Salesforce Inc (CRM) — Q1 2023 Earnings Call Transcript

Thank you, Emma. Hello, everyone, and thanks for joining us for our fiscal 2023 first quarter 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 Co-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, which are subject to change. Should any of these risks materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. A description of these risks, uncertainties and assumptions and other factors that could affect our financial results is included in our SEC filings included in our most recent report on Form 10-K. Before I hand the call over to Marc, I'm excited to welcome Mike Spencer to Salesforce. As many of you know, I will be taking on a new role here at Salesforce, supporting strategic planning in our product organization, and Mike has joined Salesforce to lead Investor Relations. Mike is familiar to many of you as he previously led Investor Relations at Microsoft. Thank you, Marc, Bret, Amy, and Gavin for allowing meaningful rotations that enable career development. It is one of the many benefits of working at Salesforce. And thank you to the investment community for welcoming me over 2 years ago. Leading IR has been one of the most rewarding experiences in my career. And with that, let me hand the call over to Marc.

Thank you, Evan, and congratulations on your promotion. It's well deserved, and you've done a phenomenal job over the past two years. We're excited for you to take on this new role at Salesforce and lead these teams. We're also pleased to welcome Mike Spencer to Salesforce. Many of you on this call are familiar with Mike, and I'm looking forward to collaborating closely with him. Mike will be based out of our Atlanta headquarters, which is exciting because our new Chief Information Officer and several other talented executives are also there, including our Chief Accounting Officer and Chief Commercial Officer. It's great to see Atlanta becoming a central hub for Salesforce in this post-pandemic world. We just had our Q1 operations review there, and it was wonderful to welcome Mike to the team. The past few weeks have been quite busy for our management team. I recently traveled to Sydney, Tokyo, Atlanta, New York, and Davos, Switzerland, all within the last four or five weeks. We've engaged with hundreds of customers, and our business, as reflected in the Q1 numbers, is incredibly healthy. We've had a strong quarter and are monitoring economic data closely. So far, we are not experiencing any significant impact from the broader economic environment. Our demand remains robust, and Salesforce has shown remarkable resilience throughout our 23-year history, consistently demonstrating the strength of our business model even during various downturns and crises. In 2001, we faced substantial challenges that nearly jeopardized our business. However, we adapted our cash flow structure, which ultimately reinforced our durability. Our remaining performance obligation, which reflects future revenue in our contracts, is now a testament to our robustness. In Q1, we reported $42 billion in RPO, a 20% increase year-over-year. Throughout every economic cycle we've faced, Salesforce has emerged even stronger. Our persistent focus on customer success has allowed us to grow our revenue for 72 consecutive quarters, securing our position as the top CRM provider for nine years running, as indicated by IDC’s Software Tracker. Regarding our financial results, we had a strong quarter, although the dollar may have performed even better, which was evident during my travels. Despite the fluctuations in foreign currency markets and an unexpected revenue impact, we still achieved $7.4 billion in revenue, a 24% increase year-over-year. Foreign exchange movements have created a revenue headwind of about $109 million year-over-year, which we did not anticipate. In terms of operating cash flow, we generated $3.7 billion this quarter, up 14% year-over-year, reflecting strong core business performance, and our operating margin was 17.6%. As for our revenue guidance, the volatility in foreign exchange has increased the year-over-year headwinds by an additional $300 million, totaling $600 million for the year since our Investor Day guidance. During my recent visit to Japan, the dramatic decline in the yen was quite striking. Consequently, our Japan revenue in Q4 faced a 12% year-over-year headwind due to the yen's historic fall. As a result, we are lowering our fiscal '23 revenue guidance by $300 million to between $31.7 billion and $31.8 billion, reflecting about 20% growth year-over-year. However, we're raising our fiscal '23 non-GAAP guidance for operating margin by 40 basis points to 20.4%, which is a 170 basis point expansion year-over-year. We remain committed to consistent margin and cash flow growth as part of our long-term strategy to drive overall performance. As you'll hear from Bret, Gavin, Amy, and others, demand for our Customer 360 platform is very strong. Our relationships with customers have never been stronger, evidenced by our recent meetings with hundreds of them. Companies like State Farm, Formula 1, Goodyear, and even the Department of Commerce are thrilled to benefit from the productivity and growth our products deliver. This is a pivotal moment for every company and industry as they invest in digital transformation, and we are uniquely positioned to support them in this journey. I am incredibly grateful to our 77,000 employees and millions of trailblazers who are making a positive impact for our customers and the world. Now, I'll turn it over to Bret.

Thanks, Marc. As Marc said, we had a great quarter, and we see strong demand across our clouds, our industries, and our regions despite the unprecedented foreign exchange headwinds, and our results really demonstrate the power of our strategy. Our products are more relevant than ever before, as companies invest in our Customer 360 platform to connect with their customers and to drive cost savings in this new digital economy. Our technology is deeply differentiated, with our Hyperforce infrastructure and Einstein artificial intelligence, enabling our customers to reach global scale with levels of trust that are unmatched in the industry. Einstein is now doing 164 billion predictions per day, which is just incredible. Our ecosystem is unparalleled. We have over 15 million trailblazers, creating what IDC estimates will be $1.6 trillion in economic impact for our customers and for our partners. And our business model, as Marc said, is durable. It's diversified across industries, regions, and lines of business, ensuring we're resilient in the face of any economic cycle. And finally, our leadership team continues to focus on disciplined execution, which is driving both top-line performance and sustained operating margin cash flow expansion. As Marc said, we've all been on the road, and we've been reconnecting with our customers, our trailblazers, and our partners. And the common theme from the customers I have met with, from Singapore to New York to the 30 CEOs I met one-on-one at Davos last week, is this digital transformation trend that dramatically accelerated during the pandemic; they continue full steam ahead, despite all the volatility in the global economy. One great example is ADT, the leader in home alarm systems. ADT used our Service Cloud to execute over 200,000 virtual service visits in its first quarter. As a result, the company avoided sending out technicians and trucks in 80% of its service cases. They lowered their costs and they lowered their carbon footprint, all while achieving higher customer satisfaction. This is the promise of technology, to drive productivity. And our Customer 360 platform is relevant whether you're trying to scale growth, increase productivity and profitability or meet your sustainability goals. And all three are increasingly relevant to our customers across the globe. We had strong year-over-year growth across every region in the quarter, 21% in the Americas, 33% in EMEA, and 24% in APAC. We saw strong momentum across every cloud in our Customer 360 platform as well. Sales Cloud continues to accelerate, surpassing $1.6 billion in the quarter, growing 18% year-over-year with great wins like DoorDash and Stellantis. Stellantis, which was formed last year from the merger between Fiat Chrysler and the French PSA Group, decided to standardize the entire company on Salesforce. They replaced more than 2,500 apps with Customer 360, and with Sales Cloud, they now have a single source of truth for all their customer engagement to drive growth while delivering best-in-class personalized service. Our Service Cloud grew at 17% year-over-year to $1.76 billion in revenue in the quarter. State Farm, a long-time Salesforce customer, was a great Service Cloud success story this quarter. They're now combining our Field Service platform with Sales Cloud, Service Cloud, and Financial Services Cloud to enhance their entire end-to-end customer support experience, especially during catastrophic events. We also continue to see strong momentum with our Marketing Cloud with customers like Bose and Colgate Palmolive. Our Marketing Cloud has become even more relevant to CMOs as they navigate the significant changes in mobile operating systems and new privacy regulations around the globe. This is the new cookie-less world, and it's made growing and measuring consumer engagement harder than ever before, driving investment in our Customer Data Platform, which has become one of the fastest-growing products we've ever released. Bose is using our CDP to unify their customer information from hundreds of different sources to drive hyper-personalized marketing, multichannel campaign management, and real-time engagement, all with compliance and trust built in natively. We also saw Commerce Cloud wins at YETI, L'Occitane, and Goodyear, continuing the digital commerce trend that accelerated so rapidly in the pandemic. Together, Marketing and Commerce stood at 22% year-over-year in the quarter. Our data clouds, including MuleSoft and Tableau, grew 15% year-over-year in the quarter. Data is the fuel for every digital interaction, and MuleSoft and Tableau continue to be foundational for every multi-cloud Customer 360 deal. Tableau wins in the quarter included ADT, Bose, and Lookers Motor Group, a top auto retailer in the UK. MuleSoft was also part of some of our largest deals in the quarter, including NTT and continues to deepen our relationships with existing customers like Rocket Mortgage. As you know, we've been working through some issues on MuleSoft's go-to-market motion over the past couple of quarters. Amy will get into specifics, but I'm encouraged by the progress we're making, and we have a strong pipeline for the back half of the year. I'm also excited to say that Slack continues to exceed our revenue expectations, with wins from the self-driving car company, Cruise, and the UK Ministry of Justice. This was the fourth consecutive quarter we see more than 40% growth in customers spending more than $100,000 with Slack annually. We also continue to see strong momentum across our 12 industry verticals, including financial services, healthcare, consumer goods, and manufacturing. Our industry-specific clouds were part of 7 of our top 10 deals this quarter. I'm so grateful for our 15 million trailblazers, all of our partners, and our 77,000 employees for helping provide our customers with the innovation, agility, and resilience they need to navigate these uncertain times. Our customer success drives our financial success, and this unrivaled community is why our customers choose Salesforce as their trusted digital advisor. Now over to Gavin to talk about some of the customer success stories from the quarter.

Thanks, Bret, and thank you, everyone, for being on the call today. I want to start by talking about the strong demand environment we're in. As Bret and Marc said, even in this volatile environment, companies are continuing to invest in their digital transformations, and we're seeing that in our strong pipeline and momentum in the business. I've been on the road this quarter across the U.S., Europe, Asia, and most recently in Davos. And in all my conversations, there is a real sense of urgency with our customers. In this new or digital work-from-anywhere world, our customers need to create incredible customer experiences across every interaction to stay competitive. And at the same time, they need to realize productivity gains, efficiencies, and resilience from their technology investments. That's why they're turning to Salesforce as their trusted digital advisors and to the Customer 360 as their digital platform. We're seeing this play out in the growth of transformational deals, customers making longer-term multi-cloud investments in Salesforce. These Customer 360 transformation deals with five or more clouds grew 21% year-over-year in the quarter. We again saw strong growth in every region. In the Americas, we grew relationships with Brightspeed, Blue Shield of California, SHA Hotels, Workday, Covered California, and Ferguson, a $23 billion distributor of plumbing and heating products. Looking at Ferguson in a little more detail, Ferguson has been able to grow its sales during the heart of the supply chain challenges using Customer 360 to give them a single view of their supplier, associate, and customer relationships. And in the quarter, Ferguson significantly expanded its relationship with our professional services organization. In EMEA, we had significant wins with Lookers Motor Group, Esprit, and one of the largest telecom and media companies in France. They're standardizing on Salesforce to not only speed their time to market and reduce IT costs but also to deliver an amazing digital-first, front-end experience for their 45 million subscribers. As I mentioned, we had a great win in the UK with Lookers Motor Group. With Customer 360, Lookers has a single unified platform, driving efficiency within their dealerships and contact centers and improving the overall car buying experience for their customers. Turning to APAC, we continue to deepen our relationships with amazing brands like Kotak Mahindra Bank, LG, and NTT, which is also a great Tableau and MuleSoft win. In LatAm, we had a significant win with Serasa Experian. They chose Salesforce Marketing Cloud to improve engagement with their current and prospective customers and to increase marketing efficiency. Formula 1 is watched by 1.5 billion viewers. And today, they're using Salesforce Marketing Cloud, Service Cloud, and Sales Cloud to attract new fans, increase fan engagement, and convert that fan engagement into brand value and revenue. Salesforce will help Formula 1 leverage customer insights across every channel, both physical and nonphysical, and create an end-to-end fan experience strategy powered by an integrated platform, and our professional services team will help manage their technology and implementation. In the quarter, the National Telecommunications and Information Administration within the U.S. Department of Commerce selected Salesforce to support the administration of the $48 billion from broadband grants to state territories, tribal entities, and other eligible applicants to create more low-cost broadband service options and to address digital quality and inclusion needs across U.S. communities. And to wrap it up, DoorDash has grown tremendously since the pandemic. They fulfilled more than 400 million orders in the last quarter alone and as a mobile-first business growing at an incredible rate, DoorDash turned to Salesforce to improve the customer experience and to respond to issues in real time for its hundreds of thousands of merchants, customers, and dashers. They also selected Sales Cloud and MuleSoft to enable them to bring in new merchants faster and more efficiently. These are just a few examples from our strong quarter, and we're grateful for our customers' continued partnership and trust. Amy, over to you to discuss the financial details of the quarter.

Thank you, everyone. As Marc and Bret mentioned, we had strong financial results this quarter, and our pipeline is solid. We're well positioned to support our customers in this uncertain macro environment. Let's review our Q1 results for fiscal '23, starting with the top line. Total revenue for the first quarter was $7.41 billion, representing a 24% increase year-over-year, or 26% in constant currency. Key highlights from the quarter include continued momentum in Sales Cloud, with revenue growing 18% year-over-year, or 20% in constant currency. Slack exceeded our revenue expectations, bringing in $348 million in Q1, surpassing our guide of $330 million. The number of customers spending over $100,000 annually grew by 45% year-over-year. Our industry products are in high demand and are offering effective solutions to customers with specific needs. An industry product was part of seven of our top ten deals this quarter, and geographically, we saw strong performance in EMEA, especially in the UK and France. Regarding MuleSoft, total revenue rose by 9% year-over-year, driven by lower-than-expected new business as we navigate through organizational changes discussed on the last call. Remember, 50% of MuleSoft's total contract value is recognized in the reporting period, leading to more quarterly volatility than our core products. As mentioned, MuleSoft's pipeline remains strong, and we expect to see benefits from these changes in the latter half of fiscal '23. Company revenue attrition is at record lows, again ranging between 7% to 7.5% in Q1. Our remaining performance obligation, which represents all future revenue under contract, was approximately $42 billion at the end of Q1, up 20% year-over-year. The current remaining performance obligation, or CRPO, was about $21.5 billion, a 21% increase year-over-year and 24% in constant currency. Slack contributed approximately five points to that growth, aligning with our guidance. This strong RPO performance at our scale highlights the relevance of our product portfolio and our strategic relationships with customers. Now looking at operating margin for the quarter, the non-GAAP operating margin was 17.6%. Q1 GAAP EPS was $0.03, and non-GAAP EPS was $0.98. Mark-to-market accounting from our strategic investments benefitted both GAAP and non-GAAP EPS by about $0.01. For Q1, operating cash flow was $3.7 billion, a 14% increase year-over-year. Capital expenditures were $179 million, leading to free cash flow of $3.5 billion, also up 14% year-over-year. Before we go to guidance, I'd like to highlight the effects of foreign exchange on our financials. Our main currency exposures are to the euro, the British pound, the Japanese yen, and to a lesser extent, the Australian dollar. Since we last provided our fiscal year '23 outlook, the dollar has strengthened against these currencies. Therefore, we are increasing transparency around the impact of FX on our guidance this quarter. Now for our guidance: for the full year, the currency changes are expected to create a $300 million year-over-year headwind in addition to the $300 million mentioned last quarter, resulting in a total FX headwind of $600 million. We are guiding to fiscal '23 revenue of $31.7 billion to $31.8 billion, reflecting about 20% growth year-over-year. Our guidance still assumes a $1.5 billion contribution from Slack. We expect Q2 revenue to be between $7.69 billion and $7.7 billion, representing approximately 21% growth year-over-year. This includes a $200 million year-over-year FX headwind and a $360 million contribution from Slack. For Q2, we anticipate CRPO growth of about 15% year-over-year, which includes a 3-point headwind from FX. Q2 will be Slack’s fifth quarter contributing to CRPO, normalizing the year-on-year growth rate. We expect GAAP loss per share between negative $0.03 and negative $0.02, and non-GAAP EPS between $1.01 and $1.02. For the full year, we expect GAAP EPS to range from $0.38 to $0.40 and non-GAAP EPS from $4.74 to $4.76. Please note that our guidance assumes no further mark-to-market adjustments to our strategic investment portfolio. Regarding operating margin, I’m pleased to announce that we are raising our fiscal '23 non-GAAP operating margin guidance by 40 basis points to 20.4%. This includes a headwind from M&A of 100 to 125 basis points. This increase signifies an expansion of 170 basis points year-over-year and 270 basis points over two years, all driven by our commitment to disciplined decision-making. We are dedicated to enhancing profitability over the long term. In relation to FX, since our regional revenues and expenses generally match in the same currencies, there is a natural hedge in our operating margin. Thus, although we've observed FX headwinds to revenue, we currently don’t foresee a significant impact on our operating margin for the fiscal year. For cash flow, we are set for another year of record cash flow generation, reiterating our fiscal '23 operating cash flow guidance of about 21% to 22% growth year-over-year. We anticipate CapEx will be around 2% of revenue for fiscal '23, leading to free cash flow growth of about 25% to 27% for the fiscal year. In conclusion, while there's uncertainty in the macro environment, our customers continue to seek out Salesforce to transform their businesses. The demand from our customers underscores the strength of these strategic relationships and the relevance of our product offerings. This reinforces our confidence in the robustness of our business model, and we are eager to assist our customers during this economic transition. Before we conclude, I want to express my gratitude to Evan for his exceptional leadership of the IR team over the past two years, and I wish him all the best in his new role. I would also like to formally welcome Mike Spencer to the team. Now, let’s open the line for questions.

Yes. Mark.

Hi, Mark, this is Amy. We're having a lot of trouble hearing you.

Apologies, we are having a lot of trouble hearing you.

Operator, we may need to move on to the next question.

Yes. Let's move on. Let's see if we can come back to Mark.

Really nice quarter in Q1. Two questions. One on Sales Cloud. This is probably the part of the portfolio that investors have been most worried about maturation and sort of the high market share that Salesforce has. You guys have been able to see accelerating growth. Can you dig in a little bit on kind of what's driving it? Is it the vertical solutions or something in particular that has really reinvigorated that line item? And then one for Amy on the operating margins. I don't think anyone was expecting operating margins going up after this quarter. Can you talk to us a little bit about those initiatives that are enabling better operating margins? There's some speculation in the press about maybe slower headcount growth or some calling of expenses. Is there something programmatic that's enabling you guys to drive that better operating margin on a go-forward basis?

Yes. We're really excited about Sales Cloud growth. Not only did it grow 18% year-over-year in the quarter, but in constant currency grew 20%, which I think is symbolic threshold or as you said, the product that Marc and Parker built 23 years ago, it is still as relevant today as it ever has been. I think, first and foremost, it speaks to our innovation strategy and the organic innovation coming from our engineering teams at the company. This is an example, late last year, we introduced Revenue Intelligence, which is a deep integration between Tableau and our Sales Cloud that enables sales teams to enable every rep to be more efficient to collect cash faster, to boost growth and really bring together this entire Customer 360 portfolio to give our customers not only a chance to reimagine their Sales Cloud implementations but also make sales that are relevant to an even broader range of customers. So we're really excited about our innovation strategy. When you look at some of the wins that we've talked about in this quarter like ADT or DoorDash, you think about this next generation of selling in this era of flexible work, there's always an opportunity for our customers to reimagine their approach to sales and Sales Cloud continues to be the most innovative platform for opportunity management and lead management. So we are excited about our market-leading position. And also, I just want to say congratulations to the engineering teams, who are continuing to teach an old dog new tricks, and continue to innovate on what is, I think, really the world's leading CRM platform. Amy, talk about operating margin.

Sure. I'd love to. So, hi, Keith, thanks for the question. As you noted, I really am very, very pleased about the raise on our operating margin up to 20.4% for this fiscal year. This is not the result of any single change. It's really driven by disciplined decision-making and trying to really unlock incremental efficiencies across the entire business. We've asked each leader to step up to really look across their business and to strategically prioritize their investments. And this is really to make sure that we're getting the highest return for every dollar that we invest. You asked about hiring, again, as a result, we're going to continue to hire, we are hiring. But we're doing it in a much more measured pace, and we're focusing the majority of our new hires on roles that will support customer success and the execution of our top priorities. This focus on margin, this is really over the long term, and we are all committed that this is going to make us a stronger company. But I do want to reiterate, this is not just a finance-led initiative. This focus on discipline is being applied across our entire organization. This is supported by Marc, by Bret, by Gavin, and truly by our entire leadership team.

I don't know who wants to take this, Marc or Bret, but you mentioned Salesforce will perform through economic cycles. I was wondering if there's any change to the go-to-market playbook in a tougher economic environment, if at all, in terms of which products might be better to lead with when you start getting in these periods? And then the second question would be for Amy. Amy, you basically kept your fiscal year guidance unchanged when adjusting for FX. I think everybody is wondering if that guidance probably now reflects a little bit more conservatism, given the more uneven macro backdrop. Could you just comment on that a little bit, maybe versus where we were 90 days ago?

In challenging economic conditions, our selling strategy and messaging will adapt. We're shifting our focus towards enhancing customer productivity and reducing costs. While we typically discuss top-line growth, it varies for each customer. As for Sales Cloud's impressive performance, with over 18% growth, and Service Cloud's more than 17%, it's remarkable to witness the success of these core offerings. I visited a retailer I admire, Brunello Cucinelli, and while there, I observed that the retail agent was utilizing Sales Cloud. I engaged with them about their experience with the solution, which they were using in Italian, highlighting the platform's capabilities. I was genuinely impressed by the various applications of our product, which we couldn't have anticipated when we first developed it. This adaptability is a key factor in its ongoing growth. We’ve also discussed the significance of the retail use case at AT&T, where we didn't expect such a dramatic impact at the point-of-sale. It's crucial to deeply understand customers' needs, as each one requires a unique solution. Gavin, would you like to provide an example of some recent developments?

In this environment, relevance is key. It’s crucial to listen to your customers, grasp the specific challenges they face, and tailor your approach accordingly. In many instances, Sales Cloud is the appropriate choice, especially for new businesses and customers. Other customers might find it beneficial to lead with Service Cloud to reduce costs, and we've seen both strategies in action. Additionally, we have customers embracing Customer 360, with our multi-cloud adoption this quarter showing significant growth, up 21% for customers utilizing five or more clouds. Listening to our customers and being relevant is essential, particularly as we navigate a time where productivity and transformation are more critical than in recent quarters. We need to adjust our messaging to reflect that.

Yes. And I would add also kind of the relationships matter and that talked about F1 and Gavin was in Monaco over the weekend and Stefano Domenicali, who is the CEO of F1, was our customer at Lamborghini. And of course, we work closely with him and the whole Volkswagen management team. And when they're looking at this current environment, when F1 is looking at the environment, everybody is going to have a slightly different take. So it's nice to have those high-quality relationships at times like this.

Great. Kirk, I'll take the second part of your question here on the guide. Look, we feel good about what we're seeing. And you've heard that from Marc, from Gavin, from Bret, to put about our pipeline. But we're mindful of the uncertain macroenvironment, and that includes continuing FX volatility. And so I believe that our guidance is appropriately conservative under the circumstances.

Bret, our survey work has shown potential for Slack to be adopted by one quarter of all employees in the next several years. It looks like a huge number above Google Workspaces, and it looks like it could be rivaling Zoom. What do you see as the best use of this $4 billion R&D budget you have to try to accelerate the Slack innovations and achieve that level of ubiquity? And I'm wondering if you would see any opportunity to potentially do more with native video conferencing?

Well, it's a great question. As I think about our innovation, it's really that all of our clouds work together in a complementary way. Sales and service complement each other, sales, service, digital marketing, and e-commerce complement each other because it really represents the entire front office. And when I think about our acquisitions like MuleSoft, Tableau, and Slack, they really amplify our value proposition for Customer 360. Tableau helps all of our customers see and understand their data, which is more relevant than ever before as every interaction becomes digital. MuleSoft enables our customers to integrate all of their legacy and back office systems to Salesforce and really create a strategic platform that accelerates our digital transformation. And Slack, as Gavin and Marc and I heard in Davos last week, is relevant in every single conversation because every single one of our customers is deciding how do they succeed in this new era of flexible work, because every single, particularly office worker, isn't coming back to the office 5 days a week. But it's really not an either-or question because Slack makes the entire Customer 360 more relevant. In fact, one of the things I'm most excited about from this past quarter is we shift a lot of the integrations between Customer 360 and Slack, whether it's team selling and account management in our Sales Cloud or case warming in our Service Cloud; it's actually one of the solutions that DoorDash uses with their Service Cloud deployment, really using our Slack to amplify their investment in our Service Cloud and they succeed in this new era, where their workforce is working from anywhere. So really excited to not only invest in Slack as a standalone platform, which is just incredible, but I'm just excited with how much more relevant our Customer 360 value proposition is now that Slack is in the building. I think it's going to be one of the best acquisitions we ever did, and it really makes every customer conversation more relevant in this new era of flexible work.

Congrats on the strong start to the year. Andy, the business generated a ton of free cash flow. You have almost $14 billion of cash on the balance sheet, and your stock is trading at a really attractive multiple. What would need to happen for you and the Board to consider buying back your stock?

Brad, thanks for the question. As you know, historically, we've not done buybacks, but I will tell you that, as a company, we are always looking at our capital allocation strategy. Our Board consistently looks at this on a quarterly basis, and it's really to assess the best use of cash. Right now, our overall focus is on strengthening our balance sheet to really capitalize on all of the opportunities in front of us.

I guess one of the themes we're starting to hear more from customers is this idea of vendor consolidation, particularly given the tightening business cycle. Have you seen any shift in the pipeline relative to the mix of multi-cloud deals? Any sort of color around the customer appetite to consolidate the number of vendors would be super helpful.

I'll take that one. Look, what you've seen is a very strong quarter across the board, sales service marketing cloud, all posted great numbers. Every region posted great numbers, 21% up in the U.S., 33% in EMEA, 24% in APAC. So we had a strong quarter, we've got good momentum. And as I look forward, the pipeline looks really strong for the rest of the year. So we are cognizant of the environment we're operating in. But at the moment, we don't see that impacting our numbers. But we're vigilant at all times. If there is a consolidation of vendors with our customers, I think we're extremely well placed. We are the only ones with the Customer 360. There's nobody else in the market who is able to offer the full suite of clouds. And if that is the case, and customers choose to continue to move more of their business to it, we'll welcome it with both arms. And I think you saw some great examples of it in the quarter. The Formula 1 example we've been talking about is a great example of that, taking multiple clouds from us across sales, service, and marketing. I love the ADT example as well. Maria Black there is doing an incredible job at driving the business and creating much more intimate customer relationships. And that's all around the Customer 360 and a consolidation of business from other vendors towards Salesforce is part of that story. So whether it's a single cloud sale, whether it's the Customer 360, we're very well placed, I think, to take full advantage of that.

Yes. I would add, I think that one of the highlights in the quarter was Goodyear. Rich Kramer, someone who we've built a really great relationship with over a number of years, they deployed a number of our different products. Now they're deploying our Commerce Cloud. And it's a great example by having a full suite of products and also by augmenting those products with our acquisition strategy over the last few years, we really have just a tremendous opportunity with every single customer to extend and expand and land and go, and this is just a moment where I think that there will be some consolidation with vendors, and they'll rely on the vendors that they have the most trusted relationships with.

Marc, many are asking on the M&A strategy, given the pullback in valuations. Do you change your philosophy and be more aggressive here? Or are you sticking with the playbook and digesting Slack and some of the other past acquisitions?

That's a great question. We are all closely monitoring the markets and observing adjustments in several valuations. We've been somewhat cautious for a while. However, we've established our acquisition strategy and are not planning any major acquisitions for now. This is evident from the impressive companies we've already acquired, such as MuleSoft, Tableau, Slack, and what we discussed with Demandware in relation to Commerce Cloud. The process of integrating these acquisitions is extensive and challenging, and it often takes longer than anticipated. From our first acquisition of ExactTarget to the present, it's clear that integration is a significant task. At this time, our primary focus is on integrating the acquisitions we have rather than pursuing new ones. Amy, would you like to add anything?

No, I think you've got it, Marc. Right now, large-scale M&A is not part of our current plans. Obviously, we're opportunistic as all strategic tech companies are, and I never say never, but that is just not something that's on our current radar screen.

Congratulations on an excellent quarter. Marc and others who have experienced multiple cycles on this call, I'm curious about your confidence in this economic cycle. What distinguishes this cycle from previous ones? You frequently interact with CEOs, what concerns do they have? How do you perceive Salesforce's position in this economic landscape? And for Amy, I'm interested in what gives you that confidence. You've mentioned faster cash flow growth and margin growth in the press release; could you provide more details on how you intend to achieve that?

Well, Kash, I want to allow each of our executives to share their insights on this. We've had an incredible amount of customer interaction recently. When I was in Sydney, Australia, a few weeks ago, I was struck by the level of economic activity among our customers. They are focused on growth, market share, expansion, and digital transformation. After that, I traveled to Tokyo, Japan. There, I met with one of our largest customers, Sompo, the biggest insurance company in Japan, along with their CEO, Sakurada-san. I was impressed with their investments and enthusiasm for expanding into new areas and exploring our new products. They've been with us for a long time. All the customers I met with are growing, which was exciting to see. Then I went to New York, and it was the same story; everyone is highly motivated. These customers have low debt levels and are flexible and strategic. They know their product plans and are ready to move forward. During our review in Atlanta, we consistently heard this from our management team. At Davos last week, across various industries and regions, despite concerns about inflation, supply chain issues, interest rate changes, or stock market fluctuations, it's clear that we all find ourselves in a unique situation. Much of this shift is a result of the pandemic, which allowed companies to reassess their strategies for the next decade. Over the past two years, many companies, including us with our acquisition of Slack, have restructured and evolved their strategies, management teams, and operations. I believe this readiness for the next decade reflects the sentiment among all the customers we've been meeting. Bret, would you like to share some of your experiences from Davos?

Well, you put it well. I had the privilege of having about 30 one-on-one CEO conversations in Davos, CEOs from different regions around the world, different industries. And I was really pleasantly surprised to just hear how much customers are leaning into their digital investments. Some like the consumer goods companies have been really impacted by both the supply chain and inflation, and they're really focused on how to invest in digital technologies to take down some of their costs to absorb some of that and avoid price increases. And then some other businesses, I talked to the CEO of a beauty company who has seen increased demand as we all leave the house for the first time in the past couple of years and was really focused on growth. But the theme in all of them was whether you're investing in digital technology to connect with your customers or investing in digital technology to drive productivity, we continue to be one of the most strategic vendors and the trusted digital advisor to all of these CEOs across every industry. So I read the same headlines as everyone else, and I'm cognizant of the volatility in the economy. And as Gavin said, we're just focused on being relevant, being the most trusted digital advisor to each of our customers. And as Marc said, we believe that if we form those trusted relationships, especially in times where our customers need that resilience, and need that from us, we will come out of these gaining market share and gaining trust with our customers.

Well, I think the phenomena is really quite unique. The customers are focused on efficiency and growth amidst this uncertainty. They are looking towards Salesforce to help them navigate these challenges. My confidence comes from the disciplined focus we have across our organization. We are driving efficiencies in ways that perhaps we haven’t in previous cycles. I think we come out of this with not just better products but also better relationships and stronger customer engagements. So while it might be uncertain in the macro environment, I believe that we are positioned well to seize these opportunities.

You've touched on sales, marketing, and commerce clouds. I wanted to focus in on service because you've been pretty vocal about just the transformational changes that are going on in customer service. What are customers telling you right now in terms of where they are in their journeys there in terms of transformation? And also, we've obviously seen some big contracts signed from contact center vendors kind of along the team, too. So I wonder if you could just talk us through what you're seeing from customers and what your kind of conviction level is in Service Cloud going forward.

Thank you. That's a great question. Service continues to be the anchor tenant of our Customer 360 for our largest customers, particularly our long-standing customers like State Farm. And what I've heard from our customers, I think, is really reflected in our product strategy, which is really the completeness of our service portfolio. Customers like State Farm, the reason they expanded in Q1 is because they expanded with Field Service. And we do field service, we do ticketing, we do contact centers, we do digital service, self-service, and chat box. And when you think about your customer interactions and you particularly think about this volatile economic environment, that portfolio not only helps you increase customer satisfaction but do so in a way that reduces costs. I love that ADT example I gave in the script because it was an example when ADT managed to do 200,000 virtual service visits and avoid sending out trucks 80% of the time, their customers were happier and they reduced costs. And the reason we can do that is because we have the most complete service portfolio in the market. So we're really excited about that. I'm excited again, it goes back to our strategy of organic innovation. And as Gavin said, the completeness of our product portfolio, in particular, as our customers look to consolidate vendors, the fact that we can really be the entire front office for our customers is incredibly differentiated. And our Customer 360 portfolio continues to be one of the main reasons why our customers choose our product offerings.

Thank you for joining us on the call today.

Evan, I want to congratulate you on two great years in IR. And we couldn't be more excited for you. So let's end this the way we started it with some big props and congratulations for you.

Thanks, Marc and the leadership team. Really appreciate it. And if you have any questions for us, feel free to reach out at investor@salesforce.com, and we look forward to talking next quarter.