Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, which may consist of, among other things, trend analyses and statements regarding future events, future financial performance, anticipated growth, and industry prospects, are forward-looking. Words such as “aims,” “anticipates,” “assumes,” “believes,” “commitments,” “could,” “estimates,” “expects,” “forecasts,” “foresees,” “goals,” “intends,” “may,” “plans,” “predicts,” “projects,” “seeks,” “should,” “targets” and “would,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are inherently uncertain and based on management’s current expectations and assumptions, which are subject to risks and uncertainties that are difficult to predict, including those described in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Part I, Item 3, “Quantitative and Qualitative Disclosures About Market Risk,” Part II, Item 1A, “Risk Factors,” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results or outcomes to differ materially from those contained in any forward-looking statements.
In light of these and other risks and uncertainties, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur as we expect or at all, and our actual results or outcomes may differ materially and adversely from those expressed or implied in our forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.
Overview
Salesforce 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 which included a reduction of our workforce by approximately ten percent and office space reductions within certain markets. The employee actions associated with the Restructuring Plan were substantially completed in fiscal 2024 and the real estate actions associated with the Restructuring Plan are expected to be fully complete in fiscal 2026. In addition to the Restructuring Plan, we continued to evaluate and operationalize future programs to drive further operational efficiencies, optimize our management structure and increase cost optimization efforts to realize long-term sustainable growth, including a targeted workforce reduction that was initiated in the first quarter of fiscal 2025 and is expected to be substantially complete in fiscal 2025. 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 First Quarter of Fiscal 2025
• Revenue: For the three months ended April 30, 2024, revenue was $9.1 billion , an increase of 11 percent year-over-year.
• Income from Operations: For the three months ended April 30, 2024, income from operations was $1.7 billion as compared to $0.4 billion from a year ago. Operating margin, which represents income from operations as a percentage
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of total revenue, increased to approximately 19 percent for the three months ended April 30, 2024 compared to approximately five percent for the same period in the prior year.
• Earnings per Share: For the three months ended April 30, 2024 , diluted earnings per share was $1.56 as compared to diluted earnings per share of $0.20 from a year ago.
• Cash: Cash provided by operations for the three months ended April 30, 2024 was $6.2 billion, an increase of 39 percent y ear-over-year. Total cash, cash equivalents and marketable securities as of April 30, 2024 was $17.7 billion.
• Remaining Performance Obligation: Total remaining performance obligation, which represents all future revenue under contract yet to be recognized, as of April 30, 2024 was approximately $53.9 billion, an increase of 15 percent year-over-year . Current remaining performance obligation as of April 30, 2024 was approximately $26.4 billion , an increase of 10 percent year-over-year.
• Share Repurchase Program: During the three months ended April 30, 2024, we repurchased approximately 7 million shares of our common stock for approximately $2.2 billion.
• Dividend Program : During the three months ended April 30, 2024, we paid approximately $388 million in dividends.
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. In the first quarter of fiscal 2025, 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 three months ended April 30, 2024 compared to the three months ended April 30, 2023 and our current remaining performance obligatio n was minimally impacted as of April 30, 2024 compared to what we would have reported as of April 30, 2023 using constant currency rates. During fiscal 2024 and the first quarter of fiscal 2025, 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 2025, for example, refer to the fiscal year ending January 31, 2025.
Operating Segments
We operate as one segment. See Note 1 “Summary of Business and Significant Accounting Policies” to the condensed 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 94 percent of our total revenues for the three months ended April 30, 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 software 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 term 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 term software licenses can impact the amount of revenues recognized upfront. Revenues from term software licenses represent less than ten percent of total subscription and support revenue for the three months ended April 30, 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,
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customers may use our Sales, Service or Platform service offerings to record account and contact information, which are similar features across these service offerings. Depending on a customer’s actual and projected business requirements, more than one service offering may satisfy the customer’s current and future needs. We record revenue based on the individual products ordered by a customer, not according to the customer’s business requirements and usage.
Our growth in revenues is also impacted by attrition. Attrition represents the reduction or loss of the annualized value of our contracts with customers. We calculate our attrition rate at a point in time on a trailing twelve-month basis as of the end of each month. As of April 30, 2024, our attrition rate, excluding Slack self service, was appro ximately eight 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. 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
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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.
Sales and Marketing
Sales and marketing 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 sales and marketing 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, as well as professional services fees and allocated overhead.
We allocate overhead such as information technology infrastructure, rent, occupancy charges and certain employee benefits based on headcount. 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 employee actions associated with the Restructuring Plan are substantially complete and the targeted workforce reduction initiated in the first quarter of fiscal 2025 is expected to be substantially complete in fiscal 2025. The real estate actions associated with the Restructuring Plan are expected to be fully complete in fiscal 2026. Restructuring excludes allocated overhead.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
We believe that of our significant accounting policies, which are described in Note 1 “Summary of Business and Significant Accounting Policies” to our condensed consolidated financial statements, the following accounting policies and specific estimates involve a greater degree of judgment and complexity. Accordingly, these are the policies and estimates we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations:
• the standalone selling price (“SSP”) of performance obligations for revenue contracts with multiple performance obligations;
• the valuation of privately held strategic investments;
• the fair value of assets acquired and liabilities assumed for business combinations;
• the recognition, measurement and valuation of current and deferred income taxes and uncertain tax positions;
• the useful lives of intangible assets; and
• the fair value of certain stock awards issued.
These estimates may change, as new events occur and additional information is obtained, and such changes will be recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from these estimates and any such differences may be material to our financial statements.
Additionally, refer to the “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, 2024 for further discussion with respect to these policies and estimates.
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Recent Accounting Pronouncements
See Note 1 “Summary of Business and Significant Accounting Policies” to the condensed consolidated financial statements for our discussion about new accounting pronouncements.
Results of Operations
The following tables set forth selected data for each of the periods indicated (in millions):
1 Three Months Ended April 30,
2024 % of Total Revenues 2023 % of Total Revenues
Revenues:
Subscription and support $ 8,585 94 % $ 7,642 93 %
Professional services and other 548 6 605 7
Total revenues 9,133 100 8,247 100
Cost of revenues (1)(2):
Subscription and support 1,560 17 1,510 18
Professional services and other 602 7 615 8
Total cost of revenues 2,162 24 2,125 26
Gross profit 6,971 76 6,122 74
Operating expenses (1)(2):
Research and development 1,368 15 1,207 15
Sales and marketing 3,239 35 3,154 38
General and administrative 647 7 638 8
Restructuring 8 0 711 8
Total operating expenses 5,262 57 5,710 69
Income from operations 1,709 19 412 5
Gains (losses) on strategic investments, net 37 0 (141) (2)
Other income 121 1 55 1
Income before provision for income taxes 1,867 20 326 4
Provision for income taxes (334) (3) (127) (2)
Net income $ 1,533 17 % $ 199 2 %
(1) Amounts related to amortization of intangible assets acquired through business combinations, as follows (in millions):
Three Months Ended April 30,
2024 % of Total Revenues 2023 % of Total Revenues
Cost of revenues $ 238 3 % $ 248 3 %
Sales and marketing 223 2 223 3
(2) Amounts related to stock-based compensation expense, as follows (in millions):
Three Months Ended April 30,
2024 % of Total Revenues 2023 % of Total Revenues
Cost of revenues $ 119 1 % $ 103 1 %
Research and development 260 3 241 3
Sales and marketing 290 3 263 3
General and administrative 81 1 73 1
Restructuring 0 0 16 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
April 30, 2024
January 31, 2024
Cash, cash equivalents and marketable securities $ 17,670 $ 14,194
Unearned revenue 16,061 19,003
Remaining performance obligation 53.9 56.9
Principal due on our outstanding debt obligations (1) 9,500 9,500
(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.
Revenues
Three Months Ended April 30, Variance
(in millions) 2024 2023 Dollars Percent
Subscription and support $ 8,585 $ 7,642 $ 943 12 %
Professional services and other 548 605 (57) (9) %
Total revenues $ 9,133 $ 8,247 $ 886 11 %
The increase in subscription and support revenues for the three months ended April 30, 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 the period. Revenues from term software licenses, which are recognized at a point in time, represented approximately seven percent and five percent of total subscription and support revenues for the three months ended April 30, 2024 and 2023, respectively. Subscription and support revenues accounted for approximately 94 percent and 93 percent of our total revenues for the three months ended April 30, 2024 and 2023, respectively.
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):
Three Months Ended April 30,
2024 As a % of Total Subscription and Support Revenues 2023 As a % of Total Subscription and Support Revenues Growth Rate
Sales $ 1,998 23 % $ 1,810 24 % 10 %
Service 2,182 26 1,964 26 11
Platform and Other 1,718 20 1,567 20 10
Marketing and Commerce 1,282 15 1,170 15 10
Integration and Analytics (1) 1,405 16 1,131 15 24
Total $ 8,585 100 % $ 7,642 100 % 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.
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 and recent revenue trends may not be indicative of future performance. 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 potentially result in less revenue in the period the customer transitions but incremental revenues over the remaining term.
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Revenues by Geography
Three Months Ended April 30,
(in millions) 2024 As a % of Total Revenues 2023 As a % of Total Revenues Growth Rate
Americas $ 6,062 66 % $ 5,482 66 % 11 %
Europe 2,145 24 1,951 24 10
Asia Pacific 926 10 814 10 14
Total $ 9,133 100 % $ 8,247 100 % 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 the three months ended April 30, 2024, revenues outside of the Americas were negatively impacted by approximately one percent by foreign currency fluctuations compared to the three months ended April 30, 2023.
Cost of Revenues
Three Months Ended April 30, Variance
Dollars
(in millions) 2024 As a % of Total Revenues 2023 As a % of Total Revenues
Subscription and support $ 1,560 17 % $ 1,510 18 % $ 50
Professional services and other 602 7 % 615 8 % (13)
Total cost of revenues $ 2,162 24 % $ 2,125 26 % $ 37
For the three months ended April 30, 2024, the increase in cost of revenues in absolute dollars was primarily due to an increase in employee-related costs, including stock-based compensation expense. Cost of revenues as a percentage of total revenues during the three months ended April 30, 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 service delivery expenses. Our cost of revenues headcount increased by one percent during the three months ended April 30, 2024.
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 cause our cost of revenues as a percentage of revenues to fluctuate in the near term due to changes in demand for our service offerings.
Operating Expenses
Three Months Ended April 30, Variance
Dollars
(in millions) 2024 As a % of Total Revenues 2023 As a % of Total Revenues
Research and development $ 1,368 15 % $ 1,207 15 % $ 161
Sales and marketing 3,239 35 3,154 38 85
General and administrative 647 7 638 8 9
Restructuring 8 0 711 8 (703)
Total operating expenses $ 5,262 57 % $ 5,710 69 % $ (448)
For the three months ended April 30, 2024, the increase in research and development expenses in absolute dollars was primarily due to an increase in employee-related costs, including stock-based compensation expense. Research and development expenses as a percentage of total revenues during the three months ended April 30, 2024 was consistent with the same period a year ago. Our research and development headcount increased by 16 percent during the three months ended April 30, 2024, primarily in lower cost regions.
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 the three months ended April 30, 2024, the increase in sales and marketing expenses in absolute dollars was primarily due to an increase in employee-related costs, including stock-based compensation expense. Sales and marketing expenses as a percentage of total revenues during the three months ended April 30, 2024 decreased by three percent from the same period a
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year ago due to a decrease in relative employee-related costs, including stock-based compensation expense. Our sales and marketing headcount decreased by one percent during the three months ended April 30, 2024.
We expect that sales and marketing 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 the three months ended April 30, 2024, the increase in general and administrative expenses in absolute dollars was primarily due to an increase in professional services expenses. General and administrative expenses as a percentage of total revenues during the three months ended April 30, 2024 decreased by one percent from the same period a year ago due to a decrease in employee-related costs. Our general and administrative headcount decreased by 5 percent during the three months ended April 30, 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 the three months ended April 30, 2024, approximately $8 million of costs were incurred related to our restructuring initiatives, which primarily was related to employee transition, severance payments and employee benefits. We do not expect to incur significant additional charges in connection with our restructuring initiatives in the near term.
Other Income and Expenses
Three Months Ended April 30, Variance
Dollars
(in millions) 2024 2023
Gains (losses) on strategic investments, net $ 37 $ (141) $ 178
Other income 121 55 66
Gains (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, debt or other investments, as well as high public equity market volatility. For the three months ended April 30, 2024, the gain on our strategic investment portfolio was primarily driven by unrealized gains on privately held equity investments of $105 million and realized gains on sales of securities of $59 million, partially offset by impairments of $130 million. For the three months ended April 30, 2023, the loss on strategic investments was primarily driven by impairments on privately held equity and debt securities of $177 million, partially offset by $38 million in unrealized gains on privately held equity securities.
Other income 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 increased primarily due to an increase in investment income from rising interest rates.
Provision For Income Taxes
Three Months Ended April 30, Variance
Dollars
(in millions) 2024 2023
Provision for income taxes $ (334) $ (127) $ (207)
Effective tax rate 18 % 39 %
We recorded a tax provision of $334 million on pretax income of $1.9 billion for the three months ended April 30, 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 excess tax benefits from stock based compensation. 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.
Several countries have enacted legislation to implement the Organization for Economic Cooperation and Development’s 15% global minimum tax regime effective January 1, 2024. We expect other countries to follow. We do not anticipate material changes to our income tax provision for fiscal 2025. We continue to evaluate the impacts of legislation in the jurisdictions in which we operate. Our effective tax rate and cash tax payment could increase in future years.
Liquidity and Capital Resources
At April 30, 2024, our principal sources of liquidity were cash, cash equivalents and marketable securities totaling $17.7 billion and accounts receivable of $4.3 billion. Our cash equivalents and marketable securities are comprised primarily of corporate notes and obligations, U.S. treasury securities, U.S. agency obligations, asset-backed securities, foreign government obligations, mortgage-backed obligations, covered bonds, time deposits, money market mutual funds and municipal securities. Our credit agreement (the “Revolving Loan Credit Agreement”), which as of April 30, 2024, provides the ability to borrow up to $3.0 billion in unsecured financing (the “Credit Facility”), also serves as a source of liquidity.
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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 noncancellable 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, technologies and intellectual property rights. To facilitate these acquisitions or investments, we may seek additional equity or debt financing, which may not be available on terms favorable to us or at all, impacting our ability to complete subsequent acquisitions or investments.
Cash Flows
For the three months ended April 30, 2024 and 2023 our cash flows were as follows (in millions):
1 Three Months Ended April 30,
2024 2023
Net cash provided by operating activities $ 6,247 $ 4,491
Net cash provided by (used in) investing activities (2,651) 347
Net cash used in financing activities (2,108) (2,716)
Operating Activities
The net cash provided by operating activities during the three months ended April 30, 2024 was primarily comprised of net income of $1.5 billion, adjusted for non-cash items, including $879 million of depreciation and amortization and $750 million 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 three months ended April 30, 2024 was further benefited by the changes in accounts receivable, net of $7.2 billion partially offset by the change in unearned revenue of $3.0 billion and the change in accounts payable and accrued expenses and other liabilities of $755 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 the three months ended April 30, 2023 was comprised of net income of $199 million, adjusted for non-cash items including $1.3 billion of depreciation and amortization and $696 million related to stock-based compensation expense. Cash provided by operating activities can be significantly impacted by factors such as growth in new business, timing of cash receipts from customers, vendor payment terms and timing of payments to vendors. Cash provided by operating activities during the three months ended April 30, 2023 was further benefited by the change in accounts receivable, net of $6.1 billion due to cash collections and was partially offset by the change in unearned revenue of $2.3 billion.
Investing Activities
The net cash used in investing activities during the three months ended April 30, 2024 was primarily related to net outflows from marketable securities activity of $2.0 billion, net outflows for the acquisition of Spiff of $338 million, net outflows from strategic investment activity of $150 million and capital expenditures of $163 million.
The net cash provided by investing activities during the three months ended April 30, 2023 was related to net inflows of $686 million from marketable securities activity which was partially offset by capital expenditures of $243 million and net outflows of $96 million from strategic investment activity.
Financing Activities
Net cash used in financing activities during the three months ended April 30, 2024 consisted primarily of $2.1 billion from repurchases of common stock and $388 million related to payments of dividends, partially offset by $533 million from proceeds from equity plans.
Net cash used in financing activities during the three months ended April 30, 2023 consisted primarily of $2.1 billion from repurchases of common stock and $1.0 billion related to the repayment of the 2023 Senior Notes, partially offset by $449 million from proceeds from equity plans.
Debt
As of April 30, 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 April 30, 2024.
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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 April 30, 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. In February 2024, the Board of Directors authorized an additional $10.0 billion in repurchases under the Share Repurchase Program for an aggregate total authorization of $30.0 billion.
We repurchased the following under the Share Repurchase Program (in millions, except average price per share):
2024 2023
Shares Average price per share Amount Shares Average price per share Amount
Three months ended April 30 7 $ 293.00 $ 2,168 11 $ 188.17 $ 2,143
All repurchases were made in open market transactions. As of April 30, 2024, we were authorized to purchase a remaining $16.2 billion of the Company’s common stock under the Share Repurchase Program. Subsequent to April 30, 2024, we have paid approximately $0.6 billion through May 24, 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 and generally paid in the subsequent fiscal year. However, we expect the timing of the fiscal 2024 payment to be determined by the anticipated final regulations. The excise tax may apply to our stock repurchases this fiscal year and could be impacted by factors including the Company’s share price. In the event of an excise tax for fiscal 2025, next fiscal year's financing cash flow could be impacted.
Dividends
On February 28, 2024, we announced a quarterly dividend policy and the declaration of our first-ever cash dividend. In April 2024, we paid a cash dividend of $0.40 per share of our outstanding common stock to stockholders of record as of the close of business on March 14, 2024, totaling approximately $388 million.
The declaration and payment of future cash dividends is subject to our Board continuing to determine that the declaration of dividends is in the best interests of the Company and its stockholders, after giving consideration to continued capital availability, general economic and market conditions, and applicable laws and agreements.
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 April 30, 2024, the future noncancellable minimum payments under these commitments were approximately $4.4 billion, with payments of $780 million due in the next nine months and $3.6 billion due thereafter. We generally expect to satisfy these commitments with cash on hand and cash provided by operating activities.
During the three months ended April 30, 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 April 30, 2024, we expect approximate ly $180 million to $200 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.
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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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