Salesforce, Inc. Conference Call Summary Company Overview - **Company**: Salesforce, Inc. (NYSE:CRM) - **Date**: March 5, 2024 - **Participants**: Amy Weaver (President & CFO), Keith Weiss (Morgan Stanley) Key Points Company Transformation and Financial Performance - Salesforce has undergone a significant transformation over the past 12 to 24 months, achieving a notable increase in operating margin from approximately 17% to over 30%, with an 800 basis point gain last year [3][4] - Revenue growth remains strong, with double-digit growth reported and free cash flow increasing by 50% last year [3] - The stock price has risen nearly 150% from its low at the beginning of last year [3] Focus on Data Cloud and AI - The company is particularly excited about its Data Cloud, which is seen as a critical product in the context of the growing importance of data and AI [4][10] - Data Cloud had an Annual Recurring Revenue (ARR) approaching $400 million, indicating strong market acceptance for a new product [31] - The focus on generative AI has surged, with mentions increasing from once in a call to 53 times in a subsequent call, reflecting the rapid shift in market dynamics [9] Market Environment and Spending Trends - The current buying environment is described as measured, with elongated sales cycles and additional approvals required for deals [13][14] - CIOs are under pressure to prioritize spending on AI and data, which could benefit Salesforce [14] - The company does not anticipate a significant improvement in the overall spending environment for FY25, but expects to improve execution [20] Pricing Strategy and Bundling - Salesforce implemented a price increase in August 2023, which has been well-received by customers, and is expected to roll out over a three-year period [22][23] - The company is focusing on bundling products to simplify purchasing for customers and enhance sales efficiency, with new bundles like the Einstein One Platform [25][27] - Bundling is expected to drive both top-line and bottom-line growth, as it allows for a more streamlined sales process [25] Margin Expansion and Cost Management - Salesforce achieved an additional 200 basis points of margin expansion for FY25, building on the previous year's 800 basis point increase [34] - Cost management strategies include a reduction in headcount and real estate, as well as leveraging pricing and bundling strategies [37][38] - Sales and marketing expenses as a percentage of revenue have decreased from nearly 40% to around 31-32% [40] Capital Allocation and Shareholder Returns - The company announced a $10 billion increase in its buyback program and initiated a dividend, marking a significant shift in its capital allocation strategy [42][44] - The dividend is seen as a commitment to returning value to shareholders, complementing the buyback strategy [45] Future Growth Opportunities - Industry clouds are highlighted as a strong growth initiative, with $4.8 billion in ARR growing at 20%, and 45% of customers being new logos [55][56] - The potential for cross-selling within the existing customer base is significant, as many customers utilize only a few of Salesforce's cloud offerings [58] - The integration of Data Cloud with other products is expected to enhance overall product value and customer retention [58] Generative AI and Product Development - Generative AI is anticipated to have a significant impact on marketing and service cloud applications, with early indications of product-market fit [66] - The company is cautious about the costs associated with generative AI, ensuring that pricing models include consumptive elements to manage gross margins effectively [63] Additional Insights - The company is focused on maintaining credibility with investors regarding future M&A activities, emphasizing responsible acquisitions that align with long-term goals [51][53] - Salesforce aims to reduce stock-based compensation as a percentage of revenue to below 8%, down from double digits previously [49][50]

Part I [Business Overview](index=5&type=section&id=Item%201.%20Business) Salesforce is a global leader in CRM technology, providing the AI-powered Customer 360 platform that unifies sales, service, marketing, commerce, and IT. The company's strategy focuses on expanding relationships with existing customers, increasing geographic and industry reach, leveraging its partner ecosystem, and ensuring strong customer adoption. It also pursues growth through strategic acquisitions and investments. As of January 31, 2024, the company had 72,682 employees - Salesforce is a global leader in customer relationship management (CRM) technology, enabling companies to connect with customers through its AI-powered Customer 360 platform[11](index=11&type=chunk) - The company's growth strategy includes expanding relationships with existing customers, increasing global reach, focusing on industry-specific solutions, and leveraging its partner ecosystem[20](index=20&type=chunk) - As of January 31, 2024, Salesforce had **72,682 employees**, with approximately **51%** located in the United States and **49%** internationally[31](index=31&type=chunk) [Service Offerings](index=6&type=section&id=Our%20Service%20Offerings) The Customer 360 platform integrates AI-driven tools for sales, service, marketing, commerce, and analytics, along with the Einstein AI platform and Data Cloud - The Customer 360 platform integrates various service offerings: - **Sales:** AI-driven tools to automate sales processes and manage leads - **Service:** An integrated platform for customer and field service, using AI to improve agent productivity - **Platform and Other:** Includes the Einstein AI platform, AppExchange marketplace, Trailhead learning platform, and Slack for productivity - **Marketing and Commerce:** Tools for personalized marketing journeys and streamlined e-commerce experiences - **Integration and Analytics:** MuleSoft for data integration and Tableau for data analytics - **Data Cloud:** A hyperscale data engine to create a unified 360-degree customer view - **Industries:** Vertical-specific solutions for sectors like financial services and healthcare[12](index=12&type=chunk)[14](index=14&type=chunk)[17](index=17&type=chunk) [Competition](index=9&type=section&id=Competition) The market is highly competitive and fragmented, with diverse competitors ranging from packaged software vendors to niche providers - The market is highly competitive and fragmented. Key competitors include vendors of packaged business software, companies offering free or bundled services, niche software providers, productivity tool providers, and platform development companies[24](index=24&type=chunk)[25](index=25&type=chunk) [Human Capital Management](index=11&type=section&id=Human%20Capital%20Management) Salesforce employs 72,682 people globally, focusing on equality, talent development, and employee engagement through its V2MOM alignment tool - As of January 31, 2024, the company employed **72,682 people**. Approximately **36%** identified as women, **64%** as men, and less than **1%** as non-binary or other. The company focuses on equality, talent development, competitive rewards, and employee engagement through its V2MOM alignment tool and Code of Conduct[31](index=31&type=chunk)[34](index=34&type=chunk)[35](index=35&type=chunk) [Risk Factors](index=12&type=section&id=Item%201A.%20Risk%20Factors) The company identifies numerous risks across operational, strategic, legal, financial, and general categories. Key risks include cybersecurity breaches, service disruptions, reliance on third-party infrastructure, challenges in integrating acquisitions, intense market competition, evolving data privacy regulations (like GDPR and CCPA), and volatility in financial markets and stock price - **Operational Risks:** Security breaches, service disruptions, reliance on third-party data centers and cloud providers, difficulties integrating acquisitions, and customer attrition[40](index=40&type=chunk) - **Strategic & Industry Risks:** Intense competition, failure to innovate in areas like AI, potential brand damage, and social or ethical issues related to product use[41](index=41&type=chunk) - **Legal & Regulatory Risks:** Evolving data privacy laws (e.g., GDPR, CCPA), restrictions on cross-border data transfers, and potential lawsuits for intellectual property infringement[42](index=42&type=chunk) - **Financial & Stock-Related Risks:** Fluctuations in quarterly results due to subscription-based revenue, currency exchange rate volatility, debt service obligations, and stock price volatility[43](index=43&type=chunk) [Cybersecurity](index=35&type=section&id=Item%201C.%20Cybersecurity) Salesforce maintains a comprehensive cybersecurity program overseen by the Board's Cybersecurity and Privacy Committee and managed day-to-day by the Chief Trust Officer (CTrO). The strategy is based on recognized frameworks like NIST and ISO, involving regular testing, audits, and threat intelligence. Management's approach covers risk identification, technical safeguards, incident response, third-party risk management, and employee education. No cybersecurity incidents in the last fiscal year were identified as having a material effect on the company - The company did not identify any cybersecurity threats or incidents during the last fiscal year that materially affected its business, operations, or financial condition[86](index=86&type=chunk) - Cybersecurity risk management is overseen by the Board's Cybersecurity and Privacy Committee and implemented by the Chief Trust Officer (CTrO), leveraging frameworks from NIST and ISO[87](index=87&type=chunk)[88](index=88&type=chunk) - The company's cybersecurity strategy includes technical safeguards, incident response planning, third-party risk management, and mandatory employee training to address evolving threats[90](index=90&type=chunk) [Properties](index=37&type=section&id=Item%202.%20Properties) As of January 31, 2024, the company's principal offices in San Francisco consist of approximately 0.9 million square feet of leased and owned property, with an additional 2.0 million square feet available for lease to others. Salesforce also leases office space globally and operates data centers in the U.S., Europe, and Asia through co-location arrangements - The company's principal offices in San Francisco comprise **0.9 million sq. ft.** of operational space and **2.0 million sq. ft.** that is leased to others or available for lease, reflecting office space reductions[93](index=93&type=chunk) [Legal Proceedings](index=38&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various legal matters in the ordinary course of business, including claims related to intellectual property, commercial disputes, and class actions. Provisions are made when a liability is probable and the amount can be reasonably estimated. More detailed information is available in Note 14 of the financial statements - The company is involved in various legal proceedings and makes provisions for liabilities when the loss is probable and reasonably estimable. For more details, the report refers to Note 14[94](index=94&type=chunk)[95](index=95&type=chunk) [Information About Our Executive Officers](index=38&type=section&id=Item%204A.%20Information%20About%20Our%20Executive%20Officers) This section lists the company's executive officers as of February 29, 2024, including their age, position, and a brief biography. Key executives include Marc Benioff (Chair & CEO), Parker Harris (Director & CTO, Slack), Amy Weaver (President & CFO), and Brian Millham (President & COO) - Provides a list and biographies of key executive officers, including Marc Benioff (Chair, CEO, co-Founder), Parker Harris (Director, CTO Slack, co-Founder), and Amy Weaver (President, CFO)[96](index=96&type=chunk)[97](index=97&type=chunk) [Other Part I Disclosures](index=35&type=section&id=Other%20Part%20I%20Disclosures) This section notes that there were no unresolved staff comments from the SEC and that disclosures related to mine safety are not applicable to the company's business - The company reports no unresolved staff comments[86](index=86&type=chunk) - Mine safety disclosures are not applicable[96](index=96&type=chunk) Part II [Market for Common Equity, Stockholder Matters, and Issuer Purchases](index=39&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Salesforce's common stock trades on the NYSE under the symbol "CRM". In February 2024, the company announced its first-ever quarterly cash dividend of $0.40 per share. The company also has a significant share repurchase program, with an aggregate authorization of $30.0 billion. During Q4 FY24, 7 million shares were repurchased - In February 2024, the company declared its first-ever quarterly cash dividend of **$0.40 per share**[102](index=102&type=chunk) Share Repurchases (Q4 FY2024) | Period | Total Number of Shares Purchased (millions) | Average Price Paid Per Share | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (billions) | | :--- | :--- | :--- | :--- | | November 2023 | 3 | $217.99 | $9.4 | | December 2023 | 2 | $258.80 | $8.9 | | January 2024 | 2 | $269.84 | $8.3 | - The Board has authorized a total of **$30.0 billion** for the Share Repurchase Program. As of January 31, 2024, **$8.3 billion** remained available for repurchase under the program before a subsequent **$10.0 billion** authorization in February 2024[107](index=107&type=chunk) [Management's Discussion and Analysis (MD&A)](index=42&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In fiscal 2024, Salesforce achieved 11% revenue growth to $34.9 billion, driven by strong performance across its service offerings. Operating margin significantly improved to 14% from 3% in the prior year, reflecting the success of its Restructuring Plan and cost control measures. Operating cash flow increased 44% to $10.2 billion. The company faced macroeconomic headwinds, including elongated sales cycles, but continued to invest in growth areas like generative AI. Key sources of revenue remain subscription and support (93% of total), with a stable customer attrition rate of approximately 8% Fiscal 2024 Financial Highlights | Metric | Fiscal 2024 | Change (YoY) | | :--- | :--- | :--- | | Revenue | $34.9 billion | +11% | | Income from Operations | $5.0 billion | +400% | | Operating Margin | 14% | +11 p.p. | | Diluted EPS | $4.20 | +1900% | | Cash from Operations | $10.2 billion | +44% | | Remaining Performance Obligation | $56.9 billion | +17% | - The company's Restructuring Plan, initiated in January 2023, was intended to reduce operating costs and improve margins. In fiscal 2024, the company incurred approximately **$988 million** in related costs[111](index=111&type=chunk)[112](index=112&type=chunk) - Despite macroeconomic pressures causing elongated sales cycles and deal compression, the company maintained a customer attrition rate of approximately **8%** as of January 31, 2024[112](index=112&type=chunk)[114](index=114&type=chunk) [Results of Operations (FY2024 vs. FY2023)](index=48&type=section&id=Results%20of%20Operations) Fiscal 2024 saw revenue growth across all service offerings and geographies, with significant improvements in operating expenses due to restructuring Revenues by Service Offering (in millions) | Service Offering | FY2024 Revenue | FY2023 Revenue | Growth Rate | | :--- | :--- | :--- | :--- | | Sales | $7,580 | $6,831 | 11% | | Service | $8,245 | $7,369 | 12% | | Platform and Other | $6,611 | $5,967 | 11% | | Marketing and Commerce | $4,912 | $4,516 | 9% | | Integration and Analytics | $5,189 | $4,338 | 20% | | **Total Subscription & Support** | **$32,537** | **$29,021** | **12%** | Revenues by Geography (in millions) | Geography | FY2024 Revenue | FY2023 Revenue | Growth Rate | | :--- | :--- | :--- | :--- | | Americas | $23,289 | $21,250 | 10% | | Europe | $8,128 | $7,163 | 13% | | Asia Pacific | $3,440 | $2,939 | 17% | | **Total Revenues** | **$34,857** | **$31,352** | **11%** | - Operating expenses decreased to **61% of revenue** in FY2024 from **70%** in FY2023, driven by reductions in marketing & sales and general & administrative costs due to restructuring initiatives[136](index=136&type=chunk)[138](index=138&type=chunk) - The company recorded net losses on strategic investments of **$277 million** in FY2024, primarily from impairments on privately held securities[139](index=139&type=chunk) [Liquidity and Capital Resources](index=52&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with $14.2 billion in cash and equivalents, supported by robust operating cash flow and managed debt - As of January 31, 2024, principal sources of liquidity were **$14.2 billion** in cash, cash equivalents, and marketable securities, and **$11.4 billion** in accounts receivable[143](index=143&type=chunk) Cash Flow Summary (in millions) | Cash Flow Activity | FY2024 | FY2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $10,234 | $7,111 | | Net cash used in investing activities | ($1,327) | ($1,989) | | Net cash provided by (used in) financing activities | ($7,477) | ($3,562) | - As of January 31, 2024, the company had outstanding senior unsecured debt with a total carrying value of **$9.4 billion**[148](index=148&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=54&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Salesforce is exposed to financial market risks, primarily from foreign currency exchange rates, interest rate changes, and the value of its strategic investments. The company uses foreign currency forward contracts to mitigate exchange rate risk. Its fixed-income portfolio is subject to interest rate risk, where a 100-basis-point change could alter its market value by $63 million. The strategic investment portfolio, valued at $4.8 billion, carries significant risk, particularly from unquoted private company holdings - The company is exposed to foreign currency risk from operating in multiple currencies, primarily the Euro, British Pound, and Japanese Yen. It uses forward contracts to mitigate this risk[156](index=156&type=chunk)[157](index=157&type=chunk) - The company's fixed-income portfolio is subject to interest rate risk. An immediate **100 basis point change** in interest rates could result in a **$63 million** change in market value[159](index=159&type=chunk) - The strategic investment portfolio, with a carrying value of **$4.8 billion** as of January 31, 2024, is exposed to market volatility. A hypothetical **10% decrease** in the enterprise value of its largest privately held securities could reduce the portfolio's carrying value by approximately **$107 million**[163](index=163&type=chunk)[165](index=165&type=chunk) [Financial Statements](index=57&type=section&id=Item%208.%20Financial%20Statements) This section contains the company's audited consolidated financial statements for the fiscal year ended January 31, 2024, and the report from the independent registered public accounting firm, Ernst & Young LLP. The report provides an unqualified opinion on both the financial statements and the effectiveness of internal controls. Key statements include the Consolidated Balance Sheets, Statements of Operations, Comprehensive Income, Stockholders' Equity, and Cash Flows, along with detailed notes covering significant accounting policies, revenue, investments, debt, and restructuring - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements and the company's internal control over financial reporting[171](index=171&type=chunk)[180](index=180&type=chunk) - The auditor identified two Critical Audit Matters: Revenue Recognition, due to significant judgment in determining performance obligations and standalone selling prices, and Impairment of Strategic Investments, due to the judgment required in assessing impairment of privately held securities[175](index=175&type=chunk)[177](index=177&type=chunk) Consolidated Statement of Operations Highlights (in millions) | Line Item | FY2024 | FY2023 | FY2022 | | :--- | :--- | :--- | :--- | | Total revenues | $34,857 | $31,352 | $26,492 | | Gross profit | $26,316 | $22,992 | $19,466 | | Income from operations | $5,011 | $1,030 | $548 | | Net income | $4,136 | $208 | $1,444 | [Note 2: Revenues](index=74&type=section&id=Note%202.%20Revenues) Remaining Performance Obligation (RPO) and unearned revenue show significant growth, indicating strong future contracted revenue - Remaining Performance Obligation (RPO), representing contracted future revenue, was **$56.9 billion** as of January 31, 2024, up from **$48.6 billion** the prior year. Current RPO was **$27.6 billion**[241](index=241&type=chunk) - Unearned revenue increased to **$19.0 billion** as of January 31, 2024, from **$17.4 billion** a year prior[239](index=239&type=chunk) [Note 10: Restructuring](index=83&type=section&id=Note%2010.%20Restructuring) The company incurred $988 million in restructuring charges in fiscal 2024, primarily for workforce reductions and office space optimization - In fiscal 2024, the company incurred **$988 million** in restructuring charges, primarily from its January 2023 plan. This included **$541 million** for workforce reduction (severance, benefits) and **$447 million** for office space reductions[276](index=276&type=chunk)[277](index=277&type=chunk) [Note 14: Legal Proceedings and Claims](index=90&type=section&id=Note%2014.%20Legal%20Proceedings%20and%20Claims) The company is involved in ongoing class action lawsuits related to Slack's 2019 direct listing, with one case remanded to the Ninth Circuit - The company is party to several purported class action lawsuits filed against Slack and its directors in connection with its 2019 direct listing. The litigation is ongoing, with one federal case having been heard by the U.S. Supreme Court and remanded back to the Ninth Circuit[301](index=301&type=chunk) [Controls and Procedures](index=92&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of January 31, 2024. Management's report on internal control over financial reporting, based on the COSO framework, also concluded that controls were effective. The independent auditor, Ernst & Young LLP, concurred with this assessment. No material changes to internal controls were reported in the fourth quarter - Management concluded that the company's disclosure controls and procedures were effective as of January 31, 2024[307](index=307&type=chunk) - Management's assessment concluded that internal control over financial reporting was effective, an opinion audited and confirmed by Ernst & Young LLP[308](index=308&type=chunk) [Other Part II Disclosures](index=92&type=section&id=Other%20Part%20II%20Disclosures) This section notes that there were no disagreements with accountants on financial disclosure. It also discloses the adoption of Rule 10b5-1 trading plans by several executive officers, including CEO Marc Benioff. Disclosures regarding foreign jurisdictions that prevent inspections are not applicable - There were no changes in or disagreements with accountants on accounting and financial disclosure[306](index=306&type=chunk) - Several executives, including Marc Benioff (CEO), Brian Millham (COO), and Srinivas Tallapragada (Chief Engineering Officer), adopted Rule 10b5-1 trading arrangements during the fourth quarter[312](index=312&type=chunk) Part III (Incorporated by Reference) Items 10 through 14, which cover Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, Certain Relationships and Related Transactions, and Principal Accountant Fees and Services, are incorporated by reference from the company's definitive proxy statement for its 2024 Annual Meeting of Stockholders - Information required for Item 10 (Directors, Executive Officers and Corporate Governance), Item 11 (Executive Compensation), Item 12 (Security Ownership), Item 13 (Certain Relationships and Related Transactions), and Item 14 (Principal Accountant Fees and Services) is incorporated by reference from the company's 2024 Proxy Statement[315](index=315&type=chunk)[317](index=317&type=chunk)[321](index=321&type=chunk)

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