What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-24 compared with 2023-05-25 · 127 added, 61 removed, 193 unchanged (49% of the section changed)

22 unchanged sentences

Recent macroeconomic events including higher inflation, the U.S.

Federal Reserve raising interest rates, instability in the global banking system, as well as geopolitical factors, including the ongoing conflict between Russia and Ukraine, and the remaining effects of the COVID-19 pandemic, have negatively impacted the global economy, disrupted global supply chains, and created significant uncertainty, volatility, and disruption of financial markets.

Despite the continuing uncertainty associated with these events, we are confident in the long-term overall health of our business, the strength of our product offerings, and our ability to continue to execute on our strategy and help our customers on their human resources and finance digital transformation journeys.

Federal Reserve raising interest rates, instability in the global banking system, as well as geopolitical factors and the remaining effects of the COVID-19 pandemic, have negatively impacted the global economy, disrupted global supply chains, and created continued uncertainty, volatility, and disruption of financial markets.

Despite this, we are confident in the long-term overall health of our business, the strength of our product offerings, and our ability to continue to execute on our strategy and help our customers on their human resources and finance digital transformation journeys.

Demand for our products remains strong and we continue to achieve solid new subscription bookings.

3 unchanged sentences

Any of these factors could harm our business, financial condition, and operating results.

For further discussion of the potential impacts of recent macroeconomic events on our business, financial condition, and operating results, see “Risk Factors” included in Part I, Item 1A of this report.

Financial Results Overview

The following table provides an overview of our key metrics (in thousands, except percentages, basis points, and headcount data):

Three Months Ended April 30,

2023 2022 Change

Three Months Ended July 31, Six Months Ended July 31,

2023 2022 Change 2023 2022 Change

Total revenues $ 1,786,766 $ 1,535,798 16 % $ 3,471,078 $ 2,970,455 17 %

3 unchanged sentences

$ 421,432 $ 301,552 40 % $ 817,376 $ 590,110 39 %

GAAP operating margin (1.2) % (5.1) % 390 bps

GAAP operating margin 2.0 % (2.2) % 420 bps 0.5 % (3.6) % 410 bps

Non-GAAP operating margin (1)

23.5 % 20.1 % 340 bps

23.6 % 19.6 % 400 bps 23.5 % 19.9 % 360 bps

Operating cash flows $ 425,264 $ 114,358 272 % $ 702,580 $ 554,075 27 %

As of April 30,

As of July 31,

2023 2022 % Change

8 unchanged sentences

Professional services revenues include fees for deployment services, optimization services, and training.

Subscription services revenues accounted for approximately 91% of our total revenues for the three months ended April 30, 2023, and represented 96% of our total unearned revenue as of April 30, 2023.

Subscription services revenues accounted for approximately 91% of our total revenues for the three and six months ended July 31, 2023, and represented 96% of our total unearned revenue as of July 31, 2023.

Subscription services revenues are driven primarily by the number of customers, the number of workers at each customer, the specific applications subscribed to by each customer, and the price of our applications.

29 unchanged sentences

Results of Operations

Our total revenues for the three months ended April 30, 2023, and 2022, were as follows (in thousands, except percentages):

Three Months Ended April 30,

2023 2022 % Change

Our total revenues for the three and six months ended July 31, 2023, and 2022, were as follows (in thousands, except percentages):

Three Months Ended July 31, Six Months Ended July 31,

2023 2022 % Change 2023 2022 % Change

Subscription services $ 1,623,939 $ 1,367,335 19 % $ 3,151,848 $ 2,639,411 19 %

1 unchanged sentence

Total revenues $ 1,786,766 $ 1,535,798 16 % $ 3,471,078 $ 2,970,455 17 %

Total revenues were $1.7 billion for the three months ended April 30, 2023, compared to $1.4 billion for the prior year period, an increase of $250 million, or 17%.

Subscription services revenues were $1.5 billion for the three months ended April 30, 2023, compared to $1.3 billion for the prior year period, an increase of $256 million, or 20%.

Total revenues were $1.8 billion for the three months ended July 31, 2023, compared to $1.5 billion for the prior year period, an increase of $251 million, or 16%.

Subscription services revenues were $1.6 billion for the three months ended July 31, 2023, compared to $1.4 billion for the prior year period, an increase of $257 million, or 19%.

The increase in subscription services revenues was primarily due to an increased number of new customers, expansion of our product offerings provided to existing customers, and strong customer renewals, with gross and net retention rates over 95% and over 100%, respectively.

Professional services revenues were $156 million for the three months ended April 30, 2023, compared to $163 million for the prior year period, a decrease of $6 million, or 4%.

The decrease in professional services revenues was primarily due to variation in project size and mix of deployment and integration services provided as we continue to expand and leverage our service partners.

Professional services revenues were $163 million for the three months ended July 31, 2023, compared to $168 million for the prior year period, a decrease of $6 million, or 3%.

The decrease in professional services revenues was primarily due to variation in project size and mix of deployment and integration services provided and continuing to expand and leverage our service partners.

Total revenues were $3.5 billion for the six months ended July 31, 2023, compared to $3.0 billion for the prior year period, an increase of $501 million, or 17%.

Subscription services revenues were $3.2 billion for the six months ended July 31, 2023, compared to $2.6 billion for the prior year period, an increase of $512 million, or 19%.

Professional services revenues were $319 million for the six months ended July 31, 2023, compared to $331 million for the prior year period, a decrease of $12 million, or 4%.

Subscription Revenue Backlog

As of April 30, 2023, our total subscription revenue backlog was $16.7 billion, with $9.8 billion expected to be recognized in revenues over the next 24 months.

As of April 30, 2022, our total subscription revenue backlog was $12.7 billion, with $8.0 billion expected to be recognized in revenues over the next 24 months.

As of July 31, 2023, our total subscription revenue backlog was $17.8 billion, with $10.3 billion expected to be recognized in revenues over the next 24 months.

As of July 31, 2022, our total subscription revenue backlog was $13.5 billion, with $8.4 billion expected to be recognized in revenues over the next 24 months.

The increase in subscription revenue backlog was primarily driven by the addition of new customers, duration of customer contracts, expansion of our product offerings with existing customers, and the timing of renewals.

Operating Expenses

GAAP operating expenses were $1.7 billion for the three months ended April 30, 2023, compared to $1.5 billion for the prior year period, an increase of $197 million, or 13%.

The increase in GAAP operating expenses included increases of $156 million in employee-related expenses, including share-based compensation, primarily due to higher headcount, $20 million in facilities and IT-related expenses, $19 million in third-party expenses for hardware maintenance and data center capacity, and $11 million related to marketing programs, offset by a decrease of $23 million in depreciation expense related to equipment in our data centers primarily due to the change in estimated useful lives of our data center equipment from 3 years to 5 years.

Non-GAAP operating expenses were $1.3 billion for the three months ended April 30, 2023, compared to $1.1 billion for the prior year period, an increase of $142 million, or 12%.

The increase in non-GAAP operating expenses included increases of $101 million in employee-related expenses due to higher headcount, $20 million in facilities and IT-related expenses, $19 million in third-party expenses for hardware maintenance and data center capacity, and $11 million related to marketing programs, offset by a decrease of $23 million in depreciation expense related to equipment in our data centers primarily due to the change in estimated useful lives of our data center equipment from 3 years to 5 years.

GAAP operating expenses were $1.8 billion for the three months ended July 31, 2023, compared to $1.6 billion for the prior year period, an increase of $181 million, or 12%.

The increase in GAAP operating expenses included increases of $164 million in employee-related expenses, including share-based compensation, primarily due to higher headcount, $20 million in third-party expenses for hardware maintenance and data center capacity, and $15 million in facilities and IT-related expenses, offset by a decrease of $24 million in depreciation expense related to equipment in our data centers primarily due to the change in estimated useful lives of our data center equipment from 3 years to 5 years.

GAAP operating expenses were $3.5 billion for the six months ended July 31, 2023, compared to $3.1 billion for the prior year period, an increase of $377 million, or 12%.

The increase in GAAP operating expenses included increases of $320 million in employee-related expenses, including share-based compensation, primarily due to higher headcount, $40 million in third-party expenses for hardware maintenance and data center capacity, and $35 million in facilities and IT-related expenses, offset by a decrease of $47 million in depreciation expense related to equipment in our data centers primarily due to the change in estimated useful lives of our data center equipment from 3 years to 5 years.

Non-GAAP operating expenses were $1.4 billion for the three months ended July 31, 2023, compared to $1.2 billion for the prior year period, an increase of $131 million, or 11%.

The increase in non-GAAP operating expenses included increases of $114 million in employee-related expenses primarily due to higher headcount, $20 million in third-party expenses for hardware maintenance and data center capacity, and $15 million in facilities and IT-related expenses, offset by a decrease of $24 million in depreciation expense related to equipment in our data centers primarily due to the change in estimated useful lives of our data center equipment from 3 years to 5 years.

Non-GAAP operating expenses were $2.7 billion for the six months ended July 31, 2023, compared to $2.4 billion for the prior year period, an increase of $273 million, or 11%.

The increase in non-GAAP operating expenses included increases of $215 million in employee-related expenses primarily due to higher headcount, $40 million in third-party expenses for hardware maintenance and data center capacity, and $35 million in facilities and IT-related expenses, offset by a decrease of $47 million in depreciation expense related to equipment in our data centers primarily due to the change in estimated useful lives of our data center equipment from 3 years to 5 years.

Reconciliations of our GAAP to non-GAAP operating expenses were as follows (in thousands):

Three Months Ended April 30, 2023

Three Months Ended July 31, 2023

GAAP Operating Expenses Share-Based Compensation Expenses Other Operating Expenses (1)

6 unchanged sentences

Total costs and expenses $ 1,750,509 $ (351,912) $ (33,263) $ 1,365,334

Three Months Ended April 30, 2022

Three Months Ended July 31, 2022

GAAP Operating Expenses Share-Based Compensation Expenses Other Operating Expenses (1)

6 unchanged sentences

Total costs and expenses $ 1,569,876 $ (308,007) $ (27,623) $ 1,234,246

(1) Other operating expenses include employer payroll tax-related items on employee stock transactions of $25 million and $28 million for the three months ended April 30, 2023, and 2022, respectively.

In addition, other operating expenses include amortization of acquisition-related intangible assets of $21 million and $22 million for the three months ended April 30, 2023, and 2022, respectively.

Six Months Ended July 31, 2023

GAAP Operating Expenses Share-Based Compensation Expenses Other Operating Expenses (1)

Non-GAAP Operating Expenses (2)

Costs of subscription services $ 494,711 $ (59,250) $ (30,360) $ 405,101

Costs of professional services 370,833 (58,794) (4,440) 307,599

Product development 1,210,134 (331,909) (15,800) 862,425

Sales and marketing 1,042,823 (146,755) (24,784) 871,284

General and administrative 336,120 (124,664) (4,163) 207,293

Total costs and expenses $ 3,454,621 $ (721,372) $ (79,547) $ 2,653,702

Six Months Ended July 31, 2022

GAAP Operating Expenses Share-Based Compensation Expenses Other Operating Expenses (1)

Non-GAAP Operating Expenses (2)

Costs of subscription services $ 477,904 $ (51,320) $ (30,922) $ 395,662

Costs of professional services 348,002 (53,422) (4,674) 289,906

Product development 1,089,344 (300,485) (15,247) 773,612

Sales and marketing 888,002 (119,047) (23,434) 745,521

General and administrative 274,124 (95,239) (3,241) 175,644

Total costs and expenses $ 3,077,376 $ (619,513) $ (77,518) $ 2,380,345

(1) Other operating expenses include amortization of acquisition-related intangible assets of $21 million and $22 million for the three months ended July 31, 2023, and 2022, respectively, and $42 million and $43 million for the six months ended July 31, 2023, and 2022, respectively.

In addition, other operating expenses include employer payroll tax-related items on employee stock transactions of $12 million and $6 million for the three months ended July 31, 2023, and 2022, respectively, and $37 million and $34 million for the six months ended July 31, 2023, and 2022, respectively.

(2) See “Non-GAAP Financial Measures” below for further information.

Costs of Subscription Services

GAAP operating expenses in costs of subscription services were $239 million for the three months ended April 30, 2023, compared to $233 million for the prior year period, an increase of $6 million, or 3%.

GAAP operating expenses in costs of subscription services were $256 million for the three months ended July 31, 2023, compared to $245 million for the prior year period, an increase of $11 million, or 4%.

The increase in costs of subscription services included increases of $15 million in employee-related expenses, including share-based compensation, primarily due to higher headcount, $13 million in third-party expenses for hardware maintenance and data center capacity, and $4 million in facilities and IT-related expenses, offset by a decrease of $23 million in depreciation expense related to equipment in our data centers primarily due to the change in estimated useful lives of our data center equipment from 3 years to 5 years.

GAAP operating expenses in costs of subscription services were $495 million for the six months ended July 31, 2023, compared to $478 million for the prior year period, an increase of $17 million, or 4%.

The increase in costs of subscription services included increases of $27 million in third-party expenses for hardware maintenance and data center capacity, $22 million in employee-related expenses, including share-based compensation, primarily due to higher headcount, and $9 million in facilities and IT-related expenses, offset by a decrease of $46 million in depreciation expense related to equipment in our data centers primarily due to the change in estimated useful lives of our data center equipment from 3 years to 5 years.

Non-GAAP operating expenses in costs of subscription services were $194 million for the three months ended April 30, 2023, compared to $190 million for the prior year period, an increase of $4 million, or 2%.

Non-GAAP operating expenses in costs of subscription services were $211 million for the three months ended July 31, 2023, compared to $205 million for the prior year period, an increase of $6 million, or 3%.

The increase in costs of subscription services included increases of $13 million in third-party expenses for hardware maintenance and data center capacity, $9 million in employee-related expenses primarily due to higher headcount, and $4 million in facilities and IT-related expenses, offset by a decrease of $23 million in depreciation expense related to equipment in our data centers primarily due to the change in estimated useful lives of our data center equipment from 3 years to 5 years.

Non-GAAP operating expenses in costs of subscription services were $405 million for the six months ended July 31, 2023, compared to $396 million for the prior year period, an increase of $9 million, or 2%.

The increase in costs of subscription services included increases of $27 million in third-party expenses for hardware maintenance and data center capacity, $14 million in employee-related expenses primarily due to higher headcount, and $9 million in facilities and IT-related expenses, offset by a decrease of $46 million in depreciation expense related to equipment in our data centers primarily due to the change in estimated useful lives of our data center equipment from 3 years to 5 years.

We expect GAAP and non-GAAP operating expenses in costs of subscription services will continue to increase in absolute dollars as we improve and expand our technical operations infrastructure, including our data centers and computing infrastructure operated by third parties.

Costs of Professional Services

GAAP operating expenses in costs of professional services were $178 million for the three months ended April 30, 2023, compared to $170 million for the prior year period, an increase of $9 million, or 5%.

The increase in costs of professional services included an increase of $12 million in employee-related expenses, including share-based compensation, primarily due to higher headcount, offset by $6 million in professional services and subcontractor expenses.

Non-GAAP operating expenses in costs of professional services were $145 million for the three months ended April 30, 2023, compared to $138 million for the prior year period, an increase of $7 million, or 5%.

The increase in costs of professional services included an increase of $10 million in employee-related expenses primarily due to higher headcount, offset by $6 million in professional services and subcontractor expenses.

GAAP operating expenses in costs of professional services were $192 million for the three months ended July 31, 2023, compared to $178 million for the prior year period, an increase of $14 million, or 8%.

The increase in costs of professional services included an increase of $17 million in employee-related expenses, including share-based compensation, primarily due to higher headcount.

GAAP operating expenses in costs of professional services were $371 million for the six months ended July 31, 2023, compared to $348 million for the prior year period, an increase of $23 million, or 7%.

The increase in costs of professional services included an increase of $29 million in employee-related expenses, including share-based compensation, primarily due to higher headcount, offset by a decrease of $7 million in professional services and subcontractor expenses.

Non-GAAP operating expenses in costs of professional services were $162 million for the three months ended July 31, 2023, compared to $151 million for the prior year period, an increase of $11 million, or 7%.

The increase in costs of professional services included an increase of $14 million in employee-related expenses primarily due to higher headcount.

Non-GAAP operating expenses in costs of professional services were $308 million for the six months ended July 31, 2023, compared to $290 million for the prior year period, an increase of $18 million, or 6%.

The increase in costs of professional services included an increase of $24 million in employee-related expenses primarily due to higher headcount, offset by a decrease of $7 million in professional services and subcontractor expenses.

We expect GAAP and non-GAAP costs of professional services as a percentage of total revenues to continue to decline as we continue to rely on our service partners to deploy our applications and as the number of our customers continues to grow.

Product Development

GAAP operating expenses in product development were $600 million for the three months ended April 30, 2023, compared to $542 million for the prior year period, an increase of $59 million, or 11%.

GAAP operating expenses in product development were $610 million for the three months ended July 31, 2023, compared to $548 million for the prior year period, an increase of $62 million, or 11%.

The increase in product development expenses included an increase of $49 million in employee-related expenses, including share-based compensation, primarily due to higher headcount.

Non-GAAP operating expenses in product development were $419 million for the three months ended April 30, 2023, compared to $375 million for the prior year period, an increase of $44 million, or 12%.

GAAP operating expenses in product development were $1.2 billion for the six months ended July 31, 2023, compared to $1.1 billion for the prior year period, an increase of $121 million, or 11%.

The increase in product development expenses included an increase of $97 million in employee-related expenses, including share-based compensation, primarily due to higher headcount.

Non-GAAP operating expenses in product development were $443 million for the three months ended July 31, 2023, compared to $398 million for the prior year period, an increase of $45 million, or 11%.

The increase in product development expenses included an increase of $31 million in employee-related expenses primarily due to higher headcount.

Non-GAAP operating expenses in product development were $862 million for the six months ended July 31, 2023, compared to $774 million for the prior year period, an increase of $89 million, or 11%.

The increase in product development expenses included an increase of $65 million in employee-related expenses primarily due to higher headcount.

We expect GAAP and non-GAAP product development expenses will continue to increase in absolute dollars as we improve and extend our applications and develop new technologies.

Sales and Marketing

GAAP operating expenses in sales and marketing were $519 million for the three months ended April 30, 2023, compared to $429 million for the prior year period, an increase of $89 million, or 21%.

GAAP operating expenses in sales and marketing were $524 million for the three months ended July 31, 2023, compared to $459 million for the prior year period, an increase of $65 million, or 14%.

The increase in sales and marketing expenses included increases of $58 million in employee-related expenses, including share-based compensation, primarily due to higher headcount.

GAAP operating expenses in sales and marketing were $1.0 billion for the six months ended July 31, 2023, compared to $888 million for the prior year period, an increase of $155 million, or 17%.

The increase in sales and marketing expenses included increases of $121 million in employee-related expenses, including share-based compensation, primarily due to higher headcount and $16 million related to marketing programs.

Non-GAAP operating expenses in sales and marketing were $425 million for the three months ended April 30, 2023, compared to $356 million for the prior year period, an increase of $69 million, or 19%.

Non-GAAP operating expenses in sales and marketing were $447 million for the three months ended July 31, 2023, compared to $389 million for the prior year period, an increase of $57 million, or 15%.

The increase in sales and marketing expenses included increases of $49 million in employee-related expenses primarily due to higher headcount.

Non-GAAP operating expenses in sales and marketing were $871 million for the six months ended July 31, 2023, compared to $746 million for the prior year period, an increase of $126 million, or 17%.

The increase in sales and marketing expenses included increases of $92 million in employee-related expenses primarily due to higher headcount and $16 million related to marketing programs.

1 unchanged sentence

General and Administrative

GAAP operating expenses in general and administrative were $168 million for the three months ended April 30, 2023, compared to $134 million for the prior year period, an increase of $34 million, or 25%.

GAAP operating expenses in general and administrative were $169 million for the three months ended July 31, 2023, compared to $140 million for the prior year period, an increase of $28 million, or 20%.

The increase in general and administrative expenses included an increase of $26 million in employee-related expenses, including share-based compensation, primarily due to higher headcount.

Non-GAAP operating expenses in general and administrative were $105 million for the three months ended April 30, 2023, compared to $86 million for the prior year period, an increase of $19 million, or 22%.

GAAP operating expenses in general and administrative were $336 million for the six months ended July 31, 2023, compared to $274 million for the prior year period, an increase of $62 million, or 23%.

The increase in general and administrative expenses included an increase of $51 million in employee-related expenses, including share-based compensation, primarily due to higher headcount.

Non-GAAP operating expenses in general and administrative were $102 million for the three months ended July 31, 2023, compared to $90 million for the prior year period, an increase of $13 million, or 14%.

The increase in general and administrative expenses included an increase of $10 million in employee-related expenses primarily due to higher headcount.

Non-GAAP operating expenses in general and administrative were $207 million for the six months ended July 31, 2023, compared to $176 million for the prior year period, an increase of $32 million, or 18%.

The increase in general and administrative expenses included an increase of $21 million in employee-related expenses primarily due to higher headcount.

We expect GAAP and non-GAAP general and administrative expenses will continue to increase in absolute dollars as we further invest in our infrastructure and support our global expansion.

Operating Margin

GAAP operating margin improved from (5.1)% for the three months ended April 30, 2022, to (1.2)% for the three months ended April 30, 2023, primarily related to the increase in revenues, offset by moderation of operating expenses and the change in estimated useful life of our data center equipment from 3 years to 5 years.

Non-GAAP operating margin improved from 20.1% for the three months ended April 30, 2022, to 23.5% for the three months ended April 30, 2023, primarily related to the increase in revenues, offset by moderation of operating expenses and the change in estimated useful life of our data center equipment from 3 years to 5 years.

GAAP operating margin improved from (2.2)% for the three months ended July 31, 2022, to 2.0% for the three months ended July 31, 2023, primarily due to an increase in revenues, the moderation of operating expenses, and a decrease in depreciation expense related to equipment in our data centers primarily due to the change in estimated useful lives of our data center equipment from 3 years to 5 years.

GAAP operating margin improved from (3.6)% for the six months ended July 31, 2022, to 0.5% for the six months ended July 31, 2023, primarily due to an increase in revenues, the moderation of operating expenses, and a decrease in depreciation expense related to equipment in our data centers primarily due to the change in estimated useful lives of our data center equipment from 3 years to 5 years.

Non-GAAP operating margin improved from 19.6% for the three months ended July 31, 2022, to 23.6% for the three months ended July 31, 2023, primarily due to an increase in revenues, offset by the moderation of operating expenses and a decrease in depreciation expense related to equipment in our data centers primarily due to the change in estimated useful lives of our data center equipment from 3 years to 5 years.

Non-GAAP operating margin improved from 19.9% for the six months ended July 31, 2022, to 23.5% for the six months ended July 31, 2023, primarily due to an increase in revenues, offset by the moderation of operating expenses and a decrease in depreciation expense related to equipment in our data centers primarily due to the change in estimated useful lives of our data center equipment from 3 years to 5 years.

Reconciliations of our GAAP to non-GAAP operating income (loss) and operating margin were as follows (in thousands, except percentages):

Three Months Ended April 30, 2023

Three Months Ended July 31, 2023

GAAP Share-Based Compensation Expenses Other Operating Expenses Non-GAAP (1)

1 unchanged sentence

Operating margin 2.0 % 19.7 % 1.9 % 23.6 %

Three Months Ended April 30, 2022

Three Months Ended July 31, 2022

GAAP Share-Based Compensation Expenses Other Operating Expenses Non-GAAP (1)

1 unchanged sentence

Operating margin (2.2) % 20.1 % 1.7 % 19.6 %

Six Months Ended July 31, 2023

GAAP Share-Based Compensation Expenses Other Operating Expenses Non-GAAP (1)

Operating income (loss) $ 16,457 $ 721,372 $ 79,547 $ 817,376

Operating margin 0.5 % 20.8 % 2.2 % 23.5 %

Six Months Ended July 31, 2022

GAAP Share-Based Compensation Expenses Other Operating Expenses Non-GAAP (1)

Operating income (loss) $ (106,921) $ 619,513 $ 77,518 $ 590,110

Operating margin (3.6) % 20.9 % 2.6 % 19.9 %

(1) See “Non-GAAP Financial Measures” below for further information.

Other Income (Expense), Net

We had Other income (expense), net of $27 million and $(20) million for the three months ended April 30, 2023, and 2022, respectively.

Other income, net for the three months ended April 30, 2023, primarily consisted of $63 million of interest income on our marketable securities from higher investment balances and rising interest rates, offset by interest expense of $29 million on our debt primarily related to the Senior Notes and net losses of $8 million on our equity investments.

Other expense, net for the three months ended April 30, 2022, primarily consisted of interest expense of $14 million on our debt primarily related to the Senior Notes and net losses of $7 million on our equity investments.

We had other income (expense), net of $46 million and $(33) million for the three months ended July 31, 2023, and 2022, respectively, and other income (expense), net of $72 million and $(53) million for the six months ended July 31, 2023, and 2022, respectively.

Other income, net for the three months ended July 31, 2023, primarily consisted of interest income of $70 million on our marketable securities from higher investment balances and rising interest rates, offset by contractual interest expense of $28 million on our debt primarily related to the Senior Notes.

Other expense, net for the three months ended July 31, 2022, primarily consisted of contractual interest expense of $28 million on our debt primarily related to the Senior Notes and net losses of $16 million on our equity investments, offset by interest income of $15 million on our marketable securities.

Other income, net for the six months ended July 31, 2023, primarily consisted of interest income of $132 million on our marketable securities from higher investment balances and rising interest rates, offset by contractual interest expense of $55 million on our debt primarily related to the Senior Notes and net losses of $7 million on our equity investments.

Other expense, net for the six months ended July 31, 2022, primarily consisted of contractual interest expense of $37 million on our debt primarily related to the Senior Notes and net losses of $24 million on our equity investments, offset by interest income of $19 million on our marketable securities.

Non-GAAP Financial Measures

25 unchanged sentences

We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure, and to view our non-GAAP financial measures in conjunction with the most comparable GAAP financial measures.

See “Results of Operations—Operating Expenses” and “Results of Operations—Operating Margin” for reconciliations from the most directly comparable GAAP financial measures of GAAP operating expenses, GAAP operating income (loss), and GAAP operating margin, to the non-GAAP financial measures of non-GAAP operating expenses, non-GAAP operating income (loss), and non-GAAP operating margin, for the three months ended April 30, 2023, and 2022.

Liquidity and Capital Resources

As of April 30, 2023, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $6.3 billion, which were primarily held for working capital purposes.

As of July 31, 2023, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $6.7 billion, which were primarily held for working capital purposes.

Our cash equivalents and marketable securities are composed of, in order from largest to smallest, U.S.

treasury securities, corporate bonds, commercial paper, money market funds, U.S.

agency obligations, and marketable equity investments.

treasury securities, corporate bonds, commercial paper, U.S.

agency obligations, money market funds, and marketable equity investments.

We have financed our operations primarily through customer payments, issuance of debt, and sales of our common stock.

2 unchanged sentences

As part of our strategy, we may choose to seek additional debt or equity financing.

Our cash flows for the three months ended April 30, 2023, and 2022, were as follows (in thousands):

Three Months Ended April 30,

Our cash flows for the three and six months ended July 31, 2023, and 2022, were as follows (in thousands):

Three Months Ended July 31, Six Months Ended July 31,

2023 2022 2023 2022

Net cash provided by (used in):

5 unchanged sentences

Operating Activities

Cash provided by operating activities was $277 million and $440 million for the three months ended April 30, 2023, and 2022, respectively.

The decline in cash provided by operating activities resulted from the first full-year payout of our performance-based cash bonus program, an interest payment on our Senior Notes that did not occur in the first quarter of fiscal 2023, due to the timing of our debt offering, and payments related to the workforce realignment announced in the fourth quarter of fiscal 2023.

These payments were offset by increases in sales and related cash collections.

Cash provided by operating activities was $425 million and $114 million for the three months ended July 31, 2023, and 2022, respectively.

The improvement in cash flow provided by operating activities was primarily due to increases in sales, the related cash collections, and interest income, partially offset by cash operating expenses.

Cash provided by operating activities was $703 million and $554 million for the six months ended July 31, 2023, and 2022, respectively.

The improvement in cash flow provided by operating activities was primarily due to increases in sales, the related cash collections, and interest income.

The improvement was offset by the first full-year payout of our performance-based cash bonus program, an interest payment on our Senior Notes that did not occur in the first quarter of fiscal 2023, due to the timing of our debt offering, and payments related to the workforce realignment announced in the fourth quarter of fiscal 2023.

Investing Activities

Cash used in investing activities for the three months ended April 30, 2023, was $713 million, which primarily resulted from a cash outflow from the timing of purchases and maturities of marketable securities of $656 million and capital expenditures for data center and office space projects of $59 million, offset by proceeds of $22 million from sales of marketable securities.

Cash used in investing activities for the three months ended April 30, 2022, was $1.5 billion, which was primarily related to purchases of marketable securities of $2.0 billion using the proceeds from the Senior Notes offering, capital expenditures for data center and office space projects of $59 million, and purchases of non-marketable equity and other investments of $15 million.

These payments were partially offset by proceeds of $607 million from sales and maturities of marketable securities and proceeds of $7 million from sales and maturities of non-marketable securities.

Cash used in investing activities for the three months ended July 31, 2023, was $385 million, which primarily resulted from a cash outflow from the timing of purchases and maturities of marketable securities of $346 million and capital expenditures for data center and office space projects of $64 million, offset by proceeds of $25 million from sales of marketable securities.

Cash used in investing activities for the three months ended July 31, 2022, was $487 million, which primarily resulted from a cash outflow from the timing of purchases and maturities of marketable securities of $345 million and capital expenditures for data center and office space projects of $169 million, offset by proceeds of $28 million from sales of marketable securities.

Cash used in investing activities for the six months ended July 31, 2023, was $1.1 billion, which primarily resulted from a cash outflow from the timing of purchases and maturities of marketable securities of $1.0 billion and capital expenditures for data center and office space projects of $123 million, offset by proceeds of $48 million from sales of marketable securities.

Cash used in investing activities for the six months ended July 31, 2022, was $2.0 billion, which primarily resulted from purchases of marketable securities, net of maturities, of $1.8 billion using the proceeds from the Senior Notes offering, capital expenditures for data center and office space projects of $227 million, and purchases of non-marketable equity and other investments of $17 million.

These payments were partially offset by proceeds of $33 million from sales of marketable securities and $7 million from sales and maturities of non-marketable securities.

We expect capital expenditures will be approximately $300 million in fiscal 2024.

1 unchanged sentence

Financing Activities

Cash used in financing activities was $3 million for the three months ended April 30, 2023.

Cash provided by financing activities was $2.3 billion for the three months ended April 30, 2022, which was primarily due to proceeds of $3.0 billion from borrowings on the Senior Notes, net of debt discount of $22 million, offset by the repayment of the term loan under the 2020 Credit Agreement of $694 million and payments for debt issuance costs of $7 million.

Cash used in financing activities was $49 million for the three months ended July 31, 2023, which was primarily due to repurchases of common stock under the Share Repurchase Program of $139 million, offset by $90 million in proceeds from the issuance of common stock from employee equity plans.

Cash provided by financing activities was $83 million for the three months ended July 31, 2022, which was primarily due to proceeds of $83 million from the issuance of common stock from employee equity plans.

Cash used in financing activities was $52 million for the six months ended July 31, 2023, which was primarily due to due to repurchases of common stock under the Share Repurchase Program of $139 million, offset by $87 million in proceeds from the issuance of common stock from employee equity plans.

Cash provided by financing activities was $2.4 billion for the six months ended July 31, 2022, which was primarily due to proceeds of $3.0 billion from borrowings on the Senior Notes, net of debt discount of $22 million, and $84 million from the issuance of common stock from employee equity plans, offset by the repayment of the term loan under the 2020 Credit Agreement of $694 million and payments for debt issuance costs of $7 million.

Share Repurchase Program

16 unchanged sentences

For a further discussion of our critical accounting policies, refer to our Annual Report on Form 10-K for the fiscal year ended January 31, 2023.

During the three months ended April 30, 2023, there were no significant changes to our critical accounting policies and estimates, other than the change in useful lives of our data center equipment as described in N ote 1 .

Overview and Basis of Presentatio n , of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

During the three and six months ended July 31, 2023, there were no significant changes to our critical accounting policies and estimates, other than the change in useful lives of our data center equipment as described in Note 1.

Overview and Basis of Presentation , of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

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-Q

Item 2. Management’s Discussion and Analysis