What changed in this filing

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Item 1. Financial Statements

2021-11-18 compared with 2021-08-26 · 138 added, 119 removed, 702 unchanged (27% of the section changed)

3 unchanged sentences

(in thousands)

July 31, 2021 January 31, 2021

October 31, 2021 January 31, 2021

Current assets:

38 unchanged sentences

(in thousands, except per share data)

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

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

2021 2020 2021 2020

19 unchanged sentences

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

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

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

2021 2020 2021 2020

8 unchanged sentences

(in thousands)

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

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

2021 2020 2021 2020

10 unchanged sentences

(in thousands)

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

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

2021 2020 2021 2020

8 unchanged sentences

Share-based compensation 278,995 259,802 808,299 746,643

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

Exercise of convertible senior notes hedges 8 — 58 303,202

5 unchanged sentences

Exercise of convertible senior notes hedges ( 6 ) — ( 53 ) ( 303,201 )

Settlement of warrants — 34,118 — 34,118

Balance, end of period ( 12,437 ) ( 269,083 ) ( 12,437 ) ( 269,083 )

9 unchanged sentences

Total stockholders’ equity $ 4,215,816 $ 3,078,054 $ 4,215,816 $ 3,078,054

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

See Notes to Condensed Consolidated Financial Statements

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

2021 2020 2021 2020

2 unchanged sentences

Issuance of common stock under employee equity plans, net of shares withheld for employee taxes 1,429 1,936 6,767 7,390

Settlement of warrants — 186 — 186

Settlement of convertible senior notes — — — 1,654

6 unchanged sentences

(in thousands)

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

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

2021 2020 2021 2020

40 unchanged sentences

See Notes to Condensed Consolidated Financial Statements

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

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

2021 2020 2021 2020

4 unchanged sentences

Purchases of property and equipment, accrued but not paid 49,713 49,098 49,713 49,098

As of July 31,

As of October 31,

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

23 unchanged sentences

All such adjustments are of a normal, recurring nature.

The results of operations for the 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 results of operations for the three and nine months ended October 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 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.

For the nine months ended October 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.

21 unchanged sentences

Debt Securities

As of July 31, 2021, debt securities consisted of the following (in thousands):

As of October 31, 2021, debt securities consisted of the following (in thousands):

Amortized Cost Unrealized Gains Unrealized Losses Aggregate Fair Value

3 unchanged sentences

Commercial paper 934,715 — — 934,715

$ 2,438,958 $ 548 $ ( 73 ) $ 2,439,433

Total debt securities $ 2,839,775 $ 91 $ ( 1,121 ) $ 2,838,745

Included in Cash and cash equivalents $ 715,486 $ 1 $ ( 2 ) $ 715,485

6 unchanged sentences

Commercial paper 664,262 — — 664,262

$ 2,569,269 $ 1,654 $ ( 73 ) $ 2,570,850

Total debt securities $ 2,569,269 $ 1,654 $ ( 73 ) $ 2,570,850

Included in Cash and cash equivalents $ 440,678 $ — $ — $ 440,678

3 unchanged sentences

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

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

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

We sold $ 10 million and $ 5 million of debt securities during the nine months ended October 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 July 31, 2021 January 31, 2021

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

Money market funds Cash and cash equivalents $ 280,481 $ 659,964

2 unchanged sentences

Marketable equity investments Marketable securities 134,462 21,300

$ 680,744 $ 802,628

Total equity investments $ 584,872 $ 802,628

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

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

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

2021 2020 2021 2020

3 unchanged sentences

Total net gains (losses) recognized in Other income (expense), net $ 25,207 $ 3,830 $ 125,403 $ 3,234

(1) Reflects the difference between the sale proceeds and the carrying value of the equity securities at the beginning of the period.

(1) Reflects the difference between the sale proceeds and the carrying value of the equity investments at the beginning of the period.

Equity Investments Accounted for Under the Equity Method

5 unchanged sentences

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.

Under the equity method, our share of earnings and losses of the investee was not material and there was no impairment loss recorded for the periods presented.

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

2 unchanged sentences

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.

Our remaining investment, which had a carrying value of $ 134 million as of October 31, 2021, is subject to a lock-up agreement which restricts our ability to sell the securities until December 2021 at the earliest.

We recorded an unrealized loss of $ 7 million and an unrealized gain of $ 91 million related to this investment for the three and nine months ended October 31, 2021, respectively.

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):

July 31, 2021 January 31, 2021

October 31, 2021 January 31, 2021

Total initial cost $ 130,131 $ 65,377

1 unchanged sentence

Carrying value $ 169,929 $ 73,142

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.

We recorded upward adjustments to the carrying value of non-marketable equity investments of $ 20 million and no material impairment losses for the three months ended October 31, 2021.

In addition, as discussed in Note 7, Business Combinations, we recognized a $ 12 million non-cash gain related to our acquisition of Zimit.

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

We recorded upward adjustments of $ 34 million and impairment losses of $ 2 million for the nine months ended October 31, 2021.

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

Marketable Equity Investments

1 unchanged sentence

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

July 31, 2021 January 31, 2021

October 31, 2021 January 31, 2021

Total initial cost $ 47,513 $ 5,000

2 unchanged sentences

$ 134,462 $ 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.

(1) As of October 31, 2021, investments with a carrying value of $ 134 million are subject to a lock-up agreement through December 2021.

There were no sales of marketable equity investments during the three months ended October 31, 2021.

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

7 unchanged sentences

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents information about our assets and liabilities that are measured at fair value on a recurring basis and their assigned levels within the valuation hierarchy as of July 31, 2021 (in thousands):

Level 1 Level 2 Level 3 Total

26 unchanged sentences

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 $ 711 million and $ 729 million as of July 31, 2021, and January 31, 2021, respectively.

The carrying value of the Term Loan was $ 702 million and $ 729 million as of October 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 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 carrying value of the 2022 Notes was $ 1.1 billion as of October 31, 2021, and January 31, 2021, and the estimated fair value of the 2022 Notes was $ 2.2 billion and $ 1.8 billion as of October 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 $ 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.

Deferred costs, which consist of deferred sales commissions, were $ 423 million and $ 395 million as of October 31, 2021, and January 31, 2021, respectively.

Amortization expense for the deferred costs was $ 36 million and $ 29 million for the three months ended October 31, 2021, and 2020, respectively, and $ 101 million and $ 82 million for the nine months ended October 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):

July 31, 2021 January 31, 2021

October 31, 2021 January 31, 2021

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

6 unchanged sentences

Property and equipment, net $ 1,120,196 $ 972,403

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.

Depreciation expense totaled $ 66 million and $ 58 million for the three months ended October 31, 2021, and 2020, respectively, and $ 194 million and $ 170 million for the nine months ended October 31, 2021, and 2020, respectively.

Related-Party Transactions

7 unchanged sentences

Business Combinations

On September 28, 2021, we acquired all outstanding stock of Zimit, a configure, price, quote (CPQ) solution built for services industries.

We believe the acquisition of Zimit will accelerate our ability to deliver a comprehensive quote-to-cash process automation offering that will provide services organizations increased visibility across the entire revenue cycle.

We have included the financial results of Zimit in our condensed consolidated financial statements from the date of acquisition.

The acquisition-date fair value of the purchase consideration was $ 76 million, attributable to cash consideration of $ 62 million and the fair value of a previously held equity interest of $ 14 million.

We recorded developed technology intangible assets of $ 7 million (to be amortized over an estimated useful life of 4 years), customer relationships intangible assets of $ 3 million (to be amortized over an estimated useful life of 13 years), and goodwill of $ 67 million.

Goodwill was primarily attributable to the expected synergies from integrating Zimit’s technology into our product portfolio.

The goodwill is not deductible for income tax purposes.

The fair values of assets acquired and liabilities assumed may change over the measurement period as additional information is received.

The measurement period will end no later than one year from the acquisition date.

We invested $ 2 million in Zimit prior to the acquisition, which was accounted for as a non-marketable equity investment.

We recognized a non-cash gain of approximately $ 12 million as a result of remeasuring our prior equity interest in Zimit held before the business combination.

The gain is included in Other income (expense), net on the condensed consolidated statement of operations.

Separate operating results and pro forma results of operations for Zimit have not been presented as the effect of this acquisition was not material to our financial results.

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.

1 unchanged sentence

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):

The acquisition-date fair value of the purchase consideration consisted of the following (in thousands):

Cash paid to stockholders, warrant holders, and vested option holders $ 683,788

7 unchanged sentences

The measurement period will end no later than one year from the acquisition date.

The preliminary purchase consideration allocation was as follows (in thousands):

The updated preliminary purchase consideration allocation inclusive of measurement period adjustments was as follows (in thousands):

Acquisition-related intangible assets $ 170,500

16 unchanged sentences

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

July 31, 2021 January 31, 2021

October 31, 2021 January 31, 2021

Developed technology $ 319,300 $ 218,400

5 unchanged sentences

Acquisition-related intangible assets, net $ 371,658 $ 248,626

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):

Amortization expense related to acquisition-related intangible assets was $ 19 million and $ 14 million for the three months ended October 31, 2021, and 2020, respectively, and $ 57 million and $ 46 million for the nine months ended October 31, 2021, and 2020, respectively.

As of October 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):

July 31, 2021 January 31, 2021

October 31, 2021 January 31, 2021

Non-marketable equity and other investments (1)

7 unchanged sentences

Other 906 1,701

Total $ 219,636 $ 189,757

Total other assets $ 269,508 $ 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 $ 27 million and $ 13 million as of July 31, 2021, and January 31, 2021, respectively.

The carrying values of these loan receivables were $ 25 million and $ 13 million as of October 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 July 31, 2021, the future estimated amortization expense was as follows (in thousands):

As of October 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 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.

As of October 31, 2021, we estimate that $ 7 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 October 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 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.

As of October 31, 2021, and January 31, 2021, we had outstanding forward contracts not designated as hedges with total notional values of $ 91 million and $ 175 million, respectively.

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

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

Condensed Consolidated Balance Sheets Location October 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 July 31, Six Months Ended July 31,

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

2021 2020 2021 2020

2 unchanged sentences

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

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

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

2021 2020 2021 2020

2 unchanged sentences

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

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

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

2021 2020 2021 2020

4 unchanged sentences

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

As of July 31, 2021, information related to these offsetting arrangements was as follows (in thousands):

As of October 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):

July 31, 2021 January 31, 2021

October 31, 2021 January 31, 2021

Term Loan, net of unamortized debt discounts of $ 1,379 and $ 1,682 , respectively, and unamortized debt issuance costs of $ 127 and $ 155 , respectively

5 unchanged sentences

Total debt, noncurrent $ 635,994 $ 691,913

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

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

As of October 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 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 October 31, 2021, the Term Loan had a carrying value of $ 702 million, of which $ 66 million is classified as current and $ 636 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.

As of October 31, 2021, and January 31, 2021, the interest rate on the Term Loan was 1.30 % 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 July 31, 2021, and January 31, 2021, there were no outstanding borrowings under the Revolving Credit Facility.

As of October 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 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.

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 July 31, 2021.

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

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

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.

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

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.

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

As of October 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.

14 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 July 31, 2021, there were no Warrants outstanding related to the 2020 Notes.

As of October 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 July 31, Six Months Ended July 31,

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

2021 2020 2021 2020

4 unchanged sentences

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

As of July 31, 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.

As of October 31, 2021, and January 31, 2021, operating lease right-of-use assets were $ 270 million and $ 414 million, respectively, and operating lease liabilities were $ 286 million and $ 443 million, respectively.

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

As of July 31, 2021, and January 31, 2021, finance leases were not material.

As of October 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 July 31, Six Months Ended July 31,

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

2021 2020 2021 2020

4 unchanged sentences

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

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

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

2021 2020 2021 2020

2 unchanged sentences

Other information related to our operating leases was as follows:

July 31, 2021 January 31, 2021

October 31, 2021 January 31, 2021

Weighted average remaining lease term (in years) 5 6

Weighted average discount rate 2.32 % 1.73 %

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

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

Fiscal Period:

3 unchanged sentences

Less imputed interest ( 26,591 )

Total $ 291,268

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 .

Total operating lease liabilities $ 286,421

As of October 31, 2021, we have additional operating leases for office space that have not yet commenced with total undiscounted lease payments of $ 5 million.

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

Related-Party Transactions

3 unchanged sentences

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.

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.

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

Rent expense was $ 2 million and $ 12 million for the nine months ended October 31, 2021, and 2020, respectively.

Commitments and Contingencies

2 unchanged sentences

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.

As of October 31, 2021, future noncancelable minimum payments under these agreements were approximately $ 761 million.

Legal Matters

2 unchanged sentences

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

In our opinion, as of July 31, 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 October 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 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.

As of October 31, 2021, there were 193 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 July 31, 2021, we had 58 million shares of Class A common stock available for future grants.

As of October 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”).

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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.

As of October 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 six months ended July 31, 2021, is as follows (in thousands, except per share data):

A summary of information related to RSU activity during the nine months ended October 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 ( 1,101 ) 181.72

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 .

Balance as of October 31, 2021 12,615 201.44

As of October 31, 2021, there was a total of $ 2.0 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.

During fiscal 2022, 0.3 million shares of performance-based restricted stock units (“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.

We recognized compensation cost related to these PRSUs of $ 24 million and $ 35 million during the three and nine months ended October 31, 2021, respectively.

A total of $ 37 million in unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately five months .

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

These performance conditions were met and the PRSUs vested on March 15, 2021.

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

We recognized $ 17 million in compensation cost related to these PRSUs during the nine months ended October 31, 2021.

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 six months ended July 31, 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 nine months ended October 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 ) 35.55

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 .

Balance as of October 31, 2021 576 18.34 156

Vested and expected to vest as of October 31, 2021 575 18.33 156

Exercisable as of October 31, 2021 545 17.23 149

As of October 31, 2021, there was a total of $ 2 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 $ 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.

Subscription services revenues of $ 1.02 billion and $ 846 million were recognized during the three months ended October 31, 2021, and 2020, respectively, that were included in the unearned revenue balances as of July 31, 2021, and 2020, respectively.

Subscription services revenues of $ 2.18 billion and $ 1.90 billion were recognized during the nine months ended October 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 July 31, 2021, approximately $ 10.58 billion of revenues are expected to be recognized from remaining performance obligations for subscription contracts.

As of October 31, 2021, approximately $ 10.97 billion of revenues are expected to be recognized from remaining performance obligations for subscription contracts.

We expect to recognize revenues on approximately $ 7.12 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 July 31, 2021, were not material.

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

Other Income (Expense), Net

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

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

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

2021 2020 2021 2020

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24,522 3,914 123,487 5,484

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

Total other income (expense), net $ 21,557 $ ( 8,846 ) $ 115,491 $ ( 31,272 )

(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.

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For further information, see Note 3, Investments.

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 $ 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 reported an income tax benefit of $ 3 million and an income tax expense of $ 4 million for the nine months ended October 31, 2021, and 2020, respectively.

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

The income tax benefits were partially offset by state taxes and income tax expenses in profitable foreign jurisdictions.

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

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

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

Net Income (Loss) Per Share

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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.

Basic and diluted net loss per share was the same for the three and nine months ended October 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,

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

2021 2020 2021 2020

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Net income (loss) 33,417 9,995 ( 18,199 ) ( 6,141 ) 78,546 24,080 ( 156,526 ) ( 54,198 )

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 9,995 — — — 24,080 — — —

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Shares related to outstanding options, unvested RSUs, PRSUs, RSAs, and ESPP obligations 4,933 — — — 6,456 — — —

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

Shares subject to warrants related to the issuance of convertible senior notes 1,359 — — — 1,113 — — —

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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,

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

2021 2020 2021 2020

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

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

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

2021 2020 2021 2020

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Other countries 335,516 272,416 944,908 785,372

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 and six months ended July 31, 2021, or 2020.

Total revenues $ 1,327,263 $ 1,105,960 $ 3,762,657 $ 3,186,312

No single customer or country other than the United States represented greater than 10% of our total revenues for the three and nine months ended October 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):

July 31, 2021 January 31, 2021

October 31, 2021 January 31, 2021

United States $ 1,184,335 $ 1,169,820

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Other countries 84,178 72,839

Total $ 1,411,340 $ 1,386,546

Total long-lived assets $ 1,389,883 $ 1,386,546

Subsequent Event

In November 2021, we entered into a definitive agreement to acquire VNDLY, a provider of a cloud-based external workforce and vendor management technology, for consideration of approximately $ 510 million, consisting principally of cash, subject to adjustments.

The acquisition is expected to close during our fourth quarter of fiscal 2022, subject to the satisfaction of customary closing conditions, including required regulatory approvals.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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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