Salesforce Reports Strong Q2 Fiscal 2025 Results, Signaling Continued Growth

Salesforce Announces Second Quarter Fiscal 2025 Results By Investing.com

SAN FRANCISCO--(BUSINESS WIRE)--Salesforce (NYSE: CRM), the #1 AI CRM, today announced results for its second quarter fiscal 2025 ended July 31, 2024. In Q2, we delivered strong performance across revenue, cash flow, margin and cRPO, and raised our fiscal year non-GAAP operating margin and cash flow growth guidance, said Marc Benioff, Chair and CEO, Salesforce (NYSE:CRM). With our new Agentforce AI platform, we're reimagining enterprise software for a new world where humans with autonomous Agents drive customer success together. Salesforce is the only company with the leading apps, trusted data and agent-first platform to deliver this vision at scale and help companies realize the incredible benefits of AI. We continue to deliver disciplined profitable growth and this quarter, operating margins closed at record highs with GAAP operating margin of 19.1%, up 190 basis points year-over-year, and Non-GAAP operating margin of 33.7%, up 210 basis points year-over year, said Amy Weaver, President and CFO of Salesforce. Our capital return program remains a priority and we now expect to more than fully offset our dilution from FY25 stock based compensation. Guidance Our guidance includes GAAP and non-GAAP financial measures. The following is a reconciliation of GAAP operating margin guidance to non-GAAP operating margin guidance for the full year: The following is a per share reconciliation of GAAP diluted EPS to non-GAAP diluted EPS guidance for the next quarter and the full year: For additional information regarding non-GAAP financial measures see the reconciliation of results and related explanations below. Management will provide further commentary around these guidance assumptions on its earnings call. Chief Financial Officer Transition Amy Weaver has made the decision to step down from her role as President and Chief Financial Officer at Salesforce. She will remain CFO until a successor is appointed. After that time, Amy will be an advisor to the company. Amy has been an incredible executive at Salesforce, leading many of the company's most important strategic and operational initiatives over the last decade. And, she has been an amazing partner to me personally, said Benioff. Among her many contributions, Amy oversaw our successful financial transformation over the past several years " which has resulted in unprecedented margin expansion, increased operational excellence, and financial discipline across our organization. We are grateful that Amy's transition period will allow us to conduct a thoughtful search for our next CFO, and we expect this to be a seamless transition. My time at Salesforce has been an amazing journey, and it's been a privilege to work alongside such a talented, dedicated and compassionate team, said Weaver. I'm especially proud of our work to drive increased profitability and productivity and introduce an enhanced capital return program, all while keeping our customers and our values as our north star. I am confident that Salesforce is well-positioned to accelerate its success in this next chapter. Product Releases and Enhancements Three times a year Salesforce delivers new product releases, services, or enhancements to current products and services. These releases are a result of significant research and development investments made over multiple years, designed to help customers drive cost savings, boost efficiency, and build trust. To view our major product releases and other highlights as part of the Summer 2024 Product Release, visit: www.salesforce.com/products/summer-24-release. Environmental, Social, and Governance (ESG) Strategy To learn more about our latest initiatives and priorities, review our Stakeholder Impact Report: https://salesforce.com/stakeholder-impact-report. Quarterly Conference Call Salesforce plans to host a conference call at 2:00 p.m. (PT) / 5:00 p.m. (ET) to discuss its financial results with the investment community. A live webcast and replay details of the event will be available on the Salesforce Investor Relations website at www.salesforce.com/investor. About Salesforce Salesforce is the #1 AI CRM, empowering companies to connect with their customers in a whole new way through the power of CRM + AI + Data + Trust on one unified platform: Einstein 1. For more information visit: www.salesforce.com (NYSE: CRM). "Safe harbor" statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements about the Company's financial and operating results and guidance, which include, but are not limited to, expected GAAP and non-GAAP financial and other operating and non-operating results, including revenue, net income, earnings per share, operating cash flow growth, operating margin, expected revenue growth, expected foreign currency exchange rate impact, expected current remaining performance obligation growth, expected tax rates or provisions, stock-based compensation expenses, amortization of purchased intangibles, shares outstanding, market growth, strategic investments, expected restructuring expense or charges and expected timing of product releases and enhancements. The achievement or success of the matters covered by such forward-looking statements involves risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, the Company's results or outcomes could differ materially and adversely from those expressed or implied by our forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements. The risks and uncertainties referred to above include -- but are not limited to -- risks associated with: Further information on these and other factors that could affect the Company's actual results or outcomes is included in the reports on Forms 10-K, 10-Q and 8-K and in other filings it makes with the Securities and Exchange Commission from time to time. These documents are available on the SEC Filings section of the Financials section of the Company's website at http://investor.salesforce.com/financials/. Salesforce, Inc. assumes no obligation and does not intend to revise or update publicly any forward-looking statements for any reason, except as required by law. © 2024 Salesforce, Inc. All rights reserved. Salesforce and other marks are trademarks of Salesforce, Inc. Other brands featured herein may be trademarks of their respective owners. Remaining performance obligation ("RPO") represents contracted revenue that has not yet been recognized, which includes unearned revenue and unbilled amounts that will be recognized as revenue in future periods. RPO is influenced by several factors, including seasonality, the timing of renewals, the timing of software license deliveries, average contract terms and foreign currency exchange rates. Remaining performance obligation is also impacted by acquisitions. Unbilled portions of RPO denominated in foreign currencies are revalued each period based on the period end exchange rates. The portion of RPO that is unbilled is not recorded on the condensed consolidated balance sheets. Unearned revenue represents amounts that have been invoiced in advance of revenue recognition and is recognized as revenue when transfer of control to customers has occurred or services have been provided. The change in unearned revenue was as follows (in millions): Disaggregation of Revenue Subscription and Support Revenue by the Company's service offerings Subscription and support revenues consisted of the following (in millions): Total Revenue by Geographic Locations Revenues by geographical region consisted of the following (in millions): Constant Currency Growth Rates Subscription and support revenues constant currency growth rates by the Company's service offerings were as follows: Revenue constant currency growth rates by geographical region were as follows: Current remaining performance obligation constant currency growth rates were as follows: Non-GAAP Financial Measures: This press release includes information about non-GAAP operating margin, non-GAAP net income per share, non-GAAP tax rates, free cash flow, constant currency revenue, constant currency subscription and support revenue growth rate and constant currency current remaining performance obligation growth rates (collectively the non-GAAP financial measures). These non-GAAP financial measures are measurements of financial performance that are not prepared in accordance with U.S. generally accepted accounting principles and computational methods may differ from those used by other companies. Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP. Management uses both GAAP and non-GAAP measures when planning, monitoring and evaluating the Company's performance. The primary purpose of using non-GAAP measures is to provide supplemental information that may prove useful to investors and to enable investors to evaluate the Company's results in the same way management does. Management believes that supplementing GAAP disclosure with non-GAAP disclosure provides investors with a more complete view of the Company's operational performance and allows for meaningful period-to-period comparisons and analysis of trends in the Company's business. Further to the extent that other companies use similar methods in calculating non-GAAP measures, the provision of supplemental non-GAAP information can allow for a comparison of the Company's relative performance against other companies that also report non-GAAP operating results. Non-GAAP Operating Margin is the proportion of non-GAAP income from operations as a percentage of GAAP revenue. Non-GAAP income from operations excludes the impact of the following items: stock-based compensation expense, amortization of acquisition-related intangibles and charges associated with the Company's restructuring activities. Non-GAAP net income per share excludes, to the extent applicable, the impact of the following items: stock-based compensation expense, amortization of purchased intangibles, charges related to the Company's restructuring activities and income tax adjustments. These items are excluded because the decisions that give rise to them are not made to increase revenue in a particular period, but instead for the Company's long-term benefit over multiple periods. As described above, the Company excludes or adjusts for the following in its non-GAAP results and guidance: The Company presents constant currency information to provide a framework for assessing how the Company's underlying business performed excluding the effect of foreign currency rate fluctuations. To present constant currency revenue growth rates, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the weighted average exchange rate for the quarter being compared to rather than the actual exchange rates in effect during that period. To present current remaining performance obligation growth rates on a constant currency basis, current remaining performance obligation balances in local currencies in previous comparable periods are converted using the United States dollar currency exchange rate as of the most recent balance sheet date. The Company defines the non-GAAP measure free cash flow as GAAP net cash provided by operating activities, less capital expenditures.

Salesforce gets back on track -- here's what the software giant needs to deliver next

A sigh of relief is in order. Salesforce shares jumped more than 4% in extended trading Wednesday after the enterprise software giant beat sales and earnings expectations in the second quarter. The company may have maintained its full-year revenue outlook, but that was taken as good enough after last quarter's debacle. Plus, an increase to its margin forecast showed Salesforce remains committed to profitable growth. Revenue increased 8% year over year to $9.33 billion in the quarter, beating the $9.23 billion expected by analysts, according to estimates compiled by LSEG. Adjusted earnings per share of $2.56 increased 21% on an annual basis and topped the $2.36 predicted by analysts, LSEG data showed. Adjusted operating margin expanded to 33.7% in the three months ended July 31, beating the consensus estimate of 31.95%, according to FactSet. On a Generally Accepted Accounting Principles (GAAP) basis, quarterly operating margin came in at 19.1%, above the expected 18.38%. Salesforce Why we own it : Salesforce is a leading enterprise software tool for companies across all industries, helping employees to better communicate with colleagues internally and with their customers. The company's balance of margin expansion with the potential for faster top-line growth should lead to strong earnings growth. Competitors : SAP , Microsoft , HubSpot Most recent buy : Dec. 21, 2022 Initiation : June 15, 2018 Bottom line Investor expectations were low into Salesforce's release Wednesday after the company shockingly missed on revenues and lowered its GAAP margin guidance last quarter -- a double whammy to the profitable growth thesis that's been central for well over a year. It led to the stock having its worst day since 2004 . The results were cleaner this go around with key beats on revenue, remaining performance obligation (RPO) and the current RPO (cRPO), along with an improved adjusted operating margin guidance. RPO represents contracted revenue that has not yet officially been recorded, while cRPO is the amount expected to be recorded in the next 12 months. Investors pay close attention to the changes in these metrics to help them gauge the health and momentum of the business. It's still tough to see Salesforce's revenues only grow 8% on an annual basis when this is a traditional double-digit grower, but we're willing to take some topline softness if it's temporary and margins are expanding. Fortunately, the margin story got back on track this quarter, and the company has an upbeat story to tell about a pair of new AI tools for salespeople that will be generally available in October. Working against Salesforce is an emerging idea that artificial intelligence could be foes -- not friends -- to enterprise software companies if their customers can use AI to develop in-house software tools to manage their data. CEO Marc Benioff pushed back on this idea early in the conference call with the following remarks: "I have been out there very disappointed with the huge amount of money that so many of these customers have wasted on AI. They are trying to DIY their AI. It's not so unlike when we first saw cloud emerge or even other technologies where they feel like they have to roll their own, build it themselves, get in the weeds, try to figure out, and they're not going to do it better than we're going to do it," Benioff argued. "We're a professional enterprise software company. This is what we do. And we do it with the trust and scale that they need." Salesforce's new AI tools -- which it is calling autonomous AI sales agents -- may be the company's answer to this negative thesis. One of the AI agents is focused on fielding inbound inquiries on behalf of salespeople. The other is geared toward improving a salesperson's pitching and negotiating skills. Benioff sounded very bullish on the products, saying he expects thousands of customers will be using this platform by the beginning of the next fiscal year. The company can use its annual Dreamforce conference in September to make a big sales pitch. Another question on Wall Street is that if a company uses AI to become more efficient and can accomplish more with fewer workers, how will that impact Salesforce's mostly seat-based business model? A seat, in software license terms, is a registered user of the product. A company may need fewer seats if the business is run more efficiently. When asked about this during the conference call Q & A, executives reminded the analyst that Salesforce also offers many consumption-based products as well, such as its data analytics and commerce applications. Those shouldn't be impacted. Putting it all together, Salesforce delivered a much better quarter and more upbeat conference call than its previous report in May, mostly due to excitement around new product innovations. The next task for Salesforce is proving these new AI products will become a material driver of revenue growth. Again, that is where Dreamforce is key. We reiterate our 2 rating and $300 price target on Salesforce as we take a wait-and-see approach around its AI products. We also won't be surprised to see a hangover in tech stocks Thursday after fellow Club holding Nvidia 's better-than-expected results failed to satisfy Wall Street's lofty expectations. CRM YTD mountain Salesforce's year-to-date stock performance. Quarterly results From a macro perspective, there wasn't much talk about the buying environment or whether widely expected interest rate cuts from the Federal Reserve will spur more deals. When it was pointed out that Salesforce's Americas region, its largest, grew only 8% in the quarter, COO Brian Millham attributed the softness to a "measured buying environment" and not a market saturation. Millham added that he believes the region can return to double-digit growth through its new technology, innovations, and multi-cloud deals. Across all regions, multi-cloud deals accounted for about 80% of total new business and the company signed 1,500 AI deals in the quarter. Think of a cloud as a service designed for a specific business function, such as sales, customer service and marketing. Deals involving multiple clouds are important because they mean more business and stickier relationships with the specific customer. On an operating level, we were pleased to see better-than-expected margins and a raise to the full-year outlook despite stepped-up investments in growth opportunities, like the two new AI sales agents. Elsewhere, CFO Amy Weaver, who has been leading Salesforce's transformation to profitable growth, announced Wednesday night that she is stepping down from her role. She will remain CFO until a successor is appointed and be an advisor to the company after that. Management wisely stepped up its buyback activity in the quarter, likely taking advantage of the stock trading in the low $200s a share throughout June. The company bought back $4.3 billion worth of stock in the quarter, almost double the $2.2 billion repurchased in the quarter before. This helped reduce the diluted share count by 1% year over year. Guidance For its 2025 fiscal year, Salesforce backed its full year revenue guide of $37.7 billion to $38 billion, an 8% to 9% increase over the previous year. The midpoint is roughly in line with the consensus estimate. Although Salesforce isn't delivering a ton of revenue upside, the company is remaining disciplined on costs, evidenced by management raising its full-year operating margin outlook. The company now sees adjusted margins of 32.8%, up from its prior view of 32.5%. That's translating to a bump in the adjusted EPS forecast. Salesforce now expects to earn between $10.03 and $10.11 a share, up from $9.68 to $9.76. The new midpoint of $10.07 is well above the consensus estimate of $9.89. For the third quarter, Salesforce forecasts revenues of $9.31 billion to $9.36 billion, which is below the $9.4 billion estimate. But despite the lower revenues, Salesforce's adjusted EPS forecast range of $2.42 to $2.44 was slightly better than the $2.42 estimate. (Jim Cramer's Charitable Trust is long CRM and NVDA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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