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

Hi, everyone, and welcome to Talks at GS. I'm excited to be joined today by Marc Benioff, the Chairman and CEO of Salesforce. Marc founded Salesforce in 1999. And over the past 22 years, he has built it into a leading enterprise cloud computing company and one of the world's biggest software firms. Under his leadership, Salesforce has become a driving force for digital and transformation for big companies and small companies around the world. Marc, really appreciate you taking time to be with us today.

It's great to be with you.

So I'm going to jump right in because we have limited time. And I'll just start by saying, and you and I have talked about this, 2020 has been quite the year, health crisis, economic crisis, social crisis. But in the midst of all this, Salesforce was added to the Dow. You acquired Slack. You were named the CNN Business CEO of the Year. By the way, congratulations for that. That's quite an honor.

Thank you.

The tech sector has been shining a light -- has been a shining light in an economy that's obviously been heavily impacted by the pandemic. Talk to me a little bit, not just about how your business is faring but share some of the lessons that you've learned as a result of operating a business of this size and scale during the pandemic.

Now I'm still finding my way through this. This is my first pandemic. And I would say a year ago, we were at the World Economic Forum in Davos together, and amazingly, we didn't really think this was going to happen. In fact, a lot of folks were saying it wasn't going to happen, and very few people were saying it was going to happen, but it did happen. And within a few weeks, we were saying, "Wow, what are we going to do? All of our businesses are basically shutting down, if you will. Our employees are at home, and we're in a new world." And kind of suddenly, in March of last year, the past, well, it's all gone, and we have a new world that we're in, this new pandemic world. And initially, we had trouble kind of getting our sea legs. I would say we didn't exactly know what to do. We even got a phone call from the Chancellor of UCSF, that's our medical system in San Francisco, saying, "Hey, we need help getting PPE." I didn't know what PPE was. Never heard of that term before. Well, we know what -- everyone knows what that is now. And so we helped source about 60 million pieces of PPE. We distributed it to about 300 hospitals internationally. We started making financial contributions to a variety of causes, including our local small businesses who were really struggling. We made significant investments in our local San Francisco and Oakland public schools to help them go remote because that clearly was a crisis we never anticipated. We've done more than $100 million of philanthropy in our local San Francisco and Oakland public schools. Nobody ever told me that we needed to be preparing for remote learning. We continued on. We've done work in food security. I mean you go on and on and on. And at the same time, you look at our second quarter results, our third quarter results. You look at the guidance we've given for our fourth quarter. We've had a great year. So it's a surprise. Our guidance for this year exceeds what we started the year at. And now if you had told me that at the beginning, when this started, I would never have believed that. So we've learned how to be successful during a pandemic, and we're still learning how to be successful during the pandemic. You -- we're -- this is not over. We don't know when it's going to be over. And a lot of folks are still in this. And you can see it in other countries, especially like in the United Kingdom, for example, where everyone is at home. So we're rebuilding our company. You mentioned we acquired Slack. That transaction is not yet closed. It's underway. And we have a vision that we're going to rebuild all of our products to be work-from-home first. That is a tremendous opportunity. Slack is one of the most important work-from-home products. And combine that with Salesforce to be able to sell and service and market, conduct commerce, do analytics from anywhere, combined with the collaboration, work-from-home characteristics of Slack, we think that's an exciting combination for all of our customers and for the industry. And that's something that we want to help create, manifest, reposition, reorganize Salesforce for a world that we don't seem to be exiting. We're still very much in this pandemic world. And we probably will be here or some form of it for some time.

Yes. Well, as I listened to you when you -- I hear you talk about the adaptability to what the current normal is. There obviously will be a new normal as we progress. As more vaccine is distributed, we get our -- we work our way through this. But the world obviously, as you highlight, is changing, and you talk about how you're preparing Salesforce for that change. Talk to me about your view of what the new normal might look like.

Well, I think there's many scenarios, and I just got off the phone with Peter Schwartz, who runs our global scenario team, because I think the scenarios that we saw occurring maybe 90 days ago or 180 days ago are different than the scenarios that we see going forward. There's certainly one scenario that we all get vaccinated, and this is over. That would be fantastic.

That's a good scenario.

When I look at that, that's a good scenario. There's other scenarios that not everyone wants to be vaccinated. There's another scenario where you already see a couple of dominant mutant strains, and one of them appears to not be impacted as aggressively by the vaccine as I think everyone would like. Maybe there's other mutant strains. So I think we should basically assume we're in a new pandemic world. And look, this is probably not the last coronavirus you and I are going to see as leaders of our businesses, and we need to inoculate not just ourselves but our companies for our ability to go forward, and our schools and our small businesses and our society and all of these things that we need to be doing. And look, we learned a lot this year. You know that we do have a major conference every year, and we do conferences all over the world constantly. But we do a big one every year in San Francisco called Dreamforce. It's very exciting. We have 150,000 people come and watch it with 10 million online. Those are the 2019 numbers. This year, I stood in a park in San Francisco, did it live by myself. And now we had about 150 million online viewers, so that exceeded our expectations. But it was a very different experience. And then we had to integrate all kinds of digital content into that. That's -- we're adapting. We're changing how we work, how we market, how we sell, how we're communicating. You and I have seen each other in forums like this, but -- or even on a phone. We're in an all-digital world. The reality is that the past is gone. It's gone. And I think for a lot of us, we still yearn for it to come back. We didn't realize how much we enjoyed maybe traveling sometimes or being able to go to another country. Not going to any other country -- well, actually I did. I went to Singapore, for example, and that was great. There's no virus there. It felt very normal. They've done a fantastic job in that country. But the kind of travel schedule that I usually keep where I'm on the road every other couple of weeks and all over the world and meeting with clients and having dinners with people and bringing people together and talking about major issues, well, no, that's not the leadership that I've been executing this year. It's mostly looked a lot like this. So we're in this new world, and we need to develop new ways to sell, to market, to conduct commerce, to have relationships with clients, to be able to motivate and inspire our employees. And we're learning -- I think we're all learning how to do that. And I mean we've been very fortunate to be able to do that, maybe better than others in terms of representation of our industry because we're all digital. But we've had to work with a lot of clients to help them to be more successful and conceptualize, what does their future look like? What do they really want? And I think we're still very much in that mode that we cannot assume that this has about all completely come to a close as much as I would like to. And I do believe a lot of people are going to be vaccinated in a short period of time, that we're going to see a major vaccine glut in the United States. And will that fully solve the problem? I hope so. Am I sure? No, I'm not. So...

Absolutely, absolutely.

Yes. And I think that, that is where we -- that's the position that I think we have to kind of be in and these things that we're doing. And you look at things we've had to do this year, we put contact tracing systems in all kinds of countries and states and cities. We helped beat it back in places like Victoria in Australia. And it's like, wow, I didn't think we'd be building contact tracing. We're also currently running the vaccine management system in the U.S. and for a number of states and cities and so forth. And we've built -- obviously, there's a lot of information technology required for all this vaccine management and administration that's going on, especially these multi-injection vaccines. Did we ever think that we'd be building vaccine management into our health cloud? No, we did not. So -- but we're there, and we're able to move quickly. We're agile. We're a large company, 57,000 employees, but we're agile. We're able to quickly move. This was definitely a test, I think, for a lot of companies. Can they pivot? Can they be -- we -- I remember what it was like being a start-up. Well, every week, I had all-hands calls with all of our employees and constantly evolving our products and our positioning and being very aggressive in our marketing. Whoa, that was this year. That wasn't 21 years ago. That was this year, I was on the phone with our employees every single week. We're running programs for our clients. We've put clients through hundreds of millions of views of online digital programs or mental health programs. These are not things that we were planning to do. Again, when we were back a year ago at the World Economic Forum, none of that was on our plate. None of that was in our business. We pivoted it. We've had to pivot and pivot and pivot, and we're still pivoting. And so I think that every company who wants to be successful going forward needs to continue to have that beginner's mind to really think about, where are you right now? What do you really want? Let go of the past. It's gone. And how do you have a future that's, let's make sure everybody is healthy, take care of your families, take care of your friends and be successful in your business and take care of others because there's a lot of people who need support and help right now.

Yes. I mean that's in sync with my principal message all through the pandemic. We're going to take care of our people, we're going to take care of our clients, and we're going to take care of our communities. We do those 3 things, we'll find a path forward. So that -- what you said is resonating.

Take care of yourself. Take care of yourself.

Yes, which is important, too -- important, too, because none of this has been easy. I want to...

Yes. I'd say if you're not together, you can't help others. And that includes your mental health. That includes your physical health. Take care of your health -- self. And I think that for a lot of my employees and executives and even clients -- I just got a CEO of a Fortune 100 company just sent me an e-mail 30 minutes ago that he's having very significant mental health issues inside his organization. And what kind of assets can we bring to bear, digital assets, content to help him bolster mental health? That's not conversations that I've had with a lot of clients. We've, of course, had meditation rooms in our offices for years. People know that, anyone who's ever been to a Salesforce office anywhere in the world. But clients, CEOs of Fortune 100 companies e-mailing me for consultation on how to bolster mental health in their organizations, that's new, new communication for me.

Yes. Big, big change. Big, big change. I want to, for a minute, just dig into the acquisition of Slack that you're working on. And you talked a little bit about how Slack is a great dispersed work-at-home product. Talk a little bit, just give us a little bit more insight into how you think about Slack and how you see it evolving your offering more broadly.

Well, we have a history of very successful acquisitions in terms of how they've been able to transform our company, increase our relevance with clients, extend and complement our core offerings. We've had so many exciting deals, if you will, that we've done, maybe more than 60 of these over 21 years. And some of the marquee include things like ExactTarget, who were one of the largest e-mail providers in the world, if not the largest. MuleSoft, of course, we help companies integrate all of their enterprise offerings together and give them a single source of truth so they know exactly who their clients are. Tableau, the largest analytics provider in the world, the ability to have analytics everywhere for your whole company. And now really Slack, which is really probably the most successful at-home collaboration network product we've ever seen in our industry. The ability to take something like that and integrate it with a Salesforce, wow, that's an incredible opportunity because you look at the technology, you look at the capability, like even I got an e-mail from Domino's, everyone knows Domino's Pizza, and did you know you can order a Domino's Pizza through Slack? And it's like so not only are you able to collaborate inside your company, you're also communicating outside of your company. You are able to, with Slack Connect, communicate between companies, even communicate to other digital services. Like I mentioned, like Domino's is a great example, a whole marketplace of kind of capabilities. That's so exciting because it's so synergistic with our vision of the future that is we want to be able to provide companies really with 4 ideas. One is a tremendous system of record. That is everyone's building a system of record. You know that as a bank, that's where it all started. You had a big IBM 360. You had systems of record. You do everybody's accounts. Well, we all understand the criticality of the system of record. And traditionally, things like Salesforce automation, customer service, marketing automation, commerce, those are systems of record. Two is you want to have a system of engagement. That's really the second level of computing. Systems of engagement are critical. We've pioneered one with Chatter about a decade ago. A lot of us use e-mail. A lot of us use social media. These are systems of engagement. But when you can couple it with a system of record, that's a powerful shift in how you communicate and collaborate in your organization. And then you want to be able to take that and apply a system of intelligence. Those are really the 3 phases of enterprise computing. And that's really kind of how we have seen that motion. And the fourth is you ultimately want to get to a single source of truth. So when I walk into the AT&T store, they need to know exactly who I am as a client regardless of if I'm on HBO Max watching Wonder Woman or if I just bought my Apple phone for them or if I'm a DIRECTV subscriber. All of that needs to be a single source of truth. So those 4 levels of computing, well, that's been our stated vision for a long time. Now we can fully manifest that into these companies. And the response from customers has been way beyond our imagination. First of all, how widely penetrated Slack is virally is we didn't really understand that. And they'd get so many calls from clients and say, "Hey, tell us what your vision is for Slack. Why did you do this deal?" Exactly what you just asked. We're really looking forward to the deal closing so we can go to market with them and really work with them together. And until that point, we're still 2 separate organizations. But our vision of what the combined future looks like, that's an amazing idea. So we're excited to go there, to help customers take their organizations to another level by combining these 4 core principles of computing. And we're really, I think, the only ones who are really trying to do such a thing. And when I look at our work with certain clients this year, whether it's public sector clients or private organizations or even by industry, these 4 principles coming together, this is where we've really been able to help customers connect with their customers in new ways but also radically expand the productivity and engagement of their employees and make them more successful enterprises. That's our ultimate goal.

That's great. That's a great answer. I really appreciate that. Shifting gears a little bit, I know you've been very outspoken on technology industry regulation. Give us some of your latest thoughts.

Everybody knows how I feel, which is that in regards to social media, we have very significant issues on our hands that we have not addressed. And we need strong government regulation to come in and to address things that we've seen now for a number of years but have manifested into our society in very dark ways. And of course, again, we were at the World Economic Forum, I think, in 2018. And I can't remember if I was sitting next to you or not, but I remember you were there, and I said, "Facebook is the new cigarettes." And everybody just stopped, what did he say? Yes, Facebook is the new cigarettes. It's not good for you. It's addictive. It's having bad impacts on our society. And by the way, they're after your kids. And we need government regulation. And we need to look at all of the government regulation...

I remember when you said it. I remember when you said it. And by the way, it resonated. I liked it.

Yes. People took me aside and said, "You can't say that," or, "Don't say that again." And I'm like, "But that's the truth." And we need to look at this aggressively in our society that, look, social media, it's new technology, but we can see that we're at a formative stage still, but we've seen also the dark side, not just the light side. The good side is when we thought it first came out, "Oh, I'm able to connect with my friends from high school. This is great." "Oh, I'm sharing photos with my family. This is fantastic." But now we see the dark side. And we can see what the problems are. And if the dark side is not addressed, these dark issues are going to continue to manifest into our society in ways that nobody wants. Nobody wants violence. Nobody wants these types of things. That's not -- those are not attributes of a successful society or democracy. So we've got to aggressively address these things. And I'm glad, by the way, that I'm not the only one saying it anymore. I kind of feel like, oh, there's so many other people who are clearly able to see what I saw sort of quite a few years ago. And I encourage all governments and all businesses, all leaders really, to look at this aggressively and make decisions that will help us to restore some normalcy and integrity. But ultimately, it's about trust and truth. Trust is the highest value in my company and your company, too. Nobody does business with you if they don't trust you. And nobody does business with us if they don't trust us. But trust, for us, is the trust we have fundamentally with our clients, our customers, with our employees, our partners and the society that we're in. In our city in San Francisco, we have to have trust where we operate. We've talked about that the last time we got together. And it's also about trust and truth. They're highly related and interconnected. And if you're not about trust and truth, then what are you about? Because we know that the opposite of trust is mistrust, and the opposite of truth is basically lies and falsehoods. Well, what side of the equation are you on? Is this that hard of a question? But I think that for CEOs, they need to be able to come forward and say, "Our highest value in our company is trust and truth." And for CEOs who cannot say that, wow, that is something I've never seen before of companies with large...

That doesn't work.

Impacts on the world. And we have that situation today. We have that situation today. And so we need -- that must be addressed.

Yes, yes. Well, sometimes things -- when you said it, you can see the direction of travel, but things haven't necessarily gotten bad enough to really accelerate. Now there are a lot of people on your page and now maybe we'll make some progress, but we'll see. Shifting gears...

Yes. When people are dying, when people are being killed, then it gets a little clearer.

Yes, became clearer quickly.

And we saw that in a lot of other countries, by the way. We saw that in other countries, but I think that because it was happening in other countries, again, we were not quick enough to address it. And so now as it happens in our own country, oh, yes, now we're willing to address it. But yes, it needs to be addressed aggressively, and we need to really look at what is happening and how these technologies are being used or misused. Look, David, here's the thing. Technology is never good or bad. It's what you do with the technology that matters, okay? There's always going to be dark parts of every technology. But it's what you do with it that matters, what you do with your life that matters, what you do at your companies that matters. Salesforce, we believe, business is the greatest pipeline for change. We're looking to use our business in ways to positively impact the world. We're using our products to do that in ethical ways. So this is what we have to look at as CEOs. And that's not something that's shocking that you're hearing me say such a thing because I believe that this is the greatest opportunity we have as leaders, as CEOs, that we can use our businesses in positive constructive ways. This is a gift. And I think that a decade ago, maybe that was hearsay. No, no, it has to be only about shareholders and shareholder capitalism. But when I look at you and your leadership at Goldman Sachs, and I go back 20 years ago, the way you're operating as CEO is very different, right, than previous CEOs. So why? Because we're in a new world. And CEOs have...

We're in a new world indeed.

CEOs have to take a new responsibility. And they get it. We have to move to manage for all stakeholders, not just all shareholders, define those stakeholders and act on supporting them. And look, where I am in San Francisco, the homeless -- well, let's look at the customers are stakeholders. The employees are stakeholders. Partners are stakeholders. The planet is a stakeholder. That's why we're a net zero company. Our public schools are stakeholders. That's why we're helping them with remote work. But also even the homeless is a stakeholder. That's why we advocated so strongly for Proposition C in our city. Now it's passed, got approved by the Supreme Court. And we're seeing dramatic impact, the ability to provide homeless services in our city. And was Salesforce a key part of that? Absolutely. Is it critical to be able to support our homeless? Absolutely. So there is -- I cannot have a successful business without also being in a successful community. I can have a successful business with all of them. So having a successful environment that I'm in, that's why net zero is important. And of course, our products. Of course, our customers. Of course, we also have to have great shareholder return. By the way, we've had a great shareholder return. Since we went public in 2014, we've had more than a 5,000% return for our shareholders. But we've also had a great stakeholder return, that is we have -- like I said, we're a net zero company. We've done 5 million hours of volunteerism. We've given away hundreds of millions of dollars to our local causes and organizations that are important to us, 50,000 nonprofits and NGOs to run for free on our service. So we also have to have a stakeholder return, not just a shareholder return. But it's part -- this is the new world. And I think that when I go back and look at when I was -- I have an undergraduate degree from -- in business that I got in 1986, what they call a BSBA. And the business classes that I took, there was no concept of stakeholder capitalism. There was no concept of a stakeholder return. It was not a class that I took at USC, which is a very good school in Los Angeles. And that's not part of my curriculum, and there was no concept. By the way, our women and female executives are a critical part of what we're doing at Salesforce. They're a key stakeholder. That's why we pay men and women equally for equal work. And gender equality was also not part of our curriculum. So when I look at all the things today that I have to know about as a CEO, not just the technology, not just the organizational management, not just the accounting, but how to serve all stakeholders, I'm still learning. And I feel like this is an ongoing class. And I hope that the future CEOs of Salesforce and Goldman Sachs, the way they will operate will build on what we're doing. You know that. It's not like you're going to let any of this go by. We're active participants in these conversations on ESGs or the environment or influencing our peers to act differently. And I think also, when we get together with other CEOs, they're heavily influenced by people like me and you who are telling stories about what we've done to change our companies and our industries. And this is a powerful moment. And this is an important role for Salesforce, not just to have great revenues and great margins and great market share. We have all of that, and we'll have that in spades going forward. But also, we have to have great values and operate in a meaningful way. And that is very much a core part of what we are, our brand and our relationships.

Yes. And that's -- I mean one of the things I admire about your leadership is it's very transparent. You're very clear about what matters both to the company and to all different stakeholders. What are you -- when you talk to investors, what are investors not fully appreciating about Salesforce when they look at Salesforce?

Well, I think investors are actually extremely intelligent and understand our business. I think they study it really well. And there's always gaps. They never like it when we do a big transaction because it creates uncertainty. Investors don't like uncertainty. I understand that. Well, when you look at our business, it's never been stronger. You can look at our second quarter financials, third quarter financials, record revenues, record margins, record cash flows for fourth quarter. And then coming into next year, we've given tremendous guidance. We're going to do more than $25.5 billion in revenue, up from more than $21.1 billion this year. And yes, we're also going to take on a major acquisition with Slack, but we have tremendous confidence in our ability to execute and grow. And we have now been able to give long-term guidance based on our deferred revenue model and how our business operates of more than $50 billion in our fiscal year '26. So that's just 2025, not too many years from now. That's a very significant enterprise in software. And that's what I'm very, very excited about, that we have line of sight to the future. We could see the role we have in major customers and organizations like yours and others around the world, our ability to impact that. We have core values that are unshakable. We probably have the best management and leadership team now in the software industry. We're very much a company of CEOs. My -- our Head of Revenue was the former CEO of British Telecom, BT. My COO is the former CEO of his own companies as well as was CTO of Facebook and others, so we have a lot of that experience. And we also have so many other CEOs in our mix, like Adam Selipsky is the CEO of Tableau. Soon, we'll have Stewart, CEO of Slack. We're a company of CEOs, great leaders and great customer relationships and great technology. And this is a formula for continued value creation and excellence. And always stakeholders, one of our key stakeholders is our investors. So we listen very closely to them, have a lot of respect for them, incorporate their thoughts about how we should operate our business. And I'm very excited about where we're going and how we're going to get there and also the impact that we're having on the world, the kind of company we are.

Great, great, great answer. So finally, just to wrap up, I ask you one last question. I'd just love for you, given all we've been talking about, given the uncertainty that I think you very appropriately framed at the beginning that we all face as we move forward, what's one key piece of advice you have for all the business leaders that are attending this conference? What is the most...

Well, the Customer 360, yes, make sure you know your -- you can connect with your customers in new ways. I think that the most important thing is to really plan for multiple scenarios going forward. We can see where we are right now. We're all at home. I'm at home. You're at home. I can see you. You can see I'm not in my office right now. And many of us who are watching this presentation or listening to it are also at home. Will we be at home 6 months from now, a year from now? When will we really be back at our office? And when will we really be traveling the world again? I don't know. So we need to plan for multiple scenarios. We have to look at all the different potential outcomes here because we're in a new pandemic world. So number one is how will you execute in multiple scenarios? How will you look at your business? Where are you in your digital transformation? If we're in an all-digital world, you need to get all digital. And for a lot of companies, they're still working on their digital transformation. They're still working on becoming software companies in many cases. Not just e-commerce companies. Obviously, we're large e-commerce companies, so when we see a big retailer or a big organization go commerce, that's one thing. But in terms of how are you really managing your employees? How are you selling? You look at our relationships. I probably never had so many C-level sales calls in a year in my life. I bet you feel the same way. Why is that? Because we're able to sell more aggressively in a digital environment, and we're not flying somewhere to go meet with this CEO and have dinner with them, like we would normally be doing. We're just doing a Zoom with them, like we're doing right now. And you think about that and you think about your whole organization, are they enabled and empowered to make those sales calls? There's never been a more important time to have a sales organization that's able to do that. Customer service. I look at good friends of mine like Michael Dell called me, "Wow, we're moving our call centers, I guess, from our offices into our homes. Oh, we're doing that tomorrow, by the way." So it's like we have to cooperate and move all of those people into their homes successfully. And then all the marketing, all the ability to communicate, whether it's an e-mail or other forms, this remains still, I think, in active motion for many organizations and CEOs. So this isn't the time to slow down in digital transformations. We're still very much in the digital imperative. And that's why we're altering our company to prepare for the future because we want to be well positioned and relevant for our customers in the future. We have been this year, but we also want to be for the next decade. I think every CEO needs to look at that as a model. And you know what, sometimes it is risky. You do an acquisition. You're creating maybe some volatility. You're taking a bet. You're looking at things maybe a little differently than how others are doing. You have to do that if you want to be successful. You have to trust yourself, confident in your relationships with others, listening to them but also listening to yourself and then execute and go. And I think for a lot of them, they have to answer those 5 core messages of leadership. What do they really want, especially in this year now, year 2 of the pandemic? What are their values? We talked about values. What are your values? Is it trust? Is it truth? Is it customer success? Is it innovation? Is it equality? What are your core values? Three, how are you going to get it this year and for the next couple of years? What actions are you going to take and what prioritization? Four, what is preventing you from being successful or what stopped you in 2020? And have you removed those obstacles so you can move forward rapidly now? And five is, how will you know that you're successful in this new world? And I think, of course, market share, of course, revenue, of course, your margin, of course, maybe your market capitalization, employee sentiment, your Glassdoor ratings. But how do you view your success? What are your core metrics and your KPIs? And now execute because we're at a moment in time still that is a lot of vulnerability for a lot of companies. And companies like ours have to take the risk to be able to amplify our core, like we're doing with Slack, so that we can deliver massive value this year for our clients. And that is beloved by the clients because they want us to be able to come in and do transformational work for them so we can get them to the other side and, in fact, into success. And that's our only goal, is to make customers successful. That's our highest-order motion, customer success. So anyway, thank you for that question.

That's a great -- it's a great goal. It's a great way to finish. Marc, it's -- always, always love talking with you, always interesting. Thank you for doing this today. Stay safe, and we'll see you again soon.

Great to be with you always. Thank you for having me.

Absolutely. Great to see you, Marc. Stay safe.