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

Yes. It's -- I think if you fast forward 5 years from now, 7 years from now, Slack could be a super interesting business case in school is what I think you could end up happening. And for us internally, it's been a journey. When I first got to Salesforce almost 5 years ago in speaking with all of you, it was brutal. It was -- sentiment around Slack was as negative as it could possibly be. Fast forward to where we are today and why we leaned into it so much yesterday on the call. The momentum around Slack, as you were just highlighting, is off the charts right now, and it's happening in a couple of different ways. One, engagement is starting to open up a bit more. We're seeing a lot more customers come to the table being willing to experiment with Slack, even if they're a Teams shop. Obviously, there's antitrust pressure on Microsoft and they're doing some breakup, especially in Europe, even stand-alone sales of Teams. So that's certainly helping. But the experimentation coming from customer base, especially in the enterprise space of willing and wanting to try Slack has really started to open a lot of doors even if they already have Teams in the ecosystem. And then second, from an advancement standpoint, on showing the art of the possible is how we talk about it internally, but the power of AI can bring to the fold. Within the Slack ecosystem, Slackbot and Headless have really lit up Slack. So Slackbot is our AI engine within Slack. For those who don't use Slack, think of it as a sidecar. So there's an icon at the top of Slack. I could be in Slack Chatting. I click on the Slackbot icon, and then it presents a chat window right next to your Slack -- within your Slack app but right next to your chat window. And you can do anything in Slackbot that you could do on Anthropic today. It's not Cowork. So I don't want to make it sound like Cowork. But anything you want to do from a Claude chat standpoint or OpenAI, ChatGPT standpoint, you can do in Slackbot. It's powered by Anthropic. And it is super, super powerful, whether you want to pull up conversations that maybe you can't remember which thread it was in and you're like, help me find the last conversation I had with Brad and what we were talking about or a specific topic or something as simple as a very common use case that we use it for and I use it for is something like customer preps. I'm going to meet with XYZ customer. Tell me everything I need to know about -- I met with BNY Mellon last week. Tell me everything I need to know about BNY Mellon. What's the current conversation, what's the pipeline around them, the execs I'm meeting with, give me the full color, and it will spit back within seconds, a full download and prep document for me heading into that meeting. I don't have to go search for anything. I don't have to go crawl into CRM or elsewhere. So it really brings the power of Slack and then the ecosystem of apps around Slack into it. That's leading to from a metric standpoint, as you highlighted, Slack being a really big engine to our bookings momentum that you saw. In Q2 alone, Slack was a huge portion of what was a record quarter for us from a net new AOV standpoint and Slack was a huge contributor. If you look at the revenue growth on Slack, which flows through our platform line in our P&L or I guess in our new construct in apps, it flows through, but in the old constructs, it flows to the platform line, the -- it's been growing strong double-digit growth, and we're probably on 5 or 6 quarters in a row now. I mean, I may not have that exactly right. So it is quickly becoming a very, very meaningful growth engine for us for a company.

Well, that gets us maybe now to the part of the matter, which -- Agentforce, a lot of excitement, a lot of anticipation around Agentforce. And it's great to see the momentum I think the stat was what? A $1.5 billion ARR. And if we combine that with Agent -- with Data 360, you're almost $4 billion in ARR as well, $3.9 billion if I have that right?

Yes.

What have been the biggest unlocks from a product and distribution standpoint that have enabled customers to accelerate production deployments and spending?

Yes. The interesting thing about Agentforce and kind of where we're at in the life cycle is that we've taken a crawl-walk-run approach to driving adoption within the customer base. What I mean by that is historically, Salesforce and the go-to-market engine has always been about ACV. Go sell the dollar to the customer and then 9 times out of 10, that AE would then move on to the next sale that you could possibly make instead of driving adoption within the customer base. About 2 years ago, we started to change that. And in the comp plans in FY '27, our current fiscal year, we actually made it part of the comp plan in a small way, but we had to get water running through the pipes to figure out how we could change the behavior of our account executives. I want to do the exact same journey when I was at Microsoft, and we changed the behavior of the Microsoft force for Azure at the time to what you're going to see next year and with the change on Miguel that I mentioned earlier. FY '28, you're going to see, I think, a material step change in the behavior of our account executives and our account managers in driving adoption within the customer base, which really becomes the engine for Agentforce. We are seeing an accelerating clip of customers moving from pilot into production. For customers that have already moved into production, the question, if I correlate it back to a metric that we give, which is work units.

Refilling the tanks.

Refilling the tank, but intensive work units have started to run escape velocity. Within that is customers who have moved into full production, we're seeing them refill the tank at a faster clip, 50% of bookings in the past couple of quarters have been from customers refilling the tank. AOV on those customers is escalating quite rapidly. I think the stat is roughly 2x the growth rate of those customers versus the traditional customers. So it's proven out, even though it's still a smaller cohort of the overall customers that are in the Agentforce that have fully moved into production and are fully ramped, but you're going to see a huge focus from us going forward because that's obviously how we're going to accelerate revenue into the framework.

We're all excited for the acceleration to come. The way we've got guidance set up, I think it exists. It's modest our expectations and I'm always hoping that you overexceed them. But if we look out even further, you've got ambitious plans for an 11% compounded growth rate on revenue through fiscal '30, which takes you to $63 billion. What supports your confidence in these ambitious targets at a time when you're at significant scale in the world changing pretty fast?

Yes. Yes. Let me start with H2, and then I'll parlay that into '28 and beyond. When you look at H2, and this came up at one of our investor meetings earlier today, and it's a very fair question. When you look at our H2 re-acceleration that we're hitting in the second half of the year, we've pivoted that number every which way to Sunday. So we -- in the spirit of keeping ourselves holding ourselves accountable, we -- if you can name an exclusion, we looked at the math, excluding licenses, excluding -- fully excluding Informatica, taking obviously out Contentful and Fin, taking out even when we have headwinds in the business where you got Tableau and Mule and other things. I mean you name it, we looked at it, and we're accelerating in every single scenario. So we feel really, really confident in the numbers. Most importantly to me within that, is that as you look out at Q4, so it will step up in Q3, step up again in Q4. And you look out to Q4, and you look at the contributors out in Q4 to the accelerating growth that we are seeing, you look at the core, so core organic is growing despite the headwinds from the license volatility we're seeing. So if you said a different way, if I invert that, if you were to look at just the core recurring organic business, excluding licenses, it's actually performing better than when you include licenses. So licenses are weighing things down right now. They're a headwind. You then layer on Informatica. Once we lap Informatica in Q4, which would be around November 15. It is a tailwind overall growth for the company. We've been -- we're beating on Informatica both on top line and on accretion, and we've been really successful in pouring gas on the go-to-market engine on Informatica. Then you can layer on the additional acquisitions. I'll leave those out for a moment. What we're really excited about, though, is the consumptive -- and the core of your question is the consumptive nature heading into FY '28. So we're at the very, I would say, early stages of whether it's Headless, whether it's Agentforce, whether it's some of our other consumption-based tools. We do feel like we're in the very early stages of those actually becoming a meaningful tailwind to overall growth. And so the question really, if you flip it around, you say, okay, you're at, call it, 7%, 8%, 9% today in H2. How do you get to 10%, 11%, 12% next year or the year after, et cetera. And that's really how I think about the equation. So license volatility will calm down. We'll start lapping, especially some of the comps that we've got going right now on license volatility, which will help and then you start to see consumption, the spirit of customers refilling the tank accelerate as we get more and more customers into production. And then all of a sudden, you've got the building blocks to getting us to $63 billion and beyond and some of the newer acquisitions, obviously, will help achieve above that.

Awesome. I mean I think we all love ambitious targets. And to your words, like to see accountability and holding yourselves to account at the same time, if I zoom out and I think of the Salesforce journey from 27 years ago when Marc started the company. How do we ensure that these targets -- I mean we're in the midst of this amazing paradigm shift, how do we ensure that those targets are not constraining you to be as successful and relevant for the next 27 years?

Yes. It's a totally fair question. And the parallel I'll give you on that is it's a little bit of our inorganic strategy right now. Part of our inorganic strategy is our AI investment thesis is that we've got to place a number of bets not only organically but inorganically as well to make sure that we're keeping pace on the landscape to your question. That includes talent. That includes tech. It includes established products within the customer base that are seeing adoption. Fin is probably the poster child of this right now. Fin, for a well-established service cloud is, Fin is an amazing product. They've got a very loyal customer base. If you haven't seen the demos of it, you can go on the website and look at it, the Fin technology and their agent and the capabilities of their agent is amazing for a small company as they are. So you're going to see us. The reason I'd give you that color is you're going to see us continue to make bets across both organically, you're going to see AI infused across all of our products sets. You're going to see us continue to bring on inorganic bets. And we think we've got -- especially with Headless in the mix now, we've got the right combination and I think to fuel us into the future. The one thing I would tell you, and we were talking a little bit about this earlier is Marc is a force of nature. And he is spending an inordinate amount of time right now, really, really studying the landscape to ensure that we don't miss something. And he's got him and his product leadership team, really, really focused on that. Marc is constantly looking at companies to learn about technologies, look at partnerships, look at targets, look how we can influence the internal product road map. It's also why I said earlier, we adopted Anthropic internally in our R&D group is because we're really focused on accelerating the product road map to make sure that we keep pace. So I would say, whereas optimistic as we can be about being able to keep pace with the market right now.

It's a fair way to frame it. I think Marc gets credit for a lot of things and being on the forefront. I mean, he was the first one to really talk about agents, frankly, in this AI journey and many more to come. I think you also -- you talked about Slack, we'll give them a lot of credit for identifying assets out there that make a lot of sense. We were familiar with Fin pre-acquisition and very impressive customer success, underlying technology, a lot of good things happening there. So maybe if we can pull on that thread a little bit. How do you see Fin expanding Salesforce's addressable market? Where do you see the greatest opportunity for cross-sell monetization across Service Cloud, Data Cloud, Agentforce, the entire portfolio?

Yes. Fin is a unique asset in that it is super complementary for Service Cloud. Think of Service Cloud as the enterprise, kind of, heavier construct of driving agentic structure and think of Fin as, kind of, the lightweight out of the box, plug in and go for the lower end of the market. I think the thing -- there's 2 things that are going to happen. First, on FIN itself, we've created a structure inside of R&D organization called Salesforce Labs and the goal of Salesforce Labs. We kept a guy by the name of Aman, blanking on Aman's last name now. Alexa, keep me honest, but he was the CEO of Regrello. He's come on. He's running Salesforce Labs for us. And he is -- the goal of that is to incubate the businesses. So within Salesforce Labs, at least right now, is going to be Fin, Qualified and Regrello. And the goal is to really incubate them and not crush them, if you will, with the way to Salesforce to make sure that we get those businesses running down the path of the M&A plan that we put together to justify the acquisition. Then the second phase of it is going to be -- and by the way, that includes go-to-market magic that we tend to do with all acquisitions. Take that one step further. The next phase of that is really going to be taking Fin and then infusing Fin into Service Cloud structure as well. There certainly is opportunity to help Service Cloud within that, and how do we start to help Fin move up the stack. The example I love to give folks is one of Fin's biggest customers is actually Anthropic. And so Anthropic is in a massive growth phase. And so at some point, we're going to have to figure out how to help them mature through the life cycle of becoming a larger tech company within because they're not going to want to move off of Fin. And so they're already active work stream on that, trying to figure out what that path looks like. And you can imagine a hybrid world and/or a migration path into Service Cloud or graduation path into Service Cloud full steam. So that's, kind of, how we look at it. We do think it's very, very complementary because Service Cloud in an SMB space is not super strong right now. So we do feel like, at least near term, you're going to see a lot of synergy.

Awesome. Maybe thinking, Mike, about getting all these great technologies and capabilities, delivering the last mile to the customer and specifically, as we think Agentforce, and I know it's not just Agentforce, but as adoption expands, how important is the forward deployed engineering motion and partner ecosystem and helping customers bridge the gap between AI experimentation all the way through to enterprise-wide deployment? And how far along are you in building out the FDE capacity?

So I'll share a funny story with you all. It was probably -- gosh, it was probably a year ago now, I don't even remember. And I was flying. There was a number of us flying with Marc, and Marc has obviously got his own plane. So we're flying with Marc and we, for 4 hours on the plane with Marc flying from -- I think we were going to New York, San Francisco or something like that. It sounds like it's fun, but it's got into perks, but it could be challenging. But the reason I share that story is because he's got 2 TVs on his plane. And he literally on full steam or full blast on both TVs for 4 hours had Palantir, Alex Karp, preaching about FDEs on stage of various -- across various different presentations that he did for 4 straight hours. And I've never gotten more education in such a compacted amount of time on FDEs. And I share that because that's a little bit of a lens into Marc's mindset right now on how critical and important driving customer adoption is especially in a world where customers need the help, frankly, that's the feedback we get constantly from customers is there just so much tech that they're trying to swallow and digest right now that they need help. They don't know where to start. They don't know where to go, et cetera. We're going through it, by the way, with our own adoption of Claude and OpenAI internally where we're trying to roll out Claude and like I have Claude Cowork, most of my organization does not have it yet. But even then, I don't -- would I consider myself an expert prompter? No. Would I consider the different use cases? No. So there's a lot of education that needs to occur. And for us, and why we made the change in Miguel, really getting embedded with the customers. Think of it almost as, kind of, the old SI consulting model, where you actually put a team in the customer and you're sitting side-by-side with the customer, helping them solve the problems get it launched, et cetera and handhold them through the process. And so you're going to see right now internally, we've actually got a bunch of different flavors of -- we call it builders. So FDEs, builders, it's a synonymous term. But we've got a number of different flavors. We've got solution engineers. We actually have the formal term of FDEs. We've got -- we've got our professional services organization, then we actually have developers inside our customer success organization. So we actually have flavors of different FDEs across the ecosystem, and we're actually working really hard to consolidate them and get them into one motion and how we invest in customers. Now we're actually starting to look at it more as this investment -- an investment as part of larger contracts that customers are doing. So you're going to see us really contemplate trade-offs of, hey, can we put a few more FDE resources on the customer in exchange for a bigger Salesforce commit or a customer making a bigger commitment to Salesforce, I should say, over time because the payoff of accelerating adoption and consumption is going to far outweigh us trying to monetize a few people for a couple of hundred thousand dollars near term.

Awesome. Switching to a different topic. You touched on this a little bit earlier, but I want to dig deeper just into the way that customers buy and pay Salesforce. How should investors think about the evolution from subscription paid in advance to consumption, maybe AWUs, agentic work units, that you talked about -- and ultimately, what Fin was doing, outcome-based pricing. Like how do we think about that continuum? And what needs to happen for those models become material contributors to the overall Salesforce.

So as a finance guy and owning FP&A, I've got product finance under me. I can tell you, it is an anxiety filled architecture right now of different pricing structures and contract frameworks. We've been very, as most of you know, very intentional about experimentation with customers. A lot of that is fed from our different advisory boards that we operate with customers and experimenting on what works well and what doesn't as customers, kind of, go on their own journey of how they want to consume AI. For us, I think about it in 2 buckets. There is the actual pricing structure and then there's the contract structure. On the contract structure side of the equation, we have a couple of flavors happening right now. We've got our traditional way where customers will make a commitment, they'll pay us annually, et cetera, works well. The second one is what we call AELAs. You heard Miguel talk about that last year, I think at Investor Day. Think of that as the All-You-Can-Eat contract for customers where they sign on, they're like, hey, I want Sales Cloud, Slack, et cetera, et cetera. Great. We'll let you, kind of, go over to an all-you-can-eat buffet. The latest one that we've actually been trialing and you're going to see us start to lean into it a bit more is what we call Salesforce Commit. Salesforce Commit is more of the traditional hyperscaler model where customers can say, "Hey, I'm going to spend $10 million over 3 years." And then they can consume it as they go, they can buy seats. They can buy flex credits, et cetera. They can be consumption, it can be seat-based. But it's customers getting a discount for the overall spend, but not necessarily having to have it all mapped out on day 1. It's very much how the hyperscalers operate, so customers are very accustomed to it, but it's a new muscle for Salesforce. Then I switch to the pricing side of things. There's a few things in motion. We have traditional seat-based pricing. We've got consumption-based pricing, and you're going to hear that more in the form of flex credits is the way we'll talk about it. And then we are actually experimenting right now with outcome-based pricing. Fin is outcome-based pricing. And so you're going to see us really start to experiment with that more. The key with outcome-based pricing, which many of you are probably familiar with, is you've got to be very objective about the measurements that are driving the outcomes. And that always tends to be the challenge. When you're a smaller start-up like Fin, it's easier to manage. When you get into the broader ecosystem, outcome-based pricing gets a lot more complex. The way if I compare and contrast, if you look at Sierra. Sierra does outcome-based pricing today, but they actually only give you a couple of different flavors of the outcomes that you can price your contract around. That's how they keep it contained. So you can see us -- you'll see some experimentation around that as we look to expand it. On the consumption side of things, we are moving quickly towards trying to figure out and provide consumption-based structure across a lot of our portfolio, at least where applicable outside of the seats. For Claudeforce that we just launched, it's probably going to be more premium mix. You can get it as part of Agentforce 1 edition or that you can buy an add-on. But you could also buy a full consumption if you want it. We think it's going to be more limited adoption on a full consumption basis, but you can buy it that way. Over time, most of the revenue today is still ratable. When I say most, 95-plus percent is still ratable today. I think to being in a zone where consumption is a more material portion of overall revenue mix, I think you're looking at probably 3 to 5 years still from now. I don't really anticipate it changing materially in the near term. You'll see more and more consumption come into the fold. But to be an overall material mix of our revenue long term, I think it's probably 3 to 5 years away.

Mike, this has been awesome. It's just about the right time to stop, but -- to end it here. But before I do, in closing, what should we be most excited about heading into Dreamforce?

Yes. I think there's -- I'll speak from a personal standpoint. I think there's a few things. I think you're going to see a lot of really, really great technology at Dreamforce, right? It happens to be the case every year, but I feel like this year, we're, kind of, at an inflection point, especially with Headless coming into the fold. You're going to see some things that I personally would say it will probably blow your mind a little bit on how AI is being infused into the product set. Whether that's Slackbot and the capabilities on Slackbot, whether it's Headless, whether it's some of our newer acquisitions, but we've got a lot of bets that we're really, really excited about, and you're going to see that coming to the fold. The other thing that I think might be just as powerful is we are being very intentional this year at Dreamforce on bringing in external voices. Marc touched on it on the call yesterday. Dario is going to be there. Sam Altman is going to be there. Jensen is going to be there plus a number of broader tech landscape names, bigger names that you're going to be familiar with. And part of the goal there is to really get the ecosystem around us speaking just as much as you hear from us, us getting on stage and just evangelizing like how strong we think we're in from a position standpoint, we think can be echoed just as loudly and maybe be more powerful if it's coming from the external landscape. So we're really excited about it. Again, if you guys -- if you're not making plans or you want to come, just reach out, and we're happy to give you guys a pass and you can come to our Investor Day as well.

If there are hotel rooms left in San Francisco.

I don't -- I can't speak to that. I'll let Anna Le on our team speak to that, but that's out of my pay grade.

Well, listen, again, always great to see you. Thanks so much for being here.

Thanks for having me. Yes, for sure. All right.