What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2026-03-06 compared with 2025-03-11 · 111 added, 85 removed, 302 unchanged (39% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included included in Part II, Item 8 of this report.

The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs.

3 unchanged sentences

Discussions of fiscal 2024 items and year-over-year comparisons between fiscal 2025 and 2024 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended January 31, 2025, that was filed with the SEC on March 11, 2025.

Workday is the AI platform that helps organizations manage their most important assets – their people and money.

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

Our diverse customer base includes emerging, 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.

With Workday, our customers have an AI-powered platform that can help them deliver better employee experiences, increase productivity, improve operational efficiencies, and provide insights for faster, data-driven decision-making.

Amounts in this report may not recalculate due to rounding.

Year-over-year comparisons, operating margin, and net income per share are calculated using unrounded data.

Workday is the enterprise AI platform for managing people, money, and agents.

We deliver cloud-based, AI-powered applications for HCM, financial management, spend management, and planning.

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

Workday helps customers deliver better employee experiences, increase productivity, 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.

1 unchanged sentence

As we continue to grow, we are focused on driving sustainable, long-term subscription revenue growth by adding new customers and expanding our relationships with existing customers through increased adoption of our suite of solutions.

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 applications, expanding internationally, developing innovative AI solutions, growing our partner ecosystem, deepening our industry verticals, and exploring strategic acquisitions to complement our organic innovation.

Central to this effort is investing in strategic growth areas including developing innovative AI solutions, expanding internationally, growing our partner ecosystem, deepening our presence in industry verticals and the emerging and medium enterprise market, 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.

1 unchanged sentence

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

In February 2025, we announced the Fiscal 2026 Restructuring Plan, which is intended to prioritize our investments and continue advancing our ongoing focus on durable growth.

The plan is currently expected to result in the reduction of approximately 8% of our workforce.

In connection with this plan, we expect to exit certain owned office space.

As a result of our focus on expanding operating margin, 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 objectives.

Impact of Current Economic Conditions

Recent macroeconomic events including increased tariffs, elevated inflation, and fluctuating interest rates and foreign currency exchange rates, as well as geopolitical instability, 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 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.

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.

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

Financial Results Overview

18 unchanged sentences

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

Additional notable transactions from fiscal 2026 include:

• Business combinations:

In September 2025, we acquired Paradox, a candidate experience agent that uses conversational AI to simplify every step of the job application journey, for purchase consideration of $1.1 billion, and in November 2025, we acquired Sana, a leading AI company building the next generation of enterprise knowledge tools, for purchase consideration of $1.1 billion.

• Share repurchases :

During fiscal 2026, we repurchased approximately 12.8 million shares of our Class A common stock for $2.9 billion as part of our share repurchase programs.

• Restructuring activities:

In February 2025, we announced a restructuring plan (“Fiscal 2026 Restructuring Plan”), intended to prioritize our investments and continue advancing our ongoing focus on durable growth.

The plan resulted in the reduction of approximately 7.5% of our workforce and the exit of certain owned office space.

In February 2026, we announced an additional restructuring plan (“Fiscal 2027 Restructuring Plan”) intended to better align our people and resources to our highest priorities in fiscal 2027.

The plan is expected to result in the reduction of approximately 2% of our workforce, and in the impairment of certain office space and long-lived assets.

For fiscal 2026, we incurred approximately $303 million in costs related to these restructuring activities.

Impact of Current Economic Conditions

As a result, 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, as well as reduced growth in headcount-level commitments upon renewals of existing customers.

The extended sales cycles are particularly evident in the government, higher education, and healthcare industries which are tied to federal funding.

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

Components of Results of Operations

We derive our revenues from subscription services and professional services.

Subscription services revenues primarily consist of fees that give our customers access to our cloud applications, which include related customer support.

Subscription services revenues primarily consist of fees that provide customers access to our cloud applications, with standard and enhanced customer support.

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

9 unchanged sentences

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.

We generally invoice our customers as the work is performed for time and materials arrangements, and in advance for fixed price arrangements.

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

7 unchanged sentences

Costs of subscription services revenues .

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 subscription services revenues consist primarily of expenses associated with hosting our applications and delivering standard and enhanced customer support services.

These costs include employee-related expenses, expenses related to data center capacity and third-party hosted infrastructure, depreciation of our data center equipment, amortization of certain acquisition-related intangible assets, and allocated overhead.

Costs of professional services revenues .

Costs of professional services revenues consist primarily of employee-related expenses associated with these services, subcontractor expenses, and travel expenses.

Costs of professional services revenues consist primarily of employee-related expenses associated with these services, subcontractor expenses, travel expenses, and allocated overhead.

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, as well as expenses related to data center capacity.

Sales and marketing expenses .

Sales and marketing expenses consist primarily of employee-related expenses, sales commissions, marketing programs, and travel expenses.

Sales and marketing expenses consist primarily of employee-related expenses, sales commissions, marketing programs, travel expenses, amortization of certain acquisition-related intangible assets, and allocated overhead.

Marketing programs consist of advertising, events, corporate communications, brand awareness, brand ambassador campaigns, and product marketing activities.

2 unchanged sentences

General and administrative expenses .

General and administrative expenses consist of employee-related expenses for finance and accounting, legal, human resources, information systems personnel, professional fees, and other corporate expenses.

General and administrative expenses consist primarily of employee-related expenses for our finance and accounting, legal, human resources, and information systems personnel, as well as professional services fees, allocated overhead, and other corporate expenses.

We allocate shared costs, such as facilities, IT, benefits, and recruiting, primarily based on headcount.

As such, overhead expenses are reflected in each of the costs and expenses categories.

Restructuring expenses.

Restructuring expenses are associated with a formal restructuring program and consist of charges related to employee transition, severance payments, employee benefits, and share-based compensation, as well as exit charges associated with the closure of facilities.

Restructuring expenses are associated with a formal restructuring program and consist of charges related to workforce reductions, including employee transition, severance payments, and share-based compensation, as well as charges associated with the closure of facilities and other exit and disposal activities.

Results of Operations

7 unchanged sentences

Subscription services revenues were $8.8 billion for fiscal 2026, compared to $7.7 billion for fiscal 2025, an increase of $1.1 billion, or 14%.

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 $728 million for fiscal 2025, compared to $656 million for fiscal 2024, an increase of $72 million, or 11%.

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

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 $719 million for fiscal 2026, compared to $728 million for fiscal 2025, a decrease of $10 million, or 1%.

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

Gross Revenue Retention Rate

8 unchanged sentences

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

14 unchanged sentences

Total costs and expenses were $8.8 billion for fiscal 2026, compared to $8.0 billion for fiscal 2025, an increase of $800 million, or 10%.

The increase in operating expenses included increases of $555 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, $84 million in restructuring expenses primarily related to the Fiscal 2026 Restructuring Plan, $57 million in facilities and IT-related expenses, $56 million in data center capacity expenses, $46 million in subcontractor expenses, $44 million in professional services expenses, $38 million in depreciation, $37 million in amortization of deferred sales commissions due to increased sales, and $31 million related to marketing programs.

The increase in total costs and expenses included increases of $219 million in restructuring-related expenses, $159 million in third-party hosted infrastructure expenses, $212 million in employee-related expenses, net of restructuring-related cost savings, $81 million in facilities and IT-related expenses, $52 million related to professional services, $41 million in amortization of deferred sales commissions, $27 million in amortization of acquisition-related intangible assets, and $16 million related to marketing programs, offset by a reduction of $19 million in subcontractor expenses.

Costs of Subscription Services

Costs of subscription services were $1.5 billion for fiscal 2026, compared to $1.3 billion for fiscal 2025, an increase of $264 million, or 21%.

The increase in costs of subscription services included increases of $132 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, $44 million in data center capacity expenses, and $39 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 computing infrastructure operated by third parties.

The increase in costs of subscription services included increases of $139 million in third-party hosted infrastructure expenses, $74 million in employee-related expenses primarily due to delivering our enhanced customer support services, net of restructuring-related cost savings, $29 million in facilities and IT-related expenses, and $19 million in amortization of acquisition-related intangible assets.

We expect costs of subscription services will continue to increase in absolute dollars as we improve and expand our technical operations infrastructure, including third-party hosted infrastructure, and as we grow our enhanced customer support services.

Costs of Professional Services

Costs of professional services were $803 million for fiscal 2025, compared to $740 million for fiscal 2024, an increase of $63 million, or 9%.

The increase in costs of professional services included increases of $46 million in subcontractor expenses and $12 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.

Costs of professional services were $790 million for fiscal 2026, compared to $803 million for fiscal 2025, a decrease of $13 million, or 2%.

The decrease in costs of professional services included a reduction of $19 million in subcontractor expenses offset by an increase of $7 million in facilities and IT-related expenses.

Employee-related expenses remained relatively flat as a result of restructuring-related cost savings.

We expect costs of professional services as a percentage of total revenues to continue to decline as we expand and leverage our service partners to deploy our applications and focus on growing our subscription revenues.

Product Development

Product development expenses were $2.7 billion for fiscal 2026, compared to $2.6 billion for fiscal 2025, an increase of $55 million, or 2%.

The increase in product development expenses included an increase of $158 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.

The increase in product development expenses included increases of $41 million in employee-related expenses, net of restructuring-related cost savings, $18 million in third-party hosted infrastructure expenses, and $14 million in facilities and IT-related expenses, offset by a reduction of $11 million related to professional services.

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

Sales and Marketing

Sales and marketing expenses were $2.6 billion for fiscal 2026, compared to $2.4 billion for fiscal 2025, an increase of $184 million, or 8%.

The increase in sales and marketing expenses included increases of $180 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, $37 million in amortization of deferred sales commissions due to increased sales, $30 million related to marketing programs, and $25 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.

The increase in sales and marketing expenses included increases of $76 million in employee-related expenses, net of restructuring-related cost savings, $41 million in amortization of deferred sales commissions, $19 million related to marketing programs, $17 million related to professional services, and $17 million in facilities and IT-related expenses.

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

General and Administrative

General and administrative expenses were $912 million for fiscal 2026, compared to $820 million for fiscal 2025, an increase of $92 million, or 11%.

The increase in general and administrative expenses included increases of $73 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, and $36 million in professional services expenses.

The increase in general and administrative expenses included increases of $45 million related to professional services, $20 million in employee-related expenses, net of restructuring-related cost savings, and $14 million in facilities and IT-related expenses.

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

Restructuring

Restructuring expenses were $84 million for fiscal 2025, with no comparable expense in the prior year.

We recorded expenses of $65 million for employee transition, severance payments, employee benefits, and share-based compensation under the Fiscal 2026 Restructuring Plan and exit charges of $19 million associated with office space reductions under a separate restructuring plan.

We estimate that we will incur approximately $230 million to $250 million in total charges in connection with the Fiscal 2026 Restructuring Plan, which consists of approximately $200 million to $210 million related to employee transition, severance payments, employee benefits, and share-based compensation, with the balance related to an impairment of office space.

The activities associated with this plan are expected to be substantially complete by the second quarter of fiscal 2026, subject to local law and consultation requirements.

Restructuring expenses were $303 million for fiscal 2026, of which approximately $186 million related to employee transition, severance payments, employee benefits, and share-based compensation, and $117 million related to impairment charges associated with office space and other long-lived assets.

Restructuring expenses were $84 million for fiscal 2025, of which approximately $65 million related to employee transition, severance payments, employee benefits, and share-based compensation, and $19 million related to impairment charges associated with office space.

For further information, see Note 21, Restructuring , of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.

Share-based Compensation

12 unchanged sentences

17.0 % 18.0 % 19.5 %

Share-based compensation expense increased by $103 million during fiscal 2025, primarily due to additional grants to new and existing employees.

Share-based compensation expense increased by $107 million during fiscal 2026, primarily due to restructuring activities and 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

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

Operating Income and Operating Margin

GAAP operating income was $721 million, or 7.5% of revenues, in fiscal 2026, compared to $415 million, or 4.9% of revenues in fiscal 2025.

The improvement was primarily due to our revenue growth outpacing headcount growth and moderation of operating expenses, including share-based compensation, partially offset by restructuring expenses recognized in the current fiscal year.

The increase is primarily due to our revenue growth outpacing headcount growth, moderation of operating expenses, including share-based compensation, and restructuring-related cost savings, partially offset by restructuring expenses.

Non-GAAP operating income was $2.8 billion, or 29.6% of revenues, in fiscal 2026, compared to $2.2 billion, or 25.9% of revenues in fiscal 2025.

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).

The increase is primarily due to our revenue growth outpacing headcount growth, moderation of operating expenses, and restructuring-related cost savings.

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

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

1 unchanged sentence

2026 2025 2024

Operating income (loss) $ 415 $ 183 $ (222)

Operating income $ 721 $ 415 $ 183

Share-based compensation expense (1)

9 unchanged sentences

Employer payroll tax-related items on employee stock transactions

0.7 % 0.9 % 0.9 %

Amortization of acquisition-related intangible assets 1.1 % 0.9 % 1.1 %

4 unchanged sentences

Non-GAAP operating margin 29.6 % 25.9 % 24.0 %

(1) The Share-based compensation expense lines in the GAAP to non-GAAP reconciliation tables above exclude share-based compensation expense of $8 million in fiscal 2025 related to restructuring initiatives.

This expense is included in the Restructuring costs lines.

Other Income (Expense), Net

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

(1) Share-based compensation expense in the GAAP to non-GAAP reconciliation tables above excludes share-based compensation associated with restructuring activities of $56 million and $8 million for fiscal 2026 and 2025, respectively.

These expenses are included in Restructuring costs.

Other Income, Net

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

Year Ended January 31,

2026 2025 2024

Total other income (expense), net $ 223 $ 173 $ (38)

Other income, net increased by $50 million for fiscal 2025, primarily due to increases in interest income earned from higher investment balances and increased average interest rates.

Total other income, net $ 288 $ 223 $ 173

Other income, net increased by $65 million for fiscal 2026, primarily due to $77 million in higher net gains on equity investments and $26 million in higher realized net gains from the sale of debt securities to fund acquisition activities and share repurchases.

These increases were offset by a $32 million reduction in interest income resulting from both decreased investment balances and lower interest rates.

Provision For (Benefit From) Income Taxes

3 unchanged sentences

Provision for (benefit from) income taxes $ 316 $ 112 $ (1,025)

The income tax provision for fiscal 2025 was primarily attributable to an increase in our U.S.

The income tax provision for fiscal 2026 and 2025 was primarily attributable to an increase in our U.S.

pretax income and income tax expenses in profitable foreign jurisdictions.

The income tax benefit for fiscal 2024 was primarily attributable to the $1.1 billion release of our valuation allowance related to all U.S.

federal and state deferred tax assets, excluding certain state tax credits.

On July 4, 2025, the One Big Beautiful Bill Act (“The 2025 Tax Act”) was signed into law.

The 2025 Tax Act makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing, and modifications to the international tax framework.

The 2025 Tax Act did not have a material impact on our annual effective tax rate and reduced our domestic cash tax outflows for fiscal 2026.

The 2025 Tax Act includes multiple effective dates, with certain provisions effective in fiscal 2026 and others phased in through fiscal 2028.

We continue to evaluate the impact of the 2025 Tax Act’s provisions that take effect in future periods.

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

9 unchanged sentences

treasury securities, money market funds, U.S.

agency obligations, commercial paper, and asset-backed securities.

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

agency obligations, commercial paper, asset-backed securities, and supranational securities.

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 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.

As part of our strategy, we may choose to seek additional debt or equity financing, which may not be available on terms favorable to us or at all.

Additionally, our cash provided by operating activities could be affected by various risks and uncertainties, including the “Risk Factors” included in Part I, Item 1A of this report.

Our cash flows were as follows (in millions):

10 unchanged sentences

Cash provided by operating activities was $2.9 billion and $2.5 billion for fiscal 2026 and 2025, respectively.

In fiscal 2025, the improvement in cash flow provided by operating activities was primarily the result of higher cash collections of $868 million due to increased sales and additional interest income received of $112 million from marketable debt securities, offset by increased employee-related payments of $465 million primarily due to higher average headcount and increased supplier payments of $171 million to support our continued growth.

The improvement in cash provided by operating activities was primarily the result of higher cash collections of $1.2 billion mainly due to increased sales, partially offset by increased supplier payments of $335 million to support our continued growth and increased employee-related payments of $272 million, which include payments made under the Fiscal 2026 Restructuring Plan.

Investing Activities

Cash used in investing activities for fiscal 2025 was $1.8 billion, which primarily resulted from a net cash outflow of $667 million related to marketable debt securities activities, cash consideration, net of cash acquired, of $522 million and $303 million for the acquisitions of HiredScore and Evisort, respectively, and capital expenditures of $269 million for data center and office space projects.

Cash used in investing activities for fiscal 2024 was $1.8 billion, which primarily resulted from a net cash outflow of $1.6 billion from the timing of purchases and maturities of marketable securities and capital expenditures of $232 million for data center and office space projects, offset by proceeds of $144 million from sales of marketable securities.

Cash provided in investing activities for fiscal 2026 was $333 million, which primarily resulted from net inflows of $2.6 billion as we converted marketable debt securities into cash to fund acquisition activities and share repurchases, offset by net outflows of $2.1 billion for acquisitions, and capital expenditures of $162 million mainly for office space projects.

Cash used in investing activities for fiscal 2025 was $1.8 billion, which primarily resulted from a net outflow of $667 million related to marketable debt securities activities, net outflows of $825 million for acquisitions, and capital expenditures of $269 million for data center and office space projects.

We expect capital expenditures will be approximately $270 million in fiscal 2027.

1 unchanged sentence

Financing Activities

Cash used in financing activities for fiscal 2026 was $3.3 billion, which was due to repurchases of common stock of $2.9 billion under our share repurchase programs and taxes paid of $616 million related to net share settlement of equity awards, offset by proceeds of $192 million from the issuance of common stock from employee equity plans.

Cash used in financing activities for fiscal 2025 was $1.2 billion, which was due to repurchases of common stock of $700 million under our share repurchase programs and taxes paid of $636 million related to net share settlement of equity awards, offset by proceeds of $186 million from the issuance of common stock from employee equity plans.

Cash used in financing activities for fiscal 2024 was $268 million, which was due to repurchases of common stock of $423 million under our share repurchase programs, offset by proceeds of $155 million from the issuance of common stock from employee equity plans.

Free Cash Flows

3 unchanged sentences

Free cash flows were $2.8 billion for fiscal 2026, compared to $2.2 billion for the prior year period.

The improvement was primarily the result of higher cash collections of $868 million due to increased sales and additional interest income received of $112 million from marketable debt securities, offset by increased employee-related payments of $465 million primarily due to higher average headcount, increased supplier payments of $171 million to support our continued growth, and increased capital expenditures of $37 million.

The improvement was primarily the result of higher cash collections of $1.2 billion mainly due to increased sales and decreased capital expenditures of $107 million, partially offset by increased supplier payments of $335 million to support our continued growth and increased employee-related payments of $272 million, which include payments made under the Fiscal 2026 Restructuring Plan.

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

6 unchanged sentences

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.

We repurchase shares of our Class A common stock under share repurchase programs authorized by our Board of Directors.

Under these programs, in accordance with applicable securities laws and other restrictions, we may repurchase shares of our Class A common stock through open market purchases, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act, in privately negotiated transactions, or by other means.

The timing and total amount of share repurchases will depend upon business, economic, and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations.

The share repurchase programs have no expiration date, may be suspended or discontinued at any time, and do not obligate us to acquire any amount of Class A common stock.

Share repurchase programs authorized by our Board of Directors that were active during fiscal 2026 and 2025 were as follows (in millions):

Authorization Date

Amount Authorized

Authorization Completion Date

November 2022

$ 500 Q1 fiscal 2025

February 2024

500 Q3 fiscal 2025

1,000 Q3 fiscal 2026

1,000 Q4 fiscal 2026

September 2025 4,000

As of January 31, 2026, we were authorized to repurchase a remaining $2.9 billion of our outstanding shares of Class A common stock under our share repurchase programs.

For further information, see Note 14, Stockholders’ Equity , of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.

15 unchanged sentences

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 exclude certain acquisition-related costs and restructuring costs from our non-GAAP results as they may vary from period-to-period independent of the operating performance of our business.

Prior period amounts have been recast to conform to this presentation.

Non-GAAP Operating Income and Non-GAAP Operating Margin

4 unchanged sentences

• Share-based compensation expense.

Share-based compensation primarily consists of non-cash expenses for employee RSUs and our employee stock purchase plan (“ESPP”).

Share-based compensation primarily consists of non-cash expenses for employee RSUs and our employee stock purchase plan.

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.

6 unchanged sentences

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 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.

3 unchanged sentences

• Restructuring costs.

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

Restructuring costs are associated with a formal restructuring plan and are primarily related to workforce reductions, the closure of facilities, and other exit and disposal activities.

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

11 unchanged sentences

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

See “Results of Operations—Operating 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 fiscal 2025, 2024, and 2023.

See “Results of Operations—Operating Income and Operating Margin” for reconciliations from the most directly comparable GAAP financial measures of GAAP operating income and GAAP operating margin, to the non-GAAP financial measures of non-GAAP operating income and non-GAAP operating margin, for fiscal 2026, 2025, and 2024.

See “Liquidity and Capital Resources—Free Cash Flows” for a reconciliation from the most comparable GAAP financial measure, net cash provided by operating activities, to the non-GAAP financial measure, free cash flows, for fiscal 2026, 2025, and 2024.

Critical Accounting Policies and Estimates

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with GAAP.

2 unchanged sentences

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

We believe that of our significant accounting policies, which are described in Note 2, Accounting Standards and Significant Accounting Policies , of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report, the following accounting policies and specific estimates involve a greater degree of judgment and complexity.

Accordingly, these are the policies and estimates we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and operating results.

We believe that of our significant accounting policies, which are described in Note 2, Accounting Standards and Significant Accounting Policies , of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report, the following accounting policies include specific estimates that involve a greater degree of judgment and complexity.

Accordingly, these are the estimates we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and operating results.

Revenue Recognition

12 unchanged sentences

Determining whether products and services are distinct performance obligations that should be accounted for separately or combined as a single performance obligation may require significant judgment that requires us to assess the nature of the promise and the value delivered to the customer.

We apply significant judgment in identifying and evaluating any terms and conditions in contracts which may impact revenue recognition.

Our primary performance obligations consist of subscription services and professional services.

6 unchanged sentences

To date, we have concluded that professional services included in contracts with multiple performance obligations are generally distinct as the professional services are not interrelated with subscription services nor do they result in significant customization of the subscription service.

As such, we view professional services as a performance obligation to the customer.

As such, we view professional services as a separate performance obligation to the customer.

At contract inception, we evaluate whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract includes more than one performance obligation.

3 unchanged sentences

For contracts that contain multiple performance obligations, we assess each promise separately and allocate the transaction price on a relative standalone selling price (“SSP”) basis.

We apply significant judgment in identifying and evaluating any terms and conditions in contracts which may impact revenue recognition.

Deferred Commissions

18 unchanged sentences

Business Combinations, Goodwill, and Acquisition-Related Intangible Assets

We allocate the purchase consideration of acquired companies to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date, with the excess recorded to goodwill.

We allocate the purchase consideration of acquired companies to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the exception of contract assets and unearned revenue which are measured and recognized on the acquisition date in accordance with our revenue recognition policy.

Any residual purchase price is recorded as goodwill.

The purchase price allocation process requires us to make significant estimates and assumptions related to the fair value of identifiable intangible assets.

Critical estimates used in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer contracts, expected life cycle and innovation timelines for acquired technologies, forecasted customer attrition rates and revenue growth, the fair value of pre-existing relationships, royalty rates for comparable market technologies, and discount rates.

Critical estimates used in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer contracts, expected life cycle and innovation timelines for acquired technologies, forecasted customer attrition rates and revenue growth, royalty rates for comparable market technologies, and discount rates.

The amounts and estimated useful lives assigned to acquisition-related intangible assets impact the amount and timing of future amortization expense.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis