Salesforce, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Salesforce fiscal 2022 third quarter's 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, then zero. I would like to hand over the conference to your speaker. Mr. Evan Goldstein, Senior Vice President of Investor Relations. Sir, you may begin.

Thank you, Jeff. Hello, everyone, and thanks for joining us for our fiscal 22 third quarter 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 slash investors. With me on the call today is Mark Benioff, chair and co-CEO, Brett Taylor, vice chair and co-CEO, Amy Weaver, chief financial officer, and Gavin Patterson, chief revenue officer. As a reminder, our commentary today will primarily be in non-GAAP terms. Reconciliations between our GAAP and non-GAAP results and guidance can be found in our earnings and press release. Some of our comments today may contain forward-looking statements that are subject to risks, uncertainties, and assumptions. In particular, our expectations around the impact of 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. Should any of these materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. A description of these risks, uncertainties, and assumptions and other factors that could affect our financial results is included in our SEC filings, including our most recent report on Form 10-K. With that, let me hand the call to Mark.

Well, thanks so much, Evan, and I hope everyone on the call and all your families had a wonderful Thanksgiving, and happy Hanukkah to everyone celebrating the Festival of Lights this week. Now, you know, this year I'm grateful for many things, but I'll have to tell you I'm very grateful for my good friend who I'm sitting here with Brett Taylor. And Brett, congratulations on becoming the co-CEO of Salesforce.

Thank you, Mark. It's really an honor in a lifetime to say to you thanks to the board. And most importantly, thank you to our customers and trailblazers. I'm honored to be a part of you in this next chapter of Salesforce.

Well, Brett, you know, I first met you. You were at Google. You did an amazing job with Google Maps, and you started your own company. Then I was acquired by Facebook. You became the CTO of Facebook. And I And then you left Facebook and started in another company and Salesforce was very lucky to buy that company Quip. And then you've had an amazing run here over the last five, five and a half years at Salesforce. And most recently as our chief operating officer and now as co-CEO, we couldn't be more grateful for you and your leadership and congratulations. And it's just amazing to watch you go.

Well, Mark, I don't know if you know this, you were the first person I called when I started that second company because I wanted your mentorship and advice. So For me, this partnership is really the culmination of a decade-long friendship, and I'm just grateful, so excited for this next chapter.

Well, it's super exciting, and I'll tell you, we're going to get into this, Brett, but you've had a lot of great experiences with customers this quarter and also with all of our Ohana. Just give us one insight out of the quarter. Tell us about the world, and what's one thing you learned this quarter that really has surprised you or enlightened you that you can share with all of us?

Well, actually, Gavin Patterson and I, we took a trip to Europe together. We visited London, Paris, Amsterdam, Frankfurt. And, you know, this pandemic's a roller coaster. But what I heard from the more than 60 customers we talked to on that trip is a sense of really moving forward, that, you know, we'll have to take into account health and safety. We have to, you know, really think about this pandemic as an endemic. But people aren't shutting down. People are moving forward. They're focused on growth. And they're focused on this new normal. And I have a very optimistic view of the future, despite this roller coaster of a pandemic.

It is a roller coaster of a pandemic. You're absolutely right. Well, it's been an amazing six quarters. And I'll tell you, the last six quarters, well, they've been unlike anything Salesforce has ever been through that I've ever been through. And, you know, I would say things are still changing and transforming. We're almost in a pandemic age. and we're kind of getting used to what does it mean to be inside of a pandemic. And yet at the same time, Salesforce has never been more successful. And I think Brett, when you look at the financial results, I'm sure you'd agree, you know, that this was an amazing third quarter revenue in the quarter was 6.8 billion of 27% year over year. And it's really driven by all these amazing products, but really by this incredible customer success. And we can see it where, We're number one again for the eighth year in a row in CRM according to IDC. It's really exciting. Were you surprised to see that? Not surprised at all, but it's something I look forward to every year every time those numbers come out. Wasn't it just awesome? And, you know, our sales and service clouds, well, they've become massive individual businesses at this point and generating more than $6 billion each. I mean, that's bigger than a lot of cloud companies that I know all by themselves. And they're continuing to grow into double digits. It's amazing. I mean, Sales Cloud is amazing this quarter. And operating in the margin in the quarter was also very good at 19.8%. And that exceeded my expectations. And we delivered $404 million in operating cash flow of 19% year over year. And now for fiscal year 22, we're raising our revenue guide again. Just raised it in Investor Day a couple weeks ago. And now we're raising it again to $26.4 billion at the high end of the range. representing 24% projected growth year over year. You know, that's a $100 million raise since Q2 when we initiated guidance for revenue in December of last year. We've now raised guidance since that initial initiation, $850 million. Pretty awesome. And we're delighted to raise our full year operating margin once again to 18.6%. You know, we have a Obviously a new team. We have a new structure now. We're in a new world. We're talking about that. But we have an incredible new model, and it's really reflected in this incredible operating margin performance, really for this year and also the operating margin guide for next year as well. And this is really an incredible reflection of this new way that we have, the new way we're thinking and how we're driving and leading the sales force. And as we shared at our investor day in September, we're expecting fiscal year 23 to Revenue guidance of $31.8 billion. That's the high end of our range. And operating margin of 20%. Now, as everyone knows, no other software company of our size and scale is really performing at this level. We know that because we're talking to other cloud CEOs every day. And I'll tell you, I couldn't be more proud of our Ohana and that Salesforce is soon going to enter the Fortune business. 100 we've only we've really you know you think about it we only spent two years in the 20 billions i think about how long i was waiting to get into the 20 billions uh in revenue for salesforce and and we're done with it it's kind of like now we're talking about being in the 30 billions and i'm kind of like well i wonder wow this is amazing how long are we going to end up in the 30 billion so you got to enjoy every moment because it goes fast and uh you look at the growth and I really think it's all about this customer success. It's, it's been awesome. I know we're going to tell some great stories here on the call LVMH and VMware and ADT and, and so many of our customers and we're hearing some great stories from Slack customers too. I'm looking forward to Brett telling you a couple of great stories. I haven't had a great story yesterday from a friend of mine who was, at a check-in counter for an airline, and they were using Slack entirely to make the reservation and book the tickets. Incredible story with this company. So, well, I guess all of this is just an overnight success story for Salesforce. We're doing it now almost a quarter of a century, and it's been a great quarter. All right, well, Brett, congratulations, and why don't you take it from here?

Thank you, Mark. You know, as Mark said, we had another phenomenal quarter driven by our new operating models, our new management team, and a product portfolio that's just increasingly relevant to every company looking to thrive in this new world. Through this pandemic, our customer success has fueled our success. We have hired more than 30,000 people remotely. We've launched more products than we ever have before, and we've connected with more customers than we ever have before. We've also proven that we can come together safely in person. We just did Dreamforce in San Francisco a couple months ago. We're doing Dreamforce in New York next week. That's going to be amazing. It's amazing. Might as well have another Dreamforce next week. Why not? Dreamforce all year long, Mark. And we also have opened 65 of our offices. And as I mentioned, Gavin and I took that trip to Europe, talked to over 60 customers, and it's really interesting to see a wide range of industries going through Different issues, whether it's the supply chain or the great resignation. But there's one theme in all those conversations. Every customer reinforced that work is not somewhere you go, but something you do. Every single company I spoke with is building their digital headquarters because they know their teams need to be successful from their home or from this office in this new era of hybrid work. And Customer 360 and Slack are powering this transformation for companies in every industry, in every region of the world, and you can really see it in our results. In the quarter, we saw strong growth across regions, 23% in the Americas, 38% in India, and 26% in APAC. And what really stands out to me, Mark, is the strength of our core organic CRM business. That is amazing, right? Especially sales and service cloud together. Well, the sales cloud is accelerating to 17% year-over-year growth, as Mark mentioned, now exceeding a $6 billion business, just like service cloud. And service cloud, which is actually continuing to grow above 20% year-over-year. Yeah, that's just awesome. Congratulations.

That was just beyond my expectation.

Yeah, it really shows the strength in our core organic business, and it's just phenomenal to see this kind of growth at that kind of scale. And there's nothing like the start of the holiday shopping season, which started last week, to make me appreciate just how mission critical our commerce and marketing clouds are on Black Friday and Cyber Monday. Cyber Week runs on Salesforce for the world's greatest retailers. What we saw was just incredible. So Commerce Cloud processed more than 100 million orders in November, powering the shopping experiences for brands like Ralph Lauren, Puma, Crocs, LVMH. And get this, Mark, this year we have sent over a trillion messages from our marketing cloud. And Cyber Week alone, we delivered 40 billion messages of 34% year over year. Incredible. And, you know, we're laughing at the pandemic. Last year, digital was the only way people were shopping, and we're growing 34% on top of that.

Our message platform... And also, you have to give a call out here on reliability because, you know, both of us went through some very difficult moments in the weekend getting calls from customers who are not using our marketing cloud but are good customers of ours. Because products that they chose from other vendors were not working on, you know, Black Friday and Cyber Monday. And we're like, wow, we were just so grateful to all of our Ohana for the tremendous A tremendous performance is delivered over the weekend.

Well, I just want to give a special thank you to every member of Salesforce, particularly the engineering teams, to get that kind of reliability when so much of our customer's business is happening over a day or a weekend. It's just crucial that these systems stay up. And I'm so proud of the team. And hopefully some of those customers will become customers of Marketing Cloud next year. I hope so.

I hope so.

You know, and one thing I really want to call it is this move towards mobile commerce continues. Mobile push notifications set for our marketing cloud grew over 94% year over year. But we're just seeing the smartphone continue to transform commerce. All in, our commerce and marketing clouds grew 25% year over year in our third quarter, continuing an amazing 20-month run as the global economy continues to digitize. I also wanted to talk about Slack. So Slack outperformed our expectations in the first full quarter as a part of the Salesforce family. The number of customers on Slack who spent over $100,000 was up 44% year over year. And adoption of Slack Connect was up an astonishing 176% year over year. Slack is not just a product, Slack is a network, and it's just incredible to see that growth. Slack also continues to innovate at an unbelievable pace. Slack Huddle, which is Slack's new real-time audio capability, is already used weekly by over a third of Slack users. And Slack Clips, the new asynchronous video capability, are being played nearly one million times a week. And this month at Slack Frontiers, which I hope all of you have watched, and if you haven't, you can watch it online, Stuart and the team announced the next generation of Slack's platform, and it's going to truly transform the way companies think about workflows and automation.

Well, I think that that is definitely what I saw firsthand, where I was like, how can it be that an airline that's basically front-ending their entire system with Slack? That's a shock to me.

Slack is a system of engagement for every workflow, every application, every person in your enterprise. It's really an amazing platform vision, and absolutely watch Slack Frontiers if you haven't seen it. I think it'll blow your mind. Well, it's pretty cool. What an incredible new part of our portfolio. Well, essentially... Slack has already transformed the way we work at Salesforce. Since we've deployed Slack internally, we send 46% fewer emails. And in the last 30 days alone, our employees have sent nearly 60 million Slack messages and conducted 500,000 Slack huddles. We run Salesforce on Slack. And every CEO and every board I talk to is focused on how they can succeed in this era of flexible work. According to Slack's research, 93% of workers are looking for flexibility when they work, and 76% are looking for flexibility where they work. Companies need to connect their employees, their partners, their customers from anywhere because we all know we're not going to be in the office five days a week. Right.

It really flies in the face of all of these kind of You know, you hear companies like and CEOs say, oh, everyone has to come back in the office now. This is a mandate. Mark, you know what happens when they say that? Their employees leave and go to the company next door. Well, you know, I have to be very careful because when I say like on a broadcast television or at a conference, hey, employees are going to have flexibility how they work. And they're going to have a digital headquarters. They're going to have a physical headquarters. They're going to mix and match. They're going to, you know, they're going to move around a little bit. I get phone calls, and it's just so contrary to what we see in our own business.

Well, our offices aren't going away. It's just that your digital headquarters is going to be more important because it is truly the infrastructure that connects all of it, and especially in this new normal. And Slack and Customer 360 together are really powering this transformation. You can see in the results of the third quarter for Slack, Slack did $280 million of revenue, $30 million a head of guidance. Retailers like SAC and innovative companies like the Southeast Asian ride sharing and food delivery app Grab, they're relying on Slack every day to collaborate, to automate workflows, and to connect with their partners. And what's exciting to me, Mark, is the deep product integrations we're building between Slack and Customer 360 are already driving success for our customers. I had a great time working with VMware's new CEO Raghu Raghuram this quarter as he spun VMware out of Dell. And Raghu's team is already using Slack and Service Cloud for case forming to decrease the time to resolution for their customers. I could not be more excited for the momentum we see in the Slack business, and in particular, Slack's integration in the sales force. As Mark said, we're in a new world. We have a new operating model that's driving durable growth. And our team continues to deliver incredible success for our customers during these unprecedented times. Our core business is stronger than ever, and it's experiencing incredible growth at scale. Slack and Customer 360 have never been more relevant, and we're playing a pivotal role in supporting our customers' next phase of growth. And I'm excited to hand it over to Gavin to bring this to life and talk about what he's seen with our customers around the globe. Gavin?

Thanks, Brett, and I'd like to add my congratulations on your promotion. Thank you, Gavin. As Mark and Brett said, we are in a new world, and I've seen it through the eyes of our customers, which I've recently been visiting in New York, San Francisco, Frankfurt, Paris, Amsterdam, Zurich, the Middle East, and of course, London. I'm very excited by the early results of how our new operating model is playing out. The strength of our core business is incredible, and the power of Salesforce Customer 360 and Slack together is creating the digital HQ that is enabling our customers to get back to growth. And as Brett said, Salesforce has never been more relevant. In the quarter, we saw strong growth in every region, especially in the Americas. We grew relationships with Amazon, Builders First Source, Ikevia, Sunbelt Rainfalls, Tapestry, and so many more. In EMEA, we deepened relationships with incredible brands like Fenia, Primark, and Puma. And in APAC, we had significant wins with Foxtel, Fujitsu, Hitachi, and the New Zealand Ministry of Health. Now, we all know the incredible security company ADT. They are using Salesforce Customer 360 to unify their entire customer experience, empowering 4,000 customer service agents, 7,000 field service agents with a complete view of their customers, which is driving operational efficiencies as well as growth. And as Brett said, we expanded our partnership with VMware, which has been a Salesforce customer since 2008. This quarter, they kicked off a pilot of Slack plus Service Cloud to accelerate customer support. They also partnered with Tableau to extend data and analytics across their entire business enabling the presentation of deep analytics to help innovate even faster. LVMH continues to expand with Salesforce to deliver luxury goods from anywhere. Globally, 40,000 retail associates and customer service agents use Salesforce to deliver personalized retail journeys for their customers. And our win with the Boohoo Group, which is a leading UK-based online fashion retailer, uses our technology to deliver their incredible online shopping experience. With Commerce Cloud, Boohoo is now expanding shopping via social media marketplaces as they look to build for the future. And the state of Nevada's Department of Motor Vehicles is another great story in the quarter. They selected Salesforce as the platform to power its digital transformation across its entire business. This will mean a whole new experience for residents renewing driver's licenses, credentialing, titling and registering of vehicles, and so much more. And this is another great example of digital transformation powered by Salesforce, and of course, another great reason to move to Las Vegas. These are all great organizations that have pivoted their business to navigate this new world and deliver customer success from anywhere. They're relying on us more than ever and inspiring us to leverage the power of Salesforce Customer 360, Slack, and so much more to continue to fuel their business. And finally, a word on Q4. I'm really encouraged about how we started the quarter. Demand and pipe look strong, and we're looking forward to a great finish to what has been an exceptional year. I want to thank our incredible team for continuing to do such a great job in the midst of a massive global change. The work they do and the technology they deliver powers our customers' success, and we couldn't be more grateful. Amy, over to you to share the financial details of our quarter.

Great. Thank you, Gavin, and hello, everyone. As we discussed two months ago at our Analyst Day, we are in a new world, and we showed our ability to execute in this new world once again in Q3. We delivered on key metrics, strong top and bottom line, and cash flows. And our focus remains on disciplined and profitable growth. Q3 was also a milestone quarter, as it was our first full quarter with Slack. Building on their strong performance over the last several quarters, Slack's early results reinforce our confidence in the strategic importance of this best-in-class asset. Now, let me walk you through some of the results for Q3 fiscal 22, beginning with top-line commentary. Total revenue for the third quarter was $6.86 billion, which includes $280 million from Slack. This is up 27% year-over-year or 26% in constant currency. The strong demand environment and new business pipeline that we've highlighted on the last few earnings calls continued, allowing us to outperform top-line expectations again. A few key highlights from the quarter. First launched 22 years ago, Sales Cloud became a $6 billion run rate business this quarter and grew revenue 17%. Sales Cloud now joined Service Cloud, which became a $6 billion business just two quarters ago. And Service Cloud continues to grow over 20% at scale. These are two massive businesses growing in the double digits, and their success is a testament to the strength of our core. Our America's business is performing extremely well, and we see a healthy demand environment in front of us. New business in North America was especially strong. Our largest market that we've been operating in for over 20 years. And if you heard from Brett, Slack continues to outperform our expectations. Slack saw strong customer acquisition with notable strengths in the enterprise. The number of paid customers spending greater than $100,000 annually accelerated for the fourth consecutive quarter, up 44% year-over-year. Slack Connect's adoption remains strong, with a number of connected endpoints reaching a record level, up 176% year-over-year. And we've been able to introduce Slack's new customers. Already, four of our top 10 deals this quarter included a new Slack win. Once again, we saw strong growth in our multi-cloud deals. as our customers continue to ask for more than point solutions. In Q3, we recorded 33% year-over-year growth in the number of deals containing five or more clouds. We did see some headwinds this quarter to our MuleSoft business. When a business is growing as quickly as MuleSoft is, there are scaling challenges you can face, and we experienced some of those challenges this quarter. We are confident in the changes that we have made going forward. As a reminder, a large portion of our MuleSoft revenue is recognized in period, which has an outsized impact to our second half revenue. MuleSoft remains a critical part of our Customer 360, allowing our customers to integrate all of their data and systems. Beginning this quarter with the incorporation of Slack into our financial results, we are providing investors with updated revenue by service offering disclosure. Going forward, Slack will be recorded in Platform and Other, We are also creating a new revenue category, data, which will incorporate MuleSoft and Tableau, including Tableau CRM, all of which were previously included in platform and other. We believe this will provide greater transparency into our results. A historical recap using our new revenue breakdown is available in the earnings deck that we published alongside our press release. And we continue to make great progress on attrition, For the first time in company history, revenue attrition was below 8%. Q3 attrition was between 7.5% to 8%, an improvement versus last quarter's 8% to 8.5%. Our remaining performance obligation, representing all future revenue under contract, ended at Q3 at approximately $36.3 billion, up 20% year over year. Current remaining performance obligation, or CRPO, which represents all future revenue under contract that is expected to be recognized as revenue in the next 12 months, was approximately $18.8 billion, up 23% year-over-year and in constant currency. Slack represents four points of growth in line with our guidance. Turning to operating margin, Q3 non-GAAP operating margin was 19.8%. which continues to benefit from revenue outperformance, efficiency from a work-from-anywhere world, and a focus on disciplined spending. Q3 GAAP EPS was 47 cents, and non-GAAP EPS was $1.27. The outperformance in the quarter was primarily due to stronger revenue and expense efficiencies, as well as realized and unrealized gains on our strategic investment portfolio. These mark-to-market adjustments benefited GAAP EPS by approximately 27 cents, and non-GAAP EPS by approximately 28 cents. Turning to cash flow, operating cash flow in the third quarter was $404 million, up 19% year-over-year. CapEx for the quarter was $166 million, resulting in free cash flow of $238 million, up 11% year-over-year. Now, turning to guidance. We expect Q4 revenue of $7.224 to $7.234 billion, or approximately 24% growth year over year. This guidance assumes a $285 million contribution from SLAC in the fourth quarter. For the full year, we are raising our fiscal 22 revenue guidance by another $50 million to $26.39 to $26.4 billion. This equates to a total $100 million raise to our revenue guidance since Q2. Our guidance now includes $565 million contribution from SLAC for the fiscal year. The fiscal year revenue contribution from SLAC represents a $35 million increase from our previous guidance. Our full year guidance continues to include $200 million from adjuvant. For Q4, we expect to deliver CRPL growth for approximately 19%. This includes four points of growth from Slack. One thing I will call attention to is that we remain mindful of the strengthening U.S. dollar in our foreign operations, which may impact our financials. We continue to monitor foreign exchange as we execute on what is typically the largest quarter in our fiscal year. We expect Q4 GAAP EPS of negative 24 to negative 23 cents and non-GAAP EPS of 72 to 73 cents. The full year, this translates to GAAP EPS guidance of $1.28 to $1.29, and non-GAAP EPS guidance of $4.68 to $4.69. We expect recent M&A will be at approximately $0.49 headwinds to non-GAAP-delivered EPS. And please recall that our OIE and EPS guidance assume no further contribution from mark-to-market accounting, as required by AST of 2016-01. We are also raising our fiscal 22 non-GAAP operating margin guidance to 18.6%, representing an expansion of 90 basis points year over year. The raise in our operating margin guidance is due to refined assumptions around slack and acumen. We now expect a 140 basis points headwind or 10 basis points less headwind than our previous guidance. I'd like to call out that our guidance continues to incorporate expense seasonality that is weighted to Q4. including investments in both our workforce and growth opportunities and T&E expectations. We are raising fiscal 22 operating cash flow guidance by four points, now expecting 18% to 19% growth year-over-year. The increase from our previous guide is primarily driven by strong revenue performance and lower headwinds from M&A. The deleted cash flow impact of Slack and Acumen now represents a headwind to our year-over-year growth of approximately five points. Excluding the anticipated impact of M&A, operating cash flow growth would be 23% to 24%. We continue to expect CapEx to be approximately 3% of revenue in fiscal 22, resulting in a free cash flow growth rate of approximately 19% to 20% for the fiscal year. Excluding the anticipated impact of M&A, as previously noted, this rate would be 25% to 26%. As I shared with you two months ago, it is incredibly important to drive discipline decision-making in every aspect of the company. This new mindset will enable a more durable company as we approach $50 billion, and fiscal 22 represents how we can deliver profitable growth in this new world. Turning to fiscal 23, we were pleased to provide our initial revenue and non-GAAP operating margin guidance during our investor day. Today we are initiating Q1 fiscal 23 revenue guidance of $7.215 billion to $7.25, or approximately 21% to 22% growth year over year. As Gavin mentioned, we're off to a strong start in Q4, and we'll provide you with our complete fiscal 23 guidance as part of our Q4 earnings in February. So to close, our business is performing well, and we continue to see record levels of revenue and operating margins. Our flagship products and sales cloud saw a third consecutive quarter of acceleration and we now have two $6 billion businesses in sales and service. Slack is outperforming our expectations and the integration continues to progress well. And we remain incredibly well positioned with our broad product portfolio and global reach to be able to serve all of our customers. Our products are more relevant than ever. Finally, on a personal note, I want to congratulate both Mark and Brett on their new co-CEO partnership. I have been privileged to work closely with both of them for many years, and I cannot be damned to tell you how excited I am for both of them and even more for Salesforce. So Jeff, why don't I kick it back to you and we can open it up for questions.

Yes, operator. As a reminder, to ask a question, you will need to press star 1 in your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question will come from Brad Zelnick from Deutsche Bank. Please proceed with your question.

Great. Thank you so much, and congrats on a good quarter. And to Brad on being named co-CEO, I actually have two questions, maybe one for Mark and for Amy. And for Mark, On the co-CEO structure, how do you envision breaking down CEO responsibilities amongst yourselves? And maybe what did you learn in the past about having co-CEOs that'll make this structure even better than it was last time around? And then perhaps for Amy, Amy, the guidance that you've given us for CRPO and Q4 seems to imply meaningful deceleration. What factors contribute to this? Is there anything anomalous to call out perhaps in addition to FX and Is there anything at all that impacts the confidence level that you have in your forecast? Thank you so much.

Well, first of all, congratulations again, Brad. It's super exciting. And, you know, you're right. Salesforce, you know, has had an evolving leadership structure several times, and we have also had tremendous success previously with the co-CEO structure. And, of course, probably those folks that benefited the most was really our shareholders and All of our stakeholders, as we've seen, as we've changed these structures, it's actually been an acceleration on the company. So I'm very excited about the CoCO structure. These jobs are big jobs, and being able to have a partner that you can share it with makes it a lot easier. And when Keith decided to retire, I was back in this job, and it's very lonely. And now to have a partner with Brad, I couldn't be more excited. So I want to congratulate him again.

Great, and Brad, hi, nice to hear from you. On CRPO, business is strong. We've raised FY22 revenue by $300 million three months ago, another $50 million just two months ago, and now another $50 million today. And this is even with some of the headwinds I described from you all, and as you noted, some uncertainty on FX. So overall, I believe our CRPO guidance is in line with our guided revenue growth rate for the quarter and for the year. We believe it's appropriate. And of course, as we said, Q4 is our largest new business quarter.

Your next question will come from the line of Ramo Lenshal from Barclays. Please proceed with your question.

Hey, thanks. Congrats, Brett, to the expanded role, and congrats on a great quarter for me as well. Can I ask around Slack? One of the main exciting points around Slack was the shared channels. And especially if you think about it on the sales side, that should be kind of really interesting. Can you talk to that, what you're seeing there in the market and the feedback you get from customers? And a follow-up question from Amy. If I look, you beat the operating margins this quarter. Can you talk a little bit about the linearity of spending in Q4? Because this quarter was so much better, so you must be spending or hiring quite a bit in Q4. Thank you.

Yeah, thank you for your question about Slack. And you're right, the shared channels, which the brand name is called Slack Connect, is just one of the most differentiated and exciting parts of Slack as a platform, particularly if you think about the opportunity to integrate Slack with Customer 360. Because as I said, Slack is not just a platform for communicating with fellow employees. It's a platform to engage with your partners, with your customers, and integrate with every single application at your company. I think the best measure of it in this quarter, I mentioned it in my script, was Slack Connect was up an astonishing 176% year over year in the quarter. And, you know, I think behind that was really exciting that Stuart articulated so well. There's a really strong network effect when, you know, multiple companies and multiple partners are using this service. It makes the service more valuable. We use Slack Connect with our customers now. And I think probably the best example this past week was Cyber Week. So many of the retailers that I work with use Slack as their command center for Cyber Week. They would have Salesforce in there. They would have the agencies running their campaigns, their merchandisers, all of these folks who are coordinated to drive as much GMV growth as they can in a short period of time. Slack was really at the center of that. And as you said, really about a shared channel with multiple stakeholders. So it's a big part of our product strategy and it's a big part of the strategy for Slack to continue to grow and Candidly, I don't think there's an enterprise product like this in the marketplace that really has network effects from company to company, and we're really excited about it.

Great. I'll take the second part of your question on operating margins. So overall this year, I'm so pleased with our FY22 operating margin trajectory. As a reminder, we started off the year at 17.7% guidance, and we've raised consistently now up to 18.6% for the full year. And we really focus on delivering operating margin for the year and not for any particular quarter. That said, we're coming off a third grade up margin quarter in a row, and there is some seasonality to our margin. So in Q4, we are expecting to see additional investments in our workforce and our growth, and also some modest increased T&E expectations, and that's going to cause the quarter-over-quarter decline in operating margins. But again, we're really excited about the full year number and proud to be getting to 18.6.

Your next question will come from the line of Brent Phil from Jefferies. Please proceed with your question.

Good afternoon. Just giving Gavin's comments on Q4 demand and pipeline strength, many are asking, given the bookings growth was 23%, you know, the 19% guide for Q4. Why such a sharp decel? Anything that we should consider as it relates to the guidance and what you're seeing going into the fourth quarter? Thanks.

I think Amy should directly address that, and then Gavin can come in as well. Amy?

Hi, Brent. Talking into Q4, we actually feel very, very good about this. You know, as Gavin said, and he can tell you more, we feel very strongly about the demand environment. When I look at revenue for the year, again, I want to emphasize that we've raised $100 million since Q2. We raised $50 million at Investor Day, which is about halfway through Q3, and we could see a very strong quarter coming, as well as an additional $50 right now. So I do believe that both our guides for CRPO and for revenue are supportive and reflect what we're seeing in the market. So, Gavin, why don't I give this to you for a little bit more color in what you're saying?

Sure. Well, in a word, we started the fourth quarter really strong. And as I said in my comments, demand is stronger across the piece. The pipe looks very good. America's is particularly strong. And parts of Europe, I think, are performing equally well. There's a good performance across the verticals. And so it's a balanced performance across the piece. So we're feeling confident about the fourth quarter. There's no question about it. So we don't give you any specifics, of course, at this stage. But as I say, I'm very pleased with the way we started in the first few weeks.

Our next question will come from the line of Keith Weiss from Morgan Stanley. Please proceed with your question.

Thanks, Helen. Thank you for taking the question. Very nice quarter, and my congratulations to Brett as well. I think this is two questions for Amy. One in terms of the Q4 guide that's getting a lot of attention. FX is kind of working against us on a go-forward basis. Can you talk to us to the degree that there's any FX impacts already incorporated into that Q4 guide? And to what extent have you incorporated the stronger U.S. dollar into into the margin commentary and the forward FY23 guide. And then the second question is a little bit broader. You guys have been working on this new philosophy of a better balance between growth and profitability for a couple of quarters now. How's that progressing? Can you give us kind of a status update in terms of are you finding this to be an easier, harder job than you originally anticipated in terms of pivoting the company to more of an efficiency focus? Thank you.

Hi, Keith. Thank you for both questions. So let me start with foreign exchange. As you know, I think that any global CFO who you speak to this week is watching foreign exchange very, very closely. And it has had a modest impact to our guidance, and we're going to be monitoring that going forward. Just to give you an idea of the volatility, just since Investor Day, we've seen the euro devalue nearly, I think it's between 4% and 5% right now. And the Great British Pound is down about 2%. And these do have modest impacts on us. Now, we don't give detailed information about our currency split. But, you know, I can tell you our international revenue is chiefly driven by four currencies. It would be the euro, the British pound, the yen, and then to a lesser extent, the Australian dollar. So if you know, you know, we don't explicitly guide the FX. But we certainly do factor that into our planning processes and build out our guide based on those projections. Second question. Oh, sorry.

Go ahead. He wants to talk about our kind of march towards greater efficiencies.

Yeah.

I mean, I think this has been really a highlight, you know, of the last six quarters, which is, you know, we took advantage of the pandemic to reset our model. We've talked about that we have a new model. We're taking that. seriously not only just in how we budget fiscal year 22 which is what we're finishing right now but also you know we're finishing up our budget for fiscal year 23 that obviously also takes into consideration these changes in foreign exchange the strengthening of the US dollar is something that I'm sure all of you are watching and we watch as well we're a global company these things matter to us how our numbers shake out always depend on currencies And there can be variation of quarter to quarter based on that. So when we look at efficiency, you know, we saw an opportunity when the pandemic hit to really look at how are we spending money overall? And we were really taken by, you know, changes in the pandemic cycle, T&E, the use of our real estate, our marketing spend, and we started to rebalance, to reshape. to rethink about how do we look at our model, our overall model, not just our revenue model, but our expense model. You know, since we started the company, I would say we never really had an opportunity to look at it. You're on a train. The train is going. The train is working. Why would you make changes to the train unless there's a pandemic? That's when you say, well, I guess we're going to get rid of this. So the reality is we have the opportunity to start to make changes that we didn't have that opportunity before. And now we've been able to really learn. And, I mean, you know, we've kind of gone over it a couple times, but we have a raising in the year when we acquired this incredible company, you know, to 18.6%. It's pretty awesome. And, you know, we've also given really strong guidance for next year with 20%. And you can see the tremendous operating margin that we've delivered in each of the last six quarters. So we have a tremendous feeling of optimism to the future as we look to – having this incredible new model. And is efficiency part of that model? Absolutely. But really the best part of the model is really optimizing the company in ways that only the pandemic let us do that. And I'd love for Amy and Brett to both come in, maybe Gavin too, because this has been a very important part of the management team's work in the last several quarters as we've realized oh, there's some knobs that we can turn that we were just never really allowed to do before, and now we can. So do you want to comment on that, Brad?

Yeah, I mean, I'll just start first. I just wanted to give a special thank you to Amy. I think, you know, we talk a lot about top-line revenue performance, the pandemic, and a number of other factors, you know, leading to the operating margin delivery that we've delivered. But I think the most important part of it is discipline. And, you know, fundamentally, as a company, We are a growth company. We always do a growth company, but we're one of the groups. You don't need to choose between growth and operational efficiency. And you're seeing both the top-line growth and the bottom-line growth, and I think a lot of that is due to Amy's leadership and really the work of the entire management team to transform the way we operate. And I think, as Mark alluded to, this train with one pure caboose, as you put it, I think is set up to grow even faster coming out of this pandemic.

That's good. So Brett, Mark, I think you both said it very, very well. As we look at this, we continue to benefit from the revenue outperformance, from everything we've learned in the pandemic, from a new way to work, and really from, I think, a heightened sense of discipline. But what I would emphasize most of all is that this is really a commitment by the entire management team. And what has really impressed me as we've been putting in place new policies, tightening up budgets, is the fact that every team has really stepped up and shared in the commitment and shared in the changes.

You know, before we go on to the next question, we have a tremendous executive, Gavin Patterson, who's our Chief Revenue Officer, who's formerly a public company CEO of British Telephone. And, you know, Gavin has been the Chief Revenue Officer, as all of you know, through the pandemic. And he also brought tremendous insights into managing this new model and the efficiency and optimization and Gavin, I'd love it if you'd give us a few words as well on your vision on how this new model is working for you, and maybe you could touch on what the new sales model is as part of this.

Thanks, Mark. Well, this is something I touched on at Invest today. I truly believe that we can continue to drive growth, and that will continue to be our number one priority. But we could do so at the same time as as driving efficiencies through the business and through disciplined decision making. You heard it from Amy and it's a mantra that we're using throughout the business. And some of the things I talked about then are really to do with providing a tighter grip across the business, deploying best practice across our operating units when we've got a successful model, how do we replicate it across operating units around the world? I put a lot more focus on things like participation and driving productivity, so ensuring that we're getting the most value out of our 10,000-person sales force, which is one of our sources of competitive advantage, but how do we make sure everybody is contributing every quarter and that we're looking to eke out, you know, both small deals and big deals throughout the year. And then finally, you know, how do we open up new channels? So, you know, the direct model continues to be our, you know, our strongest muscle. There's no question about that. But, you know, we're finding that customers, and not just small customers, are keen to use more and more, or purchase more and more through digital and online. And And that's an area that we're, we're revamping. It's going to be a bigger part of our overall delivery of new bookings going forward. So, you know, the focus for me has been about driving, um, best practice across the Salesforce, um, ecosystem, uh, and having a flatter organization that allows for faster decision-making, um, and stronger leadership within the units themselves.

yeah thank you so much gavin and i think you know the commentary from gavin amy and brett you know should indicate to you you know how fortunate i am to have this great management team uh running salesforce during this pandemic and then this about this this ability to have not only of this great team but to put in the new model during this and uh and and now this new structure as well look we're in a new world we all know that and you know we've all seen all the things that are supposedly happening this week, who knows how much of it is actually true. So we have the ability to adjust and to run the company dynamically. And I think that's why you see such an incredibly strong quarter here in Q3. And, you know, I believe we're going to have a world-class quarter in the fourth quarter and a great fiscal year next year as well.

Our next question will come from the line of Cash Rangan from Goldman Sachs. Please proceed with your questions.

Hi, thank you very much. Congratulations to Brett on becoming co-CEO. One for the co-CEOs and one for the CFO. When you look at the operating model of the company, it is working quite well. You're pretty close to 20% organic growth rate, give or take. Your margins are pretty close to 20%. In fact, you absorbed slack and did margins that were on par with your best margins before. So everything's going well. Do you feel the need to make any acquisitions, or even if you do, you feel like you can contain all this with the current margin structure? And one for Amy, when you look at the tremendous operating efficiencies you've been able to experience in a very short period of time, does that increase your confidence in the longer-term outlook, granted that you don't have a specific margin target for the longer term? How should we think about the sustainability of the improvement of margins in the longer term as we watch the incredible success you've had in a very short span of time. Thank you so much.

Well, I think you're right, Cash. We're doing a very good job of absorbing Slack and integrating it deeply into the company, not only into the distribution organization with Gavin and not just with its financial characteristics with Amy, but you can see the tremendous vision, especially if you watch the Dreamforce keynote, that Brett brought to Slack and Salesforce together with Slack First, and I'd love for him to talk about that because I think when we get to Dreamforce New York City, which is going to happen on December 8th at Javits Center, and I hope all of you will join us there. We'll have 2,000 customers there with us, and we'll be broadcasting that all over the world as well. Well, I think that you'll see that this has fundamentally changed the tone and tempo and future of Salesforce. We're really a very different kind of company because of this amazing acquisition. That said, this is a large acquisition. It is taking a lot of work and time for the management team to absorb it. And it still will take several more quarters before we can tell you that we're really running deeply integrated with Slack. And Brad, you've done so much of the leadership here with Slack and with Stuart. So maybe you could just address where we are and how you see the future acquisition environment.

Yeah, well, and I'll start just to reiterate what Mark said, which is right now our focus is integrating Slack and not on any near-term M&A. As Mark said, it's really important. What sets Salesforce apart is how successful we've been able to integrate and grow our acquisitions. My favorite slide at Investor Day with Amy, which we talked about the growth of exact target of MuleSoft and Tableau, and now seeing the early returns from Slack, I think it's one of our superpowers as an organization, and it really requires a lot of focus from the management team. Slack does feel really special, though, as Mark said. It's just a moment in time where the way we've worked, which has sort of been, as Mark said, it's not something we all planned. We just showed up at work one day, and that's the way work was done. And the whole world is reimagined at the same time. And we have this incredible opportunity to partner with our customers and help them with this transformation. And no one knows where the world is going. We know we're not going back to the office five days a week. And Slack has just become such a strategic part of every single customer conversation. As Mark said, I encourage everyone to either come in person to Javits Center on December 8th or watch online on Salesforce Plus and really see the power of Salesforce Customer 360 and Slack together. And I think you can see why we're so excited about it and see, as you can see, some of the early returns this quarter as we beat guidance.

I'll really add to that. You've seen us do so many incredible acquisitions starting with ExactTarget, moving on to MuleSoft, to Tableau, Slack. Let me tell you, there's no finish line on these acquisitions. It's a lot of work. It's skill. It's art. It's luck also to keep them all going because we're innovating organically and also we have innovated inorganically and And then we've deeply integrated these acquisitions into a customer 360. Our ultimate vision of where all of that is going, well, that's still something that we're, you know, continually to reveal. And it's being revealed to us. So, you know, it's a dynamic process and it requires all of our attention. And we're very excited about Slack and how far we've been able to come in such a short period of time.

Great. Cash, following up on your second question about operating margin, we've had a great year on this. I'm really delighted to predict that we're going to end the year around 18.6. And as you know, at Investor Day, I was thrilled to announce a guide to 20% next year, which I think symbolically is a key number for us. And we're doing that despite it being a full year with slack and what I'm hoping will be some moderately increasing T&E expenditures. But we're very much committed to doing that. Now, we have not given long-term guidance beyond FY23, but I will say we are committed to continuing to improve operating margin. As Brett said, there's a reimagination going on. We're having a chance to reimagine everything about how we operate. And I want to be able to make sure that we're using that to look at operating margin and look at how we're running a company with fresh eyes and continue to improve.

Your next question will come from the line of DJ Hines from Canaccord Genuity. Please proceed with your question.

Okay, thanks for taking the questions. Brett, I was hoping you could touch on some of the growing pains that were alluded to with MuleSoft. I think you also mentioned that there were some changes made in that business that you feel pretty good about. So maybe just unpack that a little bit. And Amy, maybe as a follow-up to that question, how should we think about the seasonality and modeling of the data cloud business, just given it's the first time that you're breaking that out?

I appreciate the question. As Mark said, there's really no finish line with integrating your acquisitions. And, you know, we've, you know, made some changes that we think are right for the long term. And what has been, I think, maybe perhaps, Mark, our fastest growing acquisition to date, as you saw in Amy's slide at Investor Day. So we feel very confident in the decisions we've made and, you know, have to get through a bit of this change management we were seeing in the short term results. But we feel very confident in the future of MuleSoft. and certainly no change to the demand environment. Actually, Gavin and I were just talking about this just before the earnings call, just how important MuleSoft is a lot in our Q4 deals, particularly the customer 360 deals, where our customers are connecting multiple clouds to multiple back-end systems, and how much integration is just such an important part of our customer conversation. So we feel confident in the long term of the business and recognize we have some short-term growing pains as we integrate our acquisitions.

Yeah, Gavin, could you come in here and kind of address that directly and just tell us, you know, tell us about the demand environment for the fourth quarter next year and what kind of pipeline and capabilities you're seeing with customers today?

Well, I'm not going to give specific numbers, but you can hopefully tell from my tone and conviction that demand environment is strong. The pipe is strong. And we're feeling pretty confident about Q4 and looking into Q1 as well. I think Brett said it very eloquently. We've gone through a little bit of, I would say, growing pains this quarter with you. There are operational challenges, but the actions that need to be taken are very clear. But it does not change in any way our belief that Mule is fundamental to our ability to deliver our customer 360. So I see its role in solving customer problems and creating value for customers is absolutely fundamental. And I'm confident we'll be able to work through these over the next quarter. So across the board, Mark, the business and demand environment looks strong. And as we cycle through another wave of COVID, I don't see that changing fundamentally.

We have reached the end. We have a lot of time for questions.

We'd like to answer the second part of that question, please.

Yes, let me just quickly respond to that. You asked about the seasonality of data in our new reporting matrix. One of the advantages of breaking up the revenue this way is I think it really provides greater transparency to all of our investors. And what this will do is it will put Tableau and MuleSoft, which are two primarily license-based offerings, together in the same line. So I don't think it's so much a question of seasonality, but it's a question actually of lumpiness. Because of the way that we recognize the revenue in periods, you were simply going to see more variability in that mine than you would in other areas. I really think it's an advantage to everyone to be able to have that be isolated going forward.

All right. Thank you for joining us on the call today. If you have any other follow-up questions, please email us at investor at Salesforce.com. Look forward to speaking with you next quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.