Salesforce Inc ($CRM) Q4 2025 Earnings Call

Yeah, and that's awesome, but we also passed an incredible milestone with more than 60 billion in RPO. That I don't think we could have expected. So, this is this milestone isn't just a number, it's a clear signal that our customers are trusting us, deploying us, getting great value from us, and continuing to invest in our vision for digital labor. I mean, I think it's going to be that digital labor vision, that revelation that we're able to provide digital labor at scale with this trinity of apps, data, and agents that is going to drive this fiscal year '26 success. We expect to deliver fiscal year '26 subscription and support revenue of 9% year-over-year in constant currency. We remain deeply committed to profitable growth and expect fiscal year '26 non-GAAP operating margin of 34%. We're going to deliver another 100 basis points of expansion following 2 years where we expanded more than 1,000 basis points. The pace of change, the focus on productivity, profitability, the speed of innovation, the trinity of apps, data, and agents, it's all coming together. As I mentioned, we're seeing customers deploy Agent Force across every industry. Let's talk about a couple of examples. We've been working with Lennar, the nation's largest homebuilder. And most of you know Lennar is really an incredible company, and they've been a customer of ours for about 8 years. They came to Dreamforce. And when they came to Dreamforce, they obviously got their hands, like many of you did, on Agent Force, got super excited, went back to Miami, talked to their co-CEOs. You probably know Stuart Miller, Jon Jaffe, amazing CEOs. And those co-CEOs called me and said, 'Listen, these guys have done a hackathon around Agent Force. We've got five use cases. We see incredible opportunities on our margin, incredible opportunities on our revenue, and do you have our back if we're going to deploy this?' And we said, 'Absolutely. We've deployed it ourselves, which is the best evidence this is real.' And they are just incredible. Their vision as a homebuilder providing 24/7 support, sales leads through all their digital channels. They're able to sell all kinds of new products. I think they're going to sell mortgages and insurance and all kinds of things to their customers. And you know, the cool thing is, they're using our sales product, our service product, marketing, MuleSoft, Slack, Tableau. They use everything. But they're able to leverage it all together by realizing that just by turning it on, they get this incredible Agent Force capability. All right, I want to tell you another story, not just about Lennar and transforming a homebuilder, but I don't know how many of you know about Pandora. You've been to a shopping center, you see the Pandora store, you walk in, they have this gorgeous jewelry, they have these cool charm bracelets, they have amazing products. And if you know their CEO, Alex, he's absolutely phenomenal. I think he's based over in Amsterdam or he's in the Netherlands. I can't remember where it is, but one of the northern European countries. Incredible CEO. Time actually just gave them an award as one of the most sustainable companies in the world. Great company. You know, they're in 100 countries, they employ 37,000 people worldwide. And Alex has this great vision to augment their employees with digital labor. And this idea that whether you're on their website or in their store or whatever it is that they're going to be able to do so much more with Agent Force. They already use Commerce Cloud. So, if you've been to pandora.com and bought their products, and you know, if you haven't, by the way, it's completely worthwhile. It's great. And you can experience our Commerce Cloud, but it's deeply integrated with our Service Cloud, with Data Cloud. It's the one unified platform approach. And now, they're just flipping the switch, turning agents on, and they're planning to deliver 30 to 60% of their service cases with Agent Force. That is awesome, and I really love Alex's vision of what's possible. And then the last customer I really want to hit on, which I'm so excited about, is Pfizer. And you know, Albert is an incredible CEO. They're doing unbelievable things. They've been a tremendous customer, but now they're really going all in on our Life Sciences Cloud. We're seeing so many... Yeah, I was in the Business Council last week in Washington, D.C., met with hundreds of CEOs, and so many of the CEOs of the Life Sciences industry are going with our Life Sciences Cloud. It was incredible. And you can see why because it's just a natural upgrade of what they're already doing with us. And then this idea that our Life Sciences Cloud becomes this highly differentiated capability from everything currently available in the market, and then allows these pharma, med tech companies, so many, to be able to streamline not just their clinical operations, all their customer-facing, even the ones who want to go to direct-to-consumer, even the ones who want to do clinical trials. And this idea that agents are going to make all of that so much better. And with Agent Force sales agents, for example, with Pfizer, you know, they've got 20,000 customer-facing employees and customer-facing folks. That is just a radical extension for them with agents. And I'll have to slot in one last one because I'll tell you, I'm sure a lot of you have like I have flown in Singapore Air. You know what? It's a great airline. The CEO Goh is amazing. And he has a huge vision that also came out of Dreamforce where they've already delivered probably the best service of any airline in the world. They want to deliver it through agents. So, whether you're doing it with service or sales or marketing or commerce or all the different things that Singapore Air is doing with us, you're going to be able to do this right on Singapore Air. All right. Well, I know all of you want to see this in person, talk to these customers yourself. You know, you can go to help.salesforce.com. Brian's going to talk about that. When you hear the numbers we delivered in the quarter there, you're not going to believe it. And listen, a lot of people say to me, 'Hey, how are you different from these other agent companies?' Number one, go to those other vendors. Go to their sites. Are they running their agent technology? You've all been on help.salesforce.com. You all know this incredible capability that we're delivering. You've seen it deployed by these other customers like Equinox and Remarkable and others. You've got your hands on it. Do you see the other scaled vendors delivering this capability or are they just using the word agent? I think you got to beware. Beware of the false agent. Because the false agent is out there where people can use the word agent or they kind of, you know, they're trying to whitewash all the agent thing everywhere, but the reality is there is the real agents and there are the false agents, and we're very fortunate to have the real stuff going on here. So, we've got a lot more groundbreaking AI innovation coming. I can't wait for you to see it at our Trailblazer DX event next week, and that's going to be March 5th and 6th in San Francisco. Looking forward to seeing all of you there and showing you that. And I'll tell you, while you're there, and I didn't hit it, you've got to see this new product we've just built, which is Tableau Next. I'm sure a lot of you know Tableau. You probably use it every day. When you see what we have built, which is the new Tableau, built with Agent Force on the Data Cloud, and how it's deeply integrated into our product line, it is going to blow your mind. It is incredible. You've got to make sure you get a demo of Tableau Next. You won't believe it. You're going to see the new Slack, you're going to see the new Sales Cloud, Service Cloud, Marketing Cloud, Commerce Cloud, the platform, Agent Force, all the products. This new Field Service product, which is incredible. You might get a glimpse of the new ITSM product that's coming if you look hard. But the big thing that I'm excited about, okay, the big thing that I'm really excited about is Tableau Next because that's about to deploy to customers at scale, and I think people are going to be absolutely blown away. All right. Now, before I do that, I have to get out the Kleenex because I have to say goodbye to Brian and Amy who, you know, it's kind of a moment in time here where Brian has been here for, I think, 25 years, 26 years. He's just wearing one of the many watches that I've given him to recognize his performance. And Amy is here as well. She's not wearing one of her watches, but she has them at home, probably in her jewelry case or safe or something. And you know, Amy's... How long has it been, Amy? 12 years? 11. 11 years with Amy. And you know, we're going through a little bit of a transition of our management team between fiscal year '25 and '26, and we want to say goodbye and thank you. We want to say mahalo, and we want to say goodbye, which is a hui hou. And thank you so much for everything, and we're going to let them talk and also say their goodbyes, but we're so grateful to everything that you've done for us every single day over the last 25 and 11 years. And it's been great to have you part of our management team and you're welcome back anytime. So, if you get lonely out there on the golf course or I know Amy's got some big plans that she's not ready to announce yet in the NGO world, but I'll tell you that you know, you guys get lonely or you're missing the thrill of the hunt, come back and see us because we're going to be ready for you to come back. Okay. All right, Brian.

Great, thanks, Brian. I wanted to start also by expressing my gratitude to Mark and Brian for their partnership and for their deep friendship over many, many years. It's been an incredible journey, and I'm truly thankful for the opportunity. I am also absolutely thrilled to welcome Robin to the team as our new Chief Operating and Financial Officer. Fiscal year 25 was a year of incredible change with new innovation beyond anything we could have expected just 12 months ago, requiring persistence and urgency in our execution. Q4 is a reflection of that focus across the business, and you can see it in our results. Let's start with revenue. For the full year, revenue was 37.9 billion, up 9% year-over-year in both nominal and constant currency. Subscription and support revenue grew just over 10% in constant currency. Q4 revenue was 10 billion, up 8% year-over-year in nominal. This includes approximately 75 million of incremental FX headwinds since our last guidance, resulting in 9% growth year-over-year in constant currency. Subscription and support revenue grew 9% year-over-year in constant, driven by stability in sales, service, and platform, partially offset by Mulesoft and Tableau, who had very tough prior year compares. From a geographic perspective, Americas revenue grew 8% in nominal and constant currency. EMEA grew 6% or 7% in constant currency, and APAC grew 10% or 14% in constant currency. We saw strong new business growth in LATAM, Japan, and Canada, while parts of EMEA remained constrained. Of note, the United States saw some stabilization in the quarter. From an industry perspective in Q4, health and life sciences, communications, and media both performed well. While tech and manufacturing, automotive, and energy were more measured. And as you heard from Brian, our multi-cloud momentum continues as customers turn to our deeply unified platform. That's why our top 100 deals in the quarter averaged six clouds. And all of our top 10 wins included AI, data cloud, service platform, and industry clouds. Our data and AI momentum continues as we move towards a world where AI is ubiquitous and embedded in everyday workflows. Our investments in this space have been deliberate and focused, and we are now starting to yield strong returns. We ended the year with 900 million in data cloud and AI annual recurring revenue, growing nearly 120% year-over-year. As Mark shared, we closed more than 3,000 paid Agent Force deals in the quarter. As customers continue to harness the...

Value of AI deeply embedded across our unified platform, it is no surprise that these customers average nearly four clouds. And these customers came from a diverse set of industries with more than half in technology, manufacturing, financial services, and HLS.

Q4 revenue attrition ended the quarter slightly above 8%, in line with recent quarters.

Non-GAAP operating margin was 33.1%, up 170 basis points year-over-year, driven by top-line outperformance and disciplined expense management. GAAP operating margin was 18.2%, up 70 basis points year-over-year.

And for the full year, I am very pleased with our non-GAAP operating margin of 33%, up another 250 basis points year-over-year. GAAP operating margin was 19%, up 460 basis points year-over-year, inclusive of incremental restructuring charges we incurred in Q4.

Q4 operating cash flow was nearly 4 billion, up 17% year-over-year. Q4 free cash flow was 3.8 billion, also up 17% year-over-year.

And for the full year, operating cash flow was a record 13.1 billion, up 28% year-over-year. And that's inclusive of a predicted 10-point cash tax headwind.

And as we've said, driving strong free cash flow remains a key component of our profitable growth strategy. Fiscal year '25 free cash flow was 12.4 billion, up 31% year-over-year.

Turning to remaining performance obligation, RPO, which represents all future revenue under contract, we passed 60 billion for the first time in company history. Q4 finished at an incredible 63.4 billion, up 11% year-over-year, representing our customers' long-term commitment to Salesforce and the durability of our business model.

Current RPO, or cRPO, ended at 30.2 billion, an increase of 9% year-over-year in nominal currency. This includes a $300 million FX headwind, which results in 11% year-over-year growth in constant currency, driven by strong performance in Data Cloud and AI and Slack. Q4 cRPO also benefited significantly from strong early renewals.

Within our bookings this quarter, we again saw continued stabilization in our transactional businesses, including create and close and SMB.

On capital return, in fiscal '25, we executed 7.8 billion in share repurchases and issued 1.5 billion in dividends. Through our capital return program, we more than fully offset dilution from FY25 stock-based compensation. And since the inception of our capital return program, we've now returned more than 21 billion to shareholders.

Now, let's turn to guidance. Starting with full fiscal year '26, we expect revenue of 40.5 billion to 40.9 billion, growth of approximately 7 to 8% year-over-year in nominal and constant currency. And for subscription and support revenue, we expect growth of approximately 9% year-over-year in constant currency.

Now, I want to pause and give a few important notes on this guidance. First, on foreign exchange, as Marc noted, we've seen the US dollar strengthen considerably, and even since our last earnings call, that movement has driven an incremental $200 million headwind to fiscal '26 revenue. Our revenue guidance now incorporates an approximately half-point year-over-year headwind.

Second, as we experienced in fiscal '25, we continue to expect our professional services business to be a headwind to growth this year, which is reflected in our guidance for total revenue. Note, as part of our overall implementation strategy, we are leaning more on our partner ecosystem. As you heard from Brian, partners were involved in 50% of our Agentforce wins and 70% of Agentforce activations in Q4.

Third, we expect subscription and support revenue to be lifted by momentum in Data Cloud and some contribution from Agentforce this year, partially offset by weakness in marketing and commerce and slower growth in our expiration base in FY26.

Finally, on Agentforce, we are incredibly excited about the customer momentum we are seeing. However, the adoption cycle is still early as we focus on deployment with our customers. As a result, we are assuming a modest contribution to revenue in fiscal '26. We expect the momentum to build throughout the year, driving a more meaningful contribution in fiscal '27.

And on attrition, we expect attrition to remain consistent at slightly above 8% for the full year.

Now, turning to profitability and cash flow, on margins, I want to reiterate that the company remains committed to ongoing expansion. The company has laid a strong foundation for continued margin progression, efficiency, and disciplined investments.

Fiscal year '26 non-GAAP operating margin is expected to be 34%, representing another 100 basis points of expansion year-over-year. This incorporates intentional investments in high-growth opportunities, most notably in Agentforce and Data Cloud. And I'd like to call out that from a pace perspective, we do expect a ramp in margins throughout the year.

Stock-based compensation is expected to stay relatively flat year-over-year as a percent of revenue. We expect fiscal year '26 GAAP operating margin of 21.6%, representing more than 250 basis points of improvement year-over-year.

We expect fiscal year '26 GAAP diluted EPS of $6.95 to $7.03. Non-GAAP diluted EPS is expected to be $11.09 to $11.17.

As we've mentioned over the last few years, we remain focused on driving durable cash flow growth. We expect fiscal year '26 operating cash flow growth of approximately 10 to 11%, and we are not expecting a material headwind from cash taxes this year. We expect CapEx for the fiscal year to be approximately 2% of revenue again. This results in free cash flow growth of approximately 9 to 10% for the fiscal year.

Now, to guidance for Q1. On revenue, we expect 9.71 billion to 9.76 billion, up 6 to 7% year-over-year in nominal and 7% in constant currency. As a reminder, we are lapping the one-point leap year benefit we noted last Q1, as well as the benefit from license revenue timing.

cRPO growth for Q1 is expected to be approximately 10% year-over-year in nominal, including a $100 million FX headwind, resulting in slightly above 10% in constant currency.

For Q1, we expect GAAP EPS of $1.49 to $1.51, and non-GAAP EPS of $2.53 to $2.55.

In closing, I'm very pleased with our strong finish to the year and the foundation we have set in place for continued success. And I want to thank our employees for their dedication and execution throughout the year. I also want to extend my gratitude to our shareholder and investment community for your continued support. It has really been a privilege working with all of you.

Now, Mike, do you want to open up the call for questions?