What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-30 compared with 2023-08-31 · 124 added, 102 removed, 341 unchanged (40% of the section changed)

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uncertainties regarding AI technologies and its integration into our product offerings;

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;

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, cybersecurity, cross-border data transfers and import and export controls;

current and potential litigation involving us or our industry, including litigation involving acquired entities, and the resolution or settlement thereof;

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the potential impact of financial institution instability;

the impact of geopolitical events, including the ongoing armed conflict in Europe;

the impact of geopolitical events, including the war in Ukraine and the Israel-Hamas war;

uncertainties regarding the impact of expensing stock options and other equity awards;

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expected benefits of and timing of completion of the restructuring plan and the expected costs and charges of the restructuring plan, including, among other things, the risk that the restructuring costs and charges may be greater than we anticipate, our restructuring efforts may adversely affect our internal programs and ability to recruit and retain skilled and motivated personnel, our restructuring efforts may be distracting to employees and management, our restructuring efforts may negatively impact our business operations and reputation with or ability to serve customers, and our restructuring efforts may not generate their intended benefits to the extent or as quickly as anticipated;

and our ability to achieve our aspirations, goals and projections related to our environmental, social and governance initiatives, including our ability to comply with emerging corporate responsibility regulations.

and our ability to achieve our aspirations, goals and projections related to our environmental, social and governance (“ESG”) initiatives, including our ability to comply with evolving legal standards and federal and state regulations concerning ESG matters.

These and other risks and uncertainties may cause our actual results or outcomes to differ materially and adversely from those expressed in our forward-looking statements.

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Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.

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Salesforce, Inc.

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Over the long term, we expect to see additional operating expense improvements while also continuing to invest for growth, innovate our service offerings, including our artificial intelligence service offerings, and expand our leadership role in the cloud computing industry.

Highlights from the Second Quarter of Fiscal 2024

For the six months ended July 31, 2023, revenue was $16.9 billion , an increase of 11 percent year-over-year.

Highlights from the First Nine Months of Fiscal 2024

For the nine months ended October 31, 2023, revenue was $25.6 billion , an increase of 11 percent year-over-year.

• Income from Operations:

For the nine months ended October 31, 2023, income from operations was $3.4 billion as compared to $0.7 billion from a year ago.

Operating margin, which represents income from operations as a percentage of total revenue, increased to approximately 13 percent for the nine months ended October 31, 2023 compared to approximately three percent for the same period in the prior year.

• Earnings per Share:

For the six months ended July 31, 2023 , diluted earnings per share was $1.49 as compared to diluted earnings per share of $0.10 from a year ago.

Cash provided by operations for the six months ended July 31, 2023 was $5.3 billion, an increase of 32 percent y ear-over-year.

Total cash, cash equivalents and marketable securities as of July 31, 2023 was $12.4 billion.

For the nine months ended October 31, 2023 , diluted earnings per share was $2.73 as compared to diluted earnings per share of $0.31 from a year ago.

Cash provided by operations for the nine months ended October 31, 2023 was $6.8 billion, an increase of 58 percent y ear-over-year.

Total cash, cash equivalents and marketable securities as of October 31, 2023 was $11.9 billion.

• Remaining Performance Obligation:

Total remaining performance obligation, which represents all future revenue under contract yet to be recognized, as of July 31, 2023 was approximately $46.6 billion, an increase of 12 percent year-over-year .

Current remaining performance obligation as of July 31, 2023 was approximately $24.1 billion , an increase of 12 percent year-over-year.

Total remaining performance obligation, which represents all future revenue under contract yet to be recognized, as of October 31, 2023 was approximately $48.3 billion, an increase of 21 percent year-over-year .

Current remaining performance obligation as of October 31, 2023 was approximately $23.9 billion , an increase of 14 percent year-over-year.

• Share Repurchase Program:

During the six months ended July 31, 2023, we repurchased approximately 20 million shares of our common stock for approximately $4.1 billion.

During the nine months ended October 31, 2023, we repurchased approximately 29 million shares of our common stock for approximately $6.0 billion.

• Restructuring:

For the six months ended July 31, 2023, we incurred approximately $760 million in costs related to the Restructuring Plan.

For the nine months ended October 31, 2023, we incurred approximately $815 million in costs related to the Restructuring Plan.

We continue to see the impact of macroeconomic factors and the more measured buying behavior of our customers on our business and our customers’ businesses in ways that are difficult to isolate and quantify.

We continued to experience elongated sales cycles, additional deal approval layers, and deal compression in the second quarter of fiscal 2024.

Throughout fiscal 2024, we continue to experience elongated sales cycles, additional deal approval layers, and deal compression.

Slower growth in new and renewal business, particularly if sustained, impacts our remaining performance obligation, revenues and our ability to meet financial guidance and long-term targets.

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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 positively impacted revenues by le ss than one percent in the three months ended July 31, 2023 and positively impacted our current remaining performance obligatio n by approximately one percent as of July 31, 2023 compared to what we would have reported as of July 31, 2022 using constant currency rates.

Foreign currency fluctuations positively impacted revenues by approximately one percent in the three months ended October 31, 2023 and positively impacted our current remaining performance obligatio n by approximate ly one percent as of October 31, 2023 compared to what we would have reported as of October 31, 2022 using constant currency rates.

During fiscal 2023, the United States Dollar strengthened significantly against certain foreign currencies in the markets in which we operate, particularly against the Euro, British Pound Sterling and Japanese Yen.

The impact of foreign

currency fluctuations could impact our near-term results and ability to accurately predict our future results and earnings.

The impact of foreign currency fluctuations could impact our near-term results and ability to accurately predict our future results and earnings.

The impact of these fluctuations can 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.

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(1) subscription and support revenues and (2) professional services and other revenues.

Subscription and support revenues accounted for approximately 93 percent of our total revenues for the six months ended July 31, 2023.

Subscription and support revenues accounted for approximately 93 percent of our total revenues for the nine months ended October 31, 2023.

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.

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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 six months ended July 31, 2023.

Revenues from software licenses represent less than ten percent of total subscription and support revenue for the nine months ended October 31, 2023.

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.

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Beg inning in the first quarter of fiscal 2024, we included Mulesoft and Tableau in our attrition calculation.

As of July 31, 2023, our attrition rate, excluding Slack, was approximately 8.0 percent.

As of October 31, 2023, our attrition rate, excluding Slack, was approximately 8.0 percent.

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.

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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.

There is a disproportionate weighting

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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.

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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.

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.

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Research and Development

Research and development expenses consist primarily of salaries and related expenses, including stock-based compensation expense and allocated overhead.

Research and development expenses consist primarily of salaries and related expenses, including stock-based compensation expense for our engineering staff associated with product development and allocated overhead.

Marketing and Sales

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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, professional services fees and allocated overhead.

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We allocate overhead such as information technology infrastructure, rent and occupancy charges based on headcount.

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See Note 1 “Summary of Business and Significant Accounting Policies” to the condensed consolidated financial statements for our discussion about new accounting pronouncements adopted.

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Results of Operations

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

2 Three Months Ended July 31, Six Months Ended July 31,

3 Three Months Ended October 31, Nine Months Ended October 31,

2023 % of Total Revenues 2022 % of Total Revenues 2023 % of Total Revenues 2022 % of Total Revenues

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

Three Months Ended July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

2023 % of Total Revenues 2022 % of Total Revenues 2023 % of Total Revenues 2022 % of Total Revenues

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

Three Months Ended July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

2023 % of Total Revenues 2022 % of Total Revenues 2023 % of Total Revenues 2022 % of Total Revenues

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Restructuring 0 0 0 0 16 0 0 0

T a b l e o f C o n t e n t s

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):

July 31, 2023

October 31, 2023

January 31, 2023

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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.

Three Months Ended July 31, Variance

Three Months Ended October 31, Variance

(in millions) 2023 2022 Dollars Percent

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Total revenues $ 8,720 $ 7,837 $ 883 11 %

Six Months Ended July 31, Variance

Nine Months Ended October 31, Variance

(in millions) 2023 2022 Dollars Percent

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Total revenues $ 25,570 $ 22,968 $ 2,602 11 %

The increase in subscription and support revenues for the three and six months ended July 31, 2023 was primarily caused by volume-driven increases from new business, which includes new customers, upgrades, and additional subscriptions from existing customers.

The increase in s ubscription and support revenues for the three and nine months ended October 31, 2023 was primarily caused by volume-driven increases from new business, which includes new customers, upgrades, and additional subscriptions from existing customers.

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 six months ended July 31, 2023 and 2022.

Subscription and support revenues accounted for approximately 93 percent of our total revenues for the three and six months ended July 31, 2023 and 2022.

The increase in professional services and other revenues was due primarily to the higher demand for services from an increased number of customers.

In the first half of fiscal 2024, we started to see less demand for larger, multi-year transformation engagements and, in some cases, delayed projects, and these trends may continue in the near term.

Revenues from term and perpetual software licenses, which are recognized at a point in time, represented approximately six percent of total subscription and support revenues for the three and nine months ended October 31, 2023 and five percent the three and nine months ended October 31, 2022.

Subscription and support revenues accounted for approximately 93 percent of our total revenues for the three and nine months ended October 31, 2023 and 92 percent for the three and nine months ended October 31, 2022.

The increase in professional services and other revenues for the nine months ended October 31, 2023 was due primarily to the higher demand for services from an increased number of customers.

In the third quarter of fiscal 2024, we continued to see measured demand for larger, multi-year transformation engagements and, in some cases, delayed projects.

The decrease in professional services and other revenues for the three months ended October 31, 2023 was due to this decreased demand from cautious customers and longer engagements.

These trends may continue in the near term.

Subscription and Support Revenues by Service Offering

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

Three Months Ended July 31,

Three Months Ended October 31,

2023 As a % of Total Subscription and Support Revenues 2022 As a % of Total Subscription and Support Revenues Growth Rate

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(1) Data is comprised of revenue from Analytics, which includes Tableau, and Integration, which includes Mulesoft.

Six Months Ended July 31,

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Nine Months Ended October 31,

2023 As a % of Total Subscription and Support Revenues 2022 As a % of Total Subscription and Support Revenues Growth Rate

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Our Industry Offerings revenue is included in one of the above service offerings depending on the primary service purchased.

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.

Data subscription and support revenues include revenues from term 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.

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Revenues by Geography

Three Months Ended July 31,

Three Months Ended October 31,

(in millions) 2023 As a % of Total Revenues 2022 As a % of Total Revenues Growth rate

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$ 8,720 100 % $ 7,837 100 % 11 %

Six Months Ended July 31,

Nine Months Ended October 31,

(in millions) 2023 As a % of Total Revenues 2022 As a % of Total Revenues Growth rate

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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 July 31, 2023 was positively impacted by foreign currency fluctuations of less th an one percent compa red to the three months ended July 31, 2022.

Total revenue during the three months ended October 31, 2023 was positively impacted by foreign currency fluctuations of approximately one percent compa red to the three months ended October 31, 2022.

Cost of Revenues

Three Months Ended July 31, Variance

Three Months Ended October 31, Variance

(in millions) 2023 As a % of Total Revenues 2022 As a % of Total Revenues Dollars

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Total cost of revenues $ 2,155 25 % $ 2,088 27 % $ 67

Six Months Ended July 31, Variance

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Nine Months Ended October 31, Variance

(in millions) 2023 As a % of Total Revenues 2022 As a % of Total Revenues Dollars

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Total cost of revenues $ 6,393 25 % $ 6,260 27 % $ 133

For the three months ended July 31, 2023, the decrease in cost of revenues in absolute dollars was primarily due to a decrease in third-party expenses and amortization of purchased intangibles partially offset by increased service delivery costs.

For the six months ended July 31, 2023, the increase in cost of revenues in absolute dollars was primarily due to an increase in employee-related costs, including stock-based compensation expense, and service delivery costs which were partially offset by third-party expenses and amortization of purchased intangibles .

We have increased our headcount associated with our data centers, customer support and professional services by three percent since July 31, 2022 to meet the higher demand for services from our customers.

Cost of revenue as a percentage of total revenue during the three and six months ended July 31, 2023 decreased by three percent from the same periods a year ago as a result of a decrease in absolute dollars related to third-party expenses, amortization of purchased intangibles and employee-related costs, including stock-based compensation expense, which was primarily a result of the workforce reductions associated with the Restructuring Plan.

For the three and nine months ended October 31, 2023, the increase in cost of revenues in absolute dollars was primarily due to an increase in service delivery costs which were partially offset by third-party expenses and amortization of purchased intangibles.

We have increased our headcount associated with our data centers, customer support and professional services by one percent since October 31, 2022 to meet the higher demand for services from our customers.

Cost of revenue as a percentage of total revenue during the three and nine months ended October 31, 2023 decreased by two percent from the same periods a year ago as a result of a decrease in absolute dollars related to third-party expenses, amortization of purchased intangibles and stock-based compensation expense, which was primarily a result of the workforce reductions associated with the Restructuring Plan.

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 continue to evolve our security measures.

The timing of these expenses may adversely affect our cost of revenues as a percentage of revenues in the near term based on future demand for our service offerings.

The timing of these expenses may adversely affect our cost of revenues as a percentage of revenues in the near term due to fluctuations in demand for our service offerings.

Operating Expenses

Three Months Ended July 31, Variance

Three Months Ended October 31, Variance

(in millions) 2023 As a % of Total Revenues 2022 As a % of Total Revenues Dollars

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Total operating expenses $ 5,064 58 % $ 5,289 67 % $ (225)

Six Months Ended July 31, Variance

Nine Months Ended October 31, Variance

(in millions) 2023 As a % of Total Revenues 2022 As a % of Total Revenues Dollars

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Total operating expenses $ 15,788 62 % $ 16,035 70 % $ (247)

For the three and six months ended July 31, 2023, the decrease in research and development expenses in absolute dollars and as a percentage of revenue was primarily due to a decrease in employee-related costs, including stock-based compensation expense.

Our research and development headcount decreased by five percent since July 31, 2022 due, in part, to the Restructuring Plan and our hiring pause that began in the second quarter of fiscal 2023.

We expect that research and development expenses will likely remain consistent or increase as a percentage of revenues in the near term as we continue to invest in technology to support the development of new, and improve existing, technologies, including our artificial intelligence technologies, and the integration of acquired technologies combined with our anticipated revenue growth in line with these incremental expenses.

For the three and six months ended July 31, 2023, the decrease in marketing and sales expenses in absolute dollars and as a percentage of revenue was primarily due to a decrease in employee-related costs, including stock-based compensation expense.

Our marketing and sales headcount decreased by 17 percent since July 31, 2022 due, in part, to the Restructuring Plan and our hiring pause that began in second quarter of fiscal 2023.

We expect that marketing and sales expenses may decrease as a percentage of revenues in the near term as we focus on leveraging our self-serve and partner-led channels and increasing our sales productivity.

For the three and six months ended July 31, 2023, the decrease in general and administrative expenses in absolute dollars and as a percentage of revenue was primarily due to a decrease in employee-related costs, including stock-based compensation expense.

Our general and administrative headcount decreased by 19 percent since July 31, 2022 due, in part, to the Restructuring Plan and our hiring pause that began in the second quarter of fiscal 2023.

For the three and nine months ended October 31, 2023, the decrease in research and development expenses in absolute dollars and as a percentage of revenue was primarily due to a decrease in employee-related costs, including stock-based compensation expense.

Our research and development headcount decreased by four percent since October 31, 2022 due, in part, to the Restructuring Plan and our hiring pause that began in the second quarter of fiscal 2023.

We expect that research and development expenses will likely remain consistent or increase as a percentage of revenues in the near term.

We continue to invest in technology to support the development of new, and improve existing, technologies, including our artificial intelligence technologies, and the integration of acquired technologies combined with our anticipated revenue growth in line with these incremental expenses.

For the three and nine months ended October 31, 2023, the decrease in marketing and sales expenses in absolute dollars and as a percentage of revenue was primarily due to a decrease in employee-related costs, including stock-based compensation expense.

Our marketing and sales headcount decreased by 18 percent since October 31, 2022 due, in part, to the Restructuring Plan and our hiring pause that began in second quarter of fiscal 2023.

We expect that marketing and sales expenses may decrease as a percentage of revenues in the near term as we continue to focus on leveraging our self-serve and partner-led channels and increasing our sales productivity.

For the three and nine months ended October 31, 2023, the decrease in general and administrative expenses in absolute dollars and as a percentage of revenue was primarily due to a decrease in employee-related costs, including stock-based

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compensation expense.

Our general and administrative headcount decreased by 20 percent since October 31, 2022 due, in part, to the Restructuring Plan and our hiring pause that began i n the second quarter of fiscal 2023.

We expect that general and administrative expenses may decrease as a percentage of revenues in the near term as we continue to invest in process efficiency initiatives.

In the three months ended July 31, 2023, approximately $49 million of costs were incurred related to the Restructuring Plan, of which approximately $45 million was related to employee transition costs, severance payments, employee benefits and stock-based compensation expense and $4 million was related to exit charges associated with office space reductions.

In the six months ended July 31, 2023, approximately $760 million of costs were incurred related to the Restructuring Plan, of which approximately $389 million was related to employee transition, severance payments, employee benefits and stock-based compensation expense and $371 million was related to exit charges associated with office space reductions.

As of the first quarter of fiscal 2024, we have largely completed the ten percent reduction of workforce and office space reductions within certain markets, as contemplated in the Restructuring Plan.

We expect to incur approximately $100 million to $350 million in additional charges in connection with the Restructuring Plan in the second half of fiscal 2024.

In the three months ended October 31, 2023, approximately $55 million of costs were incurred related to the Restructuring Plan, of which approximately $47 million was related to employee transition costs, severance payments, employee benefits and stock-based compensation expense and approximately $8 million was related to exit charges associated with office space reductions.

In the nine months ended October 31, 2023, approximately $815 million of costs were incurred related to the Restructuring Plan, of which approximately $436 million was related to employee transition, severance payments, employee benefits and stock-based compensation expense and approximately $379 million was related to exit charges associated with office space reductions.

As of the first quarter of fiscal 2024, we largely completed the ten percent reduction of our workforce and office space reductions within certain markets, as contemplated by the Restructuring Plan.

We expect to incur approximately $60 million to $100 million in additional charges in connection with the Restructuring Plan in the fourth quarter of fiscal 2024.

Other Income and Expense

Three Months Ended July 31, Variance

Three Months Ended October 31, Variance

(in millions) 2023 2022 Dollars

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Other income (expense) 58 (8) 66

Six Months Ended July 31, Variance

Nine Months Ended October 31, Variance

(in millions) 2023 2022 Dollars

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Our strategic investment portfolio continues to be affected by challenging market conditions for companies in which we hold private equity or debt investments as well as high public equity market volatility.

For the three months ended July 31, 2023, our strategic investment portfolio losses were primarily driven by impairments on privately held equity investments o f $80 million , partially offset by realized gains on sales of securities of $36 million .

For the six months ended July 31, 2023 our strategic investment portfolio losses were primarily driven impairments on privately held equity investments of $257 million, partially offset by unrealized gains on privately held equity securities of $51 million and realized gains on sales of securities of $34 million.

For the three months ended October 31, 2023, our strategic investment portfolio losses were primarily driven by impairments on privately held equity investments o f $98 million .

For the nine months ended October 31, 2023 our strategic investment portfolio losses were primarily driven by impairments on privately held equity investments of $355 million, partially offset by unrealized gains on privately held equity securities of $65 million and realized gains on sales of securities of $48 million.

Other income (expense) primarily consists of interest expense on our debt as well as our finance leases offset by investment income.

Interest expense was $70 million and $76 million for the three months ended July 31, 2023 and 2022, respectively, and $144 million and $150 million for the six months ended July 31, 2023 and 2022, respectively.

Provision For (Benefit From) Income Taxes

Three Months Ended July 31, Variance

Interest expense was $70 million and $75 million for the three months ended October 31, 2023 and 2022, respectively, and $213 million and $224 million for the nine months ended October 31, 2023 and 2022, respectively.

Benefit From (Provision For) Income Taxes

Three Months Ended October 31, Variance

(in millions) 2023 2022 Dollars

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Effective tax rate 18 % 56 %

Six Months Ended July 31, Variance

Nine Months Ended October 31, Variance

(in millions) 2023 2022 Dollars

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Effective tax rate 19 % 51 %

We recorded a tax provision of $225 million on pretax income of $1.5 billion for the three months ended July 31, 2023, and a tax provision of $352 million on pretax income of $1.8 billion for the six months ended July 31, 2023.

Our tax provision increased from a year ago due to higher quarter-to-date pretax income.

We recorded a tax provision of $263 million on pretax income of $1.5 billion for the three months ended October 31, 2023, and a tax provision of $615 million on pretax income of $3.3 billion for the nine months ended October 31, 2023.

Higher pretax income increased our tax provision this fiscal year.

However, our tax provision for the three months ended October 31, 2023 was offset by discrete tax benefits, resulting in an insignificant period over period variance.

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, and other macroeconomic factors.

We recorded a tax provision of $113 million on pretax income of $181 million for the three months ended July 31, 2022, and a tax provision of $56 million on pretax income of $152 million for the six months ended July 31, 2022.

The majority of our year-to-date tax provision was related to taxes from profitable jurisdictions outside of the United States, including withholding taxes.

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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 included withholding taxes.

The provision from the Tax Cuts and Jobs Act of 2017 that requires capitalization and amortization of research and development costs became effective in fiscal 2023.

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Liquidity and Capital Resources

At July 31, 2023, our principal sources of liquidity were cash, cash equivalents and marketable securities totaling $12.4 billion and accounts receivable of $5.4 billion.

At October 31, 2023, our principal sources of liquidity were cash, cash equivalents and marketable securities totaling $11.9 billion and accounts receivable of $4.9 billion.

Our cash equivalents and marketable securities are comprised primarily of corporate notes and obligations, U.S.

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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 July 31, 2023, 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 are 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.

Our credit agreement (the “Revolving Loan Credit Agreement”), which as of October 31, 2023, 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, “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 are 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.

For the three and six months ended July 31, 2023 and 2022 our cash flows were as follows (in millions):

2 Three Months Ended July 31, Six Months Ended July 31,

For the three and nine months ended October 31, 2023 and 2022 our cash flows were as follows (in millions):

3 Three Months Ended October 31, Nine Months Ended October 31,

2023 2022 2023 2022

Net cash provided by operating activities $ 1,532 $ 313 $ 6,831 $ 4,323

Net cash used in investing activities (1,152) (377) (805) (2,834)

Net cash provided by (used in) financing activities (2,050) 136 (4,766) 337

Net cash provided by (used in) investing activities (54) 533 (859) (2,301)

Net cash used in financing activities (1,765) (1,678) (6,531) (1,341)

Operating Activities

The net cash provided by operating activities during the six months ended July 31, 2023 was comprised of net income of $1.5 billion, adjusted for non-cash items including $2.1 billion of depreciation and amortization and $1.4 billion of stock-based compensation expense.

The net cash provided by operating activities during the nine months ended October 31, 2023 was primarily comprised of net income of $2.7 billion, adjusted for non-cash items including $3.0 billion of depreciation and amortization and $2.1 billion of 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 six months ended July 31, 2023 was further benefited by the change in accounts receivable, net of $5.4 billion due to cash collections and was partially offset by the change in unearned revenue of $3.1 billion and the change in accounts payable and accrued expenses and other liabilities of $1.8 billion .

Cash provided by operating activities during the nine months ended October 31, 2023 was further benefited by the change in accounts receivable, net of $5.9 billion due to cash collections and was partially offset by the change in unearned revenue of $4.8 billion and the change in accounts payable and accrued expenses and other liabilities of $1.6 billion .

As our business continues to grow, and assuming 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 six months ended July 31, 2022 was related to net income of $96 million, adjusted for non-cash items including $1.8 billion of depreciation and amortization and $1.6 billion of stock-based compensation expense.

The net cash provided by operating activities during the nine months ended October 31, 2022 was primarily comprised of 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 during the six months ended July 31, 2022 was further benefited by the change in accounts receivable, net of $5.0 billion due to cash collections and partially offset by the change in unearned revenue of $2.8 billion and the change in accounts payable, accrued expenses and other liabilities of $896 million.

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.

Investing Activities

The net cash used in investing activities during the six months ended July 31, 2023 was related to net outflows from marketable securities activity of $117 million, capital expenditures of $423 million and net outflows from strategic investment activity of $265 million.

The net cash used in investing activities during the six months ended July 31, 2022 was primarily related to net outflows from marketable securities activity of $1.7 billion, cash consideration for acquisitions of approximately $439 million and net outflows from strategic investment activity of $348 million.

The net cash used in investing activities during the nine months ended October 31, 2023 was primarily related to capital expenditures of $589 million and net outflows from strategic investment activity of $288 million, partially offset by cash inflows related to marketable securities activity of $100 million.

T a b l e o f C o n t e n t s

The net cash used in investing activities during the nine months ended October 31, 2022 was primarily related to net outflows from marketable securities activity of $1.0 billion, cash consideration for acquisitions of approximately $439 million and net outflows from strategic investment activity of $294 million.

Financing Activities

Net cash used in financing activities during the six months ended July 31, 2023 consisted primarily of $4.0 billion from repurchases of common stock and $1.2 billion related to repayments of debt, partially offset by $811 million from proceeds from equity plans.

Net cash provided by financing activities during the six months ended July 31, 2022 consisted primarily of $455 million from proceeds from equity plans.

As of July 31, 2023, we had senior unsecured debt outstanding, with maturities starting in July 2024 and extending through July 2061 with a total carrying value of $9.4 billion, of which $1.0 billion is related to the 2024 Senior Notes due in the next 12 months.

We were in compliance with all debt covenants as of July 31, 2023.

Net cash used in financing activities during the nine months ended October 31, 2023 consisted primarily of $5.9 billion from repurchases of common stock and $1.2 billion related to repayments of debt, partially offset by $1.1 billion from proceeds from equity plans.

Net cash used in financing activities during the nine months ended October 31, 2022 consisted primarily of $1.7 billion from repurchases of common stock partially offset by $688 million from proceeds from equity plans.

As of October 31, 2023, we had senior unsecured debt outstanding, with maturities starting in July 2024 and extending through July 2061 with a total carrying value of $9.4 billion, of which $1.0 billion was related to the 2024 Senior Notes due in the next 12 months.

We were in compliance with all debt covenants as of October 31, 2023.

In December 2020, we entered into the Revolving Loan Credit Agreement, which provides for a $3.0 billion unsecured revolving Credit Facility that matures in December 2025.

There were no outstanding borrowings under the Credit Facility as of July 31, 2023.

There were no outstanding borrowings under the Credit Facility as of October 31, 2023.

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.

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In February 2023, the Board of Directors authorized an additional $10.0 billion in repurchases under the Share Repurchase Program, for an aggregate total authorization of $20.0 billion.

During the six months ended July 31, 2023, we repurchased approximately 20 million shares of our common stock for approximately $4.1 billion at an average cost of $198.63 per share.

During the nine months ended October 31, 2023 and 2022, we repurchased approximately 29 million and 11 million shares of our common stock for approximately $6.0 billion and $1.7 billion at an average cost of $201.95 and $152.66 per share, respectively.

All repurchases were made in open market transactions.

As of July 31, 2023, we were authorized to purchase a remaining $11.9 billion of the Company’s common stock under the Share Repurchase Program.

Subsequent to July 31, 2023, we have paid approximately $0.6 billion through August 28, 2023 for additional shares under the Share Repurchase Program.

As of October 31, 2023, we were authorized to purchase a remaining $10.0 billion of the Company’s common stock under the Share Repurchase Program.

Subsequent to October 31, 2023, we have paid approximately $0.5 billion through November 27, 2023 for additional shares under the Share Repurchase Program.

The Inflation Reduction Act introduced a new one percent excise tax imposed on certain stock repurchases made after December 31, 2022.

It did not impact our financing cash flows in the six months ended July 31, 2023.

The excise tax may apply to future repurchases and could impact our financing cash flows.

The excise tax is assessed on an annual fiscal year basis, reported and paid in the subsequent year.

It may apply to our stock repurchases this year and could be impacted by factors including the Company’s share price.

In the event of an excise tax for fiscal 2024, next year’s financing cash flows could be impacted.

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 July 31, 2023, the future non-cancelable minimum payments under these commitments were approximately $4.9 billion, with payments of $1.0 billion due in the next 12 months and $3.9 billion due thereafter.

As of July 31, 2023, we have additional operating leases that have not yet commenced totaling $268 million.

As of October 31, 2023, the future non-cancelable minimum payments under these commitments were approximately $4.8 billion, with payments of $1.0 billion due in the next 12 months and $3.8 billion due thereafter.

As of October 31, 2023, we have additional operating leases that have not yet commenced totaling $84 million.

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.

As of October 31, 2023, our total commitments under these agreements were approximately $17.5 billion, of which payments of $1.3 billion are due in the next 12 months and $16.2 billion are due thereafter.

We generally expect to satisfy these commitments with cash on hand and cash provided by operating activities.

During the three months ended July 31, 2023 and in future quarters, 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.

During the three months ended October 31, 2023 and in future quarters, 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.

T a b l e o f C o n t e n t s

Other Future Obligations

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We continue to monitor and analyze new information, interpretation and guidance.

Additionally, as of July 31, 2023, we expect approximately $200 million to $500 million in future cash payments related to the Restructuring Plan, primarily related to workforce costs such as severance payments.

Additionally, as of October 31, 2023, we expect approximate ly $60 million to $100 million in future cash payments related to the Restructuring Plan, primarily related to workforce costs such as severance payments.

We generally expect to satisfy these commitments with cash on hand and cash provided by operating activities.

Environmental, Social, Governance

Environmental, Social, and 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 believe that values drive value, and that effectively managing our priority 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.

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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.

T a b l e o f C o n t e n t s

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis