# Guidewire Software, Inc. (GWRE) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Guidewire Software, Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1528396/000152839623000089/gwre-20230731.htm
Accession: 0001528396-23-000089
Filing date: 2023-09-18
Report date: 2023-07-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/GWRE/
All MD&A years: /company/GWRE/mda/
Previous year: /company/GWRE/mda/fy2022/ (FY 2022)
Next year: /company/GWRE/mda/fy2024/ (FY 2024)

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes thereto included in Item 8 and the Risk Factors included in Item 1A of Part I of this Annual Report on Form 10-K. All information presented herein is based on our fiscal calendar. Unless otherwise stated, references in this Annual Report on Form 10-K to particular years or quarters refer to our fiscal years ended in July and the associated quarters of those fiscal years. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

We have elected to omit discussion on the earliest of the three years covered by the consolidated financial statements presented. Refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations located in our Form 10-K for the fiscal year ended July 31, 2022, filed on September 26, 2022, for reference to discussion of the fiscal year ended July 31, 2021, the earliest of the three fiscal years presented.

Overview

Guidewire delivers a leading platform that property and casualty (“P&C”) insurers trust to engage, innovate, and grow efficiently. Guidewire’s platform combines core operations, digital engagement, analytics, machine learning and AI applications delivered as a cloud service or self-managed software. As a partner to our customers, we continually evolve to enable their success and assist them in navigating a rapidly changing insurance market.

Our core operational services and products are InsuranceSuite Cloud, InsuranceNow, and InsuranceSuite for self-managed installations. These services and products are transactional systems of record that support the entire insurance lifecycle, including insurance product definition, distribution, underwriting, policyholder services, and claims management. Our digital engagement applications enable digital sales, omni-channel service, and enhanced claims experiences for policyholders, agents, vendor partners, and field personnel. Our analytics offerings enable insurers to manage data more effectively, gain insights into their business, drive operational efficiencies, and underwrite new and evolving risks. To support P&C insurers globally, we have localized, and will continue to localize, our platform for use in a variety of international regulatory, language, and currency environments.

InsuranceSuite Cloud is a highly configurable and scalable product, delivered as a service, and primarily comprised of three core applications (PolicyCenter Cloud, BillingCenter Cloud, and ClaimCenter Cloud) that can be subscribed to separately or together. These applications are built on and optimized for our Guidewire Cloud Platform (“GWCP”) architecture and leverage our in-house cloud operations team. InsuranceSuite Cloud is designed to support multiple releases each year to ensure that cloud customers remain on the latest version and gain fast access to our innovation efforts. Additionally, InsuranceSuite Cloud embeds digital and analytics capabilities natively into our platform. Most new sales and implementations are for InsuranceSuite Cloud.

InsuranceNow is a complete, cloud-based application that offers policy, billing, and claims management functionality to insurers.

InsuranceSuite for self-managed installations is comprised of three core applications (PolicyCenter, BillingCenter, and ClaimCenter) that can be licensed separately or together and can be deployed and updated by our customers and their implementation partners.

Our customers range from some of the largest global insurance companies or their subsidiaries to predominantly national or local insurers that serve specific states and/or regions. Our customer engagement is led by our direct sales team and supported by our system integrator (“SI”) partners. We maintain and continue to grow our sales and marketing efforts globally, and maintain regional sales centers throughout the world.

Because our platform is critical to our new and existing customers’ businesses, their decision-making and product evaluation process is thorough, which often results in an extended sales cycle. These evaluation periods can extend further if a customer purchases multiple services and products or is considering a move to a cloud-based subscription for the first time. Sales to new customers also involve extensive customer due diligence and reference checks. The success of our sales efforts relies on continued improvements and enhancements to our current services and products, the introduction of new services and products, efficient operation of our cloud infrastructure, continued development of relevant local content and automated tools for updating content, and successful implementations and migrations.

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We sell our cloud-delivered offerings through subscription services and our self-managed products through term licenses. We generally price our services and products based on the amount of Direct Written Premium (“DWP”) that will be managed by our platform. Our subscription, term license, and support fees are typically invoiced annually in advance. Subscription services are generally sold with an initial term of between three and five years with optional annual renewals commencing after the initial term. Subscription revenue is recognized on a ratable basis over the committed term, once all revenue recognition criteria are met including providing access to the service. Term licenses are primarily sold with an initial two-year committed term with optional annual renewals commencing after the initial term. We may enter into term license arrangements with our customers that have an initial term of more than two years or may renew license arrangements for longer than one year. A small portion of our revenue is derived from perpetual licenses. Term and perpetual license revenue are typically recognized when software is made available to the customer, provided that all other revenue recognition criteria have been met. Our support revenue is generally recognized ratably over the committed support term of the licensed software. Our support fees are typically priced as a fixed percentage of the associated license fees. We also offer professional services, both directly and through SI partners, to help our customers deploy, migrate, and utilize our platform, services, and products. A majority of our services revenue is billed monthly on a time and materials basis.

Over the past few years, we have primarily been entering into cloud-based subscription arrangements with our new and existing customers, and we anticipate that subscription arrangements will be a majority of annual new sales going forward. As this sales model matures, we may decide to change certain contract terms in new arrangements to remain competitive or otherwise meet market demands.

To extend our technology leadership in the global market and to drive operating efficiency, we continue to invest in product development and cloud operations to enhance and improve our current services and products, introduce new services and products, and advance our ability to securely and cost-effectively deliver our services in the cloud. Continued investment is critical as we seek to assist our customers in achieving their technology goals, maintain our competitive advantage, grow our revenue, expand internationally, and meet evolving customer demands. In certain cases, we may also acquire skills and technologies to manage our cloud infrastructure and accelerate our time to market for new products, solutions, and upgrades.

Our track record of success with customers and their implementations is central to maintaining our strong competitive position. We rely on our global services team and SI partners to ensure that teams with the right combination of product, business, and language skills are used in the most efficient way to meet our customers’ implementation and migration needs. We have extensive relationships with SI, consulting, technology, and other industry partners. Our network of partners has expanded as interest in and adoption of our platform has grown. We encourage our partners to co-market, pursue joint sales initiatives, and drive broader adoption of our technology, helping us grow our business more efficiently and enabling us to focus our resources on continued innovation and further enhancement of our solutions.

We work closely with our network of third-party SI partners to facilitate new sales and implementations of both our subscription services and self-managed products. Our partnership with leading SI partners allows us to increase efficiency and scale while reducing customer implementation and migration costs. We continue to invest time and resources to increase the number of qualified consultants employed by our SI partners, develop relationships with new partners in existing and new markets, and ensure that all SI partners are qualified to assist with implementing our services and products. We believe this model will continue to serve us well, and we intend to continue to expand our network of partners and the number of certified consultants with whom we work so we can leverage our SI partners more effectively, especially for future subscription migrations and implementations.

We face a number of risks in the execution of our strategy, including risks related to expanding to new markets, managing lengthy sales cycles, competing effectively in the global market, relying on sales to a relatively small number of large customers, developing new or acquiring existing services and products successfully, migrating our business towards a subscription model with ratable revenue recognition, increasing the overall adoption of our services and products, and cost-effectively and securely managing the infrastructure of our cloud-based customers. In response to these and other risks we might face, we continue to invest in many areas of our business, including product development, cloud operations, cybersecurity, implementation and migration services, and sales and marketing.

Seasonality

We have experienced seasonal variations in our license revenue and, to a lesser extent, in our subscription revenue as a result of increased customer orders in our fourth fiscal quarter, which is the quarter ending July 31. We generally see significantly increased orders in our fourth fiscal quarter, which is the quarter ending July 31, due to efforts by our sales team to achieve annual incentives. Because we recognize revenue upfront for new term licenses and multi-year term license renewals compared to over time for subscription services, changes in the mix between term license and subscription services may impact our quarterly results. Additionally, any quarter in which a significant multi-year term license or multi-year term license renewal

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or non-renewal occurs could be impacted. As subscriptions increase as a percentage of total sales, the revenue we can recognize in the initial fiscal year of an order will be reduced, deferred revenue will increase, and our reported revenue growth will be adversely affected in the near term due to the ratable nature of these arrangements. The concentration of our sales in our fourth fiscal quarter increases this impact as the revenue impact of most fourth fiscal quarter subscription sales will not be realized until the following fiscal year.

Our services revenue is also subject to seasonal fluctuations, though to a lesser degree than our license revenue and subscription revenue. Our services revenue is impacted by the number of billable days in a given fiscal quarter. Our second fiscal quarter, which is the quarter ending January 31, usually has fewer billable days due to the impact of the Thanksgiving, Christmas, and New Year’s holidays. Our fourth fiscal quarter usually has fewer billable days due to the impact of vacations taken by our services professionals. Because we pay our services professionals the same amount throughout the year, our gross margins on our services revenue are usually lower in these quarters. This seasonal pattern, however, may be absent in any given year.

Recent Global Events

Recent global events have adversely affected and are continuing to adversely affect workforces, organizations, economies, and financial markets globally, leading to economic downturns, inflation, and increased market volatility. For instance, the ongoing conflict between Russia and Ukraine, escalating tensions in the South China Sea, inflation higher than we have seen in decades, the recent bank failures in the United States and Switzerland and the related impact on financial markets and institutions, and supply chain issues have contributed to global economic and market volatility. We are unable to accurately predict the full impact that these global events will have on our results of operations, financial condition, liquidity, and cash flows due to numerous uncertainties.

Our business and financial results since the third quarter of fiscal year 2020 have been impacted due to these disruptions, which has affected our ARR growth rates, services revenue and margins, operating cash flow and expenses, potentially higher employee attrition, challenges in hiring and onboarding necessary personnel, and the change in fair value of strategic investments. Our sales cycles, ARR growth rates and revenue, especially services revenue, continued to be impacted as a result of these disruptions and challenges. Additionally, in recent quarters, inflation has reached levels that have not been seen for decades, which is impacting the global economy and magnifying the impact of these disruptions.

Our customers may be unable to pay or may request amended payment terms for their outstanding invoices due to the economic impacts from these disruptions, and we may need to increase our accounts receivable allowances. A decrease in orders in a given period could negatively affect our revenue and ARR in future periods, particularly if experienced on a sustained basis, because a substantial proportion of our new software subscription services orders is recognized as revenue over time. Also, the global economic impact of these disruptions could affect our customers’ DWP, which could ultimately impact our revenue as we generally price our services and products based on the amount of DWP that will be managed by our platform. Additionally, we may be required to record impairment related to our operating lease assets, investments, long-lived assets, intangible assets, or goodwill.

We will continue to monitor and evaluate the nature and extent of these global events on our business.

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Key Business Metrics

We use certain key metrics and financial measures not prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) to evaluate and manage our business, including ARR and Free Cash Flow. For a further discussion of how we use key metrics and certain non-GAAP financial measures, see “Non-GAAP Financial Measures” in this Annual Report on Form 10-K.

Annual Recurring Revenue (“ARR”)

We use ARR to quantify the annualized recurring value outlined in active customer contracts at the end of a reporting period. ARR includes the annualized recurring value of term licenses, subscription agreements, support contracts, and hosting agreements based on customer contracts, which may not be the same as the timing and amount of revenue recognized. All components of the licensing and other arrangements that are not expected to recur (primarily perpetual licenses and professional services) are excluded. In some arrangements with multiple performance obligations, a portion of recurring license and support or subscription contract value is allocated to services revenue for revenue recognition purposes, but does not get allocated for purposes of calculating ARR. This revenue allocation only impacts the initial term of the contract. This means that as we increase arrangements with multiple performance obligations that include services at discounted rates, more of the total contract value will be recognized as services revenue, but our reported ARR amount will not be impacted. In fiscal year 2023, the recurring license and support or subscription contract value recognized as services revenue was $29.6 million.

If a customer contract contains invoicing amounts that increase over the contract term, then ARR reflects the annualized invoicing amount outlined in the contract for the current reporting period. For example, given a contract with annual invoicing of $1.0 million at the beginning of year one, $2.0 million at the beginning of year two, and $3.0 million at the beginning of year three, and the reporting period is subsequent to year two invoicing and prior to year three invoicing, the reported ARR for that contract would be $2.0 million.

As of July 31, 2023, ARR was $763 million, or $761 million based on currency exchange rates as of July 31, 2022. We measure ARR on a constant currency basis during the fiscal year and revalue ARR at year end to current currency rates. ARR grew in fiscal year 2023 by 15%, or 15% on a constant currency basis.

Free Cash Flow

We monitor our free cash flow as a key measure of our overall business performance, which enables us to analyze our financial performance without the effects of certain non-cash items such as depreciation, amortization, and stock-based compensation expenses. Additionally, free cash flow takes into account the impact of changes in deferred revenue, which reflects the receipt of cash payment for services and products before they are recognized as revenue, and unbilled accounts receivable, which reflects revenue that has been recognized that has yet to be invoiced to our customers. Our net cash provided by (used in) operating activities is significantly impacted by the timing of invoicing and collections of accounts receivable, the timing and amount of annual bonus payments, as well as payroll and tax payments. Our capital expenditures consist of purchases of property and equipment, primarily computer hardware, software, and leasehold improvements, and capitalized software development costs. Free cash flow in fiscal year 2023 was impacted by severance payments of $2.9 million. Free cash flow in fiscal year 2022 was impacted by payments of $18.1 million related to settling accrued vacation balances in countries in which we adopted a non-accrual vacation policy. For a further discussion of our operating cash flows, see “Liquidity and Capital Resources – Cash Flows.”

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[[/GREPCENT_TABLE]]

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Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. Accounting policies, methods, and estimates are an integral part of the preparation of our consolidated financial statements in accordance with GAAP and, in part, are based upon management’s current judgments. Those judgments are normally based on knowledge and experience with regard to past and current events and assumptions about future events. Certain accounting policies, methods, and estimates are particularly sensitive because of their significance to our consolidated financial statements and because of the possibility that future events affecting them may differ markedly from management’s current judgments. While there are a number of significant accounting policies, methods, and estimates affecting our consolidated financial statements, which are described in Note 1 “The Company and a Summary of Significant Accounting Policies and Estimates” to our consolidated financial statements included in this Annual Report on Form 10-K, our revenue recognition policies are critical to the periods presented.

Revenue Recognition

Revenue recognition requires judgment and the use of estimates, especially in identifying and evaluating the various non-standard terms and conditions in our contracts with customers as to their effect on reported revenue.

Our revenue is derived from contracts with customers. The majority of our revenue is derived from subscriptions to our cloud services, licensing arrangements for our software, and implementation and other professional services arrangements. We account for revenue in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is to recognize revenue upon the transfer of services or products to customers in an amount that reflects the consideration we expect to be entitled to in exchange for those services or products. We apply a five-step framework to recognize revenue as described in our Revenue Recognition policy included in Note 1 of our consolidated financial statements included in this Annual Report on Form 10-K.

Our customers have significant negotiating power during the sales process, which can and does result in terms and conditions that are different from our standard terms and conditions. When terms and conditions of our customer contracts are not standard, certain negotiated terms may require significant judgment in order to determine the appropriate revenue recognition in accordance with ASC 606.

The estimates and assumptions requiring significant judgment under our revenue policy in accordance with ASC 606 are as follows:

Allocation of the transaction price to the performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on its standalone selling price (“SSP”) in relation to the total fair value of all performance obligations in the arrangement. Some of our performance obligations, such as support, implementation services, and training services, have observable inputs that are used to determine the SSP of those distinct performance obligations. Where SSP is not directly observable, we determine the SSP using information that may include market conditions and other observable inputs. In the circumstances when available information to determine SSP is highly variable or uncertain, such as for our term licenses, we will use the residual method.

The majority of our contracts contain multiple performance obligations, such as when licenses are sold with support, implementation services or training services. As customers enter into a subscription agreement to migrate from an existing term license agreement, customers may be under contract for self-managed licenses and support, in addition to subscription services, for a period of time, which may require an allocation of the transaction price to each performance obligation. New and migration subscription agreements also typically include implementation, configuration, and training services, which may require an allocation of the transaction price to each performance obligation.

Additionally, contract modifications for services and products that are distinct but are not priced commensurate with their SSP or are not distinct from the existing contract may affect the initial transaction price or the allocation of the transaction price to the performance obligations in the contract. In such cases, revenue recognized may be adjusted.

Recent Accounting Pronouncements

See Note 1 “The Company and Summary of Significant Accounting Policies and Estimates” to our consolidated financial statements included in this Annual Report on Form 10-K for a full description of recent accounting pronouncements adopted, including the dates of adoption, and recent accounting pronouncements not yet adopted.

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Results of Operations

The following table sets forth our results of operations for the years presented. The data has been derived from the consolidated financial statements contained in this Annual Report on Form 10-K. The results for any period should not be considered indicative of results for any future period.

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[[/GREPCENT_TABLE]]

Comparison of the Fiscal Years Ended July 31, 2023 and 2022

Revenue

We derive our revenue primarily from delivering cloud-based services, licensing our software applications, providing support, and delivering professional services.

Subscription and Support

A growing portion of our revenue consists of fees for our subscription services, which are generally priced based on the amount of DWP that is managed by our subscription services. Subscription revenue is recognized ratably over the term of the arrangement, beginning at the point in time our provisioning process has been completed and access has been made available to the customer. The initial term of such arrangements is generally from three to five years. Subscription agreements contain optional annual renewals commencing upon the expiration of the initial contract term. A majority of our subscription customers are billed annually in advance. In some arrangements with multiple performance obligations, a portion of recurring subscription contract value may be allocated to

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license revenue or services revenue for revenue recognition purposes. For example, in arrangements with multiple performance obligations that include services at discounted rates, a portion of the total contract value related to subscription services will be allocated and recognized as services revenue. Additionally, agreements to migrate an existing term license customer to subscription services contain multiple performance obligations, including a provision to continue using the term license during the subscription service implementation period. Under these migration agreements, a portion of the total contract value related to subscription services could be allocated and recognized as term license and support revenue in the period renewed or delivered.

Our support revenue is generally recognized ratably over the committed support term of the licensed software. Our support fees are typically priced as a fixed percentage of the associated term license fees. We generally invoice support annually in advance. Support related to subscription arrangements is included in subscription revenue, as support is not quoted or priced separately from the subscription services.

License

A substantial majority of our license revenue consists of term license fees. Our term license revenue is primarily generated through license fees that are billed annually in advance during the term of the contract, including any renewals. Our term license fees are generally priced based on the amount of DWP that will be managed by our licensed software. Our term licenses have generally been sold under a two-year initial term with optional annual renewals after the initial term. However, we do enter into license arrangements that have an initial term of more than two years and renewal terms of more than one year. Term license revenue for the committed term of the customer agreement is generally fully recognized upon delivery of the software or at the beginning of the renewal term.

In a limited number of cases, we license our software on a perpetual basis. Perpetual license revenue is generally recognized upon delivery. We invoice our perpetual license customers either in full at contract signing or on an installment basis.

Services

Our services revenue is primarily derived from implementation and migration services performed for our customers, reimbursable travel expenses, and training fees. A majority of our services engagements are billed and revenue is recognized on a time and materials basis upon providing our services.

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[[/GREPCENT_TABLE]]

Subscription and Support

We anticipate subscriptions will continue to represent a majority of new arrangements, including customers migrating from existing term license arrangements to subscription services, in future periods. Due to the ratable recognition of subscription revenue, growth in subscription revenue will lag behind the growth of subscription orders and will impact the comparative growth of our reported revenue on a year-over-year basis. If we complete a higher percentage of subscription arrangements in a given period, our short-term growth rates will be negatively impacted. Due to the seasonal nature of our business, the impact of new subscription orders in our fourth fiscal quarter, our historically largest quarter for new orders, is not fully reflected in revenue until the following fiscal year.

Subscription revenue increased by $92.9 million compared to the prior year primarily due to the impact of cloud transition agreements and new subscription agreements entered into and provisioned since July 31, 2022, and the renewal or extension of subscription services at the fully ramped annual fees after the initial committed term.

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Support revenue decreased by $7.0 million compared to the prior year, primarily due to customers migrating from on-premise term licenses to subscription services. Support related to subscription arrangements is included in subscription revenue, as support is not quoted or priced separately from the subscription services. As customers enter into a subscription agreement to migrate from an existing term license agreement, the timing and amount of revenue recognized will be impacted by allocations of the total contract value between the license, subscription, and support performance obligations. As a result, we expect the increase in subscription orders as a percentage of total new sales and customers migrating from term licenses to subscription services will result in lower support revenue in the future.

License

Revenue related to new term licenses and multi-year term license renewals is generally recognized upfront and, as a result, no additional license revenue is recognized until after the committed term expires. As a customer enters into a subscription agreement to migrate from an existing term license agreement, the timing and amount of revenue recognition will be impacted by allocations of total contract value between license, subscription, and support performance obligations. License revenue growth has and will be negatively impacted as subscription sales increase as a percentage of total new sales and as customers migrate from term licenses to subscription services instead of renewing their term licenses.

Term license revenue increased by $6.9 million compared to the prior year primarily due to an increase in new deals and the impact of renewals of $10.9 million, which was partially offset by decreases due to agreements that migrated from a term license to a subscription service in the prior year of $4.0 million. Ongoing revenue related to migration agreements is recorded as subscription revenue. The impact on term license revenue from contracts with an initial term of greater than two years or a renewal term of greater than one year was $7.6 million during fiscal year 2023, as compared to $2.5 million in the prior year.

Perpetual license revenue accounted for less than 1% of total revenue in fiscal year 2023. We expect perpetual license revenue to continue to represent a small percentage of our total license revenue. We also expect perpetual license revenue to potentially be volatile across quarters due to the large amount of perpetual revenue that may be generated from a single customer order.

Services Revenue

Services revenue was flat compared to the prior year. Services revenue was impacted by the completion of implementations, partially offset by an increase from new and existing subscription implementation and migration projects. Services revenue overall continues to be impacted by contracts with lower average services billing rates and increased investments in customer implementations, including fixed fee or capped arrangements, to accelerate customer transition to the cloud. In these arrangements when a project extends longer than originally anticipated, the average billing rate we recognize may decrease, which can result in revenue adjustments and lower gross profit. Additionally, our SI partners are leading more new subscription implementation and migration projects than in the past.

We expect some level of variability in our services revenue in future periods. As we successfully leverage our SI partners to lead more implementations and migrations, our services revenue could decrease. We expect challenges related to global events including inflation and our ability to hire additional services professionals will also continue to negatively impact services revenue. As we continue to expand into new markets and develop new services and products, we have, and may continue to, enter into contracts with lower average billing rates, make investments in customer implementation and migration engagements, and enter into fixed price contracts, which may impact services revenue and services margin.

Cost of Revenue and Gross Profit

Our cost of subscription and support revenue primarily consists of personnel costs for our cloud operations and technical support teams, cloud infrastructure costs, development of online training curriculum, amortization of intangible assets, and royalty fees paid to third parties. Our cost of license revenue primarily consists of development of online training curriculum, royalty fees paid to third parties, and amortization of intangible assets. Our cost of services revenue primarily consists of personnel costs for our professional service employees, third-party subcontractors or consultants, and travel costs. In instances where we have primary responsibility for the delivery of services, subcontractor fees are expensed as cost of services revenue. In each case, personnel costs include salaries, bonuses, benefits, and stock-based compensation.

We allocate overhead such as information technology infrastructure and software expenses, information security infrastructure and software expenses, and facilities expenses to all functional departments based on headcount. As such, these general overhead expenses are reflected in cost of revenue and each functional operating expense.

Effective as of the beginning of fiscal year 2023, we revised our allocation methodology to more closely reflect the way our business is managed and to be more comparable to other companies in our industry. The change resulted in facilities expenses, information technology infrastructure and software expenses, and information security infrastructure and software expenses being

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allocated to all functional departments based on headcount, while other previously allocated expenses are recorded within general and administrative expenses. The effect of this change is an increase in general and administrative expenses and a decrease in cost of revenue and other operating expense categories. Prior period amounts have been re-classified to reflect the revised methodology in our prior year consolidated financial statements and accompanying notes for comparability purposes.

Cost of Revenue:

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[[/GREPCENT_TABLE]]

Cost of subscription and support revenue increased by $7.7 million primarily due to increases in cloud infrastructure expense of $9.2 million for our growing cloud usage and customer base, internal-use software amortization of $3.1 million, royalties of $1.0 million, and personnel costs of $0.7 million. These increases were partially offset by decreases in amortization of intangibles of $4.2 million due to certain acquired intangible assets being fully amortized, and professional services of $2.2 million. As a result of efficiencies that we are seeing from our previous investments in cloud operations and development efforts along with the challenges presented by the macroeconomic environment, we have slowed hiring and are critically evaluating professional services contracts and third-party software costs.

Due to our continued investment in cloud-based operations, increase in new cloud-based customers, and increased usage from existing cloud-based customers, the costs to provide our subscription and support services increased. We expect our cost of subscription and support revenue to decrease as a percentage of revenue, but increase in absolute dollars, due to inflation, platform and product investments, and more customers utilizing our cloud product. To address cloud infrastructure costs, we entered into a five-year agreement with our cloud infrastructure provider at lower per unit usage costs. However, we believe that the cost of subscription and support revenue will grow at a slower rate than subscription and support revenue in future years as we achieve economies of scale and other efficiencies. The short-term impact of these trends along with mix within subscription and support revenue may result in a decline in subscription and support gross margin even though subscription and support gross profit increases in absolute dollars.

The $2.3 million decrease in our cost of license revenue was primarily due to a decrease in personnel costs associated with the development of online training curriculum included with the latest releases of InsuranceSuite of $1.7 million, royalties of $0.4 million, and amortization of intangibles of $0.1 million due to certain acquired intangible assets being fully amortized.

We continue to anticipate lower cost of license revenue over time as our term license customers transition to cloud subscription agreements.

The $6.3 million increase in cost of services revenue was primarily due to increases in personnel expenses of $8.0 million associated with an increase in headcount, and software subscriptions of $0.8 million. These increases were partially offset by decreases in subcontractor expenses of $1.1 million, professional services of $1.1 million, and web hosting costs of $0.2 million.

We had 648 cloud operations and technical support employees and 784 professional service employees as of July 31, 2023 compared to 696 cloud operations and technical support employees and 755 professional services employees as of July 31, 2022.

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Gross Profit

[[GREPCENT_TABLE]]
[["","Fiscal years ended July 31,"],["","2023","","2022","","Change"],["","Amount","","margin %","","Amount","","margin %","","($)","","(%)"],["","(In thousands, except percentages)"],["Gross profit:"],["Subscription and support","$","219,160","","","51","%","","$","140,876","","","41","%","","$","78,284","","","56","%"],["License","259,105","","","98","","","249,877","","","97","","","9,228","","","4"],["Services","(20,054)","","","(10)","","","(13,577)","","","(6)","","","(6,477)","","","48"],["Total gross profit","$","458,211","","","51","%","","$","377,176","","","46","%","","$","81,035","","","21","%"]]
[[/GREPCENT_TABLE]]

Our gross profit increased by $81.0 million compared to the prior year. Gross profit was impacted by an increase in subscription and support gross profit due to the increase in subscription revenue and cloud operations efficiencies, partially offset by a decrease in services gross profit due to the investments that we are making in our customers' transition to subscription services.

Our gross margin increased to 51% in fiscal year 2023, as compared to 46% in fiscal year 2022. Gross margin was primarily impacted by the increase in subscription and support revenue at a higher margin due to cloud operations efficiencies, partially offset by lower services margin due to the investments that we are making in our customers' transition to subscription services.

We expect subscription and support gross margin to improve over the next several years as we gain efficiencies and increase the number of cloud customers. We expect services gross margin will improve as we lower our reliance on subcontractors and enter into fewer fixed fee arrangements. We expect license gross margin to fluctuate based on changes in revenue due to the timing of delivery of new multi-year term licenses and the execution of multi-year term license renewals, as cost of license revenue is expected to be relatively consistent from period to period in the future. Overall, we expect gross margins to continue to improve over time as improvements in subscription and support gross margin and services gross margin will more than offset the negative impact of revenue shifts away from high margin license revenue.

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Operating Expenses

Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. The largest components of our operating expenses are personnel costs for our employees and, to a lesser extent, professional services. In each case, personnel costs include salaries, bonuses, commissions, benefits, and stock-based compensation.

We allocate overhead such as information technology infrastructure and software expenses, information security infrastructure and software expenses, and facilities expenses to all functional departments based on headcount. As such, these general overhead expenses are reflected in cost of revenue and each functional operating expense.

Effective as of the beginning of fiscal year 2023, we revised our allocation methodology to more closely reflect the way our business is managed and to be more comparable to other companies in our industry. The change resulted in facilities expenses, information technology infrastructure and software expenses, and information security infrastructure and software expenses being allocated to all functional departments based on headcount, while other previously allocated expenses are recorded within general and administrative expenses. The effect of this change is an increase in general and administrative expenses and a decrease in cost of revenue and other operating expense categories. Prior period amounts have been re-classified to reflect the revised methodology in our prior year consolidated financial statements and accompanying notes for comparability purposes.

[[GREPCENT_TABLE]]
[["","Fiscal years ended July 31,"],["","2023","","2022","","Change"],["","","","% of total","","","","% of total"],["","Amount","","revenue","","Amount","","revenue","","($)","","(%)"],["","(In thousands, except percentages)"],["Operating expenses:"],["Research and development","$","249,746","","","28","%","","$","229,230","","","28","%","","$","20,516","","","9","%"],["Sales and marketing","188,224","","","21","","","182,620","","","23","","","5,604","","","3"],["General and administrative","169,731","","","19","","","164,773","","","20","","","4,958","","","3"],["Total operating expenses","$","607,701","","","68","%","","$","576,623","","","71","%","","$","31,078","","","5","%"],["Includes stock-based compensation of:"],["Research and development","$","39,865","","","","","$","33,446","","","","","$","6,419"],["Sales and marketing","29,925","","","","","31,281","","","","","(1,356)"],["General and administrative","39,259","","","","","37,392","","","","","1,867"],["Total","$","109,049","","","","","$","102,119","","","","","$","6,930"]]
[[/GREPCENT_TABLE]]

Research and Development

Our research and development expenses primarily consist of personnel costs for our technical staff and consultants providing professional services.

The $20.5 million increase in research and development expenses was primarily due to increases in personnel costs of $25.2 million associated with higher headcount and software subscription costs of $1.0 million. These increases were partially offset by decreases in cloud hosting costs of $3.5 million and professional services of $2.2 million. Cloud hosting costs are benefiting from the efficiencies that we are achieving with GWCP and the five-year agreement with a cloud infrastructure services provider that was entered into in the first quarter of this fiscal year.

Our research and development headcount was 1,069 as of July 31, 2023, as compared to 972 as of July 31, 2022.

We expect our research and development expenses to increase in absolute dollars due to inflation and investments to support our growing customer base, but decrease as a percentage of revenue after a period of significant investment in cloud platform capabilities as overall hiring slows and we focus on hiring in lower cost regions. We continue to dedicate internal resources to develop, improve, and expand the functionality of our solutions and migrate our solutions to the cloud. Research and development expenses may also increase if we pursue additional acquisitions.

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Sales and Marketing

Our sales and marketing expenses primarily consist of personnel costs for our sales and marketing employees. Included in our personnel costs are commissions, which are considered contract acquisition costs and are capitalized when earned and expensed over the anticipated period of time that goods and services are expected to be provided to a customer, which we estimate to be approximately five years. Sales and marketing expenses also include travel expenses, professional services for marketing activities, and amortization of certain acquired intangibles.

The $5.6 million increase in sales and marketing expenses was primarily due to increases in personnel costs of $6.2 million, including $2.8 million related to contract acquisition costs and $1.5 million of severance expenses incurred in the first quarter of fiscal year 2023, travel costs of $2.6 million due to more in-person client interactions, and marketing and advertising costs of $0.5 million. These increases were partially offset by decreases in amortization of intangibles of $2.9 million due to certain acquired intangible assets being fully amortized, professional services costs of $0.5 million, and cloud hosting costs of $0.3 million.

Our sales and marketing headcount was 463 as of July 31, 2023, as compared to 475 as of July 31, 2022.

We expect our sales and marketing expenses to continue to increase in absolute dollars due to inflation and investments to support ongoing growth, but decrease as a percentage of revenue as overall hiring slows after a period of investment in building out our customer success team and adding analytics and cloud sales capabilities.

General and Administrative

Our general and administrative expenses include executive, finance, human resources, information technology, information security, legal, and corporate development and strategy functions, and primarily consist of personnel costs and, to a lesser extent, professional services, software costs, and cloud hosting costs.

The $5.0 million increase in our general and administrative expenses was primarily due to the net impact of the assignment of the lease agreement for our previous headquarters and concurrent sublease for office space in San Mateo, California with the same third party for our new worldwide headquarters which resulted in an $8.5 million expense, personnel costs of $3.0 million, which includes $1.0 million of severance expense incurred in the first quarter of fiscal year 2023, and software subscriptions and cloud hosting costs of $2.7 million. These increases were partially offset by decreases in facilities costs of $8.0 million and professional services costs of $1.5 million.

Our general and administrative headcount was 451 as of July 31, 2023, as compared to 478 as of July 31, 2022. General and administrative headcount includes facilities personnel whose expenses are allocated across all functional departments.

We expect that our general and administrative expenses will increase in absolute dollars due to inflation and investments required to support our strategic initiatives, grow our business, and meet our product and information security, compliance and reporting obligations, but decrease as a percentage of revenue as overall hiring and investments slow.

Other Income (Expense)

[[GREPCENT_TABLE]]
[["","Fiscal years ended July 31,"],["","2023","","2022","","Change"],["","Amount","","Amount","","($)","","(%)"],["","(In thousands, except percentages)"],["Interest income","$","24,389","","","$","6,277","","","$","18,112","","","289","%"],["Interest expense","$","(6,716)","","","$","(19,446)","","","$","12,730","","","(65)","%"],["Other income (expense), net","$","(2,277)","","","$","(17,099)","","","$","14,822","","","(87)","%"]]
[[/GREPCENT_TABLE]]

Interest Income

Interest income represents interest earned on our cash, cash equivalents, and investments.

Interest income increased by $18.1 million in fiscal year 2023, primarily due to higher interest rates on invested funds, even though we had a lower funds available for investment.

Interest Expense

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Prior to August 1, 2022 and adoption of ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, interest expense included both stated interest and the amortization of debt discount and issuance costs associated with our Convertible Senior Notes. Previously, the amortization of debt discount and issuance costs were recognized on an effective interest basis. For periods after August 1, 2022, there is no longer a debt discount component related to the Convertible Senior Notes as it was eliminated upon adoption. Stated interest expense is consistent in the comparative periods as the outstanding principal and stated interest rate have not changed.

Interest expense for the 12 months ended July 31, 2023 consists of stated interest of $5.0 million and non-cash interest expense of $1.7 million related to amortization of debt issuance costs. Interest expense for the 12 months ended July 31, 2022 consists of stated interest of $5.0 million and non-cash interest expense of $14.4 million related to the amortization of debt discount and issuance costs.

Other Income (Expense), Net

Other income (expense), net includes foreign exchange gains and losses resulting from fluctuations in foreign exchange rates on monetary asset and monetary liability balances that are denominated in currencies other than the functional currency of the entity in which they are recorded. Our monetary assets and liabilities denominated in currencies other than the functional currency of the entity in which they are recorded consist primarily of trade accounts receivable, unbilled accounts receivable, trade accounts payable, and intercompany receivables and payables. We have significant transactions in the following currencies: Australian Dollar, British Pound, Canadian Dollar, Euro, Indian Rupee, Japanese Yen, Malaysian Ringgit, and Polish Zloty.

Other income (expense), net in fiscal year 2023 was expense of $2.3 million compared to expense of $17.1 million in fiscal year 2022. The decrease was due to fluctuations in foreign currency exchange rates. In addition to the foreign currency exchange rate fluctuations during the fiscal year ended July 31, 2023, an impairment charge of $0.8 million was recognized related to a strategic equity investment.

Provision for (benefit from) Income Taxes

We are subject to taxes in the United States as well as other tax jurisdictions and countries in which we conduct business. Earnings from our non-U.S. activities are subject to local country income tax and may also be subject to U.S. income tax.

[[GREPCENT_TABLE]]
[["","Fiscal years ended July 31,"],["","2023","","2022","","Change"],["","Amount","","Amount","","($)","","(%)"],["","(In thousands, except percentages)"],["Provision for (benefit from) income taxes","$","(22,239)","","","$","(49,284)","","","$","27,045","","","(55)","%"],["Effective tax rate","17","%","","21","%"]]
[[/GREPCENT_TABLE]]

We recognized an income tax benefit of $22.2 million for fiscal year 2023 compared to an income tax benefit of $49.3 million for fiscal year 2022. The decrease in our income tax benefit for fiscal year 2023 was primarily due to a decrease in pre-tax net loss, an increase in tax deficiencies related to stock-based compensation, certain non-deductible expenses, including executive compensation limitation, and an increase in foreign earnings taxed in the U.S., partially offset by an increase in research and development tax credits and the release of uncertain tax positions.

As of July 31, 2023, we had unrecognized tax benefits of $12.9 million that, if recognized, would affect our effective tax rate, as certain unrecognized tax benefits have a valuation allowance.

The effective tax rate could differ from the statutory U.S. Federal income tax rate of 21% primarily due to state taxes, tax deficiencies related to stock-based compensation, research and development credits, foreign earnings taxed in the U.S., release of uncertain tax positions, a change in valuation allowance and certain non-deductible expenses, including, but not limited to, executive compensation limitation.

Comparison of the Fiscal Years Ended July 31, 2022 and 2021

Refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations located in our 10-K for the fiscal year ended July 31, 2022, filed on September 26, 2022, for the discussion of the comparison of the fiscal year ended July 31, 2022 to the fiscal year ended July 31, 2021, the earliest of the three fiscal years presented in the consolidated financial statements.

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Non-GAAP Financial Measures

In addition to the key business metrics presented above, we believe that the following non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations. Management uses these non-GAAP measures to compare our performance to that of prior periods for trend analysis, for purposes of determining executive and senior management incentive compensation, and for budgeting and planning purposes. We believe that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial results with other software companies because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, many of which present similar non-GAAP financial measures to investors. However, our management does not consider these non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP.

The non-GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in our financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by management about which expenses and income are excluded or included in determining these non-GAAP financial measures. We urge investors to review the reconciliation of non-GAAP financial measures to the comparable GAAP financial measures included herein and not to rely on any single financial measure to evaluate the Company’s business.

The following table reconciles the specific items excluded from GAAP in the calculation of non-GAAP financial measures for the periods indicated below (in thousands, except share and per share data):

[[GREPCENT_TABLE]]
[["","","","Fiscal years ended July 31,"],["","","","","","2023","","2022"],["Gross profit reconciliation:"],["GAAP gross profit","","","","","$","458,211","","","$","377,176"],["Non-GAAP adjustments:"],["Stock-based compensation","","","","","33,793","","","34,892"],["Amortization of intangibles","","","","","3,360","","","7,659"],["Non-GAAP gross profit","","","","","$","495,364","","","$","419,727"],["Income (loss) from operations reconciliation:"],["GAAP income (loss) from operations","","","","","$","(149,490)","","","$","(199,447)"],["Non-GAAP adjustments:"],["Stock-based compensation","","","","","142,842","","","137,011"],["Amortization of intangibles","","","","","6,888","","","14,081"],["Acquisition consideration holdback","","","","","2,939","","","3,067"],["Net impact of assignment of lease agreement (1)","","","","","8,502","","","\u2014"],["Non-GAAP income (loss) from operations","","","","","$","11,681","","","$","(45,288)"],["Net income (loss) reconciliation:"],["GAAP net income (loss)","","","","","$","(111,855)","","","$","(180,431)"],["Non-GAAP adjustments:"],["Stock-based compensation","","","","","142,842","","","137,011"],["Amortization of intangibles","","","","","6,888","","","14,081"],["Acquisition consideration holdback","","","","","2,939","","","3,067"],["Amortization of debt discount and issuance costs","","","","","1,703","","","14,391"],["Changes in fair value of strategic investments","","","","","802","","","(1,538)"],["Net impact of assignment of lease agreement (1)","","","","","8,502","","","\u2014"],["Tax impact of non-GAAP adjustments","","","","","(22,611)","","","(29,105)"],["Non-GAAP net income (loss)","","","","","$","29,210","","","$","(42,524)"],["Tax provision (benefit) reconciliation:"],["GAAP tax provision (benefit)","","","","","$","(22,239)","","","$","(49,284)"],["Non-GAAP adjustments:"],["Stock-based compensation","","","","","92,849","","","37,826"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["Amortization of intangibles","","","","","4,677","","","3,936"],["Acquisition consideration holdback","","","","","1,924","","","847"],["Amortization of debt discount and issuance costs","","","","","1,105","","","4,049"],["Changes in fair value of strategic investments","","","","","(103)","","","(471)"],["Net impact of assignment of lease agreement (1)","","","","","3,196","","","\u2014"],["Tax impact of non-GAAP adjustments","","","","","(81,037)","","","(17,082)"],["Non-GAAP tax provision (benefit)","","","","","$","372","","","$","(20,179)"],["Net income (loss) per share reconciliation:"],["GAAP net income (loss) per share \u2013 diluted","","","","","$","(1.36)","","","$","(2.16)"],["Non-GAAP adjustments:"],["Stock-based compensation","","","","","1.74","","","1.63"],["Amortization of intangibles","","","","","0.08","","","0.16"],["Acquisition consideration holdback","","","","","0.04","","","0.03"],["Amortization of debt discount and issuance costs","","","","","0.02","","","0.17"],["Changes in fair value of strategic investments","","","","","0.01","","","0.01"],["Net impact of assignment of lease agreement (1)","","","","","0.10","","","\u2014"],["Tax impact of non-GAAP adjustments","","","","","(0.28)","","","(0.35)"],["Non-GAAP net income (loss) per share \u2013 diluted","","","","","$","0.35","","","$","(0.51)"],["Shares used in computing Non-GAAP income (loss) per share amounts:"],["GAAP weighted average shares \u2013 diluted","","","","","82,176,629","","","83,569,517"],["Non-GAAP dilutive shares excluded from GAAP income (loss) per share calculation","","","","","466,516","","","\u2014"],["Pro forma weighted average shares \u2013 diluted","","","","","82,643,145","","","83,569,517"]]
[[/GREPCENT_TABLE]]

(1) During the third quarter of fiscal year 2023, the Company recorded in general and administrative expenses a net loss of $8.5 million related to the assignment of the lease agreement for the remaining lease term of the Company’s previous headquarters. The loss is comprised of an $18.4 million gain from the de-recognition of the operating lease asset of $56.9 million, the de-recognition of the lease liability of $75.5 million, and other expenses related to the lease assignment of $0.2 million, offset by accelerated depreciation expense related to property and equipment, primarily consisting of leasehold improvements, at the previous headquarters of $26.9 million. Prior to the third quarter of fiscal year 2023, there were no transactions similar to the lease assignment in any periods presented.

Liquidity and Capital Resources

Our principal sources of liquidity are as follows (in thousands):

[[GREPCENT_TABLE]]
[["","July 31, 2023","","July 31, 2022"],["Cash, cash equivalents, and investments","$","927,467","","","$","1,163,675"],["Working capital","$","726,342","","","$","915,185"]]
[[/GREPCENT_TABLE]]

Cash, Cash Equivalents, and Investments

Our cash and cash equivalents are comprised of cash and liquid investments with remaining maturities of 90 days or less from the date of purchase, primarily commercial paper and money market funds. Our investments primarily consist of corporate debt securities, U.S. government and agency debt securities, commercial paper, asset-backed securities, and non-U.S. government securities, which include state, municipal and foreign government securities.

As of July 31, 2023, approximately $55.6 million of our cash and cash equivalents were domiciled in foreign jurisdictions. We may repatriate foreign earnings to the United States in the future to the extent that the repatriation is not restricted by local laws or there are no substantial incremental costs associated with such repatriation.

Share Repurchase Program

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In September 2022, our board of directors authorized and approved a share repurchase program of up to $400.0 million of our outstanding common stock. We entered into an accelerated share repurchase (“ASR”) agreement with a large financial institution whereupon we provided them with a prepayment of $200.0 million and received an initial delivery of 2,581,478 shares of our common stock. As of July 31, 2023, the ASR was settled in full which resulted in total repurchases under the ASR of 3,229,479 shares of common stock at an average purchase price of $61.93 per share.

During the fiscal year ended July 31, 2023, the Company repurchased 4,041,284 shares of common stock at an average price of $64.78 per share, for an aggregate purchase price of $261.8 million. As of July 31, 2023, $138.2 million remained available for future share repurchases under the authorized and approved share repurchase program.

During the fiscal year ended July 31, 2022, we repurchased 322,545 shares of common stock at an average price of $116.11 per share for an aggregate purchase price of $37.5 million under a previous authorized and approved share repurchase program.

Cash Flows

Our cash flows from operations are significantly impacted by timing of invoicing and collections of accounts receivable, annual bonus payments, as well as payments of payroll, commissions, payroll taxes, and other taxes. We expect that we will generate positive cash flows from operations on an annual basis in the future, although this may fluctuate significantly on a quarterly basis. In particular, we typically use more cash during our first fiscal quarter, which is the quarter ending October 31, as we generally pay cash bonuses to our employees for the prior fiscal year and seasonally higher sales commissions from increased customer orders booked in our fourth fiscal quarter of the prior year. Additionally, our capital expenditures may fluctuate depending on future office build outs and development activities subject to capitalization.

We believe that our existing cash and cash equivalents and sources of liquidity will be sufficient to fund our operations for at least the next 12 months. Our future cash requirements will depend on many factors, including our rate of revenue growth, the expansion of our sales and marketing activities, the timing and extent of our spending to support our research and development efforts, investments in cloud infrastructure, cybersecurity, and operating costs, and expansion into other markets. We also may invest in or acquire complementary businesses, applications or technologies, or may execute on a board-authorized share repurchase program, which may require the use of significant cash resources and/or additional financing.

The following summary of cash flows for the periods indicated has been derived from our consolidated financial statements included elsewhere in this Annual Report on Form 10-K (in thousands):

[[GREPCENT_TABLE]]
[["","Fiscal years ended July 31,"],["","2023","","2022"],["Net cash provided by (used in) operating activities","$","38,395","","","$","(37,940)"],["Net cash provided by (used in) investing activities","$","12,712","","","$","312,212"],["Net cash provided by (used in) financing activities","$","(261,579)","","","$","(37,335)"]]
[[/GREPCENT_TABLE]]

Cash Flows from Operating Activities

Net cash provided by operating activities increased by $76.3 million in fiscal year 2023 as compared to fiscal year 2022. The increase in operating cash provided was primarily attributable to an $81.0 million decrease in net loss after excluding the impact of non-cash charges such as deferred taxes, stock-based compensation expense, depreciation and amortization expense, and other non-cash items, partially offset by an increase of $4.7 million in cash used by working capital activities.

Cash Flows from Investing Activities

Net cash provided by investing activities decreased by $299.5 million in fiscal year 2023 as compared to fiscal year 2022. The decrease in cash provided by investing activities was primarily due to a decrease in net cash provided from available-for-sale securities transactions of $348.3 million, partially offset by lower capital expenditures and capitalized software development costs of $4.3 million, decreased business acquisition costs of $43.8 million as HazardHub was acquired in fiscal year 2022, and a $0.7 million net decrease in amounts paid for strategic investments.

Cash Flows from Financing Activities

Net cash used in financing activities increased by $224.2 million in fiscal year 2023 as compared to fiscal year 2022. The increase in cash used was primarily because of our authorized share repurchase programs which resulted in our repurchase of $224.3 million more of our common stock during fiscal year 2023 compared to the same period a year ago, partially offset by an increase in proceeds from option exercises of $0.1 million.

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Commitments and Contractual Obligations

Our estimated future obligations consist of leases, royalties, purchase obligations, debt, and taxes as of July 31, 2023. Refer to Note 8 “Leases,” Note 9 “Commitments and Contingencies,” and Note 11 “Income Taxes” to our consolidated financial statements included in this Annual Report on Form 10-K for more information.

Effective during the fiscal year ended July 31, 2023, we entered into an agreement with a cloud infrastructure services provider for a total obligation of $600 million over a five-year period.

Effective during the fiscal year ended July 31, 2023, we assigned the remaining lease term of our previous headquarters and concurrently entered into a sublease for office space in San Mateo, California with the same third party for our new worldwide headquarters.

Off-Balance Sheet Arrangements

Through July 31, 2023, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.