# Salesforce, Inc. (CRM) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Salesforce, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1108524/000110852422000013/crm-20220131.htm
Accession: 0001108524-22-000013
Filing date: 2022-03-11
Report date: 2022-01-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/CRM/
All MD&A years: /company/CRM/mda/
Next year: /company/CRM/mda/fy2023/ (FY 2023)

ITEM 7.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains forward-looking statements, including, without limitation, our expectations and statements regarding our outlook and future revenues, expenses, results of operations, liquidity, plans, strategies and management objectives and any assumptions underlying any of the foregoing. Our actual results may differ significantly from those projected in the forward-looking statements. Our forward-looking statements and factors that might cause future actual results to differ materially from our recent results or those projected in the forward-looking statements include, but are not limited to, those discussed in the section titled “Forward-Looking Information” and “Risk Factors” of this Annual Report on Form 10-K. Except as required by law, we assume no obligation to update the forward-looking statements or our risk factors for any reason.

The following section generally discusses fiscal 2022 and 2021 items and year-to-year comparisons between fiscal 2022 and 2021, as well as certain fiscal 2020 items. Discussions of fiscal 2020 items and year-to-year comparisons between fiscal 2021 and 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended January 31, 2021.

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.

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.

COVID-19 Impact

In March 2020, the World Health Organization declared the novel coronavirus and resulting disease (“COVID-19”) a pandemic. This pandemic has created significant global economic uncertainty, adversely impacted the business of our customers and partners, impacted our business and results of operations and could further impact our results of operations and our cash flows in the future.

As our employees, customers and partners begin to work in person on a periodic basis, we have launched our Success from Anywhere initiative and leveraged Flex Team Agreements to decide how, when, and where our employees work. Using Slack as our digital headquarters, regardless of where employees work, employees are able to connect, share information and get work done. As we adopt and refine our Success from Anywhere initiatives, there may be additional investments and redirection efforts in the future which may include position eliminations, incremental costs to improve employees’ ability to work from home and impairments to assets associated with real estate leases in select locations we decide to exit.

See Part I, Item 1A “Risk Factors” for further discussion of the impact and possible future impacts of the COVID-19 pandemic on our business.

Highlights from Fiscal Year 2022

•Revenue: For fiscal 2022, revenue was $26.5 billion, an increase of 25 percent year-over-year.

•Earnings per Share: For fiscal 2022, diluted earnings per share was $1.48 as compared to earnings per share of $4.38 from a year ago. Fiscal 2021 results benefited from a $2.0 billion one-time discrete tax benefit resulting from the recognition of deferred tax assets related to an intra-entity transfer of intangible property.

•Cash: Cash provided by operations for fiscal 2022 was $6.0 billion, an increase of 25 percent year-over-year. Total cash, cash equivalents and marketable securities as of January 31, 2022 was $10.5 billion.

•Remaining Performance Obligation: Total remaining performance obligation as of January 31, 2022 was approximately $43.7 billion, which includes approximately $1.2 billion of remaining performance obligation related to Slack, an increase of 21 percent year-over-year. Current remaining performance obligation as of January 31, 2022 was approximately $22.0 billion, an increase of 22 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

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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, which has in the past, and could again in the future result in temporary disruptions to our sales productivity. In addition, we have experienced, and may at times in the future experience, more variation from our forecasted expectations of new business activity due to longer and less predictable sales cycles and increasing complexity of our business, which includes an expanded mix of products and various revenue models resulting from acquisitions and increased enterprise solution selling activities. Slower growth in new business in a given period could negatively affect our revenues in future periods, as well as remaining performance obligation in current or future periods, particularly if experienced on a sustained basis.

The expanding global scope of our business and the heightened volatility of global markets, including as a result of COVID-19, inflation and Russia’s recent invasion of Ukraine, expose us to the risk of fluctuations in foreign currency markets. Foreign currency fluctuations benefited revenues by approximately one percent in fiscal 2022. Fluctuations in the United States Dollar against international currencies negatively impacted our remaining performance obligation by approximately two percent as of January 31, 2022 compared to what we would have reported as of January 31, 2021 using constant currency rates. Recently the USD has strengthened against certain foreign currencies in the markets in which we operate. If these conditions continue or materially worsen, they could have an impact on our future 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.

Fiscal Year

Our fiscal year ends on January 31. References to fiscal 2022, for example, refer to the fiscal year ending January 31, 2022.

Operating Segments

We operate as one segment. See Note 1 “Summary of Business and Significant Accounting Policies” to the 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 fiscal 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 fiscal 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

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customers and, as a result, the revenue result for each offering is not necessarily indicative of the results to be expected for any subsequent quarter. In addition, some of our Cloud Service offerings have similar features and functions. For example, customers may use our Sales, Service or Platform service offering to record account and contact information, which are similar features across these service offerings. Depending on a customer’s actual and projected business requirements, more than one service offering may satisfy the customer’s current and future needs. We record revenue based on the individual products ordered by a customer, not according to the customer’s business requirements and usage.

Our growth in revenues is also impacted by attrition. Attrition represents the reduction or loss of the annualized value of our contracts with customers. We calculate our attrition rate at a point in time on a trailing twelve-month basis as of the end of each month. As of January 31, 2022, our attrition rate, excluding MuleSoft, Salesforce.org, Tableau and Slack, was between 7.0 and 7.5 percent. Beginning in fiscal year 2021, our attrition rate includes our Commerce service offering. In general, we exclude service offerings from acquisitions from our attrition calculation until they are fully integrated into our customer success organization. While our attrition rate is difficult to predict, we expect it to remain consistent 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, including, for example, as a result of COVID-19.

We continue to invest in a variety of customer programs and initiatives, which, along with increasing enterprise adoption, have helped keep our attrition rate consistent as compared to the prior year. Consistent attrition rates play a role in our ability to maintain growth in our subscription and support revenues.

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.

In response to COVID-19, we offered temporary financial flexibility to some customers in the first quarter of fiscal 2021 and changed billing frequencies for other customers throughout fiscal 2021, which delayed payments to periods later than expected. We also accelerated our investments in our go-to-market and product efforts throughout fiscal 2021, which resulted in increased expenses and a negative impact to operating cash flow. These efforts have affected and may continue to affect trends related to the seasonal nature of unearned revenue, accounts receivable and operating cash flow.

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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).

Remaining Performance Obligation

Our remaining performance obligation represents all future revenue under contract that has not yet been recognized as revenue and includes unearned revenue and unbilled amounts. Our current remaining performance obligation represents future revenue under contract that is expected to be recognized as revenue in the next 12 months.

Remaining performance obligation is not necessarily indicative of future revenue growth and is influenced by several factors, including seasonality, the timing of renewals, average contract terms, foreign currency exchange rates and fluctuations in new business growth. Remaining performance obligation is also impacted by acquisitions. Unbilled portions of the remaining performance obligation denominated in foreign currencies are revalued each period based on the period end exchange rates. For multi-year subscription agreements billed annually, the associated unbilled balance and corresponding remaining performance obligation are typically high at the beginning of the contract period, zero just prior to renewal, and increase if the agreement is renewed. Low remaining performance obligation attributable to a particular subscription agreement is often associated with an impending renewal but may not be an indicator of the likelihood of renewal or future revenue from such customer. Changes in contract duration or the timing of delivery of professional services can impact remaining performance obligation as well as the allocation between current and non-current remaining performance obligation.

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Remaining performance obligation consisted of the following (in billions):

(1) Includes approximately $1.2 billion of remaining performance obligation related to Slack.

(2) Includes approximately $0.9 billion of remaining performance obligation related to Slack.

(3) Includes approximately $0.8 billion of remaining performance obligation related to Slack.

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 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 expense and allocated overhead.

Marketing and Sales 

Marketing and sales expenses make up the majority of our operating expenses and consist primarily of salaries and related expenses, including stock-based expense and commissions, for our sales and marketing staff, as well as payments to partners, marketing programs and allocated overhead. Marketing programs consist of advertising, events, corporate communications, brand building and product marketing activities. We capitalize certain costs to obtain customer contracts, such as commissions, and amortize these costs on a straight-line basis. 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.

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General and Administrative 

General and administrative expenses consist primarily of salaries and related expenses, including stock-based expense, for finance and accounting, legal, internal audit, human resources and management information systems personnel and professional services fees.

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 consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these 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 consolidated financial statements, the following accounting policies and specific estimates involve a greater degree of judgment and complexity.

Revenue Recognition - Contracts with Multiple Performance Obligations. We enter into contracts with our customers that may include promises to transfer multiple Cloud Services, software licenses, premium support and professional services. A performance obligation is a promise in a contract with a customer to transfer products or services that are distinct. Determining whether products and services are distinct performance obligations that should be accounted for separately or combined as one unit of accounting may require significant judgment.

Cloud Services and software licenses are distinct as such offerings are often sold separately. In determining whether professional services are distinct, we consider the following factors for each professional services agreement: availability of the services from other vendors, the nature of the professional services, the timing of when the professional services contract was signed in comparison to the subscription start date and the contractual dependence of the service on the customer’s satisfaction with the professional services work. To date, we have generally concluded that professional services included in contracts with multiple performance obligations are distinct.

We allocate the transaction price to each performance obligation on a relative standalone selling price ("SSP") basis. The SSP is the price at which we would sell a promised product or service separately to a customer. Judgment is required to determine the SSP for each distinct performance obligation. We determine SSP by considering our overall pricing objectives and market conditions. Significant pricing practices taken into consideration include our discounting practices, the size and volume of our transactions, the customer demographic, the geographic area where services are sold, price lists, our go-to-market strategy, historical sales and contract prices. In instances where we do not sell or price a product or service separately, we determine relative fair value using information that may include market conditions or other observable inputs. As our go-to-market strategies evolve, we may modify our pricing practices in the future, which could result in changes to SSP.

In certain cases, we are able to establish SSP based on observable prices of products or services sold separately in comparable circumstances to similar customers. We use a single amount to estimate SSP when it has observable prices. If SSP is not directly observable, for example when pricing is highly variable, we use a range of SSP. We determine the SSP range using information that may include pricing practices or other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customer size and geography.

Costs Capitalized to Obtain Revenue Contracts. Costs capitalized related to new revenue contracts, primarily commissions paid to employees and related payroll taxes and fringe benefit costs, are amortized on a straight-line basis over four years, which, although longer than the typical initial contract period, reflects the average period of benefit, including expected contract renewals. Significant judgment is required in arriving at this average period of benefit. Therefore, we evaluate both qualitative and quantitative factors, including the estimated life cycles of our offerings and our customer attrition.

Business Combinations. Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired and liabilities assumed and pre-acquisition contingencies. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets.

Critical estimates in valuing certain of the intangible assets and goodwill we have acquired are:

•future expected cash flows from subscription and support contracts, professional services contracts, other customer contracts and acquired developed technologies and patents;

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•historical and expected customer attrition rates and anticipated growth in revenue from acquired customers;

•assumptions about the period of time the acquired trade name will continue to be used in our offerings;

•discount rates;

•uncertain tax positions and tax-related valuation allowances assumed;

•fair value of assumed equity awards; and

•fair value of pre-existing relationships.

Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.

Income Taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not expected to be realized based on the weighting of positive and negative evidence. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character, for example, ordinary income or capital gains, within the carryback or carryforward periods available under the applicable tax law. We regularly review the deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. Our judgment regarding future profitability may change due to many factors, including future market conditions and the ability to successfully execute our business plans and tax planning strategies. Should there be a change in the ability to recover deferred tax assets, our income tax provision would increase or decrease in the period in which the assessment is changed.

Our tax positions are subject to income tax audits by multiple tax jurisdictions throughout the world. We recognize the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the taxing authority, based on the technical merits. The tax benefit recognized is measured as the largest amount of benefit which is greater than 50 percent likely to be realized upon settlement with the taxing authority. We recognize interest accrued and penalties related to unrecognized tax benefits in our income tax provision.

Strategic Investments. Accounting for strategic investments in privately held debt and equity securities in which we do not have a controlling interest or significant influence requires us to make significant estimates and assumptions.

Valuations of privately held securities are inherently complex and require judgment due to the lack of readily available market data. Privately held debt and equity securities are valued using significant unobservable inputs or data in an inactive market and the valuation requires our judgment due to the absence of market prices and inherent lack of liquidity. The carrying values of our privately held equity securities are adjusted if there are observable price changes in a same or similar security from the same issuer or if there are identified events or changes in circumstances that may indicate impairment, as discussed below. In determining the estimated fair value for these investments, we utilize the most recent data available and apply valuation methods, including the market approach and option pricing models (“OPM”), adjusted to reflect the specific rights and preferences of the classes of securities we hold. Such information available to us from investee companies is supplemented with estimates such as volatility and expected time to liquidity.

We assess our privately held debt and equity securities strategic investment portfolio quarterly for impairment. Our impairment analysis encompasses an assessment of both qualitative and quantitative analyses of key factors including the investee’s financial metrics, market acceptance of the product or technology, and the rate at which the investee is using its cash. If the investment is considered to be impaired, we record the investment at fair value by recognizing an impairment through the consolidated statement of operations and establishing a new carrying value for the investment.

The particular privately held debt and equity securities we hold, and their rights and preferences relative to those of other securities within the capital structure, may impact the magnitude by which our investment value moves in relation to movement of the total enterprise value of the company. As a result, our investment value in a specific company may move by more or less than any change in the value of that overall company. An immediate decrease of ten percent in the enterprise values of our largest privately held equity securities, representing 41 percent of our total strategic investments as of January 31, 2022, could result in a $165 million reduction in the value of our investment portfolio.

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Results of Operations

The following tables set forth selected data for each of the periods indicated (in millions):

[[GREPCENT_TABLE]]
[["4","","","Fiscal Year Ended January 31,"],["","","","","","","","","","2022","","% of Total Revenues","","2021","","% of Total Revenues","","2020","","% of Total Revenues"],["Revenues:"],["Subscription and support","","","","","","","","","$","24,657","","","93","%","","$","19,976","","","94","%","","$","16,043","","","94","%"],["Professional services and other","","","","","","","","","1,835","","","7","","","1,276","","","6","","","1,055","","","6"],["Total revenues","","","","","","","","","26,492","","","100","","","21,252","","","100","","","17,098","","","100"],["Cost of revenues (1)(2):"],["Subscription and support","","","","","","","","","5,059","","","19","","","4,154","","","20","","","3,198","","","19"],["Professional services and other","","","","","","","","","1,967","","","8","","","1,284","","","6","","","1,037","","","6"],["Total cost of revenues","","","","","","","","","7,026","","","27","","","5,438","","","26","","","4,235","","","25"],["Gross profit","","","","","","","","","19,466","","","73","","","15,814","","","74","","","12,863","","","75"],["Operating expenses (1)(2):"],["Research and development","","","","","","","","","4,465","","","17","","","3,598","","","17","","","2,766","","","16"],["Marketing and sales","","","","","","","","","11,855","","","44","","","9,674","","","45","","","7,930","","","46"],["General and administrative","","","","","","","","","2,598","","","10","","","2,087","","","10","","","1,704","","","10"],["Loss on settlement of Salesforce.org reseller agreement","","","","","","","","","0","","","0","","","0","","","0","","","166","","","1"],["Total operating expenses","","","","","","","","","18,918","","","71","","","15,359","","","72","","","12,566","","","73"],["Income from operations","","","","","","","","","548","","","2","","","455","","","2","","","297","","","2"],["Gains on strategic investments, net","","","","","","","","","1,211","","","5","","","2,170","","","10","","","427","","","2"],["Other expense","","","","","","","","","(227)","","","(1)","","","(64)","","","0","","","(18)","","","0"],["Income before benefit from (provision for) income taxes","","","","","","","","","1,532","","","6","","","2,561","","","12","","","706","","","4"],["Benefit from (provision for) income taxes (3)","","","","","","","","","(88)","","","(1)","","","1,511","","","7","","","(580)","","","(3)"],["Net income","","","","","","","","","$","1,444","","","5","%","","$","4,072","","","19","%","","$","126","","","1","%"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","","","Fiscal Year Ended January 31,"],["","","","","","","","","","2022","","% of Total Revenues","","2021","","% of Total Revenues","","2020","","% of Total Revenues"],["Cost of revenues","","","","","","","","","$","897","","","3","%","","$","662","","","3","%","","$","440","","","3","%"],["Marketing and sales","","","","","","","","","727","","","3","","","459","","","2","","","352","","","2"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","","","Fiscal Year Ended January 31,"],["","","","","","","","","","2022","","% of Total Revenues","","2021","","% of Total Revenues","","2020","","% of Total Revenues"],["Cost of revenues","","","","","","","","","$","386","","","1","%","","$","241","","","1","%","","$","204","","","1","%"],["Research and development","","","","","","","","","918","","","4","","","703","","","4","","","510","","","3"],["Marketing and sales","","","","","","","","","1,104","","","4","","","941","","","4","","","852","","","5"],["General and administrative","","","","","","","","","371","","","1","","","305","","","1","","","219","","","1"]]
[[/GREPCENT_TABLE]]

(3) Amounts include approximately $2.0 billion of one-time benefit from a discrete tax item related to the recognition of deferred tax assets resulting from an intra-entity transfer of intangible property in fiscal 2021.

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The following table sets forth selected balance sheet data and other metrics for each of the periods indicated (in millions, except remaining performance obligation, which is presented in billions):

[[GREPCENT_TABLE]]
[["","As of"],["","January 31, 2022","","January 31, 2021"],["Cash, cash equivalents and marketable securities","$","10,537","","","$","11,966"],["Unearned revenue","15,628","","","12,607"],["Remaining performance obligation","43.7","","","36.1"],["Principal due on our outstanding debt obligations (1)","10,686","","","2,690"]]
[[/GREPCENT_TABLE]]

(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 fiscal year ended January 31, 2022 compared to the same period of fiscal 2021 was impacted by our recent acquisitions, including the acquisition of Slack in July 2021, our largest acquisition to date. In our discussion of changes in our results of operations for the fiscal year ended January 31, 2022 compared to the same periods of fiscal 2021, 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.

Fiscal Year Ended January 31, 2022 and 2021

Revenues

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,","","Variance"],["(in millions)","2022","","2021","","Dollars","","Percent"],["Subscription and support","$","24,657","","","$","19,976","","","$","4,681","","","23","%"],["Professional services and other","1,835","","","1,276","","","559","","","44"],["Total revenues","$","26,492","","","$","21,252","","","$","5,240","","","25"]]
[[/GREPCENT_TABLE]]

The increase in subscription and support revenues for fiscal 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 seven percent and six percent of total subscription and support revenues for fiscal 2022 and fiscal 2021, respectively. Subscription and support revenues accounted for approximately 93 and 94 percent of our total revenues for fiscal 2022 and 2021, respectively.

The acquisition of Slack in July 2021 contributed approximately $584 million to subscription and support revenues during the fiscal year ended January 31, 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 as well as revenues resulting from the Acumen Solutions, Inc. (“Acumen”) acquisition in February 2021.

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Subscription and Support Revenues by Service Offering

Subscription and support revenues consisted of the following (in millions):

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2022","","2021","","Variance Percent"],["Sales","$","5,989","","","$","5,191","","","15%"],["Service","6,474","","","5,377","","","20%"],["Platform and Other","4,509","","","3,324","","","36%"],["Marketing and Commerce","3,902","","","3,133","","","25%"],["Data","3,783","","","2,951","","","28%"],["Total","$","24,657","","","$","19,976"]]
[[/GREPCENT_TABLE]]

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 in fiscal 2022. Reclassifications to prior period Platform and Other revenues were made to conform to the current period presentation.

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 more volatility period to period compared to our other service offerings. In addition, we recently made changes that impacted our MuleSoft sales organization which we expect to have long-term benefits, but created greater short-term disruption than anticipated. This disruption impacted Data revenues during the fiscal year ended January 31, 2022, due to the timing of revenue recognition associated with the sale of MuleSoft term and perpetual software licenses.

Revenues by Geography

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["(in millions)","2022","","As a % of Total Revenues","","2021","","As a % of Total Revenues","","Growth Rate"],["Americas","$","17,983","","","68","%","","$","14,736","","","69","%","","22","%"],["Europe","6,016","","","23","","","4,501","","","21","","","34"],["Asia Pacific","2,493","","","9","","","2,015","","","10","","","24"],["Total","$","26,492","","","100","%","","$","21,252","","","100","%"]]
[[/GREPCENT_TABLE]]

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. Fiscal 2022 revenues outside of the Americas were positively impacted due to foreign currency fluctuations by approximately two percent compared to fiscal 2021.

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Cost of Revenues

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,","","Variance Dollars"],["(in millions)","2022","","2021"],["Subscription and support","$","5,059","","","$","4,154","","","$","905"],["Professional services and other","1,967","","","1,284","","","683"],["Total cost of revenues","$","7,026","","","$","5,438","","","$","1,588"],["Percent of total revenues","27","%","","26","%"]]
[[/GREPCENT_TABLE]]

For fiscal 2022, the increase in cost of revenues was primarily due to an increase of $645 million in employee-related costs, an increase of $235 million in amortization of purchased intangibles from business combination, an increase of $145 million in stock-based expense, an increase of $284 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 43 percent since fiscal 2021 to meet the higher demand for services from our customers, and our fiscal 2022 acquisition of Acumen also contributed to this increase. We intend to continue to invest additional resources in our enterprise cloud computing services and data center capacity to allow us to scale with our customers and continuously evolve our security measures. We also plan to add employees in our professional services group to facilitate the adoption of our services. The timing of these expenses will affect our cost of revenues, both in terms of absolute dollars and as a percentage of revenues in future periods.

Operating Expenses

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,","","Variance Dollars"],["(in millions)","2022","","2021"],["Research and development","$","4,465","","","$","3,598","","","$","867"],["Marketing and sales","11,855","","","9,674","","","2,181"],["General and administrative","2,598","","","2,087","","","511"],["Total operating expenses","$","18,918","","","$","15,359","","","$","3,559"],["Percent of total revenues","71","%","","72","%"]]
[[/GREPCENT_TABLE]]

For fiscal 2022, the increase in research and development expenses was primarily due to an increase of approximately $501 million in employee-related costs, an increase of $215 million in stock-based expenses, increases in our development and test data center costs. Our research and development headcount increased by 28 percent since fiscal 2021 in order to improve and extend our service offerings, develop new technologies and integrate acquired companies. Our recent 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 fiscal 2022, the increase in marketing and sales expenses was primarily due to an increase of $1.3 billion in employee-related costs and amortization of deferred commissions, an increase of $268 million in amortization of purchased intangibles from business combination, and an increase of $163 million in stock-based expense. Our marketing and sales headcount increased by 26 percent since fiscal 2021, primarily attributable to hiring additional sales personnel to focus on adding new customers and increasing penetration within our existing customer base. Our recent 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 fiscal 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 27 percent since fiscal 2021 as we added personnel to support our growth. Our recent acquisition of Slack also contributed to this increase in headcount.

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Other Income and Expenses

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,","","Variance Dollars"],["(in millions)","2022","","2021"],["Gains on strategic investments, net","$","1,211","","","$","2,170","","","$","(959)"],["Other expense","(227)","","","(64)","","","(163)"]]
[[/GREPCENT_TABLE]]

Gains on strategic investments, net consists primarily of mark-to-market adjustments related to our publicly held equity securities, observable price adjustments related to our privately held equity securities and other adjustments. Net gains recognized during fiscal 2022 included a $369 million unrealized gain on one of our privately held equity investments and a $155 million realized gain resulting from a publicly traded company acquiring one of the Company’s privately held equity investments in a stock and cash transaction.

Other expense primarily consists of interest expense on our debt as well as our finance leases offset by investment income. Interest expense was $220 million and $126 million for fiscal 2022 and 2021, respectively. The increase in interest expense was primarily driven by our issuance of $8.0 billion of Senior Notes in July 2021.

Benefit From (Provision For) Income Taxes

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,","","Variance Dollars"],["(in millions)","2022","","2021"],["Benefit from (provision for) income taxes","$","(88)","","","$","1,511","","","$","(1,599)"],["Effective tax rate","6","%","","(59)","%"]]
[[/GREPCENT_TABLE]]

In fiscal 2022, we recognized a tax provision of $88 million on a pretax income of $1.5 billion. Our tax provision was due to taxes from profitable jurisdictions outside of the United States, which was offset by a net U.S tax benefit primarily due to excess tax benefits from stock based compensation.

In fiscal 2021, we recognized a tax benefit of $1.5 billion on a pretax income of $2.6 billion. In the second quarter of fiscal 2021, we changed our international corporate structure, which included the transfer of certain intangible property between foreign affiliates resulting in a net tax benefit of $2.0 billion related to foreign deferred tax assets. The deferred tax assets were recognized as a result of the book and tax basis difference on the intangible property and were based on the intangible property’s current fair value. The determination of the estimated fair value of the intangible property is complex and subject to judgement due to the use of subjective assumptions in the valuation models used by management. The tax amortization related to the intellectual property transferred will be recognized in future periods and any amortization that is unused in a particular year can be carried forward indefinitely under Irish tax laws. The deferred tax asset and the tax benefit were measured based on the currently enacted Irish tax rate. We believe that it is more likely than not the deferred tax assets will be realized in Ireland.

Additionally, the provision from the Tax Cuts and Jobs Act of 2017 that requires capitalization and amortization of research and development costs will become effective starting fiscal 2023. If not deferred, modified or repealed, this provision is expected to materially increase future cash taxes.

Fiscal Year Ended January 31, 2021 and 2020

For a discussion of the year ended January 31, 2021 compared to the year ended January 31, 2020, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended January 31, 2021.

Liquidity and Capital Resources

At January 31, 2022, our principal sources of liquidity were cash, cash equivalents and marketable securities totaling $10.5 billion and accounts receivable of $9.7 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 of January 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 I, 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.

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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 fiscal 2022, 2021, and 2020 our cash flows were as follows (in millions):

[[GREPCENT_TABLE]]
[["4","","","Fiscal Year Ended January 31,"],["","","","","","2022","","2021","","2020"],["Net cash provided by operating activities","","","","","$","6,000","","","$","4,801","","","$","4,331"],["Net cash used in investing activities","","","","","(14,536)","","","(3,971)","","","(2,980)"],["Net cash provided by financing activities","","","","","7,838","","","1,194","","","164"]]
[[/GREPCENT_TABLE]]

Operating Activities

The net cash provided by operating activities during fiscal 2022 was primarily related to net income of $1.4 billion, adjusted for non-cash items including $3.3 billion of depreciation and amortization and $2.8 billion related to stock-based expense offset by $1.2 billion related to gains on strategic investments. Cash provided by operating activities during fiscal 2022 was further benefited by the change in unearned revenue of $2.6 billion, partially offset by a change in accounts receivable, net of $1.8 billion.

The net cash provided by operating activities during fiscal 2021 was primarily related to net income of $4.1 billion, adjusted for non-cash items such as $2.8 billion related to depreciation and amortization and $2.2 billion of expenses related to stock-based expense offset by $2.0 billion from a one-time discrete tax item from the recognition of deferred tax assets related to an intra-entity transfer of certain intangible property and $2.2 billion related to gains on strategic investments, net. Cash provided by operating activities during fiscal 2021 further benefited by the change in unearned revenue of $1.9 billion, partially offset by the change in accounts receivable, net of $1.6 billion. Cash provided by operating activities during fiscal 2021 was negatively impacted by changes in billing frequency for new business due to the COVID-19 pandemic. In addition, our operating cash flows were negatively impacted by investments made in our go-to-market efforts, such as the partial minimum commission guarantee provided in the first quarter of fiscal 2021.

Investing Activities

The net cash used in investing activities during fiscal 2022 was primarily related to cash consideration for the acquisitions of Slack and Acumen, as well as other acquisitions, net of cash acquired, of approximately $14.9 billion. Net cash used in investing activities was impacted by net inflows of $574 million from marketable securities activity and $483 million from strategic investment activity.

The net cash used in investing activities during fiscal 2021 was primarily related to cash consideration for the acquisition of Vlocity, net of cash acquired, of approximately $1.2 billion as well by net outflows of $2.0 billion from marketable securities activity. In addition, we paid approximately $150 million of cash consideration related to the purchase of the property located at 450 Mission Street (“450 Mission”) in San Francisco, California, which is reflected in capital expenditures.

Financing Activities

Net cash provided by financing activities during fiscal 2022 consisted primarily of $7.9 billion of net proceeds from our July 2021 issuance of Senior Notes and $1.3 billion from proceeds from equity plans, partially offset by payments related to the Slack Convertible Notes, net of associated capped call proceeds of $1.2 billion.

Net cash provided by financing activities during fiscal 2021 consisted primarily of $1.3 billion from proceeds from equity plans.

Debt

As of January 31, 2022, we had senior unsecured debt outstanding, with maturities starting in April 2023 through July 2061, with a total carrying value of $10.4 billion. In addition, we had senior secured notes outstanding related to our loan on our purchase of an office building located at 50 Fremont Street in San Francisco (“50 Fremont”), due in 2023, with a total carrying value of $186 million. We were in compliance with all debt covenants as of January 31, 2022.

In December 2020, we entered into a credit agreement (the “Revolving Loan Credit Agreement”), which provides for a $3.0 billion unsecured revolving credit facility (the “Credit Facility”) that matures in December 2025. There were no outstanding borrowings under the Credit Facility as of January 31, 2022. We may use the proceeds of future borrowings under

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the Credit Facility for general corporate purposes, which may include, without limitation, financing the consideration for, fees, costs and expenses related to any acquisition.

We do not have any special purpose entities and we do not engage in off-balance sheet financing arrangements.

Contractual Obligations

Our principal commitments consist of obligations under leases for office space, co-location data center facilities and our development and test data center, as well as leases for computer equipment, software, furniture and fixtures. As of January 31, 2022, the future non-cancelable minimum payments under these commitments were approximately $4.0 billion, with payments of $0.8 billion due in the next 12 months and $3.2 billion due thereafter. As of January 31, 2022, we have additional operating leases that have not yet commenced totaling $1.1 billion.

In addition to our leasing arrangements, we have other contractual commitments associated with agreements that are enforceable and legally binding, including those with infrastructure service providers. Our total commitments under these agreements are $5.8 billion, of which payments of $1.0 billion are due in the next 12 months and $4.8 billion are due thereafter. We generally expect to satisfy these commitments with cash on hand and cash provided by operating activities.

During fiscal 2022 and in future fiscal years, we have made, and expect to continue to make, additional investments in our infrastructure to scale our operations, increase productivity and enhance our security measures. We plan to upgrade or replace various internal systems to scale with our overall growth. While we continue to make investments in our infrastructure including offices, information technology and data centers, 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.

Our ESG highlights as of the fiscal year ended January 31, 2022 include the following:

Climate and Sustainability. We continue to support science-based climate policies and decarbonization actions intended to limit the global average temperature increase to 1.5°C above pre-industrial levels. We released our Climate Action Plan at https://salesforce.com/sustainability, announced we have achieved net zero residual emissions across our full value chain and that we have achieved our longstanding goal of procuring electricity from renewable energy resources equivalent to 100 percent of the energy used globally. We also released our inaugural TCFD report, which can be found at https://investor.salesforce.com/tcfdreport.

Equality. We invest in programs designed to enhance employee success and create a safe, healthy and engaging working environment that fosters our core value of equality for all. Refer to our “Human Capital Management” Section in Item 1 of Part I for details.

ESG and Executive Compensation. To align and accelerate our ESG initiatives, beginning in fiscal 2023 all executive vice presidents, presidents and Section 16 officers will have a component of their incentive compensation plans tied to employee diversity and environmental measures.

Sustainability Bond. We released our inaugural Sustainable Bond Framework (the “Framework") which can be found at https://investor.salesforce.com/sustainablebondframework. In July 2021, we issued $1.0 billion of 2028 Senior Sustainability Notes, which will be allocated based on certain criteria described in the Framework. We will report on our allocations on an annual basis.

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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