Workday, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Workday, Inc. Condensed Consolidated Balance Sheets (in thousands) (unaudited) October 31, 2022 January 31, 2022 Assets Current assets: Cash and cash equivalents $ 1,575,955 $ 1,534,273 Marketable securities 3,916,130 2,109,888 Trade and other receivables, net 1,040,468 1,242,545 Deferred costs 171,100 152,957 Prepaid expenses and other current assets 266,622 174,402 Total current assets 6,970,275 5,214,065 Property and equipment, net 1,219,127 1,123,075 Operating lease right-of-use assets 268,110 247,808 Deferred costs, noncurrent 359,624 341,259 Acquisition-related intangible assets, net 326,670 391,002 Goodwill 2,840,044 2,840,044 Other assets 405,937 341,252 Total assets $ 12,389,787 $ 10,498,505 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 75,803 $ 55,487 Accrued expenses and other current liabilities 334,961 195,590 Accrued compensation 406,799 402,885 Unearned revenue 2,815,599 3,110,947 Operating lease liabilities 90,237 80,503 Debt, current — 1,222,443 Total current liabilities 3,723,399 5,067,855 Debt, noncurrent 2,974,979 617,354 Unearned revenue, noncurrent 63,736 71,533 Operating lease liabilities, noncurrent 196,078 182,456 Other liabilities 22,487 24,225 Total liabilities 6,980,679 5,963,423 Stockholders’ equity: Common stock 257 251 Additional paid-in capital 8,400,756 7,284,174 Treasury stock ( 110,382 ) ( 12,467 ) Accumulated other comprehensive income (loss) 104,114 7,709 Accumulated deficit ( 2,985,637 ) ( 2,744,585 ) Total stockholders’ equity 5,409,108 4,535,082 Total liabilities and stockholders’ equity $ 12,389,787 $ 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 October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Revenues: Subscription services $ 1,432,393 $ 1,171,517 $ 4,071,804 $ 3,317,140 Professional services 166,710 155,746 497,754 445,517 Total revenues 1,599,103 1,327,263 4,569,558 3,762,657 Costs and expenses (1) : Costs of subscription services 259,397 200,700 737,301 575,646 Costs of professional services 176,396 159,024 524,398 462,652 Product development 565,727 455,615 1,655,071 1,341,482 Sales and marketing 470,196 366,323 1,358,198 1,050,974 General and administrative 153,708 121,656 427,832 347,391 Total costs and expenses 1,625,424 1,303,318 4,702,800 3,778,145 Operating income (loss) ( 26,321 ) 23,945 ( 133,242 ) ( 15,488 ) Other income (expense), net 4,163 21,557 ( 48,789 ) 115,491 Income (loss) before provision for (benefit from) income taxes ( 22,158 ) 45,502 ( 182,031 ) 100,003 Provision for (benefit from) income taxes 52,563 2,090 59,021 ( 2,623 ) Net income (loss) $ ( 74,721 ) $ 43,412 $ ( 241,052 ) $ 102,626 Net income (loss) per share, basic $ ( 0.29 ) $ 0.17 $ ( 0.95 ) $ 0.42 Net income (loss) per share, diluted $ ( 0.29 ) $ 0.17 $ ( 0.95 ) $ 0.40 Weighted-average shares used to compute net income (loss) per share, basic 255,753 248,468 253,975 246,348 Weighted-average shares used to compute net income (loss) per share, diluted 255,753 254,760 253,975 253,917 (1) Costs and expenses include share-based compensation expenses as follows: Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Costs of subscription services $ 25,598 $ 21,340 $ 76,918 $ 62,478 Costs of professional services 26,577 29,105 79,999 83,331 Product development 149,279 135,591 449,764 395,345 Sales and marketing 61,186 55,645 180,233 158,121 General and administrative 51,556 39,437 146,795 111,197 Total share-based compensation expenses $ 314,196 $ 281,118 $ 933,709 $ 810,472 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 October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Net income (loss) $ ( 74,721 ) $ 43,412 $ ( 241,052 ) $ 102,626 Other comprehensive income (loss): Net change in foreign currency translation adjustment ( 3,098 ) ( 361 ) ( 6,005 ) ( 1,362 ) Net change in unrealized gains (losses) on available-for-sale debt securities ( 13,232 ) ( 1,505 ) ( 23,513 ) ( 2,611 ) Net change in unrealized gains (losses) on cash flow hedges 57,483 25,389 125,923 38,316 Other comprehensive income (loss) 41,153 23,523 96,405 34,343 Comprehensive income (loss) $ ( 33,568 ) $ 66,935 $ ( 144,647 ) $ 136,969 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 October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Common stock: Balance, beginning of period $ 255 $ 248 $ 251 $ 242 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 Additional paid-in capital: Balance, beginning of period 7,988,096 6,639,067 7,284,174 6,254,936 Issuance of common stock under employee equity plans, net of shares withheld for employee taxes 709 1,893 84,997 76,374 Share-based compensation 314,196 278,995 933,709 808,299 Exercise of convertible senior notes hedges 97,794 8 97,916 58 Settlement of convertible senior notes ( 39 ) — ( 40 ) ( 2 ) Cumulative effect of accounting changes — — — ( 219,702 ) Balance, end of period 8,400,756 6,919,963 8,400,756 6,919,963 Treasury stock: Balance, beginning of period ( 12,588 ) ( 12,431 ) ( 12,467 ) ( 12,384 ) Exercise of convertible senior notes hedges ( 97,794 ) ( 6 ) ( 97,915 ) ( 53 ) Balance, end of period ( 110,382 ) ( 12,437 ) ( 110,382 ) ( 12,437 ) Accumulated other comprehensive income (loss): Balance, beginning of period 62,961 ( 44,150 ) 7,709 ( 54,970 ) Other comprehensive income (loss) 41,153 23,523 96,405 34,343 Balance, end of period 104,114 ( 20,627 ) 104,114 ( 20,627 ) Accumulated deficit: Balance, beginning of period ( 2,910,916 ) ( 2,714,744 ) ( 2,744,585 ) ( 2,909,990 ) Net income (loss) ( 74,721 ) 43,412 ( 241,052 ) 102,626 Cumulative effect of accounting changes — — — 136,032 Balance, end of period ( 2,985,637 ) ( 2,671,332 ) ( 2,985,637 ) ( 2,671,332 ) Total stockholders’ equity $ 5,409,108 $ 4,215,816 $ 5,409,108 $ 4,215,816 Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Common stock (in shares): Balance, beginning of period 255,485 248,087 251,209 242,667 Issuance of common stock under employee equity plans, net of shares withheld for employee taxes 1,198 1,429 5,474 6,767 Settlement of convertible senior notes 634 — 635 — Purchase of treasury stock from the exercise of convertible senior notes hedges ( 634 ) — ( 635 ) — Other — 43 — 125 Balance, end of period 256,683 249,559 256,683 249,559 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 October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Cash flows from operating activities: Net income (loss) $ ( 74,721 ) $ 43,412 $ ( 241,052 ) $ 102,626 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 91,854 87,127 274,395 254,973 Share-based compensation expenses 314,196 278,995 933,709 808,349 Amortization of deferred costs 44,830 35,482 126,515 100,844 Non-cash lease expense 23,359 21,407 68,318 64,706 (Gains) losses on investments ( 3,833 ) ( 25,222 ) 20,746 ( 125,479 ) Other 3,251 4,408 15,373 ( 4,225 ) Changes in operating assets and liabilities, net of business combinations: Trade and other receivables, net 61,885 6,649 200,008 171,257 Deferred costs ( 56,552 ) ( 50,654 ) ( 163,023 ) ( 129,758 ) Prepaid expenses and other assets 2,435 18,050 ( 31,447 ) ( 21,047 ) Accounts payable 18,116 ( 12,007 ) 20,884 ( 4,117 ) Accrued expenses and other liabilities 47,061 2,498 41,253 ( 24,109 ) Unearned revenue ( 63,213 ) ( 25,491 ) ( 302,936 ) ( 158,465 ) Net cash provided by (used in) operating activities 408,668 384,654 962,743 1,035,555 Cash flows from investing activities: Purchases of marketable securities ( 2,310,915 ) ( 722,275 ) ( 5,651,005 ) ( 2,317,040 ) Maturities of marketable securities 2,181,147 674,246 3,767,509 2,303,478 Sales of marketable securities 19,988 — 53,355 27,286 Owned real estate projects ( 181 ) ( 4 ) ( 446 ) ( 171,498 ) Capital expenditures, excluding owned real estate projects ( 58,665 ) ( 33,335 ) ( 286,013 ) ( 190,912 ) 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 ) Sales and maturities of non-marketable equity and other investments 4,513 1,874 11,674 5,169 Other — — — 1 Net cash provided by (used in) investing activities ( 168,063 ) ( 166,859 ) ( 2,125,799 ) ( 1,167,907 ) Cash flows from financing activities: Proceeds from issuance of debt, net of debt discount — — 2,978,077 — Repayments and extinguishment of debt ( 1,149,622 ) ( 9,384 ) ( 1,843,605 ) ( 28,205 ) Payments for debt issuance costs — — ( 7,220 ) — Proceeds from issuance of common stock from employee equity plans, net of taxes paid for shares withheld 710 1,894 85,002 76,381 Other ( 161 ) ( 33 ) ( 538 ) ( 409 ) Net cash provided by (used in) financing activities ( 1,149,073 ) ( 7,523 ) 1,211,716 47,767 Effect of exchange rate changes ( 920 ) 50 ( 1,750 ) ( 85 ) Net increase (decrease) in cash, cash equivalents, and restricted cash ( 909,388 ) 210,322 46,910 ( 84,670 ) Cash, cash equivalents, and restricted cash at the beginning of period 2,497,043 1,092,929 1,540,745 1,387,921 Cash, cash equivalents, and restricted cash at the end of period $ 1,587,655 $ 1,303,251 $ 1,587,655 $ 1,303,251 See Notes to Condensed Consolidated Financial Statements 7 Table of Contents Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Supplemental cash flow data: Cash paid for interest $ 56,567 $ 3,837 $ 59,508 $ 10,904 Cash paid for income taxes, net of refunds 2,093 2,716 9,863 9,150 Non-cash investing and financing activities: Purchases of property and equipment, accrued but not paid 68,028 49,713 68,028 49,713 As of October 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 $ 1,575,955 $ 1,297,259 Restricted cash included in Prepaid expenses and other current assets 11,700 5,992 Total cash, cash equivalents, and restricted cash $ 1,587,655 $ 1,303,251 See Notes to Condensed Consolidated Financial Statements 8 Table of Contents Workday, Inc. 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. 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. 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 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. 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 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. 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 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. 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 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 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 nine months ended October 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 October 31, 2022, debt securities consisted of the following (in thousands): Amortized Cost Unrealized Gains Unrealized Losses Aggregate Fair Value U.S. treasury securities $ 2,391,963 $ 1 $ ( 10,333 ) $ 2,381,631 U.S. agency obligations 548,109 — ( 6,020 ) 542,089 Corporate bonds 624,186 18 ( 11,877 ) 612,327 Commercial paper 1,054,938 — — 1,054,938 Total debt securities $ 4,619,196 $ 19 $ ( 28,230 ) $ 4,590,985 Included in Cash and cash equivalents $ 757,758 $ — $ ( 113 ) $ 757,645 Included in Marketable securities $ 3,861,438 $ 19 $ ( 28,117 ) $ 3,833,340 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. 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. Equity Investments Equity investments consisted of the following (in thousands): Condensed Consolidated Balance Sheets Location October 31, 2022 January 31, 2022 Money market funds Cash and cash equivalents $ 528,633 $ 607,640 Non-marketable equity investments measured using the measurement alternative Other assets 265,573 256,643 Marketable equity investments Marketable securities 82,790 104,318 Total equity investments $ 876,996 $ 968,601 Total realized and unrealized gains and losses associated with our equity investments consisted of the following (in thousands): Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Net realized gains (losses) recognized on equity investments sold (1) $ 4,514 $ 11,759 $ ( 365 ) $ 4,236 Net unrealized gains (losses) recognized on equity investments held as of the end of the period ( 155 ) 13,448 ( 19,121 ) 121,167 Total net gains (losses) recognized in Other income (expense), net $ 4,359 $ 25,207 $ ( 19,486 ) $ 125,403 (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): October 31, 2022 January 31, 2022 Total initial cost $ 209,867 $ 192,694 Cumulative net unrealized gains (losses) 55,706 63,949 Carrying value $ 265,573 $ 256,643 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 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): October 31, 2022 January 31, 2022 Total initial cost $ 38,936 $ 40,739 Cumulative net unrealized gains (losses) 43,854 63,579 Carrying value $ 82,790 $ 104,318 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. Note 4. Fair Value Measurements 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. 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 October 31, 2022 (in thousands): Level 1 Level 2 Level 3 Total U.S. treasury securities $ 2,381,631 $ — $ — $ 2,381,631 U.S. agency obligations — 542,089 — 542,089 Corporate bonds — 612,327 — 612,327 Commercial paper — 1,054,938 — 1,054,938 Money market funds 528,633 — — 528,633 Marketable equity investments 82,790 — — 82,790 Foreign currency derivative assets — 159,292 — 159,292 Total assets $ 2,993,054 $ 2,368,646 $ — $ 5,361,700 Foreign currency derivative liabilities $ — $ 36,486 $ — $ 36,486 Total liabilities $ — $ 36,486 $ — $ 36,486 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 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 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. 13 Table of Contents Note 6. Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): October 31, 2022 January 31, 2022 Computers, equipment, and software $ 1,292,126 $ 1,071,141 Buildings 718,495 691,896 Leasehold improvements 183,206 158,037 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 Less accumulated depreciation and amortization ( 1,143,719 ) ( 958,275 ) Property and equipment, net $ 1,219,127 $ 1,123,075 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. Note 7. Acquisition-Related Intangible Assets, Net Acquisition-related intangible assets, net consisted of the following (in thousands): October 31, 2022 January 31, 2022 Developed technology $ 346,300 $ 346,300 Customer relationships 311,100 311,100 Backlog 15,000 15,000 Trade name 12,500 12,500 Acquisition-related intangible assets, gross 684,900 684,900 Less accumulated amortization ( 358,230 ) ( 293,898 ) Acquisition-related intangible assets, net $ 326,670 $ 391,002 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: Remainder of 2023 $ 21,204 2024 74,319 2025 61,663 2026 55,748 2027 31,177 Thereafter 82,559 Total $ 326,670 14 Table of Contents Note 8. Other Assets Other noncurrent assets consisted of the following (in thousands): October 31, 2022 January 31, 2022 Non-marketable equity and other investments $ 268,543 $ 256,759 Derivative assets 71,482 16,618 Technology patents and other intangible assets, net 20,921 22,792 Prepayments for goods and services 18,767 25,927 Net deferred tax assets 9,441 11,642 Deposits 5,345 6,701 Other 11,438 813 Total other assets $ 405,937 $ 341,252 Technology patents and other intangible assets with estimable useful lives are amortized on a straight-line basis. As of October 31, 2022, the future estimated amortization expense was as follows (in thousands): Fiscal Period: Remainder of 2023 $ 853 2024 3,172 2025 2,689 2026 2,434 2027 2,150 Thereafter 9,623 Total $ 20,921 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 has 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 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 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. 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 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 October 31, 2022 January 31, 2022 Derivative assets: Cash flow hedges Prepaid expenses and other current assets $ 86,853 $ 21,337 Cash flow hedges Other assets 71,480 16,618 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 Derivative liabilities: Cash flow hedges Accrued expenses and other current liabilities $ 31,331 $ 7,512 Cash flow hedges Other liabilities 1,500 5,175 Non-designated hedges Accrued expenses and other current liabilities 3,655 336 Non-designated hedges Other liabilities — 16 Total derivative liabilities $ 36,486 $ 13,039 The effect of cash flow hedges on the Condensed Consolidated Statements of Operations was as follows (in thousands): Three Months Ended October 31, 2022 2021 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 ) — — Nine Months Ended October 31, 2022 2021 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 ) Gains (losses) related to cash flow hedges 5,985 ( 18,636 ) ( 3,220 ) ( 4,996 ) — — 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 October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Gains (losses) recognized in OCI Net change in unrealized gains (losses) on cash flow hedges $ 48,058 $ 21,542 $ 110,052 $ 33,320 Gains (losses) reclassified from AOCI into income (effective portion) Revenues 5,647 ( 3,847 ) 5,985 ( 4,996 ) 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 October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Gains (losses) related to non-designated hedges Other income (expense), net $ 7,187 $ 605 $ 13,288 $ 2,424 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 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 Financial Instruments Cash Collateral Received Derivative assets: Counterparty A $ 30,677 $ — $ 30,677 $ ( 879 ) $ — $ 29,798 Counterparty B 33,589 — 33,589 ( 19,020 ) — 14,569 Counterparty C 14,153 — 14,153 ( 7,956 ) — 6,197 Counterparty D 72,310 — 72,310 ( 8,143 ) — 64,167 Counterparty E 8,563 — 8,563 ( 488 ) — 8,075 Total $ 159,292 $ — $ 159,292 $ ( 36,486 ) $ — $ 122,806 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 $ 879 $ — $ 879 $ ( 879 ) $ — $ — Counterparty B 19,020 — 19,020 ( 19,020 ) — — Counterparty C 7,956 — 7,956 ( 7,956 ) — — Counterparty D 8,143 — 8,143 ( 8,143 ) — — Counterparty E 488 — 488 ( 488 ) — — Total $ 36,486 $ — $ 36,486 $ ( 36,486 ) $ — $ — 17 Table of Contents Note 10. Debt Outstanding debt consisted of the following (in thousands): October 31, 2022 January 31, 2022 2027 Notes $ 1,000,000 $ — 2029 Notes 750,000 — 2032 Notes 1,250,000 — 2022 Notes — 1,149,817 Term loan under the 2020 Credit Agreement — 693,750 Total principal amount 3,000,000 1,843,567 Less: unamortized debt discount and issuance costs ( 25,021 ) ( 3,770 ) Net carrying amount 2,974,979 1,839,797 Less: debt, current — ( 1,222,443 ) Debt, noncurrent $ 2,974,979 $ 617,354 As of October 31, 2022, the future principal payments for the outstanding debt were as follows (in thousands): Fiscal Period: Remainder of 2023 $ — 2024 — 2025 — 2026 — 2027 — Thereafter 3,000,000 Total principal amount $ 3,000,000 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 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 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 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. 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 nine months ended October 31, 2022. 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. 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 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 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. Notes Hedges 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. 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. 19 Table of Contents Interest Expense on Debt The following table sets forth total interest expense recognized related to our debt (in thousands): Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Contractual interest expense $ 28,036 $ 3,140 $ 67,702 $ 9,462 Interest cost related to amortization and write-off of debt discount and issuance costs 1,557 997 6,000 2,991 Total interest expense $ 29,593 $ 4,137 $ 73,702 $ 12,453 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 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 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 October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Operating lease cost $ 25,404 $ 22,988 $ 73,821 $ 70,004 Short-term lease cost 854 1,204 3,001 5,419 Variable lease cost 12,787 8,756 32,970 18,519 Total operating lease cost $ 39,045 $ 32,948 $ 109,792 $ 93,942 Supplemental cash flow information related to our operating leases was as follows (in thousands): Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Cash paid for operating lease liabilities $ 23,190 $ 21,802 $ 68,386 $ 68,375 Operating lease right-of-use assets obtained in exchange for new operating lease liabilities 6,611 15,646 93,091 54,335 Other information related to our operating leases was as follows: 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 October 31, 2022, maturities of operating lease liabilities were as follows (in thousands): Fiscal Period: Remainder of 2023 $ 26,000 2024 93,305 2025 76,088 2026 47,332 2027 26,790 Thereafter 45,548 Total lease payments 315,063 Less imputed interest ( 28,748 ) Total operating lease liabilities $ 286,315 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 . 20 Table of Contents 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 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 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 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. Note 13. Stockholders’ Equity Common Stock 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. 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 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”). 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 October 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 nine months ended October 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 8,198 205.45 RSUs vested ( 4,298 ) 202.82 RSUs forfeited ( 1,071 ) 205.52 Balance as of October 31, 2022 14,637 209.18 21 Table of Contents 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 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 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. 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 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 Balance as of January 31, 2022 387 $ 20.09 $ 90 Stock options exercised ( 212 ) 13.46 Stock options canceled ( 45 ) 16.20 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. Note 14. Unearned Revenue and Performance Obligations 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 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 October 31, 2022, were not material. 22 Table of Contents Note 15. Other Income (Expense), Net Other income (expense), net consisted of the following (in thousands): Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Interest income $ 31,252 $ 1,195 $ 50,473 $ 4,531 Interest expense (1) ( 29,626 ) ( 4,160 ) ( 73,804 ) ( 12,527 ) Other (2) 2,537 24,522 ( 25,458 ) 123,487 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 discount 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 $ 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. 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 October 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 nine months ended October 31, 2022, as the inclusion of all potential common shares outstanding would have been anti-dilutive. 23 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 October 31, Nine Months Ended October 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) $ ( 58,648 ) $ ( 16,073 ) $ 33,417 $ 9,995 $ ( 188,757 ) $ ( 52,295 ) $ 78,546 $ 24,080 Denominator: Weighted-average shares outstanding, basic 200,740 55,013 191,259 57,209 198,876 55,099 188,546 57,802 Net income (loss) per share, basic $ ( 0.29 ) $ ( 0.29 ) $ 0.17 $ 0.17 $ ( 0.95 ) $ ( 0.95 ) $ 0.42 $ 0.42 Net income (loss) per share, diluted: Numerator: Net income (loss) $ ( 58,648 ) $ ( 16,073 ) $ 33,417 $ 9,995 $ ( 188,757 ) $ ( 52,295 ) $ 78,546 $ 24,080 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 Denominator: Weighted-average shares outstanding, basic 200,740 55,013 191,259 57,209 198,876 55,099 188,546 57,802 Conversion of Class B to Class A common stock — — 57,209 — — — 57,802 — Dilutive effect of share-based awards — — 4,933 — — — 6,456 — Dilutive effect of warrants related to the issuance of convertible senior notes — — 1,359 — — — 1,113 — Weighted-average shares outstanding, diluted 200,740 55,013 254,760 57,209 198,876 55,099 253,917 57,802 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 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 October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Shares related to outstanding share-based awards 16,105 151 15,453 1,801 Shares related to the convertible senior notes 5,182 7,817 6,928 7,817 Shares subject to warrants related to the issuance of convertible senior notes 7,818 — 7,818 — Total 29,105 7,968 30,199 9,618 24 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 October 31, Nine Months Ended October 31, 2022 2021 2022 2021 United States $ 1,204,842 $ 991,747 $ 3,432,249 $ 2,817,749 Other countries 394,261 335,516 1,137,309 944,908 Total revenues $ 1,599,103 $ 1,327,263 $ 4,569,558 $ 3,762,657 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): October 31, 2022 January 31, 2022 United States $ 1,243,176 $ 1,174,371 Ireland 158,975 117,049 Other countries 85,086 79,463 Total long-lived assets $ 1,487,237 $ 1,370,883 Note 19. 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. 25 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 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. 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.