What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-20 compared with 2020-08-28 · 143 added, 121 removed, 668 unchanged (28% of the section changed)

3 unchanged sentences

(in thousands)

July 31, 2020 January 31, 2020

October 31, 2020 January 31, 2020

Current assets:

38 unchanged sentences

(in thousands, except per share data)

Three Months Ended July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

2020 2019 2020 2019

26 unchanged sentences

(in thousands)

Three Months Ended July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

2020 2019 2020 2019

12 unchanged sentences

(in thousands, except share data)

Three Months Ended July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

2020 2019 2020 2019

8 unchanged sentences

Share-based compensation 259,802 230,682 746,643 624,705

Settlement of warrants ( 34,118 ) — ( 34,118 ) —

Exercise of convertible senior notes hedges — — 303,202 —

5 unchanged sentences

Exercise of convertible senior notes hedges — — ( 303,201 ) —

Settlement of warrants 34,118 — 34,118 —

Balance, end of period ( 269,083 ) — ( 269,083 ) —

9 unchanged sentences

Total stockholders’ equity $ 3,078,054 $ 2,319,179 $ 3,078,054 $ 2,319,179

Three Months Ended July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

2020 2019 2020 2019

2 unchanged sentences

Issuance of common stock under employee equity plans 1,935,725 1,931,916 7,388,498 7,487,250

Settlement of warrants ( 186,202 ) — ( 186,202 ) —

Settlement of convertible senior notes — 20 1,654,308 217

5 unchanged sentences

(in thousands)

Three Months Ended July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

2020 2019 2020 2019

30 unchanged sentences

Payments on convertible senior notes — ( 3 ) ( 249,946 ) ( 30 )

Payments on term loan ( 9,375 ) — ( 9,375 ) —

Proceeds from issuance of common stock from employee equity plans 3,650 1,780 78,167 63,320

6 unchanged sentences

See Notes to Condensed Consolidated Financial Statements

Three Months Ended July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

2020 2019 2020 2019

4 unchanged sentences

Purchases of property and equipment, accrued but not paid 49,098 33,155 49,098 33,155

As of July 31,

As of October 31,

Reconciliation of cash, cash equivalents, and restricted cash as shown in the statements of cash flows:

23 unchanged sentences

All such adjustments are of a normal, recurring nature.

The results of operations for the quarter ended July 31, 2020, shown in this report are not necessarily indicative of the results to be expected for the full year ending January 31, 2021.

The results of operations for the quarter ended October 31, 2020, shown in this report are not necessarily indicative of the results to be expected for the full year ending January 31, 2021.

The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended January 31, 2020, filed with the SEC on March 3, 2020.

7 unchanged sentences

We operate in one operating segment, cloud applications.

Operating segments are defined as components of an enterprise where separate financial information is evaluated regularly by the chief operating decision maker, who is our chief executive officer, in deciding how to allocate resources and assessing performance.

Our chief operating decision maker allocates resources and assesses performance based upon discrete financial information at the consolidated level.

Operating segments are defined as components of an enterprise where separate financial information is evaluated regularly by chief operating decision makers, who are our co-chief executive officers, in deciding how to allocate resources and assessing performance.

Our chief operating decision makers allocate resources and assess performance based upon discrete financial information at the consolidated level.

Accounting Standards

37 unchanged sentences

This new standard is effective for our interim and annual periods beginning February 1, 2022, and earlier adoption is permitted.

We may elect to apply the amendments on a retrospective or modified retrospective basis.

We are currently evaluating the impact of the adoption of this standard on our condensed consolidated financial statements.

Debt Securities

As of July 31, 2020, debt securities consisted of the following (in thousands):

As of October 31, 2020, debt securities consisted of the following (in thousands):

Amortized Cost Unrealized Gains Unrealized Losses Aggregate Fair Value

18 unchanged sentences

Debt securities included in Marketable securities on the condensed consolidated balance sheets consist of securities with original maturities at the time of purchase greater than three months, and the remainder of the securities is included in Cash and cash equivalents.

The unrealized losses associated with our debt securities were immaterial as of July 31, 2020, and January 31, 2020, and we did not recognize any credit losses related to our debt securities during the three and six months ended July 31, 2020.

During the three months ended July 31, 2020, we did no t sell any debt securities.

We sold $ 5 million of our debt securities during the three months ended July 31, 2019, and $ 5 million of our debt securities during each of the six months ended July 31, 2020, and 2019.

The unrealized losses associated with our debt securities were immaterial as of October 31, 2020, and January 31, 2020, and we did not recognize any credit losses related to our debt securities during the three and nine months ended October 31, 2020.

There were no sales of debt securities during the three months ended October 31, 2020, and 2019.

We sold $ 5 million of debt securities during the nine months ended October 31, 2020, and 2019.

The realized gains and losses from the sales were immaterial.

1 unchanged sentence

Equity investments consisted of the following (in thousands):

Condensed Consolidated Balance Sheets Location July 31, 2020 January 31, 2020

Money market funds Cash and cash equivalents $ 952,987 $ 386,909

Condensed Consolidated Balance Sheets Location October 31, 2020 January 31, 2020

Money market funds (1)

Cash and cash equivalents $ 517,031 $ 386,909

Marketable equity investments (1)

Marketable securities 10,696 —

Equity investments accounted for under the equity method Other assets 48,181 —

Non-marketable equity investments measured using the measurement alternative Other assets 65,610 59,026

Non-marketable equity investments measured using the measurement alternative (2)

Other assets 62,741 59,026

$ 638,649 $ 445,935

(1) Investments with readily determinable fair values.

(2) Investments in privately held companies without readily determinable fair values.

Total realized and unrealized gains and losses associated with our equity investments consisted of the following (in thousands):

Three Months Ended October 31, Nine Months Ended October 31,

2020 2019 2020 2019

Net realized gains (losses) recognized on equity investments sold $ — $ 102 $ 1,591 $ 6,946

Net unrealized gains (losses) recognized on equity investments held 3,830 — 1,643 2,169

Total net gains (losses) recognized in Other income (expense), net $ 3,830 $ 102 $ 3,234 $ 9,115

We determine at the inception of each arrangement whether an investment or other interest is considered a variable interest entity (“VIE”).

4 unchanged sentences

and (2) has the obligation to absorb losses or the right to receive benefits from the VIE.

As of July 31, 2020, there were no VIEs for which we were the primary beneficiary.

As of October 31, 2020, there were no VIEs for which we were the primary beneficiary.

Equity Investments Accounted for Under the Equity Method

3 unchanged sentences

During the first quarter of fiscal 2021, we made an equity investment of $ 50 million in a limited partnership, which represents an ownership interest of approximately 6 %.

We determined that the limited partnership is a variable interest entity because the at-risk equity holders, as a group, lack the characteristics of a controlling financial interest.

We determined that the limited partnership is a VIE because the at-risk equity holders, as a group, lack the characteristics of a controlling financial interest.

We do not have majority voting rights nor the power to direct the activities of this entity, and therefore, we are not the primary beneficiary.

The investment is accounted for under the equity method of accounting as it is considered to be more than minor and we have the ability to exercise significant influence over the entity.

The carrying value was $ 48 million as of July 31, 2020.

There was no impairment loss recorded on this investment during the three and six months ended July 31, 2020.

The carrying value was $ 48 million as of October 31, 2020.

There was no impairment loss recorded on this investment during the three and nine months ended October 31, 2020.

Non-Marketable Equity Investments Measured Using the Measurement Alternative

1 unchanged sentence

We adjust the carrying values of non-marketable equity investments based on observable price changes from orderly transactions for identical or similar investments of the same issuer.

No material adjustments were made to the carrying value of the non-marketable equity investments as measured under the measurement alternative during the three and six months ended July 31, 2020, and 2019.

No material adjustments were made to the carrying value of the non-marketable equity investments as measured under the measurement alternative during the three and nine months ended October 31, 2020, and 2019.

Additionally, we assess our non-marketable equity investments quarterly for impairment.

2 unchanged sentences

These factors require significant judgment.

We did no t record any impairment losses on non-marketable equity investments for the three months ended July 31, 2020, and we recorded $ 3 million of impairment losses for the six months ended July 31, 2020.

We did no t record any such impairment losses during the three and six months ended July 31, 2019.

We did no t record any impairment losses on non-marketable equity investments for the three months ended October 31, 2020, and we recorded $ 3 million of impairment losses for the nine months ended October 31, 2020.

We did no t record any such impairment losses during the three and nine months ended October 31, 2019.

Non-marketable equity investments that have been remeasured during the period due to an observable event or impairment are classified within Level 3 in the fair value hierarchy because we estimate the value based on valuation methods which may include a combination of the observable transaction price at the transaction date and other unobservable inputs including volatility, rights, and obligations of the investments we hold.

Marketable Equity Investments

We did no t hold marketable equity investments as of July 31, 2020, and January 31, 2020.

There were no sales of marketable equity investments during the three and six months ended July 31, 2020, or the three months ended July 31, 2019.

We sold $ 51 million of marketable equity investments during the six months ended July 31, 2019, with a corresponding gain recognized of $ 7 million.

Total realized and unrealized gains and losses associated with our equity investments consisted of the following (in thousands):

Three Months Ended July 31, Six Months Ended July 31,

2020 2019 2020 2019

Net realized gains (losses) recognized on equity investments sold $ — $ — $ 1,591 $ 6,844

Net unrealized gains (losses) recognized on equity investments held 1,909 2,169 ( 2,187 ) 2,169

Total net gains (losses) recognized in Other income (expense), net $ 1,909 $ 2,169 $ ( 596 ) $ 9,013

Marketable equity investments were $ 11 million as of October 31, 2020.

We did not have any marketable equity investments as of January 31, 2020.

There were no sales of marketable equity investments during the three and nine months ended October 31, 2020, or the three months ended October 31, 2019.

We sold $ 51 million of marketable equity investments during the nine months ended October 31, 2019, with a corresponding gain recognized of $ 7 million.

Fair Value Measurements

6 unchanged sentences

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents information about our assets and liabilities that are measured at fair value on a recurring basis and their assigned levels within the valuation hierarchy as of July 31, 2020 (in thousands):

Level 1 Level 2 Level 3 Total

4 unchanged sentences

Money market funds 517,031 — — 517,031

Marketable equity investments 10,696 — — 10,696

Foreign currency derivative assets — 20,478 — 20,478

15 unchanged sentences

The following table presents the carrying amounts and estimated fair values of our financial instruments that are not recorded at fair value on the condensed consolidated balance sheets (in thousands):

July 31, 2020 January 31, 2020

October 31, 2020 January 31, 2020

Net Carrying Amount Estimated Fair Value Net Carrying Amount Estimated Fair Value

3 unchanged sentences

1,053,550 1,732,671 1,017,967 1,587,978

In June 2013, we completed an offering of $ 250 million of 1.50 % convertible senior notes due July 15, 2020 (“2020 Notes”), which were subsequently converted during the three months ended July 31, 2020.

In June 2013, we completed an offering of $ 250 million of 1.50 % convertible senior notes due July 15, 2020 (“2020 Notes”), which were subsequently converted during the second quarter of fiscal 2021.

In September 2017, we completed an offering of $ 1.15 billion of 0.25 % convertible senior notes due October 1, 2022 (“2022 Notes” and together with the 2020 Notes, the “Notes”).

The carrying amounts of the Notes represent the liability components of the principal balances as of July 31, 2020, and January 31, 2020.

The carrying amounts of the Notes represent the liability components of the principal balances as of October 31, 2020, and January 31, 2020.

The estimated fair values of the Notes, which we have classified as Level 2 financial instruments, were determined based on the quoted bid prices of the Notes in an over-the-counter market on the last trading day of each reporting period.

The if-converted value of the 2022 Notes exceeded the principal amount by $ 493 million.

The if-converted value was determined based on the closing price of our common stock of $ 180.92 on July 31, 2020.

The if-converted value was determined based on the closing price of our common stock of $ 210.12 on October 31, 2020.

For further information, see Note 10, Debt.

In April 2020, we entered into a credit agreement (“Credit Agreement”) pursuant to which the lenders would extend to Workday a senior unsecured term loan facility in an aggregate principal amount of $ 750 million (“Term Loan,”) and an unsecured revolving credit facility in an aggregate principal amount of $ 750 million (“Revolving Credit Facility”).

As of July 31, 2020, the carrying value of the Term Loan was $ 748 million, and there were no outstanding borrowings under the Revolving Credit Facility.

The estimated fair value of the Term Loan, which we have classified as a Level 2 financial instrument, approximates the carrying value because it is a floating rate facility.

As of October 31, 2020, the carrying value of the Term Loan was $ 739 million, and there were no outstanding borrowings under the Revolving Credit Facility.

The estimated fair value of the Term Loan, which we have classified as a Level 2 financial instrument, approximates its carrying value because it is a floating rate facility.

For further information, see Note 10, Debt.

Deferred Costs

Deferred costs, which consist of deferred sales commissions, were $ 329 million and $ 323 million as of July 31, 2020, and January 31, 2020, respectively.

Amortization expense for the deferred costs was $ 27 million and $ 22 million for the three months ended July 31, 2020, and 2019, respectively, and $ 53 million and $ 43 million for the six months ended July 31, 2020, and 2019, respectively.

Deferred costs, which consist of deferred sales commissions, were $ 342 million and $ 323 million as of October 31, 2020, and January 31, 2020, respectively.

Amortization expense for the deferred costs was $ 29 million and $ 23 million for the three months ended October 31, 2020, and 2019, respectively, and $ 82 million and $ 66 million for the nine months ended October 31, 2020, and 2019, respectively.

There was no impairment loss in relation to the costs capitalized for the periods presented.

1 unchanged sentence

Property and equipment, net consisted of the following (in thousands):

July 31, 2020 January 31, 2020

October 31, 2020 January 31, 2020

Land and land improvements $ 37,065 $ 38,737

6 unchanged sentences

Property and equipment, net $ 976,610 $ 936,179

Depreciation expense totaled $ 57 million and $ 47 million for the three months ended July 31, 2020, and 2019, respectively, and $ 112 million and $ 88 million for the six months ended July 31, 2020, and 2019, respectively.

No interest costs were capitalized to Property and equipment, net during the three and six months ended July 31, 2020.

Interest costs capitalized to Property and equipment, net totaled $ 2 million and $ 6 million for the three and six months ended July 31, 2019, respectively.

Depreciation expense totaled $ 58 million and $ 55 million for the three months ended October 31, 2020, and 2019, respectively, and $ 170 million and $ 144 million for the nine months ended October 31, 2020, and 2019, respectively.

No interest costs were capitalized to Property and equipment, net during the three and nine months ended October 31, 2020, or the three months ended October 31, 2019.

Interest costs capitalized to Property and equipment, net totaled $ 6 million for the nine months ended October 31, 2019 .

Acquisition-Related Intangible Assets, Net

Acquisition-related intangible assets, net consisted of the following (in thousands):

July 31, 2020 January 31, 2020

October 31, 2020 January 31, 2020

Developed technology $ 218,400 $ 218,400

5 unchanged sentences

Acquisition-related intangible assets, net $ 262,603 $ 308,401

Amortization expense related to acquisition-related intangible assets was $ 16 million and $ 20 million for the three months ended July 31, 2020, and 2019, respectively, and $ 32 million and $ 39 million for the six months ended July 31, 2020, and 2019, respectively.

As of July 31, 2020, our future estimated amortization expense related to acquisition-related intangible assets is as follows (in thousands):

Amortization expense related to acquisition-related intangible assets was $ 14 million and $ 16 million for the three months ended October 31, 2020, and 2019, respectively, and $ 46 million and $ 55 million for the nine months ended October 31, 2020, and 2019, respectively.

As of October 31, 2020, our future estimated amortization expense related to acquisition-related intangible assets is as follows (in thousands):

Fiscal Period:

3 unchanged sentences

Other assets consisted of the following (in thousands):

July 31, 2020 January 31, 2020

October 31, 2020 January 31, 2020

Non-marketable equity and other investments (1)

9 unchanged sentences

(1) Included in non-marketable equity and other investments are investments in loan receivables of privately held companies, which are carried at amortized cost.

The carrying values of these loan receivables were $ 13 million and $ 16 million as of July 31, 2020, and January 31, 2020, respectively.

As of July 31, 2020, the allowance for credit losses on this balance was immaterial.

The carrying values of these loan receivables were $ 13 million and $ 16 million as of October 31, 2020, and January 31, 2020, respectively.

As of October 31, 2020, the allowance for credit losses on this balance was immaterial.

Technology patents and other intangible assets with estimable useful lives are amortized on a straight-line basis.

As of July 31, 2020, the future estimated amortization expense is as follows (in thousands):

As of October 31, 2020, the future estimated amortization expense is as follows (in thousands):

Fiscal Period:

14 unchanged sentences

Gains or losses resulting from changes in the fair value of these hedges are recorded in Accumulated other comprehensive income (loss) (“AOCI”) on the condensed consolidated balance sheets and will be subsequently reclassified to the related revenue line item on the condensed consolidated statements of operations in the same period that the underlying revenues are earned.

As of July 31, 2020, we estimate that $ 12 million of net gains recorded in AOCI related to our foreign currency forward contracts designated as cash flow hedges will be reclassified into income within the next 12 months.

As of July 31, 2020, and January 31, 2020, we had outstanding foreign currency forward contracts designated as cash flow hedges with total notional values of $ 1.1 billion and $ 908 million, respectively.

As of October 31, 2020, we estimate that $ 8 million of net gains recorded in AOCI related to our foreign currency forward contracts designated as cash flow hedges will be reclassified into income within the next 12 months.

As of October 31, 2020, and January 31, 2020, we had outstanding foreign currency forward contracts designated as cash flow hedges with total notional values of $ 1.2 billion and $ 908 million, respectively.

The notional value represents the amount that will be bought or sold upon maturity of the forward contract.

5 unchanged sentences

Cash flows from such forward contracts are classified as operating activities.

As of July 31, 2020, and January 31, 2020, we had outstanding forward contracts not designated as hedges with total notional values of $ 119 million and $ 246 million, respectively.

As of October 31, 2020, and January 31, 2020, we had outstanding forward contracts not designated as hedges with total notional values of $ 115 million and $ 246 million, respectively.

The fair values of outstanding derivative instruments were as follows (in thousands):

Condensed Consolidated Balance Sheets Location July 31, 2020 January 31, 2020

Condensed Consolidated Balance Sheets Location October 31, 2020 January 31, 2020

Derivative assets:

11 unchanged sentences

The effect of foreign currency forward contracts designated as cash flow hedges on the condensed consolidated statements of operations was as follows (in thousands):

Condensed Consolidated Statements of Operations Location Three Months Ended July 31, Six Months Ended July 31,

Condensed Consolidated Statements of Operations Location Three Months Ended October 31, Nine Months Ended October 31,

2020 2019 2020 2019

2 unchanged sentences

Pre-tax gains (losses) associated with foreign currency forward contracts designated as cash flow hedges were as follows (in thousands):

Condensed Consolidated Statements of Operations and Statements of Comprehensive Loss Locations Three Months Ended July 31, Six Months Ended July 31,

Condensed Consolidated Statements of Operations and Statements of Comprehensive Loss Locations Three Months Ended October 31, Nine Months Ended October 31,

2020 2019 2020 2019

2 unchanged sentences

Gains (losses) associated with foreign currency forward contracts not designated as hedges were as follows (in thousands):

Condensed Consolidated Statements of Operations Location Three Months Ended July 31, Six Months Ended July 31,

Condensed Consolidated Statements of Operations Location Three Months Ended October 31, Nine Months Ended October 31,

2020 2019 2020 2019

4 unchanged sentences

We manage our exposure to counterparty risk by entering into contracts with a diversified group of major financial institutions and by actively monitoring outstanding positions.

As of July 31, 2020, information related to these offsetting arrangements was as follows (in thousands):

As of October 31, 2020, information related to these offsetting arrangements was as follows (in thousands):

Gross Amounts of Recognized Assets Gross Amounts Offset on the Condensed Consolidated Balance Sheets Net Amounts of Assets Presented on the Condensed Consolidated Balance Sheets Gross Amounts Not Offset on the Condensed Consolidated Balance Sheets Net Assets Exposed

13 unchanged sentences

Outstanding debt consisted of the following (in thousands):

July 31, 2020 January 31, 2020

October 31, 2020 January 31, 2020

2020 Notes, net of unamortized debt discounts of $ 0 and $ 5,319 , respectively, and unamortized debt issuance costs of $ 0 and $ 307 , respectively

4 unchanged sentences

Total debt $ 1,792,228 $ 1,262,286

current maturities $ ( 37,500 ) $ ( 244,319 )

current debt $ ( 1,091,050 ) $ ( 244,319 )

Total debt, noncurrent $ 701,178 $ 1,017,967

As of July 31, 2020, expected future principal payments on our outstanding debt are as follows (in thousands):

As of October 31, 2020, contractual repayments and maturities of our outstanding debt are as follows (in thousands):

Fiscal Period:

6 unchanged sentences

The 2020 Notes were unsecured, unsubordinated obligations, and interest was payable in cash in arrears at a fixed rate of 1.50 % on January 15 and July 15 of each year.

During the three months ended July 31, 2020, the 2020 Notes were converted by note holders, and we repaid the $ 250 million principal balance in cash.

We also distributed approximately 1.7 million shares of our Class A common stock to note holders during the three months ended July 31, 2020, which represents the conversion value in excess of the principal amount.

During the second quarter of fiscal 2021, the 2020 Notes were converted by note holders, and we repaid the $ 250 million principal balance in cash.

We also distributed approximately 1.7 million shares of our Class A common stock to note holders during the second quarter of fiscal 2021, which represents the conversion value in excess of the principal amount.

In September 2017, we issued 0.25 % convertible senior notes due October 1, 2022, with a principal amount of $ 1.15 billion.

13 unchanged sentences

On or after June 1, 2022, holders of the 2022 Notes may convert their 2022 Notes at any time until the close of business on the second scheduled trading day immediately preceding the maturity date of the 2022 Notes.

As of July 31, 2020, and January 31, 2020, the 2022 Notes are classified as noncurrent on the condensed consolidated balance sheets since the criteria for conversion was not met.

For more than 20 trading days during the 30 consecutive trading days ended October 31, 2020, the last reported sale price of our Class A common stock exceeded 130 % of the conversion price of the 2022 Notes.

As a result, the 2022 Notes are convertible at the option of the holders during the fourth quarter of fiscal 2021.

Accordingly, the 2022 Notes are classified as current on the condensed consolidated balance sheet as of October 31, 2020.

From November 1, 2020, through the date of this filing, the amount of the principal balance of the 2022 Notes that has been converted or for which conversion has been requested was not material.

As of January 31, 2020, the 2022 Notes are classified as noncurrent on the condensed consolidated balance sheets since the criteria for conversion was not met.

In accounting for the issuance of the Notes, we separated each of the Notes into liability and equity components.

15 unchanged sentences

The Purchased Options relating to the 2020 Notes gave us the option to purchase, subject to anti-dilution adjustments substantially identical to those in the 2020 Notes, approximately 3.1 million shares of our Class A common stock for $ 81.74 per share, exercisable upon conversion of the 2020 Notes.

During the three months ended July 31, 2020, we received approximately 1.7 million shares of our Class A common stock from the exercise of the Purchased Options relating to the 2020 Notes.

These shares are held as treasury stock as of July 31, 2020.

During the second quarter of fiscal 2021, we received approximately 1.7 million shares of our Class A common stock from the exercise of the Purchased Options relating to the 2020 Notes.

These shares are held as treasury stock.

The Purchased Options relating to the 2022 Notes give us the option to purchase, subject to anti-dilution adjustments substantially identical to those in the 2022 Notes, approximately 7.8 million shares of our Class A common stock for $ 147.10 per share, exercisable upon conversion of the 2022 Notes.

2 unchanged sentences

If the Warrants are not exercised on their exercise dates, they will expire.

The Warrants will be net share settled, and the resulting number of shares of our common stock we will issue depends on the daily volume-weighted average stock prices over the 60 scheduled trading day period beginning on the first expiration date of the Warrants.

If the market value per share of our Class A common stock exceeds the applicable exercise price of the Warrants, the Warrants will have a dilutive effect on our earnings per share assuming that we are profitable.

1 unchanged sentence

The proceeds from the sale of the Warrants are recorded in Additional paid-in capital on the condensed consolidated balance sheets.

During the three months ended October 31, 2020, Warrants related to the 2020 Notes were exercised, and we distributed approximately 0.2 million shares of our Class A common stock to warrant holders utilizing treasury stock.

As of October 31, 2020, there were 2.7 million Warrants outstanding related to the 2020 Notes.

Credit Agreement

5 unchanged sentences

The financial covenant, based on a quarterly financial test, requires Workday not to exceed a maximum leverage ratio of 3.50 :1.00, subject to a step-up to 4.50 :1.00 at the election of Workday for a certain period following an Acquisition (as defined in the Credit Agreement).

As of July 31, 2020, we were in compliance with all covenants.

As of October 31, 2020, we were in compliance with all covenants.

The Term Loan was funded in two individual tranches.

5 unchanged sentences

The debt discount and issuance costs are amortized on a straight-line basis, which approximates the effective interest rate method, to interest expense over the contractual term of the arrangement.

As of July 31, 2020, the Term Loan had a carrying value of $ 748 million, of which $ 38 million is classified as current and $ 710 million is classified as noncurrent on the condensed consolidated balance sheet.

As of July 31, 2020, the interest rate on the Term Loan was 2.12 % and the effective interest rate was 2.46 %.

As of October 31, 2020, the Term Loan had a carrying value of $ 739 million, of which $ 38 million is classified as current and $ 701 million is classified as noncurrent on the condensed consolidated balance sheet.

As of October 31, 2020, the interest rate on the Term Loan was 1.38 % and the effective interest rate was 1.92 %.

Revolving Credit Facility

7 unchanged sentences

The fees are recorded in Other assets on the condensed consolidated balance sheet and are amortized on a straight-line basis over the contractual term of the arrangement.

As of July 31, 2020, there were no outstanding borrowings under the Revolving Credit Facility.

As of October 31, 2020, there were no outstanding borrowings under the Revolving Credit Facility.

Interest Expense on Debt

The following table sets forth total interest expense recognized related to our debt (in thousands):

Three Months Ended July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

2020 2019 2020 2019

4 unchanged sentences

We have entered into operating lease agreements for our office space, data centers, and other property and equipment.

As of July 31, 2020, and January 31, 2020, operating lease right-of-use assets were $ 325 million and $ 291 million, respectively, and operating lease liabilities were $ 347 million and $ 308 million, respectively.

As of October 31, 2020, and January 31, 2020, operating lease right-of-use assets were $ 416 million and $ 291 million, respectively, and operating lease liabilities were $ 437 million and $ 308 million, respectively.

We have also entered into finance lease agreements for other property and equipment.

As of July 31, 2020, and January 31, 2020, finance leases were not material.

As of October 31, 2020, and January 31, 2020, finance leases were not material.

The components of operating lease expense were as follows (in thousands):

Three Months Ended July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

2020 2019 2020 2019

4 unchanged sentences

Supplemental cash flow information related to our operating leases was as follows (in thousands):

Three Months Ended July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

2020 2019 2020 2019

2 unchanged sentences

113,219 10,633 183,722 337,654

(1) Prior year activity includes $ 279 million for operating leases existing on February 1, 2019, and $ 48 million for operating leases that commenced in the first half of fiscal 2020.

(1) Prior year activity includes $ 279 million for operating leases existing on February 1, 2019, and $ 59 million for operating leases that commenced during the nine months ended October 31, 2019.

Other information related to our operating leases was as follows:

July 31, 2020 January 31, 2020

October 31, 2020 January 31, 2020

Weighted average remaining lease term (in years) 6 6

Weighted average discount rate 1.81 % 3.36 %

As of July 31, 2020, maturities of operating lease liabilities are as follows (in thousands):

As of October 31, 2020, maturities of operating lease liabilities are as follows (in thousands):

Fiscal Period:

4 unchanged sentences

Total $ 437,452

As of July 31, 2020, we have additional operating leases, primarily for office space and data centers, that have not yet commenced with total undiscounted lease payments of $ 22 million.

As of October 31, 2020, we have additional operating leases, primarily for office space and data centers, that have not yet commenced with total undiscounted lease payments of $ 10 million.

These operating leases will commence in the remaining months of fiscal 2021, with lease terms ranging from one to five years .

Related-Party Lease Transactions

We lease certain office space from an affiliate of our Chairman, Mr.

We lease certain office space from an affiliate of our Chairman of the Board, Mr.

Duffield, adjacent to our corporate headquarters in Pleasanton, California, under various lease agreements.

The operating lease right-of-use assets and operating lease liabilities related to these agreements were $ 55 million and $ 67 million, respectively, as of July 31, 2020, and $ 57 million and $ 70 million, respectively, as of January 31, 2020.

The weighted average remaining lease term of these agreements is four years .

The total rent expense under these agreements was $ 4 million and $ 3 million for the three months ended July 31, 2020, and 2019, respectively, and $ 7 million and $ 6 million for the six months ended July 31, 2020, and 2019, respectively.

During the three months ended October 31, 2020, we entered into an agreement with this affiliated party for a fee of $ 1.5 million, which gives us the option to purchase these leased facilities at a price based on third-party appraisals and negotiation between Workday and the affiliated party.

In the event we do not exercise the purchase option, which expires on March 1, 2021, the existing lease agreements will be automatically renewed for four years beyond the current lease end dates at rates determined based on independent third-party evaluations.

As of October 31, 2020, we are not reasonably certain that the option to purchase the leased facilities will be exercised.

We accounted for this arrangement, which was approved by our Board of Directors, as a lease modification during the three months ended October 31, 2020.

The operating lease right-of-use assets and operating lease liabilities related to these agreements were $ 139 million and $ 150 million, respectively, as of October 31, 2020, and $ 57 million and $ 70 million, respectively, as of January 31, 2020.

The weighted average remaining lease term of these agreements is 8 years.

The total rent expense under these agreements was $ 4 million and $ 3 million for the three months ended October 31, 2020, and 2019, respectively, and $ 12 million and $ 9 million for the nine months ended October 31, 2020, and 2019, respectively.

Commitments and Contingencies

1 unchanged sentence

We have entered into noncancelable agreements with third-party hosted infrastructure platform vendors with various expiration dates.

As of July 31, 2020, future noncancelable minimum payments under these agreements were approximately $ 466 million.

As of October 31, 2020, future noncancelable minimum payments under these agreements were approximately $ 445 million.

Legal Matters

2 unchanged sentences

These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular matter.

In our opinion, as of July 31, 2020, there was not at least a reasonable possibility that we had incurred a material loss, or a material loss in excess of a recorded accrual, with respect to such loss contingencies.

In our opinion, as of October 31, 2020, there was not at least a reasonable possibility that we had incurred a material loss, or a material loss in excess of a recorded accrual, with respect to such loss contingencies.

Stockholders’ Equity

As of July 31, 2020, there were 177 million shares of Class A common stock, net of treasury stock, and 60 million shares of Class B common stock outstanding.

As of October 31, 2020, there were 179 million shares of Class A common stock, net of treasury stock, and 60 million shares of Class B common stock outstanding.

The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion.

3 unchanged sentences

Our 2012 Equity Incentive Plan (“EIP”) serves as the successor to our 2005 Stock Plan (together with the EIP, the “Stock Plans”).

As of July 31, 2020, we had 63 million shares of Class A common stock available for future grants.

As of October 31, 2020, we had 63 million shares of Class A common stock available for future grants.

We also have a 2012 Employee Stock Purchase Plan (“ESPP”).

Under the ESPP, eligible employees are granted options to purchase shares at the lower of 85 % of the fair market value of the stock at the time of grant or 85 % of the fair market value at the time of exercise.

Options to purchase shares are granted twice yearly on or about June 1, and December 1, and exercisable on or about the succeeding November 30, and May 31, respectively, of each year.

As of July 31, 2020, 5 million shares of Class A common stock were available for issuance under the ESPP.

Options to purchase shares are granted twice yearly on or about June 1 and December 1, and are exercisable on or about the succeeding November 30 and May 31, respectively, of each year.

As of October 31, 2020, 5 million shares of Class A common stock were available for issuance under the ESPP.

Restricted Stock Units

1 unchanged sentence

RSUs generally vest over four years .

A summary of information related to RSU activity during the six months ended July 31, 2020, is as follows:

A summary of information related to RSU activity during the nine months ended October 31, 2020, is as follows:

Number of Shares Weighted-Average Grant Date Fair Value

3 unchanged sentences

RSUs forfeited ( 828,949 ) 147.34

Balance as of July 31, 2020 15,694,066 149.82

As of July 31, 2020, there was a total of $ 2.2 billion in unrecognized compensation cost related to unvested RSUs, which is expected to be recognized over a weighted-average period of approximately three years .

Balance as of October 31, 2020 14,418,239 152.48

As of October 31, 2020, there was a total of $ 2.0 billion in unrecognized compensation cost related to unvested RSUs, which is expected to be recognized over a weighted-average period of approximately three years .

Performance-Based Restricted Stock Units

1 unchanged sentence

These performance conditions were met and the PRSUs vested on March 15, 2020.

During the six months ended July 31, 2020, we recognized $ 19 million in compensation cost related to these PRSUs.

Additionally, during the second quarter of fiscal 2021, 0.6 million shares of PRSUs were granted to all employees other than executive management that included both service conditions and performance conditions related to company-wide goals.

During the nine months ended October 31, 2020, we recognized $ 19 million in compensation cost related to these PRSUs.

Additionally, during fiscal 2021, 0.6 million shares of PRSUs were granted to all employees other than executive management that included both service conditions and performance conditions related to company-wide goals.

We expect to grant additional shares related to this program for employees hired in fiscal 2021.

These PRSU awards will vest if the performance conditions are achieved for the fiscal year ended January 31, 2021, and if the individual employee continues to provide service through the vesting date of March 15, 2021.

During each of the three and six months ended July 31, 2020, we recognized $ 19 million in compensation cost related to these PRSUs.

A total of $ 90 million in unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately seven months .

During each of the three and nine months ended October 31, 2020, we recognized $ 36 million and $ 55 million in compensation cost related to these PRSUs.

A total of $ 54 million in unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately four months .

Stock Options

1 unchanged sentence

Stock options issued under the Stock Plans generally are exercisable for periods not to exceed ten years and generally vest over five years .

A summary of information related to stock option activity during the six months ended July 31, 2020, is as follows (in millions, except share and per share data):

A summary of information related to stock option activity during the nine months ended October 31, 2020, is as follows (in millions, except share and per share data):

Outstanding Stock Options Weighted-Average Exercise Price Aggregate Intrinsic Value

2 unchanged sentences

Stock options canceled ( 41,363 ) 39.22

Balance as of July 31, 2020 2,261,454 11.34 383

Vested and expected to vest as of July 31, 2020 2,251,777 11.23 382

Exercisable as of July 31, 2020 2,030,205 8.91 349

As of July 31, 2020, there was a total of $ 19 million in unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of approximately one year .

Balance as of October 31, 2020 1,684,415 12.57 333

Vested and expected to vest as of October 31, 2020 1,679,303 12.50 332

Exercisable as of October 31, 2020 1,521,062 10.33 304

As of October 31, 2020, there was a total of $ 13 million in unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of approximately one year .

Unearned Revenue and Performance Obligations

Subscription services revenue of $ 824 million and $ 677 million was recognized during the three months ended July 31, 2020, and 2019, respectively, that was included in the unearned revenue balances as of April 30, 2020, and 2019, respectively.

Subscription services revenue of $ 1.46 billion and $ 1.18 billion was recognized during the six months ended July 31, 2020, and 2019, respectively, that was included in the unearned revenue balances as of January 31, 2020, and 2019, respectively.

Subscription services revenue of $ 846 million and $ 722 million was recognized during the three months ended October 31, 2020, and 2019, respectively, that was included in the unearned revenue balances as of July 31, 2020, and 2019, respectively.

Subscription services revenue of $ 1.90 billion and $ 1.60 billion was recognized during the nine months ended October 31, 2020, and 2019, respectively, that was included in the unearned revenue balances as of January 31, 2020, and 2019, respectively.

Professional services revenue recognized in the same periods from unearned revenue balances at the beginning of the respective periods was not material.

Transaction Price Allocated to the Remaining Performance Obligations

As of July 31, 2020, approximately $ 8.60 billion of revenue is expected to be recognized from remaining performance obligations for subscription contracts.

As of October 31, 2020, approximately $ 8.87 billion of revenue is expected to be recognized from remaining performance obligations for subscription contracts.

We expect to recognize revenue on approximately $ 5.94 billion of these remaining performance obligations over the next 24 months, with the balance recognized thereafter.

Revenue from remaining performance obligations for professional services contracts as of July 31, 2020, was not material.

Revenue from remaining performance obligations for professional services contracts as of October 31, 2020, was not material.

Other Income (Expense), Net

Other income (expense), net consisted of the following (in thousands):

Three Months Ended July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

2020 2019 2020 2019

9 unchanged sentences

We compute the year-to-date income tax provision by applying the estimated annual effective tax rate to the year-to-date pre-tax income or loss and adjust for discrete tax items in the period.

We reported an income tax expense of $ 3 million and an income tax benefit of $ 2 million for each of the six-month periods ended July 31, 2020, and 2019, respectively.

The income tax expense for the six months ended July 31, 2020, was primarily attributable to state taxes and income tax expenses in profitable foreign jurisdictions.

We reported an income tax expense of $ 4 million and an income tax benefit of $ 1 million for each of the nine-month periods ended October 31, 2020, and 2019, respectively.

The income tax expense for the nine months ended October 31, 2020, was primarily attributable to state taxes and income tax expenses in profitable foreign jurisdictions.

There were no intra-period tax allocations for the gains from comprehensive income due to the adoption of ASU No.

2019-12 on February 1, 2020.

The income tax benefit for the six months ended July 31, 2019, was primarily attributable to the application of intra-period tax allocation rules for the gains from comprehensive income and the excess tax benefits in certain foreign jurisdictions from share-based compensation, partially offset by state taxes and income tax expenses in profitable foreign jurisdictions.

The income tax benefit for the nine months ended October 31, 2019, was primarily attributable to the application of intra-period tax allocation rules for the gains from comprehensive income and the excess tax benefits in certain foreign jurisdictions from share-based compensation, partially offset by state taxes and income tax expenses in profitable foreign jurisdictions.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law in response to the COVID-19 pandemic.

13 unchanged sentences

The realization of net deferred tax assets is dependent on our ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets.

As of July 31, 2020, we continue to maintain a full valuation allowance on our deferred tax assets except in certain jurisdictions.

As of October 31, 2020, we continue to maintain a full valuation allowance on our deferred tax assets except in certain jurisdictions.

Net Loss Per Share

5 unchanged sentences

The following table presents the calculation of basic and diluted net loss attributable to common stockholders per share (in thousands, except per share data):

Three Months Ended July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

2020 2019 2020 2019

5 unchanged sentences

Potentially dilutive securities that are not included in the calculation of diluted net loss per share because doing so would be antidilutive are as follows (in thousands):

As of July 31,

As of October 31,

Outstanding common stock options 1,685 4,009

10 unchanged sentences

The following table sets forth revenue by geographic area (in thousands):

Three Months Ended July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

2020 2019 2020 2019

2 unchanged sentences

Total $ 1,105,960 $ 938,100 $ 3,186,312 $ 2,650,907

No single country other than the United States had revenues greater than 10% of total revenues for the three and six months ended July 31, 2020, and 2019.

No customer individually accounted for more than 10% of our trade and other receivables, net as of July 31, 2020, or January 31, 2020.

No single country other than the United States had revenues greater than 10% of total revenues for the three and nine months ended October 31, 2020, and 2019.

No customer individually accounted for more than 10% of our trade and other receivables, net as of October 31, 2020, or January 31, 2020.

Long-Lived Assets

1 unchanged sentence

Aggregate Property and equipment, net, and Operating lease right-of-use assets by geographic area was as follows (in thousands):

July 31, 2020 January 31, 2020

October 31, 2020 January 31, 2020

United States $ 1,185,510 $ 1,064,292

17 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements