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Salesforce.com Inc  (NYSE:CRM)
Q2 2019 Earnings Conference Call
Aug. 29, 2018, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen. My name is Jerome and I will be your conference operator today. At this time, I would like to welcome everyone to the Salesforce second quarter fiscal year '19 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask questions during this time, signal for us * then the number 1 on your telephone keypad. If you would like to withdraw your question, press the # key. Thank you. Mr. John Cummings, Vice President, Investor Relations, the floor is yours.

John Cummings -- Vice President, Investor Relations

Thank you so much, Jerome. Good afternoon everyone and thanks for joining us for our fiscal second quarter 2019 conference call. Our results press release, SEC filings, and a replay of today's call can be found on our investor relations website at www.salesforce.com/investor. With me on the call today is Keith Block, co-CEO; Marc Benioff, Chairman and co-CEO; Mark Hawkins, President and CFO; and Bret Taylor, President and Chief Product Officer.

As a reminder, our commentary today will be primarily 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, which are subject to risks, uncertainties, and assumptions. If any of these materialize we short our assumptions prove to be incorrect at dual company results to differ materially from these forward-looking statements. A description of these risks, uncertainties, and other factors that could affect our financial results are included in our SEC filings including our most recent report on Form 10Q. With that, let me turn the call over to Keith.

Keith Block -- Co-Chief Executive Officer

Thanks, John. Thanks, everybody for joining us on the call today. It's an exciting time in our industry, it's an exciting time for our customers, and it's an exciting time for Salesforce. As you can see from our results, we continue to deliver incredible growth at scale. You saw it at the end of FY18, you saw it in Q1, and you see it again in Q2. We are seeing an unprecedented level of CEO engagement driven by an appetite for real digital transformation. At the same time, we are in the midst of an economic environment that is fueling innovation. And as a result, our customers are making major and sustained investments in growth and Salesforce is at the forefront of their growth strategy.

CRM has never been more strategic. It is the largest and fastest growing category in enterprise software. Salesforce is the number one provider and after 20 years, we continue to take share and separate from our competitors. In fact, we're growing at nearly twice the rate of the margins. This gives us tremendous confidence in our ability to reach 23 billion in revenue by FY22 faster than any enterprise software company in history. Our vision, our execution, and our relentless focus on customer success resulted once again in excellent performance across all clouds, all geographies, and all industries in Q2. Revenue for the quarter rose to almost $3.3 billion up 27%. Revenue under contract, which now we call remaining performance obligation, grew 36% to approximately $21 billion.

And based on these strong results, we are raising full-year revenue guidance by $50 million to 13.175 billion at the high end of the range for 25% growth this year. Clearly, we are set up for a strong second half. In Q2, Sales Cloud grew 13% surpassing $1 billion in quarterly revenue for the first time. That is an incredible milestone. And in the quarter, we expanded our relationship with 100-year-old CPG company that's undergoing a multi-year digital transformation. We're leveraging Sales Cloud and Marketing Cloud, Service Cloud, and Einstein to accelerate decision-making and support customer-centric growth across our portfolio brand. This is a great example of an iconic industry leader stepping into the future with Salesforce.

Service Cloud grew 27% as more and more companies, including National Grid and Southwest Airlines turn to Salesforce to power their next generation customer engagement. Southwest, which has won awards for its customer service leadership, is extending Service Cloud and Einstein to 4,000 service representatives nationwide, enabling them to deliver smarter, more personalized customer experiences. Marketing and Commerce Cloud grew 37%. In Q2, we expanded with Kimberly Clark whose products were used every day by one-quarter of the world's population.

We also deepened our relationship with Hulu, which is using Marketing Cloud, Service Cloud, and Einstein, to personalize the dear experience from more than 20 million subscribers. And finally, the Salesforce platform made 32% in Q2, 54% including MuleSoft. Customers continue to embrace the platform in Heroku to Lightning App Builder to Shield and make all their apps smarter with Einstein. This is our first full quarter with MuleSoft, which is off to a fast start. The MuleSoft Anypoint platform has become people's favorite for digital transformation. It's in every conversation we have with senior executive and in Q2, New York Life, the state of Colorado, and Schneider Electric selected MuleSoft to transform their enterprises.

In our international business, we continue to deliver strong revenue growth across key regions, 32% in EMEA, 28% in APAC, all in constant currency. In EMEA, we strengthened our relationships with Rabobank Group. We also had a great Commerce Cloud win with leading Dutch commuter retailer Ahold, the latest. In APAC, we expanded with MUFG and Mitsui Sumitomo Insurance. In Japan and Australia, we expanded with the company's largest telecommunications provider, Telstra and we formed an exciting new relationship in the public sector with the Australian Health Practitioner Regulation Agency.

Now turning to industries, we continue to see great momentum in this space. In healthcare, we launched Health Cloud for Payers to make it easier for insurance companies to effectively and efficiently connect with members and providers. We also significantly expanded with one of the largest private payers in the US by leveraging Health Cloud and Service Cloud to enhance their members' experience and reduce the cost of care. In the quarter, Achillion, a leading life sciences company significantly expanded with Salesforce and they are leveraging health cloud in the Salesforce platform to build innovative solutions that address the clinical, commercial, and regulatory needs of their clients.

In financial services, we expanded with BBDA in the quarter and had a great financial services cloud ramp with one of the largest banks in the UK. We may also remember that we had our most significant public sector win ever with the US Department of Agriculture last quarter while in Q2, the USDA significantly expanded again with Salesforce rolling out Service Cloud and the Salesforce platform across their entire agency. In all departments, partners are absolutely critical to the Salesforce growth strategy, bringing deep industry in domain expertise that they extend our reach and help drive our customers' digital transformation. And our partners continue to strategically invest in their Salesforce practices. In fact, our top five SIs increased their total Salesforce certifications by 50% in Q2.

Now, I've mentioned before that these partners run their businesses on Salesforce and in the quarter we had a significant expansion with Deloitte and they are rolling out Salesforce to more than 300,000 employees. So as you can see, it was a fantastic quarter of execution across the entire company, our clouds, our geographies, our industries, and we're absolutely well positioned for the second half of the year.

And finally, as you may know, I celebrated my fifth anniversary at Salesforce in Q2. It has been an incredible five years and I couldn't be more excited to leave this company with Mark for many years to come. I want to thank our customers, our partners, our employees, and our shareholders for their continued trust in us. And now, I'd like to turn the call over to Marc.

Marc Benioff -- Chairman and Co-Chief Executive Officer

Thanks so much, Keith, and congratulations on your promotion to Co-CEO. Well done. As you heard from Keith, it was another outstanding quarter here at Salesforce and honestly; I feel things have never been better. I want to just take a few moments to talk about the larger forces that are fueling and shaping the phenomenal growth of this company and our industry. Our drive to 23 billion in revenue in fiscal year '22 and beyond is being driven by a technological revolution that is fundamentally transforming our society, the fourth industrial revolution. In terms of its size, depth, capability, and speed, this revolution is altering the human experience in ways we've never experienced before.

Our customers are going through an amazing digital transformation. Each and every one of them is starting and ending with their customer. And as every company transforms their relationships with their customers using amazing new technologies from artificial intelligence to the cloud itself, they're fundamentally changing how they sell and how they service, how they market, and how they innovate. They're connecting with their customers in a whole new way. They're building incredible new intelligent 360-degree views of their customers, and they're using extraordinary new tools to get faster, more informed decisions through advanced analytics.

And at the heart of all of this transformation is Salesforce. Our position is the number one sales, number one service, number one marketing, and number one serum platform that's enabling our customers to stay ahead and thrive in this fourth industrial revolution. And as more and more companies connect everything and everyone, they're realizing that integration is vital to their success and to their digital transformation and now they're turning to Salesforce MuleSoft, the number one integration cloud to do it.

Looking more closely, one of the critical aspects of the fourth industrial revolution is artificial intelligence. The power of machine learning, and especially deep learning, to give computers the ability to learn from all kinds of data. And it's giving our customers the ability to learn about their customers and be far more personalized, efficient, effective, in their relationships. Salesforce Einstein, our own artificial intelligence platform, now provides our customers with over 3 billion predictions and insights every single day. That's amazing. And with the next generation of Salesforce Einstein that we introduced in the second quarter, Einstein Box first made a double on our service platform, our customers can now unlock even deeper customer insights to deliver a transformational customer experience.

Whether it's with a service agent, whether it's a sales agent, or whether abide itself, we demonstrated our leadership in AI by open sourcing our automatic machine learning library infrastructure data, which is the engine that helps power Salesforce Einstein. And our Salesforce research team introduced T4N breakthroughs that make it possible. For the first time for a single model to master ten different natural language processing caps at once, significantly improving the way machines understand the many nuances of human language. It's an incredible step forward for artificial intelligence.

With our acquisition of Datorama, also happened in the second quarter, we're also now able to extend our Marketing Cloud and bring all of our customers marketing efforts into a single, intelligent dashboard so customers spend less time looking at spreadsheets and more time acting on the right insights to drive their business decisions. Also in the second quarter, we extended our strategic alliance with Google to deepen the integration between our Salesforce Marketing Cloud and their Google analytics 360. And we're seeing amazing traction with customers that are experiencing the best of both worlds Salesforce and Google together. Salesforce commerce cloud continues to be the fastest growing enterprise commerce solution, delivering amazing results this quarter from our key clients, like Adidas and L'Oreal.

We extended our commerce cloud with another great acquisition, CloudCraze, the leader in B2B commerce natively on the Salesforce platform. This means now, with the Salesforce commerce cloud, our customers can create the same commerce experiences for their B2B business buyers that they do for their B2C consumers. All from a single platform. As you can see, the fourth industrial revolution is well under way here at Salesforce. Everyone and everything is more connected than ever before and as part of that, we see an incredible community grow up as well all around us and supporting each other to incredible new heights. These are our trailblazers. And their heart is in the power of our technology to transform not just their companies and industries but their lives and their careers.

I have to tell you, these trailblazers are an inspiration. More than 1 million people have now used our free online trailhead platform to learn Salesforce skills and elevate their careers and become Salesforce trailblazers. They have earned more than 8.5 million badges certifying their skills and positioning them for jobs in the digital economy. In fact, this Salesforce economy will now create 3.3 million new jobs by 2022. That's amazing, and yet another example of how Salesforce is towering this fourth industrial revolution. And that's why this year's Dreamforce, which is just gonna happen on September 25th, is gonna be even more than highlighting our incredible technology, it is gonna be a celebration of these trailblazers. Dreamforce is gonna run from September 25th to September 28th in San Francisco.

We're bringing together thought leaders, industry pioneers, and more than 100,000 trailblazers for a whole four high energy days of learning, inspiration, equality, and fun. And I'm sorry to say if you don't have your tickets, it's already sold out -- amazing, a first for Dreamforce. Finally, in all of our work, Salesforce is guided by our four values. Many of you know that you've heard us talk about that now. Our core values: trust, customer success, innovation, and equality of every human being. As you know, Salesforce has always tried to use those values as a beacon of light for our industry. This started in our founding, with our 1-1-1 model giving back. And most recently is of all, with our deep work in equality.

Discussions we have had with our Ohana over the past few weeks have raised larger questions about not just the fourth industrial revolution and what's happening, but also about how our values and our core values applaud to the use of fourth industrial revolution technology and also any unintended consequences of their use. We've seen this discussion take place in many companies as well. We can see that happening today on the news cycle. It's been amplified by the amazing recent progress in artificial intelligence and especially in deep learning. Now, here at Salesforce, we have determined that this ethical and human use of technology, especially within this context of the fourth industrial revolution, it must be clearly addressed. Not only by us but by our entire industry.

Our industry has reached an inflection point that must be supported by a strong set of guiding values. We all know that and we see that every single day. We know the technology is not inherently good or bad. It's what we do with it that matters. And that's why we're making the ethical and humane use of technology, a strategic initiative at Salesforce. We're appointed a new officer, an individual path forming a new office of ethical and humane use. And we will work with all of our Ohana, including our customers, our employees, our partners, as well as industry groups and thought leaders, and experts in this area to encourage, promote, and publish and implement industry standards guidelines and living frameworks around the ethical and humane use of technology. It is an incredible aspect of the fourth industrial revolution was the way forward. Not just for our industry but for humanity.

We have to make sure that technology strengthens our societies instead of weakening them. Technology needs to improve the human condition not undermine it. We're looking forward to working with all of our Ohana and all of you in illuminating this important path together and continuing this incredible and critical discussion, especially here at Salesforce and including coming up at our Dreamforce conference. With that, I want to turn it over now to Mark Hawkins and to discuss the financial details of the second quarter.

Mark Hawkins -- President and Chief Financial Officer

Thank you, Marc. As you've heard, we delivered a strong second quarter result across all of our products in our regions. Second quarter revenue grew 27% in dollars and constant currency. While there was not a significant year-over-year FX impact revenue, sequentially we saw a $38 million revenue headwind due to FX. MuleSoft contributed 122 million to total revenue net of purchase accounting adjustments. This was higher than we anticipated due to a higher mix of license revenue in the quarter. We're very pleased with MuleSoft's performance to date. Dollar attrition exited the second quarter below 10%.

Second quarter GAAP EPS was $0.39 and non-GAAP EPS was $0.71. Mark to market accounted for a strategic investment portfolio as required by ASU 201601 benefited the GAAP EPS by approximately $0.18 and non-GAAP EPS by approximately $0.14 in the quarter. GAAP EPS also benefited by approximately $0.18 related to the partial release of our tax valuation allowance as a result of the MuleSoft acquisition. Operating cash flow was 458 million, up 38% over last year has driven the overall strength we saw in the quarter, improving profitability and strong cash flex between Q2 within drivers. Pre-cash flow into finance operating cash flow less Capex was 288 million in the second quarter, up 42% over last year.

Unearned revenue ended the quarter at nearly 5.9 billion, up 24% in both dollars and constant currency. So much in revenue FX did not have a significant year-over-year impact on unearned revenue but we did see a sequential FX headwind of approximately 66 million to unearned revenue in Q2. MuleSoft contributed approximately 77 million to unearned revenue in the quarter. As you may recall in Q1, we started disclosing a new metric pull remaining transaction prices as part of our adoption of ASC606. To conform to the emerging industry standard language, we have changed our terminology for the remaining transaction price to remaining performance obligation.

At the end of the second quarter, our total remaining performance obligation was $21 billion up 36% over last year. This metric represents all future revenue under contract. The current remaining performance obligation expected to be recognized as revenue in the next 12 months, was 9.8 billion up 27% year-over-year. Keep in mind the current portion of this metric is not impacted by invoice integration, unlike unearned revenue. Moving on to guidance let me briefly touch on the FX environment. As I mentioned previously, we experienced a sequential FX headwind to revenues and we continue to see some movements in race.

In context, we are now anticipating an FX headwind to revenue of approximately $75 million to $100 million for the remainder of the year. Despite this FX headwind, we are raising our full year 2019 revenue guidance by $50 million to 13.125 billion to 13.175 billion for 25% year-over-year growth including MuleSoft. Speaking of MuleSoft, let me quickly touch on the revenue for the remainder of the year. We were very pleased with the performance of MuleSoft in the second quarter. That said, as a significant portion of MuleSoft's revenues recognized up front as licensed revenue under AFC606 and as we have limited history in forecasting under this model, we are not updating our guidance for MuleSoft contribution to revenue. We will, however, continue to provide their quarterly revenue contribution for the remainder of fiscal 2019.

Turning to operating margin, based on our strong performance in the quarter, we are raising our FY19 non-GAAP operating margin improvement range to 25-50 basis points for a full fiscal year non-GAAP operating margin of 16.75% to 17%. We are raising our FY19 GAAP diluted EPS guidance to $0.97 to $0.99. And non-GAAP diluted EPS guidance to $2.50 to $2.52. This guidance implies non-GAAP OIE of approximately 250 million for the full year. Keep in mind that this guidance does not take into account any possible future impact from the mark to market adjustments related to ASU201601 which may cause EPS volatility based on market conditions.

We are raising our full-year fiscal 2019 operating cash flow growth guidance to 15% to 16% year-over-year. We also now expect full year CapEx to be 4% to 5% of revenue compared to our prior guidance of approximately 5%. For Q3, we're expecting revenue of 3.355 billion to 3.365 billion. GAAP diluted EPS of $0.01 to $0.02. Non-GAAP diluted EPS of $0.49 to $0.50. We expect year-over-year unearned revenue growth of approximately 20% in Q3 including MuleSoft, our Q3 UR growth rate reflects significant FX headwind to unearned revenue year-over-year in addition to the continued deepening of our quarter-on-quarter seasonality UR. As a reminder, we will only provide unearned revenue guidance one more time on a third-quarter call at which point we intend to stop providing this guidance as you will have more history with the remaining performance obligation metrics.

As you update your models for the back half of the year, keep in mind that Dreamforce is in Q3 this year and was in Q4 last year, so the associated costs will occur a bit earlier in FY19. To close, we delivered a strong second quarter closing out a great first half of the year, positioning ourselves very well for the back half of FY19 as we head into Dreamforce. We continue to execute on our strategy of delivering durable growth at scale with some leverage and are on track for our FY22 target of 23 billion. And speaking of Dreamforce, I look forward to seeing many of you at our annual investor day on Wednesday, September 26th. I want to say thank you to our employees, our customers, our partners, and our shareholders for your continued support. And with that, I'd like to open up the call for questions.

Questions and Answers:

Operator

Ladies and Gentlemen: at this time, I would like to remind everyone, in order to ask questions press * then the number 1 on your telephone keypad. Your first question comes from the line of Bhavan Suri from William Blair. Your line's now open.

Bhavan Suri -- William Blair -- Analyst

Hey, thank you for taking my question. Congrats there. I wanted to touch on sort of a broader question here given the integration cloud. I'm sort of starting to see a lot of this integration with ERP and into back-office systems with MuleSoft and you sort of verticalized the front-end financial cloud health etcetera.

How will you think about sort of time that backend in? Is that sort of an idea of a supply chain cloud or something along those lines when you think about potential new verticals? How do you sort of capture some of the value of the data that you're integrating with the ERP? I'm just trying to understand how you guys are thinking about that.

Bret Taylor -- President and Chief Product Officer

Hi, this is Bret Taylor. It's a really great question. I think one of the best opportunities we have for MuleSoft in our division cloud is aligning it with our vertical solutions. If you look at what we're doing with financial services and healthcare, it's really about transforming the customer experience in those industries and we can't do it unless we unlock the data by linking two systems. Whether it's an electronic medical record or the incredible amount of investments at the financial industry has made in their back-office systems.

So when we think about the opportunity for MuleSoft, it's really about aligning with our overall value proposition of transforming customer experiences and up leveling the conversation of integration from an IT tactical decision to a strategic decision about how to transform your customer experience. And that's the opportunity that we see over and over again when we're talking about integration to our customers. It's not just a problem for the CIO; it's a problem for the CEO. And that's the opportunity of integrating those value propositions.

Keith Block -- Co-Chief Executive Officer

Just to emphasize this point. This morning I received an email from the CEO of one of the largest banks in EMEA who wants to bring their entire executive team over to talk about integration and what MuleSoft can do to unlock their data. So it's a perfect proof point of exactly what Bret is talking about. There is huge opportunity in this space.

Bhavan Suri -- William Blair -- Analyst

Can you just tell us how the integration is going?

Keith Block -- Co-Chief Executive Officer

We're thrilled with the integration. As you know, it's just our first quarter and we've done many, many acquisitions here. I would say that this is probably the smoothest integration that we've had. The integration of the field, the product teams, the marketing organizations across the board, all the lines of businesses has really been fantastic. You can't have a conversation right now with a customer without talking about MuleSoft. Everybody wants to talk about the importance of integration as it relates to digital transformation. So we're very happy with what's going on.

Marc Benioff -- Chairman and Co-Chief Executive Officer

Bret, do you think that's kind of the acceleration of the public cloud combined with customers' major investments in their own data centers is driving this integration? What do you see as the core driver?

Bret Taylor -- President and Chief Product Officer

There's so many trends happening simultaneously that is driving this investment integration. We have customers who want to transform their customer experience and there are also looking to shift in their infrastructure from their own on-premise data centers to the cloud and every customer I talk to still has public cloud, private cloud, on-prem, sometimes even mainframe systems, and they can't wait for all that technology change to shift before transforming their customer experience. And that's the promise of MuleSoft is, we can actually transform it now and that's why these conversations that Keith mentioned are happening right now. There's all these trends driving integration for up leveling the discussion for integration to the strategic level.

Bhavan Suri -- William Blair -- Analyst

That's really helpful, guys. Thanks for answering my question and obviously Mark's question, too. Thanks and congrats.

Operator

Your next question comes from the line of Kirk Materne from Evercore ISI. Kirk, your line's now open.

Kirk Materne -- Evercore ISI -- Analyst

Thanks very much. Congrats on the quarter and I'll add my congrats to Keith on his new appointment. I guess -- one question then one follow-up for Mark Hawkins. I guess just my question was around Mark's earlier comments on deep learning and AI. I was just curious how often Einstein's coming up in these engagements you're having with CEOs? Is having an AI platform becoming really table stakes to participate in this digital transformation discussion?

And then just a quick clarification for Mark Hawkins. Mark, I assume the guidance you gave -- I guess the FX headwind was incremental relative to what you were thinking earlier, meaning it's become a bigger headwind since we last talked to you three months ago. Thanks.

Mark Hawkins -- President and Chief Financial Officer

Thanks for asking that question. It's been quite a few years now than that we made the strategic decision here that artificial intelligence had to be a core part of the Salesforce platform. So of course, we have seen so many exciting technologies emerge that we knew had to become part of our platform on our journey over the last 20 years but I think AI was probably the most daunting because there's many different aspects of artificial intelligence. Through a lot of core native development, through acquiring companies, through finding incredible talent, we've been able to build a phenomenal platform like Salesforce Einstein. I don't think that there is a more successful business implementation of artificial intelligence than Einstein. Not just core in our platform but also now in all of our core clouds as well. You can see how Sales Cloud Einstein or Service Cloud Einstein or even in the Marketing Cloud, help transform the customer experience. Probably the most powerful is our commerce cloud. When we actually turn Einstein on in the commerce cloud and customers have the option to do that, but when they do turn it on, they see double-digit revenue growth above what they were already experiencing under commerce cloud is amazing.

And it really goes to show how the ability to take this really powerful next-generation technology and have dramatic business outcomes and we're deeply committed to artificial intelligence and as I said, we're also deeply committed to the ethical and humane use of that technology that we all realize that AI is developing a lot faster and going a lot farther than any of us realized. And Salesforce has, I believe, probably the premier provider of artificial intelligence, certainly in business applications and enterprise applications. We so feel a deep responsibility to help in the guidance of that capability. And I'll turn it over to Marc.

Marc Benioff -- Chairman and Co-Chief Executive Officer

Good, thank you. Kirk, you are correct, yes, this is bigger since we had talked prior. Despite the FX headwind that we see -- in fact, in the second half, obviously, the revenue for operating margin in our cash flow.

Operator

Your next question comes from the line of Richard Davis from Canaccord. Richard, your line's now open.

Richard Davis -- Canaccord -- Analyst

Thanks. Maybe this is a broader question for Marc Benioff. There are thousands of companies out there, as you and I both know, most of them hit a wall and often times the stumbling block is a CEO who doesn't change with the company. So, Marc, maybe this would be a better question over a beer, whatever, but you and I have met a bunch of private companies but it would be super helpful if you passed on kind of one or two key things that you've done to scale as a CEO. You've seen it -- CEOs hold on too tight, they don't do this that or the other but that would be actually a -- not a swan song question but I was just curious. Thanks.

Marc Benioff -- Chairman and Co-Chief Executive Officer

Well, it's a good question and I'll tell you in the room here is Monica Langley and we're working on -- you've probably read the book Behind the Cloud. And we're working on a new book right now, which we're really excited about. We just wrote one of the key chapters that really answers your question. I so firmly believe that you're an entrepreneur that really -- the key to having durable success over multiple decades, which is what Salesforce has now done, is really maintaining a beginner's mind.

You've probably heard me talk about this but rarely does a morning go by where I don't take some time for mindfulness myself and really say, OK, knowing everything that's going on in the industry, in the world, in our company, with everything that's happening. What do I want right now? You really kind of start fresh, completely cleared my mind to really let everything go that has happened over multiple decades, and to say, what do I want now? Where are we going? We do that -- I do that with myself and we do that also with our management team.

We just finished one of our major management conferences and we take that same approach where we really say, OK, what is it that we really want? And I think that's an incredible find. You know, we're all so connected all the time; everything's going on, so much email, we're all on our phones. And for everyone on this call is looking down at their phone right now. And just put our phone down and stop and just say, OK, let's take a moment and then go forward. I don't think for my mentoring to other entrepreneurs is they need to take care of themselves. This is the single most important thing and it starts with your beginner's mind. And you'll see that new book coming soon, hopefully. Right, Monica? In one year, she said.

Operator

Your next question comes from the line of Raimo Lenschow from Barclays. Your line's now open.

Raimo Lenschow -- Barclays -- Analyst

Hey, thanks for taking my question and congrats for Keith as well. I just had a question, Keith, for you. Now that you have MuleSoft in for a little bit, what has been the feedback from the Salesforce? Because you could say MuleSoft is a little bit more of a technical sale but you guys also talked about that the whole discussion is becoming a lot more strategic. How else does your Salesforce been able to take on MuleSoft and integrate it into the overall offering? Thank you.

Keith Block -- Co-Chief Executive Officer

I will just characterize it this way. Nearly universal euphoria. If you think about the conversation that we're having at the CEO level, these are all about digital transformations and the whole concept of integration just completes the thoughts and the promises digital transformation again by unlocking the data from these legacy systems. MuleSoft already had a very capable and high performing sales organization, which we've continued to invest in. We've been able to have very tight alignment and enable it with the core Salesforce sales organization and that's just created a lot of traction.

But again, if you think about the conversation, the dialogue that we're having with our customers, this was a missing piece to the puzzle. We listen to our customers. That's why we made the acquisition because we knew exactly how important this was going to be to completing that digital transformation. The integration is going very well. The traction's there, the alignment's there, the synergies are there, the enablement is there, and the customers want this message, they want this story, they want the solution.

Raimo Lenschow -- Barclays -- Analyst

Bret, are you surprised at the weight of acceptance the integration cloud and what's happening? I know you have a lot of surprises planned for Dreamforce around that as well but is this a shock?

Bret Taylor -- President and Chief Product Officer

It's not a shock because for me when I look at our product portfolio, I don't view them as separate products or separate clouds. I really view it as stages of customer lifecycle. Customer touch points. And we're really selling an integrated, transformed customer experience. And just like automation and AI are in every conversation because every company wants the more predictive, smarter, personalized experience for their customers -- every customer wants an integrated experience.

It pulls together all their different departments, all their different legacy systems, to provide an integrated view of the customer. You want every single person you turn into customer to be able to have a single view of the person they're talking to. And that's fundamentally what MuleSoft integration grounds provide. It's relevant in every single customer conversation.

Operator

Your next question comes from the line of Keith Weiss from Morgan Stanley. Keith, your line's now open.

Keith Weiss -- Morgan Stanley -- Analyst

Excellent. Thank you guys for taking the question and very nice quarter. I was wondering if we could dig in a little bit to Marketing Cloud. We've seen a couple of quarters of acceleration there. Marc Benioff, on the last call you alluded to benefits that you expected to see some GDPR. Are we starting to see those benefits roll through or is it too early for that and there's other things? And then maybe if I could sneak in a second question. I was just wondering about sort of the decision to open source parts of the Einstein data framework. What was the sort of rationale behind that, pushing that into the open source community? What are the benefits you're expecting to see from that open sourcing of that technology?

Marc Benioff -- Chairman and Co-Chief Executive Officer

I think that number one, I was in Switzerland last week at a conference and I met with more than 100 of top European CEOs and probably each and every conversation that I had with them I see a deep yearning for them to have a more complete relationship with their customer. But it's a deeper aspect of that. They want a one-on-one relationship with their customer. Especially in the consumer companies, you can see that -- if you go to some of the major consumer sites and companies that we work with like Louis Vuitton or Adidas or L'Oreal or Puma or New Balance, you can see that you're starting to have a one-on-one relationship with the company.

That they're able to really provide a one-to-one experience with you and that's not just in commerce, but it's in marketing, it's in service, it's in sales, and to kind of bring in some of the previous questions, it's intelligent, too. That is, we're using AI to make that a more personalized experience to give you that opportunity. That's what every company wants to get to, whether they're a B2B company or a B2C company. It's one of the reasons I was so excited, for example, in the CloudCraze acquisition on a company like Adidas, you have a significant percentage of course of their commerce is B2C, we all know that. We go on their site and we buy our Yeezys.

But did you know that an even larger percentage of their electronic commerce is B2B? That is, of course, they need to be able to go and sell to all the other companies that sell Adidas. And we all know who those companies are. And that opportunity to offer a B2B and B2C experience, that's one-on-one, that is really driving this phenomenal growth.

Especially as you see in the Marketing Cloud. Of course, email is a key driver there and no one sends more business emails than a highly personalized intelligent way than we do. You'll also see that it drove our acquisitions this quarter of Datorama. If you haven't seen Datorama, it is an amazing compass. It's a company that through artificial intelligence is automatically able to integrate all these different marketing automation applications.

Of course, Salesforce is probably the number one Marketing Cloud in the world, but there are other Marketing Clouds as well and there's other marketing technologies. Datorama is able to automatically reach out to those and then provide to the marketer-automated dashboards with integrated KPIs to give them basically an incredible opportunity to drive their marketing. That is gonna be future growth of our Marketing Cloud.

I'm so excited that we're able to acquire this company and that we're able to rapidly start to integrate it into our system. Finally, you mention open sourcing as key part of our AI. We're working closely with the entire AI community and as part of that, we believe that we're all working on artificial intelligence together. We're certainly -- we benefited from the open source community and we're gonna contribute as well back to the open source community. That's part of our philosophy at Salesforce.

Operator

Your next question comes from the line of Heather Bellini from Goldman Sachs. Your line's now open.

Heather Bellini -- Goldman Sachs -- Analyst

Great, thank you. Marc Benioff, I just had a question about MuleSoft. You've obviously had great success since founding the company almost 20 years ago. But how do you see MuleSoft with it all helping to modernize if you will, your own internal IT and your clouds and are there new offerings as a result of that that you envision you might be able to offer to customers as you do this? And then, my follow up was just related to -- you've been very vocal about how great the IT spending environment is this year. And I'm just wondering, I know it's early, but any reach from all the customer visits you've done as you look out to next year? Thank you.

Marc Benioff -- Chairman and Co-Chief Executive Officer

Well, now, I'll hit the last part first. Which is, I've never seen such a robust spending environment. This is just the time when -- and I'll just speak, really to the CEO -- I've never seen CEOs spend so aggressively. They benefited really dramatically from these tax cuts. And also from the deregulation focus, especially in the United States. It doesn't matter if it's an American or European. As I mentioned, I was there last week. Or an Asian CEO.

I have had experiences with all of them recently and I can tell you that across the board, I don't know a CEO who's not aggressively spending at a level that I have not seen them spend at before. And probably the number one thing that they're spending on is their own digital transformations. They're really positioning their companies for the future. We're really in an incredible time and I've been continuing to be extremely impressed with that. Of course, we have tremendous offering for them as well.

We have the right product at the right time. That is really helped us. And regards to integration cloud, this is a company with MuleSoft that of course we helped fund it at the beginning, I personally recruited other investors like Sisco into the company, board members, I really always loved the company. And then, something amazing happened last year. I was just talking to a lot of customers and I think hearing that integration was moving up on their priority list.

And the reason why is very simple. Everybody knows that public clouds are becoming more dominant. We've seen the incredible growth of amazing Salesforce customers like Amazon and Google, two of our largest customers and their public clouds. But as our customers move to these public cloud environments, including ours, by the way, it really motivates the integration issue.

Because not only do they have their data in their data centers but now they have data in multiple -- in most cases -- public clouds as well as they're getting data from other sound spenders and giving other public data sources. All of these things trended integration gambit like we've never seen before. And yet, here's this company MuleSoft that has a radically new API driven approached integration. It's just phenomenal. And it's just been on its hair.

And all of a sudden, I turned to Keith and Bret and they noticed I came back from one specific customer. And I said, boy, we can offer our solution to the customer and provide an incredible 360-degree view of their customer for that customer and give them insights like never before. But we are not going to be able to do that without this level of integration because the customer, their ability to have that 360-degree view of their customer, is in so many different places now it's unbelievable. So, Bret, do you want to just amplify or expand any of that?

Bret Taylor -- President and Chief Product Officer

If you think about the fourth industrial revolution, really it's about the pace of technology change increasing more rapidly than we've ever seen. When I talk to CIs and CIOs, the main thing they're focused on is utility. How can we move our business forward, faster, keep pace with the change and expectations of our consumers?

And this concept of the API economy and breaking your company up into services and API so you can empower your business units to actually move faster than ever before is on everyone's mind. And MuleSoft really amplifies that strategy and really helps CEOs increase the clock speed of their digital transformation. It's an incredible opportunity because the way they approach it so perfectly aligned with this concept of agility has become so strategic in this fourth industrial revolution.

Marc Benioff -- Chairman and Co-Chief Executive Officer

Keith, I just have to ask you because obviously, you've been here for five years, you've seen us do lots of acquisitions. Has there ever been an acquisition that's had the kind of rate of growth and speed and acceptance by customers that this wouldn't have had?

Keith Block -- Co-Chief Executive Officer

Well, we've had a lot of great acquisitions, as you know. I think that this one is very, very cutting. And it goes back to the comments that both of you and Bret have made. If you think historically about what is going on in the world with the legacy debt, the processes that have built up over decades, the technology processes, the business processes. Companies now more than ever, because we are the fourth industrial revolution and we have these amazing technologies, they have to be agile, they have to be nimble.

They have to reinvent themselves and drive new business models. And if they can't get access to the data, if they can't leverage the strength of the data -- that is, it's like an ocean of data -- then they will miss out on the opportunity. You can think about an offensive strategy if you're a CEO or defensive strategy. But you must do something. And that's what we're seeing in these conversations. So that's why I get excited about MuleSoft as I talk with customers and I know our employees do as well. Because this is really an opportunity to unlock. So as good as all these other acquisitions have been, and they've been fantastic, I'm very, very excited about this one. And we're off to a great start.

Marc Benioff -- Chairman and Co-Chief Executive Officer

And you're gonna see an incredible new reveal at Dreamforce, we're having us both be, but Bret is off to amazing work this year.

Operator

Your next question comes from the line of Mark Murphy from JP Morgan. Your line's now open.

Mark Murphy -- JP Morgan -- Analyst

Thank you. Keith, congrats to you and nice performance. Mark Hawkins, I wanted to ask you. MuleSoft contributed 200 million to the total RPO balance and I'm just curious if you're able to ballpark what it would've contributed to the current RPO balance? If it was anything material? And then also, for Keith and possibly Bret, we started hearing some feedback about underappreciated emerging jewels in the product portfolio.

And in particular, those were references to commerce with CloudCraze and CBQ with SteelBrick. A couple of your partners are now saying that they've had these three big focus areas of sale service and marketing and that they're now gonna have a fourth pillar in these areas and sometimes they're seeing the contract values are increasing 20% or 30% when a customer adopts commerce in CBQ. I just wanted to ask you, do you see the ingredients for those products to surprise to the upside and possibly have that kind of billion dollar, multi-year potential?

Mark Hawkins -- President and Chief Financial Officer

So let me take the first one. Thank you, Mark. In terms of the RPO, you're absolutely right. In aggregate, there was $200 million that MuleSoft added to our total RPO if you will. What I can share with you is the breakdown that we had about 100 million of that would be in the current RPO mark and then obviously the other 100 would be non-current.

Keith Block -- Co-Chief Executive Officer

This is Keith, obviously to your other question. I think the success of our Sales Cloud, our Service Cloud; our Marketing Cloud is pretty amazing. The Sales Cloud growth is now $1 billion-plus run rate, which is unprecedented in the marketplace. We've obviously seen great success with Service Cloud and Marketing Cloud. All of this really speaks to our culture of innovation, whether it's organic innovation or our cloud innovation, and I'm very close to the department community in the ecosystem and it's one of our three growth levers to have the largest, deepest system in the cloud. And we love the fact that our partners are investing in these elements of innovation.

Our partner certifications year-over-year are up 50%. I think that speaks volumes about their confidence in our solutions, whether it's in CBJ, whether it's in commerce cloud. But all of these are solutions and this is a hand in glove conversation. These are solutions that are oriented around our industry focus. They're organized around our line of business focus. And yet we are long gone from the days of focusing on single clouds. We are out there driving solutions, driving digital transformation, multi-cloud solutions, and that's why you see the great results that we've seen in the quarter, what you saw in Q1, what you saw at the end of last fiscal year and why we're so confident about the second half of the year.

Operator

Your next question comes from the line of Ross MacMillan from RBC Capital Markets. Ross, your line's now open.

Ross MacMillan -- RBC Capital Markets -- Analyst

Thanks so much and my congratulations as well. And to you, Keith, on the new appointment. Maybe one for you, Keith, and just a follow-up for Mark Hawkins. Keith, you mentioned Einstein I think in a number of the descriptions of the major winds this quarter and CBG and airlines, etcetera. I'm just curious as to how fast that's evolving, and are we getting to a point now where you're feeling more confident that Einstein is an incremental monetization opportunity for the company? And then I had a follow-up for Mark Hawkins. Thanks.

Keith Block -- Co-Chief Executive Officer

Thanks for the comments and for the congratulations. Look, Einstein is an incredible product and we're just at the beginning here. I mean, it's an incredible piece of innovation, we put a lot of time and effort into this and we got some amazing talented associated with it, and thought leadership and Bret's team has just done an unbelievable job. And it is part of every dialogue because customers, no matter what industry, no matter what geography, no matter what size company, you want insights. And what I love about Einstein, I mean there's many things to love but what I particularly love about Einstein is it is supplied intelligence. A lot of people talk about artificial intelligence in the world without really having a scope or definition or any sort of boundary.

And ours is real, it's tangible, it's pragmatic, it's practical. It is something that's applied to fantastic server and use cases, whether it's in field services, marketing, commerce, and it makes our conversation even more relevant. And our customers get even more value out of our existing product. We drive more value, there is an opportunity to grow deal sizes, to extend relationships, to deepened relationships, and there's a long way to go. But boy, the results are -- from a mindshare perspective and early days on the mind side and revenue side, we feel very, very good about where we're going here.

Operator

Your next question comes from the line of John DiFucci from Jefferies. John, your line is now open.

John DiFucci -- Jefferies -- Analyst

Thank you. My question's for Keith. Keith sounds like the vertical businesses are doing very well, they continue to do very well. Salesforce as an organization hasn't been shy about standing up for just causes beyond the business of Salesforce.com. And I want to ask one question on one of these verticals, and it's really the public sector. And according to what we hear, the public sector's vertical sounds like it's been doing very well for a while here. I guess -- have you seen any recent impact on that business due to recent corporate activism at Salesforce.com. Just curious if that's affecting that business at all.

Keith Block -- Co-Chief Executive Officer

Look, public sector is one of our strongest verticals. It continues to be one of our strongest verticals. Whether it's the United States government, the UK government, or any government in the world, their charter is to provide a higher level of service to their citizens. And that comes through the modernization of their legacy systems and using new technology like ours so that they can engage with citizens in an unprecedented way. And that's what's really culling our growth. That business is very healthy. And we support those organizations and their mission. And the results speak for themselves.

Operator

Your next question comes from the line of Terry Tillman from SunTrust Robinson. Terry, your line's now open.

Terry Tillman -- SunTrust Robinson -- Analyst

I appreciate you fitting me in. Just one question. I know you guys tout the idea of durable growth over time. What I'm curious about is if you look at the platform business and you back out MuleSoft, the platform business has just been chugging along at well over 35% growth. I guess, could you talk about maybe what's been driving growth more recently in terms of -- is it just custom builds extensions off of your core cloud apps or IFV tracks? Just wanted to kind of double click more into the strength of your platform business. Thank you.

Keith Block -- Co-Chief Executive Officer

Our core platform business is very strong. You think about the capability around Heroku, you think about the capability around the core platform, you think about Shield, you think about analytics. These are all growth drivers and difference makers for our customers to just extend the platform. And we've had a great deal of focus and energy on this topic and we've executed incredibly well. I think you're just gonna continue to see that happen.

Marc Benioff -- Chairman and Co-Chief Executive Officer

I would just -- I totally echo that. I think things like Heroku has really been exciting to be able to see that group in addition to all the other things you had called out Shield. These are things that look really good. Even our ecosystem and what that contributed as well has been positive.

Bret Taylor -- President and Chief Product Officer

And I'll just add that at Dreamforce, you're gonna see some amazing extensions to the quarter platform. We're not gonna go through all of them right now but I'm sure you will be as well as the way I am. You saw yesterday we also announced our lead band tour Dreamforce, which is Metallica, but we have a lot of other amazing entertainment planned and speakers. Some of that we're gonna be dribbling out as we've had between now and September 25th, and a lot of it you're going to see reveals for the first time during the Dreamforce keynote. I promise all of you that this will be the Dreamforce that you will never forget. And I look forward to seeing all of you there.

John Cummings -- Vice President, Investor Relations

Great. Thanks so much, everyone for joining us today. If you have any further questions regarding our second quarter results, please feel free to email us at investor@salesforce.com. Otherwise, we'll look forward to seeing many of you at our annual investor day, Dreamforce on September 26th. Thank you so much.

Duration: 59 minutes

Call participants:

John Cummings -- Vice President, Investor Relations

Keith Block -- Co-Chief Executive Officer

Marc Benioff -- Chairman and Co-Chief Executive Officer

Mark Hawkins -- President and Chief Financial Officer

Bhavan Suri -- William Blair -- Analyst

Bret Taylor -- President and Chief Product Officer

Kirk Materne -- Evercore ISI -- Analyst

Richard Davis -- Canaccord -- Analyst

Raimo Lenschow -- Barclays -- Analyst

Keith Weiss -- Morgan Stanley -- Analyst

Heather Bellini -- Goldman Sachs -- Analyst

Mark Murphy -- JP Morgan -- Analyst

Ross MacMillan -- RBC Capital Markets -- Analyst

John DiFucci -- Jefferies -- Analyst

Terry Tillman -- SunTrust Robinson -- Analyst

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