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Salesforce.com (CRM) Q4 2022 Earnings Call Transcript | The Motley Fool

salesforce.com (crm -0.02%) Fourth Quarter 2022 Earnings Call Mar 01, 2022 5:00 PM m. and

content:

  • prepared remarks
  • questions and answers
  • call participants

prepared remarks:

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Reading: Salesforce earnings transcript

Good afternoon, ladies and gentlemen, and welcome to Salesforce’s FY2022 Fourth Quarter and Full Year Results Conference Call. just a reminder, today’s call is being recorded. At the end of the comments prepared for today, there will be a question and answer session. [operator instructions] and we ask that you limit yourself to one question.

I would now like to turn the lecture over to your speaker, mr. Evan Goldstein, Senior Vice President of Investor Relations. please go ahead, sir.

evan goldstein – senior vice president of investor relations

thanks, bo. hello everyone, and thanks for joining us on our fiscal 2022 fourth quarter and full year results conference call. i’m evan goldstein, senior vice president of investor relations. Our press release, SEC filings and a replay of today’s call can be found on our IR website at www.salesforce.com/investor.

Joining me on the call today is Marc Benioff, President and CEO; Bret Taylor, Vice President and Co-CEO; Amy Weaver, CFO; and Gavin Patterson, Chief Revenue Officer. As a reminder, our discussion today will be primarily in non-gaap terms. Reconciliations between our GAAP and non-GAAP results and guidance can be found in our earnings and news release. some of our comments today may contain forward-looking statements that are subject to risks, uncertainties and assumptions, in particular our expectations regarding the impact of the covid-19 pandemic on our business, acquisition, results of operations and financial condition, and that of our customers and partners are uncertain and subject to change.

If any of these were to materialize or if our assumptions prove incorrect, the company’s actual results could differ materially from the forward-looking statements. A description of these risks, uncertainties and assumptions, and other factors that could affect our financial results are included in our filings with the SEC, including our most recent report on Form 10-K. With that said, let me put the call through to Marc.

marc benioff – president and chief executive officer

well, thanks, evan. this is probably one of those calls that is the most difficult type of call we can make. and the reason it’s the hardest call we can make is because of all the shady things that are going on in the world. and of course, all of us are witnesses to tragedies that we can’t believe our eyes.

and at the same time, we’re here on the call to tell you that salesforce had perhaps the best quarter ever, and we’re trying to gauge our response. and this is really very personal to me. i’m sure many of you know that my great-grandfather actually emigrated from kyiv from-while he was growing up, it was kyiv in our home. and – but my great-grandfather, isaac benioff, came to the united states from kyiv.

and my grandfather was born here in the united states and then he came to san francisco and met my grandmother who was the second generation san franciscan. And that’s why I’m here now. I am a fourth generation San Franciscan. but looking back and looking at my family now in ukraine, my heart is really broken for them.

and the senseless pain, the suffering, the… it’s incredibly hard to see what’s going on in the world. and although we don’t really have employees or do business in ukraine or russia of any importance, i would say that we have employees and families like mine. and with loved ones there and deep connections to the region in this part of the world, and our hearts continue to break. and we have provided ways in which we provide humanitarian care.

I just gave an answer through world central kitchen, which I support a lot, jose andres, and someone I have worked with for many years. and as we find more ways to provide humanitarian care, we will. this is very important to us and who we are in our core values ​​at salesforce. So as I said, this is a difficult time for us because we’re not blind to what’s going on in the world, and yet we probably had, I’d say, the best quarter we’ve ever had in company history.

and I’m here on the 61st floor of the salesforce tower. we have a significant number of our employees here in the office. I was just with them and I was also – I just spent a tremendous amount of time surveying the city and how things are coming to life here in our post-pandemic reality that we’re now entering, and it’s powerful.

this energy around here is incredible. we are really turning a corner in our battle against the virus. and I think in many ways covid is behind us. And certainly, I know that omicron and ba.2 are very serious viruses, but we’re in a very different position in the world today, fighting these things, than we were a couple of years ago.

And I want to thank everyone who has done so much to help us get through the last two years. it really became very clear to us, a couple of weeks ago, we had our fiscal year start in new york city. we had 5,000 employees attend in person at the javits center. It was amazing to be back with 5,000 employees.

we had – now we have 75,000 employees in the company. thirty-five thousand of our 75,000 employees have started since the pandemic. so we’ve had quite a bit of growth here at salesforce. And I would also say when we ask, we’re in the room, and how many of you haven’t been to a sales force launch, stand up and welcome, I’d say 75% of the room stood up.

bret and I are launching this together as a team, and I think we’re both in shock. and what you said it was –

bret taylor – president and chief operating officer

It was amazing.

marc benioff – president and chief executive officer

It was, right?

bret taylor – president and chief operating officer

to be in person again after so long.

marc benioff – president and chief executive officer

to be back in the javits center with 5,000 employees, having a grand opening. and with tens and tens of thousands of employees online. and let me tell you that we were able to meet safely, thanks to our security cloud. we are interconnected with a series of covid tests that we are dynamically updating how we were doing and trying to keep the virus at bay.

There are still some viruses in there, but not many. and we did everything possible to have a very safe program, and we have been doing it now. we have had two dreamforces with this program with our security cloud. we’ve had the kickoffs.

We’ve had all kinds of events and programs around the world using this technology. and it’s very powerful, mayor de blasio came over, and he was talking about how we had built the contact tracing system for new york, which we did, and the vaccine delivery system for new york, which we did, and a lot of applications and talking about how we landed a 787 during the height of the pandemic in new york, which we did, and provided millions of pieces of ppe, etc. but the emotional part for me, and i don’t know, bret, if you were, but when he said that every place where our employees were sitting was a fema field hospital a short time ago. and we were sitting in a hospital and having a kick-off.

and we realized, wow, somehow we’ve gotten through this. and wouldn’t you? Was that a moment?

bret taylor – president and chief operating officer

yes. you could feel the shock and shock of the moment as everyone looked back at their seats and tried to imagine a cot and really got it so hard and so long how far we’ve come.

marc benioff – president and chief executive officer

I’ll tell you, I added up how many CEOs I’ve been with in the last 90 days and it’s been about 46. And I’ve talked to all these CEOs from all over the world and I’ve traveled and so on. It’s been a powerful and difficult couple of years. and I want to say that I’m grateful for what all of our ohanas have done and all of our employees have done and also our customers and the first responders and scientists and everybody to get through this because it feels like, and I think like it shows what we just went through in new york, we’re coming to the end of this. And it’s not that this isn’t still all the rage.

just read some horrible articles about what’s going on right now in hong kong with ba.2, but we’re getting to another stage here. and I hope that we are about to return to a more normal world. and we’re doing that, unfortunately, a war and a pandemic. this is not an uncommon story and it is very sad to see what is happening here.

So with that, I have to tell you, though, that I’m now talking directly to our investors and analysts. And I’m talking directly about the company’s performance. we had a phenomenal quarter. we culminated, which was simply a phenomenal fiscal year 22 with incredible numbers.

and we continue to see huge, tremendous demand from customers in all industries, all geographies and all product categories. and I think, like many of the portfolio managers who are on the call and will be asking questions later, we’re managing an entire portfolio. we see that. with products, geographies and industries.

And across the portfolio, I’d say there’s notable strength. And all the companies that I talk to, these CEOs that I talk to, they’re all going through major digital transformations. and those clients, they all begin and end with the client. and our job continues to be to help these companies grow and achieve this transformation.

and that’s why we’ve had such an amazing year, and I trust that will continue. and you can see that in these incredible numbers, but also our very deep commitment to this kind of very disciplined, very profitable, very positive cash flow, as you can see, the $6 billion number and the $7+ number billion. scheduled for next year and increasing in the years to come. that for the fourth quarter, revenue rose to more than $7.3 billion, up 26% year over year. That’s pretty impressive for a company our size that achieved 26% quarterly growth to $7.3 billion.

I don’t think there have been too many quarters of $7.3 billion with 26% growth in the world this year. and for the full fiscal year 22, revenue was $26.5 billion, again up 25% year over year. again, a $26 billion company growing 30% to 25%. And, of course, that’s why we’re hitting this year at $32.1 billion.

thus, we remain the top five fastest growing enterprise software companies in history. Salesforce is on its way to becoming the world leader. 1 enterprise cloud software application company. this operating margin for the quarter was 15%; and for the full year, 18.7%.

and we have continued to provide this disciplined approach to margin expansion. and you can see that in the forecast for the quarter now at over 20% operating margin with the year at $32.1 billion. therefore, with our unique business model, we continue to grow revenues at scale, driving operating margin expansion, leading to strong cash generation. I mean, you can see that in all three skins this quarter.

And we closed out fiscal ’22 with really incredible cash flow, hitting a milestone of $6 billion for the year, and that’s really 25% more year over year. that’s really amazing, and I’d say it far exceeded our goals. I’ll tell you that based on our strong FY22 results, we’re excited to increase our FY23 revenue guidance to $32.1 billion, something that I’ve been excited to talk about, at the high end of the range. , which represents a growth of 21% year over year. Amy, I hope that’s just the beginning of the year’s renewals.

And we are committed to achieving a 20% operating margin in fiscal 2023. And customer success continues to drive this financial success. and our product innovation is giving customers the resiliency they need to navigate these, I would say, bleak and uncertain times. and that’s why idc has ranked salesforce as the no.

1 crm for eight years in a row. we have a tremendous focus here, being the no. 1 cream our entire 360 ​​client portfolio, that is, the sales cloud, the services cloud, the marketing cloud, the commerce cloud, slack, tableau and mulesoft.

And by the way, there are also other big clouds that aren’t even mentioned when we talk about these things, like our financial services cloud, our security cloud, or our sustainability cloud. putting them all together for our clients, well, it becomes the single source of truth for pretty much the entire fortune 500. and all of this customer success is being led by an amazing management team, which I think everyone on the call will agree and I certainly believe, it has never been stronger or more aligned. Now I want to talk about a couple of clients real quick and then wrap this up.

ford – well, you’re going to hear more from bret and gavin. we are helping large companies like this around the world to transform their business. and I love this company. I think it’s one of the great companies, very transformational, the new tremendous CEO, Jim Farley, has a great vision of the world.

You’ve seen it: If you haven’t been inside this Lightning 150 truck, it will be the electric vehicle for everyone. is the electronic transit van. it’s amazing. and I have two of these mach-es, one yellow and one white.

and if you haven’t tried it, you should go to the ford dealer because the car is worth a test drive because it drives so differently than other electric cars, and I’ve probably owned each one because I love these things. And a few weeks ago, I was with Jim Farley, and we launched the Ford Pro business unit. and that is they are creating a b2b business unit at ford to complement their b2c unit, not unlike many of our other clients like home depot. but i will tell you ford pro, they are really looking for professionals, aiming for productivity.

really seek to motivate the professional. and I tell you, I live in a rural area, and I even have a Ford 550 truck, which is configured as a fire engine. when things go wrong, I have to be prepared for that. and they have telematics, but I’m excited to be able to build all these 360 ​​customer services around this ford 550 truck because I’m trying to turn that ford 550 into a ford 360.

This is how I see this world. and i’ll tell you jim farley, right in [inaudible], not too far from here a few weeks ago, and it was amazing to see your product line, but also how your customers and your partners are really connecting. with this – these new products in incredible new ways. and when you look at ford and they’re driven towards, well, sustainability, it seems to me that it’s very aligned with what’s going on in the world because we all know we’re in a climate emergency. we need to get everyone to net zero as fast as possible.

salesforce, now entering the fortune 100 this year. We are already a net zero company, fully renewable throughout our value chain. we have achieved 100% renewable energy for our global operations. we are further reducing emissions.

We are very aware of what we are doing with all our products, with sustainability. And we know we can’t stop there is no finish line in sustainability. it’s really one of our core values ​​now.

and we are implementing sustainability in every part of our business. it’s an area where I’ve spent a lot of time in the last, I’d say, six months, even looking at new investments. bret and i just saw some great company together. You can tell we were surprised by the kind of companies we’re looking for in carbon relationship management that we weren’t before.

It’s the new crm, carbon relationship management, because there’s so much we can do in analytics, in data management, and in helping our clients get the carbon they need to be successful. and every business can be a platform to address climate change. The first step is for each and every one of us to commit to being net zero. I have a lot of friends who are venture capitalists who say they’re going to get into the world of sustainability.

and I told them, the first thing you should do in your portfolios, make your portfolios net zero. all of our work around sustainability could be the most important and rewarding work of our lives. Well, it’s one of the things we celebrate. salesforce is going to be 23 years old, unbelievable, on March 8th, in a few days, a quarter of a century.

is getting there. Parker just isn’t with us today. he is traveling so i just want to say happy birthday to parker and thank you for starting this great company with me so many years ago.

and we look at all the evolutions of the company and the management team and the products and their – the employees and all of our ohanas and all of our stakeholders, thank you. when we started this in 1999 i never dreamed that we would become this amazing company and break into the fortune 100 in 2022. so this is amazing. and our values ​​have created so much value when we look at $500 million in grants now for our communities, $6.7 million in employee volunteer hours, over $100 million here for our much needed san francisco and oakland public schools, especially on the right now, running 55,000 nonprofits and ngos on our product for free.

and so many other things that we have been able to do here, the children’s hospitals here in san francisco or so many other things around the world. so thank you all for making that happen. and we are also delighted, and thanks to our pioneers, especially those who believe so much in our products. they have lifted us.

and again, parker and I are very grateful. and now it’s your turn, bret.

bret taylor – president and chief operating officer

thank you, marc. I really appreciate it. as marc said, we had a phenomenal quarter to wrap up another phenomenal year of innovation and customer success. and you can see it in our performance.

Our operating model and discipline are delivering profitable growth on an incredible scale. I have had the privilege of meeting hundreds of clients over the past few months. And what I got out of those conversations is that the sales force is more strategic than ever to your success. all companies are going through a digital transformation.

and that transformation begins and ends with your customers. That’s what drove our incredible performance in every region this quarter: 23% in the Americas, 38% in Emea, and 20% in APAC. We continue to see strong demand from our clients across our 360 customer base. Companies like KPMG and Scotiabank are using the sales cloud to build digitally native sales teams with new products like revenue intelligence and our new slack integrations.

Cloud sales growth accelerated again this quarter to 17% year-over-year, and it is now a $6 billion revenue business. companies like state farm and u.s. The bank expanded its use of the sales services cloud this quarter, helping it grow 18% year over year to nearly $6.5 billion in revenue. these sales and service businesses are simply amazing.

Regardless, each is larger than any other cloud software-as-a-service company and is more relevant to more customers than ever before in our 23-year history. our marketing cloud also continued to show strong growth, with clients such as human and sunrun. Marketing Cloud delivered more than 40 billion messages in Cyber ​​Week alone and delivered 4.1 billion messages per day during the fourth quarter, up 37% year over year. just eat takeaway, which gavin and i recently visited in amsterdam, is an excellent cloud marketing success story of the quarter.

just eat is a leading marketplace for online food delivery. and like all digital native companies, they have adopted slack as their digital headquarters, with 11,000 monthly active users. this quarter, they expanded with the marketing cloud to engage with their customers, their restaurant partners, and their delivery partners. We also saw cloud commerce wins at Ralph Lauren, Bose, Sonos, continuing this trend toward digital commerce that accelerated so rapidly in the pandemic.

Together, marketing and commerce grew 20% year-over-year in the quarter. both tableau and mulesoft continue to be the foundation for our multi-cloud customer 360 deployments. tableau had strong earnings in the quarter with southwest airlines, ibm and sunrun. mulesoft was also part of some of our largest deals in the quarter, including bose, deloitte and ford.

Together, our tableau and mulesoft data business accelerated to 23.5% year over year growth in the quarter. and i’m pleased to say that slack continues to exceed our expectations in every way as every company in the world builds the digital headquarters for this next generation of work that marc was talking about. With key wins at companies like Carvana and Netflix, the number of customers spending $100,000 a year with Slack increased 46% year over year. Marc and I couldn’t be happier with how the slack integration has worked, and that remains our top priority as a management team.

That’s why, as we said on our investor day, we don’t have any major M&A plans in the near term. clearance is our focus. It’s been great to hear that slack came up in almost every one of those hundreds of customer conversations I’ve had this quarter. paypal is a great example of the quarter.

We have had a long relationship with dan schulman and the team at paypal who use customer 360 in their b2b and b2c business. This quarter, PayPal expanded its use of Slack, using new capabilities like Slack Huddles for thousands of real-time audio calls each week, and Slack Chatbots to answer employee questions, log tickets, and more. This acceleration of digital transformation is happening across industries and can be seen in the cloud momentum of our industry. these are our purpose-built solutions for financial services, healthcare, consumer goods, energy, and eight other industries.

We saw unprecedented growth in our industry solutions, and our most strategic multi-cloud deals were driven by our industry-specific products. geico is a great example. Geico is the second largest auto insurer in the US. uu. With over 25,000 agents, led by an amazing CEO in Todd Combs.

Our professional services team is working with geico to deliver a digital-first customer experience with our financial services cloud. and it’s improving the experience for its customers and saving the company millions in costs at the same time. we saw strong growth across all segments, including a significant acceleration in our largest transformation deals, as well as our low-end transactional deals and dormant self-service business. These transactional businesses are the closest thing we have to a real-time economic barometer.

and right now, all indicators are positive. and perhaps most importantly, this quarter, we saw the lowest customer churn in our company’s history despite all the disruption in the economy. All in all, it was an amazing quarter and we’re seeing incredible momentum in the business. Like Marc said, as a leadership team, we’ve never been more aligned and we’re executing better than ever.

I am enormously proud of our entire team. I am grateful for the support of our customers, our partners and all of our stakeholders as we continue to deliver incredible growth at scale quarter over quarter and year over year. And I’ll pass you on, gavin.

gavin patterson – president and chief operating officer

thanks, bret. I would echo Marc and Bret on how many notable customer success stories we saw in the quarter across our entire portfolio of products, industries, and geographies. the dynamic that we are seeing in customer engagement is absolutely fantastic. In the last few months alone, I’ve conducted over 75 meetings with senior executives and the accessibility, that sense of urgency and interest from the highest levels of companies is incredible and shows no signs of abating.

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What is clear is that there is a tremendous appetite for digital transformation and we expect it to continue. in the americas, we strengthened relationships with accenture, c6 bank, scotiabank state farm, the michigan state department of health and human services, u.s. bank, zoom and many more. At emea, we continue to deepen our relationships with airbus, cloud factory and alphasights.

and at apac, we’ve won significant wins with incredible organizations like the bank of the philippines, panasonic corporation, and hitachi. Health care also stood out with wins like Humana, Iqvia, Lucara Health and Teladoc Health. modern is another in that category. they intend to become the first fully digital biotech company, incorporating analytics, artificial intelligence and automation at every step of their value chain.

We are a key partner on that journey. With modern health cloud, you will get a more complete view of your customers; And with Einstein and Tableau CRM, they’ll be able to analyze data across departments and use predictive analytics to make better decisions. And we continue to build our relationship with Sanofi, where CEO Paul Hudson and his team are already using the Health Cloud and Services Cloud. in the fourth quarter, they added cloud consumer goods, tableau crm, and salesforce b2b commerce, enabling them to better engage with healthcare providers, patients, and pharmacies around the world.

This is another great example of our full portfolio of 360 clients at work. We also increased our partnership with Mercedes-Benz in the quarter. They are using Salesforce to transform the way they interact with their customers. And as Mercedes becomes even more sustainable and reinvents its fleet for the electric future, they rely on Customer 360 to unite their sales, service and marketing teams around a single, shared view of every customer.

ralph lauren is another great expansion. And I’m not just saying that because the CEO, Patrice Louvet, was my old boss at P&G. we’re helping ralph lauren deepen its connection with its customers in both digital and physical environments, particularly as they expand into new regions. In fact, Commerce Cloud helped them increase their online sales in North America by more than 30% in the December quarter.

and during the pandemic, ralph lauren has relied on slack to keep his geographically distributed teams working together seamlessly from anywhere. Eighteen months ago, Australia’s Victorian State Department of Health selected Salesforce to implement a COVID-19 contact tracing system. in the fourth quarter, victoria turned to salesforce to provide a technology foundation to manage the state’s covid response efforts. For example, Victoria is using MuleSoft to integrate information from various systems, detecting Covid cases as the virus moves between outbreaks and stable life, and has also implemented cloud marketing to improve communications with citizens affected by the pandemic.

These are just some of the highlights of an incredible quarter of customer success from anywhere. We are proud to have supported these and many other companies and are grateful to all of our customers for their continued trust. And as Marc and Bret said, our clients’ success drives our financial success. I am truly grateful to be part of this management team, which I believe has never been stronger or more aligned or even more committed to delivering disciplined profitable growth at scale.

I also want to thank our team for their excellent execution, for continuing to do great work in the midst of massive global change. Amy, I’m going to share with you the financial details of our quarter.

amy weaver – president and chief financial officer

thanks, gavin, and hi everyone on the line. Fiscal year 2022 was a remarkable year for the sales force. our focus on disciplined and profitable growth drove record levels of revenue, margins and cash flow. so let me show you some of the results for the fourth quarter and the full fiscal year 22, starting with the main comment.

Total fourth-quarter revenue was $7.33 billion, including $312 million of slack. this is 26% more year over year or 27% in constant currency. we continue to work in the strong demand environment that we highlighted throughout fiscal year ’22. for the full year, total revenue was $26.5 billion, up 25% year-over-year, or 24% in constant currency.

Full-year revenue includes $592 million from the two quarters of inactivity. Our portfolio of relevant products, serving a broad set of customers and customer needs, continues to drive our business performance. some key highlights of the quarter. As you’ve heard from Marc, Bret and Gavin, our core business continues to do very, very well.

cloud sales and cloud services are $6 billion businesses. and in the fourth quarter, they grew 17% and 18% year-on-year, respectively. our progress in the company continues with our biggest businesses getting bigger. the number of seven-figure deals signed in the fourth quarter grew 34% year over year.

And in the fourth quarter, the number of eight-figure transactions more than doubled. our industry products also continued to perform very well. In fact, our largest deal to date, as measured by incremental arr, was a financial services win that we signed during the quarter. and eight of our top 10 offerings featured an industries product.

I also want to provide an update on mulesoft, which grew 24% year-over-year in Q4. We continue to realize the benefits of the go-to-market organizational changes we implemented last year. we are happy with the progress. however, we do not anticipate seeing the full benefit of these changes until the second half of FY23.

last quarter, during the third quarter, we drove churn: our churn rate below 8% for the first time in company history. now, for the second quarter in a row, our churn is at an all-time low again. revenue loss at the end of the fourth quarter was between 7% and 7.5%. Our remaining performance obligation, which represents all future revenue under contract, ended the fourth quarter at approximately $43.7 billion, up 21% from the prior year.

current remaining performance obligation or crpo, which represents all future revenue under contract expected to be recognized as revenue in the next 12 months, was approximately $22 billion, up 22% year-over-year and 24% in constant currency. outperformance was driven by outperformance from new business and strong renewals. The slack represents approximately 4.5 points of crpo growth, slightly above the 4 points provided during last quarter’s guidance. using the operating margin.

For the full year, non-accounting operating margin was 18.7%, representing approximately 100 basis points of improvement year over year. As a reminder, this includes 140 basis points of M&A headwind. I am very proud that our team has driven strong margin expansion while absorbing our largest acquisition to date. q4 eps gaap was negative $0.03, and eps no gaap was $0.84.

Realized and unrealized gains on our portfolio of strategic investments benefited gaap and non-gaap earnings per share by approximately $0.03. For the full fiscal year, EPS GAAP was $1.48 and EPS Non-GAAP was $4.78. realized and unrealized gains on our strategic investment portfolio benefited gaap earnings by approximately $0.93 and non-gaap earnings by approximately $0.98. resorting to cash flow.

I was particularly pleased with how we closed out the year, completing a historic year of cash generation. for the full fiscal year, operating cash flow was $6 billion, up 25% from the prior year. capital spending was $717 million, resulting in free cash flow of $5.3 billion, up 29% from the prior year. recent mergers and acquisitions represented a two-point hitch to our operating and free cash flows.

Excluding the impact of mergers and acquisitions, our full-year operating cash flow growth rate was 27% and our free cash flow growth rate was 31%. Now to orientation. we’re raising our first quarter revenue guidance by $130 million to $7.37 billion to $7.38 billion or about 24% growth year over year, and that’s coming off of a historically strong first quarter last year. this guide assumes a $330 million contribution from slack.

For the full year, we will increase our revenue guidance for FY23 by $300 million to $32.0 billion to $32.1 billion or approximately 21% year-over-year growth. our guide assumes a $1.5 billion contribution from slack. In addition, last week, we announced our acquisition of Pull-On-Demand, a professional services business. our revenue guidance assumes a contribution of $75 million in FY23 from traction in demand, which we anticipate will close at the end of this fiscal quarter.

Please note that offers remain subject to customary closing conditions. foreign currency has continued to be very, very volatile. To give you an idea of ​​the impact on our business, our FY23 revenue guidance reflects a year-over-year headwind of approximately $300 million FX. for the first quarter, we expect to deliver crpo growth of approximately 21%.

this includes approximately 5 growth points from slack. we expect eps gaap q1 of negative $0.05 to negative $0.04 and non-gaap eps of $0.93 to $0.94. For the full year, we expect EPS GAAP of $0.46 to $0.48 and EPS non-GAAP guidance of $4.62 to $4.64. As a reminder, note that our other income and expense guidance, or OEI, incorporates the impact of debt raised for slack.

Remember also that our IOE and EPS guidance does not assume any contribution from mark-to-market accounting. We are also reiterating our 20% ungapped operating margin guidance for FY23, which represents a 130 basis point expansion year over year. we expect between 100 and 125 basis points of m&a headwind. this disciplined approach will drive another year of strong cash flow generation.

We are starting FY23 operating cash flow guidance of approximately 21% to 22% year over year. we do not expect an ocf headwind due to lack of activity throughout the year. In addition, our guidance currently assumes a 3 point headwind of cash taxes associated with tax law changes that require the capitalization of certain research and development costs. As we continue to scale our operations, I am particularly pleased with our capex guidance for this year.

We expect capex to be approximately 2% of revenues in FY23, which is an all-time low for the business. this results in anticipated free cash flow growth of approximately 25% to 26% for the fiscal year. In closing, we believe that our differentiated and relevant technology portfolio is well positioned in a large and fast-growing market. FY22 was an extraordinary year for the company as we achieved record levels of revenue, operating margin and cash flow.

This shows that, with discipline, we can achieve profitable growth on a large scale. I am very grateful for the opportunity during my first year to meet so many members of our shareholder community, both in person and virtually, and I look forward to meeting many more of you in the years to come. now, evan, shall we open the call for questions? and bo, you can go ahead and open the line. thanks.

questions & answers:

operator

Reading: Salesforce earnings transcript

thank you very much. em. weaver. [operator instructions] again, we ask that you limit yourself to one question.

first we’ll go this afternoon to alex zukin at wolfe research.

alex zukin – wolfe research – analyst

hi guys, thanks for answering the question and congratulations on a great quarter and also a really sincere start, marc. maybe just to start with, if you think about the environment you’re in right now, you had a bigger boost in crpo. you led more, even better than people, I think, anticipated for q1. you uploaded the whole year for more.

Are you seeing, or can you comment, that there have been some reports of increased demand for customer support applications? can you set the stage and maybe just give us a bit of context on what you saw in q4? And how do you come out of the pandemic, the strength of the pipeline, the demand environment, and your ability to execute on that demand?

marc benioff – president and chief executive officer

I really appreciate the question, and it’s a question I’ve heard quite a bit in the last quarter, especially since the numbers we’re presenting are unprecedented. in many cases, I have never seen them in the software industry. For 40 years, I’ve never seen numbers like this, presented like this, at rates like this. and I think that’s why these questions are quite reasonable.

but the reality is that, in the last 2 years, what we have seen has been an incredible demand. and really, that demand is closely linked to the digital transformations that our customers are going through. our clients, it really does not matter by geography or by industry, are very committed to the digital transformations of their businesses. I think that if the pandemic clarified anything for them, it was that their businesses were not going to have a future if they did not go through a digital transformation.

And that these digital transformations, as I said in my comments, were going to start and end with the customer. I mean, I think the Ralph Lauren story is a great story because it’s a digital transformation, like we’ve seen with a lot of retailers, okay? but of course they have to go through this and not just stop what they have done. there, we are only at the beginning with that client and with so many clients. and our product line hasn’t gotten any narrower.

has become broader. and I think our acquisition strategy that has been executed, I think, very well over the last couple of years has really expanded our total addressable market so significantly that when you look at these clients, these CIOs and really the CEOs, who mainly I work every day, they see us as strategic to the future of their core businesses, which is why our relationships with them have become paramount to our company. it cannot be compared to where we were 10 or 15 years ago or, of course, when we started. but today, this relationship is that these CEOs are very much the officers of digital transformation.

I’m not telling you anything you don’t know. this is the most important thing they can do every day. and this is really very important in what we have become as our company, that we can present ourselves with our products and services and say to a great company: we have told the stories this year of at&ts, for example, or the sonorous ones that we are speaking, on this call, so many amazing clients, but without us, they wouldn’t have the growth rates that they’ve had. and it is that our growth rates are only a reflection of theirs.

but by no means on any of these clients have we completed our work. in many cases, we’re in the 10% or 20% or 30% growth areas where we’re just at the beginning of what we can do with these customers. so that’s what really excites me. and we’ve really cracked the code to build a relationship and a movement with them.

and I would really like to get bret in because, I think, especially with the slack extension. again, the painting was also really transformed. I was with a — recently, I was actually in the white house with a fortune 100 CEO and he turned to me and said, I start every day off with a slack. and this is not a customer that we have even a large sales force footprint.

and I said to myself: these acquisitions have opened many doors for us and have transformed who we are and the conversation we can have. alright bret can you continue this narration?

bret taylor – president and chief operating officer

yes. I mean, like Marc said, I think what really characterized this quarter, particularly in the fourth quarter, as you know, we have: It’s our biggest quarter, a lot of really big transformational deals. we call them multi-cloud agreements. it’s exactly how marc characterized it.

is a true trusted digital advisor relationship, where we help solve the most fundamental problems of our clients’ executive teams. and it is not something that is related to the pandemic. it is related to the systemic digitization of the economy. And that’s something that we think is a secular trend and absolutely enduring, and we see it in the demand environment.

as marc said, slack continues to exceed our expectations, and i think it’s benefiting not only from the trend towards this new way of working that we’re all discovering right here at salesforce tower, but it’s also benefiting from being a part of our 360 customer base. and you heard it in customer stories, and that’s why slack’s fourth quarter revenue was $312 million, well above our forecast of $285 million. we are really seeing the synergies both in our value proposition of our product, but also in our distribution environment. And to answer one of your other questions, we’re seeing strong pipeline in the first quarter.

And we believe that, as I mentioned, both in our transactional business and in the big deals, the projects are still very strong and we don’t see any increase in demand.

marc benioff – president and chief executive officer

and this quarter especially, we were very surprised that it continued to accelerate throughout the quarter. and I really think, we’re not talking about creating and closing and, but this idea that we’re creating and closing these opportunities in the quarter is very much the momentum aspect of the total market. I mean, how do you see, you know, the current rate of growth in the market itself, as reflected in our total product and geographic or vertical portfolio?

bret taylor – president and chief operating officer

well i think the thing that has been the most, i will say, a nice surprise was despite the inflation, the crisis in the supply chain, the conflict in europe, our customers, that is: the problems that we solve for our customers are as urgent as ever. And as you mentioned, our 360 customer base, which since you and Parker started this company 23 years ago, is no longer just about lead management. it’s really every aspect of the customer experience. and it means we’re starting conversations across departments at each of our clients and have an opportunity to really expand –

marc benioff – president and chief executive officer

if they are not digitized, they will not grow.

bret taylor – president and chief operating officer

exactly.

marc benioff – president and chief executive officer

If they don’t implement these products, they won’t grow. I think they also had a discussion with a lot of these CEOs, well, they’re all coming back. no, they are not. well, everything is back to how it was before.

no it is not. and I think now, even some of the CEOs took these really tough positions. they’re like, ok, let’s have a flexible work environment. and the slack is obviously right there, in the middle of that movement.

bret taylor – president and chief operating officer

and it’s in the middle of every one of our conversations with clients, so I think it’s one of the most exciting acquisitions we’ve ever made.

marc benioff – president and chief executive officer

and it was critical that we did it at the time because it’s like setting up the future of work combined with no. 1 crm.

bret taylor – president and chief operating officer

absolutely.

marc benioff – president and chief executive officer

good. it’s okay. thanks for the question.

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Reading: Salesforce earnings transcript

thank you. let’s go next now to keith weiss in morgan stanley.

keith weiss – morgan stanley – analyst

thanks for answering the question guys and congratulations on a really nice ending to fy ’22 and really gave us a lot of confidence about the durability of growth with that guide fy ’23. I had a question for Amy on the sidelines of the equation. bret told us about kind of a short-term hiatus at m&a while you guys focus on integrating slack. but at some point, salesforce will go back to making m&a bigger, as it should be.

should be a strategic tool that you use in the future. With slack, you have been able to continue to grow operating margins despite digesting a large acquisition. is this something you think you could do in the future when you do additional big mergers and acquisitions? Is the sales force now at scale and do you guys have the efficiency muscle toned up enough that you can do big M&A and still get this 125, 150 bps year-over-year margin expansion?

amy weaver – president and chief financial officer

great. Keith, thanks for the question. it’s good to know about you. so I appreciate the questions and the focus on operating margin.

I am very proud of what the company has done over the past year and what it is planning for this year. As you know, last year we were able to expand 100 basis points even against what was significantly, to a significant extent, our largest acquisition. and this year we intend to go up another 130 basis points while still having some hurdles. In terms of the future, as bret said, large strategic mergers and acquisitions is something that we are not focused on in the short term.

We’re really focused on slack and making slack as successful as possible for all of our stakeholders and for this company. In terms of what we can do going forward, I certainly think we’ve learned a lot about how we integrate companies and what we can do in terms of operating margin pressures on that. and certainly, it would be a goal to learn: to get to the point where we would not have to assume any kind of degradation of our margin through m&a.

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Reading: Salesforce earnings transcript

See also: How Stitch Fix markets itself – Modern Retail

thank you. We accept our next question now from Phil Winslow at Credit Suisse.

phil winslow – credit suisse – analyst

Thank you for answering my questions and congratulations on a great end of the year. bret, you said that the sales force is becoming more strategic for the c-suite, just with its footprint getting bigger. so my question is: and marc as well, and even gavin, when you talk to clients, what are they telling you, call it, not just the breadth of the crm portfolio, but also now the depth of the vertical tech stack? when choosing sales force versus, say, point vendors, especially given the advantage we saw in slack this quarter. thanks.

bret taylor – president and chief operating officer

well i’ll start and maybe pass it on to you, gavin, to talk about some of the conversations you’re having with customers. fundamentally we talk about our strategy in customer 360, and that’s really the end-to-end customer experience in sales, customer service, digital marketing, digital commerce and the foundations and platforms you need to power that, in mulesoft and tableau . and slack. And I think when we talk to the CEO, I think when we talk about profit from customers like Ford, Geico, Mercedes-Benz, and PayPal, they’re really trying to figure out that end-to-end digital customer experience. and point solutions don’t get them there.

Point solutions essentially mean that your IT department becomes software development workshops. what they want is to digitize the experience of their customers. they want to do it quickly, and they want to do it with a fast time to value and a high return on investment. And I think because of the integrity of our portfolio, we’re really the only software company that can deliver that experience to our customers.

and I think that’s really our differentiation: we come with the full 360° client portfolio instead of just a point solution. And I think that led to, not only our ability to compete on new accounts, which was a significant part of our growth last year, but also, as Marc mentioned, as we expand our relationships with our clients, they know that they can trust us to truly build a single source of truth and achieve the business goals and growth formula you need in this new economy. Gavin, do you want to put some color on that?

gavin patterson – president and chief operating officer

well i would probably say two or three points bret. I mean, first and foremost, digital transformation has become a priority for the CEO. I want to say that this is one of the changes of the last two or three years. it is no longer delegated to the IT department.

It’s one of the top three priorities for the CEO because they realize, and we’ve already talked about it on the call, without a digital strategy, they don’t have any strategy. so they have to own it. so it’s a conversation we try – it’s on top of the house. i think when it comes to customer 360, and based on bret’s comment, what we often find is that what they like about our customer 360 is maybe they’ll start with sales cloud and then add service, add analytics, add commerce .

and so they build it as they go. so they may not necessarily buy everything to start with, but they know we have a solution for them as they expand and want a more comprehensive view of their customers. and the example I gave is – Sanofi is a great example of this. we started with health cloud and services cloud and then we added consumer goods cloud, tableau crm, b2b commerce and completed cloud over the last 12-18 months.

and then I think the last thing I would say is that industries are: and the verticalization of our business is a theme that has been growing in recent years. I mean it started a few years ago, but, and in fact, we started with financial services. we’ve added health cloud, consumer goods, as I mentioned earlier, retail. the list goes on.

And why do customers and CEOs like this? well, they buy a product that has many of the standard features you need within an already integrated industry. and that means they pay a little more for it. it’s a bit more expensive, but in exchange they get a product that has a quicker time to value. And that’s the key CEOs are looking for.

How do I get a refund quickly? I want a return in months, not years. And that’s what many of our industry cloud services offer out of the box.

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Reading: Salesforce earnings transcript

thank you. and ladies and gentlemen, we have time for one last question this afternoon. We’ll answer that question now from Tyler Radke at Citi.

tyler radke – citi – analyst

Hey, thanks for having me. Marc, I wanted to know your opinion about the valuation that exists in the software market. obviously, I come quite a lot since the last call. how do you think about that when you approach m&a? and obviously with valuations that are down so much, does that change your philosophy or framework a bit on how you approach trading given a higher interest rate and the type of calculation? thanks.

marc benioff – president and chief executive officer

well, we’ve certainly seen the software industry contract, and I think it’s probably best reflected in that etf. I watch it very closely, igv. and I think when you look at it in general, it’s kind of a precipitous drop, which we’ve seen happen many times in the last 20 or 30 years. It’s unprecedented, but it happens, and that’s where we are now.

As far as the change in the merging and merging environment goes for us, we’re still looking at tactical merging and merging. but really, since we made a big decision over a year ago to acquire slack, it became our most strategic initiative in the company. and it will take us a long time to digest this acquisition. Obviously, we also have other parts of our portfolio that we’re keeping an eye on that require a lot of our focus and making sure our entire portfolio works for our investors.

so I don’t really see us doing any sort of strategic acquisition for a while until we can get down to business and say we’ve done a great job. bret, what’s your perspective on that?

bret taylor – president and chief operating officer

yes. and I think you express it well, marc. us, right now, us, our focus was on integrating slack and running with the wallet that we have. and I don’t see any material merger anytime soon.

marc benioff – president and chief executive officer

I think really the key point for us and how we look to run our business and deliver value to you, our investors, is that we’re delivering a portfolio of products. We are not an ETF by any means, but we are a selection of some of the biggest products in the software industry. even our service product, if you look at it as an absolute business, it’s probably the biggest service product in the industry. it has a tremendous growth rate.

He has a tremendous leadership position. analysts classify it and look at it uniquely. we pay a lot of attention to it. so while we manage our portfolio here at salesforce, we consider service as part of that.

and we’re focused on making sure that’s the highest, most innovative level of customer success you can have. and also, it’s been transformed many times since we introduced it, not that different from our sales product, not that different from what we’ve done with our commerce product, where we’ve completely rewritten it and now it works as a platform, like kind of what we call a headless commerce or api architecture. slack is now part of our portfolio. tableau is part of our portfolio.

mulesoft is part of our portfolio. and many of our – these new and exciting vertical opportunities. We saw a lot of excitement and interest around our sustainability cloud this quarter. many customers realize they need to get to net zero now, and will need to do some carbon accounting.

They will have to do their type of report and carbon certification. and we’re looking at net zero cloud or security cloud as well as growth capabilities for us. and each of these components in our portfolio, bret and I go through piece by piece to make sure it works. and of course, the geographies, each geography is an important part of the portfolio.

I’ll kind of tell you… excuse me for one thing. one of the areas where i spent a lot of time to make sure we are highly competitive and successful was japan. but i haven’t been able to go to japan in a couple of years. so now it’s like the pandemic is coming to an end.

I really want to go back there. For me it is very important to get there. I haven’t really been able to work on many parts of our Japanese business. our CEO has done a fantastic job, koide-san.

he’s amazing. he has a new office. my close friend, yoshiki, was in our office. he was very jealous.

I haven’t even been to our new office, which is on the grounds of Japan’s Imperial Palace, the largest office building ever given to an American software company. we are very proud of that fact. and i don’t know, bret, how do you see this part of our business today?

bret taylor – president and chief operating officer

I think that’s a great way to end the call, marc. I think the strength of the portfolio is really the issue. I think one of the things that stood out to me most in terms of performance is the strength of our core businesses. like you said our core business of sales and services i think its fitting that it comes out on our 23rd birthday that cloud of sales 23 years later continues to grow at 17% and over $6 billion in –

marc benioff – president and chief executive officer

It’s amazing. it’s really unprecedented in the software industry that you would see something after two decades offering such a rate of growth.

bret taylor – president and chief operating officer

it is. and I bet there are some analysts on the call who have been covering you and this company ever since, and I doubt any of them figured –

marc benioff – president and chief executive officer

everyone got the wrong size

bret taylor – president and chief operating officer

we all have –

marc benioff – president and chief executive officer

not just them. I’m right there I couldn’t – I can’t believe it. he’s doing – it’s $6 billion on the way to, I don’t know, 10 – I have no idea what he’s going to do.

it’s amazing.

bret taylor – president and chief operating officer

And I think the strength of our portfolio is why we’re committed to this path, why we’re not looking for material M&As anytime soon. and I think it really reflects the execution of the gavin team and really the entire company.

marc benioff – president and chief executive officer

and we have such a rich and deep portfolio and so many –

bret taylor – president and chief operating officer

exactly.

marc benioff – president and chief executive officer

I agree. amy, anything you want to say before we wrap this up?

amy weaver – president and chief financial officer

no, I think this was fantastic. once again, what pleased me most about last year and where we’re headed this year is simply superior performance in top line revenue, bottom line and cash flow. And being able to show that we can do all three and continue this with discipline just sets us up wonderfully for the rest of the year.

marc benioff – president and chief executive officer

Gavin, is there anything you’d like to discuss before we end the call today?

gavin patterson – president and chief operating officer

Just to say, look, it was a banner year and we kept it up with a banner quarter, but there’s no sign of that slowing down as we go into this fiscal year. We are very confident in the coming year. the pipeline is really strong across all geographies, across all products, and that’s why we’re raising our guidance. so we are entering this year with a very high degree of conviction.

marc benioff – president and chief executive officer

Well, I think that’s well said. And I’ll tell you, we spend a lot of time with our investors. I know yes, and I know we spend a lot, a lot of them are portfolio managers. they are running a full portfolio, which is how they are trying to get a return on their investment.

And the more time I’ve spent with them, I think they’ve influenced me and how I run our business here. and I think we are in that same perspective, and we also want to offer an outstanding return to our investors. Thank you so much for everything. and our hearts and thoughts and prayers go out to everyone who is going through these difficult times right now.

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Reading: Salesforce earnings transcript

[operator signature]

duration: 61 minutes

call participants:

evan goldstein – senior vice president of investor relations

marc benioff – president and chief executive officer

bret taylor – president and chief operating officer

gavin patterson – president and chief operating officer

amy weaver – president and chief financial officer

alex zukin – wolfe research – analyst

keith weiss – morgan stanley – analyst

phil winslow – credit suisse – analyst

tyler radke – citi – analyst

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all earnings call transcripts

See also: Sales Growth Meaning | Stockopedia

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