What changed in this filing

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Item 1. Financial Statements

2022-11-29 compared with 2022-08-25 · 136 added, 140 removed, 601 unchanged (31% of the section changed)

3 unchanged sentences

(in thousands)

July 31, 2022 January 31, 2022

October 31, 2022 January 31, 2022

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,

2022 2021 2022 2021

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,

2022 2021 2022 2021

9 unchanged sentences

(in thousands)

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

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

2022 2021 2022 2021

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,

2022 2021 2022 2021

2 unchanged sentences

Issuance of common stock under employee equity plans, net of shares withheld for employee taxes 1 1 5 7

Settlement of convertible senior notes 1 — 1 —

Balance, end of period 257 249 257 249

21 unchanged sentences

Total stockholders’ equity $ 5,409,108 $ 4,215,816 $ 5,409,108 $ 4,215,816

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

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

2022 2021 2022 2021

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,

2022 2021 2022 2021

23 unchanged sentences

Business combinations, net of cash acquired — ( 60,645 ) — ( 739,865 )

Purchase of other intangible assets ( 700 ) — ( 700 ) —

Purchases of non-marketable equity and other investments ( 3,250 ) ( 26,720 ) ( 20,173 ) ( 84,526 )

14 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,

2022 2021 2022 2021

4 unchanged sentences

Purchases of property and equipment, accrued but not paid 68,028 49,713 68,028 49,713

As of July 31,

As of October 31,

Reconciliation of cash, cash equivalents, and restricted cash as shown in the Condensed Consolidated Statements of Cash Flows:

5 unchanged sentences

Notes to Condensed Consolidated Financial Statements

As used in this report, the terms “Workday,” “registrant,” “we,” “us,” and “our” mean Workday, Inc.

and its subsidiaries unless the context indicates otherwise.

Overview and Basis of Presentation

3 unchanged sentences

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

6 unchanged sentences

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

8 unchanged sentences

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.

For the nine months ended October 31, 2022, both our Co-Chief Executive Officer and Chairman, Aneel Bhusri, and our Co-Chief Executive Officer, Chano Fernandez, together serve as our CODM.

Our CODM allocates resources and assesses performance based upon discrete financial information at the consolidated level.

5 unchanged sentences

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.

No customer individually accounted for more than 10% of trade and other receivables, net as of October 31, 2022, or January 31, 2022.

No customer individually accounted for more than 10% of total revenues during the three and nine months ended October 31, 2022, or 2021.

Other than the United States, no country individually accounted for more than 10% of total revenues during the three and nine months ended October 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.

5 unchanged sentences

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.

As of both October 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

5 unchanged sentences

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.

The adoption had no impact on our condensed consolidated financial statements during the three and nine months ended October 31, 2022, and any financial impact will be dependent on the magnitude and nature of future business combinations.

Debt Securities

As of July 31, 2022, debt securities consisted of the following (in thousands):

As of October 31, 2022, debt securities consisted of the following (in thousands):

Amortized Cost Unrealized Gains Unrealized Losses Aggregate Fair Value

18 unchanged sentences

Debt securities included in Marketable securities on the Condensed Consolidated Balance Sheets consist of securities with original maturities at the time of purchase greater than three months, and the 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.

As of October 31, 2022, and January 31, 2022, the fair value of debt securities in an unrealized loss position was $ 3.5 billion and $ 1.5 billion, respectively, the majority of which had been in a continuous unrealized loss position for less than 12 months.

We did not recognize any credit or non-credit related losses related to our debt securities during the periods presented.

We sold $ 20 million of debt securities during the three months ended October 31, 2022, and we did not have any sales of debt securities during the three months ended October 31, 2021.

We sold $ 48 million and $ 10 million of debt securities during the nine months ended October 31, 2022, and 2021, 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, 2022 January 31, 2022

Condensed Consolidated Balance Sheets Location October 31, 2022 January 31, 2022

Money market funds Cash and cash equivalents $ 528,633 $ 607,640

3 unchanged sentences

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,

2022 2021 2022 2021

8 unchanged sentences

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

July 31, 2022 January 31, 2022

October 31, 2022 January 31, 2022

Total initial cost $ 209,867 $ 192,694

1 unchanged sentence

Carrying value $ 265,573 $ 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.

During the three months ended October 31, 2022, we recorded upward adjustments to the carrying value of non-marketable equity investments of $ 2 million, impairment losses of $ 2 million, and a gain of $ 4 million upon exiting a non-marketable equity investment.

During the three months ended October 31, 2021, we recorded upward adjustments to the carrying value of non-marketable equity investments of $ 20 million and a non-cash gain of $ 12 million related to our acquisition of Zimit.

During the nine months ended October 31, 2022, we recorded upward adjustments to the carrying value of non-marketable equity investments of $ 8 million, impairment losses of $ 10 million, and a net loss of $ 2 million upon exiting a non-marketable equity investment.

During the nine months ended October 31, 2021, we recorded upward adjustments to the carrying value of non-marketable equity investments of $ 34 million, impairment losses of $ 2 million, and a non-cash gain of $ 12 million related to our acquisition of Zimit.

Marketable Equity Investments

1 unchanged sentence

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

July 31, 2022 January 31, 2022

October 31, 2022 January 31, 2022

Total initial cost $ 38,936 $ 40,739

2 unchanged sentences

$ 82,790 $ 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 .

During the three months ended October 31, 2022, and 2021, we did no t sell any marketable equity investments.

During the nine months ended October 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.

For the marketable equity investments held as of the end of each period, we recorded no material unrealized net gains or losses during the three months ended October 31, 2022, and we recorded net losses of $ 7 million during the three months ended October 31, 2021.

During the nine months ended October 31, 2022, and 2021, we recorded unrealized net losses of $ 17 million and gains of $ 91 million, respectively, on marketable equity investments held as of the end of each period.

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.

We use a fair value hierarchy that requires we maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

4 unchanged sentences

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents information about our assets and liabilities that are measured at fair value on a recurring basis and their assigned levels within the valuation hierarchy as of July 31, 2022 (in thousands):

Level 1 Level 2 Level 3 Total

22 unchanged sentences

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.

Non-marketable equity investments that have been remeasured 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 .

4 unchanged sentences

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.

Deferred costs, which consist of deferred sales commission s, were $ 531 million and $ 494 million as of October 31, 2022, and January 31, 2022, respectively.

Amortization expense for the deferred costs was $ 45 million and $ 36 million for the three months ended October 31, 2022, and 2021, respectively, and $ 127 million and $ 101 million for the nine months ended October 31, 2022, and 2021, 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, 2022 January 31, 2022

October 31, 2022 January 31, 2022

Computers, equipment, and software $ 1,292,126 $ 1,071,141

1 unchanged sentence

Leasehold improvements 183,206 158,037

Land and land improvements 80,553 80,553

Furniture, fixtures, and transportation equipment 88,090 79,723

Land and land improvements 80,929 80,553

Property and equipment, gross 2,362,846 2,081,350

1 unchanged sentence

Property and equipment, net $ 1,219,127 $ 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.

Depre ciation expense totaled $ 69 million and $ 66 million for the three months ended October 31, 2022, and 2021, respectively, and $ 207 million and $ 194 million for the nine months ended October 31, 2022, and 2021, respectively.

Acquisition-Related Intangible Assets, Net

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

July 31, 2022 January 31, 2022

October 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

Trade name 12,500 12,500

Acquisition-related intangible assets, gross 684,900 684,900

1 unchanged sentence

Acquisition-related intangible assets, net $ 326,670 $ 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):

Amortization expense related to acquisition-related intangible assets was $ 21 million and $ 19 million for the three months ended October 31, 2022, and 2021, respectively, and $ 64 million and $ 57 million for the nine months ended October 31, 2022, and 2021, respectively.

As of October 31, 2022, our future estimated amortization expense related to acquisition-related intangible assets was as follows (in thousands):

Fiscal Period:

3 unchanged sentences

Other noncurrent assets consisted of the following (in thousands):

July 31, 2022 January 31, 2022

October 31, 2022 January 31, 2022

Non-marketable equity and other investments $ 268,543 $ 256,759

7 unchanged sentences

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):

As of October 31, 2022, the future estimated amortization expense was as follows (in thousands):

Fiscal Period:

9 unchanged sentences

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.

We designate these forward contracts as cash flow hedging instruments since the accounting criteria for such designation has been met.

Cash flow hedges are recorded on the Condensed Consolidated Balance Sheets at fair value.

1 unchanged sentence

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.

As of October 31, 2022, we estimate that $ 39 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 October 31, 2022, and January 31, 2022, the notional values of the 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.

The notional values of the cash flow hedges that we held to sell U.S.

dollars in exchange for other currencies were $ 365 million and $ 355 million as of October 31, 2022, and January 31, 2022, respectively.

All contracts had maturities of less than 48 months.

4 unchanged sentences

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.

As of October 31, 2022, and January 31, 2022, the notional values of the non-designated hedges that we held to buy U.S.

dollars in exchange for other currencies were $ 127 million and $ 217 million, respectively, and the notional values of the non-designated hedges that we held to sell U.S.

dollars in exchange for other currencies were $ 34 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

Condensed Consolidated Balance Sheets Location October 31, 2022 January 31, 2022

Derivative assets:

2 unchanged sentences

Non-designated hedges Prepaid expenses and other current assets 957 1,076

Non-designated hedges Other assets 2 —

Total derivative assets $ 159,292 $ 39,031

6 unchanged sentences

The effect of cash flow hedges on the Condensed Consolidated Statements of Operations was as follows (in thousands):

Three Months Ended July 31,

Revenues Costs and Expenses Revenues Costs and Expenses

Three Months Ended October 31,

Revenues Costs and Expenses Income Tax Revenues Costs and Expenses Income Tax

Total $ 1,599,103 $ 1,625,424 $ 52,563 $ 1,327,263 $ 1,303,318 $ 2,090

Gains (losses) related to cash flow hedges 5,647 ( 11,852 ) ( 3,220 ) ( 3,847 ) — —

Six Months Ended July 31,

Revenues Costs and Expenses Revenues Costs and Expenses

Nine Months Ended October 31,

Revenues Costs and Expenses Income Tax Revenues Costs and Expenses Income Tax

Total $ 4,569,558 $ 4,702,800 $ 59,021 $ 3,762,657 $ 3,778,145 $ ( 2,623 )

1 unchanged sentence

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,

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

2022 2021 2022 2021

2 unchanged sentences

Gains (losses) reclassified from AOCI into income (effective portion) Costs and expenses ( 11,852 ) — ( 18,636 ) —

Gains (losses) reclassified from AOCI into income (effective portion) Income Tax ( 3,220 ) — ( 3,220 ) —

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,

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

2022 2021 2022 2021

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, 2022, information related to these offsetting arrangements was as follows (in thousands):

As of October 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

17 unchanged sentences

Outstanding debt consisted of the following (in thousands):

July 31, 2022 January 31, 2022

October 31, 2022 January 31, 2022

2027 Notes $ 1,000,000 $ —

8 unchanged sentences

Debt, noncurrent $ 2,974,979 $ 617,354

As of July 31, 2022, the future principal payments for the outstanding debt were as follows (in thousands):

As of October 31, 2022, the future principal payments for the outstanding debt were as follows (in thousands):

Fiscal Period:

8 unchanged sentences

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.

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

As of October 31, 2022, the total estimated fair value of the Senior Notes was $ 2.7 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.

3 unchanged sentences

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.

As of October 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.

4 unchanged sentences

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.

As of October 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;

• upon the occurrence of specified corporate events, as noted in the Indenture.

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.

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.

The 2022 Notes were unsecured, unsubordinated obligations, and interest was payable in cash in arrears at a fixed rate of 0.25 % on April 1 and October 1 of each year.

During the three months ended October 31, 2022, the 2022 Notes were converted by note holders, and we repaid the $ 1.15 billion principal balance in cash.

We also distributed approximately 0.6 million shares of our Class A common stock to note holders during the three months ended October 31, 2022, which represents the conversion value in excess of the principal amount.

In connection with the issuance of the 2022 Notes, we entered into convertible note hedge transactions (“Purchased Options”) which gave 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.

During the three months ended October 31, 2022, we received approximately 0.6 million shares of our Class A common stock from the exercise of the Purchased Options, which offset economic dilution to our Class A common stock upon conversion of the 2022 Notes.

These shares are held as treasury stock as of October 31, 2022.

The Purchased Options were separate transactions and were not part of the terms of the 2022 Notes, and expired on October 1, 2022.

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.

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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,

2022 2021 2022 2021

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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.

Operating lease right-of-use assets w ere $ 268 million and $ 248 million as of October 31, 2022, and January 31, 2022, respectively, and operating lease liabilities were $ 286 million an d $ 263 million as of October 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.

As of October 31, 2022, and January 31, 2022, 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,

2022 2021 2022 2021

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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,

2022 2021 2022 2021

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Other information related to our operating leases was as follows:

July 31, 2022 January 31, 2022

October 31, 2022 January 31, 2022

Weighted average remaining lease term (in years) 5 5

Weighted average discount rate 2.74 % 2.35 %

As of July 31, 2022, maturities of operating lease liabilities were as follows (in thousands):

As of October 31, 2022, maturities of operating lease liabilities were as follows (in thousands):

Fiscal Period:

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Total operating lease liabilities $ 286,315

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.

As of October 31, 2022 , we have additional operating leases for data centers that had not yet commenced with total undiscounted lease payments of $ 52 million.

These operating leases will commence in fiscal 2023 and fiscal 2024, with lease terms ranging from five to six years .

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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.

During the nine months ended October 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

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

In our opinion, as of 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.

In our opinion, as of October 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.

Stockholders’ Equity

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.

As of October 31, 2022, there were 202 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.

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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.

As of October 31, 2022, we had 29 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”).

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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.

As of October 31, 2022, 5 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, 2022, is as follows (in thousands, except per share data):

A summary of information related to RSU activity during the nine months ended October 31, 2022, is as follows (in thousands, except per share data):

Number of Shares Weighted-Average Grant Date Fair Value

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RSUs forfeited ( 1,071 ) 205.52

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 .

Balance as of October 31, 2022 14,637 209.18

As of October 31, 2022, there was a total of $ 2.3 billion in unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested RSUs, which is expected to be recognized over a weighted-average period of approximately three years .

Performance-Based Restricted Stock Units

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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.

During the nine months ended October 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.

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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, 2022, 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, 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

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Stock options canceled ( 45 ) 16.20

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.

Balance as of October 31, 2022 130 32.20 16

Vested and expected to vest as of October 31, 2022 130 32.20 16

Exercisable as of October 31, 2022 130 32.16 16

As of October 31, 2022, unrecognized compensation cost related to unvested stock options was not material.

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.

Subscription services revenues o f $ 1.2 billion and $ 1.0 billion were recognized during the three months ended October 31, 2022, and 2021, respectively, that were included in the unearned revenue balances as of July 31, 2022 , and 2021 , respectively.

Subscription services revenues of $ 2.7 billion and $ 2.2 billion were recognized during the nine months ended October 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.

As of October 31, 2022, approximately $ 14.1 billion of revenues are expected to be recognized from remaining performance obligations for subscription contracts.

We expect to recognize revenues on approximately $ 8.6 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.

Revenues from remaining performance obligations for professional services contracts as of October 31, 2022, 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,

2022 2021 2022 2021

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Total other income (expense), net $ 4,163 $ 21,557 $ ( 48,789 ) $ 115,491

(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 .

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For further information, see Note 3, Investments .

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.

We reported an income tax provision of $ 59 million and an income tax benefit of $ 3 million for the nine months ended October 31, 2022, and 2021, respectively.

The income tax provision for the nine months ended October 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 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 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.

On August 16, 2022, the U.S.

enacted the Inflation Reduction Act (“IRA”) of 2022, which, among other things, implemented a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases, and several tax incentives to promote clean energy.

We evaluated the provisions of the IRA and do not expect any material impact to our fiscal 2023 income tax provision.

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, 2022, we continue to maintain a full valuation allowance on our deferred tax assets in certain jurisdictions.

As of October 31, 2022, we continue to maintain a full valuation allowance on our deferred tax assets 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, 2022, 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, 2022, 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,

2022 2021 2022 2021

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Net income (loss) $ ( 58,648 ) $ ( 16,073 ) $ 33,417 $ 9,995 $ ( 188,757 ) $ ( 52,295 ) $ 78,546 $ 24,080

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 )

Reallocation of net income as a result of conversion of Class B to Class A common stock — — 9,995 — — — 24,080 —

Reallocation of net income to Class B common stock — — — ( 247 ) — — — ( 718 )

Net income (loss) for diluted calculation ( 58,648 ) ( 16,073 ) 43,412 9,748 ( 188,757 ) ( 52,295 ) 102,626 23,362

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Dilutive effect of share-based awards — — 4,933 — — — 6,456 —

Dilutive effect of convertible senior notes — — 7,817 — — — — —

Dilutive effect of warrants related to the issuance of convertible senior notes — — 1,359 — — — 1,113 —

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Net income (loss) per share, diluted $ ( 0.29 ) $ ( 0.29 ) $ 0.17 $ 0.17 $ ( 0.95 ) $ ( 0.95 ) $ 0.40 $ 0.40

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 computation of diluted net income (loss) per share does not include the effect of the following potential 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,

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

2022 2021 2022 2021

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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,

2022 2021 2022 2021

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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, 2022 January 31, 2022

October 31, 2022 January 31, 2022

United States $ 1,243,176 $ 1,174,371

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Total long-lived assets $ 1,487,237 $ 1,370,883

Subsequent Events

Share Repurchase Program

In November 2022, our Board of Directors authorized the repurchase of up to $ 500 million of our outstanding shares of Class A common stock (the “Share Repurchase Program”).

We may repurchase shares of Class A common stock from time to time through open market purchases, in privately negotiated transactions or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, in accordance with applicable securities laws and other restrictions.

The timing and total amount of stock repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations.

The Share Repurchase Program will have a term of 18 months, may be suspended or discontinued at any time, and does not obligate us to acquire any amount of Class A common stock.

RSU Vesting Date Modification

In November 2022, we modified the vesting date of all unvested RSU awards from the 15th to the 5th of each month.

The change will impact awards vesting after December 31, 2022, and will result in an acceleration of share-based compensation expense of approximately $ 30 million in the fourth quarter of fiscal 2023.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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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.

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 recent macroeconomic events, inflation, and the coronavirus ( “ COVID-19 ” ) pandemic, as well as those described in the “ Risk Factors ” section, which we encourage you to read carefully.

Moreover, we operate in a very competitive and rapidly changing environment.

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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