Salesforce Inc (CRM) — Q1 2025 Earnings Call Transcript

Thanks, and good afternoon. Thanks for joining us today on our fiscal 2025 first quarter results conference call. Our press release, SEC filings and a replay of today's call could 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 of 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.

Thanks so much, Mike. I'm really excited for the call today, because there are two things that I'm really looking forward to talking about. First is our incredible financial transformation as you can see from the numbers today and the second is the incredible work that's happening with artificial intelligence. Look, first of all, in Q1, we delivered $9.13 billion in revenue, up 11% year-over-year in both nominal and constant currency. Subscription and support revenue grew at 12% year-over-year and 13% in constant currency. And for the 11th year in a row, Salesforce is still ranked the number one provider worldwide by market share based on the latest IDC software tracker. I mean, that really gets to a core part of our technology transformation that I'm going to get to, which is the transformation to AI. And because we are the number one CRM provider, we're now managing more than 250 petabytes of data for our customers. This is going to be absolutely critical as they move into artificial intelligence. And now also let's turn to our financial guidance. For fiscal year '25, we're maintaining our revenue guidance of $37.7 billion to $38 billion, growth of 8% to 9% year-over-year. And we now expect fiscal year '25 subscription and support revenue growth to be approximately 10% year-over-year in constant currency. As you can see from our results, we remain committed to profitable growth at scale, and I would also say incredible cash flow. And then continue to expect fiscal year 2025 non-GAAP operating margin of 32.5%, a 200 basis point improvement year-over-year. I'm extremely proud of our team's focus and determination to deliver this world-class financial result, including this cash flow and profitability in the quarter. And Brian and Amy will discuss Q1 performance in much greater detail. As I said, I couldn't be more excited about the opportunity ahead for Salesforce, not only with these incredible financial results but in the incredible transformations that we are leading with our customers in artificial intelligence. Every company in the world across every industry is being transformed by AI in the next few years. And when you look at the power of AI, you realize the models and the UI are not the critical success factors, it's not critical where the enterprise will transform. There are thousands of these models, some open source and some closed source models, some built with billions, some with just a few dollars, most of these will not survive. They are just commodities now and it's not where the intelligence lies. And they don't know anything about a company's customer relationships. Each day, hundreds of petabytes of data are created that AI models can use for training and generating output. But the one thing that every enterprise needs to make AI work is their customer data, as well as the metadata that describes the data, which provides the attributes and context the AI models need to generate accurate, relevant output. And customer data and metadata are the new gold for these enterprises, and Salesforce now manages, as I mentioned, 250 petabytes of this precious material. We have one of the most and largest repositories of front office enterprise data and metadata in the world. And every day more companies are adopting Salesforce as their front office, bringing all their structured and unstructured data into our platform. Nearly half of our top 50 wins in the quarter included six or more of our clouds. That really speaks to the comprehensive nature of our strategy. It's incredible. And many of these customers have essential business and customer data that exists outside of Salesforce that's trapped in thousands of apps and silos and it's disconnected. That's why we're seeing this incredible momentum with our Data Cloud, our fastest growing organic and next $1 billion cloud. It's the first step to becoming an AI enterprise. Data Cloud gives every company a single source of truth and you can securely power AI insights and actions across the entire Customer 360. Now let me tell you why I'm excited about Data Cloud and why it's transforming our customers and how it's preparing them for this next generation of artificial intelligence. Data Cloud was included in 25% of our $1 million plus deals in the quarter. We added more than 1,000 data cloud customers for the second quarter in a row. 8 trillion records were ingested in the Data Cloud in the quarter, up 42% year-over-year and we processed 2 quadrillion records, that's a 217% increase compared to last year. Over 1 trillion activations drove customer engagement, which is a 33% increase year-over-year. This incredible growth of data in our system and the level of transactions that we're able to deliver, not just in the core system but especially in data cloud is preparing our customers for this next generation of AI. And last month, we created a Zero Copy Partner Network with partners, including Amazon, Databricks, Google, IBM, Microsoft and Snowflake, so customers can access this live data from anywhere in data cloud without copying or moving it. It's the engine of our future growth and this is the engine of our future artificial intelligence growth as well. As you know, for years, we've delivered predictive AI across all our clouds with Einstein. Einstein is generating hundreds of billions of predictions per day, trillions per week. Now, we are working with thousands of customers to power generative AI use cases with our Einstein Copilot, our Prompt Builder, our Einstein Studio, all of which went live in the first quarter. And we've closed hundreds of Copilot deals since this incredible technology has gone GA. And in just the last few months, we're seeing Einstein Copilot develop higher levels of capability. We are absolutely delighted and could not be more excited about the success that we're seeing with our customers with this great new capability. Saks, a leader in the luxury fashion market, part of Hudson’s Bay, went all in on Salesforce in the quarter. CEO, Marc Metrick, is using AI to create more personal experiences for every customer touchpoint across their company. And with our Einstein 1 platform and Data Cloud, Saks can unify and activate all its customer data to power trusted AI. Another great story is FedEx, a company that we all know, bringing together previously siloed information. It's the leader in getting packages delivered quickly. And of course, how are we going to now deliver a more productive, more efficient and more profitable FedEx. The Salesforce data and app and AI capabilities generate expense savings. This is the core efficiency while growing and accelerating top-line revenue. This is the effectiveness that we're delivering for FedEx. This efficiency includes next best action for sellers, automated lead nurturing, Slack for workflow management, opportunity scoring, a virtual assistant, AI and unstructured data for delivering content to sales and customer service. And when we think about effectiveness, we see our Journey Builder delivering hyper personalization, integrating customer experiences across service, sales, marketing, the ability to tailor and deliver customer experiences based on a Customer 360 view. When we look at this incredible next generation of capability we've delivered at FedEx, gone now are these days of static business rules that leave customers dissatisfied asking, do they not know that I am a valued customer of FedEx? Now FedEx has not only the power of the Customer 360, but the power of AI to unlock so much more commercial potential by conducting an orchestra of commercial functions that never played well together before. You have a significant opportunity now with Salesforce and this incredible platform that sellers can convince companies to transform all of their incredible capabilities to deliver another level of profitability. I think stories like that are driving our company forward and it's all driven by the power of artificial intelligence. Another story I'm really excited about in the quarter is Air India, transformed with data and AI. If you don't know about Air India, they are an incredible airline who's acquired multiple airlines to create this amazing platform for India's growth. And with Data Cloud, Air India is unifying Data Cloud across loyalty, reservations, flight systems and data warehouses. They have a single source of truth to handle more than 550,000 service cases each month. And now with Einstein, we are automatically classifying and summarizing cases and sending that to the right agent with recommended next steps and upgrading in high value passenger experiences. Even when things happen like a flight delay, our system is able to immediately intervene and provide the right capability to the right customer at the right time. All of that frees up agents to deliver more personal service and create more personal relationships, a more profitable, a more productive, a more efficient Air India, a company that's using AI to completely transform their capability. Well, we're looking forward to talking to you more in this call about these incredible transformations, the financial transformation that we've gone through with these incredible cash flow and margin numbers, and this incredible artificial intelligence transformation. And now over to Brian.

Thanks, Marc, and thanks to all of you for joining us today. I also want to thank the team for their hard work this quarter. As Marc said, we're incredibly well positioned for this AI transformation. We're the number one AI CRM innovating at a pace I've not seen in my entire career. I could not be more excited about the opportunity ahead. We're seeing good demand as AI technology rapidly evolves and customers recognize the value of transforming into AI enterprises. CEOs and CIOs are excited about the opportunity with data and AI and how it can impact their front office operations. We continue to focus on our growth levers of multi-cloud deals, international expansion, industry solutions, the Salesforce ecosystem and of course, the data and AI innovations across all of our clouds. Now let me briefly address the buying environment. We continue to see the measured buying behavior similar to what we experienced over the past two years and with the exception of Q4 where we saw stronger bookings. The momentum we saw in Q4 moderated in Q1 and we saw elongated deal cycles, deal compression and high levels of budget scrutiny. In addition, in Q1, as part of our ongoing transformation, we made some intentional changes in our go-to-market organization to drive long-term productivity and create better customer experiences, which also played a role in the softer bookings performance. At the same time, we are seeing strong momentum in various parts of our business, particularly Data Cloud and industries. And we continue to drive our core growth levers, multi-cloud deals, again, were a highlight for us in the quarter with six of our top 10 deals, including six or more clouds, showing the depth and relevance of our portfolio. Let me give you just one example of a company that is using Salesforce across the entire front office. CrowdStrike, a leading cybersecurity company and a longtime customer of Salesforce added Data Cloud, Marketing Cloud, Commerce Cloud, Revenue Cloud and MuleSoft in the quarter. CrowdStrike already relied on Einstein 1 sales and service and Slack, and now they'll use Data Cloud to pull together new and trapped data from data lakes to build a 360-degree view of their customers, helping them align sales and marketing efforts to drive growth. They're also leveraging MuleSoft with incredible results. MuleSoft has helped CrowdStrike accelerate project delivery by 30% and decreased maintenance costs by 20%. Salesforce is now the backbone of CrowdStrike driving every aspect of CrowdStrike's operation and limiting the reliance on complex siloed third-party applications. As Marc said, we're seeing impressive growth in our Data Cloud business. In the quarter, 25% of our deals over $1 million included Data Cloud. It's obviously an important growth lever for us as it brings all of our clouds to life and makes them all better. And we continue to see momentum in Einstein AI with wins at Turtle Bay Resort, Autodesk and Langley Federal Credit Union as companies transform into AI enterprises. One example is Siemens. Siemens lacked a centralized destination for customers to easily choose the right products and buy on demand. To simplify the buying experience for customers, Siemens worked with Salesforce to develop and launch its Xcelerator marketplace, an AI-powered digital marketplace built on Einstein 1 commerce, providing AI-generated product pages, smart recommendations and self-service ordering, and they did it all in just six months. And obviously, AI is not just for our customers, as part of our own transformation, we continue to adopt AI inside Salesforce. Under the leadership of our Chief People Officer, Natalie Scardino and our Chief Information Officer, Juan Perez, we've integrated Einstein right into Slack, helping our employees schedule, plan and summarize meetings and answer employee questions. Einstein has already answered nearly 370,000 employee queries in a single quarter. And in our engineering organization, our developers now save more than 20,000 hours of coding each month through the use of our AI tools. These innovations are helping us drive continued efficiencies across the business and accelerate our product road maps. We have great momentum with Slack, which again was included in nearly half of our top 50 deals in the quarter. We also launched Slack AI in February, an amazing innovation that provides recap, summaries and personalized search right within Slack. I personally have been using it every day to get caught up on the conversations happening in every channel, and we've seen great traction with our customers with this product that our customers have summarized over 28 million Slack messages since its launch in February. Rocket Mortgage added Slack AI in the quarter to help its employees save time and close loans faster. They've also leveraged external Slack channels to collaborate with partners more effectively and efficiently. And they've experienced a 60% faster turnaround speed from working with their customers and partners in Slack. On the international front, we had a solid quarter. In LATAM, we had great wins at Celio and Grupo DPSP; and EMEA, great wins at IHG Hotels and Resorts and John Lewis partnership; and in APAC, Atlassian and Bank of Philippines Islands were wins in the quarter. We saw particular strength in our Japan business with wins at Seibu Prince Hotels worldwide and Hitachi. Industries were another growth lever for us in the quarter, half of our top 10 deals included one of our industry clouds. A great example in the quarter was Paychex, a digital HR leader. By leveraging Financial Service Cloud and Data Cloud, Paychex is able to unify their data, building better insights and creating a single view of each customer. And using Einstein 1 sales and service, Paychex will be able to proactively manage insurance renewals, which means agents can proactively reach out and surface renewal opportunities during any touchpoint with the customer, 30, 60 or 90 days in advance driving an increased rate of renewals. And in the public sector, the City of Los Angeles chose Salesforce to modernize how the city's 4 million residents request city services using its MyLA311 system. The city will use government cloud and other Salesforce solutions to integrate AI assistance into MyLA311 and modernize its own constituent facing services, giving residents more self-service options and improving service reliability and responsiveness. Our partner ecosystem also continues to be a growth lever for us. I'm especially excited about our deep partnership with Amazon as a growth driver for as we move forward into Q2 and beyond with Salesforce products now available on the AWS marketplace. Joint customers are able to expedite their deployments through faster buying and billing experiences and flexible budgeting options. In closing, I want to echo Marc in acknowledging the hard work of the team, our continued success has been made possible by our amazing employees, customers, partners and trailblazers. And with that, I will now pass it off to Amy.

Great. Thanks, Brian. Q1 represents another quarter of continued discipline and transformation across the business. I am very proud of all of our employees for their continued dedication and hard work. Now let's go straight to the results. For the first quarter, revenue was $9.13 billion, up 11% year-over-year in nominal and constant currency. The result was at the lower end of our guided range due to continuing pressures on professional services, some license revenue volatility and the continued measured buying environment. Subscription and support revenue grew 12% year-over-year in nominal and 13% in constant currency. As mentioned on our last call, this included a tailwind from the timing of license revenue in MuleSoft and Tableau related to Q4 deals and a 1 point benefit from the leap year. From a geographic perspective, in Q1, Americas revenue grew 11%, EMEA grew 10% or 9% in constant currency and APAC grew 14% or 21% in constant currency. We saw strong new business growth in Japan, India and Canada, while the US, parts of LATAM and EMEA were constrained. From an industry perspective, in Q1, public sector and financial services both performed well, while high tech and retail and consumer goods were more constrained. Our new offerings for small and medium businesses, Starter and Pro Suite, which are ready-to-use simplified solutions with AI built in, are building momentum. In Q1, we added another 2,300 new logos to these products. Since Starter's launched last year, we've seen customers upgrade to our recently launched Pro Suite and even to our Enterprise and Unlimited editions. Q1 revenue attrition ended the quarter at around 8%, in line with recent quarters. I'm also very pleased that our non-GAAP operating margin again finished strong at 32.1%, up 450 basis points year-over-year. And our profitable growth trajectory continues to drive strong cash flow generation. Q1 operating cash flow was $6.25 billion, up 39% year-over-year. Q1 free cash flow was $6.1 billion, up 43% year-over-year. Cash flow did benefit modestly from the timing of cash tax payments. Now to put this cash flow performance in context, we have more than tripled the cash we generated just four years ago. Turning to remaining performance obligation, RPO, which represents all future revenue under contract. We ended Q1 at $53.9 billion, up 15% year-over-year. Current remaining performance obligation, or CRPO, ended at $26.4 billion, up 10% year-over-year in nominal. Now this includes a $200 million FX headwind, which results in more than 10% year-over-year growth in constant currency. CRPO growth was primarily driven by resilience in our core products. However, as Brian mentioned, we did continue to experience measured buying behavior, which is reflected in the moderated Q1 bookings. On capital return, we were incredibly proud to pay out our first ever quarterly dividend of $0.40 per share for a total of $388 million. And altogether in Q1, we returned more than $2.5 billion in the form of share repurchases and dividends. This brings our total cash return since the inception of our capital return programs to more than $14 billion. We remain committed to continued capital return and anticipate declaring our quarterly dividend next month subject to Board approval. Now let's turn to guidance, starting with full fiscal year '25. A few items to note. First, on the buying environment, we are assuming that the conditions we saw in Q1 continue throughout our fiscal year. On FX, our revenue guidance continues to incorporate a $100 million FX headwind year-over-year or about a 30 basis points impact. We also continue to expect our professional services business to be a headwind to revenue with deal compression and customers delaying or slowing projects. However, we also continue to see strong demand for Data Cloud and multi-cloud adoption. We're seeing benefits from recent pricing and packaging changes and we're seeing strong industries adoption. These factors are also included in our guide. As a result, on revenue, we are maintaining our guidance range of between $37.7 billion to $38 billion, growth of 8% to 9% year-over-year. We now expect subscription and support revenue growth to be approximately 10% year-over-year in constant currency. And we expect attrition to remain generally consistent at slightly above 8% for the full year. As a reminder, starting in fiscal '25, we include Slack invoice in the metric, which we expect to create a modest headwind. Now turning to profitability and cash flow. On margins, we continue to expect fiscal year '25 non-GAAP operating margin of 32.5%, representing a 200 basis point improvement year-over-year, following the significant increase last year. This incorporates intentional investments in targeted growth opportunities, notably AI, data and our core businesses. Stock-based compensation is now expected to be just above 8% as a percent of revenue. The modest increase from our prior guidance is primarily a result of lower voluntary employee attrition in Q1 than in recent years. As a result, for fiscal year '25, GAAP operating margin guidance is expected to be approximately 20%, representing 550 basis points of improvement year-over-year. We expect fiscal year '25 GAAP diluted EPS of $6.04 to $6.12. Non-GAAP diluted EPS is expected to be $9.86 to $9.94. As a result of our continued margin expansion, we are delivering world-class cash flow. And we continue to expect fiscal year '25 operating cash flow growth to be approximately 21% to 24% inclusive of cash tax payment headwinds. We also continue to expect CapEx for the fiscal year 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 Q2. On revenue, we expect $9.2 billion to $9.25 billion, up 7% to 8% year-over-year in nominal and approximately 8% in constant currency. CRPO growth for Q2 is expected to be 9% year-over-year in nominal, including a $200 million FX headwind, resulting in 10% constant currency growth. This includes ongoing headwinds from professional services. For Q2, we expect GAAP EPS of $1.31 to $1.33 and non-GAAP EPS of $2.34 to $2.36. In closing, I want to emphasize that I am incredibly proud of the company's commitment to disciplined strategic investments and continued productivity gains to drive strong margin expansion and cash flow growth at scale. And of course, I want to thank our employees and our shareholders for their continued support. Now Mike, let's open up the call for questions.

Thanks, Amy. And thanks, everyone, for joining. When we go to Q&A, we ask that each participant limit themselves to one question. And with that, Rob, we’ll take the first question.

I appreciate all the detail on sort of the growth drivers and what you guys are excited about in the business. But the quarter did come in below your expectations for CRPO growth, and we all look at that as a forward indicator. But you're not taking down the full-year revenue guidance. So I was hoping you could help us get comfortable on why that's not leaving risk on the table and why you guys feel comfortable that original fiscal year '25 guide is still appropriate? Like why not take it down and make it more conservative and ensure that we can get back to beat and raise quarters on a go-forward basis?

I'll take that one. Let me start by saying that there are many factors we have to consider within our guidance. And all in, based on what we're seeing at this time, we continue to believe that we will be within the range we guided. Now any guide is a balancing act, and as Brian called out, we are continuing to see this measured buying behavior. It's really been very consistent for the last two full years at this point with a possible exception of Q4 where we did see stronger bookings. And you can see the impact of that environment on our Q1 numbers, there's no question about that. PROserve also continues to see more and more pressure as customers are really just looking for shorter duration projects. However, this is really balanced by the demand that we are seeing in our products, and that remains strong. We tend to continue to see good demand on multi-cloud adoption. We're seeing benefits from pricing and packaging changes that we have rolled out over the past year. We're seeing very healthy adoption around our industry projects. I also should point out that our attrition rate remains very healthy. Customers are continuing to rely on Salesforce to run their businesses and they'll continue to do that. So when I step back and really take a holistic view of the full year, we do feel confident that we will be within our guidance range.

I'd like to highlight the remarkable transformation we've observed in our financial performance, which has surpassed our expectations from just a few quarters ago. There is significant optimism not only regarding our financials but also the transformation occurring with our customers. The AI transformation is fundamentally changing how we engage with software, as well as the algorithms and data models that underpin AI. For enterprises, customer data and metadata are becoming vital assets, serving as substantial growth drivers for our business. The report from McKinsey shows that a significant portion of the value from generative AI use cases lies in the front office, where Salesforce holds a leadership position in front office software. We are already managing 250 petabytes of data and metadata that will enhance productivity and profitability for our customers like never before, with our Data Cloud playing a central role in this shift. Since its launch, our Data Cloud has provided substantial capabilities to our customers, appearing in 25% of our million dollar-plus deals and attracting over 1,000 Data Cloud customers in the last quarter alone. The growth of this new product is paving the way for sustained growth in this technology. The unique advantage of the Data Cloud is its integration with all our clouds, enhancing the functionality of our Sales Cloud, Service Cloud, Marketing Cloud, and Commerce Cloud. Additionally, in the first quarter, we ingested 8 trillion records into the Data Cloud, marking a 42% year-over-year increase, while processing 2 quadrillion records, a 217% year-over-year rise, and generating over 1 trillion activations to enhance customer engagement, up 33% year-over-year. All these developments are positioning our customers for advanced data capabilities in artificial intelligence. Last month, we formed the Zero Copy Partner Network with major companies like Amazon, Databricks, Google, IBM, Microsoft, and Snowflake, integrating our Data Cloud with a variety of exceptional data sources. Our company is focused on two primary objectives: the financial transformation we've achieved and the ongoing transition to artificial intelligence driven by data. We believe we are uniquely positioned for the future of AI while consistently delivering metrics that our stakeholders expect from Salesforce.

I appreciate the commentary on the impact from the tough macro. We're certainly seeing that across the group. Brian, you mentioned also perhaps some impact here from go-to-market changes, which is, I guess, shouldn't be a big surprise given all that's going on at Salesforce right now. I wonder if you could just articulate a little bit on that. What are those changes? Is this the kind of situation where it's just some short-term impact that could benefit the sales productivity over the longer term?

And you're exactly right. These are changes that we typically make in the first quarter. It's the most obvious time to make those changes when you start out a new year. These changes are actually intended to be productivity drivers for the future, absolutely right. We want to get aligned behind our go-to-market strategy around buyer to make sure that we're aligned to support our customer scale that we can really support our multi-cloud strategy going forward to ensure our customers know exactly what we can do to support them across our entire product portfolio. And some of the changes that we made were exactly for that reason, how do we ensure that we are aligned behind that strategy to ensure we can go faster in Q2, Q3 and Q4. So you're absolutely right. The changes, while impactful in Q1, are short term and we expect to see productivity gains from them going forward.

Just from a geographic perspective, Europe looked like it was a little weaker. I'm curious if that's where you saw the pronounced weakness in EMEA or was this pretty consistent across most of the geographic regions?

Yes, EMEA was weaker in the quarter, frankly, feeling some of the measured buying environment most pronouncedly actually felt it also in the Americas. But there are other pockets around the world that were very strong. Canada was a strong region for us in the quarter. I mentioned our Japan business really accelerated in the quarter, really outstanding performance from our Japan business. So the big businesses are going to feel the impact, obviously, of the measured buying environment. In the Americas, more exposure to technology, which I think we all know has been a tough industry over the last several quarters. On SMB and other areas, the transactional business, these are the areas where you're going to feel some of those headwinds in the business. So spot on EMEA and America sort of feeling the impacts of the measured environments.

Maybe for Marc or Brian. But I was just kind of curious, when we think about this measured buying environment, is there any sort of crowding effect around AI that's impacting software in your view, meaning when you think about all these companies starting to gear up for this next platform shift. Is just the uncertainty of what they're going to spend on over the next six to 12 months holding them back perhaps on what their normal sort of pace of spending might be with you all or other enterprise software companies? I know it's sort of an ongoing question, wondering if you all could weigh in.

Let me provide an overview of our current situation before I hand it over to Brian for more details. Looking back over the past four years, Salesforce entered the pandemic in 2020 at about half our current size. We've effectively doubled our company from $20 billion to around $40 billion. Over this time, we experienced a tremendous increase in demand and sales, particularly during the pandemic. As we moved into a post-pandemic world, companies that had accumulated substantial software began to rationalize, integrate, and update it. This resulted in a significant adjustment for enterprise software firms. Recently, reports indicate that many companies are expressing similar sentiments. AI is projected to be our growth driver moving forward. In the cases we've shared, whether it’s FedEx, Air India, CrowdStrike, or Paychex, we’ve observed not just the installation and integration of our platforms from the past four years but also the incorporation of new capabilities that offer results we couldn't have predicted four years ago. For instance, FedEx's leadership shared what they’ve accomplished, and companies like State Farm are successfully managing millions of policyholders and agents with greater efficiency. We've noted improvements in profitability, employee support, enhanced customer relationships, and increased margins, which reflect the financial benefits of our recent implementations compared to four years ago. It's vital to highlight that Salesforce isn’t just automating every customer interaction; we’re also redefining how we deliver data to our clients. The restructuring of our applications to support this Data Cloud is crucial. It enables our customers to tap into this resource for future growth, profitability, and productivity. This shift is where our company and the entire industry are headed.

And all those things are absolutely true. Marc mentioned earlier that 75% of the benefits of Gen AI will come from the front office, and we're currently experiencing that in the demand from our customers and the pipelines we're establishing. We are seeing strong performance in pipeline generation. I believe customers are organizing their data assets as a necessary step before utilizing AI capabilities, which is evident in the growth of our Data Cloud. Customers are eager to integrate various data capabilities. Therefore, I think it is a gradual process for many of our customers: first, they need to organize their data, and then they can incorporate AI to achieve the productivity improvements we anticipate. That is the current trend we are observing in the market.

Maybe I'll switch subjects. So Marc and Amy, there was some concern in your shareholder base in March and April around media reports related to M&A. I know you can't comment on those reports, not expecting that, but I wonder if you could comment on your M&A framework, whether there has been any change to it at all, I think might be helpful.

I appreciate the opportunity to discuss this, as it's quite significant. Salesforce has a rich history of innovation, both organic and inorganic. The organic growth, like we've witnessed today with Data Cloud, has certainly impressed many. In terms of inorganic innovation, our commerce, marketing, and integration platforms represent products we've acquired, many of which were generating multi-hundred million dollar revenues before becoming multi-billion dollar revenue entities. Some of the largest software companies we know today started off much smaller after being acquired by us. As you know, we've integrated these products into a cohesive offering, which enhances our ability to leverage future artificial intelligence. Looking ahead, we're committed to exploring new levels of innovation, both organically and through acquisitions. Whenever we consider a large acquisition, our priority is to ensure it benefits our customers and meets our performance metrics. We’re also prepared to abandon any opportunities where we lack confidence or trust in the company involved. We remain active in acquiring companies, such as our recent acquisition of Spiff, enhancing our Salesforce automation platform. This addition improves our industry-leading SFA capabilities and integrates seamlessly with Data Cloud, propelling growth for SFA users while also introducing advanced artificial intelligence features. Going forward, we will continue to explore these opportunities, without hesitance to pursue M&A as long as it aligns with our framework. However, we will proceed cautiously with anything that falls outside it. I'd like to invite Amy to elaborate on our M&A framework as we’ve seen remarkable success in that area. We’ve built our Customer 360 on successful acquisitions, providing a robust platform that automates many businesses. As we move forward, we recognize the need to slightly adapt our approach to maintain the impressive financial metrics we deliver, including outstanding cash flow and margins that are rare in the software industry, even surpassing some top consumer companies. To sustain these financial achievements, we will keep focusing on our M&A framework. Amy, please share more on that.

Let me back it up a little bit to talk about our capital allocation strategy overall. And it's really very simple. We are going to continue to expand our free cash flow margin as we scale. We are going to invest in innovation. As Marc said, that is organic and it can be inorganic, if it matches our principles and our goals. And we're going to return cash to shareholders and we're doing that now both through our share repurchase program and our dividend program. Now on the inorganic perspective, as you brought up, we're always going to be opportunistic. M&A has been an incredible part of our past. I'm sure at the right time will be part of our future. But it's got to fit into the framework that we have been outlining for the last few days. We're going to have to have a timeline to value accretion. We're going to need to prioritize our use of the balance sheet and it's got to be a best-in-class asset. And when all that comes together, that's what we'll be focused on. In the meantime, I really want to talk about our goal, we are trying to optimize shareholder value. At the end of the day, that's the single most important element. And we're doing that by focusing on delivering very strong free cash flow per share. We're doing this by our focus on profitable growth and by very carefully managing our dilution. And when you bring that together, I am very confident in our long-term free cash flow per share opportunity and very confident about our capital allocation strategy overall.

This quarter was affected on the booking side. Brian and Amy, what do you think about the two factors you mentioned? One is the economy and the other relates to the sales changes at the beginning of the year. Regarding the economy, we have discussed the challenging selling environment for some time now. Has the situation worsened based on your observations, or are the challenges this quarter primarily related to the sales reorganization?

It is challenging to separate the two factors that impacted our first quarter. We made some changes as we prepared for productivity in fiscal year 2025. The economic conditions seem to mirror what we experienced in the first half of last year, maintaining a measured buying environment. Following a very strong fourth quarter, it feels like we might have been in a similar situation but executed well with our sales team during that time. However, in Q1, we noticed some transactions were smaller when they were finalized compared to what we anticipated. A few deals were postponed, with customers delaying decisions that we expected to finalize in the first quarter. This trend of decision delays is more frequent than we had anticipated. It's difficult to distinguish between these two aspects, but together they contributed to lower bookings, which we experienced in our first quarter.

I would like to share some insights about the current situation within our organization. As we navigate this environment we've been in for a couple of years, we're focused on maintaining strong ACV numbers and overall financial metrics, while also ensuring high customer success to support future growth. This approach involves three key strategies. First, we need to enter each quarter with significantly higher pipelines. Our pipeline multiples are now much larger than what we've seen in the past, which is crucial for effectively managing our distribution organization and achieving success in each quarter. Previously, we would start with a pipeline at a 2 times multiple, but now we're advising our distribution leaders to start at a 3 times multiple. We are also encouraging our peers to assess their pipelines more rigorously, requiring deeper examination while maintaining a higher standard. This reflects the current business environment. If you ask any leader in our company, they can attest to my reminders about the necessity of starting with a 3 times pipeline. The second important factor for all leaders in our company and the industry at large is the need for enhanced enablement. Many newcomers to our industry over the last five to ten years require substantial training and skill development, especially as we embrace new technologies like artificial intelligence, Generative AI, and data capabilities. Understanding how models, user interfaces, data frameworks, our software, and platform architectures function necessitates a high level of training. Companies at scale, like Salesforce, with a large workforce of sales personnel, have a significant demand for this level of enablement, which is the second critical aspect of navigating this environment. The third key factor is maintaining stability. At the start of any fiscal year, sales organizations typically seek to adjust their strategies slightly to align with the forecasted demand. As they write their business plans and consider execution strategies, it's essential to evaluate how much disruption can be tolerated. An excessive shift can lead to increased volatility in ACV throughout the quarter. For instance, while we may not have achieved all our goals in the first quarter last year due to too much disruption, we saw overachievement in the fourth quarter as a result. Therefore, finding a balance between stability and disruption is crucial. In summary, having 3 times pipelines, greater levels of enablement, and enhanced stability are essential for managing the current landscape in our industry. When discussing with my peers at other major enterprise software companies, these are the points I emphasize. Naturally, it's beneficial for them to utilize our products, as they are integral to achieving the success and support they require in this environment.

Marc and team, actually looking at the Salesforce Tower from my office here. And I'm thinking about the past. Marc, you've been through all these cycles before. Maybe it's just cyclical, maybe high interest rates causing economic uncertainty, maybe it's as simple as that, or maybe it's structural. And if it's structural, maybe there's an architectural change going on. And Marc, you drove the last big architectural change from distributed computing to internet computing. And how confident are you that this generative AI, which is causing an upheaval in that whole tech stack is not something to take lightly? And what are the things that the company is preparing if it's not just cyclical or maybe there’s structural change that's going on, what are the things that you are doing to the company to bulletproof, because typically, people incumbents miss big transitions, right? You and I have seen that, we've all seen that. And one of the things you're doing to ensure that, you're bulletproof in that regard that you're absolutely ready architecturally for the next cycle.

I would like to make a couple of comments on that. First, using OpenAI over the past year has been remarkable, especially with the latest release where I can really interact with it. The engineering effort from OpenAI is impressive. They've created an excellent user interface, and I enjoy engaging with the software. Their models, particularly the new 40 model, are very strong. They source data from numerous companies like Time, Dow Jones, New York Times, and Reddit. Those companies are now making amends and compensating for their data use. OpenAI has normalized that data and compiled a thorough dataset for training their model, and we all recognize the significance of that. They have a fantastic interface, an amazing model, and extensive data. We've also seen many fast follower models, whether they are open source like Lama 3 or proprietary like Google's Gemini. There are now thousands of models available. On platforms like Hugging Face, everyone seems to be playing catch-up, and within six months, everyone's progress tends to converge. In the consumer space, many companies are now realizing the importance of properly handling data and are facing the consequences of their past actions. The enterprise landscape, however, is somewhat different. We develop excellent user interfaces and applications that our millions of users utilize, while often employing the same models, or even creating our own. The critical factor in enterprise is the data, which poses its own challenges. The task of assembling large, fully normalized datasets to provide exceptional capabilities is where true innovation will emerge. For all companies wanting to integrate generative AI internally, it won’t be external sources like Times Magazine that give intelligence; it will be the customer data, transaction histories, operational workflows, and metadata that drive insights. We can indeed enhance productivity through this approach. However, it is essential to structure it correctly. While the architecture may differ, fundamentally, we still need an outstanding user interface, effective models, and highly normalized and federated data. This data must be both stored and sourced appropriately. This need for robust data management will persist as models and interfaces evolve over time, while our core data sources remain constant. Looking at Salesforce's efforts, it's clear that our customers will benefit significantly. We may introduce new user interfaces, like the recent advancements with Slack AI and the updates to our service offerings, but ultimately, the importance of deeply normalized and federated data sources will grow. Our partnership with companies like State Farm has transformed; we've become their foundational data architecture, a significant shift for us compared to four years ago. They now view us as integral to their future strategies which includes deploying agents and new interfaces to enhance productivity. Our capability to manage, share, and ensure data reliability and scalability, and the way we execute updates without disrupting systems, sets us apart from many competitors. This will be a vital driver for our growth moving forward and will shape the future of the enterprise landscape, distinct from the consumer space.

Great. We want to thank everyone for joining the call today, and we look forward to seeing everyone over the coming weeks.