What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-07 compared with 2021-03-18 · 177 added, 197 removed, 280 unchanged (57% of the section changed)

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Our mission is to make video communications frictionless and secure.

We provide a video-first unified communications platform that delivers happiness and fundamentally changes how people interact.

We connect people through frictionless and secure video, voice, chat, and content sharing and enable face-to-face video experiences for thousands of people in a single meeting across disparate devices and locations.

Our cloud-native platform delivers reliable, high-quality video that is easy to use, manage, and deploy;

provides an attractive return on investment;

and easily integrates with applications and physical spaces.

We believe that rich and reliable communications lead to interactions that build greater empathy and trust.

We strive to live up to the trust our customers place in us by delivering a communications solution that “just works” while prioritizing their privacy and security.

Our goal is to make Zoom Meetings better than in-person meetings.

Our 21 co-located data centers located worldwide and the public cloud enable us to provide both high-quality and high-definition, real-time video to our customers even in low-bandwidth environments.

Zoom enables users to connect to others, share ideas, make plans, and build toward a future limited only by their imagination.

Our frictionless communications platform started with video as its foundation, and we have set the standard for innovation ever since.

We connect people through our core unified communications offering, which frictionlessly brings together video, phone, chat, and webinars, and enables meaningful experiences across disparate devices and locations.

Our Developer Platform enables customers, developers, and service providers to easily build apps and integrations on top of Zoom’s industry-leading video communications platform, with opportunities for global discovery and distribution.

Our virtual and hybrid event solutions allow users to seamlessly create and manage engaging events.

We believe that face-to-face communications build greater empathy and trust.

We strive to live up to the trust our customers place in us by delivering a communications solution while prioritizing their privacy and security.

Our 24 co-located data centers worldwide and the public cloud enable us to provide both high-quality and high-definition, real-time video to our customers even in low-bandwidth environments.

We generate revenue from the sale of subscriptions to our unified communications platform.

Subscription revenue is driven primarily by the number of paid hosts as well as purchases of additional products, including Zoom Rooms, Zoom Video Webinars, Zoom Phone, and Hardware-as-a-Service (“HaaS”) for rooms and phones.

Subscription revenue is driven primarily by the number of paid hosts as well as purchases of additional products, including Zoom Rooms, Zoom Webinars, Zoom Phone, Zoom Events, and Hardware-as-a-Service (“HaaS”) for rooms and phones.

A host is any user of our unified communications platform who initiates a Zoom Meeting and invites one or more participants to join that meeting.

We refer to hosts who subscribe to a paid Zoom Meeting plan as “paid hosts.” We define a customer as a separate and distinct buying entity, which can be a single paid host or an organization of any size (including a distinct unit of an organization) that has multiple paid hosts.

We refer to hosts who subscribe to a paid Zoom Meeting plan as “paid hosts.” We define a customer as a separate and distinct buying entity, which can be a single paid user or host or an organization of any size (including a distinct unit of an organization) that has multiple paid hosts.

Our Basic offering is free and gives hosts access to Zoom Meetings with core features but with the limitation that meetings with more than two endpoints time-out at 40 minutes.

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We also offer Regional Unlimited and Regional Metered calling plans in three specific markets (United States/Canada, United Kingdom/Ireland, and Australia/New Zealand).

In addition, we introduced the Global Select plan in August 2020, which allows customers to select from local numbers and domestic calling in over 40 countries and territories where Zoom has local PSTN coverage.

In addition, we introduced the Global Select plan in August 2020, which allows customers to select from local numbers and domestic calling in more than 45 countries and territories where Zoom has local public switched telephone network (“PSTN”) coverage.

In addition, the Zoom United plan launched in December 2020 provides a single license for customers to purchase Zoom Phone, Meetings and chat capabilities as a bundled offering.

Our revenue was $2,651.4 million, $622.7 million, and $330.5 million for the fiscal years ended January 31, 2021, 2020, and 2019, respectively, representing period-over-period growth rate of 326% and 88% for fiscal year 2021 and fiscal year 2020,

respectively.

Our revenue was $4,099.9 million, $2,651.4 million, and $622.7 million for the fiscal years ended January 31, 2022, 2021, and 2020, respectively, representing period-over-period growth rate of 55% and 326% for fiscal year 2022 and fiscal year 2021, respectively.

We had 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.

Net cash provided by operating activities was $1,605.3 million, $1,471.2 million, and $151.9 million for the fiscal years ended January 31, 2022, 2021, and 2020, respectively.

Recent Developments

In December 2019, an outbreak of the COVID-19 disease was first identified and began to spread across the globe.

In March 2020, the World Health Organization declared COVID-19 a pandemic, impacting many countries around the world.

Impact of the COVID-19 Pandemic

In March 2020, the World Health Organization declared COVID-19 a pandemic, affecting many countries around the world.

Governments have instituted lockdown or other similar measures to slow infection rates.

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Furthermore, a significant portion of the increase in usage of our platform is attributable to free Basic accounts and our removal of the time limit for school domains, which do not generate any revenue, but still require us to incur these additional operating costs to expand our capacity.

Therefore, the recent increase in usage of our platform has adversely impacted, and may continue to adversely impact, our gross margin.

In addition, there is no assurance that we will experience an increase in paid hosts or that new or existing users will continue to utilize our service after the COVID-19 pandemic has tapered.

Moreover, the tapering of the COVID-19 pandemic, particularly as vaccinations become widely available, may result in a decline in paid hosts and users once individuals are no longer working or attending school from home.

Therefore, the recent increase in usage of our platform has adversely affected, and may continue to adversely affect, our gross margin.

In addition, there is no assurance that we will experience an increase in paid hosts or that new or existing users will continue to utilize our service after the COVID-19 pandemic has tapered globally.

Moreover, the tapering of the COVID-19 pandemic, particularly as vaccines become widely available and distributed, may result in a decline in paid hosts and users once individuals are no longer working or attending school from home.

Key Factors Affecting Our Performance

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Many customers have increased the size of their subscriptions as they have expanded their use of our platform across their operations.

Some of our larger enterprise customers start with a deployment of Zoom Meetings with one team, location, or geography, before rolling out our platform throughout their organization.

Some of our larger customers start with a deployment of Zoom Meetings with one team, location, or geography, before rolling out our platform throughout their organization.

Several of our largest customers have deployed our platform globally to their entire workforce following smaller initial deployments.

This expansion in the use of our platform also provides us with opportunities to market and sell additional products to our customers, such as Zoom Phone, Zoom HaaS, Zoom for Home, Zoom Rooms at each office location, and Zoom Video Webinars.

In order for us to address this opportunity to expand the use of our products with our existing customers, we will need to maintain the reliability of our platform and produce new features and functionality that are responsive to our customers’ requirements for enterprise-grade solutions.

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We calculate ARR by taking the monthly recurring revenue (“MRR”) and multiplying it by 12.

MRR is defined as the recurring revenue run-rate of subscription agreements from all customers for the last month of the period, including revenue from monthly subscribers

who have not provided any indication that they intend to cancel their subscriptions.

MRR is defined as the recurring revenue run-rate of subscription agreements from all customers for the last month of the period, including revenue from monthly subscribers who have not provided any indication that they intend to cancel their subscriptions.

We then calculate the ARR from these customers as of the current period end (“Current Period ARR”), which includes any upsells, contraction, and attrition.

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Our net dollar expansion rate may fluctuate as a result of a number of factors, including the level of penetration within our customer base, expansion of products and features, and our ability to retain our customers.

Our trailing 12-month net dollar expansion rate in customers with more than 10 employees was greater than 130% as of January 31, 2021, 2020, and 2019.

Our trailing 12-month net dollar expansion rate for customers with more

than 10 employees was 129% as of January 31, 2022 and greater than 130% as of January 31, 2021 and 2020.

The trailing 12-month net dollar expansion rate for customers with more than 10 employees was under 130% as of January 31, 2022 as the denominator of this trailing 12-month metric reflects the significant growth in our customer base during the last two years.

As our business has changed and evolved, we have expansively built out our direct sales team, resellers, and strategic partners.

We expect that revenue from customers engaged through these channels, which we call Enterprise customers, will constitute an increasingly higher percentage of our revenue over time, and therefore we believe our performance with Enterprise customers is a more important factor affecting our business than our performance with existing customers with more than 10 employees.

Beginning with the first quarter of fiscal year 2023, we will no longer present the trailing 12-month net dollar expansion rate for customers with more than 10 employees.

However, we will still provide this metric through the end of fiscal year 2023 in the appendix to the investor deck that we will continue to post on our investor relations website each quarter at investors.zoom.us.

Going forward, we will instead provide the trailing 12-month net dollar expansion rate for Enterprise customers.

Expansion of Zoom Across Existing Enterprise Customers

Our net dollar expansion rate for Enterprise customers is calculated the same way as discussed above by applying the ARR specifically from Enterprise customers.

We define Enterprise customers as distinct business units who have been engaged by either our direct sales team, resellers, or strategic partners.

We assess our performance with Enterprise customers by measuring our net dollar expansion rate.

Our net dollar expansion rate for Enterprise customers measures our ability to increase revenue across our existing Enterprise customer base through expansion of users and products.

Our trailing 12-month net dollar expansion rate for Enterprise customers was 130% as of January 31, 2022, and greater than 130% as of January 31, 2021 and 2020, respectively.

Innovation and Expansion of Our Platform

We continue to invest resources to enhance the capabilities of our platform.

For example, we have recently introduced a number of product enhancements, including new features for Zoom Phone, Zoom Meetings, and Zoom Video Webinars.

For example, we have recently introduced a number of product enhancements, including new features for Zoom Phone, Zoom Meetings, and Zoom Webinars.

We addressed new work-from-home realities with the introduction of Zoom for Home, a solution designed for the home office that combines Zoom software enhancements with compatible hardware.

We also expanded our geographic footprint with Zoom Phone availability in 26 new countries and territories during fiscal year 2021, bringing the total to 44.

We also expanded our geographic footprint with Zoom Phone availability to more than 45 countries and territories during fiscal year 2022.

Third-party developers are also a key component of our strategy for platform innovation to make it easier for customers and developers to extend our product portfolio with new functionalities.

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We will need to expend additional resources to continue introducing new products, features, and functionality, and supporting the efforts of third parties to enhance the value of our platform with their own applications.

An End-to-end encryption (“E2EE”) option is now available to free and paid Zoom customers globally who host meetings with up to 200 participants.

Zoom’s E2EE uses the same AES-256-GCM encryption that secures Zoom meetings by default, but with Zoom’s new E2EE, the meeting host generates encryption keys and uses public key cryptography to distribute these keys to the other meeting participants.

We recently announced two additions to the Zoom platform:

OnZoom and Zoom Apps.

OnZoom is an online event platform for Zoom users to create and host free, paid, and fundraising events.

OnZoom is currently offered as a public beta for U.S.

users to attend online events.

Zoom Apps are a new app type coming soon to the Zoom App Marketplace.

These in-product integrations will be accessible directly from Zoom Meetings and the Zoom Desktop client and are designed to facilitate collaboration and engagement during meetings.

An end-to-end encryption (“E2EE”) option is available to free and paid Zoom customers globally who host meetings with up to 200 participants.

Zoom’s E2EE uses the same AES-256-GCM encryption that secures Zoom meetings by default, but with Zoom’s E2EE, the meeting host generates encryption keys and uses public key cryptography to distribute these keys to the other meeting participants.

In July 2021, we introduced Zoom Events.

Zoom Events provides businesses with a virtual event management solution and enables users to manage and host all types of internal and external virtual events.

This includes the ability to create a “hub” where all of a business’ events can be listed with corresponding information about each experience.

It also enables event hosts to provide ticketing and registration for attendees, and the ability to track these activities.

International Expansion

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Key Business Metrics

We review the following key business metrics to measure our performance, identify trends, formulate financial projections, and make strategic decisions.

We have historically reviewed the following key business metrics to measure our performance, identify trends, formulate financial projections, and make strategic decisions.

Customers with More Than 10 Employees

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When disclosing the number of customers, we round down to the nearest hundred.

Since the start of the COVID-19 pandemic early this fiscal year, our customer cohort with 10 or fewer employees expanded as business owners and individual users adopted Zoom for many personal, professional, and social events.

As a result, we have experienced a shift in the makeup of customer cohorts, with 36% of revenue attributable to customers with 10 or fewer employees during the fiscal year ended January 31, 2021, compared to 18% for the prior fiscal year.

As we approach our three-year anniversary as a public company, our business has evolved substantially and the metrics that management uses to evaluate the business have changed.

Beginning with the first quarter of fiscal year 2023, we will no longer present the number of customers with more than 10 employees.

Customers Contributing More Than $100,000 of Trailing 12 Months Revenue

We focus on growing the number of customers that contribute more than $100,000 of trailing 12 months revenue as a measure of our ability to scale with our customers and attract larger organizations to Zoom.

We focus on growing the number of customers that contribute more than $100,000 of trailing 12 months revenue as it is a measure of our ability to scale with our customers and attract larger organizations to Zoom.

Revenue from these customers represented 22%, 20%, and 33% of total revenue for the fiscal years ended January 31, 2022, 2021, and 2020, respectively.

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These customers are a subset of the customers with more than 10 employees.

Non-GAAP Financial Measure

In addition to our results determined in accordance with GAAP, we believe that free cash flow (“FCF”), a non-GAAP financial measure, is useful in evaluating our liquidity.

Free Cash Flow

Number of Enterprise Customers

We believe that our ability to increase the number of Enterprise customers is an indicator of our potential future business opportunities, the growth of our business, and an indicator of our market penetration.

Increasing awareness of our platform and capabilities, coupled with the mainstream adoption of our technology, has expanded the diversity of our customer base to include organizations of all sizes across all industries.

Over time, we expect Enterprise customers to represent a larger share of our business.

As of January 31, 2022, 2021, and 2020, we had approximately 191,000, 141,100, and 54,600 Enterprise customers.

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe that free cash flow (“FCF”) and adjusted free cash flow (“Adjusted FCF”), non-GAAP financial measures, are useful in evaluating our liquidity.

Free Cash Flow and Adjusted Free Cash Flow

We define FCF as GAAP net cash provided by operating activities less purchases of property and equipment.

We believe that FCF is a useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our operations that, after investments in property and equipment, can be used for future growth.

FCF is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as net cash provided by operating activities.

It is important to note that other companies, including companies in our industry, may not use this metric, may calculate this metric differently, or may use other financial measures to evaluate their liquidity, all of which could reduce the usefulness of this non-GAAP metric as a comparative measure.

The following table presents a summary of our cash flows for the fiscal years presented and a reconciliation of FCF to net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP:

We define Adjusted FCF as FCF plus litigation settlement payments, net.

We add back litigation settlement payments, net because they are not part of our ongoing operating activities, and the consideration of measures that exclude such payments can assist in the comparison of cash generated from operations in different periods which may or may not include such payments and assist in the comparison with the results of other companies in the industry.

We believe that FCF and Adjusted FCF are useful indicators of liquidity that provides information to management and investors about the amount of cash generated from our operations that, after investments in property and equipment, can be used for future growth.

FCF and Adjusted FCF are presented for supplemental informational purposes only, have limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as net cash provided by operating activities.

It is important to note that other companies, including companies in our industry, may not use these metrics, may calculate these metrics differently, or may use other financial measures to evaluate their liquidity, all of which could reduce the usefulness of these non-GAAP metrics as a comparative measure.

The following table presents a summary of our cash flows for the fiscal years presented and a reconciliation of FCF and Adjusted FCF to net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP:

Year Ended January 31,

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Free cash flow (non-GAAP) $ 1,472,676 $ 1,391,205 $ 113,808

Litigation settlement payments, net 85,000 — —

Adjusted free cash flow (non-GAAP) $ 1,557,676 $ 1,391,205 $ 113,808

Net cash used in investing activities $ (2,859,097) $ (1,562,420) $ (499,468)

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These costs are related to our co-located data centers, third-party cloud hosting, integrated third-party PSTN services, personnel-related expenses, amortization of capitalized software development and acquired intangible assets, royalty payments, and allocated overhead.

We expect our cost of revenue to increase in absolute dollars during the upcoming fiscal year, as we expand our data center capacity due to increased usage stemming from the COVID-19 pandemic.

We expect our cost of revenue to increase in absolute dollars for the foreseeable future, as we expand our data center capacity due to increased usage over time.

However, the cost of revenue as a percentage of revenue may decrease over time as we scale our data centers to accommodate usage from our increased customer base and as the ratio of free to paid users varies.

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We plan to increase our investment in research and development for the foreseeable future, primarily by increasing research and development headcount, as we focus on further developing our platform, enhancing its use cases, and strengthening security and privacy.

As a result, we expect our research and development expenses to increase both in absolute dollars and as a percentage of total revenue, during the upcoming fiscal year.

As a result, we expect our research and development expenses to increase in absolute dollars during the upcoming fiscal year.

We expect, however, that our research and development expenses as a percentage of revenue will remain relatively flat during the upcoming fiscal year.

Sales and Marketing

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Other sales and marketing expenses include advertising and promotional events to promote our brand, such as awareness programs, digital programs, public relations, tradeshows, and our user conference, Zoomtopia, and allocated overhead.

Sales and marketing expenses also include amortization of deferred contract acquisition costs and credit card processing fees related to sales.

Sales and marketing expenses also include credit card processing fees related to sales and amortization of deferred contract acquisition costs.

We plan to increase our investment in sales and marketing over the foreseeable future, primarily by increasing the headcount of our direct sales force and marketing investments in demand generation.

As a result, we expect our sales and marketing expenses to increase both in absolute dollars and as a percentage of total revenue, during the upcoming fiscal year.

As a result, we expect our sales and marketing expenses to increase in absolute dollars during the upcoming fiscal year.

We expect, however, that our sales and marketing expenses as a percentage of revenue will remain relatively flat during the upcoming fiscal year.

General and Administrative

General and administrative expenses primarily consist of personnel-related expenses associated with our finance, legal, and human resources organizations;

General and administrative expenses primarily consist of personnel-related expenses associated with our finance and legal organizations;

professional fees for external legal, accounting, and other consulting services;

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indirect taxes;

and allocated overhead.

litigation settlements, and allocated overhead.

We expect to increase the size of our general and administrative function to support the growth and complexity of our business.

As a result, we expect our general and administrative expenses to increase in absolute dollars, but to remain relatively constant as a percentage of total revenue, during the upcoming fiscal year.

Interest Income and Other, Net

Interest income and other, net consists primarily of interest income and net accretion earned on our marketable securities, effect of changes in foreign currency exchange rates, and remeasurement gains or losses on our equity investment.

Provision for Income Taxes

Provision for income taxes consists primarily of income taxes related to federal, state, and foreign jurisdictions where we conduct business.

As a result, we expect our general and

administrative expenses to increase in absolute dollars during the upcoming fiscal year.

We expect, however, that our general and administrative expenses as a percentage of revenue will remain relatively flat during the upcoming fiscal year.

Gains on Strategic Investments, Net

Gains on strategic investments, net consist primarily of remeasurement gains or losses on our equity investments.

Other (Expense) Income, Net

Other (expense) income, net consists primarily of interest income and net accretion on our marketable securities and effect of changes in foreign currency exchange rates.

(Benefit from) provision for Income Taxes

(Benefit from) provision for income taxes consists primarily of income taxes related to federal, state, and foreign jurisdictions where we conduct business.

Results of Operations

The following tables set forth selected consolidated statements of operations data and such data as a percentage of total revenue for each of the fiscal years indicated:

The following tables set forth selected consolidated statements of operations data and such data as a percentage of revenue for each of the fiscal years indicated:

Year Ended January 31,

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Income from operations 1,063,591 659,848 12,696

Interest income and other, net 18,186 13,666 2,182

Income before provision for income taxes 678,034 26,362 8,349

Provision for income taxes 5,718 1,057 765

Gains on strategic investments, net 43,761 2,538 —

Other (expense) income, net (5,720) 15,648 13,666

Income before (benefit from) provision for income taxes 1,101,632 678,034 26,362

(Benefit from) provision for income taxes (274,007) 5,718 1,057

Net income $ 1,375,639 $ 672,316 $ 25,305

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Income from operations 27 25 2

Interest income and other, net 1 2 1

Income before provision for income taxes 26 4 3

Provision for income taxes 1 0 1

Gains on strategic investments, net 1 — —

Other (expense) income, net 0 1 2

Income before (benefit from) provision for income taxes 28 26 4

(Benefit from) provision for income taxes (6) 1 0

Net income 34 % 25 % 4 %

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Revenue for the fiscal year ended January 31, 2022 increased by $1,448.5 million, or 55%, compared to the fiscal year ended January 31, 2021.

D ue to the COVID-19 pandemic, t here was an increase in usage of our services, as many organizations around the world started utilizing our platform to continue their operations remotely.

As a result, the increase in revenue was primarily due to subscription services provided to new customers, which accounted for approximately 73% of the increase, and to subscription services provided to existing customers, which accounted for approximately 27% of the increase.

D ue to the COVID-19 pandemic, t here was an expansion in usage of our services, and many organizations around the world continued utilizing our platform to support their operations remotely.

As a result, the increase in revenue was primarily due to subscription services provided to existing customers, which accounted for approximately 70% of the increase, and to subscription services provided to new customers, which accounted for approximately 30% of the increase.

Cost of Revenue

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In response to the COVID-19 pandemic, we have temporarily removed the 40-minute time limit for meetings with more than two endpoints from our free Basic accounts for more than 125,000 K-12 school domains worldwide .

We also experienced a significant increase in usage from paid users as more companies started utilizing our platform to allow their employees to work remotely.

This increase in usage resulted in an increase of $619.2 million in costs related to third-party cloud hosting, integrated third-party PSTN services, and our co-located data centers to support the increase in customers and expanded use of our unified communications platform by existing customers.

We also experienced a significant increase in usage from paid users as more companies utilized our platform to allow their employees to work remotely.

This increase in usage resulted in an increase of $83.5 million in costs related to third-party cloud hosting, our co-located data centers, and integrated third-party PSTN services to support the increase in customers and expanded use of our unified communications platform by existing customers.

The remaining increase was primarily due to an increase of $99.0 million in personnel-related expenses mainly driven by additional headcount, which includes a $34.7 million increase in stock-based compensation expense;

an increase of $18.4 million in professional services mainly for customer support, and an increase of $5.8 million related to subscription to software-based services.

Gross margin decreased to 69% for the fiscal year ended January 31, 2021 from 81% for the fiscal year ended January 31, 2020.

The decrease in gross margin was due to higher incremental cost from leveraging third-party cloud hosting providers to meet the significant increase in usage as well as the higher percentage of usage from free users.

an increase of $26.6 million related to subscription to software-based services;

an increase of $9.3 million in allocated overhead expenses;

and an increase of $8.6 million in professional services mainly for customer support.

Gross margin increased to 74% for the fiscal year ended January 31, 2022 from 69% for the fiscal year ended January 31, 2021.

The increase in gross margin was mainly due to increased efficiencies as we expanded our data center capacity to accommodate the increased usage as well as lower rates from third-party cloud hosting providers.

Operating Expenses

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The increase was primarily due to higher personnel-related expenses of $182.1 million mainly driven by additional headcount, which includes a $62.8 million increase in stock-based compensation expense.

The remainder of the increase was primarily attributable to an increase of $12.1 million in professional services mainly related to security, and an increase of $3.4 million related to subscription to software-based services.

The remainder of the increase was primarily attributable to an increase of $11.6 million in allocated overhead expenses, and an increase of $6.8 million related to subscription to software-based services.

Sales and Marketing

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and an increase of $73.0 million in amortization of deferred contract acquisition costs driven by our increase in revenue.

The remaining increase was primarily due to an increase of $68.4 million in credit card processing fees as a result of increased online payments, an increase of $16.0 million in professional services primarily to support the increase in sales, and an increase of $6.2 million related to subscription to software-based services, partially offset by a decrease of $14.6 million in marketing and sales event-related costs mainly due to a decrease in digital and awareness programs and trade shows.

The remaining increase was primarily due to an increase of $104.4 million in marketing and sales event-related costs mainly due to an increase in digital advertising programs, an increase of $19.1 million in credit card processing fees as a result of increased online payments, an increase of $17.1 million in allocated overhead expenses, and an increase of $8.4 million related to subscription to software-based services.

General and Administrative

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The increase in general and administrative expense was primarily due to an increase of $72.2 million in personnel-related expenses mainly driven by additional headcount, which includes a $21.1 million increase in stock-based compensation expense;

and an increase of $66.9 million related to professional services composed primarily of legal and other consulting fees.

The remaining increase was primarily due to an increase of $30.2 million related to a contingent liability for sales and other indirect taxes, an increase of $25.7 million due to charitable donations related mainly to shares transferred to a donor advised fund, an increase of $13.4 million related to subscription to software-based services, an increase of $10.2 million related to insurance expenses and $9.8 million for a one-time payment to MPEG LA, LLC (“MPEGLA”).

Interest Income and Other, Net

an increase of $66.9 million in litigation settlement expense, net of amounts estimated to be covered by insurance;

an increase of $44.1 million related to professional services composed primarily of legal and other consulting fees;

and an increase of $28.8 million related to subscription to software-based services.

This is partially offset by a decrease of $31.8 million related to a contingent liability for sales and other indirect taxes, and a decrease of $23.3 million due to charitable donations related mainly to shares transferred to a donor advised fund in the fiscal year ended January 31, 2021.

Gains on Strategic Investments, Net

Year Ended January 31,

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(in thousands, except percentages)

Interest income and other, net $ 18,186 $ 13,666 $ 4,520 33 %

Interest income and other, net for the fiscal year ended January 31, 2021 increased by $4.5 million, or 33%, compared to the fiscal year ended January 31, 2020.

The increase was primarily attributable to a gain of $3.5 million related to changes in foreign currency exchange rates and a gain of $2.5 million related to the remeasurement of our equity investment.

Provision for Income Taxes

Gains on strategic investments, net $ 43,761 $ 2,538 $ 41,223 1,624 %

Gains on strategic investments, net recognized during the fiscal year ended January 31, 2022 was driven by $49.9 million unrealized gains recognized on our privately held equity securities, partially offset by $6.2 million unrealized losses recognized on our publicly traded equity securities.

Other (Expense) Income, Net

Year Ended January 31,

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(in thousands, except percentages)

Provision for income taxes $ 5,718 $ 1,057 $ 4,661 441 %

Provision for income taxes for the fiscal year ended January 31, 2021 increased by $4.7 million, or 441%, compared to the fiscal year ended January 31, 2020.

The change in provision for income taxes was primarily due to expansion in international operations.

Other (expense) income, net $ (5,720) $ 15,648 $ (21,368) (137) %

Other (expense) income, net for the fiscal year ended January 31, 2022 decreased by $21.4 million, or 137%, compared to the fiscal year ended January 31, 2021.

The decrease was primarily attributable to a decrease of $19.2 million related to changes in foreign currency exchange rates.

(Benefit from) Provision for Income Taxes

Year Ended January 31,

2022 2021 $ Change % Change

(in thousands, except percentages)

(Benefit from) provision for income taxes $ (274,007) $ 5,718 $ (279,725) (4,892) %

Benefit from income taxes for the fiscal year ended January 31, 2022 was $274.0 million, compared to a provision for income taxes of $5.7 million the fiscal year ended January 31, 2021.

The change in income taxes was primarily due to the valuation allowance release on the U.S.

federal and state deferred tax assets.

See Note 10 “Income Taxes” to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for more details on the valuation allowance release.

For a discussion of the fiscal year ended January 31, 2021 compared to the fiscal year ended January 31, 2020, please refer to Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021.

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Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic, including timing of cash collections from our customers and other risks detailed in the section titled “Risk Factors.” However, based on our current business plan and revenue prospects, we believe our existing cash, cash equivalents, and marketable securities, together with net cash provided by operations, will be sufficient to meet our needs for at least the next 12 months and allow us to capitalize on growth opportunities.

We believe we will meet longer-term expected future cash requirements and obligations through a combination of cash flows from operating activities and available cash balances.

Our future capital requirements will depend on many factors, including our revenue growth rate, subscription renewal activity, billing frequency, the timing and extent of spending to support further sales and marketing and research and development efforts, as well as expenses associated with our international expansion, and the timing and extent of additional capital expenditures to invest in existing and new office spaces as well as data center infrastructure.

We may, in the future, enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights.

We may be required to seek additional equity or debt financing.

We may choose or be required to seek additional equity or debt financing.

In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.

If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be materially and adversely affected.

Our material cash requirements from known contractual and other obligations primarily relate to our leases for office space and equipment, as well as non-cancelable purchase obligations.

Expected timing of those payments are as follows:

Payments Due by Period

Total Less Than

Years More Than

(in thousands)

Operating lease obligations $ 117,763 $ 24,490 $ 47,787 $ 30,171 $ 15,315

Non-cancelable purchase obligations 386,594 227,182 159,412 — —

Total contractual obligations $ 504,357 $ 251,672 $ 207,199 $ 30,171 $ 15,315

The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding.

Obligations under contracts that we can cancel without a significant penalty are not included in the table above.

See the “Future minimum lease payments” table in Note 7 and “Non-cancelable Purchase Obligations” in Note 8 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for more details.

The following table summarizes our cash flows for the periods presented:

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Net cash provided by operating activities was $1,605.3 million for the fiscal year ended January 31, 2022, compared to $1,471.2 million for the fiscal year ended January 31, 2021.

The increase in operating cash flow was due to an increase in net income of $647.0 million, the positive impact from changes in operating assets and liabilities of $332.1 million, and an increase in non-cash adjustments of $340.2 million, which is primarily a result of higher stock-based compensation expense, higher deferred contract acquisition cost amortization due to an increase in capitalized commissions as we continue to grow and expand our customer base, higher provision for accounts receivable allowances due to higher accounts receivable balances, and expenses related to a charitable donation of common stock in the current fiscal year.

The increase in operating cash flow was due to an increase in net income of $703.3 million, offset by the negative impact from changes in operating assets and liabilities of $506.3 million, and a decrease in non-cash adjustments of $62.9 million, which is primarily a result of the income tax benefit from release of valuation allowance and higher gains from strategic investments, offset by higher stock-based compensation expense, higher deferred contract acquisition cost amortization due to an increase in capitalized commissions as we continue to grow and expand our customer base, and higher provision for accounts receivable allowances due to higher accounts receivable balances.

Investing Activities

Net cash used in investing activities of $1,562.4 million for the fiscal year ended January 31, 2021 was primarily due to net purchases of marketable securities of $1,438.8 million, purchases of property and equipment of $80.0 million, cash paid for acquisition, net of cash acquired, of $26.5 million, purchase of an equity investment of $8.0 million, purchases of intangible assets of $5.8 million, and purchase of a convertible note of $5.0 million.

Net cash used in investing activities of $499.5 million for the fiscal year ended January 31, 2020 was primarily due to net purchases of marketable securities of $456.7 million and purchases of property and equipment of $38.1 million.

Net cash used in investing activities of $2,859.1 million for the fiscal year ended January 31, 2022 was primarily due to net purchases of marketable securities of $2,404.8 million, purchases of strategic investments of $305.1 million, purchases of property and equipment of $132.6 million, purchases of intangible assets of $13.0 million, and cash paid for acquisition, net of cash acquired, of $3.5 million.

Net cash used in investing activities of $1,562.4 million for the fiscal year ended January 31, 2021 was primarily due to net purchases of marketable securities of $1,438.8 million, purchases of property and equipment of $80.0 million, cash paid for acquisition, net of cash acquired, of $26.5 million, purchases of strategic investments of $13.0 million, and purchases of intangible assets of $5.8 million.

Financing Activities

million, proceeds from issuance of common stock pursuant to our employee stock purchase plan (“ESPP”) of $38.4 million, proceeds from the exercise of stock options of $28.6 million, and proceeds from international employee stock sales to be remitted to employees and tax authorities of $4.1 million.

Net cash provided by financing activities of $615.7 million for the fiscal year ended January 31, 2020 was due to proceeds from the issuance of Class A common stock in connection with the IPO and private placement, net of underwriting discounts and commissions and other offering costs, of $542.5 million, proceeds from international employee stock sales to be remitted to employees and tax authorities of $48.5 million, proceeds from issuance of common stock pursuant to our ESPP of $15.5 million, and proceeds from the exercise of stock options, net of repurchases, of $9.2 million.

Net cash provided by financing activities of $34.1 million for the fiscal year ended January 31, 2022 was due to proceeds from issuance of common stock pursuant to our employee stock purchase plan (“ESPP”) of $59.3 million and proceeds from the exercise of stock options of $14.4 million, offset by proceeds from international employee stock sales remitted to employees and tax authorities of $40.0 million.

Net cash provided by financing activities of $2,050.3 million for the fiscal year ended January 31, 2021 was due to proceeds from our follow-on offering, net of underwriting discounts and commissions and other offering costs, of $1,979.2 million , proceeds from issuance of common stock pursuant to our ESPP of $38.4 million, proceeds from the exercise of stock options of $28.6 million, and proceeds from international employee stock sales to be remitted to employees and tax authorities of $4.1 million.

For a discussion of the fiscal year ended January 31, 2020 , please refer to Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021.

Commitments and Contractual Obligations

The following table summarizes our non-cancelable contractual obligations as of January 31, 2021:

Payments Due by Period

Total Less Than

Years More Than

(in thousands)

Operating lease obligations $ 121,980 $ 19,949 $ 41,623 $ 35,600 $ 24,808

Non-cancelable purchase obligations 498,626 219,217 271,721 7,688 —

Total contractual obligations $ 620,606 $ 239,166 $ 313,344 $ 43,288 $ 24,808

The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding.

Obligations under contracts that we can cancel without a significant penalty are not included in the table above.

Stock Repurchase Program

In February 2022, our board of directors authorized a stock repurchase program of up to $1.0 billion of our Class A common, which expires in February 2024.

Repurchases of our Class A common stock may be effected from time to time, either on the open market (including pre-set trading plans), in privately negotiated transactions, and other transactions in accordance with applicable securities laws.

The timing and the amount of any repurchased Class A common stock will be determined by our management based on its evaluation of market conditions and other factors, and the repurchase program will be funded using our working capital.

T he program may be modified, suspended or discontinued at any time.

As of March 6, 2022, $997.1 million of the repurchase authorization remained available.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC under the Securities Act.

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are those accounting policies and estimates that are both the most important to the portrayal of our net assets and results of operations and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Critical Accounting Estimates

Critical accounting estimates are those accounting estimates that require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

These estimates are developed based on historical experience and various other assumptions that we believe to be reasonable under the circumstances.

Critical accounting estimates are accounting estimates where the nature of the estimates are material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and the impact of the estimates on financial condition or operating performance is material.

The critical accounting policies, estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements are described below.

We believe that of our significant accounting policies, which are described in Note 1 “Summary of Business and Significant Accounting Policies” to our consolidated financial statements, the following critical estimates involve a greater degree of judgment and complexity.

Revenue Recognition

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The amount of revenue recognized reflects the consideration that we expect to receive in exchange for these services.

We determine revenue recognition through the following steps:

Identification of the contract, or contracts, with the customer

We determine a contract with a customer to exist when the contract is approved, each party’s rights regarding the services to be transferred can be identified, the payment terms for the services can be identified, the customer has the ability and intent to pay, and the contract has commercial substance.

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

We apply judgment in determining the customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience or, in the case of a new customer, credit and financial information pertaining to the customer.

Identification of the performance obligations in the contract

Performance obligations committed in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the services or products is separately identifiable from other promises in the contract.

Promised services or products under which both of these two criteria are not met are recognized as a combined, single performance obligation.

Our performance obligations primarily relate to access to our unified communications platform, which consists of one or more software-based services.

Our customers do not have the ability to take possession of our software, and through access to our platform, we provide a series of distinct software-based services that are satisfied over the term of the subscription.

Determination of the transaction price

We apply judgment during the identification of a contract to determine the customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s historical payment experience or, in the case of a new customer, credit and financial information pertaining to the customer.

The transaction price is determined based on the consideration to which we expect to be entitled in exchange for transferring services to the customer.

Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue recognized under the contract will not occur.

None of our contracts contain a significant financing component.

Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental entities (e.g., sales and other indirect taxes).

Our unified communications platform and related services are typically warranted to perform in a professional manner that will comply with the terms of the subscription agreements.

In addition, we include service-level commitments to our customers warranting certain levels of uptime reliability and performance and permitting those customers to receive credits in the event that we fail to meet those service levels.

These credits represent a form of variable consideration.

We have not provided any material refunds related to these agreements in the consolidated financial statements during the periods presented.

Allocation of the transaction price to the performance obligations in the contract

Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on each performance obligation’s relative standalone selling price.

Our contracts with multiple performance obligations are generally sold over the same subscription term and have the same pattern of transfer to the customer, and so they are accounted for as one combined performance obligation in the context of the contract.

Accordingly, the transaction price is allocated to this single performance obligation.

Recognition of the revenue when, or as, a performance obligation is satisfied

Revenue is recognized at the time the related performance obligation is satisfied by transferring the control of the promised service to a customer.

Revenue is recognized in an amount that reflects the consideration that we expect to receive in exchange for those services.

Fees for access to our unified communications platform and related services are subscription revenue and are considered one performance obligation, and the related revenue is recognized ratably over the subscription period as we satisfy the performance obligation.

Contract Balances

We receive payments from customers based on a billing schedule as established in our customer contracts.

Accounts receivable are recorded when we contractually have the right to consideration.

In some arrangements, a right to consideration for our performance under the contract may occur before invoicing to the customer resulting in an unbilled accounts receivable.

Contract liabilities consist of deferred revenue.

Revenue is deferred when we have the right to invoice in advance of performance under a customer contract.

The current portion of deferred revenue balances are recognized during the following 12-month period.

Cost to Obtain a Contract

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Sales commissions paid upon the initial acquisition of a customer contract are amortized over an estimated period of benefit of three years, which is typically greater than the contractual terms of the customer contracts.

Significant judgment is required in arriving at this estimated period of benefit.

We determine the period of benefit for commissions paid for the acquisition of the initial customer contract by taking into consideration the initial estimated customer life and the technological life of our unified communications platform and related significant features.

We do not pay sales commissions upon contract renewal.

Amortization is recognized on a straight-line basis commensurate with the pattern of revenue recognition.

Amortization of deferred contract acquisition costs is included in sales and marketing expense in the consolidated statements of operations.

Allowance for Credit Losses

We maintain an allowance for credit losses for expected uncollectible accounts receivable, which is recorded as an offset to accounts receivable, and changes in such are classified as general and administrative expense in the consolidated statements of operations.

The allowance for credit losses is based on management’s estimate for expected credit losses for outstanding accounts receivable.

We determine expected credit losses based on historical write-off experience, an analysis of the aging of outstanding receivables, customer payment patterns, the establishment of specific reserves for customers in an adverse financial condition, and adjust based upon our expectations of changes in macroeconomic conditions that may impact the collectibility of outstanding receivables, including noncurrent accounts receivable.

We also consider current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data.

We also consider current market conditions and reasonable

and supportable forecasts of future economic conditions to inform adjustments to historical loss data.

We reassess the adequacy of the allowance for credit losses each reporting period.

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We have not recorded any impairment charges during the fiscal years presented.

Stock-Based Compensation

Stock-based compensation expense related to stock awards is recognized based on the fair value of the awards granted.

The fair value of each option award is estimated on the grant date using the Black-Scholes option pricing model.

The Black-Scholes option pricing model requires the input of highly subjective assumptions, including the fair value of the underlying common stock, the expected term of the option, the expected volatility of the price of our common stock, risk-free interest rates, and the expected dividend yield of our common stock.

The assumptions used to determine the fair value of the option awards

represent management’s best estimates.

These estimates involve inherent uncertainties and the application of management’s judgment.

The related stock-based compensation expense is recognized on a straight-line basis over the requisite service period of the awards, which is generally four years.

We account for forfeitures as they occur instead of estimating the number of awards expected to be forfeited.

As noted above, our use of the Black-Scholes option-pricing model requires the input of highly subjective assumptions.

If factors change and different assumptions are used, our stock-based compensation expense could be materially different for the current period and in the future.

These assumptions and estimates used in the Black-Scholes option-pricing model are as follows:

• Fair Value of Common Stock.

Prior to our IPO, the fair value was determined by our board of directors, with input from management and valuation reports prepared by third-party valuation specialists.

Stock-based compensation for financial reporting purposes is measured based on updated estimates of fair value when appropriate, such as when additional relevant information related to the estimate becomes available in a valuation report issued as of a subsequent date.

After our IPO, the fair value of common stock for each grant date was determined based on the closing price of our Class A common stock as reported on the date of the respective grant.

• Risk-Free Interest Rate.

The risk-free interest rate for the expected term of the options was based on the U.S.

Treasury yield curve in effect at the time of the grant.

• Expected Term.

The expected term of options represents the period of time that options are expected to be outstanding.

Our historical stock option exercise experience does not provide a reasonable basis upon which to estimate an expected term due to a lack of sufficient data.

For stock options granted to employees, we estimate the expected term by using the simplified method.

The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options.

For stock options granted to non-employees, the expected term equals the contractual term of the option.

• Expected Volatility.

As we have a limited trading history for our common stock, the expected volatility was estimated by taking the average historic price volatility for industry peers, consisting of several public companies in our industry, which are either similar in size, stage of life cycle, or financial leverage, over a period equivalent to the expected term of the awards.

• Expected Dividend Yield.

We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.

As a result, an expected dividend yield of zero percent was used.

Common Stock Valuations

In valuing our common stock prior to our IPO, the fair value of our business, or enterprise value, was determined using either the market approach or a combination of the market and income approaches.

The market approach estimates value based on a comparison of the subject company to comparable public companies in a similar line of business and secondary transactions of our capital stock.

From the comparable companies, a representative market value multiple is determined and then applied to the subject company’s financial results to estimate the value of the subject company.

The market approach also includes consideration of the transaction price of secondary sales of our capital stock by investors.

The income approach estimates the fair value of a company based on the present value of our future estimated cash flows and our residual value beyond the forecast period.

These future cash flows, including the cash flows beyond the forecast period for the residual value, are discounted to their present values using an appropriate discount rate, to reflect the risks inherent in us achieving these estimated cash flows.

The resulting equity value is then allocated to each class of stock using an Option Pricing Model (“OPM”).

The OPM treats common stock and convertible preferred stock as call options on an equity value, with exercise prices based on the liquidation preference of our convertible preferred stock.

The common stock is modeled as a call option with a claim on the equity value at an exercise price equal to the remaining value immediately after our convertible preferred stock is liquidated.

The exclusive reliance on the OPM through July 31, 2018 was appropriate when the range of possible future outcomes was difficult to predict and resulted in a highly speculative forecast.

Beginning in October 2018, we performed the equity allocation using a probability weighted expected return method (“PWERM”).

The PWERM involves the estimation of the value of our company under multiple future potential outcomes, and estimates the probability of each potential outcome.

The per share value of our common stock when determined using the PWERM was ultimately based upon probability-weighted per share values resulting from the various future scenarios, which include an IPO, merger or sale, or continued operation as a private company.

After the equity value was determined and allocated to the various classes of shares, a discount for lack of marketability (“DLOM”) was applied to arrive at the fair value of common stock on a non-marketable basis.

A DLOM is applied based on the theory that as an owner of a private company stock, the stockholder has limited information and opportunities to sell this stock.

A market participant that would purchase this stock would recognize this risk and thereby require a higher rate of return, which would reduce the overall fair market value.

Prior to the completion of our IPO on April 18, 2019, our assessments of the fair value of common stock for grant dates were based in part on the current available financial and operational information and the common stock value provided in the most recent valuation as compared to the timing of each grant.

For financial reporting purposes, we considered the amount of time between the valuation date and the grant date to determine whether to use the latest common stock valuation or a straight-line interpolation between the two valuation dates.

This determination included an evaluation of whether the subsequent valuation indicated that any significant change in valuation had occurred between the previous valuation and the grant date.

For valuation after our IPO, the fair value of common stock for each grant date was determined based on the closing price of our Class A common stock as reported on the Nasdaq Global Select Market on the date of the respective grant.

Employee Stock Purchase Plan Valuation

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We account for modifications to employee contributions as they occur.

Our use of the Black-Scholes option-pricing model requires the input of highly subjective assumptions.

Our use of the Black-Scholes option-pricing model requires the input of subjective assumptions.

If factors change and different assumptions are used, our stock-based compensation expense could be materially different for the current period and in the future.

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As a result, an expected dividend yield of zero percent was used.

Strategic Investments

Accounting for strategic investments in privately held debt and equity securities in which we do not have a controlling interest or significant influence requires us to make significant estimates and assumptions.

Valuations of privately held securities are inherently complex and require judgment due to the lack of readily available market data.

Privately held debt and equity securities are valued using significant unobservable inputs or data in an inactive market.

The valuation requires our judgment due to the absence of market prices and inherent lack of liquidity.

The carrying values of our privately held equity securities are adjusted if there are observable price changes in a same or similar security from the same issuer or if there are identified events or changes in circumstances that may indicate impairment, as discussed below.

In determining the estimated fair value of our strategic investments in privately held companies, we utilize the most recent data available, as adjusted to reflect the specific rights and preferences of those securities we hold.

We assess our privately held debt and equity securities strategic investment portfolio quarterly for indicators for impairment.

Our impairment analysis encompasses a qualitative assessment evaluates key factors including but not limited to the investee’s financial metrics, market acceptance of the product or technology, and the rate at which the investee is using its cash.

If the investment is considered to be impaired, we record the investment at fair value by recognizing an impairment through the consolidated statement of operations and establishing a new carrying value for the investment.

The privately held debt and equity securities we hold, and their rights and preferences relative to those of other securities within the capital structure, may impact the magnitude by which our investment value moves in relation to movement of the total enterprise value of the company.

As a result, our investment value in a specific company may move by more or less than any change in the value of that overall company.

An immediate decrease of ten percent in enterprise value of our largest privately held equity securities held as of January 31, 2022 would not have had a material impact on the value of our investment portfolio.

We use the asset and liability method of accounting for income taxes.

Under this method, income tax expense is recognized based on the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns.

We make assumptions, judgments and estimates to determine the current income tax provision (benefit), deferred tax asset and liabilities and valuation allowance recorded against a deferred tax asset.

The assumptions, judgments and estimates relative to the current income tax provision (benefit) take into account current tax laws, their interpretation and possible results of foreign and domestic tax audits.

Changes in tax law, their interpretation and resolution of tax audits could significantly impact the income taxes provided in our consolidated financial statements.

Assumptions, judgments and estimates relative to the amount of deferred income taxes take into account future taxable income.

Any of the assumptions, judgments and estimates mentioned above could cause the actual income tax obligations to differ from our estimates.

Critical accounting estimates and the related assumptions are evaluated periodically as conditions warrant, and changes to such estimates are recorded as new information or changed conditions require.

Recent Accounting Pronouncements

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The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our historical consolidated financial statements for the fiscal years ended January 31, 2022, 2021, and 2020.

As the impact of

foreign currency exchange rates has not been material to our historical operating results, we have not entered into derivative or hedging transactions, but we may do so in the future if our exposure to foreign currency becomes more significant.

As the impact of foreign currency exchange rates has not been material to our historical operating results, we have not entered into derivative or hedging transactions, but we may do so in the future if our exposure to foreign currency becomes more significant.

Interest Rate Risk

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Cash and cash equivalents consist of bank deposits, money market funds, high-grade commercial paper, and agency bonds.

Our marketable securities generally consist of high-grade commercial paper, agency bonds, corporate and other debt securities, U.S.

marketable securities generally consist of high-grade commercial paper, agency bonds, corporate and other debt securities, U.S.

government agency securities, and treasury bills.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis