What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-28 compared with 2024-05-29 · 119 added, 81 removed, 209 unchanged (49% of the section changed)

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You should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this report.

Workday delivers applications for financial management, spend management, human capital management, planning, and analytics.

With Workday, our customers have a unified system that can help them plan, execute, analyze, and extend to other applications and environments, thereby helping them continuously adapt how they manage their business and operations.

Workday is a leading platform that helps organizations manage their two most important assets - their people and money.

We deliver cloud-based applications for financial management, human capital management, planning, spend management, and analytics.

Our diverse customer base includes medium-sized and large, global organizations within numerous industry categories, including professional and business services, financial services, healthcare, education, government, technology, media, retail, and hospitality.

We have achieved significant growth since our inception in 2005.

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 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 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.

Since inception, we have also invested heavily in our professional services organization to help ensure that customers successfully deploy and adopt our applications.

Additionally, we continue to expand our professional services partner ecosystem to further support our customers.

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.

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.

With Workday, our customers have a unified platform with AI built into its core that can help them deliver better employee experiences, improve operational efficiencies, and provide insights for faster, data-driven decision-making.

We have achieved significant growth since our inception in 2005, when we pioneered HCM in the cloud.

As a result of our innovation and commitment to customer success, today we are a Fortune 500 company with more than 10,500 customers around the world.

As we continue to grow, we are focused on driving sustainable, long-term subscription revenue growth by adding new customers and expanding our footprint with existing customers through product add-ons, increased headcount level commitments, and price adjustments.

Central to this effort is investing in strategic growth areas including leveraging the power of our platform to drive increased adoption of our full suite of financial management and HCM applications, expanding internationally, innovating with AI, growing our partner ecosystem, deepening our industry verticals, and exploring strategic acquisitions to complement our organic innovation.

Our investments across these targeted growth areas may require additional costs, but we remain committed to optimizing resource allocation and realizing a return on our investments.

Over time, we believe these investments will support revenue growth and a more scalable business.

We are continuing to focus on expanding our operating margin by driving scale and building efficiencies across the business through investments in people, processes, and systems.

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 invest in a disciplined manner to support our long-term growth initiatives.

Impact of Current Economic Conditions

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.

Recent macroeconomic events including elevated inflation and fluctuating 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.

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 reduced growth in headcount level commitments upon renewals of existing customers.

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

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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

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

2024 2023 Change 2024 2023 Change

Total revenues $ 2,085 $ 1,787 17 % $ 4,075 $ 3,471 17 %

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$ 518 $ 421 23 % $ 1,033 $ 817 26 %

GAAP operating margin 3.2 % (1.2) % 437 bps

GAAP operating margin 5.3 % 2.0 % 331 bps 4.3 % 0.5 % 382 bps

Non-GAAP operating margin (1)

25.9 % 23.5 % 236 bps

24.9 % 23.6 % 127 bps 25.4 % 23.5 % 180 bps

Operating cash flows $ 571 $ 425 34 % $ 943 $ 703 34 %

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$ 516 $ 360 43 % $ 807 $ 579 40 %

As of April 30,

As of July 31,

2024 2023 Change

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12-month subscription revenue backlog $ 6,797 $ 5,855 16 %

24-month subscription revenue backlog $ 11,590 $ 9,790 18 %

Cash, cash equivalents, and marketable securities $ 7,373 $ 6,657 11 %

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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 months ended April 30, 2024, and represented 96% of our total unearned revenue as of April 30, 2024.

Subscription services revenues accounted for approximately 91% of our total revenues for the three and six months ended July 31, 2024, and represented 96% of our total unearned revenue as of July 31, 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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Results of Operations

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,

Our total revenues were as follows (in millions, except percentages):

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

2024 2023 % Change 2024 2023 % Change

Subscription services $ 1,903 $ 1,624 17 % $ 3,719 $ 3,152 18 %

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Total revenues $ 2,085 $ 1,787 17 % $ 4,075 $ 3,471 17 %

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 $2.1 billion for the three months ended July 31, 2024, compared to $1.8 billion for the prior year period, an increase of $298 million, or 17%.

Subscription services revenues were $1.9 billion for the three months ended July 31, 2024, compared to $1.6 billion for the prior year period, an increase of $279 million, or 17%.

The increase in subscription services revenues was attributable to expansion within our existing customer base and sales to new customers.

Our growth with existing customers is further reflected in our gross and net revenue retention rates exceeding 95% and 100%, respectively.

Professional services revenues were $182 million for the three months ended July 31, 2024, compared to $163 million for the prior year period, an increase of $19 million, or 12%.

The increase in professional services revenues was driven by higher demand for our deployment and integration services.

This growth occurred even as we continued to expand and leverage our network of service partners.

Total revenues were $4.1 billion for the six months ended July 31, 2024, compared to $3.5 billion for the prior year period, an increase of $604 million, or 17%.

Subscription services revenues were $3.7 billion for the six months ended July 31, 2024, compared to $3.2 billion for the prior year period, an increase of $567 million, or 18%.

The increase in subscription services revenues was attributable to expansion within our existing customer base and sales to new customers.

Our growth with existing customers is further reflected in our gross and net revenue retention rates exceeding 95% and 100%, respectively.

Professional services revenues were $356 million for the six months ended July 31, 2024, compared to $319 million for the prior year period, an increase of $37 million, or 11%.

The increase in professional services revenues was driven by higher demand for our deployment and integration services.

This growth occurred even as we continued to expand and leverage our network of service partners.

Subscription Revenue Backlog

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.

As of July 31, 2024, our total subscription revenue backlog was $21.6 billion, with $6.8 billion expected to be recognized in revenues over the next 12 months.

As of July 31, 2023, our total subscription revenue backlog was $17.8 billion, with $5.9 billion expected to be recognized in revenues over the next 12 months.

The increase in subscription revenue backlog was primarily driven by expansion within our existing customer base, sales to new customers, timing of renewals for 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,

Our costs and expenses were as follows (in millions):

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

2024 2023 2024 2023

Costs of subscription services $ 304 $ 256 $ 594 $ 495

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Total costs and expenses $ 1,974 $ 1,751 $ 3,900 $ 3,455

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.

Total costs and expenses were $2.0 billion for the three months ended July 31, 2024, compared to $1.8 billion for the prior year period, an increase of $223 million, or 13%.

The increase in operating expenses included increases of $118 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, $31 million in professional services and subcontractor expenses, $17 million related to marketing programs, and $17 million in facilities and IT-related expenses.

Total costs and expenses were $3.9 billion for the six months ended July 31, 2024, compared to $3.5 billion for the prior year period, an increase of $445 million, or 13%.

The increase in operating expenses included increases of $272 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, $47 million in professional services and subcontractor expenses, $28 million in facilities and IT-related expenses, and $20 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.

Costs of subscription services were $304 million for the three months ended July 31, 2024, compared to $256 million for the prior year period, an increase of $48 million, or 19%.

The increase in costs of subscription services included increases of $32 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, and $9 million in depreciation.

Costs of subscription services were $594 million for the six months ended July 31, 2024, compared to $495 million for the prior year period, an increase of $100 million, or 20%.

The increase in costs of subscription services included increases of $67 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, $17 million in depreciation, and $12 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.

Costs of professional services were $207 million for the three months ended July 31, 2024, compared to $192 million for the prior year period, an increase of $15 million, or 8%.

The increase in costs of professional services included an increase of $14 million in subcontractor expenses.

Costs of professional services were $406 million for the six months ended July 31, 2024, compared to $371 million for the prior year period, an increase of $35 million, or 9%.

The increase in costs of professional services included an increase of $25 million in subcontractor expenses.

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%.

Product development expenses were $649 million for the three months ended July 31, 2024, compared to $610 million for the prior year period, an increase of $39 million, or 6%.

The increase in product development expenses included an increase of $29 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount.

Product development expenses were $1.3 billion for the six months ended July 31, 2024, compared to $1.2 billion for the prior year period, an increase of $95 million, or 8%.

The increase in product development expenses included an increase of $79 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.

Sales and marketing expenses were $611 million for the three months ended July 31, 2024, compared to $524 million for the prior year period, an increase of $87 million, or 17%.

The increase in sales and marketing expenses included increases of $42 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, $17 million related to marketing programs, and $10 million in amortization of deferred sales commissions due to increased sales.

Sales and marketing expenses were $1.2 billion for the six months ended July 31, 2024, compared to $1.0 billion for the prior year period, an increase of $141 million, or 13%.

The increase in sales and marketing expenses included increases of $77 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, $20 million in amortization of deferred sales commissions due to increased sales, and $14 million related to marketing programs.

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

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.

General and administrative expenses were $203 million for the three months ended July 31, 2024, compared to $169 million for the prior year period, an increase of $34 million, or 20%.

The increase in general and administrative expenses included increases of $15 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, and $11 million in professional services and subcontractor expenses.

General and administrative expenses were $411 million for the six months ended July 31, 2024, compared to $336 million for the prior year period, an increase of $75 million, or 22%.

The increase in general and administrative expenses included increases of $43 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, $15 million in professional services and subcontractor expenses, and $8 million in realignment costs.

We expect general and administrative expenses will continue to increase in absolute dollars as we continue to grow our business and invest in our infrastructure, people, and systems to support our global operations.

Share-Based Compensation

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

Three Months Ended April 30,

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

2024 2023 2024 2023

Costs of subscription services $ 35 $ 30 $ 73 $ 59

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17.7 % 19.7 % 18.5 % 20.8 %

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.

Share-based compensation expenses increased by $18 million for the three months ended July 31, 2024, compared to the prior year period, primarily due to additional grants to new and existing employees.

Share-based compensation expenses increased by $33 million for the six months ended July 31, 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.

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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.

GAAP operating income was $111 million, or 5.3% of revenues, for the three months ended July 31, 2024, compared to the prior year GAAP operating income of $36 million, or 2.0% of revenues.

The increase is primarily due to our revenue growth outpacing headcount growth and moderation of operating expenses, including share-based compensation.

GAAP operating income was $175 million, or 4.3% of revenues, for the six months ended July 31, 2024, compared to the prior year GAAP operating income of $16 million, or 0.5% of revenues.

The increase is primarily due to our revenue growth outpacing headcount growth and moderation of operating expenses, including share-based compensation.

Non-GAAP operating income was $518 million, or 24.9% of revenues, for the three months ended July 31, 2024, compared to the prior year non-GAAP operating income of $421 million, or 23.6% of revenues.

The increase is primarily due to our revenue growth outpacing headcount growth and moderation of operating expenses.

Non-GAAP operating income was $1.0 billion, or 25.4% of revenues, for the six months ended July 31, 2024, compared to the prior year non-GAAP operating income of $817 million, or 23.5% of revenues.

The increase is 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.

Three Months Ended April 30,

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

2024 2023 2024 2023

Operating income (loss) $ 111 $ 36 $ 175 $ 16

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Acquisition-related costs

0.3 % 0.0 % 0.2 % 0.0 %

Realignment costs 0.0 % 0.0 % 0.2 % 0.0 %

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

Three Months Ended April 30,

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

2024 2023 2024 2023

Total other income (expense), net $ 57 $ 46 $ 116 $ 73

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.

Other income, net increased by $12 million and $44 million for the three and six months ended July 31, 2024, compared to the prior year periods.

The increases were primarily driven by additional interest income earned on our marketable debt 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,

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

2024 2023 2024 2023

Provision for (benefit from) income taxes $ 36 $ 3 $ 52 $ 10

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

The income tax provision for the six months ended July 31, 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 income tax provision for the six months ended July 31, 2023, was primarily attributable to income tax expenses in profitable foreign jurisdictions and capitalized research and development expenditures in the U.S.

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

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Liquidity and Capital Resources

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.

As of July 31, 2024, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $7.4 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.

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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 and beyond.

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.

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, share repurchase, and debt repayment needs over the next 12 months and beyond.

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, infrastructure development, 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 months ended April 30, 2024, and 2023, were as follows (in millions):

Three Months Ended April 30,

Our cash flows were as follows (in millions):

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

2024 2023 2024 2023

Net cash provided by (used in):

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Operating Activities

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

Cash provided by operating activities was $571 million and $425 million for the three months ended July 31, 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.

Cash provided by operating activities was $943 million and $703 million for the six months ended July 31, 2024, and 2023, respectively.

Investing Activities

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.

Cash used in investing activities for the three months ended July 31, 2024, was $346 million, which primarily resulted from a cash outflow of $279 million related to marketable debt securities activity and capital expenditures of $55 million for data center and office space projects.

Cash used in investing activities for the three months ended July 31, 2023, was $385 million, which primarily resulted from a cash outflow of $345 million from the timing of purchases and maturities of marketable securities and capital expenditures of $65 million for data center and office space projects, offset by proceeds of $25 million from sales of marketable securities.

Cash used in investing activities for the six months ended July 31, 2024, was $603 million, which primarily related to cash consideration of $522 million for the acquisition of HiredScore, net of cash acquired, and capital expenditures of $136 million for data center and office space projects, offset by proceeds of $57 million related to marketable debt securities activity.

Cash used in investing activities for the six months ended July 31, 2023, was $1.1 billion, which primarily resulted from a cash outflow of $1.0 billion from the timing of purchases and maturities of marketable securities and capital expenditures of $124 million for data center and office space projects, offset by proceeds of $48 million from sales of marketable securities.

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

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Financing Activities

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.

Cash used in financing activities was $347 million for the three months ended July 31, 2024, which was primarily due to repurchases of common stock of $312 million under our February 2024 Share Repurchase Program and taxes paid of $141 million related to net share settlement of equity awards, offset by proceeds of $106 million from the issuance of common stock from employee equity plans.

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 of $139 million under our 2022 Share Repurchase Program, offset by $95 million in proceeds from the issuance of common stock from employee equity plans.

Cash used in financing activities was $715 million for the six months ended July 31, 2024, which was primarily due to repurchases of common stock of $440 million under our Share Repurchase Programs and taxes paid of $381 million related to net share settlement of equity awards, offset by proceeds of $106 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 repurchases of common stock of $139 million under our 2022 Share Repurchase Program, offset by proceeds of $95 million from the issuance of common stock from employee equity plans.

Free Cash Flows

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

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

Free cash flows were $516 million for the three months ended July 31, 2024, compared to $360 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.

Free cash flows were $807 million for the six months ended July 31, 2024, compared to $579 million for the prior year period.

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,

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

2024 2023 2024 2023

Net cash provided by (used in) operating activities $ 571 $ 425 $ 943 $ 703

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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.

We completed the purchase authorization under this program during the first quarter of fiscal 2025.

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

In August 2024, our Board of Directors authorized the August 2024 Share Repurchase Program, under which we may repurchase up to an additional $1.0 billion of our outstanding shares of Class A common stock.

For further information, see Note 14, Stockholders’ Equity , and Note 20, Subsequent Events , of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

Contractual Obligations

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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.

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 half of fiscal 2024.

Non-GAAP Operating Income and Non-GAAP Operating Margin

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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 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

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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.

During the three and six months ended July 31, 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