Salesforce Inc (CRM) — Q4 2022 Earnings Call Transcript

Thank you, Bob. Hello, everyone, and thanks for joining us for our fiscal 2022 fourth quarter and full year results conference call. I'm Evan Goldstein, Senior Vice President of Investor Relations. Our 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; Bret Taylor, Vice Chair and Co-CEO; Amy Weaver, Chief Financial 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 and 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 operation 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 the forward-looking statements. A description of these risks, uncertainties and assumptions and other factors that could affect our financial results is included in our SEC filings, including our most recent report on Form 10-K. With that, let me hand the call to Marc.

Thank you, Evan. This call is particularly challenging due to the troubling events occurring around the world. We are witnessing tragedies that are hard to comprehend. Despite this, I want to share that Salesforce just experienced one of its best quarters ever. This is a personal matter for me as my great-grandfather immigrated from Kyiv. Our family history is significant to me, and seeing what my family in Ukraine is going through breaks my heart amidst the suffering. While we don't operate much in Ukraine or Russia, we have employees with ties to that region. We are committed to providing humanitarian aid, and I recently contributed to World Central Kitchen, which I support strongly. We are dedicated to finding more ways to help, as this aligns with our core values at Salesforce. It's a tough moment for us because we are aware of the global situation, yet we've just had a remarkable quarter. I'm currently on the 61st floor of Salesforce Tower, where many employees have returned to the office. The atmosphere here is energizing, and we're seeing a rebirth in our city as we emerge from the pandemic. Our fight against the virus has come a long way, and I want to express my gratitude to everyone for their efforts over the past two years. Recently, we held our fiscal year kick-off in New York City, with 5,000 employees attending in person. It was incredible to be together again, especially with so many new employees who joined since the pandemic. When we asked those who had never attended a Salesforce kick-off to stand, about 75% of the attendees did so. Bret and I led this event together, and we were both astounded by the turnout.

It was amazing.

It was, right? Being in person again after so long. Being back at the Javits Center with 5,000 employees, doing a kick-off, and with tens of thousands of employees online. I'll tell you that we were able to get together safely, thanks to our safety cloud. We were interconnected with a number of COVID tests that were dynamically updating how we were doing and trying to keep the virus at bay. There’s still some virus there, but not a lot. We did our best to have a very safe program, and we've been doing this now. We've had two Dreamforces with this program, with our safety cloud. We’ve had the kick-offs. We’ve had all kinds of events and programs all over the world using this technology. It's very powerful. Mayor de Blasio came and he was talking about how we had built the contact tracing system for New York, which we did, and the vaccine management system for New York, which we did, and many apps, talking about how we landed a 787 during the height of the pandemic in New York, which we did, providing millions of pieces of PPE and so forth. The emotional part for me, and I don't know, Bret if you were, but when he said everywhere where our employees were sitting was a FEMA Field hospital just a short time ago. We were sitting in a hospital and having a kick-off, and we realized, wow, we've somehow gotten through this. Wasn’t that a moment?

Yes. You could feel the impact and just the poignancy of the moment as everyone looked down at their seats and tried to imagine a cot, really capturing just as hard and as long as it's been how far we've come.

I added up how many CEOs I've met in the last 90 days, and it's been about 46. Traveling and talking to these CEOs around the world has been both powerful and challenging. I'm thankful for what our Ohana, employees, customers, first responders, and scientists have accomplished to help us through this. It feels like we’re nearing the end of a long journey, even though I’ve read alarming articles about the situation in Hong Kong with BA.2. We are entering a new phase, and I'm hopeful for a return to normalcy. The combination of a war and a pandemic is a tragic but not uncommon story, and seeing the current events is disheartening. Now, speaking directly to our investors and analysts about our company’s performance, we had an outstanding quarter, concluding a remarkable fiscal year '22 with impressive results. Demand from customers across all sectors, regions, and product categories remains extremely strong. Like many portfolio managers on the call today, we are managing a comprehensive portfolio. There’s notable resilience across all areas, and every CEO I speak with is undergoing significant digital transformation. Our role is to assist these companies in this growth and transformation, which is why our year has been exceptional, and I believe this momentum will sustain. The remarkable metrics reflect our dedication to being disciplined, profitable, and generating strong cash flows. Revenue for the fourth quarter surpassed $7.3 billion, marking a 26% increase year-over-year. For the entire fiscal year '22, revenue reached $26.5 billion, also rising by 25% year-over-year. We are on track for a $32.1 billion year, maintaining our status as the fastest-growing top 5 enterprise software company in history, with ambitions to become the leading global enterprise cloud software applications company. Our operating margin was 15% for the quarter and 18.7% for the year. We consistently adhere to a disciplined approach for expanding margins, evidenced by the forecast of over 20% operating margin alongside the anticipated $32.1 billion year. Our distinctive business model enables us to scale revenue, enhance operating margins, and generate robust cash flows, as shown by all three dimensions this quarter. We concluded fiscal year '22 with impressive cash flow, achieving a milestone of $6 billion for the year, which is a 25% increase year-over-year, far exceeding our targets. Based on our strong results, I'm excited to raise our fiscal year '23 revenue guidance to $32.1 billion, signaling a 21% year-over-year growth. I hope this is just the start of our revenue for the year. We are dedicated to achieving an operating margin of 20% for fiscal year '23. Customer success continues to drive our financial achievements. Our product innovations are equipping customers with the resilience necessary to navigate these challenging times, which is why Salesforce has been recognized by IDC as the number one CRM for eight consecutive years. Our Customer 360 portfolio encompasses the Sales Cloud, Service Cloud, Marketing Cloud, Commerce Cloud, Slack, Tableau, and MuleSoft, as well as other vital services like the Financial Services Cloud, Safety Cloud, and Sustainability Cloud. Together, they provide our customers with a comprehensive view, serving as a single source of truth for many Fortune 500 companies. This customer success is spearheaded by our exceptional management team, which is stronger and more aligned than ever. I’d like to highlight a couple of customers and then conclude. Ford is one such company, and you will hear more from Bret and Gavin about how we are aiding major companies like Ford in their business transformations. I believe Ford is a standout company under the leadership of its transformative CEO, Jim Farley, who possesses a clear vision. If you haven't experienced the Lightning 150 truck or the e-transit van, I recommend visiting a Ford dealer for a test drive; they drive differently than most electric cars. A few weeks ago, I was with Jim Farley during the launch of the Ford Pro business unit, focused on B2B to complement their B2C operations, similar to our collaborations with other customers like Home Depot. Ford Pro is aiming to enhance productivity for professionals. In my rural area, I even have a Ford 550 truck configured for emergencies, and I look forward to integrating all Customer 360 services around it. Recently, I witnessed the innovative product line at Ford and how their customers and partners are engaging with these new products in groundbreaking ways. Ford’s sustainability goals resonate with the pressing climate emergency we all face. Achieving net zero quickly is critical. Salesforce has now entered the Fortune 100 and is already a net zero company, achieving 100% renewable energy throughout our operations while continuing to reduce emissions. Sustainability is a core value for us, and operationalizing it across our business has been a focus for the last six months, including exploring new investments in carbon relationship management, which is essentially the new CRM. We have the capability in analytics and information management to support our customers in effectively managing carbon. Each business can be a player in combating climate change, and the first step for many is committing to their own net zero goals. Friends in venture capital are shifting towards sustainability, and I advise them to ensure their portfolios are net zero. Our efforts in sustainability might be the most fulfilling work we've ever done, and it is something to celebrate. Salesforce will turn 23 on March 8, just a few days from now, and I want to wish a happy birthday to Parker, who co-founded this amazing company with me. Reflecting on our journey since 1999, I never anticipated that we would grow into this incredible organization and make it into the Fortune 100 in 2022. This accomplishment is remarkable. Our values have contributed significantly to our community impact, with half a billion dollars in grants, $6.7 million in employee volunteer hours, and over $100 million donated to public schools in San Francisco and Oakland. We support 55,000 nonprofits and NGOs on our platform for free and have assisted children's hospitals in San Francisco and beyond. Thank you all for enabling this positive change. We also extend our appreciation to our trailblazers who strongly believe in our products, which have propelled us forward. Once again, Parker and I are very appreciative. Now over to you, Bret.

Thank you, Marc. I really appreciate it. As Marc said, we had a phenomenal quarter to finish another phenomenal year of innovation and customer success. You can see it in our performance. Our operating model and discipline are generating profitable growth at incredible scale. I've had the privilege of meeting hundreds of customers over the past few months. The thing I've come away with after those conversations is that Salesforce is more strategic to their success than ever before. Every company is going through a digital transformation. That transformation starts and ends with their customers, and that's what drove our incredible performance in every region this quarter: 23% in the Americas, 38% in EMEA, and 20% in APAC. We continue to see tremendous demand from our customers across the entire Customer 360 portfolio. Companies like KPMG and Scotiabank are using Sales Cloud to build digitally native sales teams with new products like revenue intelligence and our new Slack integrations. Sales Cloud growth accelerated again this quarter to 17% year-over-year, and it's now a $6 billion revenue business. Companies like State Farm and U.S. Bank expanded their use of Service Cloud this quarter, helping it grow at 18% year-over-year to nearly $6.5 billion in revenue. These sales and service businesses are just incredible. Independently, each is larger than any other cloud Software-as-a-Service company and more relevant to more customers than they've ever been in our 23-year history. Our Marketing Cloud also continued to show strong growth with customers like Humana and Sunrun, delivering over 40 billion messages in Cyber Week alone and 4.1 billion messages per day throughout Q4, up 37% year-over-year. Just Eat Takeaway, which Gavin and I recently visited in Amsterdam, is a great Marketing Cloud success story from the quarter. Just Eat is a leading online food delivery marketplace. Like all digitally native companies, they've adopted Slack as their digital headquarters with 11,000 monthly active users. This quarter, they expanded with Marketing Cloud to engage with their customers, restaurant partners, and delivery carriers. We also saw Commerce Cloud wins at Ralph Lauren, Bose, and Sonos, continuing this trend toward digital commerce that accelerated rapidly during the pandemic. Together, Marketing and Commerce grew 20% year-over-year in the quarter. Both Tableau and MuleSoft continue to be the data foundation for our multi-cloud Customer 360 deployments. Tableau had strong wins in the quarter with Southwest Airlines, IBM, and Sunrun. MuleSoft was also part of some of our largest deals in the quarter, including Bose, Deloitte, and Ford. Together, our Tableau and MuleSoft data business accelerated to 23.5% year-over-year growth in the quarter. I'm happy to say that Slack continues to exceed our expectations in every way as every company in the world builds a digital headquarters for this next generation of work that Marc was just talking about. With key wins at companies like Carvana and Netflix, the number of customers spending $100,000 annually with Slack increased by 46% year-over-year. Marc and I could not be more pleased with how the Slack integration is going, and that remains our top priority as a management team. As we said at our Investor Day, we don't have any plans for material M&A in the near term. Slack is our focus. It's been so great to hear Slack come up in almost every one of those hundreds of customer conversations I had this quarter. PayPal is a great example; we've had a long relationship with Dan Schulman and the PayPal team. They use Customer 360 across both their B2B and B2C businesses. This quarter, PayPal expanded their use of Slack, using new capabilities like Slack Huddles, with thousands of real-time audio calls every week, and Slack Chatbots to respond to employee questions, log IT tickets, and more. This digital transformation acceleration is happening in every industry, and you can see it in the momentum of our industry clouds. These are our purpose-built solutions for financial services, healthcare, consumer goods, energy, and eight other industries. We saw unprecedented growth across our industry solutions, and our most strategic multi-cloud deals were driven by our industry-specific products. GEICO is a great example; GEICO is the second-largest auto insurer in the U.S. with over 25,000 agents, led by an incredible CEO in Todd Combs. Our professional services team is working with GEICO to deliver a digital-first customer experience with our Financial Services Cloud, improving their customer experience while saving the company millions in costs at the same time. We saw strong growth in all segments, including meaningful acceleration in our largest transformational deals as well as our lower-end transactional deals and Slack self-service business. These transactional businesses are the closest thing we have to a real-time economic barometer, and right now, all the indicators are positive. Perhaps most importantly, this quarter, we saw the lowest customer attrition in our company's history despite all the disruption in the economy. Overall, it was an extraordinary quarter, and we're seeing incredible momentum in the business. As Marc said, as a leadership team, we've never been more aligned, and we're executing better than we ever have. I'm enormously proud of our entire team and grateful for the support of our customers, partners, and all our stakeholders as we continue to deliver incredible growth at scale quarter-over-quarter and year-over-year. And over to you, Gavin.

Thanks, Bret. I would echo Marc and Bret on just how many remarkable customer success stories we saw in the quarter across our full portfolio of products, industries, and geographies. The dynamics we're seeing in customer engagement are absolutely fantastic. Just over the past few months, I've done more than 75 meetings with C-Suite executives, and the accessibility, sense of urgency, and interest from the highest levels of companies is incredible and shows no signs of slowing down. What's clear is there is a tremendous appetite for digital transformation, and we fully expect that to continue. In the Americas, we grew relationships with Accenture, Banco C6, Scotiabank, State Farm, the State of Michigan's Department of Health and Human Services, U.S. Bank, Zoom, and many more. In EMEA, we continue to deepen our relationships with Airbus, CloudFactory, and AlphaSights. In APAC, we had significant wins with incredible organizations like Bank of Philippines, Panasonic Corporation, and Hitachi. Healthcare stood out with wins like Humana, IQVIA, Cecelia Health, and Teladoc Health. Moderna is another in that category; their intent on becoming the first fully digital biotech company, embedding analytics, AI, and automation across every step of their value chain. We are a key partner on that journey. With Health Cloud, Moderna will gain a more complete view of its customers, and with Einstein and Tableau CRM, they will be able to analyze data across all departments and use predictive analytics to make better decisions. We continue to build our relationship with Sanofi, where the CEO, Paul Hudson, and his team are already using Health Cloud and Service Cloud. In Q4, they added Consumer Goods Cloud, Tableau CRM, and Salesforce B2B Commerce, which will allow them to better engage with healthcare providers, patients, and pharmacies around the world. This is another great example of our complete Customer 360 portfolio at work. We also grew our partnership with Mercedes-Benz in the quarter. They're using Salesforce to transform the way they engage with their customers. As Mercedes becomes even more sustainable and reimagines their fleet for the electric future, they're relying on Customer 360 to unite their sales, service, and marketing teams around a single shared view of each customer. Ralph Lauren is another great expansion. I’m not just saying that because the CEO Patrice Louvet was my former boss at P&G. We're helping Ralph Lauren deepen its connection with its customers in both digital and physical settings, particularly as they expand into new regions. In fact, Commerce Cloud is helping grow their North American online sales by over 30% in the December quarter. Throughout the pandemic, Ralph Lauren has relied on Slack to keep their geographically distributed teams working together seamlessly from anywhere. 18 months ago, Australia's state of Victoria Department of Health selected Salesforce to deploy a COVID-19 contact tracing system. In Q4, Victoria tapped Salesforce to provide a technology foundation for managing the state's COVID response efforts. For example, Victoria is using MuleSoft to integrate information from various systems, detecting COVID cases as the virus moves between outbreaks, and has also deployed Marketing Cloud to enhance communications with citizens affected by the pandemic. These are just some highlights from an amazing quarter of customer success from anywhere. We are proud to have supported these and many other companies and are grateful to all our customers for their continued trust. As Marc and Bret said, our customers' success drives our financial success. I'm grateful to be part of this management team, which has never been stronger or more aligned or even more committed to generating disciplined profitable growth at scale. Also, I want to thank our team for their outstanding execution for continuing to do such a great job in the midst of a massive global change. Amy, over to you to share the financial details of our quarter.

Thank you, Gavin, and hello to everyone on the line. Fiscal '22 was a remarkable year for Salesforce. Our focus on disciplined and profitable growth drove record levels of revenue, margin, and cash flow. Let me take you through some of the results for Q4 and full year fiscal '22, beginning with the top-line commentary. Total revenue for the fourth quarter was $7.33 billion, which includes $312 million from Slack. This is up 26% year-over-year or 27% in constant currency. We continue to execute upon the robust demand environment that we highlighted throughout fiscal '22. For the full year, total revenue was $26.5 billion, which is up 25% year-over-year or 24% in constant currency. Full-year revenue includes $592 million from the two quarters of Slack. Our portfolio of relevant products serving a broad set of customers and customer needs continues to drive our business performance. A few key highlights from the quarter: As you've heard from Marc, Bret, and Gavin, our core business continues to perform very, very well. Sales Cloud and Service Cloud are both $6 billion businesses. In Q4, they grew 17% and 18% year-over-year, respectively. Our progress in the enterprise continues, with our largest deals getting even larger. The number of seven-figure deals signed in Q4 grew 34% year-over-year, and the number of eight-figure deals more than doubled. Our industry products also continued to perform very well. In fact, our largest deal ever, as measured by incremental ARR, was a financial services win we signed during the quarter, and eight of our top 10 deals included industry products. I want to provide an update on MuleSoft, which grew 24% year-over-year during Q4. We continue to realize the benefits of the go-to-market organizational changes we implemented last year. We’re happy with the progress. However, we do not anticipate seeing the full benefit of these changes until the back half of fiscal '23. Last quarter, during Q3, we drove our attrition rate to below 8% for the first time in company history. Now, for the second quarter in a row, our attrition is again at an all-time low. Ending Q4 revenue attrition was between 7% to 7.5%. Our remaining performance obligation representing all future revenue under contract ended Q4 at approximately $43.7 billion, up 21% year-over-year. 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 $22 billion, up 22% year-over-year and 24% in constant currency. The outperformance was driven by new business outperformance and strong renewals. Slack represents approximately 4.5 points of CRPO growth, slightly ahead of the 4 points provided during last quarter's guidance. Turning to operating margin, for the full year, non-GAAP operating margin was 18.7%, which represents approximately 100 basis points of improvement year-over-year. As a reminder, this includes a 140 basis points headwind from M&A. I'm very proud that our team drove strong margin expansion while also absorbing our largest acquisition ever. Q4 GAAP EPS was negative $0.03, and non-GAAP EPS was $0.84. Realized and unrealized gains on our strategic investment portfolio benefited both GAAP and non-GAAP EPS by approximately $0.03. For the full fiscal year, GAAP EPS was $1.48 and non-GAAP EPS was $4.78. Realized and unrealized gains on our strategic investment portfolio benefited GAAP EPS by approximately $0.93 and non-GAAP EPS by approximately $0.98. Turning to cash flow, I was particularly pleased with how we closed the year, completing a milestone year of cash generation. For the full fiscal year, operating cash flow was $6 billion, up 25% year-over-year. CapEx was $717 million, resulting in free cash flow of $5.3 billion, up 29% year-over-year. Recent M&A represented a two-point headwind to both our operating and free cash flows. Excluding the impact of M&A, our full year operating cash flow growth rate was 27%, and our free cash flow growth rate was 31%. On to guidance, we are raising our Q1 revenue guidance by $130 million to $7.37 billion to $7.38 billion, approximately 24% growth year-over-year, and that is coming off a historically strong Q1 last year. This guidance assumes a $330 million contribution from Slack. For the full year, we are raising our fiscal '23 revenue guidance by $300 million to $32 billion to $32.1 billion, approximately 21% growth year-over-year. Our guidance assumes a $1.5 billion contribution from Slack. Last week, we announced our acquisition of Traction on Demand, a professional services business. Our revenue guidance assumes a $75 million contribution in fiscal '23 from Traction on Demand, which we anticipate will close by the end of this fiscal quarter. Please note that the deals remain subject to customary closing conditions. Foreign currency has continued to be highly volatile. To give you a sense of the impact on our business, our fiscal '23 revenue guidance reflects a year-over-year headwind of approximately $300 million from FX. For Q1, we expect to deliver CRPO growth of approximately 21%. This includes roughly five points of growth from Slack. We expect Q1 GAAP EPS of negative $0.05 to negative $0.04 and non-GAAP EPS of $0.93 to $0.94. For the full year, we expect GAAP EPS of $0.46 to $0.48 and non-GAAP EPS guidance of $4.62 to $4.64. As a reminder, please keep in mind that our other income and expense, or OEI guidance incorporates the impact from debt raised for Slack. Our OEI and EPS guidance assumes no contribution from mark-to-market accounting. We are also reiterating our fiscal '23 non-GAAP operating margin guidance of 20%, representing an expansion of 130 basis points year-over-year. We expect 100 to 125 basis points of headwind from M&A. This disciplined approach will drive another year of strong cash flow generation. We are initiating fiscal '23 operating cash flow guidance of approximately 21% to 22% year-over-year. We do not expect an OCF headwind from Slack for the full year. In addition, our guidance currently assumes a three-point headwind from cash taxes associated with tax law changes requiring the capitalization of certain R&D costs. As we continue to scale our operations, I am particularly pleased with our CapEx guide for this year. We expect CapEx to be approximately 2% of revenue in fiscal '23, which is an all-time low for the business. This results in anticipated free cash flow growth of approximately 25% to 26% for the fiscal year. To close, we believe that our portfolio of differentiated and relevant technology is well positioned in a large and rapidly growing market. Fiscal '22 was an extraordinary year for the company as we drove record levels of revenue and operating margin and cash flow. This demonstrates that with discipline, we can achieve profitable growth at scale. I am very thankful for the opportunity over my first year to meet so many members of our shareholder community, both in person and virtually, and I look forward to meeting many more of you over the coming years. Now Evan, shall we open up the call for questions? Bo, you can go ahead and open up the line. Thank you.

Congratulations on a strong quarter and your meaningful opening remarks. To begin, considering the current environment, you had a significant beat on CRPO, and your guidance for Q1 was even better than most expected. You've raised your full-year outlook by a notable amount. Are you able to comment on reports of increased demand for front office applications? Could you provide some context regarding what you observed in Q4 and how you're experiencing the demand environment as you emerge from the pandemic, as well as how you plan to execute on that demand?

I appreciate the question, which has come up frequently in the past quarter, especially given the unprecedented numbers we are producing. In my 40 years in the software industry, I've never seen figures like these, and understandably, people have questions. Over the last two years, we've seen incredible demand linked to the digital transformations that our clients are undertaking. No matter the geography or industry, our customers are deeply committed to transforming their businesses digitally. If the pandemic highlighted anything for them, it was the necessity of digital transformation for their future. These transformations, as I previously mentioned, center around the customer. The Ralph Lauren story exemplifies this digital transformation trend we see among many retailers. They are just beginning this journey, and our product line has significantly broadened as a result. Our well-executed acquisition strategy in recent years has greatly expanded our total addressable market. When I interact with Chief Information Officers and Chief Executive Officers daily, they view us as crucial to the future of their businesses. This has made our relationships with them critical to our company. We are in a different place than we were 10 or 15 years ago, and these relationships indicate that today’s CEOs are very much the driving force behind digital transformation. I’m not telling you anything new; this is critical for them every day. It’s central to who we are as a company. We can present our products and services to notable companies, like AT&T and Sonos, and challenge them to consider how they would achieve such growth without us. Our growth reflects theirs, yet we have only scratched the surface with these customers, with many still in the early stages of growth. I'm enthusiastic about this, as we've built strong emotional connections with them. Now, I’d like Bret to elaborate, particularly regarding our extension with Slack and the transformative impact of Tableau. Recently, I was at the White House with a Fortune 100 CEO who told me, "I start every day with Slack." This CEO doesn't even have a significant Salesforce presence, which made me realize how much our acquisitions have opened new doors and transformed our conversations. Bret, could you continue this discussion?

Yes. As Marc said, what characterized this quarter, particularly in Q4, is our largest quarter. It was a lot of really big transformational deals. We call them multi-cloud deals. That’s exactly as Marc characterized it. It’s a real trusted digital advisor relationship where we’re helping to solve the problems most fundamental to the executive teams of our customers, and it’s not related to the pandemic. It’s related to the systemic digitization of the economy. We think that is a secular trend that is absolutely enduring, and we see it in the demand environment. As Marc said, Slack continues to exceed our expectations, and I think it benefits not only from this trend towards the new way of working; it’s also benefiting from being part of our Customer 360 portfolio. You heard it in the customer stories, and it’s why Slack's Q4 revenue was $312 million, well ahead of our guidance of $285 million. We’re seeing the synergies both in our value proposition from our product and also our distribution environment as well. To answer one of your other questions, we’re seeing strong pipeline going into Q1. We feel that, as I mentioned, across both our transactional business and large deals, pipelines remain very strong, and we don’t see any demand pull forward.

This quarter, especially, we were really shocked with adjusted capital accelerating through the quarter. We don’t talk about create and close, but this idea that we’re creating and closing these opportunities in the quarter themselves reflects the momentum aspect of the total market. How do you see the current rate of growth in the market itself as reflected by our total product and geographic portfolio?

I think the most pleasant surprise was despite inflation, the crisis in the supply chain, and the conflict in Europe, the problems that we solve for our customers are as urgent as ever. Our Customer 360 portfolio, which since you and Parker started this company 23 years ago, is not just sales opportunity management anymore. It encompasses every aspect of the customer experience. It means we’re starting conversations in every department with every single one of our customers, and we have the opportunity to expand.

If they don't digitize, they're not going to grow. I think I’ve had a debate with so many of these CEOs; well, everybody is coming back. No, they're not. Everything is going back to the way it was? No, it’s not. Even some of those CEOs took hard positions. They're like, okay, we’re going to have a flexible work environment. Slack is obviously right there in the middle of that motion.

It’s in the middle of everything for every single one of our customers, which is why it’s, I think, one of the most exciting acquisitions we've ever done.

It was critical that we did that at that time because it’s setting up the future of work combined with the #1 CRM.

Absolutely.

Thank you for the question.

Congratulations on a really nice end to FY '22, and really given us a lot of confidence on the durability of growth with that FY '23 guide. I had a question for Amy on the margin side of the equation. Bret talked to us about the near-term pause on M&A as you guys focus on integrating Slack. At some point, Salesforce is going to come back to doing larger M&A as it should be a strategic tool that you guys use on a go-forward basis. With Slack, you guys have been able to still grow operating margins despite digesting a big acquisition. Is this something you think you could do going forward when you do additional large M&A? Is Salesforce now at the scale you have the efficiency muscle toned enough to be able to do large M&A and still get this 125, 150 basis point margin expansion year after year?

Great. Keith, thanks for the question. Good to hear from you. I appreciate the questions and the focus on operating margin. I'm proud of what the company has done over the last year and looking into this year. Last year, we expanded 100 basis points even in the face of what was significantly our largest acquisition. This year, we intend to raise another 130 basis points while continuing to have some headwinds. In terms of the future, as Bret said, large strategic M&A is just something we are not focused on in the near term. We're really focused on Slack and making Slack as successful as possible for all of our shareholders and for this company. In terms of what we can do in the future, I certainly think that we have learned a lot about how we integrate companies and how we can handle margin pressures on that. Certainly, it would be a goal to learn to get us to the point where we would not have to take on any sort of degradation of our margin through M&A.

Congratulations on a successful year. Bret, you mentioned that Salesforce is becoming increasingly important to the C-suite due to its expanding presence. My question is for Marc and Gavin as well: when you communicate with customers, what feedback are you receiving regarding not just the extensive CRM portfolio but also the deeper vertical tech capabilities when comparing Salesforce to point solutions, particularly in light of the growth we observed in Slack this quarter?

I'll start, and maybe pass it over to you, Gavin, to talk to some of the conversations you're having with customers. Fundamentally, we talk about our strategy at Customer 360, which is really the end-to-end customer experience across sales, customer service, digital marketing, digital commerce, and the foundations and platforms you need to power that, in MuleSoft, Tableau, and Slack. When we talk to the C-suite, the customer wins like Ford, GEICO, Mercedes-Benz, and PayPal are really trying to solve for that end-to-end digital customer experience. Point solutions won't get them there. Point solutions essentially mean their IT department becomes software development shops. What they want is to digitize their customer experience and want to do it quickly, with fast time to value and high return on investment. Because of the completeness of our portfolio, we’re really the only software company that can provide that experience to our customers. That’s really our differentiation; we come with the complete Customer 360 portfolio rather than just a point solution. That’s led to not only our ability to compete in new accounts, which was a meaningful part of our growth this past year, but also, as Marc mentioned, as we're expanding our relationships with our customers, they know they can trust us to build that single source of truth and achieve the business objectives and growth formulas required in this new economy. Gavin, do you want to provide some color on that?

I’d probably say two or three points, Bret. First and foremost, digital transformation has become a CEO priority. This is one of the changes over the last two or three years. It’s no longer delegated to the IT department. It's in the top three priorities for the CEO because they realize, as we talked about on the call, without a digital strategy, they don't have a strategy at all. They have to own it. So it is a conversation that we drive at the top. I think when it comes to Customer 360 and building on Bret's comment, what we often find is what they like about Customer 360 is they’ll start maybe with Sales Cloud and then expand to Service, Analytics, and Commerce. They are building it as they go along. They might not necessarily buy all of it to start with, but they know we've got a solution for them as they expand, wanting a complete view of their customers. The example I gave at Sanofi is a great example of this. We started with Health Cloud and Service Cloud, and then added Consumer Goods Cloud, Tableau CRM, and B2B Commerce, as they built it out over the last 12 to 18 months. The final thing I’d say is industries and verticalization of our business is a theme that has been growing over the last few years. It started a few years ago now, and we began with financial services. We’ve added Health Cloud, consumer goods, retail, and the list goes on. Why do customers and CEOs like this? They’re buying a product that has standard functionality for their industry already built in, which means they pay a bit more. In return, they get a product with a faster time to value. That is the key thing CEOs are looking for, how to get a return quickly; they want returns in months, not years. That’s what many of our industry clouds deliver out of the box.

Marc, I wanted to get your take on the valuation out there in the software market, obviously, having come in quite a bit since the last call. Just how are you thinking about that as you approach M&A? With valuations having come down so much, does that change your philosophy or framework on how you're approaching M&A given higher IRR and kind of the math?

We've certainly seen the software industry contract, and I think it's best reflected by that ETF. I watch it very closely, IGV. When you look at it overall, that precipitous fall, which we've seen many times in the last 20 or 30 years, it's not unprecedented, but it does happen, and that's where we are right now. Regarding the change in the M&A environment for us, we continue to look at tactical M&A. Since we made the major decision to acquire Slack, that became our most strategic initiative in the company. It will take us some time to digest this acquisition completely. We also have other parts of our portfolio that require our focus to ensure our entire portfolio works for our investors. I don't see us doing any kind of strategic acquisition for some time until we can get our hands fully around Slack and say we’ve done a great job. Bret, what is your perspective on that?

Yes, you articulated it well, Marc. Our focus is on integrating Slack and executing the portfolio we have. I don't see any material M&A in the near term.

Really, the key point for us on how we're managing our business and providing value-back to you, our investors, is we are delivering a portfolio of products. We're not an ETF by any means, but we are a selection of some of the most important products in the software industry. Even our service product, if you look at it as an absolute business, is probably the largest service product in the industry; it has a tremendous growth rate and leadership position. Analysts rank it uniquely, and we pay a lot of attention to it. As we manage our portfolio at Salesforce, we look at service as part of that and are focused on making sure that is the most innovative, highest level of customer success it can have. It’s transformed many times since we introduced it, similar to our Sales product and what we've done with our Commerce product to operate as a platform, what we call headless commerce or API architecture. Slack is a part of our portfolio as well as Tableau, MuleSoft, and many of our exciting new vertical opportunities. We saw a lot of excitement and interest around our sustainability cloud this quarter, with many customers realizing they need to go net zero now and engage in carbon accounting, reporting, and certification. We are evaluating net zero cloud and safety cloud, as well as growth capabilities for us in every component of our portfolio. Bret and I review each piece to ensure it’s working well. One area I've spent time to ensure we're highly competitive and successful is Japan. I’ve been unable to go there for a couple of years. The pandemic is coming to a close, and I'm looking forward to getting back over there. It's essential to me to visit, especially since our CEO there has done a fantastic job. Koide-San is amazing. He has a brand-new office on the grounds of the Imperial Palace in Japan, the largest office building there given to an American software company, something we're very proud of. Bret, how do you see this part of our business today?

A great way to wrap up the call, Marc. The strength of the portfolio is really the theme. One thing that stood out to me in our performance is the strength of our core businesses. As we approach our 23rd birthday, it’s appropriate that Sales Cloud continues to grow at 17% and is over $6 billion.

It’s amazing; it’s unprecedented in the software industry to see something deliver such a growth rate after two decades.

It is, and I bet there are a few analysts on the call who have been covering you and this company since the beginning, and I doubt any of them imagined.

We all got the total addressable market wrong.

We all got the market wrong.

It’s amazing; it’s $6 billion on its way to, I don’t know, 10. I have no idea what it’s going to become; it’s unbelievable.

I think the strength of our portfolio is the reason we’re committed to this path, why we’re not pursuing material M&A in the near term. It truly reflects the execution of Gavin’s team and the whole company.

We have a deep and rich portfolio in so many areas.

Exactly.

I’d like to say this was terrific. What I was most pleased about, last year and where we’re driving this year, is just top performance on the top line, bottom line, and cash flow. Being able to show we can do all three and continue this with discipline sets us up for the rest of the year.

Just to say, it was an outstanding year, and we capped it off with an outstanding quarter, but there is no sign of it slowing down as we enter this fiscal year. We’re very confident about the year ahead. The pipeline is really strong across all geographies and all products, and that's why we're raising our guidance. We’re entering this year with a very high degree of conviction.

I seen spent a lot of time with our investors; I know I do, and I know we spent a lot of them are portfolio managers running a full portfolio, which is how they’re trying to get a return on their investment. The more time I have spent with them, I think they’ve influenced me and how I run our business here. We’re at that same perspective, and we want to deliver an outstanding return to our investors as well. Thank you so much for everything. Our hearts and prayers are with all those going through these troubled times.