What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-27 compared with 2022-03-25 · 95 added, 126 removed, 350 unchanged (39% of the section changed)

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Executive Overview of Fiscal 2023 Results

DocuSign offers the world’s leading electronic signature offering, enabling an agreement to be signed electronically on a wide variety of devices, from virtually anywhere in the world, securely.

This is the foundation of the DocuSign Agreement Cloud, which allows organizations to do business faster with less risk, lower costs, while providing better experiences for customers and employees.

We offer the world’s #1 e-signature product as the core part of our broader software platform that automates and connects the agreement process, which we call the DocuSign Agreement Cloud.

It is designed to allow companies of all sizes and across all industries to quickly and easily make nearly every agreement, approval process or transaction digital.

It provides comprehensive functionality across DocuSign eSignature and addresses the broader agreement process.

As a result, over 1.1 million customers and more than a billion users worldwide utilize DocuSign to create, upload and send documents for multiple parties to sign electronically.

The DocuSign Agreement Cloud allows users to complete approvals, agreements and transactions faster by building end-to-end processes.

The DocuSign Agreement Cloud integrates with popular business apps, and our functionality can also be embedded using our APIs.

Finally, the DocuSign Agreement Cloud allows our customers to automate and streamline their business-critical workflows to save time and money, while staying secure and legally compliant.

We generally offer access to our platform on a subscription basis with prices based on the functionality our customers require and the quantity of Envelopes provisioned.

DocuSign is the global leader in the eSignature category.

We offer products that address broader agreement workflows and digital transformation, enabling agreements to be signed electronically on a wide variety of devices, from virtually anywhere in the world, securely.

DocuSign’s product offerings, including DocuSign eSignature, allow organizations to do business faster with less risk and lower costs, while providing better experiences for customers and employees.

As a result, over 1.3 million customers and more than a billion users worldwide utilize DocuSign products to create, upload and send documents for multiple parties to sign electronically.

We generally offer access to our products on a subscription basis with prices based on the functionality our customers require and the quantity of Envelopes provisioned.

Similar to the physical envelopes historically used to mail paper documents, an Envelope is a digital container used to send one or more documents for signature or approval to one or more recipients.

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We generate substantially all our revenue from sales of subscriptions, which accounted for 97%, 97% and 95% of our revenue in the years ended January 31, 2023, 2022 and 2021.

Our subscription fees include the use of our software platform and access to customer support.

Our subscription fees include the use of our products and access to customer support.

Subscriptions generally range from one to three years, and substantially all our multi-year customers pay in annual installments, one year in advance.

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Professional services and other revenue accounted for the remainder of total revenue.

We anticipate continuing to invest in customer success through our professional services offerings as we

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believe it plays an important role in accelerating our customers’ deployment of our software platform, which helps drive customer retention and expansion of the use of the DocuSign Agreement Cloud.

We offer subscriptions to our software platform to businesses at all scales, from global enterprise down to local very small businesses (“VSBs”) (including professionals, sole proprietorships, nonprofits and individuals).

We sell to customers through multiple channels.

Our go-to-market strategy relies on our direct sales force and partnerships to sell to enterprises and commercial businesses and our web-based self-service channel to sell to VSBs, which we believe is the most cost-effective way to reach our smallest customers.

We offer more than 400 off-the-shelf, prebuilt integrations with the applications that many of our customers already use—including those offered by Google, Microsoft, Oracle, Salesforce, SAP, and Workday—so that they can create, sign, send and manage agreements from directly within these applications.

We anticipate continuing to invest in customer success through our professional services offerings as we believe it plays an important role in accelerating our customers’ adoption of our products, which helps drive customer retention and expansion.

We offer subscriptions to our products to businesses at all scales, from global enterprise down to local VSBs.

We rely on our direct sales force and partnerships to sell to enterprises and commercial businesses, and our digital self-service channel to sell to all customers, but it’s primarily used by VSBs, which is the most cost-effective way to reach our smallest customers.

We offer more than 400 off-the-shelf, prebuilt integrations with the applications that many of our customers already use—including those offered by Google, Microsoft, Oracle, Salesforce, SAP, and ServiceNow—so that they can create, sign, send and manage agreements from directly within these applications.

We have a diverse customer base spanning across virtually all industries and around the world with no significant customer concentration.

No single customer accounted for more than 10% of total revenue in any of the years presented.

We focused initially on selling our e-signature solutions to commercial businesses and VSBs and later expanded our focus to target enterprise customers.

The number of our customers with greater than $300,000 in annual contract value (measured in billings) has increased from 599 customers as of January 31, 2021 to 852 customers as of January 31, 2022.

We focused initially on selling our products to commercial businesses and VSBs and later expanded our focus to target enterprise customers.

The number of our customers with greater than $300,000 in annualized contract value has increased from 852 customers as of January 31, 2022 to 1,080 customers as of January 31, 2023.

Each of our customer types has a different purchasing pattern.

VSBs tend to become customers quickly with very little to no direct sales or customer support interaction and generate smaller average contract values, while commercial and enterprise customers typically involve longer sales cycles, larger contract values and greater expansion opportunities for us.

COVID-19 Update

As the pandemic continued in 2022, the rate of vaccinations, emerging COVID-19 variants, and shifting governmental policies on vaccination mandates and other pandemic restrictions have had variable impacts on different regions of the world and areas of the economy.

This has caused and may continue to cause new, existing and potential customers to experience rapidly changing conditions and disruptions to their businesses.

While we experienced a significant increase in paying customers and revenue during the pandemic, we later experienced periods in which the urgency of customer demand slowed.

It can be difficult to predict customer demand, especially as our customers’ priorities, resources and economic outlook change, along with other shifting market conditions.

These shifts have occurred and may in the future occur more quickly than we anticipate.

Additionally, due to our subscription-based business model, the full effects of these changes may not be fully reflected in our results of operations until future periods.

If the COVID-19 pandemic continues to have a substantial impact on our employees’, partners’ or customers’ productivity or if the abatement of the pandemic results in decreased demand or a more challenging sales environment, our results of operations and overall financial performance may be harmed.

See Risk Factors for further discussion of the potential impact of the COVID-19 pandemic, including the impact to our business, financial condition and results of operations.

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Financial Results for the Year Ended January 31, 2023

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Capital expenditures (77,654)

Cash, cash equivalents, restricted cash and investments were $898.4 million as of January 31, 2022.

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Cash, cash equivalents, restricted cash and investments were $1.2 billion as of January 31, 2023.

Key Factors Affecting Our Performance

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We are highly focused on continuing to acquire new customers to support our long-term growth.

We have invested, and expect to continue to invest, heavily in our sales and marketing efforts to drive customer acquisition.

As of January 31, 2022, we had a total of over 1.1 million customers, including over 170,000 enterprise and commercial customers, compared to over 890,000 customers and over 120,000 enterprise and commercial customers as of January 31, 2021.

We define a customer as a separate and distinct buying entity, such as a company, an educational or government institution, or a distinct business unit of a large company that has an active contract to access our software platform.

We have invested, and expect to continue to invest in our go-to-market efforts involving a combination of direct sales, partner-assisted sales and digital self-service purchasing.

As of January 31, 2023, we had a total of over 1.3 million customers, including over 211,000 enterprise and commercial customers, compared to over 1.1 million customers and over 170,000 enterprise and commercial customers as of January 31, 2022.

We define enterprise customers as companies generally included in the Global 2000.

We define commercial customers to include both mid-market companies, which includes companies outside the Global 2000 that have greater than 250 employees, and SMBs, which are companies with between 10 and 249 employees, in each case excluding any enterprise customers.

We define commercial customers to include both mid-market companies, which includes companies outside the Global 2000 that have greater than 250 employees, and medium-sized businesses, or SMBs, which are companies with between 10 and 249 employees, in each case excluding any enterprise customers.

We define VSBs as companies with fewer than 10 employees.

We refer to total customers as all enterprises, commercial businesses and VSBs.

We believe that our ability to increase the number of customers using our software platform, particularly the number of enterprise and commercial customers, is an indicator of our market penetration, the growth of our business and our potential future business opportunities.

By increasing awareness of our software platform, further developing our sales and marketing expertise and continuing to build features tuned to different industry needs, we have expanded the diversity of our customer base to include organizations of all sizes across nearly every industry.

We believe that our ability to increase the number of customers using our products, particularly the number of enterprise and commercial customers, is an indicator of our market penetration, the growth of our business and our potential future business opportunities.

By increasing awareness of our products, further developing our sales and marketing expertise and continuing to build features tuned to different industry needs, we have expanded the diversity of our customer base to include organizations of all sizes across nearly every industry.

Retaining and Expanding Contracts with Existing Enterprise and Commercial Customers

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Our enterprise and commercial customers may start with just one use case and gradually implement additional use cases across their organization once they see the benefits of our software platform.

Several of our largest enterprise customers have deployed our software platform for hundreds of use cases across their organizations.

Several of our largest enterprise customers have deployed our products for hundreds of use cases across their organizations.

We believe there is significant expansion opportunity with our customers following their initial adoption of our software platform.

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Our international revenue represented 25%, 23% and 20% of our total revenue in each of the years ended January 31, 2023, 2022, and 2021, respectively.

We started our international selling efforts in English-speaking common law countries, such as Canada, the UK and Australia, where we were able to leverage our core technologies due to similar approaches to e-signature in these jurisdictions and the U.S.

We have since made significant investments to be able to offer our products in select civil law countries.

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SBS supports signatures that involve digital certificates, including those specified in the EU’s eIDAS regulations for advanced and qualified electronic signatures.

In addition, to follow longstanding tradition in Japan, we enable signers to upload and apply their personal eHanko stamp to represent their signatures on an agreement.

We plan to increase our international revenue by leveraging and continuing to expand the investments we have already made in our technology, direct sales force and strategic partnerships, as well as helping existing U.S.-based customers manage agreements across their international businesses.

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We believe there is a substantial opportunity for us to increase our international customer base by leveraging and expanding investments in our technology, direct sales force and strategic partnerships around the world, as well as helping existing U.S.-based customers manage agreements across their international businesses.

We have experienced increased demand across multiple regions and are expanding our sales and marketing resources to capitalize on the potential growth of these markets.

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Investing for Growth

We believe that our market opportunity is large, and we plan to invest to continue to support further growth.

This includes expanding our sales headcount and increasing our marketing initiatives.

We also plan to continue to invest in expanding the functionality of our software platform and underlying infrastructure and technology to meet the needs of our customers across industries.

Our acquisitions, such as Seal Software and Liveoak Technologies, intend to bring additional functionality to our DocuSign Agreement Cloud offerings, as well as the continuous development of new features internally, are examples of our commitment to investing for ongoing growth.

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We believe that our market opportunity is large, and we plan to invest to support further growth.

This includes optimizing our go-to-market efforts to focus on attractive growth opportunities and investing in research and development to drive product innovation and meet customer needs at scale.

We also continue to assess and evaluate strategic acquisitions and investments.

As we focus on infrastructure and technology that best serve our customers across industries, we will prioritize initiatives that accelerate our product capabilities.

We believe these collective activities will lead to continued expansion within our current customers’ organizations and attract new customers.

Components of Results of Operations

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Subscription revenue consists of fees for the use of our software platform and our technical infrastructure and access to customer support, which includes phone or email support.

We typically invoice customers in advance on an annual basis.

We recognize subscription revenue ratably over the term of the contract subscription period beginning on the date access to our software suite is provided.

We typically invoice customers annually in advance.

We recognize subscription revenue ratably over the term of the contract subscription period beginning on the date access to our software platform is provided.

Professional Services and Other Revenue

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Cost of professional services and other revenue consists primarily of personnel costs for our professional services delivery team, travel-related costs and allocated overhead costs.

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Gross Profit and Gross Margin

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As our revenues continue to increase, our operating expenses as a percentage of revenue may increase or decrease at different rates, driven by the timing of revenue recognition, the timing of hiring, our investments in growth and other factors.

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Sales and Marketing Expense

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General and administrative expense consists primarily of employee-related costs for those employees providing administrative services such as legal, human resources, information technology related to internal systems, accounting and finance.

These expenses also include certain third-party consulting services, certain facilities costs, allocated overhead costs and impairment of operating lease right-of-use assets.

These expenses also include certain third-party consulting services, certain facilities costs, allocated overhead costs and impairment of operating lease right-of-use assets and other lease-related charges.

We expect general and administrative expense to increase in absolute dollars to support the overall growth of our operations.

Restructuring and Other Related Charges Restructuring and other related charges consist primarily of costs associated with restructuring plans approved by our Board of Directors.

In connection with these restructuring actions or other exit actions, which were undertaken to improve operating margin and support our growth, scale and profitability objectives, we recognize costs related to termination benefits for former employees whose positions were eliminated, the write-off of facility-related balances, and other costs.

Interest Expense and Loss on Extinguishment of Debt

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General and administrative 316,228 13 232,757 11

Restructuring and other related charges 28,335 1 — —

Total operating expenses 2,067,858 82 1,702,646 81

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Interest expense (6,389) (1) (6,443) —

Loss on extinguishment of debt — — (33,752) (2)

Interest income and other income, net 4,539 — 1,413 —

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Subscription revenue increased $404.9 million, or 20%, in the year ended January 31, 2023.

The increase was primarily due to the expansion of existing customers and the addition of new customers.

This growth was mainly driven by an increase in sales to our mid-market and enterprise customers through our direct and indirect sales channels.

The increase was primarily due to the expansion of existing customers and the addition of new customers, as well as an increase in sales to our mid-market and enterprise customers through our direct and indirect go-to-market initiatives.

We continue to invest in a variety of customer programs and initiatives, which, along with expanded customer use cases, have helped increase our subscription revenue over time.

We expect subscription revenue to continue to increase as we offer new functionality, attract new customers and fully realize the potential of our acquisitions in our product offerings.

We expect subscription revenue to continue to increase as existing customers increase their usage across their organizations while we offer new functionality, develop new products and attract new customers.

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Significant increases consisted of:

• $28.1 million in personnel costs and $10.4 million in stock-based compensation expense primarily due to higher headcount, and annual merit increases;

• $9.2 million in hosting costs, $6.5 million in authentication and processing fees and $5.7 million in third-party partner costs to support the growth in our revenue;

• $15.6 million in depreciation and amortization, which reflects the impact of higher data center costs and capitalized software assets as well as the full-year effect of amortization related to technology intangible assets from certain acquisitions;

• $29.2 million in personnel costs and $15.8 million in stock-based compensation expense primarily due to higher average headcount and annual salary increases;

• $20.8 million in operating costs to support our platform and the growth in our revenue, including a $13.7 million increase in hosting costs and an $8.8 million increase in subscription reseller fees;

• $10.1 million due to higher information technology costs;

Cost of professional service and other revenue increased $18.7 million, or 18%, in the year ended January 31, 2022, due to the increases of $9.4 million in personnel costs and $5.5 million in stock-based compensation expense primarily due to higher headcount and annual salary increases.

• $5.7 million in depreciation and amortization, which reflects the impact of higher data center costs and capitalized software assets.

Cost of professional service and other revenue decreased $12.8 million, or 10%, in the year ended January 31, 2023, due to $11.6 million decrease in personnel costs due to decreasing headcount of our professional services delivery team in fiscal 2023.

Sales and Marketing

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Percentage of revenue 49 % 51 %

Sales and marketing expenses decreased as a percentage of revenue due to savings on personnel costs from the restructuring plan implemented during the third quarter of fiscal 2023 and shifts in the allocation of resources for our go-to-market initiatives.

Sales and marketing expenses increased $166.2 million, or 15%, in the year ended January 31, 2023, primarily driven by investments in workforce and technology support to accommodate the demand for our products and increased interest in digital transformation of agreements.

Significant increases consisted of:

• $151.8 million in personnel costs and $55.7 million in stock-based compensation expense due to higher headcount, annual salary increases, higher commissions in line with higher sales and higher payroll taxes;

• $42.4 million in marketing and advertising expense, primarily due to a $36.1 million increase in spending on online advertising platforms to help capture the continued market interest in our product offering;

• $102.5 million in personnel costs and $35.6 million in stock-based compensation expense due to higher average headcount, annual salary increases, higher commissions in line with higher sales and higher payroll taxes;

• $12.6 million due to higher information technology costs;

• $7.6 million in consulting fees to support our sales and marketing initiatives.

• $8.5 million in travel expenses due to an increase in in-person meetings and events.

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Research and Development

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Research and development expenses increased $87.2 million, or 22%, in the year ended January 31, 2023, primarily due to investments in workforce and technology support to accommodate growth.

Personnel costs, stock-based

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compensation expense and information technology costs increased by $64.3 million, $42.6 million and $10.5 million during the year ended January 31, 2022 due to higher headcount and annual salary increases.

Significant increases consisted of:

• $41.4 million in stock-based compensation expense and $31.4 million in personnel costs due to higher average headcount and annual salary increases;

• $10.4 million due to higher information technology costs.

General and Administrative

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General and administrative expenses increased $83.5 million, or 36%, in the year ended January 31, 2023, primarily due to investments in workforce and technology support to accommodate the operations and growth in our business.

Personnel costs and stock-based compensation expense increased $16.1 million and $7.5 million during the year ended January 31, 2022 due to higher headcount and the impact of annual salary increases.

The expense for the year ended January 31, 2022 also includes a $5.1 million impairment of operating lease right-of-use assets.

Other Income and (Expense)

Year Ended January 31, 2022 vs 2021

(in thousands) 2022 2021

Interest expense $ (6,443) $ (30,799) (79) %

Percentage of revenue — % (2) %

Loss on extinguishment of debt — $ (33,752) (100) %

Percentage of revenue — % (2) %

Interest income and other income, net $ 1,413 $ 8,914 (84) %

Percentage of revenue — % — %

Interest expense decreased $24.4 million during the year ended January 31, 2022, primarily due to lower amortization expense under ASU 2020-06 effective February 1, 2021.

Further details of the ASU 2020-06 adoption are described in N ote 1 to the Consolidated Financial Statements.

During the year ended January 31, 2021, we incurred a loss of $33.8 million upon extinguishment of a portion of our 2023 Notes issued in September 2018.

During the year ended January 31, 2022, we continued to settle principal of the 2023 Notes.

No losses were incurred as a result of the ASU 2020-06 adoption.

See further details in Note 8 to the Consolidated Financial Statements.

Interest income and other income, net included $4.8 million adjustments to fair value of certain strategic investments resulting from observable price changes that occurred during the quarter ended April 30, 2021.

Provision for Income Taxes

Year Ended January 31, 2022 vs 2021

(in thousands, except for percentages) 2022 2021

Provision for income taxes $ 3,062 $ 13,775 (78) %

Percentage of revenue — % 1 %

Provision for income taxes decreased by $10.7 million in the year ended January 31, 2022, primarily due to the impact of non-recurring intercompany tax-related transactions related to historical acquisitions, including an intercompany IP transfer of $12.9 million in the year ended January 31, 2021.

Significant increases consisted of:

• $33.4 million in stock-based compensation expense and $17.6 million in personnel costs due to higher average headcount and annual salary increases;

• $23.4 million in professional fees due to increases in consultant fees to support the implementation of a new enterprise resource planning system, and legal and other fees;

• $7.8 million due to higher information technology costs.

Restructuring and Other Related Charges

Restructuring and other related charges were $28.3 million in the year ended January 31, 2023, due to the implementation of a restructuring plan during the third quarter of fiscal 2023.

Restructuring costs primarily consisted of $27.4 million of employee termination benefits.

There were no restructuring and other related charges in the year ended January 31, 2022.

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Our principal sources of liquidity were cash, cash equivalents and investments as well as cash generated from operations.

As of January 31, 2022, we had $802.8 million in cash and cash equivalents and short-term investments.

As of January 31, 2023, we had $1.0 billion in cash and cash equivalents and short-term investments.

We also had $186.0 million in long-term investments that provide additional capital resources.

We finance our operations primarily through payments by our customers for use of our product offerings and related services and through debt financing.

In September 2018, we issued and sold $575.0 million in aggregate principal amount of 0.5% Convertible Senior Notes due 2023, of which $537.9 million has been settled as of January 31, 2022 .

In January 2021, we issued and sol d $690.0 million in aggregate principal amount of 0% Convertible Senior Notes due 2024.

In January 2021 we entered into a $500.0 million credit facility, which may be increased by an additional $250.0 million subject to customary terms and conditions.

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There were no outstanding borrowings under the credit facility as of January 31, 2023.

In September 2018, we issued and sold $575.0 million in aggregate principal amount of 0.5% Convertible Senior Notes due 2023 (the “2023 Notes”), of which $37.1 million remains unpaid as of January 31, 2023 .

In January 2021, we issued and sol d $690.0 million in aggregate principal amount of 0% Convertible Senior Notes due 2024 (the “2024 Notes”).

We believe that our sources of liquidity, including our cash, cash equivalents and investments, and expected future operating cash flows, and borrowing capacity available to us from our credit facility, are adequate to meet the potential cash commitments for the foreseeable future, including upcoming maturities in the next 12 months related to our 2023 Notes and 2024 Notes as well as other lease obligations.

Further details of these transactions are described in Note 8 to the Consolidated Financial Statements, included in Part II, Item 8 of this Annual Report on Form 10-K.

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Accordingly, collections from our customers have a material impact on our cash flows from operating activities.

Our accounts receivable increased by $117.4 million in the year ended January 31, 2022 , compared to an increase of $73.9 million, excluding the impact from acquisitions, in the year ended January 31, 2021 , which resulted in a $43.5 million decrease in cash provided by operating activities year over year.

Contract liabilities consist of the unearned portion of billed fees for our subscriptions, which is subsequently recognized as revenue in accordance with our revenue recognition policy.

Our contract liabilities increased by $250.5 million in the year ended January 31, 2022, compared to an increase of $267.8 million, excluding the impact from acquisitions, in the year ended January 31, 2021.

The year over year decrease resulted in a $17.3 million increase in cash provided by operating activities.

Our future capital requirements will depend on many factors including our growth rate, customer retention and expansion, inflation, tax withholding obligations related to settlement of our RSUs, the timing and extent of spending to support our efforts to develop our software platform, the expansion of sales and marketing activities and the continuing market acceptance of our software platform.

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Cash Flows from Operating Activities

Cash provided by operating activities was $506.5 million and $297.0 million for the years ended January 31, 2022, and 2021.

The year-over-year improvement of $209.5 million was primarily the result of increased sales and the related cash collections, partially offset by higher operating costs to support growth and increased headcount.

Cash provided by operating activities increased to $506.8 million for the year ended January 31, 2023 from $506.5 million for the year ended January 31, 2022.

Cash provided by operating activities is primarily driven by the timing of customer collections.

In the year ended January 31, 2023, we experienced a decrease in amounts billed to customers and recognized as contract liabilities, partially offset by increased collections of accounts receivable.

Our accounts receivable increased by $76.0 million in the year ended January 31, 2023 , compared to an increase of $117.4 million, in the prior year , which resulted in a $41.4 million increase in cash provided by operating activities year over year.

Our contract liabilities increased by $143.2 million in the year ended January 31, 2023, compared to an increase of $250.5 million in the prior year, which resulted in a $107.3 million decrease in cash provided by operating activities.

Cash Flows from Investing Activities

For the year ended January 31, 2022, cash used in investing activities of $162.9 million was primarily driven by $93.4 million net purchases of marketable securities, $61.4 million purchases of property and equipment as we continued to invest in data center build outs to support our growing operations and capitalized software development projects.

For the year ended January 31, 2023, cash used in investing activities of $191.2 million was primarily driven by $109.8 million net purchases of marketable securities and $77.7 million purchases of property and equipment as we continued to invest in data center build outs to support our growing operations and capitalized software development projects.

For the year ended January 31, 2022, cash provided by investing activities of $162.9 million was primarily driven by $93.4 million net purchases of marketable securities and $61.4 million purchases of property and equipment as we continued to invest in data center build outs to support our growing operations and capitalized software development projects.

In addition, we used $6.4 million to pay for acquisitions.

For the year ended January 31, 2021, cash provided by investing activities of $81.2 million was primarily driven by $352.5 million net maturities and sales of marketable securities, of which $180.4 million was used to fund acquisitions.

We also paid $82.4 million for the purchases of property and equipment as we continued to invest in data center build outs to support our growing operations, capitalized software development projects, and completed several office build outs.

Cash Flows from Financing Activities

For the year ended January 31, 2022, cash used in financing activities of $394.6 million was primarily driven by $316.7 million payments for tax withholding on share settlements, net of proceeds associated with equity plans.

For the year ended January 31, 2023, cash used in financing activities of $98.3 million was primarily driven by $63.0 million used to repurchase 1.1 million shares of common stock at an average of $55.52 per share through our stock repurchase program which commenced in fiscal 2023, and $35.2 million payments for tax withholding on share settlements, net of proceeds associated with our equity plans.

We also used $77.9 million for repayments of our 2023 Notes.

For the year ended January 31, 2021, cash used in financing activities of $59.0 million was primarily driven by $318.3 million payments for tax withholding on share settlements, net of proceeds associated with equity plans.

This was partially offset by $261.8 million of net proceeds from the issuance of our 2024 Notes, described in Note 8 to the Consolidated Financial Statements.

Obligations and Commitments

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Critical Accounting Policies and Estimates

W e prepare our financial statements in accordance with GAAP.

W e prepare our financial statements in accordance with generally accepted accounting principles (“GAAP”).

Preparing these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures.

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Our actual results could differ from these estimates.

The critical accounting estimates, assumptions and judgments that we believe to have the most significant impact on our consolidated financial statements are revenue recognition, deferred contract acquisition costs, stock-based compensation, business combinations, valuation of acquired intangible assets in business combinations and income taxes.

Revenue Recognition

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Stock-based Compensation

We issue stock-based awards to employees, including RSUs, purchase rights granted under our ESPP and stock options.

We issue stock-based awards to employees, including restricted stock units (“RSUs”), purchase rights granted under our Employee Stock Purchase Plan (“ESPP”) and stock options.

We measure the fair value of these awards at the grant date and recognize such fair value as expense over the service period.

The fair value of RSUs is determined by the fair value of our underlying common stock, the fair value of stock options and ESPP purchase rights are determined by the Black-Scholes option pricing model and the fair value of RSUs granted with a market condition is determined by a lattice model simulation analysis.

The fair value of RSUs is determined by the fair value of our underlying common stock.

From time to time, we grant RSUs that also include performance-based or market-based conditions.

For RSUs granted with a market condition, we use a Monte Carlo option-pricing model to determine the fair value of the RSUs.

The fair value of stock options and ESPP purchase rights are determined by the Black-Scholes option pricing model.

For RSUs with a performance condition, we assess the probability that such performance conditions will be met or achieved every reporting period.

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To the extent our actual forfeiture rate is different from our estimate, stock-based compensation expense is adjusted accordingly.

Valuation of Acquired Intangible Assets in Business Combinations

At the acquisition date, we determine the fair value of such assets and liabilities, we make significant estimates and assumptions, especially with respect to acquired intangible assets.

Key assumptions include, but are not limited to:

• future cash flows from our revenue streams net of customer attrition;

• the acquired company's existing customer relationships;

• royalty rates;

• discount rates.

These estimates and assumptions are subjective.

Our ability to realize the future cash flows used in our fair value calculations may be affected by changes in our financial condition, financial performance or business strategies.

Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain.

During the measurement period of up to one year, from the acquisition date, based on new information obtained that relates to the facts and circumstances that existed as of the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

We record adjustments identified, if any, subsequent to the end of the measurement period in our consolidated statement of operations.

We use the asset and liability method of accounting for income taxes.

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Any revisions in the estimates of potential liabilities could have a material impact on our operating results and financial position.

Further, until the final resolution of

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any such matter, there may be a loss exposure in excess of the liability recognized and such amount could be significant.

Further, until the final resolution of any such matter, there may be a loss exposure in excess of the liability recognized and such amount could be significant.

Recent Accounting Pronouncements

8 unchanged sentences

Non-GAAP gross profit, non-GAAP gross margin, non-GAAP income from operations, non-GAAP operating margin and non-GAAP net income :

We define these non-GAAP financial measures as the respective GAAP measures, excluding expenses related to stock-based compensation, employer payroll tax on employee stock transactions, amortization of acquisition-related intangibles, amortization of debt discount and issuance costs, acquisition-related expenses, loss on extinguishment of debt, fair value adjustments to strategic investments, impairment of operating lease right-of-use assets, tax impact related to an intercompany IP transfer and, as applicable, other special items.

We define these non-GAAP financial measures as the respective GAAP measures, excluding expenses related to stock-based compensation, employer payroll tax on employee stock transactions, amortization of acquisition-related intangibles, amortization of debt discount and issuance costs, acquisition-related expenses, loss on extinguishment of debt, fair value adjustments to strategic investments, executive transition costs, lease-related impairment and lease-related charges, restructuring and other related charges, tax impact related to an intercompany IP transfer and, as applicable, other special items.

The amount of employer payroll tax-related items on employee stock transactions is dependent on our stock price and other factors that are beyond our control and do not correlate to the operation of the business.

1 unchanged sentence

We believe it is useful to exclude these expenses in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies and over multiple periods.

In addition to these exclusions, we subtract an assumed provision for income taxes to calculate non-GAAP net income.

We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision to provide better consistency across the reporting periods.

For fiscal 2023, we determined the projected non-GAAP tax rate to be 20%.

Free cash flow :

16 unchanged sentences

Employer payroll tax on employee stock transactions 2,184 7,524 5,904

Lease-related impairment and lease-related charges 1,090 — —

Non-GAAP gross profit $ 2,065,388 $ 1,718,455 $ 1,148,603

6 unchanged sentences

Employer payroll tax on employee stock transactions 1,393 3,703 2,862

Lease-related impairment and lease-related charges 447 — —

Non-GAAP subscription gross profit $ 2,074,469 $ 1,740,136 $ 1,156,112

5 unchanged sentences

Employer payroll tax on employee stock transactions 791 3,821 3,042

Lease-related impairment and lease-related charges 643 — —

Non-GAAP professional services and other gross loss $ (9,081) $ (21,681) $ (7,509)

10 unchanged sentences

Acquisition-related expenses — 387 7,962

Impairment of operating lease right-of-use assets 5,099 — —

Restructuring and other related charges 28,335 — —

Executive transition costs 2,634 — —

Lease-related impairment and lease-related charges 7,181 5,099 —

Non-GAAP income from operations $ 516,846 $ 419,106 $ 180,644

6 unchanged sentences

(in thousands, except per share data) 2023 2022 2021

GAAP net loss $ (69,976) $ (243,267) $ (208,359)

GAAP net income (loss) $ (97,454) $ (69,976) $ (243,267)

Stock-based compensation 533,100 408,542 286,877

5 unchanged sentences

Tax expense related to intercompany IP transfer (1)

Impairment of operating lease right-of-use assets 5,099 — —

Restructuring and other related charges 28,335 — —

Executive transition costs 2,634 — —

Lease-related impairment and lease-related charges 7,181 5,099 —

Fair value adjustments to strategic investments 3,689 (5,270) —

Income Tax effect of non-GAAP adjustments (2)

Non-GAAP net income $ 418,924 $ 410,842 $ 182,279

(1) Represents net change in tax liabilities related to an intercompany IP transfer

(2) Represents the income tax adjustment using our estimated non-GAAP tax rate of 20%.

Estimating a non-GAAP tax rate of 20%, the income tax effect of non-GAAP adjustments was $79.7 million for the year ended January 31, 2022 and $32.9 million for the year ended January 31, 2021.

Computation of free cash flow:

5 unchanged sentences

Net cash (used in) provided by investing activities $ (191,197) $ (162,909) $ 81,229

Net cash (used in) provided by financing activities $ (394,621) $ (58,976) $ (70,455)

Net cash used in financing activities $ (98,256) $ (394,621) $ (58,976)

Computation of billings:

11 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis