UiPath, Inc.: Form 10-Q for the period ended Oct 31, 2024

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended January 31, 2024 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 27, 2024 (the "2024 Form 10-K"). This discussion, particularly information with respect to our future results of operations or financial condition, business strategy, and plans and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q. You should review the disclosure under the heading "Risk Factors" in this Quarterly Report on Form 10-Q and under Part I, Item 1A, "Risk Factors," in the 2024 Form 10-K for discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.

Overview

First established in a Bucharest, Romania apartment in 2005, UiPath was incorporated in Delaware in 2015 as a company principally focused on building and managing automations and developing computer vision technology, which remains the foundation of our platform today. Since that time, we have evolved from our beginnings in robotic process automation ("RPA") into an end-to-end AI-powered automation platform through development and acquisitions, have launched new products, and have expanded our operations across the globe. Our vision is to enable automation across all knowledge work to accelerate human achievement.

The UiPath Platform™ provides our customers with a robust set of capabilities that allow them to discover opportunities for automation, automate using natural language and a digital workforce that seamlessly collaborates with humans, and operate a mission critical automation program at scale. Our platform enables customers to integrate AI with automation, enabling automation to take action based on learning and experience. It enables employees to quickly build automations for both existing and new processes and to automate a vast array of actions including, but not limited to, logging into applications, extracting information from documents, moving folders, filling in forms, reading emails, and updating information fields and databases. The ability of our platform to replicate steps performed by humans in executing business processes drives operational efficiencies and enables companies to deliver on key digital initiatives with greater speed, agility, and accuracy.

AI-powered automation is here, and its momentum is continuing to grow as organizations around the world begin to understand the combined power of automation and AI to drive efficiency and business outcomes. We aspire to be the defining business automation platform, advancing the evolution of automation and AI as a way of working and a catalyst for continuous reinvention.

Business Highlights for the Three and Nine Months Ended October 31, 2024:

• Quarter-to-date revenue of $354.7 million increased 9% year-over-year.
• Year-to-date revenue of $1,006.0 million increased 11% year-over-year.
• Annualized renewal run-rate ("ARR") at October 31, 2024 of $1,606.6 million increased 17% year-over-year.
• Gross margin was 82% for the three months ended October 31, 2024, compared to 85% for the three months ended October 31, 2023.
• Gross margin was 82% for the nine months ended October 31, 2024, compared to 84% for the nine months ended October 31, 2023.
• Cash flow from operations was $174.5 million for the nine months ended October 31, 2024, compared to $153.5 million for the nine months ended October 31, 2023.
• Cash and cash equivalents, restricted cash, and marketable securities were $1,603.9 million as of October 31, 2024, compared to $1,880.3 million as of January 31, 2024.

Macroeconomic Environment

As a corporation with a global presence, we are subject to risks and uncertainties caused by significant events with macroeconomic impacts, including, but not limited to, the impact of changes in geopolitical relationships, fluctuating inflation and interest rates, monetary policy changes, and foreign currency fluctuations. Additionally, these macroeconomic impacts have generally disrupted the operations of our customers, prospective customers, and partners.

Internationally, we price our platform in currencies that may not be the functional currency. Accordingly, the heightened volatility of global markets has exposed us and will continue to expose us to foreign currency fluctuations, which may impact demand for our platform, our near-term results, the comparability of results to prior periods, and our ability to predict future results.

Further, cash, cash equivalents, and marketable securities represent a significant portion of our total assets, and the return on our cash, cash equivalents, and marketable securities is sensitive to changes in interest rates. Volatility in the interest rate environment may impact the amount of interest and other income reported on our condensed consolidated statements of operations, the comparability of these amounts to prior periods, and our ability to predict future profitability.

We continuously monitor the direct and indirect impacts of these circumstances on our business and financial results, as well as the overall global economy and geopolitical landscape.

Fiscal Year 2025 Restructuring Actions

On July 8, 2024, our board of directors approved restructuring actions to manage our operating expenses. These changes reflect efforts to reshape the organization by streamlining our structure, particularly in operational and corporate functions, better prioritizing our go-to-market investments and focusing our research and development investments on artificial intelligence and driving innovation across our platform. Refer to Note 9, Commitments and Contingencies—Workforce Restructuring included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.

Key Performance Metric

We monitor annualized renewal run-rate ("ARR") to help us measure and evaluate the effectiveness of our operations.

ARR is the key performance metric we use in managing our business because it illustrates our ability to acquire new subscription customers and to maintain and expand our relationships with existing subscription customers. We define ARR as annualized invoiced amounts per solution SKU from subscription licenses and maintenance and support obligations assuming no increases or reductions in customers' subscriptions. ARR does not include the costs we may incur to obtain such subscription licenses or provide such maintenance and support. ARR also does not reflect nonrecurring rebates payable to partners (upon establishing sufficient history of their nonrecurring nature), the impact of nonrecurring incentives (such as one-time discounts provided under sales promotional programs), and any actual or anticipated reductions in invoiced value due to contract non-renewals or service cancellations other than for certain reserves (for example those for credit losses or disputed amounts). At October 31, 2024 and 2023, our ARR was $1,606.6 million and $1,378.2 million, respectively, representing a growth rate of 17%. Approximately 19% of this growth was due to new customers and 81% to existing customers. Our dollar-based net retention rate, which represents the net expansion of ARR from existing customers over the preceding 12 months, was 113% and 121% as of October 31, 2024 and 2023, respectively. We calculate dollar-based net retention rate as of a period end by starting with the ARR from the cohort of all customers as of 12 months prior to such period end ("Prior Period ARR"). We then calculate the ARR from these same customers as of the current period end ("Current Period ARR"). Current Period ARR includes any expansion and is net of contraction or attrition over the last 12 months, but does not include ARR from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the point-in-time dollar-based net retention rate.

Our ARR may fluctuate as a result of a number of factors, including customers’ satisfaction or dissatisfaction with our platform, pricing, competitive offerings, economic conditions, overall changes in our customers’ spending levels, and our ability to successfully execute on our strategic goals. ARR should be viewed independently of revenue and deferred revenue as ARR is an operating metric and is not intended to be combined with or to replace these items. For clarity, we use annualized invoiced amounts per solution SKU rather than revenue calculated in accordance with U.S. GAAP to calculate our ARR. Our invoiced amounts are not matched to transfer of control of the performance obligations associated with the underlying subscription licenses and maintenance and support obligations. This can result in timing differences between our U.S. GAAP revenue and ARR calculations. Generally speaking, our ARR calculation simply takes our invoiced amounts per solution SKU under a subscription license or maintenance agreement as of the end of an invoiced period and divides that amount by the corresponding term and multiplies by 365 days to derive the annualized renewal value. In contrast, for our revenue calculated in accordance with U.S. GAAP, subscription licenses revenue derived from the sale of term-based licenses hosted on-premises is recognized at the point in time when the customer is able to use and benefit from our software, which is generally upon delivery to the customer or upon the commencement of the renewal term, and maintenance, support, and software-as-a-service ("SaaS") revenue is recognized ratably over the term of the arrangement. ARR is not a forecast of future revenue. Unlike ARR, revenue is impacted by contract start and end dates and duration. The timing of recognition of ARR is determined by contract billing structure, whereas billing structure will neither accelerate nor delay recognition of future revenue. For example, in a multi-year contract invoiced upfront, ARR is the annualized invoiced amount per solution SKU related to the final year of the contract assuming no reserve is applied, whereas revenue is determined by total contract value and timing of satisfaction of the underlying performance obligations. ARR does not include invoiced amounts associated with perpetual licenses or professional services. Investors should not place undue reliance on ARR as an indicator of our future or expected results. Moreover, our presentation of ARR may differ from similarly titled metrics presented by other companies and may not be comparable to such other metrics.

A summary of ARR-related data at October 31, 2024 and 2023 is as follows:

(dollars in thousands)

Components of Results of Operations

Revenue

We derive revenue from the sale of: (1) software licenses for use of our proprietary software and related maintenance and support; (2) the right to access certain software products we host (i.e., SaaS); and (3) professional services.

We have a unified commercial offering for software products with both on-premise and cloud deployment options that allows customers the choice of either deployment option throughout the term of the contract. These Flex Offerings are comprised of three types of performance obligations: term license, maintenance and support, and SaaS.

Licenses

Our term licenses (typically sold as a portion of Flex Offerings) provide customers the right to use software for a specified period of time. Revenue for licenses is recognized at the point in time at which the customer is able to use and benefit from the software, which is generally upon delivery to the customer or upon commencement of the renewal term. As licenses revenue is recognized at a point in time, any shift in contract start dates and duration, for example due to lengthening sales cycles and increased deal scrutiny, will have a direct impact on our licenses revenue.

Subscription Services

We generate subscription services revenue through the provision of: (1) maintenance and support services, which include technical support and unspecified updates and upgrades on a when-and-if-available basis for our licenses, and (2) SaaS products (typically sold as a portion of Flex Offerings). Maintenance and support and SaaS products represent stand-ready obligations for which revenue is recognized ratably over the term of the arrangements.

Professional Services and Other

Professional services and other revenue consists of fees associated with professional services for process automation, customer education, and training services. Our professional services contracts are structured on a time and materials or fixed price basis, and the related revenue is recognized as the services are rendered.

Cost of Revenue

Licenses

Cost of licenses revenue consists of all direct costs to deliver our licenses to customers, amortization of software development costs related to our licenses, and amortization of acquired developed technology.

Subscription Services

Cost of subscription services revenue primarily consists of personnel-related expenses of our customer support and technical support teams, including salaries and bonuses, stock-based compensation expense, and employee benefit costs. Cost of subscription services revenue also includes third-party consulting services, hosting costs related to our SaaS products, amortization of acquired developed technology and capitalized software development costs related to SaaS products, depreciation, and allocated overhead. Overhead is allocated based on applicable headcount. We recognize these expenses as they are incurred. We expect cost of subscription services revenue to continue to increase in absolute dollars for the foreseeable future as our SaaS business grows. In the future, we expect further expansion of our cloud-based deployments. As more of our customer base deploys our products via SaaS, we expect our gross margin to be impacted by increased hosting fees and cloud infrastructure costs.

Professional Services and Other

Cost of professional services and other revenue primarily consists of personnel-related expenses of our professional services team, including salaries and bonuses, stock-based compensation expense, and employee benefit costs. Cost of professional services and other revenue also includes expenses related to subcontracted third-party services, depreciation, and allocated overhead. We recognize these expenses as they are incurred. We expect cost of professional services and other revenue to increase in absolute dollars for the foreseeable future.

Operating Expenses

Our operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Personnel-related expenses are the most significant component of operating expenses and consist of salaries and bonuses, stock-based compensation expense, and employee benefit costs. Operating expenses also include allocated overhead.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel-related expenses associated with our sales and marketing teams and related sales support teams, including salaries and bonuses, stock-based compensation expense, and employee benefit costs. Sales and marketing expenses also include sales and partner commissions, marketing event costs, advertising costs, travel, trade shows, other marketing materials, and allocated overhead. We expect that over the longer term our sales and marketing expenses will decrease as a percentage of revenue, although this percentage may fluctuate from period to period due to timing and extent of expenses.

Research and Development

Research and development expenses consist primarily of personnel-related expenses, including salaries and bonuses, stock-based compensation expense, and employee benefits costs, for our research and development employees, and allocated overhead. Research and development costs are expensed as incurred, with the exception of certain software development costs which are eligible for capitalization. We expect that our research and development expenses will increase in absolute dollars for the foreseeable future as we continue to invest in efforts to develop new technology and enhance the functionality and capabilities of our existing products and platform infrastructure. Our research and development expenses may fluctuate as a percentage of revenue from period to period due to the timing and extent of expenses.

General and Administrative

General and administrative expenses consist primarily of personnel-related expenses, including salaries and bonuses, stock-based compensation expense, and employee benefits costs, associated with our finance, legal, human resources, compliance, and other administrative teams, as well as accounting and legal professional services fees, other corporate-related expenses, and allocated overhead. We expect that over the longer term our general and administrative expenses will decrease as a percentage of revenue, although this percentage may fluctuate from period to period due to timing and extent of expenses.

Interest Income

Interest income consists of interest earned on our cash and cash equivalents and marketable securities.

Other Income, Net

Other income, net primarily consists of foreign exchange gains and losses. Other income, net also includes amortization of discounts and premiums on marketable securities.

(Benefit From) Provision For Income Taxes

(Benefit from) provision for income taxes consists of U.S. federal and state income taxes and income taxes in foreign jurisdictions in which we conduct business. We currently maintain a full valuation allowance on our U.S. federal and state and Romania DTAs, as we have concluded that it is more likely than not that these DTAs will not be realized. Our effective tax rate is affected by tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions, as well as by non-deductible expenses as permanent differences, and by changes in our valuation allowances.

Results of Operations

The following tables set forth selected condensed consolidated statement of operations data and such data as a percentage of total revenue for each of the periods indicated:

(in thousands)

(in thousands)

32

33

Comparison of the Three Months Ended October 31, 2024 and 2023

Revenue

(dollars in thousands)

Total revenue increased by $28.7 million, or 9%, for the three months ended October 31, 2024 compared to the three months ended October 31, 2023, primarily due to a $39.4 million increase in subscription services revenue, partially offset by a $10.9 million decrease in licenses revenue related in part to the transition to our Flex Offerings. As we continued to expand our sales efforts in the U.S. and internationally, total revenue grew across all regions. Of the growth in total revenue, 39% was attributable to new customers and 61% was attributable to existing customers. Subscription services revenue is recognized ratably over the subscription term; therefore, the increase in subscription services revenue is driven both by sales in prior periods for which we continue to provide maintenance and support and SaaS and by new sales in the current period.

Cost of Revenue and Gross Margin

(dollars in thousands)

Total cost of revenue increased by $13.8 million, or 28%, for the three months ended October 31, 2024 compared to the three months ended October 31, 2023, primarily due to a $14.8 million increase in cost of subscription services revenue. The increase in cost of subscription services revenue was primarily driven by an $8.4 million increase in third-party hosting and software services costs as a result of increased usage of our subscription services and a $5.1 million increase in personnel-related expenses, which included a $3.4 million increase in salary-related and bonus expenses associated with both increased headcount and merit increases, a $1.3 million increase in stock-based compensation expense, and a $0.8 million aggregate increase in employee insurance costs and employer payroll taxes. Cost of subscription services revenue was also impacted by a $1.0 million increase in costs associated with the use of third-party vendors.

Our gross margin decreased to 82% for the three months ended October 31, 2024 compared to 85% for the three months ended October 31, 2023 due to decrease in the proportion of higher-margin licenses revenue and the aforementioned increase in cost of subscription services revenue driven by increased hosting and personnel costs.

Operating Expenses

Sales and Marketing

(dollars in thousands)

Sales and marketing expense decreased by $4.1 million, or 2%, for the three months ended October 31, 2024 compared to the three months ended October 31, 2023. The decrease was primarily attributable to a $2.7 million decrease in personnel-related expenses, which included a $5.1 million decrease in stock-based compensation expense, partially offset by a $1.9 million increase in employee termination benefits related to our fiscal year 2025 restructuring actions, and a $0.4 million increase in employee insurance costs. Sales and marketing expense was also impacted by a $2.2 million decrease in sales commissions expense, a $1.0 million decrease in depreciation and amortization expense, a $0.9 million decrease in third-party consulting fees, and a $0.5 million decrease in sales-related software expenses, partially offset by a $3.1 million increase in marketing expenses largely related to our Forward VII conference.

Research and Development

(dollars in thousands)

Research and development expense increased by $12.5 million, or 15%, for the three months ended October 31, 2024 compared to the three months ended October 31, 2023. The increase was primarily attributable to a $6.2 million increase in hosting and software services costs as a result of increased usage and a $5.9 million increase in personnel-related expenses, which included a $3.6 million increase in stock-based compensation expense and a $2.2 million increase in salary-related and bonus expenses associated with both increased headcount and merit increases.

General and Administrative

(dollars in thousands)

General and administrative expense decreased by $5.9 million, or 11%, for the three months ended October 31, 2024 compared to the three months ended October 31, 2023. The decrease was primarily attributable to a $7.4 million decrease in personnel-related expenses, which included an $8.4 million decrease in stock-based compensation expense partially offset by a $0.9 million increase in employee termination benefits related to our fiscal year 2025 restructuring actions. This decrease was partially offset by a $2.0 million increase in software service and implementation costs.

Interest Income

(dollars in thousands)

Interest income decreased by $4.4 million, or 31%, for the three months ended October 31, 2024 compared to the three months ended October 31, 2023 as a result of a period-over-period decrease in our aggregate balance of cash and cash equivalents and marketable securities, as well as decreased interest rates.

Other Income, Net

(dollars in thousands)

35

Other income, net decreased by $5.9 million, or 43%, for the three months ended October 31, 2024 compared to the three months ended October 31, 2023, primarily due to a $4.6 million decrease in gains from foreign currency transactions and a $1.0 million net decrease in amortization on marketable securities and cash equivalents.

(Benefit From) Provision For Income Taxes

(dollars in thousands)

Provision for income taxes decreased by $18.8 million for the three months ended October 31, 2024 compared to the three months ended October 31, 2023, mainly driven by the release of valuation allowance associated with our U.K. DTA and tax impact of changing our intent with respect to permanent reinvestment of foreign earnings.

Comparison of the Nine Months Ended October 31, 2024 and October 31, 2023

Revenue

(dollars in thousands)

Total revenue increased by $103.2 million, or 11%, for the nine months ended October 31, 2024 compared to the nine months ended October 31, 2023, due to a $112.8 million increase in subscription services revenue and a $2.2 million increase in professional services and other revenue, partially offset by an $11.9 million decrease in licenses revenue, related in part to the transition to our Flex Offerings. As we continued to expand our sales efforts in the U.S. and internationally, our revenue increased across all regions. Of the growth in total revenue, 27% was attributable to new customers and 73% was attributable to existing customers. Of the growth in total revenue attributable to existing customers, $8.0 million resulted from contract modifications wherein the revenue recognized originated from our existing balance of remaining performance obligations. Subscription services revenue is recognized ratably over the subscription term; therefore, the increase in subscription services revenue is driven by both sales in prior periods for which we continue to provide maintenance and support and SaaS, and by new sales in the current period.

Cost of Revenue and Gross Margin

(dollars in thousands)

Total cost of revenue increased by $39.8 million, or 28%, for the nine months ended October 31, 2024 compared to the nine months ended October 31, 2023, primarily due to a $45.3 million increase in cost of subscription services revenue, partially offset by a $4.4 million decrease in cost of professional services revenue. The increase in cost of subscription services revenue was primarily driven by a $19.6 million increase in third-party hosting and software services costs as a result of increased usage of our subscription services and a $17.9 million increase in personnel-related expenses, which included a $12.2 million increase in salary-related and bonus expenses associated with both increased headcount and merit increases, a $3.8 million increase in stock-based compensation expense, and a $2.7 million aggregate increase in employee insurance costs and employer payroll taxes. Cost of subscription services revenue was also impacted by a $6.0 million increase in costs associated with the use of third-party vendors. The decrease in cost of professional services and other revenue was primarily driven by a $3.6 million decrease in personnel-related expenses, which included a $2.3 million decrease in salary-related and bonus expenses and a $0.6 million aggregate decrease in employee insurance costs and employer payroll taxes.

Our gross margin decreased to 82% for the nine months ended October 31, 2024 compared to 84% for the nine months ended October 31, 2023 due to decrease in the proportion of higher-margin licenses revenue and the aforementioned increase in cost of subscription services revenue driven by increased hosting and personnel costs.

Operating Expenses

Sales and Marketing

(dollars in thousands)

Sales and marketing expense increased by $40.2 million, or 8%, for the nine months ended October 31, 2024 compared to the nine months ended October 31, 2023. This increase was primarily attributable to a $26.9 million increase in personnel-related expenses, which included a $16.3 million increase in salary-related and bonus expenses as a result of both increased headcount and merit increases, a $8.5 million increase in employee termination benefits related to our fiscal year 2025 restructuring actions, a $3.7 million aggregate increase in payroll taxes and employee insurance costs, and a $1.3 million increase in general employee severance, partially offset by a $3.5 million decrease in stock-based compensation expense. Sales and marketing expense was also impacted by a $10.4 million increase in sales commission expenses as a result of higher amortization of capitalized contract acquisition costs and a $6.8 million aggregate increase in marketing and travel-related expenses due in part to our Forward VII conference. These increases were partially offset by a $2.3 million decrease in depreciation and amortization expense and a $1.1 million decrease in third-party consulting fees.

Research and Development

(dollars in thousands)

Research and development expense increased by $34.6 million, or 14%, for the nine months ended October 31, 2024 compared to the nine months ended October 31, 2023. The increase was primarily attributable to a $17.3 million increase in third-party software services and hosting costs as a result of increased usage and a $16.1 million increase in personnel-related expenses, which included a $7.6 million increase in stock-based compensation expense, a $6.7 million increase in salary-related and bonus expenses associated with both increased headcount and merit increases, and a $1.5 million increase in employee termination benefits related to our fiscal year 2025 restructuring actions.

General and Administrative

(dollars in thousands)

37

General and administrative expense increased by $4.9 million, or 3%, for the nine months ended October 31, 2024 compared to the nine months ended October 31, 2023. This increase was primarily attributable to a $9.9 million increase in software service and implementation costs, a $3.6 million increase in third-party consulting fees, a $2.7 million increase due to a credit loss recovery recorded in the prior comparable period, and a $2.3 million increase in charitable donations mainly driven by the increased fair value of our Class A common shares contributed to a donor-advised fund in the current year. These increases were partially offset by a $14.5 million decrease in personnel-related expenses, which included a $20.3 million decrease in stock-based compensation expense partially offset by a $2.7 million increase in employee termination benefits related to our fiscal year 2025 restructuring actions, a $2.3 million increase in employee insurance costs, and a $1.3 million increase salary-related and bonus expenses associated with both increased headcount and merit increases.

Interest Income

(dollars in thousands)

Interest income decreased by $4.7 million, or 11%, for the nine months ended October 31, 2024 compared to the nine months ended October 31, 2023 as a result of a period-over-period decrease in our aggregate balance of cash and cash equivalents and marketable securities, as well as decreased interest rates.

Other Income, Net

(dollars in thousands)

Other income, net remained relatively constant for the nine months ended October 31, 2024 compared to the nine months ended October 31, 2023, primarily due to a $5.5 million net increase in amortization on marketable securities and cash equivalents partially offset by a $2.4 million decrease in legal expense related to shareholder litigation, a $1.5 million decrease in sublease income, and a $1.0 million decrease in gains from foreign currency transactions.

(Benefit From) Provision For Income Taxes

(dollars in thousands)

Provision for income taxes decreased by $18.6 million for the nine months ended October 31, 2024 compared to the nine months ended October 31, 2023, mainly driven by the release of valuation allowance associated with our U.K. DTA and tax impact of changing our intent with respect to permanent reinvestment of foreign earnings.

Liquidity and Capital Resources

We have financed operations since our inception primarily through customer payments and net proceeds from sales of equity securities. Our principal uses of cash in recent periods have been to fund our operations, invest in capital expenditures, engage in various business acquisitions, and, more recently, repurchase shares of our Class A common stock. As of October 31, 2024, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $1,603.4 million, and we had an accumulated deficit of $2,039.7 million. For the nine months ended October 31, 2024, we reported a net loss of $125.5 million and net cash provided by operating activities of $174.5 million.

Our future capital requirements will depend on many factors, including our revenue growth rate, sales of our products and services, license renewal activity, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, the introduction of new and enhanced products, the continuing market adoption of our products, expenses associated with international expansion, the timing and extent of capital expenditures to invest in existing and new office spaces, and the timing and extent of stock repurchases. We may in the future enter into arrangements to acquire or invest in complementary businesses, products, and technologies. We may be required to seek additional equity or debt financing. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, operations, and financial condition.

We believe that our existing cash and cash equivalents, marketable securities, and payments from customers will be sufficient to fund our anticipated cash requirements for the next twelve months and the long term.

Stock Repurchase Program

On September 1, 2023, our board of directors authorized a stock repurchase program, pursuant to which we may repurchase from time to time up to $500.0 million of our outstanding shares of Class A common stock. On August 30, 2024 our board of directors authorized the repurchase of an additional $500.0 million of our Class A common stock. Refer to Note 10, Stockholders' Equity—Stock Repurchase Program for further details.

Cash Flows

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

(in thousands)

Operating Activities

Our largest source of operating cash is cash generation from sales to our customers. Our primary uses of cash from operating activities are for personnel-related expenses, direct costs to deliver licenses and provide subscription and professional services, and marketing expenses.

Net cash provided by operating activities for the nine months ended October 31, 2024 of $174.5 million was driven by cash collections from our customers, which were approximately 16% higher than during the nine months ended October 31, 2023. These cash inflows were partially offset by cash payments for operating expenditures, primarily associated with the compensation of our teams, including fiscal year 2024 annual bonuses paid in the first quarter of fiscal year 2025. Other cash operating expenditures included payments related to our fiscal year 2025 workforce restructuring, and payments for professional services, software, and office rent.

Net cash provided by operating activities for the nine months ended October 31, 2023 of $153.5 million was driven by cash collections from our customers, partially offset by cash payments for operating expenditures, primarily associated with the compensation of our teams, including fiscal year 2023 annual bonuses paid in the first quarter of fiscal year 2024. Other cash operating expenditures included payments related to our fiscal year 2023 workforce restructuring, which was concluded during the second quarter of fiscal year 2024, and payments for professional services, software, and office rent.

Investing Activities

Net cash used in investing activities for the nine months ended October 31, 2024 of $28.8 million was driven by $1,162.2 million in purchases of marketable securities, a $35.8 million investment in the H company, and $7.5 million in capital expenditures, partially offset by $1,176.8 million in maturities of marketable securities.

Net cash used in investing activities for the nine months ended October 31, 2023 of $430.9 million was primarily driven by $1,006.6 million in purchases of marketable securities, partially offset by $576.5 million in maturities of marketable securities.

Financing Activities

Net cash used in financing activities for the nine months ended October 31, 2024 of $433.5 million was primarily driven by $381.4 million in repurchases of Class A common stock under our stock repurchase program, $60.5 million in payments of tax withholdings on net settlement of equity awards, and $5.6 million in deferred cash consideration paid on the second anniversary of the acquisition of Re:infer LTD, partially offset by $12.9 million in proceeds from ESPP contributions and $0.9 million in proceeds from exercise of stock options.

Net cash used in financing activities for the nine months ended October 31, 2023 of $115.0 million was primarily driven by $75.5 million in payments of tax withholdings on net settlement of equity awards, $52.6 million in repurchases of Class A common stock under our stock repurchase program, and $5.9 million in deferred cash consideration paid on the first anniversary of the acquisition of Re:infer LTD, partially offset by $14.3 million in proceeds from ESPP contributions and $5.4 million in proceeds from exercise of stock options.

Material Cash Requirements

Our material cash requirements predominantly relate to working capital requirements, including employee compensation, payment of employee tax withholdings on net settlement of equity awards, and employee termination benefits related to our fiscal year 2025 restructuring actions, and material contractual obligations, including leases and purchase commitments.

As of October 31, 2024, accrued compensation and benefits of $88.8 million are included in current liabilities on our condensed consolidated balance sheet. Refer to Note 8, Consolidated Balance Sheet Components—Accrued Expenses and Other Current Liabilities for details of additional short-term payroll-related obligations included in accrued expenses and other current liabilities.

Refer to Note 7, Operating Leases for more detailed information regarding timing of future lease payments, and Note 9, Commitments and Contingencies—Non-Cancelable Purchase Obligations for more detailed information regarding timing of purchase commitments. There were no significant changes during the nine months ended October 31, 2024 from the contractual obligations disclosed in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” set forth in the 2024 Form 10-K.

Our stock repurchase program may also represent a material use of cash depending upon the number of shares repurchased, which is ultimately discretionary. Refer to Note 10, Stockholders' Equity—Stock Repurchase Program for further details.

Critical Accounting Estimates

There have been no material changes to our critical accounting estimates as compared to those disclosed in the 2024 Form 10-K.

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies—Recently Issued Accounting Pronouncements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.

We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is principally the result of fluctuations in interest rates and foreign currency exchange rates.

Interest Rate Risk

As of October 31, 2024, we had $773.6 million of cash and cash equivalents. Cash and cash equivalents consist of cash in banks, bank deposits, and money market accounts. In addition, we had $829.8 million of marketable securities, consisting primarily of treasury bills and U.S. government securities, corporate bonds, and commercial paper. Such interest-earning instruments carry a degree of interest rate risk. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs, and the fiduciary control of cash. We do not enter into investments for trading or speculative purposes. The effect of a hypothetical 10% change in interest rates would not have had a material impact on our condensed consolidated financial statements for the nine months ended October 31, 2024.

Foreign Currency Exchange Risk

The functional currency of our non-U.S. subsidiaries is the local currency. Asset and liability balances denominated in non-U.S. dollar currencies are translated into U.S. dollars using period-end exchange rates, while translation of revenue and expenses is based on average monthly rates. Translation adjustments are recorded as a component of accumulated other comprehensive income, and transaction gains and losses are recorded in other income, net on our condensed consolidated financial statements. We have from time to time used foreign currency forward contracts to reduce our potential exposure to currency fluctuations. If we are not able to successfully mitigate the risks associated with currency fluctuations, our results of operations could be adversely affected. The estimated translation impact to our condensed consolidated financial statements of a hypothetical 10% change in foreign currency exchange rates would amount to $26.3 million for the nine months ended October 31, 2024. For the nine months ended October 31, 2024, approximately 53% of our revenues and approximately 37% of our expenses were denominated in non-U.S. dollar currencies, and we recognized net foreign currency transaction gains of $1.9 million.

Evaluation of Disclosure Controls and Procedures

Our "disclosure controls and procedures" as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act, are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. In addition, they are designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our CEO and CFO, performed an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of October 31, 2024.

Changes in Internal Control Over Financial Reporting

During the three months ended October 31, 2024, no change in internal control over financial reporting was identified in connection with the evaluation required by Rule 13a-15(d) and Rule 15d-15(d) of the Exchange Act that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

Our management, including our CEO and CFO, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at a reasonable assurance level. However, any control system, no matter how well designed and operated, can only provide reasonable, not absolute, assurance that its objectives will be met. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures and internal control over financial reporting, including resource constraints, errors in judgment, and the possibility that controls and procedures will be circumvented by collusion, by management override, or by mistake. Additionally, the design of any control system is based in part on management assumptions about the likelihood of future events, and there can be no assurance that the system will succeed in achieving its objectives under all potential future scenarios. As a result of these limitations, our management does not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all potential errors or fraud or detect all potential misstatements due to error or fraud.

Our operations and financial results are subject to various risks and uncertainties, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risks discussed in the 2024 Form 10-K, including the disclosure under Part I, Item 1A, "Risk Factors,” which are risks we believe could materially affect our business, financial condition and future results. These are not the only risks we face. Other risks and uncertainties we are not currently aware of or that we currently consider immaterial also may materially adversely affect our business, financial condition, and future results. Risks we have identified but currently consider immaterial could still materially adversely affect our business, financial condition, and future results if our assumptions about those risks are incorrect or if circumstances change.

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A of the 2024 Form 10-K except as follows:

We are subject to numerous risks associated with the evolving market for products with AI capabilities.

The markets and use cases for products with AI capabilities have been rapidly evolving, are difficult to predict, and may impact demand for our products, our sales cycles, our ability to forecast results from sales of these products, and the preferences of our customers and potential customers. The significant investments we have made to develop products and software to address what we believe will be increasing demand for AI capabilities may be insufficient, and we face significant hurdles, including whether demand will materialize, whether third-party software providers will develop functionality that allows their software to utilize the AI capabilities of our products, and whether we will be successful in developing, pricing, and packaging products that can compete with offerings by established competitors.

We have invested in an early-stage global foundation model and agentic AI company and we may continue to invest in other potentially disruptive technologies in the future, through various vehicles such as equity or debt investments, joint ventures, or strategic partnerships. Such investments may not produce the expected results, may require more financial resources than anticipated, or may otherwise be unsuccessful, and the value of the investments may decline or be impaired, or our business may be adversely impacted.

Additionally, our use of AI technology in general may subject us to reputational, financial, legal, or regulatory risks. As we continue to incorporate AI technology into our products and services, any failures to address concerns relating to the responsible use of the evolving AI technology in our products and services may cause harm to our reputation or result in financial liability, and as such, may increase our costs to address or mitigate such risks and issues. AI technology may create ethical issues, generate defective algorithms, and present other risks that create challenges with respect to its adoption. In addition, evolving rules, regulations, and industry standards governing AI may require us to expend significant resources to modify, maintain, or align our business practices or products to comply with U.S. and non-U.S. rules and regulations, the nature of which cannot be determined at this time. Several jurisdictions around the globe, including the EU and certain U.S. states, have already proposed or enacted laws governing the development and use of AI, such as the EU's AI Act. U.S. federal agencies are likely to release AI regulations in the near future in light of the Biden administration's October 30, 2023 Executive Order on AI. We expect other jurisdictions will adopt similar laws.

The regulatory environment surrounding the impact of the implementation of AI on our products and services may adversely affect our ability to produce and export products, and as a result, may cause harm to our reputation and result in financial liability.

Delays or difficulties associated with the design, implementation, or post-implementation use of our new enterprise resource planning ("ERP") system could adversely impact our business, financial condition, and results of operations.

We rely on information systems, particularly ERP technology, to manage our business, summarize our operating and financial results, and provide timely information to our management. We are currently engaged in a multi-year implementation of a new ERP system. This implementation is a complex project with broad scope, in which we have invested and will continue to invest significant financial and human capital. Despite our efforts, we may experience delays, unexpected costs, or other difficulties as the implementation process continues. Further, although we plan to run our existing technology in parallel with the new ERP system for a period of time and to conduct extensive testing to ensure that the new ERP system is operating as intended, post-implementation disruptions to or difficulties in use of the new ERP could require us to incur additional costs, or could impair, among other things, our ability to record sales, process transactions, collect receivables, and produce timely and accurate historical and forecasted financial information, which could adversely impact our business, financial condition, and results of operations. Additionally, if the new ERP system does not ultimately operate as intended, the effectiveness of our internal control over financial reporting could be harmed.

We have undertaken, and may in the future undertake, internal restructuring activities that could result in disruptions to our business or otherwise materially harm our results of operations or financial condition.

From time to time, we have undertaken and may continue to undertake internal restructuring activities in an effort to better align our resources with our business strategy. For example, we initiated a restructuring plan in July 2024. This follows an earlier restructuring plan we initiated in fiscal year 2023 that was completed during the second quarter of fiscal year 2024. We incur substantial costs to implement restructuring plans, and our restructuring activities may subject us to reputational risks and litigation risks and expenses. There can be no assurance that any restructuring activities that we have undertaken or undertake in the future will achieve the cost savings, operating efficiencies, or other benefits that we may initially expect. In addition, restructuring activities may result in loss of institutional knowledge and expertise, attrition beyond our intended reduction in force, or a negative impact on employee morale and productivity or our ability to attract highly skilled employees. Internal restructurings can also require a significant amount of time and focus from management and other employees, which may divert attention from commercial operations. If any internal restructuring activities we have undertaken or undertake in the future fail to achieve some or all of the expected benefits, our business, financial condition, and results of operations could be materially and adversely affected.

Risks associated with our use of AI (including machine learning and large language models) may result in reputational harm or liability.

AI is enabled by or integrated into parts of our technology platform and may also be used directly or indirectly as part of our internal systems and processes. As such, AI remains a significant and growing element of our business and operations. As with many developing technologies, AI presents risks and challenges that could affect its further development, adoption, and use. AI algorithms and models may be flawed. Our AI-related efforts, particularly those related to generative AI, or the datasets that we use in training our systems, subject us to risks related to harmful or illegal content, accuracy, bias, intellectual property infringement or misappropriation, defamation, data privacy, cybersecurity, sanctions, and export controls, among others. Third-party AI capabilities that can be integrated with our platform or used in our internal systems and processes, including generative AI, could also produce false or "hallucinatory" inferences about customer data, enterprises, other information, or subject matter. The use of generative AI processes at scale is relatively new, and may lead to challenges, concerns, and risks that are significant, or that we may not be able to predict, especially if our direct or indirect use of these technologies in our products and internal systems and processes were to become more important to us over time. If the recommendations, forecasts, or analyses that AI applications, including AI agents, assist in producing are deficient or inaccurate, we could be subject to competitive harm or potential legal liability, including under existing and future legislation or regulations, including in the U.S. and the EU. The rapid evolution of AI may also require us to expend additional resources to help ensure that AI is implemented appropriately in order to minimize unintended or harmful impact which may adversely affect our business, financial condition, and results of operations.

Some AI scenarios may present ethical issues, and the enablement or integration of AI into our platform or internal processes may subject us to new or heightened legal, regulatory, ethical, or other challenges, as this is an area of rapid development. We take into consideration these challenges when designing our technologies and implementing our business practices. For example, our platform includes data governance tools and other tools, which are intended to regulate and limit user access. In addition, we have developed internal responsible AI guidelines. However, we have no assurance that these tools or guidelines, nor their implementation, will be sufficient to protect us against evolving AI-related risks. As a result, if we face any claims or litigation relating to our use of AI, including its purported or real impact to, human rights, data privacy, employment, or other societal issues, we may experience brand or reputational harm, as well as regulatory or legal scrutiny, which could have a material adverse effect on our operations, and business outlook.