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OFFON

SALESFORCE.COM, INC.

(CRM)
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SALESFORCE COM : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

06/02/2021 | 08:11am EDT
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 security levels and
service performance 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 additional data center capacity; our reliance on third-party hardware,
software and platform providers; the effect of evolving domestic and foreign
government regulations, including 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; the success of
our strategy of acquiring or making investments in complementary businesses,
joint ventures, services, technologies and intellectual property rights; our
ability to complete, on a timely basis or at all, announced transactions,
including our proposed acquisition of Slack Technologies, Inc.; our ability to
realize the benefits from acquisitions, 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 ability to preserve our workplace culture, including as a
result of our decisions regarding our current and future office environments or
work-from-home policies; 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 the availability and
funding of our bridge loan facility and term loan associated with our proposed
acquisition of Slack Technologies, Inc. and other indebtedness; 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. With our Customer 360 platform we
deliver a single source of truth, connecting customer data across systems, apps
and devices to help companies sell, service, market and conduct commerce from
anywhere. Since our founding in 1999, we
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have pioneered innovations in cloud, mobile, social, analytics and artificial
intelligence ("AI"), enabling companies of every size and industry to transform
their businesses in the all-digital, work-from-anywhere era.
COVID-19 Impact
In March 2020, the World Health Organization declared the novel coronavirus and
resulting disease ("COVID-19") a pandemic. This 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.
As the administration of the vaccine program increases and cases decline, we
continue to evaluate and refine our return to work strategy. Specifically, we
continue to evaluate our office space needs, our investments in our go-to-market
and product efforts and our plans for business travel for our employees. As we
adjust and refine our strategy, there may be additional investments and
redirection efforts in the future which may include position eliminations,
incremental costs to improve employee's ability to work from home and
impairments to assets associated with real estate leases in select locations we
decide to exit.
The ultimate extent of the impact of the COVID-19 pandemic on our operational
and financial performance, including our long term revenue growth and
profitability, depends on certain developments, including the duration of the
pandemic and any resurgences (such as the recent surge in India), the severity
of the disease, responsive actions taken by public health officials or by us
(such as our financial donations in response to the recent surge in India), the
development, distribution and public acceptance of treatments and vaccines, 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 with any degree of certainty. 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 primarily 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 Part II, Item 1A. "Risk Factors" for further discussion of the impact and
possible future impacts of the COVID-19 pandemic on our business.
Highlights from the First Quarter of Fiscal Year 2022
•Revenue: For the three months ended April 30, 2021, revenue was $6.0 billion,
an increase of 23 percent year-over-year.
•Earnings per Share: For the three months ended April 30, 2021, diluted earnings
per share was $0.50 as compared to earnings per share of $0.11 from a year ago.
•Cash: Cash provided by operations for the three months ended April 30, 2021 was
$3.2 billion, an increase of 74 percent year-over-year. Total cash, cash
equivalents and marketable securities as of April 30, 2021 was $15.0 billion.
•Remaining Performance Obligation: Remaining performance obligation as of April
30, 2021 was approximately $35.0 billion, an increase of 19 percent
year-over-year. Current remaining performance obligation as of April 30, 2021
was approximately $17.8 billion, an increase of 23 percent year-over-year.
We continue to invest for future growth and are focused on several key growth
levers, including driving multi-cloud adoption, increasing our penetration with
enterprise and international customers and our industry-specific reach with more
vertical software solutions. These growth drivers often require a more
sophisticated go-to-market approach and, as a result, we may incur additional
costs upfront to obtain new customers and expand our relationships with existing
customers, including additional sales and marketing expenses specific to
subscription and support revenue. As a result, we have seen that customers with
many of these characteristics have lower attrition rates than our company
average.
We plan to continue to reinvest a significant portion of our income from
operations in future periods to grow and innovate our business and service
offerings and expand our leadership role in the cloud computing industry. We
drive innovation organically and, to a lesser extent, through acquisitions. We
regularly evaluate acquisitions and investment opportunities in complementary
businesses, joint ventures, services, technologies and intellectual property
rights in an effort to expand our service offerings and to nurture the overall
ecosystem for our offerings. Past acquisitions have enabled us to deliver
innovative solutions in new categories, including analytics and integration. We
continue to evaluate investment opportunities and expect to continue to make
investments and acquisitions in the future, such as our pending acquisition of
Slack Technologies, Inc. ("Slack"). Slack has an integrated value proposition
across all of our service offerings and, upon close of the transaction and
successful product integration, we believe it will further enable companies to
grow and succeed in an all-digital, work-from-anywhere era.
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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. 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.  Foreign currency fluctuations
benefited revenues by approximately three percent for the three months ended
April 30, 2021. Fluctuations in USD against international currencies benefited
our remaining performance obligation as of April 30, 2021 by approximately three
percent compared to what we would have reported as of January 31, 2021 using
constant currency rate. We expect these fluctuations to continue in the future.
Fiscal Year
Our fiscal year ends on January 31. References to fiscal 2022, for example,
refer to the fiscal year ending January 31, 2022.
Operating Segments
We operate as one segment. See Note 1 "Summary of Business and Significant
Accounting Policies" to the condensed consolidated financial statements for a
discussion about our segments.
Sources of Revenues
We derive our revenues from two sources: subscription and support revenues and
professional services and other revenues. Subscription and support revenues
accounted for approximately 93 percent of our total revenues for the three
months ended April 30, 2021.
Subscription and support revenues include subscription fees from customers
accessing our enterprise cloud computing services (collectively, "Cloud
Services"), software license revenues from the sales of term and perpetual
licenses, and support revenues from the sale of support and updates beyond the
basic subscription fees or related to the sales of software licenses. Our Cloud
Services allow customers to use our multi-tenant software without taking
possession of the software. Revenue is generally recognized ratably over the
contract term. With the May 2018 acquisition of MuleSoft, Inc. ("MuleSoft") and
the August 2019 acquisition of Tableau Software, Inc. ("Tableau"), subscription
and support revenues also include revenues associated with term-based
on-premises software licenses that provide the customer with a right to use the
software as it exists when made available. Revenues from distinct software
licenses are generally recognized at the point in time when the software is made
available to the customer. In cases where we allocate revenue to software
support and updates revenue, the allocated revenue is recognized as such support
and updates are provided, which is generally ratably over the contract term.
Changes in contract duration for multi-year licenses can impact the amount of
revenues recognized upfront. Revenues from software licenses represent less than
ten percent of total subscription and support revenue for the three months ended
April 30, 2021.
The revenue growth rates of each of our 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 our Sales,
Service or Platform service offering 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.
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 April 30, 2021, our attrition rate, excluding
our Integration service offering, Salesforce.org and Tableau, was between 9.0
and 9.5 percent. Beginning in fiscal year 2021, our attrition rate includes our
Commerce service offering. In general, we exclude service offerings from
acquisitions from our attrition calculation until they are fully integrated into
our customer success organization. While our attrition rate is difficult to
predict, we expect it to remain consistent or slightly better for the remainder
of fiscal 2022 due to the diversity of size, industry and geography within the
customer base. However, our attrition rate may increase over time, including,
for example, as a result of COVID-19.
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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.
                     [[Image Removed: crm-20210430_g1.jpg]]

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. Unearned revenues,
accounts receivable and operating cash flow may also be impacted by
acquisitions. For example, operating cash flows may be adversely impacted by
acquisitions due to transaction costs, financing costs such as interest expense
and lower operating cash flows from the acquired entity.
In response to COVID-19, we offered temporary financial flexibility to some
customers in the first quarter of fiscal 2021 and changed billing frequencies
for other customers throughout fiscal 2021, which delayed payments to periods
later than expected. We also accelerated our investments in our go-to-market and
product efforts throughout fiscal 2021, which resulted in increased expenses and
a negative impact to operating cash flow. These efforts have affected and may
continue to affect trends related to the seasonal nature of unearned revenue,
accounts receivable and 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-20210430_g2.jpg]][[Image Removed: crm-20210430_g3.jpg]]

                     [[Image Removed: crm-20210430_g4.jpg]]
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. Remaining performance obligation is also
impacted by acquisitions. 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 contract duration or the timing of delivery of professional services
can impact remaining performance obligation as well as the allocation between
current and non-current remaining performance obligation.
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Remaining performance obligation consisted of the following (in billions):
                     [[Image Removed: crm-20210430_g5.jpg]]
Cost of Revenues and Operating Expenses
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
expense, the cost of subcontractors and certain third-party fees. We expect the
cost of professional services to be approximately in line with revenues from
professional services in future fiscal periods. We believe that this investment
in professional services facilitates the adoption of our service offerings.
Research and Development
Research and development expenses consist primarily of salaries and related
expenses, including stock-based expense 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
expense 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. We capitalize certain costs to obtain customer
contracts, such as commissions, and amortize these costs on a straight-line
basis. Payments of these commissions are not consistent with the period in which
the expense is recognized.
General and Administrative
General and administrative expenses consist primarily of salaries and related
expenses, including stock-based expense, 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.
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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.










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Results of Operations
The following tables set forth selected data for each of the periods indicated
(in millions):
1                                                                  Three Months Ended April 30,
                                                                                                        % of Total                             % of Total
                                                                                        2021             Revenues              2020             Revenues
Revenues:
Subscription and support                                                             $ 5,536                    93  %       $ 4,575                    94  %
Professional services and other                                                          427                     7              290                     6
Total revenues                                                                         5,963                   100            4,865                   100
Cost of revenues (1)(2):
Subscription and support                                                               1,122                    19              966                    20
Professional services and other                                                          433                     7              288                     6
Total cost of revenues                                                                 1,555                    26            1,254                    26
Gross profit                                                                           4,408                    74            3,611                    74
Operating expenses (1)(2):
Research and development                                                                 951                    16              859                    18
Marketing and sales                                                                    2,544                    43            2,390                    49
General and administrative                                                               559                     9              502                    10

Total operating expenses                                                               4,054                    68            3,751                    77
Income (loss) from operations                                                            354                     6             (140)                   (3)

Gains on strategic investments, net                                                      288                     5              192                     4
Other expense                                                                            (38)                   (1)              (5)                    0
Income before benefit from (provision for) income taxes                                  604                    10               47                     1
Benefit from (provision for) income taxes                                               (135)                   (2)              52                     1
Net income                                                                           $   469                     8  %       $    99                     2  %

(1) Amounts related to amortization of intangible assets acquired through business combinations, as follows (in millions):

                                                             Three Months Ended April 30,
                                                                                                  % of Total                            % of Total
                                                                                  2021             Revenues             2020             Revenues
Cost of revenues                                                                $  168                     3  %       $  159                     3  %
Marketing and sales                                                                120                     2  %          112                     2

(2) Amounts related to stock-based expense, as follows (in millions):

                                                                  Three Months Ended April 30,
                                                                                                        % of Total                            % of Total
                                                                                        2021             Revenues             2020             Revenues
Cost of revenues                                                                      $   82                     1  %       $   52                     1  %
Research and development                                                                 173                     3             166                     3
Marketing and sales                                                                      238                     4             223                     5
General and administrative                                                                71                     1              63                     1



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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
                                                              April 30, 2021          January 31, 2021

Cash, cash equivalents and marketable securities            $        15,023          $         11,966
Unearned revenue                                                     11,158                    12,607
Remaining performance obligation                                       35.0                      36.1
Principal due on our outstanding debt obligations (1)                 2,689                     2,690


(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.
Revenues
                                               Three Months Ended April 30,                           Variance
(in millions)                                    2021                  2020               Dollars               Percent
Subscription and support                   $        5,536          $    4,575          $      961                       21  %
Professional services and other                       427                 290                 137                       47
Total revenues                             $        5,963          $    4,865          $    1,098                       23


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 months ended April 30, 2021.
Subscription and support revenues accounted for approximately 93 and 94 percent
of our total revenues for the three months ended April 30, 2021 and 2020,
respectively.
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.
The increase in professional services and other revenues was due primarily to
the higher demand for services from an increased number of customers as well as
revenues resulting from the Acumen Solutions, Inc. ("Acumen") acquisition in
February 2021.
Subscription and Support Revenues by Service Offering
Subscription and support revenues consisted of the following (in millions):
                                Three Months Ended April 30,
                                      2021                   2020         Variance Percent
Sales                    $        1,388                    $ 1,245              11%
Service                           1,506                      1,252              20%
Platform and Other                1,747                      1,364              28%
Marketing and Commerce              895                        714              25%
Total                    $        5,536                    $ 4,575


Our Industry Offerings revenue is included in either Sales, Service or Platform
and Other depending on the primary service offering purchased. Subscription and
support revenues from Tableau and Mulesoft combined represented 41 percent and
36 percent of Platform and Other, for the three months ended April 30, 2021 and
2020, respectively.
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Revenues by Geography
                                                                            

Three Months Ended April 30,

                                                         As a % of Total                               As a % of Total
(in millions)                         2021                  Revenues                 2020                 Revenues                  Growth Rate
Americas                         $      4,094                        69  %       $    3,370                        69  %                        21  %
Europe                                  1,302                        21               1,034                        21                           26
Asia Pacific                              567                        10                 461                        10                           23
Total                            $      5,963                       100  %       $    4,865                       100  %


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 sales resources. Revenues in Europe include revenues
from the Middle East and Africa. Foreign currency fluctuations benefited
revenues by approximately three percent for the three months ended April 30,
2021.
Cost of Revenues.
                                         Three Months Ended April 30,             Variance
(in millions)                           2021                          2020         Dollars
Subscription and support          $       1,122                    $   966       $     156
Professional services and other             433                        288             145
Total cost of revenues            $       1,555                    $ 1,254       $     301
Percent of total revenues                    26   %                     26  %


For the three months ended April 30, 2021, the increase in cost of revenues was
primarily due to an increase of $147 million in employee-related costs, an
increase of $30 million in stock-based expense, an increase of $72 million in
service delivery costs primarily due to our efforts to increase data center
capacity, and an increase in third party fees.
We have increased our headcount associated with our data centers, customer
support and professional services by 29 percent since fiscal 2021 to meet the
higher demand for services from our customers, and our recent acquisition of
Acumen 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.
Operating Expenses.
                                    Three Months Ended April 30,             Variance
(in millions)                      2021                          2020         Dollars
Research and development     $         951                    $   859       $      92
Marketing and sales                  2,544                      2,390             154
General and administrative             559                        502              57

Total operating expenses     $       4,054                    $ 3,751       $     303
Percent of total revenues               68   %                     77  %


For the three months ended April 30, 2021, the increase in research and
development expenses was primarily due to an increase of approximately $66
million in employee-related costs and increases in our development and test data
center costs. Our research and development headcount increased by 9 percent
since the three months ended April 30, 2020 in order to improve and extend our
service offerings, develop new technologies and integrate acquired companies. 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 ended April 30, 2021, the increase in marketing and sales
expenses was primarily due to an increase of $178 million in employee-related
costs and amortization of deferred commissions, an increase of $15 million in
stock-based expense, partially offset by a reduction in allocated overhead.
Marketing and sales expenses for the three months ended April 30, 2020 were also
negatively impacted by a one-time partial minimum commission guarantee offered
to our direct sales force. Our marketing and sales headcount increased by 16
percent since the three months ended April 30, 2020, primarily attributable to
hiring additional sales personnel to focus on adding new customers and
increasing penetration within our existing customer
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base. We expect that marketing and sales expenses will increase in absolute
dollars and will increase as a percentage of revenues in future periods as we
continue to hire additional sales personnel. We also expect an increase in
marketing and sales expenses due to the gradual increase of travel and related
expenses in the second half of fiscal 2022.
For the three months ended April 30, 2021, the increase in general and
administrative expenses was primarily due to an increase in employee-related
costs. Our general and administrative headcount increased by 10 percent since
the three months ended April 30, 2020 as we added personnel to support our
growth.
Other Income and Expenses
                                                            Three Months Ended April 30,               Variance
(in millions)                                                 2021                  2020               Dollars

Gains on strategic investments, net                    $           288          $      192          $        96
Other expense                                                      (38)                 (5)                 (33)


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 months ended April 30, 2021
were primarily driven by an unrealized gain on one of our privately held equity
investments of $369 million partially offset by unrealized losses recognized on
our two publicly traded strategic investments of $206 million.
Other expense primarily consists of interest expense on our debt as well as our
finance leases offset by investment income. Interest expense was $34 million and
$29 million for the three months ended April 30, 2021 and 2020, respectively. We
expect an increase in interest expense due indebtedness we intend to incur in
connection with the pending acquisition of Slack. Investment income decreased
$12 million in the three months ended April 30, 2021, respectively, compared to
the same period a year ago due to lower interest rates across our portfolio,
modestly offset by larger cash equivalents and marketable securities balances.
Benefit From (Provision For) Income Taxes.
                                                           Three Months Ended April 30,                 Variance
(in millions)                                                2021                    2020               Dollars
Benefit from (provision for) income taxes            $          (135)           $        52          $      (187)
Effective tax rate                                                22    %              (111) %


In the three months ended April 30, 2021, we recorded a tax provision of $135
million on a pretax income of $604 million. Our tax provision increased from the
same period a year ago primarily due to larger quarter-to-date pre-tax income.
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, for example, acquisitions, changes to our
operating structure, or COVID-19.
Liquidity and Capital Resources
At April 30, 2021, our principal sources of liquidity were cash, cash
equivalents and marketable securities totaling $15.0 billion and accounts
receivable of $3.2 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 as of April 30, 2021 provides the ability to borrow up to $3.0
billion in unsecured financing ("Credit Facility"), also serves as a source of
liquidity.
As of April 30, 2021, our remaining performance obligation was $35.0 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.
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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 addition, we expect to have a
sufficient combination of available cash and borrowing capacity to fund the
aggregate cash portion of the pending acquisition of Slack, which is expected to
be approximately $15.7 billion, based on Slack Class A and Class B shares
outstanding as of April 30, 2021. Sources of financing associated with our
pending acquisition of Slack are detailed below in "Debt."
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 months ended April 30, 2021 and 2020, our cash flows were as
follows (in millions):
1                                                     Three Months Ended April 30,
                                                                               2021         2020
Net cash provided by operating activities                                    $ 3,228      $ 1,859
Net cash used in investing activities                                         (1,047)        (437)
Net cash provided by financing activities                                   

165 209



Operating Activities
The net cash provided by operating activities during the three months ended
April 30, 2021 was primarily related to net income of $469 million, adjusted for
non-cash items including $685 million of depreciation and amortization and $564
million of expenses related to stock-based expense. Cash provided by operating
activities during the three months ended April 30, 2021 further benefited by the
change in accounts receivable, net of $4.6 billion, offset by a change in
unearned revenue of $1.5 billion.
The net cash provided by operating activities during the three months ended
April 30, 2020 was primarily related to net income of $99 million, adjusted for
non-cash items such as $658 million related to depreciation and amortization,
$504 million of expenses related to stock-based expense and change in accounts
receivable, net of $3.1 billion, offset by change in unearned revenue of $1.6
billion. Cash provided by operating activities during the three months ended
April 30, 2020 was negatively impacted by providing temporary financial
flexibility to customers most affected by COVID-19. In addition, our operating
cash flows were negatively impacted by a one-time partial minimum commission
guarantee as these cash outflows were not offset by corresponding cash inflows
from customer receipts.
Investing Activities
The net cash used in investing activities during the three months ended April
30, 2021 was primarily related to cash consideration for the acquisition of
Acumen, net of cash acquired, of approximately $425 million as well as purchases
of marketable securities of $1.8 billion, partially offset by sales and
maturities of marketable securities of $1.1 billion.
The net cash used in investing activities during the three months ended April
30, 2020 was primarily related to the purchases of marketable securities of $834
million, offset by sales and maturities of marketable securities of
$564 million.
Financing Activities
Net cash provided by financing activities during the three months ended April
30, 2021 consisted primarily of $225 million from proceeds from equity plans.
Net cash provided by financing activities during the three months ended April
30, 2020 consisted primarily of $258 million from proceeds from equity plans.
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Debt
As of April 30, 2021, 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 our purchase of an office
building located at 50 Fremont Street in San Francisco ("50 Fremont"), due in
2023 with a total carrying value of $189 million. We were in compliance with all
debt covenants as of April 30, 2021.
In December 2020, we entered into a credit agreement (the "Revolving Loan Credit
Agreement"), which provides for a $3.0 billion unsecured revolving credit
facility (the "Credit Facility") that matures in December 2025. There were no
outstanding borrowings under the Credit Facility as of April 30, 2021. We may
use the proceeds of future borrowings under the Credit Facility for general
corporate purposes, which may include, without limitation, financing the
consideration for, fees, costs and expenses related to any acquisition.
In addition, in connection with our pending acquisition of Slack, we have
commitments from certain financial institutions for a $4.0 billion 364-day
senior unsecured bridge loan facility (the "Bridge Facility"). We also obtained
a $3.0 billion three-year senior unsecured loan agreement ("Acquisition Term
Loan"), the proceeds of which may be used to finance a portion of the cash
consideration for our pending acquisition of Slack, the repayment of certain
debt of Slack, and to pay fees, costs and expenses related thereto. The
availability and funding of the Bridge Facility and the Acquisition Term Loan
are conditioned on the consummation of the acquisition of Slack in accordance
with the terms of the merger agreement and are subject to certain exceptions,
qualifications and certain other conditions. We may reduce the commitments in
respect of the Bridge Facility prior to the consummation of the acquisition, all
or a portion of which may be in connection with the issuance of one or more
series of senior secured debt securities or other incurrences of new
indebtedness or commitments in respect thereof.
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. As of
April 30, 2021, the future non-cancelable minimum payments under these
commitments were approximately $3.9 billion. As of April 30, 2021, we have
additional operating leases that have not yet commenced totaling $1.4 billion.
During fiscal 2022 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 continue to 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.
Other Future Obligations
In December 2020, we entered into a definitive agreement to acquire Slack. Under
the terms of the agreement, Slack shareholders will receive $26.79 in cash and
0.0776 shares of Salesforce common stock for each outstanding share of Slack
Class A and Class B common stock, resulting in an estimated $15.7 billion of
cash consideration and 45 million shares to be issued, based on Slack Class A
and Class B shares outstanding as of April 30, 2021. The agreement also provides
for the assumption of outstanding equity awards held by Slack employees. We
expect to fund the cash portion of the consideration with a combination of new
debt, as discussed above, and cash on our balance sheet.
In October 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.
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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 our communities. We believe that values drive value, and that
effectively managing our priority Environmental, Social and Governance ("ESG")
topics will help create long-term value for our investors. We also believe that
transparently disclosing the goals and relevant metrics related to our ESG
programs will allow our stakeholders to be informed about our progress.
To identify ESG topics for disclosure, we performed an internal ESG materiality
assessment in fiscal 2020, which assessed both the impact on our business and
the importance to our stakeholders. We also identify relevant topics for
disclosure by considering the recommendations of third-party ESG reporting
frameworks, standards and metrics, such as the Sustainability Accounting
Standards Board ("SASB") and the Task Force on Climate-Related Financial
Disclosures ("TCFD"). More information on our key ESG programs, goals and
commitments, and key metrics can be found on our website, in our Form 10-K filed
with the SEC on March 17, 2021 or on our annual Stakeholder Impact Report
website, https://stakeholderimpactreport.salesforce.com. 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.
While we believe all of our ESG 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.
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