Workday, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Workday, Inc. Condensed Consolidated Balance Sheets (in thousands) (unaudited) July 31, 2022 January 31, 2022 Assets Current assets: Cash and cash equivalents $ 2,486,540 $ 1,534,273 Marketable securities 3,806,427 2,109,888 Trade and other receivables, net 1,105,288 1,242,545 Deferred costs 165,012 152,957 Prepaid expenses and other current assets 241,390 174,402 Total current assets 7,804,657 5,214,065 Property and equipment, net 1,233,151 1,123,075 Operating lease right-of-use assets 286,284 247,808 Deferred costs, noncurrent 353,990 341,259 Acquisition-related intangible assets, net 347,875 391,002 Goodwill 2,840,044 2,840,044 Other assets 383,549 341,252 Total assets $ 13,249,550 $ 10,498,505 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 60,710 $ 55,487 Accrued expenses and other current liabilities 293,646 195,590 Accrued compensation 374,246 402,885 Unearned revenue 2,888,792 3,110,947 Operating lease liabilities 91,481 80,503 Debt, current 1,148,982 1,222,443 Total current liabilities 4,857,857 5,067,855 Debt, noncurrent 2,974,023 617,354 Unearned revenue, noncurrent 53,938 71,533 Operating lease liabilities, noncurrent 213,537 182,456 Other liabilities 22,387 24,225 Total liabilities 8,121,742 5,963,423 Stockholders’ equity: Common stock 255 251 Additional paid-in capital 7,988,096 7,284,174 Treasury stock ( 12,588 ) ( 12,467 ) Accumulated other comprehensive income (loss) 62,961 7,709 Accumulated deficit ( 2,910,916 ) ( 2,744,585 ) Total stockholders’ equity 5,127,808 4,535,082 Total liabilities and stockholders’ equity $ 13,249,550 $ 10,498,505 See Notes to Condensed Consolidated Financial Statements 3 Table of Contents Workday, Inc. Condensed Consolidated Statements of Operations (in thousands, except per share data) (unaudited) Three Months Ended July 31, Six Months Ended July 31, 2022 2021 2022 2021 Revenues: Subscription services $ 1,367,335 $ 1,113,454 $ 2,639,411 $ 2,145,623 Professional services 168,463 146,907 331,044 289,771 Total revenues 1,535,798 1,260,361 2,970,455 2,435,394 Costs and expenses (1) : Costs of subscription services 244,982 192,738 477,904 374,946 Costs of professional services 178,103 152,783 348,002 303,628 Product development 547,835 444,251 1,089,344 885,867 Sales and marketing 458,701 358,157 888,002 684,651 General and administrative 140,255 113,552 274,124 225,735 Total costs and expenses 1,569,876 1,261,481 3,077,376 2,474,827 Operating income (loss) ( 34,078 ) ( 1,120 ) ( 106,921 ) ( 39,433 ) Other income (expense), net ( 32,789 ) 102,985 ( 52,952 ) 93,934 Income (loss) before provision for (benefit from) income taxes ( 66,867 ) 101,865 ( 159,873 ) 54,501 Provision for (benefit from) income taxes ( 2,709 ) ( 3,871 ) 6,458 ( 4,713 ) Net income (loss) $ ( 64,158 ) $ 105,736 $ ( 166,331 ) $ 59,214 Net income (loss) per share, basic $ ( 0.25 ) $ 0.43 $ ( 0.66 ) $ 0.24 Net income (loss) per share, diluted $ ( 0.25 ) $ 0.41 $ ( 0.66 ) $ 0.23 Weighted-average shares used to compute net income (loss) per share, basic 254,355 246,943 253,071 245,308 Weighted-average shares used to compute net income (loss) per share, diluted 254,355 260,016 253,071 252,900 (1) Costs and expenses include share-based compensation expenses as follows: Three Months Ended July 31, Six Months Ended July 31, 2022 2021 2022 2021 Costs of subscription services $ 25,090 $ 20,421 $ 51,320 $ 41,138 Costs of professional services 25,838 26,534 53,422 54,226 Product development 147,181 129,892 300,485 259,754 Sales and marketing 59,878 52,168 119,047 102,476 General and administrative 50,020 35,704 95,239 71,760 Total share-based compensation expenses $ 308,007 $ 264,719 $ 619,513 $ 529,354 See Notes to Condensed Consolidated Financial Statements 4 Table of Contents Workday, Inc. Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) (unaudited) Three Months Ended July 31, Six Months Ended July 31, 2022 2021 2022 2021 Net income (loss) $ ( 64,158 ) $ 105,736 $ ( 166,331 ) $ 59,214 Other comprehensive income (loss): Net change in foreign currency translation adjustment ( 985 ) ( 1,219 ) ( 2,907 ) ( 1,001 ) Net change in unrealized gains (losses) on available-for-sale debt securities ( 1,357 ) ( 208 ) ( 10,281 ) ( 1,106 ) Net change in unrealized gains (losses) on cash flow hedges 22,194 17,698 68,440 12,927 Other comprehensive income (loss) 19,852 16,271 55,252 10,820 Comprehensive income (loss) $ ( 44,306 ) $ 122,007 $ ( 111,079 ) $ 70,034 See Notes to Condensed Consolidated Financial Statements 5 Table of Contents Workday, Inc. Condensed Consolidated Statements of Stockholders’ Equity (in thousands) (unaudited) Three Months Ended July 31, Six Months Ended July 31, 2022 2021 2022 2021 Common stock: Balance, beginning of period $ 253 $ 246 $ 251 $ 242 Issuance of common stock under employee equity plans, net of shares withheld for employee taxes 2 2 4 6 Balance, end of period 255 248 255 248 Additional paid-in capital: Balance, beginning of period 7,596,787 6,298,516 7,284,174 6,254,936 Issuance of common stock under employee equity plans, net of shares withheld for employee taxes 83,300 75,842 84,288 74,481 Share-based compensation 308,007 264,699 619,513 529,304 Exercise of convertible senior notes hedges 3 11 122 50 Settlement of convertible senior notes ( 1 ) ( 1 ) ( 1 ) ( 2 ) Cumulative effect of accounting changes — — — ( 219,702 ) Balance, end of period 7,988,096 6,639,067 7,988,096 6,639,067 Treasury stock: Balance, beginning of period ( 12,584 ) ( 12,420 ) ( 12,467 ) ( 12,384 ) Exercise of convertible senior notes hedges ( 4 ) ( 11 ) ( 121 ) ( 47 ) Balance, end of period ( 12,588 ) ( 12,431 ) ( 12,588 ) ( 12,431 ) Accumulated other comprehensive income (loss): Balance, beginning of period 43,109 ( 60,421 ) 7,709 ( 54,970 ) Other comprehensive income (loss) 19,852 16,271 55,252 10,820 Balance, end of period 62,961 ( 44,150 ) 62,961 ( 44,150 ) Accumulated deficit: Balance, beginning of period ( 2,846,758 ) ( 2,820,480 ) ( 2,744,585 ) ( 2,909,990 ) Net income (loss) ( 64,158 ) 105,736 ( 166,331 ) 59,214 Cumulative effect of accounting changes — — — 136,032 Balance, end of period ( 2,910,916 ) ( 2,714,744 ) ( 2,910,916 ) ( 2,714,744 ) Total stockholders’ equity $ 5,127,808 $ 3,867,990 $ 5,127,808 $ 3,867,990 Three Months Ended July 31, Six Months Ended July 31, 2022 2021 2022 2021 Common stock (in shares): Balance, beginning of period 253,679 246,311 251,209 242,667 Issuance of common stock under employee equity plans, net of shares withheld for employee taxes 1,806 1,776 4,276 5,338 Settlement of convertible senior notes — — 1 — Purchase of treasury stock from the exercise of convertible senior notes hedges — — ( 1 ) — Other — — — 82 Balance, end of period 255,485 248,087 255,485 248,087 See Notes to Condensed Consolidated Financial Statements 6 Table of Contents Workday, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) Three Months Ended July 31, Six Months Ended July 31, 2022 2021 2022 2021 Cash flows from operating activities: Net income (loss) $ ( 64,158 ) $ 105,736 $ ( 166,331 ) $ 59,214 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 92,695 85,383 182,541 167,846 Share-based compensation expenses 308,007 264,719 619,513 529,354 Amortization of deferred costs 42,258 33,748 81,685 65,362 Non-cash lease expense 22,911 21,069 44,959 43,299 (Gains) losses on investments 16,499 ( 106,275 ) 24,579 ( 100,257 ) Other 11,413 ( 7,009 ) 12,122 ( 8,633 ) Changes in operating assets and liabilities, net of business combinations: Trade and other receivables, net ( 324,841 ) ( 227,511 ) 138,123 164,608 Deferred costs ( 64,742 ) ( 52,834 ) ( 106,471 ) ( 79,104 ) Prepaid expenses and other assets ( 9,885 ) ( 3,531 ) ( 33,882 ) ( 39,097 ) Accounts payable ( 4,142 ) 8,060 2,768 7,890 Accrued expenses and other liabilities 25,065 ( 15,687 ) ( 5,808 ) ( 26,607 ) Unearned revenue 63,278 92,605 ( 239,723 ) ( 132,974 ) Net cash provided by (used in) operating activities 114,358 198,473 554,075 650,901 Cash flows from investing activities: Purchases of marketable securities ( 1,329,471 ) ( 829,370 ) ( 3,340,090 ) ( 1,594,765 ) Maturities of marketable securities 984,887 771,824 1,586,362 1,629,232 Sales of marketable securities 28,237 14,829 33,367 27,286 Owned real estate projects ( 245 ) ( 71 ) ( 265 ) ( 171,494 ) Capital expenditures, excluding owned real estate projects ( 168,598 ) ( 87,781 ) ( 227,348 ) ( 157,577 ) Business combinations, net of cash acquired — — — ( 679,220 ) Purchases of non-marketable equity and other investments ( 1,900 ) ( 12,039 ) ( 16,923 ) ( 57,806 ) Sales and maturities of non-marketable equity and other investments 95 3,270 7,161 3,295 Other — 6 — 1 Net cash provided by (used in) investing activities ( 486,995 ) ( 139,332 ) ( 1,957,736 ) ( 1,001,048 ) Cash flows from financing activities: Proceeds from issuance of debt, net of debt discount — — 2,978,077 — Repayments and extinguishment of debt ( 30 ) ( 9,395 ) ( 693,983 ) ( 18,821 ) Payments for debt issuance costs — — ( 7,220 ) — Proceeds from issuance of common stock from employee equity plans, net of taxes paid for shares withheld 83,302 75,844 84,292 74,487 Other ( 185 ) ( 151 ) ( 377 ) ( 376 ) Net cash provided by (used in) financing activities 83,087 66,298 2,360,789 55,290 Effect of exchange rate changes ( 145 ) ( 321 ) ( 830 ) ( 135 ) Net increase (decrease) in cash, cash equivalents, and restricted cash ( 289,695 ) 125,118 956,298 ( 294,992 ) Cash, cash equivalents, and restricted cash at the beginning of period 2,786,738 967,811 1,540,745 1,387,921 Cash, cash equivalents, and restricted cash at the end of period $ 2,497,043 $ 1,092,929 $ 2,497,043 $ 1,092,929 See Notes to Condensed Consolidated Financial Statements 7 Table of Contents Three Months Ended July 31, Six Months Ended July 31, 2022 2021 2022 2021 Supplemental cash flow data: Cash paid for interest $ — $ 2,429 $ 2,941 $ 7,067 Cash paid for income taxes, net of refunds 3,274 1,941 7,770 6,434 Non-cash investing and financing activities: Purchases of property and equipment, accrued but not paid 67,447 36,823 67,447 36,823 As of July 31, 2022 2021 Reconciliation of cash, cash equivalents, and restricted cash as shown in the Condensed Consolidated Statements of Cash Flows: Cash and cash equivalents $ 2,486,540 $ 1,087,070 Restricted cash included in Prepaid expenses and other current assets 10,503 5,859 Total cash, cash equivalents, and restricted cash $ 2,497,043 $ 1,092,929 See Notes to Condensed Consolidated Financial Statements 8 Table of Contents Workday, Inc. Notes to Condensed Consolidated Financial Statements Note 1. Overview and Basis of Presentation Company and Background Workday delivers applications for financial management, spend management, human capital management, planning, and analytics. With Workday, our customers have a unified system that can help them plan, execute, analyze, and extend to other applications and environments, thereby helping them continuously adapt how they manage their business and operations. We were originally incorporated in March 2005 in Nevada, and in June 2012, we reincorporated in Delaware. As used in this report, the terms “Workday,” “registrant,” “we,” “us,” and “our” mean Workday, Inc. and its subsidiaries unless the context indicates otherwise. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The condensed consolidated financial statements include the results of Workday, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of our management, the information contained herein reflects all adjustments necessary for a fair presentation of Workday’s financial position, results of operations, stockholders’ equity, and cash flows. All such adjustments are of a normal, recurring nature. The results of operations for the three and six months ended July 31, 2022, shown in this report are not necessarily indicative of the results to be expected for the full fiscal year ending January 31, 2023. 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, 2022, filed with the SEC on February 28, 2022. Certain prior period amounts reported in our consolidated financial statements and notes thereto have been reclassified to conform to current period presentation. Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires us to make certain estimates, judgements, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. For revenue recognition, examples of significant estimates, judgements, and assumptions include the identification of distinct performance obligations and the assessment of the standalone selling price for each performance obligation identified. Other significant estimates, judgements, and assumptions include, but are not limited to, the determination of the period of benefit for deferred commissions, the fair value and useful lives of assets acquired and liabilities assumed through business combinations, and the valuation of non-marketable equity investments. Actual results could differ from those estimates, judgements, and assumptions, and such differences could be material to our condensed consolidated financial statements. Segment Information We operate in one operating segment, cloud applications. Operating segments are defined as components of an enterprise where separate financial information is evaluated regularly by a chief operating decision maker (“CODM”) in deciding how to allocate resources and assessing performance. For the six months ended July 31, 2022, our CODM was our Co-Chief Executive Officer and Chairman, Aneel Bhusri, and our Co-Chief Executive Officer, Chano Fernandez. Our CODM allocates resources and assesses performance based upon discrete financial information at the consolidated level. Note 2. Significant Accounting Policies and Accounting Standards Significant Accounting Policies There have been no material changes in our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended January 31, 2022. 9 Table of Contents Concentrations of Risk and Significant Customers Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, debt securities, and trade and other receivables. Our deposits exceed federally insured limits. No customer individually accounted for more than 10% of trade and other receivables, net as of July 31, 2022, or January 31, 2022. No customer individually accounted for more than 10% of total revenues during the three and six months ended July 31, 2022, or 2021. Other than the United States, no country individually accounted for more than 10% of total revenues during the three and six months ended July 31, 2022, or 2021. In order to reduce the risk of down-time of our cloud applications, we have established data centers in various geographic regions. We serve our customers and users from data center facilities operated by third parties, located in the United States, Canada, and Europe. We have internal procedures to restore services in the event of disaster at one of our data center facilities. Even with these procedures for disaster recovery in place, our cloud applications could be significantly interrupted during the implementation of the procedures to restore services. In addition, we rely upon third-party hosted infrastructure partners globally, including Amazon Web Services (“AWS”), Google LLC, and Microsoft Corporation, to serve customers and operate certain aspects of our services. Given this, any disruption of or interference at our hosted infrastructure partners would impact our operations and our business could be adversely impacted. We are also exposed to concentration of risk in our equity investments portfolio, which consists of marketable equity investments and non-marketable equity investments measured using the measurement alternative. As of both July 31, 2022, and January 31, 2022, we held one marketable equity investment with a carrying value that was individually greater than 10% of our total equity investments portfolio. Recently Adopted Accounting Pronouncements ASU No. 2021-08 In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured in accordance with Topic 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts. Prior to the adoption of the new standard, such assets and liabilities were recognized by the acquirer at fair value on the acquisition date. We early adopted ASU No. 2021-08 on a prospective basis effective February 1, 2022. The adoption had no impact on our condensed consolidated financial statements during the three and six months ended July 31, 2022, and any financial impact will be dependent on the magnitude and nature of future business combinations. Note 3. Investments Debt Securities As of July 31, 2022, debt securities consisted of the following (in thousands): Amortized Cost Unrealized Gains Unrealized Losses Aggregate Fair Value U.S. treasury securities $ 2,146,425 $ 90 $ ( 5,898 ) $ 2,140,617 U.S. agency obligations 714,235 208 ( 3,227 ) 711,216 Corporate bonds 510,518 188 ( 6,314 ) 504,392 Commercial paper 1,922,382 — ( 26 ) 1,922,356 Total debt securities $ 5,293,560 $ 486 $ ( 15,465 ) $ 5,278,581 Included in Cash and cash equivalents $ 1,555,011 $ — $ ( 185 ) $ 1,554,826 Included in Marketable securities $ 3,738,549 $ 486 $ ( 15,280 ) $ 3,723,755 10 Table of Contents As of January 31, 2022, debt securities consisted of the following (in thousands): Amortized Cost Unrealized Gains Unrealized Losses Aggregate Fair Value U.S. treasury securities $ 843,627 $ 5 $ ( 1,720 ) $ 841,912 U.S. agency obligations 232,093 — ( 1,168 ) 230,925 Corporate bonds 490,867 — ( 1,815 ) 489,052 Commercial paper 969,204 — — 969,204 Total debt securities $ 2,535,791 $ 5 $ ( 4,703 ) $ 2,531,093 Included in Cash and cash equivalents $ 525,524 $ — $ ( 1 ) $ 525,523 Included in Marketable securities $ 2,010,267 $ 5 $ ( 4,702 ) $ 2,005,570 We classify our debt securities as available-for-sale at the time of purchase and reevaluate such classification as of each balance sheet date. We consider all debt securities as funds available for use in current operations, including those with maturity dates beyond one year, and therefore classify these securities as current assets on the Condensed Consolidated Balance Sheets. Debt securities included in Marketable securities on the Condensed Consolidated Balance Sheets consist of securities with original maturities at the time of purchase greater than three months, and the remaining securities are included in Cash and cash equivalents. No debt securities held as of July 31, 2022, and January 31, 2022, were in a continuous unrealized loss position for greater than 12 months, and we did not recognize any credit losses related to our debt securities during the periods presented. We sold $ 28 million of debt securities during the three and six months ended July 31, 2022. We did not have any material sales of debt securities during the three months ended July 31, 2021. We sold $ 10 million of debt securities during the six months ended July 31, 2021. The realized gains and losses from the sales were immaterial. Equity Investments Equity investments consisted of the following (in thousands): Condensed Consolidated Balance Sheets Location July 31, 2022 January 31, 2022 Money market funds Cash and cash equivalents $ 630,698 $ 607,640 Non-marketable equity investments measured using the measurement alternative Other assets 262,597 256,643 Marketable equity investments Marketable securities 82,672 104,318 Total equity investments $ 975,967 $ 968,601 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, 2022 2021 2022 2021 Net realized gains (losses) recognized on equity investments sold (1) $ 95 $ 2,767 $ 1,154 $ ( 6,379 ) Net unrealized gains (losses) recognized on equity investments held as of the end of the period ( 16,511 ) 103,478 ( 24,999 ) 106,575 Total net gains (losses) recognized in Other income (expense), net $ ( 16,416 ) $ 106,245 $ ( 23,845 ) $ 100,196 (1) Reflects the difference between the sale proceeds and the carrying value of the equity investments at the beginning of the period. 11 Table of Contents Non-Marketable Equity Investments Measured Using the Measurement Alternative Non-marketable equity investments measured using the measurement alternative include investments in privately held companies without readily determinable fair values in which we do not own a controlling interest or exercise significant influence. These investments are recorded at cost and are adjusted for observable transactions for same or similar securities of the same issuer or impairment events. The carrying values for our non-marketable equity investments are summarized below (in thousands): July 31, 2022 January 31, 2022 Total initial cost $ 206,617 $ 192,694 Cumulative net unrealized gains (losses) 55,980 63,949 Carrying value $ 262,597 $ 256,643 During the three months ended July 31, 2022, and 2021, we recorded upward adjustments to the carrying value of non-marketable equity investments of $ 3 million and $ 6 million, respectively, and no material impairment losses. During the six months ended July 31, 2022, and 2021, we recorded upward adjustments to the carrying value of these investments of $ 6 million and $ 14 million, respectively, and impairment losses of $ 14 million and $ 2 million, respectively. Marketable Equity Investments We hold marketable equity investments with readily determinable fair values over which we do not own a controlling interest or exercise significant influence. The carrying values for our marketable equity investments are summarized below (in thousands): July 31, 2022 January 31, 2022 Total initial cost $ 38,936 $ 40,739 Cumulative net unrealized gains (losses) 43,736 63,579 Carrying value $ 82,672 $ 104,318 During the three months ended July 31, 2022, we did no t sell any marketable equity investments. During the three months ended July 31, 2021, we sold marketable equity investments for proceeds of $ 15 million, with corresponding net realized gains of $ 3 million. During the six months ended July 31, 2022, and 2021, we sold marketable equity investments for proceeds of $ 5 million and $ 17 million, respectively, with corresponding net realized gains of $ 1 million and losses of $ 6 million, respectively. During the three months ended July 31, 2022, and 2021, we recorded unrealized net losses of $ 20 million and gains of $ 97 million, respectively, on marketable equity investments held as of the end of each period. During the six months ended July 31, 2022, and 2021, we recorded unrealized net losses of $ 17 million and gains of $ 97 million, respectively, on marketable equity investments held as of the end of each period . Note 4. Fair Value Measurements We measure our cash equivalents, marketable securities, and foreign currency derivative contracts at fair value at each reporting period using a fair value hierarchy that requires that we maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In addition, we measure our non-marketable equity investments for which there has been an observable price change from an orderly transaction for identical or similar investments of the same issuer at fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value: Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 — Other inputs that are directly or indirectly observable in the marketplace. Level 3 — Unobservable inputs that are supported by little or no market activity. 12 Table of Contents Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table presents information about our assets and liabilities that are measured at fair value on a recurring basis and their assigned levels within the valuation hierarchy as of July 31, 2022 (in thousands): Level 1 Level 2 Level 3 Total U.S. treasury securities $ 2,140,617 $ — $ — $ 2,140,617 U.S. agency obligations — 711,216 — 711,216 Corporate bonds — 504,392 — 504,392 Commercial paper — 1,922,356 — 1,922,356 Money market funds 630,698 — — 630,698 Marketable equity investments 82,672 — — 82,672 Foreign currency derivative assets — 110,635 — 110,635 Total assets $ 2,853,987 $ 3,248,599 $ — $ 6,102,586 Foreign currency derivative liabilities $ — $ 32,655 $ — $ 32,655 Total liabilities $ — $ 32,655 $ — $ 32,655 The following table presents information about our assets and liabilities that are measured at fair value on a recurring basis and their assigned levels within the valuation hierarchy as of January 31, 2022 (in thousands): Level 1 Level 2 Level 3 Total U.S. treasury securities $ 841,912 $ — $ — $ 841,912 U.S. agency obligations — 230,925 — 230,925 Corporate bonds — 489,052 — 489,052 Commercial paper — 969,204 — 969,204 Money market funds 607,640 — — 607,640 Marketable equity investments 104,318 — — 104,318 Foreign currency derivative assets — 39,031 — 39,031 Total assets $ 1,553,870 $ 1,728,212 $ — $ 3,282,082 Foreign currency derivative liabilities $ — $ 13,039 $ — $ 13,039 Total liabilities $ — $ 13,039 $ — $ 13,039 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 We carry our debt at face value less unamortized debt discount and issuance costs on our Condensed Consolidated Balance Sheets and present the fair value for disclosure purposes only. All of our debt obligations are categorized as Level 2 financial instruments. For further information on the fair values of our debt and the inputs used in the calculations, see Note 10, Debt . Note 5. Deferred Costs Deferred costs, which consist of deferred sales commissions, were $ 519 million and $ 494 million as of July 31, 2022, and January 31, 2022, respectively. Amortization expense for the deferred costs was $ 43 million and $ 33 million for the three months ended July 31, 2022, and 2021, respectively, and $ 82 million and $ 65 million for the six months ended July 31, 2022, and 2021, respectively. There was no impairment loss in relation to the costs capitalized for the periods presented. 13 Table of Contents Note 6. Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): July 31, 2022 January 31, 2022 Computers, equipment, and software $ 1,257,440 $ 1,071,141 Buildings 717,039 691,896 Leasehold improvements 172,327 158,037 Land and land improvements 80,553 80,553 Furniture, fixtures, and transportation equipment 84,832 79,723 Property and equipment, gross 2,312,191 2,081,350 Less accumulated depreciation and amortization ( 1,079,040 ) ( 958,275 ) Property and equipment, net $ 1,233,151 $ 1,123,075 Depreciation expense totaled $ 71 million and $ 65 million for the three months ended July 31, 2022, and 2021, respectively, and $ 138 million and $ 128 million for the six months ended July 31, 2022, and 2021, respectively. Note 7. Acquisition-Related Intangible Assets, Net Acquisition-related intangible assets, net consisted of the following (in thousands): July 31, 2022 January 31, 2022 Developed technology $ 346,300 $ 346,300 Customer relationships 311,100 311,100 Trade name 12,500 12,500 Backlog 15,000 15,000 Acquisition-related intangible assets, gross 684,900 684,900 Less accumulated amortization ( 337,025 ) ( 293,898 ) Acquisition-related intangible assets, net $ 347,875 $ 391,002 Amortization expense related to acquisition-related intangible assets was $ 21 million and $ 20 million for the three months ended July 31, 2022, and 2021, respectively, and $ 43 million and $ 38 million for the six months ended July 31, 2022, and 2021, respectively. As of July 31, 2022, our future estimated amortization expense related to acquisition-related intangible assets was as follows (in thousands): Fiscal Period: Remainder of 2023 $ 42,409 2024 74,319 2025 61,663 2026 55,748 2027 31,177 Thereafter 82,559 Total $ 347,875 14 Table of Contents Note 8. Other Assets Other noncurrent assets consisted of the following (in thousands): July 31, 2022 January 31, 2022 Non-marketable equity and other investments $ 265,565 $ 256,759 Derivative assets 50,866 16,618 Technology patents and other intangible assets, net 21,062 22,792 Prepayments for goods and services 20,377 25,927 Net deferred tax assets 10,109 11,642 Deposits 6,810 6,701 Other 8,760 813 Total other assets $ 383,549 $ 341,252 Technology patents and other intangible assets with estimable useful lives are amortized on a straight-line basis. As of July 31, 2022, the future estimated amortization expense was as follows (in thousands): Fiscal Period: Remainder of 2023 $ 1,679 2024 3,102 2025 2,622 2026 2,357 2027 2,077 Thereafter 9,225 Total $ 21,062 Note 9. Derivative Instruments We conduct business on a global basis in multiple foreign currencies, subjecting Workday to foreign currency exchange risk. To mitigate this risk, we utilize derivative hedging contracts as described below. We do not enter into any derivatives for trading or speculative purposes. Our foreign currency contracts are classified within Level 2 of the fair value hierarchy because the valuation inputs are based on quoted prices and market observable data of similar instruments in active markets, such as currency spot and forward rates. Cash Flow Hedges We enter into foreign currency forward contracts to hedge a portion of our forecasted revenue and expense transactions (“cash flow hedges”). We designate these forward contracts as cash flow hedging instruments since the accounting criteria for such designation have been met. Cash flow hedges are recorded on the Condensed Consolidated Balance Sheets at fair value. Cash flows from such forward contracts are classified as operating activities. Gains or losses resulting from changes in the fair value of these hedges are recorded in Accumulated other comprehensive income (loss) (“AOCI”) on the Condensed Consolidated Balance Sheets and are subsequently reclassified to the same line item as the hedged transaction on the Condensed Consolidated Statements of Operations in the same period that the hedged transaction affects earnings. As of July 31, 2022, we estimate that $ 17 million of net gains recorded in AOCI related to our cash flow hedges will be reclassified into income within the next 12 months. As of July 31, 2022, and January 31, 2022, the notional values of the forward contracts designated as cash flow hedges that we held to buy U.S. dollars in exchange for other currencies were $ 1.6 billion and $ 1.4 billion, respectively. The notional values of the forward contracts designated as cash flow hedges that we held to sell U.S. dollars in exchange for other currencies were $ 329 million and $ 355 million as of July 31, 2022, and January 31, 2022, respectively. All contracts had maturities of less than 48 months. 15 Table of Contents Non-Designated Hedges We also enter into foreign currency forward contracts to hedge a portion of our net outstanding monetary assets and liabilities (“non-designated hedges”). These forward contracts are intended to offset foreign currency gains or losses associated with the underlying monetary assets and liabilities and are recorded on the Condensed Consolidated Balance Sheets at fair value. These forward contracts are not designated as hedging instruments under applicable accounting guidance, and therefore all changes in the fair value of these forward contracts are recorded in Other income (expense), net on the Condensed Consolidated Statements of Operations. Cash flows from such forward contracts are classified as operating activities. As of July 31, 2022, and January 31, 2022, the notional values of the forward contracts not designated as hedges that we held to buy U.S. dollars in exchange for other currencies were $ 136 million and $ 217 million, respectively, and the notional values of the forward contracts not designated as hedges that we held to sell U.S. dollars in exchange for other currencies were $ 3 million and $ 8 million, respectively. The fair values of outstanding derivative instruments were as follows (in thousands): Condensed Consolidated Balance Sheets Location July 31, 2022 January 31, 2022 Derivative assets: Cash flow hedges Prepaid expenses and other current assets $ 59,766 $ 21,337 Cash flow hedges Other assets 50,866 16,618 Non-designated hedges Prepaid expenses and other current assets 3 1,076 Total derivative assets $ 110,635 $ 39,031 Derivative liabilities: Cash flow hedges Accrued expenses and other current liabilities $ 27,426 $ 7,512 Cash flow hedges Other liabilities 3,296 5,175 Non-designated hedges Accrued expenses and other current liabilities 1,917 336 Non-designated hedges Other liabilities 16 16 Total derivative liabilities $ 32,655 $ 13,039 The effect of cash flow hedges on the Condensed Consolidated Statements of Operations was as follows (in thousands): Three Months Ended July 31, 2022 2021 Revenues Costs and Expenses Revenues Costs and Expenses Total $ 1,535,798 $ 1,569,876 $ 1,260,361 $ 1,261,481 Gains (losses) related to cash flow hedges 1,495 ( 5,955 ) ( 1,667 ) — Six Months Ended July 31, 2022 2021 Revenues Costs and Expenses Revenues Costs and Expenses Total $ 2,970,455 $ 3,077,376 $ 2,435,394 $ 2,474,827 Gains (losses) related to cash flow hedges 338 ( 6,784 ) ( 1,149 ) — 16 Table of Contents Gains (losses) associated with cash flow hedges were as follows (in thousands): Consolidated Statements of Operations and Statements of Comprehensive Income (Loss) Locations Three Months Ended July 31, Six Months Ended July 31, 2022 2021 2022 2021 Gains (losses) recognized in OCI Net change in unrealized gains (losses) on cash flow hedges $ 17,734 $ 16,031 $ 61,994 $ 11,778 Gains (losses) reclassified from AOCI into income (effective portion) Revenues 1,495 ( 1,667 ) 338 ( 1,149 ) Gains (losses) reclassified from AOCI into income (effective portion) Costs and expenses ( 5,955 ) — ( 6,784 ) — Gains (losses) associated with non-designated hedges were as follows (in thousands): Condensed Consolidated Statements of Operations Location Three Months Ended July 31, Six Months Ended July 31, 2022 2021 2022 2021 Gains (losses) related to non-designated hedges Other income (expense), net $ 2,135 $ 2,011 $ 6,101 $ 1,819 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. Our foreign currency forward contracts are not subject to any credit contingent features or collateral requirements. We manage our exposure to counterparty risk by entering into contracts with a diversified group of major financial institutions and by actively monitoring outstanding positions. As of July 31, 2022, information related to these offsetting arrangements was as follows (in thousands): Gross Amounts of Recognized Assets Gross Amounts Offset on the Condensed Consolidated Balance Sheets Net Amounts of Assets Presented on the Condensed Consolidated Balance Sheets Gross Amounts Not Offset on the Condensed Consolidated Balance Sheets Net Assets Exposed Financial Instruments Cash Collateral Received Derivative assets: Counterparty A $ 21,194 $ — $ 21,194 $ ( 2,417 ) $ — $ 18,777 Counterparty B 21,770 — 21,770 ( 19,197 ) — 2,573 Counterparty C 16,303 — 16,303 ( 6,819 ) — 9,484 Counterparty D 45,863 — 45,863 ( 4,180 ) — 41,683 Counterparty E 5,505 — 5,505 ( 42 ) — 5,463 Total $ 110,635 $ — $ 110,635 $ ( 32,655 ) $ — $ 77,980 Gross Amounts of Recognized Liabilities Gross Amounts Offset on the Condensed Consolidated Balance Sheets Net Amounts of Liabilities Presented on the Condensed Consolidated Balance Sheets Gross Amounts Not Offset on the Condensed Consolidated Balance Sheets Net Liabilities Exposed Financial Instruments Cash Collateral Pledged Derivative liabilities: Counterparty A $ 2,417 $ — $ 2,417 $ ( 2,417 ) $ — $ — Counterparty B 19,197 — 19,197 ( 19,197 ) — — Counterparty C 6,819 — 6,819 ( 6,819 ) — — Counterparty D 4,180 — 4,180 ( 4,180 ) — — Counterparty E 42 — 42 ( 42 ) — — Total $ 32,655 $ — $ 32,655 $ ( 32,655 ) $ — $ — 17 Table of Contents Note 10. Debt Outstanding debt consisted of the following (in thousands): July 31, 2022 January 31, 2022 2022 Notes $ 1,149,583 $ 1,149,817 2027 Notes 1,000,000 — 2029 Notes 750,000 — 2032 Notes 1,250,000 — Term loan under the 2020 Credit Agreement — 693,750 Total principal amount 4,149,583 1,843,567 Less: unamortized debt discount and issuance costs ( 26,578 ) ( 3,770 ) Net carrying amount 4,123,005 1,839,797 Less: debt, current ( 1,148,982 ) ( 1,222,443 ) Debt, noncurrent $ 2,974,023 $ 617,354 As of July 31, 2022, the future principal payments for the outstanding debt were as follows (in thousands): Fiscal Period: Remainder of 2023 $ 1,149,583 2024 — 2025 — 2026 — 2027 — Thereafter 3,000,000 Total principal amount $ 4,149,583 Senior Notes In April 2022, we issued $ 3.0 billion aggregate principal amount of senior notes, consisting of $ 1.0 billion aggregate principal amount of 3.500 % notes due April 1, 2027 (“2027 Notes”), $ 750 million aggregate principal amount of 3.700 % notes due April 1, 2029 (“2029 Notes”), and $ 1.25 billion aggregate principal amount of 3.800 % notes due April 1, 2032 (“2032 Notes,” and together with the 2027 Notes and the 2029 Notes, “Senior Notes”). Interest is payable semi-annually in arrears on April 1 and October 1 of each year, commencing on October 1, 2022. The Senior Notes are unsecured obligations and rank equally with all existing and future unsecured and unsubordinated indebtedness of Workday. We may redeem the Senior Notes in whole or in part at any time or from time to time, at specified redemption dates and prices. In addition, upon the occurrence of certain change of control triggering events, we may be required to repurchase the Senior Notes under specified terms. The indenture governing the Senior Notes also includes covenants (including certain limited covenants restricting our ability to incur certain liens and enter into certain sale and leaseback transactions), events of default, and other customary provisions. As of July 31, 2022, we were in compliance with all covenants associated with the Senior Notes. We incurred debt discount and issuance costs of approximately $ 27 million in connection with the Senior Notes offering, which were allocated on a pro rata basis to the 2027 Notes, 2029 Notes, and 2032 Notes. The debt discounts and issuance costs are amortized on a straight-line basis, which approximates the effective interest rate method, to interest expense over the contractual term of each arrangement. The effective interest rates on the 2027 Notes, 2029 Notes, and 2032 Notes, which are calculated as the contractual interest rates adjusted for the debt discount and issuance costs, are 3.67 %, 3.82 %, and 3.90 %, respectively. As of July 31, 2022, the total estimated fair value of the Senior Notes was $ 2.9 billion. The estimated fair values of the Senior Notes, which we have classified as Level 2 financial instruments, were determined based on quoted bid prices in an over-the-counter market on the last trading day of the reporting period. 18 Table of Contents Credit Agreement In April 2022, we entered into a credit agreement (“2022 Credit Agreement”) which provides for a revolving credit facility in an aggregate principal amount of $ 1.0 billion. The 2022 Credit Agreement replaced our prior credit agreement entered into in April 2020 (“2020 Credit Agreement”) which provided for a term loan facility in an aggregate original principal amount of $ 750 million and a revolving credit facility in an aggregate principal amount of $ 750 million. Concurrently with entering into the 2022 Credit Agreement, we paid off the remaining principal balance of $ 694 million on the term loan under the 2020 Credit Agreement and terminated the revolving credit facility under the 2020 Credit Agreement which had no outstanding balance. The modification to our revolving credit facility and extinguishment of the term loan under the 2020 Credit Agreement did not have a material impact to our Condensed Consolidated Statements of Operations for the six months ended July 31, 2022. As of July 31, 2022, we had no outstanding revolving loans under the 2022 Credit Agreement. The revolving loans under the 2022 Credit Agreement may be borrowed, repaid, and reborrowed until April 6, 2027, at which time all amounts borrowed must be repaid. The revolving loans under the 2022 Credit Agreement will bear interest, at our option, at a base rate plus a margin of 0.000 % to 0.500 % or a secured overnight financing rate (“SOFR”) rate plus 10 basis points, plus a margin of 0.750 % to 1.500 %, with such margin being determined based on our consolidated leverage ratio or debt rating. We are also obligated to pay an ongoing commitment fee on undrawn amounts. The 2022 Credit Agreement contains customary representations, warranties, and affirmative and negative covenants, including a financial covenant, events of default, and indemnification provisions in favor of the lenders. The negative covenants include restrictions on the incurrence of liens and indebtedness, certain merger transactions, and other matters, all subject to certain exceptions. The financial covenant, based on a quarterly financial test, requires that we do not exceed a maximum leverage ratio of 3.50 :1.00, subject to a step-up to 4.50 :1.00 at our election for a certain period following an acquisition. As of July 31, 2022, we were in compliance with all covenants. Convertible Senior Notes In September 2017, we issued 0.25 % convertible senior notes due October 1, 2022, with a principal amount of $ 1.15 billion (“2022 Notes”). The 2022 Notes are unsecured, unsubordinated obligations, and interest is payable in cash in arrears at a fixed rate of 0.25 % on April 1 and October 1 of each year. The 2022 Notes mature on October 1, 2022, unless repurchased or converted in accordance with their terms prior to such date. We cannot redeem the 2022 Notes prior to maturity. The terms of the 2022 Notes are governed by an Indenture by and between us and Computershare Trust Company, as Trustee and successor to Wells Fargo Bank, National Association. Upon conversion, holders of the 2022 Notes will receive cash, shares of Class A common stock, or a combination of cash and shares of Class A common stock, at our election. The initial conversion rate for the 2022 Notes is 6.7982 shares of Class A common stock per $ 1,000 principal amount, which is equal to an initial conversion price of approximately $ 147.10 per share of Class A common stock, subject to adjustment. Prior to the close of business on May 31, 2022, conversion of the 2022 Notes was subject to the satisfaction of certain conditions, as described below. Holders of the 2022 Notes who convert their 2022 Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the Indenture) are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the Indenture), holders of the 2022 Notes may require us to repurchase all or a portion of their 2022 Notes at a price equal to 100 % of the principal amount of the 2022 Notes, plus any accrued and unpaid interest. Holders of the 2022 Notes could convert all or a portion of their 2022 Notes prior to the close of business on May 31, 2022, in multiples of $1,000 principal amount, only under the following circumstances: • if the last reported sale price of our Class A common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter was greater than or equal to 130 % of the conversion price of the 2022 Notes on each applicable trading day; • during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2022 Notes for each day of that five day consecutive trading day period was less than 98 % of the product of the last reported sale price of Class A common stock and the conversion rate of the 2022 Notes on such trading day; or • upon the occurrence of specified corporate events, as noted in the Indenture. 19 Table of Contents The 2022 Notes were convertible at the option of the holders during the second quarter of fiscal 2023, prior to the close of business on May 31, 2022, since the trigger for early conversion was met. Beginning on 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. 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 as of July 31, 2022, and January 31, 2022. The effective interest rate on the 2022 Notes is 0.56 %. As of July 31, 2022, and January 31, 2022, the estimated fair value of the 2022 Notes was $ 1.3 billion and $ 1.9 billion, 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 applicable reporting period. Notes Hedges In connection with the issuance of the 2022 Notes, we entered into convertible note hedge transactions (“Purchased Options”) which 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. The Purchased Options are exercisable upon conversion of the 2022 Notes and will expire on October 1, 2022, if not exercised earlier. They are intended to offset potential economic dilution to our Class A common stock upon any conversion of the 2022 Notes. The Purchased Options are separate transactions and are not part of the terms of the 2022 Notes. The amounts paid for the Purchased Options were recorded in Additional paid-in capital on the Condensed Consolidated Balance Sheets. Warrants In connection with the issuance of the 2022 Notes, we also entered into warrant transactions to sell warrants (“Warrants”) to acquire, subject to anti-dilution adjustments, up to approximately 7.8 million shares over 60 scheduled trading days beginning in January 2023 of our Class A common stock at an exercise price of $ 213.96 per share. If the Warrants are not exercised on their exercise dates, they will expire. The Warrants will be net share settled, and the resulting number of shares of our common stock we will issue depends on the daily volume-weighted average stock prices over the 60 scheduled trading day period beginning on the first expiration date of the Warrants. If the market value per share of our Class A common stock exceeds the applicable exercise price of the Warrants, the Warrants will have a dilutive effect on our earnings per share, assuming that we are profitable. The Warrants are separate transactions and are not part of the terms of the 2022 Notes or the Purchased Options. The proceeds from the sale of the Warrants were recorded in Additional paid-in capital on the Condensed Consolidated Balance Sheets. 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, 2022 2021 2022 2021 Contractual interest expense $ 28,281 $ 3,174 $ 39,666 $ 6,322 Interest cost related to amortization and write-off of debt discount and issuance costs 1,842 997 4,443 1,994 Total interest expense $ 30,123 $ 4,171 $ 44,109 $ 8,316 Note 11. Leases We have entered into operating lease agreements for our office space, data centers, and other property and equipment. Operating lease right-of-use assets were $ 286 million and $ 248 million as of July 31, 2022, and January 31, 2022, respectively, and operating lease liabilities were $ 305 million and $ 263 million as of July 31, 2022, and January 31, 2022, respectively. We have also entered into finance lease agreements for other property and equipment. As of July 31, 2022, and January 31, 2022, finance leases were not material. 20 Table of Contents The components of operating lease expense were as follows (in thousands): Three Months Ended July 31, Six Months Ended July 31, 2022 2021 2022 2021 Operating lease cost $ 24,773 $ 22,743 $ 48,417 $ 47,016 Short-term lease cost 922 2,037 2,147 4,215 Variable lease cost 10,410 4,642 20,183 9,763 Total operating lease cost $ 36,105 $ 29,422 $ 70,747 $ 60,994 Supplemental cash flow information related to our operating leases was as follows (in thousands): Three Months Ended July 31, Six Months Ended July 31, 2022 2021 2022 2021 Cash paid for operating lease liabilities $ 19,538 $ 19,951 $ 45,196 $ 46,573 Operating lease right-of-use assets obtained in exchange for new operating lease liabilities 57,899 17,188 86,480 38,689 Other information related to our operating leases was as follows: July 31, 2022 January 31, 2022 Weighted average remaining lease term (in years) 5 5 Weighted average discount rate 2.65 % 2.35 % As of July 31, 2022, maturities of operating lease liabilities were as follows (in thousands): Fiscal Period: Remainder of 2023 $ 49,596 2024 93,905 2025 75,767 2026 46,483 2027 25,597 Thereafter 43,285 Total lease payments 334,633 Less imputed interest ( 29,615 ) Total operating lease liabilities $ 305,018 As of July 31, 2022, we have additional operating leases for data centers that had not yet commenced with total undiscounted lease payments of $ 53 million. These operating leases will commence in fiscal 2023 and fiscal 2024, with lease terms ranging from five to six years . Note 12. Commitments and Contingencies Purchase Obligations Our purchase obligations are primarily related to agreements for third-party hosted infrastructure platforms, data center equipment and software, business technology software and support, and sales and marketing activities. During the six months ended July 31, 2022, there were no material changes outside the ordinary course of business to our non-cancelable purchase obligations disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2022. Legal Matters We are a party to various legal proceedings and claims that arise in the ordinary course of business. We make a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular matter. In our opinion, as of July 31, 2022, 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. 21 Table of Contents Note 13. Stockholders’ Equity Common Stock As of July 31, 2022, there were 200 million shares of Class A common stock, net of treasury stock, and 55 million shares of Class B common stock outstanding. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to 10 votes per share. Each share of Class B common stock can be converted into a share of Class A common stock at any time at the option of the holder. Employee Equity Plans On June 22, 2022, our stockholders approved the 2022 Equity Incentive Plan (“2022 Plan”), with a reserve of 30 million shares for issuance. The 2022 Plan serves as the successor to our 2012 Equity Incentive Plan (“2012 Plan” and, together with the 2022 Plan, “Stock Plans”). Awards that are granted on or after the effective date of the 2022 Plan will be granted pursuant to and subject to the terms and provisions of the 2022 Plan. Prior awards granted under the 2012 Plan continue to be subject to the terms and provisions of the 2012 Plan. As of July 31, 2022, we had 30 million shares of Class A common stock available for future grants. On June 22, 2022, our stockholders approved the Amended and Restated 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. Pursuant to the terms of the ESPP, the share reserve increased by 2 million shares on March 31, 2022. As of July 31, 2022, 5 million shares of Class A common stock were available for issuance under the ESPP. Restricted Stock Units The Stock Plans provide for the issuance of restricted stock units (“RSUs”) to employees and non-employees. RSUs generally vest over four years . A summary of information related to RSU activity during the six months ended July 31, 2022, is as follows (in thousands, except per share data): Number of Shares Weighted-Average Grant Date Fair Value Balance as of January 31, 2022 11,808 $ 209.12 RSUs granted 7,340 210.58 RSUs vested ( 3,134 ) 203.34 RSUs forfeited ( 780 ) 203.45 Balance as of July 31, 2022 15,234 211.30 As of July 31, 2022, there was a total of $ 2.5 billion in unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested RSUs, which is expected to be recognized over a weighted-average period of approximately three years . Performance-Based Restricted Stock Units During fiscal 2022, 0.4 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. These performance conditions were met and the PRSUs vested on March 15, 2022. During the six months ended July 31, 2022, we recognized $ 16 million in compensation cost related to these PRSUs. We did no t grant any company-wide PRSUs in fiscal 2023. 22 Table of Contents Stock Options The Stock Plans provide for the issuance of incentive and nonstatutory stock options to employees and non-employees. Stock options issued under the Stock Plans generally are exercisable for periods not to exceed ten years and generally vest over five years . A summary of information related to stock option activity during the six months ended July 31, 2022, is as follows (in millions, except number of shares which are reflected in thousands and per share data): Outstanding Stock Options Weighted-Average Exercise Price Aggregate Intrinsic Value Balance as of January 31, 2022 387 $ 20.09 $ 90 Stock options exercised ( 178 ) 11.86 Stock options canceled ( 14 ) 30.93 Balance as of July 31, 2022 195 26.79 25 Vested and expected to vest as of July 31, 2022 195 26.79 25 Exercisable as of July 31, 2022 195 26.74 25 As of July 31, 2022, unrecognized compensation cost related to unvested stock options was not material. Note 14. Unearned Revenue and Performance Obligations Subscription services revenues of $ 1.2 billion and $ 970 million were recognized during the three months ended July 31, 2022, and 2021, respectively, that were included in the unearned revenue balances as of April 30, 2022, and 2021, respectively. Subscription services revenues of $ 2.0 billion and $ 1.7 billion were recognized during the six months ended July 31, 2022, and 2021, respectively, that were included in the unearned revenue balances as of January 31, 2022, and 2021, 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, 2022, approximately $ 13.5 billion of revenues are expected to be recognized from remaining performance obligations for subscription contracts. We expect to recognize revenues on approximately $ 8.4 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, 2022, were not material. Note 15. Other Income (Expense), Net Other income (expense), net consisted of the following (in thousands): Three Months Ended July 31, Six Months Ended July 31, 2022 2021 2022 2021 Interest income $ 15,214 $ 1,333 $ 19,221 $ 3,336 Interest expense (1) ( 30,160 ) ( 4,190 ) ( 44,178 ) ( 8,367 ) Other (2) ( 17,843 ) 105,842 ( 27,995 ) 98,965 Total other income (expense), net $ ( 32,789 ) $ 102,985 $ ( 52,952 ) $ 93,934 (1) Interest expense primarily includes the contractual interest expense of our debt obligations, and the related non-cash interest expense attributable to amortization of the debt discounts and issuance costs. For further information, see Note 10, Debt . (2) Other primarily includes the net gains (losses) from our equity investments. For further information, see Note 3, Investments . Note 16. Income Taxes We reported an income tax provision of $ 6 million and an income tax benefit of $ 5 million for the six months ended July 31, 2022, and 2021, respectively. The income tax provision for the six months ended July 31, 2022, was primarily attributable to a taxable gain recognized from integrating intellectual property, income tax expenses in profitable foreign jurisdictions, and an increase in state taxes due to capitalized research and development expenditures. 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. 23 Table of Contents The 2017 Tax Cuts and Jobs Act requires research and development expenditures incurred for the tax year beginning after December 31, 2021, to be capitalized and amortized ratably over five years for domestic research and fifteen years for international research. The mandatory capitalization requirement has no material impact to our fiscal 2023 income tax provision due to our tax attributes carryover and full valuation allowance position. We are subject to income tax audits in the U.S. and foreign jurisdictions. We record liabilities related to uncertain tax positions and believe that we have provided adequate reserves for income tax uncertainties in all open tax years. Due to our history of tax losses, all years remain open to tax audit. We periodically evaluate the realizability of our net deferred tax assets based on all available evidence, both positive and negative. The realization of net deferred tax assets is dependent on our ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets. As of July 31, 2022, we continue to maintain a full valuation allowance on our deferred tax assets in certain jurisdictions. Note 17. Net Income (Loss) Per Share Basic net income (loss) per share is computed by dividing net income (loss) 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 convertible senior notes, outstanding warrants related to the issuance of the convertible senior notes, and outstanding share-based awards consisting primarily of unvested RSUs and ESPP obligations. The net income (loss) per share 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) 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, 2022, as the inclusion of all potential common shares outstanding would have been anti-dilutive. 24 Table of Contents 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, 2022 2021 2022 2021 Class A Class B Class A Class B Class A Class B Class A Class B Net income (loss) per share, basic: Numerator: Net income (loss) $ ( 50,282 ) $ ( 13,876 ) $ 80,955 $ 24,781 $ ( 130,088 ) $ ( 36,243 ) $ 45,188 $ 14,026 Denominator: Weighted-average shares outstanding, basic 199,342 55,013 189,069 57,874 197,928 55,143 187,204 58,104 Net income (loss) per share, basic $ ( 0.25 ) $ ( 0.25 ) $ 0.43 $ 0.43 $ ( 0.66 ) $ ( 0.66 ) $ 0.24 $ 0.24 Net income (loss) per share, diluted: Numerator: Net income (loss) $ ( 50,282 ) $ ( 13,876 ) $ 80,955 $ 24,781 $ ( 130,088 ) $ ( 36,243 ) $ 45,188 $ 14,026 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 ( 50,282 ) ( 13,876 ) 107,341 23,892 ( 130,088 ) ( 36,243 ) 59,214 13,605 Denominator: Weighted-average shares outstanding, basic 199,342 55,013 189,069 57,874 197,928 55,143 187,204 58,104 Conversion of Class B to Class A common stock — — 57,874 — — — 58,104 — Dilutive effect of share-based awards — — 4,606 — — — 6,611 — Dilutive effect of convertible senior notes — — 7,817 — — — — — Dilutive effect of warrants related to the issuance of convertible senior notes — — 650 — — — 981 — Weighted-average shares outstanding, diluted 199,342 55,013 260,016 57,874 197,928 55,143 252,900 58,104 Net income (loss) per share, diluted $ ( 0.25 ) $ ( 0.25 ) $ 0.41 $ 0.41 $ ( 0.66 ) $ ( 0.66 ) $ 0.23 $ 0.23 The computation of diluted net income (loss) per share does not include the effect of the following potentially outstanding weighted-average 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, 2022 2021 2022 2021 Shares related to outstanding share-based awards 16,599 4,400 15,127 2,626 Shares related to the convertible senior notes 7,815 — 7,816 7,817 Shares subject to warrants related to the issuance of convertible senior notes 7,818 — 7,818 — Total 32,232 4,400 30,761 10,443 25 Table of Contents Note 18. Geographic Information Revenues We sell our subscription contracts and related services in two primary geographical markets: to customers located in the United States and to customers located outside of the United States. Revenues by geography are generally based on the address of the customer as specified in our customer subscription agreement. The following table sets forth revenues by geographic area (in thousands): Three Months Ended July 31, Six Months Ended July 31, 2022 2021 2022 2021 United States $ 1,152,362 $ 942,561 $ 2,227,407 $ 1,826,002 Other countries 383,436 317,800 743,048 609,392 Total revenues $ 1,535,798 $ 1,260,361 $ 2,970,455 $ 2,435,394 Long-Lived Assets Our long-lived assets, which primarily consist of property and equipment and operating lease right-of-use assets, are attributed to a country based on the physical location of the assets. Aggregate Property and equipment, net and Operating lease right-of-use assets by geographic area was as follows (in thousands): July 31, 2022 January 31, 2022 United States $ 1,281,075 $ 1,174,371 Ireland 152,429 117,049 Other countries 85,931 79,463 Total long-lived assets $ 1,519,435 $ 1,370,883 26 Table of Contents SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements, which are subject to safe harbor protection under the Private Securities Litigation Reform Act of 1995. All statements contained in this report other than statements of historical fact, including statements regarding our future operating results and financial position, business strategy and plans, and objectives for future operations, are forward-looking statements. The words “ believe, ” “ may, ” “ will, ” “ estimate, ” “ continue, ” “ anticipate, ” “ intend, ” “ expect, ” “ seek, ” “ plan, ” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations, beliefs, and projections about future events, conditions, and trends that we believe may affect our financial condition, operating results, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, assumptions, and changes in circumstances that are difficult to predict and many of which are outside of our control, including those arising from the impact of the coronavirus ( “ COVID-19 ” ) pandemic and recent macroeconomic events, as well as those described in the “ Risk Factors ” section, which we encourage you to read carefully. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, assumptions, and potential changes in circumstances, the future events, conditions, and trends discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied by the forward-looking statements. Accordingly, you should not rely upon any forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activities, performance, or achievements. We are under no duty to update any of these forward-looking statements after the date of this report or to conform these statements to actual results or revised expectations, except as required by applicable law. If we do update any forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.