Nano Dimension Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 24, 2022

There are 11 speakers on the call.

Operator

Welcome to the Salesforce Fiscal 2023 Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. I would like to hand over the conference to your speaker, Mike Spencer, Executive Vice President of Investor Relations.

Operator

Sir, you may begin.

Speaker 1

Thank you, Emma, and good afternoon, everyone. A replay of today's call can be found on our IR website at www.salesforce.com/investor. With me on the call today is Mark Benioff, Chair and Co CEO Brett Taylor, Vice Chair and Co CEO and Amy Weir, Chief Financial Officer. We'll also be joined by Brian Millam, President and Chief Operating Officer, who will be available for the Q and A portion of the call. As a reminder, our commentary today will include non GAAP measures.

Speaker 1

Reconciliations between our GAAP and non GAAP results and guidance can be found in our earnings and press release. Some of our comments today may contain forward looking statements that are subject to risks and uncertainties and assumptions which could change. Should any of these risks materialize or should assumptions prove to be incorrect, actual company results could differ materially from these forward looking statements. A description of these risks and uncertainties and assumptions and other factors that could affect our financial results is included in our SEC filings, including our most recent report in Forms 10 ks, 10 Q and other SEC filings. And with that, let me hand the call to Mark.

Speaker 2

Well, hey, thanks, Mike, and thank everyone for being on the call today. As you saw in the results for the quarter, we've delivered really strong revenue growth, profitability and cash flow showing yet again the resilience and durability of our business model In this economic environment, revenue in the quarter was $7,700,000,000 up 22% year over year or 26% growth in constant currency. We had a great quarter, but yet again, the dollar had an even stronger quarter and we continue to see the impact on foreign exchange And currency fluctuation on our financials. For Q2, we saw approximately $250,000,000 of headwind to revenue, which is roughly $50,000,000 more than we assumed in our guide last quarter and we now expect a total of $800,000,000 foreign exchange headwind year over year for the full fiscal year. Operating margin was in the quarter was 19.9 percent and we delivered $334,000,000 in operating cash flow.

Speaker 2

Our remaining performance obligation or the total undelivered contract value that we have with our customers is really an incredible $41,600,000,000 And this is revenue signed. It's not yet recognized. Now turning to guidance. Over the last few months, I've met with hundreds of CEOs, with economists, business leaders, leaders and other experts about their business and where they see this global economy heading. And I don't think it's going to surprise anyone.

Speaker 2

Everyone has got a slightly different answer and it doesn't matter who you speak to, could be a different geography, a different position. Everybody sees things just a slightly different way right now. But what we do know and what I think everyone will agree on Is that digital transformation remains the number one priority for CEOs and that every digital transformation begins and ends with the customer. That's what continues to drive our business forward and it's why Salesforce is the number one CRM by market share globally according to the IDC software tracker. Now for those of you who've been on these calls with us, we've all been through a number of these economic cycles and we've especially seen that over our last 23 years.

Speaker 2

And ones like this come around, we see customers becoming more measured in the way they buy, sales cycles can get stretched, deals are inspected by Higher levels of management and all of this we began to start to see in July. Nearly everyone I've talked to Taking a more measured approach to their business. We expect these trends to continue in the near term and we've reflected this in our guidance. Given the significant impact of foreign exchange and buyers being more measured, we're revising our fiscal 2023 revenue guidance to $30,900,000,000 to 31,000,000,000 We're about 17% growth year over year or 20% in constant currency. At the same time, we're maintaining our fiscal year 2023 operating margin guide Of 20.4 percent, an expansion of 170 basis points year over year.

Speaker 2

This is further evidence that we made we remain deeply committed To consistent, disciplined margin, cash flow and revenue growth as part of our long term plan to drive both top and bottom line performance, We have the right team, the right products, the right playbook for getting to $50,000,000,000 in revenue in fiscal year 'twenty six. We always get questions about our M and A strategy and what company we're going to acquire next and what we're going to do next from the acquisition cycle. I think we get this question every single Earnings call, we do like this and it's always one of my favorite parts of the call. And I'm excited to tell you we have found a great cloud company, Growing revenue for 73 consecutive quarters through every economic cycle, it's got great cash flow, number one market share, an incredible brand, 1 of the most admired companies in the world, great values, fantastic community of 17,000,000 trailblazers, fantastic commitment to its community, Runs across 90 countries and that company is Salesforce. We're thrilled that our Board of Directors has authorized up to $10,000,000,000 And our first ever share repurchase.

Speaker 2

This reflects the confidence we have in our business and in our approach to generating shareholder value. Brett and Amy are going to expand in more detail about the broader capital allocation strategy in a moment. And you'll also hear about some amazing customer wins in the quarter. I'm especially proud of a major deal we closed in the quarter with the U. S.

Speaker 2

Department of Veterans Affairs and it's one of our most meaningful partnerships. The VA is a relationship that we've been building for over 6 years and now Salesforce is becoming the digital front door for our veterans And their families. We couldn't be more proud to do our part in helping those who have made sacrifices in serving the nation. It's been an incredible year so far. Being able to connect with our customers in person again has been just amazing.

Speaker 2

We've done 63 marketing events so far this year, Hosting over 250,000 trailblazers and counting, but not as more exciting on every level than Dreamforce. And we're hoping to see all of you As we celebrate our 20th Dreamforce, September 20th through 22nd, right here in San Francisco, It's a celebration of our trailblazers and we're going to expect 150,000 people to be here and register to attend. And we'll also be streaming the entire 3 days on Salesforce Plus and expect millions more to tune in. We have an amazing line of Product announcements and innovations and speakers and giving back, it's going to be a big Dreamforce. It's going to be really the biggest Dreamforce ever, our 20th ever Dreamforce.

Speaker 2

And we're also going to be celebrating the impact sales force has had through our 111 philanthropic model. As we've now surpassed over a $500,000,000 in grants, 7,000,000 hours of volunteerism and more than 50,000 nonprofits using Salesforce for free. At Dreamforce, the amazing Red Hot Chili Peppers That's Anthony and his entire band, Flee, everyone. They're going to be performing at our annual benefit concert with 100% of the proceeds Going to our children's hospitals right here in San Francisco and in Oakland. So please tell your friends, tell your firms, Tell your vendors, tell everybody to get sponsorships to Dreamfest because it's going to be incredible.

Speaker 2

And of course, you're all invited to our Investor Day During Dreamforce on September 21st. Amy, are they invested even if they don't do this Dreamfest sponsorship?

Speaker 3

Yes, Mark, you're invited.

Speaker 2

All right. Look, you're not going to want to miss it. Look, before handing it off to Fred, I'd like to congratulate Brian Millam, our new Chief Operating Officer. Brian is employee number 13 and has been helping us to build this company from its earlier days. As Chief Operating Officer, Brian is going to continue to lead our customer success organization And now adds Global Sales to his responsibilities.

Speaker 2

Bringing our incredible customer success ecosystem with Sales Cloud, new sales even closer under Brian Will help us to deliver the full power of sales force to every one of our customers in the new economy. And we're so fortunate that Gavin Patterson is taking on this important new role as Chief Strategy Officer, helping us to guide our strategic direction and thank you and congratulations to Gavin. I'm so grateful to Gavin, who for the last 2 years during the pandemic has overseen one of Salesforce's most rapid growth periods in Salesforce's history. When I look back the last 3 years, I saw it was really only 2 years ago in fiscal year 2021 when we did Proud, I think it was about $5,100,000 is that $5,100,000,000 is that right, Mike, something like that? And then last year, I think for Q2, we did something like $6,300,000,000 Now we're doing $7,700,000,000 Did I get the numbers right?

Speaker 2

I mean it's an incredible trajectory of growth from over the last 24 months and I couldn't be more Proud of Gavin to help us during that period. And now Brian in your COO role. Congratulations to Brian and Gavin. And with that, I'm going to turn it over to Brett.

Speaker 4

Thanks, Mark, and congratulations, Brian and Gavin. As Mark said, we had another strong quarter delivering strong top and bottom line performance. Our results demonstrate the durability of our business model and the strength of our strategy. Our Customer 360 product portfolio is the industry standard and the market leader, A leader in 12 current Gartner Magic Quadrant reports and the platform is helping hundreds of thousands of companies in every industry digitally transform. Our technology is also deeply differentiated.

Speaker 4

Einstein, our artificial intelligence platform, is now doing over 175,000,000,000 predictions every day, just incredible. Our go to market capability is also unmatched in the industry. The diversity of the industries, regions and lines of business we serve has driven the durability and resilience Mark talked about and you've seen in our business over the past 23 years. And finally, our ecosystem is unparalleled in enterprise software. As 150,000 trailblazers join us for Dreamforce next month, They represent a global community of developers, administrators and ISVs 17,000,000 strong that are driving what IDC estimates to be 1.6 $1,000,000,000,000 in new business revenues by 2026.

Speaker 4

As you heard from Mark, we're in a more measured buying environment. Executive teams are scrutinizing all purchasing decisions and we are seeing some deals take longer to close. I personally met with over 100 CEOs this quarter in my travels across Latin America, Europe and North America and digital transformation remains their top priority, but the focus of the conversation has shifted meaningfully towards productivity, Efficiency and time to value. In this environment, our Customer 360 portfolio is uniquely positioned to enable our customers to deliver both growth and cost And you can see it in this quarter's results. Sales Cloud revenue grew 15% year over year, a healthy 19% in constant currency, Including customer wins at CDW, Zscaler and Schneider Electric.

Speaker 4

Using our sales cloud and CRM analytics, Schneider reduced their close time by 30%. And with MuleSoft, they saved 40,000 hours of employees' time And saved $2,700,000 in IT costs. Service Cloud grew 14% year over year or 18% in constant currency, including customer wins at the U. S. Department of Veterans Affairs, Workday and Uber.

Speaker 4

Our digital service product line in particular accelerated As customers pivoted their spend to digital technologies that reduce customer service costs. Uber Eats is a great example. Uber Eats saw a 20% improvement in productivity across email, chat and phone support channels with our service cloud. And more importantly, with their investment in our AI chatbots, they improved their call deflection by 30%. Our Marketing and Commerce Clouds grew together 17% year over year Or 22% in constant currency, including significant expansion of our relationships with Live Nation, L'Oreal and Tapestry.

Speaker 4

In our Commerce Cloud, we are seeing GMV growth decelerate in line with the rest of the e commerce industry as consumers settle back down to pre pandemic norms. Platform, including Slack, grew 53% or 56% in constant currency, including great Slack expansions at organizations like

Operator

The National Weather Service, Coursera

Speaker 4

and MercadoLibre. The National Weather Service selected Slack as its platform to connect over 4,300 employees With emergency managers, public safety decision makers and local media partners nationwide. I'm also excited to say that we will have over 12 Slack product integrations with our Customer 360 platform live and generally available by Dreamforce. We have an incredible opportunity to help every one of our customers Build their digital HQ and Slack in this new era of flexible work. Data, which includes MuleSoft and Tableau, Grew 12% year over year or 13% in constant currency with wins at brands like Atlassian, Siemens Energy, CBRE Group King Power, which is Thailand's leading travel retailer.

Speaker 4

I'm heartened by the progress we're seeing in our go to market transformation of MuleSoft. We are on track to have MuleSoft return to be in a tailwind for revenue growth in the back half of the year. And finally, our 12 industry clouds were another bright spot in the quarter, Growing faster than our line of business clouds as our customers are increasingly focused on time to value and reducing their implementation costs. The out of the box industry processes we've built into our industry clouds are a compelling value proposition in this more measured buying environment, and I'm excited about the new processes we brought Marked in the first half of the year, including trade promotion management for consumer goods and our virtual assistant for our financial services cloud. As we head towards Dreamforce, our pace of organic innovation has never been stronger.

Speaker 4

In our summer release alone, we delivered key innovation like revenue intelligence Predictive forecasting, the ability to talk to your data through Tableau, MuleSoft robotic process automation and a new lakehouse architecture for our customer data platform. And just this week, we launched Salesforce Easy, a new all in one self-service suite for sales, marketing, service and commerce It is going to transform how small businesses engage with sales force. As you'll hear more from Amy, we're committed to durable growth at scale. We're committed to our 20.4 percent operating margin this year, and I'm excited that we're announcing our first ever $10,000,000,000 share repurchase program today. Our capital allocation strategy is simple.

Speaker 4

We will continue to expand our free cash flow margin as we scale. We will invest in our organic innovation. We will reduce the impact of dilution both by offsetting stock based compensation and by maintaining a healthy balance sheet to fund any future M and A. I'm so grateful to our 17,000,000 trailblazers, all of our partners and most importantly, our employees for helping Provide our customers with the innovation, agility and resilience they need to navigate these uncertain times. Now over to Amy to discuss the financial details of the quarter.

Speaker 3

Great. Thank you, Brett, and congratulations, Brian. I'm pleased to report strong top and bottom line financial results for Q4. Q2, That is pleased to report strong top and bottom line financial results in Q2. As you've heard from Mark and Brett, our diversified Portfolio remains well positioned to help our customers both grow and drive efficiencies in their business.

Speaker 3

Our customers are relying on us More than ever to be their trusted advisor, partnering with them on their digital roadmaps. Now let me walk through our results For Q2 of fiscal 2023 beginning with top line commentary. Total revenue for the Q2 was $7,720,000,000 Up 22% year over year or 26% in constant currency. FX continued to represent a headwind as the dollar continued to Strengthened throughout the quarter. In Q2, the headwind from FX was about $50,000,000 more than we had guided.

Speaker 3

A few highlights from the quarter. Sales Cloud continues to be a critical piece of our customers' success, helping companies drive more productive growth. In Q2, Sales Cloud grew 15% year over year and 19% in constant currency. Service Cloud grew 14% year over year and 18% in constant currency, as we help our customers realize efficiencies and Cost savings. As customers focus on their digital strategy and transformation, we continue to see growing multi cloud adoption.

Speaker 3

In Q2, the number of customers who have purchased 5 or more clouds again grew in double digits. And Slack continued to outperform our revenue expectations with revenue of 381,000,000 Slack continues to gain traction with customers and in Q2, 7 of our top 10 deals included Slack. And for our 5th consecutive quarter, the number of customers spending greater than $100,000 with Slack Grew by more than 40% year over year. Now for a quick update on data. I'm pleased to say that data passed 100 or passed $1,000,000,000 of revenue this quarter.

Speaker 3

And with that, All of our 5 clouds are now generating more than $1,000,000,000 in revenue a quarter. Data growth of 12% or 13% in constant currency Was driven by MuleSoft total revenue growth of 15% and Tableau growth of 9%. As a reminder, Approximately half of MuleSoft and Tableau's total contract value is recognized in period, resulting in more quarterly volatility than our other core products. Turning to revenue attrition. Rates remain at record lows, ending Q2 at approximately 7.5%.

Speaker 3

Q2 non GAAP operating margin was 19.9%, driven by our continued focus on disciplined decision making and prioritization. Q2 GAAP EPS was $0.07 and non GAAP EPS was $1.19 Mark to market accounting of the company's strategic investments benefited GAAP EPS by $0.03 and non GAAP EPS by $0.04 Operating cash flow was $334,000,000 in Q2, down 13% year over year. CapEx was $203,000,000 resulting in free cash flow of $131,000,000 down 24% year over year. Now before getting towards our RPO performance and guidance, I'd like to address the current economic environment. As both Mark and Brett mentioned, we started to see more measured buying behavior from our customers, which began in the last month of the quarter.

Speaker 3

This resulted in stretched sales cycles, additional deal approval layers and deal compression. In addition, we saw slowing in our create and close, Slack Self Serve and S and B Businesses, which tend to be leading macro indicators. Geographically, this behavior was most Pronounced in North America and major European markets, while Japan was relatively more resilient. From an industry Retail, consumer goods and communications and media were the most impacted, while high-tech, energy and financial services stayed more consistent during the quarter. And from a product perspective, commerce and marketing saw more pronounced decelerations, while sales and service remained strong.

Speaker 3

Turning to remaining performance obligation or RPO, which represents all future revenue under contract. It ended Q2 at approximately $41,600,000,000 up 15% year over year. Current remaining performance obligation or CRPO was approximately $21,500,000,000 Up 15% year over year and 19% in constant currency. This includes one point of incremental FX headwind beyond our Q2 guidance. Moving to Q3 guidance.

Speaker 3

We expect revenue of $7,820,000,000 to $7,830,000,000 or approximately 14% growth year over year and 18% in constant currency. This reflects a $250,000,000 FX headwind. We also expect a 380,000,000 dollar contribution from Slack. As a reminder, Q3 represents the 5th quarter of Slack's contributions to revenue. Therefore, the year over year growth rates will be normalized.

Speaker 3

CRPO growth is expected to be approximately 12% year over year or 15% And we expect GAAP EPS of $0.09 to $0.10 and non GAAP EPS of $1.20 to $1.21 Now turning to our full year fiscal 2023 guidance. We are now guiding to fiscal 2023 revenue of $30,900,000,000 to $31,000,000,000 or approximately 17% growth year over year, 20% in constant currency. This incorporates the trends and customer behavior that we saw beginning in July. The total year over year FX headwind is now $800,000,000 an incremental $200,000,000 year over year since our previous guidance. As a reminder, the currencies most impacting our revenue are the euro, the British pound, the Japanese yen and to a lesser extent the Australian dollar.

Speaker 3

Our guidance continues to assume a $1,500,000,000 contribution from Slack. As a company, we remain committed to profitability over the long term. And while we see a more deliberate customer buying behavior, I am pleased to hold our fiscal 2023 non GAAP operating margin guidance at 20.4%, an increase of 170 basis points year over year. This margin guidance includes roughly 100 basis points of headwinds from Slack. As a reminder, because our regional revenue and expenses are Generally in the same currencies, there tends to be a natural FX hedge in our operating margin.

Speaker 3

For the full year, we expect GAAP EPS of 0.38 to $0.40 and non GAAP EPS of $4.71 to $4.73 And please recall that our OIE and PS guidance assumes no further mark to market adjustments of our strategic investments portfolio. We are updating our fiscal 'twenty three operating cash flow guidance to approximately 16% to 17% growth year over year. Our guidance continues to assume a 3 point headwind from cash taxes associated with tax law changes requiring the capitalization of certain R and D costs. We expect CapEx to be slightly above 2% of revenue in fiscal 2023, a nominal increase over last quarter's guide, reflecting the revised full year revenue guidance. This results in free cash flow growth of approximately 18% to 19% for the fiscal year.

Speaker 3

So to close, as our customers and their executive teams, including the CEO, CIO and CFO, Focus on their digital investment strategy, we are well positioned with our diversified product portfolio to help drive efficiencies and growth. And we are laser focused on disciplined decision making with a commitment to achieving our operating margin guidance. Lastly, let me echo Brett and Mark. We are very, very pleased to be announcing our new share repurchase program today. This step is a reflection of the confidence that we have in the future of Salesforce.

Speaker 3

And I look forward to seeing everyone at Investor Day on September 21st, where we will go into even more detail on our capital allocation strategy. Now, Emma, let's open up the call for questions.

Operator

Thank you. Your first question comes from the line of Keith Weiss with Morgan Stanley. Your line is now open.

Speaker 5

Excellent. Thank you guys for taking the question. I think what's really on top of everybody's mind right now is The takedown in the full year revenue guide and what's causing that? You talked a lot about on the macro side of the equation and We definitely see that all around us. We definitely see that in our checks as well.

Speaker 5

But I think what people want to understand is, is there anything more to this? Is there anything More execution related perhaps for go to market. And is the change in sales leadership from Gavin to Brian, is this in any way meant to address any Coming on the distribution strategy, so that's part 1. Part 2 on the expense side of the equation, very impressive to be able Same 20.4 percent operating margin target even with the revenues coming down. I guess for Amy, is there another level of kind of Expense reductions were sort of another gear that you had to sort of go into to be able to sustain that operating margin expansion.

Speaker 5

And does that impact your ability to sort of invest in the business To sustain those operating margins. Thank you.

Speaker 2

Yes. I'm so happy to talk to you Keith and I'll tell you that you're right. We took the guide down Really around two points. One is the foreign exchange environment is obviously just unprecedented and we talked about that last quarter as well. I think maybe we were one of the first To really see what was going on somehow just being on the ground in some of these countries that have been so dramatically hit.

Speaker 2

But To look at where we are right now at the yen, look where we are right now with the euro, I think the euro maybe just broke parity yesterday. I mean, We're really in an unprecedented moment in foreign exchange. And on the other side, as I said and I think as the team has really emphasized, really starting in July, we started to see some metrics where we're like, where do we exactly want to be for the year? And what is appropriate for us? How do we correctly characterize where the business is?

Speaker 2

And that is really how we kind of put together this guide, which we think Is the appropriate way to communicate the status of the business because we want to be in a place where we're Ketan, exactly where we are. So I'm sure Amy is going to amplify that as well.

Speaker 3

Sure, Mark. I think you nailed it on that. When I look at the guide, I believe the guide is appropriate under the circumstances we're seeing right now. And as you know that there's 2 key drivers. The first part is FX.

Speaker 3

These key Currencies, the euro, the pound, the yen, they've all weakened to near historic levels. And we're seeing that impact on our top line as we look Forward to the rest of the year. For the remaining part, as we called out, there was a distinct shift in customer buying behavior that we saw near the end of the quarter. And for purposes of the guide, we're assuming that those conditions endure through the back half of the year. Now turning to your second part of Question, which I think was on op margin.

Speaker 3

As you know, I was very happy that we are committed to 20.4% and holding that despite bringing down the top line. Yes, this is largely coming from a more disciplined approach. It is not a result of one single change. We are continuing to unlock incremental efficiencies across the We're asking each leader to step up and look at their businesses and prioritize. I do believe that we are continuing To invest into growth, which still remains our number one priority.

Speaker 3

In terms of specific drivers, definitely continuing to take a measured approach Very deliberate approach on hiring. T and E, we are prioritizing for customer facing travel. And again, we are continuing to benefit From some of the decisions we've made over the last few years on real estate.

Operator

Your next question comes from the line of Brent Thill with Jefferies. Your line is now open.

Speaker 5

Good afternoon. Mark, I'm curious if you could talk about Brian's new role. And I think there's a lot of concern As new head of sales comes in that there's some transition period. And can you just address this transition period? And I know He's been with the company for over 20 years and highly regarded, but there's a lot of investors that would love to hear your perspective on this.

Speaker 2

Well, that would be my pleasure. I mean, I think a lot of you know Brian. He's been a trusted part of our management team for over 20 years. And look, the last time he was the Head of Sales was only 2 years ago when we went into the pandemic and went through the transition with Keith. You may remember I put Brian in for I think 1 or 2 quarters to run Global Sales did a fantastic job.

Speaker 2

He Didn't want to continue with it. So I we ask Gavin to step up from his role of, I think it was International Chairman or European Chairman, I can't remember honestly. And really proud of Gavin for the last now 2 years. And then, Brian is right here. And I asked Brian if he would come in and Take this forward and he agreed and I couldn't be more grateful to that.

Speaker 2

I know we have just a trusted hand in terms of a transition period. I couldn't imagine anybody Who will operate the organization so seamlessly and transparently and with ease and Everybody has such a good relationship already with Brian and he already runs our forecast calls. He's already been A key part of our sales program, I don't expect any transition period at all and I'm holding him to that actually.

Operator

The The other

Speaker 4

thing I just want to add is, Brian has been running our customer success, professional services and partnership organization for a long time. And I think the story through the pandemic has been our historically low attrition rates and our focus on customer outcomes. And I'm really excited about the opportunity of bringing our global sales organization together with our customer success organization. Yes, that's understood. And it's a really important part of our philosophy and I think this move really

Speaker 2

reflects Well, good. It definitely surprised both of us, right, I mean how low attrition Brian has

Speaker 4

And deeply connecting that success motion to our sales motion, I think reflects a philosophical view from Mark and me about Really our philosophy.

Speaker 2

Brian, could you just step out of the room while we Yes. I'd really like to. Do you want to just comment on this?

Speaker 6

No. First of

Speaker 5

all, I'm humbled by

Speaker 6

the opportunity and Mark to your comments. I've been very close to this business for the past two and a half years working side by side with Gavin. I actually was operating in a COO role for him running this business. And I think it's critical as we look at sort of the second half of this year and beyond, This motion of customer success and sales together will drive the outcomes that we're looking for and our customers are And so I'm thrilled with the results we've seen on the attrition side, thrilled with the results that the customers are getting from the investment they're making in our technology And just so excited to lead the sales team.

Speaker 2

Can you just address Brent's direct question Transition time, how hard of a transition is this going to be for you?

Speaker 6

I think it was measured in hours actually, Mark. I've been running forecast calls already. I'm in the business, Traveling to see customers, I met with 4 customers yesterday. There will be no transition time. There are no big changes that we're going to be making in our go to Other than getting closer to our customers and ensuring that we're delivering value to them in every single transaction that we're working on with them.

Speaker 6

So very excited to take this on With 0. Thank

Operator

you. Your next question comes from the line of Raimo Lenschow with Barclays. Your line is now

Speaker 7

open. Thank you. Can you obviously, the slowdown that we're seeing or the lengthening of There's nothing that is kind of unique to you guys. We heard from other vendors as well. Can you talk a little bit about what you see in terms of client prioritization in terms of Certain projects, because I do remember from the old times that the front office always had higher priority because it's revenue generating, etcetera.

Speaker 7

Are you seeing that now happening as well and can you speak to that? Thank you.

Speaker 4

Yes, thanks for the question. First, I'll tell you, I think that trend continues. Digital transformation remains our customers' top priority and digital transformation starts and ends with the customer. And fundamentally, all of our customers are Really investing into the secular trend of the digitization of their customer experience, their employee experience and with our portfolio, we're at the top of that list. I think what you're seeing is an increased focus on I say 3 things.

Speaker 4

1 is time to value. The other is ensuring that these projects drive Cost savings in addition to customer satisfaction and top line growth. And then the third is reducing complexity and vendor consolidation. Some of the stories I mentioned like Uber Eats, I think are great examples because it's really about how do you put up things like digital service technology, whether it's Chatbots are self-service to really take out costs and make these projects pay for themselves as opposed to having protracted multiyear implementations. I think vendor consolidation is also a trend that we're seeing.

Speaker 4

And if you look at some of the innovation we're bringing out like our Sales Cloud Unlimited Edition Or Salesforce Easy, which I mentioned earlier in my script, there are really efforts to enable our customers to do more with less, To enable them to use Salesforce as their sole vendor, take out some point solutions that perhaps aren't getting the return on investments our customers are looking for And sort of taking advantage of this opportunity to be the most strategic vendor for our customers right now as they look To really hold their technology to high standards, which is to drive top line and bottom line performance. Brian, is there anything you want to add?

Speaker 6

No, a great question, Raimo. And I agree with you that front office is the priority. You heard both Mark and Brett, and I'm feeling it too when we're out talking to CEOs. Digital transformation remains our number one priority and we need to make sure that we're delivering for them. We're also seeing it in the demand environment.

Speaker 6

We are still seeing very good generation of pipeline in our business right now. And while we are facing some longer sales cycles and additional layers of Deal approvals and potentially some deal compression, the demand environment is solid. And so, you're spot on that we are seeing, the Front office is a priority for every CEO out

Speaker 1

there. Thanks, Renaud. And we'll go to the next question.

Operator

Your next question comes from the line of Brad Sills with Bank of America. Your line is now open.

Speaker 8

Great. Thanks for taking my question. And thanks for all the color on where you saw the macro impact. It sounds like SMB, Marketing Commerce, but the core sales and service looks to have held in nicely. You didn't call it enterprise.

Speaker 8

So any specific color on how the core business in the large enterprise, those bigger expansion deals in the core attract this quarter? Thank you so much.

Speaker 4

I'll start and then Brian, I'd love your commentary as well. As you said, I think the story, The past number of quarters have been the strength of our core CRM business. Sales Cloud growing at 19% in constant currency is remarkable. This is the product that Mark and Parker built 23 years ago doing so much revenue growing at 19% is incredible and you're seeing it just I think the continued strength in our core business. And the other thing I want to call it is our attrition rate being at historical lows as well.

Speaker 4

And I think it really reflects The strength of our business and so as Amy articulated, as it relates to SMB, GMV deceleration, We're seeing things settle down to pre pandemic norms, but still see incredible strength in our core CRM business in the enterprise. And As I said, I think the durability of our business really rests on the durability and diversity of our portfolio, The diversity of the industries that we serve and the diversity of the segments that we serve. Brian, is there any color you want to add?

Speaker 6

Yes, well said. On the Sales and Service Cloud are sort of the centerpiece of our digital transformation for our customers and you saw the growth in the quarter and we expect that to continue. We are seeing some compression in some of the larger transactions in our enterprise business. And it's not a surprise. I've lived through 3 of These cycles before and you can see that maybe people take a more measured approach to their digital transformation maybe starting with a smaller piece.

Speaker 6

But a Land and expand strategy is something we've used for many, many years. Seed and Grow is a strategy we've used. And so Despite the fact that maybe some of these engagements are a bit smaller, we do see acceleration in these customers And quarters to come. So, yes, there was compression out there in some of the business, but we are very confident that we can go execute against the opportunity In front of us in these large enterprise accounts going forward with digital transformation being a top priority.

Operator

Your next question comes from the line of Kash Rangan with Goldman Sachs. Your line is now open.

Speaker 9

Thank you very much. Lots of exciting news for Salesforce. Congrats on all the changes. My question maybe, Brian, congrats to you as well in your new position. What would you do to turn around the data cloud?

Speaker 9

I know Clearly, it has had some very significant momentum. But I can, in some sense, look at the new guidance versus the old and say a lot of that delta is Basically, the slowdown the growth rate in the data cloud that is a Tableau and MuleSoft business. Brian wanted to get your opinion on that. And for the VISTA management team, As you talk to customers, Mark, you've been through these cycles before. What are customers saying as to when they might reengage At the same level of enthusiasm with sales force, be it deal size or close rate, what are the things that they're looking for From a macro perspective, our leading indicators in their business, so it could be back to reengaging the way they used to reengage with Salesforce.

Speaker 9

Thank you so much.

Speaker 6

First of all, Kash, thanks for the question and appreciate it, the kind comments. On the data business, It's a unique business for us because some of it is license based and you can tend to see some of the headwinds we saw in July show up Or immediately there. We feel very good about where both those businesses are right now, particularly MuleSoft that as you heard Brett say is on a great trajectory and will be a tailwind to our revenue growth In the second half of this year, we feel great about that. TAB is a critical component of our digital transformation with Every customer wanting to leverage data to have better insights to the way they operate their business. So clearly a lot of focus on these businesses Because it is such a critical component of every digital transformation, we feel great about that both those Both integration and analytics is a category for accelerated growth in the second half.

Speaker 6

So no big concerns there at all. I would say on your second question, we are not economists and so we're not going to guide On where when people are going to feel like they're coming out of this, we think we're being appropriate with our guide for the second half of the year Based on what we saw transpire in July. Mark and Brett are giving comments.

Speaker 2

Well, I think the main piece that I would really focus on is Really going to be spending as much time as I can with customers at Dreamforce. This is our opportunity to really understand deeply across a wide Spectrum of our customers, geographies, verticals, what it is that they are seeing in their own businesses. I think when you look at These customers we mentioned 1 L'Oreal, this has just been an incredible success story for us. We see the B2C story, they're using Marketing Cloud and Commerce Cloud and Service Cloud. The Commerce Cloud story is incredible where they have almost 200 sites globally now for all of their brands.

Speaker 2

They've got highly customized experiences on the web and mobile and in store for I'm sure a lot of you use the Kiehl's brand. It's a great product. They have a whole new skin hub. They've been with us. They've really reimagined their business using Customer 360.

Speaker 2

It's a company that we're going to feature and focus and talk about and inspire others at Dreamforce. I think when you see stories like that, when you look at all the that we've seen especially during this pandemic surge over the last 2 years. It's incredible what folks have done with their businesses. When we get to this moment, I don't think it's a huge surprise that customers are more measured. Everybody is like wondering exactly where the economy is going And how things are moving forward.

Speaker 2

So this is a point where people are taking a little bit of a breath and then they will reassess and then when they get their confidence and Kind of full vision for the next stage of their company they come in and until then it's a lot of the transactional business that we would normally see and move forward with.

Operator

Your next question comes from the line of Karl Keirstead with UBS. Your line is now open.

Speaker 8

Thank you. Maybe I'll direct this to Mark and Amy and it's about the $10,000,000,000 share repurchase. So maybe a 2 parter. Mark, maybe for you, why do you think this is the right time in the company's development to move forward with your first Large repurchase. And then secondly, should everybody on the line interpret this as a signal that perhaps large M and A may be off the table For now, thanks so much.

Speaker 2

Well, it's a great question. And I'll tell you, this was kind of a I looked at this quarter very much as kind of a milestone. I'm a big fan of SAP and have a lot of respect for their business and what they've done in the market Over the last 40, almost 50 years and to see our business in July Do more than they reported in June in terms of revenue. That was very meaningful to me and I'm very grateful and proud of our team for kind of hitting this tremendous Level of scale. But at that same moment, I kind of also can say, okay, what are some changes that we can make?

Speaker 2

And one of the things, we have such massive cash flow I think it's completely appropriate for us to look at how we're handling our dilution, for example. I think that's been on the table for a while and a lot of my conversations with investors, They bring it up. We've waited for that moment. I think now is the right moment where we can say we're going to directly address this with our kind of first ever Share repurchase $10,000,000,000 I'm very excited about it. At the same time, I don't think that that takes M and A off Table, I think that we continue to look for opportunities.

Speaker 2

We want to be able to use our cash constructively. This is important for us. It doesn't mean that we're not going to have different kind of guardrails for M and A. And Brett, do you want to just address that point?

Speaker 4

Yes. I think, Mark, you articulated it well. I mean, when I mentioned this before, but the pillars of our capital allocation strategy are I mentioned this before, but the pillars of our capital allocation strategy are number 1, that we're going to continue to become more profitable to generate expanded free cash flow over time. That's Yes.

Speaker 9

Thank you for saying that.

Speaker 4

You created a great business model in software as a service, Mark.

Speaker 2

So, we're also committing to this committing to the margin for the year It is.

Speaker 4

And number 2, we're going to invest in organic innovation. And we talked a bit on there's a question to Amy earlier on investment. I'm so proud of our investment in organic innovation. You'll see a lot more of a dream for us, but I think we have a better pace of organic innovation than we've had in our history. But and then finally, we want to reduce the impact of dilution, which is feedback I've gotten from all of you and we're focused on offsetting our stock based compensation.

Speaker 4

We're also focused on maintaining healthy balance sheet because we understand that's an incredible piece of leverage we have for future M and A. So I think this is a way to that we can continue to Acquire in the future, it's been a big part of our company's history. It will be a big part of our future, but do so in a way that minimizes the impact of dilution and does it in a more shareholder friendly way.

Speaker 2

You can see like we've picked up some great companies, whether it was ExactTarget, which was kind of the beginning of really augmenting Customer 360 with our Marketing Cloud and then Moving on to MuleSoft was amazing. It's really provided all the integration and the connectivity and then on to Tableau And giving this extension of analytics, so important to so many of our largest customers. And then Slack, well, I just mentioned L'Oreal, it's an incredible Slack story. They've streamlined their communication. They've got They have that awesome brand storm event.

Speaker 2

Have you seen that, Fred? It's that worldwide innovation cake competition that they do. They've got more than 83,000 Student participants, 65 countries, they use Slack to drive that thing forward. You look at that, we're a different company because we had an acquisition strategy over the last I don't think we necessarily need to break that. But at the same time, we need to be paying attention to dilution and the overall Making sure we have the correct capital allocation strategy as well.

Speaker 3

Yes, Mark, I think that's really it. When we look at this, I think this is very much a natural Evolution of our capital allocation strategy. And what it really comes down to is that we believe sales force is positioned for over the long term. And this announcement reflects the confidence that we have in our business that as we look forward and our approach to generating shareholder value.

Speaker 2

Yes. And I really think that when we get to Dreamforce and you see how we brought all of these platforms together, integrated them, you're going to See some really powerful integration capabilities. You already saw some of it at the world tour in New York with Kind of the first level of the customer data platform, you're going to see a whole another extension of that kind of capability when we get to Dreamforce. And it's a I think as Brett said, it's a very exciting moment in time when it comes to innovation with the company.

Operator

Your next question comes from the line of Kirk Materne with Evercore. Your line is now open.

Speaker 10

Yes, thanks very much. I think this one is for Brett. Brett, I was just wondering if you could go into the industry cloud strategy a little bit And what you're seeing going on there? And can you just talk a little bit about how important that strategy is as budgets come under More stress and the ability for you all to go deeper with your customers on an industry basis. I was just kind of curious if you could give us an update on that.

Speaker 10

And then how that strategy maybe plays out in a more choppy macro backdrop? Thank you.

Speaker 4

Yes. Thanks, Kirk. We have 12 industry clouds Spanning a wide range of industries where I think CRM is particularly strategic from financial services to healthcare to consumer goods and manufacturing. And you can think of our industry clouds as essentially taking the Customer 360, sales, service, marketing, e commerce, Tableau, MuleSoft, Slack And building industry specific processes and workflows that work out of the box. And as you're sort of alluding to, There's a lot of value for our customers.

Speaker 4

Number 1 is they don't need to pay us or a professional services firm to implement the table stakes for their digital transformation. It works out of That means they can focus their investment resources on the areas of their business that are differentiated. It means they get faster time to value And it means that these processes are stickier, which is why our industry clouds have lower attrition rates than our line of business clouds. It's been a huge area of growth for us and actually a lot of credit to our Chief Product Officer, David Schmayer, who actually His company, which we acquired a couple of years ago, Velocity was actually independent software vendor that built industry solutions on top of our platform and Has been a strong advocate for this strategy internally. It's a huge part of our go forward strategy.

Speaker 4

If you have an option to buy one of our industry clouds, why wouldn't you? More works out of the box, you'll get faster time to value. So it's a huge area of investment for us. I think the thing that we do really uniquely though, Mark alluded to it, is It's really all in one integrated platform. If you buy our Financial Services Cloud, you get all the capabilities of our Sales Cloud, of our Service Cloud, of our Customer Data Platform, All in one integrated technology platform.

Speaker 4

It's very unique in the industry and I think in this more measured buying environment, it will become even more important. Though actually it was important prior to this as well. I think it reflects our alignment with our industry's go to market motion and vertical go to market motion And really focus on delivering faster time to value to our customers.

Speaker 5

Thank you.

Operator

Your next your last question today comes from the line of Phil Winslow with Credit Suisse. Your line is now open.

Speaker 4

Hey, thanks for taking my question. I wanted to focus in on Slack. Slack again outperformed revenue expectations. Obviously, the large deal metrics are impressive too. What's driving the continued demand for Slack, let's say, relative to some of those other vendors that are heavier in the telephony or the video segments of UCaaS that frankly have been delivering weaker results?

Speaker 4

And Are you seeing strong, called standalone demand for Slack as a horizontal messaging platform? Or are the Salesforce integrations that you highlighted driving more attach as a collaboration hub Of Slack in the context of multi cloud deployments? Thanks. Yes, I'll take one. This is Brett.

Speaker 4

We are really happy with the performance of Slack. I think it's interesting we acquired Slack in the midst of this pandemic and now we're coming out of the pandemic into this new era of flexible work. Office occupancy rates are at historic lows. If you look at the lines of business that we serve, like customer service, I've met Tens or maybe even hundreds of executive teams whose contact centers are no longer buildings. They're literally just in the cloud now and people are wearing headsets In their kitchens and basements to answer your phone calls.

Speaker 4

And if you think about what it means to build an employee experience, to build a customer experience In this new era of flexible work, Slack is really at the center of those conversations. And that's why it was such a strategic acquisition Because 1 plus 1 is truly equal to much more than 2. When I talked about the innovation we're to deliver at Dreamforce, it's across every single one of our clouds we've been saying, How do we help our customers that whose headquarters is now digital, transition their CRM, transition their employee experience to this new era of flexible work? So We've seen great wall to wall engagements like MercadoLibre, one of the customers I mentioned in my script. But it's also really important that we've invested in integrating Slack with Customer 360, so that when we have a conversation, say, with a retailer preparing for Cyber Week, we're coming not just with our Marketing Cloud and our Commerce Cloud and our Service Cloud, With a Slack Connect channel that they can use as a command center for Cyber Week, that's key to our go to market motion.

Speaker 4

But and I don't think it's at the expense of what you called standalone. When we land a deal, say for a department marketing department, Slack has such wonderful organic viral adoption that A year or 2 later, we're selling to the whole company. And I really think that's key to our go to market motion and Slack is a relevance driver for every single one of the clouds in our Customer 360.

Speaker 2

And I think a lot of the reasons that we bought the company that they really could benefit from our credibility with customers and our Distribution capacity have really paid out. It's such a great product. And in June, you probably know that Brett and I did the world tour in New York. Many of you were there, but the day before Was the Frontiers conference for Slack. And if you haven't looked at the demo, you really should because the product has come a long way since we bought the company.

Speaker 2

It's an incredible piece of technology.

Speaker 4

Voice, video, I mean,

Speaker 2

it's incredible. You have to see it to believe it, I mean, don't you agree like it's something that's like Really, and for a lot of you are coming to Dreamforce, I think you're going to see how a lot of our products have become Slack first and also the number of integrations that we're We'll kind of bring forth how many integrations now do you have with these core clouds that you've been able to put together?

Speaker 4

We have 12 Integrations with and the reason there's so many is because it includes our industry clouds, not just sales, service, marketing and commerce. But Mark, going into something remarkable, Huddles, which is the name of the new audio and video capability Flackener Goose, now accounts for 34% of all communication inside of Salesforce. It's completely transformed the way we work and I'm pretty confident it will transform all of

Operator

our customers.

Speaker 2

We've integrated Slack with Tableau, which is really cool, right? You can do collaborative analytics. And with

Speaker 4

the capabilities we launched to allow you to talk to your data, this is happening inside of Slack. It's just an incredible capability and as I said, a relevance driver for all of customer engagements and a wonderful way to I think drive and accelerate Slack adoption that they would have had independent.

Operator

But a

Speaker 2

lot of our customers still haven't seen this and I think that's why so excited about Dreamforce because when you come to Dreamforce and you see the keynote, obviously, this will be highlighted. And I think customers will see in real time what we saw, for Example in Frontiers, even we didn't really have the opportunity because the code was so fresh to integrate it into our world tour Keynote, which Brett and I have lamented many times, but I think that when you start to see the incredible innovation that have happened in the Salesforce core clouds like sales, like service, Marketing, commerce, even Tableau, you combine that with Slack, you bring that into the Customer 360 with MuleSoft, the single source of truth, The way it's all being integrated with this customer data platform, I don't think anyone else has this vision or is trying to even execute it. And I've made this kind of I've told you L'Oreal story quite a few times. You're going to see that Dreamforce In real time, you're going to see many other stories because I think for us, just trying to communicate our vision, this is like Probably the most exciting thing going on here, we just brought 500 of our top executives together for kind of second half kickoff and show them What we're so excited about and I don't think anybody walked away not thinking that we've not only got a world class product that's highly differentiated, But we're really where a lot of our customers are trying to get to in the next level of their customer experience.

Speaker 2

And Brett's made the point, Amy has made the point, Brian has made the point that digital transformation is underway, but we all know that every digital transformation is beginning and ending with the customer. And you've got to have this beginning you have to kind of begin with the end in mind when that's all about building this customer 360, and you're going to see this at scale when we all get to Dreamforce. And I'll look forward to your feedback then.

Speaker 1

Thanks, Phil. And we want to thank everyone for joining us today and we look forward to seeing everyone over the next quarter.

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Earnings Conference Call
Nano Dimension Q2 2023
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