Salesforce Inc (CRM) — Q4 2024 Earnings Call Transcript

Welcome to Salesforce's Fiscal 2024 Fourth Quarter and Full Year Results Conference Call. Please note, today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to hand the conference over to your speaker, Mike Spencer, Executive Vice President of Finance and Strategy and Investor Relations. Sir, you may begin. Thank you. Good afternoon. Thanks for joining us today on our fiscal 2024 fourth quarter results conference call. Our press release, SEC filings, and a replay of today's call can be found on our website. Joining me on the call today is Marc Benioff, Chair and CEO; Amy Weaver, President and Chief Financial Officer; and Brian Millham, President and Chief Operating Officer. As a reminder, our commentary today will include non-GAAP measures, reconciliations between our GAAP and non-GAAP results and guidance can be found in our earnings materials and press release. Some of our comments today may contain forward-looking statements that are subject to risks, uncertainties and assumptions, which could change. Should any of these risks materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. A description of these risks, uncertainties and assumptions, and other factors that could affect our financial results is included in our SEC filings, including our most recent report on Forms 10-K, 10-Q and any other SEC filings. Except as required by law, we do not undertake any responsibility to update these forward-looking statements. And with that, let me hand the call over to Marc.

Thank you, Mike, and thank you everyone for joining the call. As reflected in our numbers, we have experienced an outstanding quarter and a remarkable year at Salesforce, marked by strong performance in revenue, margin, EPS, cash flow, and CRPO. This year has been transformative for Salesforce, and your support has been invaluable. I'm grateful to all our shareholders and stakeholders. The industry has also gone through significant changes with the rise of the next generation of artificial intelligence. Salesforce has undergone a complete transformation, and we could not have achieved this without your collaboration. We committed to restructuring our business for both the short and long term, focusing on productivity and operational excellence, and doubling down on innovation. Upcoming updates at Trailhead DX next week will showcase not only our next generation AI features like our prompt builder and copilot but also our Data Cloud, which has seen incredible growth and customer traction. Our relationships with investors have strengthened this year, and I want to thank the management team and our Board for their dedication to this community. The results speak for themselves: productivity, profitability, margins, and revenues are all up, and we are looking at phenomenal year-end numbers with unprecedented growth in margins and cash flow. We have ended fiscal year '24 with $9.29 billion in revenue for the fourth quarter, an 11% increase year-over-year and the highest cash flow in our history. Our growth reflects the rising demand for our services and demonstrates our commitment to becoming a fantastic company for both customers and shareholders. During fiscal year '25, we expect free cash flow to grow between 23% and 26%, with guidance forecasting revenue of $38 billion at the high end. We're also aiming for a non-GAAP operating margin of 32.5%. The past year has been extraordinary, not just for Salesforce but for the entire industry, as we continue to see the impact of AI at a rapid pace. CEOs globally are expressing the need for enhanced productivity, stronger customer relationships, and higher margins, all driven by AI. As our customers invest in AI technologies, they will unlock unprecedented intelligence that will transform how they interact with their clients. It's important to clarify that many AI models available today rely on public data, which raises concerns regarding trust and security, particularly in regulated markets. We must ensure that our solutions offer reliable insights without the misinformation that can sometimes accompany AI models. We recognize the importance of a compelling user interface, a world-class AI model, and the deep integration of data to achieve reliable AI outcomes. Salesforce has built a robust framework to support these needs. We are making strides in unlocking trapped data across enterprises, and our Data Cloud is integral to this process. It enables seamless integration with our applications and ensures that our customers can harness their data effectively. AI must be backed by trusted data and metadata, and that is the foundation of our offerings. Only Salesforce can provide this comprehensive suite, ensuring that our AI solutions are reliable and effective. We are excited to welcome new customers to our Data Cloud, and last quarter, we processed billions of records, reflecting its massive potential. Our upcoming releases, including the Einstein Copilot, represent a step forward in delivering trusted, generative AI capabilities. This Copilot will empower users across various roles to leverage insights from their data efficiently. As we prepare for the upcoming Trailhead DX conference, I want to thank all our customers, employees, and stakeholders for their support throughout this transformative year. Looking ahead, we anticipate an exciting future with significant opportunities ahead, particularly as we celebrate Salesforce's 25th anniversary and continue to innovate. Now, I’ll hand it over to Brian, our Chief Operating Officer, who has done an exceptional job this year. Thank you all once again.

Thank you, Marc. I truly appreciate it. I'm extremely proud to have been part of Salesforce for the past 25 years, especially over the last year as we underwent a significant business transformation while delivering remarkable innovation for our customers and returns for our shareholders. Our ongoing commitment to operational excellence, high performance, and new growth initiatives has led to strong results in the fiscal year and will continue to be our focus moving forward. In FY '24, we've established a strong foundation for success through strategic restructuring, refining our market approach, in-depth analysis, and sustained operational excellence. As part of our transformation, we also enhanced and expanded our big deal strategy and introduced new product bundles to provide our customers with comprehensive solutions on a unified, trustworthy platform. Additionally, we are increasing customer spending through new channels like AWS Marketplace and enhancing executive engagement through strategic partnerships with firms like McKinsey. The adjustments we’ve made are yielding beneficial results. As Marc highlighted, our deals exceeding $10 million in FY '24 grew significantly by 78% year-over-year, and we completed 86,000 multi-cloud agreements. Our pricing and packaging strategy is increasing sales and delivering more value to companies of all sizes across various industries. Since our launch in April, we have onboarded 3,000 new clients through self-service with Salesforce Starter, designed for small businesses and encompassing sales, service, and marketing functionalities. With AI and Data Cloud integrated, we are enthusiastic about the momentum of our UE Plus Bundle, now known as Einstein 1 Edition. It is delivering substantial returns for our customers and for Salesforce. We continue to observe a significant increase in average sales price from existing clients who upgrade to Einstein 1 Edition, which is also attracting new customers. Fifteen percent of the companies that acquired our Einstein 1 Edition in FY '24 were new clients. As you heard from Marc, with our Einstein One platform that includes Data Cloud and Einstein Copilot, we are quickly incorporating conversational AI throughout our entire product lineup. Einstein is a critical differentiator for us in this AI transformation. It is the quickest and safest method to unlock organizational data, enhancing customer experiences, empowering employees with AI, boosting productivity, and improving margins and profitability. Every AI strategy commences with data. As Marc mentioned, Data Cloud is experiencing strong growth, nearing $400 million in ARR, with nearly 90% year-over-year growth. In Q4, 25% of our deals over $1 million included Data Cloud. Notable customers like Xerox, London Stock Exchange, and Dyken opted for Data Cloud in Q4 to build their reliable data foundations and unlock hidden data within Salesforce. We are optimistic about our future, as we were recognized as the leader in the inaugural February 2024 Gartner Magic Quadrant for customer data platforms. I’ve met with numerous CEOs and business leaders in recent months, and they are all concentrating on promoting growth and enhancing customer relationships while working within their current budgets and workforce. They see AI as a vital tool to augment their personnel and increase productivity. Companies such as ADP, Intel, McLaren, and Sonos are investing in Einstein 1 to evolve into AI-first organizations. In FY '24, we finalized 1,300 Einstein deals as more clients utilize our generative and predictive AI capabilities. Take Schneider Electric, for example; they aimed to standardize and simplify customer care across their 3,000 support agents operating in 15 different languages globally. Instead of engaging with customers, service agents were spending excessive time searching for answers across multiple systems and summarizing cases. Addressing 7 million cases annually led to time-consuming interactions for their support agents. Now, Einstein will automatically generate email responses that agents can utilize to respond and summarize their cases, significantly enhancing efficiency. Moreover, their sales teams are also reaping outstanding advantages from our AI capabilities. We are merely at the beginning of a new cycle of innovation that will usher in a substantial software purchasing wave in the coming years, with Salesforce at the forefront. We continue to witness strong demand for our data products as customers establish the groundwork for AI. Specifically, Mulesoft is assisting companies like Rosignal and TK Elevator in North America in integrating their data from any source, a vital step in preparing for AI. Mulesoft featured in eight of our top ten deals this quarter and achieved a record 319 billion automated workflows monthly, doubling year-over-year. Tableau was part of 20 of our top 25 deals this quarter and is fully integrated into Data Cloud. Our wins this quarter included customers like IHG, Heathrow Airport, and Brazilian fintech Stone. Tableau Pulse, an exciting new product just made generally available last week, already has 2,000 clients. Fueled by Data Cloud and Einstein, Tableau Pulse automatically provides personalized AI-driven insights in both natural language and visual formats. We're also thrilled about the innovation coming from Slack, which featured in nearly half of our top 50 deals this quarter. We just launched Slack AI with features such as AI search, channel summaries, and thread recaps to meet the significant demand for integrated AI in work processes from customers like Australian Post and OpenAI. It’s remarkable to see what Slack has achieved in a decade; it's only the beginning. We have a fantastic vision for Slack's future as a conversational interface for any application. Our specialized industry products continue to drive our growth, chosen this quarter by customers such as Japan Post Insurance, TPG Telecom, and USDA. In total, our industry businesses concluded the year with $4.8 billion in ARR, growing over 20% year-over-year. We experienced robust growth internationally with victories at Volvo, Genpac, Hitachi, and Bochikario. India remains a bright spot for us, with new business growing at 35% year-over-year, and we continue to invest in the region to cater to customer needs, including Bajaj Finance. I recently had the privilege to meet their CEO, Rajiv Jane, and a major priority for him was utilizing Einstein to deliver predictive and generative AI throughout their entire lending operation, which they run on Salesforce. In Q4, Bajaj emerged as the second largest Data Cloud customer globally, laying their AI foundation on the Einstein 1 platform. I want to conclude by recognizing that our success is solely due to our extraordinary employees, exceptional partners, dedicated trailblazers, supportive shareholders, and amazing customers who have placed their trust in us for 25 years. As demonstrated in FY '24, when we align our efforts as a company, we achieve results. For FY '25, our focus will be on profitable growth. With that, I will turn it over to you, Amy.

Great. Thanks, Brian. Let me join Marc and Brian on saying what a year it has been for Salesforce. At this time last year we laid out our accelerated transformation plan and I am incredibly proud of the significant progress we made this year against that plan. Throughout fiscal 2024 we delivered, we've on increasing profitability, revenue, productivity and operational excellence. Q4 represents another quarter of strong execution and continued discipline across the business. Now let's turn to the results. For the fourth quarter, revenue was $9.3 billion, up 11% year-over-year and 10% in constant currency. The growth was primarily driven by resilient sales and service performance as well as strength in Mulesoft and Tableau. And for the full year revenue was $34.9 billion, up 11% year-over-year in both nominal and constant currency. From a geographic perspective, in Q4, the Americas revenue grew 9%, EMEA grew 14% or 11% in constant currency, and APAC grew 14% or 19% in constant currency. We saw strong new business growth in LatAm, India and Canada, while parts of EMEA remained constrained. From an industry perspective, in Q4, public sector and travel transportation and hospitality both performed well, while retail and consumer goods and high tech were generally more measured. Our multi-cloud momentum also continued. In Q4, eight of our top 10 deals included six or more clouds, and more than half of our top 100 wins included six or more clouds. As you've already heard, AI starts with data and we are seeing strong momentum in Data Cloud. In Q4, more than half of our top 25 wins included Data Cloud. Q4 revenue attrition ended the quarter at slightly above 8%, generally in line with recent quarters. In Q4, our non-GAAP operating margin was 31.4%, up 220 basis points year-over-year. And for the full year, in line with our guidance, we delivered non-GAAP operating margin of 30.5%, up 800 basis points year-over-year and GAAP operating margin ended the year at 14.4%, up 1110 basis points year-over-year. Q4 operating cash flow was $3.4 billion, up 22% year-over-year. Q4 free cash flow was $3.3 billion, up 27% year-over-year. And for the full year, operating cash flow was a record $10.2 billion, up 44% year-over-year. Full year free cash flow was $9.5 billion, up 50% year-over-year. Now turning to remaining performance obligation, RPO, which represents all future revenue under contract, ended Q4 at an incredible $56 billion, up 17% year-over-year. Current remaining performance obligation, or CRPO, ended at $27.6 billion, up 12% year-over-year and 13% in constant currency, particularly driven by strong execution on early renewals. We also benefited from new business performance and timing of license revenue from Mulesoft and Tableau. As expected, this was partially offset by a 1-point headwind from professional services, which we had noted last quarter. Now let's turn to guidance. Starting with full fiscal year '25. On revenue, we expect $37.7 billion to $38 billion, growth of 8% to 9% year-over-year. A few items to note on our revenue guide. Our expectations incorporate a $100 million FX headwind year-over-year or a 30 basis points impact. We also expect our professional services business to remain under pressure in FY25 and expect it will be a headwind to revenue. Within our revenue guidance, subscription and support revenue growth is expected to be slightly above 10% year-over-year in constant currency. Now, as a reminder, our top line expectations include the impact from the measured buying environment that began back in fiscal year '23. This takes time to flow through our subscription revenue stream due to the like effect of bookings to revenue recognition. That said, we continue to execute well in the measured buying environment. Over the past two quarters, I'm happy to say that we've seen improved bookings growth. And as you heard from Marc, we're incredibly well-positioned to build on our success and bring our customers into this new AI era. Now, turning to attrition. Starting in fiscal '25, we are including Slack invoice in the metric. Despite expecting a modest headwind, we expect attrition to remain consistent at slightly above 8%. On margins, we continue to drive operational excellence, productivity and efficiency. And for fiscal year '25, we expect a non-GAAP operating margin of 32.5% representing a 200 basis point improvement year-over-year, while still making key investments in growth opportunities, notably AI, data and our core businesses. Stock-based compensation is expected to be below 8% as a percent of revenue as we continue to take a disciplined approach to our equity-based programs. As a result, for the fiscal year '25, I am pleased that our GAAP operating margin guidance for the first time is expected to surpass 20% at 20.4%, representing a 600 basis point improvement year-over-year. We expect fiscal year '25 GAAP diluted EPS $6.07 to $6.15. Non-GAAP diluted EPS is expected to be $9.68 to $9.76. As a result of our focus on profitable growth and continued transformation, we are seeing a marked improvement in our cash flow outcomes. We expect fiscal year '25 operating cash flow growth of approximately 21% to 24%, which includes a 10-point year-over-year headwind from cash taxes. CapEx for the fiscal year is expected to be slightly below 2% of revenue. This results in free cash flow growth of approximately 23% to 26% for the fiscal year. Now to guidance for Q1. On revenue, we expect $9.12 billion to $9.17 billion, up 11% year-over-year in nominal and 12% in constant currency. This includes a tailwind from the timing of license revenue in Mulesoft and Tableau. Additionally, Q1 has a one-point benefit from an extra day of revenue recognition given the leap year, which has no impact on our full year revenue or CRPO. CRPO growth for Q1 is expected to be 11% year-over-year in nominal and 12% in constant currency. For Q1, we expect GAAP EPS of $1.42 to $1.44 and non-GAAP EPS of $2.37 to $2.39. Now to capital return. We are deeply committed to driving free cash flow and return to our shareholders while investing in new organic growth initiatives. In Q4, we returned $1.7 billion in the form of share repurchases, bringing the total returns in FY24 to $7.7 billion, or more than 80% of fiscal year free cash flow, which more than fully offset dilution from our stock-based compensation. Since the inception of our repurchase program, we have now returned $11.7 billion to shareholders with an average purchase price of $182 per share. And I'm incredibly excited to announce our first-ever dividend. We are enhancing our capital return strategy reflective of the confidence we have in the future of our business and our ability to drive long-term cash flow. Our Board has approved the initiation of a quarterly dividend starting at $0.40, more details of this dividend are available in our press release. Additionally, the Board has approved a $10 billion increase to our share repurchase plan, bringing the total authorization to $30 billion. Based on our progress to date, the remaining balance in the program is approximately $18 billion. In closing, I want to echo Marc and Brian, and this has been an extraordinary year. I'm very proud of the progress we have made throughout the company. We are executing with discipline while also investing for our future. I want to personally thank our employees who have worked so hard this past year and thank our shareholders for their continued support over this past transformational year. Now, Mike, I think we better open up the call for questions.

Thanks, Amy. Brandon, we're ready to take questions.

Marc, last quarter you had said that you were starting to see some green shoots, and we're not ready to say you completely turned the corner. But I'm just curious if you could give everyone an update in terms of just what you're seeing from customer behavior and ultimately how you think that plays out through the year. Thank you.

It's a great question. I think we began to notice unusual behavior around the middle of fiscal year '23. Starting last quarter, we definitely saw some positive signs, and it feels like a complete turnaround. Every customer now understands that they need to embark on a major investment cycle to stay competitive. They are all focused on enhancing productivity, which is something we can relate to ourselves over the last year. It's about augmenting their workforce. Many of you may have heard my Gucci example, and there are countless stories emerging where these tools will significantly enhance productivity, improve customer relationships, and increase margins. CEOs are aware of this shift, and I believe it's contributing to the turnaround. We are also in the third phase of the pandemic; the first phase was challenging, and then we transitioned to a post-pandemic phase marked by high interest rates and inflation. Now, in this new phase, things are improving. This improvement isn't just due to the surge in technology but because everything else is behind us, and we've entered a new normal where investing in growth is clear. This mindset is driving the change for our customers and ourselves. The equity markets have shifted from what we saw in 2021, and we are prepared to deliver results. When we reach Trailhead DX, I hope you'll all reach out to me with your thoughts. If you see anyone else delivering enterprise AI at the same quality, scale, and capability as Salesforce, I would be surprised. This trend is evident across various regions and product lines. Brian, I want you to elaborate on these positive developments, but the turnaround we are witnessing is remarkable.

I really appreciate it. We are seeing tremendous demand for Data Cloud and AI. However, we are still operating in a cautious environment, and we need to ensure that we are conducting thorough inspections and managing the business very carefully, as we have been doing for the past six or seven quarters. The positive developments in Data Cloud, Mulesoft, and regional performance, especially in Canada, Latin America, and Spain, have been outstanding. Our focus on industries is yielding significant results. Parts of our business are accelerating, but we must continue to account for the cautious environment in our management approach.

Amy, I think you should come in here and also talk about how you've seen the transformation of the business and the green shoots that you see happening or kind of the 180s that I’m talking about.

Sure. It's been an incredible couple of years. Yeah, Marc. As you mentioned, going back to really beginning of July in fiscal year '23, where we suddenly saw this measured buying environment, the elongated sales cycles, the additional approvals, the compressed deals. And over the last few years, what I've really seen is not so much a shift in the buying behavior, but a shift in our ability to execute in it. And I think we've seen that over the last couple of quarters in particular, that we are just executing much better in this. I do think that there is a lot of excitement to come on AI and data, and we'll see how that plays out this year.

Thanks, Brent. Brandon, we'll take the next question now.

Excellent. Thank you guys for taking the question. And congratulations on another really nice quarter. A question just on sort of buying cycles and sort of the timing for this AI goodness to kind of come into the numbers. And maybe it's a question for Brian. How should we think about how customers are ingesting this? Right, how are they purchasing the Einstein platform? Does it start with Data Cloud and then they move into more of the application functionality? And then importantly, how should investors think about when this could potentially impact numbers? And then when this will become material enough to see the inflection in kind of revenue growth? And then maybe one for Amy, another 200 basis points of operating margin expansion in the guide. Super impressive. Can you give us some indications of where that's coming from, where there are the additional areas of leverage that you're seeing in the business?

First of all, Keith, thank you. I really appreciate the question. You really captured the essence of it. Our customers have a strong desire to leverage AI capabilities to enhance efficiency, increase margins, and boost productivity. However, this all begins with data. As highlighted in my earlier comments, our Data Cloud is nearing $400 million and has grown by 90% year-over-year. This reflects the significant demand from companies preparing for their AI transformation. We are genuinely excited about the opportunities that lie ahead. Every customer I engage with mentions issues such as trapped data, inadequate data strategies, and improper architecture, which is why our Data Cloud products are performing so well. In terms of AI, we expect to see more impact as this fiscal year progresses. Currently, we haven't accounted for much in our forecasts, primarily due to the extensive work that still needs to be done, even though demand is heavy. We just launched the Copilot product yesterday, which has generated significant interest, and we believe there's a tremendous chance for faster growth in this area. There's considerable potential, though we haven't incorporated much of it into our projections. Now, I'll hand it over to Amy to discuss this further.

Sure. So just following up, Brian, on the comments, in terms of the new products, in Data Cloud, we're already seeing this great traction, which is certainly factored in. Some of the GenAI, it's still early, and given that the adoption curve at really our size and scale as a $38 billion company, we're not factoring in a material contribution from these new products into our FY25 revenue guidance at this time. Turning on OP margin. Yes. Really happy to see another 200 basis points this year as a commitment. This year, we are just seeing amazing leverage from many of the hard decisions we made last year. They're continuing to flow through and really benefiting the business. A few things I would call out a lot of discipline around headcount over the past year. We are starting to grow in some areas at this point, but it's really investing into our most productive areas, AI, data. And we're doing that in cost-effective ways, really trying to leverage areas that have high, high talent pools and low costs. We're also looking at things like top line, how are we doing with our product and pricing? What are we doing in terms of go-to-market efficiencies? Brian has been great this past year in making changes and driving productivity. I think you'll see additional changes coming, additional benefits coming from all of those areas.

Thanks, Keith. Brandon, we'll take our next question, please.

Hi. Thank you very much. Marc, since you communicate with many CEOs across various industries, what are they expressing about their businesses and their willingness to invest in Data Cloud with Salesforce? If this is the case, could the company experience a re-acceleration in revenue? Amy, you appear to have confidence that leading indicators are improving. What are those leading indicators? While we can't quantify them, could you discuss the leading indicators? Additionally, how much of a delay is there between these indicators and their impact on revenue? Thank you and congratulations.

Well, Kash, this is essentially what every software company aims for. You want a groundbreaking application. Sometimes you achieve it through organic innovation, and other times through inorganic means. We were fortunate to accomplish this with organic innovation through Data Cloud. I believe Data Cloud embodies everything we desire at this moment for several reasons. Firstly, it is an extraordinary new cloud, and we can see its potential for Salesforce, much like what we experienced with Sales Cloud, Service Cloud, and Marketing Cloud. Additionally, we have also acquired other clouds like commerce, Tableau, and Slack inorganically. However, this remarkable new organic cloud differs from anything we've previously encountered with Salesforce—it enhances all other clouds. The latest and most exciting version of Sales Cloud, the feature that will transform our tens of thousands of Sales Cloud customers built over the last two and a half decades, is Data Cloud. Likewise, the new iteration of Service Cloud combines Service Cloud and Data Cloud. Marketing Cloud has excelled against all competitors, as evidenced in the Gartner MQ, due to its deep integration with our existing solutions and overall marketing efforts. Furthermore, our platform is expanded by Data Cloud. If your company utilizes other data infrastructures like big queries, Redshift, or Snowflakes, Data Cloud improves their performance by freeing trapped data for users. This stands out as a significant reason to adopt Data Cloud on its own. But this is especially crucial amid the transformative wave of artificial intelligence in our industry, which amplifies our need for this data. While we always appreciated having a data lake, which we would have preferred integrated with Sales Cloud years ago, its current integration with AI makes it even more critical. This is why every customer needs to acquire this product to achieve the business nirvana we envision—the intersection of productivity, customer relationships, and profit margins when data and AI converge. We can make this happen. This is our message to our sales teams, partners, and everyone involved. We are at a remarkable juncture, which is why we must execute diligently this year. Fiscal year ‘25 must be recognized as the year of Data Cloud.

Okay. Great. And Kash, thanks for the question about leading indicators. I think first you obviously heard the excitement about Data Cloud. And if you didn't... I can go through it again. I'll do it one more time. So specifically, there are a number of things that we look at that tend to be leading indicators that things may not be as good. Now that would be something like create and close SMB, self-served. I've talked a lot about those over the past few years, but I do feel very good about some things I'm seeing right now. It is the execution from our team and we've really seen this over the past two quarters and that's really led to improved bookings growth. We've seen AE productivity that is up. Brian talked a lot about that last quarter. It was fantastic. We look at our pipeline for indications of going forward. That said, as we've talked about, our top line expectations do include the lagging impact from the measured buying environment that began a couple of years ago. It's just going to take time for that to work through our system, but I am seeing some nice indicators that give me a lot of hope.

Thanks, Kash. Brandon, we'll take the next question.

Okay. Great. Maybe a two-parter for Brian. Two elements of the business that I think you have responsibility for. One is around pricing and bundling, and you mentioned Einstein 1. Just curious, when will that be a needle mover for revenues? How much of that uplift are you baking into the guide this year? And then also on the pro services side, typically not a focus area for anybody on this call, but down 9% in the quarter was obviously an inflection down. What's happening with that? Is that tight discretionary spend or is that Salesforce consciously pushing more work to your SI partners? Thanks on both.

Before we proceed, I want to emphasize the importance of our service. When discussing AI, we're all familiar with the term ACV, which essentially originated from us and has now become industry-standard, alongside terms like AOV and CSM, which Brian introduced. This year, we have ambitious internal goals for ACV, with a significant portion of it tied to Data Cloud. This is crucial as it represents our AI initiative, especially with Einstein 1 and artificial intelligence within Data Cloud. We need to consolidate these elements, which is why we introduced Einstein 1. Pay attention to the Einstein 1 SKU and what we refer to as UE Plus; that’s where we expect to see substantial ACV growth. This is our primary focus. While the future is uncertain, we recently held a major kickoff event in Las Vegas with 5,000 of our key executives, 80% of whom were in sales, and 70,000 joined us online. Our key message was clear: Data Cloud is our top priority, followed by the necessity to become effective storytellers about our solutions. Additionally, our objectives include selling UE Plus, promoting Einstein 1, ensuring customer success, and fostering our new Ohana 2.0 culture. These five initiatives are integral to our strategy this year, and the concept of AI should always be associated with Data Cloud.

Thanks, Marc. Karl, back to your question, on pricing and bundling, we're excited about the progress we've made here. UE plus is a good example of what we're seeing, good acceleration. It's not the only thing we're doing in pricing and packaging. Obviously, we did a price increase last year and seeing some benefits to that. Certainly, we're simplifying the way that we are putting quotes in the market, fewer SKUs, making it easier for our sellers to get out there. In terms of materiality in the short term, you're not going to really see it show up. We did it in the second half of last year. And so while we've seen great progress and there's a lot of promise for it in terms of this year's revenue guide, not a huge factor in our growth numbers this year, you will see it start to show up in year two and three as we roll through the renewals, the uplift, etc., and some of the incremental pricing changes that we're going to do. On ProServe, a good question. I think the big issue, and it's really been felt across the entire professional services industry, a bit of headwinds on customers' willingness to do massive transformation. We really felt that during the pandemic that customers were coming to us and saying, I want to make a multiyear commitment to your services and spend significant amount of money, these very large transactions and services. Now our customers are saying, hey, let me take a smaller bite at the apple. Let me start smaller, get to time to value faster, let me get the benefits of the technology sooner. And so while the demand remains high, it's just smaller transactions that are getting done vis-a-vis last year and the year before that. So the tough compares on large deals, smaller transactions. For us, in a lot of ways, very good. Let's get our customers proving out the technology, let's go faster, but having an impact on our professional services business right now.

Great. Thanks, Karl. Brandon, let's go to the next question.

Thank you very much. For Amy and Brian, the gross margin and sales efficiency metrics are quite strong this quarter. I'm curious if you have experienced any advantages from using Service GPT or Sales GPT internally to save time for your customer support agents or sales teams. Are they becoming more productive or able to achieve more with fewer resources?

Thank you, Mark. We strongly believe in Salesforce. We are implementing our AI technology internally, and our sales teams are utilizing it. We are currently experiencing benefits, particularly in our support operation with case summaries. Our ability to access knowledge bases more quickly and get information integrated into our workflow has been significant. This is definitely a part of our strategy for margin expansion, focusing on how we can use our AI to enhance efficiencies in our business, including sales, service, marketing, and commerce efforts. We are looking forward to leveraging our technology to achieve these efficiencies. Amy, do you have anything else to add?

No, I think that was great, Brian. We have to be customer number one and use it. And I'm excited that we are. Lots of opportunities for us.

Thanks, Mark. Brandon, we'll take the next question.

Yeah. Thanks very much. I'll echo the congrats on a great fiscal year. I don't know if Brian or Marc wants to take this one, but we realize AI is applicable to every industry. But I was just kind of curious, are there any industries that you believe are farther along in terms of taking advantage of AI where there frankly could be a domino effect due to the competitive advantage one customer could get over another if they don't start down this path?

That's a great question, and it's uncertain. This is our future, and does anyone really know what will happen? We've seen movies like Minority Report and Terminator, and we wonder if this is what awaits us. At the end of the day, we know AI is advancing rapidly. The future is happening right in front of us. Remember that scene in Minority Report when Tom Cruise walks into a Gap store and experiences a highly personalized shopping environment? Digital and human sales agents interact, suggesting items based on past purchases. If I visited a Gap store today, which I love, I’d still find it hasn't reached that level of personalization yet. The company has great products and a rich legacy, and we are on the brink of significant changes for our customers. We’re ready to lead that change and believe we have the right solution, but it has to be guided by the right values. I attended an AI safety summit, and there wasn't enough emphasis on values—not just the surface-level ones often presented but truly foundational values like trust. I mentioned earlier a story about a company that, while a valued customer of ours, used a makeshift AI they found online that led to misinformation about their loyalty program, resulting in legal consequences. This should serve as a wake-up call for CEOs. We are on the cusp of a major technological transformation, but trust must be the primary value guiding us. At Salesforce, we plan to lead the way not only with cutting-edge technology but with a focus on trust. Please check my Twitter feed for our quarterly results and watch the five-minute video that explains what we’re delivering with our AI—trust-based AI for enterprises built on our data and metadata. This is crucial.

Great. Thanks. Brandon, we'll take our last question now.

Great. Thank you so much for taking the question. Listen, great to see the data cloud traction, the recognition of Gartner's magic quadrant. And Marc, I appreciate you taking us into why the architecture is different from general-purpose data platforms and that it brings together the data and the metadata. But my question is a two-parter. A, it's clear Data Cloud is optimized for customer data and customer related apps. Can you take it beyond that? And then, B, how much of the customer base today is really viable to take Einstein 1 on and UE plus at a 50% higher list price point? And how far penetrated are we into that? Thank you.

Well, I'm going to do the first part, and then I'm going to turn it over to Mike Spencer to do the second, because he not only runs IR, but he also runs FPNA. And he's been doing that analysis. So I know he was going to come in on this. Look, number one, this is a huge upsell opportunity for us. You probably know, I think not even 50% of our Sales Cloud users use Service Cloud. Not even 50% of our Service Cloud users use Sales Cloud. Maya Copa, that is on us. Okay. I wish I could say that all of our sales users are service users, our service users are sales users. But even ADP that I talked about in the script, who we've worked with for more than two decades, and I remember the first time I made a sales call there to extract Siebel from their infrastructure was not yet using us for service. So we have a lot of work to do to sell our existing clouds into our customers and also to upsell our existing customers and cross-sell them with Data Cloud, with Einstein 1, with the full platform. We're rewriting our whole platform to be deeply integrated. We will no longer have all these separate acquired platforms. When we're done, we have one integrated platform, Einstein 1. One unified data and metadata platform. This is something I have deeply focused on in the last year to make sure it's clear to all of our engineers and are also financed that this must be funded, which it is. And then we will deliver this capability and then we will light up and give you these great success stories. Look, some companies operate at the highest level, the user and the productivity level. That's not where we are. Okay. Some companies, okay, they operate maybe at the model level. That's also not where we are. We are a data company. We operate at the data level. Yes. We're about customer success made possible by data. This is AI revolution, it's a data revolution. There's no question. You cannot have the AI without the data. That's why those AI companies stole all that consumer data, so they could have some semblance of those party tricks. For the enterprise, it's not going to fly. You've got to have these comprehensive data sets that are informed by the metadata. And Mike's now going to answer the second part and we'll wrap it up. Mike, go ahead.

Thank you for the question, Brad. When considering the price increase associated with the transition to the Einstein 1 edition, it's important to focus on the value we deliver to our customers. Ultimately, our ability to raise prices is tied to the value we provide. As customers enhance their AI capabilities and deepen their understanding of the economic implications, our pricing will reflect that. Initial indicators are encouraging, and we're optimistic about the progress we've made in the short time since its market introduction four months ago in FY24. However, our goal remains to make the purchasing process as straightforward as possible for our customers, which will depend on the perceived value.

I agree. And just one last comment, Brad. It's Brian. We want to be able to deliver Data Cloud and AI at all levels, in all segments. And you see that in our offering around Salesforce starter where we're building AI and data cloud capabilities as part of that. So every segment of our customer base should be able to enjoy the power of AI and Data Cloud.

So thanks for the question, Brad. And we thank everyone for joining the call today. We look forward to seeing everyone over the coming weeks.

Thanks all.