picked up some great companies, where there was exact target which was kind of at the beginning of really augmenting customer 360, with our marketing cloud and then moving onto Neal soft was amazing.
We provided all the integration and the connectivity.
And then on to tableau and <unk>.
Extension of analytics, so important to so many of our largest customers and then slack what I just mentioned I just mentioned.
L'oreal.
Incredible a slack story.
<unk> in their communication.
<unk>.
Hey, they have that awesome brands storm event have you seen that spread is that worldwide innovation competition.
Competition that they do they've got more than 83000.
Student participants 65 countries that use slack to drive that thing forward you look at that we are a different company because we had an acquisition strategy over the last decade, I don't think we necessarily need to break that but at the same time, we need to be paying attention to dilution in the overall.
Making sure we have the correct capital allocation strategy as well Mark I think thats really at when we look at this I think this is very much a natural elevate natural evolution of our capital allocation strategy and when it really comes down to is that we believe sales force is positioned for success over the long term and this announcement reflects the car.
<unk> that we have in our business that as we look forward and our approach to generating shareholder value and I really think that when we get to dream for us and you see how we brought all of these platforms together integrated them youre going to see some really powerful integration capabilities.
You already saw some of that at the World Tour in New York with kind of the first level.
Customer data platform Youre going to see a whole another extension of that kind of capability when we get to Dream force and.
I think as Brad said, it's a very exciting moment in time when it comes to innovation with the company.
Okay.
Your next question comes from the line of Kirk <unk> with Evercore. Your line is now open.
Yes, thanks, very much I think this one is for Brett Brett I was just wondering if you could go into the industry cloud strategy a little bit.
And what Youre seeing going on there and can you just talk a little bit about how important that strategy is as budgets come under more stress and the ability for you all to go deeper with your customers on an industry basis. I was just kind of curious if you can give us an update on that and then how that strategy maybe plays out in a more choppy macro backdrop.
Thank you.
Yes, Thanks, Kirk with 12 industry clouds.
Spanning a wide range of industries, where I think CRM is particularly through strategic from financial services to health care to consumer goods and manufacturing and you can think of our industry cloud is essentially taken the customer 360 sales service marketing and E Commerce Tableau mill saw block and building <unk>.
<unk> specific processes and workflows that work out of the box.
And as you're sort of alluding to there's a lot of value for our customers number one is they don't need to pay us or professional services firm to implement the table Stakes for their digital transformation. It works out of the box that means they can focus their investment resources on the areas of their business that are differentiated it means they get faster time to value and it means that.
These processes are stickier, which is why our industry clouds have lower attrition rates in our lines of business clouds.
Been a huge area of growth for us and actually a lot of credit to our chief product Officer, David Schmierer, who actually his company, which we acquired a couple of years ago velocity was actually independent software vendor that built industry solutions on top of our platform and has been a strong advocate for this strategy internally.
A huge part of our go forward strategy.
If you have an option to buy one of our industry clouds why wouldn't you more works out of the box, you'll get faster time to value. So it's a huge area of investment for US I think the thing that we do really uniquely though mark alluded to it is it is really all in one integrated platform have you by our financial services cloud you get all the capabilities of our sales cloud or our service cloud of our customer data platform.
Form all in one integrated technology platform is very unique in the industry and I think.
This more measured by an environment it will become even more important.
It was important prior to this as well I mean, I think it just reflects our alignment with our industry go to market motion in vertical go to market motion and really focus on delivering faster time to value to our customers.
Thank you.
Your next question. Our last question today comes from the line of Phil Winslow with Credit Suisse. Your line is now open.
Hey, guys. Thanks for taking my question I wanted to focus in on slack slack again outperformed revenue expectations. Obviously, the large deal metrics are impressive to whats driving the continued demand for slack and say relative to some of these other vendors that are heavier in the telephony or the video segments of Ucas, frankly been delivering weaker results and are you seeing strong called Standalone demand for <unk>.
<unk> is a horizontal messaging platform or the Salesforce integrations that you highlighted driving more attach as a collaboration hub of slack in the context of multi cloud deployments.
Yeah I'll take this is Brett we are really happy with the performance of clock.
Interesting, we acquired Flack in the midst of this pandemic and now we're coming out of the pandemic into this new era of flexible work.
Office occupancy rates are at historic lows.
Look at the lines of business that we serve like customer service I've met tens or maybe even hundreds of executive teams, whose contact centers are no longer buildings. There are literally just in the cloud now and people are wearing headsets and their kitchens in basements to answer your phone calls and if you think about what it means to build an employee experience to build the customer experience.
In this new era of flexible work slack is really at the center of those conversations.
That's why it was such a strategic acquisition for us because one plus one is truly equal to much more than two when.
When I talked about the innovation to deliver a dream force. It's across every single one of our cloud we've been saying how do we help our customers that whose headquarters is now digital transition their CRM transition their employee experience in this new era of flexible work.
So we've seen great wall-to-wall engagements like Mercado Libre, one of the customers I mentioned in my script, but it's also really important that we have invested in integrating slack with customer 360, so that when we have a conversation say with a retailer for varian for cyber week, we're coming not just with our marketing cloud and our commerce cloud our service cloud but.
A slack connect channel that they can use as a command center for cyber week, that's key to our go to market motion, but and I don't think its at the expense of what you called Standalone. When we land a deal say for a department marketing Department sockets, such wonderful organic viral adoption that a year or two later, we're selling to the whole company and I really think thats.
Key to our go to market motion and slack is a relevant driver for every single one of the cloud and our customer 360, and I think a lot of the reasons that we bought the <unk>.
The company that they have.
Really could benefit from our credibility with customers and our distribution capacity has really paid out at such a great product in.
In June you, probably know that Brett and I did the World Tour in New York. Many of you are there, but the day before was the Frontiers conference for Slack and if you haven't looked at the demo you really should because the product has come a long way since we bought the company.
An incredible piece of Tech Boise video I mean, it's incredibly <unk>.
To see it to believe it I mean don't you agree like its something thats like.
And for a lot of your company to Dream for US I think youre going to see a lot of our products have become slack first and also the number of integrations that we're going to be able to kind of bring forth. How many how many integrations now do you have with these core cloud so <unk> been able to put together, we have 12 integrations with and the reason there's so many is because it includes our industry clouds.
Not just sales service marketing and commerce, but march going into something remarkable huddles, which is the name of the new audio and video <unk> introduced now accounts for 34% of all communication inside of Salesforce isn't that it's completely transformed the way we work and I'm pretty confident will transform all of our integrated slack with tableau, which is really cool right because you can be collaborative analytics and.
With the capabilities, we launched to allow you to talk to your data. This is happening inside of flock is just an incredible capability and as I said irrelevance driver for all of our customer engagements and a wonderful way to I think drive and accelerate flash adoption that they would've had it depends on a lot of our customers still haven't seen this and I think thats why im so excited about dream for us because.
When you come to dream for Us and you'll see the keynote obviously this will be highlighted and I think customers will see in real time, what we saw for example in frontier is even we didn't really have the opportunity because the code was so fresh to integrated into our world tour keynote, which kept Brett and I implemented many times, but I think that when you start to see the incredible.
<unk> that have happened in the Salesforce core clouds like sales like service marketing Commerce, even tableau you combine that with slack you bring that into the customer 360 with mill soft the single source of truth. The way its all been integrated with this customer data platform I don't think anyone else has this vision or is trying to even to execute it and ive may.
This kind of Lora told you L'oreal stories, so quite a few times youre going to see that.
A dream a dream force and in real time, and you can see many other stories because I think for US just trying to communicate our vision. This is like probably the most exciting thing going on here. We just brought 500 of our top executives together for kind of second half kickoff and show them. What we're so excited about and I don't think anybody.
Walked away not thinking that we've not only got a world class product that is highly differentiated but were really were a lot of our customers are trying to get to in the next level of their customer experience and perhaps made the point <unk> made the point, Brian made the point that digital transformation is underway, but we all know that every digital transformation is <unk>.
Beginning and ending with the customer and you've got to have this beginning you have to kind of begin with the end in mind.
That's all about building this customer 360, and you're going to see this at scale.
When we all get to Dream Force and I'll look forward to your feedback then.
Thanks, Phil and we want to thank everyone for joining us today, and we look forward to seeing everyone over the next quarter.
This concludes today's conference call. Thank you for attending you may now disconnect.
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