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

Brian Millham with us, President and COO of Salesforce. Really excited to have you here. Thanks for making the trip, especially after earnings.

Yes, no problem. Thanks for the invite. It's great to be here.

23-year back how Salesforce was helped really build the company from the ground up and was in the Bay. We were talking about Cal Berkley and -- but really appreciate your perspective. And maybe just to kick off, you took on this role, I think, last year. So maybe just bring everyone up to speed in terms of your role, how you're approaching it, what's kind of new, what's happening as you're now President.

Yes, I appreciate it. Yes, I took over just about a year ago now in the COO role, but have, as you said, Brent, I've been at the company now for 24 years and mostly on the sales and operations side of the business over those 24 years, did some work on our customer success team as well, professional services, our support operation globally, all the success motions that we run at our customers. And since taking over the role, obviously, there's been a lot going on in the organization and really with a focus of operationalizing some of the efforts that we needed to go execute. One, we want to continue to grow this business and continue to be a fast-growing enterprise software company, but also how do we deliver the efficiencies that we needed to deliver. Pretty well documented that we took an employee action in the first quarter. We recognize that our hiring got a bit ahead of our -- of where the economy was, and we had to take those actions. And some of those things were what I would say back to our core roots of performance management, our performance culture in the organization. Some of it were efficiencies that we felt we could go drive in the organizations, things like reducing our spans and layers in the company. And we've done a lot of that work. I think it's represented in our earnings that we put out yesterday, some very good numbers on the profit margin side. But also how do we get more efficient in the way we show up in front of our customers? We built this business incrementally over many, many years as we've put new products in the market. I started in '99. We had an SMB product that we sold to the tech companies basically in the Bay Area called Salesforce automation. We now call Sales Cloud. And then we've incremented from there. You sort of think Service Cloud, then platform and then new markets in international, and we went to actually first Japan and the U.K. And then we went sort of more broadly into what we call our top 10 strategy in top countries. And then you think about acquisitions had start coming. We stand up teams associated with that. And then another acquisition and we dedicate resources to that. And then another acquisition. You've got all these disparate sales teams. And listening to our customers, the feedback we got from them was, hey, you're kind of showing up with a lot of people. It's very inefficient in the way you're operating. So my task as the COO and really running the sales organization, how do we get more efficient in the way that we're supporting our customers who were selling our technology and how do we drive productivity for all of our account executives. It's a measure that I'm very focused on right now is driving that productivity number up. Growth is oftentimes been driven by, let's put more salespeople in, keep productivity flat. Given the broad portfolio, I think we can do things differently going forward, which is let's get our AEs, account executive, selling more. Let's drive that productivity number up. So for me, this incrementalism, how do we think differently about it, bringing these teams together to sell the full portfolio is really what we're trying to operate right now.

And I guess where are you at in that journey in the sales optimization? How would you characterize kind of where you're at?

Certainly, we did a lot on the spans and layers and taking out some on the performance management side that I think during the pandemic, we got a little bit away from. So some of it was general cleanup that we needed to do in the organization. The integration on the way that we're going to bring these teams together, we're in process of right now, it is not done. Some of this also is dependent on our product teams. And I put it on them intentionally. I want them to start to bring our products together more naturally. Instead of having dedicated sales teams for all these various products, how do we put together and bundle technology together in a very logical way that one salesperson can go sell all of that product to a particular customer versus having 4 or 5 of our account executives show up to try to sell those products? So that process is happening right now as well. We have to do all this while not disrupting the business and, importantly, not affecting the customer success and something that I'm very focused on, which is how do we ensure that all the work we're doing around efficiency doesn't land with our customers in unnatural ways. We want to make sure they feel supported in their use of the technology driving great value from the products that we're selling. And that can't show up -- all the efficiencies can't show up on their doorstep, so something that we don't want to go too fast to create that disruption with our customers.

In the last quarter, do you feel like some of this maybe had some impact in terms of execution that it's just natural. You make these changes, it's going to have some bearing on.

Yes, it's a really good question. It's always hard to measure what sort of impact it's having on the organization. Amy Weaver, our CEO, said the other day, I think an appropriate way to say it was a big distraction for us, but I'm not sure it disrupted us all that much. Noise always happens, and we're very empathetic. I sort of talk about it in very natural terms of display, hey, this is what we did. This is the way we executed it. But it's a big deal for us to take that sort of number of people out of our business, a 10% reduction in our sales teams and sort of broadly across the organization was pretty material for us. And so it did create some noise for us. You're sort of managing, delivering the numbers, while trying to manage the culture in the business. But impact, I'm not sure it was that dramatic on the organization. On the other side of that, I will tell you I think there's a general recognition that it was work that needed to get done for those that are still driving the business each and every day. A lot of bureaucracy in the business as you sort of scale this big growth engine over the years. Can you clean some of those things up? And I think there's an excitement in some ways around the organization about being a little bit leaner in the way that we're operating. Not as many people sort of in the process of getting deals done, et cetera. And so I think for the most part, the energy and the culture is back in the business, which we're really excited about.

The question that we always get is you've had a recommitment to margin. And everyone says, okay, the recommitment to margin, that's going to make them slower. And what I've argued is you could effectively maybe even grow faster as you get leaner -- many of you guys that have been on a no-carb diet realizes it sucks for the first week. And then you get leaner and you feel actually better and you go faster. So I mean, this view of, hey, like we're going to make all these cuts, but are you going to be able to grow? And it feels like you can do both.

Sort of my talk track, actually, internally, that's exactly what I'm saying, which is I think we can do both. I think in some ways, we -- you could argue we've been in our own way in our execution because we've added so much complexity in the way we're going to market with these various teams. When we acquire companies, we had a rationale that said, "Hey, do not disrupt their sales teams. Let's continue to grow them." But when you've done multiple acquisitions and you have your organic growth and you're dedicating resources, you're looking at every product and you're dedicating teams to it, it's a very inefficient way to go to market. If you start to put natural products together and you saw it one time, is that an easier motion for us? Do we get a higher price per transaction in that environment that will drive growth with fewer people doing the work? And so underpinning all of that is, of course, a lot of enablement that needs to happen. We really need to understand our technology to be able to sell it in the market. And so there's been a big surge there on the productivity front. Let's sell more of the product, but let's also be very effective at the way we go out and talk about it. So enablement is a big push for us as well.

What is -- what are the couple like low-hanging fruit areas that you're really excited about this year? Could be product, could be operations. What's kind of the lowest-hanging piece that you're really excited about right now that...

Yes. I mean, obviously, everyone's talking about AI right now, and it's a huge opportunity for us going forward. I think a precursor to incredible generative AI motions for us is data cloud. Everyone knows that data is the currency of the enterprise right now. I feel like we are just on the -- in the very early innings of talking about what we can deliver for our customers to bring data from any source around the company. Any interaction that you have around the company, super important that you clean your data. You have a very clear architecture around your data, customer graph that you can leverage for the AI. And so as we get into this new AI world, what are we doing to provide the data lakes for our customers around any customer interaction? By the way, some of this will come from outside of Salesforce naturally today. And I think it's one of the reasons why we had MuleSoft had such a great quarter as we talk to our customers about getting their data ready for the next wave of generative AI. You could go run incredible generative AI technology in your organization, whether that's in your support operation, your sales organization, your marketing efforts and your commerce engagement. But if the data sucks, it's not going to help your business at all. And so it's pretty low-hanging fruit for us. It actually increases our TAM. I believe it's a new market for us to be selling into. And so I think we have -- and by the way, we store a lot of data for our customers today. And so naturally, you would think, hey, let's go bring all that data together into a single source so that you can leverage it for degenerative AI tsunami that's coming at us right now.

We couldn't tell you you're excited, we counted 72 times you said AI or ChatGPT on the public remarks before the Q&A.

I think 72 of them came from Marc. Yes. exactly.

So the natural follow-on question is when is AI ready for consumption, when can you monetize it?

It's a great question. We're running a lot of trials right now with customers. And so we have some great technology in production today. And the big barrier for us that we want to make sure we don't go too fast on is this trust equation. Every customer in the world is saying, "Hey, all great, but I'm not really wanting to share my data with these large language models. Let's be careful about what we're doing." I think, Brent, you've been around us a while, you know that trust is our #1 value. When we started this business back in '99, it was sort of this big leap for companies to use the Internet to store or to put their data out on. It's sort of funny to think about now. But at our core, trust is the #1 value for the company. And so how do we make sure as we build this trust layer around all of the generative AI that we're putting out there that our customers can trust us on it. In terms of sort of the monetization of it, I have this belief that if the technology is driving value for our customers, we should be able to monetize it. And having that conversation of, hey, we either think we can help you drive better top line growth or more efficiencies in your organization. We can do some cost takeout with generative AI. That technology that's driving it, we should be able to monetize. How we do that, I think, is an open question. In full candor, we don't have all the answers on our pricing strategy right now. We believe it will be some form of fixed cost, hey, you buy our technology, you pay for it. And on the other side, some amount of consumption as well. Cost to serve is something that we are very focused on right now. How do we make sure we don't get out of bounds on our margin by delivering all this great technology? And so how do we make sure we're monetizing the cost associated with the delivery of generative AI.

That was the follow-up. A lot of customers, our clients, investors and yours have said Service Cloud is your biggest revenue. And ultimately, if AI is successful, then pick your favorite airline that's using Salesforce. They may not need 100 or 1,000 agents. Maybe they need 80 to 800 agents. So you're -- the comeback on the pricing will be consumption and ROI. You could theoretically charge more, but you may not have as many seats. Is that...

All those things. Number one, I think we want to talk about it at generative AI, at least initially in an assist motion. I really want this to be seen as how do you make all of your service reps more productive, more effective at what they do each and every day. So maybe you don't get rid of people, but maybe you don't need to hire as many. Or said differently, maybe your people are no longer just service reps. Maybe they become sellers for you. Hey, I just noticed that you use these technologies, you have this problem. Have you thought about this incremental product? Does the generative AI give you those feeds of next best product that you could be selling in the service center to drive higher growth for your organization? Could you drop them into a marketing campaign? Someone called they're upset about some issue, and there's some training, some event that you're running, that you could get your -- get that customer up and running quickly and better educated from a resource and education perspective. And so we'd really like this to become an assist motion as we talk to our customers about this. I run our call center at Salesforce. We never have enough capacity in our call center ever. It's always like the strain on the organization of the complexity and people asking questions. So I believe we can fill in a bunch of the needed capacity with generative AI and then make them much more effective at what they're doing day in and day out. So this is a motion that we want to go run. Secondarily, we know that we drive efficiencies in organizations. And the funny thing is one of our fastest growing products -- product sets in the quarter was something we call digital service, which is self-service and bots in a call center. So we're already automating a lot of things that our customers are asking for us to do, and you saw the numbers, we had some good growth in our Service Cloud. And so the automation is already happening there. We're monetizing it with some of the technology that we're delivering. I think that's just the next step in generative that we can say, "Hey, you drove x amount of savings in your call center. Based on our technology, we think that we should share in the benefits that you're getting because it's our technology that's driving that savings for you." So that's our monetization strategy.

So you think by the end of the calendar year, there will be more discrete AI products you can sell stand-alone that will...

Yes. I'll flip over to the other side, set of product and the success side of our business and support side of our business, I'm really excited about going out and selling, in particular, the GPT products around sales, service and marketing and add on to those products that we can go monetize. Sort of the strategy that we've had for a very long time is these big engines, these locomotives for us that drive our revenue, sales and service. How do you add more products around those technologies to continue to add value to our customers? This is another one that we can go deliver for them. And I think on the sales side, how do you drive the number. I care about productivity, as I said earlier, how do I drive more productivity for every one of our customers because we've given them this great add-on called sales GPT. And so that monetization strategy that we drop these products into production is a great opportunity for us.

The -- on the clouds, I think you have over maybe 8-plus clouds. I don't know the total number, 8 roughly?

It depends how you define them. We probably have many more. But yes, in clusters, it's probably 8 .

And this ability to sell kind of multiple clouds together this co-mingling of clouds, where are you at on that motion of -- are customers right now saying, "Hey, I can only go to this one cloud because of macro? Or are you seeing this as a great opportunity to sell multiple clouds to consolidate other disparate technologies? What are you hearing from...

It's 1 of 3 or 4 big growth strategies for us going forward. This broad portfolio allows us to go talk to so many customers about consolidation of products either they're using from other vendors or to move to one of our incremental clouds, data cloud as an example there. GPT is an example there. Our cross-sell upsell strategy has been -- it's a well-honed muscle at Salesforce. It's what we've been doing for a long time. This is how we want to go make our numbers going forward. We have a very happy customer base as evidenced by some of the retention numbers that we've seen. And that customer base gets a lot of value from our technology. We want to continue to go sell more and more to them. We use that success motion as a foundation for, hey, we're delivering value, you like our technology. Let us show you some of the other technologies that we can deliver for you. So clearly, a strategy that's worked over time. As we add more and more products to our portfolio, this will remain our core strategy. Industries is a big area for our growth going forward as well. We've seen great growth in our industry clouds.

The over 50% growth. Did I hear that right on that?

That's right.

What's going on there?

It's interesting. Time to value has become a very important metric to our customers. And if you can show up with a product that they can get up and running quickly, there's more receptiveness to that in this market today. And so when we show up to a bank or a health care company or a retailer or a manufacturer, we have technology that they can plug in faster, we're getting more reception on those technologies today. I think we can go a lot deeper in each of the industries like financial services to provide more out-of-the-box capabilities. And I think we can go broader to net new industries that we're not in today. And so a big strategy there. And then international markets remains a big part of our strategy. If you look at sort of our balance between the Americas and Rest of World, I think we can be a little bit more balanced international, and so continue to invest there. Being thoughtful about that right now as well. Where is Europe going to be if these measured buying environment continues? How do we -- how are we thoughtful about markets that are really performing? We've seen Latin America perform very, very well. Should we be investing there, more -- trying to be much more targeted in our investment as we think about our future and our growth strategies?

I heard hints of an emergence of Slack on the call yesterday. I mean -- I know it's doing well, but it seems like there's a lot more you can do with Slack, and Marc kind of hinted at it in multiple times during the call. But can you -- we get a lot of questions about the trajectory of Slack? And what's kind of the next leg of this?

It's a great question. And I think it's a hugely strategic asset for the company. I am very encouraged by new leadership in Slack. Lidiane Jones is an amazing leader. I think we're going to start to see Slack being sold much more frequently integrated to our core technology as we start to build better integrations there. Marc referenced this quite a bit yesterday as it relates to generative AI. And he used the word, we're going to have Slack awaken in this new generative world where it becomes the conversational interface to all the AI that's going on in your organization. He's right. Many of these companies, OpenAI, for example, doesn't use any of our CRM technology and runs their entire business on Slack today. And so how does that change the trajectory of Slack going forward? We think it's going to be an amazing driver of their growth. Their self-serve business has been hit pretty hard in the pandemic. It's an area that I think will bounce back very nicely. And that's actually an area where we're trying to learn from a bit as well as we think about our own technology, down market, self-serve. How do we not have as many bodies that have to support the low end of the SMB but drive more automation in that market? Self-serve from Slack has given us a lot of great insights. We have new product that's coming out in this year, actually, in the coming months. Before Dreamforce actually and a product called Starter, which is next evolution from a product we put out in the market called Easy, which is intended to be a try, buy, deploy and use without having human intervention and sort of back to our roots of the original days of super easy to use and deploy.

I mean, it seems like from everyone we talk to, there's a pretty high level of energy that's -- I'm not saying it was absent, but it's -- it feels like there's a surge, and you can feel it from everyone we talk to, even though you're going through this cost rationalization. Can you talk about just culturally, what's happening? It seems like you're getting things -- your team's in. Just give us a sense of -- has everyone embraced this new message and everyone is like, okay, let's go.

Yes, it's amazing. Marc told the story to the team. We had our top 500 managers come to San Francisco to do sort of a Q2 restart for our business, on the restart. But we wanted everyone to feel the energy of where we're going. And Marc told the story of bringing the entire engineering and product teams together to say, "Hey, AI is here, and we better lead or we're going to be in trouble." And within a period of 2 weeks, every single leader in that organization had come up with 5 or 6 or 7 different ways that they could transform their products to be AI first. You then bring everybody into the meetings in San Francisco and you tell the story of where we're going as a company, the opportunities that are ahead of us, not just in sort of the new world. And most of the talks about AI is this incredible new opportunity it is. There also is an incredible opportunity and a lot of runway to go on our core technologies as well. And so the spirit of the company is very strong right now. The energy inside the company is very strong. The trajectory of the company is very strong right now. Obviously, we're in some tough economic times right now. And so we have to be a bit measured in sort of how fast we can go, but we've got incredible technology, a very happy customer base, a culture that's definitely rebounding right now and sort of, as I said earlier, sort of recognizing the need to do the work that we did. And so we're very excited about where we're going. And you're right, that your perception is exactly how we feel inside the company.

And your -- one thing that -- or 2 things maybe you see that we can't see as investors that you think is maybe different or we're getting wrong, what would you say that...

Well, one of them is what we just talked about. Salesforce is going through a lot of turmoil internally. Boy, they've had a lot of change in their leadership ranks. What's going on there? I'm sensitive to it only in that I've been here 24 years now, and we've had a lot of change in my 24 years at the company. We are pretty resilient as a business. If you look at our Q4 and what we put up, how we deliver the numbers, our Q1 number is very solid. We feel very good about where we're going. And so I think the external perception of a lot of things going on, Marc is very clearly at the helm of this business, driving it each and every day. Very into the details and how we're operating and then a leadership team that is incredibly solid right now, all the way through the ranks. Someone said to me the other day, "Hey, there's been a lot of change at Salesforce and like, well, my average tenure of my leadership on my team is 10 years. 10 years is sort of a long time in the tech world for having leadership inside the company. And so resiliency, success of the business, where we're headed, the success that we think we can drive for our customers going forward, these are things that I think on the external, there tends to be more like, "Oh my god, what's happening?" Internally, we feel very good about where we're heading. So that was the -- and then on the other side, I don't really have -- there's -- we're pretty open company. We're pretty transparent about what we do and how we operate. So not a lot of the things that you would expect that are different internally.

Thank you, Brian. Really appreciate you being here. Thanks, Mike.

I really appreciate. Thank you. Thank you so much. Really appreciate it.