🔴Salesforce $CRM Q2 FY23 Earnings Conference Call🔴

All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press star one. Thank you. I would like to hand over the conference to your speaker, Mike Spencer, Executive Vice President of Investor Relations. Sir, you may begin.

Thank you, Emma. Good afternoon everyone. Thanks for joining us today for our fiscal 2023 second quarter results conference call. Our press release, SEC filings, and a replay of today's call can be found on our website at www.salesforce.com/investor. With me on the call today is Marc Benioff, Chair and Co-CEO, Bret Taylor, Vice Chair and Co-CEO, and Amy Weaver, Chief Financial Officer. She'll also be joined by Brian Millham, President and Chief Operating Officer, who will be available for the Q&A portion of the call. As a reminder, our commentary today will include non-GAAP measures. Reconciliations between our GAAP and non-GAAP results and guidance can be found in our earnings press release. Some of our comments today may contain forward-looking statements that are subject to risks and uncertainties and assumptions which could change. Should any of these risks materialize or should assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. A description of these risks and uncertainties and assumptions and other factors that could affect our financial results is included in our SEC filings, including our most recent reports on Form 10-K, 10-Q, and other SEC filings. With that, let me hand the call to Mark.

Well, hey, thanks Mike. And I thank everyone for being on the call today. As you saw in the results for the quarter, we've delivered really strong revenue growth, profitability, and cash flow, showing yet again the resilience and durability of our business model in this economic environment. Revenue in the quarter was $7.7 billion, up 22% year-over-year or 26% growth in constant currency. We had a great quarter, but yet again the dollar had an even stronger quarter, and we continue to see the impact on foreign exchange and currency fluctuation on our financials. For Q2, we saw approximately $250 million of headwind to revenue, which is roughly $50 million more than we assumed in our guide last quarter, and we now expect a total of $800 million for exchange headwind year-over-year for the full fiscal year. Operating margin in the quarter was 19.9%, and we delivered $334 million in operating cash flow. Our remaining performance obligation, or the total undelivered contract value we have with our customers, is really an incredible $41.6 billion, and this is revenue signed but not yet recognized. Now turning to guidance. Over the last few months, I've met with hundreds of CEOs, with economists, business leaders, political leaders, and other experts about their business and where they see this global economy heading. I don't think it's going to surprise anyone that everyone has a slightly different answer, and it doesn't matter who you speak to, could be a different geography, a different position. Everybody sees things just a slightly different way right now. But what we do know, and what I think everyone will agree on, is that digital transformation remains the number one priority for CEOs, and that every digital transformation begins and ends with the customer. That's what continues to drive our business forward, and it's why Salesforce is the number one CRM by market share globally, according to the IDC Software Tracker. For those of you who've been on these calls with us, you know we've all been through a number of these economic cycles, and we've especially seen that over our last 23 years. In ones like this, we see customers becoming more measured in the way they buy. Sales cycles can get stretched, deals are inspected by higher levels of management. All of this we began to start to see in July. Nearly everyone I've talked to is taking a more measured approach to their business. We expect these trends to continue in the near term, and we've reflected this in our guidance. Given the significant impact of foreign exchange and buyers being more measured, we're revising our fiscal '23 revenue guidance to $30.9 billion to $31 billion, or about 17% growth year-over-year or 20% constant currency. At the same time, we're maintaining our fiscal year '23 operating margin guide of 20.4%, an expansion of 170 basis points year-over-year. This is further evidence that we remain deeply committed to consistent discipline, margin, cash flow, and revenue growth as part of our long-term plan to drive both top and bottom line performance. We have the right team, the right products, the right playbook for getting to $50 billion in revenue in fiscal year '26. We always get questions about our M&A strategy and what company we're going to acquire next, and what we're going to do next from the acquisition cycle. I think we get this question every single earnings call that we do. It's always one of my favorite parts of the call, and I'm excited to tell you we have found a great cloud company growing revenue for 73 consecutive quarters through every economic cycle, with great cash flow, number one market share, an incredible brand, one of the most admired companies in the world, great values, fantastic community of 17 million trailblazers, fantastic commitment to its community, and runs across 90 countries. And that company is Salesforce. We're thrilled that our board of directors has authorized up to $10 billion in our first ever share repurchase. This reflects the confidence we have in our business and in our approach to generating shareholder value. Brett and Amy are going to expand in more detail about the broader capital allocation strategy in a moment. You'll also hear about some amazing customer wins in the quarter. I'm especially proud of a major deal we closed in the quarter with the U.S. Department of Veterans Affairs. It's one of our most meaningful partnerships. The VA is a relationship that we've been building for over six years, and now Salesforce is becoming the digital front door for our veterans and their families. We couldn't be more proud to do our part in helping those who made sacrifices in serving the nation. It's been an incredible year so far. Being able to connect with our customers in person again has been just amazing. We've done 63 marketing events so far this year, hosting over 250,000 trailblazers and counting. But none is more exciting, on every level, than Dreamforce. We're hoping to see all of you as we celebrate our 20th Dreamforce, September 20th through the 22nd right here in San Francisco. It's a celebration of our trailblazers, and we're going to expect 150,000 people to be here and register to attend. We'll also be streaming the entire three days on Salesforce Plus and expect millions more to tune in. We have an amazing line of product announcements and innovations and speakers, and giving back. It's going to be a big Dreamforce for us. It's going to be really the biggest Dreamforce ever, our 20th ever Dreamforce. We're also going to be celebrating the impact Salesforce has had through our 1-1-1 philanthropic model, as we've now surpassed over half a billion dollars in grants, seven million hours of volunteerism, and more than 50,000 nonprofits using Salesforce for free. At Dreamforce, the amazing Red Hot Chili Peppers — that's Anthony and his entire band, Flea, everyone — are going to be performing at our annual benefit concert, with 100% of the proceeds going to our children's hospitals right here in San Francisco and in Oakland. So please tell your friends, tell your firms, tell your vendors, tell everybody to get sponsorships to Dreamforce, because it's going to be incredible. And of course, you're all invited to our Investor Day during Dreamforce on September 21st. Amy, are they invested even if they don't do the Dreamforce sponsorship? All right, look, you're not going to want to miss it. Before handing off to Brett, I'd like to congratulate Brian Millham, our new Chief Operating Officer. Brian is employee number 13 and has been helping us to build this company from its earliest days. As Chief Operating Officer, Brian is going to continue to lead our customer success organization and now adds global sales to his responsibilities, bringing our incredible customer success ecosystem and sales cloud even closer together. Under Brian, this will help us deliver the full power of Salesforce to every one of our customers in the new economy. We're so fortunate that Gavin Patterson is taking on this important new role as Chief Strategy Officer, helping us to guide our direction. And thank you and congratulations to Gavin. I'm so grateful to Gavin, who for the last two years during the pandemic has overseen one of Salesforce's most rapid growth periods in Salesforce's history. When I look back the last three years, I saw it was really only two years ago, at fiscal year '21, when we did, I think, about $5.1 billion. Is that $5.1 billion, Mike? Something like that. And then last year, I think for Q2 we did something like $6.3 billion, and now we're doing $7.7 billion. I get the numbers right. I mean, it's an incredible trajectory of growth over the last 24 months. I couldn't be more proud of Gavin for helping us during that period, and now Brian in his co-role. Congratulations to Brian and Gavin. With that, I'm going to turn it over to Brett.

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

Thank you. As a reminder, if you would like to ask a question, press star followed by the number one on your telephone keypad. We ask that you limit yourself to one question, please. Your first question comes from the line of Keith Weiss with Morgan Stanley. Your line is now open.

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

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

Your next question comes from the line of Brent Phil with Jefferies. Your line is now open.

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

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

Another thing I just want to add: Brian's been running our customer success, professional services, and partnership organization for a long time. I think the story through the pandemic has been our historically low attrition rates and our focus on customer outcomes. I'm really excited about the opportunity of bringing our global sales organization together with our customer success organization. This is a really important part of our philosophy, and I think this move really, really it definitely surprised both of us about how low attrition Brian has been able to get and how great a job he's done. Deeply connecting that success motion to our sales motion reflects a philosophical view from Mark and me about our philosophy.

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

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

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

Your next question comes from the line of Raimo Lenschow with Barclays. Your line is now open.

Thank you. The slowdown that we're seeing or lengthening of sales cycles is nothing that is unique to you guys; we heard from other vendors as well. Can you talk a little bit about what you see in terms of client prioritization for certain projects? I remember from the old times that the front office always had higher priority because it's revenue generating, etc. Are you seeing that happening now as well? Can you speak to that? Thank you.

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

No, great question, Raimo. I agree with you that front office is the priority. You heard both Mark and Brett, and I'm feeling it too when we're out talking to CEOs. Digital transformation remains their number one priority, and we need to make sure that we're delivering for them. We're also seeing it in the demand environment. We're still seeing very good generation of pipeline in our business right now. While we are facing some longer sales cycles, additional layers of deal approvals, and potentially some deal compression, the demand environment is solid. You're spot on that we are seeing the front office as a priority for every CEO out there.

We'll go to the next question. Your next question comes from the line of Brad Sills with Bank of America. Your line is now open.

Great, thanks for taking my question. Thanks for all the color on where you saw the macro impact. It sounds like SMB, marketing, and commerce, but the core Sales and Service looks to have held in nicely. You didn't call out enterprise, so any specific color on how the core business and the larger enterprise expansion deals in the core tracked this quarter? Thank you so much.

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

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

Your next question comes from the line of Kash Rangan with Goldman Sachs. Your line is now open.

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

First of all, Kash, thanks for the question and the kind comments. On the Data business, it's a unique business for us because some of it is license-based, and you can tend to see some of the headwinds we saw in July show up more immediately there. We feel very good about where both those businesses are right now, particularly MuleSoft, which as you heard Brett say, is on a great trajectory and will be a tailwind to our revenue growth in the second half this year. We feel great about that. Tableau is a critical component of our digital transformation, with every customer wanting to leverage data to have better insights into the way they operate their business. So clearly a lot of focus on these businesses because it is such a critical component of every digital transformation. We feel great about that. Both integration and analytics is a category for accelerated growth in the second half. So no big concerns there at all.

On your second question, we are not economists, so we're not going to guide on when people are going to feel like they're coming out of this. We think we're being appropriate with our guide for the second half of the year based on what we saw transpire in July. The main piece that I would really focus on is spending as much time as I can with customers at Dreamforce. This is our opportunity to really understand deeply across a wide spectrum of our customers, geographies, verticals, what they are seeing in their own businesses. When you look at customers like L'Oreal, it's been an incredible success story for us. We see the B2C story; they're using Marketing Cloud, Commerce Cloud, and Service Cloud. The Commerce Cloud store is incredible, where they have almost 200 sites globally now for all of their brands. They've got highly customized experiences on the web, mobile, and in-store. I'm sure a lot of you use the Kiehl's brand; it's a great product. They have a whole new Skin Hub; they've reimagined their business using Customer 360. That's a company we're going to feature and focus on and inspire others at Dreamforce. When you see stories like that, and all the stories we've seen especially during this pandemic surge over the last two years, it's incredible what folks have done with their businesses. When we get to this moment, I don't think it's a huge surprise that customers are more measured. Everybody is wondering exactly where the economy is going and how things are moving forward. This is a point where people are taking a little bit of a breath, and then they will reassess. When they get their confidence and a full vision for the next stage of their company, they come in. Until then, it's a lot of the transactional business that we would normally see.

Your next question comes from the line of Karl Keirstead with UBS. Your line is now open.

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

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

Yeah, I think Mark articulated it well. The pillars of our capital allocation strategy are number one, that we're going to continue to become more profitable, to generate expanded free cash flow over time. Thank you for saying that we created a great business model in software as a service, Mark. I think also committing to the margin for the year is so critical for investors. Number two, we're going to invest in organic innovation. We talked a bit in a question to Amy earlier on investment; I'm so proud of our investment in organic innovation. You'll see a lot more at Dreamforce. I think we have a better pace of organic innovation than we've had in our history. And then finally, we want to reduce the impact of dilution, which is feedback I've gotten from all of you. We're focused on offsetting our stock-based compensation, and we're also focused on maintaining a healthy balance sheet because we understand that's an incredible piece of leverage we have for future M&A. So I think this is a way that we can continue to acquire in the future; it's been a big part of our company's history and will be a big part of our future, but do so in a way that minimizes the impact of dilution and does it in a more shareholder-friendly way. You can see we've picked up some great companies, whether it was ExactTarget, which was the beginning of really augmenting Customer 360 with our Marketing Cloud, then moving on to MuleSoft, which was amazing and provided all the integration and connectivity, and then on to Tableau giving the extension of analytics so important to many of our largest customers, and then Slack. I just mentioned L'Oreal; it's an incredible Slack story. They've streamlined their communication. They have that awesome brandstorm event, a worldwide innovation competition that they do. They have more than 83,000 student participants in 65 countries. They use Slack to drive that thing forward. We're a different company because we had an acquisition strategy over the last decade. I don't think we necessarily need to break that, but at the same time we need to be paying attention to the dilution and the overall capital allocation strategy.

I really think that when we get to Dreamforce and you see how we've brought all of these platforms together and integrated them, you're going to see some really powerful integration capabilities. You already saw some of it at the World Tour in New York with the first level of the Customer Data Platform. You're going to see a whole other extension of that capability when we get to Dreamforce. It's a very exciting moment in time when it comes to innovation at the company.

Your next question comes from the line of Kirk Materne with Evercore. Your line is now open.

Yeah, thanks very much. I think this one's for Brett. I was wondering if you could go into the industry cloud strategy a little bit, what you're seeing going on there, and talk a little bit about how important that strategy is as budgets come under more stress and your ability to go deeper with your customers on an industry basis. Just curious to get an update on that and how the strategy maybe plays out in a more choppy macro backdrop. Thank you.

Yeah, thanks Kirk. We have 12 industry clouds spanning a wide range of industries where CRM is particularly strategic, from financial services to health care to consumer goods and manufacturing. You can think of our industry clouds as essentially taking the Customer 360 — Sales, Service, Marketing, E-commerce, Tableau, MuleSoft, Slack — and building industry-specific processes and workflows that work out of the box. As you're alluding to, there's a lot of value for our customers. Number one, they don't need to pay us or a professional services firm to implement the table stakes for their digital transformation; it works out of the box. That means they can focus their investment resources on the areas of their business that are differentiated, it means they get faster time to value, and it means these processes are stickier, which is why our industry clouds have lower attrition rates than our line of business clouds. It's been a huge area of growth for us. Credit to our Chief Product Officer, David Schmaier, whose company we acquired a couple of years ago, Vlocity, was an independent software vendor that built industry solutions on top of our platform and has been a strong advocate for this strategy internally. It's a huge part of our go-forward strategy. If you have an option to buy one of our industry clouds, why wouldn't you? More works out of the box, you'll get faster time to value, so it's a huge area of investment for us. The thing we do really uniquely, Mark alluded to it, is it's all in one integrated platform. If you buy our Financial Services Cloud, you get all the capabilities of our Sales Cloud, Service Cloud, Customer Data Platform, all in one integrated technology platform. It's very unique in the industry, and I think in this more measured buying environment, it will become even more important. It was important prior to this as well, and it reflects our alignment with our industries go-to-market motion and vertical go-to-market motion, really focusing on delivering faster time to value to our customers.

Thank you. Your last question today comes from the line of Phil Winslow with Credit Suisse. Your line is now open.

Hey, thanks for taking my question. I wanted to focus on Slack. Slack again outperformed revenue expectations; obviously the large deal metrics are impressive too. What's driving the continued demand for Slack relative to some other vendors that are heavier in telephony or video segments of UCaaS that have frankly been delivering weak results? Are you seeing strong standalone demand for Slack as a horizontal messaging platform, or are the Salesforce integrations that you highlighted driving more attached as a collaboration hub for Slack in the context of multi-cloud deployments? Thanks.

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

I think a lot of the reasons we bought the company — that they could benefit from our credibility with customers and our distribution capacity — have really paid off. It's such a great product. In June, you probably know Brett and I did the World Tour in New York; many of you were there. But the day before was the Frontiers conference for Slack, and if you haven't looked at the demo, you really should, because the product has come a long way since we bought the company. It's an incredible piece of technology. Video, I mean, it's incredible. You have to see it to believe it. Don't you agree? For a lot of you coming to Dreamforce, I think you're going to see how many of our products have become Slack-first. Also, the number of integrations that we're going to be able to bring forth — how many integrations do you have with these core clouds now? We have 12 integrations. The reason there are so many is because it includes our industry clouds, not just Sales, Service, Marketing, and Commerce. Something remarkable: Huddles, which is the name of the new audio and video capability Slack introduced, now accounts for 34% of all communication inside of Salesforce. It's completely transformed the way we work, and I'm pretty confident it will transform all of our customers. We've integrated Slack with Tableau, which is really cool — you can do collaborative analytics. With the capabilities we launched to allow you to talk to your data, this is happening inside of Slack. It's just an incredible capability and a relevance driver for all of our customer engagements. A wonderful way to drive and accelerate Slack adoption that they would have had independently, but a lot of our customers still haven't seen this. That's why I'm so excited about Dreamforce. When you come to Dreamforce and see the keynote, this will be highlighted, and customers will see in real time what we saw at Frontiers. We didn't have the opportunity because the code was so fresh to integrate it into our World Tour keynote, which Brett and I have lamented many times. But when you start to see the incredible innovation that has happened in the Salesforce core clouds — Sales, Service, Marketing, Commerce, even Tableau — and combine that with Slack, bring that into Customer 360 with MuleSoft as the single source of truth, all integrated with the Customer Data Platform, I don't think anyone else has this vision or is even trying to execute it. I've told the L'Oreal story quite a few times; you're going to see that at Dreamforce in real time and many other stories. For us, trying to communicate our vision, this is probably the most exciting thing going on here. We just brought 500 of our top executives together for the second half kickoff and showed them what we're so excited about. I don't think anybody walked away not thinking that we've not only got a world-class product that's highly differentiated, but we're really where a lot of our customers are trying to get to in the next level of their customer experience. Brett made the point, Amy's made the point, Brian's made the point: digital transformation is underway, but we all know that every digital transformation begins and ends with the customer. You have to begin with the end in mind. That's all about building this Customer 360, and you're going to see this at scale when we all get to Dreamforce. I'll look forward to your feedback then. Thanks Phil, and we want to thank everyone for joining us today. We look forward to seeing everyone over the next quarter.

This concludes today's conference call. Thank you for attending. You may now disconnect.