Salesforce Inc (CRM) — Q2 2023 Earnings Call Transcript

Thank you, Emma, and good afternoon, everyone. Thanks for joining us today for our fiscal 2023 second quarter results conference call. 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; and Amy Weaver, Chief Financial Officer. We'll also be joined by Brian Millham, President and Chief Operating Officer, who will be available for the Q&A portion of the call. As a reminder, our commentary today will include non-GAAP measures. Reconciliations between our GAAP and non-GAAP results and guidance can be found in our earnings and press release. Some of our comments today may contain forward-looking statements that are subject to risks and uncertainties and assumptions, which could change. Should any of these risks materialize or should assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. A description of these risks and uncertainties and assumptions and other factors that could affect our financial results is included in our SEC filings, including our most recent report on Forms 10-K, 10-Q, and other SEC filings. And with that, let me hand the call to Marc.

Well, hey, thanks, Mike. And thank you, everyone, for being on the call today. As you saw in the results for the quarter, we've delivered really strong revenue growth, profitability, and cash flow, showing yet again the resilience and durability of our business model in this economic environment. Revenue in the quarter was $7.7 billion, up 22% year-over-year or 26% growth in constant currency. We had a great quarter, but yet again, the dollar had an even stronger quarter, and we continue to see the impact of foreign exchange and currency fluctuation on our financials. For Q2, we saw approximately $250 million of headwind to revenue, which is roughly $50 million more than we assumed in our guide last quarter, and we now expect a total of $800 million foreign exchange headwind year-over-year for the full fiscal year. Operating margin in the quarter was 19.9%, and we delivered $334 million in operating cash flow. Our remaining performance obligation, or the total undelivered contract value that we have with our customers, is really an incredible $41.6 billion, and this is revenue signed. It's not yet recognized. Now turning to guidance. Over the last few months, I've met with hundreds of CEOs, economists, business leaders, political leaders, and other experts about their business and where they see this global economy heading. And I don't think it's going to surprise anyone, everyone has a slightly different answer. And it doesn't matter who you speak to; it could be in a different geography, a different position, everybody sees things in a slightly different way right now. But what we do know, and what I think everyone will agree on, is that digital transformation remains the #1 priority for CEOs and that every digital transformation begins and ends with the customer. That's what continues to drive our business forward, and it's why Salesforce is the #1 CRM by market share globally, according to the IDC Software Tracker. Now for those of you who have been on these calls with us, we've all been through a number of these economic cycles. And we’ve especially seen that over our last 23 years. And once cycles like this come around, we see customers becoming more measured in the way they buy. Sales cycles can get stretched. Deals are inspected by higher levels of management, and all of this we began to start to see in July. Nearly everyone I've talked to is taking a more measured approach to their business. We expect these trends to continue in the near term, and we reflected this in our guidance. Given the significant impact of foreign exchange and buyers being more measured, we're revising our fiscal '23 revenue guidance to $30.9 billion to $31 billion or about 17% growth year-over-year or 20% in constant currency. At the same time, we're maintaining our fiscal year '23 operating margin guide of 20.4%, an expansion of 170 basis points year-over-year. This is further evidence that we remain deeply committed to consistent, disciplined margin, cash flow, and revenue growth as part of our long-term plan to drive both top and bottom line performance. We have the right team, the right products, the right playbook for getting to $50 billion in revenue in fiscal year '26. We always get questions about our M&A strategy and about what company we're going to acquire next and what we're going to do next from an acquisition cycle. I think we get this question every single earnings call that we do like this, and it's always one of my favorite parts of the call. And I'm excited to tell you we have found a great cloud company, growing revenue for 73 consecutive quarters through every economic cycle. It's got great cash flow, #1 market share, an incredible brand, one of the most admired companies in the world, great values, a fantastic community of 17 million Trailblazers, fantastic commitment to its community, runs across 90 countries. And that company is Salesforce. We're thrilled that our Board of Directors has authorized up to $10 billion in our first-ever share repurchase. This reflects the confidence we have in our business and in our approach to generating shareholder value. Brian Millham is going to expand in more detail about the broader capital allocation strategy in a moment. You'll also hear about some amazing customer wins in the quarter. I'm especially proud of a major deal we closed in the quarter with the U.S. Department of Veterans Affairs, and it's one of our most meaningful partnerships. The VA is a relationship that we've been building for over 6 years, and now Salesforce is becoming the digital front door for our veterans and their families. We can't be more proud to do our part in helping those who have made sacrifices in serving the nation. It's been an incredible year so far. Being able to connect with our customers in person again has been just amazing. We've done 63 marketing events so far this year, hosting over 250,000 Trailblazers and counting. But none is more exciting on every level than Dreamforce. And we're hoping to see all of you as we celebrate our 20th Dreamforce, September 20th through the 22nd right here in San Francisco. It's a celebration of our Trailblazers, and we're expecting 150,000 people to be here and registered to attend. We'll also be streaming the entire 3 days on Salesforce+ and expect millions more to tune in. We have an amazing line of product announcements, innovations, and speakers, and giving back. It's going to be a big Dreamforce. It's going to be really the biggest Dreamforce ever, our 20th ever Dreamforce. We're also going to be celebrating the impact Salesforce has had through our 1-1-1 philanthropic model as we've now surpassed over $0.5 billion in grants, 7 million hours of volunteerism, and more than 50,000 nonprofits using Salesforce for free. At Dreamforce, the amazing Red Hot Chili Peppers, including Anthony and his entire band, will be performing at our annual benefit concert with 100% of the proceeds going to our children's hospitals right here in San Francisco and in Oakland. So please tell your friends, tell your firms, tell your vendors, tell everybody to get sponsorships to Dreamfest because it's going to be incredible. And of course, you're all invited to our Investor Day during Dreamforce on September 21. Amy, are they invested even if they don't do the Dreamfest sponsorship?

Yes, Marc, they are invited.

All right. Look, you're not going to want to miss it. Before handing off to Bret, I'd like to congratulate Brian Millham, our new Chief Operating Officer. Brian is employee #13 and has been helping us to build this company from its earlier days. As Chief Operating Officer, Brian is going to continue to lead our customer success organization and now adds global sales to his responsibilities. Bringing our incredible customer success ecosystem, Sales Cloud sales even closer under Brian will help us to deliver the full power of Salesforce to every one of our customers in the new economy. And we're so fortunate that Gavin Patterson has taken on this important new role as Chief Strategy Officer, helping us to guide our strategic direction. Thank you and congratulations to Gavin. I'm so grateful to Gavin, who for the last 2 years during the pandemic has overseen one of Salesforce's most rapid growth periods in Salesforce's history. When I look back at the last 3 years, I realized it was only 2 years ago, in fiscal year '21, when we did, proud, I think it was about $5.1 billion, is that right, Mike, something like that? And then last year, I think for Q2, we did something like $6.3 billion, and now we're doing $7.7 billion, if I get the numbers right. I mean it's an incredible trajectory of growth over the last 24 months. I couldn't be more proud of Gavin for helping us during that period and now, Brian, in your COO role. Congratulations to Brian and Gavin. And with that, I'm going to turn it over to Bret.

Thanks, Marc. Congratulations, Brian and Gavin. As Marc said, we had another strong quarter delivering strong top and bottom line performance. Our results demonstrate the durability of our business model and the strength of our strategy. Our Customer 360 product portfolio is the industry standard and the market leader, a leader in 12 current Gartner Magic Quadrant reports. The platform is helping hundreds of thousands of companies in every industry digitally transform. Our technology is also deeply differentiated. The Einstein Artificial Intelligence platform is now doing over 175 billion predictions every day. Just incredible. Our go-to-market capability is unmatched in the industry. The diversity of the industries, regions, and lines of business we serve has driven the durability and resilience Marc talked about and you've seen in our business over the past 23 years. Our ecosystem is unparalleled in enterprise software. As 150,000 Trailblazers join us for Dreamforce next month, they represent a global community of developers, administrators, and ISVs, 17 million strong, driving what IDC estimates to be $1.6 trillion in new business revenues by 2026. As you heard from Marc, we're in a more measured buying environment. Executive teams are scrutinizing all purchasing decisions, and we're seeing some deals take longer to close. I personally met with over 100 CEOs this quarter in my travels across Latin America, Europe, and North America, and digital transformation remains their top priority. But the focus of the conversation has shifted meaningfully towards productivity, efficiency, and time to value. In this environment, our Customer 360 portfolio is uniquely positioned to enable our customers to deliver both growth and cost savings. You can see it in this quarter's results. Sales Cloud revenue grew 15% year-over-year, a healthy 19% in constant currency, including customer wins at CDW, Zscaler, and Schneider Electric. Using our Sales Cloud and CRM analytics, Schneider reduced their close time by 30%. With MuleSoft, they saved 40,000 hours of employees' time and saved $2.7 million in IT costs. Service Cloud grew 14% year-over-year or 18% in constant currency, including customer wins at the U.S. Department of Veterans Affairs, Workday, and Uber. Our digital service product line, in particular, accelerated as customers pivoted their spend to digital technologies that reduce customer service costs. Uber Eats is a great example. Uber Eats saw a 20% improvement in productivity across email, chat, and phone support channels with our Service Cloud, and more importantly, with their investment in our Einstein AI chat bots, they improved their call deflection by 30%. Our Marketing and Commerce Cloud grew together 17% year-over-year or 22% in constant currency, including significant expansion of our relationships with Live Nation, L'Oreal, and Tapestry. In our Commerce Cloud, we are seeing GMV growth decelerate in line with the rest of the e-commerce industry as consumers settle back down to pre-pandemic norms. Platform, including Slack, grew 53% or 56% in constant currency, including great Slack expansions at organizations like the National Weather Service, Coursera, and Mercado Libre. The National Weather Service selected Slack as its platform to connect over 4,300 employees with emergency managers, public safety decision-makers, and local media partners nationwide. I'm also excited to say that we will have over 12 Slack product integrations with our Customer 360 platform live and generally available by Dreamforce, where we have an incredible opportunity to help every one of our customers build their digital HQ in Slack in this new era of flexible work. Data, which includes MuleSoft and Tableau, grew 12% year-over-year or 13% in constant currency with wins at brands like Atlassian, Siemens Energy, CBRE Group, and King Power, which is Thailand's leading travel retailer. I'm heartened by the progress we see in our go-to-market transformation of MuleSoft. We're on track to have MuleSoft return to be a tailwind for revenue growth in the back half of the year. Finally, our 12 industry clouds were another bright spot in the quarter, growing faster than our line of business cloud as our customers increasingly focus on time to value and reducing their implementation costs. The out-of-the-box industry processes we've built into our industry clouds are a compelling value proposition in this more measured buying environment, and I'm excited about the new processes we brought to market in the first half of the year, including trade promotion management for consumer goods and our virtual assistant for our Financial Services Cloud. As we head towards Dreamforce, our pace of organic innovation has never been stronger. In our summer release alone, we delivered key innovations like revenue intelligence for predictive forecasting, the ability to talk to your data through Tableau, MuleSoft Robotic Process Automation, and a new lakehouse architecture for our customer data platform. Just this week, we launched Salesforce Easy, a new all-in-one self-service suite for sales, marketing, service, and commerce that will transform how small businesses engage with Salesforce. As you'll hear more from Amy, we're committed to durable growth at scale. We're committed to our 20.4% operating margin this year, and I'm excited that we're announcing our first-ever $10 billion share repurchase program today. Our capital allocation strategy is simple. We will continue to expand our free cash flow margin as we scale. We will invest in our organic innovation. We will reduce the impact of dilution, both by offsetting stock-based compensation and by maintaining a healthy balance sheet to fund any future M&A. I'm so grateful to our 17 million Trailblazers, all our partners, and most importantly, our employees for helping provide our customers with the innovation, agility, and resilience they need to navigate these uncertain times. Now over to Amy to discuss the financial details of the quarter.

Great. Thank you, Bret, and congratulations, Brian. I'm pleased to report strong top and bottom line financial results for Q2. As you've heard from Marc and Bret, our diversified portfolio remains well positioned to help our customers both grow and drive efficiencies in their business. Our customers are relying on us more than ever to be their trusted adviser, partnering with them on their digital roadmap. Now let me walk through our results for Q2 of fiscal '23, beginning with top line commentary. Total revenue for the second quarter was $7.72 billion, up 22% year-over-year or 26% in constant currency. FX continued to represent a headwind as the dollar continued to strengthen throughout the quarter. In Q2, the headwind from FX was about $50 million more than we had guided. A few highlights from the quarter. Sales Cloud continues to be a critical piece of our customers' success, helping companies drive more productive growth. In Q2, Sales Cloud grew 15% year-over-year and 19% in constant currency. Service Cloud grew 14% year-over-year and 18% in constant currency as we help our customers realize efficiencies and cost savings. As customers focus on their digital strategy and transformation, we continue to see growing multi-cloud adoption due to the number of customers who have purchased 5 or more clouds, which again grew in double digits. Slack continued to outperform our revenue expectations with revenue of $381 million. Slack continues to gain traction with customers. In Q2, 7 of our top 10 deals included Slack. For the fifth consecutive quarter, the number of customers spending greater than $100,000 with Slack grew by more than 40% year-over-year. Now for a quick update on data. I'm pleased to say that data passed $1 billion of revenue this quarter. With that, all of our 5 clouds are now generating more than $1 billion in revenue a quarter. Data growth of 12% or 13% in constant currency was driven by MuleSoft's total revenue growth of 15% and Tableau growth of 9%. As a reminder, approximately half of MuleSoft's and Tableau's total contract value is recognized in period, resulting in more quarterly volatility than our other core products. Turning to revenue attrition. Rates remain at record lows, ending Q2 at approximately 7.5%. Q2 non-GAAP operating margin was 19.9%, driven by our continued focus on disciplined decision-making and prioritization. Q2 GAAP EPS was $0.07 and non-GAAP EPS was $1.19. Mark-to-market accounting of the company's strategic investments benefited GAAP EPS by $0.03 and non-GAAP EPS by $0.04. Operating cash flow was $334 million in Q2, down 13% year-over-year. CapEx was $203 million, resulting in free cash flow of $131 million, down 24% year-over-year. Now before getting to our RPO performance and guidance, I'd like to address the current economic environment. As both Marc and Bret mentioned, we started to see more measured buying behavior from our customers, which began in the last month of the quarter. This resulted in stretched sales cycles, additional deal approval layers, and deal compression. In addition, we saw slowing in our create and close, Slack self-serve, and SMB businesses, which tend to be leading macro indicators. Geographically, this behavior was most pronounced in North America and major European markets, while Japan was relatively more resilient. From an industry perspective, retail, consumer goods, and communications and media were the most impacted, while high tech, energy, and financial services stayed more consistent during the quarter. From a product perspective, commerce and marketing saw more pronounced decelerations, while sales and service remain strong. Turning to remaining performance obligation, or RPO, which represents all future revenue under contract. It ended Q2 at approximately $41.6 billion, up 15% year-over-year. Current remaining performance obligation, or CRPO, was approximately $21.5 billion, up 15% year-over-year and 19% in constant currency. This includes 1 point of incremental FX headwind beyond our Q2 guidance. Moving to Q3 guidance. We expect revenue of $7.82 billion to $7.83 billion, or approximately 14% growth year-over-year and 18% in constant currency. This reflects a $250 million FX headwind. We also expect the $380 million contribution from Slack. As a reminder, Q3 represents the fifth quarter of Slack contributions to revenue. Therefore, the year-over-year growth rates will be normalized. CRPO growth is expected to be approximately 12% year-over-year or 15% in constant currency. We expect GAAP EPS of $0.09 to $0.10 and non-GAAP EPS of $1.20 to $1.21. Now turning to our full year fiscal '23 guidance. We are now guiding to fiscal '23 revenue of $30.9 billion to $31.0 billion or approximately 17% growth year-over-year, 20% in constant currency. This incorporates the trends in customer behavior that we saw beginning in July. The total year-over-year FX headwind is now $800 million, an incremental $200 million year-over-year since our previous guidance. The currencies most impacting our revenue are the euro, the British pound, the Japanese yen, and, to a lesser extent, the Australian dollar. Our guidance continues to assume a $1.5 billion contribution from Slack. As a company, we remain committed to profitability over the long term. While we see a more deliberate customer buying behavior, I am pleased to hold our fiscal '23 non-GAAP operating margin guidance at 20.4%, an increase of 170 basis points year-over-year. This margin guidance includes roughly 100 basis points of headwind from Slack. As a reminder, because our regional revenue and expenses are generally in the same currencies, there tends to be a natural FX hedge in our operating margin. For the full year, we expect GAAP EPS of $0.38 to $0.40 and non-GAAP EPS of $4.71 to $4.73. Please recall that our OIE and EPS guidance assumes no further mark-to-market adjustments of our strategic investment portfolio. We are updating our fiscal '23 operating cash flow guidance to approximately 16% to 17% growth year-over-year. Our guidance continues to assume a 3-point headwind from cash taxes associated with tax law changes requiring the capitalization of certain R&D costs. We expect CapEx to be slightly above 2% of revenue in fiscal '23, a nominal increase over last quarter's guide, reflecting the revised full year revenue guidance. This results in free cash flow growth of approximately 18% to 19% for the fiscal year. To close, as our customers and their executive teams, including the CEO, CIO, and CFO, focus on their digital investment strategy, we are well positioned with our diversified product portfolio to help drive efficiencies and growth. We are laser-focused on disciplined decision-making with a commitment to achieving our operating margin guidance. Lastly, let me echo Bret and Marc. We are very, very pleased to be announcing our new share repurchase program today. This step is a reflection of the confidence that we have in the future of Salesforce. I look forward to seeing everyone at Investor Day on September 21, where we will go into even more detail on our capital allocation strategy. Now Emma, let's open up the call for questions.

I think what's really on top of everybody's mind right now is the takedown in the full year revenue guide and what's causing that. You talked a lot about the macro side of the equation, and we definitely see that all around us. We definitely see that in our checks as well. But I think what people want to understand, is there anything more to this? Is there anything more execution-related, perhaps the go-to-market? And is the change in sales leadership from Gavin to Brian, is this in any way meant to address any shortcoming on the distribution strategy? So that's part one. Part two, on the expense side equation. Very impressive to be able to sustain 20.4% operating margin target even with the revenues coming down. I guess, for Amy, is there another level of what kind of expense reductions or sort of another gear that you had to sort of go in to be able to sustain that operating margin expansion? And does that impact your ability to sort of invest in the business to sustain those operating margins?

Yes. I'm so happy to talk to you, Keith, and I'll tell you that you're right. We took the guide down really around 2 points. One is the foreign exchange environment is obviously just unprecedented. We talked about that last quarter as well. I think maybe we were one of the first to really see what was going on. Somehow just being on the ground in some of these countries that have been so dramatically hit. To look at where we are right now with the yen, to look where we are right now with the euro, I think the euro maybe just broke parity yesterday. I mean, we're really in an unprecedented moment in foreign exchange. On the other side, as I said and I think as the team has emphasized, really starting in July, we started to see some metrics where we were like, where do we exactly want to be for the year? What is appropriate for us? How do we correctly characterize where the business is? That is really how we kind of put together this guide, which we think is the appropriate way to communicate the status of the business because we want to be in a place where we're communicating exactly where we are. I'm sure Amy is going to amplify that as well.

Sure, Marc. I think you nailed it on that. When we look at the guide, I believe the guide is appropriate under the circumstances we're seeing right now. As you know, there are two key drivers. The first part is FX; the key currencies, the euro, the pound, and the yen, have all weakened to near historic levels, and we're seeing that impact on our top line as we look forward to the rest of the year. The remaining part, as we called out, there was a distinct shift in customer buying behavior that we saw near the end of the quarter. For purposes of the guide, we're assuming that those conditions endured through about the half of the year. Now turning to your second part of your question, which I think was on op margin. As you know, I was very happy that we are committed to 20.4% and holding that despite bringing down the top line. This is largely coming from a more disciplined approach. It is not a result of one single change. We are continuing to unlock incremental efficiencies across the business. We're asking each leader to step up and look at their businesses and prioritize. I do believe that we are continuing to invest in growth, which still remains our #1 priority. In terms of the specific drivers, definitely continuing to take a measured approach and a very deliberate approach on hiring. T&E, we are prioritizing customer-facing travel. We are continuing to benefit from some of the decisions we've made over the last few years on real estate.

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

Well, that would be my pleasure. I mean I think a lot of you know Brian; he's been a trusted part of our management team for over 20 years. The last time he was the head of sales was only 2 years ago when we went into the pandemic and went through the transition with Keith. You may remember, I put Brian in for, I think, 1 or 2 quarters to run global sales and he did a fantastic job. He didn't want to continue with it. So we asked Gavin to step up from his role, I think it was International Chairman or European Chairman, I can't remember, honestly. I'm really proud of Gavin for the last 2 years. Then Brian is right here. I asked Brian if he would come in and take this forward, and he agreed. I couldn't be more grateful to that; I know we have just a trusted hand. In terms of the transition period, I couldn't imagine anybody who will operate the organization so seamlessly and transparently and with ease. Everybody has such a good relationship with Brian. He already runs our forecast calls; he's already been a key part of our sales program. I don't expect any transition period at all, and I'm holding him to that actually.

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

Brian, can you just step out of the room while we finish answering this? Do you want to just comment on this?

Yes. First of all, I'm humbled by the opportunity and, Marc, to your comments. I've been very close to this business for the past 2.5 years, working side-by-side with Gavin. I actually was operating in a COO role for him running this business. I think it's critical, as we look at sort of the second half of this year and beyond, the motion of customer success and sales together will drive the outcomes that we're looking for and our customers are looking for. I'm thrilled with the results we've seen on the attrition side and thrilled with the results that the customers are getting from the investment they're making in our technology. I'm just so excited to lead the sales.

Can you just address Brent's direct question on transition time? How hard of a transition is this going to be for...

I think it was measured in hours, actually, Marc. I've been running forecast calls already. I'm in the business travel customers. I met with 4 customers yesterday; there will be no transition time. There are no big changes that we're going to be making in our go-to-market other than getting closer to our customers and ensuring that we're delivering value to them in every single transaction that we're working on with them. So I'm very excited to take this on with 0 transition time.

Can you discuss the slowdown we're experiencing and the lengthening of sales cycles? This trend does not appear to be unique to our company; other vendors are reporting similar issues. Additionally, could you share your insights on client prioritization concerning certain projects? In the past, front offers were often prioritized due to their revenue-generating potential. Are you observing a similar trend now?

Yes. Thanks for the question. First, I'll tell you, I think that trend continues. Digital transformation remains our customers' top priority, and digital transformation starts and ends with the customer. Fundamentally, all of our customers are really investing in the secular trend of the digitization of their customer experience, their employee experience, and with our portfolio, we're at the top of that list. I think what you're seeing is an increased focus on, I say, 3 things. One is time to value. The other is ensuring that these projects drive cost savings in addition to customer satisfaction and top line growth. And then the third is reducing complexity and vendor consolidation. Some of the stories I mentioned like Uber Eats are great examples because it's really about how do you put up things like digital service technology, whether it's chatbots or self-service, to really take out cost and make these projects pay for themselves instead of having protracted multiyear implementations. I think vendor consolidation is also a trend we're seeing. If you look at some of the innovation we're bringing out like our Sales Cloud Unlimited edition or Salesforce Easy, I mentioned earlier, they are really efforts to enable our customers to do more with less and to enable them to use Salesforce as their sole vendor, take out some point solutions that perhaps aren't getting the return on investments our customers are looking for. It reflects the opportunity to be the most strategic vendor for our customers right now as they look to really hold their technology to high standards, which is to drive top line and bottom line performance. Brian, is there anything you want to add?

Great question, Raimo. I agree with you that the front office is a priority you heard both Marc and Bret. I feel it too when we're out talking to CEOs, digital transformation remains our #1 priority, and we need to make sure that we're delivering for them. We're also seeing it in the demand environment. We are still seeing very good generation of pipeline in our business right now. We are facing some longer sales cycles and additional layers of deal approvals and potentially some deal compression, but the demand environment is solid. So you're spot on that we are seeing the front office as a priority for every CEO out there.

Thanks for all the color on where you saw the macro impact. It sounds like SMB marketing commerce, but the core sales and service looks to have held in nicely. You didn't call out enterprise. So any specific color on how the core business and the large enterprise, those bigger expansion deals in the core track this quarter?

I'll start and then Brian, I'd love your commentary as well. As you said, I think the story actually, the past number of quarters has been the strength of our core CRM business. Sales Cloud growing at 19% in constant currency is remarkable. This is the product that Marc and Parker built 23 years ago, doing so much revenue, growing at 19% is incredible. You're seeing it just in, I think, the continued strength in our core business. I want to call out our attrition rate being at historical lows as well, and I think it reflects the strength of our business. As Amy articulated, as it relates to SMB, GMV deceleration, we're seeing things settle down to pre-pandemic norms. But I still see incredible strength in our core CRM business in the enterprise. I think the durability of our business really rests on the durability and diversity of our portfolio, the diversity of the industries we serve, and the diversity of the segments that we serve. Brian, is there any color you want to add?

Yes. Well said. The Sales and Service Cloud are sort of the centerpiece of our digital transformation for our customers. You saw the growth in the quarter, and we expect that to continue. We are seeing some compression in some of the larger transactions in our enterprise business, and it's not a surprise. I've lived through 3 of these cycles before. You can see that maybe people take a more measured approach to their digital transformation, maybe starting with a smaller piece. But a land-and-expand strategy is something we've used for many, many years; we can grow from there. Despite the fact that maybe some of these engagements are a bit smaller, we do see acceleration in these customers in quarters to come. So yes, there was compression out there in some of the business, but we are very confident that we can execute against the opportunity in front of us in these large enterprise accounts going forward with digital transformation being a top priority.

Lots of exciting news for Salesforce. Congrats on all the changes. My question maybe, Brian, congrats to you as well in your new position. What would you do to turn around the data cloud? I know it has had some very significant momentum. But I can, in some sense, look at the new guidance versus the old and say a lot of that delta is basically the slowdown on the growth rate in the data cloud that is the Tableau and MuleSoft business. Brian, want to get your opinion on that. Just from the management team, as you talk to customers, Marc, you've been through these cycles before. What are customers saying as to when they might reengage at the same level of enthusiasm at Salesforce, whether it be deal size or close rate? What are the things that they're looking for from a macro perspective or leading indicators in their business so it could be back to reengaging the way they used to?

First of all, Kash, thanks for the question and I appreciate the kind comments. On the data business, it's a unique business for us because some of it is license-based. You can tend to see some of the headwinds we saw in July show up more immediately there. We feel very good about where both those businesses are right now, particularly in MuleSoft, which, as you heard Brett say, is on a great trajectory and will be a tailwind to our revenue growth in the second half of this year. We feel great about that. Tableau is a critical component of our digital transformation, with every customer wanting to leverage data to have better insights into their operations. Clearly, there is a lot of focus on these businesses because it is such a critical component of every digital transformation. We feel great about that. Both those integration and analytics as a category for accelerated growth in the second half. So no big concerns there at all. I would say on your second question, we are not economists, so we're not going to guide on when people are going to feel like they're coming out of this. We think we're being appropriate with our guide for the second half of the year based on what we saw transpire in July. Marc and Bret?

The main piece that I would really focus on is spending as much time as I can with customers at Dreamforce. This is our opportunity to really understand deeply across a wide spectrum of our customers, geographies, and verticals what they are seeing in their own businesses. When we look at these customers, we mentioned L'Oreal has been an incredible success story for us. We see the B2C story; they're using Marketing Cloud, Commerce Cloud, and Service Cloud. The Commerce Cloud story is incredible where they have almost 200 sites globally for all their brands. They've got highly customized experiences on the web, mobile, and in-store. I'm sure a lot of you use the Kiehl's brand. It’s a great product. They have a whole new skin hub. They’ve been with us and really reimagined their business using Customer 360. It’s a company that we're going to feature and focus on and inspire others at Dreamforce. I think when you see stories like that, when you look at all the stories we've seen, especially during this pandemic surge over the last 2 years, it’s incredible what folks have done with their businesses. When we get to this moment, I don't think it's a huge surprise that customers are more measured. Everyone is wondering exactly where the economy is going and how things are moving forward. This is a point where people are taking a breath and then they will reassess. When they get their confidence and a clear vision for the next stage of their company, they come in. Until then, it’s a lot of transactional business that we would normally see and move forward with.

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

It's a great question. This quarter feels very much like a milestone. I'm a big fan of SAP, and I have a lot of respect for their business and what they've done in the market over the last 40, almost 50 years. To see our business in July do more than they reported in June in terms of revenue was very meaningful to me, and I'm very grateful and proud of our team for hitting this tremendous level of scale. At that same moment, I said, okay, what are some changes we can make? We have such massive cash flow that I think it is completely appropriate for us to look at how we handle our dilution, for example. It has been on the table for a while, and in many of my conversations with investors, they brought it up. We've waited for that moment, and I think now is the right moment to say we're going to directly address this with our first-ever share repurchase of $10 billion. I'm very excited about it. At the same time, I don't think that takes M&A off the table. We will continue to look for opportunities. We want to be able to use our cash constructively. This is important for us. It doesn't mean that we're not going to have different guardrails for M&A.

Yes. I think Marc articulated it well. The pillars of our capital allocation strategy are number one, we will continue to become more profitable to generate expanded free cash flow over time. That's what Marc was saying. You created a great business model in Software as a Service, Marc, and I think...

No. I believe that committing to the margin for the year is essential for investors.

We are focused on investing in organic innovation. I'm proud of our commitment to this area, and you can expect to see more at Dreamforce. We are currently experiencing a stronger pace of organic innovation than ever before. Additionally, we aim to minimize the impact of dilution, which has been a common concern from our investors. We are dedicated to offsetting stock-based compensation while maintaining a robust balance sheet, as this is a valuable lever for future mergers and acquisitions. Acquisitions have been significant in our history and will continue to be important moving forward, but we plan to do this in a way that reduces dilution and benefits shareholders.

You can see we've picked up some great companies, whether it was ExactTarget, which was kind of the beginning of really augmenting Customer 360 with our Marketing Cloud, moving on to MuleSoft, which provided integration and connectivity, then Tableau, which extends analytics and is so important to many of our largest customers. Salesforce is a different company because we had an acquisition strategy over the last decade. I don't think we essentially need to break that. At the same time, we need to be paying attention to dilution and ensure we have the correct capital allocation strategy as well.

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

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

I think this one is sort of for Bret. I was just wondering if you could go into the industry cloud strategy a little bit and what you're seeing going on there. Can you just talk a little bit about how important that strategy is as budgets come under more stress and the ability for you all to go deeper with your customers on an industry basis? I was just kind of curious if you can give us an update on that and then how that strategy maybe plays out in a more choppy macro backdrop.

Yes. Thanks, Kirk. We have 12 industry clouds spanning a wide range of industries where I think CRM is particularly strategic for financial services, health care, consumer goods, and manufacturing. You can think of our industry cloud as essentially taking the Customer 360: sales, service, marketing, e-commerce, Tableau, MuleSoft, Slack, and building industry-specific processes and workflows that work out of the box. There’s a lot of value for our customers. They don't need to pay us or a professional services firm to implement the essentials for their digital transformation. It works out of the box. Customers can focus their investment resources on areas of their business that are differentiated. It means they get faster time to value and that these processes are stickier, which is why our industry clouds have lower attrition rates than our line of business clouds. It's been a huge area of growth for us and actually a lot of credit goes to our Chief Product Officer, David Schmaier, whose company we acquired a couple of years ago. Velocity was an independent software vendor that built industry solutions on top of our platform and has been a strong advocate for this strategy internally. It's a huge part of our go-forward strategy. If you have an option to buy one of our industry clouds, why wouldn't you? More works out of the box, you'll get faster time to value. It’s a huge area of investment for us. The unique thing we're doing, Marc alluded to it, is all-in-one integrated platform. If you buy our Financial Services Cloud, you get all the capabilities of our Salesforce Cloud, of our Service Cloud, or our customer data platform, all in one integrated technology platform. It’s very unique in the industry. In this more measured buying environment, it will become even more important. That was important prior to this as well, and I think it reflects our alignment with our industry's go-to-market motion and vertical go-to-market motion.

I wanted to focus in on Slack. Slack again outperformed revenue expectations. Obviously, the large deal metrics are impressive, too. What's driving the continued advance for Slack, let's say, relative to some of those other vendors that are heavier in the telephony or video segments of UCaaS that have frankly delivered weaker results? Are you seeing strong, call it, stand-alone demand for Slack as a horizontal messaging platform or are the Salesforce integrations that you highlighted driving more attachment as a collaboration hub of Slack in the context of multi-cloud deployments?

Yes, I'll take that one. We are really happy with the performance of Slack. I think it’s interesting; we acquired Slack in the midst of this pandemic. Now we're coming out of the pandemic into this new era of flexible work. Office occupancy rates are at historic lows. If you look at our lines of business like customer service, I've met tens or maybe even hundreds of executive teams whose contact centers are no longer buildings. They're literally just in the cloud now, and people are wearing headsets in their kitchens and basements to answer your phone calls. If you think about what it means to build an employee experience, to build a customer experience in this era of flexible work, Slack is really at the center of those conversations. That’s why it was such a strategic acquisition for us because 1 plus 1 truly equates to much more than 2. We talked about the innovation we're to deliver at Dreamforce across every single one of our clouds. We’ve been saying, how do we help our customers whose headquarters is now digital transition their CRM, their employee experience to this new era of flexible work? We’ve seen great wall-to-wall engagement like Mercado Libre, one of the customers I mentioned in my script. It’s important that we’ve invested in integrating Slack with Customer 360 so that when we’ve conversations with a retailer preparing for Cyber Week, we're coming not just with our Marketing Cloud or our Commerce Cloud and our Service Cloud, but with a Slack Connect channel that they can use as a command center for Cyber Week. That’s key to our go-to-market motion. I don’t think it’s at the expense of what you called stand-alone. When we land a deal for a marketing department, Slack has such wonderful organic viral adoption that a year or two later, we’d be selling to the whole company. I really think that’s key to our go-to-market motion. Slack is a relevant driver for every single one of the cloud and our Customer 360.

A lot of the reasons we bought the company really could benefit from our credibility with customers and our distribution capacity have really paid off. It’s such a great product. In June, you probably know that Bret and I did the World Tour in New York. Many of you were there, but the day before was the Frontiers Conference for Slack. If you haven’t looked at the demo, you really should because the product has come a long way since we bought the company. It’s an incredible piece of technology.

Voice, video. It’s incredible, yes.

You have to see it to believe it. I mean don't you agree, like it's something that's really... For a lot of you who are coming to Dreamforce, you're going to see how many of our products have become Slack first. The number of integrations we've been able to bring forth is remarkable. How many integrations now do you have with these core clouds that you've been able to put together?

We have 12 integrations with our industry clouds, not just sales, service, marketing, and commerce. The new audio and video introduced, now accounts for 34% of all communication inside of Salesforce. It’s completely transformed the way we work, and I’m confident it will transform all of our customers.

We’ve integrated Slack with Tableau, which is really cool, right? Because you can do collaborative analytics.

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

A lot of our customers still haven't seen this, and I think that’s why I’m so excited about Dreamforce, because when you come to Dreamforce and see the keynote, we will highlight this. Customers will see in real-time. What we saw, for example, in Frontiers, we didn’t really have the opportunity to showcase in our World Tour keynote, which Bret and I have lamented about. When you start to see the incredible innovation that has happened in the Salesforce core clouds like sales, service, marketing, commerce, even Tableau, you combine that with Slack and bring it into the Customer 360 with MuleSoft as the single source of truth. I don’t think anyone else has this vision or is trying to execute it. I mentioned the L'Oreal story; I told you that several times; you will see that in Dreamforce in real-time. You can see many other stories, because for us, communicating our vision is the most exciting thing going on here. We just brought 500 of our top executives together for kind of a second half kickoff and showed them what we’re excited about, and I don't think anyone walked away without appreciating that we have not only a world-class product that's highly differentiated, but we're really where a lot of our customers are trying to get to in the next level of their customer experience. Bret made the point, Amy made the point, Brian made the point that digital transformation is underway. But we all know that every digital transformation begins and ends with the customer. You have to have this beginning; you have to kind of begin with the end in mind, when it's all about building this Customer 360. You're going to see this at scale when we all get to Dreamforce, and I'll look forward to your feedback then.

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