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

Thanks, everyone, for joining Salesforce. Bill is a regular here. Thanks for coming back. Thanks, Val, and the team for coming. Val is in the front row here as well, and you got the team here, so thanks. I know it's hard to come off an earnings print, come right into this. But it's a great, great time to be here. And Bill has been with the company since 2017. He was prior at Microsoft for 14 years. So has two of the best playbooks you could have to run strategy. So...

Yes. Thanks for having me. It's always fun to do this the day after earnings. I think we did this Q1 last year at this time. So what a day to sort of be back with you all.

I think the stock was down 15%, we're down 5%, so at least it's getting better. Next year, we'll be flat to maybe up. So ...

There's room from here. There's room from here.

Maybe we just start on the quarter.

Yes.

And I think cRPO was strong. It was ahead of the Street. You raised guidance, albeit a lot of it was on FX. But I think -- I mean, there were a lot of good things to take, and I think there were a lot of questions about sales, service and commerce all decelerating at a pretty quick rate. And so I think that's caused a lot of this concern today. And you can take -- we can talk about the positives and the concerns that are on investors' minds in the room here.

Sure. I think as you said, top line sort of narrative was a very positive sort of outlook for the company and how we sort of see the macro environment, whether kind of in still a measured environment for enterprise software, just largely speaking. But I do think kind of the strengths really when you think about data and the data strategy, and I'm sure you're going to ask me a question about Informatica at some point today, so I'll cover that. But when you think about data and you think about AI and you think about Agentforce and sort of this opportunity that we see around digital labor, this is one of the biggest transformations, I think, for enterprise software's future that we're kind of living in and going through and just on the precipice of. So I think from an overall sort of company direction, strategy, sort of path of travel perspective, the days ahead of us are really quite exciting. And I can tell you the energy in our workplace, forget sort of stock and stock performance because I think that's always temporal, but the energy and the excitement that you sort of see in our sort of developers and partners and customers has never been higher. And I think that's really, I think, what gives us a lot of excitement for kind of the print that sort of Marc and Robin went through yesterday. But yes, a lot of change. And I think really exciting to sort of see that road ahead given kind of the new innovations that we have, both organically as well as inorganically through the deal we announced this week.

What -- when you think about kind of the most exciting aspects when you talk about this energy, how would you highlight the most exciting aspects that you see into this fiscal year?

Yes. Well, I mean, first off, it starts and ends with the combination of like Agentforce and Data Cloud working together, I think it's really been surprising to us the synergy between both of those sort of assets. I think we think of Data Cloud as super strategic because a lot of the world of consumer AI has been trained sort of on public Internet, right? Enterprise data is very different. It's sort of ugly, it's messy and it's in different formats and different sort of systems. Some of it's locked behind kind of different applications, some of it's in different data lakes. And so Data Cloud has sort of given rise to our ability to harmonize enterprise data around the customer like never before. And I think what's so exciting about Informatica, and this is really from the probing and the curiosity of our customers, well, how do we get more data from other systems like Product 360 or Asset 360 or sort of Policy 360 also harmonizing so that gets access to these agents. And that's really the gift that Informatica sort of provides our company is to be able to take years of expertise in creating Customer 360s and now starting to create like new 360s across the enterprise. And doing so in a safe and secure and compliant manner, which I think is also part of the world of enterprise data that often gets overlooked when you think about the world of consumer data. So this sort of moment, I think, has been really about us leaning in, listening to customers, listening to what their creativity is sort of asking for and us really being that customer-centered company, working with them to really transform our products and to help sort of them unleash this power of not just sort of data, but data for the purpose of driving better business outcome, which is exactly what we've been experts in for 25 years. So this is sort of like one of those moments that we're kind of going back to our start, which is simply about helping customers get better at working with their customers and helping them kind of transform the way they engage with new information and new access to data like never before.

You were very patient with Informatica. There was a first date and that date didn't go to a wedding and -- but you waited, but I think you saved $2 billion. So you've been, as Marc called it, I think he called it -- I forgot the exact word he used, but you're patient and it was a good price. The question we get is there's two questions. One is, it sends shivers up everyone's spine when we -- when everyone sees you back in big M&A because they worry that is that a signal that organic growth is slowing. And then second, I can rent a plumber. I don't have to own a plumber. So everyone says, why don't you -- the power of Informatica was neutrality. So do you ruin their neutrality by owning them?

Great question. First off, I think the answer is that's a responsible M&A framework in action. We're actually being more patient around the right timing for these kind of big things to sort of come together in the right moments. And I do think the timing now was right. And I think that the catalyst of that wasn't so much about where their performance was in this moment in time, it was really, like I said, as a probing of our customers who want to do more with this sort of AI moment. I don't think you can do that by renting a plumber. I don't really know where to go with that analogy further. But it is really about you think about the sovereignty of data, which is the world is becoming more sovereign. And so we actually have to think about getting access to the data in ways that we can align our policies and our sort of access to that data. So it works on one framework for our customers. Second, the speed in which this data is sort of expected to produce results for enterprises, especially when it's sort of customer-facing, customers don't like to wait on hold on the phone. They don't like to wait on hold for an agent to get access to that data that might be metered through an API. And so the ability to sort of work on this data integration platform and this data sort of extraction platform and data governance platform and combine it in real time with the CRM sort of dataset allows us to sort of take our agent technology and bring it to new heights because again, we work on things that work on customer sort of expectation time, not just sort of can a query complete because it's an API available. So I do think that's sort of why partnerships serve a purpose. But when you actually bring these sort of assets together and you think about a future of an enterprise data verse, this is going to be, I think, really powerful to unleash the next wave of innovation for sales, for service, for marketing, for commerce teams.

Explain -- we get the question of how do MuleSoft and Info live together? What are their roles in the household? Like how does that work? Is there an easy way to frame it, where...

Yes. I think, first off, MuleSoft is an incredible technology for API sort of access and governance across sort of an enterprise. What Informatica provides is great sort of technology, the world's best technology at extracting data from lots of different datasets, transforming that data for access to modernize end points and then making it accessible or available through an API like MuleSoft provides. So the way that we see it is this now provides Salesforce assets throughout the entirety of the data life cycle, whereas before, it might have just been the API but not the extraction side of that data. So I think that the assets between kind of Informatica when it closes, MuleSoft, Data Cloud and then you think about on the front end, like Tableau, there is no better enterprise platform for data management or data life cycle than what Salesforce will offer our customers. And that's what they're asking us for. I was with a customer 2 weeks ago, a mid-market insurance company in Midwest. Without even probing, they're like, "Do you guys work with -- can I get Agentforce to work with the Informatica data later and the metadata around these agents?" And we're like, "Yes, yes, that will be something we can do very easily coming here shortly." So I think this is the kind of thing that because of the size and scale that Informatica is in use, it's also going to open up a world of data that has just been accessible, like I said, only through APIs before, but now it allows us to create great applications on top of this new dataset.

They weren't the fastest-growing company, but they're good margins. But maybe the move to cloud masked some of the growth. But when you think about -- it seems like you and your team could probably massively accelerate the growth in Informatica based on where they're at.

Yes. Look, they've been through different modes in their life cycle, obviously, being private and then going back public where they had to do a lot of cleanup on their transformation to cloud. And so we're very happy about that journey that they've gone through. But I think specifically, what excites us most is not about where they are, it's sort of where we can go together. And I think that's definitely something that as soon as we kind of the announcement sort of came out, again, the phones are sort of ringing off the hook for us for, okay, great. Now we can really make this -- our customers are saying to us, now we can really make this come together. And that's what I think is sort of a sign to point to for our future.

Agentforce, you mentioned 8,000 customers, half paying, where referenceability is building quickly. I mean how would you characterize where we're at with Agentforce today? Is there a mile mark or an inning? How do you think about the positioning of -- it sounds like super early, I don't know the right analogy or how you think about it internally.

Well, I hate to use sports analogies, but we are sort of in like inning one of sort of this game. Baseball is nine innings for those of you that don't follow the analogy, but like we're in inning one. And I think a lot of this is -- means that we're sort of in the opening stands of this AI moment. A lot of experimentation continues to sort of occur in our customers. And what's been so awesome to see companies like OpenTable started very early with us on the Agentforce journey, where right down sort of the middle of the fairway, I'm using now a second sports analogy.

We like golf analogy.

Yes. I know your son's a golfer. So right down the middle of the fairway is like the customer service use case. And OpenTable started with customer service as the #1 sort of place that they wanted to use agents to help them automate. Well now that the OpenTable, it was successful with Agentforce and automating a lot of their front-end customer engagements, their creativity has started to say, "Okay, well, how do we use the same agentic technology to make the lives of our sellers and sort of merchant platform more effective?" And so this is where the evolution of Agentforce is not just for one workload for customer-facing, but also now employee-facing use cases to drive higher levels of productivity and automation inside their company. That meant that we had to sort of evolve Agentforce. And I think one of the things that -- on the evolution side, we started very simply with a $2 per conversation way of sort of monetizing the Agentforce platform. Well, when you're working with salespeople and you're using agents to automate, say, a quote, there's no conversational metaphor in that world. And so we introduced a new sort of approach, which we call action-based pricing, which is just simply paying for the actions completed by the agent which allows us to sort of unleash the full power or full potential of more digital work occurring in the enterprise. And so I do think this evolution, even in the customer side of how their deployments are evolving and growing and expanding, it also requires us to be on our toes to invent new ways to sort of monetize and expand that monetization for more use cases for their needs.

The question we get on Agentforce is this is one of the most exciting products you've had in a long time. But it's an analogy of the bug zapper light, where there's the lights on and all the bugs go to the light and then they forget about everything else, sales, service, commerce, everything else. So how are you ensuring that the sales and your customers just go to the shiny AI light? And how do you ensure that they remain focused on the core?

Yes, a great question. By the way, we're full of analogies today, so I'm sure this is translating quite well. So a couple of things. I think Agentforce largely today, again, the first sets of use cases has been very external facing. And so naturally, that was appealing to service buyers because a lot of external-facing engagement and external-facing automation is sort of an extension to the service center. What we're seeing us do now with this introduction of action-based monetization is start to now bring it closer to our core, which is really to drive more productivity and uplift in performance for humans. Our strategy is humans and agents working together. Some company strategy is agents only. Some company strategy is user software only. We want to sort of have a balance between those two sort of sides of the equation for an enterprise because we do think we're living in -- why this is so exciting not just from a technology standpoint, but from a workplace standpoint is this is the first time that organizations don't feel limited on their ability to grow or save based on how many humans they can hire in the workplace. And so we really do see a world where humans backed with agents are operating at a higher productivity thesis than they currently are today. And that's where as we sort of bring this closer to our core, you're going to see us do some things on our road to Dreamforce, where we announced new versions of Agentforce for salespeople, new versions of Agentforce for service professionals, new versions of Agentforce for industry professionals like in financial services and wealth advisers that allow us to sort of take our core and bring it into this AI era. We didn't talk about this externally yesterday as part of earnings, but that's been part of the retooling of every application that we've been going through. We talked about this called more core initiative, which is bringing all of our applications onto one core metadata foundation. Well, not only the metadata foundation, it's now the agent foundation that these applications are getting. And so what you really will see from us is not Agentforce or apps, not Agentforce or data, not Agentforce or metadata, it's applications and data and agents and metadata all coming together at one time, which I think really has great accretive benefit for our company, but more importantly, our customers.

I think maybe we're going to see more too on Service Cloud at Dreamforce about how you're expanding the scope of what that could do. Is that a fair direction?

Yes. I think...

There's a small company that seems to be encroaching in your space and making a lot of noise. So a lot of questions about what ServiceNow is doing and can you counter to that opportunity in broader service requests?

Yes. Well, first off, I think a lot of companies have been admiring what the Salesforce sort of operating platform has been. And so we welcome them into the CRM market. We think that we're very well differentiated with the scope and span of our application. And I think customer choice will sort of win out in the long run there. To your meta question about expanding the Service Cloud portfolio, I think there's a couple of areas of really high interest to us. Number one, with agents specifically, we see a world where just like we've all been conditioned to email [email protected], we think that agents will become a new primary interface for companies to engage with their customers. And we're seeing that, like I said, with OpenTable, Finnair, et cetera, really being companies that are leading in that sort of new way to engage side. So service will have some reinvention about the way in which you engage because agents now can kind of sit on the front end of their experience. The second thing I think you'll see from Service Cloud is an expansion to the kinds of service that it offers, not just customer service but employee service, not just customer service but a service that is more for IT or inward-facing sort of care and operations. And I think that the combination of customer service and field service, which has long been another successful product line for us, now extending it into new service delivery lines is going to be another area that Service Cloud continues to grow in. So it's not really driven by any competition for us. It's really like trying to think about how do we just end the world's bad customer service moments. And I think our platform is quite differentiated, and it goes through all moments of that life cycle and journey. But I think Service Cloud will have another great sort of moment ahead of it.

You were kind to give us time in January for many of our investors at the bus tour, we came and saw you at your headquarters. And you had said that Agentforce is additive to seats, not taking away seats. So I think everyone would love an update on that. It's Service Cloud plus Agentforce. It's -- you think TAM expansion, revenue expansion, this isn't a situation where we're seeing reps disappear, salespeople disappear because of this point?

No. Well, in every sort of moment where automation has entered into our world, we've not seen the collapse of seats. I've been in customer service technology around that space for like 20 years. Initially, it was going to be the website was going to kill the customer service center, right? And then it was going to be RPA was going to kill the customer service teams, and then it was going to be agents that are going to kill customer service teams. In all moments of sort of technology innovation, what you've seen is it's just another interface for companies to sort of engage their customers, which actually creates more demand for customer service sort of operations to be fulfilled. So I don't see the sort of collapse of seats like maybe others are out talking about it. Typically, that comes from agent-only companies. So I think they're a little bit incented on that side. What I do think for us, what we want to do is sort of enable service capacity and throughput, whether that is human driven, whether that is agent driven, whether that's automation driven, the Salesforce platform is well positioned across all those modalities that allows kind of companies to kind of get higher throughput and higher sort of efficient operations. So I definitely think that service has better days ahead because of all these technology moments are coming into the mainstream. And as the technology sort of evolves as well as the customer sort of mature in their understanding and their acceptance of it, I think you're going to see service teams really finally keep up with the demands of their customers as opposed to sort of have offsets in that world.

Everyone in the industry is saying we still haven't mastered pricing for AI. And I know you're probably in the same spot. You had a $2 list per conversation to begin with. I think you've changed that already. Everyone is still changing. But when you think about the pricing model, is this, hey, just everyone, you got to stay flexible because this is changing by the day? Or how do you think about this? Because I think we get a lot of questions about every company that was here was saying there's a different way we price. No one has a standard.

I love that -- anyone who says they've got it all figured out is sort of kidding themselves right now. I think that flexibility is the word. And we actually love that word at Salesforce. We announced something which we call our Flex Credits, which allow you to sort of expand different ways to monetize AI and Agentforce for customers because this moment is sort of a try and figure out which mode works best for the use cases. And I do think -- just to your point, we haven't like taking away the conversation model. We're actually introducing an alternative model for companies that maybe want to use these action-based models, which is just paying for work that gets done versus a conversation model, which is simply a communication back and forth between companies because there are -- like I said, not every use case is a conversational affair that agents can do. So I do think you're going to see from a broad spectrum, the hyperscalers really monetize AI in a world of like tokens. The applications companies of which we are do it in either sort of conversations or actions or even the third one, which you'll probably see more from us as well as some per user per month offerings. And then the upstarts are kind of doing something which is like outcome-based pricing, which we think is an interesting one, but it's hard to scale because sometimes the outcomes are debatable between did the software provide that outcome? Or was it my human that provided that outcome? So I think you're going to see an evolution for sure. But for us, I think it's just offering choice to our customers in this moment because the word is flexible, and I think customers want that flexibility.

Bill's favorite, Agentforce, live reference, don't have to name a customer, but what is that customer achieving at a high level on like before and after is there, again, you can white label it?

Yes. Well, I mean other than help.salesforce.com, which is sort of like our marquee one, and everyone here can go out and sort of see Agentforce running live on that, we talked about this in our earnings yesterday where the efficiency that Agentforce is providing our company is allowing us to not kill jobs but to offset human support labor and put it into forward deploying engineer labor that allows us to sort of make that work for customer use cases. So again, it's not labor reduction, it's just labor change that occurs. So that's our own internal use case, and we call that Salesforce on Salesforce, and it's truly awesome to see. We use it every day to really guide our work. Companies like 1-800Accountant or companies like Finnair, I think Finnair is one of the use cases. The customer service in the airline and tourism industry has not been universally known as the best in the industry, like the best in the world. Finnair is putting a lot of emphasis and energy into Agentforce to really kind of streamline quick answers to things like flight status lookups or quick answers like how do I go from here to here more efficiently than maybe the long durational side that maybe the web tools or searching by kind of flight cost might give you. So I definitely think Finnair is one of those use cases that I love to see, and I want more companies to sort of like look at what they're doing because they're not just doing this from like an efficiency standpoint, they're really trying to rethink the way in which they serve. And to me, I think we still can go a lot further in our world to help companies get better at sort of delivering service for their customers. And I think they're a great, great use case.

Seeing your seat, I mean, there's so many of these start-ups that are coming in, in data and AI. And I guess the question we get is does Data Cloud have all the friends it needs on the team to achieve what you want now? Do you feel like you've got the core pieces now to run this organically from here on out with the pieces you bought now?

I think in terms of the data and the data kind of platform, we're always sort of listening to our customers. Like I said, I mean, Informatica was a combination of sort of looking at it from an asset standpoint, but also kind of listening to customers and what their needs were. So I think from a future standpoint, we'll always be in our toes around what our data sort of platform evolution looks like. But Data Cloud is like the fastest-growing organic product we've ever built in our company. And that team is really not just doing this to unlock data from the Salesforce ecosystem, but we brought together one of the world's Force Zero Copy Networks, working with partners like Snowflake or Databricks, AWS, Google, people you would think would be traditional competitors. Well, actually, we're partnering in a way that's really about giving access to this data and bring it into an action framework like Data Cloud provides, harmonization and action framework like Data Cloud provides that lets companies do things that they never thought were possible because data lakes were sort of in the back office. But CRM has always been sort of in the front office and the front end of the experience. And I think Data Cloud really continues to redefine kind of that data strategy for a lot of companies.

I know Miguel is not here, maybe a question for him. But when you think -- one of the questions we're getting is we don't know what's going to happen. No one knows. We've heard from this conference, most software companies haven't seen a massive pullback, but everyone's watching, worrying what happens. But what are the actions you take to ensure kind of the safety blanket of, hey, if it does hit and we do see a little bit of a slowdown based on the actions the government is taking, is it just we need more pipeline, we're going to take a lower close rate and that's our safety blanket? Is it -- how do you describe kind of the internal motions that you're taking to kind of ensure you cut through if there was a bigger headwind we're not...

Yes. Well, I think you can break that out by sector. You can also break that out by region. You can also break that out by company size or sort of segment, if you will. Let me sort of address it in those three ways. First, by sector. When you think about like the public sector and sort of the federal sector where a lot of the DOGE operations, the world of efficiency that's sort of entering into the U.S. federal government, Salesforce is an asset that's helping companies become more efficient. So we're actually very well positioned to help companies in this -- help the U.S. federal government be more well positioned to use this technology really to power some of that efficiency, power some of that kind of efficacy of resources in their world. So I actually think that while the sort of current buying environment may be a little bit more measured in the U.S. public sector market, I do think that era of efficiency is going to create opportunity for software and especially software like Salesforce kind of to grow within. I think in other sectors, maybe where sort of federal policy -- U.S. federal policy is sort of impacting like tariffs and tariff-based pricing for retail consumer goods manufacturing, we're working with our customers on all of that to help with better price uplift or pricing strategies, things like our Revenue Cloud are helping companies really rethink the way in which they price and adjust that price point for sort of market dynamics. So I think in a lot of ways, the sector-based way and the industry-based way, we've already been investing in to help companies sort of ride these ebbs and flows quite well. And I think that shows sort of the strength of the application portfolio we have to help sort of companies with that kind of moment in time. From a geographic perspective, some markets where you expected some slowdown, we saw a lot of actually resurgence around sort of the buying environment. UKI is a market, I think, that had some really good sort of results for us. France, another good market had results for us this quarter. Those sort of markets, I think, where tariff policy is sort of putting them a little bit of uncertainty, we're actually seeing a little bit of, okay, let's invest now really to make sure that we're sort of kind of using the applications to help us navigate these moments. And then the last one, I think, is on sort of a segmentation side. Some of the signs that were really exciting to us for this quarter, self-service, like our Slack self-service business actually had a really strong quarter for us around how companies are engaging with sort of self-service, self-selecting buying to really activate their products for the first time. That's a really good sign that companies are sort of feeling confident that they can invest in these new technologies to unleash these agents at this time. Same thing like small business. Marc talked about it yesterday in our earnings call. Small business, especially in the United States, was also a sign of strong growth. So I think overall, you look at sort of the macro environment and sort of these temporal moments, the diversity of our portfolio, the strength of our sort of geographic reach, the ways in which we're sort of reinventing the go-to-market from a self-serve to an SMB sort of perspective, I think are going to help us sort of kind of ride these ups and downs sort of as the macro environment evolves.

Thanks, Bill, for being here. Really appreciate it, and great to see you on a regular cadence. So thanks again.

Thank you again. Thank you, everybody.