Business context and reporting period
Salesforce, Inc. provides cloud-based customer relationship management services through its Customer 360 platform and Slack. This filing covers the quarter and six months ended July 31, 2023—Salesforce fiscal Q2 and first half of fiscal 2024—and compares results with the periods ended July 31, 2022. The requested “2022 Q2” period does not match the filing period.
Financial performance
Amounts are in U.S. dollars; financial statement figures are in millions unless noted.
| Metric | Q2 FY2024 | Q2 FY2023 | First half FY2024 | First half FY2023 |
|---|---|---|---|---|
| Revenue | $8,603; +11% | $7,720 | $16,850; +11% | $15,131 |
| Subscription and support revenue | $8,006; +12% | $7,143 | $15,648; +12% | $13,999 |
| Gross profit / margin | $6,490 / 75% | $5,593 / 72% | $12,612 / 75% | $10,959 / 72% |
| Operating income / margin | $1,476 / 17% | $193 / 3% | $1,888 / 11% | $213 / 1% |
| Net income | $1,267 | $68 | $1,466 | $96 |
| Diluted EPS | $1.28 | $0.07 | $1.49 | $0.10 |
| Cash from operations | $808 | $334 | $5,299 | $4,010 |
At July 31, 2023, cash, cash equivalents and marketable securities totaled $12.4 billion, compared with $12.5 billion at January 31, 2023. Current assets were $21.1 billion and current liabilities $20.8 billion. Debt principal outstanding was $9.5 billion ($999 million current); Salesforce had no borrowings on its $3.0 billion revolving credit facility and reported compliance with debt covenants. Total remaining performance obligations (RPO) were $46.6 billion, including $24.1 billion current; each was up 12% year over year.
Material changes versus comparable periods
- Revenue growth was primarily volume-driven from new customers, upgrades and additional subscriptions; management said pricing was not a significant driver. Subscription and support remained 93% of revenue.
- Operating profitability improved substantially as operating expenses declined relative to revenue, particularly marketing and sales, research and development, and general and administrative costs. Workforce reductions and lower employee-related costs contributed.
- First-half operating cash flow increased 32% year over year. Management attributed the period’s cash generation in part to $5.4 billion from the accounts-receivable change, partly offset by a $3.1 billion decrease in unearned revenue and a $1.8 billion decrease in accounts payable and other liabilities.
- Strategic investment losses were $170 million in the first half, versus gains of $52 million a year earlier, principally reflecting $257 million of impairments. Q2 investment losses were $29 million.
- First-half financing cash outflow was $4.8 billion, mainly reflecting $4.0 billion of share repurchases and $1.2 billion of debt repayments.
Outlook, management commentary and risks
- Management described elongated sales cycles, additional deal-approval layers and deal compression amid macroeconomic uncertainty and more cautious customer purchasing. It said slower new and renewal business, if sustained, could affect RPO, revenue and the ability to meet guidance and long-term targets.
- Management reported less demand for larger, multi-year transformation engagements and some delayed professional-services projects, trends that may continue in the near term. The filing text provided does not state specific revenue or EPS guidance.
- The January 2023 restructuring plan targeted operating-cost reductions and improved margins and included an approximately 10% workforce reduction and office-space reductions, largely completed by Q1 FY2024. Salesforce recorded $760 million of restructuring costs in the first half and expected a further $100 million–$350 million in FY2024’s second half; it also estimated $200 million–$500 million of future cash payments related to the plan.
- Salesforce cited continued investment in data-center capacity, security, product development and AI. It expects near-term R&D expense may remain steady or increase as a percentage of revenue, while marketing and sales and general and administrative expense may decline as a percentage of revenue.
- Key risks include customer renewal and spending trends, competition, service availability and cybersecurity, privacy and regulatory requirements, foreign-exchange and interest-rate movements, strategic-investment valuation volatility, acquisition execution, and restructuring’s effects on operations and talent. Generative AI introduces additional accuracy, bias, privacy, security, intellectual-property and cost risks.
- The Slack securities litigation remained pending: the U.S. Supreme Court vacated the Ninth Circuit decision in June 2023 and remanded for further proceedings; related state litigation remained stayed. Management said resolution of current matters was not expected to materially adversely affect the financial statements, but outcomes remain uncertain.
Most important facts for investors to verify
- Confirm the intended period: this is a July 31, 2023 filing (fiscal Q2 2024), not Q2 2022.
- Assess whether 11% revenue growth and 12% RPO growth persist given reported elongated sales cycles, deal compression and delayed services projects.
- Separate recurring operating performance from restructuring charges, investment impairments, stock-based compensation and acquisition-related amortization.
- Track cash conversion and working-capital movements, including the decline in unearned revenue and the seasonal billing and collection pattern.
- Evaluate capital allocation: $4.1 billion of first-half repurchases, remaining authorization of $11.9 billion at July 31, and $0.6 billion of additional repurchases paid through August 28.
- Monitor restructuring’s remaining costs and cash payments, debt maturities (including $1.0 billion due July 2024), and lease commitments.
- Review exposure to private strategic investments: portfolio carrying value was $4.8 billion, with impairments and valuation changes capable of materially affecting reported earnings.