Q2 2024 Salesforce Inc Earnings Call
Welcome to Salesforce fiscal 'twenty 'twenty, four second quarter results conference call.
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After the Speakers' remarks, there will be a question and answer session.
If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press the star one thank you.
I would like to hand over the conference to your Speaker, Mike Spencer Executive Vice President of Investor Relations, Sir you may begin.
Good afternoon, and thanks for joining us today on our fiscal 2024 second quarter results Conference call.
Our press release SEC filings and a replay of today's call can be found on our website.
Joining me on the call today is Marc Benioff, Chairman and CEO , Amy Weaver, President and Chief Financial Officer, and Brian Miller, President and Chief Operating Officer as a reminder, our commentary today will include non-GAAP measures reconciliations between our GAAP and non-GAAP results and guidance can be found in our earnings materials and press release.
Some of our comments today may contain forward looking statements are subject to risks uncertainties and assumptions, which could change should any of these risks materialize or should our assumptions prove to be incorrect actual company results could differ materially from these forward looking statements.
A description of these risks uncertainties and assumptions and other factors that could affect our financial results is included in our SEC filings, including our most recent report on forms 10-K, 10-Q, and other SEC filings.
Except as required by law, we do not undertake any responsibility to update these forward looking statements and with that let me hand, the call over to Mark.
Alright, thanks, so much more I can really appreciate everyone being here today.
Obviously very excited about.
These results and getting out there with all of you and.
Thanks for being on this call so listen as we shared with you over the last couple of earnings call Salesforce has really accelerated our transformation to profitable growth.
Super clear from the numbers and I couldnt be more excited especially on this huge top line beat and what our margin is looking like today.
You all know over last year, we've been executing against these four key areas of our transformation first our restructuring for the short and long term, we've been talking about that since the fourth quarter call and we're going to update you on that today second we're reigniting our performance culture by focusing on productivity operational excellence and profitability and Brian is going to talk.
About that today and third we're prioritizing the core innovations to drive customer success and I can't wait to share with you that Dream force, how we're taking our core platform to a whole new level show you showing you some incredible new enhancements to our data cloud as well as new versions of Einstein and also fundamental extensions to our core platform really.
Showing how our core platform has been.
Rebuilt so that we can take so many of these amazing acquisitions that we've made over the last decade and run them right inside the core our fourth priority is building even stronger relationships with our investors. That's all you you know how important that is to US we probably spent more time in the last six or nine months with our investors and we have maybe in the entire history of the company.
And we have received great feedback from all of you and we're really making great progress there I don't want, especially thank Mike for everything that he's doing a value and we're adding a fifth priority and last quarter. We told you. We're now driving our AI transformation.
Pioneering AI for both our customers and ourselves leading the industry through this incredible new innovation cycle, and I couldnt be happier with <unk> and David.
And the entire product and technology team for the incredible velocity of AI products that were released to customers this quarter and the huge impact that theyre, making in the market in showing how <unk> sales force is transforming from being not only the number one CRM, but to the number one.
CRM and I would just express my sincere gratitude to our entire TMT TMT team I couldnt be happier the performance of our team delivered in the second quarter. The numbers basically speak for themselves. Our AI data CRM plus trust platform well it has propelled us to become the third largest enterprise software company by revenue in the World and I.
In Japan, we just became the second largest company so congratulations to everyone at Salesforce, and especially to our Japanese team and with our industry, leading clouds in sales service marketing commerce, our industry cloud powered by data cloud Einstein flow tableau slack meal soft.
Really all of these are integrated into one trusted metadata driven platform, we're providing more capabilities to more customers than any other CRM vendor and I can't wait to show all of that as I said, a dream force. That's why Salesforce is the number one CRM by market share based on the largest.
Our latest ADC software tracker and now we are working hard to be the number one as I said AI CRM, our transformation drove our second quarter results, especially when it comes to our highest priority as you can see profitability and look we couldnt be happier to see these numbers.
Incredible to see the margin acceleration in such a short period of time, we've exceeded our own expectations I hope we've exceeded yours.
In our second quarter non-GAAP operating margin rose to 31, 6% that's up over 1000 basis points.
Year over year and this is the second quarter in a row, our operating margin is up 1000 or four or more points.
Year over year, and as you think about to hear from Amy We've maintained our disciplined approach to cost management, while also investing in growth initiatives across our entire platform of offerings and we're positioning salesforce for the future and we will continue to drive our margins and also while we're continuing to drive customer growth.
Revenue in the second quarter was $8 6 billion, that's up 11% year over year and the same in constant currency during the quarter, we had great wins with J P. Morgan bear Fedex mirrors as well as.
The department of Veterans Affairs, and so many more youre going to hear about from Brian operating cash flow for Q2 was $808 million pretty incredible that's up 142% year over year really very strong and our remaining performance obligations ended the second quarter at $46 six.
And that's an increase of 12% year over year really amazing.
Current remaining performance obligation or what we call <unk> ended at $24 1 billion, that's up 12% year over year and 11% in constant currency now through the second quarter. We have returned and this is amazing $8 billion in share repurchases. Since we started the buyback program a year ago.
So we've got $8 billion of stock over the last 12 months that is really awesome. Amy is going to talk more about that and I think I know you are realized we have a lot more to do there based on our performance and what we saw in the back half of the year, we're raising our fiscal 'twenty for revenue guidance to 34, 7% to $34.
8 billion or about 11% projected growth year over year last quarter, we raised our fiscal year 'twenty four non-GAAP operating margin guidance to 28% and we said that we expected to eclipse, 30% in the first quarter of fiscal 'twenty five well as you've all seen these numbers and I am happy to officially share we are.
We're accelerating that target again, raising our fiscal year 'twenty four non-GAAP operating margin, 30% an improvement of 750 basis points year over year, it's kind of amazing, but yes, we are saying that we're going to deliver 30% margin for this year and that's an incredible goal. So while we thought we were going to do it next.
Year, we're really going to do it this year and it's an amazing achievement of our whole team. It certainly has been a lot of work it's been difficult and a lot of cases. It has been a struggle, but our teams are incredible and what they have done has been nothing more miraculous in down to see not only did a little over <unk> of the 31 plus percent.
Growth for this quarter, but down 30% for the year. It's just awesome, it's just incredible and I'm really excited to welcome back to Salesforce. So many boomerang employees Boomerang employees are in place who are employees, but for one reason or another left the company get recruited away or one off to start their own companies or wherever.
Well a lot of these results has to do with not only our incredible employees that we've had in place, but a lot of folks have really felt the desire to come back and help us and I just wanted to say thank you to all of them. It's been incredible to welcome them back and align as long out the door people, who have left salesforce and we want to come back to sales.
For us and we're welcoming all of them with open arms, especially across our sales engineering technology organization improvement winters incredible leaders who've got taken out of Salesforce, because they were doing incredible things that to watch them come back because they want to help us achieve this next level of growth and capability in.
Revenue in margin and in technology and leadership, well I just wanted to especially start to think some of those including Magellan Melano Who's our new Chief revenue Officer has just returned to us from <unk> and of course, the RTL Carman, our Chief Marketing Officer, who was most recently at Oracle and Kendall Collins, our Chief business Officer and has been.
Now my Chief of staff and it was of course had so many meetings executive positions at Salesforce, but this is a long list and I cant even continue it of how many people are coming back and what I love about this is that they are hitting the ground running and they make an immediate impact they know the culture they understand the products they're able.
To execute incredible agility, and so I've got the sirens hiring out there for all of them to come back in there to join US now earlier. This month, we welcomed Sebastian Niles to Salesforce as our Chief legal officer. He is sitting here at the table right now, making funding faces at me and I wouldn't be happier.
I wouldn't I couldn't be happier to have Sebastian as part of my executive leadership team. We met Sebastian This year, we did a lot of work with Wachtell has a lot of it you know we will go through the details not necessarily to go through that right now.
The past is the past, but I'll tell you one of the greatest things that happen. During this amazing period of Salesforce was medium Sebastian and now to have him on our leadership team I couldnt be more excited and I am thrilled to have him with us So welcome Sebastian.
Thank you okay. Thank you those are his opening comments.
AI data CRM Trust, let me tell you we're at the Dawn of an AI Revolution and as I've said, it's a new innovation cycle that is sparking a massive tech buying cycle over the coming years. It's also new tech investment cycle. We've been involved in the earliest brown at many of the top AI startups. Many of you've seen that we are in there.
Early but I will tell you. This company has pioneered AI not just in productive a lot of you have followed up the development and growth of Einstein, but also you've seen that we've published some of the first papers on prompt engineering and the beginnings of generative AI and we took our deep learning roots and we really demonstrated the potential for regenerative.
And now to see so many of these companies become so successful I just saw open AI delivering $1 billion revenue run rate is just awesome to see this growth, especially proud that theyre right here in our hometown of San Francisco, which is becoming the number one AI city in the world very excited for our city now through our.
$500 million generative AI fund, we're seeing the development of ethical AI with amazing companies like Anthropic, cohere hugging phase and so many others and I just heard one of them just sub leased our entire slack building, we're not allowed to say who it is but I couldnt be more excited about that because we're really seeing down.
<unk> San Francisco become AI central So every CEO I've met with this year across every industry believes that AI is essential to improving both their top and bottom line, but especially their productivity.
It's just augmenting what we can do every single day I just thinking about myself I've spent so much time on bard over the last week. It's incredible I was just buying some flashlights and I couldnt figure out what flashlight I wanted to buy and I was on Amazon and trying to figure out what's the flashlight and so I took a picture of the Amazon picture of that.
It was happening on the App and I gave it to Bard because BARDA is multimodal capability to ingest the photo and adjusted the photo and they told me not to buy the flashlight that it was poor quality and a recommended one that was better for me and it was incredible to see that I was once again working with the next generation of artificial.
Intelligence and that is inspiring me and I think many of our customers and ultimately all of them believes they can grow their businesses by becoming more connected to their customers than ever before through AI and at the same time reduce cost increase productivity drive efficiency and exceed customer expectations through AI and I'll tell you every single management.
That we have here at Salesforce every week, we are using our Einstein AI to do exactly the same thing. We go back we're trying to augment ourself using Einstein so what I'll say is and we've been doing this now and Super impressive will say, okay. Brian what do you think our number is and say, okay. That's very nice, Brian , but I understand what do you really think.
The number is and then Einstein will say I think Brian Sandbagging and then the meeting continues the reality is every company will undergo an AI transformation with the customer at the center because every area of transformation begins and ends with the customer and Thats why salesforce is really well positioned.
Position with the future and with this incredible technology Einstein that we've invested so much in and grown and integrated into our core technology base, We're democratizing generative AI, making it very easy for our customers to implement every job every business in every industry and I will just say that in the last few months we've injected.
<unk>, a new layer of generative.
AI assistance across all of the customer 360.
And you can see it with our salespeople who are now using our sales cloud GPT, which has been incredible what we've released.
This quarter two also all of our customers in here inside <unk>.
Salesforce and then when we see that they all say to themselves you know what in this new world everyone can now be an Einstein, but the market is in general the AI at scale for the biggest brands in the world requires more than just these large language models and deep learning algorithms and we all know that.
A lot of our customers kind of thing and they have tried and they go away.
Paul something off of hugging faces is amazing Amazing company, we just invested in their new round and grab a model and put some data in it and nothing happens and then they don't understand and they call us and say hey, what's happening here I thought that this AI was so amazing and it's like well.
It takes a lot to actually get this intelligence to.
To occur and that's what I think thats.
The value of that Salesforce is bringing.
Is that were really able to help our customers achieve this kind of technological superiority right out of the box just using our products in a low code no code way, it's really this democratization of generative AI at scale.
That is really what we're trying to achieve that at the heart of every one of these AI transformation becomes our intelligent integrated and incredible Salesforce platform and we're going to show all of that at Dream Force. Our platform starts and ends now with our data cloud and I just would like to call out any credible data cloud team for what they have to live.
<unk>.
A lot of you have seen the release of the data cloud. This incredible Genie technology that we started really showing off last dream for us, but what you can see with data cloud is that customers must get their data together if they want to achieve success with AI. This is the critical first step for every single customer and <unk>.
We're going to see that this AI Revolution is really a data revolution and youre going to see it reinforced that we're going to get this data file turned on as fast as we can and as easiest as we can for every single one of our customers. This data cloud is incredible what it's doing for our customers that not only is AI built.
And but it's real time, it's automated it's integrated with the core platform. It's not some separate data cloud, it's an integrated part of our platform in our metadata in our core code.
Like ourself cloud like our service cloud and as Youre about assume seen our new marketing cloud and commerce cloud and <unk>.
Of course, our core application development capabilities, all inside our data cloud no CRM platform on the planet.
Better positioned and Salesforce to use this amazing salesforce and business data to fueled AI powered applications because of this architecture, it's very easy for our customers to setup and just go and our data cloud is so deeply integrated as part of this core metadata architecture, it's allowing our customers to quickly.
Action all of their data from any source without the costly integration project necessary with Standalone data warehouses and data lakes that they've enforced.
By and create more islands of information and all of these.
All of these independent systems and independent teams versus having one integrated data architecture, we're moving our customers from having islands of data to having a single source of truth for all of their data. This is our greatest dream with data cloud and powerful technologies like Einstein flow whitening tableau.
We all saw slack or customers. They can easily supercharged every application and customer experience with AI automation and analytics at scale.
Data cloud continues to be our fastest growing organic product you're going to see the new version actually enforced it's fully integrated with our sales cloud and service cloud and of course already our marketing cloud and <unk> and.
And other key things in this kind of new second version of data files, its coming will be fully released to the customers and as I said our goal is for every customer just to be able to easily turn it on just in the second quarter data cloud adjusted enlist is amazing over six trillion records at adjusted six trillion records and triggered.
More than one trillion activations to drive customer engagement and we've always put trust at the center of everything that's going on in our platform and that has never been important more important I would say, especially now with not only with data cloud, but unless AI revolution, because its air Revolution is a trust revolution everything Einstein.
<unk> has also delivered with trust and especially ethics at the center and I, especially want to call out the incredible work of our office of ethical and humane use pioneering the use of ethics in technology. If you didn't read their incredible article in <unk> This quarter it was awesome.
And they are doing incredible work really saying that it's not just about AI. It's not just about data, but it's also about trust and ethics and Thats why we develop this Einstein trust layer. This is completely unique in the industry and enables our customers to maintain their data privacy security residency and compliance goals.
And I can tell you we're already at this early stage seen momentum with these amazing Einstein innovations companies like Heathrow Airport and patent fed credit Union really adopted Einstein and took their salesforce implementations to another level in the quarter. Heathrow is a great example of transformative power of AI data CRM and trust.
And the power of a single source of truth.
They have 70 million passengers, who pass through their terminal annually I'm sure. Many of you have been one of those passengers I have as well Heathrow is operating at tremendous scale managing the entire airport experience with the service cloud marketing cloud Commerce cloud, but now Heathrow they've added day.
Cloud also giving them a single source of truth for every customer interaction and setting them up to pioneer.
<unk> Revolution, and Einstein Heathrow service agents now have this AI assisted generator applies to service inquiries case deflection, writing case summaries, all the relevant data and business context coming from data cloud, we're doing so much incredible an exciting innovative work in service with <unk>.
Data cloud and with our service cloud and AI is going to show us a whole new vision for the future of service and what our service cloud can do for our customers not only with delivering high quality customer service, but delivering incredible new levels of productivity. This is saving their agents huge amounts of time and effort. This is the power of Salesforce.
I've never been more excited about the future of our industry the power and future of our company the potential to help all of our customers and also especially our team the quality of our team, especially fuelled by all of these amazing new Boomerangs and Youre going to see at all at Dream for stream for US was right around the corner September 12 through 14th right here in <unk>.
And Francisco I'm looking forward to welcoming each and every one of you to Dream Force.
I'm right now at the top of the Salesforce tower in San Francisco, we're going to bring you up here, we're bringing through Mosconi will show you our incredible downtown and I'll tell you. This isn't just the largest enterprise Tech conference. This year, it's going to be the world's largest AI conference. The largest gathering of AI experts will have many of the world's top AI thinkers incur.
<unk>, Sam Hoffman and his amazing open AI company incredible what he is doing in tropics <unk>.
<unk>, who is one of his alumni who left open AI to start Anthropic Amazing company.
Stanford Safeway, Lee Amazing Amazing researcher and visionary leader of AI and presenting some of the.
And just some of the 1500 Dream Force conference.
Jeff sessions is really awesome, what we're going to see here with AI and Dream force and we're going to take everyone's skills to a whole another level and we will also share our vision for the future of CRM. The next generation of data cloud and Einstein.
And we're also going to have the Foo fighters Theyre going to play our Dream Force benefit concert, Dave Matthews is going to play my dinner. The night before hopefully we're going to see him at the conference.
Some of them on some incredible ways and we can't wait to get you all here and to show you what's happening in sales force.
What's happening in AI, what's happening in San Francisco and it is going to be an amazing event and we're just a few days away and now let me turn it over to Brian .
Thanks, Mark, particularly for the Sandbagging comment.
I really appreciate it.
It wasn't me it was Einstein.
So just know it is what it is Brian got it.
Our focus on operational FCA, AI revolution coming out of <unk>.
So get ready.
Our focus on operational excellence high performance and growth initiatives drove another strong quarter. We continued our disciplined approach to cost management and efficiencies removing complexity from our business to drive top and Bottomline improvements every customer I met within the quarter made it clear they are laser focused on driving greater productivity quick time to value and business growth.
We see AI CRM is the answer they all see as CRM is the answer to those priorities and we're making it easier and faster for our customers and unleash the power of trusted generative AI safely and at scale.
Innovating faster than ever with AI, plus data plus CRM plus the trust platform.
We also have the most complete product portfolio with customer 360, delivering mission critical outcomes for our customers.
And you've heard from Marc data cloud is supercharging, our product portfolio servicing real time customer data in the flow of work around sales service marketing and commerce.
That's why more than 90% of the fortune 100 rely on salesforce and averaged more than five of our clouds.
Amid the ongoing measured buying environment compression of larger transformational deals continued in the quarter affecting our professional services growth. Despite that we exceeded top and bottom line expectations in Q2. This.
This is a reflection of our proven go to market strategy and focus on customer success are.
Our high performance culture continues to drive results and I'm proud of how well the team executed in the quarter.
Our growth initiatives across core products data AI services industries and international are driving that driving our success in the quarter. We saw consistent demand in our core business and we continue to benefit from customers consolidating their technology platforms to reduce complexity drive efficiency and growth.
Six of our top 10 wins in the quarter included fiber more clouds and as Youll hear from any.
We're deepening our relationships with multi cloud customers, who are running their businesses on salesforce and realizing tremendous value from having one integrated AI powered CRM platform.
<unk> electric has been using customer 360 for over a decade enhancing customer engagement service and efficiency.
With Einstein Schneider has refined demand generation reduce closed times by 30%.
Salesforce flow, they've automated order fulfillment and with service cloud, they're handling over 8 million support interactions annually much of it done on our self service offering in Q2 Schneider selected marketing cloud to further personalize the customer experience.
In the quarter, we saw add on products like sales performance management Digital service self service and marketing engagement grow 40% and to help our smaller business customers achieve faster time to value. We introduced a new product called Salesforce starter in Q2, bringing sales service and marketing into one integrated offering for our small business customers.
As Mark said data cloud is one of our fastest growing organic innovations ever and it lets customers unlock the power of their data to supercharge every application and customer experience with AI automation and analytics.
This is driving our strong momentum data cloud was in five of our top 10 deals in the quarter and we saw great wins are companies like Sirius XM.
And KPMG.
In the quarter Fedex made a significant investment in sales force by adding data cloud Fedex has long relied on multiple clouds from salesforce, including sales service marketing and Einstein now with data cloud turned on every part of Salesforce is deeply integrated to drive growth and deliver more targeted customer engagement to personalize experiences.
We're also seeing strong customer momentum on Einstein generative AI headset is a great example of how AI plus data plus CRM plus trusts is driving growth for our customers.
<unk> is one of the largest credit unions in the U S growing at a rate of the next nine credit unions combined there.
We're already using financial services cloud experience cloud, Neil soft and our Einstein powered chatbot handling 40000 customer service sessions per month, an faq today Penn said resolved 20% of their cases on first contact with Einstein powered chatbot, resulting in a 223% increase in chat productivity in the past year with.
Incredible ROI.
In Q2, Penn said expanded with data cloud to unify all the customer data from its nearly 3 million members and increase their use of Einstein to rollout generate AI assistant for every single one of their service agents.
In the quarter. We also had great wins in tableau Slacker Neal Shah with tableau continuing to be a tailwind to our revenue growth in Q2, nearly half of our greater than $1 million deals included <unk> as customers bring together data from all sources to fuel efficiency growth and insights neurosciences become mission critical for them and was included in <unk>.
Half of our top 10 deals.
We've seen excellent usage growth and our automation products, including slack, which now.
Which is now launched nearly 8 million workflows weekly, 71% increase year over year.
Our industry vehicles continued to be a growth lever for us and for the third consecutive quarter eight of our industry cloud cloud grew.
Above 50%.
We also songs we saw strong growth internationally with wins like Hargreaves Lansdown in EMEA Department of education of Victorian APAC Banco care for in Latam and I am excited to reiterate Mark said earlier about Japan now being the second largest software business in the country just incredible growth.
As we head into the second half of the year, we are leading the way as the number one CRM with a path that would sorry with the pace of innovation and an all time high our focus on customer success drives our unsuccess accelerating revenue and profitability.
The full power of Salesforce and our incredible community of Trailblazers experts and partners will be on display at reinforce next month I hope to see you all there any over to you.
Our Q2 results sorry about we continue to make great progress on our four.
<unk> transfer Nelson delivering another quarter of top and bottom line expansion.
As you can see in our results, we're delivering against our transfer and also driving profitable growth and shareholder value.
We are well proposal.
With the number one <unk> for arm.
Our execution against our profitable growth framework.
So core results so let's start with the top line commentary.
For the second quarter revenue $8 6 billion up 11% year over year and the same in constant currency.
This was primarily driven by continued momentum.
Solid sales arm circles performance and a modest FX tailwind. This was partially offset by some continued pressure on professional sacrifice.
Durability of our business model and our company.
<unk> multi cloud expansion strategy with <unk>.
That's the mission critical nature of identified platform.
As evidenced by the more than 400 customers filling fast marathon.
<unk> million dollars online.
Average southern France.
And in the last five years, the lumber a 10 million dollar plus customers have tripled.
Average number of cloud.
From a geographic perspective, the Americas revenue grew 10% on.
<unk> grew 13% or 11% in constant currency, <unk> grew 20% or 24% from currency.
We saw strong new business growth in our lash alone high level by Canada, France and India.
Robert Stone Cold Steve Jones.
From an industry perspective manufacturing auto Murdoch until some greater resilience.
And retail and consumer goods for Macerich.
Q2 revenue retracing ended the quarter at approximately performance.
In Q2, our non-GAAP operating margin rose to 31.
Performance up 1000 basis points or more subtle courtyard and around.
The margin improvement was driven by savings from our restructuring actions strengthened our armed investment Palomar.
I am very proud of our progress our disciplined approach to cost lines have allowed us to exceed our 30% non-GAAP margin target three quarters.
Q2 operating cash flow.
$808 million up 142% year after year since your free cash flow was $628 million up 371% year after year.
The upside and cash flow was driven by stronger collections and lower cash outflow is tied to the Q2 margin points after Scott.
Now turning to remaining performance, our propulsion RPM, which represents all future revenue under contract.
Q4 up $46 6 billion, a 12% year after year, our current remaining performance obligation or CRP L.
Ended at $24 1 billion up 12% year over year, 11% in constant currency.
This was ahead of expectations negatively phenomenon for me Neal.
As we called out last quarter, CRP, Oklahoma Southern crude a one point headwind from professional services.
And finally, we continue to deliver on our capital return commitment.
In Q2, we returned $1 9 billion in the form of share repurchases, bringing the total returned to more than eight per $1, representing more than 48 nine sorry.
Since the program with English Global Jeff's last August .
Before turning to guidance I wanted to briefly touch on the current demand environment.
<unk> heard from Brian the larger macro environment continues to impact customer ecosystem that long and we are still seeing elongated sales cycles, and personal Guillermo <unk> and yield compression in our subscription and support and professional services.
These factors are incorporated in our model.
Sure.
Let's start with fiscal year 'twenty four.
On revenue, we are raising our guidance to $34 seven from $34 eight reference level, 11% growth year over year in both nominal and constant currency.
The increase was driven by strength in our subscription and support popular particularly in Europe .
We are accelerating our transformation to profitable crop for fiscal year 'twenty. Four we are pleased to raise non-GAAP operating margin to.
<unk> pro forma representing over 750 basis point improvement year over year.
As Mark highlighted.
Our new innovation cycle that we will continue to invest in <unk> over the long stockpiled as a result, we expect non linear quarterly margin from a bark harmful coffee are driven by investment timing, specifically them I'll start off.
We also remain focused on stock based compensation and expect it to improve affordable slightly above 8% pro forma for <unk> now.
As a result of these Apple who are expect fiscal year 'twenty for GARP <unk> of $3.50 to $3 52 facts, including estimable charges for the restructuring.
And Ah Robinson.
non-GAAP diluted EPS is now expected to be $8 four to $8.
We are raising our fiscal year 'twenty for operating cash flow growth guidance to approximately 22 to 23 profile.
This continues to include a 14 to 16 point headwind from restructuring.
As a reminder, we expect to see an increase in our cash taxes in fiscal year 'twenty four as we drive RMR, removing the operating landfills.
We expect an even greater cash heartland last fiscal year as we draw down our remaining tax credit carryforward.
Capex for the fiscal year is expected to be slightly below two 5% for off an arm. This results in free cash flow growth of approximately 24% to 25% per year.
Now to guidance for Q3.
On revenue, we expect $8 seven to $8 seven <unk> growth of approximately 11% or 10% constant currency.
<unk> for Q3 is expected to be slightly above 11% year over year in nominal and slightly above 10% in constant currency.
We continue to expect professional services headwinds of approximately 1.2 VIP aircraft.
As a reminder, Q3 is the first full quarter will lap a master the borrowing environment that we first began before in July of last year.
While we expect bookings growth to begin to normalize.
<unk> will continue to be materially impacted by the cumulative is stopped.
Five quarters as measured response to find out.
For Q3, we expect GAAP EPS of $1 <unk> to $1, <unk> and non-GAAP EPS of $2 five to $2.
And as we focus on shareholder returns and disciplined capital allocation, we continue to expect to fully offset our stock based compensation corrosion.
Share repurchases in fiscal year 'twenty four.
In closing I want to thank our shareholders for their continued support as we laid out for you two quarters ago, we have radically accelerate our transformation to profitable growth.
We've maintained our disciplined approach to cost management, while continuing to make strategic investments, notably in our local and our own capabilities.
And finally, I hope you're able to attend <unk>, whether in person or for its right to hear the latest on the incredible.
<unk>.
As Mark said, it's going to be on a farm.
Now, Mike, let's open up the call for questions.
Thanks, Amy and mobile go to move to Q&A portion of our call now out of respect for others on the call. We ask everyone to ask only one question Emma please.
Thank you as a reminder, if you would like to ask a question press star followed by the number one on your telephone keypad.
Your first question comes from the line of Kash Rangan with Goldman Sachs.
Your line is open.
Alright, Thank you very much.
The team has done a spectacular job doing a soft landing and not to use it over or where you stand with respect to the economy.
Cost controls operating discipline et cetera, so really congratulations on that and I hope that Dream force continues to stay in San Francisco.
A question for you is.
We got all this tremendous new product exactly what we got generative AI capabilities, the spending environment seems to be sort of stabilizing the economy does have a soft landing do you think salesforce is maximize customer wallet share or do you think there's more share to gain and therefore.
Better days ahead, because we've seen the margin story play out very very impressively.
In sales and sales force get back to that.
The base of growth not hyper growth, but is there enough room in the market enough customer wallet share and seemingly there is no product excitement with degenerative AI. So if you net it all out can be still do a nice job with margins, while still having a shot at growing even faster when economic conditions are no longer a constraint. Thank you so much and congratulations.
Okay. Thanks, so much and we're looking forward to seeing you dream for US, we're really excited and I think you're going to be Super excited when you see these new AI products and when we talk about growth I think it is going to start with AI.
I think that AI is about to really ignited a buying revolution I think we've already started to see that with our customers and even some of these new companies like open AI and we certainly see that in our customers' base as well I think you also know we've definitely seen in the last several quarters are measured by an environment. That's also been true not just at Salesforce, but I think for the VAT.
Majority of our peers that you follow and I think that you also called that out a number of times.
I certainly expect that to abate.
Especially as customers begin to adopt these new AI technologies and understand they need to invest and grow to be able to achieve this kind of next level of productivity now all that said we've also seen this amazing growth in a number of our core technologies and our products and I would especially like to call out the incredible success of meal soft over the last several quarters because.
That is a product that has far exceeded our expectations, especially.
And including several of our geographies as well. So this is not something that is quite permeated everywhere, but there are some isolated areas and I really think the dream force is going to become a catalyst for our customers to see this opportunity to grow with us to see these new products. These new technologies data cloud is just one example of many new area.
Is that Salesforce.
Investments can happen with customers and I'm sure that as they start to reignite their it bind budgets in this kind of.
Post pandemic hangover, that's kind of occurred I think as we kind of get to this next level, we're going to see a driven by artificial intelligence, Brian Whats Your perspective, yes, Kash. Thanks for the question I think we've outlined in previous calls a growth strategy. It's three pronged one around expanding our multi cloud customers and with new technology like.
AI data cloud, there's a huge opportunity for us to go back to our customers and expand the number of clouds that they are using a big growth opportunity to drive more value for our customers and certainly more success for us as well.
National acceleration continues a big opportunity for us and we think there is plenty of room to run and in the international markets. We're going to continue to focus our efforts there and make investments as we see appropriate.
Obviously, we'd love to see the economy turn a bit.
And then finally on industries you heard me say eight of our industry clouds grew at greater than 50% in the quarter. It's remarkable the impact we're having with our industry products. So deeper investments in industries as well will continue to propel the growth of this business and I think I would be remiss if I didn't call out on <unk> com are new sitting here at the table with us to talk about Dream Force.
You also talked about a number of incredible new technologies that are opinions Ral can you give us a little bit of an insight to what you what we're going to see in some of these catalysts remains the next level of growth for Salesforce, where they're going to occur. Yes. We're very excited about next week's Dream Force conference hopefully all of you can join US as Mark said, it's going to be the biggest AI of end of the year, we have a tremendous lineup of speakers.
Some of the most technical companies and the technical speakers of those companies and people to help the broader business community understand what they can do with AI all across our customer 360 range of products.
Sessions for sales people for marketing people for customer service people to really teach them and inspire them and how they can use AI to really advance their capabilities with the technology, we built directly in our product in the flow of work. So they can take advantage of it immediately.
<unk> been back now for what has been a couple months now one month, how long has it been.
He has been since the beginning of June it's about three months three months, so tell us what's been your biggest surprise being back at Salesforce.
The biggest surprise is that the energy of all the people here is in some ways just as is.
And inspiring and energizing as it was when I was here 12 years ago. This passion about the mission, we're on and the high standards for the technology that we build is really.
Has been very very refreshing from having been at some other companies, where we were sorry to lose you to Amazon and the Oracle, but we're happy to have you back here. So welcome back. Thank you Okay, Michael Thanks Kash.
Next question please.
Your next question comes from the line of Keith Weiss with Morgan Stanley .
Your line is open.
Excellent. Thank you guys for taking the question.
Cashes.
Congratulations on a solid quarter, particularly on the margin side of equation.
You guys really outperformed expectations and my question is around kind of margins on a go forward basis.
You achieved your targets well ahead of plan three quarters are ahead of plan as you stated.
But there is also a big opportunity ahead, and Mark you've talked a lot about this transformational opportunity had regenerative AI so how.
Should we be thinking about the balance between investing for the agenda today opportunity versus further kind of margin gains on a go forward basis into.
Into the back half of this year and potentially into next year as you guys balance these two.
Opportunities and goals.
Well I really would like to just directly address that which as you know you're really speaking to is this incredible opportunity ahead in generative AI is really that opportunity, but also many other opportunities including data.
I really think that there are some unbelievable opportunities ahead, it's going to be incredible to see what we're going to be able to do and I think that the question is exactly as you said how much are we going to really unleash the fundamental growth of the company against commitments that we've made to our investors to continue to deliver profitable growth.
At the very fundamental level, starting with our Investor Day last Dream Force. We told you that we are committed to profitable growth and now you can see that we were serious it wasn't a joke. We did a number of things we curtailed things we've made changes structurally to the company's short term and long term issues and we're still doing things by the way to do that.
At the same time, we see this incredible opportunity that's out in the industry new companies that are emerging.
As well as of course, all kinds of unusual public company.
Locations. So we're watching all of those things, but number one is going to be our commitment to you nothing is more important to move the trust that we have with our investors number two is we.
We are very thirsty to make sure that Salesforce is the number one CRM and we've done a lot organically to do that in last six months of course, Theres things out there that we could do to help us with inorganic as well we're looking at those things we're looking at everything but nothing is going to ever Trump. The trust that we have with all of you.
Keith I would just add you know when we did the restructuring it was never just for the bottom line. We also made changes to that.
Had the resources to invest in the areas that we believe are going to drive the highest growth for the company.
And we've been very disciplined in our approach to spending this quarter.
On a roll on these opportunities.
Around AI around <unk> around the corner and as a result, you'll see that our increase in guidance for 30%. It does imply slightly non linear progression this year.
In terms of the future and we look forward underscore everything Mark said about our snack nuts and as I said last time, I really believe 30% annually in Florida.
Thanks, Keith and I will take the next question. Please.
Your next question comes from the line of Kirk <unk> with Evercore. Your line is open.
Hi, yes, thanks, very much I guess, Amy I've had a lot of questions just on the impact of the pricing actions that you all announced earlier this or over the summer.
How that if that had any impact on the quarter and then how are you thinking about that in terms of the guidance for the back half of this year. Thanks.
Great. Thanks for the question so on guidance for this year I have.
Account, a pricing uplift as well as changes from our new offer totals around I will say that neither has.
Influence on our guidance for both here I think.
<unk> really take a while to roll through our customer base, particularly around pricing as we'd like to renew wrong, Brian anything else you would like to know exactly that we're going to see the.
The impact of our price increase really hit the customer base over the next one to two to three years.
So no big material change in this fiscal year I appreciate the question Kurt.
Thanks, Kirk and the next question please.
Your next question comes from the line of Karl Keirstead with UBS. Your line is open thanks.
Maybe to Mark <unk>, Amy with with head count down, 11% now and as you talked about Mark welcoming back former employees do you feel like you've right sized the head count now at the 70000 level has it sort of bottomed and if you feel like there is an opportunity for it to <unk>.
<unk>, who will start growing again is that a signal mark that you feel like your growth rate here at 11%. This year is at or near a bottom. Thanks. So much.
Well I think it's such a great question and something the management team is talking about every single day, because we are continuing to grow and invest in our head count, especially in AI also I think I mentioned, we are doing so much incredible innovation work on our core and we've commanded our engineering teams to accelerate their work in moving all of our.
<unk> into our core, especially our marketing products and commerce products and data cloud all of which we plan to show you at Dream force and to accelerate that work and Thats extremely.
Foreign to US and also Brian has a number of products and geographies that are growing and we are also commanded him to invest in his growth. So we are continuing to grow our head count, but we are also facing normalized attrition of course with head count. That's also a part of it and so as those both of those things.
Get rebalanced Youll continue to see our head count adjust and move forward I don't know if we can call. This is a bottom exactly yet or if it's.
But.
We're not planning any other major restructuring efforts in the company today like what we saw earlier this year, we hope that that is one and done and behind us.
Thanks, Karl and then we'll take the next question.
Your next question comes from the line of Brad Sills with Bank of America Securities. Your line is open.
Wonderful. Thank you so much I wanted to ask another question here on AI. The opportunities here are just so exciting across the stack sales GPT, you've highlighted content automation call summary sales assistant service GPT auto replies summaries.
And scheduling.
When you look across the Salesforce stack, where do you see the most opportunity here you know cross sales service marketing commerce and the core.
Just on the activity that youre seeing today from customers with with the early release of the product.
Well. Thank you so much for that and let me just say, we're in the middle or at the beginning.
Quite a ball game here.
We're really looking at the evolution of artificial intelligence in a broad way and you're really going to see it take place over four four major zones and the first major zone is what played out in my decade, which has been predictive that's been amazing and Thats why salesforce will deliver about a trillion transactions on Einstein. This week is incredible user.
Predictive transactions, but we're moving rapidly into the second zone that we all know is generative AI and these GPT products, which we've now released to our customers. We're very excited about the speed of our engineering organization and technology organization, our product organization and their ability to deliver customer value generative AI we are true.
Mendes AI expertise.
Led by an incredible AI research team and this idea that we're kind of now in a generative zone means.
Zone number two but as youre going to see a dream for zone number three is opening up with autonomous and with the agent based systems as well this will be another level of growth in a while a another level of innovation that we haven't really.
Seen unfold yet from a lot of companies and Thats an area that we are excited to do a lot of innovation and growth.
And to help our customers and all of those areas and then we're eventually going to move into Agi.
That will be the fourth area and I think as we move through these four zones CRM it will become more important to our customers than ever before because youre going to get more automation more intelligence more productivity more capabilities more augmentation of your employees as I mentioned and Youre right were going to see a y.
Good variety of case capability is exactly like you said, whether it's the call summaries and account overviews and deal insides and inside summaries and in product assistance or mobile work briefings.
When I look at things like service when we see the amount of case deflection, we can do in productivity enhancements with our service teams.
And not just in replies and answers, but also in summaries and summarization, we've seen how that works with generative and how important that is in knowledge generation and Congress.
Our auto responding conversations and then we're going to have the ability for our customers with our product. We have an open system. We're not we're not dictating that they have to use any one of these AI systems. We have an ecosystem of course, we have our own models and our own technology that we have given to our customers but.
We're also investing in all of these companies and we plan to be able to offer them as opportunities for those customers as well and there'll be able to deliver all kinds of things and youll see that whether it's going to end up being contract Digitization and caused generation or survey generators. There are all kinds of a campaign assistance and the most recently in our.
Our World Tour in London, we showed how our data clouded automatic marketing segmentation that was incredible.
Youre going to see a lot more that's going to happen in all of these things a lot of it you can see happening in slack slack has become incredible for these AI companies every AI company that we've met with as a slack company all of them make their agents available for slack first we saw that for example, the anthropic were acquired really appeared first.
Quad two first in slack and then anthropic as a company uses slack internally and they have a they take their technology and develop news digest everyday and newsletters and they do incredible things with Slacker Slacker is just a treasure trove of information for artificial intelligence and you'll see us deliver all kinds of new capabilities.
In slack and along these lines and we're working as I have mentioned get slack to wake up and become more aware and also for slack too.
To do all of the things that I just mentioned one of the most exciting things that I think youre going to see it green.
Dream Force as slack very much as a vision for the front end of all of our core products. We're going to show you an incredible new capability that we call slacker sales elevate which is promoting our sale of core sales cloud system running right inside slack, that's going to be amazing and we're going to also see how we're going to release and deliver all.
Our core services.
Salesforce through slack. This is very important for our company to deliver flat very much as a tremendous tremendous easy to use interface on the core sales force, but also all these AI systems. So all of that is that next generation of artificial intelligence capability and I'm really excited to show all of that to you.
At Dream force as well as data cloud as well.
Thanks, Brad Emma will take the next question now please.
Your next question comes from the line of Brad Sills.
Brad Zelnick with Deutsche Bank.
Your line is open.
Great. Thanks, very much and congrats in particular to Ami and the whole team on Overachieving on profitability. My question markets for you I wanted to drill down into data cloud because the things we keep hearing from partners suggests that the interest level just keeps building and building can you talk about the pipeline and scope of these projects and how this generative AI moment is impacting the opportune.
And why Salesforce as well positioned as the partner of choice, especially in the context of trust.
Well, especially as we have said on the call as well, which is that we've said this is about AI. That's about data CRM and this is about trust those four things have to come together as one thing and that's what we call Salesforce. There's a modern version of Salesforce with AI plus data plus CRM plus trust and I think that is.
Really a moment that we have to like really get clearer and show that to customers. We've tried to really book the last six months, obviously, we're going through a huge transformation with all of you, but you can see we've also gone through an incredible technology transformation around artificial intelligence to the point, where we got these products out was awesome and let our customers.
Really get into it and see what they can and cannot do and what they are excited about and how they want to move these products forward in what we think is going to be the future of AI.
<unk>.
And it's these four things together that are going to fundamentally helped us and I think data cloud you're 100% rate is going to be the heart of it. We'll certainly is a huge revenue opportunity for us because as you heard from Brian customers, who have sales cloud and they've got service cloud they've got marketing cloud and they're using our platform maybe they are commerce cloud.
Well and now they're adding data cloud and as these clouds get stack with these customers attrition falls customers become more successful they develop a single source of truth and our job is to get all of these things running on our core and getting all of these things ignited with artificial intelligence. So I was very excited to recruit back.
<unk>.
As my Chief of staff and as my Chief Business Officer camera, Colin So chemo can you just give us a little inside of the division of stream for us and what we're going to see for data cloud and some of these amazing clouds why everyone should get excited about what's what's about to happen over the next couple of weeks when we everyone gets here in San Francisco on September 12.
Yes, Mark it's great to be back it's.
Spent about four months and just amazing to see the energy of Salesforce company with the right values and I think the right people and really at the right time with generator.
What you said about AI is so compelling because it's not just about one cloud it's about making every cloud better.
Sales GTT marketing GPT Commerce, GPC went live last week and Dream force can be exciting.
Well I am really excited as well and I'll tell you Youre sitting next to Sebastian denials, our new Chief Legal officer, just joined US from Wachtell Sebastian We're happy to have you here live for the first earnings call and welcome to Salesforce and I know this is going to be your first Dream force and.
Give us a vision for what Youre excited about for the future.
Well I'd say, rather extreme for us are sort of looking ahead, what I've been most excited about is how our values trust customer success innovation equality sustainability.
Truly infused within our culture and that these values are powering our customer journeys, they're powering our commitment to our investors. They are powering our commitment to all stakeholders and I think.
Certainly as we look ahead, whether it's an exit of several months next several years. The next 10 years and beyond.
These values that are going to underlie how AI evolves and how at least for sophisticated enterprises and I think for all enterprises and even individual human beings. They will choose to partner with the companies and organizations, who are putting trust first.
And are deploying and incorporating trust throughout the technology lifecycle, whether that design the technology deployment of technology development service and monitoring and I cannot be more excited by what I see ahead.
I couldn't be more excited to have you on our new management team in kind of the evolution of our team here at Salesforce.
Thank you for all the help that you've given US also in the last six months, especially with all of our investors Michael Okay. Thanks Fred.
We will take our last question now please.
Yeah.
Our question comes from Brent Thill with Jefferies.
Your line is open.
Mark.
<unk> percent CRP growth last two quarters.
With AI.
Building into the model do you believe long term you can reaccelerate this to a 15% to 20% growth business.
Well I'll tell you that certainly on my mind every single day and Youre right <unk>.
Im a growth CEO . So that's what I like to do I would like to grow I mean, thats been about growing margins for the last six months, so thats a reframe for me.
But we've grown this business to these incredible revenue numbers. This year. They are largest software company in the world.
As we kind of head into these incredible next levels of capability.
We're excited about the future and there is lots and lots of ways to move the top line forward, but I will tell you know I am quite addicted to the Bottomline as well and also as I said earlier there is nothing more important to the trust that they have with all of our stakeholders, including our investors. So I want to make sure that we fulfill our commitments and promises to all of you.
As we have in the last three earnings calls we've delivered exactly as we've told you we're going to do.
And we're going to continue to do that at the same time, you know that I am thinking about how are we going to move this ball forward and down the field with these incredible opportunities in front of us. So it's very much has to be a balanced equation to make this right to make it right for us and to make it right for you and I would love to have that conversation in more depth in the next couple of weeks as we all come to <unk>.
Reinforce I hope you will seek me out and find me and let's have that conversation one on one just as we have been having in the last six months I want to do what I've been doing for the last.
A couple of quarters, which is express my sincere gratitude to all of you and our investors have been a critical part you had key insights many of which we did not have ourselves on things that we could do to make us an even stronger company and we've done that and I'm sure you can see that in the numbers, there's never been a software company quite like this at this level either.
Now as we start to cross into these incredibly incredible numbers in the mid $30 billion numbers.
The strength of the company has never been higher and now we have this incredible opportunity with AI AI ahead.
Thanks, Brett and thanks, everyone for joining us today, we look forward to seeing everyone. Hopefully a dream force in a few weeks.
Yes.
This concludes today's conference call you may now disconnect.
Yeah.
Yeah.
[music].
Okay.