Salesforce.com Inc  (NYSE: CRM) Q1 2021 Earnings Call Transcript

Salesforce.com Inc  (CRM) Q1 2021 earnings call dated May 28, 2020

Corporate Participants:

Evan Goldstein — Senior Vice President, Investor Relations

Marc Benioff — Chair and Chief Executive Officer

Mark Hawkins — President and Chief Financial Officer

Bret Taylor — President and Chief Operating Officer

Brian Millham — President, Customer Success Group

Gavin Patterson — President and Chief Executive Officer of International

Amy Weaver — President, Legal & Corporate Affairs, General Counsel and Secretary

Parker Harris — Co-Founder

Analysts:

Mark Murphy — JP Morgan — Analyst

Terry Tillman — SunTrust — Analyst

Sarah Hindlian — Macquarie — Analyst

Derrick Wood — Cowen and Company — Analyst

Kirk Materne — Evercore ISI — Analyst

Brent Thill — Jefferies — Analyst

Presentation:

Operator

Welcome to Salesforce Fiscal 2021 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Evan Goldstein, Senior Vice President of Investor Relations. Sir, you may begin.

Evan Goldstein — Senior Vice President, Investor Relations

Thanks, Josh. Good afternoon everyone and thanks for joining us for our fiscal ’21 first quarter results conference call. I’m Evan Goldstein, Senior Vice President of Investor Relations. Our results press release, SEC filings, and a replay of today’s call can be found on our IR website at www.salesforce.com/investor. With me on the call today is Marc Benioff, Chair and CEO; Mark Hawkins, President and CFO; Bret Taylor, President and COO; Gavin Patterson, President and CEO of International; Brian Millham, President, Customer Success Group; and Amy Weaver, President and Chief Legal Officer.

As a reminder, our commentary today will primarily be in non-GAAP terms. 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, uncertainties and assumptions, in particular, our expectations around the impact of the COVID-19 pandemic on our business, 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 those 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 over to Marc.

Marc Benioff — Chair and Chief Executive Officer

Okay, thank you so much, Evan, and thank you everybody for being on the call today. I hope you and your families and colleagues are all healthy and safe. We’re in a moment in time anything — any of us, well, that we’ve ever experienced and, for instance, usually I’m speaking to you from the top of Salesforce Tower, but today, I am speaking to you from my home. As I suspect, many of you are in your homes as well. It’s another reminder of how the pandemic has dramatically affected all of us, our customers, and our humanity in ways that we could have never imagined and my heart is with everyone who has been affected by this virus, especially those who have lost loved ones. This pandemic is revealing the culture and the core values of every company and those of you who have followed us closely know that Salesforce has always been deeply committed to serving all of our stakeholders.

Well we have — we have really lived this for two decades and especially over the last 90 days, the foundation of our company is our four core values: trust, customer success, innovation, and equality. And first and foremost among these is the trust that we have with all of our stakeholders. The story of our first quarter is very much the story of trust. Salesforce and our Ohana rapidly taking action to embrace and invest in all of our stakeholders. Indeed, our financial results for the first quarter reflect the unprecedented long-term investment that we’ve made in our employees, in our customers, and also our communities and as our fiscal year began, we were coming off an amazing fourth quarter. It capped off another record year for Salesforce, and February, the first month of our first quarter of fiscal year ’21 just continued an amazing growth trajectory. By mid-March, of course, and all of you know, the virus emerged into this global biological and economic crisis.

We rapidly pivoted the company to address three priorities in support of our stakeholders: keeping our employees healthy and safe, guiding our customers to navigate this incredibly challenging situation, and supporting our communities around the world. We view this pandemic in three phases. The first 90-day phase has been about rapid response and investing in all of our stakeholders. We’re now entering the second phase, re-opening safely; and the third phase, which we believe we’ll enter next year, will be about a new normal and I want to spend a few minutes on the actions we took during the first quarter and phase one.

First, we’ve invested in our employees, their health, their well-being. Well, this remains our highest priority. We closed 160 offices around the world in a moment’s notice, guided all of our 52,000 employees to work from their home. We settled in remote work situations. As a cloud first company and with our amazing Salesforce platform, well, this transition was extremely smooth. We rapidly learned that we can run Salesforce very effectively anywhere, even from our homes and we found the overall situation was taking its toll on many of our employees mental health as they sequestered into their own homes as it has been for many people all over the world and so we invested in mental health and mindfulness programs to help them.

Our core program, B-Well Together, which was initially just designed for our employees, well, we’ve had to open that up publicly to all of our customers, well, the whole world because of public demand. We also invested in our employees financial stability. We committed to no significant layoffs for the first 90 days of the crisis and in late March, we also gave certainty to our sales team with a one-time guaranteed commission for the first quarter, which we knew would close at the height of the crisis, giving them tremendous confidence in our ability to take care of them. This was a critical investment in the long-term success of our amazing distribution organization.

And we invested in our communities. In early March, we were asked by Sam Hawgood, the Chancellor of UCSF to help him acquire PPE. UCSF was already running low on PPE. Chancellor Hawgood was looking for ways to protect his doctors and nurses and other frontline workers, but the fact then I have to tell you, I didn’t even know what PPE was, it turned into a much larger and more critical effort almost overnight and as we received many requests from hospitals, nursing homes, essential businesses, the CEOs of some of our largest customers calling us in dire need, well, in partnership with UCSF, we helped acquire, distribute more than 50 million pieces of PPE to over 300 hospitals and first responders globally.

And just one example, Salesforce sent a 767 loaded with PPE to New York City at the very height of the crisis, masks and gloves and aprons that we acquired, well, they were immediately delivered to the state distribution hub at Javits Center and I’m deeply grateful for our relationship with Daniel Zhang, the CEO of Alibaba, who helped get this started and make sure that we got the PPE that we so badly needed in here. At the same time, we’ve donated funding, employee volunteer time, services to those most in need focusing on access to care, lost livelihoods, food and security and the digital divide.

This pandemic has exposed deep structural inequalities across our society that we can’t ignore. We can see that on TV right now, but at Salesforce, our core values include our commitment to the equality of every human being and this will be part of our work going forward as it has been for all of us. Look, we also invested in our customers actually quite dramatically. Even with our employees working from home, our culture of innovation continues to thrive deploying new products to help customers at this critical moment in time.

I was especially inspired by the productivity of our incredible engineering organization. and talking with CEOs all over the world, it became apparent very quickly that many were looking to Salesforce to help them guide through these unchartered waters. Companies were working from home, leaders have little visibility in their businesses, no way to easily connect with their remote employees, customers or partners and they turned to Salesforce. For some of our customers most severely affected by the unprecedented impact of COVID-19, we even granted them a temporary financial flexibility.

We also created three rapid response Salesforce care products to help companies work, to sell, to service, to market from their homes and we’ve already had more than 38,000 sign ups for Salesforce Care led by versions of Salesforce Essentials and Salesforce Quip. That’s been amazing. Our Salesforce Care industry solutions for healthcare and manufacturing, well, they provided and proved to be crucial for many companies. They are scaling up services, they handle increased demand for patient management pivoting to much needed PPE, ventilators in their factories.

Tableau, well, they were amazing. They built this incredible free analytics platform, the Tableau Data Hub, tracking the virus and being used by dozens of U.S. states and countries around the world. You can see it at public.tableau.com and you know with Tableau Data Hub, New York State posted a set of Tableau dashboards that provide a daily look at the latest testing and confirmed case data at both a state and county level and that data is also used by Governor Cuomo during his daily briefings.

We’re able to do all this because of our Salesforce platform provides the agility, the flexibility, the speed to create solutions not in months or years, but in weeks, even days and with everyone sheltered-in-place, we saw tremendous growth also in our Commerce Cloud’s weekly order volume and our Einstein Bot sessions, both were up more than 100% since February 1. Einstein predictions increased 5 times over this time since last year.

We also had an amazing job of happening — pivoting from physical events to virtual events. We developed an online leadership program called Leading Through Change. Its had over 75 million views so far, incredible. Program highlights the work our customers have been doing during this crisis, it gives them inspiration and guidance and also shows them Salesforce solutions that are available to help them get their jobs done. It’s included phenomenal speakers like the CEO of Starbucks, Kevin Johnson and also the CEO of Accenture, Julie Suite, and many more.

And as the virus continued to spread throughout March, we also got a call from Governor Gina Raimondo of Rhode Islands. Now, Gina is amazing. She needed a way to manage her critical contact tracing, which would enable her State’s Health Department to track the virus as it spread and isolate anyone exposed. So this became an opt-in manual process where the citizen can report that they’ve been tested for COVID-19 and identify anyone else they’ve been in contact with.

Even those contacts can be notified of their potential exposure to the virus and isolate themselves and Governor Raimondo inspired us to build an app that managed this process and scale efficiently and reliably. We were on the phone with her many times and so we did it in just a few weeks on the Salesforce platform and in addition to Rhode Island today, we’re now helping more than 30 states reduce the spread of COVID-19 including Maryland and Massachusetts, Kentucky, Louisiana, California and great cities in our country like New York City and other countries too. This is an incredibly important effort.

We’re developing the contact tracing app for Rhode Island, we saw we needed to deliver several products now to mitigate the spread of the virus and we needed to do it rapidly, not only for our public sector clients, but for our commercial clients as well. Customers are asking for automation to facilitate the return to work safely including the contact tracing, shift scheduling, workforce assessment, a command center for the crisis, and this was the genesis of our work.com platform, which has rapidly become a significant part of our public sector pipeline and actually a meaningful part of our overall pipeline. We’ve been hugely surprised.

And while all of this was happening, we also delivered $4.87 billion in revenue, up 30% year-over-year. We delivered $1.86 billion in operating cash flow. Now, that was down slightly year-over-year to many of the actions that I just reviewed in response to the pandemic and as I mentioned earlier, we also provided some customers temporary financial flexibility. We also incurred some incremental business expenses such as the one-time commission guarantee for our sales team that I mentioned.

We expect these expenses to be largely, I would say, wholly encapsulated in the first quarter. We have great confidence that our investments — we already see it in our employees, our customers, our communities in the first quarter, well, they’re benefiting us. They’re benefiting us now in the short-term, the long-term with tremendous strength and tremendous growth and for the fiscal year 2021, we’re updating our guide of approximately $20 billion representing 17% projected growth year-over-year and we believe this guide is very appropriate given the current biological and economic environment worldwide.

Our ability to execute globally with speed through the adverse conditions of March and April, well, I’ll tell you, that gave us tremendous confidence we can operate successfully in any environment at any time. It was incredible. We demonstrated that we have the ability to innovate and meet rapidly changing customer demands and needs under any circumstance. And the last few months affirm the strengths we have in our amazing customer relationships and our ability to innovate at scale and operate across different industries and geographies, companies of all sizes and with Customer 360, well, it was clear to us, we have the most complete CRM product portfolio to enable digital transformation of any company.

I was excited to see in the quarter and for the seventh year in a row, IDC has ranked Salesforce as the number one CRM. We gained more share in 2019 and we’re now seeing continuous improvement in our businesses, in our bookings, in our pipeline month-to-date, but we’ve been really surprised by our pipeline growth, it’s been incredible and our pipelines for the second quarter and the fiscal year are really strong.

I’ve been on more sales calls with more CEOs in the last two months than at any time in my career and there is universal agreement among them. Digital transformation, well, this isn’t a want to have, it’s a must have. Companies and organizations and governments around the world have a digital transformation imperative like never before and many are accelerating their plans for digital first, work from anywhere environment.

For example, in Q1, we signed an incredible and extensive deal with AT&T. With the vision of AT&T Communications’ CEO, Jeff McElfresh, incredible executive, somebody who’s just been completely inspiring to me. Well, AT&T is moving to a highly accelerated, digital first world to deliver the most amazing 5G service with an incredible connected experience for their millions of customers and subscribers across every customer touch point and this includes their media properties such as DIRECTV and HBO and Turner Sports and more, but with Salesforce, AT&T will further extend this vision of a single view of their customer, single source of truth really with every customer touch point federated on Customer 360 across retail sales and call centers, on messaging, and online, and in-home service and more, you know, only Salesforce could do that.

Every customer touch point, the AT&T truck pulls up to my office or my home, that’s going to be Salesforce and I walk into the AT&T store and that’s going to be Salesforce and I’m getting an email from AT&T and that’s going to be Salesforce and I’m on the phone with the AT&T call center and that’s going to be Salesforce and we’re going to make sure that they have that Customer 360 enhanced and I’ll tell you when we’re integrating all that data and well MuleSoft is going to connect AT&T’s different back-end systems, Tableau is giving them the ability to understand customer preferences, Einstein is going to help them serve more intelligent recommendations and route service cases.

I was on the phone just yesterday with Jeff McElfresh reviewing the incredible progress of the project and it was clear to me, this is going to empower AT&T to drive more value and build stronger relationships with every customer and we’re going to begin deploying this with Jeff and his team to AT&T’s employees very, very shortly. Our goal is by the end of July. And then to tens of thousands of users in the third quarter.

We’re thrilled to have also significantly expanded our 15-year partnership with Standard Bank Group, the largest bank in Africa. It operates across 20 markets. It’s an incredibly important bank to the African economy. Standard Bank is going to leverage the full power of our Customer 360 including the Financial Services Cloud, the Commerce Cloud, Marketing Cloud, MuleSoft, and Einstein to provide that single view of the customer, to build personalized customer journeys and deliver amazing client experiences in retail banking across all channels.

And when the livelihoods of Zions Bank customers were threatened by COVID-19, well, the Utah-based bank turned to Salesforce and Customer 360 to virtually support a high volume of loan requests. They are using our customer communities and our Service Cloud to facilitate conversation with customers, automate applications processing, provide tracking and visibility to customers waiting for their loans, Zions Bank stood up its loan application portal in seven days. Even though, the 38th largest bank in the U.S., it became the ninth largest distributor of SBA Payroll Protection Program funds in round one using Salesforce’s Customer 360 platform.

One of our ISV partners, nCino, well, they built an end-to-end solution for federal SBA CARES Act loans for small businesses all on Salesforce and it processed more than $35 billion in loan application for its banking customers including KeyBanc, IBERIABANK, the world’s largest credit union, the Navy Federal Credit Union, all running on Salesforce Customer 360 and one of the unique aspects of COVID-19’s crisis has been deepening our ties with the local and federal governments around the world, but public sector action has never been greater. I mean I can’t believe how many phone calls I’ve been on with governors.

In the public sector, a number of our government customers, you know, agencies, if you will, they chose Salesforce in the quarter to begin helping them address COVID-19 related issues including some of the very largest federal agencies. At the state level, we formed a new relationship with the State of California’s Office of Emergency Services. They implemented Salesforce to create the public health ordering system, an application that helps the state leverage data for urgently needed public health resources across California to improve customer service. We did it in days. And the U.S. Census Bureau, well, they expanded their long-time relationship with Tableau as the agency’s data analysis with the visualization platform of choice, Tableau partners with the Census Bureau on mission critical data applications in support of the 2020 census and beyond, so important.

Internationally, we also had an incredible deal with Commonwealth of Australia where we partnered with the National Disability Insurance Authority to deliver an improved experience where more than 500,000 participants that are predicated to access disability support by 2025. Those are some of the highlights from Q1.

Now looking ahead, as much of the world is beginning to move now into phase two or like what we like to call re-opening safely. Our work.com platform is going to become a — well, it’s going to fill a huge unmet need. Step by step, we’re seeing the economy is starting to come back to life. Salesforce is also beginning to reopen its offices. First throughout Asia, it has to be done safely, got to be done responsibly and it’s got to be a complex process.

In the new normal, businesses are going to have a new lifestyle, a new lifestyle of masks and PPE, a new lifestyle of taking people’s temperatures and enforcing social distancing standards, a new lifestyle of testing and contact tracing and a new lifestyle of wellness assessments to mitigate interaction with the virus. You can see some of the photos on my Twitter feed of our employees entering some of our offices, it looks very different than it did just 90 days ago. We’re going to need a command center to monitor return to work readiness.

They’re going to need shifts scheduling because businesses are not going to bring everyone back at once. They’re not all coming back at once, because you are going to need social distancing and you’re going to need tools for emergency response management and you’re going to need expert perspectives from renowned experts because this is changing on a regular basis and from our incredible ecosystem and tools and workforce re-skilling, well, we’ve bundled all that into this work.com suite.

You can see it at work.com, you can see what we’ve built, how we’re starting to roll it out, who our partners are. It’s a platform for enabling our customers to reopen safely and it’s because it’s built on our Customer 360 platform, we’re able to spin up this entirely new generation of apps in a matter of weeks, amazing. And I just have to give credit where credit is due to Governor Gina Raimondo, Rhode Island. It was her call to us early on in the crisis that inspired us to build work.com. She was the visionary that said we need information technology to mitigate what’s happening with the virus until we have a vaccine.

Well, I’ll tell you, at times, even though we had nearly 52,000 people at Salesforce, creating work.com felt like many of our early start-up days with the speed and scrappiness, the laser-focused execution of our management team, it was — this was the best I’ve ever seen Salesforce and we’re already returning to work. We’re starting to see the return on this investment now. It’s amazing, in a very short time work.com has generated enormous interest from businesses and governments at every level, from our partnerships and with work.com, well, we’ve deepened those partnerships with the world’s largest systems integrators including Accenture and Deloitte, and PWC, and IBM and many of our partners are now building solutions on work.com as well.

It’s incredible to see what they’ve done with risk management and compliance and business continuity and just yesterday, Workday announced that it’s going to integrate its employee data directly into work.com to make it easier for employers to centralize critical data and get their businesses up and running again. We’ve enabled and trained all of our salespeople worldwide to be able to talk to our customers on how to reopen safely with work.com. I’ve been thrilled and I’m so thrilled also especially in my Workday partnership with Aneel, well, that’s just an amazing company and to make work.com even more valuable to so many of our joint customers. So thank you, Aneel for that.

In the months ahead, I expect work.com’s ecosystem to rapidly become even more robust with even more relevant solutions. I’ve had so many of our customers contact us on how they can integrate their own products into work.com. That’s so cool and as we move deeper into phase two, work.com is going to become extremely important to all of our customers.

We learned from this crisis just as we have and every time we have been faced with major challenges as well, we saw once again how our values create value. We’ve seen how our agility and our beginners mind has enabled us to quickly pivot and take action and we made investments during Q1 to confront this once in a generation calamity focusing on our employees, delivering relevant innovation for customers, and supporting our communities with PPE and grants and technology, well, we could do all this because of proven strength and sustainability of our extraordinary business model and our extraordinary technology and our extraordinary Ohana.

We know that when we invest in all of our stakeholders, we’re building the trust, the relationships, the innovation and our business for the long-term. The pandemic has shown that digital is the lifeblood for every organization whether you’re public sector, states, country or whether you’re a commercial organization or non-profit or an NGO, the new normal phase three, it’s going to require organizations of all sizes, shapes, geographies, well, everyone is going to have to adopt new ways of conducting themselves and especially their customer relationships, especially their sales and service, especially their marketing and commerce, and especially new ways of collaborating and re-skilling workers. Every company is going to have to digitally transform.

Fortune’s recent survey of Fortune 500 companies found three-quarters CEOs, well, they believe this crisis is going to force their companies to accelerate their technological transformation. Well, I mentioned Jeff McElfresh of AT&T, well, he is the first one who said that to me. He was the first one who got on the phone with me and said we’re going to accelerate our digital transformation at AT&T. And I believe that Salesforce has never been more relevant or more mission critical to more organizations. No one is better positioned than Salesforce to accelerate out of this crisis and bring customers into the new normal.

Now before I turn it over to Mark, I want to make sure you’ve heard that Gavin Patterson, the former CEO of BT Group and our current President and CEO of International will be our new President and Chief Revenue Officer beginning August 1st and you’ve already heard of one of Gavin’s amazing deals and I hope he’ll talk about that later on the call, but I’m so thrilled to have Gavin as a member of the team. He’s just an amazing executive. We’ve been friends for many years and he’s already had a huge impact on our company and on our management team and I could not be happier for Gavin, but I couldn’t be happier for Salesforce and all of our Ohana to be able to have his experience and his capability as part of our organization. And with that, I’ll turn it over to you, Mark.

Mark Hawkins — President and Chief Financial Officer

Okay, well thank you, Marc, and before I begin, you guys, I want to express my thoughts and my best wishes for everyone’s safety and well-being during this historic time. I’d like to focus my remarks on providing additional disclosures and commentary on the company’s response to the COVID pandemic and our updated fiscal ’21 guidance. As Marc said, our actions in Q1 were focused on investing in our employees, our customers, our community in response to COVID-19 and preparing for a post pandemic future. We continue to believe that values drive value and these Q1 investments in all of our stakeholders will result in long-term equity. We want to provide visibility into how our actions in response to COVID-19 affected our financials in Q1 as well as our updated guidance. I’ll begin with a top line commentary.

Revenue for Q1 was $4.865 billion, up 30% over last year. We saw good revenue performance by cloud as Sales Cloud grew 16% and approximately 4 points from significant M&A, Service Cloud grew 23% with 2 points from significant M&A, Platform and Other grew 62% with 35 points from significant M&A and Marketing and Commerce grew 27% with 4 points from significant M&A. Additionally, we had strong year-over-year revenue performance by region in constant currency. Americas grew 29% with 11 points from significant M&A. EMEA grew 41% with 12 points from significant M&A and Asia Pac grew 28%.

Additionally, we were pleased to have maintained a revenue attrition rate of less than 9% at the end of the quarter. In fact, this is actually down year-over-year and in line sequentially. This speaks to the diversity of size, industry and geography within our customer base as well as how mission critical our products are to our customers. As always, we continue to monitor this metric closely to determine how the COVID pandemic may impact our customer base going forward.

Our performance — our remaining performance obligation representing all future revenues under contract ended the first quarter at approximately $29.3 billion, up 18% over last year. And as a reminder, this metric includes both new business and renewal contracts. In Q1, these contracts were approximately three months shorter in duration on average compared to Q1 of last year and we believe this is a result of the COVID pandemic and we expect this to normalize in the future.

Please note that the contract we signed with AT&T entirely resides in non-current portion of RPO as our updated revenue guidance assumes no contribution from AT&T in FY ’21. Our current remaining performance obligation or CRPO which is all the future revenue that is under contract and is expected to be recognized as revenue in the next 12 months was approximately $14.5 billion, up 23% year-over-year.

Turning to EPS and operating margin. Q1 GAAP EPS was $0.11 and non-GAAP EPS was $0.70 and there are a few items I’d like to discuss as they pertain to the Q1 objective of investing in our employees, our customers, and our community in response to COVID-19 and preparing for the future, which we believe will lead to an even stronger business and company.

First, the one-time partial commission guarantee discussed earlier was approximately $140 million. As a partial commission guarantee makes it not eligible for capitalization, this expense will reside in Q1 and not in the future periods. Given how sudden and severe the pandemic arrival was in March, we chose to take powerful action to care for our employees through this crisis.

Second, due to the cancellation of our physical events this fiscal year in favor of virtual experiences, all event contracts that included cancellation fees for fiscal ’21 commitments were expensed in the quarter. This amounts to approximately $65 million. We are working with these vendors to renegotiate these contracts as we pivot to digital virtual experiences, which means we could see some partial reversal later in the year.

Thirdly, we incurred approximately $25 million in one-time lease impairments due to vacating and sub-leasing offices that will likely return below market rent due to the COVID pandemic. And finally, we prioritize caring for our community by donating approximately $20 million which came in the form of PP&E and cash grants. These unique and mostly one-time variable items were partially offset by approximately $75 million in savings largely from T&E due to shelter-in-place orders. The net of these items created an approximately 350 basis points of headwind to operating margin compared to our expectations in the quarter. Regarding our strategic investments, we recorded approximately $192 million in realized and unrealized gains. This was driven by significant realized gains on the sale of public securities, partially offset by unrealized losses within the investment portfolio.

Turning to cash flow, operating cash flow was $1.86 billion, which was largely impacted by delayed payments from customers while sheltering-in-place and some temporary financial flexibility that we granted to certain customers that were most affected by the COVID pandemic. We expect to collect the majority of the balance this year and do not expect this to have an impact on our full year cash flow. In addition, we previously described this partial commission guarantee also created a headwind to our operating cash flow. Should we not have incurred these items above, our Q1 growth rate would be consistent with historical rates. Capex for the quarter was $323 million, leading to a free cash flow defined as operating cash flow less capex of $1.54 billion, down 15% year-over-year.

Turning to guidance for Q2 and fiscal ’21, revenue is now expected to be $4.89 billion to $4.90 billion in Q2 and approximately $20 billion for the fiscal year, the latter which continues to include $50 million contribution from Velocity which is expected to close on June 1st. There are two important assumptions reflected within the guidance that stem from our assumptions that the IT spending growth normalizes next year, which we believe to be appropriately conservative and consistent with our learnings as we successfully navigated through the great financial crisis.

First, our guidance assumes our revenue attrition rises from less than 9% now to less than 10% temporarily for the rest of the fiscal year. Second, the guidance reflects the adjustment to incremental new business expectations that we made due to the COVID pandemic. Another important consideration when thinking about our FY ’21 guide is of the magnitude of the above when applied to our term license products. As a reminder, the term license revenue product typically records approximately 50% of the contract’s TCV immediately to revenue with the remaining balance recorded ratably over the contract term. This accounting treatment can create uneven revenue trends between fiscal periods as you saw during half two of FY ’20, this helped drive the revenue outperformance in those quarters.

Additionally, we are pleased to have experienced improving trends within our pipeline and closed rates between March through today, which leaves us incrementally optimistic about the future. In fact, April was better than we anticipated would be when we started that month. We continue to see additional positive trends in May. For Q2, GAAP diluted EPS is expected to be minus $0.02 to minus $0.01 while GAAP diluted EPS will be $0.66 to $0.67. For fiscal ’21, we’re expecting GAAP diluted EPS to be minus $0.06 to minus $0.04 while non-GAAP diluted EPS will be $2.93 to $2.95. In light of the COVID pandemic and our actions in Q1 to support our customers, employees, and communities, we expect our fiscal ’21 non-GAAP operating margin to be roughly flat year-over-year on a percentage basis. As we prepare for the future, our outlook for the rest of fiscal ’21 includes incremental discipline and prudence especially in regards to headcount, largely due to lower employee attrition rate than planned. As always, we continue to monitor our go-to-market capacity to ensure we allocate the appropriate investments to achieve our targets both this year and in the future.

For the remainder of the year, we are focused on making ourselves even stronger upon exiting the pandemic. As a reminder, our EPS guidance assumes no future contributions from mark-to-market accounting as required by ASU 2016-01. For operating cash flow, we’re reducing our fiscal ’21 operating cash flow guidance to 10% to 11% year-over-year growth to align with our updated revenue and margin guide. We do not expect to provide incremental temporary financial flexibility. We now expect capex to be approximately 3% of revenue in fiscal ’21 resulting in a free cash flow growth rate of approximately 13% to 14% for the fiscal year. We expect CRPO to be approximately 16% to 17% growth year-over-year in the second quarter, which we believe is appropriately conservative and consistent with our revenue guide. In light of the uncertainty surrounding the COVID pandemic, we are reassessing our long-term revenue target for fiscal ’24 and we’re planning on giving an update during the Investor Day.

To close, while the COVID pandemic was sudden and a once-in-a-generation crisis, we are proud of the investments and relationships we have deepened with our customers, our community, and our employees. We are confident our actions in these investments will lead to an even stronger business and company in the future and as we move into phase two, we are strategically well poised with a strong balance sheet and a durable business model, we are well positioned to continue to leverage the secular tailwind to drive digital transformation. I’d like to thank our employees, our customers, our partners, our communities, and all our shareholders for their continued support and I wish to each of you and your families and your friends, safety and wellness. And with that, we’ll open up the call for questions.

Questions and Answers:

 

Operator

[Operator Instructions] And your first question comes from Mark Murphy with JP Morgan. Please go ahead.

Mark Murphy — JP Morgan — Analyst

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

Marc Benioff — Chair and Chief Executive Officer

Well, that’s such a good question and I’ll tell you that, of course, Dreamforce has been such an incredible part of our culture that we’re all going to miss Dreamforce this year, but you may see that we’ve already started some amazing things online and we’re getting some phenomenal results. In fact, we have, as I mentioned, we’ve already had more than 75 million views and I think we’re going to have almost soon 100 million views of our Leading Through Change program and I don’t know if you’ve had the opportunity to watch or participate in Leading Through Change, but it’s been incredible and that type of virtual program I believe is very much going to be something that is going to be a permanent part of our culture.

We’ve really been able to inspire our customers and our employees, all of our Ohana including our account executives and enable them with these programs and while we’re certainly going to miss being together at Dreamforce this year and it’s not something that, well, any of us could have imagined just 90 days ago. I think that we now see a very clear path to be able to have virtual events, build pipeline, build community, build brand, create and deliver new products and I have a lot of confidence in our ability to execute without a physical Dreamforce this year and not just Dreamforce by the way.

As Mark mentioned, we canceled all of our physical events for this year and we had to pay an extremely large amount of cancellation fees that all got cost into that first quarter number and so all those world tours and all these other amazing events, we do 1,000 events a year. Well, we’re just moving as many of them to the virtual programs as well and not just the big events, there’s lots of small things happening. So we’ve got a whole new playbook that we’re executing. It’s a great question. Thank you.

Operator

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

Terry Tillman — SunTrust — Analyst

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

Marc Benioff — Chair and Chief Executive Officer

Well, I’ll give you the beginning of the answer and then — I have been very fortunate this quarter to have Brian Milam running our global distribution organization. He is also running it in the second quarter while we’re bringing Gavin on board and Brian’s been with us for more than 20 years, many of you know, Brian has really been the heart and soul of our distribution culture.

He has done a phenomenal job this quarter and I think that what we see reminds us a lot of — over a lot of different times in the last 20 years at Salesforce where you have to have a full portfolio of products and deals, small, medium and large that there’s an ebb and flow, you’re never going to make your number on all large deals or all small deals. You have to have a portfolio of transactions and you have to have that across geographies, product segments, verticals and that’s one thing I’ve been super proud of the distribution organization, their ability to deliver that and then see that start to manifest in these really strong pipelines. So, Brian, do you want to comment on that?

Brian Millham — President, Customer Success Group

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

Operator

Your next question comes from Sarah Hindlian with Macquarie. Please go ahead, your line is open.

Sarah Hindlian — Macquarie — Analyst

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

Marc Benioff — Chair and Chief Executive Officer

Well, thanks. I’m going to have Bret Taylor comment on that cause he and I were just talking about that today. We’ve been so inspired by you know kind of connecting the first question, how lot of our programs that we put in place and I’ll tell you the four dimensions that we’ve been really focusing on. Of course, we have a very large-scale distribution organization. I would say it’s more than half of our company. If you think about that in terms of all the customer facing organization and it’s — number one, the most important thing is to get everyone, especially when you move to an at-home environment is participating.

Participation has been mission critical and that’s really where we focused, what percentage of those sales and service professionals, managers, executives are out there and really working with customers and this is an unusual environment, that provides opportunity for lots of new training, new ideas, new programs. And the second thing is to enable them with that, to train them and also introduce some of these new technologies, these products. The third thing that was absolutely critical after participation and enabling is making sure that they have a relevant position.

You know, I’m sure for many of you as this crisis kind of unfolded, you didn’t have something relevant to say, we didn’t have a lot of time for you and the reality is Salesforce became incredibly relevant to our customers, first in this core digital transformation and then next was really how we could provide tremendous value and re-opening safely and that became the third leg of our stool, the fourth leg became, you know, really critical, all the tactical plays and critical aspects of building that pipeline up. So, Bret, you’ve been the architect of all of these things and can you talk to us about how you put that into place.

Bret Taylor — President and Chief Operating Officer

Yeah, Marc, thank you. I think that one of the things that you said in your opening script that I’m really seeing from our customers is the digital imperative and across the entire Customer 360, we’re really seeing that play out in some of — both the pipeline numbers and the adoption numbers, some of which you mentioned on the call.

For customer service as an example, our Einstein Bots functionality, which provides digital self-service which is more relevant than ever before is up over 100% just in February, really reflects that overnight digital transformation of service. Here in marketing, Einstein’s doing over 12 billion predictions per day, really represents this mass scale digital personalization because digital is the one channel really remaining for a lot of our customers to engage with their employees.

On our Commerce Cloud, GMV was up over 100% year-over-year as commerce digitized overnight. Even on industries as Marc mentioned, the Small Business Administration loans process really came out a lot of banks overnight. We helped one of our largest banking customers go live in just 72 hours. This is all digital, it’s fast and we’re really seeing that relevance point that you mentioned, Marc, being extremely important. I think that every single CEO, every single CIO I talked to you has the same message, which is whatever digital transformation they have left has just accelerated thanks to COVID-19. I think the digital aspects of our Customer 360 platform have become more relevant than ever before and you’re seeing that in the pipeline.

Operator

Your next question comes from Derrick Wood with Cowen. Please go ahead.

Derrick Wood — Cowen and Company — Analyst

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

Mark Hawkins — President and Chief Financial Officer

Sure. First of all, thank you, Derrick for the question, happy to do that. We, for CRPO, when we look at that for the Q2, you should think about it as approximately 16% to 17% growth rate CRPO. So I think that aligns well as we think about the revenue going forward in the current year, in this temporary year of pandemic, if you will. So we think it’s appropriate line, number one. I think in terms of the recovery, the way we had and you talked about attrition and things of that nature, I just want to be clear that — we’re actually very pleased in the sense that our attrition actually went down year-over-year in Q1 and so from that standpoint, I think it’s good.

I think what we’ve tried to do is to be appropriately conservative going through this pandemic to assume that it would go up some and we called that out — it still would be — we would expect that to be temporary in nature but we said for the fiscal year, it will be less than 10%, up some and that’s partly based on the learning from the great financial crisis. Heretofore, we were very pleased to see what happened in Q1, but that’s a little bit of color. We had to make a call and you kind of really make sure that we’re dialing this in, in light of the uncertainty that’s out there. So I think that would be something to think about.

In terms of the recovery itself, from a IT spending standpoint, we think that if you were expecting a recovery in FY ’22 which begins for us in February, could it be sooner? We see companies that are doing that. That’s just what we’re trying to do and we think it’s appropriately conservative. And so that informs us in terms of how do we think about the demand environment, but one thing we learned for sure in the great financial crisis, is take a good look at what’s going on and see the temporary situation and then we remember how we navigated through it very successfully and on back to our future and we really see that in this particular case, that this is a point in time a much bigger opportunity that we all know about, including $170 billion plus TAM. That’s one of the fastest growing parts of the market, but everything is being impacted temporarily with the pandemic. So that’s what I would say and happy to have if Marc wants to add anything to that. Hope that helps, Derrick.

Marc Benioff — Chair and Chief Executive Officer

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

Gavin Patterson — President and Chief Executive Officer of International

Well, thank you, Marc and just to say I’m very excited to be taking up on the role in the next few months. I’ve known Salesforce as you know, for many years and I’ve known Marc personally for many years as well as a customer at BT where I was the CEO and I started my career at Procter & Gamble in brand management. So I know the company reasonably well as a customer and over the last year or so, I’ve been more and more involved with the company initially building an advisory board in Europe and then lastly picking up executive responsibilities for International and that’s where I helped steer in the Standard Bank deal at the end of the quarter, which was a big win for us and I think very much a platform deal for us in Africa as we open up that market.

So many things I hope I can bring to this job, a customer viewpoint, an international viewpoint, a CEO viewpoint. So the one thing that is very clear to me is the opportunities are very clearly and seeing how the organization has been able to adapt in the last couple of months to the shock of the virus and then rebuild and become even more relevant to customers, it gives me great confidence that the opportunities are there and as Marc said, a majority of customers that we’re talking to are saying, how can I accelerate digital transformation and there is no better partner to do that with. So I think there’s certainly the growth potential not just domestically in the U.S., but internationally around the world I think exists for us.

Operator

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

Kirk Materne — Evercore ISI — Analyst

Hi, yes. Thanks very much and Marc, thanks for all the work you and the team has done to help out in this crisis, has done some great things. My question is for Marc, if we think back to the great financial recession and you think about what eventually turned the tide from customers wanting to talk to you about digital transformation to customers actually spending on digital transformation, I mean I think between you, Gavin, and Bret, you all mentioned that there is a greater understanding of the imperative to spend on digital transformation today yet, you obviously have some prudent guidance out there for the second half of the year.

So when you talk to CEOs, what do you want to start hearing from them that gives you confidence that their interest is going to start translating into bookings. Is it simply just business confidence, better understanding of sort of what’s going to happen in the fall around COVID. Just kind of curious so we can keep an eye on some of the broader data points out there and try to triangulate to your thinking on business momentum. Thanks.

Marc Benioff — Chair and Chief Executive Officer

I think it’s such a good question because you know, of course, when you are addressing a market with a set of products, capabilities, you’re going to have a set of strategies as well as a set of tactics, you’re going to have plays as well as products, programs and you’re going to do that differently by geography, different by industry. I think we already know that unlike the financial crisis, the way that this has discriminated against different industries is quite different than anything we’ve ever seen before and has been quite shocking and for some industries that will take some time for them to recover from and other industries its actually been accelerating and it causes them to grow faster than they anticipated. I mentioned with AT&T. That’s obviously a company that will transform itself during this moment to become more digital, to become a stronger more customer-centric organization, they’re going to accelerate into it.

My personal belief is always that in a moment of crisis, you need to invest through it, maybe not every company can do that, but a lot of companies surprisingly can. That’s why you have to offer a full portfolio of capability. I really saw that come together in the first quarter. I was really impressed with the bookings that we achieved in the first quarter. As it kind of started to get crazy in the middle of March, I was like, wow, what is going to happen at the end of March and then through April. Well, this was the best of Salesforce. This was the best I’ve ever seen Salesforce perform. I mean, it was just incredible to see all of our Ohana the sales organization, service, engineering across the board and then in the second quarter, well, as I mentioned, I’m already really really inspired by the bookings numbers that I started to see and the pipeline numbers. So we’re quite optimistic about what the future is going to look like for us. And Brian, do you want to fill in a couple of details for us?

Brian Millham — President, Customer Success Group

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

Operator

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

Brent Thill — Jefferies — Analyst

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

Marc Benioff — Chair and Chief Executive Officer

Well, I really like to turn it back over to Gavin for a second and Brian and you know and have them address the customer environment that we’re seeing and then maybe Bret could fill in the details on the pipeline as well. Gavin?

Gavin Patterson — President and Chief Executive Officer of International

Yes, sorry, Marc, I was wondering whether you want Brian to get it. What we are seeing is confidence is building almost week by week. So clearly, there was a shock that hit the system, particularly in March, but as we go into through April and we moved through May, I would say bit by bit, and it’s not given that we’re at a different stage in the recovery market by market, it’s not the same point in every market yet, but the broad sense of direction is building confidence, beginning to see — get much better visibility for bookings, not just in Q2, but into Q3 and Q4 as well.

So I can sense the confidence building in the sales organization. We’re not getting carried away with ourselves, but I’m going back to a point that’s been made a couple of times on the call, the relevance of our product set and particularly work.com is proving that actually more than ever our products are important to our customers and key to the digital revolution and transformation that our customers are going to go through. So, and as I say, I’m pretty bullish about what I’m seeing at the moment and we’ll continue to see it grow I think from here.

Marc Benioff — Chair and Chief Executive Officer

Brian, do you want to fill that in?

Brian Millham — President, Customer Success Group

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

Marc Benioff — Chair and Chief Executive Officer

Bret?

Bret Taylor — President and Chief Operating Officer

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

Marc Benioff — Chair and Chief Executive Officer

[Speech Overlap] I’d love to have Amy Weaver give us the closing words on her — because she’s been involved in so many of our customer discussions and Amy, can you fill in exactly how do you see the situation moving forward?

Amy Weaver — President, Legal & Corporate Affairs, General Counsel and Secretary

Well, I’m excited to see this moving forward. It has been a whirlwind of a few months, but when I look at what we went through and where we’re going, what really stands out to me is that everything we execute during this quarter and every plan that we’re making for the future, we’re doing it in line with our core values with trust, with customer success, with innovation, and with equality and I think that we found that these values serve the company so well, it leads to a stronger company, stronger relationships with our customers, stronger relationships with our communities and really a great position for all of our stakeholders. So thrilled to be part of it and looking forward to the next step.

Marc Benioff — Chair and Chief Executive Officer

Parker, love for you to wrap it up, you’ve had the full perspective of 21 years and you’ve done a phenomenal job developing and delivering work.com and Customer 360. Can you give us your words of wisdom?

Parker Harris — Co-Founder

Yeah, I think I would just close by saying we’re all in our homes right now as everyone is probably listening to us, follows in their home and as a management team, I think we’ve never been closer, which is kind of odd that we’ve been sent to our homes and yet, we’re operating more closely than ever and faster than ever. Marc and I had said, it’s kind of like we’re back to the start-up days and yet we’re a 50,000 plus employee company and I’ve had the same experience as Bret was saying in working with our customers.

You know, we are no longer walking into our customers’ offices in suits and having that kind of a separation. We’re in their homes with them and they trust us, so they’re letting us into their homes as we’re selling to them and supporting them and servicing them and it’s just a sign of Marc, the success that we’ve had in building that trust with our customers for 21 years and I think it’s the reason why we’re coming through this as we are and so I hope all of you out there are also having that same experience and just really proud of what we’ve done as a company during this crisis.

Marc Benioff — Chair and Chief Executive Officer

Okay, back to you Evan.

Bret Taylor — President and Chief Operating Officer

Okay, Marc, do you want me to — maybe I should just tackle the last part of the Bret question there and then we’ll go to Evan. One, Brent, we definitely are always looking for opportunities as the environment has shifted it provides an opportunity for us to take a beginners eye and everything and we’re certainly doing that. You heard whether it’s pipe gen, whether it’s re-imagining everything we’re doing, certainly travel. There are so many different examples, but we’re constantly looking at focusing obviously on delivering growth, profitability, and cash flow over the long-term. We’re obviously very excited about the long-term opportunity to serve our customers and help them and we’re very aligned.

I thought Parker’s comment was really awesome about we’re very aligned around how to navigate through this and get beyond this point in time and really seize the opportunity for an unbelievably strategically positioned situation to serve our customers over the long-term. Marc and Evan back to you.

Evan Goldstein — Senior Vice President, Investor Relations

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

Operator

[Operator Closing Remarks]