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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 October 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)
 
Delaware 94-3320693
(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 class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.001 per share CRM New 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 filer Accelerated filer
Non-accelerated filer Smaller 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 November 29, 2022, there were approximately 1.0 billion shares of the Registrant’s Common Stock outstanding.


1

INDEX
 
    Page No.
   
Item 1.
3
4
5
6
7
9
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2

PART I.
ITEM 1. FINANCIAL STATEMENTS
Salesforce, Inc.
Condensed Consolidated Balance Sheets
(in millions)
October 31, 2022 January 31, 2022
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 6,076  $ 5,464 
Marketable securities 5,842  5,073 
Accounts receivable, net 4,275  9,739 
Costs capitalized to obtain revenue contracts, net 1,549  1,454 
Prepaid expenses and other current assets 1,467  1,120 
Total current assets 19,209  22,850 
Property and equipment, net 3,514  2,815 
Operating lease right-of-use assets, net 2,904  2,880 
Noncurrent costs capitalized to obtain revenue contracts, net 2,301  2,342 
Strategic investments 5,124  4,784 
Goodwill 48,555  47,937 
Intangible assets acquired through business combinations, net 7,598  8,978 
Deferred tax assets and other assets, net 2,679  2,623 
Total assets $ 91,884  $ 95,209 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable, accrued expenses and other liabilities
$ 5,285  $ 5,470 
Operating lease liabilities, current
567  686 
Unearned revenue
11,193  15,628 
Debt, current 1,182 
Total current liabilities 18,227  21,788 
Noncurrent debt 9,418  10,592 
Noncurrent operating lease liabilities 2,831  2,703 
Other noncurrent liabilities 2,057  1,995 
Total liabilities 32,533  37,078 
Stockholders’ equity:
Common stock
Treasury stock, at cost (1,743)
Additional paid-in capital 53,891  50,919 
Accumulated other comprehensive loss (481) (166)
Retained earnings 7,683  7,377 
Total stockholders’ equity 59,351  58,131 
Total liabilities and stockholders’ equity $ 91,884  $ 95,209 









See accompanying Notes.
3

Salesforce, Inc.
Condensed Consolidated Statements of Operations
(in millions, except per share data)
(unaudited)
3 Three Months Ended October 31, Nine Months Ended October 31,
  2022 2021 2022 2021
Revenues:
Subscription and support $ 7,233  $ 6,379  $ 21,232  $ 17,829 
Professional services and other 604  484  1,736  1,337 
Total revenues 7,837  6,863  22,968  19,166 
Cost of revenues (1)(2):
Subscription and support 1,451  1,335  4,381  3,603 
Professional services and other 637  509  1,879  1,409 
Total cost of revenues 2,088  1,844  6,260  5,012 
Gross profit 5,749  5,019  16,708  14,154 
Operating expenses (1)(2):
Research and development 1,280  1,203  3,927  3,174 
Marketing and sales 3,345  3,111  10,141  8,391 
General and administrative 664  667  1,967  1,865 
Total operating expenses 5,289  4,981  16,035  13,430 
Income from operations 460  38  673  724 
Gains on strategic investments, net 23  363  75  1,177 
Other expense (8) (102) (121) (172)
Income before benefit from (provision for) income taxes 475  299  627  1,729 
Benefit from (provision for) income taxes (265) 169  (321) (257)
Net income $ 210  $ 468  $ 306  $ 1,472 
Basic net income per share $ 0.21  $ 0.48  $ 0.31  $ 1.56 
Diluted net income per share $ 0.21  $ 0.47  $ 0.31  $ 1.53 
Shares used in computing basic net income per share 997  980  995  945 
Shares used in computing diluted net income per share 1,000  1,001  1,001  964 
(1) Amounts include amortization of intangible assets acquired through business combinations, as follows:
Three Months Ended October 31, Nine Months Ended October 31,
2022 2021 2022 2021
Cost of revenues $ 250  $ 272  $ 785  $ 624 
Marketing and sales 224  236  693  491 
(2) Amounts include stock-based compensation expense, as follows:
  Three Months Ended October 31, Nine Months Ended October 31,
  2022 2021 2022 2021
Cost of revenues $ 130  $ 103  $ 372  $ 280 
Research and development 287  276  863  646 
Marketing and sales 330  316  947  817 
General and administrative 96  117  288  273 






See accompanying Notes.
4

Salesforce, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in millions)
(unaudited)
3 Three Months Ended October 31, Nine Months Ended October 31,
2022 2021 2022 2021
Net income $ 210  $ 468  $ 306  $ 1,472 
Other comprehensive loss, net of reclassification adjustments:
Foreign currency translation and other losses (66) (17) (175) (42)
Unrealized losses on marketable securities and privately held debt securities (77) (26) (179) (47)
Other comprehensive loss, before tax (143) (43) (354) (89)
Tax effect 17  39 
Other comprehensive loss, net (126) (38) (315) (80)
Comprehensive income (loss) $ 84  $ 430  $ (9) $ 1,392 
































See accompanying Notes.
5

Salesforce, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(in millions)
(unaudited)
Three and Nine months ended October 31, 2022
  Common Stock Treasury Stock Additional
Paid-in
Capital
Accumulated Other Comprehensive Loss Retained Earnings Total
Stockholders’
Equity
  Shares Amount Shares Amount
Balance at January 31, 2022 989  $ $ $ 50,919  $ (166) $ 7,377  $ 58,131 
Common stock issued 85  85 
Stock-based compensation expense 776  776 
Other comprehensive loss, net of tax (144) (144)
Net income 28  28 
Balance at April 30, 2022 994  51,780  (310) 7,405  58,876 
Common stock issued 348  348 
Stock-based compensation expense 851  851 
Other comprehensive loss, net of tax (45) (45)
Net income 68  68 
Balance at July 31, 2022 999  52,979  (355) 7,473  60,098 
Common stock issued 69  69 
Common stock repurchased (11) (1,743) (1,743)
Stock-based compensation expense 843  843 
Other comprehensive loss, net of tax (126) (126)
Net income 210  210 
Balance at October 31, 2022 1,002  $ (11) $ (1,743) $ 53,891  $ (481) $ 7,683  $ 59,351 
Three and Nine months ended October 31, 2021
Common Stock Additional
Paid-in
Capital
Accumulated Other Comprehensive Loss Retained Earnings Total
Stockholders’
Equity
Shares Amount
Balance at January 31, 2021 919  $ $ 35,601  $ (42) $ 5,933  $ 41,493 
Common stock issued 67  67 
Stock-based compensation expense 564  564 
Other comprehensive loss, net of tax (26) (26)
Net income 469  469 
Balance at April 30, 2021 925  36,232  (68) 6,402  42,567 
Common stock issued 525  525 
Shares issued related to the acquisition of Slack 46  11,269  11,269 
Stock-based compensation expense 2 640  640 
Other comprehensive loss, net of tax (16) (16)
Net income 535  535 
Balance at July 31, 2021 978  48,666  (84) 6,937  55,520 
Common stock issued 292  292 
Stock-based compensation expense 812  812 
Other comprehensive loss, net of tax (38) (38)
Net income 468  468 
Balance at October 31, 2021 984  $ $ 49,770  $ (122) $ 7,405  $ 57,054 





See accompanying Notes.
6

Salesforce, Inc.
Condensed Consolidated Statements of Cash Flows
(in millions)
(unaudited)
3 Three Months Ended October 31, Nine Months Ended October 31,
2022 2021 2022 2021
Operating activities:
Net income $ 210  $ 468  $ 306  $ 1,472 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 941  963  2,754  2,367 
Amortization of costs capitalized to obtain revenue contracts, net 423  344  1,225  992 
Stock-based compensation expense 843  812  2,470  2,016 
Gains on strategic investments, net (23) (363) (75) (1,177)
Changes in assets and liabilities, net of business combinations:
Accounts receivable, net 471  91  5,486  3,895 
Costs capitalized to obtain revenue contracts, net (375) (405) (1,279) (1,223)
Prepaid expenses and other current assets and other assets (63) 189  (359) (1)
Accounts payable and accrued expenses and other liabilities (309) (548) (1,205) (836)
Operating lease liabilities (173) (191) (561) (607)
Unearned revenue (1,632) (956) (4,439) (2,880)
Net cash provided by operating activities 313  404  4,323  4,018 
Investing activities:
Business combinations, net of cash acquired (35) (439) (14,816)
Purchases of strategic investments (44) (147) (475) (933)
Sales of strategic investments 98  695  181  2,164 
Purchases of marketable securities (408) (2,193) (4,132) (4,509)
Sales of marketable securities 500  720  1,392  3,765 
Maturities of marketable securities 585  150  1,752  1,802 
Capital expenditures (198) (166) (580) (550)
Net cash provided by (used in) investing activities 533  (976) (2,301) (13,077)
Financing activities:
Proceeds from issuance of debt, net of issuance costs (6) 7,906 
Repayments of Slack Convertible Notes, net of capped call proceeds (1,348) (1,180)
Repurchases of common stock (1,677) (1,677)
Proceeds from employee stock plans 233  430  688  1,030 
Principal payments on financing obligations (233) (45) (349) (118)
Repayments of debt (1) (1) (3) (3)
Net cash provided by (used in) financing activities (1,678) (970) (1,341) 7,635 
Effect of exchange rate changes (23) (4) (69) (18)
Net increase (decrease) in cash and cash equivalents (855) (1,546) 612  (1,442)
Cash and cash equivalents, beginning of period 6,931  6,299  5,464  6,195 
Cash and cash equivalents, end of period $ 6,076  $ 4,753  $ 6,076  $ 4,753 

See accompanying Notes.
7

Salesforce, Inc.
Condensed Consolidated Statements of Cash Flows
Supplemental Cash Flow Disclosure
(in millions)
(unaudited)
  Three Months Ended October 31, Nine Months Ended October 31,
  2022 2021 2022 2021
Supplemental cash flow disclosure:
Cash paid during the period for:
Interest $ 46  $ 46  $ 184  $ 94 
Income taxes, net of tax refunds $ 113  $ 68  $ 390  $ 151 
Non-cash investing and financing activities:
Fair value of equity awards assumed $ $ $ $ 205 
Fair value of common stock issued as consideration for business combinations $ $ $ $ 11,064 








































See accompanying Notes.
8

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 October 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 nine months ended October 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 October 31, 2022, and its results of operations, including its comprehensive income (loss), stockholders' equity and its cash flows for the three and nine months ended October 31, 2022 and 2021. All adjustments are of a normal recurring nature. The results for the three and nine months ended October 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 October 31, 2022 and January 31, 2022. No single customer accounted for five percent or more of total revenue during the nine months ended October 31, 2022 and 2021. As of October 31, 2022 and January 31, 2022, assets located outside the Americas were 12 percent and 13 percent of total assets, respectively. As of October 31, 2022 and January 31, 2022, assets located in the United States were 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 October 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 nine months ended October 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 (loss) 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 October 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 fixtures 5 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
13

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, which includes amortization expense of ROU assets, 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
14

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 (loss).
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Foreign 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
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 October 31, Nine Months Ended October 31,
  2022 2021 2022 2021
Sales $ 1,717  $ 1,538  $ 5,044  $ 4,403 
Service 1,856  1,658  5,445  4,764 
Platform and Other 1,513  1,277  4,410  3,159 
Marketing and Commerce 1,129  1,006  3,339  2,856 
Data 1,018  900  2,994  2,647 
$ 7,233  $ 6,379  $ 21,232  $ 17,829 

Total Revenue by Geographic Locations
Revenues by geographical region consisted of the following (in millions):
  Three Months Ended October 31, Nine Months Ended October 31,
  2022 2021 2022 2021
Americas $ 5,361  $ 4,638  $ 15,593  $ 13,044 
Europe 1,745  1,581  5,228  4,299 
Asia Pacific 731  644  2,147  1,823 
$ 7,837  $ 6,863  $ 22,968  $ 19,166 
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 October 31, 2022 and 2021, respectively. Americas’ revenue attributed to the United States was approximately 93 percent and 94 percent during the nine months ended October 31, 2022 and 2021, respectively. No other country represented more than ten percent of total revenue during the three and nine months ended October 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 $762 million as of October 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 October 31, Nine Months Ended October 31,
2022 2021 2022 2021
Unearned revenue, beginning of period $ 12,825  $ 11,067  $ 15,628  $ 12,607 
Billings and other (1) 6,142  5,810  18,354  16,019 
Contribution from contract asset 63  97  175  267 
Revenue recognized over time (7,473) (6,511) (21,865) (18,070)
Revenue recognized at a point in time (364) (352) (1,103) (1,096)
Unearned revenue from business combinations 389 
Unearned revenue, end of period $ 11,193  $ 10,116  $ 11,193  $ 10,116 
(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 subscription and support revenue, which is generally recognized ratably over time, and professional services and other revenue, which is generally recognized ratably or as delivered.
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):
  Current Noncurrent Total
As of October 31, 2022 $ 20.9  $ 19.1  $ 40.0 
As of January 31, 2022 $ 22.0  $ 21.7  $ 43.7 

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3. Investments
Marketable Securities
At October 31, 2022, marketable securities consisted of the following (in millions):
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
Corporate notes and obligations $ 3,894  $ $ (145) $ 3,749 
U.S. treasury securities 357  (14) 343 
Mortgage-backed obligations 286  (16) 270 
Asset-backed securities 1,099  (31) 1,068 
Municipal securities 255  (9) 246 
Covered bonds 112  (9) 103 
Other 65  (2) 63 
Total marketable securities $ 6,068  $ $ (226) $ 5,842 
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 securities 205  (3) 202 
Mortgage-backed obligations 229  (4) 225 
Asset-backed securities 1,056  (5) 1,051 
Municipal securities 225  (2) 223 
Commercial paper 27  27 
Covered bonds 212  (2) 210 
Other 14  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
  October 31, 2022 January 31, 2022
Due within 1 year $ 2,353  $ 2,161 
Due in 1 year through 5 years 3,485  2,899 
Due in 5 years through 10 years 13 
$ 5,842  $ 5,073 
Strategic Investments
Strategic investments by form and measurement category as of October 31, 2022 were as follows (in millions):
  Measurement Category
  Fair Value Measurement Alternative Other Total
Equity securities $ 179  $ 4,757  $ 123  $ 5,059 
Debt securities and other investments 65  65 
Balance as of October 31, 2022
$ 179  $ 4,757  $ 188  $ 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 Value Measurement Alternative Other Total
Equity securities $ 370  $ 4,204  $ 122  $ 4,696 
Debt securities and other investments 88  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 $446 million and $467 million, as of October 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):
3 Three Months Ended October 31, Nine Months Ended October 31,
2022 2021 2022 2021
Unrealized gains (losses) recognized on publicly traded equity securities, net $ $ 98  $ (103) $ (13)
Unrealized gains recognized on privately held equity securities, net 57  162  174  964 
Impairments on privately held equity and debt securities (68) (11) (121) (45)
Unrealized gains (losses), net (11) 249  (50) 906 
Realized gains on sales of securities, net 34  114  125  271 
Gains on strategic investments, net $ 23  $ 363  $ 75  $ 1,177 

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 $66 million and $131 million and impairments of $66 million and $28 million for the three months ended October 31, 2022 and 2021, respectively. The Company recorded upward adjustments of $196 million and $933 million and impairments of $96 million and $55 million for the nine months ended October 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 losses on the sales of securities for the three months ended October 31, 2022 were $85 million, net, and cumulative realized gains for the nine months ended October 31, 2022 were $24 million, net, 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 October 31, 2022 and indicates the fair value hierarchy of the valuation (in millions):
Description Quoted 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 $ $ 1,777  $ $ 1,777 
Money market mutual funds 779  779 
Cash equivalent securities 907  907 
Marketable securities:
Corporate notes and obligations 3,749  3,749 
U.S. treasury securities 343  343 
Mortgage-backed obligations 270  270 
Asset-backed securities 1,068  1,068 
Municipal securities 246  246 
Commercial paper
Covered bonds 103  103 
Other 63  63 
Strategic investments:
Equity securities 179  179 
Total assets $ 958  $ 8,526  $ $ 9,484 
(1) Included in “cash and cash equivalents” in the accompanying condensed consolidated balance sheets in addition to $2.6 billion of cash, as of October 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):
Description Quoted 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 funds 1,426  1,426 
Cash equivalent securities 106  106 
Marketable securities:
Corporate notes and obligations 3,121  3,121 
U.S. treasury securities 202  202 
Mortgage-backed obligations 225  225 
Asset-backed securities 1,051  1,051 
Municipal securities 223  223 
Commercial paper 27  27 
Covered bonds 210  210 
Other 14  14 
Strategic investments:
Equity securities 370  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 October 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 $239 million and $294 million for the three months ended October 31, 2022 and 2021, respectively, and $692 million and $818 million for the nine months ended October 31, 2022 and 2021, respectively.
As of October 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 three months of fiscal 2023 $ 137  $ 52 
Fiscal 2024 568  217 
Fiscal 2025 555  208 
Fiscal 2026 490  144 
Fiscal 2027 444  42 
Thereafter 1,583 
Total minimum lease payments 3,777  663 
Less: Imputed interest (379) (17)
Total $ 3,398  $ 646 
As of October 31, 2022, the Company has additional operating leases that have not yet commenced totaling $450 million 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 2 to 17 years.
Other Balance Sheet Accounts
Accounts payable, accrued expenses and other liabilities as of October 31, 2022 included approximately $1.9 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, Gross Accumulated Amortization Intangible Assets, Net Weighted
Average
Remaining Useful Life (Years)
January 31, 2022 Additions and retirements, net October 31, 2022 January 31, 2022 Expense and retirements, net October 31, 2022 January 31, 2022 October 31, 2022 October 31, 2022
Acquired developed technology $ 5,633  $ 36  $ 5,669  $ (2,263) $ (785) $ (3,048) $ 3,370  $ 2,621  3.0
Customer relationships 6,995  62  7,057  (1,662) (655) (2,317) 5,333  4,740  5.9
Other (1) 345  345  (70) (38) (108) 275  237  4.7
Total $ 12,973  $ 98  $ 13,071  $ (3,995) $ (1,478) $ (5,473) $ 8,978  $ 7,598  4.9
(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 October 31, 2022 and 2021 was $474 million and $508 million, respectively, and for the nine months ended October 31, 2022 and 2021 was $1.5 billion and $1.1 billion, respectively.
The expected future amortization expense for intangible assets as of October 31, 2022 was as follows (in millions):
Fiscal Period:
Remaining three months of fiscal 2023 $ 473 
Fiscal 2024 1,869 
Fiscal 2025 1,597 
Fiscal 2026 1,355 
Fiscal 2027 990 
Thereafter 1,314 
Total amortization expense $ 7,598 
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 $38 million and $79 million as of October 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 Demand 293 
Other acquisitions and adjustments (1) 325 
Balance as of October 31, 2022 $ 48,555 
(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 Technologies, Inc. (“Slack”) and the effect of foreign currency translation.
8. Debt
The carrying values of the Company's borrowings were as follows (in millions):
Instrument Date of Issuance Maturity Date Contractual Interest Rate
Outstanding Principal as of October 31, 2022
October 31, 2022 January 31, 2022
2023 Senior Notes April 2018 April 2023 3.25  % $ 1,000  $ 999  $ 998 
Loan assumed on 50 Fremont February 2015 June 2023 3.75  183  183  186 
2024 Senior Notes July 2021 July 2024 0.625  1,000  998  997 
2028 Senior Notes April 2018 April 2028 3.70  1,500  1,493  1,492 
2028 Senior Sustainability Notes July 2021 July 2028 1.50  1,000  992  990 
2031 Senior Notes July 2021 July 2031 1.95  1,500  1,489  1,488 
2041 Senior Notes July 2021 July 2041 2.70  1,250  1,234  1,234 
2051 Senior Notes July 2021 July 2051 2.90  2,000  1,977  1,976 
2061 Senior Notes July 2021 July 2061 3.05  1,250  1,235  1,235 
Total carrying value of debt $ 10,683  10,600  10,596 
Less current portion of debt (1,182) (4)
Total noncurrent debt $ 9,418  $ 10,592 
The Company was in compliance with all debt covenants as of October 31, 2022.
The total estimated fair value of the Company's outstanding senior unsecured notes (the “Senior Notes”) above was $8.3 billion and $10.3 billion as of October 31, 2022 and January 31, 2022, 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 third 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 October 31, 2022 were as follows (in millions):
Fiscal Period:
Remaining three months of fiscal 2023 $
Fiscal 2024 1,182 
Fiscal 2025 1,000 
Fiscal 2026
Fiscal 2027
Thereafter 8,500 
Total principal outstanding $ 10,683 
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 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 October 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 nine months ended October 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, 2022 21  $ 156.34 
Options granted under all plans 208.15 
Exercised (2) 102.01 
Plan shares expired or canceled (2) 185.55 
Balance as of October 31, 2022 24  $ 174.52  $ 409 
Vested or expected to vest 23  $ 172.17  $ 405 
Exercisable as of October 31, 2022 12  $ 143.61  $ 355 
Restricted stock activity for the nine months ended October 31, 2022 was as follows:
  Restricted Stock Outstanding
  Outstanding
(in millions)
Weighted-Average Grant Date Fair Value Aggregate
Intrinsic
Value (in millions)
Balance as of January 31, 2022 27  $ 202.85 
Granted - restricted stock units and awards 17  205.20 
Granted - performance-based stock units 203.28 
Canceled (4) 202.94 
Vested and converted to shares (10) 195.29 
Balance as of October 31, 2022 31  $ 206.48  $ 5,091 
Expected to vest 27  $ 4,393 
The aggregate expected stock-based compensation expense remaining to be recognized as of October 31, 2022 was as follows (in millions):
Fiscal Period:
Remaining three months of fiscal 2023 $ 842 
Fiscal 2024 2,515 
Fiscal 2025 1,873 
Fiscal 2026 1,151 
Thereafter 178 
Total stock-based compensation expense $ 6,559 
The aggregate expected stock-based compensation expense remaining to be recognized reflects only outstanding stock awards as of October 31, 2022 and assumes no forfeiture activity.
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Share Repurchase Program
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.
The Company accounts for treasury stock under the cost method.
During three months ended October 31, 2022, the Company repurchased approximately 11 million shares of its common stock for approximately $1.7 billion at an average price per share of $152.66. All repurchases were made in open market transactions. As of October 31, 2022, the Company was authorized to purchase a remaining $8.3 billion of our common stock under the Share Repurchase Program.
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 nine months ended October 31, 2022, the Company reported a tax provision of $321 million on pretax income of $627 million, which resulted in an effective tax rate of 51 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.
For the nine months October 31, 2021, the Company reported a tax provision of $257 million on pretax income of $1.7 billion, which resulted in an effective tax rate of 15 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, 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.
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A reconciliation of the denominator used in the calculation of basic and diluted earnings per share is as follows (in millions):
3 Three Months Ended October 31, Nine Months Ended October 31,
  2022 2021 2022 2021
Numerator:
Net income $ 210  $ 468  $ 306  $ 1,472 
Denominator:
Weighted-average shares outstanding for basic earnings per share 997  980  995  945 
Effect of dilutive securities:
Employee stock awards 21  19 
Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share 1,000  1,001  1,001  964 
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 October 31, Nine Months Ended October 31,
  2022 2021 2022 2021
Employee stock awards 44  37 
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 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 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 before refiling in the County of San Mateo (and the original San Francisco action was dismissed). 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,
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2021, which was denied on May 2, 2022. Slack filed a petition for a writ of certiorari with the U.S. Supreme Court on August 31, 2022, which remains pending. 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. On October 26, 2022, the court stayed the State Court Action pending of Slack’s petition for a writ of certiorari in the Federal Action. 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.
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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, and industry prospects. 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 and related public health measures; 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, business and market conditions, including inflationary pressures, general economic downturn or recession, market volatility, increasing interest rates and changes in monetary policy; 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 Nine Months of Fiscal 2023
Revenue: For the nine months ended October 31, 2022, revenue was $23.0 billion, an increase of 20 percent year-over-year.
Earnings per Share: For the nine months ended October 31, 2022, diluted earnings per share was $0.31 as compared to diluted earnings per share of $1.53 from a year ago.
Cash: Cash provided by operations for the nine months ended October 31, 2022 was $4.3 billion, an increase of 8 percent year-over-year. Total cash, cash equivalents and marketable securities as of October 31, 2022 was $11.9 billion.
Remaining Performance Obligation: Total remaining performance obligation as of October 31, 2022 was approximately $40.0 billion, an increase of 10 percent year-over-year. Current remaining performance obligation as of October 31, 2022 was approximately $20.9 billion, an increase of 11 percent year-over-year.
Share Repurchase Program: In August 2022, our Board of Directors authorized a program to repurchase up to $10.0 billion of our common stock. During three months ended October 31, 2022, we repurchased approximately 11 million shares of our common stock for approximately $1.7 billion. As of October 31, 2022, we were authorized to purchase a remaining $8.3 billion of our common stock under the Share Repurchase Program.
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. These trends continued in the third quarter of fiscal 2023 as we saw a more challenging buying environment and our customers incrementally scrutinized their purchasing decisions. However, there was no material impact to our consolidated revenues for the three and nine months ended October 31, 2022 or our remaining performance obligation as of October 31, 2022. The outlook for the macroeconomic environment and its impact on our business remains uncertain. Slower growth in new and renewal business impacts our future results and projections. The slower growth in new and renewal business, particularly if sustained, could impact our remaining performance obligation or revenues, and our ability to meet financial guidance and long term targets.
In addition, the expanding global scope of our business and the heightened volatility of global markets, expose us to the risk of fluctuations in foreign currency markets. Foreign currency fluctuations negatively impacted revenues by approximately four percent in the three months ended October 31, 2022 and negatively impacted our current remaining performance obligation by approximately four percent as of October 31, 2022 compared to what we would have reported as of October 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 continued volatility 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 focus 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 levers often require a more sophisticated go-to-market approach and, as a result, we may incur additional costs upfront to obtain new customers and expand our relationships with existing customers, including additional sales and marketing expenses specific to subscription and support revenue. As a result, we have seen that customers with many of these characteristics have lower attrition rates than our company average. We plan to continue to reinvest a 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
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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.
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 92 percent of our total revenues for the nine months ended October 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 nine months ended October 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 October 31, 2022, our attrition rate, excluding MuleSoft, Tableau and Slack, was below 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 maintain a variety of customer programs and initiatives, which, along with increasing enterprise adoption, have helped keep our attrition rate consistent as compared to the prior year. Consistent attrition rates play a role in our ability to maintain growth in our subscription and support revenues.
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Seasonal Nature of Unearned Revenue, Accounts Receivable and Operating Cash Flow
Unearned revenue primarily consists of billings to customers for our subscription service. Over 90 percent of the value of our billings to customers is for our subscription and support service. We generally invoice our customers in advance, in annual installments, and typical payment terms provide that our customers pay us within 30 days of invoice. Amounts that have been invoiced are recorded in accounts receivable and in unearned revenue or in revenue depending on whether transfer of control to customers has occurred. In general, we collect our billings in advance of the subscription service period. We typically issue renewal invoices in advance of the renewal service period, and depending on timing, the initial invoice for the subscription and services contract and the subsequent renewal invoice may occur in different quarters. There is a disproportionate weighting toward annual billings in the fourth quarter, primarily as a result of large enterprise account buying patterns. Our fourth quarter has historically been our strongest quarter for new business and renewals. The year-on-year compounding effect of this seasonality in both billing patterns and overall new and renewal business causes the value of invoices that we generate in the fourth quarter for both new business and renewals to increase as a proportion of our total annual billings. Accordingly, because of this billing activity, our first quarter is typically our largest collections and operating cash flow quarter. Generally, our third quarter has historically been our smallest operating cash flow quarter. Unearned revenues, accounts receivable and operating cash flow may also be impacted by acquisitions. For example, operating cash flows may be adversely impacted by acquisitions due to transaction costs, financing costs such as interest expense and lower operating cash flows from the acquired entity.
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).
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crm-20221031_g4.jpg
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.
Remaining performance obligation consisted of the following:
crm-20221031_g5.jpg
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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 believe that our professional services organization facilitates the adoption of our service offerings, helps us to secure larger subscription revenue contracts and supports our customers’ success. The cost of professional services may exceed revenues from professional services in future fiscal periods.
Research and Development
Research and development expenses consist primarily of salaries and related expenses, including stock-based compensation expense 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 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.
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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.

Results of Operations
The following tables set forth selected data for each of the periods indicated (in millions):
3 Three Months Ended October 31, Nine Months Ended October 31,
  2022 % of Total Revenues 2021