Salesforce, Inc. (CRM) Earnings Call Transcript & Summary

All right. Great. All right. Another question is, how important is CDP, your customer data platform, as it relates to the marketing space?

I'm glad we're doing what we're doing with that. I think our marketing space, you can see us in the share we've been taking for so long. It came from what was the #6, and we're right there at the top, and it's just one of many strengths that we have on that. But I think it's a helpful offering. I like what we're doing in all aspects of the Marketing Cloud, how it plays with Commerce Cloud and the other clouds. So I think it's valuable.

Okay. Great. And then tell us why the Vlocity acquisition was so important, what this will do for Salesforce in certain verticals where you specialize or where Vlocity specializes such as telco, media and entertainment, health care, et cetera.

Yes. The one thing I'll just say on the last question, just probably a good, finer point on the CDP at the end, basically, what we're creating with that as part of 360 is just a complete solution for the CMO. And the CMOs love to have a complete solution. Again, the biggest point I would say is you talk to so many people, Gregg. Just ask how many of them want to fractionalize the solution that they have to integrate versus kind of what we're offering. And I think that gives another lens on the CMO and CDP. As it relates to Vlocity, the thing I like about Vlocity, Gregg, is it opens up just even more progress on our verticals. And you can -- you and I can remember talking 6 or more years ago, we're like, "Hey, we're going to go into industries." We're going to get people who can speak the language. Checkpoint. We're going to go get partners that can help support the customer in a more industry-focused way. We check it off. We're going to start delivering vertical products, and we're doing that. And then we're having success with Wealth Cloud, retail banking cloud and Health Cloud. And we said you'll see more of that. And Vlocity opens up the solutions even more when you think about all the different energy and utilities and the communications side and everything that -- government, insurance, health, that offers even more verticals for us to build the products on top. And the reason that's so powerful, Gregg, in my mind as CFO is, as called out at Investor Day, I'm picking up an incremental $160 billion TAM. That's good. I'm picking up a product where, at least our early industry SKUs, show a 30% lift in ASP because there's more value. We see with the early SKUs, the attrition rate is in the -- it's low single digits. There's a lot of unit economics there. There's new logo creation there. And so we think that this is just another way to propel us for our long-term future. That's what I would say there.

Okay. All right. Very exciting in terms of everything you guys are doing there. I know it's early innings with respect to the effort but look forward to seeing how that progresses. Another question, Mark, on a different front, so this relates to hiring. I think many investors who are tuned in for the session have probably seen or heard, but if they haven't, the recent plans. And Marc B. recently sort of talked about hiring 12,000 or so new employees, I think, over this next, I believe, 12-month period. So that's almost a 20% increase in head count. And the question is, how do you think about where you are investing and given that you just had some reductions sort of following the recent earnings call? And then related to that, investors want to know, are you seeing the demand return to the point where you're now comfortable investing in the business again? Or is this more just sort of reinvestment from some of the work-from-home savings that you wanted to capture?

Yes. And I think the key point that I would say is we've never stopped investing in the business. We're always taking a long view to help to think about it. We were always -- obviously, this year, we're going to add thousands of incremental heads by the end of this year as well. I think Mark talked about more of a forward-looking view over longer periods of time as well. But we are a growing, vibrant company. I mean just look at 29% growth last quarter and our scale as the fourth biggest enterprise software company in the world. You don't see that kind of growth of scale in enterprise software at all. We're investing across all the businesses, both in product and in region, and very, very purposeful in that way. So I think those are the ways to think about our project -- product, regions, industries, the things that our customers -- position us to best serve the customer as they go to the future as they modernize. But that's what I'd say. We've never stopped investing. And just we're always improving and adjusting and making sure that we're going in the future even in a pandemic time.

Okay. Got it. And then maybe as a follow-up, Mark. So just in the aftermath of you delivering 20% operating margins this quarter, does the shift to a hybrid workplace lead to a cost structure that is slightly or perhaps modestly lower for Salesforce on a sustainable basis? How do you think about that?

Yes. And I think the thing I would say to you is, certainly, with the work-from-home circumstance, where travel is not what travel would be and are there opportunities with real estate and that type of thing, I think I'm sure there are. Yes. The answer is, yes, in Q2, for example. In terms of where things would be, obviously, it's very early. People are wondering, like, will people come back to offices again someday? I believe someday they will. Will it be exactly like it was pre-pandemic? I don't believe it will be exactly the same way, but we're not over-extrapolating right now. It's just too early days. But we really are reimagining our future. We always want to be leaning forward, Gregg. And I would say it's the entire employee population. It's like better, [ better than ever and ever ], ever. How do we keep improving? T&E, we know will come back. But the question is, how much? There's been so much discovery of what's possible, what's more productive based on the learnings that we're having now. And we want to keep leveraging those margins and spur continuous improvement. So we are pleased to put up the first ever $1 billion-plus operating margin dollars in Q2. We're pleased to hit the 20%. I think we've made progress, as you know, over the years, but we're also keeping our growth as #1, continue to make the progression on operating margin over time and our cash flow over time, and this business continues to scale forward. And that's obviously been our consistent intention.

Okay. All right. And then a question actually going back to Service Cloud that came in. What are your goals for Service Cloud? And specifically, the intent of the question is about field services or field service management. I know you obviously sort of expanded a little bit more into that area late last year by virtue of an acquisition with a company you were partnered with, but if you can sort of talk to your aspirations and whether that's an important part of the equation for Service Cloud going forward.

I think the field service, we have great opportunities there to serve the customer. The reason we bought ClickSoftware, again, customers were expressing how we could take the 360 and just keep building it out and expanding even more in field service, which is such a great market. You can see in our Service Cloud, not only being #1, but with the kind of growth rates we're putting up, we're, again, really distancing versus the competition. You just have to look at the aggregate numbers despite the scale that we're at. I mean, that's -- as you pointed out, is our biggest cloud if you need a trusted platform for the analytics. And it's growing nicely. So I think field service is very much part of it. Click was very much part of it. Our customers are asking for it. That's what drove us to the acquisition ultimately. And we're excited to see more and think about the combinations of our technologies and what we can bring to bear in that area. This is exciting to me.

All right, terrific. A question has come in around just go-to-market. And the question is, Marc B has sounded excited recently about some innovations in go-to-market for Salesforce. Is there any color that you're able to provide on this?

I think not a ton more than what kind of -- what we're talking about. We're part of a -- I mean, again, keep in mind, there's also even a proprietary nature to this that we have experimented and experimented and experimented again. And we're finding some things that are really helpful in a world where we approach it with beginner eyes, and we imagine. And we also know how powerful it is to operate with the values that have got us here 21 years later in terms of customer success, staying very close to the customer, and ensuring the relevance of what we bring to the customer, making sure we're always solving the problem that's most important to them and executing and being the pioneer in innovation that we've always been. So I think if anything, just being laser-focused on what's most important to the customer. And then there are other operational things that we're doing that we're obviously pleased with as reflected in Q2.

Right. Great. And then a question on -- another question on Tableau. The question is, can Tableau be accretive to organic growth as it comes into the organic base this quarter? I know you don't, of course, guide by segment or by product or anything along those lines. But if there was perhaps anything you could talk about high level, around the high level and maybe not even for this quarter but just about the ability of Tableau to grow sort of vis-à-vis the overall business?

I will say this. We are very happy with the opportunity with Tableau. We're very pleased with the way this is progressing relative to our hopes. Obviously, it's a big TAM. It's a big market. We see the opportunity much like we see with other M&A, where there's an opportunity to be better together. And we're shifting into selling motion. We're leveraging our experiences. We're learning the experiences at Tableau. But I would just -- without getting numeric on you, I think that this is a very strategic sale in the C-suite. It allows us to really go all the way from opening the aperture of data, the type of data with Mule, all the way to seeing and understanding, applying the Einstein capabilities and then putting it all within the circle of the customer success platform is a, we think, a great combination. You can see it in the numbers in Q2, and we have lots of hopes around this. But we're -- look, right, you buy a company, and you're hoping that it will do what you were hoping it would do. I think you heard from Marc Benioff about his view on how this is progressing. I think it's very much meeting our hopes. And we have high hopes, as you know.

Yes. And further to that point, because when I think about Tableau as an independent stand-alone company prior to the acquisition, they were doing well. They were certainly growing. They didn't have, however, the enterprise and C-suite relationships that Salesforce does. And Marc has talked about that a little bit as well, right, in terms of elevating to those -- to the CIO or to other C-level executives. I guess to that point, maybe if you could sort of talk about what you're seeing with respect to wall-to-wall deployments of Tableau and maybe how that notion has been progressing.

Yes. I think a great example, and I just use it because we've spoken about it so much publicly, but there's other similar examples. AT&T, you just go right down the fairway. And for AT&T, they're like, okay, like, we need to completely leverage the 360, period. And that's what we need to do. We need to work together. This is the CEO-to-CEO discussion, and Tableau's right in the mix. That is a great example. You're not only in the C-suite with -- at the top of the tops of some of the biggest corporations in the world, but you're in the C-suite, and you're delivering relevance and value innovation they need as part of this bigger solution. That is a -- what I would call kind of a poster child for the kinds of opportunities that we're seeing and the kind of collaboration that we're excited about.

Right. Terrific. And then just a reminder, if anyone does want me to ask a question, please e-mail gregg.moskowitz@mizuhogroup.com. We have a little less than 10 minutes left. I wanted to actually touch on Work.com, if I could, Mark, because it should go without saying that what you guys have done there is just remarkably laudable. My belief is that it will genuinely make a difference and is already making a difference in the fight against COVID for governments and corporations that adopt it. Also really impressive that 36 states, at least that I know, have already signed on. But I'm curious how you're thinking about this as CFO. Do you think Work.com can make a decent financial contribution over the next 12 months or so either directly or even indirectly as a door opener, so to speak?

Yes. Very aptly stated there, Gregg. I think about the -- Work.com was such an interesting way, and you alluded to it how it started when the Governor of Rhode Island called us and asked could we help in the urgent, urgent time. And we basically said, "Absolutely," and we couldn't sort out like they're saying, like, "I don't know what my budget is," this and this and that. We're saying, that's not what this is about. This is about serving you right now. And we did, and you've heard her speak about that. And then, of course, that spread across the United States where people are using that very productively and not just at the government level and corporations across the United States, across the world in that way. It shows just another area where we bring relevance to the most important thing that's on the mind of every leader of every organization in the world in civil society. In education, in government, in business, we're there to be there for you right now to help you. And so what Work.com did, not only the relevance was so critical, following our values, we're going to take care of the customer first. We're going to innovate. We're going to build trust. And what it allowed us to do, I wouldn't think about it, Gregg, so much just like a SKU that we're going to try to lift up, like x amount as that's driving our top line. Think about it completely different. Values drive value. That was the ability to knock on the door of every single one of the customers we have in the world and say, "Can we help you with this? Would this help you?" And that opens up a-whole-nother dialogue, and people would say something like, Gregg, like how did you guys just do that in like 3 weeks or 4 weeks? And you go, well, I mean, this is not like legacy time or other kinds of clock speeds. This is like 3 or 4 weeks. And then you start to explain the power of the platform and objects and what we can do and the AppExchange and everything that's happening that future proofs your investment for anything that you make. And you can begin to see that dialogue happen. And you can see how friendly it is, and you can just imagine the rest. But I think, again, we've always believed, Gregg, and we've talked about it in years gone by at Investor Day that values drive value. You go truly stand up and support the customer. You truly help them in their hour of need. And maybe you're going to learn something. Maybe you're going to find innovations. Maybe you're going to help them, and that's what we've always tried to do. And it's been really rewarding to get some reactions from customers of every part of our society. It's been motivating to our team, for sure.

I can imagine so. And it's a great point actually just about this rapid app dev pipeline with respect to innovation that you guys showed internally around Work.com and with respect to productizing, et cetera, as a result. I mean, it sounds like this is the case, but is this opening more eyes among your customer base just in terms of your capabilities that exist within your Lightning Platform?

I think it is. I think people just began -- they understand it is -- I think what people understand, and it's just a reminder, you know this, our investors know, we've always been a platform-first company. And that platform is just added to the power of innovation. All the way from the moment we came up with the first ever SaaS app, we started this focus as a platform. And now, what people see is the speed of development, the shifts -- the sheer horsepower where people can develop on our app and on our platform, which created the biggest business-to-business AppExchange in the world. And you bring that to a customer, and you say you want to solve their problems. I mean, you've got [ really work beyond the elevator ], and that's what we're trying to keep perpetuating. And it has created a great dialogue, and -- yes.

All right. Terrific. And then one question that I wanted to ask was just around your international revenue contribution. It's still fairly low for a company of your scale, Mark. And I know that Gavin -- your new President and CRO, Gavin Patterson, I know he's going to help address that. But I'm just kind of wondering if you have a high-level target or just how you tend to think about the international revenue mix over, call it, a 3- to 5-year period.

Well, I certainly do think about that in shaping the long-range plan always and trying to think about the future. Also, Gregg, you know my background. I lived overseas in Europe for years. I was on the Board of Directors also in Shanghai and in Tokyo in years gone by. So of my international focus is always prominent. Gavin is an amazing CRO and will bring even more international perspective to our C-suite. I think the key thing to think about on international is the reason most people see that ratio changing, where international as a percent of total grows a lot more, is people are saturating the U.S. market. And so by definition, that growth rate goes down and the international rate goes up, and therefore, that mix starts to shift. The thing that's different about Salesforce is the growth rate's not going down in the Americas on a revenue basis relative to the kind of the normal patterns that you see. And what you see is just amazing TAM in front of us. And you see a market that's growing, according to Gartner, in the 11% to 12% range, let alone the share take -- that we're taking for 21 years and then you see the opportunity. So it's a numerator-denominator issue. And the reason it's been so relatively stable is that there's just growth in all areas, basically. And I think that's a very good sign, and it's a very unique sign. But in terms of investing in international, absolutely. In terms of having amazing executives like Gavin, absolutely. In terms of our growth runway for years to come in that area, I just would certainly affirm that, our point.

Okay. So we had 3 different questions that I'll synthesize just as it relates to M&A, and we're almost out of time, so this will be our final question. But it relates to the fact that there's been a lot of inward focus within Salesforce just with respect to Tableau integration, and then, of course, COVID and as we're kind of starting to come out of that at least somewhat in both cases and as a lot of the integration work, even though it's not done, has been accomplished with respect to Tableau and you're anniversary-ing it, et cetera. How are you guys thinking about M&A going forward and particularly as it relates to larger M&A?

Sure. And here's what I would say to you. I would want to affirm one of the points you made, is that Tableau integration is heavy on my mind because for people that understand, a lot of people think, okay, the company is purchased, it's integrated. The company has the org chart changed, it's integrated. The company begins to leverage the sales motion, integrated. But there's product road maps, there's systems, there's processes. And so it's a complicated, important, multiyear experience. This is the biggest M&A we've ever done. So obviously, a lot of work yet to go. As we talked about, very happy with how things are progressing in that way. But that's big on my mind, and I think Marc has touched on that before. Obviously, navigating through the pandemic and keeping our employees safe, taking care of our customers, community, shareholders is every bit on my mind always. And then, of course, we're -- as we go forward as a company, Marc has made comments like we always have to keep beginners' eyes. He told you the integration and that type of thing. And we always have to think about that. We've always been opportunistic as a company. And I just think we need to just realize that's who we've always been. But do we have a lot going on with the integration? Yes. We want that to go well. And do we want to navigate through the pandemic? Exactly right. But I would just say that being opportunistic and beginners' eyes is something that we got for 21 years. It's kind of who we are over the long term. That's the way I think about it.

Okay. Well, with that, we are, unfortunately, out of time. But I'd like to thank everyone for tuning into this session of the Mizuho virtual tour. I'd especially like to thank Mark Hawkins for just a terrific session. Thanks for being here, Mark.

Gregg, it's really a pleasure. Thank you. I wish all of you, everyone listening as well, safety and wellness. And I hope you're all having a good balance of the week. Thanks so much, guys.

Perfect. Thanks again, Mark. Thanks, everybody.

Take care.