What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-04 compared with 2023-03-03 · 111 added, 91 removed, 325 unchanged (38% of the section changed)

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

Our mission is to make communications frictionless and secure.

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

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

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

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

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

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

Our mission is to provide one platform that delivers limitless human connection.

Zoom is an intelligent, secure collaboration platform that makes connecting easier, more immersive, and more dynamic for businesses and individuals.

We’re committed to evolving our platform in ways that empower limitless human connection and solve real business problems.

All of our product innovation has a unified goal:

to help streamline the workday through effective communication and collaboration tools.

The Zoom platform makes teamwork more meaningful, drives impact with intelligence, strengthens customer relationships, and enables seamless workflows.

Additionally, trust is a cornerstone of the

Zoom platform.

We equip users with a comprehensive set of tools to make their interactions safe, secure, and private.

We believe that strong security should never compromise a great user experience.

We’re on a mission to reimagine the way we communicate and collaborate in a hybrid working world.

The Zoom platform brings employee and customer experience together that people love to use.

Flagship products like Zoom Meetings, Zoom Phone, and Zoom Team Chat are among the core products on the platform that are critical to business communication and collaboration needs.

We strive to continue building a platform that helps people work smarter, be more engaged with work, and better connect with each other.

AI has been core to Zoom’s product DNA over many years, grounded in our conviction that AI can make work more human by strengthening collaboration, productivity, and inclusivity.

In fiscal year 2024, we continued to invest in AI and focused on three key areas regarding AI innovation:

supporting individual productivity, powering better collaboration, and helping customer-facing teams delight their customers.

We recently launched Zoom AI Companion, our smart assistant that is designed to empower workers to increase productivity, improve team effectiveness, and enhance skills.

Additionally, we introduced our federated approach to AI, which enables us to make Zoom’s AI capabilities accessible and affordable so that more people can incorporate them in their day-to-day workflows.

In line with our commitment to responsible AI, Zoom does not use customer audio, video, chat, screen sharing, attachments, or other communications (such as poll results, whiteboard, and reactions) to train Zoom’s or third-party AI models.

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

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

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

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

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

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

Subscription revenue is driven primarily by the number of customers as well as purchases of additional products, including Zoom Phone, Zoom Spaces, Zoom Events, Zoom Contact Center and Zoom Revenue Accelerator.

We define a customer as a separate and distinct buying entity, which can be a single paid user or an organization of any size (including a distinct unit of an organization) that has multiple users.

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

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

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

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

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

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

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

Our revenue was $4,527.2 million, $4,393.0 million, and $4,099.9 million for the fiscal years ended January 31, 2024, 2023, and 2022, respectively, representing year-over-year growth of 3.1% and 7.1%, respectively.

We had net income of $637.5 million, $103.7 million, and $1,375.6 million for the fiscal years ended January 31, 2024, 2023, and 2022, respectively.

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Macroeconomic Conditions and other Factors

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

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

Recent macroeconomic shifts, including high inflation, elevated interest rates, and the responses by central banking authorities, potential recessionary environments, and fluctuations in foreign currency exchange rates, have introduced uncertainty to our business.

Additionally, the possibility of a U.S.

federal government shutdown, resulting from budgetary challenges, may negatively impact global economic conditions, influencing corporate and consumer spending as well as capital market liquidity.

For the fiscal year ended January 31, 2024, we continued to experience growth in total revenue and revenue from Enterprise customers.

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

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

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

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

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

As reported in prior periods we experienced significant revenue growth.

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

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

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

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

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

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

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

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

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

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

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

For example, we have experienced and may continue to experience elongated sales cycles as well as a decrease in customers’ overall corporate spending, which is negatively impacting our revenue growth rate and net dollar expansion rate for Enterprise customers.

In addition, for the fiscal year ended January 31, 2024, we experienced unfavorable foreign currency impact as a result of the continued strengthening of the U.S.

dollar compared to certain foreign jurisdictions where we do a significant amount of business, which resulted in a $34.1 million

negative impact on revenue for the fiscal year ended January 31, 2024.

Many factors may contribute to declines in our growth rate as compared to prior fiscal years, among other things, higher market penetration, increased competition, slowing demand for our platform, a slower than anticipated capitalization on growth opportunities, and the maturation of our business.

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

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

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

The restructuring plan included a reduction of our then-current workforce by approximately 15%.

In addition, the global impacts stemming from the Russian invasion of Ukraine and the recent conflict in Israel and the surrounding area continue to present a high level of uncertainty.

Our customers in these regions collectively represented approximately 1% of our net assets and total consolidated revenue as of and for the fiscal year ended January 31, 2024.

If the conflicts in these regions persist or worsen, possibly leading to additional sanctions, tightened export restrictions, and greater global economic disruptions and uncertainty, our business and results of operations could be materially impacted.

Refer to “Part I, Item 1A.

Risk Factors” of this Annual Report on Form 10-K for further discussions of the potential impacts of the current macroeconomic conditions on our business.

Key Factors Affecting Our Performance

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

While we believe there is a significant market

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

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

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

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

This expansion in the use of our platform also provides us with opportunities to market and sell additional products to our customers, such as Zoom for Home, Rooms at each office location, Developer Platform solutions, Spaces, Events, Contact Center and IQ for Sales.

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

This expansion in the use of our platform also provides us with opportunities to market and sell additional products to our customers, such as Zoom Phone, Spaces, Contact Center, Revenue Accelerator, Events and Developer Platform Solutions.

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

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

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

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

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

Revenue from Enterprise customers represented 57.9%, 54.8% and 47.6% of total revenue for the fiscal years ended January 31, 2024, 2023 and 2022, respectively.

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

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

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

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

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

For example, we have recently introduced a number of new products and enhancements including Zoom AI Companion, new features for Zoom Contact Center, Zoom Notes, integration of Workvivo into the Zoom desktop client, and ongoing enhancements for Zoom Phone, Meetings, Zoom Rooms, Huddles, Webinars and Zoom Events.

We also deliver Zoom Phone calling plans in more than 45 countries and territories as of January 31, 2024.

We also recently announced several upcoming products including Zoom Docs and an enhanced version of AI Companion that is designed to allow the handling of complex tasks across our platform using information from multiple sources including third party applications.

These products are expected to be generally available in 2024.

In April 2023, we acquired Workvivo, an employee experience platform that combines internal communication and engagement tools, a social intranet, and an employee app.

With the acquisition, we continue our evolution to provide a collaboration platform that enables modern work and powers the digital-first workplace, offering our customers new ways to keep employees informed, engaged, and connected.

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

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Our revenue from the rest of world (APAC and EMEA) represented 28.7%, 30.5%, and 33.3% of our total revenue for the fiscal years ended January 31, 2024, 2023, and 2022, respectively.

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

The decrease in revenue from the rest of the world in the fiscal years ended January 31, 2024 and 2023 was due to the impact of the strengthening of the U.S dollar along with macroeconomic conditions in the EMEA region.

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

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

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

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

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

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Net cash used in investing activities $ (1,183,689) $ (318,322) $ (2,859,097)

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

Net cash provided by (used in) financing activities $ 60,186 $ (936,942) $ 34,068

Components of Results of Operations

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

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

The amount of revenue recognized reflects

the consideration that we expect to receive in exchange for these services over the contract term which can include a free period discount.

Cost of Revenue

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and allocated overhead.

(Losses) gains on Strategic Investments, Net

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

Gains (Losses) on Strategic Investments, Net

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

Other Income (Expense), Net

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Income from operations 525,279 245,429 1,063,591

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

Gains (losses) on strategic investments, net

109,770 (37,571) 43,761

Other income (expense), net 197,263 41,418 (5,720)

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

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

Income before provision for (benefit from) income taxes

832,312 249,276 1,101,632

Provision for (benefit from) income taxes

194,850 145,565 (274,007)

Net income $ 637,462 $ 103,711 $ 1,375,639

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Income from operations 11.6 % 5.6 % 25.9 %

(Losses) gains on strategic investments, net

Gains (losses) on strategic investments, net

2.4 % (0.9) % 1.1 %

Other income (expense), net 4.4 % 1.0 % (0.1) %

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

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

Income before provision for (benefit from) income taxes

18.4 % 5.7 % 26.9 %

Provision for (benefit from) income taxes

4.3 % 3.3 % (6.7) %

Net income 14.1 % 2.4 % 33.6 %

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Revenue for the fiscal year ended January 31, 2024 increased by $134.3 million, or 3.1%, compared to the fiscal year ended January 31, 2023.

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

The increase in revenue was due to an 8.7% increase in revenue from subscription services provided to Enterprise customers, of which 80.3% and 19.7% were from existing and new customers, respectively.

This increase was partially offset by a 3.8% decline in revenue from subscription services provided to Online customers.

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Gross margin 76.2 % 74.9 %

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

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

Cost of revenue for the fiscal year ended January 31, 2024, decreased by $22.7 million, or 2.1%, compared to the fiscal year ended January 31, 2023.

The decrease was primarily due to a $22.5 million decrease in personnel-related expenses, which includes a $32.6 million decrease in stock-based compensation expense, driven by a prior year change in our equity program, partially offset by restructuring and related expenses of $7.1 million and a $2.9 million increase in payroll taxes and benefits.

Gross margin increased to 76.2% for the fiscal year ended January 31, 2024 from 74.9% for the fiscal year ended January 31, 2023.

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

in addition, during the current fiscal year, we reinstated the 40-minute time limit for meetings with more than two endpoints from our free Basic accounts for more than 125,000 K-12 school domains worldwide, which was temporarily lifted at the onset of the COVID-19 pandemic.

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

The increase in gross margin was mainly due to the decrease in personnel-related expenses.

Operating Expenses

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Research and development expense for the fiscal year ended January 31, 2024, increased by $29.1 million, or 3.8%, compared to the fiscal year ended January 31, 2023.

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

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

The increase was primarily due to a $15.7 million increase in personnel-related expenses, which includes a $25.8 million increase in payroll taxes and benefits, and $19.6 million in restructuring and related expenses, partially offset by a $29.7 million decrease in stock-based compensation expense, driven by a prior year change in our equity program.

The remaining increase was primarily due to a $4.3 million increase in software costs.

Sales and Marketing

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Sales and marketing $ 1,541,307 $ 1,696,590 $ (155,283) (9.2) %

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

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

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

Sales and marketing expense for the fiscal year ended January 31, 2024, decreased by $155.3 million, or 9.2%, compared to the fiscal year ended January 31, 2023.

The decrease in sales and marketing expense was primarily due to a $167.5 million decrease personnel-related expenses, which includes a $159.3 million decrease in stock-based compensation expense, driven by a prior year change in our equity program, and a $41.0 million decrease in payroll taxes and benefits, partially offset by

restructuring and related expenses of $32.9 million.

The decrease in personnel-related expenses was partially offset by a $23.4 million increase in channel partner referral fees.

General and Administrative

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General and administrative expense for the fiscal year ended January 31, 2024, increased by $3.2 million, or 0.6%, compared to the fiscal year ended January 31, 2023.

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

Gains on Strategic Investments, Net

The increase in general and administrative expense was primarily due to $34.8 million increase in legal expense, including litigation settlements, and restructuring and related expenses of $13.3 million;

partially offset by $24.3 million decrease in stock-based compensation expense, driven by a prior year change in our equity program and $14.4 million decrease in administrative overhead.

Gains (Losses) on Strategic Investments, Net

Year Ended January 31,

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(in thousands, except percentages)

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

Losses on strategic investments, net recognized during the fiscal year ended January 31, 2023 were primarily driven by $36.8 million of unrealized losses recognized on our publicly traded equity securities, while gains on strategic investments, net recognized during the fiscal year ended January 31, 2022 were driven by $49.9 million of unrealized gains recognized on our privately held equity securities, partially offset by $6.2 million unrealized losses recognized on our publicly traded equity securities.

Other (Expense) Income, Net

Gains (losses) on strategic investments, net $ 109,770 $ (37,571) $ 147,341 392.2 %

Gains on strategic investments, net, of $109.8 million for the fiscal year ended January 31, 2024, was driven by realized and unrealized gains on our publicly and privately held securities, while losses on strategic investments, net, of $37.6 million for the fiscal year ended January 31, 2023, were primarily driven by unrealized losses recognized on our publicly traded equity securities.

Other Income, Net

Year Ended January 31,

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(in thousands, except percentages)

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

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

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

Provision for (Benefit from) Income Taxes

Other income, net $ 197,263 $ 41,418 $ 155,845 376.3 %

Other income, net for the fiscal year ended January 31, 2024 increased by $155.8 million, or 376.3%, compared to the fiscal year ended January 31, 2023.

The increase was mainly driven by an increase of $155.9 million in investment yield on our marketable securities.

Provision for Income Taxes

Year Ended January 31,

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(in thousands, except percentages)

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

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

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

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

Provision for income taxes $ 194,850 $ 145,565 $ 49,285 33.9 %

Provision for income taxes for the fiscal year ended January 31, 2024 increased by $49.3 million, or 33.9%, compared to the fiscal year ended January 31, 2023.

The change in income taxes was primarily due to changes in income before taxes, tax shortfalls on stock-based compensation, the foreign-derived intangible income deduction, and the valuation allowance recorded against certain federal, state, and foreign deferred tax assets as of January 31, 2024.

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

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

Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, the recent changes in macroeconomic conditions such as high inflation, recessionary environments, and the fluctuations in foreign currency exchange rates, could impact the timing of cash collections from our customers and other risks detailed in the section titled “Risk Factors.” However, based on our current business plan and revenue prospects, we believe our existing cash, cash equivalents, and marketable securities, together with net cash provided by operations, will be sufficient to meet our needs for at least the next 12 months and allow us to capitalize on growth opportunities.

Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, the recent macroeconomic shifts, such as high inflation, changes in interest rates and the responses by central banking authorities, potential recessionary environments, and the fluctuations in foreign currency exchange rates, which could impact the timing of cash collections from our customers and other risks detailed in the section titled “Risk Factors.” However, based on our current business plan and revenue prospects, we believe our existing cash, cash equivalents, and marketable securities, together with net cash provided by operations, will be sufficient to meet our needs for at least the next 12 months and allow us to capitalize on growth opportunities.

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

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

See the “Future minimum lease payments” table in Note 7 and “Non-cancelable Purchase Obligations” in Note 9 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for more details.

Refer to the “Future minimum lease payments” table in Note 7 and “Non-cancelable Purchase Obligations” in Note 9 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for more details.

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

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Net cash used in investing activities $ (1,183,689) $ (318,322) $ (2,859,097)

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

Net cash provided by (used in) financing activities $ 60,186 $ (936,942) $ 34,068

Operating Activities

Our largest source of operating cash is cash collections from our customers for subscriptions to our platform.

Our primary uses of cash from operating activities are for employee-related expenditures, costs related to hosting our platform, and marketing expenses.

Our primary uses of cash from operating activities are for employee-related expenditures, costs related to hosting our platform, and

marketing expenses.

Net cash provided by operating activities is impacted by our net income adjusted for certain non-cash items, such as stock-based compensation expense, depreciation and amortization expenses, as well as the effect of changes in operating assets and liabilities.

Net cash provided by operating activities was $1,598.8 million for the fiscal year ended January 31, 2024, compared to $1,290.3 million for the fiscal year ended January 31, 2023.

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

The increase in operating cash flow was mainly driven by higher net income of $533.8 million and the positive impact from changes in operating assets and liabilities of $158.2 million, offset by a decrease in non-cash adjustments of $383.5 million, which is primarily a result of higher gains on strategic investments, net, and lower stock-based compensation expense.

Investing Activities

Net cash used in investing activities of $1,183.7 million for the fiscal year ended January 31, 2024 was due to net purchases of marketable securities of $951.4 million, cash paid for acquisition, net of cash acquired, of $204.9 million, purchases of property and equipment of $127.0 million, purchases of strategic investments of $70.5 million, partially offset by proceeds from strategic investments of $170.1 million.

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

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

Financing Activities

Net cash provided by financing activities of $60.2 million for the fiscal year ended January 31, 2024 was due to proceeds from issuance of common stock pursuant to our employee stock purchase plan (“ESPP”) of $54.1 million and proceeds from the exercise of stock options of $10.2 million, partially offset by proceeds from employee equity transactions remitted to employees and tax authorities, net, of $4.1 million.

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

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

For a discussion of the fiscal year ended January 31, 2022, please refer to Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2023.

Stock Repurchase Program

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

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

In February 2024, our Board of Directors authorized a stock repurchase program of up to $1.5 billion of our Class A common stock.

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

The timing and the amount of any repurchased Class A common stock will be determined by our management based on its evaluation of market conditions and other factors.

The repurchase program will be funded using our working capital.

Any repurchased shares of Class A common stock will be retired.

The repurchase program does not obligate us to acquire any particular amount of Class A common stock, and the repurchase program may be suspended or discontinued at any time at our discretion.

As of March 1, 2024, there have been no repurchases made.

Off-Balance Sheet Arrangements

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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.

We do not pay sales commissions upon contract renewal.

Sales commission is generally not paid upon contract renewal.

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

11 unchanged sentences

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

We routinely evaluate the estimated remaining useful

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

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

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

31 unchanged sentences

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

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

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

For the fiscal year ending January 31, 2024, 2023 and 2022, 19.3% , 20.0% and 22.6% of our revenue, respectively and 13.7%, 10.8% and 16.8% of our expenses, respectively were denominated in currencies other than the U.S.

The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our historical consolidated financial statements for the fiscal years ended January 31, 2024, 2023, and 2022.

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

As the impact of

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

Interest Rate Risk

10 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis