Salesforce Inc (CRM) — Q2 2022 Earnings Call Transcript

Thank you, Mel. Hello, everyone. And thanks for joining us for our Fiscal 22 Second Quarter 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.com/investor. With me on the call today is Marc Benioff, Chair and CEO; Amy Weaver, Chief Financial Officer; Bret Taylor, Chief Operating Officer; and Gavin Patterson, Chief Revenue Officer. 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 expectations around the impact of the COVID-19 pandemic on our business acquisition, results of operations and financial condition, and that of our customers and partners 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 from these forward-looking statements. If a description of these risks, uncertainties, and assumptions, and other factors that could affect our financial results is included in our SEC filings, including our most recent report on Form 10-K. With that, let me hand the call to Marc.

Thank you, Evan. I appreciate it, and thanks to everyone for joining the call today. I'm currently in Geneva, Switzerland, with Gavin Patterson, our Chief Revenue Officer, as I attend the World Economic Forum's IBC meeting and Board of Trustees meeting. It’s been a fantastic experience to be here in Geneva, where the world is open for business. Meeting with our customers in person and discussing both their businesses and ours has been enlightening, especially in understanding how different the U.S. is from Europe right now and how much has changed. I’m thrilled to share our excellent second-quarter results with you. We had an outstanding performance, and you're about to hear more about it, as well as what we're doing with Slack, a very exciting acquisition that has now closed. Salesforce is evolving, and we are successfully adapting to the new business landscape while emphasizing that we can deliver success from anywhere. Over the past 18 months, Salesforce has undergone an extraordinary transformation, guided by our core values of trust, customer success, innovation, and quality. With our dedication to our customers, we've achieved record financial results. We’ve delivered five consecutive quarters of strong performance and have excelled in the second quarter with outstanding numbers. We saw our first $6 billion quarter, reaching approximately $6.3 billion, with strong year-over-year growth of 23%, surpassing our expectations. I’m equally excited about our healthy margin of 20.4%, an increase of 20 basis points from last year, along with $386 million in operating cash flow. For the fiscal year 2022, we are raising our guidance to $26.3 billion, which represents a $300 million increase and about 24% projected year-over-year growth. This growth not only reflects our success but also our exceptional performance over the last several quarters. We're also raising our operating margin target to 18.5%, up 80 basis points year-over-year. The execution and management of Salesforce have never been stronger, and I feel we are well-positioned to meet our customers’ needs. Many of them are undergoing significant values transformations, particularly focusing on sustainability. Salesforce has achieved net-zero emissions and is now fully renewable, aligning with the aspirations of many of today’s Fortune 100 CEOs. I'm thrilled by how our core business expanded in the first half of the year, and I’m optimistic about our outlook and the solid positioning with our customers. We've experienced 20% or greater revenue growth in five out of the last five quarters, with three of those quarters also showcasing operating margins above 20%. We are raising our guidance for the fourth consecutive time due to the growing opportunities for revenue growth and improved operating margins this year. As the fastest-growing enterprise software company ever, we are confident in our trajectory towards generating $50 billion in revenue by fiscal year 2026, a target that begins to seem within reach.

Well, I think we have a few technical difficulties with Marc there. This is Bret Taylor; I'll continue with the script. Thanks, Marc, for that amazing introduction, and just a reflection on the momentum in the Company right now. It really was an incredible quarter. Our products are more relevant than ever, and I have never seen this kind of momentum in the business. 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 Salesforce to help them get back to growth. That's the agenda on every CEO's mind in Switzerland and it's on the minds of every Board around the world. IDC just released their April 2021 SaaSPath vendor Radiance, which has surveyed more than 2000 companies worldwide. And Salesforce is rated number one in trust, number one in the product, number one in industry specialization, and number one in value for the price. That is just amazing. It's a true measure of just how mission-critical we are to our customers. And you can just see it in the incredibly strong performance of all of our Cloud this quarter. Sales Cloud has been number one 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 as Sales Cloud accelerated to 15% growth year-over-year. Our Service Cloud is also seeing amazing momentum. All aspects of customer service have gone digital from the contact center to field service, to self-service, and digital channels. The scale of Service Cloud is just incredible. This is a $6 billion business, whose growth has accelerated to 23% year-over-year. Our marketing and commerce clouds also grew 28% year-over-year as every organization in the world is investing in direct, trusted relationships 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. Tableau is within nine of our top ten deals this quarter, and MuleSoft is within eight of our top ten deals. The real power Salesforce platform is bringing all of 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 an especially strong performance in the public sector in our Health Cloud Business and Financial Services. In fact, four of our top ten deals in the second quarter came from the public sector. Our core organic business has never been stronger, just like Marc 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 mediums have moved from conference rooms to Slack and to Zoom. 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-digital working anywhere world. It's your digital HQ. It connects your employees, your partners, your customers on a single platform, and a platform that people love to use. 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-First sales, service, marketing analytics at our launch event, and we've got a ton of Slack innovation coming at Dreamforce. IBM is one of my favorite examples of a Slack First Customer 360 Company. Arvin Christian 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. Over 530,000 customers, 380,000 employees, and 50,000 partners are using our platform, and all of these employees are working in Slack. They've connected their workflows across Sales Cloud and across Service Cloud and enabled 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 momentum in the business. Slack's revenue accelerated to 39% growth year-over-year on a standalone basis, and we had great customer wins at Target, Lowe's, Conde Nast, UNICEF, and Norton Healthcare. What's really fun about this is looking at the growth of Slack Connect. We've talked a lot about this. Slack Connect is the capability to enable you to connect not just with your fellow employees but to connect with your partners, 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 am so grateful to be able to work with Stuart and the Slack team every day, 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 customers' wins for the quarter. Gavin, are you around?

Hi, Matt. Hi, Brad. Can you hear me? Thanks, Bret. We're seeing strong business reflected in some significant customer wins, not only in the U.S. but globally over the past quarter. In the U.S., we achieved our largest-ever deal in the public sector with impressive annual return revenue. We also expanded partnerships with outstanding companies like PayPal and Coinbase. In EMEA, we had remarkable wins, including Safelight, Freshfields, Dicen, Vodafone, and Canyon Bicycles, which has become an excellent case study. In APAC, we are strengthening our relationships with numerous businesses such as Afterpay and FWD Thailand. This indicates strong performance both internationally and domestically. I’d like to highlight a few specific wins in more detail, starting with Miller Knoll, previously known as Herman Miller. This is a great example of a company that adapted remarkably during the pandemic, experiencing a significant demand surge for their furniture. They turned to Salesforce to enhance their e-commerce platform, leading to improved conversion rates, a better customer experience, personalized product recommendations, a smoother checkout process, and next-generation video chat services. Additionally, they focus on sustainability and are utilizing Salesforce's sustainability cloud to track their carbon footprint and climate initiatives. This showcases how we're fostering partnerships and developing multi-cloud solutions within the Customer 360 framework. Another notable win this quarter is RBC Wealth Management, which is leveraging Customer 360 to optimize their processes by integrating data from over 26 different systems into a unified wealth management platform, offering advisors a comprehensive view of each client. This transformation includes reinventing the lengthy client onboarding process, which previously involved weeks of physical documentation, into a digital task that requires only 24 minutes. GEICO is another significant win, and they are utilizing Customer 360 to create a unified view of their customers by leveraging it across their entire business, empowering 25,000 agents with AI-driven analytics to enhance customer relationships. Additionally, 3M is implementing Customer 360 in 83 countries, and our collaboration continues to grow. They are using Trailhead to train thousands of new customer-facing employees and Salesforce Maps as part of that strategy. Tableau CRM is also being employed for operational management, customer engagement, and productivity enhancement. In Q2, 3M selected a philanthropic initiative to encourage nearly 100,000 employees to contribute to their communities, aiming to achieve 2 million volunteer hours within the next five years. IKEA is another excellent example, leveraging Marketing Cloud to achieve impressive results in over 30 markets. During the pandemic, they utilized our field service solutions for planning visits, installations, and after-service support across the U.S. These examples illustrate how we're empowering customers to succeed from anywhere. My discussions with customers leave me optimistic not just about the demand for our solutions but also about our execution capabilities in the latter half of the year. I am confident we will sustain this strong demand trend for Salesforce in the second half, especially with the enhancement that Slack will provide. Before handing over to Amy, I want to express my gratitude to our incredible sales teams worldwide. They have effectively adapted to new ways of working, allowing us to continue supporting our customers. Thank you to everyone for that. Amy, it’s your turn.

Great. Thank you, Gavin, and good afternoon, everyone. Q2 was another quarter of remarkable top and bottom-line performance. We exceeded our top-line expectations, achieving record levels of Q2 new business. We saw strong demand across all of our products, regions, and customer sizes. We were able to execute with discipline to drive higher operating income. We also completed the acquisition of Slack technologies on July 21st, bringing yet another best-in-class asset into our Customer 360. 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. That process is already underway with Slack's business accelerating into the close of the acquisition. In Q2, Slack's revenue grew 39% year-over-year on a standalone basis, which excludes any impact of purchase accounting. Slack saw strong performance and customer acquisition, especially in the enterprise. The number of paid customers spending greater than $100 thousand annually accelerated during the quarter, up 41%. For the short period between the closing of the deal and the end of our fiscal Q2, Slack's operating results were immaterial to our non-GAAP results, and they are included below the line in OIE. Slack is consequently excluded from our reported revenue and non-GAAP operating income. Where appropriate, we will call out Slack-specific impacts on our Q2 results and our guidance. As part of the acquisition this quarter, we issued $8 billion of senior notes with a weighted average interest rate of 2.25% and a 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 billion sustainability bond, which was our most oversubscribed note in the offering. Not only did we raise funds on favorable terms, but concurrent with our debt raise, S&P upgraded our credit rating to A+. Now, let me walk you through some of the results for Q2 fiscal '22, starting with top-line commentary. Total revenue for the second quarter was $6.34 billion, up 23% year-over-year, or 21% in constant currency. The strong new business pipeline that we've discussed over the last few quarters enabled us to deliver these results as new business momentum continued to exceed our expectations. Key highlights include an acceleration in Sales Cloud with Q2 revenue of $1.5 billion or 15% year-over-year growth. Tableau and MuleSoft continued their momentum in enterprise deals as both saw their shares of the Company's top 10 deals increase. As Bret noted, Tableau was in nine of the top 10, and MuleSoft in eight of the top 10 deals this quarter. This is an incredible accomplishment and evidence of how strategic these acquisitions have become for our customers. The public sector continues to be an area of strength, accounting for four of the top 10 deals this quarter. Again, this quarter our seven-figure deals on average included more than 4.5 clouds. The number of seven-figure deals, including five or more clouds, grew by 29% year-over-year, showing continued momentum in our enterprise deals. We continue to see strength in our international businesses, which accelerated sequentially, although we note that EMEA and APAC growth benefited modestly from the integration of acquisitions into our billing practices. We remain pleased with the progress on attrition, with revenue attrition in Q2 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 months' performance. We have now lapped the second quarter of Fiscal 21, which was impacted by the early days of the pandemic. Our remaining performance obligation, representing all future revenue under contract, ended Q2 at approximately $36.2 billion, up 18% year-over-year. The 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 $18.7 billion, up 23% year-over-year and in constant currency. Slack represents four points of growth, ahead of the three points we guided to last quarter, due primarily to changes in our assumptions around purchase accounting. Turning to operate margin, Q2 non-GAAP operating margin was 20.4%, benefiting from revenue outperformance, efficiencies from work from anywhere, and a focus on disciplined spending. Salesforce recorded $45 million of transaction-related costs due to closing the Slack acquisition during the quarter. Q2 GAAP EPS was $0.56 and 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. 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 second quarter was $386 million, down 10% year-over-year. On a cash basis, Salesforce paid $43 million in transaction fees related to the Slack acquisition. CapEx for the quarter was $213 million, leading to a free cash flow of $173 million, down 45% year-over-year. As a reminder, we continue to expect cash flow seasonality to skew higher in Q1 and Q4. Slack's operating results had no impact on Q2 operating cash flow or CapEx. Now, turning to guidance. We expect Q3 revenue of $6.78 to $6.79 billion, or approximately 25% growth year-over-year. This guidance assumes a $250 million contribution from Slack. For Q3, we expect to deliver CRPO growth of approximately 22%, which includes four points of growth from Slack. We expect Q3 GAAP EPS of negative $0.06 to negative $0.05, and non-GAAP EPS of $0.91 to $0.92. Now moving to fiscal 22 guidance updates. As a result of our year-to-date performance and strong execution in the current demand environment, we are raising our fiscal 22 revenue guidance by $300 million to $26.2 billion to $26.3 billion, or approximately 24% growth year-over-year. This guidance incorporates an expected revenue contribution of $530 million from Slack in the second half of fiscal 22, an increase of $30 million over our previous guide. This guidance also includes $200 million from Acumen, an increase of $10 million from our previous guide. Net of the revised Slack and Acumen contributions, this represents a $260 million raise in our core business. Our ability to execute and the demand environment both remain strong. We are also raising our fiscal 22 non-GAAP operating margins to 18.5%, representing an expansion of 80 basis points year-over-year. This now includes an expected 150 basis point 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 rise compared to our previous guidance. We're also raising fiscal '22 GAAP diluted EPS to $0.81 to $0.83, and raising our non-GAAP diluted EPS to $4.36 to $4.38. We expect recent M&A will be approximately $0.51 headwinds to non-GAAP diluted EPS. Please recall that our OIE and EPS guidance assumes no further contribution from mark-to-market accounting as required by ASU 2016-01. We are raising our fiscal '22 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 headwinds from M&A. The diluted cash flow impact of Slack and Acumen now represents a headwind to our year-over-year growth of approximately 7 points. Excluding the anticipated impact of M&A, operating cash flow growth would be 21% to 22%. We continue to expect CapEx to be approximately 3% of revenue in fiscal 22, resulting in a free cash flow growth rate of approximately 15% to 16% for the fiscal year. Excluding the anticipated impact of M&A, as previously noted, this rate would be 22% to 23%. To close, we remain excited by the strengths we see in the demand environment, and we're seeing record levels of revenue and operating margin. Our flagship products in Sales Cloud saw acceleration this quarter. We closed our largest deal in customer history. We had an impressive first half of fiscal 22, and we're excited to continue Slack's momentum with the power of our two companies now together. 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 billion in fiscal 26. We are committed to being disciplined along the way while challenging ourselves to find additional areas of operational improvement. 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 strengthening the durability of our operating model going forward. Finally, I look forward to engaging with many of you at our upcoming Investor Day on September 23. Now I'll turn the call back to Marc for some final comments.

Well, thanks, Amy. Hopefully, I'm back here. And I'm actually now talking through Amy's cellphone connected to our speakerphone at our conference in San Francisco. So, it turns out the cell phone technology is a big winner, anyway, thanks, Amy. That was a great job on earnings and congratulations on another great quarter for your organization, everything you're doing. 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. Now to our team of unicorns, if you will, it's absolutely true the best CRM just got better with Slack; and if you listen to what Bret has to say about the integration of incredible things like Slack Connect, these are becoming extensions to our CRM capabilities, so it’s a very exciting moment for our entire product line and our technology team. I think, with that our leadership team has really shown through this amazing perseverance and execution over the last several quarters these amazing results. Now we're going to have our digital Dreamforce coming out from San Francisco in less than a month, from September 21 through September 23rd. 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 to all have a front-row seat, and please talk to Evan so you're all connected to this program. We will also be redeploying our Dreamforce 2 U program as well, delivering custom Dreamforce capability for all of our customers. I hope that you're all going to join us. As Amy mentioned, we're also looking forward to having you then at Investor Day; that will also be amazing. We're expecting some awesome conversations with all of you. So that, I'll open it up to questions. Everybody is online right now and we can take all your questions. So go ahead, Evan.

Operator, you go ahead and open the call for questions.

Thank you very much. Bret, I'd like to ask you about Slack specifically. Now that the deal is finalized and knowing how enthusiastic you are about it, what metrics are you using to assess success with Slack, beyond just revenue growth? For instance, how many customers are utilizing it, or what is the number of multi-cloud deals that include Slack? What should we pay attention to in order to see that the deal is advancing as expected and achieving the kind of synergy you are anticipating?

Thanks, Kirk. I think, first 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 360 platform but also integrating our products. And actually, I think we've made a faster start integrating our technologies than any acquisition in our history. We did an event last week on this idea of a digital HQ, where we announced Slack-First 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, and Slack-First marketing and analytics. 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. What we're measuring, as you said, is going to show up in things like multi-cloud deals that include Slack. It's also going to show up in many more departments at many more companies that are perhaps using these new digital collaboration technologies for the first time, in the context of doing their job, customer service, sales, marketing, and really realizing this vision of the digital headquarters. Marc has talked a lot about how we're in this new pandemic world, and this isn't going away. We've opened half of our offices. But as you can imagine, not as many people are signing up as we had hoped to at this point because of this pandemic. I've started two companies, and it all started by planning my office space. Now if you're starting a Company, you start by planning your digital HQ. That's really what we want to bring to every Company in the world. Help them build the digital infrastructure, help them succeed in this new normal. One thing that I think we're really excited about that Marc also mentioned is Slack Connect, which is really bringing these digital tools outside the walls of our customers' buildings and bringing them to partners and customers as well. You're seeing that in a lot of the product integrations we announced.

Thank you very much. Congratulations on a fantastic quarter. Gavin, we have heard that you're selling Slack by actually using it with customers during the selling process. Could you help us visualize that? Is it transforming the buying experience in a significant way? And just a quick question for Amy. It's great to see operating margins over 20% for consecutive quarters. Where are you finding new efficiencies to maintain this margin trajectory? It seems to extend beyond the temporary savings from COVID.

Great question, Mark. I just like to share Bret and Amy's excitement about the potential that Slack is going to bring to Customer 360. Since we announced the deal 6 months ago, obviously, we've been having conversations with customers about what we're planning to do. I have to say, it’s become remarkable. Many of our customers are both Salesforce customers and now Slack customers. There's good overlap between the two, and they can see that synergy from a product perspective. We're beginning to sell through Slack. The most powerful presentations sales teams give are often Salesforce on Salesforce. And so Slack on Slack is a very compelling way to explain how we use the product. We're beginning to see more of that, and where we are closing deals, we're leaning in to close deals through creating channels between us and the customer, and ensuring that everyone working on the deal can have real-time access to those channels. It means that deals close much more quickly. In fact, the Slack deal itself was closed on Slack. That’s a perfect example of Slack on Slack.

Great, thanks, Gavin. You're right, we used Slack to negotiate, conduct our due diligence, and negotiate the Slack acquisition. I do think that’s the ultimate example of a terrific sale, all conducted with Slack and Slack Connect. Marc, turning to your other question about operating margin, where we've really seen this growth this year. First, we are getting the benefit of very strong business performance in Q1 and Q2, and that is providing profitability while still investing in growth and absorbing the impact of M&A. Second, we are continuing to build on what we learned during the pandemic about how we can work effectively in a digital-first or hybrid environment. Some examples are virtual go-to-market motions and sales enablement, largely virtual at this point, and a renewed emphasis on financial automation, which I believe will pay off in the long run. And finally, it's simply an approach to disciplined decision-making. When we see 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.

Great. Thanks for taking my question and congratulations on a real nice Q2 result here. I wanted to ask another one on Slack, but more focused on Slack plus Tableau. With the combined offerings, you really have a powerful solution to not only see the data but act 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 Slack plus Tableau combined. What are you hearing from customers and the reception there, and could that actually accelerate these cross-cloud Customer 360 deals?

Yeah, thanks for the question, Brad. We're really excited about the combination of Slack and Tableau. For those who didn't see the event, we showed a really wonderful integration between Tableau and Slack, so your data can talk to you. Automated notifications mean 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. It's an incredible combination. This shows our philosophy on our M&A and why we've had unprecedented success in the marketplace because we're trying to integrate our platform, with Tableau, MuleSoft, and Slack, which amplifies our vision for Customer 360. At the center of all these digital transformations our customers are going through is data. You need to integrate that data with MuleSoft. You need to see an understanding with Tableau, and you need to act on that through Slack, which is the system of engagement for the Customer 360, but also the system of engagement for every application at your Company. I think it's an incredibly powerful combination, and I actually believe Slack has the potential to really accelerate every single product in Customer 360, Tableau included, and especially. This reflects the fundamental shift in the workplace we're all experiencing.

Congratulations. My question is for Amy and maybe a little bit from Gavin. Amy, how are you able to fund growth initiatives at the same time drive operating efficiencies? Gavin, could you shed some color on that as it pertains to the distribution side of the equation? How are you able to accomplish growth and efficiencies in terms of margin? Thank you so much and congratulations on a fantastic quarter.

Great. Thanks, Kash. On the operating margin, as I said, I think we have to be able to drive growth and increasing profitability at the same time. As I mentioned, we've been doing that this year through terrific business performance, efficiencies, and our work anywhere, as well as through discipline. I actually like to think of it more as a new operating mindset. It's a real focus on discipline and looking at what will make us a Company that not only gets us to $50 billion but makes us a strong, durable Company when we get there and positions us for sales through that. These are multiple changes around the Company, but I've been really gratified to see everyone jumping in. This has been really an effort from the entire executive leadership team.

We just came off our half-year review where we got our top 100 executives together in person and reviewed the last six months and looked ahead into the future. I was happy to share two fantastic quarters to start the year with really strong demand and execution. Looking into the second half of the year, the pipeline is really strong, and conversations with customers are accelerating, if anything. We chose to increase our investments in direct sales to get better coverage with customers. That is the sound of our confidence in the business. I feel confident that we can continue to grow top-line while delivering on expectations around operating margin. It is a trade-off. The balance between the two ensures we seize the opportunities in the marketplace we're seeing from customers, including multi-cloud deals.

What do you see on the selling motion versus the U.S. versus here in Europe?

What's common is this conversation about digital customer transformation that's happening with the CEO. It's not something that goes down the organization anymore. It's a priority of every board. That means we're getting bigger deals, more multi-track deals, multi-year deals. We see an increasing conversation about the Customer 360. The focus is on time-to-value, which is good for us. We want our customers to be on a standard product as much as possible. Configuring, yes. Customizing, not so much, because there's so much innovation coming through, it's easier to do through staying on the standard path. In the U.S. or in Europe, we're seeing our business grow across the board from small customers to multinationals, with increasing larger deals.

Excellent question and really nice quarter and really a nice first half of the year. Amy, I don't recall seeing this type of increase in terms of top-line revenues, definitely not this type of raise to the operating margin guide, especially in the first half of the year. Marc, could you talk about what you're seeing in the pipeline that's giving you the confidence to increase guidance in the first half of the year? For the second half of the year already, and maybe to Amy. When we see this operating margin expansion, is this durable, if you will, on a go-forward basis? Will we see reflection of that OpEx line because of the Delta variant in future years, or is this margin expansion going to be more durable?

Number one, because of the green deal that's happening here in Europe. They realize that to continue to be successful in this environment and economy, they have to make a net-zero transformation. That has been very important to us. We've made that transformation, and now we're fully renewable as well. The second thing is that every CEO I mentioned and talked to in the last several months, has been talking about digital transformation. It's been surprising. And I would say this is a priority, along with the transformation of employees not returning exactly as they wanted. Stories about success from anywhere have changed. It’s a new world. The pandemic has changed everything. We're in a new world. I don't think the Delta variant will be material to our business. If anything, we know that life has to go on. In Geneva, we're seeing things very differently. People are not wearing masks, it's a very different experience. The strength we have now is like never before and Salesforce has never been better positioned for this economy.

The confidence comes from the operating metrics around the pipeline for the future. I have great confidence in what I see across all Clouds contributing; there is no weakness across. U.S. growth is consistently 20% plus revenue, with APAC at 26%. We're growing across the board, and growth internationally is not at the expense of the U.S., and that's why we're posting these strong numbers.

This new operating margin model we're executing has led us to have three out of the last five quarters greater than 20%. We've reimaged our business focusing on the pandemic, leading to better outcomes now. If we can perform so well after the largest acquisition in our history and still raise margins, it's very exciting.

To follow up the end of your question, this is a new world. We are not going back to the pre-pandemic way of working. We've learned a lot during this period about working effectively from anywhere. Discipline is durable, and we need to make sure we perform that way going forward and show consistent execution quarter after quarter.

We've made sure our acquisitions are integrated. We sell a platform, we have exactly what businesses need today.

Thank you very much. We appreciate everyone joining the call today. If you have any questions, you can contact us on investor relations. We look forward to Dreamforce and Investor Day. Thank you very much.