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

All right. Good afternoon, everyone. Thank you for joining us today. I'm pleased to announce we have Amy Weaver, the CFO of Salesforce with us today. We'll be doing a quick fireside chat. Amy, thank you very much for joining us today.

You're welcome. Thanks for having me, Arjun. I'm excited to get the chance to talk with you.

Absolutely. Just before we get started, a few quick housekeeping items. First of all, my name is Arjun Bhatia. I'm the analyst here at William Blair that covers Salesforce. For a full list of our disclosures, you can go to our website at williamblair.com. And for those that are listening in online, if you have any questions for Amy, feel free to submit them via your Q&A feature, and I'll try to relay them onwards.

With that, let's dive in, Amy. It's -- so you've been -- you've had quite the journey with Salesforce. You've been at Salesforce for about 8 years, if I have my dates right, but recently became CFO. Just walk us through your background a little bit, what you've been doing at Salesforce before the CFO role, and what the transition has really been like since you took on the new role.

So your math was close, Arjun. So I've been here about 7.5 years, coming up on 8 in October. And it's been an incredible ride with Salesforce. When I joined, we had just acquired ExactTarget and just hit 10,000 employees. And I think we had maybe $3 billion in revenue. And now here we are guiding to $26 billion for this year, 60,000 employees, and we're talking about when are we going to hit $50 billion. So incredible opportunity. As you said, 3 months ago, I transitioned to being the CFO. And it's been a fascinating transition because being with the company for so long, I know our people, I know our customers, I know our products. And I've been at the C-suite during this time, but it's almost like picking up at the table and shifting down 3 seats and yet suddenly having an entirely new view across all of these areas. And it's made me really more excited than ever about the company. And one of the things that kind of this new lens has shown me is really a look at our growth and the potential that we have as a company. So I am excited to be here for the ride and excited to get us to $50 billion.

Yes. I've seen -- I'm sure you've seen quite a lot of changes over those past 8 years, like you said, ExactTarget, that feels like a long time ago.

It felt so big at that time and now it feels kind of quaint and dainty.

Yes. Absolutely. So maybe just give us a sense for what you're focused on now. What are some of the near-term priorities as you look at putting your take on the CFO role? And what may be near-term priorities and long-term priorities in terms of what you're focused on?

Well, I think, as I said, the biggest priority is growth. And as we saw in Q1, the demand environment is absolutely incredible right now. And I think the very best thing we can do for our company, the best thing we can do for our stockholders, for our employees, for all of our stakeholders is really to invest into this growth. And that includes with sales capacity. It's a unique opportunity for the company, and I think it's going to play out very, very well. Along with that, it comes an increased focus really on discipline and efficiencies. And those are 2 words that sometimes when you have a company that's a real start-up, you don't hear a big focus on those. But those are 2 words I actually really embrace. I think it leads to stronger companies. I think it needs to more durable companies, and it's going to continue to be a focus for me.

Let's touch on the first point that you mentioned there, which is just that the demand environment seems to be in high gear, right? We had an odd year last year with the pandemic. But give us an overview of what you're seeing from customers, what their willingness is to invest, particularly in front office, right, revenue driving solutions like Salesforce. And then how do you think that just compares to what we -- where we were at this point last year and then even at 2019 levels? How has just the demand environment progressed?

Yes. So the demand environment, clearly, right now, is just on fire, and that's really, really exciting. And what we saw this quarter and what I think was really unique is that big deals are back. And what I love about that is it just shows -- it shows an incredible confidence that company -- our customers and companies, in general, are willing to make that type of commitment. It shows their level of confidence and where we're coming back. Now if we compare that to a year ago, our 7-figure deals were up 120%. But a year ago, the world was in a very different place. And so that's not so surprising. What I think is interesting, though, is if we look at the number of 7-figure deals we did in Q1, it's greater than any time in our company's history. So I think it really, really shows this new confidence. The other area where I was really happy to see is that the deals that we were doing at this size were at least 4 cloud -- or on average, they involve 4 to 5 clouds. So not only are companies making these bigger commitments, but they're making it kind of across their company in terms of different products. And this shows that they're not just looking for kind of a point-in-time solution, but they're really looking at more of a digital transformation. And I think coming out of that pandemic, no one wants to move backwards. Last year proved that you've got to commit to these types of transformations, and we're seeing that just increase at this point.

Can you talk -- so there's been a lot of, I think, both organic and inorganic product changes that seem like they're contributing to the success you're having with larger deals, with 7-figure deals, with multiproduct adoption. Can you just talk about maybe the role that Customer 360 -- some of the newer product announcements, right, MuleSoft and Tableau, I think we talked about them as being kind of this core service layer and all these deals being involved. Just talk about maybe some of the product factors, the innovation factors that are driving customers to make bigger investments with Salesforce.

I think it goes back to this concept of digital transformation. And it's become kind of an -- almost a clichéd expression at this point. So I was kind of hesitating before saying it. But it really is the best description that we have of how companies are changing. They're really looking at not just at making quick fixes to deal with something that may have come up with the pandemic, but really looking at where they want to be 3 years out, 5 years out, 10 years out and how we're going to have a road map to get there. And that's really where the Customer 360 comes in. We have this incredible portfolio of products. And these are products that have been homegrown. These are products that we've added. And there's products that really are a combination. When I look at something like Sales Cloud or Service Cloud, these are flagship products that we've had, in the case of Sales Cloud, for 22 years. We've done tuck-ins at times. We've innovated organically at times. And so we're constantly like refreshing these products and really looking at what do our customers need and what is going to help us help them as they create this road map going forward.

So one of the things, right, in addition to just the top line growth and the deal acceleration that we're seeing, we're also seeing margins, and you touched on this, right, efficiency in the model, right? You delivered 20% operating margins last quarter. You raised your full year guide on operating margin. What are you doing on the efficiency side that's enabling you to deliver profitability? And just maybe talk about some of the initiatives that you've undertaken specifically to drive that because that was obviously a big focus last quarter.

It was a big focus. And as you said, we had -- our operating margin for Q1 was a little over 20%. We've raised operating margin for the full year to 18%, and that's in the phase of bringing in both Slack and Acumen this year, which have a dilutive impact of about 160 basis points. So I'm really pleased to see where we're going with this. And I think this is coming from a few areas. The first is we're really looking to seize upon what we've learned during the pandemic. How we can operate in ways that are more efficient and that they benefit, frankly, both the top line and the bottom line. And I think the areas where we're seeing this, T&E is one, how we market is one, how we look at our real estate portfolio is one. Some of these are instant savings we can have, some of these are things that are going to take a longer approach over the future as we see how people come back into the office. But it's an evolving focus, but it's a really critical part of how we see ourselves moving forward.

And you announced that Dreamforce this year is going to be a hybrid event, but it will obviously have an in-person component to it, which is, I think, very exciting for a lot of your customers and investors as well. But what does that mean for Salesforce to now have an in-person component to that as opposed to the COVID hiatus, I guess, that we took last year? And then just how should we think about implications for lead gen, pipeline development, deal closing as a result of Dreamforce coming back this year?

So first, we're really, really excited about Dreamforce coming back in person. This is absolutely a signature event. A year ago, it was hard to know what we were going to do in this case. It was hard to imagine Salesforce being Salesforce without Dreamforce. And for us, at that point, Dreamforce has meant 170,000 people in Moscone Center, all of that energy. And I have to say it was nerve-racking going into the fall, knowing we weren't going to be able to do that. But what we learned is that we could put on a very, very high-quality virtual event that still created an incredible pipeline. And I think Q1 really proved that out. And there turned out to be some really interesting advantages to that. I mean for one thing, we've reached millions of people, instead of hundreds of thousands, through Dreamforce in the fall. But we're also able to customize it. And we did this program called Dreamforce to You, where we had these customized versions of Dreamforce that we did for more than 2,000 different customers. So we've really learned how to do a virtual event that still drives pipe and leads to great execution. But there is something about that magic of being together. So what we're doing this year is we're going to do this in 5 different cities. We are going to get together a certain number of people. It's going to depend, obviously, on local health regulations at the time, how big we can go. But we're hoping to get back that excitement and that -- just the personal touch of being together in the same room. And then build on that by combining it with this online appearance in this virtual world. And I think it's going to be exciting to see how do we balance this? How do we get the best of both worlds, reaching more people, having the excitement and driving pipe? But of course, you don't ask me the most important question, which is what are we going to do about Investor Day. And we're working through that right now. We've traditionally done Investor Day as part of Dreamforce. So we're looking at dates. We're looking at whether we do it in person or we do it virtually, but we hope to have more information coming out in the next few weeks.

Well, I'm sure everyone will be very interested to hear what happens with that aspect of it. Let's switch to a topic that, I think, is on everyone's mind, which is Slack, right? You announced this deal where, I think, the latest guidance is that it's going to close towards the end of the second quarter. Maybe if we just zoom out, help us paint that picture of what Slack and Salesforce mean together? And why it's so -- why it was so important for the company to make this acquisition?

So let me start with the closing date. And as you've said, we -- it's not completely within our control, but we are looking at the most likely time being kind of very tail end of our second quarter, which would make it the end of July. So we will be -- first, I'll be excited -- incredibly excited just to get the deal closed and really jump in on this. It's an incredible -- it's going to be an incredible acquisition. And as I look back at just the 3 months since I took this job, I have not met a single one of our shareholders in person. I've not met a single customer in person or investor. But we've been able to do this and make these connections via Zoom without traveling. And it shows that as much as we're looking forward to getting back to certain aspects, the entire way that we operate has changed. And that brings me to Slack because what people are looking for and how we operate and how we operate online, Slack really represents this. And so building this type of engagement layer and building it into Salesforce is really how we see the future of work. And when Brent and Stuart began talking about this, they've really focused on this as being an operating system for growth and really looking at what is the new normal. So I think this combination of Slack with our current portfolio is going to be very, very powerful.

Yes. And I want to bring in an audience question here because I think it's very relevant. So the question is, "It's incredible what you did with the MuleSoft acquisition, which I think has been just a tremendous success. But what are the lessons that you've learned from MuleSoft that you can actually repeat with Slack to get that to be just a successful of an acquisition?"

So it's a great question. And both -- and I would point to both Tableau and to MuleSoft as being just terrific acquisitions. We've been very pleased with the growth of both of them. And MuleSoft has continued to grow at a very, very impressive rate. We just passed our third anniversary of that acquisition. And when we acquired them, they were at a $250 million a year run rate business. They're now at a $1.5 billion run rate business. So great success. We obviously would love the same for Slack. Tableau also doing very, very well. We had some integration delays with them. We had the whole separate order from the CMA. And then as soon as we came out of that, we were hit with the pandemic like within a couple of months. But I look at Tableau and I look at what they're doing, and one of the things that makes me most excited is when I look across our top 10 biggest deals in the quarter for all of Salesforce, Tableau was part of 8 out of 10 of those deals. So it just shows terrific integration. Now looking to Slack, we have learned so much in every acquisition we've done. We don't always get things right, but we learned from every one of these. And at this point, we feel like we have a very sophisticated acquisition playbook. And also, again, with the lengthy time between announcing the -- our intent to acquire and the closing date, it's really giving us the time to make sure we're ready, we've got terrific integration plans and to make sure that we can really hit the ground running as soon as we close.