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

Thank you for joining us for our next session. Really happy to have Miguel Milano on here from Salesforce. The -- initially before we talk about the World Cup soccer like a German, [indiscernible], but maybe we kind of don't go there. We do it afterwards.

It hurts. Still hurt?

It still hurt from the euro, but anyway. But let's start more bigger picture to get everyone grounded, you reported like very good results last week from like since you're running sales, like, what's it out from your perspective?

Yes. So thank you, by the way, thank you for the opportunity to be here. Hello, everyone. This is exciting. So we printed really a very strong quarter all around. Q3 was the best Q3 ever in the history of the company. That's good -- good start. It was also the -- in terms of bookings, it was the fastest-growing booking quarter in 3.5 years. I think the Q1 fiscal year '23 was a bit better. Bookings grew even more than the CRPO numbers that we printed. The other thing that was pretty cool was the -- I mean this is a metric that now the whole company is focused on is net new AOV like net new ARR. And this is the difference between the bookings minus the attrition. That piece grew significantly, significantly much more than the growth of the ARR. And this is key. And we -- I think we started talking for the first time at the Investors Day at Dreamforce. This is key because when net new AUV grows more than AOV, the AUV accelerate. And I know that everybody here on streaming, what they're thinking is, okay, great quarter, Miguel, amazing, but when is one of the core revenue is going to reaccelerate? Well, this is -- we explained it at Analyst Day, it's going to take 12 to 18 months, now probably 11 to 17, but now we are even more confident after the results, but also the momentum that we're seeing with Agentforce, a bunch of starts. We'll talk about the Agentforce later, I'm sure. And then the demand, this is because a quarter is a quarter. In Europe it's a [Foreign Language] [indiscernible]. Good game. We've had a sequence of pretty good quarters, better and better all the time. But for me, it's more all about the next wave of growth. The next 5 years, we gave some very cool guidance, I believe, in the Analyst Day that without Informatica, we're going to hit $60 billion in fiscal year '30, Rule of 50. And we are becoming more and more confident that, that is going to happen because the demand is like we've never seen before. Our [indiscernible] gens are like we've never seen before, and dem gen that we did in Q3 was spectacular.

And I mean, obviously, Agentforce is like the big topic that everyone -- that is important to you guys. I was at Dreamforce, and it was amazing to see the momentum there. But what are you seeing in terms of Agentforce in the field? What's the feedback?

Well, so Agentforce, it's pretty crazy. I mean, I've been in sales for many years. Actually, I was an engineer before it was a consultant and then I've been in sales for 20-plus years. I joined Salesforce in 2011. I never seen anything like that. We launched a product a bit more than a year ago. We just published $550 million of ARR on the product. That's 4.5x growth year-on-year. We did 1,900 transactions on Agentforce. We have already 18,000 customers that have bought Agentforce or that have used an Agentforce. Half of them are paying, so 9,500 are paying. Just to put things in context, everybody is talking about agents. Everybody is talking about agentic, there is no other company in the planet that has the amount of customers trying our agents like Agentforce, like Salesforce. This is pretty cool. But there was a very important statistic that I want to highlight because in the Q1 earnings call, I was super excited because I found out that 3 Agentforce customers came back and wanted to refill the tank -- the consumption flywheel. And I was very excited, and I talked in the earnings call about these 3 customers, and my God, this is working. Well, in Q3, 50% of the bookings, more than 53% of the bookings came from customers refilling the tank. And we had 362 customers. refilling the tank. The stacks are amazing, but I think what is more fun, and this is going to be -- when you sell stuff, you want to sell something that is a lot of fun. And there are a number of household names that everybody in the world is going to start getting familiar with, for instance, [indiscernible]. Anybody knows with [indiscernible] is? You will. Gema is the personal shopper for Pandora, okay? They just launched that personal shopper. It's the same experience that you have at a store, but online, but guess what, they picked a country. Australia is a big country of them. They just put 10% of the traffic at the beginning. Now they're putting 50% of the traffic. Now Gema does 1 million customer actions every month. But meet [indiscernible] or me what, I like this, mid-Olive, [indiscernible] Williams Sonoma, what rebound. William Sonoma has several agents already working with customers at scale. The one that they call Sous Chef. It' [indiscernible]. It helps you really work through the dietary and your culinary experience and getting you an expert and then branches you out to buy all the staff, et cetera. That's already handling nearly what was in last time, it was like 80,000 actions every week, so 300,000 actions. But all these agents, we put them in production weeks ago, months ago, the acceleration that we are seeing, many of these companies are coming back to refill the tank. Okay, I want more conversations, I want more credit. It's very exciting. And the last thing is it's not about Agentforce. Agentforce -- it's not only about Agentforce. Agentforce is amplifying its making every 1 of our Salesforce cloud much better. It's driving multi-cloud transformational deals. If I look at my top 10 deals, 6 of them -- 7 of them contain data cloud and Agentforce or agent force, 6 of them contain Agentforce. I mean Agentforce was just 15% of it of the whole TCV of those deals of the -- it just drives all because all our clouds now are agentic cloud. Sales Cloud is Agentforce sales. There is no concept of sales process without identifying that sales process. There is not a sense of service cloud or customer service without being agentic, commerce the same thing, et cetera. So a very exciting quarter for Agentforce.

And the -- what is the momentum -- like Dreamforce was obviously like -- well, for me, it was more -- there was more hands on. You could see I could touch the -- like the year before Dreamforce, you launched it. It's early stage here. Now I could see them, I could touch them, I can play with it. What has been like the momentum in terms of pipeline conversations in Dreamforce.

I think, again, it's very surprising even for experienced sales executives like me and my team to see a product have so much impact in a short time. I think the one thing that both myself and Robin, our Chief Operating Officer and Chief Financial Officer, disclosed, we made 2 big disclosures, honestly, and 2 big statements in our Analyst Day. One was that the net UV growth line had already crossed the AUV growth line, and that was going to remain for a while. And that hadn't happened for 2.5 years, and that's going to accelerate revenue. And then we said 12 to 18 months. That was a pretty big statement. The second big statement that we did -- I'm sorry, I'm elevating the answer that I go exactly to what you were asking. The other thing that we -- she had a slide, and it's good that the slide came from the CFO and not from the Chief Revenue Officer, where she says, we are seeing that customers that become everybody wants to become agentic enterprise and identify all the processes. The customers that pick Salesforce as the platform to become the agentic enterprise, and we'll discuss later why most of our customers, if not all, are going to peak Salesforce. They use our product in a totally different way as a digital labor platform, not as a SaaS CRM platform, but as a digital labor platform. And when you use our product in such a way, our ability to monetize that relationship, and this is if you're eating, you need to stop it in because this is important. This is the ability to monetize the partnership to 4x the business that we are doing. We have a lot of customers that have great profitable, growing relationship with us for years with all our cloud sales, service, marketing, commerce, analytics global. When they become Agentic, this has happened in the last 12 months. They had data cloud because they need data cloud to power the agent. They put Agentforce. They start building up a list of agents that they're going to deploy. The business that we do with them multiply it by 3 or by 4. And we believe that most of our customers are going to go through that journey. So this is truly impactful because I know that many of you in your model, you're looking at your terminal value. Obviously, you see the numbers, you see the cash flows. Marc mentioned, we do more cash flow nearly than Walmart. This year, we increased actually the guidance, I think, from 13% to 14% growth. I think we're going to do about short of $15 billion of cash flow, not bad, and we're going to continue to grow that. And you can do the math for the next 5, 3 years and you discount whatever, but then is a terminal value, which I think is in debate here. Is there a future for SaaS? What is going to happen to Salesforce, and I'd love to talk more about that, but I do believe that the terminal value is humongous. And when I tell you that every single 1 of our 200,000 customers, most of them will choose Salesforce as the platform to become agentic. So this is a different market. It's not the platform to do SaaS CRM. That most of them already chose us. This is like a new market. It's like Infinite, it's trillion of TAM. And most customers, most of the Salesforce customers will get to the conclusion that they absolutely need to use Salesforce to become an agentic enterprise. And when they do times 3, times 4. Remember that.

And on that note, like, what makes the Salesforce position so strong like the competitive advantage that they do it with you and not with someone else.

Yes. So this is the heart of the matter, okay? I'm going to pause -- I'm going to breathe. Yes, yes. old -- this is so important. I just had a great meeting with actually Barclays at our offices. But I -- what I do is I spend all the time with customers. Last quarter, I was in 12 countries, I made 400 customers. So this is the crack of the matter. This is a question that everybody asks. So let me tell you 1 thing that is very important. LLMs, AI is incredible. It's the biggest transformation in our lifetimes. I couldn't believe -- I mean, I'm 57. I kind of believe that this is happening to me now because to be in this in this balcony looking at the market and seeing this incredible transformation that AI is bringing is unbelievable. It's hitting all of us. Consumers is revolutionizing. I'm every day. I'm with Grok, I am with with Gemini, I'm with OpenAI. It's incredible. However, to bring AI to the enterprise for AI to scale in the enterprise, there is something significantly more important. AI just becomes a utility. It becomes a commodity. You need the last mile. Let me plan with the last mile is -- the last mile has 4 complaints. The first 1 is the trusted context. Is the data of those customers, or those transactions of those assets and the meta data. The data tells you what happened. The metadata tells you why what happened matters. That drastic context is fundamental in the enterprise for the AI to make any sense. Otherwise, the AI does make sense. Can we solve this with assets force Potentially, but Salesforce has a lot of that data already in the context with the right countries with the right metadata model. Second leg of the last mile. And this is -- for me, this is the investment thesis for a SaaS company like FORCE for that have a dominance in a space like we do, okay? The second element of the last mile is execution, deterministic execution. Trust me, you don't want LLM to execute. I think we've seen it because if we let an LLM to execute, they will execute differently even with the same data in different times. There is a reason why for years, 20, 30, 40, 50, 100 years, companies codify their standard operating procedures into applications. Then the application becomes SaaS applications. In the customer domain, I mean I was with you guys today with ankle said, I don't want to disclose, but companies that at have thousands of automation that have already been built on our platform, 1000. And then every month, those automations are run billions of times, okay, across. You don't want LLM to be executing without those automation. Third leg of this tool. You know what, there's some people here that it's called humans AI cannot function without humans. You cannot build AI in a place that is disconnected for humans. You cannot build AI in a place that is connected from the execution, but you need humans in the loop. So we, at Salesforce, we are the leader in the CRM. So we have more humans, hundreds of millions of humans already using our apps every day, executing on those determinist workflows. And the last piece of the last mile for AI to scale and to work in the enterprise is the governance. It's the compliance without governance, without compliance, you cannot scale AI. CIOs need to make sure that those agents have secure access to the right applications to the right data that things are sharing the right way, that the privacy is respected that the agents are orchestrated, that's covered on that compliance Tell me how any of the foundational LLM are going to do the last mile, none of them. Salesforce, companies like Salesforce, and we are very well positioned in our space, we're going to become the hat for agentic execution you would not be able to execute the incredible things that AI brings in the enterprise with -- at sales force.

So it sounds really exciting from a product perspective. Now -- and I don't want to speak for my IT buyers, but like how about by this? Like in terms of -- talk a little bit about pricing packaging, is there like an ELA kind of type stuff to kind of make sure I control.

You're not negotiating on behalf.

No, no, no.

So now listen, this is a good one because everybody is getting very confused. We got a little bit confused to be honest with you when we launch all these products. We have data cloud data activation called Data 360, the more data you ingest, the more data you 0 copy and you activate the more you pay -- and you don't really know how to predict that or project that. Then we brought agents and then depending on the use case, depending on the conversations, how many actions per conversation, how many [indiscernible] calls. It becomes really messy. And I feel that for my customers because even we don't know how much the customers are going to pay if they go all in with Salesforce. And that's not a good position to you're selling. So what we did is, okay, let's open up, let's listen. We do a lot of workshops with customers, and we pretty much open a menu of options, pricing options to our customers, to meet our customers where they are. There are customers that want something that is probably the hottest thing right now in Salesforce, which is AELS, Agentic Enterprise License Agreement. What is this? This is for customers that have already experimented -- they're ready to scale. They already know the last-mile differentiation of Salesforce, what I just explained. They know that they cannot scale AI without sales force. And then they say, okay, they want to go all in, but they don't want to be in a situation where in 3 or 4 years, they have to pay $100 million to set force because we're doing all this. So we agree on a flat fee and then it's a share risk. -- all you can eat -- by the way, we can throw also other products, all you can eat a enforce data cloud, slag anything that you need for the period of the next 3 or 5 years at a fee that makes sense. And if the customer is smart, they can rub the bank. They can really make a great deal out of that. We take the risk because we want our customers to be successful. There's nothing that I would love the most, that have a customer that a price may be a la at $5 million incremental, and the customer has deployed so much that all of a sudden, that deal is not profitable for me because if that is not profitable for me, it means that the customer is the happiest customer in the world. And then I have another 20 years to monetize that customer. So I'm not worried about that. So that this is the extreme. The other extreme is we do pay as you go. If you want to experiment without paying anything and only pay when you get value, pay as you go. And then every month, we send your build with the usage that you've done and you pay me, but most customers most customers like pre-commit. This is the Amazon model at the AWS model, where essentially GCP, you say, okay, I think I'm going to spend $3 million next year, $5 million the following year, $7 million and I will be telling you as I consume. There are, again, many -- and you know what, 1 thing that is becoming very popular because customers want predictability and flexibility, predictability and [indiscernible] gives you predictability. But you know what other thing gives you predictability, seat-based SKUs. So we've created SKUs that have a lot of consumption built in, in fact, unlimited consumption for internal usage, we call them our super SKUs, again for sales force for service or AE and customers pay a premium to get the SKU, but it's a fixed is per seat and they don't have to worry about using more or less. So the net-net is we are meeting customers where they are. And if you have other ideas, we are here to do businesses open, and we can come up with our ideas to feed your specific needs.

Yes. Okay. So we talk product, we talk pricing. Let's talk about distribution. One of the things that came up a lot as a discussion is that you kind of talked about increasing sales capacity and quite a decent -- a quite a decent clip. What drove that confidence? And I had 1 follow-up there in terms of sales force productivity that's kind of related to that.

So as of today, we have 23% more capacity, account executives industry today, which is a lot.

That's a lot.

We're going to finish the year with approximately 20% more capacity. Now we don't -- we measure ramped capacity because capacity the first 6 to 8 months and times even 12 months doesn't produce because in enterprise software, there's a lot of learning enabled, et cetera. which, by the way, we are super focused and we are bringing those time lines even closer from higher to monetization of we we've already shortened 3 or 4 months, okay? But at the end of the day -- at the end of the year, we're going to finish that are around. Today, we are at 13%, 14% more ramp capacity. We're going to finish the year around 15% more ramp capacity coming into next year, which are great numbers. I'm actually I mean this is sometimes why Mark, it's Mark 1.5 years ago, he called me. He said, "Miguel, let's go in, let's go full-fledged, let's hire 20% of capacity." I'm like there is no need." My productive levels are very good, but I don't see the demand. There is a lot of AI. There is a lot of experimentation. There is no big -- Miguel, we are launching Agentforce. this is going revolutionize the industry, go f****** higher, 20% more capacity. Then we went all in, in starting in October last year, November an got that we did that because -- now the demand, we have a tsunami of demand coming at us, and we have the capacity ready to meet that demand. I'm also confident about the numbers for the year, the net growth acceleration, et cetera, because it's not just about the capacity. It's about the pipeline. I mean those 2 things are hardcode thing coding. We have more people that are hungry, waking up every morning saying, I need to make my quota and I'm going to go kill. And then we have healthy single-digit -- double-digit very healthy growth in pipeline for next year, good combination. And then we have a lot of innovation that -- I mean, when you think about the amount of products, think about Voice. We just launched voice. Every single one of our customers, Agentforce customesr, 18,000 are going to want voice. Voice is an uplift to the contract that they have with us. Let me take go to another extreme, Life Science Cloud. Anybody knows of a company called [indiscernible], okay? By the way, before we started competing with Viva. Before we were partners with Viva, we love Peter and Diva, they've been great partners. Before we competed with them, we were at the same site of [indiscernible]. We were selling around the commercial area, but service, marketing, analytics, et cetera. We pretty much have the same number of employees in the same number of business of revenue with in the life science and medical device space as Viva. Then they decided to move to compete with that. They call us, okay, you know what, we don't want the partnership, you guys are to tenures, we're going to move off of your platform and I really, okay? So then we're going to compete. So we went in, we bought some assets, some IP. We built a product called Life Science Cloud, which was the missing part that we had needed for the commercial part of the pharmaceutical company. And we already announced Pfizer. We already announced Novartis the day. We did a press release on AstraZeneca, Takeda. Of the top 20, we've already won officially 5 or 6. We're going to win probably another 2 or 3. And then we won more than 100-plus of the top probably 200 frac well already has switched off from Viva and came to to sell for. So I'm sorry for the company that is solely focused on 1 thing because we are winning market share like huge from them, and we are just getting started. Customers want the platform. That's why they weren't happy with that because they were on the Salesforce platform. They see how Salesforce is becoming an agentic platform. Analytics is embedded in the platform. Data 360 brings all the data from all the areas of from clinical to pharma to care to everything. And it's a big piece of innovation. We launched ITSM. We launched an orchestration omni supervise. I mean there's so much innovation. When you couple the innovation with the real pipeline that we have with and then the momentum that we're seeing. So we are very confident. In fact, we're going to continue this free of hiring in the next 2 months.

And like remember, we are the investors and we're looking at a number. The 1 thing that I kept as a question a lot from -- when I discussed it with investors is like, how do we ensure productivity because you're not going through kind of at least saying we're growing 20% here again, but you you keep hiring it. How do you make sure that the productivity is right for you and that you get actually the right outcome?

So I focus on -- there are 3 key metrics that I focus on like crazy. It was 2, now it's 3. The 2 that I focus was net AUV and making sure that any was growing and is growing more than AOV because that means acceleration okay? The second metric is productivity. I'll go through that in a second, and the thematic now is consumption. Consumption of of data clouds, consumption of Agentforce. Now productivity. Before we started the hiring spree 1.5 years ago, we reached pretty much the top level of productivity. In my 2 prior years, we increased productivity by 20%. So we were ready. We thought -- we knew that we couldn't get significantly more productivity, so we needed to hire more people. So we are -- first of all, we are hiring people in high productive -- high productivity patches. This is very important and high patches. Second, we are managing performance. I mean that's what I've done in my career, managed performance good so people want to work in my teams because they know that poor salespeople don't last. And the worst thing that you can be -- the worst thing that you can be is being a company, if you're a good salesperson where they don't manage performance. So good sales people want to be in a place where they manage performance because they make a lot of money and the low performers leave. Third is we're selling higher end additions of our cloud. There is a trend called vendor consolidation. People want to buy an SKU, a super SKU that has included consumption, has included Tableau speak for compensation, has Slack, those make basically, the average sales price much higher. There's many of the reasons why productivity is going to continue to be -- even despite the amount of capacity we're putting, is going to be continue to grow. The last one is -- this is very important. I told you about the customer refilling the tank and the fact that 50% of the bookings in Data Cloud and Agentforce in Q3 was 40% in Q2 came from customers refilling the tank. We started this year -- we started this year with 4,000 more or less Agentforce customers, okay? Those have generated a lot of ACV this year to us because they came and refill the tank. Next year, you know how many Agentforce customers we're going to have at the end of the year?

18?

No [indiscernible], so today, we have 18,000. By the end of Q4, we're going to have probably closer to 30,000, at least 25,000. So we're going to start the year with pretty much 10x more agent force installed base. than a year before. And the reason this is important is because the sales cycles of customers filling the tank are low -- low investment sale cycle there short. So that increases the productivity of the [indiscernible] Anyway, there are many ways to increase productivity base.

Yes, yes, yes. I could continue with you for quite a long time, but I know that at the next speaker is coming up here. Miguel that was really insightful and the excitement is physical. Yes, I can see it. It's great to have you here, and good luck, and I'm looking forward to you next year and see the how does that all translate into numbers.

Thank you. Thank you so much.

Thank you.