Item 1. FINANCIAL STATEMENTS

Workday, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

			October 31, 2021						January 31, 2021
Assets
Current assets:
Cash and cash equivalents			$	1,297,259					$	1,384,181
Marketable securities			2,257,722						2,151,472
Trade and other receivables, net			865,040						1,032,484
Deferred costs			135,829						122,764
Prepaid expenses and other current assets			137,858						111,160
Total current assets			4,693,708						4,802,061
Property and equipment, net			1,120,196						972,403
Operating lease right-of-use assets			269,687						414,143
Deferred costs, noncurrent			287,645						271,796
Acquisition-related intangible assets, net			371,658						248,626
Goodwill			2,428,481						1,819,625
Other assets			269,508						189,757
Total assets			$	9,440,883					$	8,718,411
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable			$	47,928					$	75,596
Accrued expenses and other current liabilities			196,331						169,266
Accrued compensation			311,819						285,061
Unearned revenue			2,423,305						2,556,624
Operating lease liabilities			83,452						93,000
Debt, current			1,212,215						1,103,101
Total current liabilities			4,275,050						4,282,648
Debt, noncurrent			635,994						691,913
Unearned revenue, noncurrent			70,606						80,111
Operating lease liabilities, noncurrent			202,969						350,051
Other liabilities			40,448						35,854
Total liabilities			5,225,067						5,440,577
Stockholders’ equity:
Common stock			249						242
Additional paid-in capital			6,919,963						6,254,936
Treasury stock			(12,437)						(12,384)
Accumulated other comprehensive income (loss)			(20,627)						(54,970)
Accumulated deficit			(2,671,332)						(2,909,990)
Total stockholders’ equity			4,215,816						3,277,834
Total liabilities and stockholders’ equity			$	9,440,883					$	8,718,411

See Notes to Condensed Consolidated Financial Statements

Workday, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

			Three Months Ended October 31,												Nine Months Ended October 31,
			2021						2020						2021						2020
Revenues:
Subscription services			$	1,171,517					$	968,547					$	3,317,140					$	2,782,201
Professional services			155,746						137,413						445,517						404,111
Total revenues			1,327,263						1,105,960						3,762,657						3,186,312
Costs and expenses (1)****:
Costs of subscription services			200,700						152,396						575,646						442,666
Costs of professional services			159,024						142,785						462,652						442,422
Product development			455,615						419,962						1,341,482						1,282,127
Sales and marketing			366,323						302,870						1,050,974						897,924
General and administrative			121,656						102,024						347,391						296,461
Total costs and expenses			1,303,318						1,120,037						3,778,145						3,361,600
Operating income (loss)			23,945						(14,077)						(15,488)						(175,288)
Other income (expense), net			21,557						(8,846)						115,491						(31,272)
Income (loss) before provision for (benefit from) income taxes			45,502						(22,923)						100,003						(206,560)
Provision for (benefit from) income taxes			2,090						1,417						(2,623)						4,164
Net income (loss)			$	43,412					$	(24,340)					$	102,626					$	(210,724)
Net income (loss) per share, basic			$	0.17					$	(0.10)					$	0.42					$	(0.89)
Net income (loss) per share, diluted			$	0.17					$	(0.10)					$	0.40					$	(0.89)
Weighted-average shares used to compute net income (loss) per share, basic			248,468						238,059						246,348						235,685
Weighted-average shares used to compute net income (loss) per share, diluted			254,760						238,059						253,917						235,685

(1) Costs and expenses include share-based compensation expenses as follows:
			Three Months Ended October 31,												Nine Months Ended October 31,
			2021						2020						2021						2020
Costs of subscription services			$	21,340					$	16,767					$	62,478					$	45,484
Costs of professional services			29,105						27,349						83,331						74,467
Product development			135,591						128,423						395,345						378,950
Sales and marketing			55,645						54,077						158,121						150,881
General and administrative			39,437						33,216						111,197						97,958

See Notes to Condensed Consolidated Financial Statements

Workday, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)

			Three Months Ended October 31,												Nine Months Ended October 31,
			2021						2020						2021						2020
Net income (loss)			$	43,412					$	(24,340)					$	102,626					$	(210,724)
Other comprehensive income (loss):
Net change in foreign currency translation adjustment			(361)						(2)						(1,362)						435
Net change in unrealized gains (losses) on available-for-sale debt securities			(1,505)						(2,578)						(2,611)						(332)
Net change in market value of effective foreign currency forward exchange contracts			25,389						3,044						38,316						(22,485)
Other comprehensive income (loss)			23,523						464						34,343						(22,382)
Comprehensive income (loss)			$	66,935					$	(23,876)					$	136,969					$	(233,106)

See Notes to Condensed Consolidated Financial Statements

Workday, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)

			Three Months Ended October 31,												Nine Months Ended October 31,
			2021						2020						2021						2020
Common stock:
Balance, beginning of period			$	248					$	238					$	242					$	231
Issuance of common stock under employee equity plans, net of shares withheld for employee taxes			1						2						7						7
Settlement of convertible senior notes			—						—						—						2
Balance, end of period			249						240						249						240
Additional paid-in capital:
Balance, beginning of period			6,639,067						5,954,738						6,254,936						5,090,187
Issuance of common stock under employee equity plans, net of shares withheld for employee taxes			1,893						3,648						76,374						78,160
Share-based compensation			278,995						259,802						808,299						746,643
Settlement of warrants			—						(34,118)						—						(34,118)
Exercise of convertible senior notes hedges			8						—						58						303,202
Settlement of convertible senior notes			—						—						(2)						(4)
Cumulative effect of accounting changes			—						—						(219,702)						—
Balance, end of period			6,919,963						6,184,070						6,919,963						6,184,070
Treasury stock:
Balance, beginning of period			(12,431)						(303,201)						(12,384)						—
Exercise of convertible senior notes hedges			(6)						—						(53)						(303,201)
Settlement of warrants			—						34,118						—						34,118
Balance, end of period			(12,437)						(269,083)						(12,437)						(269,083)
Accumulated other comprehensive income (loss):
Balance, beginning of period			(44,150)						646						(54,970)						23,492
Other comprehensive income (loss)			23,523						464						34,343						(22,382)
Balance, end of period			(20,627)						1,110						(20,627)						1,110
Accumulated deficit:
Balance, beginning of period			(2,714,744)						(2,813,943)						(2,909,990)						(2,627,359)
Net income (loss)			43,412						(24,340)						102,626						(210,724)
Cumulative effect of accounting changes			—						—						136,032						(200)
Balance, end of period			(2,671,332)						(2,838,283)						(2,671,332)						(2,838,283)
Total stockholders’ equity			$	4,215,816					$	3,078,054					$	4,215,816					$	3,078,054

See Notes to Condensed Consolidated Financial Statements

			Three Months Ended October 31,												Nine Months Ended October 31,
			2021						2020						2021						2020
Common stock (in shares):
Balance, beginning of period			248,087						237,161						242,667						231,708
Issuance of common stock under employee equity plans, net of shares withheld for employee taxes			1,429						1,936						6,767						7,390
Settlement of warrants			—						186						—						186
Settlement of convertible senior notes			—						—						—						1,654
Purchase of treasury stock from the exercise of convertible senior notes hedges			—						—						—						(1,655)
Issuance of restricted stock awards			43						—						125						—
Balance, end of period			249,559						239,283						249,559						239,283

See Notes to Condensed Consolidated Financial Statements

Workday, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

			Three Months Ended October 31,												Nine Months Ended October 31,
			2021						2020						2021						2020
Cash flows from operating activities:
Net income (loss)			$	43,412					$	(24,340)					$	102,626					$	(210,724)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			87,127						73,864						254,973						218,556
Share-based compensation expenses			278,995						259,832						808,349						747,740
Amortization of deferred costs			35,482						28,732						100,844						82,141
Amortization of debt discount and issuance costs			997						12,098						2,991						41,466
Non-cash lease expense			21,407						22,141						64,706						60,389
(Gains) losses on investments			(25,222)						(143)						(125,479)						356
Other			3,411						(8,617)						(7,216)						7,684
Changes in operating assets and liabilities, net of business combinations:
Trade and other receivables, net			6,649						(53,923)						171,257						127,663
Deferred costs			(50,654)						(41,823)						(129,758)						(101,724)
Prepaid expenses and other assets			18,050						25,898						(21,047)						36,738
Accounts payable			(12,007)						3,762						(4,117)						(9,313)
Accrued expenses and other liabilities			2,498						(5,037)						(24,109)						(46,378)
Unearned revenue			(25,491)						1,358						(158,465)						(239,899)
Net cash provided by (used in) operating activities			384,654						293,802						1,035,555						714,695
Cash flows from investing activities:
Purchases of marketable securities			(722,275)						(806,713)						(2,317,040)						(1,963,244)
Maturities of marketable securities			674,246						427,910						2,303,478						1,282,324
Sales of marketable securities			—						—						27,286						5,279
Owned real estate projects			(4)						(1,072)						(171,498)						(5,323)
Capital expenditures, excluding owned real estate projects			(33,335)						(78,197)						(190,912)						(204,692)
Business combinations, net of cash acquired			(60,645)						—						(739,865)						—
Purchases of non-marketable equity and other investments			(26,720)						(4,618)						(84,526)						(63,218)
Sales and maturities of non-marketable equity and other investments			1,874						24						5,169						6,223
Other			—						—						1						—
Net cash provided by (used in) investing activities			(166,859)						(462,666)						(1,167,907)						(942,651)
Cash flows from financing activities:
Proceeds from borrowings on Term Loan, net of debt discount and issuance costs			—						—						—						747,795
Payments on convertible senior notes			(9)						—						(80)						(249,946)
Payments on Term Loan			(9,375)						(9,375)						(28,125)						(9,375)
Proceeds from issuance of common stock from employee equity plans, net of taxes paid for shares withheld			1,894						3,650						76,381						78,167
Other			(33)						(181)						(409)						(2,436)
Net cash provided by (used in) financing activities			(7,523)						(5,906)						47,767						564,205
Effect of exchange rate changes			50						40						(85)						546
Net increase (decrease) in cash, cash equivalents, and restricted cash			210,322						(174,730)						(84,670)						336,795
Cash, cash equivalents, and restricted cash at the beginning of period			1,092,929						1,246,246						1,387,921						734,721
Cash, cash equivalents, and restricted cash at the end of period			$	1,303,251					$	1,071,516					$	1,303,251					$	1,071,516

See Notes to Condensed Consolidated Financial Statements

			Three Months Ended October 31,												Nine Months Ended October 31,
			2021						2020						2021						2020
Supplemental cash flow data:
Cash paid for interest			$	3,837					$	5,309					$	10,904					$	11,686
Cash paid for income taxes, net of refunds			2,716						2,598						9,150						7,239
Non-cash investing and financing activities:
Purchases of property and equipment, accrued but not paid			49,713						49,098						49,713						49,098

			As of October 31,
			2021						2020
Reconciliation of cash, cash equivalents, and restricted cash as shown in the statements of cash flows:
Cash and cash equivalents			$	1,297,259					$	1,067,038
Restricted cash included in Prepaid expenses and other current assets			5,992						4,351
Restricted cash included in Other assets			—						127
Total cash, cash equivalents, and restricted cash			$	1,303,251					$	1,071,516

See Notes to Condensed Consolidated Financial Statements

Workday, Inc.

Notes to Condensed Consolidated Financial Statements

Note 1. Overview and Basis of Presentation

Company and Background

Workday delivers financial management, spend management, human capital management, planning, and analytics applications designed for the world’s largest companies, educational institutions, and government agencies. We offer innovative and adaptable technology focused on the consumer internet experience and cloud delivery model. Our applications are designed for global enterprises to manage complex and dynamic operating environments. We provide our customers highly adaptable, accessible, and reliable applications to manage critical business functions that help enable them to optimize their financial and human resources. We were originally incorporated in March 2005 in Nevada, and in June 2012, we reincorporated in Delaware. As used in this report, the terms “Workday,” “registrant,” “we,” “us,” and “our” mean Workday, Inc. and its subsidiaries unless the context indicates otherwise.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The condensed consolidated financial statements include the results of Workday, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of our management, the information contained herein reflects all adjustments necessary for a fair presentation of Workday’s financial position, results of operations, stockholders’ equity, and cash flows. All such adjustments are of a normal, recurring nature. The results of operations for the three and nine months ended October 31, 2021, shown in this report are not necessarily indicative of the results to be expected for the full fiscal year ending January 31, 2022. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021, filed with the SEC on March 2, 2021.

There have been no material changes in our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021, other than the adoption of an accounting pronouncement as described in Note 2, Accounting Standards.

Use of Estimates

The preparation of condensed 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 condensed 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 determination of the fair value and useful lives of assets acquired and liabilities assumed through business combinations, the period of benefit for deferred commissions, the fair value of certain equity awards, and the valuation of non-marketable equity investments. Actual results could differ from those estimates and such differences could be material to our condensed consolidated financial statements.

Segment Information

We operate in one operating segment, cloud applications. Operating segments are defined as components of an enterprise where separate financial information is evaluated regularly by chief operating decision makers (“CODMs”) in deciding how to allocate resources and assessing performance. For the nine months ended October 31, 2021, our CODMs were our Co-Chief Executive Officer and Chairman, Aneel Bhusri, and our Co-Chief Executive Officer, Chano Fernandez. Our CODMs allocate resources and assess performance based upon discrete financial information at the consolidated level.

Note 2. Accounting Standards

Recently Adopted Accounting Pronouncements

ASU No. 2020-06

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). Under ASU No. 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. The new guidance also requires the if-converted method to be applied for all convertible instruments when calculating diluted earnings per share.

We adopted this standard effective February 1, 2021, using a modified retrospective method, under which financial results reported in prior periods were not adjusted. We applied the provisions of this guidance to our 0.25% convertible senior notes due October 1, 2022 (“2022 Notes”). Upon adoption, we recorded a decrease to Accumulated deficit of $136 million, a decrease to Additional paid-in capital of $220 million, an increase to Debt, current of $79 million, and a decrease to Property and equipment, net of $5 million, which represented non-cash interest previously capitalized. For further information, see Note 11, Debt.

Recently Issued Accounting Pronouncements

ASU No. 2020-04 and ASU No. 2021-01

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to GAAP guidance on contract modifications to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate to alternative reference rates. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848), which refines the scope of Topic 848 and clarifies some of its guidance. We may elect to apply the amendments prospectively through December 31, 2022. The impact on our condensed consolidated financial statements from the adoption of this standard is expected to be immaterial.

Note 3. Investments

Debt Securities

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

			Amortized Cost						Unrealized Gains						Unrealized Losses						Aggregate Fair Value
U.S. treasury securities			$	1,246,777					$	54					$	(294)					$	1,246,537
U.S. agency obligations			232,209						2						(383)						231,828
Corporate bonds			426,074						35						(444)						425,665
Commercial paper			934,715						—						—						934,715
Total debt securities			$	2,839,775					$	91					$	(1,121)					$	2,838,745
Included in Cash and cash equivalents			$	715,486					$	1					$	(2)					$	715,485
Included in Marketable securities			$	2,124,289					$	90					$	(1,119)					$	2,123,260

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

			Amortized Cost						Unrealized Gains						Unrealized Losses						Aggregate Fair Value
U.S. treasury securities			$	1,054,146					$	205					$	(10)					$	1,054,341
U.S. agency obligations			504,298						196						(49)						504,445
Corporate bonds			346,563						1,253						(14)						347,802
Commercial paper			664,262						—						—						664,262
Total debt securities			$	2,569,269					$	1,654					$	(73)					$	2,570,850
Included in Cash and cash equivalents			$	440,678					$	—					$	—					$	440,678
Included in Marketable securities			$	2,128,591					$	1,654					$	(73)					$	2,130,172

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 available for use in current operations, including those with maturity dates beyond one year, and therefore classify these securities as current assets on the condensed consolidated balance sheets. Debt securities included in Marketable securities on the condensed consolidated balance sheets consist of securities with original maturities at the time of purchase greater than three months, and the remainder of the securities is included in Cash and cash equivalents.

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

We did not have any sales of debt securities during the three months ended October 31, 2021, or 2020. We sold $10 million and $5 million of debt securities during the nine months ended October 31, 2021, and 2020, respectively. The realized gains and losses from the sales were immaterial.

Equity Investments

Equity investments consisted of the following (in thousands):

			Condensed Consolidated Balance Sheets Location												October 31, 2021						January 31, 2021
Money market funds			Cash and cash equivalents												$	280,481					$	659,964
Equity investments accounted for under the equity method			Other assets												—						48,222
Non-marketable equity investments measured using the measurement alternative			Other assets												169,929						73,142
Marketable equity investments			Marketable securities												134,462						21,300
Total equity investments															$	584,872					$	802,628

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

			Three Months Ended October 31,												Nine Months Ended October 31,
2021						2020						2021						2020
Net realized gains (losses) recognized on equity investments sold (1)			$	11,759					$	—					$	4,236					$	1,591
Net unrealized gains (losses) recognized on equity investments held as of the end of the period			13,448						3,830						121,167						1,643
Total net gains (losses) recognized in Other income (expense), net			$	25,207					$	3,830					$	125,403					$	3,234

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

Equity Investments Accounted for Under the Equity Method

We determine at the inception of each arrangement whether an investment or other interest is considered a variable interest entity (“VIE”). Investments in VIEs for which we are not the primary beneficiary or do not own a controlling interest but can exercise significant influence over the investee are accounted for under the equity method of accounting. During fiscal 2021, we made an equity investment of $50 million in a limited partnership, which represented an ownership interest of approximately 6%. We determined that the limited partnership was a VIE because the at-risk equity holders, as a group, lacked the characteristics of a controlling financial interest. We did not have majority voting rights nor the power to direct the activities of this entity, and therefore, we were not the primary beneficiary. The investment was accounted for under the equity method of accounting as it was considered to be more than minor and we had the ability to exercise significant influence over the entity. Under the equity method, our share of earnings and losses of the investee was not material and there was no impairment loss recorded for the periods presented.

In June 2021, the limited partnership was liquidated and shares of common stock in a corporation were distributed to the partners. Immediately thereafter, the corporation completed its initial public offering (“IPO”). We no longer exercise significant influence over the entity and therefore we accounted for our interest in the common stock received as a marketable equity investment measured at fair value. Concurrent with the IPO, we sold a portion of our investment for proceeds of $5 million, resulting in a realized gain of $3 million. Our remaining investment, which had a carrying value of $134 million as of October 31, 2021, is subject to a lock-up agreement which restricts our ability to sell the securities until December 2021 at the earliest. We recorded an unrealized loss of $7 million and an unrealized gain of $91 million related to this investment for the three and nine months ended October 31, 2021, respectively.

Non-Marketable Equity Investments Measured Using the Measurement Alternative

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

			October 31, 2021						January 31, 2021
Total initial cost			$	130,131					$	65,377
Cumulative net unrealized gains (losses)			39,798						7,765
Carrying value			$	169,929					$	73,142

We recorded upward adjustments to the carrying value of non-marketable equity investments of $20 million and no material impairment losses for the three months ended October 31, 2021. In addition, as discussed in Note 7, Business Combinations, we recognized a $12 million non-cash gain related to our acquisition of Zimit. No material adjustments or impairment losses were recorded for the three months ended October 31, 2020. We recorded upward adjustments of $34 million and impairment losses of $2 million for the nine months ended October 31, 2021. We recorded no material adjustments and $3 million of impairment losses for the nine months ended October 31, 2020.

Marketable Equity Investments

We hold marketable equity investments with readily determinable fair values over which we do not own a controlling interest or exercise significant influence. The carrying values for our marketable equity investments are summarized below (in thousands):

			October 31, 2021						January 31, 2021
Total initial cost			$	47,513					$	5,000
Cumulative net unrealized gains (losses)			86,949						16,300
Carrying value (1)			$	134,462					$	21,300

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

There were no sales of marketable equity investments during the three months ended October 31, 2021. During the nine months ended October 31, 2021, we sold marketable equity investments for proceeds of $17 million which had an initial cost of $7 million. This includes the $5 million sale of the investment previously accounted for under the equity method described above. There were no sales of marketable equity investments during the comparative prior year periods.

Note 4. Fair Value Measurements

We measure our cash equivalents, marketable securities, and foreign currency derivative contracts at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

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

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

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

			Level 1						Level 2						Level 3						Total
U.S. treasury securities			$	1,246,537					$	—					$	—					$	1,246,537
U.S. agency obligations			—						231,828						—						231,828
Corporate bonds			—						425,665						—						425,665
Commercial paper			—						934,715						—						934,715
Money market funds			280,481						—						—						280,481
Marketable equity investments			134,462						—						—						134,462
Foreign currency derivative assets			—						24,166						—						24,166
Total assets			$	1,661,480					$	1,616,374					$	—					$	3,277,854
Foreign currency derivative liabilities			$	—					$	24,197					$	—					$	24,197
Total liabilities			$	—					$	24,197					$	—					$	24,197

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, 2021 (in thousands):

			Level 1						Level 2						Level 3						Total
U.S. treasury securities			$	1,054,341					$	—					$	—					$	1,054,341
U.S. agency obligations			—						504,445						—						504,445
Corporate bonds			—						347,802						—						347,802
Commercial paper			—						664,262						—						664,262
Money market funds			659,964						—						—						659,964
Marketable equity investments			21,300						—						—						21,300
Foreign currency derivative assets			—						3,221						—						3,221
Total assets			$	1,735,605					$	1,519,730					$	—					$	3,255,335
Foreign currency derivative liabilities			$	—					$	49,456					$	—					$	49,456
Total liabilities			$	—					$	49,456					$	—					$	49,456

Non-Marketable Equity Investments Measured at Fair Value on a Non-Recurring Basis

Non-marketable equity investments that have been remeasured during the period due to an observable event or impairment are classified within Level 3 in the fair value hierarchy because we estimate the value based on valuation methods which may include a combination of the observable transaction price at the transaction date and other unobservable inputs including volatility, rights, and obligations of the investments we hold. For further information, see Note 3, Investments.

Fair Value Measurements of Other Financial Instruments

In April 2020, we entered into a credit agreement (“Credit Agreement”) pursuant to which the lenders extended to Workday a senior unsecured term loan facility in an aggregate principal amount of $750 million (“Term Loan”) and an unsecured revolving credit facility in an aggregate principal amount of $750 million (“Revolving Credit Facility”). The carrying value of the Term Loan was $702 million and $729 million as of October 31, 2021, and January 31, 2021, respectively. The estimated fair value of the Term Loan, which we have classified as a Level 2 financial instrument, approximates its carrying value because it is a floating rate facility. There were no outstanding borrowings under the Revolving Credit Facility during the periods presented. For further information, see Note 11, Debt.

In September 2017, we completed an offering of $1.15 billion of 0.25% convertible senior notes due October 1, 2022. The carrying value of the 2022 Notes was $1.1 billion as of October 31, 2021, and January 31, 2021, and the estimated fair value of the 2022 Notes was $2.2 billion and $1.8 billion as of October 31, 2021, and January 31, 2021, respectively. The estimated fair value of the 2022 Notes, which we have classified as a Level 2 financial instrument, was determined based on the quoted bid price in an over-the-counter market on the last trading day of each reporting period. For further information, see Note 11, Debt.

Note 5. Deferred Costs

Deferred costs, which consist of deferred sales commissions, were $423 million and $395 million as of October 31, 2021, and January 31, 2021, respectively. Amortization expense for the deferred costs was $36 million and $29 million for the three months ended October 31, 2021, and 2020, respectively, and $101 million and $82 million for the nine months ended October 31, 2021, and 2020, respectively. There was no impairment loss in relation to the costs capitalized for the periods presented.

Note 6. Property and Equipment, Net

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

			October 31, 2021						January 31, 2021
Land and land improvements			$	80,553					$	37,065
Buildings			683,966						494,599
Computers, equipment, and software			1,054,780						931,456
Furniture and fixtures			55,329						54,193
Leasehold improvements			152,636						204,273
Property and equipment, gross			2,027,264						1,721,586
Less accumulated depreciation and amortization			(907,068)						(749,183)
Property and equipment, net			$	1,120,196					$	972,403

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

Related-Party Transactions

During fiscal 2021, we entered into an agreement with an affiliate of our Co-Founder, Director, and Chairman Emeritus, David Duffield, for an option to purchase certain leased office space (“Property”) within our corporate headquarters at a price based on third-party appraisals and negotiation between Workday and the affiliated party (“Leased Property Purchase Option”). In deciding to enter into and subsequently exercise the Leased Property Purchase Option, our Board of Directors considered the benefits to Workday of purchasing the Property, 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 also considered independent appraisals, comparable transaction data, and the extent and nature of Mr. Duffield’s interest in the transaction.

In the first quarter of fiscal 2022, we exercised the Leased Property Purchase Option at a purchase price of $173 million in cash, reduced by a $2 million fee paid for the Leased Property Purchase Option in the prior fiscal year. 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

Zimit

On September 28, 2021, we acquired all outstanding stock of Zimit, a configure, price, quote (CPQ) solution built for services industries. We believe the acquisition of Zimit will accelerate our ability to deliver a comprehensive quote-to-cash process automation offering that will provide services organizations increased visibility across the entire revenue cycle. We have included the financial results of Zimit in our condensed consolidated financial statements from the date of acquisition.

The acquisition-date fair value of the purchase consideration was $76 million, attributable to cash consideration of $62 million and the fair value of a previously held equity interest of $14 million. We recorded developed technology intangible assets of $7 million (to be amortized over an estimated useful life of 4 years), customer relationships intangible assets of $3 million (to be amortized over an estimated useful life of 13 years), and goodwill of $67 million. Goodwill was primarily attributable to the expected synergies from integrating Zimit’s technology into our product portfolio. The goodwill is not deductible for income tax purposes. The fair values of assets acquired and liabilities assumed may change over the measurement period as additional information is received. The measurement period will end no later than one year from the acquisition date.

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

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

Peakon

On March 9, 2021, we acquired all outstanding stock of Peakon ApS (“Peakon”), an employee success platform that converts feedback into actionable insights, for $702 million. With Peakon, Workday will provide 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 condensed consolidated financial statements from the date of acquisition.

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

Cash paid to stockholders, warrant holders, and vested option holders						$	683,788
Transaction costs paid by Workday on behalf of Peakon						17,960
Total						$	701,748

Additionally, we granted certain Peakon employees restricted stock awards (“RSA”) with service conditions, which totaled 81,695 shares of our Class A common stock. The aggregate grant date fair value of the RSAs will be accounted for as post-acquisition share-based compensation expense.

The purchase consideration was preliminarily 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 fair values of assets acquired and liabilities assumed may change over the measurement period as additional information is received. The primary areas that are subject to change include income taxes payable and deferred taxes. The measurement period will end no later than one year from the acquisition date. The updated preliminary purchase consideration allocation inclusive of measurement period adjustments was as follows (in thousands):

Acquisition-related intangible assets						$	170,500
Goodwill						542,201
Other assets						34,639
Deferred tax liability						(20,517)
Other liabilities						(25,075)
Total						$	701,748

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

			Estimated Fair Values						Weighted-Average Useful Lives (in Years)
Developed technology			$	94,000					5
Customer relationships			72,000						13
Backlog			4,000						3
Trade name			500						1
Total acquisition-related intangible assets			$	170,500					8

The goodwill recognized was primarily attributable to the assembled workforce and the expected synergies from integrating Peakon’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 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 thousands):

			October 31, 2021						January 31, 2021
Developed technology			$	319,300					$	218,400
Customer relationships			298,100						223,000
Trade name			12,500						12,000
Backlog			15,000						11,000
Acquisition-related intangible assets, gross			644,900						464,400
Less accumulated amortization			(273,242)						(215,774)
Acquisition-related intangible assets, net			$	371,658					$	248,626

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

As of October 31, 2021, our future estimated amortization expense related to acquisition-related intangible assets was as follows (in thousands):

Fiscal Period:
Remainder of 2022			$	20,011
2023			77,786
2024			66,569
2025			53,913
2026			48,560
Thereafter			104,819
Total			$	371,658

Note 9. Other Assets

Other assets consisted of the following (in thousands):

			October 31, 2021						January 31, 2021
Non-marketable equity and other investments (1)			$	194,597					$	85,868
Prepayments for goods and services			29,174						19,824
Technology patents and other intangible assets, net			15,518						17,766
Net deferred tax assets			9,690						9,985
Deposits			6,589						6,218
Derivative assets			13,034						173
Equity investments accounted for under the equity method			—						48,222
Other			906						1,701
Total other assets			$	269,508					$	189,757

(1)Included in non-marketable equity and other investments are investments in loan receivables of privately held companies, which are carried at amortized cost. The carrying values of these loan receivables were $25 million and $13 million as of October 31, 2021, and January 31, 2021, respectively. The allowance for credit losses on loan receivables was immaterial for the periods presented.

Technology patents and other intangible assets with estimable useful lives are amortized on a straight-line basis. As of October 31, 2021, the future estimated amortization expense was as follows (in thousands):

Fiscal Period:
Remainder of 2022			$	712
2023			2,688
2024			2,380
2025			1,900
2026			1,636
Thereafter			6,202
Total			$	15,518

Note 10. Derivative Instruments

We conduct business on a global basis in multiple foreign currencies, subjecting Workday to foreign currency risk. To mitigate this risk, we utilize derivative hedging contracts as described below. We do not enter into any derivatives for trading or speculative purposes.

Our foreign currency contracts are classified within Level 2 of the fair value hierarchy because the valuation inputs are based on quoted prices and market observable data of similar instruments in active markets, such as currency spot and forward rates.

Foreign Currency Forward Contracts Designated as Cash Flow Hedges

We are exposed to foreign currency fluctuations resulting from customer contracts denominated in foreign currencies. We have a hedging program in which we enter into foreign currency forward contracts related to certain customer contracts. We designate these forward contracts as cash flow hedging instruments since the accounting criteria for such designation have been met.

Foreign currency forward contracts designated as cash flow hedges are recorded on the condensed consolidated balance sheets at fair value. Cash flows from such forward contracts are classified as operating activities. Gains or losses resulting from changes in the fair value of these hedges are recorded in Accumulated other comprehensive income (loss) (“AOCI”) on the condensed consolidated balance sheets and will be subsequently reclassified to the related revenue line item on the condensed consolidated statements of operations in the same period that the underlying revenues are earned. As of October 31, 2021, we estimate that $7 million of net losses recorded in AOCI related to our foreign currency forward contracts designated as cash flow hedges will be reclassified into income within the next 12 months.

As of October 31, 2021, and January 31, 2021, we had outstanding foreign currency forward contracts designated as cash flow hedges with total notional values of $1.4 billion and $1.3 billion, respectively. The notional value represents the amount that will be bought or sold upon maturity of the forward contract. All contracts have maturities of less than 49 months.

Foreign Currency Forward Contracts Not Designated as 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 the foreign currency gains or losses associated with the underlying monetary assets and liabilities and are recorded on the condensed consolidated balance sheets at fair value. These forward contracts are not designated as hedging instruments under applicable accounting guidance, and therefore all changes in the fair value of these forward contracts are recorded in Other income (expense), net on the condensed consolidated statements of operations. Cash flows from such forward contracts are classified as operating activities.

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

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

						Condensed Consolidated Balance Sheets Location						October 31, 2021						January 31, 2021
Derivative assets:
Foreign currency forward contracts designated as cash flow hedges						Prepaid expenses and other current assets						$	10,806					$	2,073
Foreign currency forward contracts designated as cash flow hedges						Other assets						13,029						173
Foreign currency forward contracts not designated as hedges						Prepaid expenses and other current assets						326						975
Foreign currency forward contracts not designated as hedges						Other assets						5						—
Total derivative assets												$	24,166					$	3,221
Derivative liabilities:
Foreign currency forward contracts designated as cash flow hedges						Accrued expenses and other current liabilities						$	13,291					$	23,647
Foreign currency forward contracts designated as cash flow hedges						Other liabilities						9,559						24,586
Foreign currency forward contracts not designated as hedges						Accrued expenses and other current liabilities						1,326						1,162
Foreign currency forward contracts not designated as hedges						Other liabilities						21						61
Total derivative liabilities												$	24,197					$	49,456

The effect of foreign currency forward contracts designated as cash flow hedges on the condensed consolidated statements of operations was as follows (in thousands):

						Condensed Consolidated Statements of Operations Location						Three Months Ended October 31,												Nine Months Ended October 31,
									2021						2020						2021						2020
Total revenues						Revenues						$	1,327,263					$	1,105,960					$	3,762,657					$	3,186,312
Amount of gains (losses) related to foreign currency forward contracts designated as cash flow hedges						Revenues						(3,847)						5,568						(4,996)						15,332

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

						Condensed Consolidated Statements of Operations and Statements of Comprehensive Income (Loss) Locations						Three Months Ended October 31,												Nine Months Ended October 31,
									2021						2020						2021						2020
Gains (losses) recognized in OCI						Net change in market value of effective foreign currency forward exchange contracts						$	21,542					$	8,612					$	33,320					$	(7,153)
Gains (losses) reclassified from AOCI into income (effective portion)						Revenues						(3,847)						5,568						(4,996)						15,332

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

						Condensed Consolidated Statements of Operations Location						Three Months Ended October 31,												Nine Months Ended October 31,
									2021						2020						2021						2020
Foreign currency forward contracts not designated as hedges						Other income (expense), net						$	605					$	151					$	2,424					$	1,524

We are subject to netting agreements with all of the counterparties of the foreign exchange contracts, under which we are permitted to net settle transactions of the same currency with a single net amount payable by one party to the other. It is our policy to present the derivatives gross on the condensed consolidated balance sheets. Our foreign currency forward contracts are not subject to any credit contingent features or collateral requirements. We manage our exposure to counterparty risk by entering into contracts with a diversified group of major financial institutions and by actively monitoring outstanding positions.

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

						Gross Amounts of Recognized Assets						Gross Amounts Offset on the Condensed Consolidated Balance Sheets						Net Amounts of Assets Presented on the Condensed Consolidated Balance Sheets						Gross Amounts Not Offset on the Condensed Consolidated Balance Sheets												Net Assets Exposed
															Financial Instruments						Cash Collateral Received
Derivative assets:
Counterparty A						$	1,879					$	—					$	1,879					$	(1,879)					$	—					$	—
Counterparty B						7,714						—						7,714						(7,714)						—						—
Counterparty C						4,961						—						4,961						(4,961)						—						—
Counterparty D						8,465						—						8,465						(8,465)						—						—
Counterparty E						1,147						—						1,147						(1,147)						—						—
Total						$	24,166					$	—					$	24,166					$	(24,166)					$	—					$	—

						Gross Amounts of Recognized Liabilities						Gross Amounts Offset on the Condensed Consolidated Balance Sheets						Net Amounts of Liabilities Presented on the Condensed Consolidated Balance Sheets						Gross Amounts Not Offset on the Condensed Consolidated Balance Sheets												Net Liabilities Exposed
															Financial Instruments						Cash Collateral Pledged
Derivative liabilities:
Counterparty A						$	4,631					$	—					$	4,631					$	(1,879)					$	—					$	2,752
Counterparty B						9,136						—						9,136						(7,714)						—						1,422
Counterparty C						8,873						—						8,873						(4,961)						—						3,912
Counterparty D						1,255						—						1,255						(8,465)						—						(7,210)
Counterparty E						302						—						302						(1,147)						—						(845)
Total						$	24,197					$	—					$	24,197					$	(24,166)					$	—					$	31

Note 11. Debt

Outstanding debt consisted of the following (in thousands):

						October 31, 2021						January 31, 2021
Term Loan, net of unamortized debt discounts of $1,379 and $1,682, respectively, and unamortized debt issuance costs of $127 and $155, respectively						$	701,619					$	729,413
2022 Notes, net of unamortized debt discounts of $0 and $79,562, respectively, and unamortized debt issuance costs of $3,261 and $4,771, respectively						1,146,590						1,065,601
Total debt						1,848,209						1,795,014
Less: current debt						(1,212,215)						(1,103,101)
Total debt, noncurrent						$	635,994					$	691,913

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

Fiscal Period:
Remainder of 2022						$	9,375
2023						1,224,851
2024						75,000
2025						75,000
2026						468,750
Total						$	1,852,976

Credit Agreement

In April 2020, we entered into a Credit Agreement pursuant to which the lenders extended to Workday a senior unsecured Term Loan in an aggregate principal amount of $750 million and an unsecured Revolving Credit Facility in an aggregate principal amount of $750 million.

The Term Loan and Revolving Credit Facility bear interest, at our option, at either (i) a floating rate per annum equal to the base rate plus a margin that ranges from 0% to 0.625%, or (ii) a per annum rate equal to the rate at which dollar deposits are offered in the London interbank market plus a margin that ranges from 1.000% to 1.625%. The base rate is defined as the greatest of (i) Bank of America’s prime rate, (ii) the federal funds rate plus 0.50%, or (iii) a per annum rate equal to the rate at which dollar deposits are offered in the London interbank market for a period of one month (but not less than zero) plus 1.00%. Actual margins under either election will be based on our consolidated leverage ratio, which is measured by dividing (a) our consolidated funded indebtedness as of the end of the fiscal quarter by (b) our consolidated EBITDA as defined in the Credit Agreement for the most recently completed four consecutive fiscal quarters.

The 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 financial covenant, based on a quarterly financial test, requires Workday not to exceed a maximum leverage ratio of 3.50:1.00, subject to a step-up to 4.50:1.00 at the election of Workday for a certain period following an Acquisition (as defined in the Credit Agreement). As of October 31, 2021, and January 31, 2021, we were in compliance with all covenants.

Term Loan

The Term Loan matures on April 2, 2025, and provides for quarterly repayment in installments of the principal amount at a rate of 1.25% of the principal amount per quarter through January 2022, and 2.50% of the principal amount per quarter thereafter. The Term Loan may be prepaid or permanently reduced by Workday without penalty or premium. As of October 31, 2021, the Term Loan had a carrying value of $702 million, of which $66 million is classified as current and $636 million is classified as noncurrent on the condensed consolidated balance sheet. As of January 31, 2021, the Term Loan had a carrying value of $729 million, of which $38 million was classified as current and $692 million was classified as noncurrent on the condensed consolidated balance sheet. As of October 31, 2021, and January 31, 2021, the interest rate on the Term Loan was 1.30% and 1.38%, respectively, and the effective interest rate was 1.41% and 1.46%, respectively.

Revolving Credit Facility

The Revolving Credit Facility may be borrowed, repaid, and reborrowed until April 2, 2025, at which time all amounts borrowed must be repaid. We may request, no more than two times during the term of the Credit Agreement, that each revolving lender extend the maturity date for the revolving loans for one year. Additionally, we may request an increase in aggregate revolving commitments of up to $250 million at any time prior to April 2, 2025. The Revolving Credit Facility may be prepaid or permanently reduced by Workday without penalty or premium. As of October 31, 2021, and January 31, 2021, there were no outstanding borrowings under the Revolving Credit Facility.

Convertible Senior Notes

In June 2013, we issued 1.50% convertible senior notes due July 15, 2020, with a principal amount of $250 million (“2020 Notes”). The 2020 Notes were unsecured, unsubordinated obligations, and interest was payable in cash in arrears at a fixed rate of 1.50% on January 15 and July 15 of each year. During the second quarter of fiscal 2021, the 2020 Notes were converted by note holders and we repaid the $250 million principal balance in cash. We also distributed approximately 1.7 million shares of our Class A common stock to note holders during fiscal 2021, which represents the conversion value in excess of the principal amount.

In September 2017, we issued 0.25% convertible senior notes due October 1, 2022, with a principal amount of $1.15 billion (together with the 2020 Notes, the “Notes”). The 2022 Notes are unsecured, unsubordinated obligations, and interest is payable in cash in arrears at a fixed rate of 0.25% on April 1 and October 1 of each year. The 2022 Notes mature on October 1, 2022, unless repurchased or converted in accordance with their terms prior to such date. We cannot redeem the 2022 Notes prior to maturity.

The terms of the 2022 Notes are governed by an Indenture by and between us and Wells Fargo Bank, National Association, as Trustee (“Indenture”). Upon conversion, holders of the 2022 Notes will receive cash, shares of Class A common stock, or a combination of cash and shares of Class A common stock, at our election.

The initial conversion rate for the 2022 Notes is 6.7982 shares of Class A common stock per $1,000 principal amount, which is equal to an initial conversion price of approximately $147.10 per share of Class A common stock, subject to adjustment. Prior to the close of business on May 31, 2022, conversion of the 2022 Notes is subject to the satisfaction of certain conditions, as described below.

Holders of the 2022 Notes who convert their 2022 Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the Indenture) are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the Indenture), holders of the 2022 Notes may require us to repurchase all or a portion of their 2022 Notes at a price equal to 100% of the principal amount of the 2022 Notes, plus any accrued and unpaid interest.

Holders of the 2022 Notes may convert all or a portion of their 2022 Notes prior to the close of business on May 31, 2022, in multiples of $1,000 principal amount, only under the following circumstances:

• if the last reported sale price of our Class A common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price of the 2022 Notes on each applicable trading day;

• during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2022 Notes for each day of that five day consecutive trading day period was less than 98% of the product of the last reported sale price of Class A common stock and the conversion rate of the 2022 Notes on such trading day; or

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

On or after June 1, 2022, holders of the 2022 Notes may convert their 2022 Notes at any time until the close of business on the second scheduled trading day immediately preceding the maturity date of the 2022 Notes.

The 2022 Notes were convertible at the option of the holders in the first three quarters of fiscal 2022 and continue to be convertible through the fourth quarter of fiscal 2022 since the trigger for early conversion was met. Specifically, the last reported sale price of our Class A common stock exceeded 130% of the conversion price of the 2022 Notes for more than 20 trading days during the 30 consecutive trading days ended October 31, 2021. Through the date of this filing, the amount of the principal balance of the 2022 Notes that has been converted or for which conversion has been requested was not material.

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

As described in Note 2, Accounting Standards, we adopted ASU 2020-06 effective February 1, 2021, using a modified retrospective method, under which financial results reported in prior periods were not adjusted. Prior to the adoption of the standard, in accounting for the issuance of the 2022 Notes, we separated them into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of similar liabilities that do not have associated convertible features. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2022 Notes. This difference represented a debt discount that was amortized to interest expense over the term of the 2022 Notes using the effective interest rate method. The gross carrying amount of the equity component for the 2022 Notes was $223 million and was included in Additional paid-in capital on the condensed consolidated balance sheets upon issuance. The effective interest rate of the liability component of the 2022 Notes was 4.60%. Additionally, we separated the total issuance costs incurred into liability and equity components in proportion to the allocation of the initial proceeds, resulting in liability issuance costs of $14 million and equity issuance costs of $4 million. Issuance costs attributable to the liability component were amortized on a straight-line basis, which approximated the effective interest rate method, to interest expense over the term of the 2022 Notes. The issuance costs attributable to the equity component were netted against the equity component in Additional paid-in capital.

Upon adoption of ASU No. 2020-06 on February 1, 2021, we recombined the liability and equity components of the 2022 Notes assuming that the instrument was accounted for as a single liability from inception to the date of adoption. We similarly recombined the liability and equity components of the issuance costs. The issuance costs are presented as a deduction from the outstanding principal balance of the 2022 Notes, and are amortized on a straight-line basis, which approximates the effective interest rate method, to interest expense over the term of the 2022 Notes. As of October 31, 2021, the effective interest rate on the 2022 Notes was 0.55%. The standard did not impact the accounting for the 2020 Notes since they were converted and repaid prior to the date of adoption.

Notes Hedges

In connection with the issuance of the Notes, we entered into convertible note hedge transactions with respect to our Class A common stock (“Purchased Options”). The Purchased Options are intended to offset potential economic dilution to our Class A common stock upon any conversion of the Notes. The Purchased Options are separate transactions and are not part of the terms of the Notes. The amounts paid for the Purchased Options were included in Additional paid-in capital on the condensed consolidated balance sheets.

The Purchased Options relating to the 2020 Notes gave us the option to purchase, subject to anti-dilution adjustments substantially identical to those in the 2020 Notes, approximately 3.1 million shares of our Class A common stock for $81.74 per share, exercisable upon conversion of the 2020 Notes. During the second quarter of fiscal 2021, we received approximately 1.7 million shares of our Class A common stock from the exercise of these Purchased Options.

The Purchased Options relating to the 2022 Notes give us the option to purchase, subject to anti-dilution adjustments substantially identical to those in the 2022 Notes, approximately 7.8 million shares of our Class A common stock for $147.10 per share, exercisable upon conversion of the 2022 Notes. The Purchased Options relating to the 2022 Notes will expire in 2022, if not exercised earlier.

Warrants

In connection with the issuance of the Notes, we also entered into warrant transactions to sell warrants (“Warrants”) to acquire, subject to anti-dilution adjustments, up to approximately 3.1 million shares over 60 scheduled trading days beginning in October 2020 and 7.8 million shares over 60 scheduled trading days beginning in January 2023 of our Class A common stock at an exercise price of $107.96 and $213.96 per share, respectively. If the Warrants are not exercised on their exercise dates, they will expire. The Warrants will be net share settled, and the resulting number of shares of our common stock we will issue depends on the daily volume-weighted average stock prices over the 60 scheduled trading day period beginning on the first expiration date of the Warrants. If the market value per share of our Class A common stock exceeds the applicable exercise price of the Warrants, the Warrants will have a dilutive effect on our earnings per share assuming that we are profitable. The Warrants are separate transactions and are not part of the terms of the Notes or the Purchased Options. The proceeds from the sale of the Warrants were recorded in Additional paid-in capital on the condensed consolidated balance sheets.

During the third and fourth quarters of fiscal 2021, Warrants related to the 2020 Notes were exercised, and we distributed approximately 1.6 million shares of our Class A common stock to warrant holders primarily utilizing treasury stock. As of October 31, 2021, there were no Warrants outstanding related to the 2020 Notes.

Interest Expense on Debt

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

			Three Months Ended October 31,												Nine Months Ended October 31,
			2021						2020						2021						2020
Contractual interest expense			$	3,140					$	4,245					$	9,462					$	11,675
Interest cost related to amortization of debt discount			101						11,374						303						38,993
Interest cost related to amortization of debt issuance costs			896						724						2,688						2,473
Total interest expense			$	4,137					$	16,343					$	12,453					$	53,141

Note 12. Leases

We have entered into operating lease agreements for our office space, data centers, and other property and equipment. As of October 31, 2021, and January 31, 2021, operating lease right-of-use assets were $270 million and $414 million, respectively, and operating lease liabilities were $286 million and $443 million, respectively. We have also entered into finance lease agreements for other property and equipment. As of October 31, 2021, and January 31, 2021, finance leases were not material.

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

			Three Months Ended October 31,												Nine Months Ended October 31,
			2021						2020						2021						2020
Operating lease cost			$	22,988					$	24,638					$	70,004					$	67,873
Short-term lease cost			1,204						3,443						5,419						11,875
Variable lease cost			8,756						4,563						18,519						13,899
Total operating lease cost			$	32,948					$	32,644					$	93,942					$	93,647

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

			Three Months Ended October 31,												Nine Months Ended October 31,
			2021						2020						2021						2020
Cash paid for operating lease liabilities			$	21,802					$	22,765					$	68,375					$	64,930
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities			15,646						113,219						54,335						183,722

Other information related to our operating leases was as follows:

			October 31, 2021						January 31, 2021
Weighted average remaining lease term (in years)			5						6
Weighted average discount rate			2.32%						1.73%

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

Fiscal Period:
Remainder of 2022			$	22,610
2023			86,427
2024			73,333
2025			57,244
2026			30,790
Thereafter			42,608
Total lease payments			313,012
Less imputed interest			(26,591)
Total operating lease liabilities			$	286,421

As of October 31, 2021, we have additional operating leases for office space that have not yet commenced with total undiscounted lease payments of $5 million. These operating leases will commence in fiscal 2022 and 2023, with lease terms ranging from one to six years.

Related-Party Transactions

As discussed in Note 6, Property and Equipment, Net, during fiscal 2021, we entered into an agreement with an affiliated party which gave us the option to purchase certain leased properties within our corporate headquarters. We exercised the Leased Property Purchase Option in the first quarter of fiscal 2022 at a purchase price of $173 million in cash, reduced by a $2 million fee paid for the Leased Property Purchase Option in the prior fiscal year.

Subsequent to the exercise of the Leased Property Purchase Option, the Property is included in Property and equipment, net on the condensed consolidated balance sheet. As of January 31, 2021, the operating lease right-of-use assets and operating lease liabilities related to these agreements were $134 million and $146 million, respectively. We incurred no rent expense under these agreements for the three months ended October 31, 2021, as compared to $4 million for the three months ended October 31, 2020. Rent expense was $2 million and $12 million for the nine months ended October 31, 2021, and 2020, respectively.

Note 13. Commitments and Contingencies

Third-Party Hosted Infrastructure Platform-Related Commitments

We have entered into noncancelable agreements with third-party hosted infrastructure platform vendors with various expiration dates. During the second quarter of fiscal 2022, we entered into a six-year, $420 million agreement for the use of cloud services. As of October 31, 2021, future noncancelable minimum payments under these agreements were approximately $761 million.

Legal Matters

We are a party to various legal proceedings and claims that arise in the ordinary course of business. We make a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular matter. In our opinion, as of October 31, 2021, there was not at least a reasonable possibility that we had incurred a material loss, or a material loss in excess of a recorded accrual, with respect to such loss contingencies.

Note 14. Stockholders’ Equity

Common Stock

As of October 31, 2021, there were 193 million shares of Class A common stock, net of treasury stock, and 57 million shares of Class B common stock outstanding. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share and each share of Class B common stock is entitled to 10 votes per share. Each share of Class B common stock can be converted into a share of Class A common stock at any time at the option of the holder.

Employee Equity Plans

Our 2012 Equity Incentive Plan (“EIP”) serves as the successor to our 2005 Stock Plan (together with the EIP, the “Stock Plans”). As of October 31, 2021, we had 58 million shares of Class A common stock available for future grants.

We also have a 2012 Employee Stock Purchase Plan (“ESPP”). 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 October 31, 2021, 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 restricted stock units (“RSUs”) to employees and non-employees. RSUs generally vest over four years. A summary of information related to RSU activity during the nine months ended October 31, 2021, is as follows (in thousands, except per share data):

			Number of Shares						Weighted-Average Grant Date Fair Value
Balance as of January 31, 2021			13,168						$	154.90
RSUs granted			5,651						257.78
RSUs vested			(5,103)						147.99
RSUs forfeited			(1,101)						181.72
Balance as of October 31, 2021			12,615						201.44

As of October 31, 2021, there was a total of $2.0 billion in unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested RSUs, which is expected to be recognized over a weighted-average period of approximately three years.

Performance-Based Restricted Stock Units

During fiscal 2022, 0.3 million shares of performance-based restricted stock units (“PRSUs”) were granted to employees below the level of vice president that included both service conditions and performance conditions related to company-wide goals. We expect to grant additional shares related to this program for employees hired in fiscal 2022. These PRSU awards will vest if the performance conditions are achieved for the fiscal year ending January 31, 2022, and if the individual employee continues to provide service through the vesting date of March 15, 2022. We recognized compensation cost related to these PRSUs of $24 million and $35 million during the three and nine months ended October 31, 2021, respectively. A total of $37 million in unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately five months.

During fiscal 2021, 0.6 million shares of PRSUs were granted to all employees other than executive management that included both service conditions and performance conditions related to company-wide goals. These performance conditions were met and the PRSUs vested on March 15, 2021. We recognized $17 million in compensation cost related to these PRSUs during the nine months ended October 31, 2021.

Stock Options

The Stock Plans provide for the issuance of incentive and nonstatutory stock options to employees and non-employees. Stock options issued under the Stock Plans generally are exercisable for periods not to exceed ten years and generally vest over five years. A summary of information related to stock option activity during the nine months ended October 31, 2021, is as follows (in millions, except number of shares which are reflected in thousands and per share data):

			Outstanding Stock Options						Weighted-Average Exercise Price						Aggregate Intrinsic Value
Balance as of January 31, 2021			1,260						$	13.55					$	270
Stock options exercised			(671)						9.01
Stock options canceled			(13)						35.55
Balance as of October 31, 2021			576						18.34						156
Vested and expected to vest as of October 31, 2021			575						18.33						156
Exercisable as of October 31, 2021			545						17.23						149

As of October 31, 2021, there was a total of $2 million in unrecognized compensation cost, adjusted for estimated forfeitures, related to unvested stock options, which is expected to be recognized over a weighted-average period of approximately one year.

Note 15. Unearned Revenue and Performance Obligations

Subscription services revenues of $1.02 billion and $846 million were recognized during the three months ended October 31, 2021, and 2020, respectively, that were included in the unearned revenue balances as of July 31, 2021, and 2020, respectively. Subscription services revenues of $2.18 billion and $1.90 billion were recognized during the nine months ended October 31, 2021, and 2020, respectively, that were included in the unearned revenue balances as of January 31, 2021, and 2020, respectively. Professional services revenues recognized in the same periods from unearned revenue balances at the beginning of the respective periods were not material.

Transaction Price Allocated to the Remaining Performance Obligations

As of October 31, 2021, approximately $10.97 billion of revenues are expected to be recognized from remaining performance obligations for subscription contracts. We expect to recognize revenues on approximately $7.12 billion of these remaining performance obligations over the next 24 months, with the balance recognized thereafter. Revenues from remaining performance obligations for professional services contracts as of October 31, 2021, were not material.

Note 16. Other Income (Expense), Net

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

			Three Months Ended October 31,												Nine Months Ended October 31,
			2021						2020						2021						2020
Interest income			$	1,195					$	3,610					$	4,531					$	16,455
Interest expense (1)			(4,160)						(16,370)						(12,527)						(53,211)
Other (2)			24,522						3,914						123,487						5,484
Total other income (expense), net			$	21,557					$	(8,846)					$	115,491					$	(31,272)

(1)Interest expense includes the contractual interest expense of the Term Loan and Notes, and the related non-cash interest expense attributable to amortization of the debt discounts and debt issuance costs. 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

We reported an income tax benefit of $3 million and an income tax expense of $4 million for the nine months ended October 31, 2021, and 2020, respectively. The income tax benefit for the nine months ended October 31, 2021, was primarily attributable to excess tax benefit from stock option deductions in foreign jurisdictions, reversal of previously accrued tax liabilities upon favorable tax audit results, and amortization of intangibles from business combinations. The income tax benefits were partially offset by state taxes and income tax expenses in profitable foreign jurisdictions. The income tax expense for the nine months ended October 31, 2020, was primarily attributable to state taxes and income tax expenses in profitable foreign jurisdictions.

We are subject to income tax audits in the U.S. and foreign jurisdictions. We record liabilities related to uncertain tax positions and believe that we have provided adequate reserves for income tax uncertainties in all open tax years. Due to our history of tax losses, all years remain open to tax audit.

We periodically evaluate the realizability of our net deferred tax assets based on all available evidence, both positive and negative. The realization of net deferred tax assets is dependent on our ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets. As of October 31, 2021, we continue to maintain a full valuation allowance on our deferred tax assets except in certain jurisdictions.

Note 18. Net Income (Loss) Per Share

Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders 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 outstanding stock options, unvested RSUs, PRSUs, and RSAs, convertible senior notes, outstanding warrants, and ESPP obligations.

The net income (loss) per share attributable to common stockholders 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) attributable to common stockholders is allocated on a proportionate basis. The computation of the diluted net income (loss) per share of Class A common stock assumes the conversion of our Class B common stock to Class A common stock, while the diluted net income (loss) per share of Class B common stock does not assume the conversion of those shares.

Basic and diluted net loss per share was the same for the three and nine months ended October 31, 2020, as the inclusion of all potential common shares outstanding would have been anti-dilutive.

The following table presents the calculation of basic and diluted net income (loss) per share (in thousands, except per share data):

			Three Months Ended October 31,																								Nine Months Ended October 31,
			2021												2020												2021												2020
			Class A						Class B						Class A						Class B						Class A						Class B						Class A						Class B
Net income (loss) per share, basic:
Numerator:
Net income (loss)			$	33,417					$	9,995					$	(18,199)					$	(6,141)					$	78,546					$	24,080					$	(156,526)					$	(54,198)
Denominator:
Weighted-average shares outstanding, basic			191,259						57,209						178,004						60,055						188,546						57,802						175,071						60,614
Net income (loss) per share, basic			$	0.17					$	0.17					$	(0.10)					$	(0.10)					$	0.42					$	0.42					$	(0.89)					$	(0.89)
Net income (loss) per share, diluted:
Numerator:
Net income (loss)			33,417						9,995						(18,199)						(6,141)						78,546						24,080						(156,526)						(54,198)
Reallocation of net income and interest expense as a result of conversion of Class B to Class A common stock			9,995						—						—						—						24,080						—						—						—
Reallocation of net income and interest expense to Class B common stock			—						(247)						—						—						—						(718)						—						—
Net income (loss) for diluted calculation			43,412						9,748						(18,199)						(6,141)						102,626						23,362						(156,526)						(54,198)
Denominator:
Weighted-average shares outstanding, basic			191,259						57,209						178,004						60,055						188,546						57,802						175,071						60,614
Conversion of Class B to Class A common stock			57,209						—						—						—						57,802						—						—						—
Shares related to outstanding options, unvested RSUs, PRSUs, RSAs, and ESPP obligations			4,933						—						—						—						6,456						—						—						—
Shares subject to warrants related to the issuance of convertible senior notes			1,359						—						—						—						1,113						—						—						—
Weighted-average shares outstanding, diluted			254,760						57,209						178,004						60,055						253,917						57,802						175,071						60,614
Net income (loss) per share, diluted			$	0.17					$	0.17					$	(0.10)					$	(0.10)					$	0.40					$	0.40					$	(0.89)					$	(0.89)

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

			Three Months Ended October 31,												Nine Months Ended October 31,
			2021						2020						2021						2020
Shares related to outstanding options, unvested RSUs, PRSUs, RSAs, and ESPP obligations			151						18,169						189						17,125
Shares related to the convertible senior notes			7,817						7,818						7,817						9,670
Shares subject to warrants related to the issuance of convertible senior notes			—						10,857						—						10,870
Total			7,968						36,844						8,006						37,665

Note 19. Disaggregation of Revenues and Geographic Information

Disaggregation of 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 master subscription agreement. The following table sets forth revenues by geographic area (in thousands):

			Three Months Ended October 31,												Nine Months Ended October 31,
			2021						2020						2021						2020
United States			$	991,747					$	833,544					$	2,817,749					$	2,400,940
Other countries			335,516						272,416						944,908						785,372
Total revenues			$	1,327,263					$	1,105,960					$	3,762,657					$	3,186,312

No single customer or country other than the United States represented greater than 10% of our total revenues for the three and nine months ended October 31, 2021, or 2020.

Long-Lived Assets

Our long-lived assets, which primarily consist of property and equipment and operating lease right-of-use assets, are attributed to a country based on the physical location of the assets. Aggregate Property and equipment, net and Operating lease right-of-use assets by geographic area was as follows (in thousands):

			October 31, 2021						January 31, 2021
United States			$	1,184,335					$	1,169,820
Ireland			121,370						143,887
Other countries			84,178						72,839
Total long-lived assets			$	1,389,883					$	1,386,546

Note 20. Subsequent Event

In November 2021, we entered into a definitive agreement to acquire VNDLY, a provider of a cloud-based external workforce and vendor management technology, for consideration of approximately $510 million, consisting principally of cash, subject to adjustments. The acquisition is expected to close during our fourth quarter of fiscal 2022, subject to the satisfaction of customary closing conditions, including required regulatory approvals.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements, which are subject to safe harbor protection under the Private Securities Litigation Reform Act of 1995. All statements contained in this report other than statements of historical fact, including statements regarding our future operating results and financial position, business strategy and plans, and objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “seek,” “plan,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations, beliefs, and projections about future events, conditions, and trends that we believe may affect our financial condition, operating results, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, assumptions, and changes in circumstances that are difficult to predict and many of which are outside of our control, including those arising from the impact of the coronavirus pandemic, as well as those described in the “Risk Factors” section, which we encourage you to read carefully. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.

In light of these risks, uncertainties, assumptions, and potential changes in circumstances, the future events, conditions, and trends discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied by the forward-looking statements. Accordingly, you should not rely upon any forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activities, performance, or achievements. We are under no duty to update any of these forward-looking statements after the date of this report or to conform these statements to actual results or revised expectations, except as required by applicable law. If we do update any forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.