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Salesforce, Inc. - Quarter Report: 2022 July (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended July 31, 2022
OR
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-32224
 
Salesforce, Inc.
(Exact name of Registrant as specified in its charter)
 
Delaware94-3320693
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
Salesforce Tower
415 Mission Street, 3rd Fl
San Francisco, California 94105
(Address of principal executive offices)
Telephone Number (415) 901-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareCRMNew York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x   No  ¨
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).    Yes  x   No  ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No  x
As of August 24, 2022, there were approximately 1.0 billion shares of the Registrant’s Common Stock outstanding.


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INDEX
 
  Page No.
  
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

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PART I.
ITEM 1. FINANCIAL STATEMENTS
Salesforce, Inc.
Condensed Consolidated Balance Sheets
(in millions)
July 31, 2022January 31, 2022
Assets(unaudited)
Current assets:
Cash and cash equivalents$6,931 $5,464 
Marketable securities6,602 5,073 
Accounts receivable, net 4,745 9,739 
Costs capitalized to obtain revenue contracts, net 1,531 1,454 
Prepaid expenses and other current assets1,437 1,120 
Total current assets21,246 22,850 
Property and equipment, net3,375 2,815 
Operating lease right-of-use assets, net 2,727 2,880 
Noncurrent costs capitalized to obtain revenue contracts, net 2,367 2,342 
Strategic investments5,124 4,784 
Goodwill48,568 47,937 
Intangible assets acquired through business combinations, net8,072 8,978 
Deferred tax assets and other assets, net 2,669 2,623 
Total assets$94,148 $95,209 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable, accrued expenses and other liabilities
$5,446 $5,470 
Operating lease liabilities, current
626 686 
Unearned revenue
12,825 15,628 
Debt, current1,183 
Total current liabilities20,080 21,788 
Noncurrent debt9,416 10,592 
Noncurrent operating lease liabilities2,580 2,703 
Other noncurrent liabilities 1,974 1,995 
Total liabilities34,050 37,078 
Stockholders’ equity:
Common stock
Additional paid-in capital52,979 50,919 
Accumulated other comprehensive loss(355)(166)
Retained earnings7,473 7,377 
Total stockholders’ equity60,098 58,131 
Total liabilities and stockholders’ equity$94,148 $95,209 










See accompanying Notes.
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Salesforce, Inc.
Condensed Consolidated Statements of Operations
(in millions, except per share data)
(unaudited)
2Three Months Ended July 31,Six Months Ended July 31,
 2022202120222021
Revenues:
Subscription and support$7,143 $5,914 $13,999 $11,450 
Professional services and other577 426 1,132 853 
Total revenues7,720 6,340 15,131 12,303 
Cost of revenues (1)(2):
Subscription and support 1,490 1,146 2,930 2,268 
Professional services and other 637 467 1,242 900 
Total cost of revenues2,127 1,613 4,172 3,168 
Gross profit5,593 4,727 10,959 9,135 
Operating expenses (1)(2):
Research and development1,329 1,020 2,647 1,971 
Marketing and sales3,424 2,736 6,796 5,280 
General and administrative647 639 1,303 1,198 
Total operating expenses5,400 4,395 10,746 8,449 
Income from operations193 332 213 686 
Gains on strategic investments, net 45 526 52 814 
Other expense(57)(32)(113)(70)
Income before provision for income taxes181 826 152 1,430 
Provision for income taxes (113)(291)(56)(426)
Net income$68 $535 $96 $1,004 
Basic net income per share$0.07 $0.57 $0.10 $1.08 
Diluted net income per share$0.07 $0.56 $0.10 $1.06 
Shares used in computing basic net income per share997 933 994 927 
Shares used in computing diluted net income per share1,001 950 1,001 945 
(1) Amounts include amortization of intangible assets acquired through business combinations, as follows:
Three Months Ended July 31,Six Months Ended July 31,
2022202120222021
Cost of revenues$260 $184 $535 $352 
Marketing and sales232 135 469 255 
(2) Amounts include stock-based compensation expense, as follows:
 Three Months Ended July 31,Six Months Ended July 31,
 2022202120222021
Cost of revenues$130 $95 $242 $177 
Research and development297 197 576 370 
Marketing and sales326 263 617 501 
General and administrative98 85 192 156 






See accompanying Notes.
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Salesforce, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in millions)
(unaudited)
2Three Months Ended July 31,Six Months Ended July 31,
2022202120222021
Net income$68 $535 $96 $1,004 
Other comprehensive loss, net of reclassification adjustments:
Foreign currency translation and other losses(40)(9)(109)(25)
Unrealized losses on marketable securities and privately held debt securities(6)(8)(102)(21)
Other comprehensive loss, before tax(46)(17)(211)(46)
Tax effect22 
Other comprehensive loss, net(45)(16)(189)(42)
Comprehensive income (loss)$23 $519 $(93)$962 
































See accompanying Notes.
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Salesforce, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(in millions)
(unaudited)
Three and Six months ended July 31, 2022
 Common StockAdditional
Paid-in
Capital
Accumulated Other Comprehensive LossRetained EarningsTotal
Stockholders’
Equity
 SharesAmount
Balance at January 31, 2022989 $$50,919 $(166)$7,377 $58,131 
Common stock issued85 85 
Stock-based compensation expense776 776 
Other comprehensive loss, net of tax (144)(144)
Net income28 28 
Balance at April 30, 2022994 51,780 (310)7,405 58,876 
Common stock issued348 348 
Stock-based compensation expense851 851 
Other comprehensive loss, net of tax(45)(45)
Net income68 68 
Balance at July 31, 2022999 $$52,979 $(355)$7,473 $60,098 
Three and Six months ended July 31, 2021
Common StockAdditional
Paid-in
Capital
Accumulated Other Comprehensive LossRetained EarningsTotal
Stockholders’
Equity
SharesAmount
Balance at January 31, 2021919 $$35,601 $(42)$5,933 $41,493 
Common stock issued67 67 
Stock-based compensation expense564 564 
Other comprehensive loss, net of tax(26)(26)
Net income469 469 
Balance at April 30, 2021925 36,232 (68)6,402 42,567 
Common stock issued525 525 
Shares issued related to the acquisition of Slack46 11,269 11,269 
Stock-based compensation expense640 640 
Other comprehensive loss, net of tax(16)(16)
Net income535 535 
Balance at July 31, 2021978 $$48,666 $(84)$6,937 $55,520 
















See accompanying Notes.
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Salesforce, Inc.
Condensed Consolidated Statements of Cash Flows
(in millions)
(unaudited)
2Three Months Ended July 31,Six Months Ended July 31,
2022202120222021
Operating activities:
Net income$68 $535 $96 $1,004 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization907 719 1,813 1,404 
Amortization of costs capitalized to obtain revenue contracts, net408 334 802 648 
Stock-based compensation expense851 640 1,627 1,204 
Gains on strategic investments, net(45)(526)(52)(814)
Changes in assets and liabilities, net of business combinations:
Accounts receivable, net(790)(812)5,015 3,804 
Costs capitalized to obtain revenue contracts, net(505)(463)(904)(818)
Prepaid expenses and other current assets and other assets113 (173)(296)(190)
Accounts payable and accrued expenses and other liabilities 326 805 (896)(288)
Operating lease liabilities(186)(200)(388)(416)
Unearned revenue(813)(473)(2,807)(1,924)
Net cash provided by operating activities334 386 4,010 3,614 
Investing activities:
Business combinations, net of cash acquired(25)(14,356)(439)(14,781)
Purchases of strategic investments(208)(509)(431)(786)
Sales of strategic investments38 913 83 1,469 
Purchases of marketable securities(1,152)(507)(3,724)(2,316)
Sales of marketable securities451 2,464 892 3,045 
Maturities of marketable securities722 1,154 1,167 1,652 
Capital expenditures(203)(213)(382)(384)
Net cash used in investing activities(377)(11,054)(2,834)(12,101)
Financing activities:
Proceeds from issuance of debt, net of issuance costs7,922 7,912 
Repayments of Slack Convertible Notes, net of capped call proceeds168 168 
Proceeds from employee stock plans181 375 455 600 
Principal payments on financing obligations (44)(24)(116)(73)
Repayments of debt(1)(1)(2)(2)
Net cash provided by financing activities136 8,440 337 8,605 
Effect of exchange rate changes(21)(17)(46)(14)
Net increase (decrease) in cash and cash equivalents72 (2,245)1,467 104 
Cash and cash equivalents, beginning of period6,859 8,544 5,464 6,195 
Cash and cash equivalents, end of period$6,931 $6,299 $6,931 $6,299 


See accompanying Notes.
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Salesforce, Inc.
Condensed Consolidated Statements of Cash Flows
Supplemental Cash Flow Disclosure
(in millions)
(unaudited)
 Three Months Ended July 31,Six Months Ended July 31,
 2022202120222021
Supplemental cash flow disclosure:
Cash paid during the period for:
Interest$92 $$138 $48 
Income taxes, net of tax refunds$96 $34 $277 $83 
Non-cash investing and financing activities:
Fair value of equity awards assumed$$205 $$205 
Fair value of common stock issued as consideration for business combinations$$11,064 $$11,064 








































See accompanying Notes.
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Salesforce, Inc.
Notes to Condensed Consolidated Financial Statements
1. Summary of Business and Significant Accounting Policies
Description of Business
Salesforce, Inc. (the “Company”) is a global leader in customer relationship management technology that brings companies and customers together. With the Customer 360 platform, the Company delivers a single source of truth, connecting customer data across systems, apps and devices to help companies sell, service, market and conduct commerce from anywhere. Since its founding in 1999, Salesforce has pioneered innovations in cloud, mobile, social, analytics and artificial intelligence, enabling companies of every size and industry to transform their businesses in the all-digital, work-from-anywhere era. In March 2022, we changed our corporate name from salesforce.com, inc. to Salesforce, Inc.
Fiscal Year
The Company’s fiscal year ends on January 31. References to fiscal 2023, for example, refer to the fiscal year ending January 31, 2023.
Basis of Presentation
The accompanying condensed consolidated balance sheet as of July 31, 2022 and the condensed consolidated statements of operations, condensed consolidated statements of comprehensive income (loss), condensed consolidated statements of stockholders' equity and condensed consolidated statements of cash flows for the three and six months ended July 31, 2022 and 2021, respectively are unaudited.
These financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the financial information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, the unaudited condensed consolidated financial statements include all adjustments necessary for the fair presentation of the Company’s balance sheet as of July 31, 2022, and its results of operations, including its comprehensive income (loss), stockholders' equity and its cash flows for the three and six months ended July 31, 2022 and 2021. All adjustments are of a normal recurring nature. The results for the three and six months ended July 31, 2022 are not necessarily indicative of the results to be expected for any subsequent quarter or for the fiscal year ending January 31, 2023.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on March 11, 2022.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in the Company’s condensed consolidated financial statements and notes thereto.
Significant estimates and assumptions made by management include the determination of:
the fair value of assets acquired and liabilities assumed for business combinations;
the standalone selling price (“SSP”) of performance obligations for revenue contracts with multiple performance obligations;
the valuation of privately-held strategic investments, including impairments;
the recognition, measurement and valuation of current and deferred income taxes and uncertain tax positions;
the average period of benefit associated with costs capitalized to obtain revenue contracts;
the useful lives of intangible assets; and
the fair value of certain stock awards issued.
Actual results could differ materially from those estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, which forms the basis for making judgments about the carrying values of assets and liabilities.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
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Segments
The Company operates as one operating segment. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”), in deciding how to allocate resources and assess performance. Over the past few years, the Company has completed a number of acquisitions which have allowed the Company to expand its offerings, presence and reach in various market segments of the enterprise cloud computing market. While the Company has offerings in multiple enterprise cloud computing market segments, including as a result of the Company's acquisitions, and operates in multiple countries, the Company’s business operates in one operating segment because most of the Company's service offerings operate on the Customer 360 Platform and are deployed in a nearly identical manner, and the Company’s CODM evaluates the Company’s financial information and resources, and assesses the performance of these resources, on a consolidated basis.
Concentrations of Credit Risk, Significant Customers and Investments
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities and accounts receivable. The Company’s investment portfolio consists primarily of investment-grade securities, and per the Company’s policy, limits the amount of credit exposure to any one issuer. The Company monitors and manages the overall exposure of its cash balances to individual financial institutions on an ongoing basis. The Company does not require collateral for accounts receivable. The Company maintains an allowance for its doubtful accounts receivable due to estimated credit losses. This allowance is based upon historical loss patterns, the number of days that billings are past due, an evaluation of the potential risk of loss associated with delinquent accounts and current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss patterns. The Company records the allowance against bad debt expense through the condensed consolidated statements of operations, included in general and administrative expense, up to the amount of revenues recognized to date. Any incremental allowance is recorded as an offset to unearned revenue on the condensed consolidated balance sheets. Receivables are written off and charged against the recorded allowance when the Company has exhausted collection efforts without success.
No single customer accounted for more than five percent of accounts receivable at July 31, 2022 and January 31, 2022. No single customer accounted for five percent or more of total revenue during the six months ended July 31, 2022 and 2021. As of July 31, 2022 and January 31, 2022, assets located outside the Americas were 12 percent and 13 percent of total assets, respectively. As of July 31, 2022 and January 31, 2022, assets located in the United States was 86 percent of total assets.
The Company is also exposed to concentrations of risk in its strategic investment portfolio, including within specific industries, as the Company primarily invests in enterprise cloud companies, technology startups and system integrators. As of July 31, 2022, the Company held two investments, both privately held, with carrying values that were individually greater than five percent of its total strategic investments portfolio and represented 19 percent of the portfolio in aggregate. As of January 31, 2022, the Company held two investments, both privately held, with carrying values that were individually greater than five percent of its strategic investment portfolio and represented 21 percent of the portfolio in aggregate.
Revenue Recognition
The Company derives its revenues from two sources: subscription and support revenues, and professional services and other revenues. Subscription and support revenues include subscription fees from customers accessing the Company’s enterprise cloud computing services (collectively, “Cloud Services”), software license revenues from the sales of term and perpetual licenses, and support revenue from the sales of support and updates beyond the basic subscription fees or related to the sales of software licenses. Professional services and other revenues include professional and advisory services for process mapping, project management and implementation services, and training services.
Revenue is recognized upon transfer of control of promised products and services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. If the consideration promised in a contract includes a variable amount, for example, overage fees, contingent fees or service level penalties, the Company includes an estimate of the amount it expects to receive for the total transaction price if it is probable that a significant reversal of cumulative revenue recognized will not occur.
The Company determines the amount of revenue to be recognized through the application of the following steps:
identification of the contract, or contracts, with a customer;
identification of the performance obligations in the contract;
determination of the transaction price;
allocation of the transaction price to the performance obligations in the contract; and
recognition of revenue when or as the Company satisfies the performance obligations.
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Subscription and Support Revenues
Subscription and support revenues are comprised of fees that provide customers with access to Cloud Services, software licenses and related support and updates during the term of the arrangement.
Cloud Services allow customers to use the Company's multi-tenant software without taking possession of the software. Revenue is generally recognized ratably over the contract term. Substantially all of the Company’s subscription service arrangements are non-cancelable and do not contain refund-type provisions.
Subscription and support revenues also include revenues associated with term and perpetual software licenses that provide the customer with a right to use the software as it exists when made available. Revenues from term and perpetual software licenses are generally recognized at the point in time when the software is made available to the customer. Revenue from software support and updates is recognized as the support and updates are provided, which is generally ratably over the contract term.
The Company typically invoices its customers annually and its payment terms provide that customers pay within 30 days of invoice. Amounts that have been invoiced are recorded in accounts receivable and in unearned revenue or revenue, depending on whether transfer of control to customers has occurred.
Professional Services and Other Revenues
The Company’s professional services contracts are either on a time and materials, fixed fee or subscription basis. These revenues are recognized as the services are rendered for time and materials contracts, on a proportional performance basis for fixed price contracts or ratably over the contract term for subscription professional services contracts. Other revenues consist primarily of training revenues recognized as such services are performed.
Significant Judgments - Contracts with Multiple Performance Obligations
The Company enters into contracts with its customers that may include promises to transfer multiple performance obligations such as Cloud Services, software licenses, support and updates, and professional services. A performance obligation is a promise in a contract with a customer to transfer products or services that are concluded to be distinct. Determining whether products and services are distinct performance obligations that should be accounted for separately or combined as one unit of accounting may require significant judgment.
Cloud Services, software licenses, and support and updates services are generally concluded to be distinct because such offerings are often sold separately. In determining whether professional services are distinct, the Company considers the following factors for each professional services agreement: availability of the services from other vendors, the nature of the professional services, the timing of when the professional services contract was signed in comparison to the subscription start date and the contractual dependence of the service on the customer’s satisfaction with the professional services work. To date, the Company has concluded that professional services included in contracts with multiple performance obligations are distinct.
The Company allocates the transaction price to each performance obligation on a relative SSP basis. The SSP is the price at which the Company would sell a promised product or service separately to a customer. Judgment is required to determine the SSP for each distinct performance obligation.
The Company determines SSP by considering its overall pricing objectives and market conditions. Significant pricing practices taken into consideration include the Company’s discounting practices, the size and volume of the Company’s transactions, the customer demographic, the geographic area where services are sold, price lists, the Company's go-to-market strategy, historical and current sales and contract prices. In instances where the Company does not sell or price a product or service separately, the Company determines SSP using information that may include market conditions or other observable inputs. As the Company’s go-to-market strategies evolve, the Company may modify its pricing practices in the future, which could result in changes to SSP.
In certain cases, the Company is able to establish SSP based on observable prices of products or services sold or priced separately in comparable circumstances to similar customers. The Company uses a single amount to estimate SSP when indicated by the distribution of its observable prices.
Alternatively, the Company uses a range of amounts to estimate SSP when the pricing practices or distribution of the observable prices is highly variable. The Company typically has more than one SSP for individual products and services due to the stratification of those products and services by customer size and geography.
Costs Capitalized to Obtain Revenue Contracts
The Company capitalizes incremental costs of obtaining revenue contracts related to non-cancelable Cloud Services subscription, ongoing Cloud Services support and license support and updates. For contracts with on-premises software licenses where revenue is recognized upfront when the software is made available to the customer, costs allocable to those licenses are expensed as they are incurred. Capitalized amounts consist primarily of sales commissions paid to the Company’s direct sales
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force. Capitalized amounts also include (1) amounts paid to employees other than the direct sales force who earn incentive payouts under annual compensation plans that are tied to the value of contracts acquired, (2) commissions paid to employees upon renewals of subscription and support contracts, (3) the associated payroll taxes and fringe benefit costs associated with the payments to the Company’s employees, and (4) to a lesser extent, success fees paid to partners in emerging markets where the Company has a limited presence.
Costs capitalized related to new revenue contracts are amortized on a straight-line basis over four years, which is longer than the typical initial contract period, but reflects the estimated average period of benefit, including expected contract renewals. In arriving at this average period of benefit, the Company evaluated both qualitative and quantitative factors which included the estimated life cycles of its offerings and its customer attrition. Additionally, the Company amortizes capitalized costs for renewals and success fees paid to partners over two years.
The capitalized amounts are recoverable through future revenue streams under all non-cancelable customer contracts. The Company periodically evaluates whether there have been any changes in its business, the market conditions in which it operates or other events which would indicate that its amortization period should be changed or if there are potential indicators of impairment.
Amortization of capitalized costs to obtain revenue contracts is included in marketing and sales expense in the accompanying condensed consolidated statements of operations. There were no impairments of costs to obtain revenue contracts for the three and six months ended July 31, 2022 and 2021.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are stated at fair value.
Marketable Securities
The Company considers all of its marketable debt securities as available for use in current operations, including those with maturity dates beyond one year, and therefore classifies these securities within current assets on the condensed consolidated balance sheets. Securities are classified as available for sale and are carried at fair value, with the change in unrealized gains and losses, net of tax, reported as a separate component on the condensed consolidated statements of comprehensive income until realized. Fair value is determined based on quoted market rates when observable or utilizing data points that are observable, such as quoted prices, interest rates and yield curves. Securities with an amortized cost basis in excess of estimated fair value are assessed to determine what amount of the excess, if any, is caused by expected credit losses. Expected credit losses on securities are recognized in other expense, net on the condensed consolidated statements of operations, and any remaining unrealized losses, net of taxes, are included in accumulated other comprehensive loss in stockholders' equity. For the purposes of computing realized and unrealized gains and losses, the cost of securities sold is based on the specific-identification method. Interest on securities classified as available for sale is included as a component of investment income within other expense.
Strategic Investments
The Company holds strategic investments in privately held debt and equity securities and publicly held equity securities in which the Company does not have a controlling interest.
Privately held equity securities where the Company does not have a controlling financial interest in but does exercise significant influence over the investee are accounted for under the equity method. Privately held equity securities not accounted for under the equity method are recorded at cost and adjusted for observable transactions for same or similar investments of the same issuer or impairment events (referred to as the measurement alternative). All gains and losses on privately held equity securities, realized and unrealized, are recorded through gains (losses) on strategic investments, net on the condensed consolidated statements of operations. Privately held debt securities are recorded at fair value with changes in fair value recorded through accumulated other comprehensive loss on the condensed consolidated balance sheet.
Valuations of privately held securities are inherently complex and require judgment due to the lack of readily available market data. The carrying value is not adjusted for the Company's privately held equity securities if there are no observable price changes in a same or similar security from the same issuer or if there are no identified events or changes in circumstances that may indicate impairment, as discussed below. In determining the estimated fair value of its strategic investments in privately held companies, the Company utilizes the most recent data available to the Company. The Company assesses its privately held debt and equity securities in its strategic investment portfolio at least quarterly for impairment. The Company’s impairment analysis encompasses an assessment of both qualitative and quantitative factors, including the investee's financial metrics, market acceptance of the investee's product or technology and the rate at which the investee is using its cash. If the investment is considered impaired, the Company recognizes an impairment through the condensed consolidated statements of operations and establishes a new carrying value for the investment.
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Publicly held equity securities are measured at fair value with changes recorded through gains on strategic investments, net on the condensed consolidated statements of operations.
The Company may enter into strategic investments or other investments that are considered variable interest entities (“VIEs”). If the Company is a primary beneficiary of a VIE, it is required to consolidate the entity. To determine if the Company is the primary beneficiary of a VIE, the Company evaluates whether it has (1) the power to direct the activities that most significantly impact the VIE’s economic performance, and (2) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. The assessment of whether the Company is the primary beneficiary of its VIE investments requires significant assumptions and judgments. VIEs that are not consolidated are accounted for under the measurement alternative, equity method, amortized cost, or other appropriate methodology based on the nature of the interest held.
Fair Value Measurement
The Company measures its cash and cash equivalents, marketable securities, publicly held equity securities, and foreign currency derivative contracts at fair value. In addition, the Company measures certain of its strategic investments, including its privately held debt securities and privately held equity securities, at fair value on a nonrecurring basis when there has been an observable price change in a same or similar security. The additional disclosures regarding the Company’s fair value measurements are included in Note 4 “Fair Value Measurement.”
Derivative Financial Instruments
The Company enters into foreign currency derivative contracts with financial institutions to reduce foreign exchange risk associated primarily with intercompany receivables and payables. The Company uses forward currency derivative contracts, which are not designated as hedging instruments, to minimize the Company’s exposure to balances primarily denominated in the Euro, British Pound Sterling, Canadian Dollar, Australian Dollar, Brazilian Real, and Japanese Yen. The Company’s derivative financial instruments program is not designated for trading or speculative purposes. The Company generally enters into master netting arrangements with the financial institutions with which it contracts for such derivatives, which permit net settlement of transactions with the same counterparty, thereby reducing risk of credit-related losses from a financial institutions' nonperformance. While the contract or notional amount is often used to express the volume of foreign currency derivative contracts, the amounts potentially subject to credit risk are generally limited to the amounts, if any, by which the counterparties’ obligations under the agreements exceed the obligations of the Company to the counterparties. The notional amount of foreign currency derivative contracts as of July 31, 2022 and January 31, 2022 was $5.1 billion and $6.1 billion, respectively.
Outstanding foreign currency derivative contracts are recorded at fair value on the condensed consolidated balance sheets. Unrealized gains or losses due to changes in the fair value of these derivative contracts, as well as realized gains or losses from their net settlement, are recognized as other expense consistent with the offsetting gains or losses resulting from the remeasurement or settlement of the underlying foreign currency denominated receivables and payables.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful lives of those assets as follows:
Computers, equipment and software
3 to 5 years
Furniture and fixtures5 years
Leasehold improvements
Shorter of the estimated lease term or 10 years
Buildings and building improvements
10 to 40 years
When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from their respective accounts and any loss on such retirement is reflected in operating expenses.
Leases
The Company determines if an arrangement is a lease at inception and classifies its leases at commencement. Operating leases are included in operating lease right-of-use (“ROU”) assets and current and noncurrent operating lease liabilities on the Company’s condensed consolidated balance sheets. Assets recognized from finance leases (also referred to as ROU assets) are included in property and equipment, accrued expenses and other liabilities and other noncurrent liabilities, respectively, on the Company’s condensed consolidated balance sheets. ROU assets represent the Company's right to use an underlying asset for the lease term. The corresponding lease liabilities represent its obligation to make lease payments arising from the lease. The Company does not recognize ROU assets or lease liabilities for leases with a term of 12 months or less for any asset classes.
Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement, net of any future tenant incentives. The Company has lease agreements which contain both lease and non-lease components, which it has elected to combine for all asset classes. As such, minimum lease payments include fixed payments for
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non-lease components within a lease agreement, but exclude variable lease payments not dependent on an index or rate, such as common area maintenance, operating expenses, utilities, or other costs that are subject to fluctuation from period to period. The Company’s lease terms may include options to extend or terminate the lease. Periods beyond the noncancellable term of the lease are included in the measurement of the lease liability when it is reasonably certain that the Company will exercise the associated extension option or waive the termination option. The Company reassesses the lease term if and when a significant event or change in circumstances occurs within the control of the Company. As most of the Company’s leases do not provide an implicit rate, the net present value of future minimum lease payments is determined using the Company’s incremental borrowing rate. The Company's incremental borrowing rate is an estimate of the interest rate the Company would have to pay to borrow on a collateralized basis with similar terms and payments, in the economic environment where the leased asset is located.
The lease ROU asset is recognized based on the lease liability, adjusted for any rent payments or initial direct costs incurred or tenant incentives received prior to commencement.
Lease expenses for minimum lease payments for operating leases are recognized on a straight-line basis over the lease term. Amortization expense of finance lease ROU assets is recognized on a straight-line basis over the lease term, and interest expense for finance lease liabilities is recognized based on the incremental borrowing rate. Expense for variable lease payments are recognized as incurred.
On the lease commencement date, the Company also establishes assets and liabilities for the present value of estimated future costs to retire long-lived assets at the termination or expiration of a lease. Such assets are included in property and equipment, net and are amortized over the lease term to operating expense.
The Company has entered into subleases or has made decisions and taken actions to exit and sublease certain unoccupied leased office space. Similar to other long-lived assets discussed below, management tests ROU assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. For leased assets, such circumstances would include the decision to leave a leased facility prior to the end of the minimum lease term or subleases for which estimated cash flows do not fully cover the costs of the associated lease.
Intangible Assets Acquired through Business Combinations
Intangible assets are amortized over their estimated useful lives. Each period, the Company evaluates the estimated remaining useful life of its intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. Management tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.
Impairment Assessment
The Company evaluates intangible assets and other long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. This includes but is not limited to significant adverse changes in business climate, market conditions or other events that indicate an asset's carrying amount may not be recoverable. Recoverability of these assets is measured by comparing the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate. If the undiscounted cash flows used in the test for recoverability are less than the carrying amount of these assets, the carrying amount of such assets is reduced to fair value.
The Company evaluates and tests the recoverability of its goodwill for impairment at least annually during its fourth quarter of each fiscal year or more often if and when circumstances indicate that goodwill may not be recoverable.
Business Combinations
The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The Company’s estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, uncertain tax positions, tax-related valuation allowances and pre-acquisition contingencies are initially recorded in connection with a business combination as of the acquisition date. The Company continues to collect information and reevaluates these estimates and assumptions quarterly and records any adjustments to the Company’s preliminary estimates to goodwill provided that the Company is within the measurement period. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s condensed consolidated statements of operations.
In the event the Company acquires an entity with which the Company has a preexisting relationship, the Company will generally recognize a gain or loss to settle that relationship as of the acquisition date within operating income on the condensed consolidated statements of operations. In the event that the Company acquires an entity in which the Company previously held a strategic investment, the difference between the fair value of the shares as of the date of the acquisition and the carrying value
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of the strategic investment is recorded as a gain or loss and recorded within net gains (losses) on strategic investments in the condensed consolidated statements of operations.
Stock-Based Compensation Expense
Stock-based compensation expense is measured based on grant date at fair value using the Black-Scholes option pricing model for stock options and the grant date closing stock price for restricted stock awards. The Company recognizes stock-based compensation expense related to stock options and restricted stock awards on a straight-line basis, net of estimated forfeitures, over the requisite service period of the awards, which is generally the vesting term of four years. The estimated forfeiture rate applied is based on historical forfeiture rates.
Stock-based compensation expense related to the Company’s Amended and Restated 2004 Employee Stock Purchase Plan (“ESPP” or “2004 Employee Stock Purchase Plan”) is measured based on grant date at fair value using the Black-Scholes option pricing model. The Company recognizes stock-based compensation expense related to shares issued pursuant to the 2004 Employee Stock Purchase Plan on a straight-line basis over the offering period, which is 12 months. The ESPP allows employees to purchase shares of the Company's common stock at a 15 percent discount from the lower of the Company’s stock price on (i) the first day of the offering period or on (ii) the last day of the purchase period and also allows employees to reduce their percentage election once during a six-month purchase period (December 15 and June 15 of each fiscal year), but not increase that election until the next one-year offering period. The ESPP also includes a reset provision for the purchase price if the stock price on the purchase date is less than the stock price on the offering date.
Stock-based compensation expense related to performance share grants, which are awarded to executive officers and other members of senior management and vest, if at all, based on the Company’s performance over a three-year period relative to the Nasdaq 100. Performance share grants are measured based on grant date at fair value using a Monte Carlo simulation model and expensed on a straight-line basis, net of estimated forfeitures, over the service period of the awards, which is generally the vesting term of three years.
The Company, at times, grants unvested restricted shares to employee stockholders of certain acquired companies in lieu of cash consideration. These awards are generally subject to continued post-acquisition employment. Therefore, the Company accounts for them as post-acquisition stock-based compensation expense. The Company recognizes stock-based compensation expense equal to the grant date fair value of the restricted stock awards, based on the closing stock price on grant date, on a straight-line basis over the requisite service period of the awards, which is generally four years. 
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax laws is recognized in the condensed consolidated statements of operations in the period that includes the enactment date.
The Company’s tax positions are subject to income tax audits by multiple tax jurisdictions throughout the world. The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the taxing authority, solely based on its technical merits. The tax benefit recognized is measured as the largest amount of benefit which is greater than 50 percent likely to be realized upon settlement with the taxing authority. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in the income tax provision.
Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not expected to be realized based on the weighting of positive and negative evidence. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under the applicable tax law. The Company regularly reviews the deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. The Company’s judgments regarding future profitability may change due to many factors, including future market conditions and the ability to successfully execute its business plans. Should there be a change in the ability to recover deferred tax assets, the tax provision would increase or decrease in the period in which the assessment is changed.
Foreign Currency Translation
The functional currency of the Company’s major foreign subsidiaries is generally the local currency. All assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenues and expenses are translated at the average exchange rate during the period. Equity transactions are translated using historical exchange rates. Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are recorded as a separate component on the condensed consolidated statements of comprehensive income. Foreign
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currency transaction gains and losses are included in other income in the condensed consolidated statements of operations for the period.
Warranties and Indemnification
The Company’s enterprise cloud computing services are typically warranted to perform in a manner consistent with general industry standards that are reasonably applicable and materially in accordance with the Company’s online help documentation under normal use and circumstances.
The Company’s arrangements generally include certain provisions for indemnifying customers against liabilities if its products or services infringe a third party’s intellectual property rights. To date, the Company has not incurred any material costs as a result of such obligations and has not accrued any material liabilities related to such obligations in the accompanying condensed consolidated financial statements.
The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by the Company, arising out of that person’s services as the Company’s director or officer or that person’s services provided to any other company or enterprise at the Company’s request. The Company maintains director and officer insurance coverage that would generally enable the Company to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions.
New Accounting Pronouncement Adopted in Fiscal 2023
In October 2021, the FASB issued Accounting Standards Update No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”), which requires contract assets and contract liabilities (i.e., unearned revenue) acquired in a business combination to be recognized and measured in accordance with ASC 606, Revenue from Contracts with Customers. Previously, the Company recognized contract assets and contract liabilities at the acquisition date based on fair value estimates, which had resulted in a reduction to unearned revenue on the balance sheet, and therefore, a reduction to revenues that would have otherwise been recorded as an independent entity. ASU 2021-08 is effective for interim and annual periods beginning after December 15, 2022 on a prospective basis, with early adoption permitted. The Company adopted ASU 2021-08 in the first quarter of fiscal 2023 and the impact of the adoption was not material.
Reclassifications
Certain reclassifications to fiscal 2022 amounts were made to conform to the current period presentation in the
Disaggregation of Revenue disclosure included in Note 2 “Revenues.” Disaggregation of revenues now includes Data, a new
revenue disaggregation beginning in the third quarter of fiscal 2022. Prior period revenues attributed to Analytics, which includes Tableau, and Integrations, which includes MuleSoft, were reclassified from Platform and Other to Data. This reclassification did not affect total revenues.
Additionally, a reclassification to the fiscal 2022 consolidated balance sheet was made to conform to the current period presentation of current debt. This reclassification did not impact the Company's key metrics including Total Assets, Total Revenues, Income From Operations, Net Income or Operating Cash Flows.
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2. Revenues
Disaggregation of Revenue
Subscription and Support Revenue by the Company's Service Offerings
Subscription and support revenues consisted of the following (in millions):
 Three Months Ended July 31,Six Months Ended July 31,
 2022202120222021
Sales $1,695 $1,477 $3,327 $2,865 
Service 1,828 1,600 3,589 3,106 
Platform and Other 1,478 969 2,897 1,882 
Marketing and Commerce1,121 955 2,210 1,850 
Data1,021 913 1,976 1,747 
$7,143 $5,914 $13,999 $11,450 

Total Revenue by Geographic Locations
Revenues by geographical region consisted of the following (in millions):
 Three Months Ended July 31,Six Months Ended July 31,
 2022202120222021
Americas$5,261 $4,312 $10,232 $8,406 
Europe1,745 1,416 3,483 2,718 
Asia Pacific714 612 1,416 1,179 
$7,720 $6,340 $15,131 $12,303 
Revenues by geography are determined based on the region of the Company's contracting entity, which may be different than the region of the customer. Americas revenue attributed to the United States was approximately 92 percent and 94 percent during the three months ended July 31, 2022 and 2021, respectively. Americas’ revenue attributed to the United States was approximately 93 percent and 94 percent during the six months ended July 31, 2022 and 2021, respectively. No other country represented more than ten percent of total revenue during the three and six months ended July 31, 2022 and 2021.
Contract Balances
Contract Assets
The Company records a contract asset when revenue recognized on a contract exceeds the billings. Contract assets were $699 million as of July 31, 2022 as compared to $587 million as of January 31, 2022, and are included in prepaid expenses and other current assets and deferred tax assets and other assets, net on the condensed consolidated balance sheets.
Unearned Revenue
Unearned revenue represents amounts that have been invoiced in advance of revenue recognition and is recognized as revenue when transfer of control to customers has occurred or services have been provided. The unearned revenue balance does not represent the total contract value of annual or multi-year, non-cancelable subscription agreements. The unearned revenue balance is influenced by several factors, including seasonality, the compounding effects of renewals, invoice duration, invoice timing, dollar size and new business linearity within the quarter.
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The change in unearned revenue was as follows (in millions):
Three Months Ended July 31,Six Months Ended July 31,
2022202120222021
Unearned revenue, beginning of period$13,636 $11,158 $15,628 $12,607 
Billings and other (1)6,884 5,771 12,212 10,209 
Contribution from contract asset23 96 112 170 
Revenue recognized over time(7,336)(5,948)(14,392)(11,559)
Revenue recognized at a point in time(384)(392)(739)(744)
Unearned revenue from business combinations382 384 
Unearned revenue, end of period$12,825 $11,067 $12,825 $11,067 
(1) Other includes, for example, the impact of foreign currency translation.
The majority of revenue recognized for these services is from the beginning of period unearned revenue balance.
Revenue recognized over time primarily includes Cloud Services revenue which is generally recognized over time, professional services revenue, which is generally recognized ratably or as delivered, training revenue, which is primarily recognized as delivered, and software support and updates revenue which is generally recognized ratably.
Revenue recognized at a point in time substantially consists of on-premises software licenses.
Remaining Performance Obligation
Remaining performance obligation represents contracted revenue that has not yet been recognized and includes unearned revenue and unbilled amounts that will be recognized as revenue in future periods. Transaction price allocated to the remaining performance obligation is based on SSP. Remaining performance obligation is influenced by several factors, including seasonality, the timing of renewals, the timing of software license deliveries, average contract terms and foreign currency exchange rates. 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. Remaining performance obligation is subject to future economic risks, including bankruptcies, regulatory changes and other market factors.
The Company excludes amounts related to performance obligations from professional services contracts that are billed and recognized on a time and materials basis.
The majority of the Company's noncurrent remaining performance obligation is expected to be recognized in the next 13 to 36 months.
Remaining performance obligation consisted of the following (in billions):
 CurrentNoncurrentTotal
As of July 31, 2022 $21.5 $20.1 $41.6 
As of January 31, 2022 $22.0 $21.7 $43.7 

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3. Investments
Marketable Securities
At July 31, 2022, marketable securities consisted of the following (in millions):
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
Corporate notes and obligations$3,957 $$(99)$3,860 
U.S. treasury securities466 (8)458 
Mortgage-backed obligations327 (10)317 
Asset-backed securities1,360 (21)1,339 
Municipal securities341 (6)335 
Commercial paper35 35 
Covered bonds198 (8)190 
Other69 (1)68 
Total marketable securities$6,753 $$(153)$6,602 
At January 31, 2022, marketable securities consisted of the following (in millions):
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
Corporate notes and obligations$3,153 $$(34)$3,121 
U.S. treasury securities205 (3)202 
Mortgage-backed obligations229 (4)225 
Asset-backed securities1,056 (5)1,051 
Municipal securities225 (2)223 
Commercial paper27 27 
Covered bonds212 (2)210 
Other14 14 
Total marketable securities$5,121 $$(50)$5,073 
The contractual maturities of the investments classified as marketable securities were as follows (in millions):
 As of
 July 31, 2022January 31, 2022
Due within 1 year$3,014 $2,161 
Due in 1 year through 5 years3,587 2,899 
Due in 5 years through 10 years13 
$6,602 $5,073 
Strategic Investments
Strategic investments by form and measurement category as of July 31, 2022 were as follows (in millions):
 Measurement Category
 Fair ValueMeasurement AlternativeOtherTotal
Equity securities$225 $4,690 $126 $5,041 
Debt securities and other investments 83 83 
Balance as of July 31, 2022
$225 $4,690 $209 $5,124 

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Strategic investments by form and measurement category as of January 31, 2022 were as follows (in millions):
 Measurement Category
 Fair ValueMeasurement AlternativeOtherTotal
Equity securities$370 $4,204 $122 $4,696 
Debt securities and other investments88 88 
Balance as of January 31, 2022
$370 $4,204 $210 $4,784 

The Company holds investments in, or management agreements with, VIEs which the Company does not consolidate because it is not considered the primary beneficiary of these entities. The carrying value of VIEs within strategic investments was $455 million and $467 million, as of July 31, 2022 and January 31, 2022, respectively.
Gains on Strategic Investments, Net
The components of gains and losses on strategic investments were as follows (in millions):
2Three Months Ended July 31,Six Months Ended July 31,
2022202120222021
Unrealized gains (losses) recognized on publicly traded equity securities, net$(29)$95 $(103)$(111)
Unrealized gains recognized on privately held equity securities, net60 304 117 802 
Impairments on privately held equity and debt securities(42)(20)(53)(34)
Unrealized gains (losses), net(11)379 (39)657 
Realized gains on sales of securities, net56 147 91 157 
Gains on strategic investments, net$45 $526 $52 $814 

Unrealized gains recognized on privately held equity securities, net includes upward and downward adjustments from equity securities accounted for under the measurement alternative, as well as gains and losses from private equity securities in other measurement categories. For privately held securities accounted for under the measurement alternative, the Company recorded upward adjustments of $52 million and $304 million and impairments of $20 million and $15 million for the three months ended July 31, 2022 and 2021, respectively. The Company recorded upward adjustments of $130 million and $802 million and impairments of $30 million and $27 million for the six months ended July 31, 2022 and 2021, respectively.
Realized gains on sales of securities, net reflects the difference between the sale proceeds and the carrying value of the security at the beginning of the period or the purchase date, if later.
The Company calculates cumulative realized gains on sales of securities, net, as the difference between the sale proceeds and the initial purchase price for securities sold during the period. Cumulative realized gains on sales of securities, net, for the three and six months ended July 31, 2022 were $63 million and $109 million, respectively.
4. Fair Value Measurement
The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1.    Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2.    Significant other inputs that are directly or indirectly observable in the marketplace.
Level 3.    Significant unobservable inputs which are supported by little or no market activity.
All of the Company’s cash equivalents, marketable securities and foreign currency derivative contracts are classified within Level 1 or Level 2 because the Company’s cash equivalents, marketable securities and foreign currency derivative contracts are valued using quoted market prices or alternative pricing sources and models utilizing observable market inputs.
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The following table presents information about the Company’s assets and liabilities that were measured at fair value as of July 31, 2022 and indicates the fair value hierarchy of the valuation (in millions):
DescriptionQuoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
Cash equivalents (1):
Time deposits$$1,735 $$1,735 
Money market mutual funds1,311 1,311 
Cash equivalent securities 767 767 
Marketable securities:
Corporate notes and obligations3,860 3,860 
U.S. treasury securities458 458 
Mortgage-backed obligations317 317 
Asset-backed securities1,339 1,339 
Municipal securities335 335 
Commercial paper35 35 
Covered bonds190 190 
Other68 68 
Strategic investments:
Equity securities225 225 
Total assets$1,536 $9,104 $$10,640 
(1) Included in “cash and cash equivalents” in the accompanying condensed consolidated balance sheets in addition to $3.1 billion of cash, as of July 31, 2022.
The following table presents information about the Company’s assets and liabilities that were measured at fair value as of January 31, 2022 and indicates the fair value hierarchy of the valuation (in millions):
DescriptionQuoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable Inputs (Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
Cash equivalents (1):
Time deposits$$1,171 $$1,171 
Money market mutual funds1,426 1,426 
Cash equivalent securities106 106 
Marketable securities:
Corporate notes and obligations3,121 3,121 
U.S. treasury securities202 202 
Mortgage-backed obligations225 225 
Asset-backed securities1,051 1,051 
Municipal securities223 223 
Commercial paper27 27 
Covered bonds210 210 
Other14 14 
Strategic investments:
Equity securities370 370 
Total assets$1,796 $6,350 $$8,146 
(1) Included in “cash and cash equivalents” in the accompanying condensed consolidated balance sheets in addition to $2.8 billion of cash, as of January 31, 2022.
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Strategic Investments Measured and Recorded at Fair Value on a Non-Recurring Basis
The Company's privately held debt and equity securities and other investments are recorded at fair value on a non-recurring basis. The estimation of fair value for these investments requires the use of significant unobservable inputs, and as a result, the Company deems these assets as Level 3 within the fair value measurement framework. For investments without a readily determinable fair value, the Company applies valuation methods based on information available, including the market approach and option pricing models (“OPM”). Observable transactions, such as the issuance of new equity by an investee, are indicators of investee enterprise value and are used to estimate the fair value of the Company’s investments. An OPM may be utilized to allocate value to the various classes of securities of the investee, including classes owned by the Company. Such information, available to the Company from investee companies, is supplemented with estimates such as volatility, expected time to liquidity and the rights and obligations of the securities the Company holds. The Company's privately held debt and equity securities and other investments amounted to $4.9 billion and $4.4 billion as of July 31, 2022 and January 31, 2022, respectively.
5. Leases and Other Commitments and Other Balance Sheet Accounts
Leases
The Company has operating leases for corporate offices, data centers and equipment under non-cancelable operating leases with various expiration dates.
Total operating lease costs were $220 million and $258 million for the three months ended July 31, 2022 and 2021, respectively, and $453 million and $524 million for the six months ended July 31, 2022 and 2021, respectively.
As of July 31, 2022, the maturities of lease liabilities under non-cancelable operating and finance leases were as follows (in millions):
Operating Leases Finance Leases
Fiscal Period:
Remaining six months of fiscal 2023$348 $84 
Fiscal 2024597 171 
Fiscal 2025495 162 
Fiscal 2026427 96 
Fiscal 2027380 14 
Thereafter1,202 
Total minimum lease payments3,449 527 
Less: Imputed interest(243)(13)
Total$3,206 $514 
As of July 31, 2022, the Company has additional operating leases that have not yet commenced totaling $1.0 billion and therefore, are not reflected on the condensed consolidated balance sheets and tables above. These operating leases include agreements for office facilities to be constructed. These operating leases will commence between fiscal year 2023 and fiscal year 2025 with lease terms of 3 to 18 years.
Other Balance Sheet Accounts
Accounts payable, accrued expenses and other liabilities as of July 31, 2022 included approximately $1.8 billion of accrued compensation as compared to $2.4 billion as of January 31, 2022.
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6. Business Combinations
In April 2022, the Company acquired all outstanding stock of Traction Sales and Marketing Inc. ("Traction on Demand”), a professional services firm that provides innovative and critical solutions to clients using the Company’s service offerings and other advanced cloud technologies. The acquisition date fair value of the consideration transferred for Traction on Demand was approximately $340 million, which consisted primarily of $302 million in cash. The Company recorded approximately $62 million for customer relationships with estimated useful lives of five years. The Company recorded approximately $293 million of goodwill which is primarily attributed to the assembled workforce. For the goodwill balance, there is some basis for foreign income tax purposes but no basis for U.S. income tax purposes. The fair values assigned to tangible assets acquired and liabilities assumed are based on management’s estimates and assumptions and may be subject to change as additional information is received and certain tax returns are finalized. The primary areas that remain preliminary relate to the fair values of intangible assets acquired, certain tangible assets and liabilities acquired, legal and other contingencies as of the acquisition date, income and non-income-based taxes and residual goodwill. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition date. The Company has included the financial results of Traction on Demand in its condensed consolidated financial statements from the date of acquisition, which were not material. The transaction costs associated with the acquisition were not material.
7. Intangible Assets Acquired Through Business Combinations and Goodwill
Intangible Assets Acquired Through Business Combinations
Intangible assets acquired through business combinations were as follows (in millions):
Intangible Assets, GrossAccumulated AmortizationIntangible Assets, NetWeighted
Average
Remaining Useful Life (Years)
January 31, 2022Additions and retirements, netJuly 31, 2022January 31, 2022Expense and retirements, netJuly 31, 2022January 31, 2022July 31, 2022July 31, 2022
Acquired developed technology$5,633 $36 $5,669 $(2,263)$(535)$(2,798)$3,370 $2,871 3.3
Customer relationships6,995 62 7,057 (1,662)(444)(2,106)5,333 4,951 6.2
Other (1)345 345 (70)(25)(95)275 250 5.0
Total$12,973 $98 $13,071 $(3,995)$(1,004)$(4,999)$8,978 $8,072 5.1
(1) Included in other are in-place leases, trade names, trademarks and territory rights.
Amortization of intangible assets resulting from business combinations for the three months ended July 31, 2022 and 2021 was $492 million and $319 million, respectively, and for the six months ended July 31, 2022 and 2021 was $1.0 billion and $607 million, respectively.
The expected future amortization expense for intangible assets as of July 31, 2022 was as follows (in millions):
Fiscal Period:
Remaining six months of fiscal 2023$947 
Fiscal 20241,869 
Fiscal 20251,597 
Fiscal 20261,355 
Fiscal 2027990 
Thereafter1,314 
Total amortization expense$8,072 
Customer Contract Assets Acquired Through Business Combinations
Customer contract assets resulting from business combinations reflect the fair value of future billings of amounts that are contractually committed by acquired companies' existing customers as of the acquisition date. Customer contract assets are amortized over the corresponding assumed contract terms. Customer contract assets resulting from business combinations were $52 million and $79 million as of July 31, 2022 and January 31, 2022, respectively, and are included in other assets on the condensed consolidated balance sheets.
Goodwill
Goodwill represents the excess of the purchase price in a business combination over the fair value of net assets acquired.
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The changes in the carrying amounts of goodwill, which is generally not deductible for tax purposes, were as follows (in millions):
Balance as of January 31, 2022$47,937 
Traction on Demand293 
Other acquisitions and adjustments (1)338 
Balance as of July 31, 2022$48,568 
(1) Adjustments include measurement period adjustments for business combinations from the prior year, including approximately $249 million related to our July 2021 acquisition of Slack, and the effect of foreign currency translation.
8. Debt
The carrying values of the Company's borrowings were as follows (in millions):
InstrumentDate of IssuanceMaturity DateContractual Interest Rate
Outstanding Principal as of July 31, 2022
July 31, 2022January 31, 2022
2023 Senior NotesApril 2018April 20233.25 %$1,000 $999 $998 
Loan assumed on 50 FremontFebruary 2015June 20233.75 184 184 186 
2024 Senior NotesJuly 2021July 20240.625 1,000 998 997 
2028 Senior NotesApril 2018April 20283.70 1,500 1,492 1,492 
2028 Senior Sustainability NotesJuly 2021July 20281.50 1,000 991 990 
2031 Senior NotesJuly 2021July 20311.95 1,500 1,488 1,488 
2041 Senior NotesJuly 2021July 20412.70 1,250 1,234 1,234 
2051 Senior NotesJuly 2021July 20512.90 2,000 1,978 1,976 
2061 Senior NotesJuly 2021July 20613.05 1,250 1,235 1,235 
Total carrying value of debt$10,684 10,599 10,596 
Less current portion of debt(1,183)(4)
Total noncurrent debt$9,416 $10,592 
The Company was in compliance with all debt covenants as of July 31, 2022.
The total estimated fair value of the Company's outstanding senior unsecured notes (the “Senior Notes”) above as of July 31, 2022 and January 31, 2022 was $9.4 billion and $10.3 billion, respectively. The fair value was determined based on the closing trading price per $100 of the Senior Notes as of the last day of the second quarter of trading of fiscal 2023 and the last day of trading of fiscal 2022, respectively, and are deemed Level 2 liabilities within the fair value measurement framework.
The contractual future principal payments for all borrowings as of July 31, 2022 were as follows (in millions):
Fiscal Period:
Remaining six months of fiscal 2023$
Fiscal 20241,182 
Fiscal 20251,000 
Fiscal 2026
Fiscal 2027
Thereafter8,500 
Total principal outstanding$10,684 
Revolving Credit Facility
In December 2020, the Company entered into a Credit Agreement with Citibank, N.A., as administrative agent, and certain other institutional lenders (the “Revolving Loan Credit Agreement”) that provides for a $3.0 billion unsecured revolving credit facility (“Credit Facility”) and that matures in December 2025. The Company may use the proceeds of future borrowings under the Credit Facility for general corporate purposes, which may include, without limitation, financing the consideration for, fees, costs and expenses related to any acquisition. In April 2022, the Company amended the Revolving Loan Credit Agreement to reflect certain administrative changes.
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There were no outstanding borrowings under the Credit Facility as of July 31, 2022. The Company continues to pay a commitment fee on the available amount of the Credit Facility, which is included within other expense in the Company's condensed consolidated statements of operations.
9. Stockholders’ Equity
Stock option activity for the six months ended July 31, 2022 was as follows:
 Options Outstanding
 Outstanding
Stock
Options
(in millions)
Weighted-
Average
Exercise Price
Aggregate
Intrinsic Value (in millions)
Balance as of January 31, 202221 $156.34 
Options granted under all plans211.29 
Exercised(2)103.35 
Balance as of July 31, 202226 $173.22 $3,276 
Vested or expected to vest24 $170.33 $3,092 
Exercisable as of July 31, 202211 $138.38 $1,809 
Restricted stock activity for the six months ended July 31, 2022 was as follows:
 Restricted Stock Outstanding
 Outstanding
(in millions)
Weighted-Average Grant Date Fair ValueAggregate
Intrinsic
Value (in millions)
Balance as of January 31, 202227 $202.85 
Granted - restricted stock units and awards17 208.28 
Canceled(3)201.69 
Vested and converted to shares(7)194.04 
Balance as of July 31, 202234 $207.42 $6,178 
Expected to vest29 $5,268 
The aggregate expected stock-based compensation expense remaining to be recognized as of July 31, 2022 was as follows (in millions):
Fiscal Period:
Remaining six months of fiscal 2023$1,735 
Fiscal 20242,538 
Fiscal 20251,871 
Fiscal 20261,125 
Thereafter147 
Total stock-based compensation expense$7,416 
The aggregate expected stock-based compensation expense remaining to be recognized reflects only outstanding stock awards as of July 31, 2022 and assumes no forfeiture activity.
10. Income Taxes
Effective Tax Rate
The Company computes its year-to-date provision for income taxes by applying the estimated annual effective tax rate to year-to-date pretax income or loss and adjusts the provision for discrete tax items recorded in the period. For the six months ended July 31, 2022, the Company reported a tax provision of $56 million on pretax income of $152 million, which resulted in an effective tax rate of 37 percent. The Company’s effective tax rate differs from the U.S. statutory rate of 21 percent primarily due to profitable jurisdictions outside of the United States subject to tax rates greater than 21 percent and withholding taxes, offset by certain adjustments resulting from a transfer pricing agreement with a major tax jurisdiction.
For the six months ended July 31, 2021, the Company reported a tax provision of $426 million on pretax income of $1.4 billion, which resulted in an effective tax rate of 30 percent. The Company’s effective tax rate differs from the U.S.
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statutory rate of 21 percent primarily due to profitable jurisdictions outside of the United States subject to tax rates greater than 21 percent, offset by excess tax benefits from stock-based compensation.
Unrecognized Tax Benefits and Other Considerations
The Company records liabilities related to its uncertain tax positions. Tax positions for the Company and its subsidiaries are subject to income tax audits by multiple tax jurisdictions throughout the world. Certain prior year tax returns are currently being examined by various taxing authorities in countries including the United States and Germany. The Company believes that it has provided adequate reserves for its income tax uncertainties in all open tax years. As the outcome of the tax audits cannot be predicted with certainty, if any issues arising in the Company's tax audits progress in a manner inconsistent with management's expectations, the Company could adjust its provision for income taxes in the future. In addition, the Company anticipates it is reasonably possible that an inconsequential decrease of its unrecognized tax benefits may occur in the next 12 months, as the applicable statutes of limitations lapse, ongoing examinations are completed, or tax positions meet the conditions of being effectively settled.
11. Net Income Per Share
Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding for the fiscal period. Diluted earnings per share is computed by giving effect to all potential weighted average dilutive common stock, including options and restricted stock units. The dilutive effect of outstanding awards is reflected in diluted earnings per share by application of the treasury stock method.
A reconciliation of the denominator used in the calculation of basic and diluted earnings per share is as follows (in millions):
2Three Months Ended July 31,Six Months Ended July 31,
 2022202120222021
Numerator:
Net income$68 $535 $96 $1,004 
Denominator:
Weighted-average shares outstanding for basic earnings per share997 933 994 927 
Effect of dilutive securities:
Employee stock awards17 18 
Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share1,001 950 1,001 945 
The weighted-average number of shares outstanding used in the computation of diluted earnings per share does not include the effect of the following potentially outstanding common stock. The effects of these potentially outstanding shares were not included in the calculation of diluted earnings per share because the effect would have been anti-dilutive (in millions):
 Three Months Ended July 31,Six Months Ended July 31,
 2022202120222021
Employee stock awards44 33 
12. Legal Proceedings and Claims
In the ordinary course of business, the Company is or may be involved in various legal or regulatory proceedings, claims or purported class actions related to alleged infringement of third-party patents and other intellectual property rights, commercial, corporate and securities, labor and employment, wage and hour and other claims. The Company has been, and may in the future be put on notice or sued by third parties for alleged infringement of their proprietary rights, including patent infringement.
In general, the resolution of a legal matter could prevent the Company from offering its service to others, could be material to the Company’s financial condition or cash flows, or both, or could otherwise adversely affect the Company’s reputation and future operating results.
The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. The outcomes of legal proceedings and other contingencies are, however, inherently unpredictable and subject to significant uncertainties. At this time, the Company is not able to reasonably estimate the amount
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or range of possible losses in excess of any amounts accrued, including losses that could arise as a result of application of non-monetary remedies, with respect to the contingencies it faces, and the Company’s estimates may not prove to be accurate.
In management’s opinion, resolution of all current matters, including all those described below, is not expected to have a material adverse impact on the Company’s financial statements. However, depending on the nature and timing of any such dispute, payment or other contingency, the resolution of a matter could materially affect the Company’s current or future results of operations or cash flows, or both, in a particular quarter.
Slack Litigation
Beginning in September 2019, seven purported class action lawsuits were filed against Slack, its directors, certain of its officers and certain investment funds associated with certain of its directors, each alleging violations of securities laws in connection with Slack’s registration statement on Form S-1 (the “Registration Statement”) filed with the Securities and Exchange Commission (the “SEC”). All but one of these actions were filed in the Superior Court of California for the County of San Mateo, though one plaintiff originally filed in the County of San Francisco (the “San Francisco Action”) before refiling in the County of San Mateo. The remaining action was filed in the U.S. District Court for the Northern District of California (the “Federal Action”). In the Federal Action, captioned Dennee v. Slack Technologies, Inc., Case No. 3:19-CV-05857-SI, Slack and the other defendants filed a motion to dismiss the complaint in January 2020. In April 2020, the court granted in part and denied in part the motion to dismiss. In May 2020, Slack and the other defendants filed a motion to certify the court’s order for interlocutory appeal, which the court granted. Slack and the other defendants filed a petition for permission to appeal the district court’s order to the Ninth Circuit Court of Appeals, which was granted in July 2020. Oral argument was heard in May 2021. On September 20, 2021, the Ninth Circuit affirmed the district court’s ruling. Slack filed a petition for rehearing with the Ninth Circuit on November 3, 2021, which was denied on May 2, 2022. Slack’s deadline to seek review by the U.S. Supreme Court is August 31, 2022. The state court actions were consolidated in November 2019, and the consolidated action is captioned In re Slack Technologies, Inc. Shareholder Litigation, Lead Case No. 19CIV05370 (the “State Court Action”). An additional state court action was filed in San Mateo County in June 2020 but was consolidated with the State Court Action in July 2020. Slack and the other defendants filed demurrers to the complaint in the State Court Action in February 2020. In August 2020, the court sustained in part and overruled in part the demurrers, and granted plaintiffs leave to file an amended complaint, which they filed in October 2020. Slack and the other defendants answered the complaint in November 2020. Plaintiffs filed a motion for class certification on October 21, 2021, which remains pending. The plaintiff in the San Francisco Action has sought dismissal of that action after joining the State Court Action. The dismissal is pending. The Federal Action and the State Court Action seek unspecified monetary damages and other relief on behalf of investors who purchased Slack’s Class A common stock issued pursuant and/or traceable to the Registration Statement.
In April 2020, three purported stockholder derivative lawsuits were filed against certain of Slack’s officers and certain of Slack’s current and former directors in the U.S. District Courts for the District of Delaware and the Northern District of California. The case filed in the Northern District of California was dismissed and re-filed in the U.S. District Court for the District of Delaware. The derivative cases were consolidated in June 2020, and the operative complaint was designated in August 2020. The complaint alleges breaches of fiduciary duty in connection with Slack’s Registration Statement, and seeks the award of unspecified damages to Slack, and certain reforms to Slack’s governance policies. Slack moved to dismiss the case in September 2020. At approximately the same time, the plaintiff in a lawsuit filed pursuant to Delaware General Corporation Law Section 220 (a lawsuit which subsequently was voluntarily dismissed in December 2021) sought to intervene and stay the case. On that basis, the plaintiffs in the purported derivative lawsuit elected not to file an opposition to the motion to dismiss. In December 2020, the parties stipulated to stay the case in light of the proposed mergers, which the court granted. The court also denied all pending motions in the case without prejudice, noting that the parties may renew the motions upon a lift of the stay. In July 2022, the parties stipulated to dismiss the derivative lawsuit without prejudice, which the court entered as an order.
13. Subsequent Event
In August 2022, the Board of Directors authorized a program to repurchase up to $10.0 billion of the Company’s common stock (the “Share Repurchase Program”). The Share Repurchase Program does not have a fixed expiration date and does not obligate the Company to acquire any specific number of shares. Under the Share Repurchase Program, shares of common stock may be repurchased using a variety of methods, including privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as part of accelerated share repurchases and other methods. The timing, manner, price and amount of any repurchases are determined by the Company in its discretion and depend on a variety of factors, including legal requirements, price and economic and market conditions.

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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 Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Words such as “expects,” “anticipates,” “aims,” “projects,” “intends,” “plans,” “believes,” “estimates,” “seeks,” “assumes,” “may,” “should,” “could,” “would,” “foresees,” “forecasts,” “predicts,” “targets,” “commitments,” variations of such words and similar expressions are intended to identify such forward-looking statements, which may consist of, among other things, trend analyses and statements regarding future events, future financial performance, anticipated growth, industry prospects and the anticipated impact on our business of the ongoing COVID-19 pandemic and related public health measures. These forward-looking statements are based on current expectations, estimates and forecasts, as well as the beliefs and assumptions of our management, and are subject to risks and uncertainties that are difficult to predict, including: the impact of, and actions we may take in response to, the COVID-19 pandemic, related public health measures and resulting economic downturn and market volatility; our ability to maintain security levels and service performance meeting the expectations of our customers, and the resources and costs required to avoid unanticipated downtime and prevent, detect and remediate performance degradation and security breaches; the expenses associated with our data centers and third-party infrastructure providers; our ability to secure additional data center capacity; our reliance on third-party hardware, software and platform providers; the effect of evolving domestic and foreign government regulations, including those related to the provision of services on the Internet, those related to accessing the Internet, and those addressing data privacy, cross-border data transfers and import and export controls; current and potential litigation involving us or our industry, including litigation involving acquired entities such as Tableau Software, Inc. and Slack Technologies, Inc., and the resolution or settlement thereof; regulatory developments and regulatory investigations involving us or affecting our industry; our ability to successfully introduce new services and product features, including any efforts to expand our services; the success of our strategy of acquiring or making investments in complementary businesses, joint ventures, services, technologies and intellectual property rights; our ability to complete, on a timely basis or at all, announced transactions; our ability to realize the benefits from acquisitions, strategic partnerships, joint ventures and investments, including our July 2021 acquisition of Slack Technologies, Inc., and successfully integrate acquired businesses and technologies; our ability to compete in the markets in which we participate; the success of our business strategy and our plan to build our business, including our strategy to be a leading provider of enterprise cloud computing applications and platforms; our ability to execute our business plans; our ability to continue to grow unearned revenue and remaining performance obligation; the pace of change and innovation in enterprise cloud computing services; the seasonal nature of our sales cycles; our ability to limit customer attrition and costs related to those efforts; the success of our international expansion strategy; the demands on our personnel and infrastructure resulting from significant growth in our customer base and operations, including as a result of acquisitions; our ability to preserve our workplace culture, including as a result of our decisions regarding our current and future office environments or work-from-home policies; our dependency on the development and maintenance of the infrastructure of the Internet; our real estate and office facilities strategy and related costs and uncertainties; fluctuations in, and our ability to predict, our operating results and cash flows; the variability in our results arising from the accounting for term license revenue products; the performance and fair value of our investments in complementary businesses through our strategic investment portfolio; the impact of future gains or losses from our strategic investment portfolio, including gains or losses from overall market conditions that may affect the publicly traded companies within our strategic investment portfolio; our ability to protect our intellectual property rights; our ability to develop our brands; the impact of foreign currency exchange rate and interest rate fluctuations on our results; the valuation of our deferred tax assets and the release of related valuation allowances; the potential availability of additional tax assets in the future; the impact of new accounting pronouncements and tax laws; uncertainties affecting our ability to estimate our tax rate; uncertainties regarding our tax obligations in connection with potential jurisdictional transfers of intellectual property, including the tax rate, the timing of the transfer and the value of such transferred intellectual property; uncertainties regarding the effect of general economic and market conditions; the impact of geopolitical events; uncertainties regarding the impact of expensing stock options and other equity awards; the sufficiency of our capital resources; the ability to execute our Share Repurchase Program; our ability to comply with our debt covenants and lease obligations; the impact of climate change, natural disasters and actual or threatened public health emergencies; and our ability to achieve our aspirations, goals and projections related to our environmental, social and governance initiatives. These and other risks and uncertainties may cause our actual results to differ materially and adversely from those expressed in any forward-looking statements. Readers are directed to risks and uncertainties identified below under “Risk Factors” and elsewhere in this report for additional detail regarding factors that may cause actual results to be different than those expressed in our 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, Inc. (“we”) 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, including cloud, mobile, social, voice, blockchain and artificial intelligence to connect to their customers in a whole new way and help them transform their businesses around the customer in this digital-first world.
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With our Customer 360 platform, we deliver a single source of truth, connecting customer data across systems, apps and devices to help companies with their digital transformation. Customer 360 gives teams sales, service, marketing and commerce capabilities and more, and a single shared view of their customers so they can work together to build lasting, trusted relationships and deliver the personalized experiences their customers expect. And with our acquisition of Slack Technologies, Inc. (“Slack”) in July 2021, we are creating a new digital headquarters, one where companies, employees, governments, and stakeholders can create success from anywhere.
Highlights from the First Six Months of Fiscal 2023
Revenue: For the six months ended July 31, 2022, revenue was $15.1 billion, an increase of 23 percent year-over-year.
Earnings per Share: For the six months ended July 31, 2022, diluted earnings per share was $0.10 as compared to diluted earnings per share of $1.06 from a year ago.
Cash: Cash provided by operations for the six months ended July 31, 2022 was $4.0 billion, an increase of 11 percent year-over-year. Total cash, cash equivalents and marketable securities as of July 31, 2022 was $13.5 billion.
Remaining Performance Obligation: Total remaining performance obligation as of July 31, 2022 was approximately $41.6 billion, an increase of 15 percent year-over-year. Current remaining performance obligation as of July 31, 2022 was approximately $21.5 billion, an increase of 15 percent year-over-year.
While we continue to see growth in our total revenues, macroeconomic factors have impacted our business and our customers’ businesses in ways that are difficult to isolate and quantify. Beginning in July 2022, we saw more measured buying behavior from our customers, resulting in stretched sales cycles, additional approval layers required from our customers and deal compression. Slower growth in new business in any given period could negatively affect our remaining performance obligation, revenues or operating margins in future periods, particularly if experienced on a sustained basis. There was no material impact to our consolidated revenues for the three and six months ended July 31, 2022 or our remaining performance obligation as of July 31, 2022.
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 negatively impacted revenues by approximately four percent in the three months ended July 31, 2022 and negatively impacted our current remaining performance obligation by approximately four percent as of July 31, 2022 compared to what we would have reported as of July 31, 2021 using constant currency rates. Recently the United States Dollar has strengthened significantly against certain foreign currencies in the markets in which we operate, particularly against the Euro, British Pound Sterling, and Japanese Yen. Based on the current fluctuations in foreign currency markets, we expect lower revenue growth in the near-term compared to past results. If these conditions continue throughout the remainder of fiscal 2023, they could have a material adverse impact on our near-term results and our ability to accurately predict our future results and earnings. The impact of these fluctuations could also be compounded by the seasonality of our business in which our fourth quarter has historically been our strongest quarter for new business and renewals.
We continue to invest for future growth and are focused on several key growth levers, including driving multiple service offering adoption, increasing our penetration with enterprise and international customers and our industry-specific reach with more vertical software solutions. These growth drivers often require a more sophisticated go-to-market approach and, as a result, we may incur additional costs upfront to obtain new customers and expand our relationships with existing customers, including additional sales and marketing expenses specific to subscription and support revenue. As a result, we have seen that customers with many of these characteristics have lower attrition rates than our company average. We plan to continue to reinvest a significant portion of our income from operations in future periods to grow and innovate our business and service offerings and expand our leadership role in the cloud computing industry. We drive innovation organically and, to a lesser extent, through acquisitions.
We evaluate acquisitions and investment opportunities in complementary businesses, services, technologies and intellectual property rights in an effort to expand our service offerings and to nurture the overall ecosystem for our offerings. Past acquisitions have enabled us to deliver innovative solutions in new categories, including analytics, integration and collaboration. We expect to make investments and acquisitions in the future to continue our growth and expand our service offerings and our professional services organization in supporting the adoption of our service offerings. As a result of our aggressive growth plans and integration of our previously acquired businesses, we have incurred significant expenses for equity awards and amortization of purchased intangibles, which have reduced our operating income.
Fiscal Year
Our fiscal year ends on January 31. References to fiscal 2023, for example, refer to the fiscal year ending January 31, 2023.
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Operating Segments
We operate as one segment. See Note 1 “Summary of Business and Significant Accounting Policies” to the condensed consolidated financial statements for a discussion about our segments.
Sources of Revenues
We derive our revenues from two sources: subscription and support revenues and professional services and other revenues. Subscription and support revenues accounted for approximately 93 percent of our total revenues for the six months ended July 31, 2022.
Subscription and support revenues include subscription fees from customers accessing our enterprise cloud computing services (collectively, "Cloud Services"), software license revenues from the sales of term and perpetual licenses, and support revenues from the sale of support and updates beyond the basic subscription fees or related to the sales of software licenses. Our Cloud Services allow customers to use our multi-tenant software without taking possession of the software. Revenue is generally recognized ratably over the contract term. Subscription and support revenues also include revenues associated with term and perpetual software licenses that provide the customer with a right to use the software as it exists when made available. Revenues from software licenses are generally recognized at the point in time when the software is made available to the customer. Revenue from support and updates is recognized as such support and updates are provided, which is generally ratably over the contract term. Changes in contract duration for multi-year licenses can impact the amount of revenues recognized upfront. Revenues from software licenses represent less than ten percent of total subscription and support revenue for the six months ended July 31, 2022.
The revenue growth rates of each of our service offerings, as described below in “Results of Operations,” fluctuate from quarter to quarter and over time. Additionally, we manage the total balanced product portfolio to deliver solutions to our 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 July 31, 2022, our attrition rate, excluding MuleSoft, Tableau and Slack, was approximately 7.5 percent. While our attrition rate is difficult to predict, we expect it to remain consistent for the near term due to the diversity of size, industry and geography within the customer base. However, our attrition rate may increase over time.
We continue to invest in a variety of customer programs and initiatives, which, along with increasing enterprise adoption, have helped keep our attrition rate consistent as compared to the prior year. Consistent attrition rates play a role in our ability to maintain growth in our subscription and support revenues.
crm-20220731_g1.jpg
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
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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.
The sequential quarterly changes in accounts receivable and the related unearned revenue and operating cash flow during the first quarter of our fiscal year are not necessarily indicative of the billing activity that occurs for the following quarters as displayed below (in millions).
Remaining performance obligation consisted of the following (in billions):
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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 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 expect the cost of professional services to be approximately in line with revenues from professional services in future fiscal periods. We believe that this investment in professional services facilitates the adoption of our service offerings, helps us to secure larger subscription revenue contracts and supports our customers’ success.
Research and Development
Research and development expenses consist primarily of salaries and related expenses, including stock-based compensation expense and allocated overhead.
Marketing and Sales 
Marketing and sales expenses make up the majority of our operating expenses and consist primarily of salaries and related expenses, including stock-based 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
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as commissions, and amortize these costs on a straight-line basis. As such, the timing of expense recognition for these commissions is not consistent with the timing of the associated cash payment.
Our marketing and sales expenses include amortization of acquisition-related intangible assets, such as the amortization of the cost associated with an acquired company’s trade names, customer lists and customer relationships.
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 and professional services fees.
We allocate overhead such as information technology infrastructure, rent and occupancy charges based on headcount. Employee benefit costs and taxes are allocated based upon a percentage of total compensation expense. As such, these types of expenses are reflected in each cost of revenue and operating expense category.
Critical Accounting Policies and Estimates
Our 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 fair value of assets acquired and liabilities assumed for business combinations;
the standalone selling price ("SSP") of performance obligations for revenue contracts with multiple performance obligations;
the valuation of privately held strategic investments, including impairment considerations;
the recognition, measurement and valuation of current and deferred income taxes and uncertain tax positions; and
the average period of benefit associated with costs capitalized to obtain revenue contracts.
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.
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 adopted.


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Results of Operations
The following tables set forth selected data for each of the periods indicated (in millions):
2Three Months Ended July 31,Six Months Ended July 31,
 2022% of Total Revenues2021% of Total Revenues2022% of Total Revenues2021% of Total Revenues
Revenues:
Subscription and support$7,143 93 %$5,914 93 %$13,999 93 %$11,450 93 %
Professional services and other577 426 1,132 853 
Total revenues7,720 100 6,340 100 15,131 100 12,303 100 
Cost of revenues (1)(2):
Subscription and support 1,490 20 1,146 18 2,930 20 2,268 18 
Professional services and other 637 467 1,242 900 
Total cost of revenues2,127 28 1,613 25 4,172 28 3,168 25 
Gross profit5,593 72 4,727 75 10,959 72 9,135 75 
Operating expenses (1)(2):
Research and development1,329 17 1,020 16 2,647 17 1,971 16 
Marketing and sales3,424 44 2,736 43 6,796 45 5,280 43 
General and administrative647 639 11 1,303 1,198 10 
Total operating expenses5,400 69 4,395 70 10,746 71 8,449 69 
Income from operations193 332 213 686 
Gains on strategic investments, net 45 526 52 814 
Other expense(57)(1)(32)(113)(1)(70)(1)
Income before provision for income taxes181 826 13 152 1,430 12 
Provision for income taxes(113)(1)(291)(5)(56)(426)(4)
Net income$68 %$535 %$96 %$1,004 %
(1) Amounts related to amortization of intangible assets acquired through business combinations, as follows (in millions):
 Three Months Ended July 31,Six Months Ended July 31,
 2022% of Total Revenues2021% of Total Revenues2022% of Total Revenues2021% of Total Revenues
Cost of revenues$260 %$184 %$535 %$352 %
Marketing and sales232 135 469 255 
(2) Amounts related to stock-based compensation expense, as follows (in millions):
 Three Months Ended July 31,Six Months Ended July 31,
 2022% of Total Revenues2021% of Total Revenues2022% of Total Revenues2021% of Total Revenues
Cost of revenues$130 %$95 %$242 %$177 %
Research and development297 197 576 370 
Marketing and sales326 263 617 501 
General and administrative98 85 192 156 

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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
July 31, 2022
January 31, 2022
Cash, cash equivalents and marketable securities$13,533 $10,537 
Unearned revenue12,825 15,628 
Remaining performance obligation41.6 43.7 
Principal due on our outstanding debt obligations (1)10,684 10,686 
(1) Amounts do not include operating or financing lease obligations.
Remaining performance obligation represents contracted revenue that has not yet been recognized, which includes unearned revenue and unbilled amounts that will be recognized as revenue in future periods.
Impact of Acquisitions
The comparability of our operating results for the three and six months ended July 31, 2022 compared to the same period in fiscal 2022 was impacted by our recent acquisitions, including the acquisition of Slack in July 2021, our largest acquisition to date. In our discussion of changes in our results of operations for the three and six months ended July 31, 2022 compared to the same period in fiscal 2022, we may quantitatively disclose the impact of our acquired products and services for the one-year period subsequent to the acquisition date for the growth in certain of our revenues where such discussions would be meaningful. Expense contributions from our recent acquisitions for each of the respective period comparisons generally were not separately identifiable due to the integration of these businesses into our existing operations or were insignificant to our results of operations during the periods presented.
Revenues
 Three Months Ended July 31,Variance
(in millions)20222021DollarsPercent
Subscription and support$7,143 $5,914 $1,229 21 %
Professional services and other577 426 151 35 
Total revenues$7,720 $6,340 $1,380 22 %
 Six Months Ended July 31,Variance
(in millions)20222021DollarsPercent
Subscription and support$13,999 $11,450 $2,549 22 %
Professional services and other1,132 853 279 33 
Total revenues$15,131 $12,303 $2,828 23 %
The increase in subscription and support revenues for the three and six months ended July 31, 2022 was primarily caused by volume-driven increases from new business, which includes new customers, upgrades, additional subscriptions from existing customers and acquisition activity. Pricing was not a significant driver of the increase in revenues for either period. Revenues from term and perpetual software licenses, which are recognized at a point in time, represent approximately five percent of total subscription and support revenues for the three and six months ended July 31, 2022. Subscription and support revenues accounted for approximately 93 percent of our total revenues for the three and six months ended July 31, 2022 and 2021, respectively.
The acquisition of Slack in July 2021 contributed approximately $376 million and $720 million to subscription and support revenues during the three and six months ended July 31, 2022, respectively. For business combinations prior to fiscal 2023, we recorded unearned revenue related to acquired contracts from acquired entities at fair value on the date of acquisition. As a result, we did not recognize certain revenues related to these acquired contracts that the acquired entities would have otherwise recorded as an independent entity. In fiscal 2023, we adopted Accounting Standards Update No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”) which requires contract liabilities (i.e., unearned revenue) acquired in a business combination to be recognized and measured in accordance with ASC 606, Revenue from Contracts with Customers, thereby eliminating the previously unrecognized would-be revenue. The adoption of ASU 2021-08 did not materially impact our results of operations in fiscal 2023.
The increase in professional services and other revenues was due primarily to the higher demand for services from an increased number of customers.
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Subscription and Support Revenues by Service Offering
Subscription and support revenues consisted of the following (in millions):
Three Months Ended July 31,
2022As a % of Total Subscription and Support Revenues2021As a % of Total Subscription and Support RevenuesGrowth Rate
Sales$1,695 24 %$1,477 25 %15 %
Service1,828 25 1,600 27 14 
Platform and Other1,478 21 969 17 53 
Marketing and Commerce1,121 16 955 16 17 
Data1,021 14 913 15 12 
Total$7,143 100 %$5,914 100 %
 Six Months Ended July 31,
 2022As a % of Total Subscription and Support Revenues2021As a % of Total Subscription and Support RevenuesGrowth Rate
Sales $3,327 24 %$2,865 25 %16 %
Service3,589 26 3,106 27 16 
Platform and Other2,897 20 1,882 17 54 
Marketing and Commerce 2,210 16 1,850 16 19 
Data1,976 14 1,747 15 13 
Total$13,999 100 %$11,450 100 %
Our Industry Offerings revenue is included in one of the above service offerings depending on the primary service purchased. Slack revenues are included in Platform and Other. Data is comprised of revenue from Analytics and Integration service offerings, which were reclassified from Platform and Other beginning in the third quarter of fiscal 2022. Reclassifications to prior period Platform and Other revenues were made to conform to the current period presentation.
Data subscription and support revenues include revenues from term and perpetual software licenses, which are recognized at the point in time when the software is made available to the customer. Therefore, we expect Data to experience greater volatility in revenues period to period compared to our other service offerings. For example, in fiscal 2022, we made changes to our go-to-market organizations within our Data offering that created greater short-term disruption than anticipated, and, as a result, lower revenue growth in our Data offering in both the second half of fiscal 2022 and the first quarter of fiscal 2023. We did not see a material impact to Data revenues in the second quarter of fiscal 2023 due to this change and do not expect these changes to have a material adverse effect on our business or our ability to meet our consolidated long-term revenue targets.
Revenues by Geography
 Three Months Ended July 31,
(in millions)2022As a % of Total Revenues2021As a % of Total RevenuesGrowth rate
Americas$5,261 68 %$4,312 68 %22 %
Europe1,745 23 1,416 22 23 
Asia Pacific714 612 10 17 
$7,720 100 %$6,340 100 %22 %
 Six Months Ended July 31,
(in millions)2022As a % of Total Revenues2021As a % of Total RevenuesGrowth rate
Americas$10,232 68 %$8,406 68 %22 %
Europe3,483 23 2,718 22 28 
Asia Pacific1,416 1,179 10 20 
$15,131 100 %$12,303 100 %23 %
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Revenues by geography are determined based on the region of the Salesforce contracting entity, which may be different than the region of the customer. The increase in Americas revenues was the result of the increasing acceptance of our services and the investment of additional sales resources. The increase in revenues outside of the Americas was the result of the increasing acceptance of our services, our focus on marketing our services internationally and investment in additional international resources. During the three months ended July 31, 2022, revenues outside of the Americas were negatively impacted by foreign currency fluctuations by approximately 12 percent compared to the three months ended July 31, 2021.
Cost of Revenues
 Three Months Ended July 31,Variance
(in millions)2022As a % of Total Revenues2021As a % of Total RevenuesDollars
Subscription and support$1,490 20 %$1,146 18 %$344 
Professional services and other637 467 170 
Total cost of revenues$2,127 28 %$1,613 25 %$514 
 Six Months Ended July 31,Variance
(in millions)2022As a % of Total Revenues2021As a % of Total RevenuesDollars
Subscription and support$2,930 20 %$2,268 18 %$662 
Professional services and other1,242 900 342 
Total cost of revenues$4,172 28 %$3,168 25 %$1,004 
For the three months ended July 31, 2022, the increase in cost of revenues was primarily due to an increase of $171 million in employee-related costs, an increase of $35 million in stock-based compensation expense, an increase of $117 million in service delivery costs, primarily due to our efforts to increase data center capacity, and an increase of amortization of purchased intangible assets of $76 million. For the six months ended July 31, 2022, the increase in cost of revenues was primarily due to an increase of $336 million in employee-related costs, an increase of $65 million in stock-based compensation expense, an increase of $201 million in service delivery costs, primarily due to our efforts to increase data center capacity, and an increase of amortization of purchased intangible assets of $183 million.
We have increased our headcount by 36 percent since July 31, 2021 to meet the higher demand for services from our customers, and our fiscal 2023 acquisition of Traction on Demand also contributed to this increase. We intend to continue to invest additional resources in our enterprise cloud computing services and data center capacity to allow us to scale with our customers and continuously evolve our security measures. We also plan to add employees in our professional services group to facilitate the adoption of our services. The timing of these expenses is likely to affect our cost of revenues, both in terms of absolute dollars and as a percentage of revenues, in future periods.
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Operating Expenses
 Three Months Ended July 31,Variance
(in millions)2022As a % of Total Revenues2021As a % of Total RevenuesDollars
Research and development$1,329 17 %$1,020 16 %$309 
Marketing and sales3,424 44 2,736 43 688 
General and administrative647 639 11 
Total operating expenses$5,400 69 %$4,395 70 %$1,005 
 Six Months Ended July 31,Variance
(in millions)2022As a % of Total Revenues2021As a % of Total RevenuesDollars
Research and development$2,647 17 %$1,971 16 %$676 
Marketing and sales6,796 45 5,280 43 1,516 
General and administrative1,303 1,198 10 105 
Total operating expenses$10,746 71 %$8,449 69 %$2,297 
For the three months ended July 31, 2022, the increase in research and development expenses was primarily due to an increase of approximately $184 million in employee related costs, an increase in stock-based compensation expense of $100 million and increases in our development and test data center costs. For the six months ended July 31, 2022, the increase in research and development expenses was primarily due to an increase of approximately $389 million in employee-related costs, an increase in stock-based compensation expense of $206 million and increases in our development and test data center costs. Our research and development headcount increased by 14 percent since July 31, 2021 in order to improve and extend our service offerings, develop new technologies and integrate acquired companies. The increase in research and development expenses was also impacted by the timing of the July 2021 acquisition of Slack. We expect that research and development expenses will increase in absolute dollars and may increase as a percentage of revenues in future periods as we continue to invest in additional employees and technology to support the development of new, and improve existing, technologies and to support the integration of acquired technologies.
For the three months ended July 31, 2022, the increase in marketing and sales expenses was primarily due to an increase of $388 million in employee-related costs, which includes the amortization of deferred commissions, an increase in stock-based compensation expense of $63 million and an increase in amortization of purchased intangibles of $97 million. For the six months ended July 31, 2022, the increase in marketing and sales expenses was primarily due to an increase of $869 million in employee-related costs, which includes the amortization of deferred commissions, an increase of $116 million in stock-based compensation and an increase in amortization of purchased intangibles of $214 million. Our marketing and sales headcount increased by 17 percent since July 31, 2021, primarily due to hiring additional sales personnel to focus on adding new customers and increasing penetration within our existing customer base. The increase in marketing and sales expenses was also impacted by the timing of the July 2021 acquisition of Slack. We expect that marketing and sales expenses will increase in absolute dollars and will increase as a percentage of revenues in future periods as we continue to hire additional sales personnel and invest in go-to-market efforts.
For the three and six months ended July 31, 2022, the increase in general and administrative expenses was primarily due to an increase in employee-related costs and by the timing of the July 2021 acquisition of Slack. Our general and administrative headcount increased by 13 percent since July 31, 2021 as we added personnel to support our growth. The three and six months ended July 31, 2021 include transaction costs associated with our acquisition of Slack of approximately $54 million. We expect that general and administrative expenses will increase in absolute dollars but will generally remain consistent as a percentage of revenue.
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Other Income and Expense
 Three Months Ended July 31,Variance
(in millions)20222021Dollars
Gains on strategic investments, net$45 $526 $(481)
Other expense(57)(32)(25)
 Six Months Ended July 31,Variance
(in millions)20222021Dollars
Gains on strategic investments, net$52 $814 $(762)
Other expense(113)(70)(43)
Gains on strategic investments, net consists primarily of mark-to-market adjustments related to our publicly held equity securities, observable price adjustments related to our privately held equity securities and other adjustments. For the three months ended July 31, 2022, our strategic investment portfolio gains were primarily driven by unrealized gains on privately held equity investments and realized gains on sales of securities of $60 million and $56 million, respectively. For the six months ended July 31, 2022 our strategic investment portfolio gains were primarily driven by unrealized gains on privately held equity investments and realized gains on sales of securities of $117 million and $91 million, respectively, which was partially offset by high public market volatility resulting in an unrealized loss on our publicly held investments of $103 million.
Other expense primarily consists of interest expense on our debt as well as our finance leases offset by investment income. Interest expense was $76 million and $41 million for the three months ended July 31, 2022 and 2021, respectively and $150 million and $75 million for the six months ended July 31, 2022 and 2021, respectively. The increase in interest expense was primarily driven by our issuance of $8.0 billion of Senior Notes in July 2021.
Provision For Income Taxes
 Three Months Ended July 31,Variance
(in millions)20222021Dollars
Provision for income taxes$(113)$(291)$178 
Effective tax rate62 %35 %
 Six Months Ended July 31,Variance
(in millions)20222021Dollars
Provision for income taxes$(56)$(426)$370 
Effective tax rate37 %30 %
We recorded a tax provision of $113 million on pretax income of $181 million for the three months ended July 31, 2022, and a tax provision of $56 million on pretax income of $152 million for the six months ended July 31, 2022. The majority of our year-to-date tax provision was related to taxes from profitable jurisdictions outside of the United States which includes withholding taxes. 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, COVID-19 and other macroeconomic factors.
We recorded a tax provision of $291 million on a pretax income of $826 million for the three months ended July 31, 2021, and a tax provision of $426 million on pretax income of $1.4 billion for the six months ended July 31, 2021. Our tax provision was related to income taxes in profitable jurisdictions outside the United States after consideration of United States tax credits and excess tax benefits from stock-based compensation.
Additionally, the provision from the Tax Cuts and Jobs Act of 2017 that requires capitalization and amortization of research and development costs is effective starting fiscal 2023. If not deferred, modified or repealed, this provision may materially increase future cash taxes.
The Inflation Reduction Act and CHIPS and Science Act were signed into law in August 2022. The Inflation Reduction Act introduced new provisions, including a 15 percent corporate alternative minimum tax for certain large corporations that have at least an average of $1 billion adjusted financial statement income over a consecutive three-tax-year period. The corporate minimum tax will be effective for fiscal 2024. We are currently evaluating the applicability and the effect of the new law to our financial results.
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Liquidity and Capital Resources
At July 31, 2022, our principal sources of liquidity were cash, cash equivalents and marketable securities totaling $13.5 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 credit agreement (the “Revolving Loan Credit Agreement”), which as of July 31, 2022 provides the ability to borrow up to $3.0 billion in unsecured financing (the “Credit Facility”), also serves as a source of liquidity.
Cash from operations could continue to be affected by various risks and uncertainties, including, but not limited to, the risks detailed in Part II, Item 1A titled “Risk Factors.” We believe our existing cash, cash equivalents, marketable securities, cash provided by operating activities, unbilled amounts related to contracted non-cancelable subscription agreements, which is not reflected on the balance sheet, and, if necessary, our borrowing capacity under our Credit Facility will be sufficient to meet our working capital, capital expenditure and debt maintenance needs over the next 12 months.
In the future, we may enter into arrangements to acquire or invest in complementary businesses, services and technologies and intellectual property rights. To facilitate these acquisitions or investments, we may seek additional equity or debt financing, which may not be available on terms favorable to us or at all, impacting our ability to complete subsequent acquisitions or investments.
Cash Flows
For the three and six months ended July 31, 2022 and 2021, our cash flows were as follows (in millions):
2Three Months Ended July 31,Six Months Ended July 31,
 2022202120222021
Net cash provided by operating activities$334 $386 $4,010 $3,614 
Net cash used in investing activities(377)(11,054)(2,834)(12,101)
Net cash provided by financing activities136 8,440 337 8,605 
Operating Activities
The net cash provided by operating activities during the six months ended July 31, 2022 was related to net income of $96 million, adjusted for non-cash items including $1.8 billion of depreciation and amortization and $1.6 billion 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 six months ended July 31, 2022 was further benefited by the change in accounts receivable, net of $5.0 billion due to cash collections and partially offset by the change in unearned revenue of $2.8 billion and the change in accounts payable, accrued expenses and other liabilities of $896 million. As our business continues to grow and our expenses remain in line with revenue growth, we expect to continue to see growth in net cash provided by operating activities.
The net cash provided by operating activities during the six months ended July 31, 2021 was primarily related to net income of $1.0 billion, adjusted for non-cash items such as $1.4 billion related to depreciation and amortization, $1.2 billion of expenses related to stock-based compensation expense and $814 million related to gains on strategic investments, net. Cash provided by operating activities during the six months ended July 31, 2021 further benefited by the change in accounts receivable of $3.8 billion, partially offset by the change in unearned revenue, net of $1.9 billion.
Investing Activities
The net cash used in investing activities during the six months ended July 31, 2022 was primarily related to net outflows of $1.7 billion from marketable securities activity, cash consideration for acquisitions of approximately $439 million and net outflows of $348 million from strategic investment activity.
The net cash used in investing activities during the six months ended July 31, 2021 was primarily related to the cash consideration for the acquisitions of Slack and Acumen, net of cash acquired, of approximately $14.8 billion partially offset by net cash inflows of $2.4 billion from marketable securities and $683 million from strategic investments.
Financing Activities
Net cash provided by financing activities during the six months ended July 31, 2022 consisted primarily of $455 million from proceeds from equity plans.
Net cash provided by financing activities during the six months ended July 31, 2021 consisted primarily of net proceeds of $7.9 billion from our July 2021 issuance of Senior Notes, $600 million from equity plans, and $168 million from capped call contracts assumed in the Slack acquisition.
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Debt
As of July 31, 2022, we had senior unsecured debt outstanding, with maturities starting in April 2023 through July 2061. The total carrying value of this debt was $10.4 billion, of which $1.0 billion is related to the 2023 Senior Notes due in the next 12 months. In addition, we had senior secured notes outstanding related to our loan on our purchase of an office building located at 50 Fremont Street in San Francisco (“50 Fremont”), due in June 2023, with a total carrying value of $184 million. We were in compliance with all debt covenants as of July 31, 2022.
In December 2020, we entered into the Revolving Loan Credit Agreement, which provides for a $3.0 billion unsecured revolving Credit Facility that matures in December 2025. There were no outstanding borrowings under the Credit Facility as of July 31, 2022. We may use the proceeds of future borrowings under the Credit Facility for general corporate purposes, which may include, without limitation, financing the consideration for, fees, costs and expenses related to any acquisition. In April 2022, 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 of Directors authorized a program to repurchase up to $10.0 billion of our common stock. The Share Repurchase Program does not have a fixed expiration date and does not obligate us to acquire any specific number of shares. Under the Share Repurchase Program, shares of common stock may be repurchased using a variety of methods, including privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act, as part of accelerated share repurchases and other methods. The timing, manner, price and amount of any repurchases are determined by us in our discretion and depend on a variety of factors, including legal requirements, price and economic and market conditions.
Contractual Obligations
Our principal commitments consist of obligations under leases for office space, co-location data center facilities and our development and test data center, as well as leases for computer equipment, software, furniture and fixtures. As of July 31, 2022, the future non-cancelable minimum payments under these commitments were approximately $4.0 billion, with payments of $0.9 billion due in the next 12 months and $3.1 billion due thereafter. As of July 31, 2022, we have additional operating leases that have not yet commenced totaling $1.0 billion. We generally expect to satisfy these commitments with cash on hand and cash provided by operating activities.
During fiscal 2023 and in future fiscal years, we have made, and expect to continue to make, additional investments in our infrastructure to scale our operations, increase productivity and enhance our security measures. We plan to upgrade or replace various internal systems to scale with our overall growth. In connection with this investment, we expect to make a $155 million payment in the third quarter of fiscal 2023 related to one software license and maintenance agreement.
While we continue to make investments in our infrastructure including offices, information technology and data centers, as well as investments with infrastructure service providers, to provide capacity for the growth of our business, our strategy may continue to change related to these investments and we may slow the pace of our investments.
Other Future Obligations
Our overall acquisition strategy may evolve to require integration and business operation changes that may result in incremental income tax costs. The timing and amount of a tax cash payment, if any, is uncertain and would be based upon a number of factors, including our integration plans, valuations related to intercompany transactions, the tax rate in effect at the time, potential negotiations with the taxing authorities and potential litigation.
The Inflation Reduction Act and CHIPS and Science Act were signed into law in August 2022. The Inflation Reduction Act introduced new provisions, including a 15 percent corporate alternative minimum tax for certain large corporations that have at least an average of $1 billion adjusted financial statement income over a consecutive three-tax-year period, and a 1 percent excise tax imposed on certain stock repurchases by publicly traded companies. The corporate minimum tax will be effective in fiscal 2024, and the excise tax applies to stock repurchases made after December 31, 2022. We are currently evaluating the applicability and the effect of the new law to our future cash flows.
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Environmental, Social, Governance
We believe the business of business is to make the world a better place for all of our stakeholders, including our stockholders, customers, employees, partners, the planet and the communities in which we work and live. We believe that values drive value, and that effectively managing our priority Environmental, Social, and Governance (“ESG”) topics will help create long-term value for our investors. We also believe that transparently disclosing the goals and relevant metrics related to our ESG programs will allow our stakeholders to be informed about our progress.
The topics covered in this section are informed by an internal ESG prioritization assessment refreshed in fiscal 2022, which assesses topics based on their potential impact to both our own enterprise value creation and the environment and society more broadly. The assessment gathered input from a number of our key internal and external stakeholders, such as investors, customers, suppliers, our employees and executives, non-governmental organizations and sector organizations. Our ESG disclosures are also informed by relevant topics identified through third-party ESG reporting organizations, frameworks and standards, such as the Sustainability Accounting Standards Board (“SASB”) Standards, and the Task Force on Climate-Related Financial Disclosures (“TCFD”). More information on our key ESG programs, goals and commitments, and key metrics can be found in our annual Stakeholder Impact Report, https://salesforce.com/stakeholder-impact-report.
Website references throughout this document are provided for convenience only, and the content on the referenced websites is not incorporated by reference into this report.
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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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, including changes in foreign currency exchange rates, interest rates and equity investment risks. This exposure has increased due to recent financial market movements and changes to our expectations of near-term possible movements caused by the impact of COVID-19 as discussed in more detail below.
Foreign Currency Exchange Risk
We primarily conduct our business in the following locations: the United States, Europe, Canada, Latin America, Asia Pacific and Japan. The expanding global scope of our business exposes us to the risk of fluctuations in foreign currency markets, including emerging markets. This exposure is the result of selling in multiple currencies, growth in our international investments, including data center expansion, costs associated with third-party infrastructure providers, additional headcount in foreign countries, and operating in countries where the functional currency is the local currency. Specifically, our results of operations and cash flows are subject to fluctuations in the following currencies: the Euro, British Pound Sterling, Japanese Yen, Canadian Dollar, Australian Dollar and Brazilian Real against the United States Dollar (“USD”). These exposures may change over time as business practices evolve and economic conditions change, including market impacts associated with COVID-19. Changes in foreign currency exchange rates could have an adverse impact on our financial results and cash flows.
Foreign Currency Transaction Risk
Our foreign currency exposures typically arise from selling annual and multi-year subscriptions in multiple currencies, customer accounts receivable, intercompany transfer pricing arrangements and other intercompany transactions. Our foreign currency management objective is to minimize the effect of fluctuations in foreign exchange rates on selected assets or liabilities without exposing us to additional risk associated with transactions that could be regarded as speculative.
We pursue our objective by utilizing foreign currency forward contracts to offset foreign exchange risk. Our foreign currency forward contracts are generally short-term in duration. We neither use these foreign currency forward contracts for trading purposes nor do we currently designate these forward contracts as hedging instruments pursuant to Accounting Standards Codification 815, Derivatives and Hedging. Accordingly, we record the fair values of these contracts as of the end of our reporting period to our condensed consolidated balance sheets with changes in fair values recorded to our condensed consolidated statements of operations. Given the short duration of the forward contracts, the amount recorded is not significant. Our ultimate realized gain or loss with respect to foreign currency exposures will generally depend on the size and type of cross-currency transactions that we enter into, the currency exchange rates associated with these exposures and changes in those rates, the net realized gain or loss on our foreign currency forward contracts and other factors.
Foreign Currency Translation Risk
Fluctuations in foreign currencies impact the amount of total assets, liabilities, revenues, operating expenses and cash flows that we report for our foreign subsidiaries upon the translation of these amounts into USD. Total revenue during the three months ended July 31, 2022, was negatively impacted by approximately four percent compared to the three months ended July 31, 2021. In addition, fluctuations in USD against international currencies negatively impacted our current remaining performance obligation by approximately four percent as of July 31, 2022 compared to what we would have reported as of July 31, 2021 using constant currency rates.
Interest Rate Sensitivity
We had cash, cash equivalents and marketable securities totaling $13.5 billion as of July 31, 2022. This amount was invested primarily in money market funds, time deposits, corporate notes and bonds, government securities and other debt securities with credit ratings of at least BBB or better. The cash, cash equivalents and marketable securities are held for general corporate purposes, including acquisitions of, or investments in, complementary businesses, services or technologies, working capital and capital expenditures. Our investments are made for capital preservation purposes. We do not enter into investments for trading or speculative purposes.
Our cash equivalents and our portfolio of marketable securities are subject to market risk due to changes in interest rates. Fixed-rate securities may have their market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. However, because we classify our debt securities as “available for sale,” no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or due to expected credit losses.
Our fixed-income portfolio is also subject to interest rate risk. An immediate increase or decrease in interest rates of 100 basis points at July 31, 2022 could result in a $62 million market value reduction or increase of the same amount. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur. Fluctuations in the value of our investment securities caused by a change in interest rates (gains or losses on the carrying value) are recorded in other comprehensive loss, net, and are realized only if we sell the underlying securities.
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At January 31, 2022, we had cash, cash equivalents and marketable securities totaling $10.5 billion. Changes in interest rates of 100 basis points would have resulted in market value changes of $58 million.
Market Risk and Market Interest Risk
We deposit our cash with multiple financial institutions.
Debt
We maintain debt obligations that are subject to market interest risk, as follows (in millions):
InstrumentMaturity DatePrincipal Outstanding as of July 31, 2022Interest TermsContractual Interest Rate
2023 Senior NotesApril 2023$1,000 Fixed3.25%
Loan assumed on 50 FremontJune 2023184 Fixed3.75
2024 Senior NotesJuly 20241,000 Fixed0.625
Credit FacilityDecember 2025FloatingN/A
2028 Senior NotesApril 20281,500 Fixed3.70
2028 Senior Sustainability NotesJuly 20281,000 Fixed1.50
2031 Senior NotesJuly 20311,500 Fixed1.95
2041 Senior NotesJuly 20411,250 Fixed2.70
2051 Senior NotesJuly 20512,000 Fixed2.90
2061 Senior NotesJuly 20611,250 Fixed3.05
The borrowings under our Credit Facility bear interest, at our option, at a base rate plus a spread of 0.00% to 0.125% or an adjusted benchmark rate plus a spread of 0.50% to 1.125%, in each case with such spread being determined based on our credit rating. We are also obligated to pay an ongoing commitment fee on undrawn amounts. As of July 31, 2022, there was no outstanding borrowing amount under the Credit Facility.
The bank counterparties to our derivative contracts potentially expose us to credit-related losses in the event of their nonperformance. To mitigate that risk, we only contract with counterparties who meet the minimum requirements under our counterparty risk assessment process. We monitor ratings, credit spreads and potential downgrades on at least a quarterly basis. Based on our ongoing assessment of counterparty risk, we adjust our exposure to various counterparties. We generally enter into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty. However, we do not have any master netting arrangements in place with collateral features.