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 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 Software, Inc. and Slack
Technologies, Inc., 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; our ability to
realize the benefits from acquisitions, strategic partnerships, joint ventures
and investments, including our July 2021 acquisition of Slack Technologies,
Inc., and successfully integrate acquired businesses and technologies; our
ability to compete in the markets 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; our ability to comply with our debt covenants and lease obligations;
the impact of climate change, natural disasters and actual or threatened public
health emergencies; and our ability to achieve our aspirations, goals and
projections related to our environmental, social and governance initiatives.
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 in the digital age. Founded in
1999, we enable companies of every size and industry to take advantage of
powerful technologies, including cloud, mobile, social, voice, blockchain and
artificial intelligence to connect to their customers in a whole new way and
help them transform their businesses around the customer in this digital-first
world.
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With our Customer 360 platform, we deliver a single source of truth, connecting
customer data across systems, apps and devices to help companies with their
digital transformation. Customer 360 gives teams sales, service, marketing and
commerce capabilities and more, and a single shared view of their customers so
they can work together to build lasting, trusted relationships and deliver the
personalized experiences their customers expect. And with our acquisition of
Slack Technologies, Inc. ("Slack") in July 2021 , we are creating a new digital
headquarters, one where companies, employees, governments, and stakeholders can
create success from anywhere.
Highlights from the First Quarter of Fiscal 2023
•Revenue: For the three months ended
•Earnings per Share: For the three months endedApril 30, 2022 , diluted earnings per share was$0.03 as compared to diluted earnings per share of$0.50 from a year ago.
•Cash: Cash provided by operations for the three months ended
•Remaining Performance Obligation: Total remaining performance obligation as ofApril 30, 2022 was approximately$42.0 billion , which includes approximately$1.2 billion of remaining performance obligation related to Slack, an increase of 20 percent year-over-year. Current remaining performance obligation as ofApril 30, 2022 was approximately$21.5 billion , an increase of 21 percent year-over-year. We continue to invest for future growth and are focused on several key growth levers, including driving multiple service offering 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 evaluate acquisitions and investment opportunities in complementary businesses, 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, integration and collaboration. We expect to make investments and acquisitions in the future to continue our growth and expand our service offerings and our professional services organization in supporting the adoption of our service offerings. 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. In the first half of fiscal 2022, these changes to ourMuleSoft organization, within our Data offering, created greater short-term disruption than anticipated, resulting in go-to-market volatility for the Data offering and slower growth in new business in both the second half of fiscal 2022 and the first quarter of fiscal 2023. While we could experience some effects from these organizational changes in future periods, there was no material impact to our remaining performance obligation or our consolidated revenues for the three month period endedApril 30, 2022 , and we do not expect these changes to have a material adverse effect on our business or our ability to meet our consolidated long-term revenue targets. Slower growth in new business in any given period could negatively affect our remaining performance obligation, revenues or operating margins in 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, inflation and geopolitical disruption, expose us to the risk of fluctuations in foreign currency markets. Foreign currency fluctuations negatively impacted revenues by approximately two percent in the three months endedApril 30, 2022 . Fluctuations inthe United States Dollar against international currencies negatively impacted our remaining performance obligation by approximately four percent as ofApril 30, 2022 compared to what we would have reported as ofApril 30, 2021 using constant currency rates. Recently the United States Dollar has strengthened significantly against certain foreign currencies in the markets in which we operate, particularly against the Euro, British Pound Sterling, and Japanese Yen. Based on the current fluctuations in foreign currency markets, we expect lower revenue growth in the near-term compared to past results. If these conditions continue throughout the remainder of fiscal 2023, they could have a material adverse impact on our near-term results and our ability to accurately predict our future results and earnings. The impact of these fluctuations could also be compounded by the seasonality of our business in which our fourth quarter has historically been our strongest quarter for new business and renewals. 29
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Fiscal Year
Our fiscal year ends on
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
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. Subscription and support revenues also include revenues associated with term and perpetual software licenses that provide the customer with a right to use the software as it exists when made available. Revenues from software licenses are generally recognized at the point in time when the software is made available to the customer. Revenue from support and updates 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 endedApril 30, 2022 . 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 ofApril 30, 2022 , our attrition rate, excludingMuleSoft , Tableau and Slack, was between 7.0 and 7.5 percent. While our attrition rate is difficult to predict, we expect it to remain consistent for the near term due to the diversity of size, industry and geography within the customer base. However, our attrition rate may increase over time. 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. 30
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[[Image Removed: crm-20220430_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. Generally, 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.
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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Remaining performance obligation consisted of the following (in billions):
[[Image Removed: crm-20220430_g2.jpg]]
(1) Includes approximately $1.2 billion of remaining performance obligation
related to Slack.
(2) Includes approximately $1.2 billion of remaining performance obligation
related to Slack.
(3) Includes approximately $0.9 billion of remaining performance obligation
related to Slack.
(4) Includes approximately $0.8 billion of remaining performance obligation
related to Slack.
[[Image Removed: crm-20220430_g3.jpg]][[Image Removed: crm-20220430_g4.jpg]]
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[[Image Removed: crm-20220430_g5.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.
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, employee-related costs such as salaries and benefits, and allocated overhead. Our cost of subscription and support revenues also includes amortization of acquisition-related intangible assets, such as the amortization of the cost associated with an acquired company's research and development efforts. Also included in the cost of subscription and support revenues are expenses incurred supporting the free user base of Slack, including third-party hosting costs and employee-related costs specific to customer experience and technical operations. Cost of professional services and other revenues consists primarily of employee-related costs associated with these services, including stock-based compensation expense, the cost of subcontractors, certain third-party fees and allocated overhead. 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, helps us to secure larger subscription revenue contracts and supports our customers' success.
Research and Development
Research and development expenses consist primarily of salaries and related expenses, including stock-based compensation 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
compensation 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
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as commissions, and amortize these costs on a straight-line basis. As such, the timing of expense recognition for these commissions is not consistent with the timing of the associated cash payment.
Our marketing and sales expenses include amortization of acquisition-related intangible assets, such as the amortization of the cost associated with an acquired company's trade names, customer lists and customer relationships.
General and Administrative
General and administrative expenses consist primarily of salaries and related expenses, including stock-based compensation expense, for finance and accounting, legal, internal audit, human resources and management information systems personnel and professional services fees. We allocate overhead such as information technology infrastructure, rent and occupancy charges based on headcount. Employee benefit costs and taxes are allocated based upon a percentage of total compensation expense. As such, these types of expenses are reflected in each cost of revenue and operating expense category.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted inthe 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 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
2022 Revenues 2021 Revenues
Revenues:
Subscription and support $ 6,856 93 % $ 5,536 93 %
Professional services and other 555 7 427 7
Total revenues 7,411 100 5,963 100
Cost of revenues (1)(2):
Subscription and support 1,440 20 1,122 19
Professional services and other 605 8 433 7
Total cost of revenues 2,045 28 1,555 26
Gross profit 5,366 72 4,408 74
Operating expenses (1)(2):
Research and development 1,318 18 951 16
Marketing and sales 3,372 45 2,544 43
General and administrative 656 9 559 9
Total operating expenses 5,346 72 4,054 68
Income from operations 20 0 354 6
Gains on strategic investments, net 7 0 288 5
Other expense (56) 0 (38) (1)Income (loss) before benefit from (provision for) income taxes
(29) 0 604 10
Benefit from (provision for) income taxes 57 0 (135) (2) Net income$ 28 0 %$ 469 8 %
(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
2022 Revenues 2021 Revenues
Cost of revenues $ 275 4 % $ 168 3 %
Marketing and sales 237 3 120 2
(2) Amounts related to stock-based compensation expense, as follows (in
millions):
Three Months Ended April 30,
% of Total % of Total
2022 Revenues 2021 Revenues
Cost of revenues $ 112 1 % $ 82 1 %
Research and development 279 4 173 3
Marketing and sales 291 4 238 4
General and administrative 94 1 71 1
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, 2022 January 31, 2022
Cash, cash equivalents and marketable securities $ 13,503 $ 10,537
Unearned revenue 13,636 15,628
Remaining performance obligation 42.0 43.7
Principal due on our outstanding debt obligations (1) 10,685 10,686
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(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 months endedApril 30, 2022 compared to the same period in fiscal 2022 was impacted by our recent acquisitions, including the acquisition of Slack inJuly 2021 , our largest acquisition to date. In our discussion of changes in our results of operations for the three months endedApril 30, 2022 compared to the same period in fiscal 2022, we may quantitatively disclose the impact of our acquired products and services for the one-year period subsequent to the acquisition date for 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 April 30, Variance (in millions) 2022 2021 Dollars Percent Subscription and support$ 6,856 $ 5,536 $ 1,320 24 % Professional services and other 555 427 128 30 Total revenues$ 7,411 $ 5,963 $ 1,448 24 The increase in subscription and support revenues for the three months endedApril 30, 2022 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 either period. Revenues from term and perpetual software licenses, which are recognized at a point in time, represent approximately five percent and six percent of total subscription and support revenues for the three months endedApril 30, 2022 and 2021, respectively. Subscription and support revenues accounted for approximately 93 percent of our total revenues for both the three months endedApril 30, 2022 and 2021. The acquisition of Slack inJuly 2021 contributed approximately$344 million to subscription and support revenues during the three months endedApril 30, 2022 . 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.
Subscription and Support Revenues by Service Offering
Subscription and support revenues consisted of the following (in millions):
Three Months Ended
As a % of Total As a % of Total
Subscription and Subscription and
2022 Support Revenues 2021 Support Revenues Growth Rate
Sales $ 1,632 24 % $ 1,388 25 % 18%
Service 1,761 25 1,506 27 17%
Platform and Other 1,419 21 913 17 55%
Marketing and Commerce 1,089 16 895 16 22%
Data 955 14 834 15 15%
Total $ 6,856 100 % $ 5,536 100 %
Our Industry Offerings revenue is included in one of the above service offerings
depending on the primary service purchased. Slack revenues are included in
Platform and Other. Data is comprised of revenue from Analytics and Integration
service offerings, which were reclassified from Platform and Other beginning in
the third quarter of fiscal 2022. Reclassifications to prior period Platform and
Other revenues were made to conform to the current period presentation.
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Data subscription and support revenues include revenues from term and perpetual software licenses, which are recognized at the point in time when the software is made available to the customer. Therefore, we expect Data to experience greater volatility in revenues period to period compared to our other service offerings. In addition, in fiscal 2022, we made changes to ourMuleSoft go-to-market organization, within our Data offering, that adversely impacted the financial results of the Data offering in the second half of fiscal 2022 and the first quarter of fiscal 2023. While we expect these changes to have long-term benefits, they created greater short-term disruption than anticipated, including slower growth in new business than anticipated in both the second half of fiscal 2022 and the first quarter of fiscal 2023. As a result, we expect lower revenue growth in our Data offering in the near-term compared to past results. However, we do not expect these changes to have a material adverse effect on our business or our ability to meet our consolidated long-term revenue targets.
Revenues by Geography
Three Months Ended
As a % of Total As a % of Total
(in millions) 2022 Revenues 2021 Revenues Growth Rate
Americas $ 4,971 67 % $ 4,094 69 % 21 %
Europe 1,738 23 1,302 21 33
Asia Pacific 702 10 567 10 24
Total $ 7,411 100 % $ 5,963 100 %
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 primarily 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 primarily the result of the
increasing acceptance of our services, our focus on marketing our services
internationally and investment in additional international resources. During the
three months ended April 30, 2022 , revenues outside of the Americas were
negatively impacted by foreign currency fluctuations by approximately six
percent compared to the three months ended April 30, 2021 .
Cost of Revenues
Three Months Ended April 30,
As a % of Total As a % of Total Variance
(in millions) 2022 Revenues 2021 Revenues Dollars
Subscription and support $ 1,440 20 % $ 1,122 19 % $ 318
Professional services and other 605 8 % 433 7 % 172
Total cost of revenues $ 2,045 28 % $ 1,555 26 % $ 490
For the three months ended April 30, 2022 , the increase in cost of revenues was
primarily due to an increase of $165 million in employee-related costs, an
increase of $107 million in amortization of purchased intangibles from business
combinations, an increase of $30 million in stock-based compensation expense, an
increase of $84 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 42 percent since the three months ended
April 30, 2021 to meet the higher demand for services from our customers, and
our fiscal 2023 acquisition of Traction on Demand 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 is expected to 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,
As a % of Total As a % of Total Variance
(in millions) 2022 Revenues 2021 Revenues Dollars
Research and development $ 1,318 18 % $ 951 16 % $ 367
Marketing and sales 3,372 45 2,544 43 828
General and administrative 656 9 559 9 97
Total operating expenses $ 5,346 72 % $ 4,054 68 % $ 1,292
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For the three months endedApril 30, 2022 , the increase in research and development expenses was primarily due to an increase of approximately$205 million in employee-related costs, an increase of$106 million in stock-based compensation expense, and increases in our development and test data center costs. Our research and development headcount increased by 28 percent since the three months endedApril 30, 2021 in order to improve and extend our service offerings, develop new technologies and integrate acquired companies. Our acquisition of Slack 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 endedApril 30, 2022 , the increase in marketing and sales expenses was primarily due to an increase of$481 million in employee-related costs and amortization of deferred commissions, an increase of$117 million in amortization of purchased intangibles from business combinations, and an increase of$53 million in stock-based compensation expense. Our marketing and sales headcount increased by 26 percent since the three months endedApril 30, 2021 , primarily attributable to hiring additional sales personnel to focus on adding new customers and increasing penetration within our existing customer base. Our acquisition of Slack also contributed to this increase in headcount. 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 and invest in go-to-market efforts. For the three months endedApril 30, 2022 , the increase in general and administrative expenses was primarily due to an increase in employee-related costs. Our general and administrative headcount increased by 26 percent since the three months endedApril 30, 2021 as we added personnel to support our growth. Our acquisition of Slack also contributed to this increase in headcount. Other Income and Expenses Three Months Ended April 30, Variance (in millions) 2022 2021 Dollars Gains on strategic investments, net $ 7$ 288 $ (281) Other expense (56) (38) (18) 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. Our strategic investment portfolio continues to be affected by high public equity market volatility. This resulted in an unrealized loss on our publicly held investments of$74 million for the three months endedApril 30, 2022 which was partially offset by unrealized gains on privately held equity investments. Other expense primarily consists of interest expense on our debt as well as our finance leases offset by investment income. Interest expense was$74 million and$34 million for the three months endedApril 30, 2022 and 2021, respectively. The increase in interest expense was primarily driven by our issuance of$8.0 billion of Senior Notes inJuly 2021 .
Benefit From (Provision For) Income Taxes
Three Months Ended April 30, Variance
(in millions) 2022 2021 Dollars
Benefit from (provision for) income taxes $ 57 $ (135) $ 192
Effective tax rate 197 % 22 %
In the three months ended April 30, 2022 , we recognized a tax benefit of $57
million on a pretax loss of $29 million . Our tax provision decreased from the
same period a year ago primarily due to quarter-to-date pre-tax loss recorded
for the three months ended April 30, 2022 , favorable discrete items, including
excess tax benefits from stock-based compensation, and certain adjustments
resulting from a transfer pricing agreement with a major jurisdiction. 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 and COVID-19.
Additionally, the provision from the Tax Cuts and Jobs Act of 2017 that requires
capitalization and amortization of research and development costs is effective
starting fiscal 2023. If not deferred, modified or repealed, this provision is
expected to materially increase future cash taxes.
Liquidity and Capital Resources
AtApril 30, 2022 , our principal sources of liquidity were cash, cash equivalents and marketable securities totaling$13.5 billion and accounts receivable of$4.0 billion . Our cash equivalents and marketable securities are comprised primarily of corporate notes and obligations,U.S. treasury securities,U.S. agency obligations, asset-backed securities, foreign government obligations, mortgage-backed obligations, covered bonds, time deposits, money market mutual funds and municipal securities. 38
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Our credit agreement (the "Revolving Loan Credit Agreement"), which as of
Cash from operations could continue to be affected by various risks and uncertainties, including, but not limited to, the risks detailed in Part II, Item 1A titled "Risk Factors." We believe our existing cash, cash equivalents, marketable securities, cash provided by operating activities, unbilled amounts related to contracted non-cancelable subscription agreements, which is not reflected on the balance sheet, and, if necessary, our borrowing capacity under our Credit Facility will be sufficient to meet our working capital, capital expenditure and debt maintenance needs over the next 12 months. In the future, we may enter into arrangements to acquire or invest in complementary businesses, services and technologies and intellectual property rights. To facilitate these acquisitions or investments, we may seek additional equity or debt financing, which may not be available on terms favorable to us or at all, impacting our ability to complete subsequent acquisitions or investments.
Cash Flows
For the three months endedApril 30, 2022 and 2021, our cash flows were as follows (in millions): 1 Three Months Ended April 30, 2022 2021 Net cash provided by operating activities$ 3,676 $ 3,228 Net cash used in investing activities (2,457) (1,047) Net cash provided by financing activities 201 165 Operating Activities The net cash provided by operating activities during the three months endedApril 30, 2022 was related to net income of$28 million , adjusted for non-cash items including$906 million of depreciation and amortization and$776 million related to stock-based compensation expense. Cash provided by operating activities during the three months endedApril 30, 2022 was further benefited by the change in accounts receivable, net of$5.8 billion and partially offset by the change in unearned revenue, net of$2.0 billion . As our business continues to grow and our expenses remain in line with revenue growth, we expect to continue to see growth in net cash provided by operating activities. The net cash provided by operating activities during the three months endedApril 30, 2021 was primarily related to net income of$469 million , adjusted for non-cash items such as$685 million related to depreciation and amortization and$564 million of expenses related to stock-based compensation expense and$288 million related to gains on strategic investments, net. Cash provided by operating activities during the three months endedApril 30, 2021 further benefited by the change in accounts receivable of$4.6 billion , partially offset by the change in unearned revenue, net of$1.5 billion .
Investing Activities
The net cash used in investing activities during the three months endedApril 30, 2022 was primarily related to net outflows of$1.7 billion from marketable securities activity, cash consideration for acquisitions, including Traction on Demand, net of cash acquired, of approximately$414 million and net outflows of$178 million from strategic investment activity. The net cash used in investing activities during the three months endedApril 30, 2021 was primarily related to cash net outflows of$730 million from marketable securities and consideration for the acquisition ofAcumen , net of cash acquired, of approximately$425 million .
Financing Activities
Net cash provided by financing activities during the three months ended
Net cash provided by financing activities during the three months ended
Debt
As ofApril 30, 2022 , we had senior unsecured debt outstanding, with maturities starting inApril 2023 throughJuly 2061 . The total carrying value of this debt was$10.4 billion , of which$1.0 billion is related to the 2023 Senior Notes due in the next 12 months. In addition, we had senior secured notes outstanding related to our loan on our purchase of an office building located at50 Fremont Street inSan Francisco ("50Fremont "), due inJune 2023 , with a total carrying value of$185 million . We were in compliance with all debt covenants as ofApril 30, 2022 . 39
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InDecember 2020 , we entered into the Revolving Loan Credit Agreement, which provides for a$3.0 billion unsecured revolving Credit Facility that matures inDecember 2025 . There were no outstanding borrowings under the Credit Facility as ofApril 30, 2022 . 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. InApril 2022 , we amended the Revolving Loan Credit Agreement to reflect certain immaterial administrative changes.
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 ofApril 30, 2022 , the future non-cancelable minimum payments under these commitments were approximately$4.1 billion , with payments of$0.9 billion due in the next 12 months and$3.2 billion due thereafter. As ofApril 30, 2022 , we have additional operating leases that have not yet commenced totaling$907 million . We generally expect to satisfy these commitments with cash on hand and cash provided by operating activities. During fiscal 2023 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. In connection with this investment, we expect to make a$155 million payment in the third quarter of fiscal 2023 related to one software license and maintenance agreement. While we continue to make investments in our infrastructure including offices, information technology and data centers, as well as investments with infrastructure service providers, 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.
Other Future Obligations
Our overall acquisition strategy may evolve to require integration and business
operation changes that may result in incremental income tax costs. The timing
and amount of a tax 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 the communities in which we work and live. 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.
The topics covered in this section are informed by an internal ESG
prioritization assessment refreshed in fiscal 2022, which assesses topics based
on their potential impact to both our own enterprise value creation and the
environment and society more broadly. The assessment gathered input from a
number of our key internal and external stakeholders, such as investors,
customers, suppliers, our employees and executives, non-governmental
organizations and sector organizations. Our ESG disclosures are also informed by
relevant topics identified through third-party ESG reporting organizations,
frameworks and standards, such as the Sustainability Accounting Standards Board
("SASB") Standards, 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 in our annual Stakeholder Impact Report,
https://salesforce.com/stakeholder-impact-report.
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 that 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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