Salesforce Inc (CRM) — Q2 2025 Earnings Call Transcript

Good afternoon. Thanks for joining us today on our fiscal 2025 second 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 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 materially differ 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.

All right. Thanks so much, Mike. And thanks, everyone, for being on the call. We got so many exciting things to talk about today, and we're so excited to be with you. And we're also getting really excited for Dreamforce, so looking forward to that. A year ago on this call, we talked about two amazing transformations. We're transforming Salesforce for as we were talking about the short and the long term, which was really code words for really addressing our financials, but really looking at this incredible AI opportunity. And now we look at a year later, I just couldn't be more excited about how these two transformations are driving the success of the company. And really, I don't think I've been more excited about the history of Salesforce and now the future of Salesforce. And how well-positioned we are for the future. And you can see it in our numbers with strong performance across revenue, cash flow, margin, and CRPO. The numbers are beyond my expectation in the quarter. You can see that it's pretty awesome. You can also see the incredible innovation in our product and engineering teams that are delivering the success of our customers, and we're going to talk about a whole different kind of Salesforce today, a different kind of architecture and a product that we didn't even talk about on the last earnings call, that is going to be fundamental to our future and a manifestation of our decade of AI leadership, which is Agent Force. Now, just in a few weeks, we're going to kick off Dreamforce. And I hope all of you are planning to be there, the largest AI event in the world, with more than 45,000 trailblazers in San Francisco. This year, Dreamforce is really becoming Agent Force. It's a funny thing about Agent Force; even one of our very top executives in engineering sent me a text last week and said, 'Hey, should we be renaming the company from Salesforce to Agent Force?' because we're all getting so excited about Agent Force. I told Mike that I really want to make sure all of you are there and to do what he can to put together an analyst briefing at Dreamforce. I gave him a huge budget to really motivate everyone, because I think this is going to be a moment that everyone is going to have to see in person to understand what is going on. We're going to show our new Agentforce agents and how we've reimagined enterprise software for this new world of autonomous AI. Every customer I want to get every customer who comes to Dreamforce to turn agents on while they're there. So many of the customers, of course, are already using our applications, and of course, we're automating all our customer touch points. That's our Customer 360, and we've been talking now for the last couple of years about how we've really built this phenomenal Data Cloud that has really become our fastest-growing, most exciting product ever up until one that we're about to talk about, which is to help our customers amalgamate all the data that they need to get their AI act in order. This involves getting their data and metadata integrated and then federated to other data sources, and then this critical third tier, which is the first call that we've ever talked about, which is these agents. This idea that you're not just going to have sales agents and service agents; you probably heard, maybe saw on CNBC, we're building the agents for Workday. We're going to be building custom agents for so many of you as well with Agentforce, because it is a development platform as well as this incredible capability to radically extend your sales and service organizations. When you arrive at the Dreamforce campus, you're going to see a big sign that says, 'Humans with agents drive customer success together.' That's because we now believe the future isn't about having a sales force or a service force or a marketing force or a commerce force or an analytics force; the future is about also having an agent force. While many customers today don't yet have agent forces, but they do have sales forces or service forces, I assure you that within a year, we're all going to have agent forces at scale. It's going to radically extend our companies, augment our employees and make us more productive. It's going to turn us into these incredible margin and revenue machines. This is really the future, a future that we can envision, and with this Agentforce platform, we're making it easy to build these powerful autonomous agents for sales, for service, for marketing, for commerce, automating entire workflows on their own, embedding agents in the flow of work and getting our customers to the agent future first. This is our primary goal of our company right now. This is my singular focus. At Dreamforce and on this call, you're going to hear a lot of stories about customers, and we're going to talk about customers who have it, like OpenTable, Wiley, ADP, RBC, and many others who are deploying these agents and running them on top of our Data Cloud and our apps. You're going to hear about one of the largest healthcare companies in the world that's resolving more than 90% of all patient inquiries with Agent Force. They are benchmarking us significantly higher than any other competing AI platform based on some incredible AI breakthroughs that we have had at Salesforce. I just have to call out the quality of our research team, engineering team, and product team because the accuracy of our results, the reduction of hallucinations, and the level of AI capability is unlike anything that any of us have ever seen. We've got some incredible new techniques, especially some remarkable new augmented RAG techniques that are delivering us the capability to deliver this accuracy for our customers. In fact, one large media company that we work with is resolving 90% of all employee and consumer issues with Agent Force. There's nothing more transformational on the technology horizon than agents, and Salesforce is going to be the first company at scale to deploy enterprise agents and not just any enterprise agents, but the highest quality, most accurate agents in the world. All of this, with our continued focus on trust, on customer success, on innovation is driving the results you see today. In Q2, we delivered $9.33 billion in revenue, up 8% year-over-year in nominal terms and 9% in constant currency. Subscription and support revenue grew at 9% year-over-year and 10% in constant currency. For the 11th year in a row, Salesforce ranked as the number one CRM provider by the IDC Software Tracker. And of course, Salesforce is the number one AI CRM. We claim we are the third largest enterprise software company, but if you look at our enterprise software, I think we just became the second largest enterprise software company because we are not delivering infrastructure or hardware and we've already passed Oracle in Japan. We continue to see growth in multi-cloud deals, where multi-cloud deals accounted for close to 80% of our new business in the quarter. We're operating at this incredible scale, delivering 25 trillion Einstein transactions across all clouds during the quarter—25 trillion—and managing 250 petabytes of data for our customers. We also continue to deliver on margin growth, and many of you have guided us through that transformation. Our second quarter non-GAAP operating margin was 33.7%, up 210 basis points year-over-year. Cash flow was $892 million, up 10% year-over-year. Turning to financial guidance: for fiscal year '25, we expect revenue at $37.7 billion to $38 billion, growing 8% to 9% year-over-year. Subscription and support revenue growth of approximately 10% year-over-year in constant currency. We've committed to very profitable growth at this incredible level of scale, and we're raising our fiscal '25 non-GAAP operating margin to 32.8%, a 230 basis point improvement year-over-year. We're also raising our operating cash flow guidance to 23% to 25% year-over-year. I'm proud of our team's focus and determination in delivering these great results, which you'll hear more about in a moment. AI is now at the top of my mind, and I can tell you that after meeting with hundreds of customers this quarter, it is top of mind for every customer, every CEO, every CIO. However, there are misconceptions about AI. I've been disappointed with the money so many customers have wasted trying to DIY their AI. It's not unlike when cloud emerged, thinking they can roll their own and build it themselves. And they won't do it better than we can. We're a professional enterprise software company, and we do it with the trust and scale they need. This idea that our customers will build their own models, train their own models, retrain their own models, is less effective than utilizing our models and capabilities, which don't require this additional training. The past 18 months have shown an evolution from basic chatbots to delivering intelligent conversational capabilities like these agents. We've created an out-of-the-box platform to deliver this for them, enabling service replies, recommendations, account summaries, and report generation. The level of automation, the amount of code our team has written, the transformation of our platform in the past 18 months is remarkable. They can take the platform and customize it for their own needs without writing a lot of code, deploying in days, not weeks, and getting immediate ROI. The stories from customers have been incredible. We are seeing significant breakthroughs in productivity and the augmentation of employees' workflows thanks to our Agentforce platform. Many customers have shared their positive outcomes with us. One of the best examples is Wiley, who reported a double-digit percentage increase in customer satisfaction and case resolution compared to older technologies. They no longer have to hire gig workers to surge their sales and service organization during peak times. OpenTable is another great story successfully managing thousands of restaurants and millions of diners by utilizing Agentforce for service. This is driving incredible productivity enhancements for them. With all this innovation, we see strong growth potential in our sales and service clouds, as customers extend their sales and service organizations with agents. Over the coming months, we'll be releasing agents for various roles, including industry-specific agents. Our Agentforce platform wouldn’t be possible without our Data Cloud, as it's the foundation for every AI transformation. Data is the key to delivering super accurate AI. Our Data Cloud is our fastest-growing product; in Q2, the number of paid customers grew 130% year-over-year, and it processed 2.3 quadrillion records with 110% platform consumption growth year-over-year. Salesforce has been committed to building CRM apps that allow customers to connect with theirs in an entirely new way, automating every touchpoint, while now bringing apps, data, and agents together into one unified platform, allowing us to deliver incredible functionality and high levels of accuracy. From meeting with customers, I can firmly state that building agents without a complete integrated platform is risky and chaotic. I just came from a Dreamforce focus group with a large CIO who wanted to know why he was building his own models when he could use ours. Every customer is spending millions, but are they achieving the desired results? It's reminiscent of the cloud's early days. Customers don’t need to DIY; they can leverage our platform to deliver what they need. I'm very excited about the new Agentforce ecosystem. At Dreamforce, we're aiming for a high-quality experience, encouraging everyone to participate and explore how AI will revolutionize enterprises. Thank you for being here today, and I'm excited to welcome my colleague Brian to share more.

Thank you, Marc. It’s hard to follow that. I want to echo the comments about Amy, a leader who has been an amazing partner and role model for many at our company. Thank you, Amy. I want to start by thanking the team for strong execution. We continue to operate at tremendous scale. This is reflected in the quarter with momentum in multi-cloud deals, international expansion, industry solutions, Salesforce ecosystem, and AI innovations across all our clouds. As you heard from Marc, our new Agentforce platform is a game changer for customers and a significant opportunity for us moving forward. We've seen overwhelmingly positive feedback from pilot customers like Wiley and OpenTable. Agentforce integrates core metadata framework into Data Cloud and Einstein, enhancing our Customer 360 apps in ways we didn't think were possible. We’re accelerating the move from AI hype to AI reality for thousands of customers with amazing capabilities across our entire AI product portfolio. We've signed 1,500 AI deals in Q2 alone. Some of the world's leading brands, including Bombardier, are utilizing AI solutions to enhance sales strategies with recommendations via our Einstein products. As companies transition into AI enterprises, we’ve launched a new Salesforce CTO team to help them create and execute their AI journey plans. As a 'Customer Zero' for our products, we experience great results. Notably, 35,000 employees are now using Einstein as a trusted AI assistant. Since launching Slack AI, we've created summaries for over 500,000 channels, saving nearly 3 million hours of work. We plan to deploy Agentforce agents soon to increase productivity and better manage experiences for our employees and customers at scale. Data Cloud is highly strategic, with organizations like American Family Insurance and Adecco leveraging it to enhance customer relationships and operational efficiencies. CEOs recognize that we’ve never been more relevant in supporting their transition into AI-powered companies. Multi-cloud continues to drive our growth effectively, with nearly 80% of our new business in the quarter coming from multi-cloud deals. Companies like Wyndham Hotels are transforming guest experiences using Sales Cloud, Service Cloud, Marketing Cloud, Data Cloud, and Einstein. We're excited to share our new industry AI toolkit at Dreamforce, which features over 100 customizable AI-powered actions. Our channel diversification strategy is also working well, recording three of our top ten deals through the AWS marketplace. We’re building an Agentforce ecosystem where companies can develop agents for various use cases. In conclusion, I want to thank the team for their solid execution in Q2. Dreamforce is around the corner, and I can’t wait to welcome all of you, either in person or virtually, to see how humans and agents can work together to foster customer success in the next generation of CRM.

Thank you, Marc and Brian, for your very kind words. It's been a privilege to work with you, and I want to thank the entire team of hardworking, dedicated Salesforce employees, especially during this incredible journey. I also want to thank our investment community and our shareholders for your continued support of Salesforce. It's been a pleasure working with you through our transformation journey. Moving to the quarter, I want to echo the team's dedication with strong execution in Q2. Revenue was $9.33 billion, up 8% year-over-year in nominal terms and 9% in constant currency, exceeding expectations due to resilience in our core products and services. Subscription and support revenue grew 9% year-over-year in nominal and 10% in constant currency. The Americas revenue grew 7%, while EMEA grew 11% and APAC grew 9%. We saw strong new business growth in Japan, India, and Canada, while the U.S. and parts of EMEA remain constrained. Our subscription support revenue saw double-digit constant currency growth attributed to a premium mix shift and pricing discipline. Multi-cloud continues to be a powerful growth lever. In Q2, around 16,000 customers added a new cloud, with over 4,500 adding two or more. Moreover, our Data Cloud showed remarkable acceleration with 130% year-over-year growth in paid customers. Operating cash flow grew 10% year-over-year to $892 million. For fiscal year '25, we are holding the revenue guidance between $37.7 billion to $38 billion, growing approximately 8% to 9% year-over-year. On margins, we are raising fiscal '25 non-GAAP operating margin to 32.8%, a 230 basis point improvement year-over-year. Stock-based compensation is expected to be 8.4% as a percent of revenue. This fiscal year, we expect to fully offset dilution from stock-based compensation. In closing, I am pleased with our strong execution this quarter as we keep our focus on profitable growth, optimizing free cash flow, and I hope you can participate in Dreamforce to experience our new Agentforce platform and incredible innovations happening at Salesforce, whether virtually or in person. Thank you.