Workday, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Workday, Inc. Condensed Consolidated Balance Sheets (in thousands) (unaudited) April 30, 2021 January 31, 2021 Assets Current assets: Cash and cash equivalents $ 959,358 $ 1,384,181 Marketable securities 2,035,171 2,151,472 Trade and other receivables, net 647,163 1,032,484 Deferred costs 123,828 122,764 Prepaid expenses and other current assets 140,277 111,160 Total current assets 3,905,797 4,802,061 Property and equipment, net 1,155,697 972,403 Operating lease right-of-use assets 280,943 414,143 Deferred costs, noncurrent 265,388 271,796 Acquisition-related intangible assets, net 401,220 248,626 Goodwill 2,362,166 1,819,625 Other assets 252,796 189,757 Total assets $ 8,624,007 $ 8,718,411 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 48,097 $ 75,596 Accrued expenses and other current liabilities 208,559 169,266 Accrued compensation 320,176 285,061 Unearned revenue 2,361,095 2,556,624 Operating lease liabilities 81,106 93,000 Debt, current 1,191,722 1,103,101 Total current liabilities 4,210,755 4,282,648 Debt, noncurrent 673,273 691,913 Unearned revenue, noncurrent 64,914 80,111 Operating lease liabilities, noncurrent 213,568 350,051 Other liabilities 56,056 35,854 Total liabilities 5,218,566 5,440,577 Stockholders’ equity: Common stock 246 242 Additional paid-in capital 6,298,516 6,254,936 Treasury stock ( 12,420 ) ( 12,384 ) Accumulated other comprehensive income (loss) ( 60,421 ) ( 54,970 ) Accumulated deficit ( 2,820,480 ) ( 2,909,990 ) Total stockholders’ equity 3,405,441 3,277,834 Total liabilities and stockholders’ equity $ 8,624,007 $ 8,718,411 See Notes to Condensed Consolidated Financial Statements 3 Table of Contents Workday, Inc. Condensed Consolidated Statements of Operations (in thousands, except per share data) (unaudited) Three Months Ended April 30, 2021 2020 Revenues: Subscription services $ 1,032,169 $ 881,956 Professional services 142,864 136,429 Total revenues 1,175,033 1,018,385 Costs and expenses (1) : Costs of subscription services 182,208 145,263 Costs of professional services 150,845 160,367 Product development 441,616 443,484 Sales and marketing 326,494 318,557 General and administrative 112,183 95,171 Total costs and expenses 1,213,346 1,162,842 Operating income (loss) ( 38,313 ) ( 144,457 ) Other income (expense), net ( 9,051 ) ( 10,973 ) Loss before provision for (benefit from) income taxes ( 47,364 ) ( 155,430 ) Provision for (benefit from) income taxes ( 842 ) 2,938 Net loss $ ( 46,522 ) $ ( 158,368 ) Net loss per share, basic and diluted $ ( 0.19 ) $ ( 0.68 ) Weighted-average shares used to compute net loss per share, basic and diluted 243,739 232,939 (1) Costs and expenses include share-based compensation expenses as follows: Three Months Ended April 30, 2021 2020 Costs of subscription services $ 20,717 $ 13,892 Costs of professional services 27,692 22,566 Product development 129,862 122,022 Sales and marketing 50,308 46,950 General and administrative 36,056 31,242 See Notes to Condensed Consolidated Financial Statements 4 Table of Contents Workday, Inc. Condensed Consolidated Statements of Comprehensive Loss (in thousands) (unaudited) Three Months Ended April 30, 2021 2020 Net loss $ ( 46,522 ) $ ( 158,368 ) Other comprehensive income (loss): Net change in foreign currency translation adjustment 218 ( 1,247 ) Net change in unrealized gains (losses) on available-for-sale debt securities ( 898 ) 2,974 Net change in market value of effective foreign currency forward exchange contracts ( 4,771 ) 32,307 Other comprehensive income (loss) ( 5,451 ) 34,034 Comprehensive loss $ ( 51,973 ) $ ( 124,334 ) See Notes to Condensed Consolidated Financial Statements 5 Table of Contents Workday, Inc. Condensed Consolidated Statements of Stockholders’ Equity (in thousands) (unaudited) Three Months Ended April 30, 2021 2020 Common stock: Balance, beginning of period $ 242 $ 231 Issuance of common stock under employee equity plans, net of shares withheld for employee taxes 4 4 Balance, end of period 246 235 Additional paid-in capital: Balance, beginning of period 6,254,936 5,090,187 Issuance of common stock under employee equity plans, net of shares withheld for employee taxes ( 1,361 ) 3,573 Share-based compensation 264,605 236,410 Exercise of convertible senior notes hedges 39 — Settlement of convertible senior notes ( 1 ) — Cumulative effect of accounting changes ( 219,702 ) — Balance, end of period 6,298,516 5,330,170 Treasury stock: Balance, beginning of period ( 12,384 ) — Exercise of convertible senior notes hedges ( 36 ) — Balance, end of period ( 12,420 ) — Accumulated other comprehensive income (loss): Balance, beginning of period ( 54,970 ) 23,492 Other comprehensive income (loss) ( 5,451 ) 34,034 Balance, end of period ( 60,421 ) 57,526 Accumulated deficit: Balance, beginning of period ( 2,909,990 ) ( 2,627,359 ) Net loss ( 46,522 ) ( 158,368 ) Cumulative effect of accounting changes 136,032 ( 200 ) Balance, end of period ( 2,820,480 ) ( 2,785,927 ) Total stockholders’ equity $ 3,405,441 $ 2,602,004 Three Months Ended April 30, 2021 2020 Common stock (in shares): Balance, beginning of period 242,667 231,708 Issuance of common stock under employee equity plans, net of shares withheld for employee taxes 3,562 3,462 Issuance of restricted stock awards 82 — Balance, end of period 246,311 235,170 See Notes to Condensed Consolidated Financial Statements 6 Table of Contents Workday, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) Three Months Ended April 30, 2021 2020 Cash flows from operating activities: Net loss $ ( 46,522 ) $ ( 158,368 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 82,463 71,514 Share-based compensation expenses 264,635 236,672 Amortization of deferred costs 31,614 26,060 Amortization of debt discount and issuance costs 997 14,840 Non-cash lease expense 22,230 18,369 Other 3,397 4,370 Changes in operating assets and liabilities, net of business combinations: Trade and other receivables, net 392,119 290,902 Deferred costs ( 26,270 ) ( 18,060 ) Prepaid expenses and other assets ( 35,566 ) 19,977 Accounts payable ( 170 ) ( 22,382 ) Accrued expenses and other liabilities ( 10,920 ) ( 1,504 ) Unearned revenue ( 225,579 ) ( 218,707 ) Net cash provided by (used in) operating activities 452,428 263,683 Cash flows from investing activities: Purchases of marketable securities ( 765,395 ) ( 553,985 ) Maturities of marketable securities 857,408 381,398 Sales of marketable securities 12,457 5,279 Owned real estate projects ( 171,423 ) ( 2,487 ) Capital expenditures, excluding owned real estate projects ( 69,796 ) ( 59,940 ) Business combinations, net of cash acquired ( 679,220 ) — Purchases of non-marketable equity and other investments ( 45,767 ) ( 52,250 ) Sales and maturities of non-marketable equity and other investments 25 4,638 Other ( 5 ) — Net cash provided by (used in) investing activities ( 861,716 ) ( 277,347 ) Cash flows from financing activities: Proceeds from borrowings on Term Loan, net of debt discount and issuance costs — 497,795 Payments on convertible senior notes ( 51 ) ( 1 ) Payments on Term Loan ( 9,375 ) — Proceeds from issuance of common stock from employee equity plans, net of taxes paid for shares withheld ( 1,357 ) 3,577 Other ( 225 ) ( 2,040 ) Net cash provided by (used in) financing activities ( 11,008 ) 499,331 Effect of exchange rate changes 186 ( 265 ) Net increase (decrease) in cash, cash equivalents, and restricted cash ( 420,110 ) 485,402 Cash, cash equivalents, and restricted cash at the beginning of period 1,387,921 734,721 Cash, cash equivalents, and restricted cash at the end of period $ 967,811 $ 1,220,123 See Notes to Condensed Consolidated Financial Statements 7 Table of Contents Three Months Ended April 30, 2021 2020 Supplemental cash flow data: Cash paid for interest $ 4,638 $ 1,438 Cash paid for income taxes 4,493 2,945 Non-cash investing and financing activities: Purchases of property and equipment, accrued but not paid 78,468 39,721 As of April 30, 2021 2020 Reconciliation of cash, cash equivalents, and restricted cash as shown in the statements of cash flows: Cash and cash equivalents $ 959,358 $ 1,214,213 Restricted cash included in Prepaid expenses and other current assets 7,755 5,792 Restricted cash included in Other assets 698 118 Total cash, cash equivalents, and restricted cash $ 967,811 $ 1,220,123 See Notes to Condensed Consolidated Financial Statements 8 Table of Contents Workday, Inc. Notes to Condensed Consolidated Financial Statements Note 1. Overview and Basis of Presentation Company and Background Workday delivers financial management, spend management, human capital management, planning, and analytics applications designed for the world’s largest companies, educational institutions, and government agencies. We offer innovative and adaptable technology focused on the consumer internet experience and cloud delivery model. Our applications are designed for global enterprises to manage complex and dynamic operating environments. We provide our customers highly adaptable, accessible, and reliable applications to manage critical business functions that help enable them to optimize their financial and human resources. We were originally incorporated in March 2005 in Nevada, and in June 2012, we reincorporated in Delaware. As used in this report, the terms “Workday,” “registrant,” “we,” “us,” and “our” mean Workday, Inc. and its subsidiaries unless the context indicates otherwise. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The condensed consolidated financial statements include the results of Workday, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of our management, the information contained herein reflects all adjustments necessary for a fair presentation of Workday’s financial position, results of operations, stockholders’ equity, and cash flows. All such adjustments are of a normal, recurring nature. The results of operations for the quarter ended April 30, 2021, shown in this report are not necessarily indicative of the results to be expected for the full year ending January 31, 2022. 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, 2021, filed with the SEC on March 2, 2021. There have been no material changes in our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021, other than the adoption of an accounting pronouncement as described in Note 2, Accounting Standards. Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires us to make certain estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates, judgments, and assumptions include, but are not limited to, the determination of the fair value and useful lives of assets acquired and liabilities assumed through business combinations, the period of benefit for deferred commissions, the fair value of certain equity awards, and the valuation of non-marketable equity investments. Actual results could differ from those estimates and such differences could be material to our condensed consolidated financial statements. Segment Information 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 chief operating decision makers (“CODMs”) in deciding how to allocate resources and assessing performance. For the three months ended April 30, 2021, our CODMs were our Co-Chief Executive Officer and Chairman, Aneel Bhusri, and our Co-Chief Executive Officer, Chano Fernandez. Our CODMs allocate resources and assess performance based upon discrete financial information at the consolidated level. 9 Table of Contents Note 2. Accounting Standards Recently Adopted Accounting Pronouncements ASU No. 2020-06 In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). Under ASU No. 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. The new guidance also requires the if-converted method to be applied for all convertible instruments when calculating diluted earnings per share. We adopted this standard effective February 1, 2021, using a modified retrospective method, under which financial results reported in prior periods were not adjusted. We applied the provisions of this guidance to our 0.25 % convertible senior notes due October 1, 2022 (“2022 Notes”). Upon adoption, we recorded a decrease to Accumulated deficit of $ 136 million, a decrease to Additional paid-in capital of $ 220 million, an increase to Debt, current of $ 79 million, and a decrease to Property and equipment, net of $ 5 million, which represented non-cash interest previously capitalized. There was no impact to diluted loss per share as the inclusion of potential shares of common stock related to the 2022 Notes would have been anti-dilutive. For further information, see Note 11, Debt. Recently Issued Accounting Pronouncements ASU No. 2020-04 and ASU No. 2021-01 In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides temporary optional expedients and exceptions to GAAP guidance on contract modifications to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate to alternative reference rates. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848) , which refines the scope of Topic 848 and clarifies some of its guidance. We may elect to apply the amendments prospectively through December 31, 2022. The impact on our condensed consolidated financial statements from the adoption of this standard is expected to be immaterial. Note 3. Investments Debt Securities As of April 30, 2021, debt securities consisted of the following (in thousands): Amortized Cost Unrealized Gains Unrealized Losses Aggregate Fair Value U.S. treasury securities $ 897,929 $ 203 $ ( 9 ) $ 898,123 U.S. agency obligations 364,857 89 ( 13 ) 364,933 Corporate bonds 343,176 506 ( 93 ) 343,589 Commercial paper 765,880 — — 765,880 $ 2,371,842 $ 798 $ ( 115 ) $ 2,372,525 Included in Cash and cash equivalents $ 347,014 $ — $ — $ 347,014 Included in Marketable securities $ 2,024,828 $ 798 $ ( 115 ) $ 2,025,511 10 Table of Contents As of January 31, 2021, debt securities consisted of the following (in thousands): Amortized Cost Unrealized Gains Unrealized Losses Aggregate Fair Value U.S. treasury securities $ 1,054,146 $ 205 $ ( 10 ) $ 1,054,341 U.S. agency obligations 504,298 196 ( 49 ) 504,445 Corporate bonds 346,563 1,253 ( 14 ) 347,802 Commercial paper 664,262 — — 664,262 $ 2,569,269 $ 1,654 $ ( 73 ) $ 2,570,850 Included in Cash and cash equivalents $ 440,678 $ — $ — $ 440,678 Included in Marketable securities $ 2,128,591 $ 1,654 $ ( 73 ) $ 2,130,172 We classify our debt securities as available-for-sale at the time of purchase and reevaluate such classification as of each balance sheet date. We consider all debt securities as available for use in current operations, including those with maturity dates beyond one year, and therefore classify these securities as current assets on the condensed consolidated balance sheets. 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 April 30, 2021, and January 31, 2021, and we did not recognize any credit losses related to our debt securities during the three months ended April 30, 2021, or 2020. We sold $ 10 million and $ 5 million of debt securities for the three months ended April 30, 2021, and 2020, respectively. The realized gains and losses from the sales were immaterial. Equity Investments Equity investments consisted of the following (in thousands): Condensed Consolidated Balance Sheets Location April 30, 2021 January 31, 2021 Money market funds Cash and cash equivalents $ 337,727 $ 659,964 Equity investments accounted for under the equity method Other assets 46,010 48,222 Non-marketable equity investments measured using the measurement alternative Other assets 100,778 73,142 Marketable equity investments Marketable securities 9,660 21,300 $ 494,175 $ 802,628 Total realized and unrealized gains and losses associated with our equity investments consisted of the following (in thousands): Three Months Ended April 30, 2021 2020 Net realized gains (losses) recognized on equity investments sold (1) $ ( 1,751 ) $ 1,591 Net unrealized gains (losses) recognized on equity investments held as of the end of the period ( 4,298 ) ( 4,096 ) Total net gains (losses) recognized in Other income (expense), net $ ( 6,049 ) $ ( 2,505 ) (1) Reflects the difference between the sale proceeds and the carrying value of the equity securities at the beginning of the period. 11 Table of Contents Equity Investments Accounted for Under the Equity Method We determine at the inception of each arrangement whether an investment or other interest is considered a variable interest entity (“VIE”). Investments in VIEs for which we are not the primary beneficiary or do not own a controlling interest but can exercise significant influence over the investee are accounted for under the equity method of accounting. During 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 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. Our share of losses on this investment was $ 2 million and $ 1 million for the three months ended April 30, 2021, and 2020, respectively. There was no impairment loss recorded on this investment during the periods presented. Non-Marketable Equity Investments Measured Using the Measurement Alternative Non-marketable equity investments measured using the measurement alternative include investments in privately held companies without readily determinable fair values in which we do not own a controlling interest or exercise significant influence. The carrying values for our non-marketable equity investments are summarized below (in thousands): April 30, 2021 January 31, 2021 Total initial cost $ 87,704 $ 65,377 Cumulative net unrealized gains (losses) 13,074 7,765 Carrying value $ 100,778 $ 73,142 We recorded upward adjustments to the carrying values of non-marketable equity investments of $ 8 million during the three months ended April 30, 2021. No material adjustments were made to the carrying values of these investments during the three months ended April 30, 2020. Additionally, we recorded impairment losses on these investments of $ 2 million and $ 3 million during the three months ended April 30, 2021, and 2020, respectively. Marketable Equity Investments We hold marketable equity investments with readily determinable fair values over which we do not own a controlling interest or exercise significant influence. The carrying values for our marketable equity investments are summarized below (in thousands): April 30, 2021 January 31, 2021 Total initial cost $ 4,004 $ 5,000 Cumulative net unrealized gains (losses) 5,656 16,300 Carrying value $ 9,660 $ 21,300 We sold marketable equity investments for proceeds of $ 2 million during the three months ended April 30, 2021. The initial cost of the equity investments sold was $ 1 million. There were no sales of marketable equity investments during the three months ended April 30, 2020. Note 4. Fair Value Measurements We measure our cash equivalents, marketable securities, and foreign currency derivative contracts at fair value at each reporting period using a fair value hierarchy that requires that we maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value: Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 — Other inputs that are directly or indirectly observable in the marketplace. Level 3 — Unobservable inputs that are supported by little or no market activity. 12 Table of Contents 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 April 30, 2021 (in thousands): Level 1 Level 2 Level 3 Total U.S. treasury securities $ 898,123 $ — $ — $ 898,123 U.S. agency obligations — 364,933 — 364,933 Corporate bonds — 343,589 — 343,589 Commercial paper — 765,880 — 765,880 Money market funds 337,727 — — 337,727 Marketable equity investments 9,660 — — 9,660 Foreign currency derivative assets — 5,265 — 5,265 Total assets $ 1,245,510 $ 1,479,667 $ — $ 2,725,177 Foreign currency derivative liabilities $ — $ 53,714 $ — $ 53,714 Total liabilities $ — $ 53,714 $ — $ 53,714 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 January 31, 2021 (in thousands): Level 1 Level 2 Level 3 Total U.S. treasury securities $ 1,054,341 $ — $ — $ 1,054,341 U.S. agency obligations — 504,445 — 504,445 Corporate bonds — 347,802 — 347,802 Commercial paper — 664,262 — 664,262 Money market funds 659,964 — — 659,964 Marketable equity investments 21,300 — — 21,300 Foreign currency derivative assets — 3,221 — 3,221 Total assets $ 1,735,605 $ 1,519,730 $ — $ 3,255,335 Foreign currency derivative liabilities $ — $ 49,456 $ — $ 49,456 Total liabilities $ — $ 49,456 $ — $ 49,456 Fair Value Measurements of Other Financial Instruments In April 2020, we entered into a credit agreement (“Credit Agreement”) pursuant to which the lenders extended 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”). The carrying value of the Term Loan was $ 720 million and $ 729 million as of April 30, 2021, and January 31, 2021, respectively. 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. There were no outstanding borrowings under the Revolving Credit Facility during the periods presented. For further information, see Note 11, Debt. In September 2017, we completed an offering of $ 1.15 billion of 0.25 % convertible senior notes due October 1, 2022. The carrying value of the 2022 Notes was $ 1.1 billion as of April 30, 2021, and January 31, 2021, and the estimated fair value of the 2022 Notes was $ 2.0 billion and $ 1.8 billion as of April 30, 2021, and January 31, 2021, respectively. The estimated fair value of the 2022 Notes, which we have classified as a Level 2 financial instrument, was determined based on the quoted bid price in an over-the-counter market on the last trading day of each reporting period. For further information, see Note 11, Debt. Note 5. Deferred Costs Deferred costs, which consist of deferred sales commissions, were $ 389 million and $ 395 million as of April 30, 2021, and January 31, 2021, respectively. Amortization expense for the deferred costs was $ 32 million and $ 26 million for the three months ended April 30, 2021, and 2020, respectively. There was no impairment loss in relation to the costs capitalized for the periods presented. 13 Table of Contents Note 6. Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): April 30, 2021 January 31, 2021 Land and land improvements $ 80,553 $ 37,065 Buildings 672,291 494,599 Computers, equipment, and software 1,007,543 931,456 Furniture and fixtures 54,883 54,193 Leasehold improvements 144,683 204,273 Property and equipment, gross 1,959,953 1,721,586 Less accumulated depreciation and amortization ( 804,256 ) ( 749,183 ) Property and equipment, net $ 1,155,697 $ 972,403 Depreciation expense totaled $ 63 million and $ 55 million for the three months ended April 30, 2021, and 2020, respectively. Related-Party Transactions During fiscal 2021, we entered into an agreement with an affiliate of our Co-Founder, Director, and Chairman Emeritus, David Duffield, for an option to purchase certain leased office space (“Property”) within our corporate headquarters at a price based on third-party appraisals and negotiation between Workday and the affiliated party (“Leased Property Purchase Option”). In deciding to enter into and subsequently exercise the Leased Property Purchase Option, our Board of Directors considered the benefits to Workday of purchasing the Property, including the importance of obtaining control of the Property, which is part of Workday’s headquarters campus, and the long-term cost savings from ownership as compared to continuing to lease the Property. Our Board also considered independent appraisals, comparable transaction data, and the extent and nature of Mr. Duffield’s interest in the transaction. In the first quarter of fiscal 2022, we exercised the Leased Property Purchase Option at a purchase price of $ 173 million in cash, reduced by a $ 2 million fee paid for the Leased Property Purchase Option in the prior fiscal year. The carrying value of the Property upon purchase was $ 158 million, calculated as the purchase price less approximately $ 15 million which represents the difference between the carrying values of the right-of-use asset and lease liability of the Property immediately prior to the purchase. For further information, see Note 12, Leases. Note 7. Business Combinations On March 9, 2021, we acquired all outstanding stock of Peakon ApS (“Peakon”), an employee success platform that converts feedback into actionable insights, for $ 702 million. With Peakon, Workday will provide organizations with a continuous listening platform, including real-time visibility into employee experience, sentiment, and productivity, to help drive employee engagement and improve organizational performance. We have included the financial results of Peakon in our condensed consolidated financial statements from the date of acquisition. The acquisition-date fair value of the purchase consideration transferred consisted of the following (in thousands): Cash paid to stockholders, warrant holders, and vested option holders $ 683,788 Transaction costs paid by Workday on behalf of Peakon 17,960 Total $ 701,748 Additionally, we granted certain Peakon employees restricted stock awards (“RSA”) with service conditions, which totaled 81,695 shares of our Class A common stock. The aggregate grant date fair value of the RSAs will be accounted for as post-acquisition share-based compensation expense. 14 Table of Contents The purchase consideration was preliminarily allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, with the excess recorded to goodwill. The fair values of assets acquired and liabilities assumed may change over the measurement period as additional information is received. The primary areas that are subject to change include income taxes payable and deferred taxes. The measurement period will end no later than one year from the acquisition date. The preliminary purchase consideration allocation was as follows (in thousands): Acquisition-related intangible assets $ 170,500 Goodwill 542,541 Other assets 34,639 Deferred tax liability ( 20,857 ) Other liabilities ( 25,075 ) Total $ 701,748 The fair values and weighted-average useful lives of the acquired intangible assets by category are as follows (in thousands, except years): Estimated Fair Values Weighted-Average Useful Lives (in Years) Developed technology $ 94,000 5 Customer relationships 72,000 13 Backlog 4,000 3 Trade name 500 1 Total acquisition-related intangible assets $ 170,500 8 The goodwill recognized was primarily attributable to the assembled workforce and the expected synergies from integrating Peakon’s technology into our product portfolio. The goodwill is not deductible for income tax purposes. Separate operating results and pro forma results of operations for Peakon have not been presented as the effect of this acquisition was not material to our financial results. Note 8. Acquisition-Related Intangible Assets, Net Acquisition-related intangible assets, net consisted of the following (in thousands): April 30, 2021 January 31, 2021 Developed technology $ 312,400 $ 218,400 Customer relationships 295,000 223,000 Trade name 12,500 12,000 Backlog 15,000 11,000 Acquisition-related intangible assets, gross 634,900 464,400 Less accumulated amortization ( 233,680 ) ( 215,774 ) Acquisition-related intangible assets, net $ 401,220 $ 248,626 Amortization expense related to acquisition-related intangible assets was $ 18 million and $ 16 million for the three months ended April 30, 2021, and 2020, respectively. 15 Table of Contents As of April 30, 2021, our future estimated amortization expense related to acquisition-related intangible assets was as follows (in thousands): Fiscal Period: Remainder of 2022 $ 58,918 2023 75,823 2024 64,605 2025 51,950 2026 47,172 Thereafter 102,752 Total $ 401,220 Note 9. Other Assets Other assets consisted of the following (in thousands): April 30, 2021 January 31, 2021 Non-marketable equity and other investments (1) $ 136,142 $ 85,868 Equity investments accounted for under the equity method 46,010 48,222 Prepayments for goods and services 32,829 19,824 Technology patents and other intangible assets, net 17,003 17,766 Net deferred tax assets 9,965 9,985 Deposits 6,833 6,218 Derivative assets 1,852 173 Other 2,162 1,701 Total $ 252,796 $ 189,757 (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 $ 35 million and $ 13 million as of April 30, 2021, and January 31, 2021, respectively. The allowance for credit losses on this balance was immaterial for the periods presented. Technology patents and other intangible assets with estimable useful lives are amortized on a straight-line basis. As of April 30, 2021, the future estimated amortization expense was as follows (in thousands): Fiscal Period: Remainder of 2022 $ 2,196 2023 2,688 2024 2,380 2025 1,900 2026 1,636 Thereafter 6,203 Total $ 17,003 Note 10. Derivative Instruments We conduct business on a global basis in multiple foreign currencies, subjecting Workday to foreign currency risk. To mitigate this risk, we utilize derivative hedging contracts as described below. We do not enter into any derivatives for trading or speculative purposes. Our foreign currency contracts are classified within Level 2 of the fair value hierarchy because the valuation inputs are based on quoted prices and market observable data of similar instruments in active markets, such as currency spot and forward rates. 16 Table of Contents Foreign Currency Forward Contracts Designated as Cash Flow Hedges We are exposed to foreign currency fluctuations resulting from customer contracts denominated in foreign currencies. We have a hedging program in which we enter into foreign currency forward contracts related to certain customer contracts. We designate these forward contracts as cash flow hedging instruments since the accounting criteria for such designation have been met. Foreign currency forward contracts designated as cash flow hedges are recorded on the condensed consolidated balance sheets at fair value. Cash flows from such forward contracts are classified as operating activities. 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 April 30, 2021, we estimate that $ 14 million of net losses 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 April 30, 2021, and January 31, 2021, we had outstanding foreign currency forward contracts designated as cash flow hedges with total notional values of $ 1.4 billion and $ 1.3 billion, respectively. The notional value represents the amount that will be bought or sold upon maturity of the forward contract. All contracts have maturities of less than 48 months. Foreign Currency Forward Contracts Not Designated as Hedges We also enter into foreign currency forward contracts to hedge a portion of our net outstanding monetary assets and liabilities. These forward contracts are intended to offset the foreign currency gains or losses associated with the underlying monetary assets and liabilities and are recorded on the condensed consolidated balance sheets at fair value. These forward contracts are not designated as hedging instruments under applicable accounting guidance, and therefore all changes in the fair value of these forward contracts are recorded in Other income (expense), net on the condensed consolidated statements of operations. Cash flows from such forward contracts are classified as operating activities. As of April 30, 2021, and January 31, 2021, we had outstanding forward contracts not designated as hedges with total notional values of $ 100 million and $ 175 million, respectively. The fair values of outstanding derivative instruments were as follows (in thousands): Condensed Consolidated Balance Sheets Location April 30, 2021 January 31, 2021 Derivative assets: Foreign currency forward contracts designated as cash flow hedges Prepaid expenses and other current assets $ 2,658 $ 2,073 Foreign currency forward contracts designated as cash flow hedges Other assets 1,831 173 Foreign currency forward contracts not designated as hedges Prepaid expenses and other current assets 755 975 Foreign currency forward contracts not designated as hedges Other assets 21 — Total derivative assets $ 5,265 $ 3,221 Derivative liabilities: Foreign currency forward contracts designated as cash flow hedges Accrued expenses and other current liabilities $ 26,430 $ 23,647 Foreign currency forward contracts designated as cash flow hedges Other liabilities 25,597 24,586 Foreign currency forward contracts not designated as hedges Accrued expenses and other current liabilities 1,499 1,162 Foreign currency forward contracts not designated as hedges Other liabilities 188 61 Total derivative liabilities $ 53,714 $ 49,456 17 Table of Contents 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 April 30, 2021 2020 Total revenues Revenues $ 1,175,033 $ 1,018,385 Amount of gains (losses) related to foreign currency forward contracts designated as cash flow hedges Revenues 518 4,486 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 April 30, 2021 2020 Gains (losses) recognized in OCI Net change in market value of effective foreign currency forward exchange contracts $ ( 4,253 ) $ 36,793 Gains (losses) reclassified from AOCI into income (effective portion) Revenues 518 4,486 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 April 30, 2021 2020 Foreign currency forward contracts not designated as hedges Other income (expense), net $ ( 192 ) $ 5,413 We are subject to master netting agreements with all of the counterparties of the foreign exchange contracts, under which we are permitted to net settle transactions of the same currency with a single net amount payable by one party to the other. It is our policy to present the derivatives gross on the condensed consolidated balance sheets. Our foreign currency forward contracts are not subject to any credit contingent features or collateral requirements. 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. 18 Table of Contents As of April 30, 2021, 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 Financial Instruments Cash Collateral Received Derivative assets: Counterparty A $ 71 $ — $ 71 $ ( 71 ) $ — $ — Counterparty B 3,044 — 3,044 ( 3,044 ) — — Counterparty C 867 — 867 ( 867 ) — — Counterparty D 1,281 — 1,281 ( 1,281 ) — — Counterparty E 2 — 2 ( 2 ) — — Total $ 5,265 $ — $ 5,265 $ ( 5,265 ) $ — $ — Gross Amounts of Recognized Liabilities Gross Amounts Offset on the Condensed Consolidated Balance Sheets Net Amounts of Liabilities Presented on the Condensed Consolidated Balance Sheets Gross Amounts Not Offset on the Condensed Consolidated Balance Sheets Net Liabilities Exposed Financial Instruments Cash Collateral Pledged Derivative liabilities: Counterparty A $ 8,285 $ — $ 8,285 $ ( 71 ) $ — $ 8,214 Counterparty B 22,337 — 22,337 ( 3,044 ) — 19,293 Counterparty C 21,405 — 21,405 ( 867 ) — 20,538 Counterparty D 1,503 — 1,503 ( 1,281 ) — 222 Counterparty E 184 — 184 ( 2 ) — 182 Total $ 53,714 $ — $ 53,714 $ ( 5,265 ) $ — $ 48,449 Note 11. Debt Outstanding debt consisted of the following (in thousands): April 30, 2021 January 31, 2020 Term Loan, net of unamortized debt discounts of $ 1,581 and $ 1,682 , respectively, and unamortized debt issuance costs of $ 146 and $ 155 , respectively $ 720,148 $ 729,413 2022 Notes, net of unamortized debt discounts of $ 0 and $ 79,562 , respectively, and unamortized debt issuance costs of $ 5,034 and $ 4,771 , respectively 1,144,847 1,065,601 Total debt 1,864,995 1,795,014 Less: current debt ( 1,191,722 ) ( 1,103,101 ) Total debt, noncurrent $ 673,273 $ 691,913 As of April 30, 2021, contractual repayments and maturities of our outstanding debt were as follows (in thousands): Fiscal Period: Remainder of 2022 $ 28,125 2023 1,224,881 2024 75,000 2025 75,000 2026 468,750 Total $ 1,871,756 Credit Agreement In April 2020, we entered into a Credit Agreement pursuant to which the lenders extended to Workday a senior unsecured Term Loan in an aggregate principal amount of $ 750 million and an unsecured Revolving Credit Facility in an aggregate principal amount of $ 750 million. 19 Table of Contents The Term Loan and Revolving Credit Facility bear interest, at our option, at either (i) a floating rate per annum equal to the base rate plus a margin that ranges from 0 % to 0.625 %, or (ii) a per annum rate equal to the rate at which dollar deposits are offered in the London interbank market plus a margin that ranges from 1.000 % to 1.625 %. The base rate is defined as the greatest of (i) Bank of America’s prime rate, (ii) the federal funds rate plus 0.50 %, or (iii) a per annum rate equal to the rate at which dollar deposits are offered in the London interbank market for a period of one month (but not less than zero) plus 1.00 %. Actual margins under either election will be based on our consolidated leverage ratio, which is measured by dividing (a) our consolidated funded indebtedness as of the end of the fiscal quarter by (b) our consolidated EBITDA as defined in the Credit Agreement for the most recently completed four consecutive fiscal quarters. The Credit Agreement contains customary representations, warranties, and affirmative and negative covenants, including a financial covenant, events of default, and indemnification provisions in favor of the lenders. 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 April 30, 2021, we were in compliance with all covenants. Term Loan The Term Loan matures on April 2, 2025, and provides for quarterly repayment in installments of the principal amount at a rate of 1.25 % of the principal amount per quarter through January 2022, and 2.50 % of the principal amount per quarter thereafter. The Term Loan may be prepaid or permanently reduced by Workday without penalty or premium. As of April 30, 2021, the Term Loan had a carrying value of $ 720 million, of which $ 47 million is classified as current and $ 673 million is classified as noncurrent on the condensed consolidated balance sheet. As of April 30, 2021, the interest rate on the Term Loan was 1.33 % and the effective interest rate was 1.42 %. Revolving Credit Facility The Revolving Credit Facility may be borrowed, repaid, and reborrowed until April 2, 2025, at which time all amounts borrowed must be repaid. We may request, no more than two times during the term of the Credit Agreement, that each revolving lender extend the maturity date for the revolving loans for one year. Additionally, we may request an increase in aggregate revolving commitments of up to $ 250 million at any time prior to April 2, 2025. The Revolving Credit Facility may be prepaid or permanently reduced by Workday without penalty or premium. As of April 30, 2021, there were no outstanding borrowings under the Revolving Credit Facility. Convertible Senior Notes In June 2013, we issued 1.50 % convertible senior notes due July 15, 2020, with a principal amount of $ 250 million (“2020 Notes”). 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 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 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 (together with the 2020 Notes, the “Notes”). The 2022 Notes are unsecured, unsubordinated obligations, and interest is payable in cash in arrears at a fixed rate of 0.25 % on April 1 and October 1 of each year. The 2022 Notes mature on October 1, 2022, unless repurchased or converted in accordance with their terms prior to such date. We cannot redeem the 2022 Notes prior to maturity. The terms of the 2022 Notes are governed by an Indenture by and between us and Wells Fargo Bank, National Association, as Trustee (“Indenture”). Upon conversion, holders of the 2022 Notes will receive cash, shares of Class A common stock, or a combination of cash and shares of Class A common stock, at our election. The initial conversion rate for the 2022 Notes is 6.7982 shares of Class A common stock per $ 1,000 principal amount, which is equal to an initial conversion price of approximately $ 147.10 per share of Class A common stock, subject to adjustment. Prior to the close of business on May 31, 2022, conversion of the 2022 Notes is subject to the satisfaction of certain conditions, as described below. Holders of the 2022 Notes who convert their 2022 Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the Indenture) are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the Indenture), holders of the 2022 Notes may require us to repurchase all or a portion of their 2022 Notes at a price equal to 100 % of the principal amount of the 2022 Notes, plus any accrued and unpaid interest. 20 Table of Contents Holders of the 2022 Notes may convert all or a portion of their 2022 Notes prior to the close of business on May 31, 2022, in multiples of $1,000 principal amount, only under the following circumstances: • if the last reported sale price of our Class A common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price of the 2022 Notes on each applicable trading day; • during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2022 Notes for each day of that five day consecutive trading day period was less than 98 % of the product of the last reported sale price of Class A common stock and the conversion rate of the 2022 Notes on such trading day; or • upon the occurrence of specified corporate events, as noted in the Indenture. 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. The 2022 Notes were convertible at the option of the holders during the first quarter of fiscal 2022 and continue to be convertible in the second quarter of fiscal 2022 since the trigger for early conversion was met. Specifically, the last reported sale price of our Class A common stock exceeded 130 % of the conversion price of the 2022 Notes for more than 20 trading days during the 30 consecutive trading days ended April 30, 2021, and January 31, 2021. Accordingly, the 2022 Notes are classified as current on the condensed consolidated balance sheets for the periods presented. 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 described in Note 2, Accounting Standards, we adopted ASU 2020-06 effective February 1, 2021, using a modified retrospective method, under which financial results reported in prior periods were not adjusted. Prior to the adoption of the standard, in accounting for the issuance of the 2022 Notes, we separated them into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of similar liabilities that do not have associated convertible features. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2022 Notes. This difference represented a debt discount that was amortized to interest expense over the term of the 2022 Notes using the effective interest rate method. The gross carrying amount of the equity component for the 2022 Notes was $ 223 million and was included in Additional paid-in capital on the condensed consolidated balance sheets upon issuance. The effective interest rate of the liability component of the 2022 Notes was 4.60 %. Additionally, we separated the total issuance costs incurred into liability and equity components in proportion to the allocation of the initial proceeds, resulting in liability issuance costs of $ 14 million and equity issuance costs of $ 4 million. Issuance costs attributable to the liability component were amortized on a straight-line basis, which approximates the effective interest rate method, to interest expense over the term of the 2022 Notes. The issuance costs attributable to the equity component were netted against the equity component in Additional paid-in capital. Upon adoption of ASU No. 2020-06 on February 1, 2021, we recombined the liability and equity components of the 2022 Notes assuming that the instrument was accounted for as a single liability from inception to the date of adoption. We similarly recombined the liability and equity components of the issuance costs. The issuance costs are presented as a deduction from the outstanding principal balance of the 2022 Notes, and are amortized on a straight-line basis, which approximates the effective interest rate method, to interest expense over the term of the 2022 Notes. As of April 30, 2021, the effective interest rate on the 2022 Notes was 0.57 %. The standard did not impact the accounting for the 2020 Notes since they were converted and repaid prior to the date of adoption. Notes Hedges In connection with the issuance of the Notes, we entered into convertible note hedge transactions with respect to our Class A common stock (“Purchased Options”). The Purchased Options are intended to offset potential economic dilution to our Class A common stock upon any conversion of the Notes. The Purchased Options are separate transactions and are not part of the terms of the Notes. The amounts paid for the Purchased Options were included in Additional paid-in capital on the condensed consolidated balance sheets. 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 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. 21 Table of Contents 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. The Purchased Options relating to the 2022 Notes will expire in 2022, if not exercised earlier. Warrants In connection with the issuance of the Notes, we also entered into warrant transactions to sell warrants (“Warrants”) to acquire, subject to anti-dilution adjustments, up to approximately 3.1 million shares over 60 scheduled trading days beginning in October 2020 and 7.8 million shares over 60 scheduled trading days beginning in January 2023 of our Class A common stock at an exercise price of $ 107.96 and $ 213.96 per share, respectively. 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. The Warrants are separate transactions and are not part of the terms of the Notes or the Purchased Options. The proceeds from the sale of the Warrants were recorded in Additional paid-in capital on the condensed consolidated balance sheets. During the third and fourth quarters of fiscal 2021, Warrants related to the 2020 Notes were exercised, and we distributed approximately 1.6 million shares of our Class A common stock to warrant holders primarily utilizing treasury stock. As of April 30, 2021, there were no Warrants outstanding related to the 2020 Notes. Interest Expense on Debt The following table sets forth total interest expense recognized related to our debt (in thousands): Three Months Ended April 30, 2021 2020 Contractual interest expense $ 3,148 $ 2,631 Interest cost related to amortization of debt discount 101 13,955 Interest cost related to amortization of debt issuance costs 896 887 Total interest expense $ 4,145 $ 17,473 Note 12. Leases We have entered into operating lease agreements for our office space, data centers, and other property and equipment. As of April 30, 2021, and January 31, 2021, operating lease right-of-use assets were $ 281 million and $ 414 million, respectively, and operating lease liabilities were $ 295 million and $ 443 million, respectively. We have also entered into finance lease agreements for other property and equipment. As of April 30, 2021, and January 31, 2021, finance leases were not material. The components of operating lease expense were as follows (in thousands): Three Months Ended April 30, 2021 2020 Operating lease cost $ 24,273 $ 20,899 Short-term lease cost 2,178 4,352 Variable lease cost 5,121 4,450 Total operating lease cost $ 31,572 $ 29,701 Supplemental cash flow information related to our operating leases was as follows (in thousands): Three Months Ended April 30, 2021 2020 Cash paid for operating lease liabilities $ 26,622 $ 21,012 Operating lease right-of-use assets obtained in exchange for new operating lease liabilities 21,501 38,287 Other information related to our operating leases was as follows: April 30, 2021 January 31, 2021 Weighted average remaining lease term (in years) 5 6 Weighted average discount rate 2.42 % 1.73 % 22 Table of Contents As of April 30, 2021, maturities of operating lease liabilities were as follows (in thousands): Fiscal Period: Remainder of 2022 $ 62,837 2023 79,656 2024 66,961 2025 51,368 2026 25,399 Thereafter 36,507 Total lease payments 322,728 Less imputed interest ( 28,054 ) Total $ 294,674 As of April 30, 2021, we have an additional operating lease for office space that has not yet commenced with total undiscounted lease payments of $ 3 million. This operating lease will commence in fiscal 2022 and has a lease term of seven years . Related-Party Transactions As discussed in Note 6, Property and Equipment, Net, during fiscal 2021, we entered into an agreement with an affiliated party which gave us the option to purchase certain leased properties within our corporate headquarters. We exercised the Leased Property Purchase Option in the first quarter of fiscal 2022 at a purchase price of $ 173 million in cash, reduced by a $ 2 million fee paid for the Leased Property Purchase Option in the prior fiscal year. As of April 30, 2021, we no longer lease any office space from this affiliated party, and the Property is included in Property and equipment, net on the condensed consolidated balance sheet. As of January 31, 2021, the operating lease right-of-use assets and operating lease liabilities related to these agreements were $ 134 million and $ 146 million, respectively. The total rent expense under these agreements was $ 2 million and $ 4 million for the three months ended April 30, 2021, and 2020, respectively. Note 13. Commitments and Contingencies Third-Party Hosted Infrastructure Platform-Related Commitments We have entered into noncancelable agreements with third-party hosted infrastructure platform vendors with various expiration dates. As of April 30, 2021, future noncancelable minimum payments under these agreements were approximately $ 401 million. Legal Matters We are a party to various legal proceedings and claims that arise in the ordinary course of business. We make a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. 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 April 30, 2021, 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. Note 14. Stockholders’ Equity Common Stock As of April 30, 2021, there were 188 million shares of Class A common stock, net of treasury stock, and 58 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. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to 10 votes per share. Each share of Class B common stock can be converted into a share of Class A common stock at any time at the option of the holder. 23 Table of Contents Employee Equity Plans Our 2012 Equity Incentive Plan (“EIP”) serves as the successor to our 2005 Stock Plan (together with the EIP, the “Stock Plans”). As of April 30, 2021, we had 59 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 are exercisable on or about the succeeding November 30 and May 31, respectively, of each year. As of April 30, 2021, 4 million shares of Class A common stock were available for issuance under the ESPP. Restricted Stock Units The Stock Plans provide for the issuance of restricted stock units (“RSUs”) to employees and non-employees. RSUs generally vest over four years . A summary of information related to RSU activity during the three months ended April 30, 2021, is as follows (in thousands, except per share data): Number of Shares Weighted-Average Grant Date Fair Value Balance as of January 31, 2021 13,168 $ 154.90 RSUs granted 4,455 260.69 RSUs vested ( 2,725 ) 141.48 RSUs forfeited ( 292 ) 164.50 Balance as of April 30, 2021 14,606 189.48 As of April 30, 2021, there was a total of $ 2.3 billion in unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested RSUs, which is expected to be recognized over a weighted-average period of approximately three years . Performance-Based Restricted Stock Units During fiscal 2021, 0.6 million shares of performance-based restricted stock units (“PRSUs”) were granted to all employees other than executive management that included both service conditions and performance conditions related to company-wide goals. These performance conditions were met and the PRSUs vested on March 15, 2021. During the three months ended April 30, 2021, we recognized $ 17 million in compensation cost related to these PRSUs. Stock Options The Stock Plans provide for the issuance of incentive and nonstatutory stock options to employees and non-employees. 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 three months ended April 30, 2021, is as follows (in millions, except number of shares which are reflected in thousands and per share data): Outstanding Stock Options Weighted-Average Exercise Price Aggregate Intrinsic Value Balance as of January 31, 2021 1,260 $ 13.55 $ 270 Stock options exercised ( 248 ) 10.50 Stock options canceled ( 6 ) 32.80 Balance as of April 30, 2021 1,006 14.21 234 Vested and expected to vest as of April 30, 2021 1,004 14.16 234 Exercisable as of April 30, 2021 929 12.46 218 As of April 30, 2021, there was a total of $ 5 million in unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested stock options, which is expected to be recognized over a weighted-average period of approximately one year . 24 Table of Contents Note 15. Unearned Revenue and Performance Obligations Subscription services revenues of $ 930 million and $ 809 million were recognized during the three months ended April 30, 2021, and 2020, respectively, that were included in the unearned revenue balances as of January 31, 2021, and 2020, respectively. Professional services revenues recognized in the same periods from unearned revenue balances at the beginning of the respective periods were not material. Transaction Price Allocated to the Remaining Performance Obligations As of April 30, 2021, approximately $ 10.08 billion of revenues are expected to be recognized from remaining performance obligations for subscription contracts. We expect to recognize revenues on approximately $ 6.59 billion of these remaining performance obligations over the next 24 months, with the balance recognized thereafter. Revenues from remaining performance obligations for professional services contracts as of April 30, 2021, was not material. Note 16. Other Income (Expense), Net Other income (expense), net consisted of the following (in thousands): Three Months Ended April 30, 2021 2020 Interest income $ 2,003 $ 7,867 Interest expense (1) ( 4,177 ) ( 17,539 ) Other (2) ( 6,877 ) ( 1,301 ) Other income (expense), net $ ( 9,051 ) $ ( 10,973 ) (1) Interest expense includes the contractual interest expense of the Term Loan and Notes, and the related non-cash interest expense attributable to amortization of the debt discounts and debt issuance costs. For further information, see Note 11, Debt. (2) Other primarily includes the net gains (losses) from our equity investments. For further information, see Note 3, Investments. Note 17. Income Taxes 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 benefit of $ 1 million and an income tax expense of $ 3 million for the three months ended April 30, 2021, and 2020, respectively. The income tax benefit for the three months ended April 30, 2021, was primarily attributable to excess tax benefit from stock option deductions in foreign jurisdictions. The income tax expense for the three months ended April 30, 2020, was primarily attributable to state taxes and income tax expenses in profitable foreign jurisdictions. We are subject to income tax audits in the U.S. and foreign jurisdictions. We record liabilities related to uncertain tax positions and believe that we have provided adequate reserves for income tax uncertainties in all open tax years. Due to our history of tax losses, all years remain open to tax audit. We periodically evaluate the realizability of our net deferred tax assets based on all available evidence, both positive and negative. 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 April 30, 2021, we continue to maintain a full valuation allowance on our deferred tax assets except in certain jurisdictions. Note 18. Net Loss Per Share Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, net of treasury stock. Diluted net loss per share is computed by giving effect to all potential shares of common stock, including our outstanding stock options, unvested RSUs, PRSUs, and RSAs, common stock related to convertible senior notes to the extent dilutive, outstanding warrants, and common stock issuable pursuant to the ESPP. Basic and diluted net loss per share was the same for each period presented, as the inclusion of all potential common shares outstanding would have been anti-dilutive. The net loss per share attributable to common stockholders is allocated based on the contractual participation rights of the Class A common shares and Class B common shares as if the loss for the period had been distributed. As the liquidation and dividend rights are identical, the net loss attributable to common stockholders is allocated on a proportionate basis. 25 Table of Contents 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 April 30, 2021 2020 Class A Class B Class A Class B Net loss per share, basic and diluted: Numerator: Allocation of distributed net loss $ ( 35,385 ) $ ( 11,137 ) $ ( 116,735 ) $ ( 41,633 ) Denominator: Weighted-average common shares outstanding 185,397 58,342 171,702 61,237 Basic and diluted net loss per share $ ( 0.19 ) $ ( 0.19 ) $ ( 0.68 ) $ ( 0.68 ) 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 April 30, 2021 2020 Outstanding common stock options 1,006 2,634 Unvested RSUs, PRSUs, and RSAs 14,703 16,888 Shares related to the convertible senior notes 7,817 10,876 Shares subject to warrants related to the issuance of convertible senior notes 7,818 10,876 Shares issuable pursuant to the ESPP 416 491 Total 31,760 41,765 Note 19. Disaggregation of Revenues and Geographic Information Disaggregation of Revenues We sell our subscription contracts and related services in two primary geographical markets: to customers located in the United States and to customers located outside of the United States. Revenues by geography are generally based on the address of the customer as specified in our master subscription agreement. The following table sets forth revenues by geographic area (in thousands): Three Months Ended April 30, 2021 2020 United States $ 883,441 $ 762,340 Other countries 291,592 256,045 Total $ 1,175,033 $ 1,018,385 No single customer or country other than the United States represented greater than 10% of our total revenues for the three months ended April 30, 2021, and 2020. Long-Lived Assets Our long-lived assets, which primarily consist of property and equipment and operating lease right-of-use assets, are attributed to a country based on the physical location of the assets. Aggregate Property and equipment, net and Operating lease right-of-use assets by geographic area was as follows (in thousands): April 30, 2021 January 31, 2021 United States $ 1,218,542 $ 1,169,820 Ireland 140,998 143,887 Other countries 77,100 72,839 Total $ 1,436,640 $ 1,386,546 26 Table of Contents SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements, which are subject to safe harbor protection under the Private Securities Litigation Reform Act of 1995. All statements contained in this report other than statements of historical fact, including statements regarding our future operating results and financial position, business strategy and plans, and objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “seek,” “plan,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations, beliefs, and projections about future events, conditions, and trends that we believe may affect our financial condition, operating results, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, assumptions, and changes in circumstances that are difficult to predict and many of which are outside of our control, including those arising from the impact of the coronavirus pandemic, as well as those described in the “Risk Factors” section, which we encourage you to read carefully. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, assumptions, and potential changes in circumstances, the future events, conditions, and trends discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied by the forward-looking statements. Accordingly, you should not rely upon any forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activities, performance, or achievements. We are under no duty to update any of these forward-looking statements after the date of this report or to conform these statements to actual results or revised expectations, except as required by applicable law. If we do update any forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.