CRMSalesforce

The Company has been named as a defendant in a number of state and federal actions relating to the activities of one of its former customers, Website Technologies, LLC (“Website Technologies”), an affiliate of Backpage.com, LLC (“Backpage”). Plaintiffs in these actions generally allege that they were victims of sex trafficking by individuals who advertised them on backpage.com, a website operated by Backpage, and assert various claims and theories premised on the Company’s provision to Website Technologies of Salesforce CRM Software and related products, which the plaintiffs allege facilitated the operation and growth of Backpage’s business. The initial action, filed in the Superior Court of California for the County of San Francisco on behalf of numerous plaintiffs, was dismissed with prejudice under Section 230 of the Communications Decency Act (“Section 230”), and that dismissal was affirmed by the California Court of Appeal in December 2021. In April 2020, an action was filed on behalf of involving a single plaintiff was filed in the U.S. District Court for the Northern District of Illinois. Illinois, G.G. v. Salesforce, Inc., Case No. 1:20-CV-2335 (“G.G.”). The district court granted the Company’s motion to dismiss the action, and the Seventh Circuit Court of Appeals reversed that ruling in August 2023. On June 12, 2025, after discovery had commenced, plaintiff filed a substantially amended complaint. On July 9, 2025, the Company filed a motion to dismiss that complaint. The district court dismissed one of plaintiff’s claims in January 2026. Trial is currently expected to occur on the remaining claim in the Fall of 2026, but no date has scheduled trial in that matter for June 2026. been finalized. Beginning in April 2020, five actions involving six plaintiffs were filed and consolidated in the U.S. District Court for the Southern District of Texas as A.B. v. Salesforce, Inc., Case No. 4:20-CV-01254. 4:20-CV-01254 (“A.B.”). The Company moved for summary judgment on the basis that the claims were barred by Section 230. In November 2023, the court denied the Company’s motion and in December 2024, the Fifth Circuit Court of Appeals affirmed that ruling. Beginning in May 2023, a number of similar actions have been filed in Texas federal and state courts, including principally: (1) 30 actions filed in the U.S. District Court for the Northern District of Texas, which were consolidated as S.M.A. v. Salesforce, Inc., Case No. 3:23-CV-0915-B (“S.M.A”); (2) 21 actions filed in Texas state court in Dallas County, which were removed by the Company to the Northern District of Texas, and consolidated as A.S. v. Salesforce, Inc., Case No. 3:23-CV-1039-B (“A.S.”); and (3) one action filed in Texas state court in Harris County, which was removed to the U.S. District Court for the Southern District of Texas as T.S. v. Salesforce, Inc., Case No. 4:23-CV-01792 (“T.S.”). Separately, 19 actions have been filed in Texas state court, which are proceeding in a Texas state court multidistrict litigation in Harris County District Court, captioned In re Jane Doe Cases, MDL 2020-28545. In March 2024, October 2025, the district court in S.M.A. A.B. granted the Company’s consolidated motion pursuant to dismiss 18 U.S.C. § 1595(b) to stay the complaint on the ground that plaintiffs had not alleged the requisite intent element under the federal trafficking statute, and in April 2024 an amended complaint was filed amending the federal law claim and adding a Texas state law claim. In May 2024, the Company moved to dismiss the amended complaint. In September 2024, the district court in A.S. denied the Company’s motion to dismiss and the court has scheduled trial for November 2025. In November 2024, the Company moved for judgment on the pleadings in A.S. In June 2023, the Company moved to dismiss the T.S. action, and that motion remains pending. Plaintiffs’ counsel in these actions have stated that they represent several hundred additional possible claimants. All action pending final adjudication of the foregoing actions seek unspecified monetary damages, attorneys’ fees, and costs. The Company intends to defend its interests in these criminal proceedings vigorously. involving Backpage.

We are increasingly building AI into many of our offerings, including generative and agentic AI. As with many technical innovations, AI offerings, such as Agentforce, and our Salesforce Agentforce 360 Platform present additional risks and challenges that could affect their customer adoption and therefore our business. For example, the development and deployment of our AI offerings and the Salesforce Platform, which provides offerings, including those involving information regarding our customers’ customers, present raise emerging ethical issues. ethical, legal and operational considerations. If we enable or offer solutions that draw controversy due to their perceived or actual impact on human rights, privacy, employment, employment or in other social contexts, concerns, we may experience new or enhanced heightened governmental or regulatory scrutiny, brand investigations, enforcement actions, fines or penalties and reputational harm, or competitive harm or legal liability, especially as geopolitical turmoil creates increasingly volatile political and market conditions. Inadequate or ineffective AI development, deployment, content labeling or governance by us or others that result in controversy could also impair the acceptance of AI solutions or result in unintended performance of the services. This in turn could undermine confidence in the decisions, predictions, analysis or other content that our AI applications produce, subjecting us to competitive harm, legal liability and brand or reputational harm. The rapid evolution of AI will require the application of resources to develop, test and maintain our products and services to help ensure that AI is implemented ethically in order to minimize unintended, harmful impact. Uncertainty around new and emerging AI applications such as generative AI content creation and AI agents will require additional investment in compliance, governance and the licensing or development of proprietary datasets, machine learning models and systems to test for accuracy, bias and other variables, which are often complex, may be costly and could impact our profit margin. Moreover, the move from AI content classification to AI content generation through our development of Agentforce and other generative AI products brings additional risks and responsibility. Known risks of generative AI currently include risks related to accuracy, bias, toxicity, privacy and security and data provenance. For example, AI technologies, including generative AI, may create content that appears correct but is factually inaccurate or flawed, or contains copyrighted or other protected material, and if our customers or others use this flawed or protected content to their detriment, or the owners of such copyrighted material seek to enforce their rights, we may be exposed to brand or reputational harm, competitive harm and/or legal liability. Developing, testing and deploying AI systems may also increase the cost profile of our offerings due to the nature of the computing costs involved in such systems. If we are unable to mitigate these risks, or if we incur excessive expenses in our efforts to do so, our reputation, business, operating results and financial condition may be harmed.

The Company enters into foreign currency derivative contracts with financial institutions to reduce foreign exchange risk associated with intercompany transactions and other monetary assets or liabilities denominated in currencies other than the functional currency of a subsidiary. 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 outstanding foreign currency derivative contracts as of January 31, 2025 and January 31, 2024 was $10.7 billion and $8.6 billion, respectively.

In addition to our focus on top line growth levers, we We are also focused on reducing our operating expenses to improve our operating margin. For example, in January 2023, we announced a We have undertaken various restructuring plan intended initiatives to reduce operating costs, improve operating margins and continue advancing our ongoing commitment to profitable growth growth, which has included a reduction of our workforce by approximately ten percent and workforce, office space reductions and data centers within certain markets. The employee actions were substantially completed in fiscal 2024 and the real estate actions are expected to be fully complete in fiscal 2026. In addition, we continued We continue to evaluate and operationalize future programs to drive further operational efficiencies, optimize our management structure and increase cost optimization efforts to realize long-term sustainable growth, including targeted workforce and office space reductions that were initiated in fiscal 2025 and are expected growth. We expect to be substantially complete in fiscal 2026. We have started continue to see experience improvements in our operating expenses across all operating categories, with the most opportunity in sales and marketing expense and general and administrative expenses. Over the long term, we expect to see additional operating expense improvements, as a percentage of revenue, which could include various restructuring initiatives or measured hiring initiatives to drive operational efficiencies.