Salesforce, Inc.

Welcome to Salesforce fiscal 2021 first quarter results conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Mr. Evan Goldstein, Senior Vice President of Investor Relations. Sir, you may begin.

Thanks, Josh. Good afternoon, everyone. and thanks for joining us for our fiscal 21 first quarter results conference call. I'm Evan Goldstein, Senior Vice President of Investor Relations. Our results press release, SEC filings, and a replay of today's call can be found on our IR website at www.salesforce.com slash investor. With me on the call today is Mark Benioff, Chair and CEO, Mark Hawkins, President and CFO, Brett Taylor, President and COO, Gavin Patterson, President and CEO of International, Brian Millam, President, Customer Success Group, and Amy Weaver, President and Chief Legal Officer. As a reminder, our commentary today will primarily be in non-GAAP terms. Reconciliation, non-GAAP results, and guidance can be found in our earnings press release. Some of our comments today may contain forward-looking statements that are subject to risks, uncertainties, and assumptions. In particular, our expectations around the impact of the COVID-19 pandemic on our business, Results of operation and financial condition and that of our customers and partners are uncertain and subject to change. Should any of these materialize or should our assumptions prove to be incorrect, actual company results could differ materially from those forward-looking savings. A description of these risks, uncertainties, and assumptions and other factors that could affect our financial results is included in our SEC filings, including our most recent report on Form 10-K. With that, let me hand the call over to Mark.

Okay, thank you so much, Evan, and thank you, everybody, for being on the call today. I hope you and your families and colleagues are all healthy and safe. We're in a moment in time. Anything, any of us, well, that we've ever experienced, and, for instance, usually I'm speaking to you from the top of Salesforce Tower, but today I'm speaking to you from my home, as I suspect many of you are in your homes as well. It's another reminder of how the pandemic has dramatically affected all of us, our customers and our humanity in ways that we could have never imagined. And my heart is with everyone who has been affected by this virus, especially those who have lost loved ones. This pandemic is revealing the culture and the core values of every company. And those of you who have followed us closely know that Salesforce has always been deeply committed to serving all of our stakeholders. While we have really lived this for two decades, and especially over the last 90 days, the foundation of our company is our four core values, trust, customer success, innovation, and equality. And first and foremost among these is the trust that we have with all of our stakeholders. The story of our first quarter is very much the story of trust. Salesforce and our Ohana, rapidly taking action to embrace and invest in all of our stakeholders. Indeed, our financial results for the first quarter reflect the unprecedented long-term investment that we've made in our employees, in our customers, and also our communities. And as our fiscal year began, we were coming off an amazing fourth quarter. It capped off another record year for Salesforce. And February, the first month of our first quarter of fiscal year 21, though this continued an amazing growth trajectory. By mid-March, of course, and all you know, the virus emerged into this global biological and economic crisis for the company to address three priorities in support of our stakeholders. Keeping our employees healthy and safe, guiding our customers to navigate this incredibly challenging situation, and supporting our communities around the world. We view this pandemic in three phases. The first 90-day phase has been about rapid response and investing in all of our stakeholders. We're now entering the second phase, reopening safely. And the third phase, which we believe we'll enter next year, will be about a new normal. And I want to spend a few minutes on the actions we took during the first quarter and phase one. First, we've invested in our employees, their health, their well-being. Well, this remains our highest priority. We closed 160 offices around the world in a moment's notice, guided all of our 52,000 employees to work from their homes. We settled in remote work situations. And with our amazing Salesforce, it's extremely smooth. Salesforce very effectively anywhere, even from our homes. And we found the overall situation was taking its toll. on many of our employees' mental health as they sequestered into their own homes, as it has been for many people all over the world. And so we invested in mental health and mindfulness programs to help them. Our core program, Be Well Together, which was initially just designed for our employees, well, we've had to open that up publicly to all of our customers, well, the whole world, because of public demand. We also invested in our employees' financial stability. We committed to no significant layoffs for the first 90 days of the crisis. And in late March, we also gave certainty to our sales team with a one-time guaranteed commission for the first quarter, which we knew would close at the height of the crisis, giving them tremendous confidence in our ability to take care of them. This was a critical investment in the long-term success of our amazing distribution organization. And we invested in our communities. In early March, we were asked by Sam Hoggett, the chancellor of UCSF to help him acquire PPE. UCSF was already running low on PPE. Chancellor Hoggett was looking for ways to protect his doctors and nurses and other frontline workers. But back then, I have to tell you, I didn't even know what PPE was. It turned into a much larger and more critical effort almost overnight. And as we received many requests from hospitals, nursing homes, essential businesses, The CEOs of some of our largest customers calling us in dire need. Well, in partnership with UCSF, we helped acquire and distribute more than 50 million pieces of PPE to over 300 hospitals and first responders globally. And just one example, Salesforce sent a 767 loaded with PPE to New York City at the very height of the crisis. Masks and gloves and aprons that we acquired, well, they were immediately delivered to the state distribution hub at Chabot Center. And I'm deeply grateful for our relationship with Daniel Zhang, the CEO of Alibaba, who helped get this started and make sure that we got the PPE that we so badly needed in this year. You know, at the same time, we've donated funding, employee volunteer time, services to those most in need, focusing on access to care, lost livelihoods, food insecurity, and the digital divide. This pandemic has exposed deep structural inequalities across our society that we can't ignore. We can see that on TV. TV right now. But at Salesforce, our core values include our commitment to the equality of every human being. And this will be part of our work going forward as it has been for all of us. Look, we also invested in our customers actually quite dramatically. Even with our employees working from home, our culture of innovation continues to thrive, employing new products to help customers at this critical moment in time. I was especially inspired by the productivity of our incredible engineering organization. In talking with CEOs all over the world, it became apparent very quickly that many were looking to Salesforce to help them guide through these unchartered waters. Companies were working from home, leaders had little visibility in their businesses, no way to easily connect with their remote employees, customers, or partners, and they turned to Salesforce. For some of our customers most severely affected by the unprecedented impact of COVID-19, we even granted them a temporary financial flexibility. We also created free rapid response Salesforce care products to help companies work, to sell, to service, to market from their homes. And we've already had more than 38,000 signups for Salesforce care led by versions of Salesforce Essentials and Salesforce Quip. That's been amazing. Our Salesforce care industry solutions for healthcare and manufacturing, well, they provided and proved to be crucial for many companies. They're scaling up services. They handle increased demand for patient management, pivoting to much-needed PPE, ventilators in their factories. You know, Tableau, well, they were amazing. They built this incredible free analytics platform, the Tableau Data Hub, tracking the virus and being used by dozens of U.S. firms. You can see it at public.tablo.com. And, you know, with Tableau Data Hub, New York State posted a set of Tableau dashboards that provide testing and confirm case data. And that data is also used by Governor Cuomo during his daily briefings. We're able to do all this because our Salesforce platform provides the agility, the flexibility, the speed, great solutions, not in months or years, but in weeks, even days. And with everyone sheltered in place, we saw tremendous growth also in our commerce clouds, weekly order volumes, and our Einstein bot sessions, both that were up more than 100% since February 1. Einstein predictions increased five times over this time since last year. We also had an amazing job is happening, pivoting from physical events to virtual events. We developed an online leadership program called Leading Through Change. It's had over 75 million views so far. Incredible. The program highlights the work our customers have been doing during this crisis. It gives them inspiration and guidance and also shows them Salesforce solutions that are available to help them get their jobs done. It's included phenomenal speakers like the CEO of Starbucks, Kevin Johnson, and and also the CEO of Accenture, Julie Sweet, and many more. And as the virus continued to spread throughout March, Governor Gina Raimondo of Rhode Island, Gina's amazing. She needed a way to manage her critical contact tracing, which would enable her state's health to spread and isolate anyone exposed. So this became... An opt-in manual process with a citizen can report that they've been tested for COVID-19 and identify anyone else. They've contacts can be notified of their potential exposure to the virus and isolate themselves. And Governor Raimondo inspired us to build an app that managed this process and scale efficiently and reliably. We're on the phone with her many times. And so we did it in just a few weeks on the Salesforce platform. And in addition to Rhode Island today, we're now helping more than 30 states reduce the spread of COVID-19, including Maryland and Massachusetts, Kentucky, Louisiana, California, and great cities in our country like New York City and other countries too. So this is an incredibly important effort. We're developing the contact tracing apps for Rhode Island. We saw we need to deliver several products now to mitigate the spread of the virus, and we needed to do it rapidly. not only for our public sector clients, but for commercial clients as well. Customers are asking for automation to facilitate the return to work safely, including the contact tracing, shift scheduling, workforce assessment, a command center for the crisis. And this was the genesis of our Work.com platform, which has rapidly become a significant part of our public sector pipeline. And actually, we've been hugely surprised. And while all of this was happening, we also delivered $4.87 billion in revenue. We delivered $1.86 billion in operating cash flow. Now, that was down slightly year over year to many of the actions that I just reviewed in response to the pandemic. And as I mentioned earlier, we also provided some customers temporary financial flexibility. We also incurred some incremental business expenses, such as the one-time commission guarantee for our sales team that I mentioned. We expect these expenses to be largely, or I would say, wholly encapsulated in the first quarter. You know, we have great confidence that our investments, we already see it in our employees, our customers, our communities in the first quarter. Well, they're benefiting us. They're benefiting us now in the short term, the long term, with tremendous strength and tremendous growth. And for the fiscal year 2021, we're updating our guide of approximately $20 billion representing 17% projected growth year over year. And we believe this guide is very appropriate given the current biological and economic environment worldwide. Our ability to execute globally with speed through the adverse conditions of March and April, well, I'll tell you, that gave us tremendous confidence. We can operate successfully in any environment at any time. It was incredible. We demonstrated that we have the ability to innovate and meet rapidly changing customer demands and needs under any circumstance. And the last few months affirm the strengths we have in our amazing customer relations. We can innovate and scale and operate across different industries and geographies, companies of all sizes. And with Customer 360, the most complete CRM product portfolio information of any company. I was excited to see in the quarter, and for the seventh year in a row, IDC has ranked Salesforce as the number one CRM. We gained more share in 2019. And we're now seeing continuous improvement in our pipeline month to date. But we've been really surprised. And our pipelines for the second quarter have been strong. I've been on more sales calls with more COs in the last two months than at any time in my career, and there's universal agreement among them. Digital transformation, well, this isn't a want-to-have. It's a must-have. Companies and organizations and governments around the world have a digital transformation imperative like never before, and many are accelerating their plans for digital-first, work-from-anywhere environments. For example, in Q1, we signed an incredible and extensive deal with AT&T with the vision of AT&T Communications CEO Jeff McElfresh, an incredible executive, somebody who's just been completely inspiring to me. Well, AT&T is moving to a highly accelerated digital-first world to deliver the most amazing 5G service with an incredible connected experience for their millions of customers and subscribers across every customer touchpoint. And this includes their media properties, such as DirecTV and HBO and Turner Sports and more. But with Salesforce, AT&T will further extend this vision of a single view of their customer, single source of truth, really. With every customer touchpoint federated on Customer 360 across retail sales and call centers, on messaging and online and in-home service and more, you know, only Salesforce could do that. Every customer touch point, the AT&T truck pulls up to my office or my home, that's going to be Salesforce. And I walk into the AT&T store and that's going to be Salesforce. And I'm getting an email from AT&T, that's going to be Salesforce. And I'm on the phone with the AT&T call center, that's going to be Salesforce. And we're going to make sure that they understand have that customer 360 enhanced. And I'll tell you, when we're integrating all that data, well, MuleSoft, it's going to connect AT&T's different backend systems. Tableau is giving them the ability to understand customer preferences. Einstein is going to help them serve more intelligent recommendations and root service cases. You know, I was on the phone just yesterday with Jeff McElfresh reviewing the incredible progress of the project. And it was clear to me, this is going to empower AT&T to drive more value and build stronger relationships with every customer. And we're going to begin deploying this with Jeff and his team to AT&T's employees very, very shortly. Our goal is by the end of July. And then to tens of thousands of users in the third quarter. We're thrilled to have also significantly expanded our 15-year partnership with Standard Bank Group, the largest bank in Africa. It operates across 20 markets. It's an incredibly important bank to the African economy. Standard Bank is going to leverage the full power of our Customer 360, including the Financial Services Cloud, the Commerce Cloud, Marketing Cloud, MuleSoft, and Einstein, to provide that single view of the customer, to build personalized customer journeys and deliver amazing client experiences and retail banking across all channels. And one of the livelihoods of Zion's bank customers who are threatened by COVID-19, well, The Utah-based bank turned to Salesforce and Customer 360 to virtually support a high volume of loan requests. They're using our customer communities and our service cloud to facilitate conversation with customers, automate applications processes, provide tracking and visibility to customers waiting for their loans. Zion's bank stood up its loan application portal in seven days, even though it's the 38th largest bank in the U.S., It became the ninth largest distributor of SBA payroll protection program funds in round one using Salesforce's Customer 360 platform. You know, one of our ISV partners in SENA, well, they built an end-to-end solution for federal SBA CARELAC loans for small businesses all on Salesforce, and it processed more than $35 billion in loan applications for its banking customers, including KeyBank, Iberia Bank, the world's largest credit union, the Navy Federal Credit Union, all running on Salesforce Customer 360. And one of the unique aspects of COVID-19's crisis has been deepening our ties with the local and federal governments around the world. But public sector action has never been greater. I mean, I can't believe how many phone calls I've been on with governors. You know, in the public sector, a number of our government customers, you know, agencies, if you will, they chose Salesforce on the quarter. to begin helping them address COVID-19-related issues, including some of the very largest federal agencies. At the state level, we found the Office of Emergency Services. You know, they implemented Salesforce to create the Public Health Ordering System, an application that helps the state leverage data to urgently needed public health resources across California-improved customer service. They did it in days. And the U.S. Census Bureau, well, they expanded their long-time relationship with Tableau. As the agency's data analysis and visualization platform of choice, Tableau partners with the Census Bureau on mission-critical data applications in support of the 2020 Census and beyond. So important. Internationally, we also had an incredible deal with Commonwealth of Australia, where we partnered with the National Disability Insurance Authority to deliver an improved experience for more than 500,000 participants that are predicated to access disability support by 2025. Those are some of the highlights from Q1. Now looking ahead, as much of the world is beginning to move now into phase two, like we like to call reopening safely. You know, our work.com platform is going to become a, well, it's going to fill a huge unmet need. Step by step, we're seeing the economy is starting to come back to life. Salesforce is also beginning to reopen its offices, first throughout Asia. It has to be done safely. It's got to be done responsibly. And it's going to be a complex process. In the new normal, businesses are going to have a new lifestyle, a new lifestyle of math, a new lifestyle of taking people's temperatures and enforcing social distancing standards, a new lifestyle of testing and contact tracing, and a new lifestyle of wellness assessments to mitigate interaction with the virus. You can see some of the photos on my Twitter feed of our employees. just 90 days ago. We're going to need a command center to monitor return to work readiness. They're going to need shift scheduling because businesses are not going to bring everyone back at once. They're not all coming back at once because you're going to need social distancing. And you're going to need tools for emergency response management. And you're going to need expert perspectives from renowned experts because this is changing on a regular basis. And from our incredible ecosystem, and tools and workforce reskilling. Well, we've bundled all that in to this work.com suite. You can see it at work.com. You can see what we built, how we're starting to roll it out, who our partners are. It's a platform for enabling our customers to reopen safely. And it's because it's built on our customer 360 platform, we're able to spin up this entirely new generation of apps in a matter of weeks. Amazing. And I just have to give credit where credit is due. to Governor Gina Raimondo of Rhode Island. It was her call to us early on in the crisis that inspired us to build work.com. She was the visionary that said we need information technology to mitigate what's happening with the virus until we have a vaccine. Well, I'll tell you, at times, even though we have nearly 52,000 people at Salesforce, Creating Work.com felt like many of our early startup days with the speed and scrappiness, the laser-focused execution of our management team. It was, you know, this was the best I've ever seen Salesforce. And we're already returning, you know, to work. We're starting to see the return on this investment now. It's amazing. In a very short time, Work.com has generated an enormous interest from businesses and governments at every level, from our partnerships. And with Work.com, Well, we've deepened those partnerships with the world's largest systems integrators, including Accenture and Deloitte and PWC and IBM. And many of our partners are now building solutions on work.com as well. You know, it's incredible to see what they've done with risk management and compliance and business continuity. And just yesterday, Workday announced that it's going to integrate its employee data directly into work.com to make it easier for employers to centralize critical data and get their businesses up and running again. We've enabled and trained all of our salespeople worldwide to be able to talk to our customers about how to reopen safely with Work.com. I've been thrilled. And I'm so thrilled also, especially in my Workday partnership with Anil. Well, that's just an amazing company and to make Work.com even more valuable to so many of our joint customers. So thank you, Anil, for that. You know, in the months ahead, I expect Work.com's ecosystem to rapidly become even more robust with even more relevant solutions. I've had so many of our customers contact us on how they can integrate their own products into Work.com. That's so cool. And as we move deeper into Phase 2, Work.com is going to become extremely important to all of our customers. We've learned from this crisis, just as we have every time we've been faced with major challenges, well, We saw once again how our values create value. We've seen how our agility and our beginner's mind has enabled us to quickly pivot and take action. And we made investments during Q1 to confront this once in a generation calamity, focusing on our employees, delivering relevant innovation for customers and supporting our communities with PPE and grants and technology. Well, we could do all this because of the proven strength and sustainability of our extraordinary business model and our extraordinary technology and our extraordinary Ohana. We know that when we invest in all of our stakeholders, we're building the trust, the relationships, the innovation, and our business for the long term. Pandemic has shown that digital is the lifeblood for every organization, whether you're a public sector, state, country. or whether you're a commercial organization or a nonprofit or an NGO. The new normal phase three, it's going to require organizations of all sizes, shapes, geographies. Well, everyone's going to have to adopt new ways of conducting themselves and especially their customer relationships, especially their sales and service, especially their marketing and commerce, and especially new ways of collaborating and re-skilling workers You know, every company is going to have to digitally transform. Fortune's recent survey of Fortune 500 companies found three-quarters of CEOs, well, they believe this crisis is going to force their companies to accelerate their technological transformation. I mentioned Jeff McElfresh of AT&T. Well, he's the first one who said that to me. He was the first one who got on the phone with me and said, we're going to accelerate our digital transformation at AT&T. And I believe that Salesforce has never been more relevant or more mission critical to more organizations. No one is better positioned than Salesforce to accelerate out of this crisis and bring customers into the new normal. Now, before I turn it over to Mark, I want to make sure you've heard that Gavin Patterson, the former CEO of BT Group and our current President and CEO of International, will be our new President and Chief Revenue Officer, august 1st and you've already heard of one of gavin's amazing deals and i hope he'll talk about that later on the call but i'm so thrilled to have gavin as a member of the team you know he's just an amazing executive we've been friends for many years and he's already had a huge impact on our company and on our management team and i could not be happier for gavin but i couldn't be happier for salesforce and all of our ohana they were able to have his experience and his capability as part of our organization. And with that, I'll turn it over to you, Mark.

Okay, well, thank you, Mark. And before I begin, you guys, I want to express my thoughts and my best wishes for everyone's safety and well-being during this historic time. I'd like to focus my remarks on providing additional disclosures and commentary on the company's response to the COVID pandemic and our updated fiscal 21 guidance. As Mark said, our actions in Q1 We're focused on investing in our employees, our customers, our community in response to COVID-19, and preparing for a post-pandemic future. We continue to believe that values drive value, and these Q1 investments and all of our stakeholders will result in long-term equity. We want to provide visibility into how our actions in response to COVID-19 affected our financials in Q1, as well as our updated guidance. I'll begin with a top-line commentary. Revenue for Q1 was $4.865 billion, up 30% over last year. We saw good revenue performance by cloud. Sales cloud grew 16%, approximately four points from significant M&A. Service cloud grew 23%, with two points from significant M&A. Platform and other grew 62%, with 35 points from significant M&A. And marketing and commerce grew 27%, with four points from significant M&A. Additionally, we had strong year-over-year revenue performance by region in constant currency. Americas grew 29% with 11 points from significant M&A. EMEA grew 41% with 12 points from significant M&A, and Asia-Pac grew 28%. Additionally, we were pleased to have maintained a revenue attrition rate of less than 9% at the end of the quarter. In fact, This is actually down year over year and in line sequentially. This speaks to the diversity of size, industry, and geography within our customer base, as well as how mission critical our products are to our customers. As always, we continue to monitor this metric closely to determine how the COVID pandemic may impact our customer base going forward. Our performance, our remaining performance obligation representing all future revenues under contract ended the first quarter at approximately $29.3 billion, up 18% over last year. And as a reminder, this metric includes both new business and renewal contracts. In Q1, these contracts were approximately three months shorter in duration on average compared to Q1 of last year. And we believe this is a result of the COVID pandemic, and we expect this to normalize in the future. Please note that the contract we signed with AT&T entirely resides in non-current portion of RPO, as our updated revenue guidance assumes there's no contribution from AT&T in FY21. Our current remaining performance allocation, or CRPO, which is all the future revenue that is under contract and is expected to be recognized as revenue in the next 12 months, was approximately $14.5 billion, up 23% year-over-year. Turning to EPS and operating margins. Q1 GAAP EPS was 11 cents, and non-GAAP EPS was 70 cents. And there are a few items I'd like to discuss as they pertain to the Q1 objective of investing in our employees, our customers, and our community in response to COVID-19 and preparing for the future, which we believe will lead to an even stronger business and company. First, the one-time partial commission guarantee discussed earlier was approximately $140 million. As a partial commission guarantee makes it not eligible for capitalization, this expense will reside in Q1 and not in the future periods. Given how sudden and severe the pandemic arrival was in March, we chose to take powerful action to care for our employees through this crisis. Second, due to the cancellation of our physical events this fiscal year in favor of virtual experiences, all event contracts that included cancellation fees for fiscal 21 commitments were expensed in the quarter. This amounts to approximately $65 million. We are working with these vendors to renegotiate these contracts as we pivot to digital virtual experiences, which means we could see some partial reversal later in the year. Thirdly, we incurred approximately $25 million in one-time lease impairments due to vacating and subleasing offices that will likely return below market rent due to the COVID pandemic. And finally, we prioritized caring for our community by donating approximately $20 million, which came in the form of PP&E and cash grants. These unique and mostly one-time variable items were partially offset by approximately $75 million in savings, largely from T&E, due to shelter-in-place orders. The net of these items created approximately 350 basis points of headwind to operating margin compared to our expectations in the quarter. Regarding our strategic investments, we recorded approximately $192 million in realized and unrealized gains. This was driven by significant realized gains on the sale of public securities, partially offset by unrealized losses within the investment portfolio. Turning to cash flow, operating cash flow was $1.86 billion, which was largely impacted by delayed payments from customers while sheltering in place, and some temporary financial flexibility that we granted to certain customers that were most affected by the COVID pandemic. We expect to collect the majority of the balance this year and do not expect this to have an impact on our full year cash flow. In addition, we previously described this partial commission guarantee also created a headwind to our operating cash flow. Should we not have incurred these items above, our Q1 growth rate would be consistent with historical rates. CapEx for the quarter was $323 million, leading to free cash flow defined as operating cash flow less CapEx of $1.54 billion, down 15% year-over-year. Turning to guidance for Q2 and fiscal 21, revenue is now expected to be $4.89 billion to $4.90 billion in Q2 and approximately $20 billion for the fiscal year, the latter which continues to include $50 million contribution from Velocity, which is expected to close on June 1st. There are two important assumptions reflected within the guidance that stem from our assumptions that the IT spending growth normalizes next year, which we believe to be appropriately conservative and consistent with our learnings as we successfully navigated through the great financial crisis. First, our guidance assumes our revenue attrition rises from less than 9 percent now to less than 10% temporarily for the rest of the fiscal year. Second, the guidance reflects the adjustment to incremental new business expectations that we made due to the COVID pandemic. Another important consideration when thinking about our FY21 guide is the magnitude of the above when applied toward term license products. As a reminder, the term license revenue product typically records approximately 50% of the contract's TCV immediately to revenue with the remaining balance recorded relatively over the contract term. This accounting treatment can create uneven revenue trends between fiscal periods. As you saw during half two of FY20, this helped drive the revenue outperformance in those quarters. Additionally, we are pleased to have experienced improving trends within our pipeline and close rates between March through today, which leaves us incrementally optimistic about the future. In fact, April was better than we anticipated it would be when we started that month. We continue to see additional positive trends in May. For Q2, GAAP diluted EPS is expected to be minus two cents to minus one cents, while non-GAAP diluted EPS will be 66 to 67 cents. For fiscal 21, we're expecting GAAP diluted EPS to be minus six to minus four cents, while non-GAAP diluted EPS will be $2.93 to $2.95. In light of the COVID pandemic and our actions in Q1 to support our customers, employees, and communities, we expect our fiscal 21 non-GAAP operating margin to be roughly flat year over year on a percentage basis. As we prepare for the future, our outlook for the rest of fiscal 21 includes incremental discipline and prudence, especially in regards to headcount, largely due to lower employee attrition rate than planned. As always, we continue to monitor our go-to-market capacity to ensure we allocate the appropriate investments to achieve our targets both this year and in the future. For the remainder of the year, we are focused on making ourselves even stronger upon exiting the pandemic. As a reminder, our EPS guidance assumes no future contribution for mark-to-market accounting as required by ASU 2016-01. For operating cash flow, we're reducing our fiscal 21 operating cash flow guidance to 10 to 11% year-over-year growth to align with our updated revenue and margin guide. We do not expect to provide incremental temporary financial flexibility. We now expect CapEx to be approximately 3% of revenue in fiscal 21, resulting in a free cash flow growth rate of approximately 13 to 14% for the fiscal year. We expect CRPO to be approximately 16% to 17% growth year-over-year in the second quarter, which we believe is appropriately conservative and consistent with our revenue guide. In light of the uncertainty surrounding the COVID pandemic, we are reassessing our long-term revenue target for fiscal 24, and we're planning on giving an update during the investor day. To close, while the COVID pandemic was sudden and a once-in-a-generation crisis, We are proud of the investments and relationships we have deepened with our customers, our community, and our employees. We are confident our actions and these investments will lead to an even stronger business and company in the future. And as we move into phase two, we are strategically well poised with a strong balance sheet and a durable business model. We are well positioned to continue to leverage the secular tailwind to drive digital transformation. I'd like to thank our employees, our customers, our partners, our communities, and our shareholders, all our shareholders, for the continued support, and I wish to each of you and your families and your firms safety and wellness. And with that, we'll open up the call for questions.

At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. And your first question comes from Mark Murphy with J.P. Morgan. Please go ahead.

Yes, thank you. Mark, the second week of November should be an interesting one. I am wondering what Einstein might be telling you about Virtual Dreamforce 2020. Some of us on the call have attended every single one in person at Moscone Center. And so just with it going virtual, curious how you're going to maximize the impact of Dreamforce so it provides the inspiration that it's known for and also so that it drives the pipeline for Q4 and beyond?

Well, that's such a good question. And I'll tell you that, you know, of course, Dreamforce has been such an incredible part of our culture that we're all going to miss Dreamforce this year. But you may see that we've already started some amazing things online and we're getting some phenomenal feedback. In fact, as I mentioned, we've already had more than 75 million views, and I think we're going to have almost soon 100 million views of our Leading Through Change program. And I don't know if you've had the opportunity to watch or participate in Leading Through Change, but it's been incredible. And that type of virtual program, I believe, is very much going to be something that is going to be a permanent part of our culture. We've really been able to inspire our customers and our employees, all of our Ohana, including our account executives, and enable them with these programs. And while we're certainly going to miss being together at Dreamforce this year, and that's not something that, well, any of us could have imagined just 90 days ago, you know, I think that we now see a very clear path to be able to, you know, have virtual events, build pipelines, build community, build brand, create and deliver new products. And I have a lot of confidence in our ability to execute without a physical Dreamforce this year. And not just Dreamforce, by the way. As Mark mentioned, we canceled all of our physical events for this year, and we had to pay an extremely large amount of cancellation fees that all got tossed into that first quarter number. And so all those world tours and all these other amazing events, you know, we do 1,000 events a year. Well, we're just moving as many of them to the virtual programs as well. And, you know, not just the big events. There's lots of small things happening. So we've got a whole new playbook that we're executing. It's a great question. Thank you.

Your next question comes from Terry Tillman with SunTrust. Please go ahead.

Yeah, thanks for taking my question. I guess my question relates to it's great seeing the AT&T win. It seems like a great example of the digital transformation opportunities. But with Customer 360 and these larger transformational deals, Mark, maybe you could give us an update. You talked about strengthening pipeline. How do some of these larger transformational deals, how do you see that playing out the rest of the year, or is some of that business harder to come by just because it is more complex? Thank you.

Well, I'll give you the beginning of the answer. And then, you know, I've been very fortunate this quarter to have Brian Millen running our global distribution organization. He's also running it in the second quarter while we're bringing Gavin on board. And Brian's been with us for more than 20 years. Many of you know Brian. He's really been the heart and soul of our distribution culture. He's done a phenomenal job this quarter. And, you know, I think that, you know, what we see reminds us a lot of over a lot of different times in the last 20 years in Salesforce where you have to have a full portfolio of products and deals, small, medium, and large. There's an ebb and flow. You're never going to make your number on all large deals or all small deals. You have to have a portfolio of transactions and you have to have that across geographies, product segments, verticals. That's one thing I've been super proud of with the distribution organization, their ability to deliver that and then to see that start to manifest in these really strong pipelines. So, Brian, do you want to comment on that?

Yeah, Mark, I think we made the comment earlier, the strengthening of our pipeline over the last couple weeks here has been very encouraging for us. And that strength of pipeline comes in all forms, as you said. It comes from different segments of our market, different regions of our market, different products. We're very encouraged by the future, both the large deals and the small deals that we're getting done across our incredible distribution organization, so very, very encouraged as we go forward.

Your next question comes from Sarah Hindley with Macquarie. Please go ahead. Your line is open.

Yes, hi. Thank you so much for taking my question, and I hope everybody is well. You know, I guess my first question is for you, Mark B. You guys are talking about this nice pickup in the pipeline, and I'd love a little bit more color about what you're seeing that is across certain verticals, markets, products, enterprise, commercial, and then I have a follow-up from Mark Hawkins.

Well, thanks. I'm going to have Brett Taylor comment on that because he and I were just talking about that today. We've been so inspired by, you know, kind of connecting to the first question, how a lot of our programs that we put in place, and I'll tell you the four dimensions that we've been really focusing on. Of course, we have a very large-scale distribution organization. I would say it's more than half of our company. You think about that in terms of all the customer-facing organization. number one the most important thing is to get everyone especially when you move to an at-home environment is participating participation has been mission critical and that that's really where we focus what percentage of those sales and service professionals managers executives are out there and really working with customers and you know this is an unusual environment that provided an opportunity for lots of new training new kind of new ideas new programs And the second thing is to enable them with that, to train them and also introduce some of these new technologies, these products. The third thing that was absolutely critical after participation and enabling it, making sure that they have a relevant position. You know, I'm sure for many of you, as this crisis kind of unfolded, you didn't have something relevant to say. We didn't have a lot of time for you. And the reality is Salesforce became incredibly relevant to our customers, first in this poor digital transformation, and then next was really, you know, how we could provide tremendous value in reopening safely. That became the third leg of our school. The fourth leg became, you know, really critical, all the tactical plays and critical aspects of building that pipeline up. So, Brett, you've been the architect of all of these things, and can you talk to us about how you put that into place.

Yeah, Mark, thank you. You know, I think that one of the things that you said in your opening script that I'm really seeing from our customers is this digital imperative. And, you know, across the entire Customer 360, we're really seeing that play out in some of both the pipeline numbers and the adoption numbers, some of which you mentioned on the call. You know, for customer service as an example, Our Einstein Boss functionality, which provides digital self-service, which is more relevant than ever before, is up over 100% just in February. You know, really reflects that overnight digital transformation of service. Here's marketing. Einstein's doing, you know, over 12 billion predictions per day. Really represents this mass-scale digital personalization because digital is the one channel really remaining for a lot of our customers to engage with their employees. On our Commerce Cloud, GMView is up over 100% year-over-year as commerce digitized overnight. Even on industries, as Mark mentioned, you know, the small business administration loans process really came out a lot of banks overnight. We helped one of our largest banking customers go live in just 72 hours. This is all digital. It's fast. And we're really seeing that relevance point that you mentioned, Mark, being extremely important. You know, I think that every single CEO, every single CIO I talk to has the same message, which is, You know, whatever digital transformation they had left has just accelerated thanks to COVID-19. I think the digital aspects of our customer 360 platform have become more relevant than ever before, and you're seeing that in the pipeline.

Your next question comes from Derek Wood with Cohen. Please go ahead.

Oh, thanks. Question for Mark Hawkins. Implied CRPO bookings growth for Q2 looks to be in the mid-single-digit range, if I have my math right. following 20% in Q1. And obviously a lot of companies are expecting a tougher Q2, but can you just walk us through the assumptions here, whether there's any pressure points coming from contractions or turn or pushed out deals or any dynamic you'd call there? And then I know you don't guide CRPO beyond a quarter, but given the constructive commentary on the pipeline, yeah, any color can you give on how we should think about a potential recovery and CRPO bookings in the second half?

Sure. First of all, thank you, Dirk, for the question. Happy to do that. When we, for CRPO, when we look at that for the Q2, you should think about it as approximately 16 to 17% growth rate at CRPO. So I think that aligns well as we think about the revenue going forward in the current year in this temporary year of pandemic, if you will. So we think it's appropriately aligned, number one. I think in terms of the, you know, the recovery, The way we have, and you talked about attrition and things of that nature, I just want to be clear that we're actually very pleased in the sense that our attrition actually went down year over year in Q1. And, you know, so from that standpoint, I think it's good. I think what we've tried to do is be appropriately conservative, having, you know, going through this pandemic, to assume that it would go up some. And we call that out. You know, it still would be, we would expect that to be a temporary nature, but we said for the fiscal year it would be less than 10%. up some, and that's partly based on the learning from the great financial crisis. Heretofore, we were very pleased to see what happened in Q1, but that's a little bit of color. We had to make a call and, you know, kind of really make sure that we're dialing this in in light of the uncertainty that's out there. So I think that would be something to think about. In terms of, you know, the recovery itself from an IT spending standpoint, you know, we think that, you know, if you, you know, were expecting a recovery and FY22, which begins for us in February. Could it be sooner? We see companies that are doing that. That's just what we're trying to do, and we think it's appropriately conservative. And so that informs us in terms of how we think about the demand environment. But one thing we learned for sure in the great financial crisis is take a good look at what's going on, see the temporary situation, and then we remember how we navigated through it very successfully and on back to our future. And we really see that in this particular case, that this is a point in time amongst a much bigger opportunity that we all know about, including a $170 billion plus TAM. That's one of the fastest growing parts of the market, but everything's being impacted temporarily with the pandemic. So that's what I would say and happy to have if Mark wants to add anything to that. Hope that helps, Derek.

Well, I'd really like to open that up to Gavin Patterson, our new chief revenue officer. He's been driving this incredibly strongly from his office in London, and he's going to be moving to San Francisco shortly. You heard about this incredible whim that he personally led at this amazing organization called the Standard Bank Group. But, Gavin, can you just fill in how you see this market unfolding right now?

Well, thank you, Mark, and just to say I'm very excited to be taking on the role in the next few months. I've known Salesforce, as you know, for many years, and I've known Mark personally for many years as well, as a customer at BT, where I was the CEO, and I started my career at Procter & Gamble in brand management, so I know the company reasonably well as a customer, and over the last year or so I've been more and more involved with the company initially building an advisory board in Europe and then lastly picking up executive responsibilities for international and that's where I helped steer in the standard bank deal at the end of the quarter which was a big win for us and I think very much a platform deal for us in Africa as we open up that market so There are many things I hope I can bring to this job. You know, customer viewpoints, an international viewpoint, a CEO viewpoint. But the one thing that's very clear to me is the opportunities are there, very clearly. And, you know, seeing how the organization has been able to adapt in the last couple of the virus and become even more relevant to customers gives me great confidence that the opportunities are there. And as Mark said, You know, the majority of customers that we're talking to are saying, how can I accelerate digital transformation? And there's no better partner to do that with. So I think that certainly the growth potential, not just domestically in the U.S., but internationally around the world, I think exists for us.

Your next question comes from Kirk Maturne with Evercore ISI. Please go ahead.

Yes, thanks very much. And Mark, thanks for all the work you and the team have done to help out in this crisis. You guys have done some great things. My question is for Mark B. If we think back to the Great Financial Recession and you think about what eventually turned the tide from customers wanting to talk to you about digital transformation to customers actually spending on digital transformation, I think between you, Gavin, And Brett, you all mentioned that there's a greater understanding of the imperative to spend on digital transformation today, yet you obviously have some prudent guidance out there for the second half of the year. So when you talk to CEOs, what do you want to start hearing from them that gives you confidence that their interest is going to start translating into bookings? Is it simply just business confidence, better understanding of sort of what's going to happen in the fall around COVID? Just kind of curious so we can keep an eye on some of the broader data points out there and try to triangulate it to your thinking on business momentum. Thanks.

I think it's such a good question because, you know, of course, when you are addressing a market with a set of products, capabilities, you're going to have a set of strategies as well as a set of tactics. You're going to have plays as well as products, programs. And you're going to do that differently by geography, different by industry. I think we already know that, you know, unlike the financial crisis, the way that this has discriminated against different industries is quite different than anything we've ever seen before and has been quite shocking. That will take some time for them to recover. In other industries, and it causes them to grow faster than they I mentioned with AT&T, that's obviously a company that during this moment could become more digital, could become a strong organization. They're going to accelerate into it. My personal belief is always that in a moment of crisis, you need to invest through it. Maybe not every company can do that, but a lot of companies surprisingly can. That's why you have to offer a full portfolio capability. I really saw that come together in the first quarter. I was really impressed with the bookings that we achieved in the first quarter. As it kind of started to get crazy in the middle of March, I was like, wow, what is going to happen at the end of March and then through April? Well, this was the best of Salesforce. This was the best I've ever seen Salesforce perform. I mean, it was just incredible to see all of our Ohana, the sales organization, service, engineering, across the board. And then in the second quarter, well, as I mentioned, I'm already really, really inspired by the bookings numbers that I started to see and the pipeline numbers. So, you know, we're quite optimistic about what the future is going to look like for us. And Brian, do you want to fill in a couple details for us?

I appreciate that, Mark, and I appreciate the question. For us, it's about being very relevant to our customers. It's about showing up and listening deeply to what they're going through. And what we're finding is we're more relevant than we've ever been to our customers, and that's a great place to be. I couldn't be happier with the broad portfolio of products that we have to go address the problems our customers are facing today. It's a great product team building incredible products. Work.com is a perfect example of something that we've reacted to very, very quickly and are helping our customers address these core issues. And when you sit in that position, I think it's why we see our pipelines accelerating right now. So just very, very pleased with where we sit today.

And your last question comes from Brent Thill with Jefferies. Please go ahead. Your line is open.

Thanks. Mark, just back to encouraged by the bookings going into Q2. Can you give any color, you know, what you saw from April into May, many tech companies have seen, you know, stabilization and improvement. Are you seeing similar trends through the month of May? And then maybe for Mark Hawkins, just on the expense side, there are a lot of questions that this environment may kind of permanently shift some of the expenses across tech. Do you think there's some permanent lasting effect that can, you know, inherently make you more profitable through this as we exit out? Thanks.

Well, I'd really like to turn back over to Gavin for a second and Brian and, you know, and have them address, you know, the customer environment that we're seeing. And then maybe Brett could fill in the details on the pipeline as well. Gavin? Yes, sorry, sorry, Mark.

I was wondering what we're seeing is confidence is building almost week by week. Clearly, there was a shock that hit the system, particularly in March. But as we go in through April and we move through May, I would say bit by bit, and it's not in the recovery market by market. It's not the same point in every market yet. But the broad building confidence, beginning to see much better visibility for bookings, not just in Q2, but into Q3 and Q4. You know, I can sense the confidence building in the sales organization. We're not getting carried away with ourselves. But going back to a point that's been made a couple of times on the call, the relevance of our product set, and particularly work.com, is proving that actually more than ever, our products are important to our customers and key to the digital revolution and transformation that our customers are going to going to go through. So, you know, as I say, I'm pretty bullish about what I'm seeing at the moment and we'll continue to see it grow, I think, from here.

Brian, do you want to fill that in?

Yeah, I would just second the comments. We're seeing tremendous confidence in our sales. Very, very good year over year. And those compares are against a quarter when we didn't have a pandemic. And so we're feeling very confident about The pipeline growth, as Gavin said appropriately, we're not getting overconfident. We need to go out and execute. But we feel very good about where we sit. And, you know, I hate to repeat myself, but in a time when you need to be relevant and have products that fit the customer need, we feel like we're in a very good position right now. So very, very happy with where we are in the early months of the quarter. Brett?

Yeah, I think echoing both Gavin and Brian's comments, I've had three customer meetings already today, and every single one had one theme, which is everyone's looking past the pandemic towards the next normal and the new normal. And I think all of us have the humility to know that we're not 100% sure what that's going to look like, but it's a completely new experience for our customers' employees and their customers. and they are looking at our solution as the most relevant platform available to really help their customer, help their company transition to that new normal. So that's really what we're seeing. You know, I think there's still uncertainty out there, but I think people have started this reopening process, and you're seeing it in the momentum in the business.

And I'd like to kind of give a closing word to you. I'd love to have Amy Weaver give us the closing words on her – because she's been involved in so many of our customer discussions and Amy can you fill in exactly how you how do you see the situation moving forward well I'm excited to see this moving forward a few months but when I look at what we went through and where we're going what really stands out to me is

is that everything we executed during this quarter and every plan that we're making for the future, we're doing it in line with our core values, with trust, with customer success, with innovation, and with equality. And I think that we found that these values serve the company so well. It leads to a stronger company, stronger relationships with our customers, stronger relationships with our communities, and really a great position for all of our stakeholders. So thrilled to be part of it and looking.

Parker, love for you to wrap it up. You've had the full perspective. You've done a phenomenal job developing and delivering work.com and customer 360. Can you give us your words of wisdom?

Yeah, I think I would just close by saying, you know, we're all in our homes right now as everyone's probably listening to us all in their home. And yet, as a management team, I think we've never been closer, which is kind of odd that, you know, we've been sent to our homes and yet we're operating more closely than ever and faster than ever. Mark and I have said it's kind of like we're back to the startup days and yet, you know, we're a 50,000 plus employee company. And I've had the same experience, as Brett was saying, in working with our customers, you know. we are no longer walking into our customers' offices and suits and having that kind of separation. We're in their homes with them and, you know, to their homes as we're selling to them and supporting them and servicing them. And it's just a sign of, you know, Mark, the success that we've had in building that trust with our customers for 21 years. And I think it's the reason why, you know, we're coming through this as we are. And so I hope all of you out there are also having that same experience and just really proud of what we've done as a company during this crisis.

Okay, back to you, Evan. Okay, Mark, do you want me to maybe I should just tackle the last part of the question there and then we'll go to Evan? One, Brent, we definitely are always looking for opportunities as the environment has shifted. It provides an opportunity for us to take a beginner's eye on everything, and we're certainly doing that. You heard, whether it's pipe gen, whether it's reimagining everything we're doing, certainly travel. There's so many different examples, but we're constantly looking at focusing, obviously, on delivering growth, profitability, and cash flow over the long term. We are obviously very excited about the long-term opportunity to serve our customer and help them, and we're very aligned. I thought Parker's comment was really awesome about we're very aligned around how to navigate through this and get beyond this point in time and really seize the opportunity for an unbelievably strategically positioned situation to serve our customers over the long term. Mark and Evan, back to you.

Thank you all for joining us for our call today, and we look forward to speaking with you next quarter. Hope you are all safe and healthy.