What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-12-05 compared with 2024-08-28 · 112 added, 106 removed, 222 unchanged (50% 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 is a leading platform that helps organizations manage their two most important assets - their people and money.

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

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

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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 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.

Recent macroeconomic events including elevated inflation and fluctuating interest rates, as well as geopolitical factors including the Russia-Ukraine and Israel-Hamas conflicts, continue to impact the global economy and create 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 reduced growth in headcount level commitments upon renewals of existing customers.

We have experienced, and may continue to experience, a moderation of revenue growth rates due to 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 July 31, Six Months Ended July 31,

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

2024 2023 Change 2024 2023 Change

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$ 359 $ 391 (8) % $ 1,166 $ 970 20 %

As of July 31,

As of October 31,

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 six months ended July 31, 2024, and represented 96% of our total unearned revenue as of July 31, 2024.

Subscription services revenues accounted for approximately 91% of our total revenues for the three and nine months ended October 31, 2024, and represented 96% of our total unearned revenue as of October 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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New products or services offerings by competitors in the future could also impact the mix and pricing of our offerings.

Subscription services revenues are recognized over time as services are delivered and consumed concurrently over the contractual term, beginning on the date our service is made available to the customer.

Subscription services revenues are recognized over time as services are delivered, beginning on the date our service is made available to the customer.

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

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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.

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

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

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Our subscription revenue backlog, which is also referred to as remaining performance obligations for subscription contracts, represents contracted subscription services revenues that have not yet been recognized and includes billed and unbilled amounts.

Subscription revenue backlog may fluctuate from period to period due to a number of factors, including the timing of renewals and overall renewal rates, new business growth, average contract duration, and seasonality.

Costs and Expenses

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

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

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

2024 2023 % Change 2024 2023 % Change

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Total revenues $ 2,160 $ 1,866 16 % $ 6,235 $ 5,337 17 %

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.

Total revenues were $2.2 billion for the three months ended October 31, 2024, compared to $1.9 billion for the prior year period, an increase of $294 million, or 16%.

Subscription services revenues were $2.0 billion for the three months ended October 31, 2024, compared to $1.7 billion for the prior year period, an increase of $268 million, or 16%.

Approximately 60% of the increase in subscription services revenues was attributable to expansion within our customers that existed as of the beginning of the comparable prior year period, and the remaining 40% was attributable to customers added after the beginning of the comparable prior year period.

Professional services revenues were $201 million for the three months ended October 31, 2024, compared to $175 million for the prior year period, an increase of $27 million, or 15%.

The increase in professional services revenues was driven by increased progress on fixed fee projects of $15 million and higher demand for deployment and integration services of $12 million.

Total revenues were $6.2 billion for the nine months ended October 31, 2024, compared to $5.3 billion for the prior year period, an increase of $898 million, or 17%.

Subscription services revenues were $5.7 billion for the nine months ended October 31, 2024, compared to $4.8 billion for the prior year period, an increase of $835 million, or 17%.

Approximately 60% of the increase in subscription services revenues was attributable to expansion of our customers that existed as of the beginning of the prior fiscal year, and the remaining 40% was attributable to customers added after the beginning of the prior fiscal year.

Professional services revenues were $557 million for the nine months ended October 31, 2024, compared to $494 million for the prior year period, an increase of $63 million, or 13%.

The increase in professional services revenues was driven by higher demand for deployment and integration services of $47 million and increased progress on fixed fee projects of $16 million.

Gross Revenue Retention Rate

Our growth in subscription services revenues attributable to existing customers is further reflected by our gross revenue retention rate of 98% as of October 31, 2024.

Our gross revenue retention rate measures the percentage of recurring revenue retained from existing customers and is calculated by taking total annual recurring revenue (“ARR”) of our customers as of the corresponding prior period-end and comparing that to ARR from that same set of customers as of the current period-end.

The metric takes into account recurring revenues lost to product or customer churn but does not account for additional revenue earned from add-ons or net expansions, which include volume and price adjustments.

Our high gross revenue retention rate demonstrates our ability to maintain our existing customer base and drive strong overall customer satisfaction.

Our gross revenue retention rate is based on ARR, which represents the annualized value of active subscription contracts as of the end of each period.

Each subscription contract is annualized by dividing the total contract value by the number of days in the contract term and then multiplying by 365.

We exclude certain subscription contracts from the calculation, including contracts with terms less than one year that are distinct from our core product offering, such as contracts for tenants which are used for implementation and testing.

To the extent that we are negotiating a renewal with a customer after the expiration of the subscription, ARR is only adjusted if the customer churns.

We calculate ARR on a constant currency basis using exchange rates set at the beginning of each fiscal year.

ARR is a non-GAAP financial measure and should be viewed independently of, and not as a substitute for or combined with, revenue and unearned revenue.

Subscription Revenue Backlog

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.

As of October 31, 2024, our total subscription revenue backlog was $22.2 billion, with $7.0 billion expected to be recognized in revenues over the next 12 months.

As of October 31, 2023, our total subscription revenue backlog was $18.4 billion, with $6.0 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, and timing of renewals for existing customers.

Costs and Expenses

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

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

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

2024 2023 2024 2023

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Total costs and expenses $ 1,995 $ 1,778 $ 5,895 $ 5,233

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.

Total costs and expenses were $2.0 billion for the three months ended October 31, 2024, compared to $1.8 billion for the prior year period, an increase of $217 million, or 12%.

The increase in operating expenses included increases of $132 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, $20 million in facilities and IT-related expenses, $20 million in data center capacity expenses, $16 million in professional services and subcontractor expenses, $9 million in amortization of deferred sales commissions due to increased sales, and $8 million in depreciation.

Total costs and expenses were $5.9 billion for the nine months ended October 31, 2024, compared to $5.2 billion for the prior year period, an increase of $662 million, or 13%.

The increase in operating expenses included increases of $404 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, $63 million in professional services and subcontractor expenses, $48 million in facilities and IT-related expenses, $37 million in data center capacity expenses, $29 million in amortization of deferred sales commissions due to increased sales, and $25 million in depreciation.

Costs of Subscription Services

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.

Costs of subscription services were $329 million for the three months ended October 31, 2024, compared to $264 million for the prior year period, an increase of $66 million, or 25%.

The increase in costs of subscription services included increases of $33 million in employee-related expenses primarily due to higher average headcount, $17 million in data center capacity expenses, and $8 million in depreciation.

Costs of subscription services were $924 million for the nine months ended October 31, 2024, compared to $759 million for the prior year period, an increase of $165 million, or 22%.

The increase in costs of subscription services included increases of $100 million in employee-related expenses primarily due to higher average headcount, $29 million in data center capacity expenses, and $20 million in depreciation.

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 $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%.

Costs of professional services were $201 million for the three months ended October 31, 2024, compared to $181 million for the prior year period, an increase of $19 million, or 11%.

The increase in costs of professional services included an increase of $16 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.

Costs of professional services were $606 million for the nine months ended October 31, 2024, compared to $552 million for the prior year period, an increase of $54 million, or 10%.

The increase in costs of professional services included increases of $40 million in subcontractor expenses and $9 million in employee-related expenses.

We expect costs of professional services as a percentage of total revenues to continue to decline as we 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 $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.

Product development expenses were $647 million for the three months ended October 31, 2024, compared to $619 million for the prior year period, an increase of $28 million, or 5%.

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

Product development expenses were $2.0 billion for the nine months ended October 31, 2024, compared to $1.8 billion for the prior year period, an increase of $123 million, or 7%.

The increase in product development expenses included an increase of $110 million in employee-related expenses 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 $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.

Sales and marketing expenses were $620 million for the three months ended October 31, 2024, compared to $538 million for the prior year period, an increase of $82 million, or 15%.

The increase in sales and marketing expenses included increases of $57 million in employee-related expenses primarily due to higher average headcount, $10 million related to marketing programs, $9 million in amortization of deferred sales commissions due to increased sales, and $8 million in facilities and IT-related expenses.

Sales and marketing expenses were $1.8 billion for the nine months ended October 31, 2024, compared to $1.6 billion for the prior year period, an increase of $223 million, or 14%.

The increase in sales and marketing expenses included increases of $134 million in employee-related expenses primarily due to higher average headcount, $29 million in amortization of deferred sales commissions due to increased sales, $24 million related to marketing programs, and $20 million in facilities and IT-related expenses.

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 $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.

General and administrative expenses were $198 million for the three months ended October 31, 2024, compared to $176 million for the prior year period, an increase of $22 million, or 12%.

The increase in general and administrative expenses included increases of $9 million in professional services expenses and $8 million in employee-related expenses primarily due to higher average headcount.

General and administrative expenses were $609 million for the nine months ended October 31, 2024, compared to $512 million for the prior year period, an increase of $97 million, or 19%.

The increase in general and administrative expenses included increases of $51 million in employee-related expenses primarily due to higher average headcount, $24 million in professional services expenses, and $9 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.

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

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

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

2024 2023 2024 2023

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17.0 % 18.7 % 18.0 % 20.1 %

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.

Share-based compensation expenses increased by $19 million for the three months ended October 31, 2024, compared to the prior year period, primarily due to additional grants to new and existing employees.

Share-based compensation expenses increased by $51 million for the nine months ended October 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 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.

GAAP operating income was $165 million, or 7.6% of revenues, for the three months ended October 31, 2024, compared to the prior year GAAP operating income of $88 million, or 4.7% of revenues.

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

GAAP operating income was $340 million, or 5.5% of revenues, for the nine months ended October 31, 2024, compared to the prior year GAAP operating income of $104 million, or 2.0% of revenues.

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

Non-GAAP operating income was $569 million, or 26.3% of revenues, for the three months ended October 31, 2024, compared to the prior year non-GAAP operating income of $462 million, or 24.8% of revenues.

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

Non-GAAP operating income was $1.6 billion, or 25.7% of revenues, for the nine months ended October 31, 2024, compared to the prior year non-GAAP operating income of $1.3 billion, or 24.0% of revenues.

The increase was 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 July 31, Six Months Ended July 31,

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

2024 2023 2024 2023

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Other Income (Expense), Net

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

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

Other income (expense), net was as follows (in millions):

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

2024 2023 2024 2023

Total other income (expense), net $ 62 $ 41 $ 178 $ 114

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.

Other income, net increased by $20 million for the three months ended October 31, 2024, primarily due to a favorable change of $17 million on our equity investments.

Other income, net increased by $64 million for the nine months ended October 31, 2024, primarily due to increases of $53 million in interest income earned from higher investment balances and increased interest rates and a favorable change of $15 million on our equity investments.

Provision For (Benefit From) Income Taxes

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

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

The provision for (benefit from) income taxes was as follows (in millions):

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

2024 2023 2024 2023

Provision for (benefit from) income taxes $ 34 $ 15 $ 86 $ 25

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 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 income tax provision for the nine months ended October 31, 2024, was primarily attributable to earnings in the U.S.

and profitable foreign jurisdictions, offset by the excess tax benefit from stock-based compensation and increase in research and development credits.

The income tax provision for the nine months ended October 31, 2023, was primarily attributable to earnings 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.

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Liquidity and Capital Resources

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.

As of October 31, 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.

treasury securities, money market funds, U.S.

agency obligations, and commercial paper.

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

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Our cash flows were as follows (in millions):

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

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

2024 2023 2024 2023

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Operating Activities

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.

Cash provided by operating activities was $406 million and $451 million for the three months ended October 31, 2024, and 2023, respectively.

The decline in cash flow provided by operating activities was primarily the result of increased employee-related payments of $119 million primarily due to higher average headcount and increased supplier payments of $62 million to support our strategic growth objectives, offset by higher cash collections of $158 million due to increased sales.

Cash provided by operating activities was $1.3 billion and $1.2 billion for the nine months ended October 31, 2024, and 2023, respectively.

The improvement in cash flow provided by operating activities was primarily the result of higher cash collections of $555 million due to increased sales and additional interest income received of $102 million from marketable debt securities, offset by increased employee-related payments of $288 million primarily due to higher average headcount and increased supplier payments of $139 million to support our strategic growth objectives.

Investing Activities

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.

Cash used in investing activities for the three months ended October 31, 2024, was $450 million, which primarily resulted from cash consideration of $302 million, net of cash acquired, for the acquisition of Evisort, capital expenditures of $47 million for data center and office space projects, and a net cash outflow of $96 million related to marketable debt securities activity.

Cash used in investing activities for the three months ended October 31, 2023, was $172 million, which primarily resulted from a cash outflow of $148 million from the timing of purchases and maturities of marketable securities and capital expenditures of $60 million for data center and office space projects, offset by proceeds of $46 million from sales of marketable securities.

Cash used in investing activities for the nine months ended October 31, 2024, was $1.1 billion, which primarily resulted from cash consideration, net of cash acquired, of $522 million and $302 million for the acquisitions of HiredScore and Evisort, respectively, capital expenditures of $183 million for data center and office space projects, and a net cash outflow of $39 million related to marketable debt securities activity.

Cash used in investing activities for the nine months ended October 31, 2023, was $1.3 billion, which primarily resulted from a cash outflow of $1.2 billion from the timing of purchases and maturities of marketable securities and capital expenditures of $183 million for data center and office space projects, offset by proceeds of $93 million from sales of marketable securities.

We expect capital expenditures will be approximately $300 million in fiscal 2025.

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

This includes investments in our data centers and office facilities to support our continued growth.

Financing Activities

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.

Cash used in financing activities was $282 million for the three months ended October 31, 2024, which was primarily due to repurchases of common stock of $158 million under our share repurchase programs and taxes paid of $124 million related to net share settlement of equity awards.

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 of $145 million under our share repurchase programs.

Cash used in financing activities was $996 million for the nine months ended October 31, 2024, which was primarily due to repurchases of common stock of $597 million under our share repurchase programs and taxes paid of $505 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 $201 million for the nine months ended October 31, 2023, which was primarily due to due to repurchases of common stock of $283 million under our share repurchase programs, 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 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.

Free cash flows were $359 million for the three months ended October 31, 2024, compared to $391 million for the prior year period.

The decline was primarily the result of increased employee-related payments of $119 million primarily due to higher average headcount and increased supplier payments of $62 million to support our strategic growth objectives, offset by higher cash collections of $158 million due to increased sales and a decrease in capital expenditures of $13 million for data centers.

Free cash flows were $1.2 billion for the nine months ended October 31, 2024, compared to $970 million for the prior year period.

The improvement was primarily the result of higher cash collections of $555 million due to increased sales and additional interest income received of $102 million from marketable debt securities, offset by increased employee-related payments of $288 million primarily due to higher average headcount and increased supplier payments of $139 million to support our strategic growth objectives.

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 July 31, Six Months Ended July 31,

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

2024 2023 2024 2023

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Free cash flows $ 359 $ 391 $ 1,166 $ 970

Share Repurchase Program

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.

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.

Share Repurchase Programs

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

Prior to the August 2024 Share Repurchase Program, our Board of Directors authorized a $500 million share repurchase program in February 2024, which we completed in the third quarter of fiscal 2025, and a $500 million share repurchase program in November 2022, which we completed in the first quarter of fiscal 2025.

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

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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 half 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 three quarters 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 and six months ended July 31, 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 and six months ended July 31, 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 and six months ended July 31, 2024, there were no significant changes to our critical accounting policies and estimates.

During the three and nine months ended October 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