SALESFORCE.COM, INC.
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended
("Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended ("Exchange Act"). Words such as "expects," "anticipates," "aims,"
"projects," "intends," "plans," "believes," "estimates," "seeks," "assumes,"
"may," "should," "could," "would," "foresees," "forecasts," "predicts,"
"targets," "commitments," variations of such words and similar expressions are
intended to identify such forward-looking statements, which may consist of,
among other things, trend analyses and statements regarding future events,
future financial performance, anticipated growth, industry prospects and the
anticipated impact on our business of the ongoing COVID-19 pandemic and related
public health measures. These forward-looking statements are based on current
expectations, estimates and forecasts, as well as the beliefs and assumptions of
our management, and are subject to risks and uncertainties that are difficult to
predict, including: the impact of, and actions we may take in response to, the
COVID-19 pandemic, related public health measures and resulting economic
downturn and market volatility; our ability to maintain service performance and
security levels meeting the expectations of our customers, and the resources and
costs required to avoid unanticipated downtime and prevent, detect and remediate
performance degradation and security breaches; the expenses associated with our
data centers and third-party infrastructure providers; our ability to secure and
costs related to additional data center capacity; our reliance on third-party
hardware, software and platform providers; the effect of evolving domestic and
foreign government regulations, including
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those related to the provision of services on the Internet, those related to
accessing the Internet, and those addressing data privacy, cross-border data
transfers and import and export controls; current and potential litigation
involving us or our industry, including litigation involving acquired entities
such as Tableau, and the resolution or settlement thereof; regulatory
developments and regulatory investigations involving us or affecting our
industry; our ability to successfully introduce new services and product
features, including any efforts to expand our services beyond the CRM market;
the success of our strategy of acquiring or making investments in complementary
businesses, joint ventures, services, technologies and intellectual property
rights; our ability to realize the benefits from strategic partnerships, joint
ventures and investments; our ability to successfully integrate acquired
businesses and technologies; our ability to compete in the market in which we
participate; the success of our business strategy and our plan to build our
business, including our strategy to be a leading provider of enterprise cloud
computing applications and platforms; our ability to execute our business plans;
our ability to continue to grow unearned revenue and remaining performance
obligation; the pace of change and innovation in enterprise cloud computing
services; the seasonal nature of our sales cycles; our ability to limit customer
attrition and costs related to those efforts; the success of our international
expansion strategy; the demands on our personnel and infrastructure resulting
from significant growth in our customer base and operations, including as a
result of acquisitions; our dependency on the development and maintenance of the
infrastructure of the Internet; our real estate and office facilities strategy
and related costs and uncertainties; fluctuations in, and our ability to
predict, our operating results and cash flows; the variability in our results
arising from the accounting for term license revenue products; the performance
and fair value of our investments in complementary businesses through our
strategic investment portfolio; the impact of future gains or losses from our
strategic investment portfolio including gains or losses from overall market
conditions that may affect the publicly traded companies within our strategic
investment portfolio; our ability to protect our intellectual property rights;
our ability to develop our brands; the impact of foreign currency exchange rate
and interest rate fluctuations on our results; the valuation of our deferred tax
assets and the release of related valuation allowances; the potential
availability of additional tax assets in the future; the impact of new
accounting pronouncements and tax laws; uncertainties affecting our ability to
estimate our tax rate; uncertainties regarding our tax obligations in connection
with potential jurisdictional transfers of intellectual property, including the
tax rate, the timing of the transfer and the value of such transferred
intellectual property; uncertainties regarding the effect of general economic
and market conditions; the impact of geopolitical events; uncertainties
regarding the impact of expensing stock options and other equity awards; the
sufficiency of our capital resources; risks related to our 2023 and 2028 senior
notes, revolving credit facility and loan associated with 50 Fremont; our
ability to comply with our debt covenants and lease obligations; and the impact
of climate change, natural disasters and actual or threatened public health
emergencies, including the ongoing COVID-19 pandemic. These and other risks and
uncertainties may cause our actual results to differ materially and adversely
from those expressed in any forward-looking statements. Readers are directed to
risks and uncertainties identified below under "Risk Factors" and elsewhere in
this report for additional detail regarding factors that may cause actual
results to be different than those expressed in our forward-looking statements.
Except as required by law, we undertake no obligation to revise or update
publicly any forward-looking statements for any reason.
Overview
We are a global leader in customer relationship management ("CRM") technology
that brings companies and customers together. Founded in 1999, we enable
companies of every size and industry to connect with their customers in new ways
through existing and emerging technologies, including cloud, mobile, social,
blockchain, voice and artificial intelligence ("AI"),
to transform their businesses.
Website references throughout this document are provided for convenience only,
and the content on the referenced websites is not incorporated by reference into
this report.
COVID-19 Impact
In December 2019 , the novel coronavirus and resulting disease ("COVID-19") was
first reported. After ongoing assessment of the rapid spread, number of cases
and countries affected, on March 11, 2020 , the World Health Organization
characterized COVID-19 as a pandemic. The COVID-19 pandemic has created
significant global economic uncertainty, adversely impacted the business of our
customers and partners, impacted our business and results of operations and
could further impact our results of operations and our cash flows in the future.
In response to the COVID-19 pandemic, we have been guided by our core values of
trust, customer success, innovation and equality. Beginning in the first fiscal
quarter of fiscal 2021, we took actions in response to the pandemic that focused
on maintaining business continuity, helping our employees, helping our customers
and communities, and preparing for the future and the long-term success of our
business. As a result of the pandemic and actions taken by us in response to the
pandemic our results for the first fiscal quarter 2021 reflected a decline in
new business as compared to the same period a year ago, incremental operating
expenses and lower than expected operating cash flows.
While we experienced declines in the first fiscal quarter of fiscal 2021, new
business grew in the second quarter of fiscal 2021 at rates consistent with
historical trends prior to COVID-19. In the second quarter, payment delays from
some of our
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customers affected by the COVID-19 pandemic continued. These delays in payments,
in addition to changes in billing frequency for new business and investments in
our go-to-market efforts, resulted in a negative impact to our operating cash
flows during the quarter. Our income from operations continued to benefit from
our global work from home policy and limited business travel by our employees in
the second quarter of fiscal 2021.
As a result of the financial impacts of COVID-19 we experienced during the six
months ended July 31, 2020 and our current assumptions related to the extent to
which the pandemic will affect our business going forward, we expect modest
growth in our new incremental business and renewals, total revenues, remaining
performance obligation ("RPO") and operating cash flows for the remainder of
fiscal 2021. We do not yet know the impact this will have on our long-term
revenue growth. We have in the past implemented strategic realignments to
position the Company for future growth and will continue to do so, particularly
as we evaluate the impact of COVID-19 on our business. As part of our current
strategic realignment, we are redirecting and may in the future redirect some
resources from areas that no longer align with our business priorities into key
growth and strategic areas, as well as to increase investments in our
go-to-market and product efforts. As a result of these investments and
redirection efforts, which include some position eliminations, we expect an
increase in expenses during the remainder of fiscal 2021. As we adjust and
refine our strategy, there may be additional investments and redirection efforts
in the future.
In addition, authorities throughout the world have implemented numerous
preventative measures to contain or mitigate the outbreak of the virus, such as
travel bans and restrictions, limitations on business activity, quarantines,
work-from-home directives and shelter-in-place orders. These measures have
caused, are continuing to cause, and may in the future cause business slowdowns
or shutdowns in affected areas, both regionally and worldwide. These business
slowdowns and shutdowns have impacted and may in the future impact our business
and results of operations. For example, the extent and duration of these
measures could impact our ability to address cybersecurity incidents; have
resulted in increased internet demand, which could cause access issues; could
affect our ability to develop and support products and services; and could cause
issues with access to data centers.
The ultimate extent of the impact of the COVID-19 pandemic on our operational
and financial performance will depend on certain developments, including the
duration of the outbreak, the severity of the disease, responsive actions taken
by public health officials, the impacts on our customers and our sales cycles,
our ability to generate new business leads, the impacts on our customers,
employee and industry events, and the effects on our vendors, all of which are
uncertain and currently cannot be predicted. As a result, the extent to which
the COVID-19 pandemic will continue to impact our financial condition or results
of operations is uncertain. Due to our subscription-based business model, the
effect of the COVID-19 pandemic may not be fully reflected in our results of
operations until future periods. If the COVID-19 pandemic has a substantial
impact on our employees', partners' or customers' productivity, our results of
operations and overall financial performance may be harmed. In addition, the
global macroeconomic effects of the COVID-19 pandemic and related impacts on our
customers' business operations and their demand for our products and services
may persist for an indefinite period, even after the COVID-19 pandemic has
subsided.
See the section entitled "Risk Factors" for further discussion of the impact and
possible future impacts of the COVID-19 pandemic on our business.
Highlights from the Second Quarter of Fiscal Year 2021.
•Revenue: Total second quarter revenue was $5.2 billion , an increase of 29
percent year-over-year.
•Earnings per Share: Second quarter diluted earnings per share was $2.85 as
compared to diluted earnings per share of $0.11 from a year ago, and benefited
by approximately $2.0 billion from the one-time discrete tax benefit resulting
from the recognition of deferred tax assets related to an intra-entity transfer
of intangible property and an unrealized gain of $617 million associated with
the initial public offering of one of our strategic investments.
•Cash: Cash provided by operations for the second quarter was $429 million , a
decrease of 2 percent year-over-year. Total cash, cash equivalents and
marketable securities ended the second quarter at $9.3 billion .
•Remaining Performance Obligation: Remaining performance obligation ended the
second quarter at approximately $30.6 billion , an increase of 21 percent
year-over-year. Our remaining performance obligation includes approximately $750
million related to the Tableau acquisition in August 2019 . Current remaining
performance obligation ended the second quarter at approximately $15.2 billion ,
an increase of 26 percent year-over-year.
•Acquisition: On June 1, 2020 , we completed the acquisition of Vlocity, Inc.
("Vlocity") for a US GAAP purchase price consideration of $1.4 billion . The
results of Vlocity have been included in our consolidated financial statements
since the date of acquisition.
We continue to invest for future growth through focusing on multi-cloud adoption
by our existing customers, growing our relationships with our enterprise
customers, expanding internationally and expanding and strengthening our
ecosystem of partners and independent software vendors ("ISVs"). In addition,
even as we help respond to the urgent needs of the COVID-19
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crisis, we are innovating and delivering new solutions to help our customers
succeed such as Salesforce Care and Work.com, a suite of applications built on
our platform designed to help our customers re-open safely.
We regularly evaluate acquisitions and investment opportunities in complementary
businesses, joint ventures, services and technologies and intellectual property
rights in an effort to expand our service offerings through a disciplined and
thoughtful acquisition process and to nurture the overall ecosystem for our
offerings. We continue to evaluate such opportunities and expect to continue to
make such investments and acquisitions in the future. We also plan to continue
to reinvest a significant portion of our incremental revenue in future periods
to grow our business and continue our leadership role in the cloud computing
industry. As part of our business and growth strategy, we are delivering
innovative solutions in new categories, including analytics and integration. We
drive innovation organically and, to a lesser extent, through acquisitions, such
as our recent acquisition of Vlocity in June 2020 .
As a result of our aggressive growth plans and integration of our previously
acquired businesses, we have incurred significant expenses for equity awards and
amortization of purchased intangibles, which have reduced our operating income.
We periodically make changes to our sales organization to position us for
long-term growth, which has in the past and could again in the future result in
temporary disruptions to our sales productivity. In addition, we have
experienced, and may at times in the future experience, more variation from our
forecasted expectations of new business activity due to longer and less
predictable sales cycles and increasing complexity of our business, which
includes an expanded mix of products and various revenue models resulting from
acquisitions and increased enterprise solution selling activities. While we do
not expect any of these changes to have a material adverse effect on our
business, we experienced slower growth in new business in the first quarter of
fiscal 2021 than we originally planned, primarily due to the impacts of
COVID-19. Our growth in new business in the second quarter of fiscal 2021 were
consistent with historical trends. Slower growth in new business in a given
period could negatively affect our revenues in future periods, as well as
remaining performance obligation in current or future periods, particularly if
experienced on a sustained basis.
The expanding global scope of our business and the heightened volatility of
global markets, including as a result of COVID-19, expose us to the risk of
fluctuations in foreign currency markets. Fluctuations in foreign currency
exchange rates had a minimal adverse impact on our revenue results for the six
months ended July 31, 2020 and had a minimal favorable impact on our remaining
performance obligation as of July 31, 2020 . We expect these fluctuations to
continue in the future.
Fiscal Year
Our fiscal year ends on January 31 . References to fiscal 2021, for example,
refer to the fiscal year ending January 31, 2021 .
Operating Segments
We operate as one segment. See Note 1 "Summary of Business and Significant
Accounting Policies" to the condensed consolidated financial statements for our
discussion about segments.
Sources of Revenues
We derive our revenues from two sources: subscription and support revenues and
related professional services. Subscription and support revenues accounted for
approximately 94 percent of our total revenues for the six months ended July 31,
2020 .
Subscription and support revenues are primarily comprised of subscription fees
from customers accessing our enterprise cloud computing services (collectively,
"Cloud Services"). With the May 2018 acquisition of MuleSoft and the August 2019
acquisition of Tableau, subscription and support revenues also include revenues
associated with software licenses. Software license revenues include fees from
the sales of term and perpetual licenses. Revenues from software licenses are
generally recognized upfront when the software is made available to the customer
and revenues from the related support are generally recognized ratably over the
contract term. Changes in average contract duration for multi-year licenses can
impact revenues recognized upfront. Revenues from software licenses represent
less than ten percent of total subscription and support revenue for the six
months ended July 31, 2020 .
The revenue growth rates of each of our core service offerings, as described
below in "Results of Operations," fluctuate from quarter to quarter and over
time. Additionally, we manage the total balanced product portfolio to deliver
solutions to our customers, and as a result, the revenue result for each
offering is not necessarily indicative of the results to be expected for any
subsequent quarter. In addition, some of our Cloud Service offerings have
similar features and functions. For example, customers may use the Sales Cloud,
the Service Cloud or the Salesforce Platform to record account and contact
information, which are similar features across these service offerings.
Depending on a customer's actual and projected business requirements, more than
one service offering may satisfy the customer's current and future needs. We
record revenue based on the individual products ordered by a customer, not
according to the customer's business requirements and usage. In addition, as
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we introduce new features and functions within each offering and refine our
allocation methodology for changes in our business, we do not expect it to be
practical to adjust historical revenue results by service offering for
comparability. Accordingly, comparisons of revenue performance by service
offering over time may not be meaningful.
Seasonal Nature of Unearned Revenue, Accounts Receivable and Operating Cash Flow
Unearned revenue primarily consists of billings to customers for our
subscription service. Over 90 percent of the value of our billings to customers
is for our subscription and support service. We generally invoice our customers
in advance, in annual installments, and typical payment terms provide that our
customers pay us within 30 days of invoice. Amounts that have been invoiced are
recorded in accounts receivable and in unearned revenue or in revenue depending
on whether transfer of control to customers has occurred. In general, we collect
our billings in advance of the subscription service period. We typically issue
renewal invoices in advance of the renewal service period, and depending on
timing, the initial invoice for the subscription and services contract and the
subsequent renewal invoice may occur in different quarters. There is a
disproportionate weighting toward annual billings in the fourth quarter,
primarily as a result of large enterprise account buying patterns. Our fourth
quarter has historically been our strongest quarter for new business and
renewals. The year-on-year compounding effect of this seasonality in both
billing patterns and overall new and renewal business causes the value of
invoices that we generate in the fourth quarter for both new business and
renewals to increase as a proportion of our total annual billings. Accordingly,
because of this billing activity, our first quarter is typically our largest
collections and operating cash flow quarter. Conversely, our third quarter has
historically been our smallest operating cash flow quarter. The impact of
COVID-19, including the temporary financial flexibility offered to some
customers in the first quarter of fiscal 2021, which has delayed payments to
periods later than expected, as well as investments made in our go-to-market
efforts has affected and may continue to affect trends related to the seasonal
nature of unearned revenue, accounts receivable and operating cash flow. For
example, we expect to accelerate our investments in our go-to-market and product
efforts during the remainder of fiscal 2021 resulting in an increase in expenses
and a negative impact to operating cash flow.
The sequential quarterly changes in accounts receivable and the related unearned
revenue and operating cash flow during the first quarter of our fiscal year are
not necessarily indicative of the billing activity that occurs for the following
quarters as displayed below (in millions).
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[[Image Removed: crm-20200731_g3.jpg]]
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The second quarter fiscal 2021 results reflected in the tables above include the
impact of the Tableau acquisition in August 2019 .
Remaining Performance Obligation
Our remaining performance obligation represents all future revenue under
contract that has not yet been recognized as revenue and includes unearned
revenue and unbilled amounts. Our current remaining performance obligation
represents future revenue under contract that is expected to be recognized as
revenue in the next 12 months.
Remaining performance obligation is not necessarily indicative of future revenue
growth and is influenced by several factors, including seasonality, the timing
of renewals, average contract terms, foreign currency exchange rates and
fluctuations in new business growth. Unbilled portions of the remaining
performance obligation denominated in foreign currencies are revalued each
period based on the period end exchange rates. For multi-year subscription
agreements billed annually, the associated unbilled balance and corresponding
remaining performance obligation are typically high at the beginning of the
contract period, zero just prior to renewal, and increase if the agreement is
renewed. Low remaining performance obligation attributable to a particular
subscription agreement is often associated with an impending renewal but may not
be an indicator of the likelihood of renewal or future revenue from such
customer. Changes in average contract duration can impact remaining performance
obligation and current remaining performance obligation.
Our growth in incremental new business and renewals were consistent with
historical trends in the second quarter of fiscal 2021 and benefited our current
remaining performance obligation for the second quarter of fiscal 2021. In
addition, fluctuations in foreign currency exchange rates had a modest favorable
impact on our current remaining performance obligation as of July 31, 2020 .
Remaining performance obligation consisted of the following (in billions):
[[Image Removed: crm-20200731_g4.jpg]]
(1) Includes approximately $750 million of remaining performance obligation
related to the Tableau acquisition which closed in August 2019 .
(2) Includes approximately $700 million of remaining performance obligation
related to the Tableau acquisition.
(3) Includes approximately $650 million of remaining performance obligation
related to the Tableau acquisition.
(4) Includes approximately $550 million of remaining performance obligation
related to the Tableau acquisition.
Cost of Revenues and Operating Expenses
Impact of Acquisitions
The comparability of our operating results is impacted by our recent
acquisitions, including the acquisition of Tableau in August 2019 and, to a
lesser extent, our acquisition of Vlocity in June 2020 . Expense contributions by
expense type from our recent acquisitions generally may not be separately
identifiable due to the integration of these businesses into our existing
operations, or may be insignificant to our results of operations during the
periods presented.
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Cost of Revenues
Cost of subscription and support revenues primarily consists of expenses related
to delivering our service and providing support, including the costs of data
center capacity, certain fees paid to various third parties for the use of their
technology, services and data and employee-related costs such as salaries and
benefits.
Cost of professional services and other revenues consists primarily of
employee-related costs associated with these services, including stock-based
expenses, the cost of subcontractors and certain third-party fees.
Research and Development
Research and development expenses consist primarily of salaries and related
expenses, including stock-based expenses and allocated overhead.
Marketing and Sales
Marketing and sales expenses make up the majority of our operating expenses and
consist primarily of salaries and related expenses, including stock-based
expenses and commissions, for our sales and marketing staff, as well as payments
to partners, marketing programs and allocated overhead. Marketing programs
consist of advertising, events, corporate communications, brand building and
product marketing activities.
General and Administrative
General and administrative expenses consist primarily of salaries and related
expenses, including stock-based expenses, for finance and accounting, legal,
internal audit, human resources and management information systems personnel and
professional services fees.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States . The preparation
of these condensed consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, costs and expenses, and related disclosures. On an
ongoing basis, we evaluate our estimates and assumptions. Our actual results may
differ from these estimates under different assumptions or conditions.
We believe that of our significant accounting policies, which are described in
Note 1 "Summary of Business and Significant Accounting Policies" to our
condensed consolidated financial statements, the following accounting policies
and specific estimates involve a greater degree of judgment and complexity.
Accordingly, these are the policies and estimates we believe are the most
critical to aid in fully understanding and evaluating our consolidated financial
condition and results of operations:
•the fair value of assets acquired and liabilities assumed for business
combinations;
•the standalone selling price ("SSP") of performance obligations for revenue
contracts with multiple performance obligations;
•the valuation of privately held strategic investments, including impairment
considerations;
•the recognition, measurement and valuation of current and deferred income taxes
and uncertain tax positions; and
•the average period of benefit associated with costs capitalized to obtain
revenue contracts.
These estimates may change, as new events occur and additional information is
obtained, and such changes will be recognized in the condensed consolidated
financial statements as soon as they become known. Actual results could differ
from these estimates, including as a result of the COVID-19 pandemic, and any
such differences may be material to our financial statements.
Recent Accounting Pronouncements
See Note 1 "Summary of Business and Significant Accounting Policies" to the
condensed consolidated financial statements for our discussion about new
accounting pronouncements adopted and those pending.
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Results of Operations
The following tables set forth selected data for each of the periods indicated
(in millions):
2 Three Months Ended July 31 , Six Months Ended July 31 ,
% of Total % of Total % of Total % of Total
2020 Revenues 2019 Revenues 2020 Revenues 2019 Revenues
Revenues:
Subscription and support $ 4,840 94 % $ 3,745 94 % $ 9,415 94 % $ 7,241 94 %
Professional services and other 311 6 252 6 601 6 493 6
Total revenues 5,151 100 3,997 100 10,016 100 7,734 100
Cost of revenues (1)(2):
Subscription and support 1,013 19 727 18 1,979 20 1,405 18
Professional services and other 298 6 240 6 586 6 476 6
Total cost of revenues 1,311 25 967 24 2,565 26 1,881 24
Gross profit 3,840 75 3,030 76 7,451 74 5,853 76
Operating expenses (1)(2):
Research and development 898 18 607 15 1,757 17 1,161 15
Marketing and sales 2,275 44 1,824 46 4,665 47 3,521 45
General and administrative 489 10 375 9 991 10 737 10
Loss on settlement of
Salesforce.org reseller
agreement 0 0 166 4 0 0 166 2
Total operating expenses 3,662 72 2,972 74 7,413 74 5,585 72
Income from operations 178 3 58 2 38 0 268 4
Gains on strategic investments,
net 682 13 109 2 874 9 390 5
Other income (expense) (21) 0 (3) 0 (26) 0 (12) (1)
Income before benefit from
(provision for) income taxes 839 16 164 4 886 9 646 8
Benefit from (provision for)
income taxes (3) 1,786 35 (73) (2) 1,838 18 (163) (2)
Net income $ 2,625 51 % $ 91 2 % $ 2,724 27 % $ 483 6 %
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Table of Contents (1) Amounts related to amortization of intangible assets acquired through business combinations, as follows (in millions):
Three Months Ended July 31, Six Months Ended July 31,
% of Total % of Total % of Total % of Total
2020 Revenues 2019 Revenues 2020 Revenues 2019 Revenues
Cost of revenues $ 166 3 % $ 62 2 % $ 325 3 % $ 123 2 %
Marketing and sales 118 2 65 2 230 2 % 133 2
(2) Amounts related to stock-based expenses, as follows (in millions):
Three Months Ended July 31, Six Months Ended July 31,
% of Total % of Total % of Total % of Total
2020 Revenues 2019 Revenues 2020 Revenues 2019 Revenues
Cost of revenues $ 63 1 % $ 46 1 % $ 115 1 % $ 89 1 %
Research and development 184 4 98 2 350 4 179 2
Marketing and sales 253 5 199 5 476 5 376 5
General and administrative 78 1 45 1 141 1 87 1
(3) During the three months ended July 31, 2020 the Company recorded
approximately $2.0 billion of benefit from income taxes due to a one-time
discrete tax item from the recognition of deferred tax assets related to an
intra-entity transfer of intangible property.
The following table sets forth selected balance sheet data and other metrics for
each of the periods indicated (in millions, except remaining performance
obligation, which is presented in billions):
As of July 31, As of January 31,
2020 2020
Cash, cash equivalents and marketable securities $ 9,283 $ 7,947
Unearned revenue 8,711 10,662
Remaining performance obligation 30.6 30.8
Principal due on our outstanding debt obligations (1) 2,692 2,694
(1) Amounts do not include operating or financing lease obligations.
Remaining performance obligation 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.
Impact of Acquisitions
The comparability of our operating results for the three and six months ended
July 31, 2020 compared to the same period of fiscal 2020 was impacted by our
acquisitions in the current and prior year, including the acquisition of Tableau
in the prior year, which was our largest acquisition to date. In our discussion
of changes in our results of operations for the three and six months ended July
31, 2020 compared to the same periods of fiscal 2020, we may quantitatively
disclose the impact of our acquired products and services for the one-year
period subsequent to the acquisition date on the growth in certain of our
revenues where such discussions would be meaningful. Expense contributions from
our recent acquisitions for each of the respective period comparisons generally
were not separately identifiable due to the integration of these businesses into
our existing operations or were insignificant to our results of operations
during the periods presented.
Revenues
Three Months Ended July 31, Variance
(in millions) 2020 2019 Dollars Percent
Subscription and support $ 4,840 $ 3,745 $ 1,095 29 %
Professional services and other 311 252 59 23
Total revenues $ 5,151 $ 3,997 $ 1,154 29 %
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Six Months Ended July 31, Variance
(in millions) 2020 2019 Dollars Percent
Subscription and support $ 9,415 $ 7,241 $ 2,174 30 %
Professional services and other 601 493 108 22
Total revenues $ 10,016 $ 7,734 $ 2,282 30 %
The increase in subscription and support revenues was primarily caused by
volume-driven increases from new business, which includes new customers,
upgrades, additional subscriptions from existing customers and acquisition
activity. Pricing was not a significant driver of the increase in revenues for
the period. Revenues from term and perpetual software licenses, which are
recognized at a point in time, represent approximately six percent of total
subscription and support revenues for the three and six months ended July 31,
2020 . Subscription and support revenues accounted for approximately 94 percent
of our total revenues for both the three and six months ended July 31, 2020 and
2019. Additionally, subscription and support revenues increased by approximately
$46 million as a result of one more day (February 29, 2020 ) in the six months
ended July 31, 2020 compared to the same period a year ago.
The acquisition of Tableau in August 2019 contributed approximately $375 million
to total subscription and support revenues in the three months ended July 31,
2020 and $648 million in the six months ended July 31, 2020 . As a result of our
business combination activity, we recorded unearned revenue related to acquired
contracts from acquired entities at fair value on the date of acquisition. As a
result, we did not recognize certain revenues related to these acquired
contracts that the acquired entities would have otherwise recorded as an
independent entity.
Our growth in revenues is also impacted by attrition. Attrition represents the
reduction or loss of the annualized value of our contracts with customers. We
calculate our attrition rate at a point in time on a trailing twelve-month basis
as of the end of each month. As of July 31, 2020 , our attrition rate, excluding
Integration Cloud, Salesforce.org and Tableau, was less than ten percent. In
general, we exclude service offerings from acquisitions from our attrition
calculation until they are fully integrated into our customer success
organization. While it is difficult to predict, we expect our attrition rate to
remain consistent in the near term due to the timing of renewals, as the fourth
quarter is the largest quarter for renewals, and the diversity of size, industry
and geography within the customer base, but it may increase over time, including
as a result of COVID-19.
We continue to invest in a variety of customer programs and initiatives which,
along with increasing enterprise adoption, have helped keep our attrition rate
consistent as compared to the prior year. Consistent attrition rates play a role
in our ability to maintain growth in our subscription and support revenues.
The increase in professional services and other revenues was due primarily to
the higher demand for services from an increased number of customers.
Subscription and Support Revenue by Service Offering
Subscription and support revenues consisted of the following (in millions):
Three Months Ended July 31,
2020 2019 Variance Percent
Sales Cloud $ 1,279 $ 1,130 13%
Service Cloud 1,303 1,087 20%
Salesforce Platform and Other 1,512 912 66%
Marketing and Commerce Cloud 746 616 21%
Total $ 4,840 $ 3,745
Six Months Ended July 31,
2020 2019 Variance Percent
Sales Cloud $ 2,524 $ 2,203 15%
Service Cloud 2,555 2,107 21%
Salesforce Platform and Other 2,876 1,754 64%
Marketing and Commerce Cloud 1,460 1,177 24%
Total $ 9,415 $ 7,241
40-------------------------------------------------------------------------------- Table of Contents Our Industry Offerings revenue is included in either Sales Cloud, Service Cloud or Salesforce Platform and Other depending on the primary service offering purchased. Integration and Analytics revenues are included in Salesforce Platform and Other. The acquisition of Tableau inAugust 2019 contributed approximately$375 million and$648 million to Salesforce Platform and Other during the three and six months endedJuly 31, 2020 . The revenue growth rates of each of our core service offerings have been and may be adversely impacted by COVID-19 in the future, depending on our customers' actual and projected business needs. Revenues by geography were as follows:
Three Months Ended
As a % of Total As a % of Total
(in millions) 2020 Revenues 2019 Revenues Growth rate
Americas $ 3,596 70 % $ 2,816 70 % 28 %
Europe 1,070 21 786 20 36
Asia Pacific 485 9 395 10 23
$ 5,151 100 % $ 3,997 100 % 29 %
Six Months Ended July 31,
As a % of Total As a % of Total
(in millions) 2020 Revenues 2019 Revenues Growth rate
Americas $ 6,966 70 % $ 5,433 70 % 28 %
Europe 2,104 21 1,541 20 37
Asia Pacific 946 9 760 10 24
$ 10,016 100 % $ 7,734 100 % 30 %
Revenues by geography are determined based on the region of the Salesforce
contracting entity, which may be different than the region of the customer. The
increase in Americas revenues was the result of the increasing acceptance of our
services and the investment of additional sales resources. The increase in
revenues outside of the Americas was the result of the increasing acceptance of
our services, our focus on marketing our services internationally and investment
in additional international resources. Revenues in the Americas and Europe also
benefited from our acquisition of Tableau in August 2019 . Foreign currency
fluctuations, primarily the strengthening British Pound Sterling and the
strengthening Euro, had a negative impact on revenues outside of the Americas of
approximately $16 million and $52 million in the three and six months ended July
31, 2020 compared to a negative impact of approximately $33 million and $90
million during the three and six months ended July 31, 2019 .
Cost of Revenues.
Three Months Ended July 31, Variance
(in millions) 2020 2019 Dollars
Subscription and support $ 1,013 $ 727 $ 286
Professional services and other 298 240 58
Total cost of revenues $ 1,311 $ 967 $ 344
Percent of total revenues 25 % 24 %
Six Months Ended July 31, Variance
(in millions) 2020 2019 Dollars
Subscription and support $ 1,979 $ 1,405 $ 574
Professional services and other 586 476 110
Total cost of revenues $ 2,565 $ 1,881 $ 684
Percent of total revenues 26 % 24 %
For the three months ended July 31, 2020 , the increase in cost of revenues was
primarily due to an increase of $101 million in employee-related costs, an
increase of $17 million in stock-based expenses, an increase of $80 million in
service delivery costs, primarily due to our efforts to increase data center
capacity, an increase of amortization of purchased intangible
41
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assets of $104 million and an increase in allocated overhead. For the six months
ended July 31, 2020 , the increase in cost of revenues was primarily due to an
increase of $192 million in employee-related costs, an increase of $26 million
in stock-based expenses, an increase of $160 million in service delivery costs,
primarily due to our efforts to increase data center capacity, and an increase
of amortization of purchased intangible assets of $202 million . Service delivery
costs associated with our perpetual and term software licenses are lower than
service delivery costs associated with our cloud service offerings and as a
result, our subscription and support gross margin in the six months ended July
31, 2020 benefited, in part, due to this shift in our business mix.
We have increased our headcount by 38 percent since July 31, 2019 to meet the
higher demand for services from our customers, and our recent acquisitions also
contributed to this increase. We intend to continue to invest additional
resources in our enterprise cloud computing services and data center capacity to
allow us to scale with our customers and continuously evolve our security
measures. We also plan to add employees in our professional services group to
facilitate the adoption of our services. The timing of these expenses will
affect our cost of revenues, both in terms of absolute dollars and as a
percentage of revenues, in future periods.
Our professional services and other gross margin was positive $13 million and
positive $15 million during the three and six months ended July 31, 2020 ,
respectively and positive $12 million and $17 million during the three and six
months ended July 31, 2019 . We expect the cost of professional services to be
approximately in line with revenues from professional services in future fiscal
quarters. We believe that this investment in professional services facilitates
the adoption of our service offerings.
Operating Expenses.
Three Months Ended July 31, Variance
(in millions) 2020 2019 DollarsResearch and development $ 898$ 607 $ 291 Marketing and sales 2,275 1,824 451 General and administrative 489 375 114 Loss on settlement of Salesforce.org reseller agreement 0 166 (166) Total operating expenses$ 3,662 $ 2,972 $ 690 Percent of total revenues 72 % 74 % Six Months Ended July 31, Variance (in millions) 2020 2019 Dollars Research and development$ 1,757 $ 1,161 $ 596 Marketing and sales 4,665 3,521 1,144 General and administrative 991 737 254 Loss on settlement of Salesforce.org reseller agreement 0 166 (166) Total operating expenses$ 7,413 $ 5,585 $ 1,828 Percent of total revenues 74 %
72 %
For the three months endedJuly 31, 2020 , the increase in research and development expense was primarily due to an increase of approximately$171 million in employee related costs, an increase of$86 million in stock-based expenses, an increase in our development and test data center costs and allocated overhead. For the six months endedJuly 31, 2020 , the increase in research and development expenses was primarily due to an increase of approximately$354 million in employee-related costs, an increase of$171 million in stock-based expenses, an increase in our development and test data center costs and allocated overhead. Our research and development headcount increased by 43 percent sinceJuly 31, 2019 in order to improve and extend our service offerings, develop new technologies, and integrate acquired companies. Our recent acquisitions also contributed to this increase in headcount. We expect that research and development expenses will increase in absolute dollars and may increase as a percentage of revenues in future periods as we continue to invest in additional employees and technology to support the development of new, and improve existing, technologies and the integration of acquired technologies. For the three months endedJuly 31, 2020 , the increase in marketing and sales expenses was primarily due to an increase of$347 million in employee-related costs and amortization of deferred commissions, an increase of$54 million in stock-based expenses, an increase in amortization of purchased intangible assets of$53 million and allocated overhead partially offset by a reduction in employee travel and expenses. For the six months endedJuly 31, 2020 , the increase in marketing and sales expenses was primarily due to an increase of$841 million in employee-related costs and amortization of deferred commissions, an increase of$100 million in stock-based expenses, an increase in amortization of purchased intangible assets of$97 million , 42 -------------------------------------------------------------------------------- Table of Contents and allocated overhead partially offset by a$143 million reduction in employee travel and expenses. Marketing and sales expenses for the six months endedJuly 31, 2020 were also negatively impacted by the one-time partial minimum commission guarantee offered to our direct sales force and the cancellation of our in-person events. Our marketing and sales headcount increased by 29 percent sinceJuly 31, 2019 , primarily attributable to hiring additional sales personnel to focus on adding new customers and increasing penetration within our existing customer base. Our recent acquisitions also contributed to this increase in headcount. We expect that marketing and sales expenses will increase in absolute dollars and may increase as a percentage of revenues in future periods as we continue to hire additional sales personnel. For the three and six months endedJuly 31, 2020 , the increase in general and administrative expenses was primarily due to an increase in employee-related costs. General and administrative expenses for the six months endedJuly 31, 2020 were also negatively impacted by our donations to members of our ecosystem and community, including the donation of personal protective equipment. Our general and administrative headcount increased by 33 percent sinceJuly 31, 2019 as we added personnel to support our growth, and our recent acquisitions also contributed to this increase. While not material to date, we may experience increasing credit loss risks from accounts receivable in future periods depending on the duration or degree of economic slowdown caused by the COVID-19 pandemic, and our actual experience in the future may differ from our past experiences or current assessments. For the three and six months endedJuly 31, 2019 we incurred a one-time, non-cash operating expense charge of$166 million , as a result of theJune 2019 Salesforce.org business combination and effective settlement of all existing agreements. Other income and expense. Three Months Ended July 31, Variance (in millions) 2020 2019 Dollars Gains on strategic investments, net $ 682$ 109 $ 573 Other expense (21) (3) (18) Six Months Ended July 31, Variance (in millions) 2020 2019 Dollars Gains on strategic investments, net $ 874$ 390 $ 484 Other expense (26) (12) (14) Gains on strategic investments, net consists primarily of mark-to-market adjustments related to our publicly held equity securities, observable price adjustments related to our privately held equity securities and other adjustments. Net gains recognized during the three and six months endedJuly 31, 2020 , were primarily driven by unrealized gains recognized on publicly traded equity securities of$623 million for both periods, of which approximately$617 million was related to the initial public offering of one strategic investment. Other expense primarily consists of interest expense on our debt as well as our operating and finance leases offset by investment income. Interest expense was$29 million and$34 million for the three months endedJuly 31, 2020 and 2019, respectively and$58 million and$69 million for the six months endedJuly 31, 2020 and 2019, respectively. Investment income decreased$12 million and$10 million in the three and six months endedJuly 31, 2020 , respectively, compared to the same periods a year ago due to lower interest rates across our portfolio and was modestly offset by larger cash equivalents and marketable securities balances. Benefit from (provision for) income taxes. Three Months Ended July 31, Variance (in millions) 2020 2019 Dollars Benefit from (provision for) income taxes$ 1,786 $ (73) $ 1,859 Effective tax rate (213) % 45 % Six Months Ended July 31, Variance (in millions) 2020 2019 Dollars Benefit from (provision for) income taxes$ 1,838 $ (163) $ 2,001 Effective tax rate (207) %
25 %
We recognized a tax benefit of$1.8 billion on a pretax income of$839 million for the three months endedJuly 31, 2020 and a tax benefit of$1.8 billion on a pretax income of$886 million for the six months endedJuly 31, 2020 . We changed our international corporate structure, which included the consolidation of certain intangible property inIreland resulting in a net tax 43 -------------------------------------------------------------------------------- Table of Contents benefit of$2.0 billion related to foreign deferred tax assets. We believe that it is more likely than not the deferred tax assets will be realized inIreland . Our effective tax rate may fluctuate due to changes in our domestic and foreign earnings or material discrete tax items or a combination of these factors resulting from transactions or events, such as acquisitions, changes to our operating structure, or COVID-19. We recognized a tax provision of$73 million on a pretax income of$164 million for the three months endedJuly 31, 2019 and a tax provision of$163 million on a pretax income of$646 million for the six months endedJuly 31, 2019 . After our valuation allowance release against the majority of ourU.S. deferred tax assets in fiscal 2019, our tax provision was primarily related toU.S. income tax provision, partially offset by excess tax benefits from stock-based compensation. Liquidity and Capital Resources AtJuly 31, 2020 , our principal sources of liquidity were cash, cash equivalents and marketable securities totaling$9.3 billion and accounts receivable of$3.4 billion . Our cash equivalents and marketable securities are comprised primarily of corporate notes and obligations,U.S. treasury securities,U.S. agency obligations, asset backed securities, foreign government obligations, mortgage backed obligations, covered bonds, time deposits, money market mutual funds and municipal securities. Our revolving loan credit agreement, which provides$1.0 billion in unsecured financing ("Credit Facility") as ofJuly 31, 2020 , also serves as a source of liquidity. As ofJuly 31, 2020 , our remaining performance obligation was$30.6 billion . Our remaining performance obligation represents contracted revenue that has not yet been recognized and includes unearned revenue, which has been invoiced and is recorded on the balance sheet, and unbilled amounts that are not recorded on the balance sheet, that will be recognized as revenue in future periods. Cash from operations could continue to be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other risks detailed in Part II, Item 1A titled "Risk Factors." We believe our existing cash, cash equivalents, marketable securities, cash provided by operating activities, unbilled amounts related to contracted non-cancelable subscription agreements, which is not reflected on the balance sheet, and, if necessary, our borrowing capacity under our Credit Facility will be sufficient to meet our working capital, capital expenditure and debt repayment needs over the next 12 months. In the future, we may enter into arrangements to acquire or invest in complementary businesses, services and technologies, and intellectual property rights. To facilitate these acquisitions or investments, we may seek additional equity or debt financing, which may not be available on terms favorable to us or at all, impacting our ability to complete subsequent acquisitions or investments. Cash Flows For the three and six months endedJuly 31, 2020 and 2019 our cash flows were as follows (in millions): Six Months Ended July 2 Three Months Ended July 31, 31, 2020 2019 2020 2019
Net cash provided by operating activities $ 429
(2,593) (852) (3,030) (1,578)
Net cash provided by (used in) financing
activities 441 (183) 650 24
44-------------------------------------------------------------------------------- Table of Contents Operating Activities The net cash provided by operating activities during the six months endedJuly 31, 2020 was primarily related to net income of$2.7 billion , adjusted for non-cash items including$2.0 billion from a one-time discrete tax item from the recognition of deferred tax assets related to an intra-entity transfer of certain intangible property,$1.3 billion of depreciation and amortization,$1.1 billion of expenses related to employee stock plans and$497 million of amortization of costs capitalized to obtain revenue contracts. Cash provided by operating activities during the six months endedJuly 31, 2020 further benefited by the change in accounts receivable, net of$2.7 billion , offset by change in unearned revenue of$2.0 billion . Cash provided by operating activities during the six months endedJuly 31, 2020 was negatively impacted by payment delays from some of our customers affected by the COVID-19 pandemic, in addition to changes in billing frequency for new business. In addition, our operating cash flows were negatively impacted by investments made in our go-to-market efforts, such as the partial minimum commission guarantee provided in the first quarter of fiscal 2021. The net cash provided by operating activities during the six months endedJuly 31, 2019 was primarily related to net income of$483 million , adjusted for non-cash items such as$426 million related to depreciation and amortization and$731 million of expenses related to employee stock plans, and change in accounts receivable, net of$2.6 billion , offset by change in unearned revenue of$1.6 billion . Investing Activities The net cash used in investing activities during the six months endedJuly 31, 2020 was primarily related to cash consideration for the acquisition ofVlocity , net of cash acquired, of approximately$1.2 billion as well as purchases of marketable securities of$2.5 billion and was partially offset by sales and maturities of marketable securities of$1.1 billion . In addition, we paid approximately$150 million of cash consideration related to the purchase of 450 Mission, which is reflected in capital expenditures. The net cash used in investing activities during the six months endedJuly 31, 2019 was primarily related to the purchases of marketable securities of$1.5 billion . Financing Activities Net cash provided by financing activities during the six months endedJuly 31, 2020 consisted primarily of$0.7 billion from proceeds from equity plans. Net cash provided by financing activities during the six months endedJuly 31, 2019 consisted primarily of$0.4 billion from proceeds from equity plans. Debt As ofJuly 31, 2020 , we had senior unsecured debt outstanding due in 2023 and 2028 with a total carrying value of$2.5 billion . In addition, we had senior secured notes outstanding related to our loan on 50 Fremont due in 2023 with a total carrying value of$191 million . We were in compliance with all debt covenants as ofJuly 31, 2020 . We maintain a$1.0 billion Credit Facility that matures inApril 2023 . There were no outstanding borrowings under the Credit Facility as ofJuly 31, 2020 . We may use the proceeds of future borrowings under the Credit Facility for refinancing other indebtedness, working capital, capital expenditures and other general corporate purposes, including permitted acquisitions. We do not have any special purpose entities and we do not engage in off-balance sheet financing arrangements. Contractual Obligations Our principal commitments consist of obligations under leases for office space, co-location data center facilities and our development and test data center, as well as leases for computer equipment, software, furniture and fixtures, excluding all secured and unsecured debt. AtJuly 31, 2020 , the future non-cancelable minimum payments under these commitments were approximately$4.0 billion . As ofJuly 31, 2020 , we have additional operating leases that have not yet commenced totaling$2.4 billion . These operating leases include agreements for office facilities to be constructed and will commence between fiscal year 2021 and fiscal year 2025 with lease terms of 3 years to 18 years. During fiscal 2021 and in future fiscal years, we have made and expect to continue to make additional investments in our infrastructure to scale our operations, increase productivity and enhance our security measures. We plan to upgrade or replace various internal systems to scale with our overall growth. While we continue to make investments in our infrastructure including offices, information technology and data centers to provide capacity for the growth of our business, our strategy may change related to these investments and we may slow the pace of our investments including in response to the known and potential impacts of COVID-19 on our business. 45 -------------------------------------------------------------------------------- Table of Contents Other Future Obligations InOctober 2019 , we acquired ClickSoftware for approximately$1.4 billion . In the event that we fully integrate the operations and assets of ClickSoftware, as well as other acquired Israeli based entities into our operations, we may be subject to a potential one-time income tax charge based on an assumed Israeli statutory tax rate of 23 percent applied to the value of any transferred intangibles. The timing and amount of the cash payment, if any, is uncertain and would be based upon a number of factors, including our integration plans, valuations related to intercompany transactions, the tax rate in effect at the time, potential negotiations with the taxing authorities and potential litigation. 46 -------------------------------------------------------------------------------- Table of Contents Environmental, Social, Governance We believe the business of business is to make the world a better place for all of our stakeholders, including our stockholders, customers, employees, partners, the planet and the communities in which we work and live. To this end, we are proud to have signed and to support the Business Roundtable's Statement on the Purpose of a Corporation, which affirms the essential role corporations can play in improving our society, a belief that Salesforce has long held and long incorporated into our business practices, to make sure we are doing well and doing good. In addition, delivering innovative solutions to our customers is core to our mission and, as a technology company, we have developed solutions on the Salesforce Platform that enable our customers and stakeholders to manage and affect environmental, social and governance ("ESG") matters that are meaningful to them. We also believe that transparently disclosing the goals and relevant metrics related to our ESG programs will allow our stakeholders to be informed on our progress. To this end, we are working to align with the recommendations of the Financial Stability Board's ("FSB")Task Force on Climate-Related Financial Disclosures ("TCFD") and of theSustainability Accounting Standards Board ("SASB") by the end of fiscal 2021. A summary of the key ESG topics that are most important to our stakeholders and the success of our business, along with key goals for each topic, can be found in our Annual Report on Form 10-K for the fiscal year endedJanuary 31, 2020 , filed with theSecurities and Exchange Commission (the "SEC") onMarch 5, 2020 . We also published our annual Stakeholder Impact Report inMay 2020 , which includes a table of detailed metrics and indicators that highlights the key goals of our ESG programs, provides year over year trends and references SASB, The Global Reporting Initiative ("GRI"), and the Ten Principles of the United Nations Global Compact ("UNGC"). Our ESG highlights as of and for the quarter endedJuly 31, 2020 include the following: •COVID-19 Response. We continued to support our employees, our customers, and our communities in response to the COVID-19 pandemic in a number of ways. For example, in the quarter endedJuly 31, 2020 , we launched Work.com, which includes new solutions designed to help our customers reopen safely. Work.com provides a single hub for leaders to get a 360-degree view of return-to-work readiness across locations, employees and visitors, and make data-driven decisions and includes features ranging from contact tracing and emergency response management to employee wellness assessment and shift management. •Racial Equality and Justice Task Force. InJuly 2020 we launched ourRacial Equality and Justice Task Force to help drive systemic change in our workplace and community. We invited employees from across the business as well as leaders of our Black employee resource group to help us forge our vision. Our response focuses on four pillars of "People, Purchasing, Philanthropy and Policy" and our vision and goals have been formalized in a new Racial Equality and Justice V2MOM, which is an internal management tool that incorporates our vision, values, methods, obstacles, and measures. Examples of some of our initiatives include: •New Representation. We have committed to double theU.S. representation of Black employees in leadership (VP+) by the end of 2023. We are making a new commitment to increase ourU.S. representation of Black employees by 50 percent by the end of 2023. •Procurement. We have committed to increase our spend with Black-owned businesses over the next three years and a 25 percent year-over-year growth in spend with minority-owned businesses. We will review our supplier onboarding process to mitigate any bias and provide better payment terms for Black-owned and minority-owned businesses where appropriate. •Integrated philanthropy. Together with theSalesforce Foundation , a 501(c)(3) nonprofit organization, since inception, we have given approximately$392 million to charitable organizations, logged more than 5.2 million employee volunteer hours around the world and provided more than 49,000 nonprofit and higher education organizations with the use of our service offerings for free or at a discount. •Protecting our Planet. We continued to make progress on our environmental goals, which we believe contributes to the long-term benefit of our company and our stockholders. •Science-Based Targets. We published progress towards achieving our science-based targets and 100 percent renewable energy commitments. In fiscal 2020, we procured electricity from renewable energy resources equivalent to 63 percent of what we used globally. We also achieved a 13 percent absolute reduction in Scope 1 and 2 emissions relative to fiscal 2019 marking progress toward our goal of achieving a 50 percent reduction by fiscal 2031. In addition, as ofJuly 2020 , 15 percent of our targeted fiscal year 2020 Scope 3 emissions are covered by our suppliers' science-based targets. While we believe all of these goals align with our long-term growth strategy and financial and operational priorities, they are aspirational and may change, and there is no guarantee or promise that they will be met. 47
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