Item 7. Management’s Discussion and Analysis
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 2024 and 2023 items and year-to-year comparisons between fiscal 2024 and 2023, as well as certain fiscal 2022 items. Discussions of fiscal 2022 items and year-to-year comparisons between fiscal 2023 and 2022 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, 2023.
Overview
Salesforce is a global leader in customer relationship management (“CRM”) technology that brings companies and customers together in the digital age. Founded in 1999, we enable companies of every size and industry to take advantage of powerful technologies to connect to their customers in a whole new way and help them transform their businesses around the customer in this digital-first world.
Our Customer 360 platform unites sales, service, marketing, commerce and IT teams by connecting customer data across systems, apps and devices to create a complete view of customers. With this single source of customer truth, teams can be more responsive, productive and efficient, deliver intelligent, personalized experiences across every channel and increase productivity. With Slack, we provide a digital headquarters where companies, employees, governments and stakeholders can create success from anywhere. We continue to invest for growth, including investing in generative AI across all products, which we believe will change how our customers help their customers, and continuously look to expand our leadership role in the cloud computing industry.
We continue to focus on several key growth levers, including driving multiple service offering adoption, increasing our penetration with enterprise and international customers and expanding our industry-specific reach with more vertical software solutions. These growth levers often require a more sophisticated go-to-market approach and, as a result, we may incur additional costs upfront to obtain new customers and expand our relationships with existing customers, including additional sales and marketing expenses specific to subscription and support revenue. As a result, we have seen that customers with many of these characteristics drive higher annual revenues and have lower attrition rates than our company average.
In addition to our focus on top line growth levers, we are also focused on reducing our operating expenses to improve our operating margin. For example, in January 2023, we announced a restructuring plan (the “Restructuring Plan”) intended to reduce operating costs, improve operating margins and continue advancing our ongoing commitment to profitable growth. The Restructuring Plan included a reduction of our workforce by approximately ten percent and office space reductions within certain markets, both of which were substantially complete as of the first quarter of fiscal 2024. In addition to the Restructuring Plan, we continue to focus on evaluating and operationalizing future programs to further our transformational efforts, including an additional focused workforce reduction that was initiated and substantially completed in the fourth quarter of fiscal 2024. We have started to see improvements in our operating expenses across all operating categories, with the most opportunity in sales a nd marketing expense and general and administrative expenses. Over the long term, we expect to see additional operating expense improvements, which could include various restructuring initiatives to drive operational efficiencies.
Highlights from Fiscal 2024
• Revenue: For fiscal 2024, revenue was $34.9 billion , an increase of 11 percent year-over-year.
• Income from Operations: For fiscal 2024, income from operations was $5.0 billion as compared to $1.0 billion from a year ago. Operating margin, which represents income from operations as a percentage of total revenue, increased to approximately 14 percent for the fiscal year ended January 31, 2024 compared to approximately three percent for the same period in the prior year.
• Earnings per Share: For fiscal 2024 , diluted earnings per share was $4.20 as compared to diluted earnings per share of $0.21 from a year ago.
• Cash: Cash provided by operations for fiscal 2024 was $10.2 billion, an increase of 44 percent y ear-over-year. Total cash, cash equivalents and marketable securities as of January 31, 2024 was $14.2 billion.
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• Remaining Performance Obligation: Total remaining performance obligation, which represents all future revenue under contract yet to be recognized, as of January 31, 2024 was approximately $56.9 billion, an increase of 17 percent year-over-year . Current remaining performance obligation as of January 31, 2024 was approximately $27.6 billion , an increase of 12 percent year-over-year.
• Share Repurchase Program: During the fiscal year ended January 31, 2024, we repurchased approximately 36 million shares of our common stock for approximately $7.7 billion.
• Restructuring: For fiscal 2024, we incurred approximately $988 million in costs related to our restructuring activities, primarily 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. Throughout fiscal 2024, we continued 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.
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 minimally impacted revenues in the fiscal year ended January 31, 2024 and our current remaining performance obligatio n was negatively impacted by one percent as of January 31, 2024 compared to what we would have reported as of January 31, 2023 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 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.
Fiscal Year
Our fiscal year ends on January 31. References to fiscal 2024, for example, refer to the fiscal year ending January 31, 2024.
Operating Segments
We operate as one segment. See Note 1 “Summary of Business and Significant Accounting Policies” to the consolidated financial statements for further discussion.
Sources of Revenues
We derive our revenues from two sources: (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 fiscal 2024.
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 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 2024.
The revenue growth rates of each of our service offerings, as described below in “Results of Operations,” fluctuate from quarter to quarter and over time. Additionally, we manage the total balanced product portfolio to deliver solutions to our customers and, as a result, the revenue result for each offering is not necessarily indicative of the results to be expected for any subsequent quarter. In addition, some of our Cloud Service offerings have similar features and functions. For example, customers may use our Sales, Service or Platform service offerings to record account and contact information, which are similar features across these service offerings. Depending on a customer’s actual and projected business requirements, more than one service offering may satisfy the customer’s current and future needs. We record revenue based on the individual products ordered by a customer, not according to the customer’s business requirements and usage.
Our growth in revenues is also impacted by attrition. Attrition represents the reduction or loss of the annualized value of our contracts with customers. We calculate our attrition rate at a point in time on a trailing twelve-month basis as of the end of each month. Beg inning in the first quarter of fiscal 2024, we included Mulesoft and Tableau in our attrition calculation. As of January 31, 2024, our attrition rate, excluding Slack, was approximately eight percent.
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We continue to maintain a variety of customer programs and initiatives, which, along with increasing enterprise adoption, have helped keep our attrition rate consistent as compared to the prior year. Consistent attrition rates play a role in our ability to maintain growth in our subscription and support revenues.
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.
Remaining Performance Obligation
Our remaining performance obligation represents all future revenue under contract that has not yet been recognized as revenue and includes unearned revenue and unbilled amounts. Our current remaining performance obligation represents future revenue under contract that is expected to be recognized as revenue in the next 12 months.
Remaining performance obligation is not necessarily indicative of future revenue growth and is influenced by several factors, including seasonality, the timing of renewals, average contract terms, foreign currency exchange rates and fluctuations in new business growth. Remaining performance obligation is also impacted by acquisitions. Unbilled portions of the remaining performance obligation denominated in foreign currencies are revalued each period based on the period end exchange rates. For multi-year subscription agreements billed annually, the associated unbilled balance and corresponding remaining performance obligation are typically high at the beginning of the contract period, zero just prior to renewal, and increase if the agreement is renewed. Low remaining performance obligation attributable to a particular subscription agreement is often associated with an impending renewal but may not be an indicator of the likelihood of renewal or future revenue from such customer. Changes in contract duration or the timing of delivery of professional services can impact remaining performance obligation as well as the allocation between current and non-current remaining performance obligation.
Cost of Revenues and Operating Expenses
Cost of Revenues
Cost of subscription and support revenues primarily consists of expenses related to delivering our service and providing support, including the costs of data center capacity, certain fees paid to various third parties for the use of their technology, services and data, employee-related costs such as salaries and benefits, and allocated overhead. Our cost of subscription and support revenues also includes amortization of certain acquisition-related intangible assets, such as the amortization of the cost associated with an acquired company’s research and development efforts. Also included in the cost of subscription and support revenues are expenses incurred supporting the free user base of Slack, including third-party hosting costs and employee-related costs, including stock-based compensation expense, specific to customer experience and technical operations.
Cost of professional services and other revenues consists primarily of employee-related costs associated with these services, including stock-based compensation expense, the cost of subcontractors, certain third-party fees and allocated overhead. We believe that our professional services organization facilitates the adoption of our service offerings, helps us to secure larger subscription revenue contracts and supports our customers’ success. The cost of professional services may exceed revenues from professional services in future fiscal periods.
Research and Development
Research and development expenses consist primarily of salaries and related expenses, including stock-based compensation expense for our engineering staff associated with product development, as well as allocated overhead.
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Marketing and Sales
Marketing and sales expenses make up the majority of our operating expenses and consist primarily of salaries and related expenses, including stock-based compensation expense and commissions, for our sales and marketing staff, as well as payments to partners, marketing programs and allocated overhead. Marketing programs consist of advertising, events, corporate communications, brand building and product marketing activities. We capitalize certain costs to obtain customer contracts, such as commissions, and amortize these costs on a straight-line basis. As such, the timing of expense recognition for these commissions is not consistent with the timing of the associated cash payment.
Our marketing and sales expenses include amortization of certain acquisition-related intangible assets, such as the amortization of the cost associated with an acquired company’s trade names, customer lists and customer relationships.
General and Administrative
General and administrative expenses consist primarily of salaries and related expenses, including stock-based compensation expense, for finance and accounting, legal, internal audit, human resources and management information systems personnel, professional services fees and allocated overhead.
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.
Restructuring
Restructuring, primarily related to the Restructuring Plan, consists of charges related to employee transition, severance payments, employee benefits and stock-based compensation as well as exit charges associated with office space reductions. The actions associated with the employee restructuring under the Restructuring Plan, as well as the workforce reduction initiated in the fourth quarter of fiscal 2024, are substantially complete. The actions associated with the real estate restructuring under the Restructuring Plan are expected to be fully complete in fiscal 2026. Restructuring excludes allocated overhead.
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 and historical and current sales and contract prices. In instances where we do not sell or price a product or service separately, we maximize the use of observable inputs by using information that may include market conditions. 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
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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.
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;
• 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 these valuations require 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 the privately held debt and equity securities in our strategic investment portfolio for impairment quarterly. 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. Depending on our contractual rights as an investor, investee specific information available to us to make this assessment may be limited or may be available on a delayed basis. 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
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largest privately held equity securities, representing 37 percent of our total strategic investments as of January 31, 2024, could result in a $107 million reduction in the value of our investment portfolio.
Results of Operations
The following tables set forth selected data for each of the periods indicated (in millions):
4 Fiscal Year Ended January 31,
2024 % of Total Revenues 2023 % of Total Revenues 2022 % of Total Revenues
Revenues:
Subscription and support $ 32,537 93 % $ 29,021 93 % $ 24,657 93 %
Professional services and other 2,320 7 2,331 7 1,835 7
Total revenues 34,857 100 31,352 100 26,492 100
Cost of revenues (1)(2):
Subscription and support 6,177 18 5,821 19 5,059 19
Professional services and other 2,364 7 2,539 8 1,967 8
Total cost of revenues 8,541 25 8,360 27 7,026 27
Gross profit 26,316 75 22,992 73 19,466 73
Operating expenses (1)(2):
Research and development 4,906 14 5,055 16 4,465 17
Marketing and sales 12,877 37 13,526 43 11,855 44
General and administrative 2,534 7 2,553 8 2,598 10
Restructuring 988 3 828 3 0 0
Total operating expenses 21,305 61 21,962 70 18,918 71
Income from operations 5,011 14 1,030 3 548 2
Gains (losses) on strategic investments, net (277) (1) (239) (1) 1,211 5
Other income (expense) 216 1 (131) 0 (227) (1)
Income before provision for income taxes 4,950 14 660 2 1,532 6
Provision for income taxes (814) (2) (452) (1) (88) (1)
Net income $ 4,136 12 % $ 208 1 % $ 1,444 5 %
(1) Amounts related to amortization of intangible assets acquired through business combinations, as follows (in millions):
Fiscal Year Ended January 31,
2024 % of Total Revenues 2023 % of Total Revenues 2022 % of Total Revenues
Cost of revenues $ 978 3 % $ 1,035 3 % $ 897 3 %
Marketing and sales 891 2 916 3 727 3
(2) Amounts related to stock-based compensation expense, as follows (in millions):
Fiscal Year Ended January 31,
2024 % of Total Revenues 2023 % of Total Revenues 2022 % of Total Revenues
Cost of revenues $ 431 1 % $ 499 2 % $ 386 1 %
Research and development 972 3 1,136 3 918 4
Marketing and sales 1,062 3 1,256 4 1,104 4
General and administrative 299 1 368 1 371 1
Restructuring 23 0 20 0 0 0
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The following table sets forth selected balance sheet data and other metrics for each of the periods indicated (in millions, except remaining performance obligation, which is presented in billions):
As of
January 31, 2024
January 31, 2023
Cash, cash equivalents and marketable securities $ 14,194 $ 12,508
Unearned revenue 19,003 17,376
Remaining performance obligation 56.9 48.6
Principal due on our outstanding debt obligations (1) 9,500 10,682
(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.
Fiscal Year Ended January 31, 2024 and 2023
Revenues
Fiscal Year Ended January 31, Variance
(in millions) 2024 2023 Dollars Percent
Subscription and support $ 32,537 $ 29,021 $ 3,516 12 %
Professional services and other 2,320 2,331 (11) 0 %
Total revenues $ 34,857 $ 31,352 $ 3,505 11 %
The increase in subscription and support revenues for fiscal 2024 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 software licenses, which are recognized at a point in time, represented approximately seven percent and six percent of total subscription and support revenues for fiscal 2024 and 2023, respectively. Subscription and support revenues accounted for approximately 93 percent of our total revenues for fiscal 2024 and 2023.
The decrease in professional services and other revenues was due primarily to less demand for larger, multi-year transformation engagements and, in some cases, delayed projects. 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):
Fiscal Year Ended January 31,
2024 As a % of Total Subscription and Support Revenues 2023 As a % of Total Subscription and Support Revenues Growth Rate
Sales $ 7,580 23 % $ 6,831 24 % 11 %
Service 8,245 25 7,369 25 12
Platform and Other 6,611 21 5,967 20 11
Marketing and Commerce 4,912 15 4,516 16 9
Integration and Analytics (1) 5,189 16 4,338 15 20
Total $ 32,537 100 % $ 29,021 100 % 12 %
(1) In the fourth quarter of fiscal year 2024, the Company renamed the service offering previously referred to as Data to Integration and Analytics, which includes Mulesoft and Tableau.
Our industry vertical service offerings revenue is included in one of the above service offerings depending on the primary service purchased.
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Integration and Analytics 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 Integration and Analytics to experience greater volatility in revenues period to period compared to our other service offerings. Additionally, as we transition customers within the Integration and Analytics offering from term software licenses to subscription based services, revenue associated with such customers will generally be recognized ratably over the contract term, which we expect may result in potentially less revenue in the period the customer transitions but potentially increasing revenues over the remaining term.
Revenues by Geography
Fiscal Year Ended January 31,
(in millions) 2024 As a % of Total Revenues 2023 As a % of Total Revenues Growth Rate
Americas $ 23,289 67 % $ 21,250 68 % 10 %
Europe 8,128 23 7,163 23 13
Asia Pacific 3,440 10 2,939 9 17
Total $ 34,857 100 % $ 31,352 100 % 11 %
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 revenues across all regions was due primarily to the continued execution of our business and growth strategy, including increasing our geographic reach primarily through extending our go-to-market capabilities globally. During fiscal 2024, revenues outside of the Americas were minimally impacted by foreign currency fluctuations compared to fiscal 2023.
Cost of Revenues
Fiscal Year Ended January 31, Variance
Dollars
(in millions) 2024 As a % of Total Revenues 2023 As a % of Total Revenues
Subscription and support $ 6,177 18 % $ 5,821 19 % $ 356
Professional services and other 2,364 7 % 2,539 8 % (175)
Total cost of revenues $ 8,541 25 % $ 8,360 27 % $ 181
For fiscal 2024, the increase in cost of revenues in absolute dollars was primarily due to an increase in enterprise cloud computing services and data center capacity, which was partially offset by a reduction of third-party expenses. The cost of revenues as a percentage of total revenues during fiscal 2024 decreased by two percent from the same period a year ago due to a decrease in relative employee-related costs, including stock-based compensation expense, as well as reduced third-party expenses. Our cost of revenues headcount decreased by two percent during fiscal 2024 driven by 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 due to fluctuations in demand for our service offerings.
Operating Expenses
Fiscal Year Ended January 31, Variance
Dollars
(in millions) 2024 As a % of Total Revenues 2023 As a % of Total Revenues
Research and development $ 4,906 14 % $ 5,055 16 % $ (149)
Marketing and sales 12,877 37 13,526 43 (649)
General and administrative 2,534 7 2,553 8 (19)
Restructuring 988 3 828 3 160
Total operating expenses $ 21,305 61 % $ 21,962 70 % $ (657)
For fiscal 2024, 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. However, at the end of fiscal 2024, we began to invest in incremental AI resources to accelerate further growth and as a result our research and development headcount increased by five percent during fiscal 2024.
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We expect that research and development expenses will likely remain consistent as a percentage of revenue in the near term as we continue to invest in technology to support the development of new, and improve existing, technologies, including our AI technologies and our Data Cloud service offering, and the integration of acquired technologies combined with our anticipated revenue growth in line with these incremental expenses.
For fiscal 2024, 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 14 percent during fiscal 2024 driven by our restructuring initiatives and our hiring pause that was in effect during fiscal year 2024.
We expect that marketing and sales expenses will likely 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 fiscal 2024, 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 20 percent during fiscal 2024 driven by the Restructuring Plan and our hiring pause that was in effect during fiscal year 2024.
We expect that general and administrative expenses will likely decrease as a percentage of revenues in the near term as we continue to invest in process efficiency initiatives.
In fiscal 2024, approximately $988 million of costs were incurred related to our restructuring initiatives, of which approximately $541 million relates to employee transition, severance payments, employee benefits and stock-based compensation expense and $447 million relates to exit charges associated with office space reductions. We do not expect to incur significant additional charges in connection with our initiatives in the near term.
Other Income and Expenses
Fiscal Year Ended January 31, Variance
Dollars
(in millions) 2024 2023
Losses on strategic investments, net $ (277) $ (239) $ (38)
Other income (expense) 216 (131) 347
Losses 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 including impairments. 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. In fiscal 2024 these factors resulted in impairments on privately held equity and debt securities of $466 million, partially offset by $119 million in unrealized gains on privately held equity securities.
Other income (expense) primarily consists of interest income on our marketable securities portfolio, which is partially offset by interest expense on our debt as well as our finance leases. Other income (expense) increased primarily due to an increase in investment income from rising interest rates.
Benefit From (Provision For) Income Taxes
Fiscal Year Ended January 31, Variance
Dollars
(in millions) 2024 2023
Benefit from (provision for) income taxes $ (814) $ (452) $ (362)
Effective tax rate 16 % 68 %
We recorded a tax provision of $814 million on pretax income of $5.0 billion for fiscal 2024. Our tax provision increased from a year ago primarily due to higher pretax income. Our effective tax rate decreased from a year ago primarily due to discrete benefits from foreign tax credits attributable to recent IRS notices. 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 acquisitions, changes to our operating structure and other macroeconomic factors.
In fiscal 2023, we recognized a tax provision of $452 million on a pretax income of $660 million. The majority of the tax provision was related to taxes from profitable jurisdictions outside of the United States which includes 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. This requirement continues to unfavorably impact our tax provision and cash taxes.
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Fiscal Year Ended January 31, 2023 and 2022
For a discussion of the year ended January 31, 2023 compared to the year ended January 31, 2022, 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, 2023.
Liquidity and Capital Resources
At January 31, 2024, our principal sources of liquidity were cash, cash equivalents and marketable securities totaling $14.2 billion and accounts receivable of $11.4 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, 2024, 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, “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.
Cash Flows
For fiscal 2024, 2023 and 2022 our cash flows were as follows (in millions):
4 Fiscal Year Ended January 31,
2024 2023 2022
Net cash provided by operating activities $ 10,234 $ 7,111 $ 6,000
Net cash used in investing activities (1,327) (1,989) (14,536)
Net cash provided by (used in) financing activities (7,477) (3,562) 7,838
Operating Activities
The net cash provided by operating activities during fiscal 2024 was primarily comprised of net income of $4.1 billion, adjusted for non-cash items, including $4.0 billion of depreciation and amortization and $2.8 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 fiscal 2024 was further benefited by the change in unearned revenue of $1.6 billion, partially offset by the changes in accounts receivable, net of $659 million and the change in accounts payable and accrued expenses and other liabilities of $478 million . 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 fiscal 2023 was related to net income of $208 million, adjusted for non-cash items including $3.8 billion of depreciation and amortization and $3.3 billion related to stock-based compensation expense. Cash provided by operating activities can be significantly impacted by factors such as growth in new business, timing of cash receipts from customers, vendor payment terms and timing of payments to vendors. Cash provided by operating activities during fiscal 2023 was further benefited by the change in unearned revenue of $1.7 billion, partially offset by the change in costs capitalized to obtain revenue contracts, net of $2.3 billion and accounts receivable, net of $1.0 billion due to cash collections. Cash provided by operating activities was impacted by the provision from the Tax Cuts and Jobs Act of 2017 which became effective in fiscal 2023 and requires the capitalization and amortization of research and development costs. The change increased our cash taxes paid in fiscal 2023.
Investing Activities
The net cash used in investing activities during fiscal 2024 was primarily related to capital expenditures of $736 million, net outflows from strategic investment activity of $388 million, and net outflows related to marketable securities activity of $121 million.
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The net cash used in investing activities during fiscal 2023 was primarily related to capital expenditures of $798 million, net outflows of $557 million from marketable securities activity, cash consideration for acquisitions of approximately $439 million and net outflows of $195 million from strategic investment activity.
Financing Activities
Net cash used in financing activities during fiscal 2024 consisted primarily of $7.6 billion from repurchases of common stock and $1.2 billion related to repayments of debt, partially offset by $2.0 billion from proceeds from equity plans.
Net cash used in financing activities during fiscal 2023 consisted primarily of $4.0 billion from repurchases of common stock partially offset by $861 million from proceeds from equity plans.
Debt
As of January 31, 2024, 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 January 31, 2024.
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 January 31, 2024. We may use the proceeds of future borrowings under the Credit Facility for general corporate purposes, which may include, without limitation, the consideration, fees, costs and expenses related to any acquisition. In April 2022 and May 2023, we amended the Revolving Loan Credit Agreement to reflect certain immaterial administrative changes.
We do not have any special purpose entities and we do not engage in off-balance sheet financing arrangements.
Share Repurchase Program
In August 2022, the Board authorized a program to repurchase up to $10.0 billion of our common stock (the “Share Repurchase Program”). The Share Repurchase Program does not have a fixed expiration date and does not obligate us to acquire any specific number of shares. In February 2023, the Board authorized an additional $10.0 billion in repurchases under the Share Repurchase Program, for an aggregate total authorization of $20.0 billion. During the fiscal years ended January 31, 2024 and 2023, we repurchased approximately 36 million and 28 million shares of our common stock for approximately $7.7 billion and $4.0 billion at an average cost of $210.30 and $144.94 per share, respectively. All repurchases were made in open market transactions. As of January 31, 2024, we were authorized to purchase a remaining $8.3 billion of the Company’s common stock under the Share Repurchase Program. In February 2024, the Board authorized an additional $10.0 billion in repurchases under the Share Repurchase Program, for an aggregate total authorization of $30.0 billion. Subsequent to January 31, 2024, we have paid approximately $0.5 billion through February 29, 2024 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. The excise tax is assessed on an annual fiscal year basis, reported and paid in the subsequent year. It was applicable to stock repurchases made in fiscal 2024 and impacted in fiscal 2025 by factors such as the Company’s share price. Any excise tax for fiscal 2024 will impact financing cash flows.
Cash Dividend
On February 28, 2024, we announced a quarterly dividend policy and the declaration of our first-ever cash dividend. This cash dividend of $0.40 per share of the Company’s outstanding common stock will be paid on April 11, 2024 to stockholders of record as of the close of business on March 14, 2024.
The payment of future cash dividends is subject to future declaration by our Board, which will be based in part on continued capital availability, general economic and market conditions, applicable laws and agreements and our Board continuing to determine that the declaration of dividends is in the best interests of the Company and its stockholders.
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, 2024, the future non-cancelable minimum payments under these commitments were approximately $4.6 billion, with payments of $1.0 billion due in the next 12 months and $3.6 billion due thereafter. As of January 31, 2024, we have additional operating leases that have not yet commenced totaling $77 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 January 31, 2024, our total commitments under these agreements were approximately $16.8 billion, of which payments of $2.2 billion are due in the next 12 months and $14.6 billion are due thereafter. We generally expect to satisfy these commitments with cash on hand and cash provided by operating activities.
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During the fiscal 2024 and in future years, we have made, and expect to continue to make, additional investments in our infrastructure to scale our operations to increase productivity and enhance our security measures. We plan to upgrade or replace various internal systems to scale with our overall growth. While we continue to make investments in our infrastructure, including offices, information technology and data centers, as well as investments with infrastructure service providers, to provide capacity for the growth of our business, our strategy may continue to change related to these investments and we may slow the pace of our investments.
Other Future Obligations
As of January 31, 2024, we expect approximate ly $100 million to $125 million in future cash payments related to our restructuring initiatives, 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. Additionally, as we have utilized the majority of our net operating loss and tax credits carryforward, we expect an increase in cash taxes
Environmental, Social and Governance
We believe that business is the greatest platform for change. By focusing on environmental, social and governance (ESG) excellence, Salesforce strives to be a leading example of an ethical, resilient company delivering value to stakeholders now and in the future. We aim to maintain our public commitments with the highest standards of integrity and transparency, and enable compliance with global ESG regulations.
Guided by our values, we work to earn the trust of our stakeholders. Transparency is key to trust, which is why we have published an annual ESG report for over ten years to keep our stakeholders informed and to hold ourselves accountable to our ESG strategy, as well as our key programs, goals, commitments and metrics. Our ESG disclosures are also informed by relevant topics identified through ESG relevancy assessments and 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”). Read more about these initiatives and view our Stakeholder Impact Report at https://salesforce.com/stakeholder-impact-report. Website references throughout this document are provided for convenience only, and the content on the referenced websites is not incorporated by reference into this report.
While we believe that our ESG goals align with our long-term growth strategy and financial and operational priorities, they are aspirational and may change, and there is no guarantee or promise that they will be met.
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