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, and industry prospects. 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 and
related public health measures; 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, business and market
conditions, including inflationary pressures, general economic downturn or
recession, market volatility, increasing interest rates and changes in monetary
policy; the impact of geopolitical events; uncertainties regarding the impact of
expensing stock options and other equity awards; the sufficiency of our capital
resources; the ability to execute our Share Repurchase Program; 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
Salesforce, Inc. ("we") is 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. 29
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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 Nine Months of Fiscal 2023
•Revenue: For the nine months ended
•Earnings per Share: For the nine months ended
•Cash: Cash provided by operations for the nine months ended
•Remaining Performance Obligation: Total remaining performance obligation as ofOctober 31, 2022 was approximately$40.0 billion , an increase of 10 percent year-over-year. Current remaining performance obligation as ofOctober 31, 2022 was approximately$20.9 billion , an increase of 11 percent year-over-year. •Share Repurchase Program: InAugust 2022 , our Board of Directors authorized a program to repurchase up to$10.0 billion of our common stock. During three months endedOctober 31, 2022 , we repurchased approximately 11 million shares of our common stock for approximately$1.7 billion . As ofOctober 31, 2022 , we were authorized to purchase a remaining$8.3 billion of our common stock under the Share Repurchase Program. While we continue to see growth in our total revenues, macroeconomic factors have impacted our business and our customers' businesses in ways that are difficult to isolate and quantify. Beginning inJuly 2022 , we saw more measured buying behavior from our customers resulting in stretched sales cycles, additional approval layers required from our customers and deal compression. These trends continued in the third quarter of fiscal 2023 as we saw a more challenging buying environment and our customers incrementally scrutinized their purchasing decisions. However, there was no material impact to our consolidated revenues for the three and nine months endedOctober 31, 2022 or our remaining performance obligation as ofOctober 31, 2022 . The outlook for the macroeconomic environment and its impact on our business remains uncertain. Slower growth in new and renewal business impacts our future results and projections. The slower growth in new and renewal business, particularly if sustained, could impact our remaining performance obligation or revenues, and our ability to meet financial guidance and long term targets. In addition, the expanding global scope of our business and the heightened volatility of global markets, expose us to the risk of fluctuations in foreign currency markets. Foreign currency fluctuations negatively impacted revenues by approximately four percent in the three months endedOctober 31, 2022 and negatively impacted our current remaining performance obligation by approximately four percent as ofOctober 31, 2022 compared to what we would have reported as ofOctober 31, 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 continued volatility 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. We continue to focus 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 levers 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 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 30
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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.
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 92 percent of our total revenues for the nine months endedOctober 31, 2022 . 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 nine months endedOctober 31, 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 offerings 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 ofOctober 31, 2022 , our attrition rate, excludingMuleSoft , Tableau and Slack, was below 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 maintain 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. 31
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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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[[Image Removed: crm-20221031_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.
Remaining performance obligation consisted of the following:
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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, including stock-based compensation expense, 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 believe that our professional services organization facilitates the adoption of our service offerings, helps us to secure larger subscription revenue contracts and supports our customers' success. The cost of professional services may exceed revenues from professional services in future fiscal periods. 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 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. 34
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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.
Results of Operations
The following tables set forth selected data for each of the periods indicated
(in millions):
3 Three Months Ended October 31, Nine Months Ended October 31,
% of Total % of Total % of Total % of Total
2022 Revenues 2021 Revenues 2022 Revenues 2021 RevenuesRevenues:
Subscription and support$ 7,233 92 %$ 6,379 93 %$ 21,232 92 %$ 17,829 93 % Professional services and other 604 8 484 7 1,736 8 1,337 7 Total revenues 7,837 100 6,863 100 22,968 100 19,166 100 Cost of revenues (1)(2): Subscription and support 1,451 19 1,335 20 4,381 19 3,603 19 Professional services and other 637 8 509 7 1,879 8 1,409 7 Total cost of revenues 2,088 27 1,844 27 6,260 27 5,012 26 Gross profit 5,749 73 5,019 73 16,708 73 14,154 74 Operating expenses (1)(2): Research and development 1,280 16 1,203 18 3,927 17 3,174 17 Marketing and sales 3,345 43 3,111 45 10,141 44 8,391 44 General and administrative 664 8 667 9 1,967 9 1,865 9 Total operating expenses 5,289 67 4,981 72 16,035 70 13,430 70 Income from operations 460 6 38 1 673 3 724 4 Gains on strategic investments, net 23 0 363 5 75 0 1,177 6 Other expense (8) 0 (102) (2) (121) 0 (172) (1) Income before benefit from (provision for) income taxes 475 6 299 4 627 3 1,729 9 Benefit from (provision for) income taxes (265) (3) 169 3 (321) (2) (257) (1) Net income$ 210 3 %$ 468 7 % $ 306 1 %$ 1,472 8 %
(1) Amounts related to amortization of intangible assets acquired through business combinations, as follows (in millions):
Three Months Ended October 31, Nine Months Ended October 31,
% of Total % of Total % of Total % of Total
2022 Revenues 2021 Revenues 2022 Revenues 2021 Revenues
Cost of revenues $ 250 3 % $ 272 4 % $ 785 3 % $ 624 3 %
Marketing and sales 224 3 236 3 693 3 491 3
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(2) Amounts related to stock-based compensation expense, as follows (in
millions):
Three Months Ended October 31, Nine Months Ended October 31,
% of Total % of Total % of Total % of Total
2022 Revenues 2021 Revenues 2022 Revenues 2021 Revenues
Cost of revenues $ 130 2 % $ 103 1 % $ 372 2 % $ 280 2 %
Research and development 287 4 276 4 863 4 646 3
Marketing and sales 330 4 316 5 947 4 817 4
General and administrative 96 1 117 2 288 1 273 2
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
October 31, 2022 January 31, 2022
Cash, cash equivalents and marketable securities $ 11,918 $ 10,537
Unearned revenue 11,193 15,628
Remaining performance obligation 40.0 43.7
Principal due on our outstanding debt obligations (1) 10,683 10,686
(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 nine months endedOctober 31, 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 nine months endedOctober 31, 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 October 31, Variance (in millions) 2022 2021 Dollars Percent Subscription and support $ 7,233$ 6,379 $ 854 13 % Professional services and other 604 484 120 25 Total revenues $ 7,837$ 6,863 $ 974 14 % Nine Months Ended October 31, Variance (in millions) 2022 2021 Dollars Percent Subscription and support$ 21,232 $ 17,829 $ 3,403 19 % Professional services and other 1,736 1,337 399 30 Total revenues$ 22,968 $ 19,166 $ 3,802 20 % The increase in subscription and support revenues for the three and nine months endedOctober 31, 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 of total subscription and support revenues for the three and nine months endedOctober 31, 2022 . Subscription and support revenues accounted for approximately 92 percent of our total revenues for the three and nine months endedOctober 31, 2022 and 2021, respectively. For business combinations prior to fiscal 2023, 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. In fiscal 2023, we adopted 36
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Accounting Standards Update No. 2021-08, "Business Combinations (Topic 805):
Accounting for Contract Assets and Contract Liabilities from Contracts with
Customers" ("ASU 2021-08") which requires contract liabilities (i.e., unearned
revenue) acquired in a business combination to be recognized and measured in
accordance with ASC 606, Revenue from Contracts with Customers, thereby
eliminating the previously unrecognized would-be revenue. The adoption of ASU
2021-08 did not materially impact our results of operations in fiscal 2023.
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 October 31,
As a % of Total As a % of Total
Subscription and Subscription and
2022 Support Revenues 2021 Support Revenues Growth Rate
Sales $ 1,717 24 % $ 1,538 24 % 12 %
Service 1,856 26 1,658 26 12
Platform and Other 1,513 20 1,277 20 18
Marketing and Commerce 1,129 16 1,006 16 12
Data 1,018 14 900 14 13
Total $ 7,233 100 % $ 6,379 100 % 13 %
Nine Months Ended October 31,
As a % of Total As a % of Total
Subscription and Subscription and
2022 Support Revenues 2021 Support Revenues Growth Rate
Sales $ 5,044 24 % $ 4,403 25 % 15 %
Service 5,445 26 4,764 27 14
Platform and Other 4,410 20 3,159 18 40
Marketing and Commerce 3,339 16 2,856 16 17
Data 2,994 14 2,647 14 13
Total $ 21,232 100 % $ 17,829 100 % 19 %
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.
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. For example, in fiscal 2022, we made changes to our go-to-market
organizations within our Data offering that created greater short-term
disruption than anticipated, resulting in lower revenue growth in our Data
offering in both the second half of fiscal 2022 and the first quarter of fiscal
2023. We did not see a material impact to Data revenues in the second and third
quarters of fiscal 2023 due to these changes and 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. We are starting to see the benefits of
these changes to our Mulesoft offering and continue to make adjustments to
reaccelerate our Tableau offering. Additionally, as we transition customers
within the Data offering from term software licenses to subscription based
services, revenue associated with such customers will generally be recognized
ratably over the contract term, resulting in potentially less revenue in the
period the customer transitions but potentially increasing revenues over the
remaining term.
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Revenues by Geography
Three Months Ended
As a % of Total As a % of Total
(in millions) 2022 Revenues 2021 Revenues Growth rate
Americas $ 5,361 68 % $ 4,638 68 % 16 %
Europe 1,745 23 1,581 23 10
Asia Pacific 731 9 644 9 14
$ 7,837 100 % $ 6,863 100 % 14 %
Nine Months Ended
As a % of Total As a % of Total
(in millions) 2022 Revenues 2021 Revenues Growth rate
Americas $ 15,593 68 % $ 13,044 68 % 20 %
Europe 5,228 23 4,299 22 22
Asia Pacific 2,147 9 1,823 10 18
$ 22,968 100 % $ 19,166 100 % 20 %
Revenues by geography are determined based on the region of the Salesforce
contracting entity, which may be different than the region of the customer. The
increase in Americas revenues was the result of the increasing acceptance of our
services and the investment of additional sales resources. The increase in
revenues outside of the Americas was the result of the increasing acceptance of
our services, our focus on marketing our services internationally and investment
in additional international resources. Total revenue during the three months
ended October 31, 2022 was negatively impacted by foreign currency fluctuations
of approximately four percent compared to the three months ended October 31,
2021 .
Cost of Revenues
Three Months Ended October 31, Variance
As a % of Total As a % of Total
(in millions) 2022 Revenues 2021 Revenues Dollars
Subscription and support $ 1,451 19 % $ 1,335 20 % $ 116
Professional services and other 637 8 509 7 128
Total cost of revenues $ 2,088 27 % $ 1,844 27 % $ 244
Nine Months Ended October 31, Variance
As a % of Total As a % of Total
(in millions) 2022 Revenues 2021 Revenues Dollars
Subscription and support $ 4,381 19 % $ 3,603 19 % $ 778
Professional services and other 1,879 8 1,409 7 470
Total cost of revenues $ 6,260 27 % $ 5,012 26 % $ 1,248
For the three months ended October 31, 2022 , the increase in cost of revenues
was primarily due to an increase of $137 million in employee-related costs, an
increase of $27 million in stock-based compensation expense and an increase of
$60 million in service delivery costs, primarily due to our efforts to increase
data center capacity. For the nine months ended October 31, 2022 , the increase
in cost of revenues was primarily due to an increase of $474 million in
employee-related costs, an increase of $92 million in stock-based compensation
expense, an increase of $261 million in service delivery costs, primarily due to
our efforts to increase data center capacity, and an increase of amortization of
purchased intangible assets of $161 million .
We have increased our headcount by 32 percent since October 31, 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 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 utilize our professional services organization to
facilitate the adoption of our services. The timing of the adoption of our
services may impact our cost of revenues, both in terms of absolute dollars and
as a percentage of revenues, in future periods.
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Operating Expenses
Three Months Ended October 31, Variance
As a % of Total As a % of Total
(in millions) 2022 Revenues 2021 Revenues Dollars
Research and development $ 1,280 16 % $ 1,203 18 % $ 77
Marketing and sales 3,345 43 3,111 45 234
General and administrative 664 8 667 9 (3)
Total operating expenses $ 5,289 67 % $ 4,981 72 % $ 308
Nine Months Ended October 31, Variance
As a % of Total As a % of Total
(in millions) 2022 Revenues 2021 Revenues Dollars
Research and development $ 3,927 17 % $ 3,174 17 % $ 753
Marketing and sales 10,141 44 8,391 44 1,750
General and administrative 1,967 9 1,865 9 102
Total operating expenses $ 16,035 70 % $ 13,430 70 % $ 2,605
For the three months ended October 31, 2022 , the increase in research and
development expenses was primarily due to an increase of approximately
$84 million in employee related costs, an increase in stock-based compensation
expense of $11 million and increases in our development and test data center
costs. For the nine months ended October 31, 2022 , the increase in research and
development expenses was primarily due to an increase of approximately $473
million in employee-related costs, an increase in stock-based compensation
expense of $217 million and increases in our development and test data center
costs. Our research and development headcount increased by 11 percent since
October 31, 2021 in order to improve and extend our service offerings, develop
new technologies and integrate acquired companies. The increase in research and
development expenses for the nine months ended October 31, 2022 was also
impacted by the timing of the July 2021 acquisition of Slack. 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 the development of new, and the improvement of existing, technologies and to
support the integration of acquired technologies.
For the three months ended October 31, 2022 , the increase in marketing and sales
expenses was primarily due to an increase of $238 million in employee-related
costs, which includes the amortization of deferred commissions, and an increase
in stock-based compensation expense of $14 million . For the nine months ended
October 31, 2022 , the increase in marketing and sales expenses was primarily due
to an increase of $1.1 billion in employee-related costs, which includes the
amortization of deferred commissions, an increase of $130 million in stock-based
compensation and an increase in amortization of purchased intangibles of
$202 million . Our marketing and sales headcount increased by 11 percent since
October 31, 2021 , primarily due to hiring additional sales personnel to focus on
adding new customers and increasing penetration within our existing customer
base. The increase in marketing and sales expenses for the nine months ended
October 31, 2022 was also impacted by the timing of the July 2021 acquisition of
Slack. We expect that marketing and sales expenses will increase in absolute
dollars and will remain consistent as a percentage of revenues in the near term.
For three months ended October 31, 2022 , general and administrative expenses
were relatively consistent with the prior period. The increase in general and
administrative expenses for the nine months ended October 31, 2022 was impacted
by the timing of the July 2021 acquisition of Slack. Our general and
administrative headcount increased by seven percent since October 31, 2021 as we
added personnel to support our growth. The nine months ended October 31, 2021
include transaction costs associated with our acquisition of Slack of
approximately $54 million . We expect that general and administrative expenses
may increase in absolute dollars but will generally remain consistent as a
percentage of revenue in the near term.
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Other Income and Expense
Three Months Ended October 31, Variance
(in millions) 2022 2021 Dollars
Gains on strategic investments, net $ 23 $ 363 $ (340)
Other expense (8) (102) 94
Nine Months Ended October 31, Variance
(in millions) 2022 2021 Dollars
Gains on strategic investments, net $ 75 $ 1,177 $ (1,102)
Other expense (121) (172) 51
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. For the three months ended October 31, 2022 , our strategic
investment portfolio gains were primarily driven by unrealized gains on
privately held equity investments and realized gains on sales of securities of
$57 million and $34 million , respectively, partially offset by $68 million of
impairments. For the nine months ended October 31, 2022 our strategic investment
portfolio gains were primarily driven by unrealized gains on privately held
equity investments and realized gains on sales of securities of $174 million and
$125 million , respectively, which was partially offset by impairments of $121
million and high public market volatility resulting in an unrealized loss on our
publicly held investments of $103 million .
Other expense primarily consists of interest expense on our debt as well as our
finance leases offset by investment income. Interest expense was $75 million and
$72 million for the three months ended October 31, 2022 and 2021, respectively
and $224 million and $147 million for the nine months ended October 31, 2022 and
2021, respectively.
Benefit From (Provision For) Income Taxes
Three Months Ended October 31, Variance
(in millions) 2022 2021 Dollars
Benefit from (provision for) income taxes $ (265) $ 169 $ (434)
Effective tax rate 56 % (57) %
Nine Months Ended October 31, Variance
(in millions) 2022 2021 Dollars
Benefit from (provision for) income taxes $ (321) $ (257) $ (64)
Effective tax rate 51 % 15 %
We recorded a tax provision of $265 million on pretax income of $475 million for
the three months ended October 31, 2022 , and a tax provision of $321 million on
pretax income of $627 million for the nine months ended October 31, 2022 . The
majority of our year-to-date tax provision was related to taxes from profitable
jurisdictions outside of the United States which includes withholding taxes. 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, including, for example, acquisitions,
changes to our operating structure, COVID-19 and other macroeconomic factors.
We recorded a tax benefit of $169 million , primarily related to excess tax
benefits from stock-based compensation, on pretax income of $299 million for the
three months ended October 31, 2021 , and a tax provision of $257 million on
pretax income of $1.7 billion for the nine months ended October 31, 2021 . Our
year-to-date tax provision was related to excess tax benefits from stock-based
compensation partially offset by profitable jurisdictions outside the United
States subject to tax rates greater than 21 percent.
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 may
materially increase future cash taxes.
The Inflation Reduction Act was signed into law in August 2022 . The Inflation
Reduction Act introduced new provisions, including a 15 percent corporate
alternative minimum tax for certain large corporations that have at least an
average of $1 billion adjusted financial statement income over a consecutive
three-tax-year period. The corporate minimum tax will be effective for fiscal
2024. We are currently evaluating the applicability and the effect of the new
law to our financial results.
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Liquidity and Capital Resources
AtOctober 31, 2022 , our principal sources of liquidity were cash, cash equivalents and marketable securities totaling$11.9 billion and accounts receivable of$4.3 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 credit agreement (the "Revolving Loan Credit Agreement"), which as ofOctober 31, 2022 provides the ability to borrow up to$3.0 billion in unsecured financing (the "Credit Facility"), also serves as a source of liquidity. 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 and nine months endedOctober 31, 2022 and 2021, our cash flows were as follows (in millions): 3 Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Net cash provided by operating activities $ 313 $
404 $ 4,323
533 (976) (2,301) (13,077)
Net cash provided by (used in) financing
activities (1,678) (970) (1,341) 7,635
Operating Activities
The net cash provided by operating activities during the nine months ended
October 31, 2022 was related to net income of $306 million , adjusted for
non-cash items including $2.8 billion of depreciation and amortization and $2.5
billion related to stock-based compensation expense. Cash provided by operating
activities can be significantly impacted by factors such as growth in new
business, timing of cash receipts from customers, vendor payment terms and
timing of payments to vendors. Cash provided by operating activities during the
nine months ended October 31, 2022 was further benefited by the change in
accounts receivable, net of $5.5 billion due to cash collections and partially
offset by the change in unearned revenue of $4.4 billion and the change in
accounts payable, accrued expenses and other liabilities of $1.2 billion . As our
business continues to grow and our expenses remain in line with or less than our
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 nine months ended
October 31, 2021 was primarily related to net income of $1.5 billion and
adjusted for non-cash items such as $2.4 billion related to depreciation and
amortization, $2.0 billion of expenses related to stock-based compensation
expense and $1.2 billion related to gains on strategic investments, net. Cash
provided by operating activities during the nine months ended October 31, 2021
further benefited by the change in accounts receivable of $3.9 billion ,
partially offset by the change in unearned revenue, net of $2.9 billion .
Investing Activities
The net cash used in investing activities during the nine months endedOctober 31, 2022 was primarily related to net outflows of$1.0 billion from marketable securities activity, cash consideration for acquisitions of approximately$439 million and net outflows of$294 million from strategic investment activity. The net cash used in investing activities during the nine months endedOctober 31, 2021 was primarily related to the cash consideration for the acquisitions of Slack andAcumen , net of cash acquired, of approximately$14.8 billion partially offset by net cash inflows of$1.1 billion from marketable securities and$1.2 billion from strategic investments.
Financing Activities
Net cash used in financing activities during the nine months ended
Net cash provided by financing activities during the nine months endedOctober 31, 2021 consisted primarily of net proceeds of$7.9 billion from ourJuly 2021 issuance of Senior Notes,$1.0 billion from proceeds from equity plans, partially offset by payments related to the Slack Convertible Notes net of capped call proceeds of$1.2 billion . 41
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Debt
As ofOctober 31, 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$183 million . We were in compliance with all debt covenants as ofOctober 31, 2022 . 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 ofOctober 31, 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.
Share Repurchase Program InAugust 2022 , the Board of Directors authorized a program to repurchase up to$10.0 billion of our common stock (the "Share Repurchase Program"). The Share Repurchase Program does not have a fixed expiration date and does not obligate us to acquire any specific number of shares. During the three months endedOctober 31, 2022 , we repurchased approximately 11 million shares of our common stock for approximately$1.7 billion at an average cost of$152.66 . All repurchases were made in open market transactions. As ofOctober 31, 2022 , we were authorized to purchase a remaining$8.3 billion of the Company's common stock under the Share Repurchase Program. Subsequent toOctober 31, 2022 , we have paid approximately$0.8 billion throughNovember 29, 2022 for additional shares under the Share Repurchase Program.
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 ofOctober 31, 2022 , the future non-cancelable minimum payments under these commitments were approximately$4.4 billion , with payments of$0.8 billion due in the next 12 months and$3.6 billion due thereafter. As ofOctober 31, 2022 , we have additional operating leases that have not yet commenced totaling$450 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 to 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, 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. The Inflation Reduction Act was signed into law inAugust 2022 . The Inflation Reduction Act introduced new provisions, including a 15 percent corporate alternative minimum tax for certain large corporations that have at least an average of$1 billion adjusted financial statement income over a consecutive three-tax-year period, and a 1 percent excise tax imposed on certain stock repurchases by publicly traded companies. The corporate minimum tax will be effective in fiscal 2024, and the excise tax applies to stock repurchases made afterDecember 31, 2022 . We are currently evaluating the applicability and the effect of the new law to our future cash flows. 42
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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 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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