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Item 2. Management’s Discussion and Analysis

2026-05-22 compared with 2025-11-26 · 103 added, 163 removed, 217 unchanged (55% 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 the enterprise artificial intelligence (“AI”) platform for managing people, money, and agents.

We deliver cloud-based, AI-powered applications for financial management, human capital management (“HCM”), planning, spend management, and analytics.

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

Workday is the enterprise AI platform that operates at the core of human resources, finance, and information technology.

We deliver cloud-based, AI-powered applications for human capital management (“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, healthcare, higher education, 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.

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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.

In February 2025, we announced a restructuring plan (“Fiscal 2026 Restructuring Plan”), which was 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.

In connection with this plan, we exited certain owned office space.

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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.

We remain 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 II, Item 1A of this report.

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Financial Results Overview

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

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

2025 2024 Change 2025 2024 Change

Three Months Ended April 30,

2026 2025 Change

Total revenues $ 2,542 $ 2,240 13 %

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$ 809 $ 677 19 %

GAAP operating margin 10.7 % 7.6 % 301 bps 7.8 % 5.5 % 233 bps

GAAP operating margin 13.3 % 1.8 % 1,154 bps

Non-GAAP operating margin (1)

28.5 % 26.3 % 215 bps 29.2 % 25.7 % 352 bps

31.8 % 30.2 % 159 bps

Operating cash flows $ 696 $ 457 52 %

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$ 616 $ 421 46 %

As of October 31,

As of April 30,

2026 2025 Change

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

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Impact of Current Economic Conditions

Recent macroeconomic events including increased tariffs, elevated inflation and energy prices, and fluctuating interest rates and foreign currency exchange rates, as well as geopolitical instability and conflicts, continue to impact the global economy and create uncertainty, volatility, and disruption of financial markets.

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.

Subscription services revenues accounted for approximately 92% of our total revenues for the three and nine months ended October 31, 2025, and represented 97% of our total unearned revenue as of October 31, 2025.

Subscription services revenues accounted for approximately 93% of our total revenues for the three months ended April 30, 2026, and represented 97% of our total unearned revenue as of April 30, 2026.

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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The mix of applications to which each customer subscribes can affect our financial performance due to price differentials in our applications.

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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.

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Costs of subscription services revenues.

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

These costs include employee-related expenses, expenses related to data center capacity and third-party hosted infrastructure, 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 third-party hosted infrastructure.

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.

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General and administrative 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 and other corporate expenses.

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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 workforce reductions, including employee transition, severance payments, employee benefits, and share-based compensation, as well as charges associated with the closure of facilities and other exit and disposal activities.

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.

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Results of Operations

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

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

2025 2024 % Change 2025 2024 % Change

Three Months Ended April 30,

2026 2025 % Change

Subscription services $ 2,354 $ 2,059 14 %

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Total revenues $ 2,542 $ 2,240 13 %

Total revenues were $2.4 billion for the three months ended October 31, 2025, compared to $2.2 billion for the prior year period, an increase of $272 million, or 13%.

Subscription services revenues were $2.2 billion for the three months ended October 31, 2025, compared to $2.0 billion for the prior year period, an increase of $286 million, or 15%.

Total revenues were $2.5 billion for the three months ended April 30, 2026, compared to $2.2 billion for the prior year period, an increase of $302 million, or 13% .

Subscription services revenues were $2.4 billion for the three months ended April 30, 2026, compared to $2.1 billion for the prior year period, an increase of $295 million, or 14%.

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 $188 million for the three months ended October 31, 2025, compared to $201 million for the prior year period, a decrease of $14 million, or 7%.

Professional services revenues decreased due to variation in project size and mix of deployment and integration services provided as we continue to expand and leverage our service partners.

Total revenues were $7.0 billion for the nine months ended October 31, 2025, compared to $6.2 billion for the prior year period, an increase of $785 million, or 13%.

Subscription services revenues were $6.5 billion for the nine months ended October 31, 2025, compared to $5.7 billion for the prior year period, an increase of $795 million, or 14%.

Approximately 60% of the increase in subscription services revenues was attributable to expansion within 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 $547 million for the nine months ended October 31, 2025, compared to $557 million for the prior year period, a decrease of $10 million, or 2%.

Professional services revenues decreased due to variation in project size and mix of deployment and integration services provided as we continue to expand and leverage our service partners.

Professional services revenues were $188 million for the three months ended April 30, 2026, compared to $181 million for the prior year period, an increase of $7 million, or 4%.

Professional services revenues remained relatively flat as we continued to expand and leverage our service providers.

Gross Revenue Retention Rate

Our growth in subscription services revenues attributable to existing customers is further reflected by our gross revenue retention rate of approximately 97% as of October 31, 2025.

Our growth in subscription services revenues attributable to existing customers is further reflected by our gross revenue retention rate of approximately 97% as of April 30, 2026.

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.

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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.

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Subscription Revenue Backlog

As of October 31, 2025, our total subscription revenue backlog was $26.0 billion, with $8.2 billion expected to be recognized in revenues over the next 12 months.

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 April 30, 2026, our total subscription revenue backlog was $27.3 billion, with $8.8 billion expected to be recognized in revenues over the next 12 months.

As of April 30, 2025, our total subscription revenue backlog was $24.6 billion, with $7.6 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.

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Costs and Expenses

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

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

2025 2024 2025 2024

Three Months Ended April 30,

Costs of subscription services $ 412 $ 350

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Total costs and expenses $ 2,204 $ 2,201

Total costs and expenses were $2.2 billion for the three months ended October 31, 2025, compared to $2.0 billion for the prior year period, an increase of $178 million, or 9%.

The increase in total costs and expenses included increases of $44 million in facilities and IT-related expenses, $44 million in employee-related expenses, net of restructuring-related cost savings, $37 million in third-party hosted infrastructure expenses, $17 million related to marketing programs, $11 million in amortization of deferred sales commissions, and $9 million related to professional services.

Total costs and expenses were $6.5 billion for the nine months ended October 31, 2025, compared to $5.9 billion for the prior year period, an increase of $578 million, or 10%.

Included in the increase in total costs and expenses was $163 million in restructuring expenses primarily related to the Fiscal 2026 Restructuring Plan.

Additional increases included $131 million in employee-related expenses, net of restructuring-related cost savings, $108 million in third-party hosted infrastructure expenses, $96 million in facilities and IT-related expenses, $30 million in amortization of deferred sales commissions, $18 million related to marketing programs, and $17 million related to professional services.

Total costs and expenses were $2.2 billion for the three months ended April 30, 2026, compared to $2.2 billion for the prior year period, an increase of $4 million, or 0.2%.

The increase in total costs and expenses included increases of $60 million in employee-related expenses, $51 million in third-party hosted infrastructure expenses, $36 million in facilities and IT-related expenses, $15 million in amortization of acquisition-related intangible assets, and $11 million in amortization of deferred sales commissions, offset by a reduction of $166 million in restructuring expenses.

Costs of Subscription Services

Costs of subscription services were $395 million for the three months ended October 31, 2025, compared to $329 million for the prior year period, an increase of $65 million, or 20%.

The increase in costs of subscription services included increases of $32 million in third-party hosted infrastructure expenses, $20 million in employee-related expenses primarily due to delivering our enhanced customer support services, net of restructuring-related cost savings, and $10 million in facilities and IT-related expenses.

Costs of subscription services were $1.1 billion for the nine months ended October 31, 2025, compared to $924 million for the prior year period, an increase of $191 million, or 21%.

The increase in costs of subscription services included increases of $96 million in third-party hosted infrastructure expenses, $57 million in employee-related expenses primarily due to delivering our enhanced customer support services, net of restructuring-related cost savings, and $27 million in facilities and IT-related expenses.

Costs of subscription services were $412 million for the three months ended April 30, 2026, compared to $350 million for the prior year period, an increase of $62 million, or 18%.

The increase in costs of subscription services included increases of $47 million in third-party hosted infrastructure expenses and $11 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 $196 million for the three months ended October 31, 2025, compared to $201 million for the prior year period, a decrease of $4 million, or 2%.

Costs of professional services remained relatively flat as a result of restructuring-related cost savings that reduced employee-related expenses.

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Costs of professional services were $595 million for the nine months ended October 31, 2025, compared to $606 million for the prior year period, a decrease of $11 million, or 2%.

The decrease in costs of professional services included a reduction of $15 million in subcontractor expenses.

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

Costs of professional services were $192 million for the three months ended April 30, 2026, compared to $187 million for the prior year period, an increase of $5 million, or 3%.

Costs of professional services remained relatively flat.

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 $666 million for the three months ended October 31, 2025, compared to $647 million for the prior year period, an increase of $19 million, or 3%.

The increase in product development expenses included increases of $12 million in facilities and IT-related expenses and $10 million in employee-related expenses, net of restructuring-related cost savings.

Product development expenses were $2.0 billion for the nine months ended October 31, 2025, compared to $2.0 billion for the prior year period, an increase of $36 million, or 2%.

The increase in product development expenses included increases of $20 million in facilities and IT-related expenses and $20 million in employee-related expenses, net of restructuring-related cost savings.

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, third-party hosted infrastructure, and facilities and IT.

Product development expenses were $705 million for the three months ended April 30, 2026, compared to $663 million for the prior year period, an increase of $42 million, or 6%.

The increase in product development expenses included increases of $31 million in employee-related expenses and $16 million in facilities and IT-related expenses.

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 $677 million for the three months ended October 31, 2025, compared to $620 million for the prior year period, an increase of $57 million, or 9%.

The increase in sales and marketing expenses included increases of $21 million related to marketing programs, $11 million in amortization of deferred sales commissions, and $9 million in facilities and IT-related expenses.

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

Sales and marketing expenses were $1.9 billion for the nine months ended October 31, 2025, compared to $1.8 billion for the prior year period, an increase of $137 million, or 8%.

The increase in sales and marketing expenses included increases of $42 million in employee-related expenses, net of restructuring-related cost savings, $30 million in amortization of deferred sales commissions, $23 million in facilities and IT-related expenses, and $21 million related to marketing programs.

Sales and marketing expenses were $679 million for the three months ended April 30, 2026, compared to $623 million for the prior year period, an increase of $56 million, or 9%.

The increase in sales and marketing expenses included increases of $22 million in employee-related expenses, $11 million in amortization of deferred sales commissions, and $11 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 $234 million for the three months ended October 31, 2025, compared to $198 million for the prior year period, an increase of $36 million, or 18%.

The increase in general and administrative expenses included increases of $13 million related to professional services, $9 million in employee-related expenses, net of restructuring-related cost savings, and $8 million in facilities and IT-related expenses.

General and administrative expenses were $662 million for the nine months ended October 31, 2025, compared to $600 million for the prior year period, an increase of $62 million, or 10%.

The increase in general and administrative expenses included increases of $20 million in employee-related expenses, net of restructuring-related cost savings, $19 million related to professional services, and $15 million in facilities and IT-related expenses.

General and administrative expenses were $216 million for the three months ended April 30, 2026, compared to $212 million for the prior year period, an increase of $4 million, or 2%.

General and administrative expenses remained relatively flat.

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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 of $172 million for the nine months ended October 31, 2025, were related to the Fiscal 2026 Restructuring Plan, and included $133 million for employee transition, severance payments, employee benefits, and share-based compensation, and $39 million for an impairment of office space.

Restructuring expenses of $9 million for the nine months ended October 31, 2024, were related to exit charges associated with office space reductions under a separate restructuring plan.

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There were no restructuring expenses recognized during the three months ended April 30, 2026.

Restructuring expenses were $166 million for the three months ended April 30, 2025, of which $132 million related to employee transition, severance payments, employee benefits, and share-based compensation, and $34 million related to an impairment of office space.

Share-based Compensation

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

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

2025 2024 2025 2024

Three Months Ended April 30,

Costs of subscription services $ 37 $ 42

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16.1 % 20.5 %

Share-based compensation expense increased by $8 million for the three months ended October 31, 2025, compared to the prior year period, primarily due to additional grants to new and existing employees.

Share-based compensation expense increased by $105 million for the nine months ended October 31, 2025, compared to the prior year period, primarily due to the Fiscal 2026 Restructuring Plan and additional grants to new and existing employees.

Share-based compensation expense decreased by $50 million for the three months ended April 30, 2026, compared to the prior year period, primarily due to a reduction in restructuring expenses.

Equity compensation is an important element of our compensation philosophy.

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Operating Income and Operating Margin

GAAP operating income was $259 million, or 10.7% of revenues, for the three months ended October 31, 2025, compared to the prior year GAAP operating income of $165 million, or 7.6% of revenues.

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.

GAAP operating income was $547 million, or 7.8% of revenues, for the nine months ended October 31, 2025, compared to the prior year GAAP operating income of $340 million, or 5.5% of revenues.

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 the Fiscal 2026 Restructuring Plan expenses recognized in the first quarter.

Non-GAAP operating income was $692 million, or 28.5% of revenues, for the three months ended October 31, 2025, compared to the prior year non-GAAP operating income of $569 million, or 26.3% of revenues.

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

Non-GAAP operating income was $2.1 billion, or 29.2% of revenues, for the nine months ended October 31, 2025, compared to the prior year non-GAAP operating income of $1.6 billion, or 25.7% of revenues.

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

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GAAP operating income was $338 million, or 13.3% of revenues, for the three months ended April 30, 2026, compared to the prior year GAAP operating income of $39 million, or 1.8% of revenues.

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

Non-GAAP operating income wa s $809 million, or 31.8% of revenues, for the three months ended April 30, 2026, compared to the prior year non-GAAP operating income of $677 million, or 30.2% of revenues.

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

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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.

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

2025 2024 2025 2024

Three Months Ended April 30,

Operating income $ 338 $ 39

Share-based compensation expense (1)

376 368 1,185 1,122

Employer payroll tax-related items on employee stock transactions 19 27

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Employer payroll tax-related items on employee stock transactions 0.7 % 1.2 %

0.3 % 0.4 % 0.7 % 0.9 %

Amortization of acquisition-related intangible assets 1.4 % 0.9 %

Acquisition-related costs

0.7 % 0.3 % 0.5 % 0.3 %

Restructuring costs

0.3 % 0.0 % 2.3 % 0.1 %

Non-GAAP operating margin 31.8 % 30.2 %

(1) For the nine months ended October 31, 2025, the Share-based compensation expense and Employer payroll tax-related items on employee stock transactions lines in the GAAP to non-GAAP reconciliation tables above exclude $42 million and $2 million, respectively, related to the Fiscal 2026 Restructuring Plan.

These expenses are included in the Restructuring costs lines.

(1) Share-based compensation expense in the GAAP to non-GAAP reconciliation tables above excludes share-based compensation associated with restructuring activities of $42 million for the three months ended April 30, 2025.

These expenses are included in Restructuring costs.

Other Income, Net

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

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

2025 2024 2025 2024

Three Months Ended April 30,

Total other income, net

$ 79 $ 62 $ 198 $ 178

Other income, net increased by $17 million and $20 million for the three and nine months ended October 31, 2025, respectively, compared to the prior year periods.

The increase was primarily due to realized gains from debt securities sold in the current quarter to fund acquisition activities and share repurchases.

Other income, net decreased by $47 million for the three months ended April 30, 2026, primarily due to lower interest income following the liquidation of marketable debt securities in the prior fiscal year to fund acquisition activities and share repurchases.

Provision For Income Taxes

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

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

2025 2024 2025 2024

Three Months Ended April 30,

Provision for income taxes

$ 86 $ 34 $ 197 $ 86

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The income tax provision for the nine months ended October 31, 2025, was primarily attributable to earnings in the U.S.

The income tax provision for the three months ended April 30, 2026, was primarily attributable to earnings in the U.S.

and profitable foreign jurisdictions, and incremental tax expense from share-based compensation awards where the tax deduction realized was lower than the compensation expense recognized.

The income tax provision for the three months ended April 30, 2025, was primarily attributable to earnings in the U.S.

and profitable foreign jurisdictions.

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 share-based compensation and increase in research and development 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 is expected to reduce our domestic cash tax outflows for the remainder of fiscal 2026.

Due to the complexity and various upcoming effective dates of the 2025 Tax Act, we are still in the process of assessing its impact on our condensed consolidated financial statements.

The final impact may differ from our current estimates based on further analysis, regulatory guidance, and any legislative changes.

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

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

Pillar Two rules are at varying stages of adoption across the jurisdictions where we operate.

The specific rules and timeline to implement these rules vary by jurisdiction.

The adoption of Pillar Two rules may affect our effective tax rate and current tax obligations and liabilities.

While we do not currently anticipate Pillar Two rules to have a material impact on our consolidated financial results, we are monitoring developments from the OECD, governmental bodies, such as the EU, and intergovernmental economic organizations, to evaluate the impact of changing global tax laws.

For further information, see Note 16, Income Taxes , of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

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Liquidity and Capital Resources

As of October 31, 2025, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $6.8 billion, which were primarily held for working capital and general corporate purposes.

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

As of April 30, 2026, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $4.4 billion, which were primarily held for working capital and general corporate purposes.

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

treasury securities, U.S.

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

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

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

agency obligations, money market funds, 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 Condensed Consolidated Balance Sheets, and, if necessary, our borrowing capacity under our 2022 Credit Agreement that provides for $1.0 billion of unsecured financing, are sufficient to meet our working capital, capital expenditure, share repurchase, and debt repayment needs over the next 12 months and beyond.

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

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Our cash flows were as follows (in millions):

Nine Months Ended October 31,

Three Months Ended April 30,

Net cash provided by (used in):

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Effect of exchange rate changes (1) 1

Net increase (decrease) in cash, cash equivalents, and restricted cash $ 1,064 $ (701)

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Net decrease in cash, cash equivalents, and restricted cash $ (941) $ (566)

Operating Activities

Cash provided by operating activities was $1.7 billion and $1.3 billion for the nine months ended October 31, 2025, and 2024, respectively.

The improvement in cash provided by operating activities was primarily the result of higher cash collections of $767 million mainly due to increased sales, partially offset by increased supplier payments of $249 million to support our continued growth and increased employee-related payments of $211 million, which include payments made under the Fiscal 2026 Restructuring Plan.

Cash provided by operating activities was $696 million and $457 million for the three months ended April 30, 2026, and 2025, respectively.

The improvement in cash provided by operating activities was primarily driven by higher cash collections of $463 million mainly due to increased sales, partially offset by increased employee-related payments of $90 million, increased supplier payments of $66 million to support our continued growth, and decreased interest income of $30 million.

Investing Activities

Cash provided by investing activities was $1.2 billion for the nine months ended October 31, 2025, which primarily resulted from net inflows of $2.3 billion as we converted marketable debt securities into cash to fund acquisition activities and share repurchases, offset by net outflows of $974 million for acquisitions, and capital expenditures of $102 million mainly for office space projects.

Cash used in investing activities was $1.1 billion for the nine months ended October 31, 2024, which primarily resulted from net outflows of $824 million for acquisitions, capital expenditures of $183 million for data center and office space projects, and net outflows of $39 million related to marketable debt securities.

We expect capital expenditures will be approximately $200 million in fiscal 2026.

This primarily includes investments in our office facilities to support our continued growth.

Cash provided by investing activities was $97 million for the three months ended April 30, 2026, which primarily resulted from net inflows of $127 million related to marketable debt securities activity and inflows of $41 million from the exit of non-marketable equity investments, offset by capital expenditures of $80 million mainly for office space projects.

Cash used in investing activities was $523 million for the three months ended April 30, 2025, which primarily resulted from a net outflow of $483 million related to marketable debt securities activity and capital expenditures of $36 million mainly for office space projects.

We expect capital expenditures will be approximately $270 million in fiscal 2027, primarily related to investments in our office facilities to support our continued growth.

Financing Activities

Cash used in financing activities was $1.8 billion for the nine months ended October 31, 2025, which primarily resulted from repurchases of common stock of $1.4 billion under our share repurchase programs and taxes paid of $495 million related to net share settlement of equity awards, offset by proceeds of $111 million from the issuance of common stock from employee equity plans.

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 $1.7 billion for the three months ended April 30, 2026, which primarily resulted from repurchases of common stock of $1.6 billion under our share repurchase programs and taxes paid of $146 million related to net share settlement of equity awards.

Cash used in financing activities was $501 million for the three months ended April 30, 2025, which primarily resulted from repurchases of common stock of $290 million under our share repurchase programs and taxes paid of $211 million related to net share settlement of equity awards.

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Free Cash Flows

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

Free cash flows were $1.6 billion for the nine months ended October 31, 2025, compared to $1.2 billion for the prior year period.

The improvement was primarily the result of higher cash collections of $767 million mainly due to increased sales and decreased capital expenditures of $81 million, partially offset by increased supplier payments of $249 million to support our continued growth and increased employee-related payments of $211 million, which include payments made under the Fiscal 2026 Restructuring Plan.

Free cash flows were $616 million for the three months ended April 30, 2026, compared to $421 million for the prior year period.

The improvement was primarily driven by higher cash collections of $463 million mainly due to increased sales, partially offset by increased employee-related payments of $90 million, increased supplier payments of $66 million to support our continued growth, increased capital expenditures of $44 million, and decreased interest income of $30 million.

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

Nine Months Ended October 31,

Three Months Ended April 30,

Net cash provided by operating activities $ 696 $ 457

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Free cash flows $ 616 $ 421

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Share Repurchase Programs

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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 the three and nine months ended October 31, 2025, and 2024, were as follows (in millions):

Share repurchase programs authorized by our Board of Directors that were active during the periods presented were as follows (in millions):

Authorization Date

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1,000 Q3 fiscal 2026

1,000 Q4 fiscal 2026

September 2025 4,000

As of October 31, 2025, we were authorized to repurchase a remaining $4.4 billion of our outstanding shares of Class A common stock under our share repurchase programs.

As of April 30, 2026, we were authorized to repurchase a remaining $1.3 billion of our outstanding shares of Class A common stock under our share repurchase programs.

For further information, see Note 13, Stockholders’ Equity , of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

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

There have been no material changes outside the ordinary course of business to our contractual obligations disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2025, except as discussed below.

In July 2025, a 20-year lease for our new European headquarters in Dublin, Ireland, commenced, resulting in an operating lease liability of $333 million.

For further information, see Note 1 2, Leases , of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

In November 2025, we completed our acquisition of Sana Labs AB (“Sana”) for approximately $1.0 billion in cash.

For further information, see Note 21, Subsequent Events , of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

There have been no material changes outside the ordinary course of business to our contractual obligations disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2026.

Non-GAAP Financial Measures

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

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Non-GAAP Operating Income and Non-GAAP Operating Margin

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

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• Share-based compensation expense.

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

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

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

See “Results of Operations—Operating 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 the three and nine months ended October 31, 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 the nine months ended October 31, 2025, and 2024.

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Critical Accounting Policies and Estimates

Critical Accounting Estimates

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

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

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

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

• Revenue recognition

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

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, 2025.

During the three and nine months ended October 31, 2025, there were no significant changes to our critical accounting policies and estimates.

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For a further discussion of our critical accounting estimates, refer to our Annual Report on Form 10-K for the fiscal year ended January 31, 2026.

During the three months ended April 30, 2026, there were no significant changes to our critical accounting estimates.

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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