Zoom Communications, Inc. 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ZOOM VIDEO COMMUNICATIONS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm 63 Consolidated Balance Sheets 65 Consolidated Statements of Operations 66 Consolidated Statements of Comprehensive Income 67 Consolidated Statements of Stockholders’ Equity 68 Consolidated Statements of Cash Flows 69 Notes to Consolidated Financial Statements 71 62 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors Zoom Video Communications, Inc.: Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of Zoom Video Communications, Inc. and subsidiaries (the Company) as of January 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended January 31, 2023, and the related notes and financial statement schedule II: valuation and qualifying accounts (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of January 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended January 31, 2023, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2023 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 63 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Sufficiency of Audit Evidence Over Revenue As discussed in Notes 1 and 2 to the consolidated financial statements, the Company’s revenue is principally derived from the sale of subscriptions to the Company’s video communications platform. The Company recorded $4,393 million of revenue for the year ended January 31, 2023. We identified the evaluation of sufficiency of audit evidence over revenue as a critical audit matter. This matter required especially subjective auditor judgment because the Company’s revenue recognition process is highly automated and is reliant upon a number of customized and proprietary information technology (IT) systems. Involvement of IT professionals with specialized skills and knowledge was required to assist with the performance of certain procedures and determination of IT applications subject to testing. The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed over revenue. We evaluated the design and tested the operating effectiveness of certain internal controls related to revenue recognition. This included certain controls related to the Company’s general information technology and application controls related to the systems utilized within the Company’s revenue recognition process. We involved IT professionals with specialized skills and knowledge, who assisted in testing the IT controls of the various systems interacting with the Company’s revenue recognition process. We recalculated revenue for system-generated sales transactions during the year using a software audit tool. For a sample of transactions, we compared the amounts recognized for consistency with underlying documentation, including contracts with customers and cash receipts. Additionally, for the same sample of transactions, we recalculated the amount of revenue recognized in the period based on the terms of the arrangement and the satisfaction of the underlying performance obligation. In addition, we evaluated the sufficiency of audit evidence obtained over revenue by assessing the results of procedures performed. /s/ KPMG LLP We have served as the Company’s auditor since 2016. San Francisco, California March 3, 2023 64 Table of Contents ZOOM VIDEO COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) As of January 31, 2023 2022 Assets Current assets: Cash and cash equivalents $ 1,086,830 $ 1,062,820 Marketable securities 4,325,836 4,356,446 Accounts receivable, net of allowances of $ 33,206 and $ 24,696 as of January 31, 2023 and 2022, respectively 557,404 419,673 Deferred contract acquisition costs, current 223,250 199,266 Prepaid expenses and other current assets 163,092 145,602 Total current assets 6,356,412 6,183,807 Deferred contract acquisition costs, noncurrent 179,991 164,714 Property and equipment, net 252,821 222,354 Operating lease right-of-use assets 80,906 95,965 Strategic investments 398,992 367,814 Goodwill 122,641 27,607 Deferred tax assets 558,428 382,296 Other assets, noncurrent 177,874 106,761 Total assets $ 8,128,065 $ 7,551,318 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 14,414 $ 7,841 Accrued expenses and other current liabilities 457,716 430,415 Deferred revenue, current 1,266,514 1,141,435 Total current liabilities 1,738,644 1,579,691 Deferred revenue, noncurrent 41,932 38,481 Operating lease liabilities, noncurrent 73,687 85,018 Other liabilities, noncurrent 67,195 68,110 Total liabilities 1,921,458 1,771,300 Commitments and contingencies (Note 9) Stockholders’ equity: Preferred stock, $ 0.001 par value per share, 200,000,000 shares authorized as of January 31, 2023 and 2022; zero shares issued and outstanding as of January 31, 2023 and 2022 — — Common stock, $ 0.001 par value per share, 2,000,000,000 Class A shares authorized as of January 31, 2023 and 2022; 247,151,956 and 247,044,454 shares issued and outstanding as of January 31, 2023 and 2022, respectively; 300,000,000 Class B shares authorized as of January 31, 2023 and 2022; 46,670,894 and 51,993,351 shares issued and outstanding as of January 31, 2023 and 2022, respectively 294 299 Additional paid-in capital 4,104,880 3,749,514 Accumulated other comprehensive loss ( 50,385 ) ( 17,902 ) Retained earnings 2,151,818 2,048,107 Total stockholders’ equity 6,206,607 5,780,018 Total liabilities and stockholders’ equity $ 8,128,065 $ 7,551,318 The accompanying notes are an integral part of these consolidated financial statements. 65 Table of Contents ZOOM VIDEO COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) Year Ended January 31, 2023 2022 2021 Revenue $ 4,392,960 $ 4,099,864 $ 2,651,368 Cost of revenue 1,100,451 1,054,554 821,989 Gross profit 3,292,509 3,045,310 1,829,379 Operating expenses: Research and development 774,059 362,990 164,080 Sales and marketing 1,696,590 1,135,959 684,904 General and administrative 576,431 482,770 320,547 Total operating expenses 3,047,080 1,981,719 1,169,531 Income from operations 245,429 1,063,591 659,848 (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 for (benefit from) income taxes 249,276 1,101,632 678,034 Provision for (benefit from) income taxes 145,565 ( 274,007 ) 5,718 Net income 103,711 1,375,639 672,316 Undistributed earnings attributable to participating securities ( 7 ) ( 582 ) ( 789 ) Net income attributable to common stockholders $ 103,704 $ 1,375,057 $ 671,527 Net income per share attributable to common stockholders: Basic $ 0.35 $ 4.64 $ 2.37 Diluted $ 0.34 $ 4.50 $ 2.25 Weighted-average shares used in computing net income per share attributable to common stockholders: Basic 296,560,501 296,334,894 283,853,654 Diluted 304,231,350 305,826,505 298,127,669 The accompanying notes are an integral part of these consolidated financial statements. 66 Table of Contents ZOOM VIDEO COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Year Ended January 31, 2023 2022 2021 Net income $ 103,711 $ 1,375,639 $ 672,316 Other comprehensive (loss) income: Unrealized (loss) gain on available-for-sale marketable securities, net of tax effect of $ 9,834 , $ 6,003 , and $ 0 during the fiscal years ended January 31, 2023, 2022 and 2021, respectively ( 32,483 ) ( 18,741 ) 30 Comprehensive income $ 71,228 $ 1,356,898 $ 672,346 The accompanying notes are an integral part of these consolidated financial statements. 67 Table of Contents ZOOM VIDEO COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share data) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Stockholders’ Equity Shares Amount Balance as of January 31, 2020 278,731,143 $ 277 $ 832,705 $ 809 $ 152 $ 833,943 Issuance of common stock upon follow-on public offering, net of underwriting discounts and commissions and other offering costs 5,882,353 6 1,979,538 — — 1,979,544 Issuance of common stock upon exercise of stock options 7,378,477 7 29,100 — — 29,107 Issuance of common stock upon release of restricted stock units 633,697 1 — 1 Charitable donation of common stock — — 23,312 — — 23,312 Issuance of common stock for employee stock purchase plan 923,553 1 38,432 — — 38,433 Stock-based compensation expense — — 284,081 — — 284,081 Other comprehensive income — — — 30 — 30 Net income — — — — 672,316 672,316 Balance as of January 31, 2021 293,549,223 $ 292 $ 3,187,168 $ 839 $ 672,468 $ 3,860,767 Issuance of common stock upon exercise of stock options 2,881,485 4 14,806 — — 14,810 Issuance of common stock upon release of restricted stock units 1,768,702 2 — — — 2 Issuance of common stock for employee stock purchase plan 838,395 1 59,330 — — 59,331 Stock-based compensation expense — — 488,210 — — 488,210 Other comprehensive income — — — ( 18,741 ) — ( 18,741 ) Net income — — — — 1,375,639 1,375,639 Balance as of January 31, 2022 299,037,805 $ 299 $ 3,749,514 $ ( 17,902 ) $ 2,048,107 $ 5,780,018 Issuance of common stock upon exercise of stock options 1,299,758 1 8,814 — — 8,815 Issuance of common stock upon release of restricted stock units 3,977,915 4 ( 4 ) — — — Repurchase of common stock ( 11,170,907 ) ( 11 ) ( 999,992 ) — — ( 1,000,003 ) Issuance of common stock for employee stock purchase plan 678,279 1 53,709 — — 53,710 Stock-based compensation expense — — 1,292,839 — — 1,292,839 Other comprehensive loss — — — ( 32,483 ) — ( 32,483 ) Net income — — — — 103,711 103,711 Balance as of January 31, 2023 293,822,850 $ 294 $ 4,104,880 $ ( 50,385 ) $ 2,151,818 $ 6,206,607 The accompanying notes are an integral part of these consolidated financial statements. 68 Table of Contents ZOOM VIDEO COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended January 31, 2023 2022 2021 Cash flows from operating activities: Net income $ 103,711 $ 1,375,639 $ 672,316 Adjustments to reconcile net income to net cash provided by operating activities: Stock-based compensation expense 1,285,752 477,287 275,818 Deferred income taxes ( 160,961 ) ( 327,957 ) — Amortization of deferred contract acquisition costs 259,368 177,283 104,306 Losses (gains) on strategic investments, net 37,571 ( 43,761 ) ( 2,538 ) Depreciation and amortization 82,321 48,188 28,857 Provision for accounts receivable allowances 50,285 36,747 32,007 Non-cash operating lease cost 28,933 18,387 10,887 Charitable donation of common stock — — 23,312 Amortization of discount/premium on marketable securities 1,206 25,316 5,433 Other 14,913 4,591 927 Changes in operating assets and liabilities: Accounts receivable ( 231,845 ) ( 159,183 ) ( 219,039 ) Prepaid expenses and other assets ( 18,066 ) ( 155,934 ) ( 68,521 ) Deferred contract acquisition costs ( 298,629 ) ( 247,371 ) ( 307,068 ) Accounts payable 11,611 ( 2,218 ) 3,481 Accrued expenses and other liabilities 20,530 101,369 251,654 Deferred revenue 127,401 293,887 665,724 Operating lease liabilities, net ( 23,839 ) ( 17,004 ) ( 6,379 ) Net cash provided by operating activities 1,290,262 1,605,266 1,471,177 Cash flows from investing activities: Purchases of marketable securities ( 2,849,121 ) ( 4,434,749 ) ( 2,056,470 ) Maturities of marketable securities 2,835,196 1,733,043 580,795 Sales of marketable securities — 296,867 36,897 Purchases of property and equipment ( 103,826 ) ( 132,590 ) ( 79,972 ) Purchases of strategic investments ( 69,050 ) ( 305,149 ) ( 13,000 ) Cash paid for acquisition, net of cash acquired ( 120,553 ) ( 3,501 ) ( 26,486 ) Purchases of intangible assets ( 11,268 ) ( 13,018 ) ( 5,843 ) Other 300 — 1,659 Net cash used in investing activities ( 318,322 ) ( 2,859,097 ) ( 1,562,420 ) Cash flows from financing activities: Cash paid for repurchases of common stock ( 1,000,003 ) — — Proceeds from issuance of common stock for employee stock purchase plan 53,710 59,331 38,433 Proceeds from exercise of stock options 8,577 14,404 28,550 Proceeds from employee equity transactions to be remitted (remitted) to employees and tax authorities, net 774 ( 40,004 ) 4,088 Proceeds from follow-on public offering, net of underwriting discounts and commissions and other offering costs — — 1,979,206 Other — 337 — Net cash (used in) provided by financing activities ( 936,942 ) 34,068 2,050,277 Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 8,108 ) — — Net increase (decrease) in cash, cash equivalents, and restricted cash 26,890 ( 1,219,763 ) 1,959,034 Cash, cash equivalents, and restricted cash—beginning of year 1,073,353 2,293,116 334,082 Cash, cash equivalents, and restricted cash—end of year $ 1,100,243 $ 1,073,353 $ 2,293,116 69 Table of Contents Supplemental disclosures of cash flow information Cash paid for income taxes, net $ 309,084 $ 38,979 $ 3,181 Supplemental disclosures of non-cash investing and financing information Purchase of equipment during the period included in accounts payable and accrued expenses $ 11,946 $ 13,728 $ 34,514 Vesting of early exercised stock options $ 238 $ 407 $ 558 Reconciliation of cash, cash equivalents, and restricted cash within the consolidated balance sheets to the amounts shown in the consolidated statements of cash flows above: Cash and cash equivalents $ 1,086,830 $ 1,062,820 $ 2,240,303 Restricted cash, current included in prepaid expenses and other current assets 13,141 10,236 50,575 Restricted cash, noncurrent included in other assets, noncurrent 272 297 2,238 Total cash, cash equivalents, and restricted cash $ 1,100,243 $ 1,073,353 $ 2,293,116 The accompanying notes are an integral part of these consolidated financial statements. 70 Table of Contents ZOOM VIDEO COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Business and Significant Accounting Policies Description of Business Zoom Video Communications, Inc. and its subsidiaries (collectively, “Zoom,” the “Company,” “we,” “us,” or “our”) connect people through our platform of core unified communications and collaboration platform, which frictionlessly brings together video, phone, chat, and webinars, and enables meaningful experiences across disparate devices and locations. We were incorporated in the state of Delaware in April 2011, and are headquartered in San Jose, California. Fiscal Year Our fiscal year ends on January 31. References to fiscal year 2023, for example, refer to the fiscal year ended January 31, 2023. Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and include the accounts of Zoom Video Communications, Inc., its subsidiaries, and a variable interest entity for which we are the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such estimates and assumptions include, but are not limited to, the estimated expected benefit period for deferred contract acquisition costs, stock-based compensation expense, the fair value of marketable securities, acquired intangible assets and goodwill, the valuation of deferred income tax assets and uncertain tax positions, and accruals and contingencies. Actual results could materially differ from those estimates. Concentration of Risks Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, restricted cash, and accounts receivable. We maintain our cash, cash equivalents, marketable securities, and restricted cash with high-quality financial institutions with investment-grade ratings. A majority of the cash balances are with U.S. banks and are insured to the extent defined by the Federal Deposit Insurance Corporation. No single customer accounted for more than 10% of accounts receivable at January 31, 2023 or 2022. No single customer accounted for 10% or more of total revenue during the fiscal years ended January 31, 2023, 2022, or 2021. Cash, Cash Equivalents, and Restricted Cash Cash and cash equivalents consist of cash in banks and highly liquid investments, primarily money market funds, purchased with an original maturity of three months or less. Restricted cash consists of certificates of deposit collateralizing our operating leases and cash from proceeds from international employees’ sales of our common stock, and is included in prepaid expenses and other current assets and other assets, noncurrent in the consolidated balance sheets. As of January 31, 2023 and 2022, we had $ 13.1 million and $ 10.2 million, respectively, of cash from proceeds from international employees’ sales of our common stock. The amount is held in our bank account until it is remitted to the employees and the tax authorities. Due to the restrictions on the use of the funds in the bank account, we have classified the amount as restricted cash included in prepaid expenses and other current assets, and a corresponding amount is included in accrued expenses and other current liabilities in the consolidated balance sheets. Allowance for Credit Losses We are exposed to credit losses primarily through our accounts receivable and investments in available-for-sale debt securities. See Note 3 for additional information related to our available-for-sale debt securities. 71 Table of Contents Accounts receivable, net Accounts receivable are recorded for invoiced amounts and amounts for which revenue has been recognized, but not invoiced, net of allowances. Our short-term accounts receivable consist of the following: As of January 31, 2023 As of January 31, 2022 (in thousands) Accounts receivable, gross $ 590,610 $ 444,369 Less: Allowance for credit losses ( 24,900 ) ( 17,000 ) Less: Allowance for returns ( 8,306 ) ( 7,696 ) Accounts receivable, net $ 557,404 $ 419,673 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 reassess the adequacy of the allowance for credit losses each reporting period. Furthermore, the allowance for sales returns is recorded as an offset to accounts receivable, and changes to the allowance are classified as a reduction in revenue in the consolidated statements of operations. We estimate returns from sales to customers based on historical chargebacks and return rates. For the fiscal year ended January 31, 2023, our assessment considered the recent changes in macroeconomic conditions such as inflation, recessionary and uncertain environments, and fluctuations in foreign currency exchange rates has on our estimates of credit and collectibility trends. Below is a rollforward of our allowance for credit losses for the fiscal year ended January 31, 2023. January 31, 2023 January 31, 2022 (in thousands) Balance as of beginning of year $ 17,000 $ 20,500 Provision for credit losses 45,211 32,587 Write-offs ( 37,311 ) ( 36,087 ) Balance as of end of year $ 24,900 $ 17,000 Available-for-sale Investments Available-for-sale investments consist primarily of high-grade commercial paper, agency bonds, corporate bonds, corporate and other debt securities, U.S. government agency securities, and treasury bills. We classify our marketable securities as available-for-sale at the time of purchase and reevaluate such classification at each balance sheet date. We may sell these securities at any time for use in current operations even if they have not yet reached maturity. As a result, we classify our securities, including those with maturities beyond 12 months, as current assets in the consolidated balance sheets. We carry these securities at fair value and record unrealized gains and losses in accumulated other comprehensive (loss) income, which is reflected as a component of stockholders’ equity. We evaluate our securities with unrealized loss positions as to whether the declines in fair value were due to credit losses, and record the portion of impairment relating to the credit losses through allowance for credit losses limited to the amount that fair value was less than the amortized cost basis. Realized gains and losses from the sale of marketable securities are determined based on the specific identification method. Realized gains and losses are reported in other (expense) income, net in the consolidated statements of operations. Strategic Investments We hold strategic investments in publicly held equity securities and privately held debt and equity securities in which we do not have a controlling interest. Publicly held equity securities are measured using quoted prices in their respective active markets with changes recorded through gains on strategic investments, net in the consolidated statements of operations. Privately held equity securities without a readily determinable fair value are recorded at cost and adjusted for impairments and observable price changes with a same or similar security from the same issuer (i.e. using the measurement alternative) and are recorded through (losses) gains on strategic investments, net in the consolidated statements of operations. 72 Table of Contents If, based on the terms of these publicly traded and privately held securities, we determine that we exercise significant influence on the entity to which these securities relate, we will apply the equity method of accounting for such investments. Privately held equity securities that are accounted for under the equity method are measured at cost less any impairment, plus or minus our share of equity method investee income or loss, which is reported in (losses) gains on strategic investments, net in the consolidated statements of operations. Privately held debt securities are recorded at fair value with changes in fair value recorded through accumulated other comprehensive (loss) income on the consolidated balance sheets. On a quarterly basis, we assess our privately held debt and equity securities in our strategic investment portfolio for indicators for impairment. As of January 31, 2023, we recognized an immaterial amount of impairment to our privately held debt and equity securities. Fair Value Measurements Fair value is defined as the exchange price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We measure financial assets and liabilities at fair value at each reporting period using a fair value hierarchy, which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value: Level 1—Quoted prices in active markets for identical assets or liabilities. Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Financial instruments consist of cash equivalents, restricted cash, marketable securities, accounts receivable, and accounts payable. Cash equivalents, restricted cash, and marketable securities are stated at fair value on a recurring basis. Accounts receivable and accounts payable are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date. Property and Equipment, Net Property and equipment, net, are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the respective assets, determined to be three to five years . Leasehold improvements are amortized over the shorter of the remaining lease term or the estimated useful life of five years . Expenditures for maintenance and repairs are expensed as incurred. Significant improvements and betterments that substantially enhance the life of an asset are capitalized. Software Development Costs We capitalize certain development costs related to our unified communications and collaboration platform during the application development stage as long as it is probable the project will be completed, and the software will be used to perform the function intended. Capitalized software development costs are recorded as part of property and equipment, net. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. Capitalized software development costs are amortized on a straight-line basis over the software’s estimated useful life, which is generally three years , and are recorded in cost of revenue in the consolidated statements of operations. We evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. We have capitalized $ 18.0 million, $ 20.2 million, and $ 19.4 million of software development costs during the fiscal years ended January 31, 2023, 2022, and 2021, respectively. Leases All lease arrangements are generally recognized at lease commencement. Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized at commencement. For short-term leases (an initial term of 12 months or less), an ROU asset and corresponding lease liability are not recorded and we record rent expense in our consolidated statements of operations on a straight-line basis over the lease term and record variable lease payments as incurred. ROU assets represent our right to use an underlying asset during the reasonably certain lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Our lease terms may include options to extend or terminate the lease when it is 73 Table of Contents reasonably certain that we will exercise that option. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of fixed payments not yet paid over the lease term. We use our incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as our leases generally do not provide an implicit rate. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, in an economic environment where the leased asset is located. ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. We reassess the lease term if and when a significant event or change in circumstances occurs within our control. We currently do not have any finance leases. Impairment of Long-Lived Assets We evaluate long-lived assets or asset groups for impairment whenever events indicate that the carrying value of an asset or asset group may not be recoverable based on expected future cash flows attributable to that asset or asset group. Recoverability of assets held and used is measured by comparing the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds estimated undiscounted future cash flows, then an impairment charge would be recognized based on the excess of the carrying amount of the asset or asset group over its fair value. Assets to be disposed of are reported at the lower of their carrying amount or fair value, less costs to sell. There were no impairment charges recognized related to long-lived assets during the fiscal years ended January 31, 2023, 2022, or 2021. Business Combinations We account for our business combinations using the acquisition method of accounting, which requires, among other things, allocation of the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed at their estimated fair values on the acquisition date. The excess of the fair value of purchase consideration over the values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair value of assets acquired and liabilities assumed, we make estimates and assumptions, especially with respect to intangible assets. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, not to exceed one year from the date of acquisition, we may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill if new information is obtained related to facts and circumstances that existed as of the acquisition date. After the measurement period, any subsequent adjustments are reflected in the consolidated statements of operations. Acquisition costs, such as legal and consulting fees, are expensed as incurred. Uncertain tax positions and tax-related valuation allowances are initially established in connection with a business combination as of the acquisition date. We continue to collect information and reevaluate these estimates and assumptions quarterly. We will record any adjustments to our preliminary estimates to goodwill, provided that it is within the one-year measurement period. Goodwill and Intangible Assets Goodwill amounts are not amortized, but rather tested for impairment at least annually or more often if circumstances indicate that the carrying value may not be recoverable. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. We have one reporting unit and as a result, goodwill has been assigned to the single reporting unit. We conducted our annual impairment test of goodwill in the fourth quarter of fiscal year 2023 and determined that no adjustment to the carrying value of goodwill was required. Intangible assets consist of acquired identifiable intangible assets resulting from business combinations, as well as other intangible assets purchased outside of a business combination, such as domains and intellectual property addresses. 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. Indefinite-lived intangible assets are recorded at fair value and are not amortized. We review the useful lives of indefinite-lived intangible assets each reporting period to determine whether events and circumstances continue to support the indefinite useful life classification. If we determine that the life of an intangible asset is no longer indefinite, that asset would be tested for impairment and amortized prospectively over its estimated remaining useful life. There were no impairment charges to acquired intangible assets during the fiscal year ended January 31, 2023. Revenue Recognition 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 74 Table of Contents 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 over the contract term which can include a free period discount. We determine revenue recognition through the following steps: 1. 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. 2. 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 and collaboration 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. 3. Determination of the transaction price 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 and collaboration 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. 4. 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. 5. 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 and collaboration 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. Professional services are time-based arrangements and revenue is recognized as these services are performed. Fees for services represent less than 2 % of total revenue during the periods presented. 75 Table of Contents Cost of Revenue 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 composed of co-located data center costs, third-party cloud hosting costs, integrated third-party PSTN services, personnel-related expenses, amortization of capitalized software development costs and acquired intangible assets, royalty payments, and allocated overhead costs. Indirect overhead costs associated with corporate facilities and related depreciation, health care benefits, training, and other employee benefits are allocated to cost of revenue and operating expenses based on applicable headcount. Research and Development Research and development costs include personnel-related expenses associated with our engineering personnel and consultants responsible for the design, development, and testing of our unified communications and collaboration platform, depreciation of equipment used in research and development, and allocated overhead costs. Research and development costs are expensed as incurred. Advertising Costs Advertising costs are expensed as incurred in sales and marketing expense and amounted to $ 64.7 million, $ 40.9 million, and $ 34.8 million for the fiscal years ended January 31, 2023, 2022, and 2021, respectively. Stock-Based Compensation Stock-based compensation expense related to stock awards (including stock options, RSUs, and ESPP) is measured based on the fair value of the awards granted and recognized as an expense on a straight-line basis over the requisite service period. The fair value of each option and ESPP award is estimated on the grant date using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the use of assumptions, including the fair value of the underlying common stock, the expected term of the award, the expected volatility of the price of our common stock, risk-free interest rates, and the expected dividend yield of our common stock. The fair value of each RSU award is based on the fair value of the underlying common stock as of the grant date. The assumptions used to determine the fair value of the stock awards represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. We account for forfeitures as they occur instead of estimating the number of awards expected to be forfeited. Foreign Currency The functional currency of our foreign subsidiaries is the U.S. dollar. Accordingly, monetary assets and liabilities of our foreign subsidiaries are remeasured into U.S. dollars at the exchange rates in effect at the reporting date, non-monetary assets and liabilities are remeasured at historical rates, and revenue and expenses are remeasured at average exchange rates in effect during each reporting period. Income Taxes We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent we believe it is more likely than not that they will not be realized. We consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations. We record uncertain tax positions in accordance with ASC 740, Income Taxes on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. We consider many factors when evaluating our uncertain tax positions, which involve significant judgment and may require periodic adjustments. The resolution of these uncertain tax positions in a manner inconsistent with management's expectations could have a material impact on our consolidated financial statements. We recognize interest and penalties related 76 Table of Contents to uncertain tax positions as a component of our provision for income taxes. Accrued interest and penalties are included with the related tax liability. Net Income Per Share Attributable to Common Stockholders We calculate our net income per share attributable to Class A and Class B common stock using the two-class method required for companies with participating securities. We consider our convertible preferred stock and unvested common stock, which includes early exercised stock options, to be participating securities as holders of such securities have non-forfeitable dividend rights in the event of our declaration of a dividend for shares of common stock. Distributed and undistributed earnings allocated to participating securities are subtracted from net income in determining net income attributable to common stockholders. Basic net income per share is computed by dividing net income attributable to common stockholders by the weighted-average number of shares of our Class A and Class B common stock outstanding. The diluted net income per share attributable to common stockholders is computed by giving effect to all dilutive securities. Diluted net income per share attributable to common stockholders is computed by dividing the resulting net income attributable to common stockholders by the weighted-average number of fully diluted common shares outstanding. Segment Information We operate in one operating segment. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker, who is our Chief Executive Officer (“CEO”), in deciding how to allocate resources and assessing performance. Our chief operating decision maker allocates resources and assesses performance based upon consolidated financial information. Revenue by geographical region can be found in the revenue recognition disclosures in Note 2 below. The following table presents our property and equipment, net of depreciation and amortization, by geographic region: As of January 31, 2023 2022 (in thousands) Americas $ 189,486 $ 180,033 APAC 39,325 36,715 EMEA 24,010 5,606 Total property and equipment, net $ 252,821 $ 222,354 Recent Adopted Accounting Pronouncements In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions , which clarifies and amends the guidance of measuring the fair value of equity securities subject to contractual restrictions that prohibit the sale of the equity securities. The guidance will be effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. We early adopted ASU No. 2022-03 for the fiscal year ending January 31, 2023. Adoption of the ASU did not have a material impact on our consolidated financial statements. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with Accounting Standards Codification Topic 606. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022 and early adoption is permitted. We early adopted ASU No. 2021-08 for the fiscal year ending January 31, 2023. Adoption of the ASU did not have a material impact on our consolidated financial statements. 77 Table of Contents 2. Revenue Recognition Disaggregation of Revenue The following table summarizes revenue by region based on the billing address of customers: Year Ended January 31, 2023 2022 2021 Amount Percentage of Revenue Amount Percentage of Revenue Amount Percentage of Revenue (in thousands, except percentages) Americas $ 3,054,172 70 % $ 2,734,241 67 % $ 1,831,694 69 % APAC 590,512 13 564,120 13 332,844 13 EMEA 748,276 17 801,503 20 486,830 18 Total $ 4,392,960 100 % $ 4,099,864 100 % $ 2,651,368 100 % 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 customer contract may occur before invoicing to the customer, resulting in an unbilled accounts receivable. The amount of unbilled accounts receivable included within accounts receivable, net of allowances on the consolidated balance sheets was $ 91.6 million and $ 59.7 million as of January 31, 2023 and 2022, respectively, and the amount of unbilled accounts receivable included within other assets, noncurrent on the consolidated balance sheets was immaterial as of January 31, 2023 and 2022. 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 is recognized over the next 12 months. The amount of revenue recognized during the fiscal years ended January 31, 2023, 2022, and 2021 that was included in deferred revenue at the beginning of each period was $ 1,140.7 million, $ 858.2 million, and $ 222.0 million, respectively. Remaining Performance Obligations The terms of our subscription agreements are monthly, annual, and multiyear and we may bill for the full term in advance or on an annual, quarterly, or monthly basis, depending on the billing terms with customers. As of January 31, 2023, the aggregate amount of the transaction price allocated to our remaining performance obligations was $ 3,434.4 million, which consists of both billed consideration in the amount of $ 1,308.4 million and unbilled consideration in the amount of $ 2,126.0 million that we expect to recognize as revenue. We expect to recognize 56 % of our remaining performance obligations as revenue over the next 12 months and the remainder thereafter. Cost to Obtain a Contract We primarily capitalize sales commissions and associated payroll taxes paid to internal sales personnel that are incremental costs from the acquisition of customer contracts. These costs are recorded as deferred contract acquisition costs in the consolidated balance sheets. We determine whether costs should be deferred based on our sales compensation plans and if the commissions are incremental and would not have occurred absent the customer contract. 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. We do not pay sales commissions upon contract renewal. Amortization is recognized on a straight-line basis commensurate with the pattern of revenue recognition. 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 and collaboration platform and related significant features. Amortization of deferred contract acquisition costs is included in sales and marketing expense in the consolidated statements of operations. We periodically review these deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit. There were no impairment losses recorded during the periods presented. 78 Table of Contents The following table represents a rollforward of deferred contract acquisition costs: Year Ended January 31, 2023 2022 (in thousands) Beginning balance $ 363,980 $ 293,892 Additions to deferred contract acquisition costs 298,629 247,371 Amortization of deferred contract acquisition costs ( 259,368 ) ( 177,283 ) Ending balance $ 403,241 $ 363,980 Deferred contract acquisition costs, current (to be amortized in next 12 months) $ 223,250 $ 199,266 Deferred contract acquisition costs, noncurrent 179,991 164,714 Total deferred contract acquisition costs $ 403,241 $ 363,980 3. Investments Marketable Securities As of January 31, 2023 and 2022, our marketable securities consisted of the following: As of January 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (in thousands) Commercial paper $ 77,701 $ — $ — $ 77,701 Agency bonds 823,027 63 ( 12,440 ) 810,650 Corporate and other debt securities 555,354 385 ( 4,845 ) 550,894 U.S. government agency securities 2,910,572 150 ( 49,507 ) 2,861,215 Treasury bills 25,404 1 ( 29 ) 25,376 Marketable securities $ 4,392,058 $ 599 $ ( 66,821 ) $ 4,325,836 As of January 31, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (in thousands) Commercial paper $ 28,723 $ — $ — $ 28,723 Agency bonds 632,935 2 ( 3,328 ) 629,609 Corporate and other debt securities 282,124 5 ( 1,202 ) 280,927 U.S. government agency securities 3,046,742 28 ( 19,261 ) 3,027,509 Treasury bills 389,826 — ( 148 ) 389,678 Marketable securities $ 4,380,350 $ 35 $ ( 23,939 ) $ 4,356,446 Unrealized losses for securities that have been in an unrealized loss position for less than 12 months were $ 24.8 million and $ 23.3 million as of January 31, 2023 and 2022, respectively. Unrealized losses for securities that have been in an unrealized loss position for 12 months or longer were $ 42.0 million as of January 31, 2023 and were immaterial as of January 31, 2022. We review the individual securities that have unrealized losses on a regular basis to evaluate whether or not any security has experienced, or is expected to experience, credit losses resulting in the decline in fair value. We evaluate, among other factors, whether we have the intention to sell any of these marketable securities and whether it is more likely than not that we will be required to sell any of them before recovery of the amortized cost basis. We have not recorded an allowance for credit losses, as we believe any such losses would be immaterial based on the high-grade credit rating for each of our marketable securities as of the end of each fiscal year. There were no material realized gains or losses from available-for-sale securities that were reclassified out of accumulated other comprehensive (loss) income for the fiscal years ended January 31, 2023, 2022, and 2021. 79 Table of Contents The following table presents the contractual maturities of our marketable securities as of January 31, 2023 and 2022: As of January 31, 2023 2022 (in thousands) Less than one year $ 2,743,677 $ 2,387,139 Due in one to five years 1,582,159 1,969,307 Total $ 4,325,836 $ 4,356,446 Strategic Investments Strategic investments by form and measurement category as of January 31, 2023 were as follows: Measurement Category Fair Value Measurement Alternative Equity Method Total (in thousands) Equity securities $ 171,975 $ 118,763 $ 93,854 $ 384,592 Debt securities 14,400 — — 14,400 Strategic investments $ 186,375 $ 118,763 $ 93,854 $ 398,992 Strategic investments by form and measurement category as of January 31, 2022 were as follows: Measurement Category Fair Value Measurement Alternative Equity Method Total (in thousands) Equity securities $ 168,784 $ 91,399 $ 93,400 $ 353,583 Debt securities 14,231 — — 14,231 Strategic investments $ 183,015 $ 91,399 $ 93,400 $ 367,814 In the second quarter of fiscal year 2023, we made a strategic investment of $ 40.0 million for common shares in a private placement by a company in the B2B software and services travel space. We recorded an unrealized loss of $ 11.7 million related to this investment for the year ended January 31, 2023. As of January 31, 2023, the fair value of the investment was $ 28.3 million and our ownership interest represents less than 1 % percent of the economic interest of the investee's outstanding capital stock. 80 Table of Contents 4. Fair Value Measurements The following tables present information about our financial instruments that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value: As of January 31, 2023 Fair Value Level 1 Level 2 Level 3 (in thousands) Financial Assets: Money market funds $ 310,571 $ 310,571 $ — $ — Cash equivalents 310,571 310,571 — — Commercial paper 77,701 — 77,701 — Agency bonds 810,650 — 810,650 — Corporate and other debt securities 550,894 — 550,894 — U.S. government agency securities 2,861,215 — 2,861,215 — Treasury bills 25,376 — 25,376 — Marketable securities 4,325,836 — 4,325,836 — Certificates of deposit included in other assets, noncurrent 272 — 272 — Publicly held equity securities included in strategic investments 171,975 171,975 — — Privately held debt securities included in strategic investments 14,400 — — 14,400 Total financial assets $ 4,823,054 $ 482,546 $ 4,326,108 $ 14,400 As of January 31, 2022 Fair Value Level 1 Level 2 Level 3 (in thousands) Financial Assets: Money market funds $ 688,722 $ 688,722 $ — $ — Treasury bills 107,496 — 107,496 — Corporate debt securities 749 — 749 — Cash equivalents 796,967 688,722 108,245 — Commercial paper 28,723 — 28,723 — Agency bonds 629,609 — 629,609 — Corporate and other debt securities 280,927 — 280,927 — U.S. government agency securities 3,027,509 — 3,027,509 — Treasury bills 389,678 — 389,678 — Marketable securities 4,356,446 — 4,356,446 — Certificates of deposit included in other assets, noncurrent 297 — 297 — Publicly held equity securities included in strategic investments 168,784 168,784 — — Privately held debt securities included in strategic investments 14,231 — — 14,231 Total financial assets $ 5,336,725 $ 857,506 $ 4,464,988 $ 14,231 We classify our highly liquid money market funds and publicly held equity securities within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. We classify our commercial paper, agency bonds, corporate and other debt securities, U.S. government agency securities, treasury bills, and certificates of deposit within Level 2 because they are valued using inputs other than quoted prices that are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security, which may not be actively traded. We classify our privately held debt securities as Level 3 due to the lack of relevant observable market data over fair value inputs, such as the probability weighting of the various scenarios that can impact settlement of the arrangement. 81 Table of Contents 5. Business Combinations On May 19, 2022, we acquired 100 % of the issued and outstanding share capital of Solvvy, Inc., a private technology company specializing in customer support automation, for an all-cash purchase consideration of $ 121.2 million. The acquisition adds to our customer service capabilities and enhances our integrated platform by providing conversational AI capabilities. The acquisition has been accounted for as a business combination. In allocating the purchase consideration, $ 95.0 million was attributed to goodwill, $ 26.7 million to intangible assets (consisting of $ 12.0 million to developed technology and $ 14.7 million to customer relationships), and $ 0.5 million to other net liabilities acquired. The goodwill amount represents synergies related to our existing products expected to be realized from the acquisition and assembled workforce. The associated goodwill is not deductible for tax purposes. At the date of the acquisition, the developed technology and customer relationships both had an estimated useful life of 5.0 years, and both are amortized using the straight-line method over their respective estimated useful lives. Amortization expense of developed technology is recorded within cost of revenue in the consolidated statements of operations and amortization expense of customer relationships is recorded within sales and marketing in the consolidated statements of operations. As of January 31, 2023, the developed technology and customer relationships both had a remaining useful life of 4.3 years. Transaction costs incurred in connection with the acquisition were immaterial. The results of operations of Solvvy, Inc., which are not material, have been included in our consolidated financial statements from the date of the acquisition. Pro forma and historical results of operations of the company have not been presented, as the results do not have a material effect on any of the periods presented in our consolidated statements of operations. 6. Balance Sheet Components Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following: As of January 31, 2023 2022 (in thousands) Prepaid expenses 123,493 112,666 Restricted cash from international employee stock sales 13,141 10,236 Other 26,458 22,700 Prepaid expenses and other current assets $ 163,092 $ 145,602 Property and Equipment, Net Property and equipment consisted of the following: As of January 31, 2023 2022 (in thousands) Servers $ 249,776 $ 185,491 Computer and office equipment $ 48,325 $ 39,410 Software 84,082 59,153 Leasehold improvements 25,948 25,340 Furniture and fixtures 4,372 4,565 Property and equipment, gross 412,503 313,959 Less: accumulated depreciation and amortization ( 159,682 ) ( 91,605 ) Property and equipment, net $ 252,821 $ 222,354 Depreciation and amortization expense was $ 77.0 million, $ 47.5 million, and $ 28.4 million for the fiscal years ended January 31, 2023, 2022, and 2021, respectively. 82 Table of Contents Other Assets, Noncurrent Other assets, noncurrent consisted of the following: As of January 31, 2023 2022 (in thousands) Accounts receivable, noncurrent $ 92,031 $ 55,643 Prepaid expense, noncurrent 9,695 16,120 Indefinite-lived intangible assets 25,239 21,020 Intangible assets subject to amortization, net 31,420 2,972 Other 19,489 11,006 Other assets, noncurrent $ 177,874 $ 106,761 Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following: As of January 31, 2023 2022 (in thousands) Accrued expenses $ 160,189 $ 149,658 Accrued compensation and benefits 139,105 126,322 Income tax liabilities 46,441 56,968 Sales and other non-income tax liabilities 33,859 33,305 Customer deposit liabilities 33,640 20,884 Operating lease liabilities, current 22,790 20,697 Other 21,692 22,581 Accrued expenses and other current liabilities $ 457,716 $ 430,415 Other Liabilities, Noncurrent Other liabilities, noncurrent consisted of the following: As of January 31, 2023 2022 (in thousands) Sales and other non-income tax liabilities $ 42,321 $ 53,916 Other 24,874 14,194 Other liabilities, noncurrent $ 67,195 $ 68,110 83 Table of Contents 7. Operating Leases We have entered into various operating lease agreements for office space, with remaining contractual periods of up to six years . We also enter into equipment operating lease agreements related to our Hardware-as-a-Service (“HaaS”) offering. We elect to apply the lessor practical expedient per ASC 842 and account for HaaS with customers as a combined performance obligation with the right to access our unified communications and collaboration platform under ASC 606, Revenue from Contracts with Customers . HaaS was immaterial to our consolidated financial statements. Many of our leases contain one or more options to extend. As leases approach maturity, we consider various factors such as market conditions and the terms of any renewal options that may exist to determine whether we are reasonably certain to exercise the options to extend the lease. Operating lease expense for the fiscal years ended January 31, 2023, 2022 and 2021 was $ 32.7 million, $ 22.8 million and $ 14.5 million , respectively, excluding short-term lease costs, variable lease costs, and sublease income, each of which was immaterial for the fiscal years ended January 31, 2023, 2022 and 2021 . Supplemental balance sheet information related to operating leases was as follows: As of January 31, 2023 2022 (in thousands, except life and percentages) Reported as: Assets: Operating lease right-of-use assets $ 80,906 $ 95,965 Liabilities: Accrued expenses and other current liabilities $ 22,790 $ 20,697 Operating lease liabilities, noncurrent 73,687 85,018 Total operating lease liabilities $ 96,477 $ 105,715 Weighted average remaining lease term 4.3 years 5.1 years Weighted average discount rate 3.8 % 4.0 % Supplemental cash flow and other information related to operating leases was as follows: Year Ended January 31, 2023 2022 2021 (in thousands) Cash payments included in the measurement of our operating lease liabilities $ 27,120 $ 22,679 $ 13,717 Operating lease right-of-use assets recognized in exchange for new operating lease obligations $ 13,857 $ 16,784 $ 39,918 As of January 31, 2023, the future minimum lease payments included in the measurement of our operating lease liabilities are as follows: 84 Table of Contents As of January 31, 2023 (in thousands) Year Ending January 31, 2024 $ 25,886 2025 27,165 2026 21,541 2027 14,119 2028 8,461 Thereafter 8,004 Total operating lease payments $ 105,176 Less: imputed interest ( 8,699 ) Total operating lease liabilities $ 96,477 8. Goodwill and Intangible Assets Goodwill The following table summarizes the changes in the carrying amount of goodwill during the years: As of January 31, 2023 2022 (in thousands) Balance, beginning of the year $ 27,607 $ 24,340 Increase in goodwill related to business combinations 95,034 3,267 Balance, ending of the year $ 122,641 $ 27,607 In the first half of the fiscal year ending January 31, 2023, we acquired Solvvy, Inc., and recorded $ 95.0 million of goodwill. See Note 5 for additional information related to the purchase of Solvvy, Inc. Intangibles The following table summarizes intangible assets with a finite useful life included within other asset, noncurrent on the consolidated balance sheet: As of January 31, 2023 2022 Gross Carrying Amount Accumulated Amortization Net Value Gross Carrying Amount Accumulated Amortization Net Value (in thousands) Customer relationships $ 14,700 $ ( 2,078 ) $ 12,622 $ — $ — $ — Technology 16,190 ( 3,752 ) 12,438 4,190 ( 1,218 ) 2,972 Assembled workforce 7,034 ( 674 ) 6,360 — — — Total $ 37,924 $ ( 6,504 ) $ 31,420 $ 4,190 $ ( 1,218 ) $ 2,972 Intangible asset amortization expense was $ 5.3 million for the year ended January 31, 2023 and less than $ 1.0 million for the years ended January 31, 2022 and 2021. Estimated amortization expense for each of the five succeeding fiscal years and thereafter is as follows: 85 Table of Contents As of January 31, 2023 (in thousands) Year Ending January 31, 2024 7,934 2025 7,956 2026 7,446 2027 6,533 2028 1,551 Thereafter — Total amortization expense 31,420 The following table summarizes intangible assets with an indefinite useful life included within other asset, noncurrent on the consolidated balance sheet: As of January 31, 2023 2022 (in thousands) Domain and IP Addresses $ 20,232 $ 17,020 Patents and Tradenames 5,007 4,000 Total $ 25,239 $ 21,020 For the years ended January 31, 2023, 2022 and 2021, there were no intangible assets impairment losses. 9. Commitments and Contingencies Non-cancelable Purchase Obligations In the normal course of business, we enter into non-cancelable purchase commitments with various parties to purchase primarily software-based services. As of January 31, 2023, we had outstanding non-cancelable purchase obligations with a term of less than 12 months of $ 191.9 million and non-cancelable purchase obligations with a term 12 months or longer of $ 107.0 million. Indemnifications and Contingency Our agreements with certain larger customers include certain provisions for indemnifying customers against liabilities if our services infringe a third party’s intellectual property rights. It is not possible to determine the maximum potential amount under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances that may be involved in each particular agreement. To date, we have not incurred any material costs as a result of such provisions and have not accrued any liabilities related to such obligations in our consolidated financial statements. In addition, we have indemnification agreements with our directors and our executive officers that require us, among other things, to indemnify our directors and executive officers for costs associated with any fees, expenses, judgments, fines, and settlement amounts incurred by any of those persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by us, arising out of that person’s services as our director or officer or that person’s services provided to any other company or enterprise at our request. We maintain director and officer insurance coverage that may enable us to recover a portion of any future indemnification amounts paid. To date, there have been no claims under any of our directors’ and executive officers’ indemnification provisions. Sales and Other Tax Liabilities We conduct operations in many tax jurisdictions. In many jurisdictions, non-income-based taxes, such as sales and use tax and other indirect taxes, are assessed on our operations. Although we are diligent in collecting and remitting such taxes, there is uncertainty as to what constitutes sufficient presence for a jurisdiction to levy taxes, fees, and surcharges for sales made over the Internet. As of January 31, 2023 and 2022, we recorded sales and other tax liabilities of $ 76.2 million and $ 87.2 million, respectively, of which $ 33.9 million and $ 33.3 million are included in accrued expenses and other current liabilities, respectively, and $ 42.3 million and $ 53.9 million are included in other liabilities, noncurrent, respectively, in our consolidated 86 Table of Contents balance sheets, based on our best estimate of the probable liability for the loss contingency incurred as of those dates. Our estimate of a probable outcome under the loss contingency is based on analysis of our sales and marketing activities, revenue subject to sales tax, and applicable regulations in applicable jurisdictions in each period. No significant adjustments to the sales and other tax liabilities have been recognized in the accompanying consolidated financial statements for changes to the assumptions underlying the estimate; however, changes in our assumptions may occur in the future as we obtain new information, which can result in adjustments to the recorded liability. Other Contingencies In June 2020 we received a grand jury subpoena from the Department of Justice’s U.S. Attorney’s Office for Eastern District of New York (“EDNY”), which requested information regarding our interactions with foreign governments and foreign political parties, including the Chinese government, as well as information regarding storage of and access to user data, the development and implementation of Zoom’s privacy policies, and the actions we took relating to videoconference commemorations of the crackdown on the 1989 Tiananmen Square democracy protests. In July 2020, we received subpoenas from the Department of Justice’s U.S. Attorney’s Office for the Northern District of California (“NDCA”) and the SEC. Both subpoenas seek documents and information relating to various security, data protection and privacy matters, including our encryption, and our statements relating thereto, as well as calculation of usage metrics and related public statements. In addition, the NDCA subpoena seeks information relating to any contacts between our employees and representatives of the Chinese government, and any attempted or successful influence by any foreign government in our policies, procedures, practices, and actions as they relate to users in the United States. We have since received additional subpoenas from EDNY and NDCA seeking related information. We are fully cooperating with all of these investigations and have been conducting our own thorough internal investigation. These investigations are ongoing, and we do not know when they will be completed, which facts we will ultimately discover as a result of the investigations, or what actions the government may or may not take. We cannot predict the outcome of these investigations, and a negative outcome in any or all of these matters could cause us to incur substantial fines, penalties, or other financial exposure, as well as reputational harm. Legal Proceedings On April 7, 2020, and April 8, 2020, securities class action complaints were filed against us and two of our officers in the United States District Court for the NDCA. The plaintiffs are purported stockholders of ours. The complaints allege, among other things, that we violated Sections 10(b) and 20(a) of the Exchange Act of 1934, and Rule 10b-5 by making false and misleading statements and omissions of material fact about our data privacy and security measures. The complaints seek unspecified damages, interest, fees, and costs. On May 18, 2020, the actions were consolidated. On November 4, 2020, the court appointed a lead plaintiff. On December 23, 2020, the lead plaintiff filed a consolidated complaint. We filed a motion to dismiss the consolidated complaint on May 20, 2021. Plaintiff filed an opposition to our motion to dismiss on July 9, 2021. Our reply in support of the motion to dismiss was filed on August 9, 2021. On February 16, 2022, the court granted in part, and denied in part, our motion to dismiss. On March 14, 2022, we moved for reconsideration of the court’s ruling on the motion to dismiss. On March 22, 2022, the court ordered plaintiff to respond to our motion, which plaintiff did on March 29, 2022. On April 22, 2022, we answered the complaint. On June 11, 2020 and July 30, 2020, purported shareholder derivative complaints were filed in the United States District Court for the District of Delaware. The first complaint names as defendants nine of our officers and directors and the second complaint names eight of our officers and directors. The lawsuits assert state and federal claims and are based on the same alleged misstatements as the shareholder class action complaint. The lawsuits accuse our board of directors of failing to exercise reasonable and prudent supervision over our management, policies, practices, and internal controls. The plaintiffs seek unspecified monetary damages on behalf of us as well as governance reforms. On September 25, 2020, the derivative cases were consolidated. The consolidated case is stayed pending resolution of the motion to dismiss the securities class action. On October 27, 2021, a third substantially identical lawsuit was filed in the same court against the same defendants, seeking unspecified monetary damages and governance reforms. On November 17, 2021, all three derivative lawsuits were consolidated and remain stayed pending resolution of the motion to dismiss the securities class action. We believe these lawsuits are without merit, and we are vigorously defending ourselves against them. Given the uncertainty of litigation, the preliminary stage of the cases, and the legal standards that must be met for, among other things, class certification and success on the merits, we cannot estimate the reasonably possible loss or range of loss that may result from these actions. Beginning on March 30, 2020, multiple putative class actions were filed against us in various U.S. federal district courts and state courts relating to our alleged privacy and security practices, including alleged data sharing with third parties (the “U.S. Privacy Class Actions”). The plaintiffs claim violations of a variety of state consumer protection and privacy laws, and also assert state constitutional and common law claims, such as negligence and unjust enrichment. The U.S. Privacy Class Actions seek to certify both nationwide and state-specific classes of individuals using our services in certain time periods. The plaintiffs 87 Table of Contents seek various forms of injunctive and monetary relief, including restitution, statutory and actual damages, punitive damages, and attorneys’ fees. The federal cases have been transferred to and consolidated in the NDCA with our consent; lead plaintiffs’ counsel have been appointed; and plaintiffs filed their first amended consolidated class action complaint on October 28, 2020. On March 11, 2021, the court granted in part, and denied in part, our motion to dismiss, and gave plaintiffs leave to amend. On July 30, 2021, we entered into a settlement agreement with plaintiffs to settle the action on a classwide basis, and plaintiffs filed a motion for preliminary approval of the settlement with the court on July 31, 2021. On October 21, 2021, the Court preliminarily approved the settlement. Under the terms of the settlement, we have paid $ 85.0 million into an escrow account that will be used to pay claims filed by settlement class members, attorneys’ fees and expenses, administrative costs, and service payments to plaintiffs. On April 22, 2022, the Court granted final approval of the settlement. On May 19, 2022, two objectors to the settlement appealed the Court's final approval order. On May 20, 2022, a third objector appealed the Court’s final approval order. On October 17, 2022, we, plaintiffs, and all three objector-appellants agreed to settle the appeals, and on December 16, 2022, the Court approved the settlements. On January 13, 2023, an appeal of the order approving the objector-appellant settlements was filed, which is still pending. On May 30, 2022, a new class action was filed against us in the NDCA raising privacy claims similar to those raised in the U.S. Privacy Class Actions on behalf of a putative class of users of Zoom who reside in Australia, New Zealand, Canada, and the United Kingdom and who are not members of the settlement class in the U.S. Privacy Class Actions. On July 12, 2022, we moved to dismiss this new class action and on February 14, 2023, the Court granted the motion to dismiss but allowed plaintiffs leave to amend. We believe this lawsuit is without merit, and we are vigorously defending ourselves against it. Given the uncertainty of litigation, the preliminary stage of the case, and the legal standard must be met for among other things, class certification and success on the merits, we cannot estimate the reasonably possible loss or range of loss that may result from these actions. In addition, from time to time, we are involved in various other legal proceedings arising from the normal course of business activities. We are not presently a party to any other such litigation the outcome of which, we believe, if determined adversely to us, would individually, or taken together, have a material adverse effect on our business, operating results, cash flows, or financial condition. Defending such proceedings is costly and can impose a significant burden on management and employees. We may receive unfavorable preliminary or interim rulings in the course of litigation, and there can be no assurances that favorable final outcomes will be obtained. 10. Stockholders’ Equity and Equity Incentive Plans Preferred Stock In connection with the IPO in April 2019, our amended and restated certificate of incorporation became effective, which authorized the issuance of 200,000,000 shares of undesignated preferred stock with a par value of $ 0.001 with rights and preferences, including voting rights, designated from time to time by our board of directors. As of January 31, 2023 and 2022, there were no shares of convertible preferred stock issued and outstanding. Dual-Class Common Stock Structure In November 2018, we implemented a dual class common stock structure pursuant to which all the then-outstanding shares of our common stock were reclassified as Class B common stock and a new class of Class A common stock was authorized. The Class A common stock is entitled to one vote per share and the Class B common stock is entitled to 10 votes per share. The Class A and Class B common stock have the same dividend and liquidation rights. Each share of Class B common stock will automatically convert into one share of Class A common stock upon (a) any transfer of such share, except for certain permitted transfers described in our amended and restated certificate of incorporation and (b) the death of the holder of such share. In addition, each share of Class B common stock will be automatically converted into one share of Class A common stock upon the earliest of (a) the date that is six months following the death or incapacity of Eric S. Yuan (our CEO), (b) the date that is six months following the date that Mr. Yuan is no longer providing services to us or his employment is terminated for cause, (c) the date specified by the holders of a majority of the then-outstanding shares of convertible preferred stock, voting together on an as-converted basis, and the holders of a majority of the then-outstanding shares of Class B common stock, voting as a separate class, and (d) the 15 -year anniversary of the closing of our IPO. In connection with the implementation of the dual-class common stock structure, each then-outstanding share of our convertible preferred stock became convertible into one share of Class B common stock, and all outstanding options to purchase shares of common stock became options to purchase an equivalent number of shares of Class B common stock. Upon the effectiveness of the amended and restated certificate of incorporation in November 2018, the number of shares of common stock that are authorized to be issued consisted of 320,000,000 shares of Class A common stock, $ 0.001 par value per share and 300,000,000 shares of Class B common stock, $ 0.001 par value per share. Class A and Class B common stock are collectively referred to as “common stock” throughout the notes to the consolidated financial statements, unless otherwise noted. 88 Table of Contents Equity Financing On January 15, 2021, we completed our follow-on public offering, in which we issued and sold 5,882,353 shares of our Class A common stock, including 735,294 shares pursuant to the full exercise of the underwriter's option to purchase additional shares, at $ 340.00 per share. We received aggregate proceeds of $ 1,980.0 million, net of underwriters’ discounts and commissions. The other related offering costs were immaterial. Common Stock Upon the completion of the IPO in April 2019, our amended and restated certificate of incorporation became effective, which also authorized the issuance of 2,000,000,000 shares of Class A common stock, $ 0.001 par value per share and 300,000,000 shares of Class B common stock, $ 0.001 par value per share. We have the following shares of Class A common stock reserved for future issuance: As of January 31, 2023 2022 Stock options outstanding 4,800,616 6,195,205 RSUs outstanding 21,868,533 5,546,366 ESPP purchase rights outstanding 2,851,856 1,784,687 Remaining shares available for future issuance under the 2011 and 2019 plan 51,367,359 56,620,720 Remaining shares available for future issuance under the ESPP 11,930,797 10,685,867 Total shares of Class A common stock reserved 92,819,161 80,832,845 Stock Repurchase Plan In February 2022, our Board of Directors authorized a stock repurchase program of up to $ 1.0 billion of our Class A common stock, which was completed in December 2022. During the year ended January 31, 2023, we purchased and subsequently retired 11,170,907 shares of our Class A common stock for an aggregate amount of $ 1.0 billion. Equity Incentive Plans In 2011, we adopted the 2011 Global Share Plan (“2011 Plan”), under which officers, employees, and consultants were granted various forms of equity incentive compensation at the discretion of the board of directors, including stock options and restricted stock awards. In connection with the IPO, the shares of Class B common stock remaining available for issuance under the 2011 Plan became available for issuance for a corresponding number of shares of our Class A common stock under the 2019 Equity Incentive Plan (“2019 Plan”), which is a successor to and continuation of our 2011 Plan. In April 2019, we adopted the 2019 Plan, which became effective in connection with our IPO. Our 2019 Plan provides for the grant of stock options, stock appreciation rights, RSU awards, performance awards, and other forms of awards. The awards generally vest over four years . The plan administrator determines the term of stock options granted under the 2019 Plan, up to a maximum of 10 years. The maximum number of shares of our Class A common stock that may be issued under our 2019 Plan will not exceed 58,300,889 shares of our Class A common stock, which is the sum of (1) 34,000,000 new shares, plus (2) an additional number of shares not to exceed 24,300,889 , consisting of (A) shares that remain available for the issuance of awards under our 2011 Plan as of immediately prior to the time our 2019 Plan becomes effective and (B) shares of Class B common stock subject to outstanding stock options or other stock awards granted under our 2011 Plan that, on or after the 2019 Plan became effective, terminate, or expire prior to exercise or settlement; are not issued because the award is settled in cash; are forfeited because of the failure to vest; or are reacquired or withheld (or not issued) to satisfy a tax withholding obligation or the purchase or exercise price, if any, as such shares become available from time to time. In addition, the number of shares of our Class A common stock reserved for issuance under our 2019 Plan automatically increases on February 1 of each calendar year, starting on February 1, 2020 through February 1, 2029, in an amount equal to (i) 5 % of the total number of shares of our common stock (both Class A and Class B) outstanding on January 31 of the fiscal year before the date of each automatic increase or (ii) a lesser number of shares determined by our board of directors prior to the applicable February 1. 89 Table of Contents Stock Options A summary of stock option activity under our equity incentive plan and related information is as follows: Stock Options Outstanding Stock Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Life (Years) Aggregate Intrinsic Value (in thousands, except share, life and per share data) Outstanding as of January 31, 2022 6,195,205 $ 8.08 6.0 $ 905,744 Exercised ( 1,299,758 ) $ 6.60 $ 121,539 Canceled/forfeited/expired ( 94,831 ) $ 21.11 Outstanding as of January 31, 2023 4,800,616 $ 8.22 4.9 $ 322,929 Vested and expected to vest as of January 31, 2023 4,800,616 $ 8.22 4.9 $ 322,929 Exercisable as of January 31, 2023 4,747,885 $ 7.77 4.9 $ 321,287 There were no options granted for the fiscal years ended January 31, 2023, 2022 and 2021. The intrinsic value of the options exercised, which represents the difference between the fair market value of our common stock on the date of exercise and the exercise price of each option, was $ 121.5 million, $ 843.0 million, and $ 1,786.7 million during the fiscal years ended January 31, 2023, 2022, and 2021, respectively. As of January 31, 2023, unrecognized stock-based compensation expense related to outstanding unvested stock options was $ 1.2 million, which is expected to be recognized over a weighted-average period of 0.3 years. Restricted Stock Units A summary of RSU activity under our equity incentive plan and related information is as follows: RSUs Unvested RSUs Weighted-Average Grant Date Fair Value Per Share Unvested as of January 31, 2022 5,546,366 $ 232.58 Granted 22,136,660 $ 93.20 Vested ( 3,977,915 ) $ 173.22 Forfeited ( 1,836,578 ) $ 148.82 Unvested as of January 31, 2023 21,868,533 $ 109.31 In October 2021, we added a feature that modified certain existing RSU awards to provide for a supplemental award based on certain future stock price criteria. The feature was subsequently modified in March and October 2022 to provide potential additional supplemental awards. The features and resulting modifications resulted in incremental stock-based compensation expense that is being recognized from the respective modification dates through the remaining requisite service period for each of the original awards. In November 2022, we cancelled one of the features related to a sub-population of the modified awards. As a result, the amount of the unrecognized compensation cost as calculated using a Monte Carlo valuation approach related to the cancelled awards of $ 207.7 million was recognized during the quarter ended January 31, 2023. As of January 31, 2023, unrecognized stock-based compensation expense related to outstanding unvested RSUs was $ 2,579.0 million, including the impact of the modification, which is expected to be recognized over a weighted-average period of 2.8 years. 2019 Employee Stock Purchase Plan In April 2019, we adopted the 2019 ESPP, which became effective in connection with the IPO. A total of 9,000,000 shares of our Class A common stock were initially reserved for issuance under the ESPP. The number of shares of our Class A common stock reserved for issuance automatically increases on February 1 of each calendar year, beginning on February 1, 2020 through February 1, 2029, by the lesser of (1) 1 % of the total number of shares of our common stock (both Class A and Class B) outstanding on the last day of the fiscal year before the date of the automatic increase, and (2) 7,500,000 shares; provided that before the date of any such increase, our board of directors may determine that such increase will be less than the amount set forth in clauses (1) and (2). 90 Table of Contents Under our current ESPP, Class A common stock will be purchased for the accounts of employees participating in the ESPP at a price per share equal to the lesser of (1) 85 % of the fair market value of a share of our Class A common stock on the first date of an offering or (2) 85 % of the fair market value of a share of our Class A common stock on the date of purchase. No employee may purchase shares under the ESPP at a rate in excess of $ 25,000 worth of our Class A common stock based on the fair market value per share of our Class A common stock at the beginning of an offering for each calendar year such purchase right is outstanding or 3,000 shares. The 2019 ESPP provides for, at maximum, 27 months offering periods with four offering dates, generally in June and December of each year. The first offering period began on April 18, 2019. During the fiscal years ended January 31, 2023, 2022, and 2021, 678,279 , 838,395 , and 923,553 shares, respectively, of our Class A common stock were purchased under the ESPP. As of January 31, 2023, unrecognized stock-based compensation expense related to the ESPP was $ 72.7 million, which is expected to be recognized over a weighted-average period of 1.4 years. We estimated the fair value of ESPP purchase rights using a Black-Scholes option-pricing model with the following assumptions: Year Ended January 31, 2023 2022 2021 Expected term (years) 0.5 - 2.0 0.5 - 2.1 0.5 - 2.1 Expected volatility 57.6 % - 64.6 % 40.3 % - 75.0 % 40.3 % - 75.0 % Risk-free interest rate 2.2 % - 4.8 % 0.0 % - 2.5 % 0.1 % - 2.5 % Expected dividend yield — — — The stock-based compensation expense by line item in the accompanying consolidated statements of operations is summarized as follows: Year Ended January 31, 2023 2022 2021 (in thousands) Cost of revenue $ 174,546 $ 69,612 $ 34,960 Research and development 361,720 113,000 50,161 Sales and marketing 532,371 229,297 146,377 General and administrative 217,115 65,378 44,320 Total stock-based compensation expense 1,285,752 477,287 275,818 Benefit from income taxes ( 199,971 ) ( 84,245 ) — Total stock-based compensation expense recorded to net income $ 1,085,781 $ 393,042 $ 275,818 11. Income Taxes The components of the net income before the provision for (benefit from) income taxes were as follows: Year Ended January 31, 2023 2022 2021 (in thousands) Domestic $ 196,224 $ 1,047,318 $ 663,909 Foreign 53,052 54,314 14,125 Total $ 249,276 $ 1,101,632 $ 678,034 The provision for (benefit from) income taxes was as follows: 91 Table of Contents Year Ended January 31, 2023 2022 2021 (in thousands) Current: Federal $ 254,505 $ 69,853 $ — State 33,548 20,174 1,023 Foreign 18,473 12,027 3,933 Total current income tax expense 306,526 102,054 4,956 Deferred: Federal ( 173,941 ) ( 293,704 ) 689 State 16,673 ( 82,561 ) 248 Foreign ( 3,693 ) 204 ( 175 ) Total deferred income tax expense ( 160,961 ) ( 376,061 ) 762 Total provision for (benefit from) income taxes $ 145,565 $ ( 274,007 ) $ 5,718 The provision for (benefit from) income taxes differs from the amount computed by applying the statutory federal tax rate as follows: Year Ended January 31, 2023 2022 2021 (in thousands, except percentages) Tax at federal statutory rate $ 52,277 $ 231,350 $ 142,387 State taxes 13,666 24,840 636 Foreign rate differential 1,017 1,830 89 Non-deductible compensation 10,231 — — Stock-based compensation 124,631 ( 135,250 ) ( 302,362 ) Permanent Items 9,090 3,971 2,228 Foreign-derived intangible income deduction ( 76,686 ) ( 34,131 ) — Research and development credits ( 38,127 ) ( 42,973 ) ( 3,170 ) Tax uncertainties 2,296 244 ( 607 ) Change in valuation allowance 39,288 ( 322,231 ) 165,869 Deferred rate change 2,014 — — Other 5,868 ( 1,658 ) 648 Total $ 145,565 $ ( 274,007 ) $ 5,718 Effective tax rate 58.4 % ( 24.9 ) % 0.8 % Deferred income taxes result from differences in the recognition of amounts for tax and financial reporting purposes, as well as operating loss and tax credit carryforwards. Significant components of our deferred income tax assets as of January 31, 2023 and 2022 are as follows: 92 Table of Contents As of January 31, 2023 2022 (in thousands) Deferred tax assets: Net operating loss carryforwards $ 14,788 $ 21,558 Research and development credit carryforwards 12,792 9,985 Stock-based compensation 116,798 44,490 Accruals and reserves 39,758 14,475 Deferred revenue 303,167 260,322 Capitalized research expenditures 245,708 131,010 Operating lease liabilities 23,140 25,892 Total deferred tax assets 756,151 507,732 Valuation allowance ( 53,570 ) ( 12,605 ) Total deferred tax assets net of valuation allowance 702,581 495,127 Deferred tax liabilities: Property and equipment and intangible assets ( 36,274 ) ( 26,733 ) Deferred contract acquisition costs ( 89,839 ) ( 62,814 ) Operating right-of-use assets ( 19,352 ) ( 23,466 ) Total deferred tax liabilities ( 145,465 ) ( 113,013 ) Net deferred tax assets $ 557,116 $ 382,114 The realization of tax benefits of net deferred tax assets is dependent upon future levels of taxable income, of an appropriate character, in the periods the items are expected to be deductible or taxable. Based on the available objective evidence during the year ended January 31, 2023, we continue to believe that it is more likely than not that the tax benefits of the U.K. net deferred tax assets may not be realized. Accordingly, we maintained a full valuation allowance against the tax benefits of these net deferred tax assets. Based on the available objective evidence during the year ended January 31, 2023, we believe that it is more likely than not that the tax benefits relating to U.S. losses that are capital in nature may not be realized prior to expiration. Accordingly, we have maintained a valuation allowance against these deferred tax assets. Based on the available objective evidence during the year ended January 31, 2023, we believe that it is more likely than not that the tax benefits of certain state net deferred tax assets may not be realized. Management applied significant judgement in assessing the positive and negative evidence available in the determination of the amount of certain state deferred tax assets that were more likely than not to be realized in the future. Accordingly, given our current earnings, anticipated future earnings, and continued accumulation of certain state tax credits, we have recorded a full valuation allowance against the tax benefits of these deferred tax assets. We intend to maintain the applicable valuation allowance until sufficient positive evidence exists to support a reversal of, or decrease in, the valuation allowance. As of January 31, 2023, we had net operating loss carryforwards of approximately $ 22.9 million for federal income tax purposes, $ 26.9 million for state income tax purposes, which will begin to expire in the year 2033 if unused. We also had certain foreign net operating loss carryforwards of $ 32.5 million, which have an indefinite life. As of January 31, 2023, we also had research and development credit carryforwards of approximately $ 1.2 million for federal income tax purposes and $ 22.8 million for state income tax purposes. The federal research and development tax credits have a twenty-year carryover period while the state research and development tax credits carry forward indefinitely. The federal and state net operating loss carryforwards may be subject to significant limitations under Section 382 and Section 383 of the Internal Revenue Code of 1986 and similar provisions under state law. Such provisions limit the net operating loss carryforwards that may be used in any given year in the event of special occurrences, including significant ownership changes. We have completed a Section 382 review and determined that materially none of our operating losses will expire solely due to Section 382 limitation(s). We indefinitely reinvest earnings from our foreign subsidiaries and therefore no deferred tax liability has been recognized on the basis difference created by such earnings. We have not provided foreign withholding taxes for any undistributed earnings of our foreign subsidiaries. 93 Table of Contents A reconciliation of the beginning and ending balance of total unrecognized tax benefits is as follows: Unrecognized Tax Benefits (in thousands) Year Ended January 31, 2023 2022 2021 Balance, beginning of year $ 19,171 $ 14,884 $ 8,106 Tax Positions taken in prior year: Gross increases 877 — 314 Gross decreases — ( 3,764 ) — Tax Positions taken in current year: Gross increases 10,547 8,211 6,001 Gross decreases — — — Lapse of Statute of Limitations ( 191 ) ( 160 ) ( 422 ) Acquisitions — — 885 Balance, end of year $ 30,404 $ 19,171 $ 14,884 As of January 31, 2023, gross unrecognized tax benefits related to uncertain tax positions were $ 30.4 million ($ 32.5 million total, including $ 1.6 million associated with interest and penalties). As of January 31, 2022, gross unrecognized tax benefits related to uncertain tax positions were $ 19.2 million ($ 19.6 million total, including $ 0.4 million associated with interest and penalties). As of January 31, 2021, gross unrecognized tax benefits related to uncertain tax positions were $ 14.9 million ($ 15.0 million total, including $ 0.1 million associated with interest and penalties). We recognized approximately $ 1.6 million, $ 0.4 million, and $ 0.1 million in potential interest and penalties associated with uncertain tax positions during fiscal years ended January 31, 2023, 2022, and 2021, respectively. To the extent taxes are not assessed with respect to uncertain tax positions, substantially all amounts accrued (including interest and penalties) will be reduced and reflected as a reduction of the overall income tax provision. Unrecognized tax benefits and associated accrued interest and penalties are included in our income tax provision. We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and various foreign jurisdictions. As of January 31, 2023, all of the years remain open to examination by the federal and state tax authorities, for three or four years from the tax year in which net operating losses or tax credits are utilized. We believe that an adequate provision has been made for any adjustments that may result from tax examinations. Although the timing of the resolution, settlement, and closure of audits is not certain, we do not believe it is reasonably possible that our unrecognized tax benefits will materially change in the next 12 months. As required by the 2017 Tax Cuts and Jobs Act, we are capitalizing research and development expenses incurred in fiscal year 2023. These expenses are capitalized and amortized over five years for domestic research and fifteen years for international research. The mandatory capitalization requirement increased our cash tax liabilities but also decreased our effective tax rate due to increasing the foreign-derived intangible income deduction. The cash flow impact may decrease over time as capitalized research and development expenditures continue to amortize. The Inflation Reduction Act was signed into law in August 2022. The act included tax provisions for a 15% corporate book income minimum tax effective for tax years beginning after December 31, 2022. We do not expect the Inflation Reduction Act to have a material impact on our consolidated financial statements. 94 Table of Contents 12. Net Income Per Share Attributable to Common Stockholders The following table sets forth the computation of basic and diluted net income per share attributable to common stockholders for the periods presented: Year Ended January 31, 2023 2022 2021 Class A Class B Class A Class B Class A Class B Numerator: (in thousands, except share and per share data) Net income $ 87,246 $ 16,465 $ 1,105,368 $ 270,271 $ 432,968 $ 239,348 Less: undistributed earnings attributable to participating securities — ( 7 ) — ( 582 ) — ( 789 ) Net income attributable to common stockholders, basic $ 87,246 $ 16,458 $ 1,105,368 $ 269,689 $ 432,968 $ 238,559 Reallocation of net income attributable to common stockholders ( 1,205 ) 1,205 ( 23,891 ) 23,891 ( 14,321 ) 14,321 Net income attributable to common stockholders, diluted $ 86,041 $ 17,663 $ 1,081,477 $ 293,580 $ 418,647 $ 252,880 Denominator: Weighted-average shares used in computing net income per share attributable to common stockholders, basic 249,494,904 47,065,597 238,214,936 58,119,958 183,015,245 100,838,409 Weighted-average shares used in computing net income per share attributable to common stockholders, diluted 252,413,234 51,818,116 240,531,470 65,295,035 185,860,412 112,267,257 Net income per share attributable to common stockholders, basic $ 0.35 $ 0.35 $ 4.64 $ 4.64 $ 2.37 $ 2.37 Net income per share attributable to common stockholders, diluted $ 0.34 $ 0.34 $ 4.50 $ 4.50 $ 2.25 $ 2.25 The potential shares of common stock that were excluded from the computation of diluted net income per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive are as follows: Year Ended January 31, 2023 2022 2021 Class A Class B Class A Class B Class A Class B Outstanding stock options 88,019 — — — 51,444 — Unvested RSUs 9,228,633 — 1,015,860 — 98,941 — Purchase rights committed under the ESPP 1,674,853 — 241,107 — 14,951 — Total 10,991,505 — 1,256,967 — 165,336 — For the years ended January 31, 2023, 2022, and 2021, the table above does not include 405,156 of issued Class A common stock held by us that are reserved for the sole purpose of being transferred to nonprofit organizations. 13. Subsequent Events On February 7, 2023, we announced a restructuring plan (the “Plan”) intended to reduce operating costs and continue advancing our ongoing commitment to profitable growth. The Plan includes a reduction of our current workforce by approximately 15 %. Decisions regarding the elimination of positions are subject to local law and consultation requirements in certain countries, as well as our business needs. We estimate that we will incur approximately $ 50 million to $ 68 million in charges in connection with the Plan, which will be substantially incurred in the first quarter of fiscal year 2024. These charges primarily relate to employee transition, severance payments, employee benefits, and stock-based compensation. Of the aggregate amount of charges that we estimate we will incur in connection with the Plan, we expect that approximately $ 43 million to $ 59 million will be in future cash expenditures. 95 Table of Contents The actions associated with the employee restructuring under the Plan are expected to be substantially complete by the first quarter of fiscal year 2024, subject to local law and consultation requirements. The estimates of the charges and expenditures that we expect to incur in connection with the Plan, and the timing thereof, are subject to a number of assumptions, including local law requirements in various jurisdictions, and actual amounts may differ materially from estimates. In addition, we may incur other charges or cash expenditures not currently contemplated due to unanticipated events that may occur, including in connection with the implementation of the Plan. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.