Summary
Salesforce closed the second quarter of fiscal 2023 with revenue of $7.72 billion, up 22% from a year earlier and up 26% in constant currency. The top line held up, but GAAP profitability narrowed sharply. GAAP diluted EPS was $0.07, down 87.5%. Non-GAAP diluted EPS was $1.19. GAAP operating margin was 2.5%, down 2.7 percentage points, while non-GAAP operating margin was 19.9%. Net income was $68 million, down 87.3% year over year. Operating income was $193 million, down 41.9%. Gross profit was $5.59 billion, up 18.3%, and gross margin was 72.4%, down 2.1 percentage points. The gap between revenue growth and profit reflects higher costs, including stock-based compensation and amortization of purchased intangibles, which management excludes from non-GAAP results.
Contract indicators kept growing. Total remaining performance obligation ended the quarter at $41.6 billion, up 15% year over year. Deferred revenue, current portion only, was $12.82 billion, up 15.9% from a year earlier. Operating cash flow for the quarter was $334 million, down 13.5% year over year, while operating cash flow for the first six months was $4.01 billion, up 11.0%. Capital expenditures were $203 million, down 4.7%. Free cash flow, a non-GAAP measure, was $131 million for the quarter, down 24% year over year, and $3.628 billion for the first six months. Management continued to invest in headcount, which stood at 78,634 full-time equivalent employees, and the MD&A notes that headcount rose 36% since July 31, 2021. The company also authorized a share repurchase program of up to $10.0 billion in August 2022.
Guidance points to slower near-term growth. For the third quarter of fiscal 2023, Salesforce guided revenue to $7.82 billion to $7.83 billion, up 14% year over year and 18% in constant currency. It guided third-quarter GAAP EPS to $0.09 to $0.10 and non-GAAP EPS to $1.20 to $1.21. For the full fiscal year 2023, revenue guidance is $30.9 billion to $31.0 billion, up 17% year over year and 20% in constant currency. Full-year GAAP EPS guidance is $0.38 to $0.40, and non-GAAP EPS guidance is $4.71 to $4.73. Full-year GAAP operating margin guidance is 3.6%, while non-GAAP operating margin guidance is 20.4%. Operating cash flow growth for the full year is guided to 16% to 17%. Current remaining performance obligation growth is guided to 12% year over year for the third quarter. Revenue guidance includes a $250 million foreign exchange hit in the third quarter and an $800 million foreign exchange hit for the full year. The company's guidance assumes no change to the value of its strategic investment portfolio.
The quarter came with a more cautious demand backdrop. MD&A says that beginning in July 2022, Salesforce saw more measured buying behavior, stretched sales cycles, additional approval layers from customers and deal compression. Foreign currency fluctuations negatively affected revenue by approximately four percent in the quarter and current remaining performance obligation by approximately four percent as of July 31, 2022. The attrition rate, excluding MuleSoft, Tableau and Slack, was about 7.5% as of July 31, 2022. Management expects foreign currency and macro conditions to pressure near-term revenue growth, and the fourth quarter remains the strongest for new business and renewals. Other risks include rising expenses in research and development and marketing and sales, a higher GAAP tax rate, and the need to integrate Slack and other acquisitions. The share repurchase program is new, but the core story is still one of durable demand offset by margin and earnings pressure.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $7.72B | $7.41B | +4.2% | $6.34B | +21.8% |
| Gross profit | $5.59B | $5.37B | +4.2% | $4.73B | +18.3% |
| Gross margin | 72.5% | 72.4% | +0.0 pp | 74.6% | -2.1 pp |
| Research & development | $1.33B | $1.32B | +0.8% | $1.02B | +30.3% |
| Sales & marketing | $3.42B | $3.37B | +1.5% | $2.74B | +25.1% |
| General & administrative | $647.0M | $656.0M | -1.4% | $639.0M | +1.3% |
| Total operating expenses | $5.40B | $5.35B | +1.0% | $4.39B | +22.9% |
| Operating income (loss) | $193.0M | $20.0M | +865.0% | $332.0M | -41.9% |
| Operating margin | 2.5% | 0.3% | +2.2 pp | 5.2% | -2.7 pp |
| Net income (loss) | $68.0M | $28.0M | +142.9% | $535.0M | -87.3% |
| Net margin | 0.9% | 0.4% | +0.5 pp | 8.4% | -7.6 pp |
| Diluted EPS | $0.07 | $0.03 | +$0.04 | $0.56 | -$0.49 |
Risks
Beginning in July 2022, management saw more measured buying behavior from customers, resulting in stretched sales cycles, additional approval layers and deal compression. Slower new business in any period could negatively affect remaining performance obligation, revenues or operating margins in future periods, particularly if sustained.
Volatile and significantly weakened global economic conditions have affected and may continue to affect IT spending, delay customer purchasing decisions and reduce the value and duration of subscription contracts. The company also expects these conditions to adversely affect customer attrition rates.
Foreign currency fluctuations negatively impacted revenues by approximately four percent in the three months ended July 31, 2022 and negatively impacted current remaining performance obligation by approximately four percent as of July 31, 2022. The strengthened U.S. Dollar, particularly against the Euro, British Pound Sterling and Japanese Yen, is expected to lower near-term revenue growth compared to past results.
In April 2022, a threat actor obtained unauthorized access to several Heroku databases, downloaded stored customer security credentials and passwords for logging into GitHub, and downloaded passwords for a subset of customer user accounts and an encryption key. While the incident is not believed to have materially affected business or financial results, future similar incidents could have a material adverse effect.
The company may fail to realize all anticipated benefits of the Slack acquisition, its largest acquisition to date, and integration and benefits may take longer than expected. The efforts to realize synergies are complex and may disrupt operations if not implemented in a timely and efficient manner.
Evolving privacy and cross-border data transfer laws, including GDPR and new U.S. state laws such as the CCPA and CPRA, impose additional obligations and potential penalties. The invalidation of the EU-US Privacy Shield and varying local data residency requirements could increase the cost and complexity of providing services in certain markets.
Salesforce is increasingly building AI into many offerings, and AI plus the Customer 360 platform present emerging ethical, privacy and reputational risks. If solutions draw controversy or data practices impair acceptance of AI, the company may experience brand or reputational harm, competitive harm or legal liability.
The company faces significant competition for engineers, sales executives, data scientists and operations personnel, and has experienced difficulty hiring, developing, integrating and retaining highly skilled employees. Headcount increased 36 percent since July 31, 2021, increasing the strain on personnel resources and culture.
Customers have no obligation to renew subscriptions after terms typically of 12 to 36 months, and some customers have elected not to renew. As of July 31, 2022, attrition excluding MuleSoft, Tableau and Slack was approximately 7.5 percent, and the company stated that attrition may increase over time.
The strategic investment portfolio is subject to partial or complete loss of invested capital and significant fair value changes. For the six months ended July 31, 2022, high public market volatility resulted in an unrealized loss on publicly held investments of $103 million, which could materially impact financial results in periods of market fluctuations.
As of July 31, 2022, the company had a substantial level of outstanding debt, including $10.4 billion carrying value of senior unsecured debt and $184 million of senior secured notes, with $1.0 billion due in the next 12 months. Interest expense was $150 million for the six months ended July 31, 2022, up from $75 million in the prior-year period.
The Inflation Reduction Act introduced a 15 percent corporate alternative minimum tax effective fiscal 2024 and a 1 percent excise tax on certain stock repurchases after December 31, 2022. The Tax Cuts and Jobs Act provision requiring capitalization and amortization of R&D costs is effective starting fiscal 2023 and may materially increase future cash taxes.
SaaS KPIs
All quarters →Free cash flow
Non-GAAP operating margin
Billings and other
Current Remaining Performance Obligation
Remaining Performance Obligation
Summary, forecast, risks and KPIs are extracted from Salesforce, Inc.'s SEC filings for Q2 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.