Salesforce, Inc. — Form 10-Q Summary
Period: The filing covers the three months ended April 30, 2022, Salesforce fiscal 2023 first quarter, with comparisons to the three months ended April 30, 2021. The request labels the period “2021 Q1,” which does not match the filing’s reporting period.
Business context and financial performance
Salesforce is a global CRM and cloud-software provider operating as one segment. Subscription and support services accounted for 93% of quarterly revenue. Figures below are in U.S. dollars; amounts are in millions except per-share data and where noted.
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Revenue | $7,411 | $5,963 | +24% |
| Gross profit / margin | $5,366 / 72% | $4,408 / 74% | Margin down about 2 percentage points |
| Operating income / margin | $20 / 0% | $354 / 6% | Lower by $334 |
| Net income | $28 | $469 | Lower by $441 |
| Diluted EPS | $0.03 | $0.50 | Lower by $0.47 |
| Operating cash flow | $3,676 | $3,228 | +14% |
| Cash, cash equivalents and marketable securities | $13,503 at April 30, 2022 | $10,537 at January 31, 2022 | Up $2,966 sequentially |
| Debt principal outstanding | $10,685 | $10,686 at January 31, 2022 | Broadly unchanged |
| Total remaining performance obligation (RPO) | $42.0 billion | $43.7 billion at January 31, 2022 | +20% year over year |
Revenue growth reflected higher volume from new business, customer upgrades and additional subscriptions, as well as acquisitions. Slack contributed approximately $344 million to subscription and support revenue. By offering, Platform and Other grew 55%, Sales 18%, Service 17%, Marketing and Commerce 22%, and Data 15%. Professional services and other revenue grew 30% to $555 million.
Material changes and liquidity
Operating expenses rose 32% to $5.35 billion, faster than revenue. Research and development increased 39%, marketing and sales 33%, and general and administrative 17%. The company cited hiring, employee costs, stock-based compensation and acquired-intangible amortization. Gross margin declined, and operating income fell sharply; lower strategic-investment gains also contributed to net income falling from the prior-year period.
Operating cash flow increased to $3.68 billion, helped by a $5.8 billion reduction in accounts receivable, partly offset by a $2.0 billion reduction in unearned revenue. Investing activities used $2.46 billion, including acquisitions and purchases of marketable securities. Cash and marketable securities totaled $13.5 billion; accounts receivable was $4.0 billion. The company had a $3.0 billion revolving credit facility with no borrowings outstanding and stated it expected available resources to meet needs for the next 12 months. It reported compliance with debt covenants.
Current RPO was $21.5 billion, up 21% year over year; total RPO included approximately $1.2 billion related to Slack. Unearned revenue was $13.6 billion at quarter-end. RPO is contracted but unrecognized revenue, not a guarantee of future revenue, and is affected by renewals, contract terms, acquisitions and foreign exchange.
Outlook, commentary, risks and unusual items
- The filing does not provide a clear numerical quarterly or full-year revenue or earnings guidance figure in the supplied text. Management said recent U.S. dollar strength was expected to reduce near-term revenue growth; currency movements had reduced reported quarterly revenue by about 2% and RPO by about 4% versus constant-currency comparisons.
- Management expects near-term Data offering growth to be lower than past results following disruption from MuleSoft sales-organization changes. It said these changes had not materially affected consolidated revenue or RPO in the quarter and were not expected to impair long-term consolidated revenue targets.
- Management expects continued investment in sales, research and development, data-center capacity and professional services. It noted that these investments may increase costs and affect margins. It also cited inflation, geopolitical disruption, COVID-19-related uncertainty, seasonality and foreign-exchange volatility as risks.
- The quarter included a $57 million income-tax benefit on a $29 million pretax loss; the effective tax rate was 197%, reflecting favorable discrete items, including stock-based compensation tax benefits and transfer-pricing adjustments. Salesforce warned that a U.S. tax rule requiring capitalization and amortization of research and development costs, if not changed or deferred, was expected to materially increase future cash taxes.
- Strategic-investment gains were $7 million versus $288 million a year earlier, with a $74 million unrealized loss on publicly traded investments partly offset by private-investment gains. Management warned portfolio volatility could materially affect future results.
- Salesforce acquired Traction on Demand in April for approximately $340 million, primarily cash; the acquisition’s reported financial contribution was not material. Acquisition valuations remained preliminary. Amortization of acquired intangible assets was $512 million, up from $288 million.
- Salesforce disclosed a 2022 unauthorized-access incident involving Heroku databases: stored customer security credentials and passwords were downloaded, including passwords for a subset of customer accounts and access to an encryption key. The company said it did not believe the incident had materially affected its business or financial results, while warning future incidents could have material effects.
- Legal matters include Slack-related securities class actions and derivative litigation. The company said current matters were not expected to have a material adverse effect overall, but stated outcomes are uncertain and could affect a particular period.
Important facts for investors to verify
- Confirm the intended reporting period: this is Q1 FY2023, ended April 30, 2022, not Q1 2021.
- Review the drivers and sustainability of 24% revenue growth, including Slack’s contribution, foreign-exchange effects, and the differing growth rates across offerings.
- Track operating-margin pressure, expense growth, stock-based compensation and acquired-intangible amortization.
- Assess cash-flow quality and seasonality, particularly the large receivables-related cash benefit and the decline in unearned revenue.
- Monitor RPO and renewals alongside currency movements, the Data offering’s recovery, and Slack integration and growth.
- Review exposure to strategic-investment valuation swings, debt maturities, lease commitments, potential tax changes, litigation and cybersecurity risks, including the Heroku incident.