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Item 2. Management’s Discussion and Analysis

2024-05-29 compared with 2023-11-28 · 164 added, 223 removed, 126 unchanged (75% of the section changed)

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We have achieved significant growth since our inception in 2005.

Our current financial focus is on growing our revenues and expanding both our customer base and our footprint within our existing customers.

While we have a history of GAAP operating losses, we strive to invest in a disciplined manner across all of our functional areas to sustain continued near-term revenue growth and support our long-term initiatives.

Our current financial focus is on growing our revenues, operating margin, and operating cash flows, and expanding both our customer base and our footprint within our existing customers.

While we have a history of GAAP operating losses prior to fiscal 2024, we strive to invest in a disciplined manner across all of our functional areas to sustain continued near-term revenue growth and support our long-term initiatives.

We expect our product development, sales and marketing, and general and administrative expenses as a percentage of total revenues will decrease over the longer term as we grow our revenues, and we anticipate that we will gain economies of scale by increasing our customer base without direct incremental development costs.

We plan to reinvest a significant portion of our incremental revenues in future periods to grow our business.

We have invested and expect to continue to invest heavily in our product development efforts to deliver additional compelling applications, enhance existing applications, and to address customers’ evolving needs.

In addition, we plan to continue to expand our ability to sell our applications globally, particularly in Europe and the Asia-Pacific region, by investing in product development and customer support to address the business needs of targeted local markets, increasing our sales organization and marketing programs, acquiring and leasing additional office space, and expanding our ecosystem of service partners to support local deployments.

We expect to make further significant investments in our data center capacity and equipment and third-party hosted infrastructure platforms as we plan for future growth.

We are also investing in personnel to support our growing customer base.

We plan to reinvest a significant portion of our incremental revenues in future periods to continue growing our business.

We have invested and expect to continue to invest heavily in our product development efforts to deliver additional compelling applications, increase our product localization in targeted international markets, meet our customers’ evolving industry needs, and enhance our existing applications.

In addition, we plan to continue to expand our ability to sell our applications globally, particularly in Europe and the Asia-Pacific region, by increasing our sales organization and marketing programs and by expanding our ecosystem of partners to deliver deployments, sales, and co-innovation on the Workday platform.

We are also investing in our personnel to support the growing opportunity in our financial management applications business and our growing customer base.

Additionally, we expect to make further significant investments in our data center capacity, third-party hosted infrastructure platforms, and cybersecurity capabilities as we plan for future growth.

We regularly evaluate acquisition and investment opportunities in complementary businesses, employee teams, services, technologies, and intellectual property rights in an effort to expand our product and service offerings, and expect to continue making acquisitions and investments in the future.

While we remain focused on improving operating margin, these acquisitions and investments will increase our costs on an absolute basis in the near term.

While we remain focused on improving our operating margin, these acquisitions and investments may increase our costs on an absolute basis in the near term.

Many of these investments will occur in advance of experiencing any direct benefit from them and could make it difficult to determine if we are allocating our resources efficiently.

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We believe our investment in professional services, as well as partners building consulting practices around Workday and helping to deliver additional innovation and solutions, will drive additional customer subscriptions and continued growth in revenues.

Due to our ability to leverage our expanding partner ecosystem, we expect the rate of professional services revenue growth to decline over time and continue to be lower than subscription revenue growth.

As we continue to leverage our expanding partner ecosystem, we expect that professional services revenue will continue to decline over time as a percentage of total revenues.

Impact of Current Economic Conditions

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 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.

Our near-term revenues are relatively predictable as a result of our subscription-based business model.

We have experienced, and may continue to experience, the lengthening of certain sales cycles and moderation of revenue growth rates, particularly within net new opportunities, and have provided certain customers with more flexible payment terms.

If the economic uncertainty continues, we may also experience a negative impact on customer renewals, customer collections, sales and marketing efforts, customer deployments, product development, or other financial metrics.

Recent macroeconomic events including higher inflation and interest rates, as well as geopolitical factors including the Russia-Ukraine and Israel-Hamas conflicts, have negatively impacted the global economy 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 capital and finance digital transformation journeys.

Demand for our products remains strong, we continue to achieve solid new subscription bookings, and our near-term revenues are relatively predictable as a result of our subscription-based business model.

We have experienced, and may continue to experience, a moderation of revenue growth rates due to increased deal scrutiny and the lengthening of certain sales cycles, particularly within net new opportunities, and lower headcount level commitments upon renewals of existing customers.

Further, we have provided, and may continue to provide, certain customers with more flexible payment terms.

If the economic uncertainty continues, we may also experience additional negative impacts on customer renewals, customer collections, sales and marketing efforts, customer deployments, product development, or other financial metrics.

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

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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 October 31, Nine Months Ended October 31,

2023 2022 Change 2023 2022 Change

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

Three Months Ended April 30,

2024 2023 Change

Total revenues $ 1,990 $ 1,684 18 %

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$ 515 $ 396 30 %

GAAP operating margin 4.7 % (1.6) % 630 bps 2.0 % (2.9) % 490 bps

GAAP operating margin 3.2 % (1.2) % 437 bps

Non-GAAP operating margin (1)

24.8 % 19.7 % 510 bps 24.0 % 19.8 % 420 bps

25.9 % 23.5 % 236 bps

Operating cash flows $ 372 $ 277 34 %

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$ 291 $ 218 33 %

As of October 31,

As of April 30,

2024 2023 Change

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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 and nine months ended October 31, 2023, and represented 96% of our total unearned revenue as of October 31, 2023.

Subscription services revenues accounted for approximately 91% of our total revenues for the three months ended April 30, 2024, and represented 96% of our total unearned revenue as of April 30, 2024.

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.

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Our subscription contracts typically have a term of three years or longer and are generally noncancelable.

We generally invoice our customers annually in advance, and may provide certain customers flexible payment terms.

Amounts that have been invoiced are initially recorded as unearned revenue.

We generally invoice our customers annually in advance for subscription services.

We may provide certain customers flexible payment terms and the timing of revenue recognition may differ from the timing of invoicing to our customers.

Our professional services consulting engagements are billed on a time and materials basis or a fixed price basis.

We generally invoice our customers in arrears for our professional services.

For contracts billed on a time and materials basis, revenues are recognized over time as the professional services are performed.

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In some cases, we supplement our consulting teams by subcontracting resources from our service partners and deploying them on customer engagements.

As the Workday-related consulting practices of our partner firms continue to develop, we expect these partners to increasingly contract directly with our subscription customers.

As the Workday-related consulting practices of our partner firms continue to develop, we expect these partners to increasingly contract directly with our subscription customers for services engagements.

Subscription Revenue Backlog

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Costs of subscription services revenues.

Costs of subscription services revenues consist primarily of employee-related expenses associated with hosting our applications and providing customer support, expenses related to data centers and computing infrastructure operated by third parties, and depreciation of computer equipment and software.

Costs of subscription services revenues consist primarily of expenses associated with hosting our applications and providing customer support, including employee-related expenses, expenses related to data center capacity and computing infrastructure operated by third parties, and depreciation of our data center equipment.

Costs of professional services revenues .

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Product development expenses .

Product development expenses consist primarily of employee-related expenses associated with our efforts to add new features and applications, increase functionality, and enhance the ease of use of our cloud applications.

Sales and marketing expenses.

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Results of Operations

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

Three Months Ended October 31, Nine Months Ended October 31,

2023 2022 % Change 2023 2022 % Change

Our total revenues for the three months ended April 30, 2024, and 2023, were as follows (in millions, except percentages):

Three Months Ended April 30,

Subscription services $ 1,815 $ 1,528

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Total revenues $ 1,990 $ 1,684

Total revenues were $1.9 billion for the three months ended October 31, 2023, compared to $1.6 billion for the prior year period, an increase of $267 million, or 17%.

Subscription services revenues were $1.7 billion for the three months ended October 31, 2023, compared to $1.4 billion for the prior year period, an increase of $259 million, or 18%.

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 $175 million for the three months ended October 31, 2023, compared to $167 million for the prior year period, an increase of $8 million, or 5%.

Total revenues were $2.0 billion for the three months ended April 30, 2024, compared to $1.7 billion for the prior year period, an increase of $305 million, or 18%.

Subscription services revenues were $1.8 billion for the three months ended April 30, 2024, compared to $1.5 billion for the prior year period, an increase of $288 million, or 19%.

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

Professional services revenues were $175 million for the three months ended April 30, 2024, compared to $156 million for the prior year period, an increase of $18 million, or 11%.

The increase in professional services revenues was primarily due to variations in project size and mix of deployment and integration services provided.

Total revenues were $5.3 billion for the nine months ended October 31, 2023, compared to $4.6 billion for the prior year period, an increase of $767 million, or 17%.

Subscription services revenues were $4.8 billion for the nine months ended October 31, 2023, compared to $4.1 billion for the prior year period, an increase of $771 million, or 19%.

Professional services revenues were $494 million for the nine months ended October 31, 2023, compared to $498 million for the prior year period, a decrease of $4 million, or 1%.

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

Subscription Revenue Backlog

As of October 31, 2023, our total subscription revenue backlog was $18.4 billion, with $6.0 billion and $10.6 billion expected to be recognized in revenues over the next 12 and 24 months, respectively.

As of October 31, 2022, our total subscription revenue backlog was $14.1 billion, with $5.0 billion and $8.6 billion expected to be recognized in revenues over the next 12 and 24 months, respectively.

The increase in subscription revenue backlog was primarily driven by an increased number of new customers, duration of customer contracts, expansion of our product offerings provided to existing customers, and strong customer renewals.

Operating Expenses

GAAP operating expenses were $1.8 billion for the three months ended October 31, 2023, compared to $1.6 billion for the prior year period, an increase of $152 million, or 9%.

The increase in GAAP operating expenses included increases of $133 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, $22 million related to marketing programs, and $18 million in third-party expenses for hardware maintenance and data center capacity, offset by a decrease of $21 million in depreciation expense related to equipment in our data centers primarily due to an increase in the estimated useful lives of our data center equipment from 3 years to 5 years, effective beginning fiscal 2024 (“change in useful lives of data center equipment”).

GAAP operating expenses were $5.2 billion for the nine months ended October 31, 2023, compared to $4.7 billion for the prior year period, an increase of $530 million, or 11%.

The increase in GAAP operating expenses included increases of $453 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, $58 million in third-party expenses for hardware maintenance and data center capacity, and $37 million related to marketing programs, offset by a decrease of $68 million in depreciation expense related to equipment in our data centers primarily due to the change in useful lives of data center equipment.

Non-GAAP operating expenses were $1.4 billion for the three months ended October 31, 2023, compared to $1.3 billion for the prior year period, an increase of $119 million, or 9%.

The increase in non-GAAP operating expenses included increases of $94 million in employee-related expenses primarily due to higher average headcount, $22 million related to marketing programs, and $18 million in third-party expenses for hardware maintenance and data center capacity, offset by a decrease of $21 million in depreciation expense related to equipment in our data centers primarily due to the change in useful lives of data center equipment.

Non-GAAP operating expenses were $4.1 billion for the nine months ended October 31, 2023, compared to $3.7 billion for the prior year period, an increase of $392 million, or 11%.

The increase in non-GAAP operating expenses included increases of $309 million in employee-related expenses primarily due to higher average headcount, $58 million in third-party expenses for hardware maintenance and data center capacity, and $37 million related to marketing programs, offset by a decrease of $68 million in depreciation expense related to equipment in our data centers primarily due to the change in useful lives of data center equipment.

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

Three Months Ended October 31, 2023

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

Non-GAAP Operating Expenses (2)

Costs of subscription services $ 263,840 $ (30,543) $ (9,140) $ 224,157

Costs of professional services 181,400 (28,738) (1,097) 151,565

Product development 618,736 (162,025) (3,006) 453,705

Sales and marketing 537,816 (64,805) (10,438) 462,573

General and administrative 176,028 (63,146) (1,305) 111,577

Total costs and expenses $ 1,777,820 $ (349,257) $ (24,986) $ 1,403,577

Three Months Ended October 31, 2022

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

Non-GAAP Operating Expenses (2)

As of April 30, 2024, our total subscription revenue backlog was $20.7 billion, with $6.6 billion and $11.6 billion expected to be recognized in revenues over the next 12 and 24 months, respectively.

As of April 30, 2023, our total subscription revenue backlog was $16.7 billion, with $5.6 billion and $9.8 billion expected to be recognized in revenues over the next 12 and 24 months, respectively.

The increase in subscription revenue backlog was primarily driven by an increased number of new customers, timing of renewals for existing customers, expansion of our product offerings sold to existing customers, and longer duration of customer contracts.

Costs and Expenses

Our costs and expenses for the three months ended April 30, 2024, and 2023, were as follows (in millions):

Three Months Ended April 30,

Costs of subscription services $ 290 $ 239

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Total costs and expenses $ 1,926 $ 1,704

Nine Months Ended October 31, 2023

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

Non-GAAP Operating Expenses (2)

Total costs and expenses were $1.9 billion for the three months ended April 30, 2024, compared to $1.7 billion for the prior year period, an increase of $222 million, or 13%.

The increase in GAAP operating expenses included increases of $154 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, $17 million in professional services and subcontractor expenses, $11 million in expenses for data center capacity, and $11 million in amortization of deferred sales commissions due to increased sales.

Costs of Subscription Services

Costs of subscription services were $290 million for the three months ended April 30, 2024, compared to $239 million for the prior year period, an increase of $51 million, or 21%.

The increase in costs of subscription services included increases of $36 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount and $9 million in expenses for data center capacity.

We expect 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

Costs of professional services were $199 million for the three months ended April 30, 2024, compared to $178 million for the prior year period, an increase of $20 million, or 11%.

The increase in costs of professional services included increases of $11 million in professional services and subcontractor expenses and $7 million in employee-related expenses, including share-based compensation.

We expect 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 our subscription services revenues continue to grow as we expand both our customer base and our footprint within our existing customers.

Product Development

Product development expenses were $656 million for the three months ended April 30, 2024, compared to $600 million for the prior year period, an increase of $56 million, or 9%.

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

We expect product development expenses will continue to increase in absolute dollars as we improve and extend our applications and develop new technologies, including costs incurred for hardware maintenance, data center capacity, facility costs, and IT-related expenses.

Sales and Marketing

Sales and marketing expenses were $573 million for the three months ended April 30, 2024, compared to $519 million for the prior year period, an increase of $54 million, or 10%.

The increase in sales and marketing expenses included increases of $35 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount and $11 million in amortization of deferred sales commissions due to increased sales.

We expect sales and marketing expenses to increase in absolute dollars as we continue to invest in our domestic and international selling and marketing activities to expand awareness of our brand and product offerings to attract new and existing customers.

General and Administrative

Total costs and expenses $ 5,232,441 $ (1,070,629) $ (104,533) $ 4,057,279

Nine Months Ended October 31, 2022

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

Non-GAAP Operating Expenses (2)

General and administrative expenses were $208 million for the three months ended April 30, 2024, compared to $168 million for the prior year period, an increase of $41 million, or 25%.

The increase in general and administrative expenses included increases of $27 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount and $8 million in realignment costs.

We expect general and administrative expenses will continue to increase in absolute dollars as we invest in our general and administrative organizations to support business growth.

Share-Based Compensation

Costs and expenses include share-based compensation expenses as follows (in millions):

Three Months Ended April 30,

Costs of subscription services $ 38 $ 29

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General and administrative 71 60

Total costs and expenses $ 4,702,800 $ (933,709) $ (103,877) $ 3,665,214

(1) Other operating expenses include amortization of acquisition-related intangible assets of $16 million and $21 million for the three months ended October 31, 2023, and 2022, respectively, and $58 million and $64 million for the nine months ended October 31, 2023, and 2022, respectively.

In addition, other operating expenses include employer payroll tax-related items on employee stock transactions of $9 million and $5 million for the three months ended October 31, 2023, and 2022, respectively, and $46 million and $40 million for the nine months ended October 31, 2023, and 2022, respectively.

Total share-based compensation expenses $ 385 $ 369

Percentage of total revenues

19.3 % 21.9 %

Share-based compensation expenses increased by $16 million for the three months ended April 30, 2024, compared to the prior year period, primarily due to additional grants to new and existing employees.

Equity compensation is an important element of our compensation philosophy.

While we expect share-based compensation expense to grow in absolute dollars as we expand our global workforce, we expect it to continue to decline as a percentage of total revenues.

Operating Income (Loss) and Operating Margin

GAAP operating income (loss) increased from $(20) million, or (1.2)% of revenues, for the three months ended April 30, 2023, to $64 million, or 3.2% of revenues, for the three months ended April 30, 2024, primarily due to our revenue growth outpacing headcount growth and moderation of operating expenses.

Non-GAAP operating income increased from $396 million, or 23.5% of revenues, for the three months ended April 30, 2023, to $515 million, or 25.9% of revenues, for the three months ended April 30, 2024, primarily due to our revenue growth outpacing headcount growth and moderation of operating expenses.

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

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

Costs of Subscription Services

GAAP operating expenses in costs of subscription services were $264 million for the three months ended October 31, 2023, compared to $259 million for the prior year period, an increase of $4 million, or 2%.

The increase in costs of subscription services included increases of $15 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, and $13 million in third-party expenses for hardware maintenance and data center capacity, offset by a decrease of $21 million in depreciation expense related to equipment in our data centers primarily due to the change in useful lives of data center equipment.

GAAP operating expenses in costs of subscription services were $759 million for the nine months ended October 31, 2023, compared to $737 million for the prior year period, an increase of $21 million, or 3%.

The increase in costs of subscription services included increases of $40 million in third-party expenses for hardware maintenance and data center capacity, $37 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, and $11 million in facilities and IT-related expenses, offset by a decrease of $66 million in depreciation expense related to equipment in our data centers primarily due to the change in useful lives of data center equipment.

Non-GAAP operating expenses in costs of subscription services were $224 million for the three months ended October 31, 2023, compared to $220 million for the prior year period, an increase of $4 million, or 2%.

The increase in costs of subscription services included increases of $13 million in third-party expenses for hardware maintenance and data center capacity and $10 million in employee-related expenses primarily due to higher average headcount, offset by a decrease of $21 million in depreciation expense related to equipment in our data centers primarily due to the change in useful lives of data center equipment.

Non-GAAP operating expenses in costs of subscription services were $629 million for the nine months ended October 31, 2023, compared to $615 million for the prior year period, an increase of $14 million, or 2%.

The increase in costs of subscription services included increases of $40 million in third-party expenses for hardware maintenance and data center capacity, $24 million in employee-related expenses primarily due to higher average headcount, and $11 million in facilities and IT-related expenses, offset by a decrease of $66 million in depreciation expense related to equipment in our data centers primarily due to the change in useful lives of data center equipment.

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 $181 million for the three months ended October 31, 2023, compared to $176 million for the prior year period, an increase of $5 million, or 3%.

The increase in costs of professional services included an increase of $9 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount.

GAAP operating expenses in costs of professional services were $552 million for the nine months ended October 31, 2023, compared to $524 million for the prior year period, an increase of $28 million, or 5%.

The increase in costs of professional services included an increase of $38 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, offset by a decrease of $7 million in professional services and subcontractor expenses.

Non-GAAP operating expenses in costs of professional services were $152 million for the three months ended October 31, 2023, compared to $149 million for the prior year period, an increase of $2 million, or 2%.

The increase in costs of professional services included an increase of $6 million in employee-related expenses primarily due to higher average headcount.

Non-GAAP operating expenses in costs of professional services were $459 million for the nine months ended October 31, 2023, compared to $439 million for the prior year period, an increase of $20 million, or 5%.

The increase in costs of professional services included an increase of $30 million in employee-related expenses primarily due to higher average 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 subscription customers continues to grow.

Product Development

GAAP operating expenses in product development were $619 million for the three months ended October 31, 2023, compared to $566 million for the prior year period, an increase of $53 million, or 9%.

The increase in product development expenses included an increase of $46 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount.

GAAP operating expenses in product development were $1.8 billion for the nine months ended October 31, 2023, compared to $1.7 billion for the prior year period, an increase of $174 million, or 11%.

The increase in product development expenses included an increase of $142 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount.

Non-GAAP operating expenses in product development were $454 million for the three months ended October 31, 2023, compared to $415 million for the prior year period, an increase of $39 million, or 9%.

The increase in product development expenses included an increase of $32 million in employee-related expenses primarily due to higher average headcount.

Non-GAAP operating expenses in product development were $1.3 billion for the nine months ended October 31, 2023, compared to $1.2 billion for the prior year period, an increase of $128 million, or 11%.

The increase in product development expenses included an increase of $96 million in employee-related expenses primarily due to higher average 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 $538 million for the three months ended October 31, 2023, compared to $470 million for the prior year period, an increase of $68 million, or 14%.

The increase in sales and marketing expenses included increases of $40 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, $19 million related to marketing programs, and $9 million in travel expenses.

GAAP operating expenses in sales and marketing were $1.6 billion for the nine months ended October 31, 2023, compared to $1.4 billion for the prior year period, an increase of $222 million, or 16%.

The increase in sales and marketing expenses included increases of $161 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, $34 million related to marketing programs, and $17 million in travel expenses.

Non-GAAP operating expenses in sales and marketing were $463 million for the three months ended October 31, 2023, compared to $400 million for the prior year period, an increase of $63 million, or 16%.

The increase in sales and marketing expenses included increases of $35 million in employee-related expenses primarily due to higher average headcount, $19 million related to marketing programs, and $9 million in travel expenses.

Non-GAAP operating expenses in sales and marketing were $1.3 billion for the nine months ended October 31, 2023, compared to $1.1 billion for the prior year period, an increase of $189 million, or 16%.

The increase in sales and marketing expenses included increases of $127 million in employee-related expenses primarily due to higher average headcount, $34 million related to marketing programs, and $17 million in travel expenses.

We expect GAAP and non-GAAP sales and marketing expenses to increase in absolute dollars as we continue to invest in our domestic and international selling and marketing activities to expand awareness of our brand and product offerings to attract new and existing customers.

General and Administrative

GAAP operating expenses in general and administrative were $176 million for the three months ended October 31, 2023, compared to $154 million for the prior year period, an increase of $22 million, or 15%.

The increase in general and administrative expenses included an increase of $24 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount.

GAAP operating expenses in general and administrative were $512 million for the nine months ended October 31, 2023, compared to $428 million for the prior year period, an increase of $84 million, or 20%.

The increase in general and administrative expenses included an increase of $75 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount.

Non-GAAP operating expenses in general and administrative were $112 million for the three months ended October 31, 2023, compared to $102 million for the prior year period, an increase of $10 million, or 10%.

The increase in general and administrative expenses included an increase of $12 million in employee-related expenses primarily due to higher average headcount.

Non-GAAP operating expenses in general and administrative were $319 million for the nine months ended October 31, 2023, compared to $277 million for the prior year period, an increase of $42 million, or 15%.

The increase in general and administrative expenses included an increase of $32 million in employee-related expenses primarily due to higher average headcount.

We expect GAAP and non-GAAP general and administrative expenses will continue to increase in absolute dollars as we invest in our general and administrative organizations to support business growth.

Operating Margin

GAAP operating margin improved from (1.6)% for the three months ended October 31, 2022, to 4.7% for the three months ended October 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 useful lives of data center equipment.

GAAP operating margin improved from (2.9)% for the nine months ended October 31, 2022, to 2.0% for the nine months ended October 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 useful lives of data center equipment.

Non-GAAP operating margin improved from 19.7% for the three months ended October 31, 2022, to 24.8% for the three months ended October 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 useful lives of data center equipment.

Non-GAAP operating margin improved from 19.8% for the nine months ended October 31, 2022, to 24.0% for the nine months ended October 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 useful lives of data center equipment.

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

Three Months Ended October 31, 2023

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

Operating income (loss) $ 87,855 $ 349,257 $ 24,986 $ 462,098

Operating margin 4.7 % 18.7 % 1.4 % 24.8 %

Three Months Ended October 31, 2022

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

Operating income (loss) $ (26,321) $ 314,196 $ 26,359 $ 314,234

Operating margin (1.6) % 19.6 % 1.7 % 19.7 %

Nine Months Ended October 31, 2023

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

Operating income (loss) $ 104,312 $ 1,070,629 $ 104,533 $ 1,279,474

Operating margin 2.0 % 20.1 % 1.9 % 24.0 %

Nine Months Ended October 31, 2022

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

Three Months Ended April 30,

Operating income (loss) $ 64 $ (20)

Share-based compensation expenses 385 369

Employer payroll tax-related items on employee stock transactions 38 26

Amortization of acquisition-related intangible assets 17 21

Acquisition-related costs

Realignment costs 8 0

Non-GAAP operating income (loss) $ 515 $ 396

Operating margin 3.2 % (1.2) %

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

Share-based compensation expenses 19.3 % 21.9 %

Employer payroll tax-related items on employee stock transactions 1.9 % 1.5 %

Amortization of acquisition-related intangible assets 0.9 % 1.3 %

Acquisition-related costs

Realignment costs 0.4 % 0.0 %

Non-GAAP operating margin 25.9 % 23.5 %

Other Income (Expense), Net

Other income (expense), net consisted of the following (in thousands):

Three Months Ended October 31, Nine Months Ended October 31,

2023 2022 2023 2022

Other income (expense), net consisted of the following (in millions):

Three Months Ended April 30,

Total other income (expense), net $ 59 $ 27

Other income, net for the three months ended October 31, 2023, primarily consisted of interest income of $79 million on our marketable debt securities from higher investment balances and rising interest rates, offset by interest expense of $28 million related to the Senior Notes and net losses of $14 million on our equity investments.

Other income, net for the three months ended October 31, 2022, primarily consisted of interest income of $31 million on our marketable debt securities from higher investment balances and rising interest rates, offset by interest expense of $30 million primarily related to the Senior Notes.

Other income, net for the nine months ended October 31, 2023, primarily consisted of interest income of $211 million on our marketable debt securities from higher investment balances and rising interest rates, offset by interest expense of $83 million related to the Senior Notes and net losses of $22 million on our equity investments.

Other expense, net for the nine months ended October 31, 2022, primarily consisted of interest expense of $74 million primarily related to the Senior Notes and net losses of $19 million on our equity investments, offset by interest income of $50 million on our marketable securities from higher investment balances and rising interest rates.

Other income, net increased by $33 million for the three months ended April 30, 2024, compared to the prior year period, primarily driven by an increase in interest income on our marketable securities from higher investment balances and increased interest rates.

Provision For (Benefit From) Income Taxes

The provision for (benefit from) income taxes consisted of the following (in millions):

Three Months Ended April 30,

Provision for (benefit from) income taxes $ 16 $ 7

The income tax provision for the three months ended April 30, 2024, was primarily attributable to earnings in U.S.

and profitable foreign jurisdictions, offset by the excess tax benefit from stock-based compensation.

The income tax provision for the three months ended April 30, 2023, was primarily attributable to income tax expenses in profitable foreign jurisdictions and an increase in U.S.

taxes due to capitalized research and development expenditures.

The Organization for Economic Cooperation and Development (“OECD”) released Pillar Two model rules defining a 15% global minimum tax for large multinational corporations.

The OECD continues to release additional guidance and countries are implementing legislation with widespread adoption of the Pillar Two Framework expected in the near future.

We are in the process of evaluating the potential impacts of Pillar Two.

While we do not currently expect Pillar Two to have a material impact on our effective tax rate, our analysis is ongoing and incomplete, and it is possible that Pillar Two could have a material adverse effect on our tax liability.

For further information, see Note 17, Income Taxes , of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

Liquidity and Capital Resources

As of October 31, 2023, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $6.9 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, U.S.

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

As of April 30, 2024, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $7.2 billion, which were primarily held for working capital and general corporate purposes.

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

treasury securities, commercial paper, money market funds, and U.S.

agency obligations.

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

We believe our existing cash, cash equivalents, marketable securities, cash provided by operating activities, unbilled amounts related to the remaining term of contracted noncancelable subscription agreements, which are not reflected on the Condensed Consolidated Balance Sheets, and, if necessary, our borrowing capacity under our 2022 Credit Agreement that provides for $1.0 billion of unsecured financing, are sufficient to meet our working capital, capital expenditure, and debt repayment needs over the next 12 months.

Our long-term future capital requirements depend on many factors, including the effects of macroeconomic trends, customer growth rates, subscription renewal activity, headcount growth, the timing and extent of development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced services offerings, the timing and costs associated with the construction or acquisition of additional facilities, and our investment and acquisition activities.

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

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

Three Months Ended October 31, Nine Months Ended October 31,

2023 2022 2023 2022

Our cash flows for the three months ended April 30, 2024, and 2023, were as follows (in millions):

Three Months Ended April 30,

Net cash provided by (used in):

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Operating Activities

Cash provided by operating activities was $451 million and $409 million for the three months ended October 31, 2023, and 2022, respectively.

The improvement in cash flow provided by operating activities was primarily due to increases in sales and the related cash collections and interest received from marketable debt securities, some of which is included in the Prepaid expenses and other assets caption on the Condensed Consolidated Statement of Cash Flows.

Increases were partially offset by higher cash operating expenses, including the mid-year payout of our fiscal 2024 performance-based cash bonus program which did not occur in the prior fiscal year.

Cash provided by operating activities was $1.2 billion and $963 million for the nine months ended October 31, 2023, and 2022, respectively.

The improvement in cash flow provided by operating activities was primarily due to increases in sales and the related cash collections and interest received from marketable debt securities.

The improvement was offset by higher cash operating expenses, including payouts under our new performance-based cash bonus program, an interest payment on our Senior Notes that did not occur in the prior fiscal year due to the timing of our debt offering, and payments related to the workforce realignment announced in the fourth quarter of fiscal 2023.

Cash provided by operating activities was $372 million and $277 million for the three months ended April 30, 2024, and 2023, respectively.

The improvement in cash flow provided by operating activities was primarily due to increases in sales and the related cash collections and interest received from marketable debt securities, offset by higher cash paid for employee-related expenses primarily due to higher average headcount.

Investing Activities

Cash used in investing activities for the three months ended October 31, 2023, was $172 million, which primarily resulted from a cash outflow from the timing of purchases and maturities of marketable securities of $149 million and capital expenditures for data center and office space projects of $59 million, offset by proceeds of $46 million from sales of marketable securities.

Cash used in investing activities for the three months ended October 31, 2022, was $168 million, which primarily resulted from a cash outflow from the timing of purchases and maturities of marketable securities of $130 million and capital expenditures for data center and office space projects of $59 million, offset by proceeds of $20 million from sales of marketable securities.

Cash used in investing activities for the nine months ended October 31, 2023, was $1.3 billion, which primarily resulted from a cash outflow from the timing of purchases and maturities of marketable securities of $1.2 billion and capital expenditures for data center and office space projects of $181 million, offset by proceeds of $93 million from sales of marketable securities.

Cash used in investing activities for the nine months ended October 31, 2022, was $2.1 billion, which primarily resulted from purchases of marketable securities, net of maturities, of $1.9 billion using the proceeds from the Senior Notes offering, capital expenditures for data center and office space projects of $286 million, and purchases of non-marketable equity and other investments of $20 million.

These payments were partially offset by proceeds of $53 million from sales of marketable securities and $12 million from sales and maturities of non-marketable securities.

Cash used in investing activities for the three months ended April 30, 2024, was $258 million, which was primarily related to cash consideration of $512 million for the acquisition of HiredScore, net of cash acquired, and capital expenditures of $81 million for data center and office space projects, offset by proceeds of $335 million from net maturities and sales of marketable debt securities.

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

We expect capital expenditures will be approximately $330 million in fiscal 2025.

This includes investments in our office facilities, corporate IT infrastructure, and customer data centers to support our continued growth.

This includes investments in our data centers, office facilities, and corporate IT infrastructure to support our continued growth.

Financing Activities

Cash used in financing activities was $150 million for the three months ended October 31, 2023, which was primarily due to repurchases of common stock under the Share Repurchase Program of $145 million.

Cash used in financing activities was $1.1 billion for the three months ended October 31, 2022, which was primarily due to the principal payment of $1.1 billion in connection with the conversion of our 2022 Notes.

Cash used in financing activities was $201 million for the nine months ended October 31, 2023, which was primarily due to due to repurchases of common stock under the Share Repurchase Program of $283 million, offset by $82 million in proceeds from the issuance of common stock from employee equity plans.

Cash provided by financing activities was $1.2 billion for the nine months ended October 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 $85 million from the issuance of common stock from employee equity plans, offset by the principal payment of $1.1 billion in connection with the conversion of our 2022 Notes, repayment of the term loan under the 2020 Credit Agreement of $694 million, and payments for debt issuance costs associated with our Senior Notes of $7 million.

Cash used in financing activities was $367 million for the three months ended April 30, 2024, which consisted of taxes paid of $239 million related to net share settlement of equity awards and $128 million of repurchases of common stock under our share repurchase plans.

Cash used in financing activities was $2 million for the three months ended April 30, 2023.

Free Cash Flows

In evaluating our performance internally, we focus on long-term, sustainable growth in free cash flows.

We define free cash flows, a non-GAAP financial measure, as net cash provided by (used in) operating activities minus total capital expenditures.

We define free cash flows, a non-GAAP financial measure, as net cash provided by (used in) operating activities minus capital expenditures.

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

Free cash flows improved to $391 million for the three months ended October 31, 2023, compared to $350 million for the prior year period.

The improvement was primarily due to increases in sales and the related cash collections and interest received from marketable debt securities, partially offset by higher cash operating expenses, including the mid-year payout of our fiscal 2024 performance-based cash bonus program which did not occur in the prior fiscal year.

Free cash flows improved to $969 million for the nine months ended October 31, 2023, compared to $676 million for the prior year period.

The improvement was primarily due to increases in sales and the related cash collections, interest received from marketable debt securities, and a reduction in capital expenditures for data center and office space projects.

Reconciliation of our GAAP net cash provided by (used in) operating activities to non-GAAP free cash flow is as follows (in thousands):

Three Months Ended October 31, Nine Months Ended October 31,

2023 2022 2023 2022

Free cash flows improved to $291 million for the three months ended April 30, 2024, compared to $218 million for the prior year period.

The improvement was primarily due to increases in sales and the related cash collections and interest received from marketable debt securities, offset by higher cash paid for employee-related expenses primarily due to higher average headcount and higher capital expenditures for data center and office space projects.

Reconciliation of our GAAP net cash provided by (used in) operating activities to non-GAAP free cash flows is as follows (in millions):

Three Months Ended April 30,

Net cash provided by (used in) operating activities $ 372 $ 277

Total capital expenditures (1)

(59,948) (58,846) (184,165) (286,459)

Capital expenditures (81) (59)

Free cash flows $ 291 $ 218

(1) Total capital expenditures consists of Capital expenditures, excluding owned real estate projects of $59 million, $59 million, $181 million, and $286 million for the three and nine months ended October 31, 2023 , and 2022, respectively, and Owned real estate projects of $1 million, $0.2 million, $3 million, and $0.4 million for the three and nine months ended October 31, 2023 , and 2022, respectively.

Share Repurchase Program

In November 2022, our Board of Directors authorized the repurchase of up to $500 million of our outstanding shares of Class A common stock.

The Share Repurchase Program has a term of 18 months, may be suspended or discontinued at any time, and does not obligate us to acquire any amount of Class A common stock.

In November 2022, our Board of Directors authorized the 2022 Share Repurchase Program under which we were authorized to repurchase up to $500 million of our outstanding shares of Class A common stock.

As of April 30, 2024, we had completed the repurchase authorization under this program.

In February 2024, our Board of Directors authorized the 2024 Share Repurchase Program, under which we may repurchase up to an additional $500 million of our Class A common stock.

For further information, see Note 14, Stockholders’ Equity , of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

Contractual Obligations

Our contractual obligations primarily consist of borrowings under our Senior Notes, leases for office space and co-location facilities for data center capacity, agreements for third-party hosted infrastructure platforms for business operations, and other purchase obligations entered into in the ordinary course of business.

Our contractual obligations primarily consist of borrowings under our Senior Notes, agreements for third-party hosted infrastructure platforms for business operations, leases for office space and co-location facilities for data center capacity, and other purchase obligations entered into in the ordinary course of business.

There have been no material changes outside the ordinary course of business to our contractual obligations disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with GAAP.

The preparation of these condensed consolidated financial statements requires us to make estimates, judgements, and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures.

On an ongoing basis, we evaluate our estimates, judgements, and assumptions.

Our actual results may differ from these estimates under different assumptions or conditions.

We believe that the following critical accounting policies involve a high degree of judgement and complexity, and are the most critical to aid in fully understanding and evaluating our financial condition and operating results:

• Revenue recognition

• Deferred commissions

• Business combinations, goodwill, and acquisition-related intangible assets

• Non-marketable equity investments

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 and nine months ended October 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.

Non-GAAP Financial Measures

Regulation S-K Item 10(e), “Use of non-GAAP financial measures in Commission filings,” defines and prescribes the conditions for use of non-GAAP financial information.

Our measures of non-GAAP operating expenses, non-GAAP operating income (loss), non-GAAP operating margin, and free cash flows meet the definition of non-GAAP financial measures.

Non-GAAP Operating Expenses, Non-GAAP Operating Income (Loss), and Non-GAAP Operating Margin

We use the non-GAAP financial measures of non-GAAP operating expenses, non-GAAP operating income (loss), and non-GAAP operating margin to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short- and long-term operating plans, and to evaluate our financial performance.

We believe that these non-GAAP measures reflect our ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business.

Our non-GAAP operating expenses, non-GAAP operating income (loss), and non-GAAP operating margin exclude the components listed below.

Our measures of non-GAAP operating income, non-GAAP operating margin, and free cash flows meet the definition of non-GAAP financial measures.

Change in Non-GAAP Financial Measures

Effective beginning fiscal 2025, we will exclude certain acquisition-related costs and realignment costs from our non-GAAP results as they may vary from period to period independent of the operating performance of our business.

There was no impact to prior period amounts presented in this report as a result of this change since no qualifying costs were incurred in the first quarter of fiscal 2024.

Non-GAAP Operating Income and Non-GAAP Operating Margin

We use the non-GAAP financial measures of non-GAAP operating income and non-GAAP operating margin to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short- and long-term operating plans, and to evaluate our financial performance.

We believe that these non-GAAP financial measures reflect our ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business.

Our non-GAAP operating income and non-GAAP operating margin exclude the components listed below.

For the reasons set forth below, we believe that excluding these components provides useful information to investors and others in understanding and evaluating our operating results and prospects in the same manner as management, in comparing financial results across accounting periods and to those of peer companies, and to better understand the long-term performance of our core business.

• Share-based compensation expenses.

Although share-based compensation is an important aspect of the compensation of our employees and executives, we believe it is useful to exclude share-based compensation expenses to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies.

Share-based compensation expenses are determined using a number of factors, including our stock price, volatility, and forfeiture rates that are beyond our control and generally unrelated to operational decisions and performance in any particular period.

Share-based compensation primarily consists of non-cash expenses for employee RSUs and our ESPP, and includes share-based compensation associated with acquisitions.

Although share-based compensation is an important aspect of the compensation of our employees and executives, this expense is determined using a number of factors, including our stock price, volatility, and forfeiture rates, that are beyond our control and generally unrelated to operational decisions and performance in any particular period.

Further, share-based compensation expenses are not reflective of the value ultimately received by the grant recipients.

• Other Operating Expenses.

Other operating expenses includes employer payroll tax-related items on employee stock transactions and amortization of acquisition-related intangible assets.

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.

• Employer payroll tax-related items on employee stock transactions.

We exclude the employer payroll tax-related items on employee stock transactions in order to show the full effect that excluding share-based compensation expenses has on our operating results.

Similar to share-based compensation expenses, this tax expense is dependent on our stock price and other factors that are beyond our control and do not correlate to the operation of our business.

• Amortization of acquisition-related intangible assets.

For business combinations, we generally allocate a portion of the purchase price to intangible assets.

The amount of the allocation is based on estimates and assumptions made by management and is subject to amortization.

The amount of purchase price allocated to intangible assets and the term of its related amortization can vary significantly and are unique to each acquisition and thus we do not believe it is reflective of ongoing operations.

Although we exclude the amortization of acquisition-related intangible assets from these non-GAAP measures, we believe that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.

The amount of purchase price allocated to intangible assets and the term of the related amortization can vary significantly and are unique to each acquisition and thus we do not believe it is reflective of our ongoing operations.

Although we exclude the amortization of acquisition-related intangible assets from these non-GAAP financial measures, we believe that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.

• Acquisition-related costs.

Acquisition-related costs include direct transaction costs, such as due diligence and advisory fees, and certain compensation and integration-related expenses.

We exclude the effects of acquisition-related costs as we believe these transaction-specific expenses are inconsistent in amount and frequency and do not correlate to the operation of our business.

• Realignment costs.

Realignment costs are associated with a formal restructuring plan and are primarily related to employee severance, the closure of facilities, and cancellation of certain contracts.

We exclude these expenses because they are not reflective of ongoing business and operating results.

Free Cash Flows

We define free cash flows as net cash provided by (used in) operating activities minus total capital expenditures.

We define free cash flows as net cash provided by (used in) operating activities minus capital expenditures.

We use free cash flows as a measure of financial progress in our business, as it balances operating results, cash management, and capital efficiency.

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Limitations on the Use of Non-GAAP Financial Measures

A limitation of our non-GAAP financial measures of non-GAAP operating expenses, non-GAAP operating income (loss), non-GAAP operating margin, and free cash flows is that they do not have uniform definitions.

A limitation of our non-GAAP financial measures of non-GAAP operating income, non-GAAP operating margin, and free cash flows is that they do not have uniform definitions.

Our definitions will likely differ from the definitions used by other companies, including peer companies, and therefore comparability may be limited.

Further, the non-GAAP financial measure of non-GAAP operating expenses has certain limitations because it does not reflect all items of expense that affect our operations and are reflected in the GAAP financial measure of total operating expenses.

In the case of share-based compensation, if we did not pay out a portion of compensation in the form of share-based compensation and related employer payroll tax-related items, the cash salary expense included in operating expenses would be higher, which would affect our cash position.

Further, these non-GAAP financial measures have certain limitations as they do not reflect all items of expense or cash that affect our operations and are reflected in the corresponding GAAP financial measures.

In the case of share-based compensation, if we did not pay out a portion of compensation in the form of share-based compensation, the cash salary expense included in operating expenses would be higher, which would affect our cash position.

We compensate for these limitations by reconciling the non-GAAP financial measures to the most comparable GAAP financial measures.

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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 and nine months ended October 31, 2023, and 2022.

See “Liquidity and Capital Resources—Free Cash Flows” for a reconciliation from the most comparable GAAP financial measure, Net cash provided by (used in) operating activities, to the non-GAAP financial measure, free cash flow, for the three and nine months ended October 31, 2023, and 2022.

See “Results of Operations—Operating Income (Loss) and Operating Margin” for reconciliations from the most directly comparable GAAP financial measures of GAAP operating income (loss) and GAAP operating margin, to the non-GAAP financial measures of non-GAAP operating income and non-GAAP operating margin, for the three months ended April 30, 2024, and 2023.

See “Liquidity and Capital Resources—Free Cash Flows” for a reconciliation from the most comparable GAAP financial measure, net cash provided by (used in) operating activities, to the non-GAAP financial measure, free cash flows, for the three months ended April 30, 2024, and 2023.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with GAAP.

The preparation of these condensed consolidated financial statements requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures.

On an ongoing basis, we evaluate our estimates, judgments, and assumptions.

Our actual results may differ from these estimates under different assumptions or conditions.

We believe that the following critical accounting policies involve a high degree of judgment and complexity, and are the most critical to aid in fully understanding and evaluating our financial condition and operating results:

• Revenue recognition

• Deferred commissions

• Income taxes

• Business combinations, goodwill, and acquisition-related intangible assets

• Non-marketable equity investments

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, 2024.

During the three months ended April 30, 2024, there were no significant changes to our critical accounting policies and estimates.

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