Earnings Season Recap #16

Read our distilled key quotes from the most noteworthy earnings calls from last week, February 27–March 3.

This week’s recap includes topics such as the declining inflationary pressure on Costco, HEICO’s margin outlook, Snowflake’s strong NRR and expanded AWS partnership, Salesforce's capital allocation framework, and Moncler’s never-ending persistence for building powerful brands over the long run.

Costco Wholesale is a multi-billion dollar global retailer, mostly known for its warehouse club operations and cheap prices.

Q2 2023 Y/Y Δ
Revenue +6.5%
*U.S +5.7%
*Canada +3.5%
*Other international +3.8%
*E-commerce -9.6%
EBIT +5%
*margin 3.4% (3.5)

-> Membership growth: Reported in the second quarter, $1.027 billion of membership fee income or 1.89%. That's for this year's second quarter compared to $967 million a year earlier, so a $60 million increase in dollars or up 6.2%. Excluding the headwinds in FX, the $60 million increase would have been higher by additional $20 million. So on an FX-adjusted basis, fee income was up just over 8 percentage points. In terms of renewal rates, at the second quarter end, our U.S. and Canada renewal rate was 92.6%, up 0.01% from Q1 end, and the worldwide rate came in at 90.5%, also up 0.01% from the prior quarter, both represent all-time highs. Membership growth has remained strong. We ended the second quarter with 68.1 million paid household members and 123.0 million cardholders, both up more than 7% versus a year earlier. At Q2 end, we had 30.6 million paid executive memberships. This is an increase during the 12-week quarter of 630,000 members since Q1 ended. Executive members now represent 45% of paid members and about 73% of worldwide sales. – Richard Galanti, CFO (00:03:30)

-> New warehouses and CAPEX: In fiscal '23, we expect to open a total of 27 warehouses, including 3 relocations, so a net increase of 24 new warehouses. These 24 planned new openings are made up of 14 in the U.S. and 10 in Other International. The 10 in Other International includes the 3 in China, along with our first Costcos in each of New Zealand and Sweden, both of which were opened during the fiscal first quarter. Regarding capital expenditures, our second quarter fiscal '23 capital spend was approximately $900 million. Our estimate for the year remains in the range of $3.8 billion to $4.2 billion based on timing. – Richard Galanti, CFO (00:09:33)

-> Inflation improvements: Now a few comments regarding inflation. It continues to seem to improve somewhat. Recall, back in the fourth fiscal quarter, which ended last August, our estimated year-over-year price inflation was 8% for that prior fiscal year. During Q1, the estimate on a year-over-year basis came down to 6% to 7%. In Q2, we estimate that the equivalent year-over-year inflation number has come down to 5% to 6% range and even a little lower than that towards the end of the quarter, according to the buyers. We continue to see some improvements in many items. Commodity prices are starting to fall not back to pre-COVID levels and some examples but continue to provide some relief with things like chicken, bacon, butter, steel, resin, nuts. – Richard Galanti, CFO (00:11:01)

-> Inventory levels and supply chain: Switching over to our inventory levels. Both in Q3 and Q4 fiscal year-ends in fiscal '22, on a year-over-year basis, our inventories were up 26% year-over-year. And then in our first quarter of this year, they were up 10%, so good improvement there. As of this quarter end, our inventory year-over-year as of the end of Q2 was down 2% year-over-year. Regarding the 2% drop, we were a bit over-inventoried last year as a result of supply chain challenges, causing inventory to be backed up at the ports. And talking to the buyers a year ago, their estimate of just timing of getting things across the ocean was 70-plus days. Today, it's back down to 30-ish days. And so supply chain improvement across the board and rates, of course, coming down. – Richard Galanti, CFO (00:11:40)

-> Long-term thinking and the virtuous cycle: We're going to do things that drive market share, first and foremost. We are certainly cognizant of the bottom line. And I think this quarter is a good example of that. But at the same token, we're going to do what we need to do to drive sales because long term, when we get our customer in and they buy stuff, they're going to come back and buy more stuff. And we've always done a good job of that. Again, this one is a little different, this economic downturn, with the rising interest rates and the headlines of recession and high interest rates. But that being said, I think we're fortunate in the sense that we've got a multitude, various types of businesses within our business from big ticket discretionary items to food and sundries and health and beauty aids and fresh foods, which is really driving the cart right now more so than it has in the past. So we'll continue to do what we do. I remember years ago, someone asked about if sales were slowing down, what would we do. And we said we'd drive more sales by being even hotter on prices. But generally, that's worked for us, and I see that equation continuing. – Richard Galanti, CFO (00:21:43)

-> Raising fees and competitive strength: I mentioned in the previous calls, looking at the last, I think, 3, they averaged around 5 years and 7 months, which is about now or last month. And what we said over the last few quarters is that, in our view, it's a question of when, not if. And so we'll let you know. But keep in mind, that's one way that we become even more competitive. We take those monies and directly become even more competitive. I might add though, our locations do weekly comp shops of 100 to 150 key items, all directly competitive items, and then a variety of other against our direct competitors and other limited comp shops against other forms of traditional retail where the gap of competitiveness is much greater. But at the end of the day, our relative level of competitiveness, in our view, is as strong as it's ever been. And we do that weekly in locations. And every 4-week, monthly 2-day budget meeting, each of the regional operations' senior executives get up and show those numbers. And you can rest assured we're going to continue to do that. – Richard Galanti, CFO (00:23:55)

-> Prioritizing sales and market share gains: We're looking to use price to gain share, we're continuing to do that. [...] I mean that's what we do for a living. What I was trying to say in the comment, is that being particularly cognizant to the bottom line, we are a public for-profit company, and our shareholders want to know what we're doing. There have been times, for those of you that have followed us for many years, when we might take a bigger hit on some expense in a given quarter. I think, in fact, many years ago, it was the rotisserie chicken example that we, frankly, I think, have more levers today to adjust things, which helps us. But we're not going to get away from those 2 things, driving the top line and being cognizant that we're also a public company trying to earn money for our shareholders. We're going to prioritize driving sales because that will benefit all the other things on the income statement. – Richard Galanti, CFO (00:36:40)

HEICO designs, manufactures, and sells aerospace, defense, and electronic-related products and services on a global scale.

Q1 2023 Y/Y Δ
Revenue +27%
*Flight Support +36%
*Electronic Technologies +15%
EBIT +31%
*margin 21% (20)
EPS +6.3%

-> Period highlights: Summarizing the highlights of our first quarter fiscal '23 record results. Consolidated first quarter fiscal '23 net sales represent record results for HEICO, driven principally by record net sales within the Flight Support Group, mainly arising from continued rebound in the demand for our commercial aerospace products and services. Consolidated operating income and net sales in the first quarter of fiscal '23 improved 31% and 27%, respectively, as compared to the first quarter of fiscal '22. These results mainly reflect 14% quarterly consolidated organic net sales growth and the impact from our fiscal '22 and '23 acquisitions. Consolidated operating margin improved to 20.8% and in the first quarter of fiscal '23, and that was up from 20.2% in the first quarter of fiscal '22. Consolidated net income increased 7% to $93 million or $0.67 per diluted share in the first quarter of fiscal '23, and that was up from $86.9 million or $0.63 per diluted share in the first quarter of fiscal '22. It should be noted that net income attributable to HEICO in the first quarter of fiscal '23 and '22, were both favorably impacted by a discrete net income tax benefit from stock option exercises. – Laurans Mendelson, Chairman & CEO (00:04:42)

-> 89th consecutive semiannual cash dividend: Cash flow provided by operating activities remained strong, totaling $76.7 million in the first quarter of fiscal '23 and that compared to $78 million in the first quarter of fiscal '22. The cash flow provided by operating activities in the first quarter of fiscal '23, reflects an increase in working capital, principally driven by an increase in inventories to support our increased consolidated backlog. We continue to forecast strong cash flow from operations for fiscal '23. In January '23, we increased our regular semiannual cash dividend by 11% to $0.10 per share. This represented our 89th consecutive semiannual cash dividend, which we have paid since 1979. – Laurans Mendelson, Chairman & CEO (00:09:38)

-> Expects defense markets to return to normal: Each ETG subsidiary is a unique business with unique drivers, but they are supplying Emission-critical, high-reliability or harsh environment products which are required for their customers' products to operate. This remains a very positive dynamic and materially explains our strong backlog and our confidence going forward. While I don't have a crystal ball, as I previously mentioned, we expect our commercial aviation demand to remain strong this year and beyond, and the defense sales should strengthen in the later part of this year or even early next year, as higher defense budgets and defense spending kicks in. We also expect that our high-end other non-aerospace and defense markets, which have been very strong and continue to report record sales, will become softer ahead due to what at least I believe, will be a reversion to normal ordering patterns by manufacturers as general supply chain conditions improve. – Victor Mendelson, Co-President & Director (00:15:26)

-> 2023 outlook: We look ahead to the remainder of fiscal '23 and continue to anticipate net sales growth in both Flight Support and ETG, principally driven by demand for the majority of our products. Additionally, continued inflationary pressures and lingering supply chain disruptions stemming from the COVID-19 pandemic, mainly to higher material and labor costs. During fiscal '23, we plan to continue our commitments to developing new products and services, further market penetration and an aggressive acquisition strategy while maintaining our financial strength and flexibility. In closing, I would like to again thank our incredible team members for their continued support and commitment to HEICO. The remainder of fiscal '23 looks promising, and I believe our unique culture of ownership and entrepreneurial spirit will continue to provide outstanding operating results for our shareholders. – Laurans Mendelson, Chairman & CEO (00:19:19)

-> Reflections on margins: Obviously, we're going to continue to treat our customers well, as I've said for the last year or so, we've got to make sure that we maintain our margins in this inflationary environment, both materials and labor are increasing in cost. And we need to make sure that we pass along that cost plus we're able to get a reasonable margin on top of it. So I think the numbers can fluctuate quarter-to-quarter depending on mix. But I think we're in a pretty good area and we like where we are. We have not received a lot of price in these margins. We've received some. And I think there's an opportunity to get some more. But of course, as we replace inventories, inventory costs will be going up. So I'm reluctant to predict or to forecast the change in margins. I think that this is really a reasonable level. We run the business very much from the viewpoint of what's right for our customers and what's right for the business. And the margin just sort of falls out at the end. So I don't have a way to tell what it's going to be, but I do feel that these are reasonable numbers going forward. – Eric Mendelson, Co-President & Director (00:24:41)

-> Pipeline and thoughts on M&A: We have a pretty full pipeline on M&A, and we're going to do all the deals that make sense for our shareholders. If we find transactions that make sense for the company and the shareholders, we'll find a way to do it. We've never really been concerned about a leverage number too much. I think Larry said in the past that we would take on substantial leverage for the refit hike. We just haven't found that animal yet. I mean right now at 1x levered, I feel like we're under levered and I'd love nothing more than to find more opportunities to get that leverage number up. However, I do think our culture and our pattern of operations suggests that if we do borrow, we make a hell of an effort to delever quickly. As we move forward, outside of use of cash for, let's say, acquisitions, CapEx and things like that, we will be looking to reduce our credit exposure so that we can reload on other deals as they come in front of us. – Carlos Macau, CFO (00:26:46)

-> Organic growth and strategic business drivers: Our first quarter '22 organic growth, I think, was 30%. So now we've done 25% on top of 30%, which is really quite outstanding. And it's, frankly, far more than we had internally predicted. Our businesses continue to do very well. I've spoken with our salespeople over the last couple of weeks to understand our sales leadership to understand what's going on. And they anticipate basically continued strength in the business. I'm reluctant to anticipate growth beyond the level where we are. I mean we grew 7% from the fourth quarter. Just the quarter-on-quarter number top line. I think that we're running at a really solid rate. And I want to see a few more quarters to really understand where we are. None of our customers and our salespeople do not believe that the airlines are overstocking. But as I've cautioned everybody over the last number of quarters, every downturn, of course, is followed by a recovery and every recovery is followed by a slight overshoot. [...] I'm cautiously optimistic. The numbers are incredible. They're phenomenal. I think we're capturing market share, and this is unique to HEICO. [...] And that's as a result of being able to hold inventory, treating our customers, right, not jamming them with price increases, making sure that they get value. – Eric Mendelson, Co-President & Director (00:28:41)

-> Long-term thinking and the virtuous cycle: We've had a little bit more intangible amortization. So that would have happened as a result of the acquisition. So that would have decreased the margins. So no, I don't think it's really a mix thing. I think we're just very efficient. We've got a great team. The thing that's interesting is I think that these margins are a result of, frankly, what we did a decade and 2 decades ago. They're not as a result of what we've done in the last year or two when you treat your customers, right, you treat your people right. You get into a virtuous cycle, and I think that's very much where we are. And I think we're reaping the benefits of the long-term, the culture that we put into place over 20 years ago, 30 years ago, and that's what's driving these numbers. We have the parts when other people did. We continue to develop a lot of new PMAs and other products through the downturn. We continue to take inventory. We did all of the right things, and that's why these numbers are coming out and frankly, even surprising us. – Eric Mendelson, Co-President & Director (00:31:27)

-> Positive signs in China: We're doing quite nicely in the Chinese market. We tend to not like to get into a lot of detail on specific customers or markets for competitive reasons. But I can tell you that we're doing very well. We've got a very good presence there, and I think we are well positioned to pick up market share and to continue to grow that market as it recovers. Frankly, our sales there have really been outstanding over the last year in excess of what we had predicted and frankly, where we were in 2019. And I think we'll continue to benefit as that market recovers. – Eric Mendelson, Co-President & Director (00:34:16)

-> Leverage and M&A: We have plenty of room on that. In the event that we were to consider something larger – we have spoken to our banks and the banks are fully supportive of going much further if we would like to. At the moment, we have no request for them to do that. But we've always spoken with them and said, in the event that we need additional funds, we can do that. As for issuing HEICO Class A stock and an acquisition. We normally don't do that because we find that because of our strong cash flow, we'd rather pay cash and reduce the debt balance quickly. [...]  We would increase the leverage amounts as long as we could bring them down to a much more manageable amount which I consider in the area of 2 to 3x EBITDA. We've never been at 2x EBITDA. We've always been below, and we will continue to be a low-levered company. We never intend to go as some companies go to 5, 6, 7x. We do not do that. – Laurans Mendelson, Chairman & CEO (00:37:01)

-> Word of mouth and distribution tailwinds: It was interesting during the pandemic. Customers were so busy with problems that I don't know that they were approving many alternative parts at that moment. However, we were very confident that we would ultimately get those parts approved. So we continue to develop, continue to manufacture them through the pandemic. So when the pandemic got to the end, we started getting a lot of parts approved. We hear from our customers that, that is not a PMA item, it's really a HEICO specific item. HEICO developed these parts, HEICO developed these repairs. And I think that our growth is really unique for the industry. So I'd be very careful. And I would not describe it as a broad interest in PMA. I think this is specifically a broad interest in HEICO. As we've gotten larger, we're a $20 billion market cap company. We've got deep technology and strong financial ability and our customers see that. And I think we've been rewarded with a unique opportunity right now. But as far as HEICO goes, we continue to develop a lot of parts and repairs. We've got a lot in progress. Our distribution businesses are doing very well in taking market share from others. So I anticipate continued growth, certainly over the numbers that we did last year. – Eric Mendelson, Co-President & Director (00:38:58)

-> Saying close to customers and supply chain challenges: We definitely have seen supply chain challenges within FSG. Frankly, our sales and earnings would be even higher. If we got all these parts in, which we're not able to get at the moment. I think we're doing better than most, and that's as a result of our decentralized structure. We don't do soviet central planning at HEICO. We let the businesses figure out what they need. They stay very close to their customers. That's how everything is designed. And as a result, I think we were ahead of the curve, and you saw our inventories just go up a year ago. And now you've seen the results of having that inventory on the shelf. And now our inventories are up again and we're going to be in position to be able to support our customers as this level of sales hopefully continues to go up. But yes, we are definitely seeing the same supply chain challenges around materials and in particular, labor at our suppliers. – Eric Mendelson, Co-President & Director (00:51:50)

A rapidly growing software company selling cloud-based warehousing solutions. Through its listing on NYSE in 2020, Snowflake at the time became the largest software IPO ever.

Q4 2023 Y/Y Δ
Product revenue +54%
Non-GAAP FCF +190%
*margin 35% (18)
Customers +32%
NRR 158% (178)
Authorized a $2.0b buyback program

-> Period highlights: Q4 product revenue grew 54% year-on-year, and for the fiscal year grew 70%, totaling $1.9 billion. Q4 net revenue retention was 158%. We continue to be on track for our $10 billion product revenue goal in fiscal '29. Remaining performance obligations grew 38% totaling $3.7 billion. Non-GAAP operating margin for the quarter reached 6%. We saw a measure of bookings reticence with certain customer segments in Q4, reflecting a lack of visibility in the business and preferring a cautious short-term stance versus larger, longer-term contract expansions. The contractual posture focused on sufficiently enabling consumption growth in the near term. This was more pronounced among international, SMB and commercial customers, and much less so at the high end of our customer base. We made substantial progress on our efficiency metrics. Non-GAAP operating margin for the quarter reached 6%. Non-GAAP adjusted free cash flow margin for the quarter was 37%. For the full fiscal year '23, non-GAAP adjusted free cash flow margin was 25%, totaling $520 million. But our data networking growth as measured by so-called stable edges grew 93% year-over-year. – Frank Slootman, Chairman & CEO (00:02:03)

-> Expands AWS partnership: We received some large customer payments in January that were expected in February. We ended the quarter in a strong cash position, with $5.1 billion in cash, cash equivalents and short-term and long-term investments with no debt. As noted in the press release that went out earlier today, we have expanded our partnership with AWS over the next 5 years, more than doubling our previous spend commitment to $2.5 billion. As part of the new agreement, AWS is committing to support joint go-to-market efforts, more favorable pricing. This partnership is aimed at driving growth in innovation. [...] As of today, we have completed the Graviton2 migration in all of our active commercial AWS deployments. We remain committed to driving towards greater profitability. – Michael Scarpelli, CFO (00:08:02)

-> Reevaluated guidance: Now let's turn to our guidance. [...] We remain committed to driving towards greater profitability. We are focused on growing revenue while expanding operating and free cash flow margins. The change in existing customer purchasing behavior, lower-than-expected new logo bookings and slower expected ramp from our youngest cohorts has led us to reevaluate our FY '24 outlook. For the first quarter, we expect product revenues between $568 million and $573 million, representing year-over-year growth between 44% and 45%. Turning to margins. We expect, on a non-GAAP basis, 0% operating margin, and we expect 361 million diluted weighted average shares outstanding. For the full year fiscal 2024, we expect product revenues of approximately $2.7 billion representing year-over-year growth of approximately 40%. Turning to profitability for the full year fiscal 2024, we expect, on a non-GAAP basis, approximately 76% product gross margin, 6% operating margin and 25% adjusted free cash flow margin, and we expect 363 million diluted weighted average shares outstanding. – Michael Scarpelli, CFO (00:08:57)

-> Buybacks and hiring: Our Board of Directors has authorized a stock repurchase program of up to $2 billion over the next 2 years. This program reflects our conviction in the business and allows us to use our expected free cash flow to manage dilution over this period. Our share count guidance does not include the impact from the stock repurchase. During fiscal 2023, we added approximately 1,900 net new employees. We view the current hiring market as favorable for Snowflake, and we'll continue to prioritize hiring in product, engineering and sales. We expect to add more than 1,000 employees in fiscal 2024. We remain on track to achieve our fiscal 2029, $10 billion product revenue target. We look forward to executing against our growing opportunity. – Michael Scarpelli, CFO (00:10:25)

-> Net revenue retention: First of all, the 158% was the exact net revenue retention, just as a reminder, when we went public. And I think there was a little bit of a reacceleration in our business and 2021, 2022, where there's a lot of customers that maybe had spending out of control. Now that costs are a much bigger focus within almost every company today, I think people are using Snowflake more efficiently. Customers are having very detailed, methodical deployment plans on Snowflake, which is slowing down that growth rate of customers' consumption as they're going through their implementations. But we're not seeing any customers decrease their spend in any material way in Snowflake. Yes, we still had those 3 we pointed out at the beginning of last year that a few of those have dropped out of our top 10, but those guys have stabilized. But in general, most of our customers continue to grow with us, albeit at a lower pace. And I think that's more of a nature of controlling costs. – Michael Scarpelli, CFO (00:19:23)

-> EBIT and FCF margin correlation: First of all, I don't even look at billings because in our model, people are just buying capacity and that capacity may be for 3 months, it could be for 1 month or could be for 1 year, and it really varies by customer, and they have the right to do that. In terms of the relationship between operating margin and free cash flow, well definitely as your operating margin expands, I expect our free cash flow to expand. But the operating margin will expand at a more rapid pace given it's a much lower number, and we will update the longer-term model as part of our Investor Day in June. We clearly just guided to 6% non-GAAP operating margin and 25% adjusted free cash flow for the full year this year. – Michael Scarpelli, CFO (00:23:44)

-> “Most companies are cutting, we added 1,900 people”: Free cash flow margin is not directly related to our growth. Our growth is more on the expense side and looking at productivity, and we'll not grow our revenue faster unless we see productivity increase in the sales organization. And when we see that increase in productivity, we'll add more heads there. And we think we're adding at the appropriate pace based on what we're seeing in the business today. Where most companies are cutting, we added 1,900 people last year, net, and we will add over 1,000 people this year while still generating improvement in operating margin and having very good free cash flow next year again. – Michael Scarpelli, CFO (00:35:37)

-> Capital allocation: We have $5.1 billion in cash on our balance sheet. We've had $5 billion since the time we went public. We've made a number of strategic acquisitions and M&A deals. We feel we have more than enough capital in the business to fuel our growth through both the small tuck-in M&As as well as invest in headcount, but you can only add so many people at a time and get them productive in an engineering organization. And I'm not hearing our engineering leaders claim they need more people. And it's not growth at all costs at this company. Yes, we are a growth company, but it's efficient growth as well, too, and we'll continue to do that. And we expect we're going to generate close to $2 billion over the next 2 years. And given the $5.1 billion we have, we think it'd be great to manage dilution through that. And we still have the opportunity, if we find great candidates, to hire faster if we so choose. – Michael Scarpelli, CFO (00:37:22)

The world’s leader within CRM software, which includes services such as cloud-based software designed to help businesses find more prospects and close more deals.

Q4 2023 Y/Y Δ
Revenue +14%
*Sales +16%
*Service +15%
*Platform and Other +18%
*Marketing and Commerce +16%
*Data +20%
EBIT +123%
*margin 29% (15)
FCF +42%
Increased buyback program to $20b

-> Profitability is the highest priority: As you can see from our results, we had another strong quarter. Improving profitability is our highest priority, and that really showed up this quarter. Our goal is to make Salesforce the largest and most profitable software company in the world, and that is what we are doing. Six months ago, in September at our Dreamforce Investor Day, we shared with you our comprehensive transformation plan, the new day for profitable growth. But things have changed. As we entered our fourth quarter, we recognized that we needed to radically accelerate the transformation plan time frame. We need to press the hyperspace button and bring the 2-year goals forward quickly and exceed them. Now we immediately put into place an accelerated transformation plan, 4 areas: short-term and long-term restructuring of the company; improving profitability and productivity; prioritizing our core innovations; and a deeper and even stronger relationship with our shareholders, you. – Marc Benioff, Co-founder & CEO (00:01:39)

-> Moving aggressively across 4 fronts of transformation: First, we're reigniting our performance culture and doubling down on our accountable management of our sales organization, as you're about to hear from Brian. As you know, beginning in January, we also initiated a headcount reduction, and we're significantly consolidating our real estate footprint. Second, we're more closely scrutinizing every dollar of investment and resource and very focused on driving operational excellence and automation across the business. Third, our amazing engineering team is focused on integrating our acquisitions and prioritizing our core innovations that are driving customer success. Finally, as we set in motion, longer-term structural improvements, we're working with Bain on a comprehensive operating and go-to-market review. To ensure a high degree of accountability, our Board is forming a new business transformation committee, which I have joined, and we have fully disbanded our M&A committee as well to reflect our new focus. – Marc Benioff, Co-founder & CEO (00:03:12)

-> Record-breaking results: Powered by this transformation, we delivered another strong quarter. Our team really delivered on both the top and bottom line, exceeding our expectations. As I said, improving our profitability is our highest priority. In Q4, we accelerated operating margin to a new record high. Non-GAAP operating margin for fiscal '23 was 22.5%, significantly above our forecast, an improvement of almost 4 points year-over-year. Revenue was $8.38 billion, up 14% year-over-year or 17% in constant currency, which is above what we forecast to deliver for the quarter. And for the full year, we delivered $31.4 billion in revenue, up 18% year-over-year or 22% in constant currency. It's one of the best performances of any enterprise software company our size, and it's amazing that Salesforce is now over $30 billion in revenue. We closed fiscal year '23 with operating cash flow reaching $7.1 billion, up 19% year-over-year, the highest cash flow in our company's history and one of the highest cash flows of any enterprise software company our size ever. – Marc Benioff, Co-founder & CEO (00:04:42) 

-> Guidance and buybacks: We just rolled out our new business plan, which we call the V2MOM in partnership with our employees worldwide. Everyone in the company is now aligned around our highest priorities and our aspirations. I'm excited to announce that looking forward to fiscal year '24, we expect a non-GAAP operating margin of approximately 27%, an additional acceleration of 4.5 points year-over-year. And for fiscal year '24 revenue, we're guiding to $34.7 billion at the high end of the range, over 10% projected year-over-year growth. But that's not all, we're also looking at our overall share count. And as we focus on reducing dilution, we've already returned $4 billion of the original $10 billion authorization in our share repurchase plan that we announced in August. Our Board has now approved a substantial increase in that share repurchase plan from $10 billion to $20 billion. This will allow us to fully offset dilution from stock-based compensation. – Marc Benioff, Co-founder & CEO (00:06:57)

-> Market share gains and the future of CRM: We're delivering tremendous customer success and continue to gain market share in CRM. Our customer revenue attrition is at its lowest level in our 24-year history. This is a critical metric of all of our customers' success. And we know every digital transformation begins and ends with the customer. We have an incredible vision for the future of CRM, a fully integrated suite built on our new Genie Data Cloud and our next-generation platform powered by real-time hyperscale data, AI and automation. Our new Data Cloud is the most exciting innovation that we've developed since the original Salesforce clouds and our metadata platform, which we viewed as our first horizon and our second horizon for our technology. Our third horizon is our data cloud. In this new AI world that we are all now entering, nothing is more important for our customers than our new data cloud, which is rapidly becoming the intelligent heart of their customer engagement. Data cloud becomes our most important cloud, augmenting every Salesforce cloud and making every part of our Customer 360 more automated, more intelligent and more real time. – Marc Benioff, Co-founder & CEO (00:09:45)

-> The world's first generative AI for CRM: And next week, at our TrailheadDX conference in San Francisco on March 7 and 8, you'll see how we're bringing even more innovation through our platform with our new EinsteinGPT technology, the world's first generative AI for CRM, a tremendous complement to our Data Cloud and core Einstein AI platform. EinsteinGPT will be integrated into all of our clouds as well as Tableau, MuleSoft and Slack. And then there's another way we're opening the door to use AI for our future and for all of our customers', as we have begun working with the rapidly expanding AI ecosystem in our industry, I've been really impressed with how companies like Anthropic, a leading provider of generative AI, are using Slack as their user interface for generative AI assistance. The relevance of Slack as an incredible enterprise productivity platform, user interface and critical data set for these new AI systems, while it's inspiring all kinds of new use cases, I couldn't be more excited about the future. – Marc Benioff, Co-founder & CEO (00:13:28)

-> Salesforce’s recession playbook: To understand what we're going through, I really did go back and look at all the numbers in '01, '02 and '08, '09. And what you said, Kash, is quite enlightened in that. Of course, we saw in '08, '09 ACV fall off dramatically. And of course, we hit the break on spending, and we accelerated the margin, I think, 6 points during that time. I don't know the exact numbers, but it was a moment where you see sales and marketing companies, marketing spend -- when these things happen, CEOs, they stop hiring salespeople. They stop spending on marketing, right? Everybody knows the methodology of what, how CEOs behave in a recession. As soon as the stock market implodes CEOs, they hit the brakes. So I think that's what we saw in '08, '09. I think we really started to see that in the middle of '22, maybe August, September, October, November. Certainly, as we've exited Dreamforce, we were like, I think that we can execute our playbook. We have a recession playbook. We know how to transform the company. Well, you just saw it in the last 90 days where the things we're doing really launched a profitable growth strategy. – Marc Benioff, Co-founder & CEO (00:49:15)

-> “I have no doubt that we're going to be world class for profitability”: And I just want to assure our employees that we will never lose sight of that. But these actions weren't our first steps, and there are going to be plenty more actions that we take to increase our operating margin going forward. We have a number of initiatives underway. [...] Sales and G&A are really 2 of our greatest opportunities, although we have started a comprehensive operating and go-to-market review that is going across all of our business. Bain is coming in to do this and to work with us and to go through with this. I think that we've got great initiatives underway. [...] Finally, in terms of my confidence, it really comes back to the passion and the skills of our employees. When we focus on sales, we became the fastest-growing enterprise software company ever. When we focus on product, we created an unmatched Customer 360. And now we are asking all of these incredibly talented and passionate employees to bring that same focus to productivity and efficiency. And with all of them behind us, I have no doubt that we're going to be world class for profitability. – Amy Weaver, President & CFO (00:56:14)

-> Stock based compensation: There is certainly an increasing focus on GAAP margins, and in particular, on adding back stock-based compensation into our non-GAAP operating margin. I spent quite a bit of time in Europe meeting with investors in January. And in Europe, that is the first thing that everyone does. So very much top of mind. Our stock-based compensation for last year was just over 10%. We plan to drive that below 9% this year. And there are 2 of key levers there. One is that we're actually burning through a lot of the stuff that came with some of the M&A we've done in recent years. So that is rolling through our system in the way that's going to help drive the numbers down. The others are changes at our Compensation Committee that have been very thoughtfully to how we grant equity and the form of equity that we grant. So we'll have more coming up on that as we get into proxy season, but I see this going well over the next few years. – Amy Weaver, President & CFO (00:58:04)

An Italian luxury fashion house specialized in outerwear headquartered in Milan.

Q4 2022 Y/Y Δ
Revenue +25%
*FXN +27%
*Q4 +19%
-> Moncler revenue +19%
*Comp. SS +15%
*Q4 +16%
-> Stone Island revenue +28%
*Q4 +48%(!)
EBIT +28%
*marg. 29.8% (29.5)
Net profit +47%

-> Anniversaries celebration and better than expected results: I'm extremely proud of the great results we achieved in 2022. The group reached EUR 2.6 billion of revenues and EBIT margin of 29.8% and a net income of over EUR 600 million. In the fourth quarter alone, our group sales reached over EUR 1 billion, up 19% at constant currencies, accelerating versus the third quarter. All of this was achieved in a very difficult and complex operating environment, which makes our results even more extraordinary. But this is not just about numbers. 2022 has been a year full of our achievements and key milestones for our 2 brands. It was the years of Moncler 70 anniversary and Stone Island 40th anniversary, during which we celebrate the history of our brands in an exceptional way with results going beyond our expectation. At Moncler, we started empowering all 3 dimensions of the brand: Collection, Genius and Grenoble, which clear brand initiative reinforcing their respective DNA and identities. Stone Island is processing in a way that will allow it to express its full potential. We are working to build a DTC business model and culture. And this year, we internalized the management of some markets. We integrate logistics into a single group hub. We also launched a new store concept, a key milestone in the development of the distribution network. – Remo Ruffini, Chairman & CEO (00:01:46)

-> Focusing on the long-term: Now as always, in Moncler, we celebrate our past achievements, but above all, we plan and think about the future. So moving to 2023, the macro contents remain complex and unpredictable. As circuses are very high, but now that we are used to living in a never-normal world, we are once again ready to pick up the challenge with energy and passion. We're keeping an agile and flexible organization and mindset to face these uncertainties. And we are confident that the strength of our brand, our clear long-term strategy and our dynamic execution will allow us to remain on a very solid growth path. – Remo Ruffini, Chairman & CEO (00:01:46)

-> Brand building: I think the year but especially Q4 have been a great example of our renewed brand offense in place across a different dimension of the brand. I want to start just mentioning a bit of the 70th anniversary. As a quick reminder, this was a 70 days execution to celebrate the 70 years of the Moncler brand that started with kind of an incredible event at Duomo that took place 3 days before the last quarter started. And we see incredible results. I think from day 1, from that incredible event with over 18,000 people in the street of Milano, all the way down to all the different work we have done across, I would say, a proper end-to-end approach from product to retail to digital, to different services and benefits all around and all connected around the 70th anniversary. We were able to reach over 15 million people in the 70 days, something that have been unprecedented for us and more importantly, have an engagement from customers around 725 million people. And this, of course, generated a lot of brand energy, a lot of what we believe strong results that we will see in a second across all the different access points to the brand. – Gino Fisanotti, Chief Brand Officer (00:05:42)

-> Again on brand building: As we discussed per in the last 2, 3 quarters, we are very clear on the areas we really want to focus our attention when we talk about our own online business. The first one is if you guys remember, I think when we talk about a login era, and how we want to make sure that we have a strong relationship with our customers in terms of people who sign up with us and have an ongoing relationship, we are seeing a good result in terms of all the efforts, in terms of benefits and services that we are providing to our.com. And that is why you see a growth of 140% year-on-year. In terms of membership on .com. Traffic, was up 17% for the entire year with a big push during the 70 anniversary. And then again, when we talk about revenues of just moncler.com was up 72% year-on-year. Last but not least, I think we have discussed this before by October represented the formal launch of Tmall. I think we start a soft launch in June, but October with the beginning of 70th anniversary was the formal launch. And again, despite that Tmall revenues surpassing expectations, I think it is important for us to remind everyone that we are not leveraging Tmall as a source of revenue. We are leveraging Tmall as a source of access point to the brand, especially for Tier 2, 3, and 4 markets in China, which is definitely delivering against that promise. Gino Fisanotti, Chief Brand Officer (00:09:25)

-> Number of stores; Moncler and Stone Island: On the total number of stores, you know that, we like especially in Moncler to open stores during the last part of the year with our full winter collection. So in total, we have 251 stores for Moncler, 72 for Stone Island. The big changes occurred in Q4 for Moncler with 9 openings. Amongst them, the new store in Miami Design District, the opening in China with Shanghai and Chengdu second place, and we opened also one strong store in Seoul Galleria and one store in Japan in Niigata Isetan to mention the mention the main openings. Stone Island, I just mentioned the opening of Chicago with the new store with the new format that we are going to roll out and during the course of 2023. – Roberto Eggs, Chief Marketing & Operating Officer (00:17:43)

-> Pricing strategy: Regarding the pricing strategy, what we have already implemented this year in since the start of the fall, winter is the first 10% price increase where we haven’t seen a negative effect as you, as you see on the results. So this has been in a way well accepted by consumer probably because talking about inflation, now it is -- unfortunately, I would say, they are all used to have this type of price increase. And we continued with the spring summer that we started to sell in at the end of November beginning of December with this past 10% and is also what we are planning, but this is still to be confirmed for the full winter that will be starting to sell in June or July this year. This is to cover the increased cost that we have in production and not is not something that is planned to have additional margin. Regarding the differentiation that we have amongst the region, I think we mentioned something during the last call where we have a slightly higher increase in Europe, slightly lower in China, and slightly lower in U.S. in order to come back for the full winter season, starting from June, July to a price differential that is similar to the one we had pre COVID. – Remo Ruffini, Chairman & CEO (00:36:26)

-> Brand development and culture: About operating margin, operating income for Stone Island. Yes, I mean, we have this percent in mind that this what you said about the 27%, just to make it clear, I mean about Stone Island is a very precious brand, very precious machine, and the way we tend, we try to drive this precious machine is not only targeting and being obsessed by the operating margin, but being totally aware that we wanted to make this brand that is very stronger and stronger. And so we are more looking at what Roberto said. First of all, this year we will be on center focused on organic growth to make all the data utilization of the markets and the conversion from wholesale retail on these markets are working, introducing, developing the retail culture. That is what we will make at the end to improve our profitability. So again, your assumption is reasonable. But again, I want you to understand what our strategy is, so that is right now for Stone Island, more than ever very qualitative in developing this kind of retail culture that will allow us to achieve better results. – Luciano Santel, Executive Director and Chief Corporate (00:50:04)

-> “We want to protect that margin for many, many years”: I mean, the way we run our business is to be, as always, very, very prudent on one side, but also very flexible and reactive on the other side, because should the marketed demand be higher and better than what we plan on now, I mean, we have the capability to react in the 2 meter the marketed demand. Of course, the margins right now, we don’t plan any higher margin than the 2022. Also, because margin, operating margin, the reason for 30%, as we said, since ever is a good operating margin. We are not obsessed with increasing that margin, but we want to protect that margin for many, many years. So, whatever, maybe the uplift whatever may be the upside, I mean, we are totally aware that we have to keep investing in our brands, both of them in product design, marketing, and in organization and in the infrastructure because strategy is very important. But execution is important as well. And in order to execute the strategy, you need some people, talented people. So, I mean, long story short we don’t know margin. I mean, our ambition is still 30%. Honestly, we don’t aim to do more. – Remo Ruffini, Chairman & CEO (01:01:02)