Salesforce Q2 2022 Earnings Call Transcript

There are 14 speakers on the call.

Operator

Welcome to the Salesforce's Fiscal 2022 Second Quarter Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would like to hand over the conference to your speaker, Mr. Evan Goldstein, Senior Vice President of Investor Relations, sir, you may begin.

Speaker 1

Thank you, Mel. Hello, everyone, Thanks for joining us for our fiscal 2022 Q2 conference call. I'm Evan Goldstein, Senior Vice President of Investor Relations. Our results press release, SEC filings and a replay of today's call can be found on our IR website at www.salesforce call.com/investor. With me on the call today is Marc Benioff, Chair and CEO Amy Weaver, conference call, Chief Financial Officer Brett Taylor, Chief Operating Officer and Gavin Patterson, Chief Revenue Officer.

Speaker 1

As a reminder, Our commentary today will primarily be in non GAAP terms. Reconciliations between our GAAP and non GAAP results and guidance can be found in our earnings press release. Some of our comments today may contain forward looking statements that are subject to risks, uncertainties and assumptions. In particular, our are uncertain and subject to change. Should any of these materialize or should our assumptions prove to be incorrect, actual company results could differ materially A description of these risks, uncertainties and assumptions and other factors that could affect our financial results call, is included in our SEC filings, including our most recent report on Form 10 ks.

Speaker 1

With that, let me hand the call to Mark.

Speaker 2

Time, I am actually here in Geneva, Switzerland with Gavin Patterson, our Chief Revenue Officer. And I am attending the World Economic Forum's IBC meeting and Board of Trustees meeting. And it's been a great experience being here in Geneva. Very much the world is open for business here and it's is how their businesses are doing in this new normal and we're learning quite a bit about how different the U. S.

Speaker 2

Is from Europe right now and also How much has really changed, which is quite a bit. So I'm absolutely excited to be here, but I'm also extremely excited to share our phenomenal 2nd quarter results with you. You can really see we had a phenomenal second quarter. We just had a phenomenal second half. You're about to hear We're about to have a phenomenal first half as well.

Speaker 2

And we're also going to have a good chat about what we're doing with Slack, Very exciting acquisition that's now closed and you are going to hear about number 1 CRM just got better And it's incredible what's going on with Slack and looking forward to addressing all that In the script with you. So look, we are in a new world. There's no doubt about that. I'm sure that all of us realize that and we are delivering success From anywhere as well, for Salesforce, we've gone through a tremendous transformation and we're now delivering this new world for our stakeholders. And from a business perspective, well, I'd say it's been an absolutely extraordinary 18 months for Salesforce.

Speaker 2

I know for all of you and certainly for all the CEOs I met with Today, we're navigating this global pandemic. We have been guided by our core values of trust, of customer success, of innovation, of quality. But through all this and through our perseverance and through our, I think, dedication to our customers, we've been able to deliver record financial results. And with these results, we've now can say and looking over this, we've now had 5 outstanding quarters in a row, Really delivering the success from anywhere vision, pretty awesome. So

Speaker 3

let's take

Speaker 2

a look now at the second quarter because the numbers are Incredible and you can see we delivered our first $6,000,000,000 quarter about $6,300,000,000 and continue to maintain our very strong growth rate, our profitability, our cash flow, our margin growth, continue to execute our new operating margin model. And you can see right now revenue in the growth in the quarter, you can see $6,340,000,000 up 23% year over year, Pretty awesome and above where we thought we were going to be considerably above. And I guess I'm as excited as I About the revenue, I'm also very excited that as we're executing this new operating margin model, we can see the margin in the quarter was also very healthy, 20.4%, up 20 basis points year over year and also delivered $386,000,000 in operating cash flow. For fiscal year 2022, we are raising again our guide to $26,300,000,000 which is now at the high end of our range. It's a phase of $300,000,000 and it's going to represent about 24% projected growth year over year and just really reflects I think How well the company is doing in its core, not just through the Slack acquisition, but you can see organically, Especially when you look at the numbers over the last 5 quarters and we're raising our operating margin to 18.5%, up 80 basis points year over year.

Speaker 2

Again, based on just the outstanding performance of the company, we're able to do some amazing things here with the operating margin. I don't think Salesforce has really ever been had better execution, better management team, greater momentum. And as I have spoken to so many customers today, I don't think we've ever been more well positioned for them. And I'll say that in 2 areas. 1 is in our core products, Our focus on customer success, the Customer 360, now with the Slack user interface and everything being Slack first, But also our core values.

Speaker 2

So many of our customers are attracted to us because in many cases they're going through an amazing values transformation And in the areas of that we've pioneered and now especially in regards to sustainability, which we'll talk about Because as you know, Salesforce has been a net zero company, but now we're fully renewable as well. And as we start to head towards the Fortune 100, I think that a lot of the companies that I met with today were mostly Fortune 100 CEOs. They crave to have that same net zero and renewable profile, which is very exciting to see the world having this kind of sustainability So I'm absolutely thrilled to see how the core business grew in the first half of the year. And I'm excited about the outlook. I'm excited about our positioning with our customers.

Speaker 2

And I'll tell you, I'm very excited that 5 out of the last 5 quarters We've had that 20% or greater revenue growth and the 3 out of last 5 quarters were having greater than 20% operating margin. I don't think We could have said either of those things 5 quarters ago. So my hat is really off to the management team and to the employees Thank you for making this happen and we're raising our guidance for the 4th time in a row as we see increased opportunities for Additional revenue growth and additional operating margin capability this year and look, we're the fastest growing enterprise software company ever. You know that you're tracking us. You see where the numbers are going.

Speaker 2

You can see what the trajectory is, the velocity of the company, both in revenue and margin. And now you can also see that no other software company of our size and scale is really performing at this level. So we are Really quite confident and remain on our path to generate $50,000,000,000 in revenue by fiscal year 2026, which doesn't seem very far away from right now. And

Speaker 4

when we

Speaker 2

first gave that number, it didn't seem as it didn't it seems like it was so far away. Now it seems like, wow, this is

Operator

time, we are trying to reconnect the line for Mr. Marco.

Speaker 5

Well, I think we had a few technical difficulties with Mark there. This is Brett Taylor. I'm going to continue with the Thanks Mark for that amazing introduction and just a reflection on the momentum of the company right now. It really was just an incredible quarter. Our products more relevant than ever and I have never seen this kind of momentum in the business.

Speaker 5

And honestly that's because CRM is more strategic now than it's ever been. Every digital transformation begins and ends with the customer and that's why around the world more and more companies are putting their trust in sales force to help them Get back to growth, that's the agenda on every CEO's mind in Switzerland and it's on the mind of every board around the world. IDC just released their April 2021 SaaS Path Vendor Ratings, a survey of more than 2,000 companies worldwide And Salesforce is rated number 1 in trust, number 1 in product, number 1 in industry specialization and number 1 in value for the price. That is just amazing. It's a true measure of just how mission critical we are to our customers.

Speaker 5

And you can just see it in the incredibly strong performance of all of our clouds this quarter. Sales Cloud has been number 1 in its category for more than a decade. And this year we've reimagined the product to be the growth platform for digital sales teams. We are already seeing the results of Sales Cloud accelerated to 15% growth year over year. Our Service Cloud is also seeing amazing momentum.

Speaker 5

All aspects of customer service has gone digital, from the contact center to field service to self-service and to bots. The scale of Service Cloud is just incredible. This is a $6,000,000,000 business whose growth has accelerated to 23% year over year. Our Marketing 1stcloud also grew 28% year over year as every organization in the world is investing in direct trusted relationship with their customers. And every one of these digital transformations is also a data transformation, which is driving the unprecedented success we're seeing in Tableau and MuleSoft.

Speaker 5

Tableau was in 9 of our top 10 deals this quarter and MuleSoft was in 8 of our top 10 deals. The real power of Salesforce platform is bringing all these capabilities together into a Customer 360, a single source of truth for your customers. Our industry strategy is enabling our customers to get started with an end to end Customer 360 faster than ever before, Tailored to the specific needs of every industry. Our industry cloud saw 58% year over year growth in annual recurring revenue. We had especially strong performance in the public sector in our Health Cloud Business and Financial Services.

Speaker 5

In fact, 4 of our top 10 deals in the 2nd quarter came Our core organic business has never been stronger, just like Mark said. And now with Slack, we're bringing a whole new dimension to Salesforce. There could not be a more relevant product at a more relevant time for every single one of our customers. If you talk to any CEO, Read the headline of any paper or even look around the home office most of you are sitting in right now, you can see the depth of the transformation work has gone through this year. Sales meetings have moved from conference rooms to Slack and to Zoom.

Speaker 5

Contact centers used to be buildings and now they exist entirely in the cloud. My commute has moved from the highway to primarily my hallway. Slack is at the center of this. Slack is how organizations all around the world are finding success in this all

Speaker 4

And a platform that people love to use.

Speaker 5

And the Slack First Customer 360 makes every Salesforce product more powerful and more effective for our customers. Our engineering teams have really hit the ground running on this integration. Just last week we announced our Slack for sales service marketing analytics at our launch event and we've got a ton of Slack innovation coming to Dreamforce. IBM is one of my favorite examples of a Slack First Customer three sixty company, Arvind Krishna is a close friend of mine and in talking to him he talked about how he believes that bringing Salesforce and Slack together is key For IBM to become even more connected, even more productive and more innovative. IBM has built their entire Customer 360 on Salesforce.

Speaker 5

Over 530,000 customers, 380,000 employees and 50,000 partners using our platform. And all of these employees are working in Slack. They've connected their workflows across Sales Cloud, across Service Cloud and enables them to connect and take action from anywhere. Slack comes up in every single one of my customer conversations and I could not be more thrilled with the momentum in the business. Slack revenue accelerated to 39% growth year over year on a standalone basis and they had great customer wins at Target, We've talked a lot about this.

Speaker 5

Slack Connect is the capability to enable you to connect not just with your fellow employees, but to connect with your partners, with your vendors and your customers. Slack Connect grew 200% year over year. This really illustrates the power of not just Slack for employee engagement, but the Slack First Customer 360. Slack is a once in a generation company that is transforming the way we work and it's transforming the vision we have for our company over the next decade. I'm so grateful to be able to work with Stuart and the Slack team every day.

Speaker 5

And I'm really excited to bring this vision of the Slack First Customer 360 to all of our customers. And if the technology gods will allow, I'd love to transfer it over to Gavin to talk about some of our customer wins for the quarter. Gavin, are you around?

Speaker 6

I'm there. Hi, Brett. Can you hear me?

Speaker 7

Yes. You sound great, Gavin. Go ahead.

Speaker 6

Very good. Well, thanks, Brett. And you can see that really reflected in some of the remarkable customer wins We saw not just in the U. S, but around the world in the last quarter. But starting in the U.

Speaker 6

S, we saw our largest ever deal Based on new annual recurring revenue, which is in the public sector, and as Brent said, public sector has been conference call, we are very pleased with our results. We expanded relationships with great companies like PayPal and Coinbase. Well, in EMEA, we have significant wins behind with Bellron, who own things like Safelite and Autocrafts, Freshfields, Dyson, Vodafone and our Kraken business, Canyon Bicycles, which is a really great case study. And then in APAC, we continue to deepen our relationships with many businesses, including things like Afterpay and FWD Thailand. So we're seeing strength internationally as well as in the U.

Speaker 6

S. Now a couple of examples I want to go into a little bit more detail on it. And one is a win with Miller Knoll. You might remember them more as Herman Miller, But it's a fantastic example of a company pivoting with a great digital customer experience. So back at the start of the pandemic, Miller Knoll saw a huge spike in demand for their furniture, not surprisingly, Of course, they turned to Salesforce to transform their e commerce experience in the quarter, and they've already seen a Significant improvement in conversion rates on the back of that.

Speaker 6

Since then, they've been providing an even better experience, tailored product recommendations, streamlined checkout experience and next generation video chat. And on top of that, Millanole is a net zero company and So you can see it's a great example of how we're building partnerships, building multi cloud time, we are on the Customer 360 and we go from strength to strength. I wanted to talk about RBC Wealth Management, Another great win in the quarter. They're using the Customer 360 to streamline processes, integrate data from over 20 6 different systems to create a unified wealth management platform that provides advisers with a 360 degree view of every client. I think that's something that really brings the Customer 360 to life for more than 2,100 RBC Financial Advisors.

Speaker 6

I think this example to me is very powerful. They've been using Salesforce workflow automation to transform the client onboarding process, Which was several weeks, more than 100 pages of physical documents, and it is now a digital task that takes time, just 24 minutes. And that is quite remarkable, I think. GEICO was a great win in quarter, needs no introduction, of course. But in case you don't know how GEICO, it is the 2nd largest Auto insurer in the U.

Speaker 6

S. And they're really leaning into the power of the 3 60, the Customer 360 to create a single view of their customers Across the heart, an entire business and it's now more than 25,000 agents are going to be putting their trust in that Customer 360, And 3 ms, now this is one we've talked about in the past. You've heard Mark talk about how they've been using the Customer 360 across 83 countries. That relationship continues to expand. Now 3 ms using Trailhead to train thousands of customer facing employees as they join the company.

Speaker 6

Salesforce Maps is now being used as part of their proposition. Tableau CRM It's giving actual intelligence to better manage operations, engage with customers, boost productivity. And then in Q2, 3 ms selected our philanthropy crowd to help empower nearly 100,000 employees to give back to their communities With the goal of achieving 2,000,000 employee volunteer hours over the next 5 years, I think that's a really, really powerful And then one more just before I hand over to Amy, and it's IKEA. So IKEA, fantastic business over here in Europe, another great example of the Customer 360. We've already been helping them with marketing.

Speaker 6

They've been getting a great ROI with market cloud across over 30 markets. Now as home improvements were After service support across the U. S. So another example of how we're building our relationships, adding clouds time, we are going to continue to grow our business to grow our business. We are going to continue to grow our business to grow our business.

Speaker 6

So I think these are a few examples. There are many more, But they're all, I think, examples of how we're helping customers deliver success from wherever they are from anywhere. So net net, my conversations with customers, I think, are giving me great confidence, Not just in the demand for our products and services, but I think in our ability to execute in the second half of the year. So it's both demand and execution. So I continue to see this being maintained going forward.

Speaker 6

There's a really strong demand environment Across Salesforce in the second half, and I think Slack is really going to enhance that. So just before I hand over to Amy, I'd just like to say a quick thank you The amazing effort that the sales teams around the world have been able to adapt to a different way of working, a new normal And in doing so, we've been able to continue to support our customers and I'd like to thank So Amy, over to you.

Speaker 7

Great. Thank you, Gavin, and good afternoon, everyone. Q2 was another quarter of remarkable top time, we exceeded our top line expectations, achieving record levels of Q2 new business. Call, we saw strong demand across all of our products, regions and customer sizes, and we were able to execute with discipline to drive higher operating income. We also completed the acquisition of SLAC Technologies on July 21, bringing yet another best in class asset into time, we believe that Slack will play a critical role in the digital transformation of our customers as they reimagine the future of work in a digital first work from anywhere environment.

Speaker 7

And that process is already underway with SLAC's business accelerating into the close of the acquisition. In Q2, SLAC's revenue grew 39% year over year on a standalone basis, which time, we have a strong performance in customer acquisition, especially in the enterprise. The number of paid customers spending greater than $100,000 annually accelerated during the quarter, up 41%. For the short period between the close of the deal and the end of our fiscal Q2, SLAC's operating results were immaterial to our non GAAP time, we will conduct our results and they are included below the line in OIE. Slack is consequently excluded from our reported revenue and non GAAP operating income.

Speaker 7

Where appropriate, we will call out SLAC specific impact on our Q2 results and our guidance. As part of the acquisition, this quarter we issued $8,000,000,000 of senior notes with a weighted average interest rate of 2.25 percent and weighted average maturity of 20 years. We were very pleased by the terms we received on what we view as an inexpensive source of capital. In particular, I'd like to call attention to the strong reception of our $1,000,000,000 sustainability bond, which was our most oversubscribed note in the offering. And not only did we raise funds on favorable terms, but concurrent with our debt raise, S and P upgraded our credit rating to A plus Now let me walk you through some of the results for Q2 fiscal 2022, starting with top line commentary.

Speaker 7

Total revenue for the Q2 was $6,340,000,000 up 23% year over year or 21% in constant currency. The strong new business pipeline that we've discussed the last few quarters enabled us to deliver these results As new business momentum continued to exceed our expectations. A few key highlights. We saw acceleration in Sales With Q2 revenue of $1,500,000,000 or 15% year over year growth. Tableau and MuleSoft continued their momentum time, we will be

Speaker 4

discussing the same results as

Speaker 7

both saw their share of the company's top 10 deals increase. As Brett noted, Tableau was in 9 of the top 10 and MuleSoft 8 of the top 10 deals this quarter. This is an incredible accomplishment and evidence of how strategic these acquisitions have become for our customers. Public sector continues to be an area of strength, accounting for 4 of the top 10 deals this quarter. And again, this quarter, our 7 figure deals on average included more than 4.5 clouds.

Speaker 7

The number of 7 figure deals, including 5 or more And we continue to see strength in our international businesses, which accelerated sequentially, although we will note that EMEA and APAC growth benefited modestly delay from the integration of acquisitions into our billing practices. We remain pleased with the progress on attrition, with revenue attrition in Q2 time, we expect to be between 8% and 8.5%, an improvement from last quarter's 9% to 9.5%. Attrition has continued to perform better than anticipated. As a reminder, our attrition rate is calculated based on trailing 12 month performance, And we have now lapped the Q2 of fiscal 2021, which was impacted by the early days of the pandemic. Our remaining performance obligation, representing all future revenue under contract, ended Q2 at approximately $36,200,000,000 Up 18% year over year.

Speaker 7

Current Remaining Performance Obligation or CRPO, which represents all future revenue under contract that is expected to be recognized as revenue in the next 12 months, was approximately $18,700,000,000 up time, we are pleased to announce that our 2019 results are up 23% both year over year and in constant currency. Flat represents 4 points of growth, Ahead of the 3 points we guided to last quarter due primarily to changes in our assumptions around purchase accounting. Turning to operating margin. Q2 non GAAP operating margin was 20.4%, benefiting from revenue performance, efficiencies from a work from anywhere world and a focus on disciplined spending. Salesforce recorded $45,000,000 sense, our non GAAP EPS was $1.48 The outperformance in the quarter was primarily due to higher revenue And expense efficiencies as well as realized and unrealized gains on our strategic investments portfolio.

Speaker 7

These mark to market adjustments benefited GAAP EPS by approximately $0.42 and non GAAP EPS by approximately $0.43 Turning to cash flow. Operating cash flow in the 2nd quarter was $386,000,000 down 10% year over year. On a cash basis, Salesforce paid $43,000,000 of transaction fees related to the SLAC acquisition. CapEx for the quarter was $213,000,000 leading to free cash flow of $173,000,000 time, down 45% year over year. And as a reminder, we continue to expect cash flow seasonality This skew higher to Q1 and Q4.

Speaker 7

SLAC's operating results had no impact to Q2 operating cash flow or CapEx. Now turning to guidance. We expect Q3 revenue of $6,780,000,000 to $6,790,000,000 quarter, approximately 25% growth year over year. This guidance assumes a $250,000,000 contribution from SLAC. For Q3, we expect to deliver CRPO growth of approximately 22%.

Speaker 7

This includes 4 points of growth from Slack. Call, we expect Q3 GAAP EPS of negative 0.06 dollars to negative 0 point Now moving to fiscal 2022 guidance updates. As a result of our year to date performance and strong execution in the current demand environment, We are raising our fiscal 2022 revenue guidance by $300,000,000 to $26,200,000,000 to 26 point $3,000,000,000 or approximately 24% growth year over year. This guidance incorporates an expected revenue contribution of 5 $30,000,000 from SLAC in the second half of fiscal twenty twenty two, an increase of $30,000,000 over our previous guide. This guidance also includes $200,000,000 from Acumen, an increase of $10,000,000 from our previous guide.

Speaker 7

Net of the revised FLAC and Acumen contributions, this represents a $260,000,000 raise on our core business. Our ability to execute in the demand environment both remain strong. We are also raising our fiscal 22, non GAAP operating margin to 18.5%, representing an expansion of 80 basis points year over year. This now includes an expected 150 basis points headwind from Slack and Acumen or 10 basis points less headwind compared to our previous guidance. Excluding this 10 basis point adjustment, our operating margin guidance represents a 40 basis point raise compared to our previous guidance.

Speaker 7

We are also raising fiscal 2022 GAAP diluted EPS to $0.81 to 0 point 8 and raising our non GAAP diluted EPS to $4.36 to $4.38 We expect recent M and A will be in time, we

Operator

expect approximately

Speaker 7

$0.51 headwind to non GAAP diluted EPS. Please recall that our OIE and EPS guidance assume no further We are raising our fiscal 2022 operating cash flow guidance by 2 points, now expecting 14% to 15% growth year over year. The increase from our previous guide is primarily driven by revenue performance and lower headwind from M and A. The dilutive cash flow impact of SLAC and Acumen now represents a headwind to our year over year growth of approximately 7 points. Excluding the anticipated impact of M and A, operating cash flow growth would be 21% to 22%.

Speaker 7

We continue to expect CapEx to be approximately 3% of revenue in fiscal 2022, resulting in a free cash flow growth rate of approximately time, 15% to 16% for the fiscal year. Excluding the anticipated impact of M and A, as previously noted, this rate, it would be 22% to 23%. To close, we remain excited by the strength we see in the demand environment, and we're seeing record levels of Our flagship product and sales cloud saw acceleration this quarter. We closed our largest deal in customer history. We had an impressive first half of fiscal twenty twenty two and we're excited to continue SLAC's momentum with the power of our 2 companies now together.

Speaker 7

And the increased revenue guidance reflects the confidence we have in the fundamentals of our business, and we remain well on our way to achieving our goal of $50,000,000,000 fiscal 26. We are committed to being disciplined along the way, while challenging ourselves to find additional areas of operational improvement. Call, I want to say thank you to all of our employees for being able to focus on disciplined, efficient growth during the quarter, and we're looking forward to further time, I will now turn the call back to Mark for some final comments. All right, I'll now turn the call back to Mark for some final comments.

Speaker 8

All right. Well, thanks, Amy. Hopefully, I'm back here.

Speaker 7

You are.

Speaker 8

And I'm actually now talking Amy's cell phone connected to our speakerphone in our conference room in San Francisco. So it turns out the cell phone technology is the big winner. So anyway, thanks, Amy. And that was a great job on earnings and congratulations on another great quarter of your organization, everything you're I couldn't be more excited about the strength of our core business, our revenue growth, our margin growth, our cash flow growth, as well as the addition of Slack time, now to our team of unicorns, if you will. I mean, it's absolutely true, the best CRM just got better I was at Slack and I listen to what Brett has to say about the integration of incredible things like Slack Connect.

Speaker 8

These are becoming extensions to our CRM capabilities. So it's a very exciting moment for our entire product line and our technology team. And I think that with that, our leadership team has really shown through this amazing perseverance and execution over the last several quarters these amazing time, we're going to have our digital Dreamforce coming up in San Francisco in less than a month from September 21 through September 23. We'll have tens of millions of customers from all over the world tuning in with us and we'll have hundreds of customers with us Live in San Francisco as well, so it's going to be extremely exciting. We want you all to have a front row seat.

Speaker 8

And please talk to Evan so you're all Connected to this program and we will also be redeploying our Dreamforce TO You program as well to liberate custom time, we're also looking forward to having you then at Investor Day. That will also be amazing. And we're expecting some awesome conversations with all of you. So with that, I'll open it up to questions. So everybody is online right now and we can take all your questions.

Speaker 8

So go ahead, Evan.

Operator

The first question comes from the line of Kirk Materne of Evercore. Your line is now open. You may ask a question.

Speaker 9

Thanks very much. Brett, maybe I wanted to ask you one about Slack. In particular, Now that the deal is closed and I know you're very excited about it and the whole team is, what are you measuring to sort of judge success with Slack, maybe beyond just sort of revenue growth in terms of sort of number of customers, number of multi cloud I guess what should we be looking for to see that the deal is progressing as planned and it is that sort of 1 plus 1 equals 7 combination that you guys are betting on?

Speaker 5

Yes. Thanks, Kirk. I think 1st and foremost, we're excited about this vision for the Slack First Customer 360. And that's really building not only an integrated vision between Slack and our Customer 3 60 platform, but also integrating our products. And actually, I think we've made a faster start integrating our technologies than any acquisition We did an event last week on this idea of a digital HQ where we announced Slack for sales things like deal rooms inside of Slack Connect integrated with Sales Cloud, Slack First Service, which are things like case swarming for digital customer service teams, Slack First Marketing, Slack First Analytics.

Speaker 5

So those capabilities are going to be in the hands of our customers soon and we have a lot more innovation coming at Dreamforce as well. And with that, you asked what we're measuring. As you said, it's going to show up in things like multi cloud deals that include Slack. It's also going to show up in a lot more departments A lot more companies who are perhaps using these new digital collaboration technologies for the first time in the context of doing their job, In the context of customer service, in the context of sales, in the context of marketing and really realizing this vision of a digital queue, I think Mark has talked a lot about how we're in this new pandemic world that this isn't going away. We've opened half of our offices, but As you can imagine, not as many people are showing up as we had hoped to at this point because of this pandemic.

Speaker 5

I've started 2 companies and I all started by planning my office space. And now if you're starting a company, you start by playing your digital HQ. And naturally what we want to bring to every company in the world, help them build the digital infrastructure, help them succeed In this new normal and one thing that I think we're really excited about that Mark also mentioned is Slack Connect, which is really bringing these digital Outside of the walls of our customers' buildings and bringing them to partners and customers as well. And you've seen that a lot of the product integrations we announced.

Operator

Thank you. Next question comes from the line of Mark Murphy of JPMorgan. Your line is now open. You may ask your question.

Speaker 3

Yes, thank you very much. Congrats on a fantastic quarter. Gavin, we have heard that you're selling Slack, by actually using it with customers in the selling process itself, I was wondering if you could help us visualize that. And Is that something that's transforming the buying experience in a pretty profound way? And then I had just Quick one for Amy.

Speaker 3

It's fantastic to see the operating margins at 20% plus again consecutive quarters. Where are you identifying

Speaker 6

Well, great question. And I'd just like to say, I share Brett's and Mark and Amy's excitement about the potential that Slack is going to bring To the Customer 360, since we announced the deal 6 months ago, 9 months ago, Obviously, we've been having conversations with customers about what we're planning to do, recognizing it was needing To go through the DOJ process, and I have to say I've rarely come across a product that has The buzz, the excitement, the customer advocacy that Slack does, it really is Quite remarkable. So there's, I think, huge interest out there amongst customers. Many of our customers are both Salesforce customers are now site customers. So there's good overlap between the 2 and they can see the synergy that we're going to have From a product perspective, we are beginning to sell through Slack.

Speaker 6

The most powerful presentations sales teams give are often sales force on sales force. And so, Slack on Slack is a very compelling way to explain how We use the product, and so we're beginning to do more and more of that. And where we are closing deals, time, we're leaning in to close deals through closing the deal itself on Slack creating channels Between us and the customer and ensuring that everybody who's working on the deal can have real time access To those channels, and it is meaning that it means that deals close much more quickly. So in fact, the Slack deal Itself was closed on Slack. So that is the perfect example of Slack on Slack, I think.

Speaker 6

Adrian?

Speaker 7

Great. Thanks, Gavin. And you're right. We use Slack to negotiate to do we conducted our due diligence, time, our negotiation and integration for Slack. So I do think that that's the ultimate example of a terrific sale all conducted with Slack and Slack Connect.

Speaker 7

So Mark, turning to your other question about operating margin. So where we have really seen this growing this year, first, we are getting the benefit of very strong performance in Q1 and Q2 and that does allow us to provide profitability and as well as still investing in growth and absorbing the impacts of M and A. 2nd, we are continuing to build on what we learned during the pandemic about how we can work effectively in a digital first or a hybrid environment. Some examples of that, virtual go to market motions, sales enablement, which is largely virtual at this point or digital, And also a renewed emphasis on financial automation, which I believe will pay off in the long run. And then finally, it's simply an approach of disciplined decision making.

Speaker 7

And when we're seeing that investment opportunities, we're taking a very hard look. We are challenging ourselves. And we're finding ways to shift our operating model where necessary.

Operator

Thank you. We have the next question comes from the line of Brad Sills of Bank of America Securities. Your line is now open. You may ask your question.

Speaker 10

Great. Thanks for taking my question and congratulations on a real nice Q2 results here. I wanted to ask another one on Slack, More focused on Slack plus Tableau. I mean, with the combined offerings, you really have a powerful solution to not only see the data, on the data, you highlighted this last week at the marketing event where you launched a number of these scenarios and activated notifications and watch lists were included. I'm just curious about that concept of kind of Slack plus Tableau combined.

Speaker 10

What are you hearing from customers and the reception there? And could that actually accelerate These kind of cross cloud Customer 360 deals. Thank you.

Speaker 5

Yes, thanks for the question. We're really excited about the combination screen Tableau and Slack, so your data can talk to you, automated notifications so that when you need to take action on data, you're getting notified in Slack, you can collaborate with your colleagues to diagnose a business issue, just an incredible combination. But I think it really shows just on our M and A and why I think we've had really unprecedented success in the marketplace and integrating our acquisition successfully. We really try to integrate our platform and with Tableau, with MuleSoft, with Slack, this all amplifies our vision for our Customer 360. At the center of all these digital transformations our customers are going through is data.

Speaker 5

You need to integrate that data with MuleSoft, you need to see and understand it with Tableau And you need to act on that and that's all going to happen with Slack, which is the system of engagement for the Customer 360, but also the system of engagement for every application at your company. So I think it's an incredibly powerful combination and I actually think Slack has the potential to really accelerate Every single product in the Customer 360, Tableau included and Tableau especially, but you're really I think it has potential across the board. And then it really goes This fundamental shift in the workplace we're all experiencing. All of you are probably working from home right now or most of you are. This Digital HQ is at the center of every single one of the transformations we're bringing to our customers.

Operator

Thank you. Next question comes from the line of Kash Rangan of Goldman Sachs. Your line is now open. You may ask your question.

Speaker 11

Hey, Kashwong and congratulations. My question is of Amy and maybe a little bit from us Gavin, this is Amy. Amy, how are you able to fund growth initiatives at the same time drive operating efficiencies? And Gavin, maybe you could shed some color on that as

Speaker 7

Great. Thanks, Kash. On operating margin, like I said, I think we have to be able to drive growth and time, as I mentioned, we've been doing that this year through terrific business performance, through efficiencies, through the work from anywhere and then as well as through discipline. And Mark has talked about a new operating model. I actually like Think of it more as a new operating mindset, and it's a real focus on discipline and looking at what is going to make us a company that not just only gets us to 50,000,000,000 company, but I've been really gratified to see everyone jumping in.

Speaker 7

This has been really an effort from the entire executive leadership team.

Speaker 8

I'll

Speaker 6

answer the second question there, Kash. So We've just come off our half year review in Laulima and in Hawaii where we've got our top 100 executives Together in person and reviewed the last 6 months and looked ahead into the future. And I was really happy and I was able to share 2 fantastic quarters to start the year and really strong demand, Really strong execution. And as I look into the second half of the year, I see that continuing. The pipeline is really strong.

Speaker 6

The conversations we're having with customers are accelerating if anything. And so we chose to make the decision 3 months ago Because we can see this demand in the marketplace, we chose to increase our investment in Our direct sales force to get better coverage with customers. And that is a sign of our confidence in the business. So I feel very confident that we can continue to grow top line while Delivering on expectations around operating margin, it isn't a trade off. I think there's a balance that we can get between the 2, Thank you, Sean.

Speaker 6

We seize the opportunities in the marketplace. We're able to serve that demand. We can see from customers. There's multi cloud deals that I was talking about earlier, while at the same time ensuring that we

Speaker 8

Versus the United States versus here in Europe?

Speaker 6

Well, I think what's common, Mark, is there is This is a conversation that's happening with the CEO now. So digital Customer transformation is no longer something that is delegated down the organization. It's a conversation that's going on in the boardroom. It's a CEO priority. And that means we're getting, I think, bigger deals, more multi cloud deals, multi year deals and it's increasingly a conversation about the Customer 360.

Speaker 6

And the real focus is on time to value, which is good for us. We want as much we want our customers to be on a Standard products as much as possible configuring, yes and trust advising, not so much, because there's so much innovation coming through and it's easier to do through Staying on the standard path. So it's be it in the U. S. Or in Europe, we're seeing Our business grow across the board, both in terms of small customers on one end, the SMB market, All the way up to multinationals, we're seeing increasingly bigger deals.

Speaker 6

We highlighted our biggest ever deal In terms of recurring revenue in this quarter, it's a public sector deal. But we're seeing More and more, not just $1,000,000 plus deals, but $10,000,000 deals coming through the business. And I think that's a sign of

Speaker 12

time, I'll turn the call over

Operator

to Chris Weisz of Morgan Stanley.

Speaker 6

Excellent. Time, I'll take your questions. And

Speaker 13

really nice quarter and really nice first half of the year. And time, I don't recall seeing this type of raise to the full year guide in terms of top line revenue.

Speaker 4

Time, we'll be looking at the

Speaker 6

numbers that we're seeing

Speaker 13

in the first half of the year. Time, Mark, you could talk to you. What are you guys seeing in the pipeline that's giving you the confidence to increase guidance in the first half of the year point, when we see this operating margin expansion, is this durable, if you will, on a go forward basis and then the reflation of that OpEx line time, can you give your future years or is this margin expansion going to be more durable?

Speaker 12

Thank you.

Speaker 8

Number 1, because of the greenfield deal that's happening here in Europe time, they realize that for them to continue to be successful in this environment and this economy,

Speaker 4

It's

Speaker 8

been very important to us. We've already made that transformation and now we're fully renewable as well as I mentioned. The second thing is, I think every CEO that I mentioned and talked to today and yesterday and probably in conversations that I've had in the last several time, I'm sure you're hearing that in your own chats with your clients, but that's been very surprising to me. And I would say that's the 2nd CEO priority. And then time, I'd say the 3rd CEO priority is exactly what we've been talking about here, which is success from anywhere in this new world.

Speaker 8

Or as you know, we're building this new ranch. CEOs would call me and say, Mark, you don't understand. And I think now those calls have stopped and people realize time,

Speaker 12

we are pleased to see that we are in

Speaker 8

a number. This pandemic has changed things and work has changed. And when we time, we're going to talk about Digital HQ. We might have been talking about Digital HQ before the pandemic, But after the pandemic, it means something very different. And I think that what Brett said kind of on the fly there, which was very powerful that he's obviously been an Incredible entrepreneur as well as an operating executive in several companies.

Speaker 8

But if he was starting a new company, He's not planning his physical office space. He's planning his digital office space and we're running this call now on a cell phone And on Zoom. And it's a very much an example of success from anywhere. But every company has to make this transformation. And that is what is driving our success going forward.

Speaker 8

This is not a small transformation. This is not a small change. This is why we would pay $27,000,000,000 for Slack. We believe so strongly that the world has If anything, it only accelerates it and Delta is not the last one of these things that going by. We started with alpha and I don't know how time, you probably should.

Speaker 8

We're looking to time, we're going to continue to see a lot of growth in the future. We're going to continue to see a lot of growth in the future. We're going

Speaker 4

to continue to see a lot of growth in the future. We're going to continue to see a lot of growth in the future. Time,

Speaker 8

we're running our business and That is really the power in that going on. And I think that this is what we all have to kind of And I think in San Francisco, it's very different than how it is right here in today. There's This is what is amplifying us. So we're in a tremendous new world and sales force has never been more And economy and for world, the first thing that I heard from Gavin was we're open for business. And this is I want

Speaker 6

to talk a little bit about excellence, if you like it, and grip on the operating metrics around the pipe going forward. I have a great deal of confidence in what I can see. We spent a lot of time organization is contributing through participation and through enablement, through productivity And really driving performance across each of the OUs. We flattened the structure so that we can move in a more agile manner And give more accountability to operating unit leaders. And that's it's that focus on In a second and third order metrics around the sales operation, that means that I can have the confidence As I look forward into what we're going to deliver over the next not just 2 quarters probably into next fiscal

Speaker 8

as well.

Speaker 6

It's a balanced pipe. So, the strength across the board, you can see it in our the numbers that we There isn't any weakness. That's amazing, isn't it? Yes.

Speaker 8

And I think it also speaks to what focus with our acquisitions to make sure they're integrated that we're selling a platform. We don't use the word suite of Salesforce that hasn't been part of our nomenclature, but we have a very nice integrated platform and we have a lot of very relevant products in today's world. It's kind of amazing, isn't it?

Speaker 6

It is. And geographically, time, just to finish with, there's again strength across the board. 2% this quarter across the board and growth internationally is not coming at the expense of growth in the U. S. And that's why we're posting these really strong numbers.

Speaker 6

And that strength

Speaker 8

Cool clouds is something that we've really And you've been able to and I think Amy hit this point and as well, but this new operating margin model that we're executing that I think several of the several of our friends who've been asking questions I picked up on that we are operating at a we've had now 3 out of last 5 quarters greater 20% and we have a lot of swagger when it comes to our operating margin. The pandemic let us kind of have a beginner's mind In regards to our entire business and we made strategic decisions, we made tactical decisions, but we also made decisions at our The way that we're operating our business and you can see that with these operating margin results. And also I'm sure it was settled everybody, but After doing one of the biggest acquisitions in our just raised our operating margin, again, time, I would like

Speaker 4

to turn the call back over to Amy. Amy, do you want

Speaker 8

to just add to that?

Speaker 7

Yes, sure. Keith, to follow-up kind of the end of your question, you said very powerfully, this is a new world. We are not going back to the pre pandemic point, we learned a lot during this period. We learned how we can work effectively from anywhere, how we can sell virtually. And when you look at what is durable, I would say discipline is durable.

Speaker 7

And we need to apply this discipline going forward end, we'll just show you quarter after quarter that we can execute.

Speaker 8

And I would just say that we switched to several time, we had a lot of people who were really scared during the pandemic and that we didn't get them to be confident and that they could participate. And I think that makes sure that we are able to execute tactically and strategically and to fully enable What you can see is an extremely large workforce heading towards 100,000 people. We need to make sure those people I think in all of those things, the management team has executed. I'm very grateful to the management team and how well they've done. We've also gone through a lot of management transformation, I'm sitting here looking also at Mark Hawkins, who is our CFO of Meritest.

Speaker 8

So Mark, thank you for everything that for the company as well and he's on the call here helping us and coaching us through and having this amazing moment and this is not our last amazing moment. There are some more amazing moments coming and I'm very excited about the future. So with that, I will turn it back over to you, Evan.

Speaker 1

Thank you very much. We appreciate everyone joining the call today. Call, thank you guys for joining the call today. If you have any questions, you can contact us at investor@salesforce.com And we look forward to engaging with you at Dreamforce

Operator

Thank you. That concludes today's conference call. Thank you all for participating. You may now disconnect.

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Earnings Conference Call
Salesforce Q2 2022
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