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Item 7. Management’s Discussion and Analysis

2023-03-03 compared with 2022-03-07 · 153 added, 194 removed, 263 unchanged (57% of the section changed)

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Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in the section titled “Risk Factors” and in other parts of this Annual Report on Form 10-K.

Our mission is to make video communications frictionless and secure.

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 mission is to make communications frictionless and secure.

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

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

That is why Zoom is an intuitive, scalable, and secure choice for large enterprises, small businesses, and individuals alike.

We provide a unified communications and collaboration platform that delivers happiness and fundamentally changes how people interact, connecting them through frictionless and secure meetings, phone, chat, content sharing and more.

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

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

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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 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.

Our 28 co-located data centers worldwide and the public cloud in conjunction with our proprietary adaptive rate codec 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 and collaboration platform.

Subscription revenue is driven primarily by the number of paid hosts as well as purchases of additional products, including Zoom Phone, Zoom Spaces, Zoom Events, Zoom Contact Center and Zoom IQ for Sales.

A host is any user of our unified communications and collaboration 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 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.

Our paid offerings include our Pro, Business, Enterprise, Education, and Healthcare plans, which provide incremental features and functionality, such as different participant limits, administrative controls, and reporting.

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

Our core paid offerings are available with our Zoom One bundles:

Zoom One Pro, Business, Business Plus, Enterprise, and Enterprise Plus.

The Zoom One bundles are designed for different business needs and are composed of Zoom Meetings, Zoom Team Chat, Zoom Whiteboard and Mail and Calendar as well as Zoom Phone, Zoom Webinars and Zoom Rooms for our Enterprise plans.

We also offer vertical-specific plans for Education, Healthcare and Government which provide incremental features and functionality, such as different participant limits, administrative controls, and reporting.

For Zoom Phone, plans include Zoom Phone Pro, which provides extension-to-extension calling or can be used with the Bring Your Own Carrier model wherein the customer connects Zoom Phone to an existing carrier.

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

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

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 $4,393.0 million, $4,099.9 million, and $2,651.4 million for the fiscal years ended January 31, 2023, 2022, and 2021, respectively, representing period-over-period growth rate of 7% and 55% for fiscal year 2023 and fiscal year 2022, respectively.

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Net cash provided by operating activities was $1,290.3 million, $1,605.3 million, and $1,471.2 million for the fiscal years ended January 31, 2023, 2022, and 2021, respectively.

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.

Many organizations have resorted to mandating employees to work from home, which has resulted in these organizations seeking out video communication solutions like ours to keep employees as productive as possible, even while working from home.

Schools, colleges, and universities globally have also closed as a result of this pandemic.

Many of these institutions are utilizing our platform to provide remote instruction to their students.

To help teachers and students navigate this unprecedented situation, 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 domains worldwide.

While we have experienced a significant increase in paid hosts and revenue due to the pandemic, the aforementioned factors have also driven increased usage of our services and have required us to expand our network, data storage, and processing capacity, both in our own co-located data centers as well as through third-party cloud hosting, which has resulted, and is continuing to result, in an increase in our operating costs.

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 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.

Macroeconomic Conditions and other Factors

Recent changes in macroeconomic conditions such as high inflation, recessionary and uncertain environments, and fluctuations in foreign currency exchange rates, have and may continue to cause uncertainty in our business.

For the year ended January 31, 2023, we experienced continued growth in total revenue and revenue from Enterprise customers.

However, macroeconomic conditions, including high inflation and continued uncertainty regarding the current and future political and economic environment, have and may continue to impact the future demand for subscriptions to our unified communications and collaboration platform.

For example, for the year ended January 31, 2023, we experienced unfavorable foreign currency impact as a result of the continued strengthening of the U.S.

dollar compared to certain foreign jurisdictions where we do a significant amount of business, which resulted in a $69.1 million negative impact on revenue for the year ended January 31, 2023.

During the onset of the COVID-19 pandemic, many organizations resorted to mandating employees to work from home, which resulted in these organizations seeking out video communication solutions like ours to keep employees as productive as possible, even while working from home.

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.

As reported in prior periods we experienced significant revenue growth.

This revenue growth has declined and we expect our revenue growth to generally decline as compared to prior periods.

Many factors may contribute to declines in our growth rate, among other things, higher market penetration, increased competition, slowing demand for our platform from the tapering of the COVID-19 pandemic, a slower than anticipated capitalization on growth opportunities, and the maturation of our business.

We continue to monitor the impacts of the COVID-19 pandemic on our business.

The effects of the COVID-19 pandemic have been widespread, and while the COVID-19 pandemic has tapered, it continues to fluctuate in severity.

Our recent declines in revenue growth are primarily attributable to the tapering of the COVID-19 pandemic along with other macroeconomic factors.

At the same time, it is starting to become clear that some of the behavioral trends the COVID-19 pandemic fostered, including the shift to remote and hybrid work, may remain in place for an indeterminate amount of time.

Given this, it is not possible for us to quantify how the tapering of the COVID-19 pandemic has impacted our current and future operations.

In addition the global impacts of the Russian invasion of Ukraine, including various sanctions and export restrictions on Russia and Belarus by the United States, the United Kingdom, the European Union, and other governmental authorities remain highly uncertain.

The Russia-Ukraine war impacted our EMEA revenue for the year ended January 31, 2023.

Our customers in Russia, Belarus, and Ukraine represented less than 1% of our net assets and total consolidated revenue as of the year ended January 31, 2023.

If the Russia-Ukraine war continues or worsens, leading to additional sanctions, tightened export restrictions, and greater global economic disruptions and uncertainty, our business and results of operations could be materially impacted.

We are continuously monitoring the impact of these circumstances on our business and financial results, as well as the overall global economy and geopolitical landscape.

The implications of macroeconomic conditions on our business, results of operations and overall financial position, particularly in the long term, remain uncertain.

On February 7, 2023, as a result of the economic environment, we announced a restructuring plan intended to reduce operating costs and continue advancing our ongoing commitment to profitable growth.

The restructuring plan includes a reduction of our current workforce by approximately 15%.

Key Factors Affecting Our Performance

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Our operating results and growth prospects will depend, in part, on our ability to attract new customers.

While we believe there is a significant market opportunity that our platform addresses, it is difficult to predict customer adoption rates or the future growth rate and size of the market for our platform.

While we believe there is a significant market

opportunity that our platform addresses, it is difficult to predict customer adoption rates or the future growth rate and size of the market for our platform.

We will need to continue to invest in sales and marketing in order to address this opportunity by hiring, developing, and retaining talented sales personnel who are able to achieve desired productivity levels in a reasonable period of time.

Expansion of Zoom Across Existing Customers

Expansion of Zoom Across Existing Enterprise Customers

We believe that there is a large opportunity for growth with many of our existing customers.

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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, Developer Platform solutions, Zoom Events, and Zoom Video Webinars.

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 for Home, Rooms at each office location, Developer Platform solutions, Spaces, Events, Contact Center and IQ for Sales.

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.

We quantify our expansion across existing customers through our net dollar expansion rate.

Our net dollar expansion rate includes the increase in user adoption within our customers, as our subscription revenue is primarily driven by the number of paid hosts within a customer and the purchase of additional products, and compares our subscription revenue from the same set of customers across comparable periods.

We calculate net dollar expansion rate as of a period end by starting with the annual recurring revenue (“ARR”) from all customers with more than 10 employees as of 12 months prior (“Prior Period ARR”).

We quantify our expansion across existing Enterprise customers through our net dollar expansion rate.

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

Revenue from Enterprise customers represented 54.8%, 47.6% and 45.6% of total revenue for the year ending January 31, 2023, 2022 and 2021, respectively.

Our net dollar expansion rate includes the increase in user adoption within our Enterprise customers, as our subscription revenue is primarily driven by the number of paid hosts within a customer and the purchase of additional products, and compares our subscription revenue from the same set of Enterprise customers across comparable periods.

We calculate net dollar expansion rate as of a period end by starting with the annual recurring revenue (“ARR”) from all Enterprise customers as of 12 months prior (“Prior Period ARR”).

We define ARR as the annualized revenue run rate of subscription agreements from all customers at a point in time.

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.

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

MRR is defined as the recurring revenue run-rate of subscription agreements from all Enterprise 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 Enterprise customers as of the current period end (“Current Period ARR”), which includes any upsells, contraction, and attrition.

We divide the Current Period ARR by the Prior Period ARR to arrive at the net dollar expansion rate.

For the trailing 12-months calculation, we take an average of the net dollar expansion rate over the trailing 12 months.

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 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.

Our trailing 12-month net dollar expansion rate for Enterprise customers was 115%, 130%, and 152% as of January 31, 2023, 2022 and 2021, respectively.

Retention of Online Customers

In addition to Enterprise customers, we also have a significant number of customers that subscribe to our services directly through our website (“Online customers”).

Online customers represent a diverse customer base, ranging from individual consumers to small and medium size businesses.

We continue to focus on acquisition and retention of our online customer base through various strategies to improve the features and functionalities of our products and services.

Revenue from Online customers represented 45.2%, 52.4%, and 54.4% of total revenue for the fiscal years ended January 31, 2023, 2022 and 2021, respectively.

The ability to retain these Online customers will have an impact on our future revenue.

The online monthly average churn for our Online customers was 3.4%, 3.9%, and 4.9% per month for the fiscal years ended January 31, 2023, 2022 and 2021, respectively.

One of the dynamics in the Online portion of the business is the MRR contribution from customers that have retained Zoom services for a certain portion of time as these customers tend to maintain their subscriptions and contribute meaningfully to the Online business.

As of January 31, 2023, 2022 and 2021 the percentage of total Online MRR from Online customers with a continual term of service of at least 16 months was 72.0%, 59.0% and 10.0% respectively.

We calculate our online average monthly churn by starting with the Online customer MRR as of the beginning of the applicable quarter (“Entry MRR”).

We define Entry MRR as the recurring revenue run-rate of subscription agreements from all Online customers except for subscriptions that we recorded as churn in a previous quarter based on the customers' earlier indication to us of their intention to cancel that subscription.

We then determine the MRR related to customers who canceled or downgraded their subscription or notified us of that intention during the applicable quarter (“Applicable Quarter MRR Churn”) and divide the Applicable Quarter MRR Churn by the applicable quarter Entry MRR to arrive at the MRR churn rate for Online Customers for the applicable quarter.

We then divided that amount by three to calculate the online average monthly churn.

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 Webinars.

For example, we have recently introduced a number of product enhancements, including new features for Zoom Phone, Zoom Meetings, Zoom Webinars, and Zoom Events and launched Zoom Contact Center, Zoom Virtual Agent, Zoom IQ for sales, Zoom Whiteboard and Zoom Mail and Calendar.

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 to more than 45 countries and territories during fiscal year 2022.

We also deliver Zoom Phone calling plans in more than 45 countries and territories as of January 31, 2023.

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.

We believe that as more developers and other third parties use our platform to integrate major third-party applications, we will become the ubiquitous platform for communications.

We believe that as more developers and other third parties use our platform to integrate major third-party applications, we will become the ubiquitous platform for communications and collaboration.

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 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

Our platform addresses the communications needs of users worldwide, and we see international expansion as a major opportunity.

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

Zoom’s E2EE uses the same AES-256-GCM encryption that secures Zoom meetings by default, but with Zoom’s E2EE, the meeting host, or originating caller in the case of Zoom Phone, as opposed to Zoom's servers, generates encryption keys and uses public key cryptography to distribute these keys to the other meeting participants or call recipient.

International Opportunity

Our platform addresses the communications and collaboration needs of users worldwide, and we see international expansion as a major opportunity.

Our revenue from the rest of world (APAC and EMEA) represented 30%, 33%, and 31% of our total revenue for the fiscal years ended January 31, 2023, 2022, and 2021, respectively.

The decrease in revenue from the rest of the world in the fiscal year ended January 31, 2023 was due to the impact of the strengthening of the U.S dollar along with macroeconomic conditions in the EMEA region.

We plan to add local sales support in further select international markets over time.

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Key Business Metrics

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

Increasing awareness of our platform and its broad range of capabilities has enabled us to substantially expand our customer base, which includes organizations of all sizes across industries.

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.

To better distinguish business customers from our broader customer base, we review the number of customers with more than 10 employees.

As of January 31, 2022, 2021, and 2020, we had approximately 509,800, 467,100, and 81,900 customers, respectively, with more than 10 employees.

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

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 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.

As of January 31, 2022, 2021, and 2020, we had 2,725, 1,644, and 641 customers, respectively, that contributed more than $100,000 of trailing 12 months revenue, demonstrating our rapid penetration of larger organizations, including enterprises.

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

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

Number of Enterprise Customers

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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.

As of January 31, 2023, 2022, and 2021, we had approximately 213,000, 191,000, and 141,100 Enterprise customers, respectively.

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

Revenue from these customers represented 27%, 22%, and 20% of total revenue for the fiscal years ended January 31, 2023, 2022, and 2021, respectively.

As of January 31, 2023, 2022, and 2021, we had 3,471, 2,725, and 1,644 customers, respectively, that contributed more than $100,000 of trailing 12 months revenue, demonstrating our rapid penetration of larger organizations, including enterprises.

These customers are a subset of 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

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

Free Cash Flow

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

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:

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 and 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 metrics, may calculate t 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 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) $ 1,186,436 $ 1,472,676 $ 1,391,205

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 $ (318,322) $ (2,859,097) $ (1,562,420)

Net cash provided by financing activities $ 34,068 $ 2,050,277 $ 615,690

Net cash (used in) provided by financing activities $ (936,942) $ 34,068 $ 2,050,277

Components of Results of Operations

We derive our revenue from subscription agreements with customers for access to our unified communications platform.

We derive our revenue from subscription agreements with customers for access to our unified communications and collaboration platform.

Our customers generally do not have the ability to take possession of our software.

We also provide services, which include professional services, consulting services, and online event hosting, which are generally considered distinct from the access to our unified communications platform.

The amount of revenue recognized reflects the consideration that we expect to receive in exchange for these services over the contract term which can include a free period discount.

Cost of Revenue

Cost of revenue primarily consists of costs related to hosting our unified communications platform and providing general operating support services to our customers.

Cost of revenue primarily consists of costs related to hosting our unified communications and collaboration platform and providing general operating support services to our customers.

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 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.

Operating Expenses

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Research and development costs are expensed as incurred.

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 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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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 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

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expected credit losses;

indirect taxes;

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 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.

certain indirect taxes;

litigation settlements;

corporate security and regulatory expenses;

and allocated overhead.

(Losses) gains on Strategic Investments, Net

(Losses) gains on strategic investments, net consist primarily of remeasurement gains or losses on our equity investments.

Other Income (Expense), Net

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

Provision for (Benefit from) Income Taxes

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

Results of Operations

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Income from operations 245,429 1,063,591 659,848

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

(Losses) gains on strategic investments, net (37,571) 43,761 2,538

Other income (expense), net 41,418 (5,720) 15,648

Income before provision (benefits) for income taxes 249,276 1,101,632 678,034

Provision (benefits) for income taxes 145,565 (274,007) 5,718

Net income $ 103,711 $ 1,375,639 $ 672,316

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Income from operations 5.6 % 25.9 % 24.9 %

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

(Losses) gains on strategic investments, net

(0.9) % 1.1 % 0.1 %

Other income (expense), net 1.0 % (0.1) % 0.6 %

Income before provision (benefits) for income taxes 5.7 % 26.9 % 25.6 %

Provision (benefits) for income taxes 3.3 % (6.7) % 0.2 %

Net income 2.4 % 33.6 % 25.4 %

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Revenue for the fiscal year ended January 31, 2023 increased by $293.1 million, or 7.1%, compared to the fiscal year ended January 31, 2022.

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.

The increase in revenue was due to a 23.6% increase in revenue from subscription services provided to Enterprise customers, of which 87.6% and 12.4% were from existing and new customers, respectively.

This increase was partially offset by a 7.7% decline in revenue from subscription services provided to Online customers.

Cost of Revenue

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Cost of revenue for the fiscal year ended January 31, 2023 increased by $45.9 million, or 4.4%, compared to the fiscal year ended January 31, 2022.

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 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 $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.

The increase was primarily due to an increase of $147.9 million in personnel-related expenses, which includes an increase of $104.9 million in stock-based compensation expense, mainly driven by additional headcount and expanded equity programs, an increase of $29.8 million related to subscription to software-based services, and an increase in allocated overhead of $8.7 million , partially offset by a decrease of $144.6 million in costs mainly driven by the net impact of the transition from third-party cloud hosting to internal data centers and cloud optimization.

Gross margin increased to 74.9% for the fiscal year ended January 31, 2023 from 74.3% for the fiscal year ended January 31, 2022.

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.

The increase in gross margin was mainly due to increased efficiencies as we expanded our internal data center capacity;

in addition, during the current fiscal year, we reinstated 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, which was temporarily lifted at the onset of the COVID-19 pandemic.

These cost-saving measures were partially offset by the impact from higher stock-based compensation expense.

Operating Expenses

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Research and development expense for the fiscal year ended January 31, 2023 increased by $411.1 million, or 113.2%, compared to the fiscal year ended January 31, 2022.

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 $11.6 million in allocated overhead expenses, and an increase of $6.8 million related to subscription to software-based services.

The increase was primarily due to higher personnel-related expenses of $388.4 million, which includes a $248.7 million increase in stock-based compensation expense, mainly driven by the increased headcount and expanded equity programs, and an increase of $139.7 million in non-stock based related personal costs due to a 67% increase in headcount.

The remainder of the increase was primarily attributable to an increase of $21.6 million in allocated overhead expenses.

Sales and Marketing

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Sales and marketing expense for the fiscal year ended January 31, 2023 increased by $560.6 million, or 49.4%, compared to the fiscal year ended January 31, 2022.

The increase in sales and marketing expense was primarily due to higher personnel-related expenses of $308.2 million, mainly driven by additional headcount in our sales force to support the increased demand , which includes an increase of $82.9 million in stock-based compensation expense;

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 $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.

The increase in sales and marketing expense was primarily due to higher personnel-related expenses of $471.4 million, which includes an increase of $303.1 million in stock based compensation, mainly driven by additional headcount and expanded equity programs, and an increase of $82.1 million in amortization of deferred contract acquisition costs.

The remaining increase was primarily due to an increase of $76.9 million in marketing and sales event-related costs mainly due to an increase in awareness, social media and digital programs, and an increase of $14.9 million in allocated overhead expenses.

General and Administrative

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General and administrative expense for the fiscal year ended January 31, 2023 increased by $93.7 million, or 19.4%, compared to the fiscal year ended January 31, 2022.

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;

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.

The increase in general and administrative expense was primarily due to an increase of $193.2 million in personnel-related expenses, which includes a $151.7 million increase in stock-based compensation expense, mainly driven by additional headcount and expanded equity programs, and an increase of $11.4 million related to subscription to software-based services offset by a decrease of $71.1 million in litigation settlement expense, net of amounts estimated to be covered by insurance and a decrease of $24.1 million related to professional services composed primarily of legal and other consulting fees.

Gains on Strategic Investments, Net

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(in thousands, except percentages)

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.

(Losses) Gains on strategic investments, net $ (37,571) $ 43,761 $ 81,332 (185.9) %

Losses on strategic investments, net recognized during the fiscal year ended January 31, 2023 were primarily driven by $36.8 million of unrealized losses recognized on our publicly traded equity securities, while gains on strategic investments, net recognized during the fiscal year ended January 31, 2022 were driven by $49.9 million of 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

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(in thousands, except percentages)

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

Other income (expense), net $ 41,418 $ (5,720) $ 47,138 (824.1) %

Other income (expense), net for the fiscal year ended January 31, 2023 increased by $47.1 million, or 824.1%, compared to the fiscal year ended January 31, 2022.

The increase was mainly driven by an increase of $45.6 million in investment yield.

Provision for (Benefit from) Income Taxes

Year Ended January 31,

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(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.

Provision for (benefit from) income taxes $ 145,565 $ (274,007) $ 419,572 (153.1) %

Provision for income taxes for the fiscal year ended January 31, 2023 was $145.6 million, compared to a benefit from income taxes of $274.0 million the fiscal year ended January 31, 2022.

The change in income taxes was primarily due to tax shortfalls on stock-based compensation, non-deductible stock-based compensation expense, changes in the valuation allowance on certain state deferred tax assets, and other compensation-related permanent differences as of January 31, 2023, compared to tax windfalls on stock-based compensation and the valuation allowance release on the U.S.

federal and state deferred tax assets during the fiscal year ended January 31, 2022.

See Note 11 of the Notes to Consolidated Financial Statements for further information.

For a discussion of the fiscal year ended January 31, 2022 compared to the fiscal year ended January 31, 2021, 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, 2022.

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We have financed our operations primarily through income from operations and sales of equity securities.

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.

Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, the recent changes in macroeconomic conditions such as high inflation, recessionary environments, and the fluctuations in foreign currency exchange rates, could impact the 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.

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Net cash used in investing activities $ (318,322) $ (2,859,097) $ (1,562,420)

Net cash provided by financing activities $ 34,068 $ 2,050,277 $ 615,690

Net cash (used in) provided by financing activities $ (936,942) $ 34,068 $ 2,050,277

Operating Activities

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Net cash provided by operating activities was $1,290.3 million for the fiscal year ended January 31, 2023, compared to $1,605.3 million for the fiscal year ended January 31, 2022.

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.

The decrease in operating cash flow was mainly driven by higher income tax payments and lower increases in deferred revenue.

Investing Activities

Net cash used in investing activities of $318.3 million for the fiscal year ended January 31, 2023 was primarily due to cash paid for acquisition, net of cash acquired, of $120.6 million, purchases of property and equipment of $103.8 million, purchases of strategic investments of $69.1 million, net purchases of marketable securities of $13.9 million, and purchases of intangible assets of $11.3 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

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.

Net cash used in financing activities of $936.9 million for the fiscal year ended January 31, 2023 was primarily due to cash paid for repurchases of common stock of $1.0 billion, offset by proceeds from issuance of common stock pursuant to our employee stock purchase plan (“ESPP”) of $53.7 million and proceeds from the exercise of stock options of $8.6 million.

Net cash provided by financing activities of $34.1 million for the fiscal year ended January 31, 2022 was primarily due to proceeds from issuance of common stock pursuant to our ESPP of $59.3 million, 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.

For a discussion of the fiscal year ended January 31, 2021 , 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, 2022.

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.

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

See Note 10 "Stockholders’ Equity and Equity Incentive Plans" of this Annual Report on Form 10-K for additional information related to share repurchases.

Off-Balance Sheet Arrangements

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Revenue Recognition

We derive our revenue primarily from subscription agreements with customers for access to our unified communications platform and services.

We derive our revenue primarily from subscription agreements with customers for access to our unified communications and collaboration platform and services.

We also provide other services, which include professional services, consulting services, and online event hosting, which were immaterial to our consolidated financial statements.

Revenue is recognized when a customer obtains control of promised services.

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

The amount of revenue recognized reflects the consideration that we expect to receive in exchange for these services over the contract term which can include a free period discount.

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.

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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.

Allowance for Credit Losses

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

Business Combinations and Valuation of Goodwill and Intangible Assets

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Finite-lived intangible assets are initially recorded at fair value and are amortized on a straight-line basis over their estimated useful lives.

We routinely evaluate the estimated remaining useful lives of our finite-lived intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization.

We routinely evaluate the estimated remaining useful

lives of our finite-lived intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization.

Indefinite-lived intangible assets are recorded at fair value and are not amortized.

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

Employee Stock Purchase Plan Valuation

We account for stock-based compensation expense related to our ESPP purchase rights based on the estimated grant date fair value, which is calculated using the Black-Scholes option pricing model and the aggregate number of shares of our common stock expected to be purchased under each offering.

The assumptions used to determine the fair value of the ESPP purchase rights, including the expected term of the awards, the expected volatility of the price of our common stock, risk-free interest rates, and the expected dividend yield of our common stock, 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 term of each ESPP offering period, which is generally two years.

We account for modifications to employee contributions as they occur.

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.

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

• Risk-Free Interest Rate.

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

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

• Expected Term.

The expected term of the ESPP represents the period of time that purchase rights are expected to be outstanding.

• Expected Volatility.

For the ESPP purchase rights granted during the fiscal year ended January 31, 2021, 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.

For the ESPP purchase rights granted during the fiscal year ended January 31, 2022, expected volatility was determined using a combination of the implied volatility of publicly traded options in our stock and historical volatility of our stock price.

• 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.

Strategic Investments

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Foreign Currency and Exchange Risk

The vast majority of our cash generated from revenue is denominated in U.S.

dollars, with a small amount denominated in foreign currencies.

Our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations, which are primarily in the United States, China, Europe, and Australia.

The majority of our cash generated from revenue is denominated in U.S.

dollars, with a portion of our revenue from amounts denominated in foreign currencies.

Our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations, which are primarily in Australia, China, Europe and the United States.

Our results of current and future operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates.

For the fiscal year ending January 31, 2023, 2022 and 2021, 20.0% , 22.6% and 20.2% of our revenue, respectively and 10.8%,

16.8% and 11.9% of our expenses, respectively were denominated in currencies other than the U.S.

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, 2023, 2022, and 2021.

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We had cash and cash equivalents of $1.1 billion and marketable securities of $4.3 billion as of January 31, 2023.

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

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

Cash and cash equivalents consist of bank deposits, money market funds and 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.

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