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

Good morning, everyone, and thank you for joining on short notice. I am Mark Murphy, EVP of Global Investor Relations. With me today are Robin Washington, our President and Chief Operating and Financial Officer; Patrick Stokes, President of Applications and Marketing; and Bill Magnuson, Co-Founder and Chief Executive Officer of Braze. Before we begin, a reminder that today's discussion includes forward-looking statements, which are subject to risks, uncertainties and assumptions. These include statements about the proposed acquisition of Braze, its expected benefits, the anticipated timing of closing, the satisfaction of closing conditions, including required regulatory approvals and our future financial performance. Actual results could differ materially from those expressed or implied today. For a discussion of these risks, please refer to the press release we issued today and our most recent filings with the SEC, including our most recent Form 10-K and Form 10-Q. Salesforce assumes no obligation to update any forward-looking statements. A replay of today's webinar will be available on our Investor Relations website. Earlier this morning, we announced our intent to acquire Braze via press release, and we would refer you back to that release as the definitive source on the deal terms, strategic rationale and go-forward plans. We're going to share what we can on this call. But keep in mind, because Braze's proxy statement is not yet on file and this transaction is still subject to customary closing conditions, including required regulatory review, there are limits on what we can discuss beyond what's already been disclosed publicly. Until the transaction closes, Salesforce and Braze remain independent separately operating companies, and it is business as usual for our customers and teams. Following the close of the transaction, which we expect in our fiscal year 2028, we'll be able to provide more color. We intend to answer a few questions at the end of the webinar. Please submit any written questions in the Q&A box. With that framing, I'll hand it to Patrick to share why we are so excited about this opportunity.

All right. Well, thanks, Mark. Good morning, everybody. This is such an exciting time in technology. As we all know, AI is changing the way that people work, and that's something that you've heard us talk a lot about at Salesforce. But it's also changing what people expect from their favorite brands. So I want to take just a few minutes to explain why Braze and why now. So people expect brands to know them. They expect them to respond to what they're doing in the moment and reach them wherever they are, whether that's in an app, on the open web, on e-mail, SMS, WhatsApp and increasingly now through their own personal agents. Now to deliver that, marketers need agentic solutions that can understand their customers, make decisions and most importantly, act with speed in real time. And that's the shift that we've been building towards at Salesforce. Data 360 gives brands a unified view of each of their customers. Agent force brings AI that can reason and act. And with Marketing Cloud Next, we're bringing them together into agentic 2-way conversations where last quarter, we called out some real green shoots. But there's one more really important thing that matters, and that is speed. Three weeks ago, I tuned in to watch Bill's opening keynote at Forge, which is Braze's annual customer conference. And Bill kicked off the conference with the story that meant a lot to me as well. The Knicks had just won their first NBA championship right down the street in more than 50 years, and he walked through an idea for how a brand could have celebrated that moment with basketball fans while the whole city of New York was still out in the streets partying. It was a pretty great idea, but it never actually happened. And the reason wasn't a lack of creativity. It was just speed. That story really stuck with me because every marketer has lived it. The best ideas have a shelf life. In a world where AI can make every brand sound exactly the same, creativity is what sets them apart. But that creativity really only matters if you can act on it while that moment is still happening. And that's exactly what Braze was built for. Braze is a leading customer engagement platform that lets marketers take a creative idea and get it in front of their customers faster than ever in real time at consumer scale and especially on mobile where so many of the most important customer relationships now live. Today, Braze serves approximately 2,700 customers, including Canva, Dairy Queen, Equinox, Instacart, Urban Outfitters, Venmo and so many more. Its event streaming architecture turns live customer behavior into personalized messages and coordinated journeys powering trillions of messages and journey actions each year. And Braze AI is adding AI-powered optimization across content, offers, channels and timing. Over time, Braze's capabilities, together with Salesforce's customer context and agent force are expected to help brands turn a fuller picture of each of their customers into individualized experiences optimized in real time at the speed and scale required to reach hundreds of millions of customers. That means marketers get to spend less time waiting and more time being created. Now like every acquisition we make, Braze meets the standards of our M&A framework, and Robin will walk through that shortly. It advances customer success. It fits squarely within our strategy for agentic marketing, and it fills a gap in our offering with real-time and mobile engagement. And it moves us closer to a more complete Customer 360 and our goal of best-in-class marketing solutions purpose-built for the agentic era. Before I hand it over, I want to say just a few words about Bill. Over the course of this process, Bill and I have gotten to know each other pretty well, and I've learned a tremendous amount from him. He's a builder. He's deeply creative, and he's led his company with values that mirror ours here at Salesforce, which matters enormously to us. What he's built is special, and I couldn't be more excited to build what's next together. So with that, please welcome Braze's Co-Founder and CEO, Bill Magnuson. Bill, thanks for riding over this morning.

Yes, absolutely. And thank you, Patrick. I've always said that fast is my favorite feature, and it's exciting to be here with you. Braze was built on the conviction that marketers and their creativity are our brand's ultimate competitive advantage. And for 15 years, we've been building a real-time cloud-native platform that turns that creativity into lasting customer relationships. And it's on that foundation that we are shipping innovation at the fastest pace in our history. Looking ahead, we believe that Salesforce is the right home for our next chapter. Following the close, we expect Braze's real-time engagement and AI decisioning capabilities to complement all 4 layers of Salesforce's architecture, Data 360, Customer 360, Agent force and Slack. Salesforce shares our commitment to marketers and to an open composable approach that gives customers flexibility across the data, tools and partners that they rely upon. Braze will continue building as Braze, and I'll continue as CEO of Braze within Salesforce. Until the transaction closes, which remains subject to approval by Braze's shareholders and required regulatory approvals, we are 2 independent companies, and our focus stays on serving our customers. Finally, I want to thank our employees, customers and partners who built this company with us.

All right. Well, thanks, Bill. We couldn't be more excited to have you here and the entire Braze team joined the Salesforce. Ohana, I'm really excited to get over to your office on Friday for your town hall to meet everybody. And with that, we're going to pass it over to Robin to walk you through how Braze fits our M&A framework and the financial considerations of the transaction. Robin?

Great. Good morning, everyone. Thank you, Patrick, and also thank you, Bill, and also everyone that joined the live stream this morning. As we discussed at Investor Day, our M&A framework is one important component of how we think about growth. We evaluate every acquisition against a disciplined, responsible M&A framework built on 3 dimensions: customer success and strategic fit, acceleration and value. Braze meets that framework on all 3. First, customer success and strategic fit. As you heard from Patrick and Bill, Braze extends our marketing reach with real-time personalized mobile engagement for high-volume B2C brands built for the agentic era. It complements and enhances Marketing Cloud and we believe the best to the benefit of our customers. Second, acceleration. Braze adds deep mobile and data engineering talent, and we're pleased that both founders and the broader leadership team plan to join Salesforce following close. At the same time, Salesforce's global go-to-market and distribution muscle can widen Braze's reach to more customers around the world, driving meaningful top line growth over time. Third, value. Under the terms of the agreement, holders of Braze Class A common stock will receive $47.50 in cash per share. That represents approximately 5x of Braze's expected revenue over fiscal year 2028 and 2.5% of Salesforce's enterprise value. We expect to fund the purchase with cash, representing approximately $5.66 billion or roughly 4 months of our fiscal year 2027 annual free cash flow. At this stage, we do not expect to need debt financing to purchase Braze. The transaction is expected to close in Salesforce's fiscal year 2028, subject to customary closing conditions, including receipt of required regulatory approvals. Based on that expected timing, there is no change to our fiscal year 2027 financial guidance. We have not yet provided fiscal 2028 guidance. And at this point in time, our FY '30 framework remains unchanged. Financially, we expect growth accretion balanced with near-term profitability dilution. Over time, we anticipate efficiencies post close, consistent with how we operate the business today. We plan to report Braze's revenue contribution for 1 year post close. In summary, I share Bill and Patrick's excitement for the combination of Braze and Salesforce. As you can see, we remain active and opportunistic with our M&A posture. Our goal is to continue to meet the moment as the rapid pace of innovation continues to raise the bar for our customers. With that, I'll turn it back to you, Mark.

Thank you, Robin. Before we take Q&A, I want to just reiterate, we will not be providing any updates to our financial guidance as the transaction is not expected to close for some time and would thus have no impact on our fiscal year '27 financial guidance. We are also currently in our Q3 quiet period. We will, therefore, not be commenting further until our Q3 earnings call. And finally, because the transaction is subject to regulatory review, we will be limited in what we can discuss beyond what's in today's press release and these remarks. So we appreciate your understanding. We encourage you to review the proxy statement for this transaction when it is filed by Braze. I am now going to take a moment to summarize some of the questions that we see in the chat.

So we do have several questions relating to the timing of the announcement. We have a couple relating to the deal premium. Could you shed some light on what you're seeing in the environment or hearing from customers that makes this the right time for the transaction? Do you want to take that, Patrick?

Yes. Maybe I'll pick that up and then Robin you can comment as well. As I spoke about earlier, there's this kind of incredible confluence of technological change, but also behavioral shifts that are happening very, very rapidly and really didn't exist even just a few years ago. The rise of AI and agentic marketing capabilities are creating, I think, this unique opportunity for all of us and marketers need these kind of real-time capabilities and cross-channel engagement in order to reach their customers in the evolving ways that their customers want to be reached. And we're very excited about this. Braze's leading-edge capabilities, combined with Salesforce's powerful distribution partner ecosystem and of course, our Customer 360, we think, are going to help us deliver a really premium agentic marketing experience to our customers. So for us, the timing couldn't have been better.

Thanks, Patrick. Maybe just to further accentuate what you said, we do believe that this combination will allow our customers to benefit from more context and more intelligence at a greater scale than ever before. And that's exactly the kind of deal that our M&A framework is built for, advancing customer success, as I said, accelerating innovation and really focused on creating long-term value. In terms of the premium, as I said, we've agreed to acquire Braze for approximately $5.66 billion in enterprise value. That is roughly 4 months of our fiscal year 2027 annual free cash flow. So we believe that it's an attractive price for an asset of this quality and scale. So I'll turn it back to Mark for any other questions.

Okay. Yes. Thank you, Patrick and Robin. I'm going to try to combine a couple. The -- can you help us understand what you're most excited about in terms of what the companies could do together that they could not do separately. And then this is Bill, you spent time talking about real-time engagement and AI decision-making capabilities. Patrick, you've been speaking a lot about Customer 360, Agent force, SIForce. Can you help us understand or give examples of how the technologies would complement each other?