Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

WORKDAY, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Reports of Independent Registered Public Accounting Firm	(PCAOB ID: 42)	49
Consolidated Balance Sheets		52
Consolidated Statements of Operations		53
Consolidated Statements of Comprehensive Income (Loss)		54
Consolidated Statements of Stockholders’ Equity		55
Consolidated Statements of Cash Flows		56
Notes to Consolidated Financial Statements		58

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Workday, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Workday, Inc. (the Company) as of January 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended January 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2024, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 8, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

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			Revenue Recognition
Description of the Matter			As described in Note 2 to the consolidated financial statements, the Company recognizes revenue primarily from subscription services and professional services contracts. Some of the Company’s contracts contain multiple performance obligations. For these contracts, the Company assesses the performance obligations and accounts for those obligations separately if they are distinct. In such cases, the transaction price is allocated to the distinct performance obligations on a relative standalone selling price basis. Auditing the Company’s determination of distinct performance obligations was challenging. For example, there were nonstandard terms and conditions that required judgment to determine whether the distinct performance obligations were identified and accounted for appropriately.

How We Addressed the Matter in Our Audit			We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process to identify distinct performance obligations. Among other audit procedures, we selected a sample of contracts and evaluated whether management appropriately identified and considered the terms and conditions and the appropriate revenue recognition. As part of our procedures, we evaluated the assessment of distinct performance obligations.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2008.

San Francisco, California

March 8, 2024

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Workday, Inc.

Opinion on Internal Control Over Financial Reporting

We have audited Workday, Inc.’s internal control over financial reporting as of January 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Workday, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of January 31, 2024, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of January 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended January 31, 2024, and the related notes and our report dated March 8, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

San Francisco, California

March 8, 2024

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WORKDAY, INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except number of shares which are reflected in thousands and per share data)


	As of January 31,
	2024		2023
Assets
Current assets:
Cash and cash equivalents	$	2,012	$	1,886
Marketable securities	5,801		4,235
Trade and other receivables, net of allowance for credit losses of $11 and $9, respectively	1,639		1,570
Deferred costs	232		191
Prepaid expenses and other current assets	255		226
Total current assets	9,939		8,108
Property and equipment, net	1,234		1,201
Operating lease right-of-use assets	289		249
Deferred costs, noncurrent	509		421
Acquisition-related intangible assets, net	233		306
Deferred tax assets	1,065		13
Goodwill	2,846		2,840
Other assets	337		348
Total assets	$	16,452	$	13,486
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	78	$	154
Accrued expenses and other current liabilities	287		260
Accrued compensation	544		564
Unearned revenue	4,057		3,559
Operating lease liabilities	89		91

Total current liabilities	5,055		4,628
Debt, noncurrent	2,980		2,976
Unearned revenue, noncurrent	70		75
Operating lease liabilities, noncurrent	227		182
Other liabilities	38		40
Total liabilities	8,370		7,901
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000 shares authorized; no shares issued or outstanding	—		—
Class A common stock, $0.001 par value; 750,000 shares authorized; 213,676 and 204,507 shares issued; 210,674 and 203,354 shares outstanding, respectively	—		—
Class B common stock, $0.001 par value; 240,000 shares authorized; 53,188 and 54,637 shares issued and outstanding, respectively	—		—
Additional paid-in capital	10,400		8,829
Treasury stock, at cost; 3,002 and 1,153 shares held, respectively	(608)		(185)
Accumulated other comprehensive income (loss)	21		53
Accumulated deficit	(1,731)		(3,112)
Total stockholders’ equity	8,082		5,585
Total liabilities and stockholders’ equity	$	16,452	$	13,486

See Notes to Consolidated Financial Statements

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WORKDAY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except number of shares which are reflected in thousands and per share data)


	Year Ended January 31,
	2024		2023		2022
Revenues:
Subscription services	$	6,603	$	5,567	$	4,546
Professional services	656		649		593
Total revenues	7,259		6,216		5,139
Costs and expenses (1):
Costs of subscription services	1,031		1,011		796
Costs of professional services	740		704		632
Product development	2,464		2,271		1,879
Sales and marketing	2,139		1,848		1,462
General and administrative	702		604		486
Total costs and expenses	7,076		6,438		5,255
Operating income (loss)	183		(222)		(116)
Other income (expense), net	173		(38)		132
Income (loss) before provision for (benefit from) income taxes	356		(260)		16
Provision for (benefit from) income taxes	(1,025)		107		(13)
Net income (loss)	$	1,381	$	(367)	$	29
Net income (loss) per share, basic	$	5.28	$	(1.44)	$	0.12
Net income (loss) per share, diluted	$	5.21	$	(1.44)	$	0.12
Weighted-average shares used to compute net income (loss) per share, basic	261,344		254,819		247,249
Weighted-average shares used to compute net income (loss) per share, diluted	265,285		254,819		254,032

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


	Year Ended January 31,
	2024		2023		2022
Costs of subscription services	$	120	$	106	$	86
Costs of professional services	116		111		113
Product development	653		619		543
Sales and marketing	282		249		216
General and administrative	245		210		154
Total share-based compensation expenses	$	1,416	$	1,295	$	1,112

See Notes to Consolidated Financial Statements

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WORKDAY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)


	Year Ended January 31,
	2024		2023		2022
Net income (loss)	$	1,381	$	(367)	$	29
Other comprehensive income (loss), net of tax:
Net change in foreign currency translation adjustment	(1)		(2)		(3)
Net change in unrealized gains (losses) on available-for-sale debt securities, net of tax provision of $5, $0, $0, respectively	18		(11)		(6)
Net change in unrealized gains (losses) on cash flow hedges, net of tax provision of $2, $0, and $0, respectively	(49)		58		72
Other comprehensive income (loss), net of tax	(32)		45		63
Comprehensive income (loss)	$	1,349	$	(322)	$	92

See Notes to Consolidated Financial Statements

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WORKDAY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in millions, except number of shares which are reflected in thousands)


	Year Ended January 31,
	2024		2023		2022





Additional paid-in capital:
Balance, beginning of period	$	8,829	$	7,284	$	6,255
Issuance of common stock under employee equity plans, net of shares withheld for employee taxes	155		152		148
Share-based compensation	1,416		1,295		1,101




Exercise of convertible senior notes hedges	—		98		—


Cumulative effect of accounting changes	—		—		(220)
Balance, end of period	10,400		8,829		7,284
Treasury stock:
Balance, beginning of period	(185)		(12)		(12)



Exercise of convertible senior notes hedges	—		(98)		—

Common stock repurchases under share repurchase program	(423)		(75)		—

Balance, end of period	(608)		(185)		(12)
Accumulated other comprehensive income (loss):
Balance, beginning of period	53		8		(55)
Other comprehensive income (loss)	(32)		45		63
Balance, end of period	21		53		8
Accumulated deficit:
Balance, beginning of period	(3,112)		(2,745)		(2,910)
Net income (loss)	1,381		(367)		29


Cumulative effect of accounting changes	—		—		136


Balance, end of period	(1,731)		(3,112)		(2,745)
Total stockholders’ equity	$	8,082	$	5,585	$	4,535


	Year Ended January 31,
	2024	2023	2022
Common stock shares:
Balance, beginning of period	257,991	251,209	242,667
Issuance of common stock under employee equity plans, net of shares withheld for employee taxes	7,720	7,156	8,417
Purchase of treasury stock from the exercise of convertible senior notes hedges	—	(635)	—
Settlement of convertible senior notes	—	635	—
Common stock repurchased	(1,849)	(450)	—

Other	—	76	125
Balance, end of period	263,862	257,991	251,209

See Notes to Consolidated Financial Statements

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WORKDAY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)


	Year Ended January 31,
	2024		2023		2022
Cash flows from operating activities:
Net income (loss)	$	1,381	$	(367)	$	29
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	282		364		344
Share-based compensation expenses	1,416		1,295		1,101
Amortization of deferred costs	213		175		139

Non-cash lease expense	96		92		86
(Gains) losses on investments	19		31		(146)
Accretion of discounts on marketable debt securities, net	(149)		(42)		3
Deferred income taxes	(1,058)		4		(22)
Other	(17)		57		9
Changes in operating assets and liabilities, net of business combinations:
Trade and other receivables, net	(87)		(319)		(208)
Deferred costs	(342)		(293)		(238)
Prepaid expenses and other assets	69		(14)		(35)
Accounts payable	(72)		86		9
Accrued expenses and other liabilities	(95)		136		51
Unearned revenue	493		452		529
Net cash provided by (used in) operating activities	2,149		1,657		1,651
Cash flows from investing activities:
Purchases of marketable securities	(6,150)		(7,183)		(2,859)
Maturities of marketable securities	4,519		4,949		2,804
Sales of marketable securities	144		104		199
Owned real estate projects	(4)		(4)		(171)
Capital expenditures, excluding owned real estate projects	(228)		(360)		(264)
Business combinations, net of cash acquired	(8)		—		(1,190)
Purchase of other intangible assets	(10)		(1)		(8)
Purchases of non-marketable equity and other investments	(16)		(23)		(123)
Sales and maturities of non-marketable equity and other investments	2		12		5

Net cash provided by (used in) investing activities	(1,751)		(2,506)		(1,607)
Cash flows from financing activities:
Proceeds from issuance of debt, net of debt discount	—		2,978		—




Repayments and extinguishment of debt	—		(1,844)		(38)
Payments for debt issuance costs	—		(7)		—
Repurchases of common stock	(423)		(75)		—
Proceeds from issuance of common stock from employee equity plans, net of taxes paid for shares withheld	155		152		148

Net cash provided by (used in) financing activities	(268)		1,204		110
Effect of exchange rate changes	(1)		(1)		(1)
Net increase (decrease) in cash, cash equivalents, and restricted cash	129		354		153
Cash, cash equivalents, and restricted cash at the beginning of period	1,895		1,541		1,388
Cash, cash equivalents, and restricted cash at the end of period	$	2,024	$	1,895	$	1,541

See Notes to Consolidated Financial Statements

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	Year Ended January 31,
	2024		2023		2022
Supplemental cash flow data
Cash paid for interest	$	110	$	60	$	13
Cash paid for income taxes, net of refunds	39		89		13
Non-cash investing and financing activities:
Purchases of property and equipment, accrued but not paid	52		51		47


	As of January 31,
	2024		2023		2022
Reconciliation of cash, cash equivalents, and restricted cash as shown in the Consolidated Statements of Cash Flows
Cash and cash equivalents	$	2,012	$	1,886	$	1,534
Restricted cash included in Prepaid expenses and other current assets	12		9		7

Total cash, cash equivalents, and restricted cash	$	2,024	$	1,895	$	1,541

See Notes to Consolidated Financial Statements

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Workday, Inc.

Notes to Consolidated Financial Statements

Note 1. Overview and Basis of Presentation

Description of the Business

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.

Fiscal Year

Our fiscal year ends on January 31. References to fiscal 2024, for example, refer to the fiscal year ended January 31, 2024.

Basis of Presentation

These consolidated financial statements have been prepared in accordance with GAAP and include the results of Workday, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.

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 consolidated financial statements in conformity with GAAP requires us to make certain estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates, judgments, and assumptions include, but are not limited to, the identification of distinct performance obligations for revenue recognition, the determination of the period of benefit for deferred commissions, the realizability of deferred tax assets, the measurement of uncertain tax positions, 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, judgments, and assumptions, and such differences could be material to our consolidated financial statements.

In February 2023, we completed an assessment of the useful lives of our data center equipment, including servers, network equipment, and integrated complete server and network racks. Due to advances in technology, as well as investments in software that increased efficiencies in how we operate our data center equipment, we determined we should increase the estimated useful lives of data center equipment from 3 years to 5 years. This change in accounting estimate was effective beginning fiscal 2024. Based on the carrying amount of data center equipment that was in-service as of January 31, 2023, this change decreased depreciation expense by $93 million for fiscal 2024.

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. Our CODM allocates resources and assesses performance based upon discrete financial information at the consolidated level. For fiscal 2024, our co-chief executive officers together served as CODM for purposes of segment reporting.

Effective February 1, 2024, Mr. Bhusri stepped down from his role as Co-CEO and assumed the role of Executive Chair, and Mr. Eschenbach became the sole CEO. In conjunction with the transition, Mr. Bhusri no longer serves as CODM for purposes of segment reporting effective February 1, 2024. Despite the change in the CODM, we determined that no change to segment reporting is necessary as there is no change in the components for which separate financial information are regularly evaluated.

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Note 2. Accounting Standards and Significant Accounting Policies

Summary of Significant Accounting Policies

Revenue Recognition

We derive our revenues from subscription services and professional services. Revenues are recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to receive in exchange for services rendered. Revenues are recognized net of any taxes collected from customers which are subsequently remitted to governmental authorities.

We determine revenue recognition through the following steps:

Identification of the contract, or contracts, with a customer;
Identification of the performance obligations in the contract;
Determination of the transaction price;
Allocation of the transaction price to the performance obligations in the contract; and
Recognition of revenues when, or as, we satisfy a performance obligation.

Subscription Services Revenues

Subscription services revenues primarily consist of fees that provide customers access to one or more of our cloud applications for financial management, spend management, human capital management, planning, and analytics, with routine customer support. Revenues are generally recognized on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Our subscription contracts are generally three years or longer in length and are generally noncancelable.

Professional Services Revenues

Professional services revenues primarily consist of consulting fees for deployment and optimization services, as well as training. Our consulting contracts are billed on a time and materials basis or a fixed price basis. For contracts billed on a time and materials basis, revenues are recognized over time as the professional services are performed. For contracts billed on a fixed price basis, revenues are recognized over time based on the proportion of the professional services performed.

Contracts with Multiple Performance Obligations

Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine the standalone selling prices based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts, the cloud applications sold, customer demographics, geographic locations, and the number and types of users within our contracts.

We use a range of amounts to estimate SSP for both subscription and professional services sold together in a contract to determine whether there is a discount to be allocated based on the relative SSP of the performance obligations. We use historical sales transaction data, among other factors, to determine the SSP for each distinct performance obligation. Our SSP ranges are reassessed on a periodic basis or when facts and circumstances change. Changes in SSP for our services can evolve over time due to changes in our pricing practices that are influenced by market competition, changes in demand for our services, and other economic factors. As our go-to-market strategies evolve, we may modify our pricing practices in the future, which could result in changes to SSP and may therefore impact revenue recognized in our consolidated financial statements.

Contract Balances

We generally invoice our customers annually in advance for our subscription services and in arrears for our professional services. Payment terms and conditions vary by contract type and by customer, and payment is generally required within 30 days from date of invoicing. The timing of revenue recognition may differ from the timing of invoicing customers, and these timing differences result in trade receivables, contract assets, or contract liabilities (unearned revenue) on our Consolidated Balance Sheets.

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Trade Receivables and Contract Assets

We record a trade receivable when an unconditional right to consideration exists, such that only the passage of time is required before payment of consideration is due. A contract asset is recognized when a conditional right to consideration exists and transfer of control has occurred. The current and noncurrent portions of contract assets are included in Trade and other receivables and Other assets, respectively, on the Consolidated Balance Sheets.

We maintain an allowance for credit losses for expected uncollectible trade receivables and contract assets, which is recorded as an offset to trade receivables or contract assets. We assess our allowance for credit losses by taking into consideration forecasts of future economic conditions, information about past events, such as our historical trend of write-offs, and customer-specific circumstances, such as bankruptcies and disputes. The allowance for credit losses is recorded in General and administrative expenses on the Consolidated Statements of Operations.

Unearned Revenue

Contract liabilities consist of unearned revenue, which is recorded when we invoice in advance of revenues being recognized from our contracts. Unearned revenue that is anticipated to be recognized during the succeeding twelve-month period is recorded as current unearned revenue and the remaining portion is recorded as noncurrent.

Fair Value Measurement

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 impairment or an observable price change from an orderly transaction for identical or similar investments of the same issuer at fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — Other inputs that are directly or indirectly observable in the marketplace.

Level 3 — Unobservable inputs that are supported by little or no market activity.

Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid investments with maturities of three months or less at the time of purchase. Our cash equivalents primarily consist of investments in U.S. treasury securities, U.S. agency obligations, corporate bonds, commercial paper, and money market funds.

Debt Securities

Debt securities primarily consist of investments in U.S. treasury securities, U.S. agency obligations, corporate bonds, and commercial paper. 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 Consolidated Balance Sheets. Debt securities included in Marketable securities on the 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. Realized gains or losses from the sales of debt securities are based on the specific identification method.

When the fair value of a debt security is below its amortized cost, the amortized cost should be written down to its fair value if (i) it is more likely than not that management will be required to sell the impaired security before recovery of its amortized basis or (ii) management has the intention to sell the security. If neither of these conditions are met, we must determine whether the impairment is due to credit losses. To determine the amount of credit losses, we compare the present value of the expected cash flows of the security, derived by taking into account the issuer’s credit ratings and remaining payment terms, with its amortized cost basis. The amount of impairment recognized is limited to the excess of the amortized cost over the fair value of the security. An allowance for credit losses for the excess of amortized cost over the expected cash flows is recorded in Other income (expense), net on the Consolidated Statements of Operations. Non-credit related losses are recorded in Accumulated other comprehensive income (loss) (“AOCI”).

If quoted prices for identical instruments are available in an active market, debt securities are classified within Level 1 of the fair value hierarchy. If quoted prices for identical instruments in active markets are not available, fair values are estimated using quoted prices of similar instruments and are classified within Level 2 of the fair value hierarchy. To date, all of our debt securities can be valued using one of these two methodologies.

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Equity Investments

We determine at the inception of each arrangement whether an investment or other interest is considered a variable interest entity (“VIE”). If the investment or other interest is determined to be a VIE, we must evaluate whether we are considered the primary beneficiary. The primary beneficiary of a VIE is the party that meets both of the following criteria: (1) has the power to direct the activities that most significantly impact the VIE’s economic performance; and (2) has the obligation to absorb losses or the right to receive benefits from the VIE. For investments in VIEs in which we are considered the primary beneficiary, the assets, liabilities, and results of operations of the VIE are included in our consolidated financial statements. As of January 31, 2024, and 2023, there were no VIEs for which we were the primary beneficiary.

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. These investments are included in Other assets on the Consolidated Balance Sheets. Additionally, we assess our non-marketable equity investments quarterly for impairment. Adjustments and impairments are recorded in Other income (expense), net on the Consolidated Statements of Operations.

Marketable Equity Investments

We may hold marketable equity investments with readily determinable fair values over which we do not own a controlling interest or exercise significant influence. Marketable equity investments are included in Marketable securities on the Consolidated Balance Sheets. They are measured using quoted prices in active markets with changes recorded in Other income (expense), net on the Consolidated Statements of Operations. As of January 31, 2024, we had no marketable equity investments.

Deferred Commissions

Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for new revenue contracts are capitalized and then amortized on a straight-line basis over a period of benefit that we have determined to be five years. We determined the period of benefit by taking into consideration our customer contracts, our technology, and other factors. Amortization expense is included in Sales and marketing expenses on the Consolidated Statements of Operations.

Derivative Financial Instruments and Hedging Activities

We use derivative financial instruments to manage foreign currency exchange risk. Derivative instruments are measured at fair value and recorded as either an asset or liability on the Consolidated Balance Sheets. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting. For derivative instruments designated as cash flow hedges (“cash flow hedges”), which we use to hedge a portion of our forecasted foreign currency revenue and expense transactions, the gains or losses are recorded in AOCI on the Consolidated Balance Sheets and subsequently reclassified to the same line item as the hedged transaction on the Consolidated Statements of Operations in the same period that the hedged transaction affects earnings. For derivative instruments not designated as hedging instruments (“non-designated hedges”), which we use to hedge a portion of our net outstanding monetary assets and liabilities, the gains or losses are recorded in Other income (expense), net on the Consolidated Statements of Operations in the period incurred. Cash flows from the settlement of forward contracts designated as cash flow hedges and non-designated hedges are classified as operating activities on the Consolidated Statements of Cash Flows.

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.

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Property and Equipment

Property and equipment are stated at cost less accumulated depreciation, except for land which is stated at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets as shown in the table below. Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.


Computers, equipment, and software			2 - 10 years
Buildings			10 - 60 years
Leasehold improvements			shorter of the related lease term or ten years
Furniture, fixtures, and transportation equipment			5 - 12 years
Land improvements			15 years

Business Combinations

We allocate the purchase consideration of acquired companies to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date, with the excess recorded to goodwill. Our estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, including uncertain tax positions and tax-related valuation allowances, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Consolidated Statements of Operations.

In the event that we acquire a company in which we previously held an equity interest, the difference between the fair value of the shares as of the date of the acquisition and the carrying value of the equity investment is recorded as a non-cash gain or loss and recorded within Other income (expense), net on the Consolidated Statements of Operations.

Goodwill and Acquisition-Related Intangible Assets

Acquisition-related intangible assets with finite lives are amortized over their estimated useful lives. Goodwill amounts are not amortized. Acquisition-related intangible assets and goodwill are tested for impairment at least annually, and more frequently upon the occurrence of certain events.

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 and operating lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. Right-of-use assets also include adjustments related to prepaid or deferred lease payments and lease incentives. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate to determine the present value of lease payments.

We have elected to combine lease and non-lease components for each of our existing underlying asset classes and to not include leases with a term of 12 months or less on our Consolidated Balance Sheets. We recognize variable lease costs, including common area maintenance, utilities, real estate taxes, insurance, and other operating costs that are passed on from the lessor, in the Consolidated Statements of Operations in the period incurred. Options to extend or terminate a lease are included in the lease term when it is reasonably certain that we will exercise such options.

Treasury Stock

Treasury stock is accounted for using the cost method and recorded as a reduction to Stockholders’ equity on the Consolidated Balance Sheets. Incremental direct costs to purchase treasury stock are included in the cost of the shares acquired.

To determine the cost of treasury stock that is either sold or re-issued, we use the first in, first out method. When treasury stock is re-issued at a price higher than its cost, the increase is recorded in Additional paid-in capital on the Consolidated Balance Sheets. When treasury stock is re-issued at a price lower than its cost, the decrease is recorded in Additional paid-in capital to the extent that there are previously recorded increases to offset the decrease. Any decreases in excess of that amount are recorded in Accumulated deficit on the Consolidated Balance Sheets.

Advertising Expenses

Advertising is expensed as incurred. Advertising expense was $194 million, $172 million, and $131 million for fiscal 2024, 2023, and 2022, respectively.

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Share-Based Compensation

We measure and recognize compensation expense for share-based awards issued to employees and non-employees, primarily including RSUs and purchases under the Amended and Restated 2012 Employee Stock Purchase Plan (“ESPP”), on the Consolidated Statements of Operations.

For RSUs, fair value is based on the closing price of our common stock on the grant date. Compensation expense, net of estimated forfeitures, is recognized on a straight-line basis over the requisite service period. The requisite service period of the awards is generally the same as the vesting period.

For shares issued under the ESPP, fair value is estimated using the Black-Scholes option-pricing model. Compensation expense is recognized on a straight-line basis over the offering period. We determine the assumptions for the option-pricing model as follows:

Risk-Free Interest Rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date closest to the grant date for zero-coupon U.S. Treasury notes with maturities approximately equal to the expected term of the ESPP purchase rights.
Expected Term. The expected term represents the period that our ESPP is expected to be outstanding. The expected term for the ESPP approximates the offering period.
Volatility. The volatility is based on a blend of historical volatility and implied volatility of our common stock. Implied volatility is based on market traded options of our common stock.
Dividend Yield. The dividend yield is assumed to be zero as we have not paid and do not expect to pay dividends.

Income Taxes

We record a provision for (benefit from) income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. A valuation allowance is established when necessary to reduce deferred tax assets to the net amount that is more likely than not to be realized. In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for (benefit from) income taxes in the period in which such determination is made.

We recognize the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the taxing authority, based on the technical merits. The tax benefit recognized is measured as the largest amount of benefit which is greater than 50% likely to be realized upon settlement with the taxing authority. To the extent the assessment of such tax position changes, such difference will affect the provision for (benefit from) income taxes in the period in which we make the determination. We recognize interest accrued and penalties related to unrecognized tax benefits in the provision for (benefit from) income taxes.

Warranties and Indemnification

Our cloud applications are generally warranted to perform materially in accordance with our online documentation under normal use and circumstances. Additionally, our contracts generally include provisions for indemnifying customers against liabilities if use of our cloud applications infringe a third party’s intellectual property rights. We may also incur liabilities if we breach the security, privacy, and/or confidentiality obligations in our contracts. To date, we have not incurred any material costs, and we have not accrued any liabilities in the accompanying consolidated financial statements, as a result of these obligations.

In our standard agreements with customers, we commit to defined levels of service availability and performance and, under certain circumstances, permit customers to receive credits in the event that we fail to meet those levels. In the event our failure to meet those levels triggers a termination right for a customer, we permit a terminating customer to receive a refund of prepaid amounts related to unused subscription services. To date, we have not experienced any significant failures to meet defined levels of availability and performance and, as a result, we have not accrued any liabilities related to these agreements on the consolidated financial statements.

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Foreign Currency Exchange

The functional currency for certain of our foreign subsidiaries is the U.S. dollar, while others use local currencies. We translate the foreign functional currency financial statements to U.S. dollars for those entities that do not have the U.S. dollar as their functional currency using the exchange rates at the balance sheet date for assets and liabilities, the period average exchange rates for revenues and expenses, and the historical exchange rates for equity transactions. The effects of foreign currency translation adjustments are recorded in AOCI on the Consolidated Balance Sheets. Foreign currency transaction gains and losses are included in Other income (expense), net on the Consolidated Statements of Operations.

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, derivative instruments, 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 January 31, 2024, or 2023. No customer individually accounted for more than 10% of total revenues during fiscal 2024, 2023, or 2022.

Other than the United States, no country individually accounted for more than 10% of total revenues during fiscal 2024, 2023, or 2022.

In order to reduce the risk of disruption 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 North America and Europe. We have internal procedures to restore services in the event of disruption 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 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 may impact our operations and our business could be adversely impacted.

Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. We are currently evaluating the impacts of the new standard.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Disclosures, which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. This ASU is effective for fiscal years beginning after December 15, 2024, and allows for adoption on a prospective basis, with a retrospective option. We are currently evaluating the impacts of the new standard.

Note 3. Investments

Debt Securities

As of January 31, 2024, debt securities consisted of the following (in millions):


	Amortized Cost		Unrealized Gains		Unrealized Losses		Aggregate Fair Value
U.S. treasury securities	$	2,072	$	4	$	(2)	$	2,074
U.S. agency obligations	753		2		(1)		754
Corporate bonds	2,496		9		(5)		2,500
Commercial paper	1,232		—		—		1,232
Total debt securities	$	6,553	$	15	$	(8)	$	6,560
Included in Cash and cash equivalents	$	759	$	—	$	—	$	759
Included in Marketable securities	$	5,794	$	15	$	(8)	$	5,801

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As of January 31, 2023, debt securities consisted of the following (in millions):


	Amortized Cost		Unrealized Gains		Unrealized Losses		Aggregate Fair Value
U.S. treasury securities	$	2,456	$	—	$	(7)	$	2,449
U.S. agency obligations	325		—		(3)		322
Corporate bonds	967		1		(7)		961
Commercial paper	1,017		—		—		1,017
Total debt securities	$	4,765	$	1	$	(17)	$	4,749
Included in Cash and cash equivalents	$	595	$	—	$	—	$	595
Included in Marketable securities	$	4,170	$	1	$	(17)	$	4,154

The contractual maturities of debt securities were as follows (in millions):


	January 31, 2024
Due within 1 year	$	3,749
Due 1 year through 5 years	2,811
Total debt securities	$	6,560

As of January 31, 2024, and 2023, the fair value of debt securities in an unrealized loss position was $2.4 billion and $3.1 billion, respectively, the majority of which had been in a continuous unrealized loss position for less than 12 months. We do not intend to sell these debt securities and it is not more likely than not that we will be required to sell the debt securities before recovery of their amortized cost bases, which may be at maturity. We did not recognize any credit or non-credit related losses related to our debt securities during fiscal 2024, 2023, or 2022.

We sold $59 million, $98 million, and $162 million of debt securities during fiscal 2024, 2023, and 2022, respectively. The realized gains and losses from the sales were immaterial.

Equity Investments

Equity investments consisted of the following (in millions):


		As of January 31,
	Consolidated Balance Sheets Location	2024		2023
Money market funds	Cash and cash equivalents	$	1,017	$	902

Non-marketable equity investments measured using the measurement alternative	Other assets	248		262
Marketable equity investments	Marketable securities	—		81
Total equity investments		$	1,265	$	1,245

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


	Year Ended January 31,
	2024		2023		2022
Net realized gains (losses) recognized on equity investments sold (1)	$	6	$	(1)	$	22
Net unrealized gains (losses) recognized on equity investments held as of the end of the period	(30)		(26)		122
Total net gains (losses) recognized in Other income (expense), net	$	(24)	$	(27)	$	144

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

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Non-Marketable Equity Investments Measured Using the Measurement Alternative

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


	As of January 31,
	2024		2023
Total initial cost	$	213	$	207
Cumulative net unrealized gains (losses)	35		55
Carrying value	$	248	$	262

In fiscal 2024, we recorded impairment losses of $30 million. In fiscal 2023, we recorded upward adjustments to the carrying value of non-marketable equity investments of $8 million and impairment losses of $16 million. In fiscal 2022, we recorded upward adjustments to the carrying value of non-marketable equity investments of $58 million and a non-cash gain of $12 million related to our acquisition of Zimit.

Marketable Equity Investments

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


	As of January 31,
	2024		2023
Total initial cost	$	—	$	39
Cumulative net unrealized gains (losses)	—		42
Carrying value	$	—	$	81

During fiscal 2024, we sold all of our marketable equity investments for proceeds of $87 million, with corresponding realized gains of $6 million. During fiscal 2023, we sold marketable equity investments for proceeds of $6 million, and the realized gains from the sales were not material. During fiscal 2022, we sold marketable equity investments for proceeds of $37 million, with corresponding realized gains of $7 million.

During fiscal 2023 and 2022, we recorded unrealized net losses of $18 million, and gains of $67 million, respectively, on marketable equity investments held as of the end of each period.

Note 4. Fair Value Measurements

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 January 31, 2024 (in millions):


	Level 1		Level 2		Level 3		Total
U.S. treasury securities	$	2,074	$	—	$	—	$	2,074
U.S. agency obligations	—		754		—		754
Corporate bonds	—		2,500		—		2,500
Commercial paper	—		1,232		—		1,232
Money market funds	1,017		—		—		1,017

Foreign currency derivative assets	—		46		—		46
Total assets	$	3,091	$	4,532	$	—	$	7,623
Foreign currency derivative liabilities	$	—	$	27	$	—	$	27
Total liabilities	$	—	$	27	$	—	$	27

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	Level 1		Level 2		Level 3		Total
U.S. treasury securities	$	2,449	$	—	$	—	$	2,449
U.S. agency obligations	—		322		—		322
Corporate bonds	—		961		—		961
Commercial paper	—		1,017		—		1,017
Money market funds	902		—		—		902
Marketable equity investments	81		—		—		81
Foreign currency derivative assets	—		65		—		65
Total assets	$	3,432	$	2,365	$	—	$	5,797
Foreign currency derivative liabilities	$	—	$	34	$	—	$	34
Total liabilities	$	—	$	34	$	—	$	34

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 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 11, Debt.

Note 5. Deferred Costs

Deferred costs, which consist of deferred sales commissions, were $741 million and $612 million as of January 31, 2024, and 2023, respectively. Amortization expense for the deferred costs was $213 million, $175 million, and $139 million for fiscal 2024, 2023, and 2022, respectively. There was no impairment loss in relation to the costs capitalized for the periods presented.

Note 6. Property and Equipment, Net

Property and equipment, net consisted of the following (in millions):


	As of January 31,
	2024		2023
Computers, equipment, and software	$	1,387	$	1,286
Buildings	726		720
Leasehold improvements	213		202
Furniture, fixtures, and transportation equipment	99		91
Land and land improvements	81		81
Property and equipment, gross	2,506		2,380
Less accumulated depreciation and amortization	(1,272)		(1,179)
Property and equipment, net	$	1,234	$	1,201

Depreciation expense totaled $203 million, $275 million, and $263 million for fiscal 2024, 2023, and 2022, respectively.

Related-Party Transactions

There were no material related party transactions related to our property and equipment in fiscal 2024 or 2023.

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Aircraft Purchase

During fiscal 2022, we purchased an aircraft from an affiliate of our Co-Founder and CEO Emeritus, David Duffield, for approximately $24 million in cash. The aircraft was purchased primarily for the purpose of business travel by our Co-Founder and Executive Chair, Mr. Bhusri, and other Workday executives. In approving the related-party transaction, the Audit Committee of our Board of Directors considered the benefits to Workday of purchasing the aircraft, independent appraisals, the terms of the related purchase agreement, and the extent and nature of Mr. Duffield’s interest in the transaction. The aircraft is included in the Furniture, fixtures, and transportation equipment category in the table above.

Leased Property Purchase

During fiscal 2022, we purchased certain leased office space (“Property”) within our corporate headquarters from an affiliate of Mr. Duffield for $173 million in cash. In deciding to purchase the Property, the independent members of our Board of Directors considered the benefits to Workday, including the importance of obtaining control of the Property, which is part of Workday’s headquarters campus, and the long-term cost savings from ownership as compared to continuing to lease the Property. Our Board of Directors also considered independent appraisals, comparable transaction data, and the extent and nature of Mr. Duffield’s interest in the transaction. The carrying value of the Property upon purchase was $158 million, calculated as the purchase price less approximately $15 million which represents the difference between the carrying values of the right-of-use asset and lease liability of the Property immediately prior to the purchase. For further information, see Note 12, Leases.

Note 7. Business Combinations

There were no material business combinations in fiscal 2024 or 2023.

Fiscal 2022

VNDLY Acquisition

On December 21, 2021, we acquired all outstanding stock of VNDLY, a cloud-based external workforce and vendor management technology. With VNDLY, Workday provides organizations with a unified workforce optimization solution that helps organizations manage all types of workers—salaried, hourly, contingent, and outsourced—and support a holistic talent strategy, including insight into costs, workforce planning needs, and compliance. We have included the financial results of VNDLY in our consolidated financial statements from the date of acquisition.

The total acquisition-date fair value of the purchase consideration was $473 million, which was paid in cash. In connection with the acquisition, we issued approximately 152 thousand shares of our Class A common stock to certain key VNDLY employees, with 50% of such shares issued following the first anniversary of the closing date of the acquisition and the remaining 50% to be issued following the second anniversary of the closing date, subject to service conditions. The aggregate fair value of the equity was accounted for as post-acquisition share-based compensation expense.

The purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, with the excess recorded to goodwill. The purchase consideration allocation, which includes measurement period adjustments, was as follows (in millions):


Cash	$	23
Acquisition-related intangible assets	40
Goodwill	412
Other assets	3
Deferred tax liability	(3)
Other liabilities	(2)
Total	$	473

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The fair values and weighted-average useful lives of the acquired intangible assets by category were as follows (in millions, except years):


	Estimated Fair Values		Weighted-Average Useful Lives (in Years)
Developed technology	$	27	4
Customer relationships	13		13
Total acquisition-related intangible assets	$	40	7

The goodwill recognized was primarily attributable to the assembled workforce and the expected synergies from integrating VNDLY’s technology into our product portfolio. The goodwill is not deductible for income tax purposes.

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

Zimit Acquisition

On September 28, 2021, we acquired all outstanding stock of Zimit, a CPQ solution built for services industries. With Zimit, Workday delivers a comprehensive quote-to-cash process automation offering that provides services organizations increased visibility across the entire revenue cycle. We have included the financial results of Zimit in our consolidated financial statements from the date of acquisition.

The acquisition-date fair value of the purchase consideration was $76 million, with $62 million attributable to cash consideration and $14 million attributable to the fair value of a previously held equity interest. We recorded developed technology intangible assets of $7 million (to be amortized over an estimated useful life of 4 years), customer relationships intangible assets of $3 million (to be amortized over an estimated useful life of 13 years), and goodwill of $67 million. Goodwill was primarily attributable to the expected synergies from integrating Zimit’s technology into our product portfolio. The goodwill is not deductible for income tax purposes.

We invested $2 million in Zimit prior to the acquisition, which was accounted for as a non-marketable equity investment. We recognized a non-cash gain of approximately $12 million as a result of remeasuring our prior equity interest in Zimit held before the business combination. The gain is included in Other income (expense), net on the Consolidated Statements of Operations.

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

Peakon Acquisition

On March 9, 2021, we acquired all outstanding stock of Peakon, an employee success platform that converts feedback into actionable insights, for $702 million. With Peakon, Workday provides organizations with a continuous listening platform, including real-time visibility into employee experience, sentiment, and productivity, to help drive employee engagement and improve organizational performance. We have included the financial results of Peakon in our consolidated financial statements from the date of acquisition.

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


Cash paid to stockholders, warrant holders, and vested option holders	$	684
Transaction costs paid by Workday on behalf of Peakon	18
Total	$	702

Additionally, we granted certain Peakon employees restricted stock awards (“RSAs”) with service conditions, which totaled approximately 82 thousand shares of our Class A common stock. The aggregate grant date fair value of the RSAs was accounted for as post-acquisition share-based compensation expense.

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Acquisition-related intangible assets	$	171
Goodwill	541
Other assets	35
Deferred tax liability	(20)
Other liabilities	(25)
Total	$	702

The fair values and weighted-average useful lives of the acquired intangible assets by category were as follows (in millions, except years):


	Estimated Fair Values		Weighted-Average Useful Lives (in Years)
Developed technology	$	94	5
Customer relationships	72		13
Backlog	4		3
Trade name	1		1
Total acquisition-related intangible assets	$	171	8

The goodwill recognized was primarily attributable to the assembled workforce and the expected synergies from integrating Peakon’s technology into our product portfolio. A portion of the goodwill was deductible for income tax purposes.

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

Note 8. Acquisition-Related Intangible Assets, Net

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


	As of January 31,
	2024		2023
Developed technology	$	318	$	343
Customer relationships	311		311
Backlog	15		15
Trade name	13		13
Acquisition-related intangible assets, gross	657		682
Less accumulated amortization	(424)		(376)
Acquisition-related intangible assets, net	$	233	$	306

Amortization expense related to acquisition-related intangible assets was $74 million, $86 million, and $78 million for fiscal 2024, 2023, and 2022, respectively.

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As of January 31, 2024, our future estimated amortization expense related to acquisition-related intangible assets was as follows (in millions):


Fiscal Period:
2025	$	62
2026	56
2027	32
2028	27
2029	17
Thereafter	39
Total	$	233

Note 9. Other Assets

Other assets consisted of the following (in millions):


	As of January 31,
	2024		2023
Non-marketable equity and other investments	$	248	$	263
Technology patents and other intangible assets, net	26		21
Contract assets	21		—
Derivative assets	14		22
Prepayments for goods and services	14		23
Deposits	8		6

Other	6		13
Total other assets	$	337	$	348

Technology patents and other intangible assets with estimable useful lives are amortized on a straight-line basis. As of January 31, 2024, the future estimated amortization expense was as follows (in millions):


Fiscal Period:
2025	$	4
2026	3
2027	3
2028	3
2029	3
Thereafter	10
Total	$	26

Note 10. 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.

Cash Flow Hedges

We enter into foreign currency forward contracts to hedge a portion of our forecasted revenue and expense transactions. We designate these forward contracts as cash flow hedging instruments since the accounting criteria for such designation has been met.

As of January 31, 2024, we estimate that $26 million of net gains recorded in AOCI related to our cash flow hedges will be reclassified into income within the next 12 months.

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As of January 31, 2024, and 2023, the notional values of the cash flow hedges that we held to buy U.S. dollars in exchange for other currencies were $2.5 billion and $1.7 billion, respectively. The notional values of the cash flow hedges that we held to sell U.S. dollars in exchange for other currencies were $399 million and $324 million as of January 31, 2024, and 2023, respectively. All contracts had maturities of less than 60 months.

Non-Designated Hedges

We also enter into foreign currency forward contracts to hedge a portion of our net outstanding monetary assets and liabilities. 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 Consolidated Balance Sheets at fair value.

As of January 31, 2024, and 2023, the notional values of the non-designated hedges that we held to buy U.S. dollars in exchange for other currencies were $237 million and $235 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 $11 million and $2 million, respectively.

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


	Consolidated Balance Sheets Location		As of January 31,
		2024			2023
Derivative assets:
Cash flow hedges	Prepaid expenses and other current assets		$	30		$	43
Cash flow hedges	Other assets		14			22
Non-designated hedges	Prepaid expenses and other current assets		2			—

Total derivative assets			$	46		$	65
Derivative liabilities:
Cash flow hedges	Accrued expenses and other current liabilities		$	14		$	13
Cash flow hedges	Other liabilities		12			16
Non-designated hedges	Accrued expenses and other current liabilities		1			5

Total derivative liabilities			$	27		$	34

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


Consolidated Statements of Operations Location		Year Ended January 31,
	2024					2023					2022
		Total		Gains (losses) related to cash flow hedges			Total		Gains (losses) related to cash flow hedges			Total		Gains (losses) related to cash flow hedges
Revenues		$	7,259	$	62		$	6,216	$	17		$	5,139	$	(9)
Costs and expenses		7,076		1			6,438		(29)			5,255		—
Provision for (benefit from) income taxes		(1,025)		—			107		(6)			(13)		—

Pre-tax gains (losses) associated with cash flow hedges were as follows (in millions):


	Consolidated Statements of Operations and Statements of Comprehensive Income (Loss) Locations		Year Ended January 31,
		2024			2023			2022
Gains (losses) recognized in OCI	Net change in unrealized gains (losses) on cash flow hedges		$	16		$	40		$	63
Gains (losses) reclassified from AOCI into income (effective portion)	Revenues		62			17			(9)
Gains (losses) reclassified from AOCI into income (effective portion)	Costs and expenses		1			(29)			—
Gains (losses) reclassified from AOCI into income (effective portion)	Provision for (benefit from) income taxes		—			(6)			—

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Gains (losses) associated with non-designated hedges were as follows (in millions):


	Consolidated Statements of Operations Location		Year Ended January 31,
		2024			2023			2022
Gains (losses) related to non-designated hedges	Other income (expense), net		$	5		$	10		$	7

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 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 January 31, 2024, information related to these offsetting arrangements was as follows (in millions):


	Gross Amounts of Recognized Assets		Gross Amounts Offset on the Consolidated Balance Sheets			Net Amounts of Assets Presented on the Consolidated Balance Sheets			Gross Amounts Not Offset on the Consolidated Balance Sheets				Net Assets Exposed
					Financial Instruments			Cash Collateral Received
Derivative assets:
Counterparty A	$	13	$	—		$	13		$	(4)	$	—	$	9
Counterparty B	11		—			11			(6)		—		5
Counterparty C	2		—			2			(1)		—		1
Counterparty D	17		—			17			(14)		—		3
Counterparty E	3		—			3			(2)		—		1

Total	$	46	$	—		$	46		$	(27)	$	—	$	19


	Gross Amounts of Recognized Liabilities		Gross Amounts Offset on the Consolidated Balance Sheets			Net Amounts of Liabilities Presented on the Consolidated Balance Sheets			Gross Amounts Not Offset on the Consolidated Balance Sheets				Net Liabilities Exposed
					Financial Instruments			Cash Collateral Pledged
Derivative liabilities:
Counterparty A	$	4	$	—		$	4		$	(4)	$	—	$	—
Counterparty B	6		—			6			(6)		—		—
Counterparty C	1		—			1			(1)		—		—
Counterparty D	14		—			14			(14)		—		—
Counterparty E	2		—			2			(2)		—		—

Total	$	27	$	—		$	27		$	(27)	$	—	$	—

Note 11. Debt

Outstanding debt consisted of the following (in millions):


	As of January 31,
	2024		2023
2027 Notes	$	1,000	$	1,000
2029 Notes	750		750
2032 Notes	1,250		1,250
Total principal amount	3,000		3,000
Less: unamortized debt discount and issuance costs	(20)		(24)
Net carrying amount	2,980		2,976

Debt, noncurrent	$	2,980	$	2,976

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As of January 31, 2024, the future principal payments for the outstanding debt were as follows (in millions):


Fiscal Period:
2025	$	—
2026	—
2027	—
2028	1,000
2029	—
Thereafter	2,000
Total principal amount	$	3,000

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, $750 million aggregate principal amount of 3.700% notes due April 1, 2029, and $1.25 billion aggregate principal amount of 3.800% notes due April 1, 2032. Interest is payable semi-annually in arrears on April 1 and October 1 of each year, which commenced in October 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 January 31, 2024, 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 both January 31, 2024, and 2023, the total estimated fair value of the Senior Notes was $2.8 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.

Credit Agreement

In April 2022, we entered into the 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 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 Consolidated Statements of Operations for fiscal 2023.

As of January 31, 2024, and 2023, 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 SOFR 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.

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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 January 31, 2024, and 2023, we were in compliance with all covenants included in the 2022 Credit Agreement.

Convertible Senior Notes

2022 Notes

In September 2017, we issued 0.25% convertible senior notes due October 1, 2022, with a principal amount of $1.15 billion. 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 third quarter of fiscal 2023, 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 fiscal 2023, which represented 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, respectively, for $147.10 per share. During the third quarter of fiscal 2023, we received approximately 0.6 million shares of our Class A common stock from the exercise of the Purchased Options, which offset the economic dilution to our Class A common stock upon conversion of the 2022 Notes. These shares were recorded as Treasury stock on the Consolidated Balance Sheets. The Purchased Options were separate transactions and were not part of the terms of the 2022 Notes, and the unexercised Purchased Options expired on October 1, 2022.

Warrants

In connection with the issuance of the 2022 Notes, we also entered into transactions to sell warrants (“Warrants”) to acquire, subject to anti-dilution adjustments, up to approximately 7.8 million shares of our Class A common stock over 60 scheduled trading days beginning in January 2023 at an exercise price of $213.96 per share. During the first quarter of fiscal 2024, the Warrants fully expired without exercise.

Interest Expense on Debt

The following table sets forth total interest expense recognized related to our debt (in millions):


	Year Ended January 31,
	2024		2023		2022
Contractual interest expense	$	110	$	95	$	13
Interest cost related to amortization and write-off of debt discount and issuance costs	4		7		4
Total interest expense	$	114	$	102	$	17

Note 12. Leases

We have entered into operating lease agreements for our office space, data centers, and other property and equipment. Operating lease right-of-use assets were $289 million and $249 million as of January 31, 2024, and 2023, respectively, and operating lease liabilities were $316 million and $273 million as of January 31, 2024, and 2023, respectively. We have also entered into finance lease agreements for other property and equipment. As of January 31, 2024, and 2023, finance leases were not material.

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The components of operating lease expense were as follows (in millions):



	Year Ended January 31,
	2024		2023		2022
Operating lease cost	$	109	$	99	$	93




Short-term lease cost	3		4		6
Variable lease cost	46		45		26

Total operating lease cost	$	158	$	148	$	125

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


	Year Ended January 31,
	2024		2023		2022
Cash paid for operating lease liabilities	$	112	$	94	$	91
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	139		96		55

Other information related to our operating leases was as follows:


	As of January 31,
	2024		2023
Weighted average remaining lease term (in years)	5		5
Weighted average discount rate	3.95	%	2.79	%

As of January 31, 2024, maturities of operating lease liabilities were as follows (in millions):


Fiscal Period:
2025	$	100
2026	80
2027	61
2028	47
2029	32
Thereafter	39
Total lease payments	359
Less imputed interest	(43)
Total operating lease liabilities	$	316

As of January 31, 2024, we have additional operating leases for data centers and office space that had not yet commenced with total undiscounted lease payments of $91 million. These operating leases will commence in fiscal 2025 and fiscal 2026, with lease terms ranging from approximately five to nine years.

Related-Party Transactions

There were no material related party transactions related to our leases in fiscal 2024 or 2023.

Leased Property Purchase

As discussed in Note 6, Property and Equipment, Net, during fiscal 2022, we purchased certain leased office space within our corporate headquarters from an affiliate of Mr. Duffield for $173 million in cash. Subsequent to the purchase, the Property was included in Property and equipment, net on the Consolidated Balance Sheets. Total rent expense under these agreements was $2 million for fiscal 2022.

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Note 13. 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. These obligations consist of agreements to purchase goods and services that are enforceable and legally binding, and specify all significant terms and the approximate timing of the payments. For purchase obligations with cancellation provisions, the amounts included in the following table were limited to the non-cancelable portion of the agreement terms or the minimum cancellation fees.

Future payments under purchase obligations with a remaining term in excess of one year as of January 31, 2024, were as follows (in millions):


	Third-Party Hosted Infrastructure Platform Obligations		Other Purchase Obligations
Fiscal Period:
2025	$	180	$	120
2026	314		94
2027	358		71
2028	414		70
2029	591		50
Thereafter	—		58
Total	$	1,857	$	463

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 January 31, 2024, 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 14. Stockholders’ Equity

Common Stock

As of January 31, 2024, there were 211 million shares of Class A common stock, net of treasury stock, and 53 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. All of our Class A and Class B shares will convert to a single class of common stock upon the date that is the first to occur of (i) October 17, 2032, (ii) such time as the shares of Class B common stock represent less than 9% of the outstanding Class A common stock and Class B common stock, (iii) nine months following the death of both Mr. Duffield and Mr. Bhusri, and (iv) the date on which the holders of a majority of the shares of Class B common stock elect to convert all shares of Class A common stock and Class B common stock into a single class of common stock.

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Share Repurchase Programs

In November 2022, our Board of Directors authorized the repurchase of up to $500 million of our outstanding shares of Class A common stock. Under the 2022 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 Exchange Act, 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 2022 Share Repurchase Program has 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.

During fiscal 2024 and 2023, we repurchased approximately 1.8 million and 0.5 million shares of Class A common stock for approximately $423 million and $75 million, at an average price per share of $228.67 and $165.75, respectively. All repurchases were made in open market transactions. As of January 31, 2024, we were authorized to purchase a remaining $2 million of our outstanding shares of Class A common stock under the 2022 Share Repurchase Program.

In February 2024, our Board of Directors authorized the 2024 Share Repurchase Program, under which we may repurchase up to an additional $500 million of our outstanding shares of Class A common stock. For further information, see Note 21, Subsequent Events.

Employee Equity Plans

In June 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 January 31, 2024, we had 21 million shares of Class A common stock available for future grants.

In June 2022, our stockholders approved the 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. As of January 31, 2024, 4 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 RSUs to employees and non-employees. RSUs generally vest over four years. RSU activity during fiscal 2024 was as follows (in thousands, except per share data):


	Number of Shares	Weighted-Average Grant Date Fair Value
Balance as of January 31, 2023	14,099	$	206.38
RSUs granted	8,961	197.22
RSUs vested	(6,489)	201.71
RSUs forfeited	(1,551)	196.93
Balance as of January 31, 2024	15,020	203.94

The weighted-average grant date fair value of RSUs granted during fiscal 2024, 2023, and 2022 was $197.22, $200.98, and $259.61, respectively. The total fair value of RSUs vested as of the vesting dates during fiscal 2024, 2023, and 2022 was $1.4 billion, $977 million, and $1.6 billion, respectively.

In the fourth quarter of fiscal 2023, we modified the vesting date of all unvested RSU awards from the 15th to the 5th of each month. This change impacted awards vesting after December 31, 2022, and resulted in an acceleration of share-based compensation expense in fiscal 2023 of $28 million.

As of January 31, 2024, 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.

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Market-Based Restricted Stock Units

In December 2022, 0.3 million shares of market-based RSUs were granted to Mr. Eschenbach, in connection with his appointment as Co-CEO, that vest based on appreciation of the price of our Class A common stock over a multi-year period and upon continued service (“PVU Award”). We estimated the fair value of the PVU Award on the grant date using the Monte Carlo simulation model with the following assumptions: (i) expected volatility of 40%, (ii) risk-free interest rate of 4%, and (iii) total performance period of six years. The weighted-average grant date fair value of the PVU Award was $124.80 per share. We recognize expense for the PVU Award over the requisite service period of five years using the accelerated attribution method. Provided that the requisite service is rendered, the total fair value of the PVU Award at the date of grant is recognized as compensation expense even if the market condition is not achieved. However, the number of shares that ultimately vest can vary significantly with the achievement of the specified market criteria.

As of January 31, 2024, there was a total of $19 million in unrecognized compensation cost related to the PVU Award, which is expected to be recognized over approximately four years.

Performance-Based Restricted Stock Units

During fiscal 2022, 0.4 million shares of PRSUs were granted to employees below the level of vice president that included both service conditions and performance conditions related to company-wide goals. These performance conditions were met and the PRSUs vested on March 15, 2022. We did not grant any company-wide PRSUs in fiscal 2024 or 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. Stock option activity during fiscal 2024 was as follows (in thousands, except aggregate intrinsic value, which is reflected in millions, and per share data):


	Outstanding Stock Options	Weighted-Average Exercise Price		Aggregate Intrinsic Value
Balance as of January 31, 2023	115	$	30.36	$	17

Stock options exercised	(27)	34.10
Stock options canceled	—	—
Balance as of January 31, 2024	88	29.20		23
Vested and expected to vest as of January 31, 2024	88	29.20		23
Exercisable as of January 31, 2024	88	29.20		23

As of January 31, 2024, all stock options were fully vested with no remaining unrecognized compensation cost.

The total intrinsic value of stock options exercised during fiscal 2024, 2023, and 2022 was $5 million, $41 million, and $209 million, respectively. The intrinsic value is the difference between the current fair value of the stock and the exercise price of the stock option.

As of January 31, 2024, stock options have a weighted-average remaining contractual life of approximately four years.

Employee Stock Purchase Plan

For fiscal 2024, approximately 1 million shares of Class A common shares were purchased under the ESPP at a weighted-average price of $159.64 per share, resulting in cash proceeds of $176 million.

The fair value of stock purchase rights granted under the ESPP was estimated using the following assumptions:


	Year Ended January 31,
	2024	2023	2022
Expected volatility	31.5% - 33.2%	46.2% - 48.5%	30.4% - 41.5%
Expected term (in years)	0.5	0.5	0.5
Risk-free interest rate	5.33% - 5.44%	1.63% - 4.65%	0.04% - 0.10%
Dividend yield	—%	—%	—%
Grant date fair value per share	$215.31 - $272.92	$156.56 - $169.48	$225.70 - $260.86

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Note 15. Contract Balances and Performance Obligations

Contract Balances

Contract assets and unearned revenue balances were as follows (in millions):


	Consolidated Balance Sheets Location	As of January 31,
	2024			2023
Contract assets:
Contract assets, current	Trade and other receivables, net	$	240		$	160
Contract assets, noncurrent	Other assets	21			—
Total contract assets		$	261		$	160
Unearned revenue (1):
Unearned revenue, current	Unearned revenue	$	4,057		$	3,559
Unearned revenue, noncurrent	Unearned revenue, noncurrent	70			75
Total unearned revenue		$	4,127		$	3,634

(1)Included in this balance are amounts related to professional services that are subject to cancellation and pro-rated refund rights of $76 million and $68 million as of January 31, 2024, and 2023, respectively.

Revenues of $3.5 billion, $3.0 billion, and $2.5 billion were recognized during fiscal 2024, 2023, and 2022, respectively, that were included in the unearned revenue balances at the beginning of the respective periods.

Transaction Price Allocated to the Remaining Performance Obligations

As of January 31, 2024, approximately $20.9 billion of revenues are expected to be recognized from remaining performance obligations for subscription contracts. We expect to recognize revenues on approximately $6.6 billion and $11.7 billion of these remaining performance obligations over the next 12 and 24 months, respectively, with the balance recognized thereafter. Revenues from remaining performance obligations for professional services contracts as of January 31, 2024, were not material.

Note 16. Other Income (Expense), Net

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


	Year Ended January 31,
	2024		2023		2022
Interest income	$	301	$	97	$	5
Interest expense (1)	(114)		(102)		(17)
Other (2)	(14)		(33)		144
Total other income (expense), net	$	173	$	(38)	$	132

(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 11, Debt.

(2)Other primarily includes the net gains (losses) from our equity investments. For further information, see Note 3, Investments.

Note 17. Income Taxes

The components of income (loss) before provision for (benefit from) income taxes were as follows (in millions):


	Year Ended January 31,
	2024		2023		2022
Domestic	$	465	$	(59)	$	309
Foreign	(109)		(201)		(293)
Income (loss) before provision for (benefit from) income taxes	$	356	$	(260)	$	16

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The provision for (benefit from) income taxes consisted of the following (in millions):


	Year Ended January 31,
	2024		2023		2022
Current:
Federal	$	2	$	—	$	—
State	19		14		1
Foreign	14		97		7
Total	35		111		8

Deferred:
Federal	(855)		1		(2)
State	(207)		1		(1)
Foreign	2		(6)		(18)
Total	(1,060)		(4)		(21)
Provision for (benefit from) income taxes	$	(1,025)	$	107	$	(13)

The items accounting for the difference between income taxes computed at the federal statutory income tax rate and the provision for (benefit from) income taxes consisted of the following:


	Year Ended January 31,
	2024		2023		2022
Federal statutory rate	21.0	%	21.0	%	21.0	%
Effect of:
Foreign income at other than U.S. rates	10.9	%	(44.7)	%	321.0	%
Intercompany transactions	(4.3)	%	3.5	%	(158.2)	%
Research tax credits	(26.3)	%	26.5	%	(447.7)	%
State taxes, net of federal benefit	5.1	%	(4.7)	%	(0.7)	%

Changes in valuation allowance	(315.5)	%	(14.9)	%	558.5	%
Share-based compensation	19.1	%	(26.5)	%	(365.4)	%
Permanent difference	1.2	%	(0.9)	%	4.6	%
Nontaxable gain on investment	—	%	—	%	(15.7)	%
Other	1.2	%	(0.4)	%	1.0	%
Total	(287.6)	%	(41.1)	%	(81.6)	%

The benefit from income taxes increased in fiscal 2024 primarily due to the release of a portion of our valuation allowance related to U.S. federal and state deferred tax assets.

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Significant components of our deferred tax assets and liabilities were as follows (in millions):


	As of January 31,
	2024		2023
Deferred tax assets:
Unearned revenue	$	16	$	11
Other reserves and accruals	47		61
Tax attributes carryforward	1,431		1,587
Capitalized research and development expense	367		255
Property and equipment	—		30
Share-based compensation	69		75
Intangibles	483		503
Operating lease liabilities	69		63
Other	16		15
Total deferred tax assets	2,498		2,600
Valuation allowance	(1,182)		(2,358)
Deferred tax assets, net of valuation allowance	1,316		242
Deferred tax liabilities:


Deferred commissions	(145)		(127)
Operating lease right-of-use assets	(62)		(57)
Property and equipment	(13)		—
Other	(33)		(47)
Total deferred tax liabilities	(253)		(231)
Net deferred tax assets	$	1,063	$	11

We periodically evaluate the realizability of our deferred tax assets based on all available evidence, both positive and negative. Prior to fiscal 2024, we considered global cumulative losses as a significant piece of negative evidence. During fiscal 2024, we recognized cumulative earnings on a global basis and were profitable in the U.S. Our ability to sustain and grow our profitability is supported by the continued positive operating performance in the U.S. We also considered forecasts of future taxable income and evaluated the utilization of tax attributes before their expiration. After considering these factors, we determined that the positive evidence outweighed the negative evidence and concluded that it was more likely than not that the majority of U.S. deferred tax assets were realizable. As a result, we released the valuation allowance against all U.S. federal deferred tax assets and state deferred tax assets, excluding certain state tax credits. The remaining valuation allowance of $1.2 billion as of January 31, 2024, was primarily related to tax credits in certain state jurisdictions and net operating loss in certain foreign jurisdictions. We will continue to evaluate the need for valuation allowances for our deferred tax assets.

The valuation allowance on our net deferred tax assets decreased by $1.2 billion during fiscal 2024, primarily due to the release of the U.S. federal and state valuation allowance discussed above. The valuation allowance increased by $116 million during fiscal 2023 primarily due to an increase in deferred tax assets on amortization of intangibles from business combinations and capitalized research and development expenditures and credits, which were partially offset by the utilization of net operating losses.

As of January 31, 2024, we had approximately $1.7 billion of federal, $1.9 billion of state, and $3.5 billion of foreign net operating loss and other tax attributes carryforwards available to offset future taxable income. If not utilized, the pre-fiscal 2018 federal and the state net operating loss carryforwards expire in varying amounts between fiscal 2025 and 2042. The federal net operating losses generated in and after fiscal 2018 and the foreign net operating losses and other tax attributes do not expire and may be carried forward indefinitely.

We also had approximately $387 million of federal and $345 million of California research and development tax credit carryforwards as of January 31, 2024. The federal credits expire in varying amounts between fiscal 2025 and 2044. The California research credits do not expire and may be carried forward indefinitely.

Our ability to utilize the net operating loss and tax credit carryforwards in the future may be subject to substantial restrictions in the event of past or future ownership changes as defined in Section 382 of the Internal Revenue Code of 1986, as amended, and similar state tax law.

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We intend to permanently reinvest any future earnings in our foreign operations unless such earnings are subject to U.S. federal income taxes. As of January 31, 2024, we estimate any such hypothetical foreign withholding tax expense to be immaterial to our financial statements.

A reconciliation of the gross unrecognized tax benefit is as follows (in millions):


	Year Ended January 31,
	2024		2023		2022
Unrecognized tax benefits at the beginning of the period	$	196	$	174	$	160
Additions for tax positions taken in prior years	30		1		—
Reductions for tax positions taken in prior years	—		—		(1)

Additions for tax positions related to the current year	27		21		15


Unrecognized tax benefits at the end of the period	$	253	$	196	$	174

Our policy is to include interest and penalties related to unrecognized tax benefits within our provision for income taxes. We did not accrue any material interest expense or penalties during fiscal 2024, 2023, or 2022.

Of the total amount of unrecognized tax benefits of $253 million, $125 million, if recognized, would impact the effective tax rate as of January 31, 2024.

We file federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. Due to our net operating loss carryforwards, our income tax returns generally remain subject to examination by federal and most state and foreign tax authorities.

Note 18. 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. We determine the dilutive effect of outstanding share-based awards and warrants using the treasury stock method, and the dilutive effect of shares underlying our convertible senior notes using the if-converted method.

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 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 fiscal 2023, as the inclusion of potentially outstanding weighted-average shares of common stock would have been anti-dilutive due to the incurrence of net loss during the period.

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The following table presents the calculation of basic and diluted net income (loss) per share (in millions, except number of shares, which are reflected in thousands, and per share data):


	Year Ended January 31,
	2024				2023				2022
	Class A		Class B		Class A		Class B		Class A		Class B
Net income (loss) per share, basic:
Numerator:
Net income (loss)	$	1,094	$	287	$	(288)	$	(79)	$	22	$	7
Denominator:
Weighted-average shares outstanding, basic	207,001		54,343		199,805		55,014		189,864		57,385
Net income (loss) per share, basic	$	5.28	$	5.28	$	(1.44)	$	(1.44)	$	0.12	$	0.12
Net income (loss) per share, diluted:
Numerator:
Net income (loss)	$	1,094	$	287	$	(288)	$	(79)	$	22	$	7

Reallocation of net income as a result of conversion of Class B to Class A common stock	287		—		—		—		7		—
Reallocation of net income to Class B common stock	—		(4)		—		—		—		—
Net income (loss) for diluted calculation	1,381		283		(288)		(79)		29		7
Denominator:
Weighted-average shares outstanding, basic	207,001		54,343		199,805		55,014		189,864		57,385
Conversion of Class B to Class A common stock	54,343		—		—		—		57,385		—
Dilutive effect of share-based awards	3,941		—		—		—		5,549		—

Dilutive effect of warrants related to the issuance of convertible senior notes	—		—		—		—		1,234		—
Weighted-average shares outstanding, diluted	265,285		54,343		199,805		55,014		254,032		57,385
Net income (loss) per share, diluted	$	5.21	$	5.21	$	(1.44)	$	(1.44)	$	0.12	$	0.12

The computation of diluted net income (loss) per share does not include the effect of the following potentially outstanding weighted-average shares of common stock. The effects of these potentially outstanding shares were not included in the calculation of diluted net income (loss) per share because the effect would have been anti-dilutive (in thousands):


	Year Ended January 31,
	2024	2023	2022

Shares related to outstanding share-based awards	2,206	15,454	1,436
Shares related to the convertible senior notes	—	5,182	7,817
Shares subject to warrants related to the issuance of convertible senior notes	—	7,762	—
Total	2,206	28,398	9,253

Note 19. 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 millions):


	Year Ended January 31,
	2024		2023		2022
United States	$	5,457	$	4,682	$	3,846
Other countries	1,802		1,534		1,293
Total revenues	$	7,259	$	6,216	$	5,139

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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 millions):


	As of January 31,
	2024		2023
United States	$	1,199	$	1,206
Ireland	213		159
Other countries	111		85
Total long-lived assets	$	1,523	$	1,450

Note 20. 401(k) Plan

We have a qualified defined contribution plan under Section 401(k) of the Internal Revenue Code covering eligible employees. We match a certain portion of employee contributions up to a fixed maximum per employee. Our contributions to the plan were $64 million, $57 million, and $46 million during fiscal 2024, 2023, and 2022, respectively.

Note 21. Subsequent Events

HiredScore, Inc.

In February 2024, we entered into a definitive agreement to acquire HiredScore, Inc. a provider of AI powered talent orchestration solutions. The transaction is expected to close during the first quarter of fiscal 2025, subject to the satisfaction of customary closing conditions, including required regulatory approval.

2024 Share Repurchase Program

In February 2024, our Board of Directors authorized the 2024 Share Repurchase Program, under which we may purchase up to $500 million of our outstanding shares of Class A common stock. 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 on business, economic, and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. The 2024 Share Repurchase Program has 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.

Tax Withholding Method on Employee Equity Awards

Beginning in April 2024, we intend to fund withholding taxes due on employee equity awards by net share withholding, rather than our current approach of selling shares of our common stock on our employees’ behalf to cover taxes upon vesting of such awards. We expect this net share withholding approach will increase our financing cash outflows and reduce the number of shares that will be issued from our equity plans. However, we are unable to estimate the cash outflows and number of shares that will be withheld since they will depend on the market price of our Class A common stock.

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