Salesforce, Inc. ($CRM)

Thanks very much for coming. I was looking forward for this session today because Miguel and I had a terrific discussion after the company reported numbers, he's convinced I'm wrong with my rating, and he's going to prove me wrong. And I'm very open for the challenge. So as you know, I'm new to cover software being covering cybersecurity for 20 years and networking for 30 years. And I always say that lately, I'm the garbage person at Bank of America, garbage not from a person of quality, meaning everything -- every time someone leaves, they tell me, okay, you cover it. So I cover everything else basically. That's going to change soon, but software is my focus, networking is my focus. And I want to start with a few things before we start -- I want to start with outlining the background for the discussion. We have 30 minutes to discuss and we're going to talk strategy. We're not going to talk about the quarter. I don't care about the quarter. I talk about -- I care about where is this company positioned for the next 10 years.

Salesforce today is a much bigger company than it was 7 years ago. And the growth decelerated. The growth in the last quarter with professional services, 7%, 7.1%, without 7.7%, it used to be 30%. It used to be 20%. And that's before AI. We're not talking about AI. AI might be a tailwind, might be a headwind, right? So what I want to understand is the reasons for the deceleration, the risks that we see in AI, the opportunities that we see in AI, and how the company is positioned to basically address the opportunities because the whole discussion of this quarter, by the way, for me, it was the first time I do a quarter call for Salesforce, and the whole discussion was about AI. The whole 1.5 hours was about AI. So I want to understand AI, and that's the purpose of our discussion. So with that, Miguel, thank you very much for coming, and thank you very much for taking the time to educate me because I need this kind of education. And I want to start with big strategic positioning. No, I'm not giving you kind of direction with my question. I want to ask you, what do you want to highlight when it comes to the opportunity to accelerate growth over the next few years? What are the initiatives that you think will drive higher growth in the future.

First of all, thank you for having me. I will actually very much looking forward to these conversation, we sort of [indiscernible] the eyes a little bit. Can you hear me? The mic. It doesn't seem to be, if it's working?

No. All done. He's fixing it.

Feel is not working very well. Can you hear me at the back?

He's been something new.

Hello, hello. Okay. So listen, so first of all, I think since earnings is -- I've done like 10 analyst meetings. This is the one conference that I wanted to come to. You have the analysts that I wanted to meet you face to face. I've talked a lot about you. You stated about the company. I actually was very curious to understand when I saw your price target. I mean, I'm the Head of Sales and the Chief Revenue Officer, but I also started finance. I started financial engineering, financial management at MIT. I understand valuations and I was curious to get to know you. And then when I read -- I like. So I have a lot of respect for you. By the way, you are very smart. A lot great experience. You have listen, you haven't eaten a lot [indiscernible] but listen, first of all [indiscernible]. Of course, we have -- we bought a company last year that was like with the inorganic growth and we grew 13% revenue, 14% CRPO, we generated $6.7 billion of cash flow, not bad in 1 quarter. I mean there are companies that you like a lot that in 1 year, they don't generate that cash flow. There are companies that publish results the same day amazing results. We like that company. I think there are a lot of people here in San Francisco. And the whole revenue for the whole year is not even the cash flows of Salesforce. But let me...

But I'll stop it for a second because it's a conversation. In the last 2 weeks, we had a rally and the rally in software you are lagging behind. Your stock went up 3%, the others went up 30%. So something in your message doesn't get across to investors. And the fact is it's not us, that's the stock behavior. So investors are concerned. And the question is, where are they wrong? Meaning, what are the growth opportunities that you see in front of you that could prove...

Let me answer the question, but I also need to address some of the inaccuracies. So we the store went up 8.5% on Friday, it went 9.7% yesterday Monday, basically the same as they [indiscernible] or ServiceNow, et cetera. So I don't know where you get the 2%...

It was since the beginning of the year. So it went down, in the last the last role, right?

So listen, we -- our business is for 2 or 3 years, nobody really knew whether Gen AI first, then AI than Agentic was going to be a tailwind or a headwind for enterprise over companies. The world was divided. We -- I joined the company in 2011, they left for 3 years and then came back 3 years ago to be the President and Section 16 Officer and Head of revenue. And I mean, we were, I would say, cautiously paranoid about what could be happening. Last year, we saw it very clear. AI is a massive win for our business. We were competing in a crowded market where we are the absolute leader in a category, SaaS CRM. We've been doing that for 27 years. And we have amazing growth when we are small. But then when you -- as you grow, as you grow, as you grow, the growth starts being a bit more difficult and it's a multi-hundred billion TAM market. All of the sudden AI is doing several things for us. So first of all, everybody loves AI. Everybody loves the AI labs. The intelligence utility is incredible. But in the enterprise, to convert that intelligence into proactive work, there are a lot of things that need to happen. You need to have the deterministic workflow. You need to have the right context for the data, you need to have the compliance, the government, the permission sharing. That [indiscernible] infrastructure that we built over 27 years is the big difference between beautiful AI for the consumer and productive AI for the enterprise. So we are very well positioned. AI is making our products easier to implement, easier to use, easier to enrich and put data into and easier to consume. So it is making our different clouds more valuable for our customers. And then AI is giving us -- is opening a door of a multi-trillion, multitrillion TAM market, which is the digital labor. So today, we had the SaaS market, people continue, by the way, the number of seats, the number of salespeople, the number of service people still continue to grow. We can later talk about what happens if it start declining. We can talk about that because for some companies, in some industries, at some point, the number of seats may decline, okay? But forget about that for 1 second. In addition to that, which is our traditional business that was decelerating, all of a sudden, you have an opportunity to monetize AI in different ways. First of all, the existing sets, we are upgrading them to our higher-end SKUs, which we call it Agentforce One Edition, Agentforce for Facility, Agentforce for Service. Every time we do that, on average, we do anywhere between 60% and 80% uplift. That's pretty big. And customers are very happily paying because now they have access to all the agentic capabilities of our product. The second way that we monetize AI is because AI has made our software easy to implement, easy to enrich and easy to consume through conversation, then there are more seats available to us. If you look at our last earnings, 7 of the top 10 deals were customers that found new people, new humans to use our licenses or more licenses. It's the opposite. People think that AI is going to reduce licenses, so far, it's increase in licenses. And then the third way to monetize, which is probably is 50% of the monetization that we do is what we call Flex Credits. So we basically, for customer-facing use cases of agents, those agents need fuel. So we charge them with fuel. We call them Flex Credits. And we put enough in the time so that they get going. Sometimes they buy for the next 3 years, sometimes they buy for the first 6 months. And then customers come and refill the tank. So we are seeing an explosion of Agentforce, which is one of the main drivers. Our core clouds now are better, so they are growing also, and they're growing healthily. Then you have products like Slack that is exploding. And then we run a very diversified portfolio of products. And every quarter, there are some products and geographies and industries that they don't perform that well. But when you look at our numbers and the most important thing is, the [indiscernible] is net new bookings. So you sell new bookings, and then the net is because there are customers that are treated. Our attrition levels are decelerating and our bookings level are increasing. The difference, which is the [indiscernible] is accelerating. And we saw that last year after a great Q2, the best Q3 ever, the best Q4 ever, the largest Q1 ever that we just did, then the net NAV is accelerating significantly and is growing more than the AUV. And when the lines crossed and they crossed last year, the cross in H2 last year, they continue to surpass the net NAV growth continues to surpass the AUV growth in H1. That is when AOV accelerates organically. And that's what happened. That's why we committed a month ago, with less visibility, but with a lot of conviction, we committed that the revenue was going to be accelerated in H2, and it's going to reaccelerate. In parallel, Informatica, the revenue on a on an organic basis is reaccelerating significantly. And then we are many other places that we can monetize, and we can talk about that later.

What is the core value of Agentforce? Meaning what do you bring with AI to customers. And you touched on it at the beginning. Why would they use your offering versus going and trying to develop it on their own. And I'm just talking generically.

Yes. Listen, Probably, I remember when we started, there was a website. I don't use it anymore, but remember, there were like 20 agentic platforms. And then 6 months later, this was 2 years ago, there were 150. Probably today, there is 10,000 agentic platform. There are 10,000 ways, there was 1,000 companies that offer a platform that you can build agents, okay? So why would you build agents with Agentforce and not with all the platforms. So first of all, Agentforce has a number of advantages. Think of in Agentforce like an opinionated hardness or commercial use cases. So where you have direct access to the context of your CRM because it's surfaced through that harness. You have access to the hundreds, sometimes thousands of flows that customers have developed in their orgs, because when a customer implements Salesforce, what they do is they qualify their standard operating procedures in our software, and they build flows. We have a full -- they build workflows and all the workflows, it's like a library of workflow. They're available in their org. Agentforce has native access to those flows. Agentforce can easily hand over to humans back and forth. Basically, that's one of the biggest differentiators, customer, you cannot do that with other platforms. Agentforce is embedded. Agentforce allows you to choose whatever LLM you want to be on the back end. If you use -- and then Agentforce has many other advantages, and has 29,000 customers, which means that nobody in the world has the amount of customers that we have, which means that we've learned. Our Agentforce for today, the platform, is 1,000x better than it was 2.5 years ago when we launched it. The same way that some of our competitors have increased improved. But when you have 20,000 customers across many industries, geographies, you learn a lot. By the way, some big CEOs and big personalities in the industry, they would tell you that, that agentic layer is going to be commoditized, okay? The good news is, be my guest, build agents on another platform. I want more agents. Agents are users that use platforms at a high scale. We started saying the world of AI is humans and agents working together. We changed our tag line in the company. now is humans, agents, leveraging platforms working together. And the beautiful thing is, if you don't build your identic layer or your specific agents typically, companies use several agentic layers to build different agenting use cases in the company. That's okay. Because if you want to attach to customers, you will most likely go through our platforms. And that's other big thing that is happening. This is the one more thing like Steve Jobs. That is our Headless 360 strategy that we just launched. Every part.

Okay. So then you can ask a question.

Go ahead here. Yes. Because for me, probably the most exciting thing that we have and it's on top of what we guided.

Why is Headless different than the regular agentic opportunity? Maybe for the basics for those that don't know the company and don't know the space of Headless, why is headless different? Why is it growing? You spoke about it also on the call on the conference call. Why is headless growing the TAM.

Yes. So growing Headless can significantly or will significantly expand the TAM. We are still not factoring any of that in our H2 revenue reacceleration or in the profitable growth [indiscernible] $63 billion and Rule of 50, which is good news for investors okay? So what is different? It's a fundamental difference, before our software, by the way, most enterprise over where a full stack with the database, the workflows and the permission in everything and then we put the identic layer on top. So customers pretty much if they wanted to build agent workflows on Service Cloud, they need to do it reinforced. Now we decouple all those layers, and we've exposed everything and we wrap them with MCP servers. So you can access the data. You can access the workflows, you can access even Agentforce, you can access lag through MCP service, which means that anyone, anyone, anywhere in any surface. I mean, many of you may be working on Slack great. You can access our [indiscernible]. Many of you may use Cowork, okay? It's very popular now. I use Cowork myself. Well, you use codec or you use another platform. So now you can use our software. In fact, I like to be controversial like you. And people are saying, okay, but people are going to vibe code this CRM. And we've been saying for a long time, that's not going to happen. People are not going to vibe code this CRM, because then they have to buy operate them and then maintain them. And now I say the opposite. I think people are going to vibe code this CRM. That's the future. They're going to [indiscernible] because they want, those components that are already secured, they are trusted that the uptime is the right thing that you can respect permissioning, et cetera. So it's humongous. It's so big that we are afraid of we need to -- we are very cautiously we're talking and working with our biggest customers, our biggest partners to find the right monetization strategy because our #1 value remains customer success. We don't want to introduce -- we don't want to either say like our friends from Germany, oh, no, nobody access our platform or other companies that try to really take advantage of the opportunity. We just want to do something that is fair. If you are using our platform in a way that wasn't meant to be because a human being used to the platform maybe engage with the platform. I mean, if you're in a call center, maybe 50 times a day, if you are a salesperson, maybe is 10 times a week, if all of the sudden, there is an agent doing that on behalf of a person or on behalf of an organization and a success in the platform 1,000x more. Well, first of all, our cost to serve, I mean, we'll go through the roof, so we need to monetize that, and we're working again, and every conversation we're having is incurrent constructive, [indiscernible] understanding, and it's going to be a huge opportunity for the future.

Got it. Agentforce grew like 20% year-over-year this quarter. It grew 50% sequentially. Where are we, two questions. Number one, how do you help customers adopt it? Meaning you spoke about flex spending. Can you talk about the program? What is flex spending and how does it help adoption? And number two, where are we in the deployment cycle, meaning when you talk to your -- you have so many customers, 20,000 customers, when you talk to your customers, do you need to convinced you need to educate them about Agentforce? Do you see deployment? Or is it really at the beginning? I'm trying to understand where are we not from a technology point of view, but from a market readiness point to deploy Agentforce.

I think that's another piece of good news. I mean I'm very, very, very close to where the agentic action is happening. I'm talking to I'm very curious to intellectually to understand what is this new trend. And I would say that customers overall, forget about Agentforce, across the board, they are in a nascent period in the agentic transformation. We put -- we've done one thing that is very cool, working with external consultants. They are working with our expertise of 83,000 people and 150,000 customers. We've mapped what would be -- how would every customer in every industry. So we -- I think we [indiscernible] 17 different industries. And in every industry, we look at the top workflows and for each workflow, how the workflow will be identified. And then we come up with agentic use cases. And then we map them and then we create a library of agentic use cases with a lot of information what data they need, what do they do permissioning, got rails, et cetera. So every time that I talk to a customer, I put a slide with anywhere between 120 and 180 use cases of agents. It's overwhelming. I call the eye chart across the workflow. They understand the workflow. I then pick up a few examples on how the process works today and how they would work with agents. But then I tell them, listen, I know the company is not ready to do that because companies need to be ready. You need to have the change management, but also you need to have the data. You need to have the legal checks and balances on any identic use cases. And I always position what we call the hero agents, the 5, 10 use cases that are powerful that I know are easy to implement. And customers today, they are probably in the first 2, 3, 4 initial use cases of a at least of 100 and 120. So they're in very early stage. Every company, the first thing that they realize is the data is not ready. There is not enough and the quality is not there. is not clean. It's not connected, it's not been leveraged sometimes. And by the way, that's why we invest in Informatica. That's why we created this layer at the bottom, we call the Data 360 layer, or the Data Foundation layer. That is a combination of Informatica, [ Meso ] and Data Cloud is a $7.5 billion business growing double digit. And it's going to be a big differentiator for Salesforce because everything starts with the data. And then if you have the right data, the right context, agents are not going to do ship. And this is where everybody starts. I think, every time that I tell the story, I get very well prepared for the earnings and go and go to the top 100 use cases of customers. And I get surprised because I have the same names that I talked about 3 months ago, oh, but they only had 1 agent, now they have 5 or they only have 1 million AWEs, now they have 10 million. It's live. It's an exponential acceleration. That's why the AWE use that at the end is a metric that you need to follow very closely. -- because it's real productive work, and I can walk you in a different context exactly at what -- how we measure AWE is because this is real work, it's not just taken. That is exploding, we grew double the AWU quarter-on-quarter, 7x Q1 versus Q1. And it's -- we are just -- I think in 5 years will be probably 500x more consumption than we are today. It's that big, and we are solely in the game. And it's everyone.

Do customers feel comfortable with pricing? Meaning the whole industry goes from seat-based pricing to consumption-based pricing. How do you help your customers to make the transition?

I love you. Because we -- I have like 10 or 12 questions that your team has told my team that maybe you may be asking, and this is the first one in the list. So Thank you.

Perfect. Perfect. So the question list is just to -- I just want to make sure that I don't run out of questions.

Everything else is actually I was going to tell you at the beginning ask me anything, seriously. There's nothing to hide. So pricing has been fascinating, to see what's happened with pricing. We had listen, no idea. We were probably the least sophisticated company in terms surprising because we were selling by seat. That was our only metric basically on the pricing until 2 years ago. Then we launched a in Agentforce, and we launch it for with -- we thought we were very negative conversations. What is the conversation? Well, we don't know, but it sounds good. And it's -- then we defined it in the contract like the back and forth between a customer and agent over 24 hours, okay? And then very soon we realized, okay, $2 per conversation, is that too much [indiscernible]. So fast forward 2 years, we are meeting customers where they are in their agentic journey. We are highly sophisticated. I mean what I'm saying is that more customers want predictability. So we have two ways to show predictable pricing. One is for internal use cases for human users of our licenses. We upgrade them to the genic version, which is the higher the premium version, typically with a 60% to 80% uplift and then they have unlimited access. We meter, but for them, we don't have meter. So no matter what they use, they pay the same. They like that a lot. In fact, those SKUs that are now is a multi-hundred probably as or $80 billion business, is growing 60%, okay? And then the customers that want, okay, but I want to have customer-facing agents, because have a demand plan of agents are going to deploy 20 different customer-facing agents and they're going to be consuming credits and data, et cetera. So we build a demand plan. You're going to need all these credits, all this data. And the customer said, what if it's very successful and well, it's going to be more. Yes. But what if it's not successful, it's going to be less. Okay, I'm going to fluff. So we do the ILS -- unlimited the agentic enterprise license agreement, which essentially is unlimited, we fix the price, we still meter to give the information to the customer, but it's unlimited. And sometimes, customers win. And when customers win, we always win because then the renewal comes and then the customer is -- have deployed 10 agents out of 100. So okay, they want in the first 10. But at the end, we don't want to win or lose. We just want to have a fair business with a fair margin, and that's what customers want from us. And it's predictable, it's beautiful. There are customers that are putting their toe in the water and they don't -- they just want to say, okay, I don't want to pay anything. I just want to pay when the agents consume perfect, as you go [indiscernible]. And there are other customers that say, Okay, I think I'm going to buy 1 million credits. And then you can use it in 2 years. Okay. So we are meeting customers. They are the last thing, particularly enough because we deploy some out-of-the-box use cases like agents or operations agents. And now we can price per business metric based on value. I'm telling you, I lot of business value. When I've done business value pricing in the past, we've made a lot of money. And then customers maybe share business value, but then at the end, they say, no, I want something flat. But we are Today, we have like 10 ways to price Agentforce or agentic. But if the customer wants an 11 or 12, we'll do it too because we are all learning together. And at the end, I want the best for the customer.

Got it. We have 2 minutes left, and I don't want to completely dominate the meeting. Is there any question from the audience? Just raise your hand, we have a microphone, sure. Do we have a microphone for the audience?

[indiscernible]

[indiscernible] Yes. Premium, which typically means their pilots. Let me start with the end in Q1 in the top 10 deals, that represented $800 million of bookings and representing 2.5x more than the Q1 last year. In those $800 million, there were 3 deals that were pilots, that were successful pilots, and then went into production with a very large deal. They made out of 90,000 transactions, they may be the top 10. So they were good. So what -- I think the -- what makes it work is having the data having the legal frameworks in place, legal is important. Legal needs to be part of the whole thing because there is a new thing about liability, share liabilities. It's -- now these agents are doing what humans you to do work many times with customers, which is what from a legal perspective, you need to cover that. And then the business value needs to be there. Then the reason that there is a change management that is very important. Typically, the good successful pilots are those where you are on top of the agent, and you are on a daily basis, understanding that's why an agentic layer, a powerful agentic layer is important to do the right testing, the right monitor and the right observability. You're listening to what the agents are doing and real-time changing and because otherwise, the agents drift.

[indiscernible]

Yes. So for us or for the customer? Both. So I mean one of the beautiful things about this new capability. I mean we -- for 27 years, we've been buying and either organically or organically, we've been adding new capabilities through our Customer 360 Suite, we add in Marketing Cloud, and we are Analytics, and we have it. Every time that we added capability, we were able to monetize the customer another 10% or 20% more, okay? The beautiful thing about these new agentic capabilities when customers start the agentic journey with us. They all of a sudden, they use our software in a step change of how they use our software in a totally different way. And that gives us the opportunity and again, the fair opportunity to monetize them in a also a step change. So when customers start the journey after the initial pilot, the first bite of the apple, we increased our -- they increase their spend with us by 50% or even 100%, they double. And then we see, on average, those the customers that are fully advanced, there are 3, 4 times the original AOV before they started the agentic journey with us, 3 to 4 times. Again, we started this when we were a $40 billion ARR company, more or less, now we have $46 billion or a little bit less than $40 billion. So if we get every single one of our customers to start their identic journey with us because every customer is starting their agenting journey. The question is, are they going to do it with us or with somebody else? I think we are very well positioned so that we are the chosen platform for them to become agentic, at least in the front office. And when they do that, their revenue with us goes up 3 or 4x, which is beautiful. For the customer, the ROI, every use case is different. But Typically, the ROI of an agent is much higher than the ROI of the equivalent human. What you're finding many times is humans and agents, leveraging platforms working together, and they come up with new use cases, new services that they were providing to the end customer that they before didn't do. And customers continue to invest which is a good sign of good ROI with us. And I think there is another discussion, maybe that's what you have in mind, which is the tokens discussion. I'm not an [indiscernible] line provider, so I cannot answer, but our role is to also optimize that for our customers. We are -- we will become a gateway between the agentic use cases and the LLM. The LLMs are utilities. And doing depending on the time of the day or the use case or whatever, there's one that is going to be cheaper than others, and we're going to go to the right one for the right use case of that agent.

I know we're having fun, but we are over the time. I want to thank you, Miguel. This was a terrific session. Thank you so much.

Than you for the opportunity. Thank you everyone.