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Item 7. Management’s Discussion and Analysis

2024-02-22 compared with 2023-02-23 · 93 added, 81 removed, 138 unchanged (56% of the section changed)

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You should read the following discussion in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K.

You should carefully review and consider the information regarding our financial condition and results of operations set forth under Part I-Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 22, 2022, for an understanding of our results of operations and liquidity discussions and analysis comparing fiscal year 2021 to fiscal year 2020, which information is hereby incorporated by reference. In addition to historical information, this discussion contains forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from our expectations, as discussed in "Forward-Looking Statements" in Part I of this Annual Report on Form 10-K.

You should carefully review and consider the information regarding our financial condition and results of operations set forth under Part II-Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 23, 2023, for an understanding of our results of operations and liquidity discussions and analysis comparing fiscal year 2022 to fiscal year 2021, which information is hereby incorporated by reference.

In addition to historical information, this discussion contains forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from our expectations, as discussed in "Forward-Looking Statements" in Part I of this Annual Report on Form 10-K.

Factors that could cause such differences include, but are not limited to, those described in the section titled "Risk Factors" and elsewhere in this Annual Report on Form 10-K.

We are a pioneer and leading provider of a cloud-based platform delivering IT, security and compliance solutions that enable organizations to identify security risks to their IT infrastructures, help protect their IT systems and applications from ever-evolving cyber-attacks and achieve compliance with internal policies and external regulations.

Our cloud solutions address the growing security and compliance complexities and risks that are amplified by the dissolving boundaries between internal and external IT infrastructures and web environments, the rapid adoption of cloud computing, containers and serverless IT models, and the proliferation of geographically dispersed IT assets.

Our integrated suite of IT, security and compliance solutions delivered on our Qualys Cloud Platform enables our customers to identify and manage their IT assets, collect and analyze large amounts of IT security data, discover and prioritize vulnerabilities, recommend and implement remediation actions and verify the implementation of such actions.

Organizations use our integrated suite of solutions to cost-effectively obtain a unified view of their IT asset inventory as well as security and compliance posture across globally-distributed IT infrastructures as our solution offers a single platform for information technology, information security, application security, endpoint, developer security and cloud teams.

We are a pioneer and leading provider of a cloud-based platform delivering information technology (IT), security and compliance solutions that enable organizations to identify security risks to their IT infrastructures, help protect their IT systems and applications from ever-evolving cyber-attacks and achieve compliance with internal policies and external regulations.

Our cloud platform address the growing security and compliance complexities and risks that are amplified by the dissolving boundaries between IT infrastructures and web environments, the rapid adoption of cloud computing, containers and serverless IT models, and the proliferation of geographically dispersed IT assets.

Our integrated suite of IT, security and compliance solutions delivered on Qualys' Enterprise TruRisk Platform enables our customers to identify and manage their IT and operational technology (OT) assets, collect and analyze large amounts of IT security data, discover and prioritize vulnerabilities, quantify cyber risk exposure, recommend and implement remediation actions and verify the implementation of such actions.

Organizations use our integrated suite of solutions to cost-effectively obtain a unified view of their internal and external IT and OT asset inventory as well as security and compliance posture across globally-distributed IT infrastructures as our solution offers a single platform for information technology, information security, application security, endpoint, developer security and cloud teams.

We were founded and incorporated in December 1999 with a vision of transforming the way organizations secure and protect their IT infrastructure and applications and initially launched our first cloud solution, Vulnerability Management (VM), in 2000.

As VM gained acceptance, we introduced additional solutions to help customers manage increasing IT, security and compliance requirements.

Today, the suite of solutions that we offer on our cloud platform and refer to as the Qualys Cloud Apps helps our customers protect a range of assets across on-premises, endpoints, cloud, containers, and mobile environments.

These Cloud Apps address and include:

Vulnerability Management (VM),  

Vulnerability Management, Detection and Response (VMDR), Threat Protection (TP), Continuous Monitoring (CM), Patch Management (PM), Multi-Vector Endpoint Detection and Response (EDR), Certificate Assessment (CRA), SaaS Detection and Response (SaaSDR), Secure Enterprise Mobility (SEM), Custom Assessment and Remediation (CAR), Context Extended Detection and Response (XDR), Network Detection and Response (NDR);

Policy Compliance (PC), Security Configuration Assessment (SCA), PCI Compliance (PCI), File Integrity Monitoring (FIM), Security Assessment Questionnaire (SAQ), Out of-Band Configuration Assessment (OCA);

Web Application Security:

Web Application Scanning (WAS), Web Application Firewall (WAF);

Asset Management:

Global AssetView (GAV), Cybersecurity Asset Management (CSAM), Certificate Inventory (CRI);

Cloud/Container Security:

Cloud Inventory (CI), Cloud Security Assessment (CSA), Container Security (CS).

Today, the suite of solutions that we offer on our cloud platform and refer to as the Qualys Cloud Apps help our customers detect, measure, prioritize and remediate cyber risk spanning a range of assets across on-premises, endpoints, cloud, containers, and mobile environments.

We provide our solutions through a software-as-a-service model, primarily with renewable annual subscriptions.

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We sell our solutions to enterprises and government entities primarily through our field sales force and to small and medium-sized businesses through our inside sales force.

We generate a significant portion of sales through our channel partners, including managed security service providers, value-added resellers and consulting firms in the United States and internationally.

We generate a significant portion of sales through our channel partners, including managed security service providers, leading cloud providers, value-added resellers and consulting firms in the United States and internationally.

Impacts of Current Macroeconomic Environment

The uncertainty surrounding macroeconomic factors in the U.S.

and globally characterized by COVID-19, the supply chain environment, inflationary pressure, rising interest rates, labor shortages, significant volatility of global markets and geopolitical conflicts have had and could in the future have a material adverse effect on our long-term business and could lead to further economic disruption and expose us to greater risk as our current and potential customers may reduce or eliminate their overall spending on IT security. We will continue to evaluate the nature and extent of the impact to our business, financial position, results of operations and cash flows.

and globally characterized by the supply chain environment, inflationary pressure, rising interest rates, financial institution failures and associated uncertainty, labor shortages, significant volatility of global markets, reduced spending and extended sales cycles, and geopolitical conflicts could have a material adverse effect on our long-term business and could lead to further economic disruption and expose us to greater risk as our current and potential customers may reduce or eliminate their overall spending on IT security.

We will continue to evaluate the nature and extent of the impact to our business, financial position, results of operations and cash flows.

Key Components of Results of Operations

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The subscription fee entitles the customer to an unlimited number of scans for a specified number of devices or web applications and, if requested by a customer as part of their subscription, a specified number of physical or virtual scanner appliances.

Our physical and virtual scanner appliances are requested by certain customers as part of their subscriptions in order to scan IT infrastructures within their firewalls and do not function without, and are not sold separately from, subscriptions for our solutions.

In some cases, we also provide certain computer equipment used to extend our Qualys Cloud Platform into our customers' private cloud environment.

In some cases, we also provide certain computer equipment used to extend our cloud platform into our customers' private cloud environment.

Customers are required to return physical scanner appliances and computer equipment if they do not renew their subscriptions.

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Cost of revenues consists primarily of personnel expenses, comprised of salaries, benefits, performance-based compensation and stock-based compensation, for employees who operate our shared cloud platforms and provide support services to our customers.

Other expenses include depreciation of shared cloud platform equipment, physical scanner appliances and computer hardware provided to certain customers as part of their subscriptions, expenses related to the use of third-party shared cloud platforms and cloud infrastructures, amortization of software and license fees, amortization of intangibles related to acquisitions, maintenance support, fees paid to contractors who supplement or support our operations center personnel and overhead allocations.

We expect to continue to make capital investments to expand and support our shared cloud platform and cloud infrastructure operations, which will increase the cost of revenues in absolute dollars.

Other expenses include depreciation of shared cloud platform equipment, physical scanner appliances and computer hardware provided to certain customers as part of their subscriptions, expenses related to the use of shared cloud platforms, amortization of software and license fees, amortization of intangibles related to acquisitions, maintenance support, fees paid to contractors who supplement or support our operations center personnel and overhead allocations.

We expect to continue to expand our shared cloud platform infrastructures and hire additional employees to support our operations, which will increase the cost of revenues in absolute dollars.

Operating Expenses

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General and Administrative

General and administrative expenses consist primarily of personnel expenses, comprised of salaries, benefits, performance-based compensation and stock-based compensation for our executive, finance and accounting, IT, legal and human resources teams, as well as professional services, fees, software licenses and overhead allocations.

General and administrative expenses consist primarily of personnel expenses, comprised of salaries, benefits, performance-based compensation and stock-based compensation for our executive, finance and accounting, IT, legal and human resources teams, as well as professional services, fees, software licenses and overhead allocations.

We expect that general and administrative expenses will increase in absolute dollars, as we continue to add personnel and incur professional services to support our growth and compliance with legal requirements.

Other Income (Expense), Net

Our other income (expense), net consists primarily of interest and investment income from our short-term and long-term marketable securities and foreign exchange gains and losses, the majority of which result from fluctuations between the U.S.

Dollar and the Euro, British Pound ("GBP") and Indian Rupee ("INR").

Our other income (expense), net consists primarily of interest and returns from our short-term and long-term marketable securities, non-marketable securities gains and losses, and foreign exchange gains and losses.

Income Tax Provision

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Earnings from our non-U.S.

activities are subject to income taxes in the local countries at rates which were generally similar to the U.S.

statutory tax rate. 

activities are subject to income taxes in the local countries at rates which are generally similar to the U.S.

statutory tax rate.

We regularly assess the realizability of our net deferred tax assets.

As of December 31, 2023, valuation allowances remain in certain jurisdictions where we believe it is necessary to see further positive evidence, such as sustained achievement of sufficient profits to meet a more likely than not stance that the valuation allowance should be reversed.

If additional positive evidence becomes available in the foreseeable future, we may release all or a portion of the valuation allowance.

The exact timing and amount of the valuation allowance release is subject to change based on the level of profitability achieved in future periods.

Release of the valuation allowance would result in the recognition of deferred tax assets and a corresponding decrease to income tax expense in the period the release is recorded.

Results of Operations

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Year Ended December 31,

Revenues 100 % 100 %

Cost of revenues 19 21

Gross profit 81 79

Operating expenses:

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Income tax provision 5 5

Net income 27 % 22 %

Comparison of Years Ended December 31, 2023 and 2022

December 31, Change

2023 2022 $ %

(in thousands, except percentages)

Revenues increased by $78.6 million in 2022 compared to 2021, driven by increased demand for our subscription services by our end customers. Of the total increase of $78.6 million in revenue from 2021 to 2022, 80% was from revenues from customers existing at or prior to December 31, 2021, and the remaining 20% was from new customers added in 2022.

Of the total increase of $78.6 million, 51% was from customers in the United States and the remaining 49% was from customers in foreign countries.

In 2022, 58% of total revenue was direct and 42% of total revenue was through partners.

Of the total increase of $78.6 million, 53% was direct and the remaining 47% was from partners.

Revenues $ 554,458 $ 489,723 $ 64,735 13 %

Revenues increased by $64.7 million in 2023 compared to 2022, driven by increased demand for our subscription services by our end customers.

Of the total increase of $64.7 million in revenues, 80% was from customers existing at or prior to December 31, 2022, and the remaining 20% was from new customers added in 2023.

Of the total increase of $64.7 million , 62% was from customers in the United States and the remaining 38% was from customers in foreign countries.

In 2023, 57% of total revenues were direct and 43% of total revenues were through partners.

Of the total increase of $64.7 million , 46% was direct and the remaining 54% was from partners.

With our strong market position driving further demand for our solutions, we expect revenue growth from new and existing customers to continue.

Cost of Revenues

December 31, Change

2023 2022 $ %

(in thousands, except percentages)

Cost of revenues $ 107,485 $ 102,788 $ 4,697 5 %

Cost of revenues increased by $13.3 million in 2022 compared to 2021, 

due to an increase in personnel costs of $9.5 million driven by additional employees hired to support the growth of our business, an increase in shared cloud platform and cloud costs of $2.0 million to meet growing demand and an increase in software license cost of $1.8 million.

Cost of revenues increased by $4.7 million in 2023 compared to 2022, due to an increase in personnel costs, including stock-based compensation, of $5.1 million, driven by additional employees hired to support the growth of our business, an increase in shared cloud platform cost of $4.8 million, and an increase in subscribed license and software costs of $1.5 million, partially offset by a decrease in depreciation and amortization expense of $6.7 million resulting from our assets becoming fully depreciated or amortized.

Research and Development Expenses

December 31, Change

2023 2022 $ %

(in thousands, except percentages)

Research and development $ 110,472 $ 101,186 $ 9,286 9 %

Research and development  expenses 

increased  by 

$19.9 million in 2022 compared to 2021 , due to an increase in personnel costs of $18.3 million primarily driven by additional employees hired to support the growth of our business, an increase in software license cost of $1.0 million and an increase in travel and entertainment expense of $0.6 million due to easing of COVID-19 related travel restrictions.

Research and development expenses increased by $9.3 million in 2023 compared to 2022, due to an increase in personnel costs, including stock-based compensation, of $11.4 million, driven by increased headcount, annual merit increases for eligible employees and refresh grants to eligible employees, partially offset by a decrease in professional service expense of $1.2 million, and a decrease in depreciation and amortization expense in property and equipment of $0.9 million.

Sales and Marketing Expenses

December 31, Change

2023 2022 $ %

(in thousands, except percentages)

Sales and marketing $ 111,691 $ 97,221 $ 14,470 15 %

Sales and marketing  expenses 

increased  by 

$20.7  million in 2022 compared to 2021 , due to an increase in personnel costs of $9.9 million driven by additional employees hired to support the growth of our business, an increase in trade show and other advertising related costs of $5.7 million, an increase of consulting expense of $2.3 million, an increase of travel and entertainment expense of $1.8 million 

associated with the easing of COVID-19 related travel restrictions and an increase in software license cost of $1.0 million. 

Sales and marketing expenses increased by $14.5 million in 2023 compared to 2022, due to an increase in personnel costs, including stock-based compensation, of $13.6 million, driven by increased headcount, an increase in travel and entertainment cost of $1.5 million associated with increased in-person sales meetings and marketing events, and an increase in subscribed license and software costs of $0.7 million, partially offset by a decrease in professional service expense of $1.3 million.

General and Administrative Expenses

December 31, Change

2023 2022 $ %

(in thousands, except percentages)

General and administrative $ 61,741 $ 57,981 $ 3,760 6 %

General and administrative  expenses 

decreased  by 

$18.3 million in 2022 compared to 2021 , due to a decrease in stock-based compensation expense of $27.3 million related to accelerated vesting of our former chief executive officer's grants upon termination due to disability in 2021, offset by an increase in personnel costs of $3.8 million driven by additional employees hired to support the growth of our business, an increase in software license cost of $1.0 million, an increase in consulting expense of $1.9 million, an increase in legal accrual of $1.5 million and an increase of travel and entertainment expense of $0.8 million associated with the easing of COVID-19 related travel restrictions.  

General and administrative expenses increased by $3.8 million in 2023 compared to 2022, due to an increase in personnel costs, including stock-based compensation of $5.7 million, driven by increased headcount, annual merit increases for eligible employees and refresh grants to eligible employees and executives, and an increase in subscribed license and software cost of $0.8 million, partially offset by a decrease in professional service expense of $1.4 million, and a decrease in legal expense of $1.3 million.

Total other income, net

December 31, Change

2023 2022 $ %

(in thousands, except percentages)

Total other income, net $ 15,582 $ 3,153 $ 12,429 394 %

Total other income, net  

increased  by 

$1.4 million in 2022 compared to 2021 , due to an increase in interest income of $2.9 million driven by continued interest rate increase in 2022, offset by an increase in foreign exchange loss of $1.5 million.

Total other income, net increased by $12.4 million in 2023 compared to 2022, due to an increase in interest income of $11.7 million driven by an increase of market interest rates, in addition to a $1.2 million decrease in foreign currency loss, partially offset by an unrealized loss of $0.5 million on a non-marketable equity security.

Income tax provision

December 31, Change

2023 2022 $ %

(in thousands, except percentages)

Income tax provision $ 27,056 $ 25,708 $ 1,348 5 %

Income tax provision increased by $7.3 million in 2022 compared to 2021, primarily due to an increase in pre-tax income and the effects of a tax law change related to mandatory capitalization of research and development expenses starting January 1, 2022, offset by an increase in excess tax benefits arising from stock-based compensation.

On July 21, 2023, the IRS issued a rule change allowing taxpayers to temporarily apply the regulations in effect prior to 2022 related to U.S.

federal foreign tax credits to foreign taxes paid or accrued in years 2022 and 2023.

Additionally, on September 8, 2023, the IRS issued interim guidance on the capitalization and amortization of research and development expenses.

A cumulative tax benefit applicable to prior periods for the rule change and the guidance was recorded in 2023, which reduced the effective tax rate in 2023 compared to 2022.

On December 11, 2023, the IRS extended the temporary relief for U.S.

Federal foreign tax credit until further guidance, which is expected to provide similar tax benefits in future tax years.

Income tax provision increased by $1.3 million in 2023 compared to 2022, primarily due to an increase in pretax income and a decrease in excess tax benefits arising from stock-based compensation compared to the same period in 2022.

The increase was partially offset by higher foreign tax credits and lower net capitalization of research and development expenses for tax purposes than previously estimated, reflecting the rule change and the guidance.

Key Operating and Non-GAAP Financial Performance Metrics

In addition to measures of financial performance presented in our consolidated financial statements, we monitor the key metrics set forth below to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts and assess operational efficiencies.

In addition to measures of financial performance presented in our consolidated financial statements, we monitor the key metrics set forth below to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts and assess operational efficiencies.

Net Dollar Expansion Rate

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This metric is used to appropriately manage resources and customer retention and expansion.

We calculate the net dollar expansion rate on a foreign exchange neutral basis by dividing a numerator by a denominator, each defined as follows:

We calculate the net dollar expansion rate on a foreign exchange neutral basis by dividing a numerator by a denominator, each defined as follows:

To calculate our net dollar expansion rate as of the end of a reporting period, we first determine the annual recurring revenue, or ARR, from all active subscriptions as of the last day of the same reporting period in the prior year.

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Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S.

We calculate Adjusted EBITDA as net income before (1) other (income) expense, net, which includes interest income, interest expense and other income and expense, (2) income tax provision (benefit), (3) depreciation and amortization of property and equipment, (4) amortization of intangible assets, (5) stock-based compensation and (6) non-recurring expenses that do not reflect ongoing costs of operating the business.

Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation from or as a substitute for the measures presented in accordance with U.S.

We calculate Adjusted EBITDA as net income before (1) other (income) expense, net, which includes interest income, interest expense and other income and expense, (2) income tax provision (benefit), (3) depreciation and amortization of property and equipment, (4) amortization of intangible assets, (5) stock-based compensation and (6) non-recurring expenses that do not reflect ongoing costs of operating the business.

Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation from or as a substitute for the measures presented in accordance with U.S.

Some of these limitations are:

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Because of these limitations, Adjusted EBITDA should be considered alongside other financial performance measures, including revenues, net income, cash flows from operating activities and our financial results presented in accordance with U.S.

The following unaudited table presents the reconciliation of net income to Adjusted EBITDA for the years ended December 31, 2022 and 2021.

The following unaudited table presents the reconciliation of net income to Adjusted EBITDA for the years ended December 31, 2023 and 2022.

Year Ended December 31,

(in thousands)

Net income $ 151,595 $ 107,992

Net income as a percentage of revenues 27 % 22 %

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Liquidity and Capital Resources

As of December 31, 2022 , our principal source of liquidity was cash, cash equivalents and marketable securities of 

$380.5  million, including $52.7 million of cash held outside of the United States.

The following summary of cash flows for the periods indicated has been derived from our consolidated financial statements included elsewhere in this report:

As of December 31, 2023 , our principal source of liquidity was cash, cash equivalents and marketable securities of $482.2 million, including $94.8 million of cash held outside of the United States.

The following summary of cash flows for the periods indicated have been derived from our consolidated financial statements included elsewhere in this report:

Year Ended December 31,

(in thousands)

Cash provided by operating activities

Cash provided by (used in) investing activities

Cash used in financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

Net cash provided by operating activities $ 244,605 $ 198,854

Net cash (used in) provided by investing activities (73,166) 145,068

Net cash used in financing activities (141,493) (306,031)

Net increase in cash, cash equivalents and restricted cash $ 29,946 $ 37,891

Operating Activities

In 2022 , 

we generated $177.2 million of cash from our net income, as adjusted for non-cash items mainly related to stock-based compensation expense, depreciation and amortization expense and deferred taxes, as compared to $169.6 million in 2021.

In addition, we also generated $21.7 million of cash from working capital change in 2022, of which $11.8 million was related to net increase in deferred revenue and accounts receivable as a result of our continued growth in billing and collection, and $9.9 million was due to lower prepaid expenses and an increase in payables and accrued liabilities in line with our business.

In 2021, we generated $31.0 million of cash from working capital change, of which $37.4 million was related to net increase in deferred revenue and accounts receivable as a result of our continued growth in billing and collection, partially offset by higher prepaid income taxes of $6.9 million. 

 Net cash taxes paid, excluding prepaid income taxes, during 2022 were approximately $20.0 million higher compared to 2021, primarily due to the new tax law requiring mandatory capitalization and amortization of research and development expenses effective January 1, 2022. Previously, these expenses could be deducted in the year incurred.

The near term increase in cash tax will be offset by a decrease in cash taxes in future years when the capitalized expenses are amortized for tax purposes.  

In 2023, we generated $226.4 million of cash from our net income, as adjusted for non-cash items mainly related to stock-based compensation expense, depreciation and amortization expense and deferred taxes, as compared to $177.2 million in 2022.

In addition, we also generated $18.2 million of cash from working capital change in 2023, of which $22.7 million was related to a net increase in deferred revenue and accounts receivable due to the growth in billing and the timing of collections, partially offset by a $1.1 million decrease in payables and accrued liabilities and a $3.4 million increase in prepaid expenses primarily driven by the timing of payments.

In 2022, we generated $177.2 million of cash from our net income, as adjusted for non-cash items mainly related to stock-based compensation expense, depreciation and amortization expense and deferred taxes, as compared to $169.6 million in 2021.

In addition, we also generated $21.7 million of cash from working capital change in 2022, of which $11.8 million was related to a net increase in deferred revenue and accounts receivable as a result of our continued growth in billing and the timing of collections, and $9.9 million was due to lower prepaid expenses and an increase in payables and accrued liabilities primarily due to timing of payments.

Investing Activities

In 2022, we generated $169.0 million of cash in marketable securities investment, used $15.4 million of cash in capital expenditures mainly related to computer equipment to support our growth and development and $8.6 million of cash to acquire certain technology assets, as compared to $4.5 million of cash used in marketable securities investment, $24.4 million of cash used in capital expenditures and $1.1 million of cash used for acquisition of technology assets in 2021.

In 2023, we used $64.4 million of cash for purchases of marketable securities net of sales and maturities, and used $8.8 million of cash in capital expenditures mainly related to computer equipment to support our growth and development, as compared to $169.0 million of cash generated from net sales and maturities of our marketable securities, $15.4 million of cash used in capital expenditures mainly related to computer equipment to support our growth and development and $8.6 million of cash used to acquire certain technology assets in 2022.

Financing Activities

In 2022, we used $317.3 million of cash for share repurchase and $17.6 million of cash in payment of employee withholding taxes upon vesting of restricted stock units and received $24.5 million of proceeds from employee exercise of stock options, as compared to $130.0 million of cash used for share repurchase, $27.8 million of cash used in payment of employee withholding taxes upon vesting of restricted stock units and $50.0 million of cash received from employee exercise of stock options in 2021.

Net cash used in financing activities are expected to be lower in 2023 due to expected lower volume of share repurchase.

In 2023, we used $170.8 million of cash for share repurchase and $22.3 million of cash in payment of employee withholding taxes upon vesting of restricted stock units, partially offset by $45.6 million of proceeds from employee exercise of stock options and $6.1 million of proceeds from issuance of common stock through our employee stock purchase plan ("ESPP"), as compared to $317.3 million of cash used for share repurchase and $17.6 million of cash in payment of employee withholding taxes upon vesting of restricted stock units, partially offset by $24.5 million of proceeds from employee exercise of stock options and $4.4 million of proceeds from issuance of common stock through our ESPP in 2022.

Material Cash Requirements

We believe our existing cash and cash equivalents, marketable securities and our expected cash flow generated from operations will be sufficient to fund our operations for the next twelve months and beyond.

We do not anticipate that we will need funds generated from foreign operations to fund our domestic operations.

However, if we repatriate these funds, we could be subject to foreign withholding taxes.

If we repatriate funds from our foreign subsidiaries, we could be subject to foreign withholding taxes.

Our material cash requirements mainly include the following contractual and other obligations:

• Our operating lease obligations to make payments under our non-cancelable lease agreements for our facilities and shared cloud platforms.

We had fixed operating lease payment obligations of $46.4 million as of December 31, 2022, with $14.9 million expected to be paid within the next 12 months.

Cash outflow for capital expenditures in 2023 is expected to be in a range of $18.0 million to $25.0 million.

We had fixed operating lease payment obligations of $31.1 million as of December 31, 2023, with $13.1 million expected to be paid within the next 12 months.

• Cash outflow for capital expenditures in 2024 is expected to be in a range of $15.0 million to $20.0 million.

Our future capital requirements will depend on many factors, including our rate of revenue growth, the expansion of our sales and marketing activities, the timing, type and extent of our spending on research and development efforts, international expansion and investment in shared cloud platforms and cloud infrastructures.

We may also seek to invest in or acquire complementary businesses or technologies.

Other non-cancelable purchase obligations related to cloud infrastructures and other service providers totaled $77.1 million, of which $25.6 million is expected to be paid with in the next 12 months.

We expect to continue to use cash to repurchase shares in 2023 under our share repurchase program authorized by our board of directors on February 5, 2018.

As of December 31, 2022, our board of directors had authorized an aggregate amount of $900.0 million for repurchases under our share repurchase program, of which approximately $154.5 million remained available.

Shares will be repurchased from time to time on the open market in accordance with Rule 10b-18 of the Exchange Act of 1934, including pursuant to a pre-set trading plan adopted in accordance with Rule 10b5-1 under the Exchange Act.

On February 9, 2023 ,  we announced that its Board of Directors authorized the repurchase of an additional $100.0 million under our share repurchase program, increasing the total amount of authorized repurchase to $1.0 billion.

• Other non-cancelable purchase obligations related to cloud infrastructures and other service providers totaled $70.6 million, of which $29.7 million is expected to be paid with in the next 12 months.

Share Repurchases

We expect to continue to use cash to repurchase shares in 2024 under our share repurchase program authorized by our board of directors on February 5, 2018.

As of December 31, 2023, our board of directors had authorized an aggregate amount of $1.0 billion for repurchases under our share repurchase program, of which approximately $83.7 million remained available.

Shares will be repurchased from time to time in the open market in accordance with Rule 10b-18 of the Exchange Act of 1934, including pursuant to a pre-set trading plan adopted in accordance with Rule 10b5-1 under the Exchange Act.

On February 7, 2024, we announced that our Board of Directors authorized an additional $200.0 million under the share repurchase program, increasing the total amount of authorized repurchase to $1.2 billion.

Critical Accounting Estimates

The preparation of our consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures.

The preparation of our consolidated financial statements in accordance with U.S.

GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures.

Our significant accounting policies are described in Note 1 - The Company and Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.

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Significant assumptions, judgments and estimates are involved in determining our provision for (benefit from) income taxes, our deferred tax assets and liabilities, and any valuation allowance to be recorded against our deferred tax assets.

Our judgments, assumptions and estimates relating to the current provision for income taxes include the geographic mix and amount of income (loss), expectations of future income, our interpretation of current tax laws, our business, and possible outcomes of current and future audits conducted by foreign and domestic tax authorities.

Our judgments, assumptions and estimates relating to the current provision for income taxes include the geographic mix and amount of income (loss), expectations of future income, our interpretation of current tax laws, our business, and possible outcomes of current and future audits conducted by foreign and domestic tax authorities.

Our judgments also include anticipating the tax positions we will record in the financial statements before preparing and filing the tax returns.

Our estimates and assumptions may differ from the actual results as reflected in our income tax returns and we record the required adjustments when they are identified or resolved. Changes in our business and tax laws or our interpretation of those, and developments in current and future tax audits, could significantly impact the amounts provided for income taxes in our results of operations, financial position, or cash flows.

Our estimates and assumptions may differ from the actual results as reflected in our income tax returns and we record the required adjustments when they are identified or resolved.

Changes in our business and tax laws or our interpretation of those, and developments in current and future tax audits, could significantly impact the amounts provided for income taxes in our results of operations, financial position, or cash flows.

The assessment of tax effects of our uncertain tax positions in our financial statements involves significant judgment in interpreting complex and ambiguous tax laws, regulations, and administrative practices, determining the probability of various possible settlement outcomes, evaluating the litigation process based on tax authority behaviors in similar cases, and estimating the likelihood that another taxing authority could review the respective tax position.

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The recognition of expenses for performance based restricted stock units requires us to estimate the probability that the performance condition will be achieved and the number of awards that will vest are adjusted accordingly at each reporting period.

The assumptions used in calculating the fair value of employee stock options and estimating the probability of achievement of performance metrics represent management’s best estimates, which require significant judgment and involve inherent uncertainties.

If factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

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