Salesforce, Inc. 10-Q

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 humans together with artificial intelligence (“AI”) agents to drive customer success on one integrated platform. 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 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 and integrated artificial intelligence (“AI”), teams can be more responsive, productive and efficient, deliver intelligent, personalized experiences across every channel and increase productivity. During the third quarter of fiscal 2025, we introduced Agentforce, a new layer of our trusted platform that enables companies to build and deploy AI agents that can respond to inputs, make decisions and take action autonomously across business functions. Agentforce includes a suite of customizable agents for use across sales, service, marketing and commerce. We continue to invest for growth, including investing in generative and agentic 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 targeted workforce and office space reductions that were initiated in the first half of fiscal 2025 and are 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 or measured hiring initiatives to drive operational efficiencies. Highlights from the First Nine Months of Fiscal 2025 • Revenue: For the nine months ended October 31, 2024, revenue was $27.9 billion , an increase of 9 percent year-over-year. 30 Table of Contents • Income from Operations: For the nine months ended October 31, 2024, income from operations was $5.4 billion as compared to $3.4 billion from a year ago. Operating margin, which represents income from operations as a percentage of total revenue, increased to approximately 19 percent for the nine months ended October 31, 2024 compared to approximately 13 percent for the same period in the prior year. • Net Income per Share: For the nine months ended October 31, 2024 , diluted net income per share was $4.60 as compared to diluted net income per share of $2.73 from a year ago. • Cash: Cash provided by operations for the nine months ended October 31, 2024 was $9.1 billion, an increase of 34 percent y ear-over-year. Total cash, cash equivalents and marketable securities as of October 31, 2024 was $12.8 billion. • Remaining Performance Obligation: Total remaining performance obligation, which represents all future revenue under contract yet to be recognized, as of October 31, 2024 was approximately $53.1 billion, an increase of 10 percent year-over-year . Current remaining performance obligation as of October 31, 2024 was approximately $26.4 billion , an increase of 10 percent year-over-year. • Share Repurchase Program: During the nine months ended October 31, 2024, we repurchased approximately 30 million shares of our common stock for approximately $7.7 billion. • Dividend Program : During the nine months ended October 31, 2024, we paid approximately $1.2 billion in dividends. In the third quarter of fiscal 2025, we continued seeing increasing momentum for Agentforce and other AI service offerings. Outside of the demand for AI, the buying environment trends seen over the past two fiscal years have stabilized. A reemergence of slower growth in new and renewal business could impact 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. Total revenues in the nine months ended October 31, 2024 were minimally impacted by foreign currency fluctuations compared to the nine months ended October 31, 2023. Our current remaining performance obligatio n as of October 31, 2024 was minimally impacted by foreign currency fluctuations compared to our remaining performance obligation as of October 31, 2023. 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 nine months ended October 31, 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 and nine months ended October 31, 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 31 Table of Contents customers and, as a result, the revenue result for each offering is not necessarily indicative of the results to be expected for any subsequent quarter. In addition, some of our Cloud Service offerings have similar features and functions. For example, customers may use our Sales, Service or Platform service offerings to record account and contact information, which are similar features across these service offerings. Depending on a customer’s actual and projected business requirements, more than one service offering may satisfy the customer’s current and future needs. We record revenue based on the individual products ordered by a customer, not according to the customer’s business requirements and usage. Our growth in revenues is also impacted by attrition. Attrition represents the reduction or loss of the annualized value of our contracts with customers. We calculate our attrition rate at a point in time on a trailing twelve-month basis as of the end of each month. As of October 31, 2024, our attrition rate, excluding Slack self service, was approximately 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, allocated overhead and our employee-related costs, which includes salaries, benefits and stock-based compensation expense. 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 specific to customer experience and technical operations. Cost of professional services and other revenues consists primarily of employee-related costs associated with these services, the cost of subcontractors, certain third-party fees and allocated overhead. We believe that our professional services 32 Table of Contents 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 employee-related costs 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 employee-related costs 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 employee-related costs 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 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 were substantially completed in fiscal 2024 and the targeted workforce and office space reductions initiated in the first nine months of fiscal 2025 are 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. 33 Table of Contents 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): 3 Three Months Ended October 31, Nine Months Ended October 31, 2024 % of Total Revenues 2023 % of Total Revenues 2024 % of Total Revenues 2023 % of Total Revenues Revenues: Subscription and support $ 8,879 94 % $ 8,141 93 % $ 26,228 94 % $ 23,789 93 % Professional services and other 565 6 579 7 1,674 6 1,781 7 Total revenues 9,444 100 8,720 100 27,902 100 25,570 100 Cost of revenues (1)(2): Subscription and support 1,501 16 1,571 18 4,617 17 4,596 18 Professional services and other 604 6 584 7 1,809 6 1,797 7 Total cost of revenues 2,105 22 2,155 25 6,426 23 6,393 25 Gross profit 7,339 78 6,565 75 21,476 77 19,177 75 Operating expenses (1)(2): Research and development 1,356 14 1,204 14 4,073 15 3,631 14 Sales and marketing 3,323 35 3,173 36 9,786 35 9,440 37 General and administrative 711 8 632 7 2,069 7 1,902 8 Restructuring 56 1 55 1 163 1 815 3 Total operating expenses 5,446 58 5,064 58 16,091 58 15,788 62 Income from operations 1,893 20 1,501 17 5,385 19 3,389 13 Losses on strategic investments, net (217) (3) (72) (1) (217) 0 (242) (1) Other income 70 1 58 1 282 1 158 1 Income before provision for income taxes 1,746 18 1,487 17 5,450 20 3,305 13 Provision for income taxes (219) (2) (263) (3) (961) (4) (615) (2) Net income $ 1,527 16 % $ 1,224 14 % $ 4,489 16 % $ 2,690 11 % (1) Amounts related to amortization of intangible assets acquired through business combinations, as follows (in millions): Three Months Ended October 31, Nine Months Ended October 31, 2024 % of Total Revenues 2023 % of Total Revenues 2024 % of Total Revenues 2023 % of Total Revenues Cost of revenues $ 131 2 % $ 245 3 % $ 600 2 % $ 743 3 % Sales and marketing 223 2 223 2 669 3 668 3 (2) Amounts related to stock-based compensation expense, as follows (in millions): Three Months Ended October 31, Nine Months Ended October 31, 2024 % of Total Revenues 2023 % of Total Revenues 2024 % of Total Revenues 2023 % of Total Revenues Cost of revenues $ 135 2 % $ 109 1 % $ 386 2 % $ 324 1 % Research and development 278 3 238 3 814 3 735 3 Sales and marketing 312 3 275 3 911 3 815 3 General and administrative 95 1 71 1 267 1 223 1 Restructuring 0 0 0 0 2 0 16 0 34 Table of Contents The following table sets forth selected balance sheet data and other metrics for each of the periods indicated (in millions, except remaining performance obligation, which is presented in billions): As of October 31, 2024 January 31, 2024 Cash, cash equivalents and marketable securities $ 12,757 $ 14,194 Unearned revenue 13,472 19,003 Remaining performance obligation 53.1 56.9 Principal due on our outstanding debt obligations (1) 8,500 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 October 31, Variance (in millions) 2024 2023 Dollars Percent Subscription and support $ 8,879 $ 8,141 $ 738 9 % Professional services and other 565 579 (14) (2) Total revenues $ 9,444 $ 8,720 $ 724 8 % Nine Months Ended October 31, Variance (in millions) 2024 2023 Dollars Percent Subscription and support $ 26,228 $ 23,789 $ 2,439 10 % Professional services and other 1,674 1,781 (107) (6) Total revenues $ 27,902 $ 25,570 $ 2,332 9 % The increase in s ubscription and support revenues for the three and nine months ended October 31, 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 five percent and six percent of total subscription and support revenues for the three and nine months ended October 31, 2024, respectively, and six percent for the three and nine months ended October 31, 2023. Subscription and support revenues accounted for approximately 94 percent of our total revenues for the three and nine months ended October 31, 2024 and 93 percent for the three and nine months ended October 31, 2023. The decrease in professional services and other revenues for the three and nine months ended October 31, 2024 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. 35 Table of Contents Subscription and Support Revenues by Service Offering Subscription and support revenues consisted of the following (in millions): Three Months Ended October 31, 2024 As a % of Total Subscription and Support Revenues 2023 As a % of Total Subscription and Support Revenues Growth Rate Sales $ 2,119 24 % $ 1,906 23 % 11 % Service 2,288 26 2,074 26 10 Platform and Other 1,825 20 1,686 21 8 Marketing and Commerce 1,334 15 1,230 15 8 Integration and Analytics (1) 1,313 15 1,245 15 5 Total $ 8,879 100 % $ 8,141 100 % 9 % (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. Nine Months Ended October 31, 2024 As a % of Total Subscription and Support Revenues 2023 As a % of Total Subscription and Support Revenues Growth Rate Sales $ 6,188 24 % $ 5,611 24 % 10 % Service 6,727 26 6,087 26 11 Platform and Other 5,329 20 4,891 20 9 Marketing and Commerce 3,924 15 3,638 15 8 Integration and Analytics (1) 4,060 15 3,562 15 14 Total $ 26,228 100 % $ 23,789 100 % 10 % (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. Revenues by Geography Three Months Ended October 31, (in millions) 2024 As a % of Total Revenues 2023 As a % of Total Revenues Growth Rate Americas $ 6,220 66 % $ 5,862 67 % 6 % Europe 2,228 24 1,998 23 12 Asia Pacific 996 10 860 10 16 $ 9,444 100 % $ 8,720 100 % 8 % 36 Table of Contents Nine Months Ended October 31, (in millions) 2024 As a % of Total Revenues 2023 As a % of Total Revenues Growth Rate Americas $ 18,483 66 % $ 17,113 67 % 8 % Europe 6,557 24 5,923 23 11 Asia Pacific 2,862 10 2,534 10 13 $ 27,902 100 % $ 25,570 100 % 9 % Revenues by geography are determined based on the region of our contracting entity, which may be different than the region of the customer. Revenue growth in the Americas was driven by investment of additional sales resources from previous periods. Revenue growth in Europe and Asia Pacific was primarily driven by our focus on marketing our services internationally and increased productivity, as well as investment in additional resources. Total revenue during the three and nine months ended October 31, 2024 was minimally impacted by foreign currency fluctuations compa red to the three and nine months ended October 31, 2023. Cost of Revenues Three Months Ended October 31, Variance (in millions) 2024 As a % of Total Revenues 2023 As a % of Total Revenues Dollars Subscription and support $ 1,501 16 % $ 1,571 18 % $ (70) Professional services and other 604 6 584 7 20 Total cost of revenues $ 2,105 22 % $ 2,155 25 % $ (50) Nine Months Ended October 31, Variance (in millions) 2024 As a % of Total Revenues 2023 As a % of Total Revenues Dollars Subscription and support $ 4,617 17 % $ 4,596 18 % $ 21 Professional services and other 1,809 6 1,797 7 12 Total cost of revenues $ 6,426 23 % $ 6,393 25 % $ 33 For the three months ended October 31, 2024, the decrease in cost of revenues in absolute dollars was primarily due to a decrease in service delivery expenses and a decrease in amortization of intangible assets acquired through business combinations, partially offset by an increase in employee-related costs, primarily in lower cost regions. For the nine months ended October 31, 2024, the increase in cost of revenues in absolute dollars was primarily due to an increase in employee-related costs, primarily in lower cost regions, partially offset by a decrease in service delivery expenses and reduced amortization of intangible assets acquired through business combinations . Cost of revenue as a percentage of total revenue during the three and nine months ended October 31, 2024 decreased by three and two percent, respectively, from the same periods a year ago primarily as a result of reduced service delivery expenses and a decrease in amortization of intangible assets acquired through business combinations. We intend to continue to invest additional resources in enterprise cloud computing services 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 over time due to changes in demand for our service offerings. 37 Table of Contents Operating Expenses Three Months Ended October 31, Variance (in millions) 2024 As a % of Total Revenues 2023 As a % of Total Revenues Dollars Research and development $ 1,356 14 % $ 1,204 14 % $ 152 Sales and marketing 3,323 35 3,173 36 150 General and administrative 711 8 632 7 79 Restructuring 56 1 55 1 1 Total operating expenses $ 5,446 58 % $ 5,064 58 % $ 382 Nine Months Ended October 31, Variance (in millions) 2024 As a % of Total Revenues 2023 As a % of Total Revenues Dollars Research and development $ 4,073 15 % $ 3,631 14 % $ 442 Sales and marketing 9,786 35 9,440 37 346 General and administrative 2,069 7 1,902 8 167 Restructuring 163 1 815 3 (652) Total operating expenses $ 16,091 58 % $ 15,788 62 % $ 303 For the three and nine months ended October 31, 2024, the increase in research and development expenses in absolute dollars was primarily due to an increase in employee-related costs, primarily in lower cost regions. Research and development expenses as a percentage of total revenues during the three months ended October 31, 2024 was consistent with the same period a year ago. For the nine months ended October 31, 2024, the one percent increase as a percentage of total revenues compared to the same period a year ago was primarily due to increased employee-related costs, primarily in lower cost regions. We expect that research and development expenses will likely remain consistent as a percentage of revenues over time as we continue to invest in the development of new, and improve existing, technologies, including our AI and Data Cloud service offerings, and support the integration of acquired technologies, at a pace consistent with our anticipated revenue growth. For the three and nine months ended October 31, 2024, the increase in sales and marketing expenses in absolute dollars was primarily due to an increase in employee-related costs. Sales and marketing expenses as a percentage of total revenues during the three and nine months ended October 31, 2024 decreased by one and two percent, respectively, from the same periods a year ago due to a decrease in relative employee-related costs and a decrease in absolute advertising expenses. We expect that sales and marketing expenses may decrease as a percentage of revenues over time as we continue to focus on leveraging our self-serve and partner-led channels and increasing our sales productivity, which includes the use of AI and agents. For the three and nine months ended October 31, 2024, the increase in general and administrative expenses in absolute dollars was primarily due to an increase in employee-related costs and professional services expenses. General and administrative expenses as a percentage of total revenues during the three and nine months ended October 31, 2024 were materially consistent compared to the same periods a year ago. We expect that general and administrative expenses may decrease as a percentage of revenues over time as we continue to invest in process efficiency initiatives. In the three and nine months ended October 31, 2024, approximately $56 million and $163 million, respectively, of costs were incurred related to our restructuring initiatives, primarily related to employee transition, severance payments and employee benefits. Other Income and Expense Three Months Ended October 31, Variance (in millions) 2024 2023 Dollars Losses on strategic investments, net $ (217) $ (72) $ (145) Other income 70 58 12 Nine Months Ended October 31, Variance (in millions) 2024 2023 Dollars Losses on strategic investments, net $ (217) $ (242) $ 25 Other income 282 158 124 38 Table of Contents 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, impairments and other adjustments. Our strategic investment portfolio continues to be affected by challenging market conditions for companies in which we hold private equity or debt investments as well as high public equity market volatility. For the three months ended October 31, 2024, our strategic investment portfolio losses were primarily driven by impairments on privately held equity investments o f $242 million . For the nine months ended October 31, 2024, our strategic investment portfolio losses were primarily driven by impairments on privately held equity investments of $432 million, partially offset by unrealized gains on privately held equity securities of $167 million and realized gains on sales of securities of $59 million. Other income primarily consists of investment income, partially offset by interest expense on our debt and finance leases. Interest expense was $67 million and $70 million for the three months ended October 31, 2024 and 2023, respectively, and $204 million and $213 million for the nine months ended October 31, 2024 and 2023, respectively. Provision For Income Taxes Three Months Ended October 31, Variance (in millions) 2024 2023 Dollars Provision for income taxes $ (219) $ (263) $ 44 Effective tax rate 13 % 18 % Nine Months Ended October 31, Variance (in millions) 2024 2023 Dollars Provision for income taxes $ (961) $ (615) $ (346) Effective tax rate 18 % 19 % We recorded a tax provision of $219 million and $263 million for the three months ended October 31, 2024 and 2023, respectively, and a tax provision of $961 million and $615 million for the nine months ended October 31, 2024 and 2023, respectively. The year-to-date tax provision increased from the same period a year ago due to higher pretax income partially offset by a tax benefit from the foreign-derived intangible income deduction. Our quarter-to-date tax provision was lower compared to the same period a year ago due to the tax benefit from the foreign-derived intangible income deduction. Our effective tax rate may fluctuate due to changes in our domestic and foreign earnings, or material discrete tax items, or a combination of these factors resulting from transactions or events, including, for example, acquisitions, changes to our operating structure, and other macroeconomic factors. 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 payments could increase in future years. Liquidity and Capital Resources At October 31, 2024, our principal sources of liquidity were cash, cash equivalents and marketable securities totaling $12.8 billion and accounts receivable of $4.7 billion. Our cash equivalents and marketable securities are comprised primarily of corporate notes and obligations, U.S. treasury securities, U.S. agency obligations, asset-backed securities, foreign government obligations, mortgage-backed obligations, covered bonds, time deposits, money market mutual funds and municipal securities. Our Revolving Loan Credit Agreement (as defined below), which provides the ability to borrow up to $5.0 billion in unsecured financing (the “Credit Facility”) as of October 31, 2024, also serves as a source of liquidity. Net cash provided by operating activities could continue to be affected by various risks and uncertainties, including, but not limited to, the risks detailed in Part II, Item 1A, “Risk Factors.” We believe our existing cash, cash equivalents, marketable securities, cash provided by operating activities, unbilled amounts related to contracted 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 and thereafter. 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. 39 Table of Contents Cash Flows For the three and nine months ended October 31, 2024 and 2023, our cash flows were as follows (in millions): 3 Three Months Ended October 31, Nine Months Ended October 31, 2024 2023 2024 2023 Net cash provided by operating activities $ 1,983 $ 1,532 $ 9,122 $ 6,831 Net cash used in investing activities (217) (54) (227) (859) Net cash used in financing activities (1,446) (1,765) (9,356) (6,531) Operating Activities The net cash provided by operating activities during the nine months ended October 31, 2024 was primarily comprised of net income of $4.5 billion, adjusted for non-cash items, including $2.6 billion of depreciation and amortization and $2.4 billion of stock-based compensation expense. Net 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. Net cash provided by operating activities during the nine months ended October 31, 2024 was further benefited by the changes in accounts receivable, net of $6.7 billion partially offset by the change in unearned revenue of $5.6 billion and the change in accounts payable and accrued expenses and other liabilities of $503 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 nine months ended October 31, 2023 was primarily comprised of net income of $2.7 billion, adjusted for non-cash items including $3.0 billion of depreciation and amortization and $2.1 billion of stock-based compensation expense. Net 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. Net cash provided by operating activities during the nine months ended October 31, 2023 was further benefited by the change in accounts receivable, net of $5.9 billion due to cash collections and was partially offset by the change in unearned revenue of $4.8 billion and the change in accounts payable and accrued expenses and other liabilities of $1.6 billion. Investing Activities The net cash used in investing activities during the nine months ended October 31, 2024 was primarily related to net outflows for acquisitions of $517 million, net outflows from strategic investment activity of $256 million and capital expenditures of $504 million, partially offset by net inflows from marketable securities activity of $1.1 billion. The net cash used in investing activities during the nine months ended October 31, 2023 was primarily related to capital expenditures of $589 million and net outflows from strategic investment activity of $288 million, partially offset by net inflows related to marketable securities activity of $100 million. Financing Activities The net cash used in financing activities during the nine months ended October 31, 2024 was primarily related to $7.8 billion used for repurchases of common stock, $1.0 billion related to repayments of debt and $1.2 billion related to payments of dividends, partially offset by $1.1 billion from proceeds from equity plans. The net cash used in financing activities during the nine months ended October 31, 2023 was primarily related to $5.9 billion used for repurchases of common stock and $1.2 billion related to repayments of debt, partially offset by $1.1 billion from proceeds from equity plans. Debt As of October 31, 2024, we had senior unsecured debt outstanding, with maturities starting in April 2028 and extending through July 2061 with a total carrying value of $8.4 billion. We were in compliance with all debt covenants as of October 31, 2024. In October 2024, we entered into a Credit Agreement with the lenders and issuing lenders party thereto, and Bank of America, N.A., as administrative agent (the “Revolving Loan Credit Agreement”). The Revolving Loan Credit Agreement replaced the Credit Agreement, dated December 23, 2020 (as amended, the “Prior Credit Agreement”), among us, the lenders and the issuing lenders party thereto, and Citibank, N.A., as administrative agent, which provided for a $3.0 billion unsecured revolving credit facility that was scheduled to mature on December 23, 2025. There were no outstanding borrowings under the Prior Credit Agreement. 40 Table of Contents The Revolving Loan Credit Agreement provides for a $5.0 billion unsecured revolving credit facility (“Credit Facility”) and matures in October 2029. We may use the proceeds of future borrowings under the Credit Facility for general corporate purposes. There were no outstanding borrowings under the Credit Facility as of October 31, 2024. 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 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 Three months ended July 31 18 $ 246.14 $ 4,288 9 $ 211.83 $ 1,913 Three months ended October 31 5 $ 257.00 $ 1,228 9 $ 209.33 $ 1,924 All repurchases were made in open market transactions. As of October 31, 2024, we were authorized to purchase a remaining $10.6 billion of the Company’s common stock under the Share Repurchase Program. Subsequent to October 31, 2024, we have incurred approximately $31 million through November 27, 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. We expect to pay an insignificant excise tax in fiscal 2025. The excise tax applies to our fiscal 2025 stock repurchases. We currently anticipate that it will decrease next year’s financing cash flows, however, the amount could be impacted by factors including the Company’s share price. Dividends We announced the following dividends (in millions, except dividend per share): Record Date Payment Date Dividend per Share Amount March 14, 2024 April 11, 2024 $ 0.40 $ 388 July 9, 2024 July 25, 2024 $ 0.40 $ 388 September 18, 2024 October 8, 2024 $ 0.40 $ 385 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 our 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 October 31, 2024, the future noncancellable minimum payments under these commitments were approximately $4.2 billion, with payments of $258 million due in the next three months and $3.9 billion due thereafter. We generally expect to satisfy these commitments with cash on hand and cash provided by operating activities. During the nine months ended October 31, 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 and 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. 41 Table of Contents Other Future Obligations In November 2024, we acquired all outstanding stock of Zoomin Software Ltd. (“Zoomin”), a data management company. Prior to the acquisition, we owned less than ten percent of the outstanding stock of Zoomin. The total consideration for the remaining shares of Zoomin was approximately $344 million in cash, subject to customary purchase price adjustments. In November 2024, we acquired all outstanding stock of Own Data Company Ltd. (“Own”), a leading provider of data protection and data management solutions. Prior to the acquisition, we owned approximately ten percent of the outstanding stock of Own. The total consideration for the remaining shares of Own was approximately $1.9 billion in cash, subject to customary purchase price adjustments. As of October 31, 2024, we expect approximately $100 million to $150 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. 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. 42 Table of Contents