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Our business is subscription based, and customers are not obligated to, and may choose not to, renew their subscriptions after their existing subscriptions expire.
−Removed: As a result, we cannot provide assurance that customers will renew their subscriptions utilizing the same tier of their Zoom Meeting plan, upgrade to a higher-priced tier, or purchase additional products, if they renew at all.
+Added: As a result, we cannot provide assurance that customers will renew their subscriptions utilizing the same tier of their Zoom Meeting plan, upgrade to a higher-priced tier, or purchase additional products, if they
+Added: renew at all.
Renewals of subscriptions to our platform may decline or fluctuate because of several factors, such as dissatisfaction with our products and support, a customer or host no longer having a need for our products, including any new customers or hosts that have subscribed to our services during the COVID-19 pandemic that may subsequently reduce or discontinue their use after the impact of the pandemic has tapered, or the perception that competitive products provide better, more secure, or less expensive options.
In addition, some customers downgrade their Zoom Meeting plan or do not renew their subscriptions.
−Removed: Furthermore, as a result of the increased usage of our platform during the COVID-19 pandemic, our customer base has shifted from largely businesses and enterprises to a mix of businesses, enterprises, and consumers.
+Added: Furthermore, as a result of the increased usage of our platform during the COVID-19 pandemic, our customer base has shifted largely from businesses and enterprises to a mix of businesses, enterprises, and consumers.
This shift in mix could result in higher non-renewal rates than we have experienced in the past.
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At the same time, we strive to demonstrate the value of our platform and various product offerings to those hosts that subscribe to our free Zoom Meeting plan, thereby encouraging them to upgrade to a paid Zoom Meeting plan.
−Removed: However, a majority of these hosts, including those that recently subscribed to our free plan during the COVID-19 pandemic as a result of shelter-in-place and work-from-home mandates, may never upgrade to a paid Zoom Meeting plan.
+Added: However, a majority of these hosts, including those that subscribed to our free plan during the COVID-19 pandemic as a result of shelter-in-place and work-from-home mandates, may never upgrade to a paid Zoom Meeting plan.
If we fail to upsell our customers or upgrade hosts of our free Zoom Meeting plan to paid subscriptions or expand the number of paid hosts within organizations, our business would be harmed.
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If we are not able to continue to expand our user base, our revenue may grow more slowly than expected or decline.
−Removed: Similar to the uncertainty of customers renewing their subscriptions or hosts upgrading to a paid Zoom Meeting plan, we expect our user growth rate to slow or decline once the impact of the COVID-19 pandemic tapers, particularly as a vaccine becomes widely available, and users return to work or school or are otherwise no longer subject to shelter-in-place mandates.
+Added: While we continue to add paid users to our customer base, we expect our user growth rate to continue to slow or decline as the impact of the COVID-19 pandemic continues to taper, particularly as vaccines become widely available and distributed, and users return to work or school or are otherwise no longer subject to limitations on in-person meetings.
+Added: Our revenue growth rate has begun to decline and we expect our revenue growth rate to generally decline in future periods.
+Added: We have experienced significant revenue growth in prior periods.
+Added: You should not rely on the revenue growth of any prior quarterly or annual period as an indication of our future performance.
+Added: Our revenue growth rate has begun to decline and we expect our revenue growth rate to generally decline in future periods.
+Added: Many factors may contribute to declines in our growth rate, including higher market penetration, increased competition, slowing demand for our platform, especially once the impact of the COVID-19 pandemic tapers, particularly as vaccines become widely available and distributed, and users return to work or school or are otherwise no longer subject to limitations on in-person meetings, a failure by us to continue capitalizing on growth opportunities, and the maturation of our business, among others.
+Added: Declines in our growth rate could adversely affect investors’ perceptions of our business and the trading price of our Class A common stock could be adversely affected.
Interruptions, delays, or outages in service from our co-located data centers and a variety of other factors, including increased usage stemming from the COVID-19 pandemic, would impair the delivery of our services, require us to issue credits or pay penalties, and harm our business.
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may subject us to claims and litigation;
−Removed: and may cause customers and hosts to terminate their subscriptions and adversely affect our ability to attract new customers and hosts.
+Added: and may cause customers and hosts to terminate their
+Added: subscriptions and adversely affect our ability to attract new customers and hosts.
Our ability to attract and retain customers and hosts depends on our ability to provide customers and hosts with a highly reliable platform and even minor interruptions or delays in our services could harm our business.
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We plan to continue our practice of opening new data centers to meet increased demand, but we may be unable to bring additional data centers online in a timely manner, including as a result of current shortages for certain parts, such as servers.
−Removed: In addition, to meet short-term capacity needs, we may need to rely increasingly on public cloud providers, including Amazon Web Services and Oracle Cloud, which may result in higher variable costs and harm our business, financial condition, and operating results.
+Added: In addition, to meet short-term capacity needs, we may need to rely increasingly on public cloud providers, including Amazon Web Services and Oracle Cloud, which may result in higher variable costs, harming our business, financial condition, and operating results.
We do not control, or in some cases have limited control over, the operation of the co-located data center facilities we use, and they are vulnerable to damage or interruption from human error;
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Certain features of our current platform compete in the communication and collaboration technologies market with products offered by:
−Removed: • legacy web-based meeting providers, including Cisco Webex and LogMeIn GoToMeeting;
+Added: • legacy web-based meeting providers, including Cisco Webex and GoTo;
• bundled productivity solutions providers with video functionality, including Microsoft Teams and Google G Suite and Meet products;
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In addition, as we introduce new products and services, and with the introduction of new technologies and market entrants, we expect competition to intensify in the future.
−Removed: For example, we recently introduced Zoom Phone, a cloud phone system that allows customers to replace their existing PBX solution, which will result in increased competition against companies that offer similar services and new competitors that may enter that market in the future.
−Removed: Also, in connection with the travel restrictions and stay-in-place policies resulting from the COVID-19 pandemic, we have seen a significant increase in usage and subscriptions from smaller customers, many of whom are consumers or small and medium sized businesses.
+Added: For example, we recently introduced Zoom Contact Center, an omnichannel contact center solution that is optimized for video, which, as we build out our offering, may result in increased competition against companies that offer similar services, such as Five9, Inc., Genesys and NICE inContact, and new competitors that may enter that market in the future.
+Added: Also, in connection with the travel restrictions and stay-in-place policies resulting from the COVID-19 pandemic, we saw a significant increase in usage and subscriptions from smaller customers, many of whom are consumers or small and medium sized businesses.
With respect to these smaller customers, we face competition from more consumer-oriented platforms, most of which have more experience with the consumer market than we do.
−Removed: Further, many of our actual and potential competitors benefit from competitive advantages over us, such as greater name
+Added: Further, many of our actual and potential competitors benefit from competitive advantages over us, such as greater name recognition;
longer operating histories;
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more established marketing relationships;
−Removed: third-party integration;
+Added: more third-party integration;
greater accessibility across devices or applications;
−Removed: access to larger user bases;
+Added: greater access to larger user bases;
major distribution agreements with hardware manufacturers and resellers;
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Even if such products do not include all the features and functionality that our platform provides, we could face pricing pressure from these third parties to the extent that users find such alternative products to be sufficient to meet their video communications needs.
−Removed: There can be no assurance that we will not be forced to engage in price-cutting initiatives or other discounts or to increase our marketing and other expenses to attract and retain customers in response to competitive pressures, either of which would harm our business.
+Added: There can be no assurance that we will not be forced to engage in price-cutting initiatives or other discounts or to increase our marketing and other expenses to attract and retain customers in
+Added: response to competitive pressures, either of which would harm our business.
We, on occasion, offer customers a free period of time at the beginning of the subscription term that can result in deferred billings or long-term accounts receivable and increase the risk of loss on uncollected accounts receivable.
−Removed: We may not be able to sustain our revenue growth rate in the future.
−Removed: We have experienced significant revenue growth in prior periods.
−Removed: You should not rely on the revenue growth of any prior quarterly or annual period as an indication of our future performance.
−Removed: We expect our revenue growth rate to generally decline in future periods.
−Removed: Many factors may contribute to declines in our growth rate, including higher market penetration, increased competition, slowing demand for our platform, especially once the impact of the COVID-19 pandemic tapers, particularly as a vaccine becomes widely available, and users return to work or school or are otherwise no longer subject to shelter-in-place mandates, a failure by us to continue capitalizing on growth opportunities, and the maturation of our business, among others.
−Removed: If our growth rate declines, investors’ perceptions of our business and the trading price of our Class A common stock could be adversely affected.
−Removed: Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business.
−Removed: Our quarterly results of operations may vary significantly in the future, and period-to-period comparisons of our results of operations may not be meaningful.
+Added: Our quarterly results have fluctuated and may in the future fluctuate significantly and may not fully reflect the underlying performance of our business.
+Added: Our quarterly results of operations have fluctuated and may in the future fluctuate significantly, and period-to-period comparisons of our results of operations may not be meaningful.
Accordingly, the results of any one quarter should not be relied upon as an indication of future performance.
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On January 4, 2018, the Federal Communications Commission (“FCC”) released an order reclassifying broadband internet access as an information service, subject to certain provisions of Title I of the Communications Act.
−Removed: The order requires broadband providers to publicly disclose accurate information regarding network management practices, performance characteristics, and commercial terms of their broadband internet access services sufficient to enable consumers to make informed choices regarding the purchase and use of such services, and entrepreneurs and other small businesses to develop,
−Removed: market, and maintain internet offerings.
+Added: The order requires broadband providers to publicly disclose accurate information regarding network management practices, performance characteristics, and commercial terms of their broadband internet access services sufficient to enable consumers to make informed choices regarding the purchase and use of such services, and entrepreneurs and other small businesses to develop, market, and maintain internet offerings.
The new rules went into effect on June 11, 2018.
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In addition, a number of states have adopted or are adopting or considering legislation or executive actions that would regulate the conduct of broadband providers.
−Removed: On February 23, 2021, a federal court judge denied a request for injunction against California’s state-specific network neutrality law, and as a result, California will soon begin enforcing that law.
−Removed: On March 10, 2021, trade associations representing internet service providers appealed the district court’s ruling denying the preliminary injunction.
+Added: A federal court judge denied a request for a preliminary injunction against California’s state-specific network neutrality law, and as a result, California began enforcing that law on March 25, 2021.
+Added: On March 10, 2021, trade associations representing internet service providers appealed the district court’s ruling denying the preliminary injunction, and the appeal was denied on January 28, 2022.
+Added: The trade associations have sought rehearing with the full court of appeal.
We cannot predict whether the FCC order or other state initiatives will be enforced, modified, overturned, or vacated by legal action of the court, federal legislation, or the FCC.
−Removed: Under the new rules, broadband internet access providers may be able to charge web-based services such as ours for priority access or favor services offered by our competitors or by the internet access providers themselves, which could result in increased costs and a loss of existing customers and hosts, impair our ability to attract new customers and hosts, and harm our business.
+Added: Under the FCC’s new rules, broadband internet access providers may be able to charge web-based services such as ours for priority access or favor services offered by our competitors or by the internet access providers themselves, which could result in increased costs and a loss of existing customers and hosts, impair our ability to attract new customers and hosts, and harm our business.
If there are changes to the regulatory structures in the United States or elsewhere that reduce investment in infrastructure by internet service providers, including a return of the network neutrality regulations that were repealed, any impacts of reduced investment that reduce network capacity or speed could have a negative effect on our business, operating results, and financial condition.
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If we fail to successfully predict and address these changes and trends, meet user demands, or achieve more widespread market acceptance of our platform, our business would be harmed.
−Removed: We have experienced net losses in the past, and we expect to increase our expenses in the future, which could prevent us from maintaining profitability.
+Added: We expect to increase our expenses in the future, which could decrease our profitability or prevent us from maintaining profitability.
Although we generated net income of $1,375.6 million, $672.3 million, and $25.3 million for the fiscal years ended January 31, 2022, 2021, and 2020, respectively, we have incurred net losses in the past and could incur net losses in the future.
−Removed: We intend to continue to expend significant funds to expand our direct sales force and marketing efforts to attract new customers and hosts and to develop and enhance our products and for general corporate purposes, including operations, hiring additional personnel, including through acquisitions of other businesses, upgrading our infrastructure, and addressing security and privacy issues, including those stemming from the unprecedented numbers of first-time users during the COVID-19 pandemic who may not have full IT support or established protocols like our enterprise customers, and expanding into new geographical markets.
+Added: We intend to continue to expend significant funds to expand our direct sales force and marketing efforts to attract new customers and hosts and to develop and enhance our products and for general corporate purposes, including operations, hiring additional personnel, including through acquisitions of other businesses, upgrading our infrastructure, and addressing security and privacy issues, including those stemming from the unprecedented numbers of first-time users during the COVID-19 pandemic who may not have full IT support or established protocols like our larger customers, and expanding into new geographical markets.
To the extent we are successful in increasing our user base, we may also incur increased losses because, other than sales commissions, the costs associated with acquiring customers and hosts are generally incurred up front, while the subscription revenue is generally recognized ratably over the subscription term, which can be monthly, annual, or on a multiyear basis.
−Removed: Our efforts to grow our business may be costlier than we expect, and we may not be able to increase our revenue enough to offset our higher operating expenses.
+Added: Our efforts to grow our business may be costlier than we expect, and we may not be able to increase our
+Added: revenue enough to offset our higher operating expenses, which may result in decreased profitability.
We may incur significant losses in the future for a number of reasons, including as a result of the other risks described herein, and unforeseen expenses, difficulties, complications, delays, and other unknown events.
For example, we have faced unprecedented usage during the COVID-19 pandemic and, to meet this increased demand, have incurred and expect to continue to incur significant costs associated with upgrading our infrastructure and expanding our capacity, including higher variable costs to the extent we have to rely on public cloud providers rather than our own data centers.
−Removed: Despite these significant investments, a majority of these new hosts using our platform on a free Basic account may never upgrade to a paid Zoom Meeting plan.
−Removed: If we are unable to sustain profitability, the value of our business and Class A common stock may significantly decrease.
+Added: While free users continue to be a meaningful portion of the user base, we have directed marketing programs focused on converting free users to paid subscriptions.
+Added: Some of these new hosts using our platform on a free Basic account have upgraded to a paid Zoom Meeting plan but the remainder have not and may never do so.
+Added: If we are unable to increase or sustain our profitability, the value of our business and Class A common stock may significantly decrease.
Furthermore, it is difficult to predict the size and growth rate of our market, customer demand for our platform, user adoption and renewal of our platform, the entry of competitive products and services, or the success of existing competitive products and services.
−Removed: As a result, we may not maintain profitability in future periods.
+Added: As a result, we may not increase or maintain profitability in future periods.
If we fail to grow our revenue sufficiently to keep pace with our investments and other expenses, our business would be harmed.
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In addition, some of our competitors may be able to disrupt the operations or compatibility of our platform with their products or services, or exert strong business influence on our ability to, and terms on which we, operate and distribute our platform.
−Removed: For example, we currently offer products that directly compete with several large technology companies that we rely on to ensure the interoperability of our platform with
−Removed: their products or services.
+Added: For example, we currently offer products that directly compete with several large technology companies that we rely on to ensure the interoperability of our platform with their products or services.
As our respective products evolve, we expect this level of competition to increase.
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We are subject to requirements imposed by app stores such as those operated by Apple and Google, who may change their technical requirements or policies in a manner that adversely impacts the way in which we or our partners collect, use and share data from users.
−Removed: If we do not comply with these requirements, we could lose access to the app store and users, and our business would be harmed.
+Added: For example, Apple recently began requiring mobile applications using its iOS mobile operating system to obtain a user’s permission to track them or access their device’s advertising identifier for certain purposes.
+Added: The long-term impact of these and any other privacy and regulatory changes remains uncertain.
+Added: If we do not comply with applicable requirements imposed by app stores, we could lose access to the app store and users, and our business would be harmed.
We may not be able to respond to rapid technological changes, extend our platform, or develop new features.
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Our customers may require features and capabilities that our current platform does not have.
−Removed: We invest significantly in research and development, and our goal is to focus our spending on measures that improve quality and ease of adoption, enhance privacy and security, and create organic user demand for our platform.
−Removed: For example, in October 2020 we introduced two new additions to our Zoom platform, OnZoom and Zoom Apps.
−Removed: There is no assurance that these new additions or other future enhancements to our platform or new product experiences, features, or capabilities will be compelling to our users or gain market acceptance, or that they will perform as expected.
+Added: We invest significantly in research and development, and our goal is to focus our spending on measures that improve quality and ease of adoption, enhance privacy and security, and create organic
+Added: user demand for our platform.
+Added: There is no assurance that new additions or other future enhancements to our platform or new product experiences, features, or capabilities will be compelling to our users or gain market acceptance, or that they will perform as expected.
If our research and development investments do not accurately anticipate user demand or if we fail to develop our platform in a manner that satisfies user preferences and requirements in a timely and cost-effective manner, we may fail to retain our existing users or increase demand for our platform.
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This perception may result in customers and hosts curtailing or ceasing their use of our products, our incurring significant liabilities, and our business being harmed.
−Removed: Our operations involve the storage and transmission of customer and user data or information, and security incidents have occurred in the past, and may occur in the future, resulting in unauthorized access to, loss or unauthorized disclosure of, or inadvertent disclosure of, this information, regulatory investigations or enforcement actions, litigation, indemnity obligations, and other possible liabilities, as well as negative publicity, which could damage our reputation, impair our sales, and harm our business.
+Added: Our operations involve the storage and transmission of customer and user information.
+Added: Security incidents have occurred in the past and may occur in the future, resulting in unauthorized access to, loss or unauthorized disclosure of, or inadvertent disclosure of, this information, interruptions, delays, or outages in our operations and services, regulatory investigations or enforcement actions, litigation, indemnity obligations, and other possible liabilities, as well as negative publicity, which could damage our reputation, impair our sales, and harm our business.
Cyberattacks and other malicious internet-based activity continue to increase, and cloud-based platform providers of products and services have been and are expected to continue to be targeted.
−Removed: In addition to traditional computer “hackers,” we face security risks from malicious code (such as viruses and worms), phishing incidents, credential stuffing attacks, employee theft, misuse of information or systems, sophisticated nation-state and nation-state supported actors, and advanced persistent threat intrusions.
−Removed: Moreover, security incidents can result in interruptions, delays, or outages in our operations and services, including due to ransomware or denial-of-service attacks.
−Removed: Despite significant efforts to create security barriers to such threats, it is impossible for us to entirely mitigate these risks.
−Removed: If our security measures are compromised as a result of third-party action, employee, customer, host or user error, malfeasance, stolen or fraudulently obtained log-in credentials, or otherwise, our reputation could be damaged;
−Removed: our data, information or intellectual property, or that of our customers, may be destroyed, stolen, or otherwise compromised;
+Added: In addition to traditional computer “hackers,” we face security risks from sophisticated nation-state and nation-state supported actors, and advanced persistent threat intrusions.
+Added: We may be subject to a variety of evolving threats, including but not limited to social-engineering attacks (including through phishing attacks), malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), denial-of-service attacks (such as credential stuffing), personnel misconduct or error, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, adware, telecommunications failures, earthquakes, fires, floods, and other similar threats.
+Added: Ransomware attacks, including those perpetrated by organized criminal threat actors, nation-states, and nation-state-supported actors, are becoming increasingly prevalent and severe and can lead to significant interruptions in our operations, loss of data and income, reputational harm, and diversion of funds.
+Added: Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments.
+Added: If our security measures are compromised, our reputation could be damaged;
+Added: our data, information or intellectual property, or that of our
+Added: customers, may be destroyed, stolen, or otherwise compromised;
our business may be harmed;
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Additionally, in March 2020, a security researcher reported certain vulnerabilities related to our macOS version that could have allowed an unauthorized person to gain root access to a user’s system.
−Removed: We cannot be certain that we will be able to address any vulnerabilities in our software that we may become aware of in the future, or there may be delays in developing patches that can be effectively deployed to address vulnerabilities.
−Removed: We expect similar issues to arise in the future as our products and services are more widely adopted, and as we continue to expand the features and functionality of existing products and introduce new products.
−Removed: We expect to expend significant resources in an effort to protect against security incidents and to mitigate, detect, and remediate actual and potential vulnerabilities.
−Removed: Security incidents and vulnerabilities, and concerns regarding privacy, data protection, and information security may cause some of our customers and hosts to stop using our solutions and fail to upgrade or renew their subscriptions.
−Removed: This discontinuance in use or failure to upgrade or renew could substantially harm our business.
+Added: Given the nature of our business and operations, our products and services will inevitably contain vulnerabilities or critical security defects that have not been identified or remediated and cannot be disclosed without compromising security.
+Added: We have identified vulnerabilities in our products and services in the past, and we expect that we will continue to identify vulnerabilities in the future.
+Added: We cannot be certain that we will be able to address any vulnerabilities in our software products and services that we may become aware of in the future, or there may be delays in developing patches that can be effectively deployed to address vulnerabilities.
+Added: We expect security issues to arise in the future as our products and services are more widely adopted, and as we continue to expand the features and functionality of existing products and introduce new products.
+Added: While we have invested and expect to continue to invest significant resources in an effort to protect against security incidents and to mitigate, detect, and remediate actual and potential vulnerabilities, we will continue to make prioritization decisions to determine which vulnerabilities or security defects to fix and the timing of these fixes, which could result in an exploit that compromises security.
+Added: Further, in many cases, customers are responsible for installing our software updates, and until they do so, their service remains subject to the vulnerabilities addressed in the software update.
+Added: Vulnerabilities and critical security defects, errors in remediating vulnerabilities or security defects, failure of third-party providers to remediate vulnerabilities or security defects, or customers not deploying security releases or deciding not to install software updates could result in claims of liability against us, damage our reputation, or otherwise harm our business.
+Added: Security incidents and vulnerabilities, and concerns regarding privacy, data protection, and information security may also cause some of our customers and hosts to stop using our solutions and fail to upgrade or renew their subscriptions.
Further, as we rely on third-party and public-cloud infrastructure, we depend in part on third-party security measures to protect against unauthorized access, cyberattacks, and the mishandling of data and information.
−Removed: In addition, failures to meet customers’ and hosts’ expectations with respect to security and confidentiality of their data and information could damage our reputation and affect our ability to retain customers and hosts, attract new customers and hosts, and grow our business.
+Added: Failures to meet customers’ and hosts’ expectations with respect to security and confidentiality of their data and information could damage our reputation and affect our ability to retain customers and hosts, attract new customers and hosts, and grow our business.
In addition, cybersecurity events or security vulnerabilities could result in breaches of our agreements with customers, lawsuits against us (including class action litigation), regulatory investigations or actions, and significant increases in costs, including costs for remediating the effects of such an event or vulnerability, lost revenue due to network downtime, and a decrease in customer, host, and user trust, increases in insurance premiums due to cybersecurity incidents, increased costs to address cybersecurity issues, and attempts to prevent future incidents, fines, penalties, judgments and settlements, and attorney fees, and harm to our business and our reputation because of any such incident.
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In addition, while more than half of our employees are based in the United States, like many similarly situated technology companies, we have a sizable number of research and development personnel in China, which has exposed and could continue to expose us to governmental and regulatory as well as market and media scrutiny regarding the actual or perceived integrity of our platform or data security and privacy features.
−Removed: Any security compromise in our industry, whether actual or perceived, could harm our
−Removed: reputation, erode confidence in the effectiveness of our security measures;
+Added: Any security compromise in our industry, whether actual or perceived, could harm our reputation, erode confidence in the effectiveness of our security measures;
negatively affect our ability to attract new customers and hosts;
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or subject us to third-party lawsuits, regulatory investigations, proceedings, and fines, or other action or liability, which could harm our business and reputation.
−Removed: Increased usage of our services, novel uses of our services, and additional awareness of Zoom and our brand could lead to greater public scrutiny of, press related to, or a negative perception of our information security and potential vulnerabilities associated with, our platform.
−Removed: For example, in connection with the COVID-19 pandemic, we opened our platform to unprecedented numbers of first-time users, leading to challenges for users who did not have full IT support or established protocols for security and privacy like our enterprise customers.
+Added: Increased usage of our services, novel uses of our services, and additional awareness of Zoom and our brand could lead to greater public scrutiny of, press related to, or a
+Added: negative perception of our information security and potential vulnerabilities associated with, our platform.
+Added: For example, in connection with the COVID-19 pandemic, we opened our platform to unprecedented numbers of first-time users, leading to challenges for users who did not have full IT support or established protocols for security and privacy like our larger customers.
As a result, we have experienced negative publicity related to meeting disruptions and security and privacy issues, including on encryption.
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We also believe that maintaining and enhancing the Zoom brand is critical to expanding our base of customers, hosts, and users and, in particular, conveying to users and the public that the Zoom brand consists of a broad communications platform, rather than just one distinct product.
−Removed: For example, if users incorrectly view the Zoom brand primarily as a video conferencing point solution or utility rather than as a platform with multiple communications solutions, or have a negative perception of our privacy and security, then our market position may be detrimentally impacted at such time as a competitor introduces a new or better product.
+Added: For example, if users incorrectly view the Zoom brand primarily as a video conferencing point solution or utility rather than as a platform with multiple communications solutions, or have a negative perception of our privacy and security, then our market position may be detrimentally impacted.
We anticipate that, as our market becomes increasingly competitive, maintaining and enhancing our brand may become increasingly difficult and expensive.
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In addition, as we continue to grow, we face challenges integrating, developing, and motivating a rapidly growing employee base in various countries around the world.
−Removed: For example, a significant number of our employees were hired in recent months and have never been to one of our office locations.
+Added: For example, a significant number of our employees were hired in the last two years and have never been to one of our office locations.
Certain members of our management have not previously worked together for an extended period of time, and some do not have prior experience managing a public company, which may affect how they manage our growth.
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Our business may be significantly affected by a change in the economy, including any resulting effect on consumer or business spending.
−Removed: Our business may be affected by changes in the economy generally, including as a result of the COVID-19 pandemic and any resulting effect on spending by our customers.
−Removed: While some of our customers may consider our platform to be a cost-saving purchase, decreasing the need for business travel, others may view a subscription to our platform as a discretionary purchase, and our customers may reduce their discretionary spending on our platform during an economic downturn.
−Removed: Given current economic conditions, we could experience a reduction in demand and loss of customers, especially if the effects of the current economic environment have a prolonged impact on various industries that our unified communications platform addresses.
+Added: Our business may be affected by changes in the economy generally, including as a result of the COVID-19 pandemic, any resulting effect on spending by our customers, and inflation.
+Added: While some of our customers may consider our platform to be
+Added: a cost-saving purchase, decreasing the need for business travel, others may view a subscription to our platform as a discretionary purchase, and our customers may reduce their discretionary spending on our platform during an economic downturn.
+Added: Given current economic conditions, including inflation, we could experience a reduction in demand and loss of customers, especially if the effects of the current economic environment have a prolonged impact on various industries that our unified communications platform addresses.
We would lose customers as a result of customers ceasing to do business, and we could experience a material increase in longer payment cycles and greater difficulty in collecting accounts receivable from certain customers.
While we have seen increased usage stemming from the COVID-19 pandemic, a significant portion of the increase in usage of our platform is attributable to free Basic accounts, which do not generate any revenue.
−Removed: Moreover, there is no assurance that we will experience an increase in paid hosts once the pandemic tapers, particularly in light of the economic downturn.
−Removed: Similarly, given the shift in our customer base from largely businesses and enterprises to a mix of businesses, enterprises, and consumers due to the COVID-19 pandemic, we expect that we will see higher rates of non-renewals than we have experienced historically.
+Added: Moreover, while we continue to add paid users to our customer base, we expect our user growth rate to continue to slow or decline as the impact of the COVID-19 pandemic continues to taper, particularly in light of a potential economic downturn.
Our ability to sell subscriptions to our platform could be harmed by real or perceived material defects or errors in our platform.
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In particular, our founder, President and Chief Executive Officer, Eric S.
−Removed: Yuan, is critical to our overall management, as well as the continued development of our products, services, the Zoom platform, our culture, our strategic direction, engineering, and our global operations, including regions such as the United States, EMEA and APAC.
+Added: Yuan, is critical to our overall management, as well as the continued development of our products, services, the Zoom platform, our culture, our strategic direction, engineering, and our global operations, including regions such as the United States, Europe, Middle East, and Africa (“EMEA”), and Asia Pacific (“APAC”).
All of our executive officers are at-will employees, and we do not maintain any key person life insurance policies.
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At times, we have experienced, and we may continue to experience, difficulty in hiring and retaining employees with appropriate qualifications, and we may not be able to fill positions in a timely manner or at all.
−Removed: We completed our initial public offering (“IPO”) in April 2019 and potential candidates may not perceive our compensation package, including our equity awards, as favorably as employees hired prior to our IPO.
In addition, our recruiting personnel, methodology, and approach may need to be altered to address a changing candidate pool and profile.
−Removed: We may not be able to identify or implement such changes in a timely manner.
+Added: We may not be able to identify or implement
+Added: such changes in a timely manner.
+Added: In addition, we have experienced and may continue to experience employee turnover as a result of the ongoing “great resignation” occurring throughout the U.S.
+Added: New hires require training and take time before they achieve full productivity.
+Added: New employees may not become as productive as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals.
If we fail to attract new personnel or fail to retain and motivate our current personnel, our business could be harmed.
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Additionally, laws and regulations, such as restrictive immigration laws, may limit our ability to recruit internationally.
+Added: Moreover, as we plan to reopen our offices, vaccine mandates and similar government orders and restrictions could result in employee attrition and difficulty in recruiting.
We must also continue to retain and motivate existing employees through our compensation practices, company culture, and career development opportunities.
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As we continue to grow, maintaining this culture of transparency will present its own challenges that we will need to address, including the type of information and level of detail that we share with our employees.
−Removed: In addition, following our IPO, many of our employees are now able to receive significant proceeds from sales of our equity in the public markets, which may reduce their motivation to continue to work for us.
−Removed: Moreover, this liquidity could create disparities in wealth among our employees, which may harm our culture and relations among employees and our business.
+Added: In addition, as our stock price has fluctuated since our IPO, employees joining us at different times could have significant disparities in proceeds from sales of our equity in the public markets, which could create disparities in wealth among our employees, which may harm our culture and relations among employees and our business.
+Added: Further, the volatility of our stock price may make our equity compensation less attractive to current and potential employees, and could contribute to increased turnover or difficulties in hiring.
We have significant and expanding operations outside the United States, which may subject us to increased business, regulatory and economic risks that could harm our business.
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• providing our platform and operating our business across a significant distance, in different languages and among different cultures, including the potential need to modify our platform and features to ensure that they are culturally appropriate and relevant in different countries;
−Removed: • compliance with applicable international laws and regulations, including laws and regulations with respect to privacy, information security, telecommunications requirements, data protection, consumer protection and unsolicited email, and the risk of penalties to us and individual members of management or employees if our practices are deemed to be out of compliance;
+Added: • compliance with applicable international laws and regulations, including laws and regulations with respect to privacy, information security, telecommunications requirements, data protection, consumer protection, and unsolicited email,
+Added: and the risk of penalties to us and individual members of management or employees if our practices are deemed to be out of compliance;
• operating in foreign jurisdictions where the government may impede or interrupt our ability to provide our services;
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• higher costs of doing business internationally, including increased accounting, travel, infrastructure, and legal compliance costs.
+Added: In addition, following Russia’s military invasion of Ukraine in February 2022, NATO deployed additional military forces to Eastern Europe, and the United States, European Union, and other nations announced various sanctions against Russia.
+Added: The invasion of Ukraine and the retaliatory measures that have been taken, and could be taken in future, by the U.S., NATO, and other countries have created global security concerns that could result in a regional conflict and otherwise have a lasting impact on regional and global economies, any or all of which could adversely affect our business.
Compliance with laws and regulations applicable to our global operations substantially increases our cost of doing business in international jurisdictions.
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engineering team.
−Removed: We recently announced our intent to expand our research and development presence in Phoenix, Arizona and Pittsburgh, Pennsylvania, as well as in Singapore and India.
−Removed: As a result of this expansion, we could experience, among other things, difficulty in attracting and retaining talent in these location and higher operating expenses, which would adversely impact our operating margins and harm our business.
+Added: We also intend to expand our research and development presence in Phoenix, Arizona and Pittsburgh, Pennsylvania, as well as in Singapore and India.
+Added: As a result of this expansion, we could experience, among other things, difficulty in attracting and retaining talent in these locations and higher operating expenses, which would adversely impact our operating margins and harm our business.
At the same time, our operations in China have caused and may in the future cause us to be subject to regulatory scrutiny both in China and in the United States.
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Also, in June and July 2020, we received subpoenas from the Department of Justice’s U.S.
−Removed: Attorney’s Office for the Eastern District of New York (“EDNY”) and the Department of Justice’s U.S.
−Removed: Attorney’s Office for the Northern District of
−Removed: California (“NDCA”).
+Added: Attorney’s Office for the
+Added: Eastern District of New York (“EDNY”) and the Department of Justice’s U.S.
+Added: Attorney’s Office for the Northern District of California (“NDCA”).
The EDNY and NDCA subpoenas requested information about (among other things) our interactions with foreign governments and/or foreign political parties, including the Chinese government, as well as about storage of and access to user data, including the use of servers based overseas.
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The NDCA subpoena also requested documents and information about (among other things) contacts between our employees and representatives of the Chinese government, and any attempted or successful influence by any foreign government in our policies, procedures, practices, and actions as they relate to users in the United States.
−Removed: We are fully cooperating with all of these investigations and have been conducting our own thorough internal investigation.
+Added: We are fully cooperating with these investigations and have been conducting our own thorough internal investigation.
These investigations are ongoing, and we do not know when they will be completed, which facts we will ultimately discover as a result of the investigations, or what actions the government may or may not take.
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If we decide to further develop and expand our indirect sales channels, we must continue to scale and improve our processes and procedures to support these channels, including investment in systems and training.
−Removed: Many resellers may not be willing to invest the time and resources required to train their staff to effectively sell our platform.
−Removed: If we fail to maintain relationships with our resellers, fail to develop relationships with new
−Removed: resellers in new markets, or expand the number of resellers in existing markets or fail to manage, train, or provide appropriate incentives to our existing resellers, our ability to increase the number of new customers and hosts and increase sales to existing customers could be adversely impacted, which would harm our business.
+Added: Many resellers may not be willing to invest the time and resources required to train their staff to
+Added: effectively sell our platform.
+Added: If we fail to maintain relationships with our resellers, fail to develop relationships with new resellers in new markets, or expand the number of resellers in existing markets or fail to manage, train, or provide appropriate incentives to our existing resellers, our ability to increase the number of new customers and hosts and increase sales to existing customers could be adversely impacted, which would harm our business.
Our results of operations, which are reported in U.S.
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dollar currencies.
−Removed: Our sales to government entities are subject to a number of additional challenges and risks.
+Added: Our sales to government entities and other government contractors are subject to a number of additional challenges and risks.
We expect to increase our sales to U.S.
−Removed: federal and state and foreign governmental agency customers.
−Removed: For example, we announced in May 2019 that we received authorization under the U.S.
+Added: federal and state and foreign governmental agency customers, which may occur through sales to other companies that re-sell our services to government customers and/or through direct sales to government entities.
+Added: We received authorization under the U.S.
Federal Risk and Authorization Management Program (“FedRAMP”) that allows U.S.
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The additional risks and challenges associated with doing business with governmental entities include, but are not limited to, the following:
−Removed: • selling to governmental entities can be more competitive, expensive, and time-consuming than selling to private entities, often requiring significant up-front time and expense without any assurance that these efforts will generate a sale;
−Removed: • government certification requirements may change, or we may be unable to achieve or sustain one or more government certifications, including FedRAMP, and in doing so restrict our ability to sell into the government sector until we have attained such certificates;
−Removed: • governmental entities may have significant leverage in negotiations, thereby enabling such entities to demand contract terms that differ from what we generally agree to in our standard agreements, including, for example, most-favored-nation clauses;
+Added: • selling to governmental entities can be more competitive, expensive, and time-consuming than selling to private entities, often requiring significant up-front time and expense and ongoing compliance costs without any assurance that these efforts will generate a sale;
+Added: • government certification requirements may change, or we may be unable to achieve or sustain one or more government certifications, including FedRAMP, which may restrict our ability to sell into the government sector until we have attained such certificates;
+Added: • contracts with governmental entities and other government contractors, including resellers in the government market, contain terms that differ less favorably from what we generally agree to in our standard agreements, including, terms and conditions required by regulation that are not negotiable with the customer;
+Added: • non-compliance with terms and conditions of government contracts, or with representations or certifications made in connection with government contracts, can result in significantly more adverse consequences than we typically would expect in the commercial market, including, depending on the circumstances, criminal liability, liability under the civil False Claims Act, and/or suspension or debarment from doing business with governmental entities;
• government demand and payment for our products may be influenced by public sector budgetary cycles and funding authorizations, with funding reductions or delays having an adverse impact on public sector demand for our products;
−Removed: To the extent that we become more reliant on contracts with government entities in the future, our exposure to such risks and challenges could increase, which in turn could adversely impact our business.
+Added: • government-imposed vaccine mandates could result in increased attrition and difficulties in recruiting, and non-compliance with any such mandates could restrict our ability to do business with governmental entities.
+Added: To the extent that we become more reliant on contracts with government entities and/or other government contractors in the future, our exposure to such risks and challenges could increase, which in turn could adversely impact our business.
+Added: In May 2021, the Biden Administration issued an Executive Order requiring federal agencies to implement additional information technology security measures, including, among other things, requiring agencies to adopt multifactor authentication and encryption for data at rest and in transit to the maximum extent consistent with Federal records laws and other applicable laws.
+Added: The Executive Order will lead to the development of secure software development practices and/or criteria for a consumer software labeling program, which will reflect a baseline level of secure practices, for software that is developed and sold to the U.S.
+Added: federal government.
+Added: Software developers will be required to provide visibility into their software and make security data publicly available.
+Added: Due to this Executive Order, federal agencies may require us to modify our cybersecurity practices and policies, thereby increasing our compliance costs.
+Added: If we are unable to meet the requirements of the Executive Order, our ability to work with the U.S.
+Added: government may be impaired and may result in a loss of revenue.
Our current products, as well as products, features, and functionality that we may introduce in the future, may not be widely accepted by our customers and hosts or may receive negative attention or may require us to compensate or reimburse third parties, any of which may lower our margins and harm our business.
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As a result, a portion of the payments that we will receive from customers that will use our Zoom Phone product will be allocated towards compensating these telephone carriers, which lowers our margins for Zoom Phone as compared to our other products.
−Removed: addition, new products that we introduce in the future may similarly require us to compensate or reimburse third parties, all of which would lower our profit margins for any such new products.
+Added: In addition, new products that we introduce in the future may similarly require us to compensate or reimburse third parties, all of which would lower our profit margins for any such new products.
If this trend continues with our new and existing products, including Zoom Phone, it could harm our business.
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We may have exposure to greater than anticipated tax liabilities, which could harm our business.
−Removed: While to date we have not incurred significant income taxes in operating our business, we are subject to income taxes in the United States and various jurisdictions outside of the United States.
+Added: We are subject to income taxes in the United States and various jurisdictions outside of the United States.
Our effective tax rate could fluctuate due to changes in the proportion of our earnings and losses in countries with differing statutory tax rates.
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changes in the valuation of, or our ability to use, deferred tax assets;
−Removed: the applicability of withholding taxes and effects from acquisitions.
+Added: the applicability of withholding taxes;
+Added: and effects from acquisitions.
The provision for taxes on our consolidated financial statements could also be impacted by changes in accounting principles;
changes in U.S.
−Removed: federal, state, or international tax laws applicable to corporate multinationals, such as the recent legislation enacted in the United States, other fundamental changes in law currently being considered by many countries;
+Added: federal, state, or foreign tax laws applicable to corporate multinationals;
+Added: other fundamental changes in tax law currently being considered by many countries;
and changes in taxing jurisdictions’ administrative interpretations, decisions, policies, and positions.
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federal, state, local, and foreign tax authorities.
−Removed: Such tax authorities may disagree with tax positions we take, and if any such tax authority were to successfully challenge any such position, our business could be harmed.
−Removed: We may also be subject to additional tax liabilities due to changes in non-income-based taxes resulting from changes in federal, state, or international tax laws;
+Added: Such tax authorities may disagree with tax positions we take, and if any such tax authority were to successfully challenge any such position, our business could be adversely impacted.
+Added: The Tax Cuts and Jobs Act of 2017 requires the capitalization and amortization of research and development expenses effective for years beginning after December 31, 2021.
+Added: Absent a change in legislation, we expect it will have a material impact on our cash flows beginning in the fiscal year ending January 31, 2023.
+Added: Although Congress is considering legislation that would defer the amortization requirement to later years, we have no assurance that the provision will be deferred, repealed, or otherwise modified.
+Added: We may also be subject to additional tax liabilities due to changes in non-income-based taxes resulting from changes in U.S.
+Added: federal, state, local, or foreign tax laws;
changes in taxing jurisdictions’ administrative interpretations, decisions, policies, and positions;
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Further, the Organization for Economic Co-operation and Development (“OECD”) and the Inclusive Framework of G20 and other countries have issued proposals related to the taxation of the digital economy.
−Removed: In addition, several countries have proposed of enacted Digital Services Taxes ("DST"), many of which would apply to revenues derived from digital services.
+Added: In addition, several countries have proposed or enacted Digital Services Taxes (“DST”), many of which would apply to revenue derived from digital services.
Future developments related to such proposals, in particular any unilateral actions outside of the OECD's Inclusive Framework such as the imposition of DST rules, could have an adverse impact on our business by increasing our future tax obligations.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
−Removed: As of January 31, 2021, we had $1,264.3 million of U.S.
−Removed: federal and $797.0 million of state net operating loss carryforwards available to reduce future taxable income, which will begin to expire in 2032 for federal and 2027 for state tax purposes.
−Removed: It is possible that we will not generate taxable income in time to use these net operating loss carryforwards before their expiration or at all.
−Removed: Under legislative changes made in December 2017, as modified by the federal tax law changes enacted in March 2020, U.S.
−Removed: federal net operating losses incurred in tax years beginning after December 31, 2017 and in future years may be carried forward indefinitely, but, for tax years beginning after December 31, 2020, the deductibility of such net operating losses is limited.
−Removed: In addition, the federal and state net operating loss carryforwards and certain tax credits may be
−Removed: subject to significant limitations under Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended (the “Code”), respectively, and similar provisions of state law.
−Removed: Under those sections of the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change attributes, such as research tax credits, to offset its post-change income or tax may be limited.
−Removed: In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period.
−Removed: Similar rules may apply under state tax laws.
−Removed: We have completed a Section 382 review and have determined that none of the operating losses will expire solely due to Section 382 limitation(s).
−Removed: However, we may experience ownership changes in the future as a result of future shifts in our stock ownership, some of which may be outside of our control.
−Removed: If an ownership change occurs and our ability to use our net operating loss carryforwards and tax credits is materially limited, it would harm our business by effectively increasing our future tax obligations.
−Removed: In addition, for state income tax purposes, there may be periods during which the use of net operating losses is suspended or otherwise limited, including a recent California franchise tax law change limiting the usability of California state net operating losses to offset California taxable income in taxable years beginning on or after January 1, 2020 and before January 1, 2023, which could accelerate or permanently increase state taxes owed.
−Removed: We recorded a valuation allowance against all of our deferred tax assets for the U.S.
−Removed: as of both January 31, 2021 and January 31, 2020.
−Removed: We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.
−Removed: In our valuation allowance evaluation, we give more weight to evidence that can be objectively verified than to evidence that cannot be objectively verified.
−Removed: Our consideration of the evidence requires management to make a number of significant judgments, estimates, and assumptions about highly complex and inherently uncertain matters.
−Removed: Given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility that in the foreseeable future, sufficient positive evidence may become available that results in a conclusion that a portion of the valuation allowance will no longer be needed.
−Removed: Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded.
−Removed: However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability (pretax income adjusted for permanent differences) that we are able to actually achieve.
+Added: For state income tax purposes, there may be periods during which the use of net operating losses is suspended or otherwise limited, including a California franchise tax law change limiting the usability of California state net operating losses to offset California taxable income in taxable years beginning on or after January 1, 2020 and before January 1, 2022.
+Added: We have maintained a valuation allowance on all our U.S.
+Added: net deferred tax assets since our inception as it was determined that it was more likely than not that we would not recognize the benefits of these assets.
+Added: We continued to record a valuation allowance through the first nine months of fiscal 2022.
+Added: In the fourth quarter of fiscal 2022, management concluded that the valuation allowance related to the U.S.
+Added: federal and state deferred tax assets was no longer needed primarily due to its assessment of income/loss in recent periods and the forecast of future taxable income.
+Added: As of January 31, 2022, based on evaluation of the positive and negative evidence, management believes it is more likely than not that the net deferred tax assets will be realized for U.S.
+Added: federal and state purposes.
+Added: Accordingly, management has recognized a non-recurring tax benefit of $328.0 million related to the valuation allowance reversal.
+Added: As of January 31, 2022, we continued to maintain a valuation allowance of $12.6 million related to net deferred tax assets of our U.K.
+Added: subsidiary and will maintain this valuation allowance until there is sufficient evidence to support the reversal of all or a portion of the allowance.
We have acquired and may continue to acquire other businesses or receive offers to be acquired, which could require significant management attention, disrupt our business, or dilute stockholder value.
We have made and may continue in the future to make acquisitions of other companies, products, and technologies.
−Removed: For example, we announced our acquisition of Keybase Inc in May 2020.
We have limited experience in acquisitions.
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We have a limited operating history at the current scale of our business, which makes it difficult to evaluate our prospects and future results of operations.
−Removed: Beginning in the fiscal quarter ended April 30, 2020, we faced unprecedented usage of our video-first unified communications platform largely due to the COVID-19 pandemic.
+Added: Beginning in the fiscal quarter ended April 30, 2020, we faced unprecedented usage of our unified communications platform largely due to the COVID-19 pandemic.
This usage dramatically changed the scale of our business, and we have a limited operating history at the current scale of our business.
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Our historical revenue growth should not be considered indicative of our future performance.
−Removed: Further, in future periods, our revenue growth could slow or our revenue could decline for a number of reasons, including any reduction in demand for our platform;
+Added: Further, in future periods, our revenue
+Added: growth could slow or our revenue could decline for a number of reasons, including any reduction in demand for our platform;
increased competition;
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or our failure, for any reason, to capitalize on growth opportunities.
−Removed: The COVID-19 pandemic has also made it difficult to forecast revenue, costs, and expenses, as our platform has recently faced
−Removed: unprecedented usage from free users and new and existing customers, requiring us to devote significant resources to bolster our capacity and infrastructure.
+Added: The COVID-19 pandemic has also made it difficult to forecast revenue, costs, and expenses, as our platform has recently faced unprecedented usage from free users and new and existing customers, requiring us to devote significant resources to bolster our capacity and infrastructure.
We have encountered and will encounter risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as the risks and uncertainties described herein.
If our assumptions regarding these risks and uncertainties, which we use to plan our business, are incorrect or change, or if we do not address these risks successfully, our business would be harmed.
+Added: We rely on data from tools to calculate certain of our key business metrics.
+Added: Real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.
+Added: We track our key business metrics with tools that are not independently verified by any third party.
+Added: Our tools have limitations, and our methodologies for tracking these metrics may change over time, which could result in unexpected changes to our performance metrics, including the key metrics we report.
+Added: If the tools we use to track these metrics over- or undercount performance or contain errors, the data we report may not be accurate and our understanding of certain details of our business may be distorted, which could affect our longer-term strategies.
+Added: We are continually seeking to improve our ability to measure our key business metrics, and regularly review our processes to assess potential improvements.
Risks Related to Laws and Regulations
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We are also subject to the terms of our privacy policies and contractual obligations to third parties related to privacy, data protection, and information security.
−Removed: We strive to comply with applicable laws, certifications, documentation, publications, regulations, standards, policies and other obligations relating to privacy, data protection, and information security to the extent possible.
Although we endeavor to comply with applicable laws and our policies, publications, certifications, and documentation, and other obligations, we may at times fail to do so or may be perceived to have failed to do so.
Moreover, despite our efforts, we may not be successful in achieving compliance if our employees, vendors or business partners do not comply with our policies, certifications, and documentation.
−Removed: Such actual or perceived failures in certain cases have subjected, and can subject, us to potential international, local, state and federal legal or regulatory action, including in the event that our policies, certifications, and documentation are found or alleged to be inaccurate, incomplete, deceptive, unfair, or misrepresentative of our actual practices.
−Removed: The regulatory framework for privacy and data protection worldwide is, and is likely to remain, uncertain for the foreseeable future, which we expect will increase our compliance costs and exposure to liability, and it is possible that these or other actual or alleged obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices.
−Removed: Increased usage of our services, novel uses of our services, and additional awareness of Zoom and our brand stemming from the COVID-19 pandemic could make it more difficult for us to comply with our contractual obligations, our policies, our publications, our certifications, our documentation, standards, regulations, and applicable laws related to privacy, data protection, and information security, and has and could result in greater public scrutiny of, press related to, or a negative perception of our privacy, data protection, and information security practices.
−Removed: Any compliance failure, as well as greater public scrutiny of our privacy, data protection, and information security practices, could result in increased governmental and regulatory scrutiny and litigation exposure, as well as material reputational harm, a loss of customer and user confidence and business, additional expenses, and other harm to our business.
+Added: Any actual or perceived compliance failure, as well as greater public scrutiny of our privacy, data protection, and information security practices, could result in increased governmental and regulatory scrutiny and litigation exposure, as well as material reputational harm, a loss of customer and user confidence and business, additional expenses, and other harm to our business.
For example, in June 2020, we received a grand jury subpoena from the Department of Justice’s U.S.
−Removed: Attorney’s Office for EDNY, which requested information regarding our interactions with foreign governments and foreign political parties, including the Chinese government, as well as information regarding storage of and access to user data, the development and implementation of Zoom’s privacy policies, and the actions we took relating to the Tiananmen commemorations on Zoom.
+Added: Attorney’s Office for the EDNY, which requested information regarding our interactions with foreign governments and foreign political parties, including the Chinese government, as well as information regarding storage of and access to user data, the development and implementation of Zoom’s privacy policies, and the actions we took relating to the Tiananmen commemorations on Zoom.
In July 2020, we received subpoenas from the Department of Justice’s U.S.
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We also expect that there will continue to be new or amended laws, regulations, industry standards, guidance and contractual obligations concerning privacy, data protection, and information security proposed and enacted in various jurisdictions.
−Removed: For example, in May 2018, the General Data Protection Regulation (“GDPR”) went into effect in the EU.
−Removed: The GDPR imposes more stringent data protection requirements and requires us and our customers to give more detailed disclosures
−Removed: about how we collect, use and share personal information;
−Removed: contractually commit to data protection measures in our contracts with clients;
−Removed: maintain adequate data security measures;
−Removed: notify regulators and affected individuals of certain data breaches;
−Removed: meet extensive privacy governance and documentation requirements;
−Removed: and honor individuals’ data protection rights, including their rights to access, correct and delete their personal information.
−Removed: The GDPR provides greater penalties for noncompliance than previous data protection laws.
+Added: For example, in May 2018, the General Data Protection Regulation (“GDPR”) went into effect in the EU, and the United Kingdom (U.K.) implemented the U.K.
+Added: The GDPR and the U.K.
+Added: GDPR impose more stringent data protection requirements and provide greater penalties for noncompliance than previous data protection laws.
Companies that violate the GDPR can face private litigation, restrictions on data processing, and fines of up to the greater of 20 million Euros or 4% of their worldwide annual revenue.
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We may also be obligated to assist our customers, partners, and vendors with their own compliance obligations under the GDPR, which could require expenditure of significant resources.
−Removed: Assisting our customers, partners, and vendors in complying with the GDPR, or complying with the GDPR ourselves, may cause us to incur substantial operational costs or require us to change our business practices.
−Removed: Further, the U.K.'s decision to leave the EU, often referred to as Brexit, has created uncertainty in data protection issues involving the U.K.
−Removed: For example, pursuant to a post-Brexit trade deal between the U.K.
−Removed: and the EU, transfers of personal information from the European Economic Area to the U.K.
−Removed: are not considered restricted transfers under the GDPR for a period of up to six months from January 1, 2021.
−Removed: However, unless the EU Commission makes an adequacy finding with respect to the U.K.
−Removed: before the end of that period, the U.K.
−Removed: will be considered a “third country” under the GDPR and transfers of European personal information to the U.K.
−Removed: will require an adequacy mechanism to render such transfers lawful under the GDPR.
−Removed: Additionally, although the U.K.
−Removed: enacted a Data Protection Act in May 2018 that is designed to be consistent with the GDPR, uncertainty remains regarding how data transfers to and from the U.K.
−Removed: will be regulated notwithstanding Brexit.
−Removed: The effects of Brexit have been and are expected to continue to be far-reaching.
−Removed: Brexit and the perceptions as to its impact may adversely affect business activity and economic conditions globally, and could continue to contribute to instability in global financial markets.
−Removed: Brexit could also have the effect of disrupting the free movement of goods, services, and people between the U.K.
−Removed: In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K.
−Removed: determines which EU laws to replace or replicate.
−Removed: The full effects of Brexit are uncertain and will remain so until the U.K.
−Removed: and EU reach a definitive resolution with regards to outstanding trade and legal matters.
−Removed: Given these possibilities and others we may not anticipate, as well as the lack of comparable precedent, the full extent to which our business, results of operations, and financial condition could be adversely affected by Brexit is uncertain.
−Removed: European data protection laws, including the GDPR, generally restrict the transfer of personal information from Europe, including the European Economic Area, U.K.
−Removed: and Switzerland, to the United States and most other countries unless the parties to the transfer have implemented specific safeguards to protect the transferred personal information.
−Removed: One of the primary safeguards allowing U.S.
−Removed: companies to import personal information from Europe has been certification to the EU-U.S.
−Removed: Privacy Shield and Swiss-U.S.
−Removed: Privacy Shield frameworks administered by the U.S.
−Removed: Department of Commerce.
−Removed: However, in July 2020, the Court of Justice of the European Union issued a decision invalidating the EU-U.S.
−Removed: Privacy Shield framework.
−Removed: The same decision also raised questions about whether one of the primary alternatives to the EU-U.S.
−Removed: Privacy Shield, namely, the European Commission’s Standard Contractual Clauses, can lawfully be used for personal information transfers from Europe to the United States or most other countries.
−Removed: Similarly, on September 8, 2020, the Swiss Federal Data Protection and Information Commissioner announced that the Swiss-U.S.
−Removed: Privacy Shield Framework is inadequate for personal information transfers from Switzerland to the United States, and also raised questions about the viability of the Standard Contractual Clauses.
−Removed: At present, there are few, if any, viable alternatives to the EU-U.S.
−Removed: Privacy Shield, Swiss-U.S.
−Removed: Privacy Shield, and the Standard Contractual Clauses, all of which are mechanisms on which we have relied for personal information transfers from Europe to the United States and other countries.
−Removed: Authorities in the U.K.
−Removed: may similarly invalidate use of the EU-U.S.
−Removed: Privacy Shield and raise questions on the viability of the Standard Contractual Clauses, as mechanisms for lawful personal information transfers to the United States and other countries.
−Removed: In November 2020, EU regulators proposed a new set of Standard Contractual Clauses (“SCCs”).
−Removed: The new SCCs impose additional obligations and requirements with respect to the transfer of EU personal data to other jurisdictions, which may increase the legal risks and liabilities under the GDPR and local EU laws associated with cross-border data transfers, and result in material increased compliance and operational costs.
−Removed: If we are unable to implement a valid solution for personal information transfers from Europe, we will face increased exposure to regulatory actions, substantial fines, and injunctions against processing or transferring personal information from Europe, and we may be required to increase our data processing capabilities in Europe at significant expense.
−Removed: Inability to import personal information from Europe to the United States or other countries may decrease demand for our products and services as our customers that are subject to the GDPR may seek alternatives that do not involve personal information transfers out of Europe.
−Removed: Our inability to import personal information to the United States and other countries may decrease the functionality or effectiveness of our products and services and adversely impact our marketing efforts, plans and activities.
−Removed: We expect EU regulators to aggressively enforce EU laws prohibiting data transfers to the U.S.
−Removed: and other countries without a legally sound transfer mechanism, and it possible that EU regulators could prevent Zoom from transferring any personal data out of the EU to certain countries like the U.S.
−Removed: Additionally, other countries outside of Europe have enacted or are considering enacting similar cross-border data transfer restrictions and laws requiring local data residency and restricting cross-border data transfer, which could increase the
−Removed: cost and complexity of delivering our services and operating our business.
−Removed: For example, Brazil recently enacted the General Data Protection Law (Lei Geral de Proteção de Dados Pessoais or LGPD) (Law No.
−Removed: 13,709/2018), which broadly regulates the processing of personal information and imposes compliance obligations and penalties comparable to those of the GDPR.
+Added: Certain jurisdictions have enacted data localization laws and cross-border data transfer laws.
+Added: For example, absent appropriate safeguards or other circumstances, the GDPR generally restricts the transfer of personal information to countries outside of the EEA, such as the United States, which the European Commission does not consider to provide an adequate level of data privacy and security.
+Added: The European Commission released a set of Standard Contractual Clauses that are designed to be a lawful mechanism by which entities can transfer personal information out of the EEA to jurisdictions that the European Commission has not found to provide an adequate level of protection.
+Added: The Standard Contractual Clauses require parties that rely upon them to comply with additional obligations, such as conducting transfer impact assessments to determine whether additional security measures are necessary to protect the at-issue personal information.
+Added: Moreover, due to potential legal challenges, there exists some uncertainty regarding whether the Standard Contractual Clauses will remain a valid mechanism for transfers of personal information out of the EEA.
+Added: In addition, laws in Switzerland and the U.K.
+Added: similarly restrict transfers of personal information outside of those jurisdictions to countries such as the United States that do not provide an adequate level of personal information protection.
+Added: In addition to European restrictions on cross-border transfers of personal information, other jurisdictions have enacted or are considering similar cross-border personal information transfer laws and local personal information residency laws, any of which could increase the cost and complexity of doing business.
+Added: If we cannot implement a valid compliance mechanism for cross-border transfers, we may face increased exposure to regulatory actions, substantial fines, and injunctions against processing or transferring personal information from Europe or elsewhere.
+Added: The inability to import personal information to the United States could significantly and negatively impact our business operations;
+Added: limiting our ability to collaborate with parties that are subject to European and other privacy, data protection, and information security laws;
+Added: or requiring us to increase our personal information processing capabilities in Europe and/or elsewhere at significant expense.
+Added: We are also subject to evolving EU and U.K.
+Added: privacy laws on cookies and e-marketing.
+Added: European regulators are increasingly focusing on compliance with requirements in the online behavioral advertising ecosystem, and current national laws that implement the ePrivacy Directive are likely to be replaced by the ePrivacy Regulation, which could lead to substantial costs, limit the effectiveness of our marketing and personalization activities, and subject us to additional liabilities.
States have also begun to introduce more comprehensive privacy legislation.
For example, the California Consumer Privacy Act of 2018 (“CCPA”), which went into effect on January 1, 2020, affords consumers expanded privacy protections.
−Removed: The CCPA gives California residents, among other things, expanded rights to access and require deletion of their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used.
−Removed: The CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches that may increase data breach litigation.
+Added: The CCPA allows for statutory fines for noncompliance (up to $7,500 per violation).
The CCPA will be expanded substantially on January 1, 2023 when the California Privacy Rights Act of 2020 (the “CPRA”), which was approved by California voters in November 2020, becomes fully operative.
−Removed: The CPRA will, among other things, give consumers the ability to limit use of information deemed to be sensitive, increase the maximum penalties for violations concerning consumers under age 16, establish the California Privacy Protection Agency to implement and enforce the new law, and impose administrative fines.
Aspects of the CCPA and CPRA, and their interpretation and enforcement remain uncertain.
The potential effects of the CCPA and CPRA are far-reaching and may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply.
−Removed: The CCPA could mark the beginning of a trend toward more stringent privacy legislation in the United States, as other states may follow California’s lead and increase protections for their residents.
+Added: The CCPA appears to mark the beginning of a trend toward more stringent privacy legislation in the United States, as other states have followed California’s lead and increase protections for their residents.
The CCPA has already prompted a number of proposals for new federal and state privacy legislation that, if passed, could increase our potential liability, increase our compliance costs and adversely affect our business.
−Removed: In addition, effective October 1, 2019, Nevada amended its existing Security of Personal Information Law (“SPI Law”) to now require, among other things, that businesses provide an online mechanism or toll-free phone number to intake requests from consumers to opt out of the sale of their personal data.
−Removed: Virginia has similarly enacted a comprehensive privacy law, the Consumer Data Protection Act, which emulates the CCPA and CPRA in many respects and takes effect on January 1, 2023.
+Added: In addition, effective October 1, 2019, Nevada amended its existing Security of Personal Information Law (“SPI Law”) to now require, among other things, that businesses provide an online mechanism or toll-free phone number to intake requests from consumers to opt out of the sale of their personal information.
+Added: Virginia and Colorado have similarly enacted comprehensive privacy laws, the Consumer Data Protection Act and Colorado Privacy Act, respectively, both laws of which emulate the CCPA and CPRA in many respects.
+Added: The Virginia Consumer Data Protection Act takes effect on January 1, 2023, and the Colorado Privacy Act takes effect on July 1, 2023.
The Children’s Online Privacy Protection Act (“COPPA”) is a U.S.
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We provide video communications services to schools, school districts, and school systems to support traditional, virtual, and hybrid classrooms, distance learning, educational office hours, guest lectures, and other services.
−Removed: As part of these services, Zoom may be used by students, including students under the age of 13, and we collect personal information from such students on behalf of our school subscribers.
+Added: As part of these services, Zoom may be used by students, including students under the age of 13, and we collect
+Added: personal information from such students on behalf of our school subscribers.
School subscribers must contractually consent to Zoom’s information practices on behalf of students, prior to students using the services.
In addition, the GDPR prohibits certain processing of the personal information of children under the age of 13-16 (depending on the country) without parental consent.
−Removed: The CCPA requires companies to obtain the consent of children in California under 16 (or parental consent for children under 13) before selling their personal information.
−Removed: COPPA is subject to interpretation by courts and other governmental authorities, including the FTC, and the FTC is authorized to promulgate, and has promulgated, revisions to regulations implementing provisions of COPPA.
−Removed: Although we strive to ensure that our platform and applications are compliant with applicable provisions of COPPA, HIPAA, GDPR, and CCPA, these provisions may be modified, interpreted, or applied in new manners that we may be unable to anticipate or prepare for appropriately, and we may incur substantial costs or expenses in attempting to modify our systems, platform, applications, or other technology to address changes in COPPA, HIPAA, GDPR, and CCPA, or interpretations thereof.
If we fail to accurately anticipate the application, interpretation, or legislative expansion of COPPA, HIPAA, GDPR, and CCPA, we could be subject to governmental enforcement actions, data processing restrictions, litigation, fines and penalties, adverse publicity or loss of customers.
Moreover, as a result of any such failures, we could be in breach of our K-12 school customer contracts, and our customers could lose trust in us, which could harm our reputation and business.
−Removed: With laws and regulations, such as the GDPR in the EU as well as the CCPA, SPI Law, HIPAA, and COPPA in the United States imposing relatively burdensome obligations, and with substantial uncertainty over the interpretation and application of these and other laws and regulations, we have faced and may face additional challenges in addressing their requirements and making necessary changes to our policies and practices, and may incur significant costs and expenses in an effort to do so, any of which could materially adversely affect our business and operating results.
+Added: With laws and regulations, such as the GDPR and UK GDPR in the EU as well as the CCPA, SPI Law, HIPAA, and COPPA in the United States imposing relatively burdensome obligations, and with substantial uncertainty over the interpretation and application of these and other laws and regulations, we have faced and may face additional challenges in addressing their requirements and making necessary changes to our policies and practices.
Additional uses of our services arising out of increased demand associated with the COVID-19 pandemic may require us to address additional privacy, data protection, and information security laws, regulations, standards, policies, and contractual obligations.
−Removed: Any failure or perceived failure by us to comply with such laws, regulations, standards, policies, and contractual obligations, or our privacy policies, publications, certifications, or documentation have led and could lead to governmental investigations or enforcement actions (including investigations or actions by state attorneys general, federal regulators, and international regulators), litigation (including class action litigation), claims, or public statements against us by consumer advocacy groups or others, and could result in significant liability, fines or penalties, or cause our users to lose trust in us, which could have an adverse effect on our reputation and business.
We have in the past and may in the future receive inquiries or be subject to investigations by domestic and international government entities regarding, among other things, our privacy, data protection, and information security practices.
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See Part I, Item 3 “Legal Proceedings” for additional information.
−Removed: We also have been the subject of an investigation by the FTC relating to our privacy and security representations and practices.
+Added: We were also the subject of an investigation by the FTC relating to our privacy and security representations and practices.
We have reached a settlement agreement with the FTC, which the FTC voted to make final on January 19, 2021.
−Removed: See Part I, Item 3 “Legal Proceedings” for additional information.
We could fail or be perceived to fail to comply with the terms of the settlement with the FTC or any other orders or settlements relating to litigation or governmental investigations with respect to our privacy and security practices.
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Any alterations to our business strategy or operations made in order to adapt to or comply with any such changes would be time-consuming and expensive, and certain of our competitors may be better suited to withstand or react to these changes.
−Removed: Further, in May 2019, former President Trump issued an executive order that invoked national emergency economic powers to implement a framework to regulate the acquisition or transfer of information communications technology in transactions that imposed undue national security risks.
+Added: Further, in recent years, the U.S.
+Added: Government has expressed concerns with the security of information and communications technology and services (“ICTS”) sourced from providers in China, Russia, and other jurisdictions.
+Added: In May 2019, former President Trump issued an executive order that invoked national emergency economic powers to implement a framework to regulate the acquisition or transfer of ICTS in transactions that imposed undue national security risks.
The executive order is subject to implementation by the Secretary of Commerce and applies to contracts entered into prior to the effective date of the order.
+Added: On March 22, 2021, the U.S.
+Added: Department of Commerce issued an interim final rule allowing it to identify, review, and prohibit ICTS transactions that pose a national security risk, including transactions involving specified countries, such as China.
+Added: Several aspects of this rule remain unclear including the scope of affected transactions and how the rule will be implemented and enforced in practice.
In addition, the U.S.
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Depending upon their duration and implementation, these tariffs, the executive order and its implementation, and other regulatory actions could materially affect our business, including in the form of increased cost of revenue, decreased margins, increased pricing for customers, and reduced sales.
−Removed: Our results of operations may be harmed if we are required to collect sales or other related taxes for our subscription services in jurisdictions where we have not historically done so.
−Removed: We collect sales tax in a number of jurisdictions.
−Removed: One or more states or countries may seek to impose incremental or new sales, use, or other tax collection obligations on us.
−Removed: A successful assertion by a state, country, or other jurisdiction that we should have been or should be collecting additional sales, use, or other taxes could, among other things, result in substantial tax payments, create significant administrative burdens for us, discourage potential customers from subscribing to our platform due to the incremental cost of any such sales or other related taxes, or otherwise harm our business.
−Removed: We may be subject to liabilities on past sales for taxes, surcharges, and fees.
+Added: We may be subject to additional liabilities on past sales for taxes, surcharges, and fees.
We currently collect and remit applicable indirect taxes in jurisdictions where we, through our employees, have a presence and where we have determined, based on legal precedents in the jurisdiction, that sales of our platform are classified as taxable.
−Removed: We believe that we are not otherwise subject to, or required to collect, any additional taxes, fees, or surcharges imposed by state and local jurisdictions because we do not have a sufficient physical presence or “nexus” in the relevant taxing jurisdiction or such taxes, fees, or surcharges do not apply to sales of our platform in the relevant taxing jurisdiction.
−Removed: However, there is uncertainty as to what constitutes sufficient physical presence or nexus for a state or local jurisdiction to levy taxes, fees, and surcharges for sales made over the internet, and there is also uncertainty as to whether our characterization of our platform as not taxable in certain jurisdictions will be accepted by state and local taxing authorities.
−Removed: Taxing authorities may challenge our position that we do not have sufficient nexus in a taxing jurisdiction or that our platform is not taxable in the jurisdiction which could result in increased tax liabilities for us or our customers and hosts, which could harm our business.
−Removed: The application of indirect taxes (such as sales tax, use tax, telecommunications tax, VAT, GST, and gross receipts tax) to businesses that transact online, such as ours, is a complex and evolving area.
−Removed: Following the recent U.S.
−Removed: Supreme Court decision in South Dakota v.
−Removed: Wayfair, Inc.
−Removed: , states are now free to levy taxes on sales of goods and services based on an “economic nexus,” regardless of whether the seller has a physical presence in the state.
−Removed: As a result, it may be necessary to reevaluate whether our activities give rise to sales, use, and other indirect taxes as a result of any nexus in those jurisdictions in which we are not currently registered to collect and remit taxes.
−Removed: Additionally, we may need to assess our potential tax collection and remittance liabilities based on existing economic nexus laws’ dollar and transaction thresholds.
−Removed: We continue to analyze our exposure for such taxes and liabilities and have accrued $58.1 million and $34.0 million as of January 31, 2021 and 2020, respectively, for loss contingencies resulting from these potential taxes and liabilities.
−Removed: The application of existing, new, or future laws, whether in the United States or internationally, could harm our business.
−Removed: There have been, and will continue to be, substantial ongoing costs associated with complying with the various indirect tax requirements in the numerous markets in which we conduct or will conduct business.
+Added: State and local taxing authorities have differing rules and regulations which are subject to varying interpretations.
+Added: This makes the applicability of sales tax to e-commerce businesses, such as ours, uncertain and complex.
+Added: We believe that we are not otherwise subject to, or required to collect, additional taxes, fees, or surcharges imposed by state and local jurisdictions because we do not have a sufficient physical presence or “nexus” in the relevant taxing jurisdiction, or such taxes, fees, or surcharges do not apply to sales of our platform in the relevant taxing jurisdiction.
+Added: There is uncertainty as to what constitutes sufficient nexus for sales made over the Internet and, after the U.S.
+Added: Supreme Court’s ruling in South Dakota v.
+Added: Wayfair, states may require an e-commerce business with no in-state property or personnel to collect and remit sales tax.
+Added: Therefore, it is possible that we could face future audits or challenges of our positions by taxing authorities and that our liability for these taxes could exceed our estimates.
+Added: The application of existing, new, or future laws, whether in the U.S.
+Added: or internationally, could harm our business.
We are subject to governmental export and import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability if we are not in compliance with applicable laws.
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In addition, various countries regulate the import of certain encryption technology, including through import permitting and licensing requirements and have enacted or could enact laws that could limit our ability to distribute our platform or could limit our hosts’ ability to implement our platform in those countries.
−Removed: Although we have taken precautions to prevent our platform and associated products from being accessed or used in violation of such laws, we have inadvertently allowed our platform and associated products to be accessed or used by some customers in apparent violation of U.S.
+Added: Although we have taken precautions to prevent our platform and associated products from being accessed or used in violation of such laws, we have inadvertently allowed our platform and associated products to be accessed or used by some customers in potential violation of U.S.
economic sanction laws.
−Removed: In addition, we may have inadvertently made our software products available to some customers, including users in embargoed or sanctioned countries, in apparent violation of the EAR.
−Removed: As a result, we submitted initial and final voluntary self-disclosures concerning potential violations of U.S.
+Added: In addition, we may have inadvertently made our software products available to some customers in potential violation of the EAR.
+Added: As a result, we have submitted and from time to time
+Added: will continue to submit as warranted initial and final voluntary self-disclosures regarding compliance with U.S.
sanctions and export control laws and regulations to OFAC and the U.S.
Department of Commerce’s Bureau of Industry and Security (“BIS”).
−Removed: In June 2019, OFAC and BIS issued us warning letters as their final enforcement responses to these potential violations, but no fines or penalties were assessed.
+Added: For instance, in June 2021, we submitted an initial voluntary self-disclosure to BIS regarding compliance with certain U.S.
+Added: export control laws and regulations.
If we are found to be in violation of U.S.
economic sanctions or export control laws in the future, it could result in fines and penalties.
−Removed: We may also be adversely affected through other penalties, reputational harm, loss of access to certain markets, or otherwise.
+Added: We may also be adversely affected through other penalties, business disruption, reputational harm, loss of access to certain markets, or otherwise.
While we are working to implement additional controls designed to prevent similar activity from occurring in the future, these controls may not be fully effective.
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and international anti-corruption laws, such as the U.S.
−Removed: Foreign Corrupt Practices Act of 1977, amended, and the U.K.
+Added: Foreign Corrupt Practices Act of 1977, as amended (the "FCPA"), and the U.K.
Bribery Act 2010, as well as other similar anti-bribery and anti-kickback laws and regulations.
−Removed: These laws and regulations generally prohibit companies and their employees and intermediaries from authorizing, offering, or providing improper payments or benefits to government officials and other recipients for improper purposes.
−Removed: Although we take precautions to prevent violations of these laws, our exposure for violating these laws increases as we continue to expand our international presence, and any failure to comply with such laws could harm our business.
+Added: These laws and regulations generally prohibit companies and their employees and intermediaries, from directly or indirectly authorizing, offering, or providing improper payments or benefits to government officials and other recipients for improper purposes.
+Added: The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to device and maintain an adequate system of internal accounting controls.
+Added: Although we take precautions to prevent violations of anti-corruption laws, our exposure for violating these laws increases as we continue to expand our international presence, and any failure to comply with such laws could harm our business, financial condition, and results of operations.
Zoom Phone is subject to U.S.
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Zoom Phone is provided through our wholly owned subsidiary, Zoom Voice Communications, Inc., which is regulated by the FCC as an interconnected voice over internet protocol ("VoIP") service provider.
−Removed: As a result, Zoom Phone is subject to existing or potential FCC regulations, including, but not limited to, regulations relating to privacy, disability access, porting of numbers, federal Universal Service Fund (“USF”), contributions and other regulatory assessments, emergency calling/Enhanced 911 (“E-911”), access charges for long distance services, and law enforcement access.
−Removed: Congress or the FCC may expand the scope of Zoom Phone’s regulatory obligations at any time.
+Added: [As a result, Zoom Phone is subject to existing or potential FCC regulations, including, but not limited to, regulations relating to privacy, disability access, porting of numbers, federal Universal Service Fund (“USF”), contributions and other regulatory assessments, emergency calling/Enhanced 911 (“E-911”), access charges for long distance services, and law enforcement access.] Congress or the FCC may expand the scope of Zoom Phone’s regulatory obligations at any time.
In addition, FCC classification of Zoom Phone as a common carrier or telecommunications service could result in additional federal and state regulatory obligations.
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The Democratic members of the FCC have indicated that they are opposed to the petition and now control the agenda of the FCC.
−Removed: If Congress revises or repeals Section 230 or the FCC adopts rules, we may no longer be afforded the same level of protection offered by Section 230.
−Removed: This would increase the risks faced by internet-based businesses, like Zoom, that rely on third-party content.
There is no schedule for action by the FCC on the petition.
+Added: If Congress revises or repeals Section 230 or the FCC adopts rules, we may no longer be afforded the same level of protection offered by Section 230.
+Added: In addition, there are pending cases before the judiciary that may result in changes to the protections afforded to internet platforms, including a lawsuit by former President Trump that, if successful, would greatly limit the scope of Section 230.
+Added: These various efforts to limit the protections provided by Section 230 would increase the risks faced by internet-based businesses, like Zoom, that rely on third-party content.
+Added: Even if claims asserted against us do not result in liability, we may incur substantial costs in investigating and defending such claims.
+Added: If we are found liable for our customers’ or other users’ activities, we could be required to pay fines or penalties, redesign business methods or otherwise expend resources to remedy any damages caused by such actions and to avoid future liability.
State Regulation
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However, states are allowed to assess state USF contributions, E-911 fees, and other surcharges.
−Removed: A number of states require us to contribute to state USF and pay E-911 and other assessments and surcharges, while others are actively considering extending their programs to include the products we offer.
+Added: A number of states require us to contribute to state USF and pay E-911 and other assessments and surcharges, while others are actively considering extending their programs to include the products we offer and the California Public Utilities Commission is now taking the position that it can require VoIP providers like Zoom Phone to obtain authority to operate in that state.
We generally pass USF, E-911 fees, and other surcharges through to our customers where we are permitted to do so, which may result in our products becoming more expensive.
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If we do not comply with any current or future state regulations that apply to our business, we could be subject to substantial fines and penalties, we may have to restructure our product offerings, exit certain markets, or raise the price of our products, any of which could harm our business.
+Added: A federal court judge denied a request for a preliminary injunction against California’s state-specific network neutrality law, and as a result, California began enforcing that law on March 25, 2021.
+Added: Trade associations representing internet service
+Added: providers appealed the district court’s ruling denying the preliminary injunction, and the appeal was denied on January 28, 2022.
+Added: This decision could be appealed to the full court of appeals or the Supreme Court, or the parties could return to the trial court for further proceedings to determine whether a permanent injunction should be granted.
+Added: We cannot predict whether other state initiatives will be enforced, modified, overturned, or vacated.
+Added: Legislation has been adopted in Florida and Texas and has been introduced in at least fifteen additional states that is intended to reduce or eliminate the power of businesses operating on the Internet to moderate user-generated content, implicitly eliminating the federal protections granted under Section 230.
+Added: In response to challenges from industry groups, federal courts have enjoined enforcement of the Florida and Texas laws, but appeals are pending in both cases.
+Added: It is likely that any other such state legislation also would be challenged under the First Amendment to the U.S.
+Added: Constitution and on the ground that it is preempted by Section 230.
+Added: We cannot predict whether any such state legislation will be adopted, enforced, modified, overturned, or vacated.
International Regulation
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third parties may challenge our proprietary right;
−Removed: pending and future patent, trademark, and copyright applications may not be approved;
+Added: pending and future
+Added: patent, trademark, and copyright applications may not be approved;
and we may not be able to prevent infringement without incurring substantial expense.
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For example, in connection with the COVID-19 pandemic, we have experienced an increase in the usage of our unified communications platform, and as a result, the trading price of our Class A common stock has significantly increased, while at the same time, the broader market has experienced significant declines and volatility.
−Removed: There are no assurances that the trading price of our Class A common stock will continue at this level for any period of time.
+Added: There are no assurances that the trading price of our Class A common stock will
+Added: continue at this level for any period of time.
Moreover, the trading price of our Class A common stock could experience a significant decrease once the scope and impact of the COVID-19 pandemic is better understood.
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In addition, in the past, following periods of volatility in the overall market and in the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies.
−Removed: For example, in April and June 2020, we and certain of our officers and directors were sued in putative class action lawsuits and purported shareholder derivative lawsuits alleging violations of the federal securities laws for allegedly making materially false and misleading statements about our data privacy and security measures.
−Removed: We may be the target of additional litigation of this type in the future.
+Added: For example, in April 2020, June 2020, July 2020, and October 2021, we and certain of our officers and directors were sued in putative class action lawsuits and purported shareholder derivative lawsuits alleging violations of the federal securities laws for allegedly making materially false and misleading statements about our data privacy and security measures.
Securities litigation against us could result in substantial costs and divert our management’s time and attention from other business concerns, which could harm our business.
We may be the target of additional litigation of this type in the future as well.
−Removed: Securities litigation against us could result in substantial costs and a diversion of our management’s attention and resources.
The dual class structure of our common stock as contained in our amended and restated certificate of incorporation has the effect of concentrating voting control with those stockholders who held our stock prior to our IPO, including our executive officers, employees, and directors and their affiliates, limiting your ability to influence corporate matters.
Our Class B common stock has 10 votes per share and our Class A common stock has one vote per share.
−Removed: As of March 9, 2021, the holders of our outstanding Class B common stock held 71.3% of the voting power of our outstanding capital stock, with our directors, executive officers and 5% stockholders and their respective affiliates holding 61.6% of such voting power in the aggregate.
−Removed: As of March 9, 2021, our founder, President and Chief Executive Officer, Eric S.
+Added: As of January 31, 2022, the holders of our outstanding Class B common stock held 67.8% of the voting power of our outstanding capital stock, with our directors, executive officers and 5% stockholders and their respective affiliates holding 60.8% of such voting power in the aggregate.
+Added: As of January 31, 2022, our founder, President and Chief Executive Officer, Eric S.
Yuan, together with his affiliates, held approximately 7.6% of our outstanding capital stock but controlled approximately 29.8% of the voting power of our outstanding capital stock.
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Yuan, (ii) the date that is six months following the date that Mr.
−Removed: Yuan is no longer providing services to us or his employment is terminated for cause, (iii) the date specified by the holders of a majority of the then outstanding shares of Class B common stock, voting as a separate class, and (iv) the 15-year anniversary of the closing of our IPO.
+Added: Yuan is no longer providing services to us or his employment is terminated for cause, (iii) the date specified by the holders of a majority of the then
+Added: outstanding shares of Class B common stock, voting as a separate class, and (iv) the 15-year anniversary of the closing of our IPO.
In addition, the holders of Class B common stock collectively will continue to be able to control all matters submitted to our stockholders for approval even if their stock holdings represent less than a majority of the outstanding shares of our common stock.
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Affected indices include the Russell 2000 and the S&P 500, S&P MidCap 400, and S&P SmallCap 600, which together make up the S&P Composite 1500.
−Removed: Under the announced policies, our dual-class capital structure would make us ineligible for inclusion in any of these indices,
−Removed: and as a result, mutual funds, exchange-traded funds, and other investment vehicles that attempt to passively track these indices will not be investing in our stock.
−Removed: These policies are new, and it is as of yet unclear what effect, if any, they will have on the valuations of publicly traded companies excluded from the indices, but it is possible that they may depress these valuations or depress our trading volume compared to those of other similar companies that are included.
+Added: Under the announced policies, our dual-class capital structure would make us ineligible for inclusion in any of these indices, and as a result, mutual funds, exchange-traded funds, and other investment vehicles that attempt to passively track these indices will not be investing in our stock.
+Added: These policies may depress the valuations of publicly-traded companies excluded from the indices or depress our trading volume compared to those of other similar companies that are included.
Future sales and issuances of our capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to decline.
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Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibit a person who owns 15% or more of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
−Removed: Any provision in our certificate of incorporation or our bylaws or Delaware law that has the effect of delaying or deterring a change in control could
−Removed: limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock and could also affect the price that some investors are willing to pay for our Class A common stock.
+Added: Any provision in our certificate of incorporation or our bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock and could also affect the price that some investors are willing to pay for our Class A common stock.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware and the federal district courts of the United States of America as the exclusive forums for certain disputes between us and our stockholders, which could limit our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, or employees.
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We have never declared nor paid cash dividends on our capital stock.
−Removed: We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future.
+Added: We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable
As a result, stockholders must rely on sales of their Class A common stock after price appreciation as the only way to realize any future returns on their investment.
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Furthermore, such increased usage by free Basic account users during this time has required and will continue to require us to expand our network capacity which will increase our operating costs.
+Added: We are subject to risks associated with our strategic investments, including partial or complete loss of invested capital.
+Added: Significant changes in the fair value of our investment portfolio could negatively impact our financial results.
+Added: We have strategic investments in publicly traded and privately held companies.
+Added: The financial success of our investments in any privately held company is typically dependent on a liquidity event, such as a public offering, acquisition or other favorable market event reflecting appreciation to the cost of our initial investment.
+Added: Likewise, the financial success of our investment in any publicly held company is typically dependent upon an exit in favorable market conditions, and to a lesser extent on liquidity events.
+Added: The capital markets for public offerings and acquisitions are dynamic and the likelihood of successful liquidity events for the companies we have invested in could significantly worsen.
+Added: In addition, valuations of privately held companies are inherently complex due to the lack of readily available market data.
+Added: We record all fair value adjustments of our publicly traded and privately held non-marketable securities through the consolidated statement of operations.
+Added: As a result, we may experience additional volatility to our statements of operations due to changes in market prices of our investments in publicly held securities and the valuation and timing of observable price changes or impairments of our investments in privately held securities.
+Added: Our ability to mitigate this volatility in any given period may be impacted by our contractual obligations to hold securities for a set period of time.
+Added: All of our investments are subject to a risk of
+Added: a partial or total loss of investment capital.
+Added: Changes in the fair value or partial or total loss of investment capital of these individual companies could be material to our financial statements and negatively impact our business and financial results.
Our reported results of operations may be adversely affected by changes in accounting principles generally accepted in the United States.
16 unchanged sentences
We are also continuing to improve our internal control over financial reporting.
−Removed: In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have
−Removed: expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.
+Added: In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business.
6 unchanged sentences
Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC.
−Removed: Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our Class A common stock.
+Added: Ineffective disclosure
+Added: controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our Class A common stock.
In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on The Nasdaq Stock Market.
18 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.