You should read the following discussion and analysis of our financial condition
and results of operations together with the consolidated financial statements
and related notes included elsewhere in this Annual Report on Form 10-K. This
discussion contains forward-looking statements based upon current expectations
that involve risks and uncertainties. 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.

Overview

Our mission is to make video communications frictionless and secure.



Zoom enables users to connect to others, share ideas, make plans, and build
toward a future limited only by their imagination. Our frictionless
communications platform started with video as its foundation, and we have set
the standard for innovation ever since. We connect people through our core
unified communications offering, which frictionlessly brings together video,
phone, chat, and webinars, and enables meaningful experiences across disparate
devices and locations. Our Developer Platform enables customers, developers, and
service providers to easily build apps and integrations on top of Zoom's
industry-leading video communications platform, with opportunities for global
discovery and distribution. Our virtual and hybrid event solutions allow users
to seamlessly create and manage engaging events. We believe that face-to-face
communications build greater empathy and trust. We strive to live up to the
trust our customers place in us by delivering a communications solution while
prioritizing their privacy and security. Our 24 co-located data centers
worldwide and the public cloud enable us to provide both high-quality and
high-definition, real-time video to our customers even in low-bandwidth
environments.

We generate revenue from the sale of subscriptions to our unified communications
platform. Subscription revenue is driven primarily by the number of paid hosts
as well as purchases of additional products, including Zoom Rooms, Zoom
Webinars, Zoom Phone, Zoom Events, and Hardware-as-a-Service ("HaaS") for rooms
and phones. A host is any user of our unified communications platform who
initiates a Zoom Meeting and invites one or more participants to join that
meeting. We refer to hosts who subscribe to a paid Zoom Meeting plan as "paid
hosts." We define a customer as a separate and distinct buying entity, which can
be a single paid user or host or an organization of any size (including a
distinct unit of an organization) that has multiple paid hosts. Our Basic
offering is free and gives hosts access to Zoom Meetings with core features but
with the limitation that meetings with more than two endpoints time-out at 40
minutes. Our paid offerings include our Pro, Business, Enterprise, Education,
and Healthcare plans, which provide incremental features and functionality, such
as different participant limits, administrative controls, and reporting.

For Zoom Phone, plans include Zoom Phone Pro, which provides
extension-to-extension calling or can be used with the Bring Your Own Carrier
model wherein the customer connects Zoom Phone to an existing carrier. We also
offer Regional Unlimited and Regional Metered calling plans in three specific
markets (United States/Canada, United Kingdom/Ireland, and Australia/New
Zealand). In addition, we introduced the Global Select plan in August 2020,
which allows customers to select from local numbers and domestic calling in more
than 45 countries and territories where Zoom has local public switched telephone
network ("PSTN") coverage. In addition, the Zoom United plan launched in
December 2020 provides a single license for customers to purchase Zoom Phone,
Meetings and chat capabilities as a bundled offering.

Our revenue was $4,099.9 million, $2,651.4 million, and $622.7 million for the
fiscal years ended January 31, 2022, 2021, and 2020, respectively, representing
period-over-period growth rate of 55% and 326% for fiscal year 2022 and fiscal
year 2021, respectively. We had net income of $1,375.6 million, $672.3 million,
and $25.3 million for the fiscal years ended January 31, 2022, 2021, and 2020,
respectively. Net cash provided by operating activities was $1,605.3 million,
$1,471.2 million, and $151.9 million for the fiscal years ended January 31,
2022, 2021, and 2020, respectively.
                                       44

--------------------------------------------------------------------------------

Table of Contents

Impact of the COVID-19 Pandemic



In March 2020, the World Health Organization declared COVID-19 a pandemic,
affecting many countries around the world. Governments have instituted lockdown
or other similar measures to slow infection rates. Many organizations have
resorted to mandating employees to work from home, which has resulted in these
organizations seeking out video communication solutions like ours to keep
employees as productive as possible, even while working from home. Schools,
colleges, and universities globally have also closed as a result of this
pandemic. Many of these institutions are utilizing our platform to provide
remote instruction to their students. To help teachers and students navigate
this unprecedented situation, we have temporarily removed the 40-minute time
limit for meetings with more than two endpoints from our free Basic accounts for
more than 125,000 K-12 domains worldwide.

While we have experienced a significant increase in paid hosts and revenue due
to the pandemic, the aforementioned factors have also driven increased usage of
our services and have required us to expand our network, data storage, and
processing capacity, both in our own co-located data centers as well as through
third-party cloud hosting, which has resulted, and is continuing to result, in
an increase in our operating costs. Furthermore, a significant portion of the
increase in usage of our platform is attributable to free Basic accounts and our
removal of the time limit for school domains, which do not generate any revenue,
but still require us to incur these additional operating costs to expand our
capacity. Therefore, the recent increase in usage of our platform has adversely
affected, and may continue to adversely affect, our gross margin.

In addition, there is no assurance that we will experience an increase in paid
hosts or that new or existing users will continue to utilize our service after
the COVID-19 pandemic has tapered globally. Moreover, the tapering of the
COVID-19 pandemic, particularly as vaccines become widely available and
distributed, may result in a decline in paid hosts and users once individuals
are no longer working or attending school from home.

Key Factors Affecting Our Performance

Acquiring New Customers



We are focused on continuing to grow the number of customers that use our
platform. 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. We will need to continue to invest in sales and marketing in order to
address this opportunity by hiring, developing, and retaining talented sales
personnel who are able to achieve desired productivity levels in a reasonable
period of time.

Expansion of Zoom Across Existing Customers



We believe that there is a large opportunity for growth with many of our
existing customers. Many customers have increased the size of their
subscriptions as they have expanded their use of our platform across their
operations. Some of our larger customers start with a deployment of Zoom
Meetings with one team, location, or geography, before rolling out our platform
throughout their organization. Several of our largest customers have deployed
our platform globally to their entire workforce following smaller initial
deployments. This expansion in the use of our platform also provides us with
opportunities to market and sell additional products to our customers, such as
Zoom Phone, Zoom HaaS, Zoom for Home, Zoom Rooms at each office location,
Developer Platform solutions, Zoom Events, and Zoom Video Webinars. In order for
us to address this opportunity to expand the use of our products with our
existing customers, we will need to maintain the reliability of our platform and
produce new features and functionality that are responsive to our customers'
requirements for enterprise-grade solutions.

We quantify our expansion across existing customers through our net dollar
expansion rate. Our net dollar expansion rate includes the increase in user
adoption within our customers, as our subscription revenue is primarily driven
by the number of paid hosts within a customer and the purchase of additional
products, and compares our subscription revenue from the same set of customers
across comparable periods. We calculate net dollar expansion rate as of a period
end by starting with the annual recurring revenue ("ARR") from all customers
with more than 10 employees as of 12 months prior ("Prior Period ARR"). We
define ARR as the annualized revenue run rate of subscription agreements from
all customers at a point in time. We calculate ARR by taking the monthly
recurring revenue ("MRR") and multiplying it by 12. MRR is defined as the
recurring revenue run-rate of subscription agreements from all customers for the
last month of the period, including revenue from monthly subscribers who have
not provided any indication that they intend to cancel their subscriptions. We
then calculate the ARR from these customers as of the current period end
("Current Period ARR"), which includes any upsells, contraction, and attrition.
We divide the Current Period ARR by the Prior Period ARR to arrive at the net
dollar expansion rate. For the trailing 12-months calculation, we take an
average of the net dollar expansion rate over the trailing 12 months. Our net
dollar expansion rate may fluctuate as a result of a number of factors,
including the level of penetration within our customer base, expansion of
products and features, and our ability to retain our customers. Our trailing
12-month net dollar expansion rate for customers with more
                                       45

--------------------------------------------------------------------------------

Table of Contents



than 10 employees was 129% as of January 31, 2022 and greater than 130% as of
January 31, 2021 and 2020. The trailing 12-month net dollar expansion rate for
customers with more than 10 employees was under 130% as of January 31, 2022 as
the denominator of this trailing 12-month metric reflects the significant growth
in our customer base during the last two years.

As our business has changed and evolved, we have expansively built out our
direct sales team, resellers, and strategic partners. We expect that revenue
from customers engaged through these channels, which we call Enterprise
customers, will constitute an increasingly higher percentage of our revenue over
time, and therefore we believe our performance with Enterprise customers is a
more important factor affecting our business than our performance with existing
customers with more than 10 employees. Beginning with the first quarter of
fiscal year 2023, we will no longer present the trailing 12-month net dollar
expansion rate for customers with more than 10 employees. However, we will still
provide this metric through the end of fiscal year 2023 in the appendix to the
investor deck that we will continue to post on our investor relations website
each quarter at investors.zoom.us. Going forward, we will instead provide the
trailing 12-month net dollar expansion rate for Enterprise customers.

Expansion of Zoom Across Existing Enterprise Customers



Our net dollar expansion rate for Enterprise customers is calculated the same
way as discussed above by applying the ARR specifically from Enterprise
customers. We define Enterprise customers as distinct business units who have
been engaged by either our direct sales team, resellers, or strategic partners.
We assess our performance with Enterprise customers by measuring our net dollar
expansion rate. Our net dollar expansion rate for Enterprise customers measures
our ability to increase revenue across our existing Enterprise customer base
through expansion of users and products. Our trailing 12-month net dollar
expansion rate for Enterprise customers was 130% as of January 31, 2022, and
greater than 130% as of January 31, 2021 and 2020, respectively.

Innovation and Expansion of Our Platform



We continue to invest resources to enhance the capabilities of our platform. For
example, we have recently introduced a number of product enhancements, including
new features for Zoom Phone, Zoom Meetings, and Zoom Webinars. We addressed new
work-from-home realities with the introduction of Zoom for Home, a solution
designed for the home office that combines Zoom software enhancements with
compatible hardware. We also expanded our geographic footprint with Zoom Phone
availability to more than 45 countries and territories during fiscal year 2022.
Third-party developers are also a key component of our strategy for platform
innovation to make it easier for customers and developers to extend our product
portfolio with new functionalities. We believe that as more developers and other
third parties use our platform to integrate major third-party applications, we
will become the ubiquitous platform for communications. We will need to expend
additional resources to continue introducing new products, features, and
functionality, and supporting the efforts of third parties to enhance the value
of our platform with their own applications.

An end-to-end encryption ("E2EE") option is available to free and paid Zoom
customers globally who host meetings with up to 200 participants. Zoom's E2EE
uses the same AES-256-GCM encryption that secures Zoom meetings by default, but
with Zoom's E2EE, the meeting host generates encryption keys and uses public key
cryptography to distribute these keys to the other meeting participants.

In July 2021, we introduced Zoom Events. Zoom Events provides businesses with a
virtual event management solution and enables users to manage and host all types
of internal and external virtual events. This includes the ability to create a
"hub" where all of a business' events can be listed with corresponding
information about each experience. It also enables event hosts to provide
ticketing and registration for attendees, and the ability to track these
activities.

International Expansion



Our platform addresses the communications needs of users worldwide, and we see
international expansion as a major opportunity. Our revenue from the rest of
world (APAC and EMEA) represented 33%, 31%, and 19% of our total revenue for the
fiscal years ended January 31, 2022, 2021, and 2020, respectively. We plan to
add local sales support in further select international markets over time. We
use strategic partners and resellers to sell in certain international markets
where we have limited or no direct sales presence. While we believe global
demand for our platform will continue to increase as international market
awareness of Zoom grows, our ability to conduct our operations internationally
will require considerable management attention and resources, and is subject to
the particular challenges of supporting a rapidly growing business in an
environment of multiple languages, cultures, customs, legal and regulatory
systems, alternative dispute systems, and commercial markets.
                                       46

--------------------------------------------------------------------------------

Table of Contents

Key Business Metrics

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

Customers with More Than 10 Employees



Increasing awareness of our platform and its broad range of capabilities has
enabled us to substantially expand our customer base, which includes
organizations of all sizes across industries. We define a customer as a separate
and distinct buying entity, which can be a single paid host or an organization
of any size (including a distinct unit of an organization) that has multiple
paid hosts. To better distinguish business customers from our broader customer
base, we review the number of customers with more than 10 employees. As of
January 31, 2022, 2021, and 2020, we had approximately 509,800, 467,100, and
81,900 customers, respectively, with more than 10 employees. When disclosing the
number of customers, we round down to the nearest hundred.

As we approach our three-year anniversary as a public company, our business has
evolved substantially and the metrics that management uses to evaluate the
business have changed. Beginning with the first quarter of fiscal year 2023, we
will no longer present the number of customers with more than 10 employees.
However, we will still provide this metric through the end of fiscal year 2023
in the appendix to the investor deck that we will continue to post on our
investor relations website each quarter at investors.zoom.us.

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



We focus on growing the number of customers that contribute more than $100,000
of trailing 12 months revenue as it is a measure of our ability to scale with
our customers and attract larger organizations to Zoom. Revenue from these
customers represented 22%, 20%, and 33% of total revenue for the fiscal years
ended January 31, 2022, 2021, and 2020, respectively. As of January 31, 2022,
2021, and 2020, we had 2,725, 1,644, and 641 customers, respectively, that
contributed more than $100,000 of trailing 12 months revenue, demonstrating our
rapid penetration of larger organizations, including enterprises. These
customers are a subset of the customers with more than 10 employees.

Number of Enterprise Customers



We believe that our ability to increase the number of Enterprise customers is an
indicator of our potential future business opportunities, the growth of our
business, and an indicator of our market penetration. Increasing awareness of
our platform and capabilities, coupled with the mainstream adoption of our
technology, has expanded the diversity of our customer base to include
organizations of all sizes across all industries. Over time, we expect
Enterprise customers to represent a larger share of our business. As of
January 31, 2022, 2021, and 2020, we had approximately 191,000, 141,100, and
54,600 Enterprise customers.

Non-GAAP Financial Measures

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

Free Cash Flow and Adjusted Free Cash Flow



We define FCF as GAAP net cash provided by operating activities less purchases
of property and equipment. We define Adjusted FCF as FCF plus litigation
settlement payments, net. We add back litigation settlement payments, net
because they are not part of our ongoing operating activities, and the
consideration of measures that exclude such payments can assist in the
comparison of cash generated from operations in different periods which may or
may not include such payments and assist in the comparison with the results of
other companies in the industry. We believe that FCF and Adjusted FCF are useful
indicators of liquidity that provides information to management and investors
about the amount of cash generated from our operations that, after investments
in property and equipment, can be used for future growth. FCF and Adjusted FCF
are presented for supplemental informational purposes only, have limitations as
an analytical tool, and should not be considered in isolation or as a substitute
for analysis of other GAAP financial measures, such as net cash provided by
operating activities. It is important to note that other companies, including
companies in our industry, may not use these metrics, may calculate these
metrics differently, or may use other financial measures to evaluate their
liquidity, all of which could reduce the usefulness of these non-GAAP metrics as
a comparative measure.

The following table presents a summary of our cash flows for the fiscal years
presented and a reconciliation of FCF and Adjusted FCF to net cash provided by
operating activities, the most directly comparable financial measure calculated
in accordance with GAAP:
                                       47

--------------------------------------------------------------------------------


  Table of     Contents

                                                          Year Ended January 31,
                                                  2022              2021             2020

                                                              (in thousands)

Net cash provided by operating activities $ 1,605,266 $ 1,471,177

$ 151,892

Less: purchases of property and equipment (132,590) (79,972) (38,084) Free cash flow (non-GAAP)

$  1,472,676      $  1,391,205      $  113,808
Add: Litigation settlement payments, net           85,000                 -               -
Adjusted free cash flow (non-GAAP)           $  1,557,676      $  1,391,205      $  113,808
Net cash used in investing activities        $ (2,859,097)     $ (1,562,420)     $ (499,468)
Net cash provided by financing activities    $     34,068      $  2,050,277

$ 615,690

Components of Results of Operations

Revenue



We derive our revenue from subscription agreements with customers for access to
our unified communications platform. Our customers generally do not have the
ability to take possession of our software. We also provide services, which
include professional services, consulting services, and online event hosting,
which are generally considered distinct from the access to our unified
communications platform.

Cost of Revenue



Cost of revenue primarily consists of costs related to hosting our unified
communications platform and providing general operating support services to our
customers. These costs are related to our co-located data centers, third-party
cloud hosting, integrated third-party PSTN services, personnel-related expenses,
amortization of capitalized software development and acquired intangible assets,
royalty payments, and allocated overhead. We expect our cost of revenue to
increase in absolute dollars for the foreseeable future, as we expand our data
center capacity due to increased usage over time. However, the cost of revenue
as a percentage of revenue may decrease over time as we scale our data centers
to accommodate usage from our increased customer base and as the ratio of free
to paid users varies.

Operating Expenses

Research and Development

Research and development expenses primarily consist of personnel-related
expenses directly associated with our research and development organization,
depreciation of equipment used in research and development, and allocated
overhead. Research and development costs are expensed as incurred. We plan to
increase our investment in research and development for the foreseeable future,
primarily by increasing research and development headcount, as we focus on
further developing our platform, enhancing its use cases, and strengthening
security and privacy. As a result, we expect our research and development
expenses to increase in absolute dollars during the upcoming fiscal year. We
expect, however, that our research and development expenses as a percentage of
revenue will remain relatively flat during the upcoming fiscal year.

Sales and Marketing



Sales and marketing expenses primarily consist of personnel-related expenses
directly associated with our sales and marketing organization. Other sales and
marketing expenses include advertising and promotional events to promote our
brand, such as awareness programs, digital programs, public relations,
tradeshows, and our user conference, Zoomtopia, and allocated overhead. Sales
and marketing expenses also include credit card processing fees related to sales
and amortization of deferred contract acquisition costs. We plan to increase our
investment in sales and marketing over the foreseeable future, primarily by
increasing the headcount of our direct sales force and marketing investments in
demand generation. As a result, we expect our sales and marketing expenses to
increase in absolute dollars during the upcoming fiscal year. We expect,
however, that our sales and marketing expenses as a percentage of revenue will
remain relatively flat during the upcoming fiscal year.

General and Administrative



General and administrative expenses primarily consist of personnel-related
expenses associated with our finance and legal organizations; professional fees
for external legal, accounting, and other consulting services; expected credit
losses; insurance; indirect taxes; litigation settlements, and allocated
overhead. We expect to increase the size of our general and administrative
function to support the growth and complexity of our business. As a result, we
expect our general and
                                       48

--------------------------------------------------------------------------------

Table of Contents



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

Gains on Strategic Investments, Net

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

Other (Expense) Income, Net

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

(Benefit from) provision for Income Taxes

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


                                       49

--------------------------------------------------------------------------------

Table of Contents

Results of Operations



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

                                                                   Year Ended January 31,
                                                                      2022                 2021                2020

                                                                                  (in thousands)
Revenue                                                          $

4,099,864 $ 2,651,368 $ 622,658 Cost of revenue (1)

                                                1,054,554              821,989             115,396
Gross profit                                                       3,045,310            1,829,379             507,262
Operating expenses:
Research and development (1)                                         362,990              164,080              67,079
Sales and marketing (1)                                            1,135,959              684,904             340,646
General and administrative (1)                                       482,770              320,547              86,841
Total operating expenses                                           1,981,719            1,169,531             494,566
Income from operations                                             1,063,591              659,848              12,696
Gains on strategic investments, net                                   43,761                2,538                   -
Other (expense) income, net                                           (5,720)              15,648              13,666
Income before (benefit from) provision for income
taxes                                                              1,101,632              678,034              26,362
(Benefit from) provision for income taxes                           (274,007)               5,718               1,057
Net income                                                       $ 

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



(1) Includes stock-based compensation expense as
follows:
Cost of revenue                                                  $    69,612          $    34,960          $    7,860
Research and development                                             113,000               50,161              11,645
Sales and marketing                                                  229,297              146,377              41,465
General and administrative                                            65,378               44,320              12,139
Total stock-based compensation expense                           $   477,287          $   275,818          $   73,109


                                                                     Year Ended January 31,
                                                                          2022                   2021                   2020

                                                                                  (as a percentage of revenue)
Revenue                                                                       100  %                 100  %                 100  %
Cost of revenue                                                                26                     31                     19
Gross profit                                                                   74                     69                     81
Operating expenses:
Research and development                                                        8                      6                     11
Sales and marketing                                                            27                     26                     55
General and administrative                                                     12                     12                     13
Total operating expenses                                                       47                     44                     79
Income from operations                                                         27                     25                      2
Gains on strategic investments, net                                             1                      -                      -
Other (expense) income, net                                                     0                      1                      2
Income before (benefit from) provision for
income taxes                                                                   28                     26                      4
(Benefit from) provision for income taxes                                      (6)                     1                      0
Net income                                                                     34  %                  25  %                   4  %


                                       50

--------------------------------------------------------------------------------

Table of Contents

Comparison of Fiscal Years Ended January 31, 2022 and 2021



Revenue

                               Year Ended January 31,
                2022             2021           $ Change        % Change

                         (in thousands, except percentages)
Revenue     $ 4,099,864      $ 2,651,368      $ 1,448,496           55  %


Revenue for the fiscal year ended January 31, 2022 increased by
$1,448.5 million, or 55%, compared to the fiscal year ended January 31, 2021.
Due to the COVID-19 pandemic, there was an expansion in usage of our services,
and many organizations around the world continued utilizing our platform to
support their operations remotely. As a result, the increase in revenue was
primarily due to subscription services provided to existing customers, which
accounted for approximately 70% of the increase, and to subscription services
provided to new customers, which accounted for approximately 30% of the
increase.

Cost of Revenue
                                     Year Ended January 31,
                       2022             2021           $ Change       % Change

                               (in thousands, except percentages)
Cost of revenue   $ 1,054,554       $  821,989       $  232,565           28  %
Gross profit        3,045,310        1,829,379        1,215,931           66  %
Gross margin               74  %            69  %


Cost of revenue for the fiscal year ended January 31, 2022 increased by
$232.6 million, or 28%, compared to the fiscal year ended January 31, 2021. In
response to the COVID-19 pandemic, we have temporarily removed the 40-minute
time limit for meetings with more than two endpoints from our free Basic
accounts for more than 125,000 K-12 school domains worldwide. We also
experienced a significant increase in usage from paid users as more companies
utilized our platform to allow their employees to work remotely. This increase
in usage resulted in an increase of $83.5 million in costs related to
third-party cloud hosting, our co-located data centers, and integrated
third-party PSTN services to support the increase in customers and expanded use
of our unified communications platform by existing customers. The remaining
increase was primarily due to an increase of $99.0 million in personnel-related
expenses mainly driven by additional headcount, which includes a $34.7 million
increase in stock-based compensation expense; an increase of $26.6 million
related to subscription to software-based services; an increase of $9.3 million
in allocated overhead expenses; and an increase of $8.6 million in professional
services mainly for customer support.

Gross margin increased to 74% for the fiscal year ended January 31, 2022 from
69% for the fiscal year ended January 31, 2021. The increase in gross margin was
mainly due to increased efficiencies as we expanded our data center capacity to
accommodate the increased usage as well as lower rates from third-party cloud
hosting providers.

Operating Expenses

Research and Development


                                           Year Ended January 31,
                              2022           2021         $ Change       % Change

                                     (in thousands, except percentages)

Research and development $ 362,990 $ 164,080 $ 198,910 121 %




Research and development expense for the fiscal year ended January 31, 2022
increased by $198.9 million, or 121%, compared to the fiscal year ended
January 31, 2021. The increase was primarily due to higher personnel-related
expenses of $182.1 million mainly driven by additional headcount, which includes
a $62.8 million increase in stock-based compensation expense. The remainder of
the increase was primarily attributable to an increase of $11.6 million in
allocated overhead expenses, and an increase of $6.8 million related to
subscription to software-based services.
                                       51

--------------------------------------------------------------------------------


  Table of     Contents

Sales and Marketing
                                         Year Ended January 31,
                            2022            2021         $ Change       % Change

                                   (in thousands, except percentages)
Sales and marketing     $ 1,135,959      $ 684,904      $ 451,055           66  %


Sales and marketing expense for the fiscal year ended January 31, 2022 increased
by $451.1 million, or 66%, compared to the fiscal year ended January 31, 2021.
The increase in sales and marketing expense was primarily due to higher
personnel-related expenses of $308.2 million, mainly driven by additional
headcount in our sales force to support the increased demand, which includes an
increase of $82.9 million in stock-based compensation expense; and an increase
of $73.0 million in amortization of deferred contract acquisition costs driven
by our increase in revenue. The remaining increase was primarily due to an
increase of $104.4 million in marketing and sales event-related costs mainly due
to an increase in digital advertising programs, an increase of $19.1 million in
credit card processing fees as a result of increased online payments, an
increase of $17.1 million in allocated overhead expenses, and an increase of
$8.4 million related to subscription to software-based services.

General and Administrative

                                              Year Ended January 31,
                                 2022           2021         $ Change       % Change

                                        (in thousands, except percentages)
General and administrative    $ 482,770      $ 320,547      $ 162,223           51  %


General and administrative expense for the fiscal year ended January 31, 2022
increased by $162.2 million, or 51%, compared to the fiscal year ended
January 31, 2021. The increase in general and administrative expense was
primarily due to an increase of $72.2 million in personnel-related expenses
mainly driven by additional headcount, which includes a $21.1 million increase
in stock-based compensation expense; an increase of $66.9 million in litigation
settlement expense, net of amounts estimated to be covered by insurance; an
increase of $44.1 million related to professional services composed primarily of
legal and other consulting fees; and an increase of $28.8 million related to
subscription to software-based services. This is partially offset by a decrease
of $31.8 million related to a contingent liability for sales and other indirect
taxes, and a decrease of $23.3 million due to charitable donations related
mainly to shares transferred to a donor advised fund in the fiscal year ended
January 31, 2021.

Gains on Strategic Investments, Net



                                                        Year Ended January 31,
                                            2022            2021        $ Change      % Change

                                                  (in thousands, except percentages)

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




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

Other (Expense) Income, Net

                                              Year Ended January 31,
                                 2022           2021        $ Change       % Change

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


Other (expense) income, net for the fiscal year ended January 31, 2022 decreased
by $21.4 million, or 137%, compared to the fiscal year ended January 31, 2021.
The decrease was primarily attributable to a decrease of $19.2 million related
to changes in foreign currency exchange rates.
                                       52

--------------------------------------------------------------------------------

Table of Contents

(Benefit from) Provision for Income Taxes



                                                             Year Ended January 31,
                                                 2022          2021         $ Change       % Change

                                                       (in thousands,

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




Benefit from income taxes for the fiscal year ended January 31, 2022 was
$274.0 million, compared to a provision for income taxes of $5.7 million the
fiscal year ended January 31, 2021. The change in income taxes was primarily due
to the valuation allowance release on the U.S. federal and state deferred tax
assets. See Note 10 "Income Taxes" to our consolidated financial statements
included in Part II, Item 8 of this Form 10-K for more details on the valuation
allowance release.

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

Liquidity and Capital Resources

As of January 31, 2022, our principal sources of liquidity were cash, cash equivalents, and marketable securities of $5.4 billion, which were held for working capital purposes and for investment in growth opportunities. Our marketable securities generally consist of high-grade commercial paper, corporate bonds, agency bonds, corporate and other debt securities, U.S. government agency securities, and treasury bills.



We have financed our operations primarily through income from operations and
sales of equity securities. Cash from operations could also be affected by
various risks and uncertainties, including, but not limited to, the effects of
the COVID-19 pandemic, including timing of cash collections from our customers
and other risks detailed in the section titled "Risk Factors." However, based on
our current business plan and revenue prospects, we believe our existing cash,
cash equivalents, and marketable securities, together with net cash provided by
operations, will be sufficient to meet our needs for at least the next 12 months
and allow us to capitalize on growth opportunities. We believe we will meet
longer-term expected future cash requirements and obligations through a
combination of cash flows from operating activities and available cash balances.
Our future capital requirements will depend on many factors, including our
revenue growth rate, subscription renewal activity, billing frequency, the
timing and extent of spending to support further sales and marketing and
research and development efforts, as well as expenses associated with our
international expansion, and the timing and extent of additional capital
expenditures to invest in existing and new office spaces as well as data center
infrastructure. We may, in the future, enter into arrangements to acquire or
invest in complementary businesses, services, and technologies, including
intellectual property rights. We may choose or be required to seek additional
equity or debt financing. In the event that additional financing is required
from outside sources, we may not be able to raise it on terms acceptable to us
or at all. If we are unable to raise additional capital when desired, our
business, results of operations, and financial condition would be materially and
adversely affected.

Our material cash requirements from known contractual and other obligations primarily relate to our leases for office space and equipment, as well as non-cancelable purchase obligations. Expected timing of those payments are as follows:



                                                                        Payments Due by Period
                                                         Less Than        1 - 3         3 - 5        More Than
                                            Total         1 Year          Years         Years         5 Years

                                                                     (in thousands)
Operating lease obligations              $ 117,763      $  24,490      $  

47,787 $ 30,171 $ 15,315 Non-cancelable purchase obligations 386,594 227,182 159,412

             -              -
Total contractual obligations            $ 504,357      $ 251,672      $ 

207,199 $ 30,171 $ 15,315




The contractual commitment amounts in the table above are associated with
agreements that are enforceable and legally binding. Obligations under contracts
that we can cancel without a significant penalty are not included in the table
above. See the "Future minimum lease payments" table in Note 7 and
"Non-cancelable Purchase Obligations" in Note 8 to our consolidated financial
statements included in Part II, Item 8 of this Form 10-K for more details.
                                       53

--------------------------------------------------------------------------------

Table of Contents

Cash Flows

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



                                                          Year Ended January 31,
                                                  2022              2021             2020

                                                              (in thousands)

Net cash provided by operating activities $ 1,605,266 $ 1,471,177

$  151,892
Net cash used in investing activities        $ (2,859,097)     $ (1,562,420)     $ (499,468)
Net cash provided by financing activities    $     34,068      $  2,050,277      $  615,690


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. 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 $1,605.3 million for the fiscal
year ended January 31, 2022, compared to $1,471.2 million for the fiscal year
ended January 31, 2021. The increase in operating cash flow was due to an
increase in net income of $703.3 million, offset by the negative impact from
changes in operating assets and liabilities of $506.3 million, and a decrease in
non-cash adjustments of $62.9 million, which is primarily a result of the income
tax benefit from release of valuation allowance and higher gains from strategic
investments, offset by higher stock-based compensation expense, higher deferred
contract acquisition cost amortization due to an increase in capitalized
commissions as we continue to grow and expand our customer base, and higher
provision for accounts receivable allowances due to higher accounts receivable
balances.

Investing Activities

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

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

Financing Activities

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

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

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

Stock Repurchase Program



In February 2022, our board of directors authorized a stock repurchase program
of up to $1.0 billion of our Class A common, which expires in February 2024.
Repurchases of our Class A common stock may be effected from time to time,
either on the open market (including pre-set trading plans), in privately
negotiated transactions, and other transactions in accordance with applicable
securities laws.
                                       54

--------------------------------------------------------------------------------

Table of Contents

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

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

Off-Balance Sheet Arrangements

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

Critical Accounting Estimates



Critical accounting estimates are those accounting estimates that require the
most difficult, subjective or complex judgments, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain.
These estimates are developed based on historical experience and various other
assumptions that we believe to be reasonable under the circumstances. Critical
accounting estimates are accounting estimates where the nature of the estimates
are material due to the levels of subjectivity and judgment necessary to account
for highly uncertain matters or the susceptibility of such matters to change and
the impact of the estimates on financial condition or operating performance is
material.

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

Revenue Recognition



We derive our revenue primarily from subscription agreements with customers for
access to our unified communications platform and services. We also provide
other services, which include professional services, consulting services, and
online event hosting, which were immaterial to our consolidated financial
statements. Revenue is recognized when a customer obtains control of promised
services. The amount of revenue recognized reflects the consideration that we
expect to receive in exchange for these services. We apply judgment during the
identification of a contract to determine the customer's ability and intent to
pay, which is based on a variety of factors, including the customer's historical
payment experience or, in the case of a new customer, credit and financial
information pertaining to the customer. The transaction price is determined
based on the consideration to which we expect to be entitled in exchange for
transferring services to the customer. Variable consideration is included in the
transaction price if, in our judgment, it is probable that a significant future
reversal of cumulative revenue recognized under the contract will not occur.

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. Significant
judgment is required in arriving at this estimated period of benefit. We
determine the period of benefit for commissions paid for the acquisition of the
initial customer contract by taking into consideration the initial estimated
customer life and the technological life of our unified communications platform
and related significant features. We do not pay sales commissions upon contract
renewal. Amortization is recognized on a straight-line basis commensurate with
the pattern of revenue recognition.

Allowance for Credit Losses



The allowance for credit losses is based on management's estimate for expected
credit losses for outstanding accounts receivable. We determine expected credit
losses based on historical write-off experience, an analysis of the aging of
outstanding receivables, customer payment patterns, the establishment of
specific reserves for customers in an adverse financial condition, and adjust
based upon our expectations of changes in macroeconomic conditions that may
impact the collectibility of outstanding receivables, including noncurrent
accounts receivable. We also consider current market conditions and reasonable
                                       55

--------------------------------------------------------------------------------

Table of Contents

and supportable forecasts of future economic conditions to inform adjustments to historical loss data. We reassess the adequacy of the allowance for credit losses each reporting period.

Business Combinations and Valuation of Goodwill and Intangible Assets



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.

Goodwill amounts are not amortized, but rather tested for impairment at least
annually, in the fourth quarter of each fiscal year, or more often if
circumstances indicate that the carrying value may not be recoverable. As of
January 31, 2022, no impairment of goodwill has been identified.

Intangible assets consist of acquired identifiable intangible assets resulting
from business combinations, as well as other intangible assets purchased outside
of a business combination. 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. We have not recorded any
impairment charges during the fiscal years presented.

Employee Stock Purchase Plan Valuation



We account for stock-based compensation expense related to our ESPP purchase
rights based on the estimated grant date fair value, which is calculated using
the Black-Scholes option pricing model and the aggregate number of shares of our
common stock expected to be purchased under each offering. The assumptions used
to determine the fair value of the ESPP purchase rights, including the expected
term of the awards, the expected volatility of the price of our common stock,
risk-free interest rates, and the expected dividend yield of our common stock,
represent management's best estimates. These estimates involve inherent
uncertainties and the application of management's judgment. The related
stock-based compensation expense is recognized on a straight-line basis over the
term of each ESPP offering period, which is generally two years. We account for
modifications to employee contributions as they occur.

Our use of the Black-Scholes option-pricing model requires the input of subjective assumptions. If factors change and different assumptions are used, our stock-based compensation expense could be materially different for the current period and in the future.

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



•Risk-Free Interest Rate. The risk-free interest rate for the expected term of
the awards was based on the U.S. Treasury yield curve in effect at the time of
the grant.

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



•Expected Volatility. For the ESPP purchase rights granted during the fiscal
year ended January 31, 2021, as we have a limited trading history for our common
stock, the expected volatility was estimated by taking the average historic
price volatility for industry peers, consisting of several public companies in
our industry which are either similar in size, stage of life cycle, or financial
leverage, over a period equivalent to the expected term of the awards. For the
ESPP purchase rights granted during the fiscal year ended January 31, 2022,
expected volatility was determined using a combination of the implied volatility
of publicly traded options in our stock and historical volatility of our stock
price.

•Expected Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. As a result, an expected dividend yield of zero percent was used.


                                       56

--------------------------------------------------------------------------------

Table of Contents

Strategic Investments

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



Valuations of privately held securities are inherently complex and require
judgment due to the lack of readily available market data. Privately held debt
and equity securities are valued using significant unobservable inputs or data
in an inactive market. The valuation requires our judgment due to the absence of
market prices and inherent lack of liquidity. The carrying values of our
privately held equity securities are adjusted if there are observable price
changes in a same or similar security from the same issuer or if there are
identified events or changes in circumstances that may indicate impairment, as
discussed below. In determining the estimated fair value of our strategic
investments in privately held companies, we utilize the most recent data
available, as adjusted to reflect the specific rights and preferences of those
securities we hold.

We assess our privately held debt and equity securities strategic investment
portfolio quarterly for indicators for impairment. Our impairment analysis
encompasses a qualitative assessment evaluates key factors including but not
limited to the investee's financial metrics, market acceptance of the product or
technology, and the rate at which the investee is using its cash. If the
investment is considered to be impaired, we record the investment at fair value
by recognizing an impairment through the consolidated statement of operations
and establishing a new carrying value for the investment.

The privately held debt and equity securities we hold, and their rights and
preferences relative to those of other securities within the capital structure,
may impact the magnitude by which our investment value moves in relation to
movement of the total enterprise value of the company. As a result, our
investment value in a specific company may move by more or less than any change
in the value of that overall company. An immediate decrease of ten percent in
enterprise value of our largest privately held equity securities held as of
January 31, 2022 would not have had a material impact on the value of our
investment portfolio.

Income Taxes



We use the asset and liability method of accounting for income taxes. Under this
method, income tax expense is recognized based on the amount of taxes payable or
refundable for the current year and deferred tax liabilities and assets for the
future tax consequences of events that have been recognized in our consolidated
financial statements or tax returns. We make assumptions, judgments and
estimates to determine the current income tax provision (benefit), deferred tax
asset and liabilities and valuation allowance recorded against a deferred tax
asset. The assumptions, judgments and estimates relative to the current income
tax provision (benefit) take into account current tax laws, their interpretation
and possible results of foreign and domestic tax audits. Changes in tax law,
their interpretation and resolution of tax audits could significantly impact the
income taxes provided in our consolidated financial statements. Assumptions,
judgments and estimates relative to the amount of deferred income taxes take
into account future taxable income. Any of the assumptions, judgments and
estimates mentioned above could cause the actual income tax obligations to
differ from our estimates.

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

Recent Accounting Pronouncements

See "Summary of Business and Significant Accounting Policies" in Note 1 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.

© Edgar Online, source Glimpses