What changed in this filing

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Item 1. Financial Statements

2021-08-26 compared with 2021-05-26 · 191 added, 133 removed, 630 unchanged (34% of the section changed)

3 unchanged sentences

(in thousands)

April 30, 2021 January 31, 2021

July 31, 2021 January 31, 2021

Current assets:

38 unchanged sentences

(in thousands, except per share data)

Three Months Ended April 30,

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

2021 2020 2021 2020

Subscription services $ 1,113,454 $ 931,698 $ 2,145,623 $ 1,813,654

10 unchanged sentences

Other income (expense), net 102,985 ( 11,453 ) 93,934 ( 22,426 )

Loss before provision for (benefit from) income taxes ( 47,364 ) ( 155,430 )

Income (loss) before provision for (benefit from) income taxes 101,865 ( 28,207 ) 54,501 ( 183,637 )

Provision for (benefit from) income taxes ( 3,871 ) ( 191 ) ( 4,713 ) 2,747

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

Net income (loss) $ 105,736 $ ( 28,016 ) $ 59,214 $ ( 186,384 )

Net income (loss) per share, basic $ 0.43 $ ( 0.12 ) $ 0.24 $ ( 0.79 )

Net income (loss) per share, diluted $ 0.41 $ ( 0.12 ) $ 0.23 $ ( 0.79 )

Weighted-average shares used to compute net income (loss) per share, basic 246,943 236,002 245,308 234,483

Weighted-average shares used to compute net income (loss) per share, diluted 260,016 236,002 252,900 234,483

(1) Costs and expenses include share-based compensation expenses as follows:

Three Months Ended April 30,

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

2021 2020 2021 2020

Costs of subscription services $ 20,421 $ 14,825 $ 41,138 $ 28,717

5 unchanged sentences

Workday, Inc.

Condensed Consolidated Statements of Comprehensive Loss

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

Three Months Ended April 30,

Net loss $ ( 46,522 ) $ ( 158,368 )

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

2021 2020 2021 2020

Net income (loss) $ 105,736 $ ( 28,016 ) $ 59,214 $ ( 186,384 )

Other comprehensive income (loss):

3 unchanged sentences

Other comprehensive income (loss) 16,271 ( 56,880 ) 10,820 ( 22,846 )

Comprehensive loss $ ( 51,973 ) $ ( 124,334 )

Comprehensive income (loss) $ 122,007 $ ( 84,896 ) $ 70,034 $ ( 209,230 )

See Notes to Condensed Consolidated Financial Statements

2 unchanged sentences

(in thousands)

Three Months Ended April 30,

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

2021 2020 2021 2020

Common stock:

1 unchanged sentence

Issuance of common stock under employee equity plans, net of shares withheld for employee taxes 2 1 6 5

Settlement of convertible senior notes — 2 — 2

Balance, end of period 248 238 248 238

17 unchanged sentences

Balance, beginning of period ( 2,820,480 ) ( 2,785,927 ) ( 2,909,990 ) ( 2,627,359 )

Net loss ( 46,522 ) ( 158,368 )

Net income (loss) 105,736 ( 28,016 ) 59,214 ( 186,384 )

Cumulative effect of accounting changes — — 136,032 ( 200 )

1 unchanged sentence

Total stockholders’ equity $ 3,867,990 $ 2,838,478 $ 3,867,990 $ 2,838,478

Three Months Ended April 30,

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

2021 2020 2021 2020

Common stock (in shares):

1 unchanged sentence

Issuance of common stock under employee equity plans, net of shares withheld for employee taxes 1,776 1,992 5,338 5,454

Settlement of convertible senior notes — 1,654 — 1,654

Purchase of treasury stock from the exercise of convertible senior notes hedges — ( 1,655 ) — ( 1,655 )

Issuance of restricted stock awards — — 82 —

4 unchanged sentences

(in thousands)

Three Months Ended April 30,

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

2021 2020 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:

Net income (loss) $ 105,736 $ ( 28,016 ) $ 59,214 $ ( 186,384 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization 85,383 73,178 167,846 144,692

3 unchanged sentences

Non-cash lease expense 21,069 19,879 43,299 38,248

(Gains) losses on investments ( 106,275 ) ( 1,962 ) ( 100,257 ) 499

Other ( 8,006 ) 14,392 ( 10,627 ) 16,301

30 unchanged sentences

See Notes to Condensed Consolidated Financial Statements

Three Months Ended April 30,

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

2021 2020 2021 2020

Supplemental cash flow data:

Cash paid for interest $ 2,429 $ 4,939 $ 7,067 $ 6,377

Cash paid for income taxes 4,493 2,945

Cash paid for income taxes, net of refunds 1,941 1,696 6,434 4,641

Non-cash investing and financing activities:

Purchases of property and equipment, accrued but not paid 36,823 49,987 36,823 49,987

As of April 30,

As of July 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 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 results of operations for the three and six months ended July 31, 2021, shown in this report are not necessarily indicative of the results to be expected for the full fiscal 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.

7 unchanged sentences

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.

For the six months ended July 31, 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.

10 unchanged sentences

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.

9 unchanged sentences

Debt Securities

As of April 30, 2021, debt securities consisted of the following (in thousands):

As of July 31, 2021, 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 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 unrealized losses associated with our debt securities were immaterial as of July 31, 2021, and January 31, 2021, and we did not recognize any credit losses related to our debt securities during the three and six months ended July 31, 2021, or 2020.

We did not have any material sales of debt securities during the three months ended July 31, 2021, or July 31, 2020.

We sold $ 10 million and $ 5 million of debt securities during the six months ended July 31, 2021, and 2020, respectively.

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 April 30, 2021 January 31, 2021

Condensed Consolidated Balance Sheets Location July 31, 2021 January 31, 2021

Money market funds Cash and cash equivalents $ 414,663 $ 659,964

4 unchanged sentences

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

Three Months Ended April 30,

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

2021 2020 2021 2020

Net realized gains (losses) recognized on equity investments sold (1)

6 unchanged sentences

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.

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

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

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

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

Under the equity method, our share of gains on this investment was $ 0.2 million and losses was $ 1 million for the three months ended July 31, 2021, and 2020, respectively, and our share of losses was $ 2 million for each of the six-month periods ended July 31, 2021, and 2020.

There was no impairment loss recorded on this investment during the periods presented.

In June 2021, the limited partnership was liquidated and shares of common stock in a corporation were distributed to the partners.

Immediately thereafter, the corporation completed its initial public offering (“IPO”).

We no longer exercise significant influence over the entity and therefore we accounted for our interest in the common stock received as a marketable equity investment measured at fair value.

Concurrent with the IPO, we sold a portion of our investment for proceeds of $ 5 million, resulting in a realized gain of $ 3 million.

Our remaining investment, which had a carrying value of $ 141 million as of July 31, 2021, is subject to a lock-up agreement which restricts our ability to sell the securities until December 2021.

Non-Marketable Equity Investments Measured Using the Measurement Alternative

1 unchanged sentence

The carrying values for our non-marketable equity investments are summarized below (in thousands):

April 30, 2021 January 31, 2021

July 31, 2021 January 31, 2021

Total initial cost $ 105,819 $ 65,377

1 unchanged sentence

Carrying value $ 125,075 $ 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.

We recorded upward adjustments to the carrying value of non-marketable equity investments of $ 6 million and no material impairment losses for the three months ended July 31, 2021.

No material adjustments or impairment losses were recorded for the three months ended July 31, 2020.

We recorded upward adjustments of $ 14 million and impairment losses of $ 2 million for the six months ended July 31, 2021.

We recorded no material adjustments and $ 3 million of impairment losses for the six months ended July 31, 2020.

Marketable Equity Investments

1 unchanged sentence

The carrying values for our marketable equity investments are summarized below (in thousands):

April 30, 2021 January 31, 2021

July 31, 2021 January 31, 2021

Total initial cost $ 47,513 $ 5,000

1 unchanged sentence

Carrying value (1)

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.

$ 141,006 $ 21,300

(1) As of July 31, 2021, investments with a carrying value of $ 141 million are subject to a lock-up agreement through December 2021.

During the three months ended July 31, 2021, we sold marketable equity investments for proceeds of $ 15 million which had an initial cost of $ 6 million.

This includes the $ 5 million sale of the investment previously accounted for under the equity method described above.

During the six months ended July 31, 2021, we sold marketable equity investments for proceeds of $ 17 million which had an initial cost of $ 7 million.

There were no sales of marketable equity investments during the comparative prior year periods.

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.

We measure our cash equivalents, marketable securities, and foreign currency derivative contracts at fair value at each reporting period using a fair value hierarchy which requires us to 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.

4 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 April 30, 2021 (in thousands):

Level 1 Level 2 Level 3 Total

21 unchanged sentences

Total liabilities $ — $ 49,456 $ — $ 49,456

Non-Marketable Equity Investments Measured at Fair Value on a Non-Recurring Basis

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.

For further information, see Note 3, Investments.

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 carrying value of the Term Loan was $ 711 million and $ 729 million as of July 31, 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.

2 unchanged sentences

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 carrying value of the 2022 Notes was $ 1.1 billion as of July 31, 2021, and January 31, 2021, and the estimated fair value of the 2022 Notes was $ 1.9 billion and $ 1.8 billion as of July 31, 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.

1 unchanged sentence

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.

Deferred costs, which consist of deferred sales commissions, were $ 408 million and $ 395 million as of July 31, 2021, and January 31, 2021, respectively.

Amortization expense for the deferred costs was $ 33 million and $ 27 million for the three months ended July 31, 2021, and 2020, respectively, and $ 65 million and $ 53 million for the six months ended July 31, 2021, and 2020, 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):

April 30, 2021 January 31, 2021

July 31, 2021 January 31, 2021

Land and land improvements $ 80,553 $ 37,065

6 unchanged sentences

Property and equipment, net $ 1,135,593 $ 972,403

Depreciation expense totaled $ 63 million and $ 55 million for the three months ended April 30, 2021, and 2020, respectively.

Depreciation expense totaled $ 65 million and $ 57 million for the three months ended July 31, 2021, and 2020, respectively, and $ 128 million and $ 112 million for the six months ended July 31, 2021, and 2020, respectively.

Related-Party Transactions

39 unchanged sentences

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

April 30, 2021 January 31, 2021

July 31, 2021 January 31, 2021

Developed technology $ 312,400 $ 218,400

5 unchanged sentences

Acquisition-related intangible assets, net $ 381,392 $ 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.

As of April 30, 2021, our future estimated amortization expense related to acquisition-related intangible assets was as follows (in thousands):

Amortization expense related to acquisition-related intangible assets was $ 20 million and $ 16 million for the three months ended July 31, 2021, and 2020, respectively, and $ 38 million and $ 32 million for the six months ended July 31, 2021, and 2020, respectively.

As of July 31, 2021, our future estimated amortization expense related to acquisition-related intangible assets was as follows (in thousands):

Fiscal Period:

3 unchanged sentences

Other assets consisted of the following (in thousands):

April 30, 2021 January 31, 2021

July 31, 2021 January 31, 2021

Non-marketable equity and other investments (1)

$ 151,929 $ 85,868

Equity investments accounted for under the equity method 46,010 48,222

Prepayments for goods and services 29,304 19,824

3 unchanged sentences

Derivative assets 5,389 173

Equity investments accounted for under the equity method — 48,222

Other 1,002 1,701

1 unchanged sentence

(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.

The carrying values of these loan receivables were $ 27 million and $ 13 million as of July 31, 2021, and January 31, 2021, respectively.

The allowance for credit losses on loan receivables 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):

As of July 31, 2021, the future estimated amortization expense was 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 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.

As of July 31, 2021, we estimate that $ 15 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 July 31, 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.

5 unchanged sentences

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.

As of July 31, 2021, and January 31, 2021, we had outstanding forward contracts not designated as hedges with total notional values of $ 97 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

Condensed Consolidated Balance Sheets Location July 31, 2021 January 31, 2021

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 April 30,

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

2021 2020 2021 2020

Total revenues Revenues $ 1,260,361 $ 1,061,967 $ 2,435,394 $ 2,080,352

1 unchanged sentence

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,

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

2021 2020 2021 2020

Gains (losses) recognized in OCI Net change in market value of effective foreign currency forward exchange contracts $ 16,031 $ ( 52,558 ) $ 11,778 $ ( 15,765 )

1 unchanged sentence

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,

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

2021 2020 2021 2020

Foreign currency forward contracts not designated as hedges Other income (expense), net $ 2,011 $ ( 4,040 ) $ 1,819 $ 1,373

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.

We are subject to 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.

1 unchanged sentence

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 April 30, 2021, information related to these offsetting arrangements was as follows (in thousands):

As of July 31, 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

17 unchanged sentences

Outstanding debt consisted of the following (in thousands):

April 30, 2021 January 31, 2020

July 31, 2021 January 31, 2021

Term Loan, net of unamortized debt discounts of $ 1,480 and $ 1,682 , respectively, and unamortized debt issuance costs of $ 137 and $ 155 , respectively

5 unchanged sentences

Total debt, noncurrent $ 654,633 $ 691,913

As of April 30, 2021, contractual repayments and maturities of our outstanding debt were as follows (in thousands):

As of July 31, 2021, contractual repayments and maturities of our outstanding debt were as follows (in thousands):

Fiscal Period:

9 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 April 30, 2021, we were in compliance with all covenants.

As of July 31, 2021, and January 31, 2021, we were in compliance with all covenants.

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 %.

As of July 31, 2021, the Term Loan had a carrying value of $ 711 million, of which $ 56 million is classified as current and $ 655 million is classified as noncurrent on the condensed consolidated balance sheet.

As of January 31, 2021, the Term Loan had a carrying value of $ 729 million, of which $ 38 million was classified as current and $ 692 million was classified as noncurrent on the condensed consolidated balance sheet.

As of July 31, 2021, and January 31, 2021, the interest rate on the Term Loan was 1.33 % and 1.38 %, respectively, and the effective interest rate was 1.41 % and 1.46 %, respectively.

Revolving Credit Facility

3 unchanged sentences

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.

As of July 31, 2021, and January 31, 2021, there were no outstanding borrowings under the Revolving Credit Facility.

Convertible Senior Notes

18 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.

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.

The 2022 Notes were convertible at the option of the holders in the first half of fiscal 2022 and continue to be convertible through the third quarter of fiscal 2022 since the trigger for early conversion was met.

Accordingly, the 2022 Notes are classified as current on the condensed consolidated balance sheets for the periods presented.

8 unchanged sentences

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.

Issuance costs attributable to the liability component were amortized on a straight-line basis, which approximated 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.

3 unchanged sentences

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 %.

As of July 31, 2021, the effective interest rate on the 2022 Notes was 0.55 %.

The standard did not impact the accounting for the 2020 Notes since they were converted and repaid prior to the date of adoption.

4 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 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.

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

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.

7 unchanged sentences

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.

As of July 31, 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,

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

2021 2020 2021 2020

Contractual interest expense $ 3,174 $ 4,799 $ 6,322 $ 7,430

3 unchanged sentences

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.

As of July 31, 2021, and January 31, 2021, operating lease right-of-use assets were $ 276 million and $ 414 million, respectively, and operating lease liabilities were $ 291 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.

As of July 31, 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,

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

2021 2020 2021 2020

Operating lease cost $ 22,743 $ 22,336 $ 47,016 $ 43,235

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

Three Months Ended April 30,

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

2021 2020 2021 2020

Cash paid for operating lease liabilities $ 19,951 $ 21,153 $ 46,573 $ 42,165

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Other information related to our operating leases was as follows:

April 30, 2021 January 31, 2021

July 31, 2021 January 31, 2021

Weighted average remaining lease term (in years) 5 6

Weighted average discount rate 2.36 % 1.73 %

As of April 30, 2021, maturities of operating lease liabilities were as follows (in thousands):

As of July 31, 2021, maturities of operating lease liabilities were as follows (in thousands):

Fiscal Period:

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Total $ 291,268

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 .

As of July 31, 2021, we have additional operating leases for office space that have not yet commenced with total undiscounted lease payments of $ 17 million.

These operating leases will commence in fiscal 2022 and 2023, with lease terms ranging from two to eight years .

Related-Party Transactions

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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.

Subsequent to the exercise of the Leased Property Purchase Option, 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.

We incurred no rent expense under these agreements for the three months ended July 31, 2021, as compared to $ 4 million for the three months ended July 31, 2020.

Rent expense was $ 2 million and $ 7 million for the six months ended July 31, 2021, and 2020, respectively.

Commitments and Contingencies

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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.

During the second quarter of fiscal 2022, we entered into a six-year , $ 420 million agreement for the use of cloud services.

As of July 31, 2021, future noncancelable minimum payments under these agreements were approximately $ 790 million.

Legal Matters

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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.

In our opinion, as of July 31, 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.

Stockholders’ Equity

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.

As of July 31, 2021, there were 191 million shares of Class A common stock, net of treasury stock, and 57 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.

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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.

As of July 31, 2021, we had 58 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.

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.

As of July 31, 2021, 4 million shares of Class A common stock were available for issuance under the ESPP.

Restricted Stock Units

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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):

A summary of information related to RSU activity during the six months ended July 31, 2021, is as follows (in thousands, except per share data):

Number of Shares Weighted-Average Grant Date Fair Value

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RSUs forfeited ( 779 ) 177.04

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 .

Balance as of July 31, 2021 13,417 194.22

As of July 31, 2021, there was a total of $ 2.1 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 the second quarter of fiscal 2022, 0.3 million shares of PRSUs were granted to employees below the level of vice president 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 2022.

These PRSU awards will vest if the performance conditions are achieved for the fiscal year ending January 31, 2022, and if the individual employee continues to provide service through the vesting date of March 15, 2022.

During each of the three and six-month periods ended July 31, 2021, we recognized $ 11 million in compensation cost related to these PRSUs.

A total of $ 56 million in unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately seven months .

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.

During the six months ended July 31, 2021, we recognized $ 17 million in compensation cost related to these PRSUs.

Stock Options

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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):

A summary of information related to stock option activity during the six months ended July 31, 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

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Stock options canceled ( 13 ) 35.44

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 .

Balance as of July 31, 2021 812 15.54 178

Vested and expected to vest as of July 31, 2021 809 15.45 177

Exercisable as of July 31, 2021 768 14.25 169

As of July 31, 2021, there was a total of $ 3 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 .

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.

Subscription services revenues of $ 970 million and $ 824 million were recognized during the three months ended July 31, 2021, and 2020, respectively, that were included in the unearned revenue balances as of April 30, 2021, and 2020, respectively.

Subscription services revenues of $ 1.68 billion and $ 1.46 billion were recognized during the six months ended July 31, 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.

As of July 31, 2021, approximately $ 10.58 billion of revenues are expected to be recognized from remaining performance obligations for subscription contracts.

We expect to recognize revenues on approximately $ 6.88 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.

Revenues from remaining performance obligations for professional services contracts as of July 31, 2021, were not material.

Other Income (Expense), Net

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

Three Months Ended April 30,

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

2021 2020 2021 2020

Interest income $ 1,333 $ 4,978 $ 3,336 $ 12,845

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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 reported an income tax benefit of $ 5 million and an income tax expense of $ 3 million for the six months ended July 31, 2021, and 2020, respectively.

The income tax benefit for the six months ended July 31, 2021, was primarily attributable to excess tax benefit from stock option deductions in foreign jurisdictions and reversal of previously accrued tax liabilities upon favorable tax audit results.

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 are subject to income tax audits in the U.S.

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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.

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.

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,

Class A Class B Class A Class B

Net loss per share, basic and diluted:

Allocation of distributed net loss $ ( 35,385 ) $ ( 11,137 ) $ ( 116,735 ) $ ( 41,633 )

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,

Outstanding common stock options 1,006 2,634

Unvested RSUs, PRSUs, and RSAs 14,703 16,888

As of July 31, 2021, we continue to maintain a full valuation allowance on our deferred tax assets except in certain jurisdictions.

Net Income (Loss) Per Share

Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (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 income (loss) per share is computed by giving effect to all potentially dilutive shares of common stock, including our outstanding stock options, unvested RSUs, PRSUs, and RSAs, convertible senior notes, outstanding warrants, and ESPP obligations.

The net income (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 income (loss) for the period had been distributed.

As the liquidation and dividend rights are identical, the net income (loss) attributable to common stockholders is allocated on a proportionate basis.

The computation of the diluted net income (loss) per share of Class A common stock assumes the conversion of our Class B common stock to Class A common stock, while the diluted net income (loss) per share of Class B common stock does not assume the conversion of those shares.

Basic and diluted net loss per share was the same for the three and six months ended July 31, 2020, as the inclusion of all potential common shares outstanding would have been anti-dilutive.

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

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

2021 2020 2021 2020

Class A Class B Class A Class B Class A Class B Class A Class B

Net income (loss) per share, basic:

Net income (loss) $ 80,955 $ 24,781 $ ( 20,732 ) $ ( 7,284 ) $ 45,188 $ 14,026 $ ( 137,980 ) $ ( 48,404 )

Weighted-average shares outstanding, basic 189,069 57,874 175,441 60,561 187,204 58,104 173,590 60,893

Net income (loss) per share, basic $ 0.43 $ 0.43 $ ( 0.12 ) $ ( 0.12 ) $ 0.24 $ 0.24 $ ( 0.79 ) $ ( 0.79 )

Net income (loss) per share, diluted:

Net income (loss) 80,955 24,781 ( 20,732 ) ( 7,284 ) 45,188 14,026 ( 137,980 ) ( 48,404 )

Interest expense on convertible senior notes, net of tax 1,229 376 — — — — — —

Reallocation of net income and interest expense as a result of conversion of Class B to Class A common stock 25,157 — — — 14,026 — — —

Reallocation of net income and interest expense to Class B common stock — ( 1,265 ) — — — ( 421 ) — —

Net income (loss) for diluted calculation 107,341 23,892 ( 20,732 ) ( 7,284 ) 59,214 13,605 ( 137,980 ) ( 48,404 )

Weighted-average shares outstanding, basic 189,069 57,874 175,441 60,561 187,204 58,104 173,590 60,893

Conversion of Class B to Class A common stock 57,874 — — — 58,104 — — —

Shares related to outstanding options, unvested RSUs, PRSUs, RSAs, and ESPP obligations 4,606 — — — 6,611 — — —

Shares related to the convertible senior notes 7,817 — — — — — — —

Shares subject to warrants related to the issuance of convertible senior notes 650 — — — 981 — — —

Shares issuable pursuant to the ESPP 416 491

Weighted-average shares outstanding, diluted 260,016 57,874 175,441 60,561 252,900 58,104 173,590 60,893

Net income (loss) per share, diluted $ 0.41 $ 0.41 $ ( 0.12 ) $ ( 0.12 ) $ 0.23 $ 0.23 $ ( 0.79 ) $ ( 0.79 )

The weighted-average number of shares outstanding used in the computation of diluted net income (loss) per share does not include the effect of the following potentially outstanding shares of common stock.

The effects of these potentially outstanding shares were not included in the calculation of diluted net income (loss) per share because the effect would have been anti-dilutive (in thousands):

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

2021 2020 2021 2020

Shares related to outstanding options, unvested RSUs, PRSUs, RSAs, and ESPP obligations 4,415 16,004 2,552 14,029

Shares related to the convertible senior notes — 9,160 7,818 9,228

Shares subject to warrants related to the issuance of convertible senior notes — 10,876 — 10,876

Total 4,415 36,040 10,370 34,133

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

Three Months Ended April 30,

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

2021 2020 2021 2020

United States $ 942,561 $ 805,056 $ 1,826,002 $ 1,567,396

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Total $ 1,260,361 $ 1,061,967 $ 2,435,394 $ 2,080,352

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.

No single customer or country other than the United States represented greater than 10% of our total revenues for the three and six months ended July 31, 2021, or 2020.

Long-Lived Assets

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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

July 31, 2021 January 31, 2021

United States $ 1,202,394 $ 1,169,820

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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