What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-21 compared with 2023-03-27 · 115 added, 103 removed, 342 unchanged (39% of the section changed)

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Executive Overview of Fiscal 2024 Results

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.

DocuSign offers products that address agreement workflows and digital transformation as part of its agreement management platform, enabling agreements to be signed electronically on a wide variety of devices, from virtually anywhere in the world, securely.

DocuSign’s core product offerings, including the world’s leading electronic signature product, allow organizations to do business faster with less risk and at a lower cost, while providing a better experience for customers.

As a result, over 1.5 million customers and more than a billion users worldwide utilize our platform to accelerate and simplify the process of doing business.

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.

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To drive customer reach and adoption, we also offer for free certain limited-time or feature-constrained versions of our platform.

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.

We generate substantially all our revenue from sales of subscriptions, which accounted for 97% of our revenue in each of the years ended January 31, 2024, 2023 and 2022.

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.

DocuSign, Inc.| 2024 Form 10-K | 43

We also generate revenue from professional and other non-subscription services, which consists primarily of fees associated with providing new customers deployment and integration services.

Other revenue includes amounts derived from sales of on-premises solutions.

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

Professional services and other revenue accounted for the remainder of total revenue in each of the years ended January 31, 2024, 2023 and 2022.

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 an omnichannel go-to-market approach that consists of direct sales, partners to sell to our customers, and digital self-serve.

We offer more than 900 active partner integrations with the applications that many of our customers already use so that they can create, commit, and manage agreements directly within these applications.

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

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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.

The number of our customers with greater than $300,000 in annualized contract value was 1,060 customers as of January 31, 2024 compared 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.

DocuSign, Inc.| 2023 Form 10-K | 41

VSBs typically become customers by quickly utilizing our digital and self-serve channels 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.

Financial Results for the Year Ended January 31, 2024

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Total stock-based compensation expense 616,847

Loss from operations (88,031)

Net loss (97,454)

Income from operations 31,634

Net income 73,980

Cash provided by operating activities 979,526

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We believe that our future performance will depend on many factors, including the following:

Investing for Growth

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 and expand our product solutions.

We believe these collective activities will help us retain and expand within our current customers’ organizations and attract new customers.

DocuSign, Inc.| 2024 Form 10-K | 44

Growing Customer Base

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 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 have invested, and expect to continue to invest in our go-to-market efforts involving an omnichannel approach that consists of direct sales, partner-assisted sales and digital self-service purchasing.

As of January 31, 2024, we had a total of over 1.5 million customers, including approximately 242,000 enterprise and commercial customers, compared to over 1.3 million customers and approximately 211,000 enterprise and commercial customers as of January 31, 2023.

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 medium-sized businesses, or 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 (“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.

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Many of our customers have increased spend with us as they have expanded their use of our offerings in both existing and new use cases across their front or back office operations.

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 products for hundreds of use cases across their organizations.

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 products.

Several of our largest enterprise customers have deployed our software platform 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.

Increasing International Revenue

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.

Our international revenue represented 26%, 25% and 23% of our total revenue in each of the years ended January 31, 2024, 2023, and 2022.

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 electronic 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.

For example, in Europe, we offer Standards-Based Signature (“SBS”) technology tailored for eIDAS.

For example, in Europe, we offer SBS technology tailored for the EU’s eIDAS regulations.

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

DocuSign, Inc.| 2023 Form 10-K | 42

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.

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

Additionally, we expect to continue to develop and enhance our strategic partnerships in key international markets as we grow internationally.

Investing for Growth

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.

DocuSign, Inc.| 2024 Form 10-K | 45

Components of Results of Operations

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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.

DocuSign, Inc.| 2023 Form 10-K | 43

Gross Profit and Gross Margin

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We expect that gross profit and gross margin will continue to be affected by various factors including our pricing, timing and amount of investment to maintain or expand our hosting capability, the growth of our software platform support and professional services team, stock-based compensation expenses, amortization of costs associated with capitalized internal use software and acquired intangible assets and allocated overhead costs.

DocuSign, Inc.| 2024 Form 10-K | 46

Operating Expenses

Our operating expenses consist of sales and marketing, research and development and general and administrative expenses.

Our operating expenses consist of sales and marketing, research and development, general and administrative, and restructuring and other related charges.

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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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 and other lease-related charges.

These expenses also include certain third-party consulting services, certain facilities costs, allocated overhead costs and lease-related charges.

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

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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

Interest expense consists primarily of contractual interest expense, amortization of discount and amortization of debt issuance costs on our Notes.

The loss on extinguishment of debt consists of the difference between the fair value and the net carrying value of our Notes at settlement.

Interest Expense

Interest expense consists primarily of contractual interest expense and amortization of debt issuance costs on our Convertible Senior Notes due 2023 and our Convertible Senior Notes due 2024 (collectively, the “Notes”).

Interest Income and Other Income, Net

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Provision for Income Taxes

Our provision for income taxes consists primarily of income taxes in certain foreign jurisdictions where we conduct business, and tax benefits arising from deductions for stock-based compensation.

Our provision for income taxes consists primarily of income taxes in certain foreign jurisdictions where we conduct business and U.S.

income taxes from a tax law change related to mandatory capitalization of research and development expenses for tax years starting January 1, 2022.

We have a valuation allowance against our U.S.

consolidated group and certain foreign deferred tax assets.

We expect to maintain this valuation allowance for the foreseeable future or until it becomes more likely than not that the benefit of these U.S.

and foreign deferred tax assets will be realized by way of expected future taxable income.

consolidated group and certain foreign deferred tax assets and will release the valuation allowance when there is sufficient positive evidence to support a conclusion that it is more likely than not the deferred tax assets will be realized.

Depending on our operating results in the future, we may release the valuation allowance associated with the U.S.

deferred tax assets within the next year.

The timing and amount of the valuation allowance release could vary based on our assessment of all available evidence.

Release of all, or a portion, of the valuation allowance would result in the recognition of certain deferred tax assets and may result in a material decrease to income tax expense for the period the release is recorded.

DocuSign, Inc.| 2024 Form 10-K | 47

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Total operating expenses 2,157,627 78 2,067,858 82

Loss from operations (88,031) (3) (61,884) (3)

Income (loss) from operations 31,634 1 (88,031) (3)

Interest expense (6,844) — (6,389) (1)

Interest income and other income, net 68,889 2 4,539 —

Loss before provision for income taxes (89,881) (4) (66,914) (3)

Income (loss) before provision for income taxes

93,679 3 (89,881) (4)

Provision for income taxes 19,699 — 7,573 —

Net loss $ (97,454) (4) % $ (69,976) (3) %

Net income (loss) $ 73,980 3 % $ (97,454) (4) %

For a comparison of our results of operations for the fiscal years ended January 31, 2023 and 2022, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended January 31, 2023, filed with the SEC on March 27, 2023.

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Subscription revenue increased $244.5 million, or 10%, in the year ended January 31, 2024.

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.

The increase was primarily due to the expansion of revenue from existing customers and the addition of new customers, as well as an increase in sales to our commercial 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 existing customers increase their usage across their organizations while we offer new functionality, develop new products and attract new customers.

DocuSign, Inc.| 2024 Form 10-K | 48

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Cost of subscription revenue increased $33.8 million, or 8%, in the year ended January 31, 2024, primarily driven by higher costs to support our growing customer base.

Significant increases consisted of:

• $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;

Increases primarily consisted of:

• $13.3 million in operating costs to support our platform and revenue growth, including increases in hosting costs as well as processing and authentication costs;

• $7.1 million due to higher information technology costs;

• $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.

• $6.9 million in depreciation on our capitalized software projects.

Sales and Marketing

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Percentage of revenue 42 % 49 %

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:

• $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;

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

DocuSign, Inc.| 2023 Form 10-K | 46

Sales and marketing expenses decreased $74.6 million, or 6%, in the year ended January 31, 2024, primarily driven by savings on personnel costs from the restructuring plans implemented during the third quarter of fiscal 2023 and the first quarter of fiscal 2024 as well as shifts in the allocation of resources for our go-to-market initiatives.

Decreases primarily consisted of:

• $31.5 million in marketing and advertising costs due to reduced spending on paid media in line with our go-to-market strategy and expansion of our self-serve experience;

• $21.3 million in personnel costs and $18.5 million in stock-based compensation expense due to lower headcount, partially offset by higher commissions in line with higher sales and annual merit increases.

Research and Development

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Percentage of revenue 20 % 19 %

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.

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.

Research and development expenses increased $58.9 million, or 12%, in the year ended January 31, 2024, primarily due to investments in our workforce and product innovation.

Increases primarily consisted of:

• $34.2 million in stock-based compensation expense and $15.1 million in personnel costs due to annual merit increases;

• $11.9 million due to higher information technology costs to drive product innovation.

DocuSign, Inc.| 2024 Form 10-K | 49

General and Administrative

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Percentage of revenue 15 % 13 %

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.

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;

General and administrative expenses increased $103.4 million, or 33%, in the year ended January 31, 2024, primarily due to investments in workforce and information technology.

Increases primarily consisted of:

• $55.6 million in stock-based compensation expense driven by charges due to executive new hire grants and transitions and annual merit increases;

• $27.8 million in personnel costs driven by annual salary increases to align with the increasing cost of labor;

• $11.4 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.

Other Income and Expense

Year Ended January 31, 2024 vs 2023

(in thousands) 2024 2023

Interest expense $ (6,844) $ (6,389) 7 %

Percentage of revenue — % (1) %

Interest income and other income, net $ 68,889 $ 4,539 1,418 %

Percentage of revenue 2 % — %

Interest income and other income, net increased by $64.4 million in the year ended January 31, 2024.

Increases primarily consisted of:

• $44.3 million increase in interest income due to rising interest rates;

• $8.8 million increase in accretion of investments purchased at a discount as the investments near maturity;

• $7.4 million reduction of our net foreign currency exchange loss due to the strengthening of the euro and British pound compared to the U.S.

Provision for Income Taxes

Year Ended January 31, 2024 vs 2023

(in thousands) 2024 2023

Provision for income taxes $ 19,699 $ 7,573 160 %

Percentage of revenue — % — %

The provision for income taxes increased by $12.1 million in the year ended January 31, 2024 .

The increase in the provision for income taxes in the current year is a result of higher pre-tax income and limitations on net operating losses allowed to reduce taxable income.

DocuSign, Inc.| 2024 Form 10-K | 50

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

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.

The credit facility is available for five years until January 11, 2026 to optimize our capital structure and strengthen our balance sheet.

In January 2021 we entered into a $500.0 million credit facility, as amended in May 2023, which may be increased by an additional $250.0 million subject to customary terms and conditions.

The credit facility is available until January 11, 2026 to optimize our capital structure and strengthen our balance sheet.

There were no outstanding borrowings under the credit facility as of January 31, 2024.

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 September 2018, we issued and sold $575.0 million in aggregate principal amount of 0.5% Convertible Senior Notes due 2023 (the “2023 Notes”).

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.

We fully settled the outstanding principal of the 2023 Notes and 2024 Notes and during the year ended January 31, 2024.

Further details of these transactions are described in Not e 7 to the Consolidated Financial Statements, included in Part II, Item 8 of this Annual Report on Form 10-K.

We were in compliance with all debt covenants at January 31, 2024.

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While we generated positive cash flows from operations in the recent years, we have generated losses from operations in the past as reflected in our accumulated deficit of $1.7 billion as of January 31, 2024.

We expect to continue to incur operating losses for the foreseeable future due to the investments we intend to make and may require additional capital resources to execute strategic initiatives to grow our business.

We may continue to incur operating losses in the foreseeable future due to the investments we intend to make and may require additional capital resources to execute strategic initiatives to grow our business.

We typically invoice our customers annually in advance.

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Cash Flows from Operating Activities

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 provided by operating activities was $979.5 million for the year ended January 31, 2024.

Our primary sources of cash provided by operating activities were billings and the related cash collections in addition to interest income due to favorable interest rates.

Our primary uses of cash include the payment of employee salaries and benefits, including the payment of termination benefits under the 2024 Restructuring plan, in addition to vendor payments.

Cash provided by operating activities was $506.8 million for the year ended January 31, 2023.

Cash provided by operating activities increased slightly due to increases in collections of accounts receivable and higher revenues, partially offset by a decrease in amounts billed to customers and recognized as contract liabilities.

Cash Flows from Investing Activities

For the year ended January 31, 2024, cash provided by investing activities of $44.6 million was primarily driven by $137.6 million net maturities of marketable securities.

The increase was partially offset by purchases of property and equipment of $92.4 million as we continue to support operations at our data centers and invest in 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.

Cash Flows from Financing Activities

For the year ended January 31, 2024, cash used in financing activities of $946.0 million was primarily driven by the maturity of the Notes, stock repurchase program, and payments related to our equity plans.

We fully repaid the 2023 Notes and 2024 Notes during fiscal 2024 for $727.0 million.

We also used $145.5 million to repurchase 3.1 million shares of common stock at an average of $47.57 per share through our stock repurchase program.

In addition, we made $97.2 million payments for tax withholding on share settlements, net of proceeds associated with our equity plans.These cash outflows were partially offset by $23.7 million received in connection with the settlement of our Capped Calls in relation to our 2023 Notes.

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.

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 our equity plans.

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

Obligations and Commitments

Our principal contractual obligations and commitments consist of obligations under the Notes (including principal and coupon interest), operating leases, as well as noncancelable contractual commitments that primarily relate to cloud infrastructure support and sales and marketing activities .

Refer to Note 8 , Note 9 and Note 10 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for more information.

Our principal contractual obligations and commitments consist of operating leases, as well as noncancelable contractual commitments that primarily relate to cloud infrastructure support and sales and marketing activities .

Refer to Not e 7 , Not e 8 and Note 9 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for more information.

We do not have any special purpose entities and we do not engage in off-balance sheet financing arrangements.

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The period of benefit for commissions paid for the acquisition of the initial subscription contract is determined by considering our customer life and the technological life of our software platform and related significant features.

The period of benefit for commissions on renewal subscription contracts is determined by considering the average contractual term for our renewal contracts.

The period of benefit for commissions on renewal subscription contracts is determined by considering the weighted average contractual term for our renewal contracts.

Periodically, we evaluate these factors and review whether events or changes in circumstances have occurred that could impact the period of benefit.

Any future changes in circumstances around our customer life and average contractual terms of renewal contracts may materially change the periods of benefit and therefore the amortization amounts recognized in our consolidated statement of operations and comprehensive loss.

Any future changes in circumstances around our customer life and weighted average contractual terms of renewal contracts may materially change the periods of benefit and therefore the amortization amounts recognized in our consolidated statement of operations and comprehensive income (loss).

Stock-based Compensation

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As we expand internationally, we will face increased complexity in determining the appropriate tax jurisdictions for revenue and expense items, and as a result, we may record unrecognized tax benefits in the future.

At that time, we would make adjustments to these potential future reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate.

At that time, we would make adjustments to these potential future reserves when facts and circumstances change, such as the closing of a tax audit or when the refinement of an estimate is appropriate.

Our estimate of the potential outcome of any uncertain tax position is subject to management's assessment of relevant risks, facts and circumstances existing at that time.

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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, 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.

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, fair value adjustments to strategic investments, executive transition costs, lease-related impairment and lease-related charges, restructuring and other related charges 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.

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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%.

For fiscal 2023 and fiscal 2024, we have determined the projected non-GAAP tax rate to be 20%.

Free cash flow :

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Only amounts invoiced to a customer in a given period are included in billings.

We believe billings is a key metric to measure our periodic performance.

We believe billings can be used to measure our periodic performance, when taking into consideration the timing aspects of customer renewals, which represents a large component of our business.

Given that most of our customers pay in annual installments one year in advance, but we typically recognize a majority of the related revenue ratably over time, we use billings to measure and monitor our ability to provide our business with the working capital generated by upfront payments from our customers.

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(in thousands) 2024 2023 2022

GAAP loss from operations $ (88,031) $ (61,884) $ (173,855)

GAAP income (loss) from operations $ 31,634 $ (88,031) $ (61,884)

Stock-based compensation 611,835 533,100 408,542

1 unchanged sentence

Employer payroll tax on employee stock transactions 13,682 12,921 42,192

Acquisition-related expenses — 387 7,962

Restructuring and other related charges 30,381 28,335 —

Executive transition costs 2,634 — —

Lease-related impairment and lease-related charges 4,460 7,181 5,099

Executive transition costs — 2,634 —

Acquisition-related expenses — — 387

Non-GAAP income from operations $ 711,367 $ 516,846 $ 419,106

10 unchanged sentences

Employer payroll tax on employee stock transactions 13,682 12,921 42,192

Acquisition-related expenses — 387 7,962

Amortization of debt discount and issuance costs 5,175 4,970 5,098

Loss on extinguishment of debt — — 33,752

Tax expense related to intercompany IP transfer (1)

Fair value adjustments to strategic investments 22 3,689 (5,270)

Restructuring and other related charges 30,381 28,335 —

Executive transition costs 2,634 — —

Lease-related impairment and lease-related charges 4,460 7,181 5,099

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

Executive transition costs — 2,634 —

Acquisition-related expenses — — 387

Income Tax effect of non-GAAP adjustments (1)

(136,023) (97,158) —

Non-GAAP net income $ 622,887 $ 418,924 $ 410,842

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

(1) 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.

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.

Computation of free cash flow:

4 unchanged sentences

Non-GAAP free cash flow $ 887,135 $ 429,105 $ 445,071

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

Net cash provided by (used in) investing activities $ 44,612 $ (191,197) $ (162,909)

Net cash used in financing activities $ (946,039) $ (98,256) $ (394,621)

7 unchanged sentences

Contract assets and unbilled accounts receivable, end of period (20,189) (16,615) (18,273)

Contract assets and unbilled accounts receivable contributed by acquisitions — — 6,589

Contract liabilities and refund liability contributed by acquisitions — — (9,344)

Non-GAAP billings $ 2,910,831 $ 2,659,736 $ 2,358,127

1 unchanged sentence

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