Workday 10-Q 2024-04-30

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒			Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended April 30, 2024

OR

☐			Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For transition period from to

Commission File Number: 001-35680

WORKDAY, INC.

(Exact name of registrant as specified in its charter)

Delaware						20-2480422
(State or other jurisdiction of incorporation or organization)						(I.R.S Employer Identification No.)

6110 Stoneridge Mall Road

Pleasanton, California 94588

(Address of principal executive offices, including zip code)

(925) 951-9000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading Symbol(s)			Name of each exchange on which registered
Class A Common Stock, par value $0.001			WDAY			The Nasdaq Stock Market LLC
			(Nasdaq Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer			☒			Accelerated filer			☐
Non-accelerated filer			☐			Smaller reporting company			☐
						Emerging growth company			☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 24, 2024, there were approximately 212 million shares of the registrant’s Class A common stock, net of treasury stock, and 53 million shares of the registrant’s Class B common stock outstanding.

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Workday, Inc.

						Page No.
PART I. FINANCIAL INFORMATION
Item 1.			Financial Statements (unaudited):
			Condensed Consolidated Balance Sheets as of April 30, 2024, and January 31, 2024			3
			Condensed Consolidated Statements of Operations for the Three Months Ended April 30, 2024, and 2023			4
			Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended April 30, 2024, and 2023			5
			Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended April 30, 2024, and 2023			6
			Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2024, and 2023			7
			Notes to Condensed Consolidated Financial Statements			9
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			37
Item 4.			Controls and Procedures			37
PART II. OTHER INFORMATION
Item 1.			Legal Proceedings			39
Item 1A.			Risk Factors			40
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			61
Item 3.			Defaults Upon Senior Securities			61
Item 4.			Mine Safety Disclosures			61
Item 5.			Other Information			61
Item 6.			Exhibits			62
			Signatures			63

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PART I. FINANCIAL INFORMATION

Workday, Inc.

Condensed Consolidated Balance Sheets

(in millions)

(unaudited)

			April 30, 2024						January 31, 2024
Assets
Current assets:
Cash and cash equivalents			$	1,752					$	2,012
Marketable securities			5,430						5,801
Trade and other receivables, net			1,133						1,639
Deferred costs			232						232
Prepaid expenses and other current assets			327						255
Total current assets			8,874						9,939
Property and equipment, net			1,238						1,234
Operating lease right-of-use assets			323						289
Deferred costs, noncurrent			489						509
Acquisition-related intangible assets, net			351						233
Deferred tax assets			1,056						1,065
Goodwill			3,257						2,846
Other assets			353						337
Total assets			$	15,941					$	16,452
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable			$	76					$	78
Accrued expenses and other current liabilities			254						287
Accrued compensation			451						544
Unearned revenue			3,552						4,057
Operating lease liabilities			95						89
Total current liabilities			4,428						5,055
Debt, noncurrent			2,981						2,980
Unearned revenue, noncurrent			61						70
Operating lease liabilities, noncurrent			268						227
Other liabilities			40						38
Total liabilities			7,778						8,370
Stockholders’ equity:
Common stock			0						0
Additional paid-in capital			10,512						10,400
Treasury stock			(742)						(608)
Accumulated other comprehensive income (loss)			17						21
Accumulated deficit			(1,624)						(1,731)
Total stockholders’ equity			8,163						8,082
Total liabilities and stockholders’ equity			$	15,941					$	16,452

See Notes to Condensed Consolidated Financial Statements

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Workday, Inc.

Condensed Consolidated Statements of Operations

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

(unaudited)

			Three Months Ended April 30,
			2024						2023
Revenues:
Subscription services			$	1,815					$	1,528
Professional services			175						156
Total revenues			1,990						1,684
Costs and expenses (1)****:
Costs of subscription services			290						239
Costs of professional services			199						178
Product development			656						600
Sales and marketing			573						519
General and administrative			208						168
Total costs and expenses			1,926						1,704
Operating income (loss)			64						(20)
Other income (expense), net			59						27
Income (loss) before provision for (benefit from) income taxes			123						7
Provision for (benefit from) income taxes			16						7
Net income (loss)			$	107					$	0
Net income (loss) per share, basic			$	0.40					$	0.00
Net income (loss) per share, diluted			$	0.40					$	0.00
Weighted-average shares used to compute net income (loss) per share, basic			264,444						258,820
Weighted-average shares used to compute net income (loss) per share, diluted			270,298						261,371

(1) Costs and expenses include share-based compensation expenses as follows:
			Three Months Ended April 30,
			2024						2023
Costs of subscription services			$	38					$	29
Costs of professional services			31						30
Product development			173						170
Sales and marketing			72						80
General and administrative			71						60
Total share-based compensation expenses			$	385					$	369

See Notes to Condensed Consolidated Financial Statements

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Workday, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in millions)

(unaudited)

			Three Months Ended April 30,
			2024						2023
Net income (loss)			$	107					$	0
Other comprehensive income (loss), net of tax:

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You should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this report.

Overview

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. Our diverse customer base includes medium-sized and large, global organizations within numerous industry categories, including professional and business services, financial services, healthcare, education, government, technology, media, retail, and hospitality.

We have achieved significant growth since our inception in 2005. Our current financial focus is on growing our revenues, operating margin, and operating cash flows, and expanding both our customer base and our footprint within our existing customers. While we have a history of GAAP operating losses prior to fiscal 2024, we strive to invest in a disciplined manner across all of our functional areas to sustain continued near-term revenue growth and support our long-term initiatives. We expect our product development, sales and marketing, and general and administrative expenses as a percentage of total revenues will decrease over the longer term as we grow our revenues, and we anticipate that we will gain economies of scale by increasing our customer base without direct incremental development costs.

We plan to reinvest a significant portion of our incremental revenues in future periods to continue growing our business. We have invested and expect to continue to invest heavily in our product development efforts to deliver additional compelling applications, increase our product localization in targeted international markets, meet our customers’ evolving industry needs, and enhance our existing applications. In addition, we plan to continue to expand our ability to sell our applications globally, particularly in Europe and the Asia-Pacific region, by increasing our sales organization and marketing programs and by expanding our ecosystem of partners to deliver deployments, sales, and co-innovation on the Workday platform. We are also investing in our personnel to support the growing opportunity in our financial management applications business and our growing customer base. Additionally, we expect to make further significant investments in our data center capacity, third-party hosted infrastructure platforms, and cybersecurity capabilities as we plan for future growth.

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We regularly evaluate acquisition and investment opportunities in complementary businesses, employee teams, services, technologies, and intellectual property rights in an effort to expand our product and service offerings, and expect to continue making acquisitions and investments in the future. While we remain focused on improving our operating margin, these acquisitions and investments may increase our costs on an absolute basis in the near term. Many of these investments will occur in advance of experiencing any direct benefit from them and could make it difficult to determine if we are allocating our resources efficiently.

Since inception, we have also invested heavily in our professional services organization to help ensure that customers successfully deploy and adopt our applications. Additionally, we continue to expand our professional services partner ecosystem to further support our customers. We believe our investment in professional services, as well as partners building consulting practices around Workday and helping to deliver additional innovation and solutions, will drive additional customer subscriptions and continued growth in revenues. As we continue to leverage our expanding partner ecosystem, we expect that professional services revenue will continue to decline over time as a percentage of total revenues.

Impact of Current Economic Conditions

Recent macroeconomic events including higher inflation and interest rates, as well as geopolitical factors including the Russia-Ukraine and Israel-Hamas conflicts, have negatively impacted the global economy and created continued uncertainty, volatility, and disruption of financial markets. Despite this, we are confident in the long-term overall health of our business, the strength of our product offerings, and our ability to continue to execute on our strategy and help our customers on their human capital and finance digital transformation journeys. Demand for our products remains strong, we continue to achieve solid new subscription bookings, and our near-term revenues are relatively predictable as a result of our subscription-based business model.

We have experienced, and may continue to experience, a moderation of revenue growth rates due to increased deal scrutiny and the lengthening of certain sales cycles, particularly within net new opportunities, and lower headcount level commitments upon renewals of existing customers. Further, we have provided, and may continue to provide, certain customers with more flexible payment terms. If the economic uncertainty continues, we may also experience additional negative impacts on customer renewals, customer collections, sales and marketing efforts, customer deployments, product development, or other financial metrics. Any of these factors could harm our business, financial condition, and operating results. For further discussion of the potential impacts of recent macroeconomic events on our business, financial condition, and operating results, see “Risk Factors” included in Part II, Item 1A of this report.

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Financial Results Overview

The following table provides an overview of our key metrics (in millions, except percentages, basis points, and headcount data):

									Three Months Ended April 30,
																					2024						2023						Change
Total revenues																					$	1,990					$	1,684					18		%
Subscription services revenues																					$	1,815					$	1,528					19		%
GAAP operating income (loss)																					$	64					$	(20)					421		%
Non-GAAP operating income (1)																					$	515					$	396					30		%
GAAP operating margin																					3.2		%				(1.2)		%				437 bps
Non-GAAP operating margin (1)																					25.9		%				23.5		%				236 bps
Operating cash flows																					$	372					$	277					34		%
Free cash flows (1)																					$	291					$	218					33		%
																					As of April 30,
																					2024						2023						Change
Total subscription revenue backlog																					$	20,681					$	16,651					24		%
12-month subscription revenue backlog																					$	6,600					$	5,595					18		%
24-month subscription revenue backlog																					$	11,590					$	9,790					18		%
Cash, cash equivalents, and marketable securities																					$	7,182					$	6,329					13		%
Headcount																					19,415						17,866						9		%

(1)See “Non-GAAP Financial Measures” below for further information.

Components of Results of Operations

Revenues

We derive our revenues from subscription services and professional services. Subscription services revenues primarily consist of fees that give our customers access to our cloud applications, which include related customer support. Professional services revenues include fees for deployment services, optimization services, and training.

Subscription services revenues accounted for approximately 91% of our total revenues for the three months ended April 30, 2024, and represented 96% of our total unearned revenue as of April 30, 2024. Subscription services revenues are driven primarily by the number of customers, the number of workers at each customer, the specific applications subscribed to by each customer, and the price of our applications.

The mix of applications to which each customer subscribes can affect our financial performance due to price differentials in our applications. Pricing for our applications varies based on many factors, including the complexity and maturity of the application and its acceptance in the marketplace. New products or services offerings by competitors in the future could also impact the mix and pricing of our offerings.

Subscription services revenues are recognized over time as services are delivered and consumed concurrently over the contractual term, beginning on the date our service is made available to the customer. Our subscription contracts typically have a term of three years or longer and are generally noncancelable. We generally invoice our customers annually in advance for subscription services. We may provide certain customers flexible payment terms and the timing of revenue recognition may differ from the timing of invoicing to our customers.

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Our professional services consulting engagements are billed on a time and materials basis or a fixed price basis. We generally invoice our customers in arrears for our professional services. 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. In some cases, we supplement our consulting teams by subcontracting resources from our service partners and deploying them on customer engagements. As the Workday-related consulting practices of our partner firms continue to develop, we expect these partners to increasingly contract directly with our subscription customers for services engagements.

Subscription Revenue Backlog

Our subscription revenue backlog, which is also referred to as remaining performance obligations for subscription contracts, represents contracted subscription services revenues that have not yet been recognized and includes billed and unbilled amounts. Subscription revenue backlog may fluctuate from period to period due to a number of factors, including the timing of renewals and overall renewal rates, new business growth, average contract duration, and seasonality.

Costs and Expenses

Costs of subscription services revenues. Costs of subscription services revenues consist primarily of expenses associated with hosting our applications and providing customer support, including employee-related expenses, expenses related to data center capacity and computing infrastructure operated by third parties, and depreciation of our data center equipment.

Costs of professional services revenues. Costs of professional services revenues consist primarily of employee-related expenses associated with these services, subcontractor expenses, and travel expenses.

Product development expenses. Product development expenses consist primarily of employee-related expenses associated with our efforts to add new features and applications, increase functionality, and enhance the ease of use of our cloud applications, as well as expenses related to data center capacity.

Sales and marketing expenses. Sales and marketing expenses consist primarily of employee-related expenses, sales commissions, marketing programs, and travel expenses. Marketing programs consist of advertising, events, corporate communications, brand awareness, brand ambassador campaigns, and product marketing activities. Sales commissions are considered incremental costs of obtaining a contract with a customer. Sales commissions for new revenue contracts are capitalized and amortized on a straight-line basis over a period of benefit that we have determined to be five years.

General and administrative expenses. General and administrative expenses consist of employee-related expenses for finance and accounting, legal, human resources, information systems personnel, professional fees, and other corporate expenses.

Results of Operations

Revenues

Our total revenues for the three months ended April 30, 2024, and 2023, were as follows (in millions, except percentages):

			Three Months Ended April 30,
			2024						2023
Subscription services			$	1,815					$	1,528
Professional services			175						156
Total revenues			$	1,990					$	1,684

Total revenues were $2.0 billion for the three months ended April 30, 2024, compared to $1.7 billion for the prior year period, an increase of $305 million, or 18%. Subscription services revenues were $1.8 billion for the three months ended April 30, 2024, compared to $1.5 billion for the prior year period, an increase of $288 million, or 19%. The increase in subscription services revenues was primarily due to an increased number of new customers, expansion of our product offerings sold to existing customers, and strong customer renewals, with gross and net retention rates over 95% and over 100%, respectively. Professional services revenues were $175 million for the three months ended April 30, 2024, compared to $156 million for the prior year period, an increase of $18 million, or 11%. The increase in professional services revenues was primarily due to variations in project size and mix of deployment and integration services provided.

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Subscription Revenue Backlog

As of April 30, 2024, our total subscription revenue backlog was $20.7 billion, with $6.6 billion and $11.6 billion expected to be recognized in revenues over the next 12 and 24 months, respectively. As of April 30, 2023, our total subscription revenue backlog was $16.7 billion, with $5.6 billion and $9.8 billion expected to be recognized in revenues over the next 12 and 24 months, respectively. The increase in subscription revenue backlog was primarily driven by an increased number of new customers, timing of renewals for existing customers, expansion of our product offerings sold to existing customers, and longer duration of customer contracts.

Costs and Expenses

Our costs and expenses for the three months ended April 30, 2024, and 2023, were as follows (in millions):

			Three Months Ended April 30,
			2024						2023
Costs of subscription services			$	290					$	239
Costs of professional services			199						178
Product development			656						600
Sales and marketing			573						519
General and administrative			208						168
Total costs and expenses			$	1,926					$	1,704

Total costs and expenses were $1.9 billion for the three months ended April 30, 2024, compared to $1.7 billion for the prior year period, an increase of $222 million, or 13%. The increase in GAAP operating expenses included increases of $154 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount, $17 million in professional services and subcontractor expenses, $11 million in expenses for data center capacity, and $11 million in amortization of deferred sales commissions due to increased sales.

Costs of Subscription Services

Costs of subscription services were $290 million for the three months ended April 30, 2024, compared to $239 million for the prior year period, an increase of $51 million, or 21%. The increase in costs of subscription services included increases of $36 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount and $9 million in expenses for data center capacity.

We expect costs of subscription services will continue to increase in absolute dollars as we improve and expand our technical operations infrastructure, including our data centers and computing infrastructure operated by third parties.

Costs of Professional Services

Costs of professional services were $199 million for the three months ended April 30, 2024, compared to $178 million for the prior year period, an increase of $20 million, or 11%. The increase in costs of professional services included increases of $11 million in professional services and subcontractor expenses and $7 million in employee-related expenses, including share-based compensation.

We expect costs of professional services as a percentage of total revenues to continue to decline as we continue to rely on our service partners to deploy our applications and as our subscription services revenues continue to grow as we expand both our customer base and our footprint within our existing customers.

Product Development

Product development expenses were $656 million for the three months ended April 30, 2024, compared to $600 million for the prior year period, an increase of $56 million, or 9%. The increase in product development expenses included an increase of $49 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount.

We expect product development expenses will continue to increase in absolute dollars as we improve and extend our applications and develop new technologies, including costs incurred for hardware maintenance, data center capacity, facility costs, and IT-related expenses.

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Sales and Marketing

Sales and marketing expenses were $573 million for the three months ended April 30, 2024, compared to $519 million for the prior year period, an increase of $54 million, or 10%. The increase in sales and marketing expenses included increases of $35 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount and $11 million in amortization of deferred sales commissions due to increased sales.

We expect sales and marketing expenses to increase in absolute dollars as we continue to invest in our domestic and international selling and marketing activities to expand awareness of our brand and product offerings to attract new and existing customers.

General and Administrative

General and administrative expenses were $208 million for the three months ended April 30, 2024, compared to $168 million for the prior year period, an increase of $41 million, or 25%. The increase in general and administrative expenses included increases of $27 million in employee-related expenses, including share-based compensation, primarily due to higher average headcount and $8 million in realignment costs.

We expect general and administrative expenses will continue to increase in absolute dollars as we invest in our general and administrative organizations to support business growth.

Share-Based Compensation

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

			Three Months Ended April 30,
			2024						2023
Costs of subscription services			$	38					$	29
Costs of professional services			31						30
Product development			173						170
Sales and marketing			72						80
General and administrative			71						60
Total share-based compensation expenses			$	385					$	369
Percentage of total revenues			19.3		%				21.9		%

Share-based compensation expenses increased by $16 million for the three months ended April 30, 2024, compared to the prior year period, primarily due to additional grants to new and existing employees.

Equity compensation is an important element of our compensation philosophy. While we expect share-based compensation expense to grow in absolute dollars as we expand our global workforce, we expect it to continue to decline as a percentage of total revenues.

Operating Income (Loss) and Operating Margin

GAAP operating income (loss) increased from $(20) million, or (1.2)% of revenues, for the three months ended April 30, 2023, to $64 million, or 3.2% of revenues, for the three months ended April 30, 2024, primarily due to our revenue growth outpacing headcount growth and moderation of operating expenses.

Non-GAAP operating income increased from $396 million, or 23.5% of revenues, for the three months ended April 30, 2023, to $515 million, or 25.9% of revenues, for the three months ended April 30, 2024, primarily due to our revenue growth outpacing headcount growth and moderation of operating expenses.

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Reconciliations of our GAAP to non-GAAP operating income (loss) and operating margin were as follows (in millions, except percentages). See “Non-GAAP Financial Measures” below for further information.

			Three Months Ended April 30,
			2024						2023
Operating income (loss)			$	64					$	(20)
Share-based compensation expenses			385						369
Employer payroll tax-related items on employee stock transactions			38						26
Amortization of acquisition-related intangible assets			17						21
Acquisition-related costs			3						0
Realignment costs			8						0
Non-GAAP operating income (loss)			$	515					$	396
Operating margin			3.2		%				(1.2)		%
Share-based compensation expenses			19.3		%				21.9		%
Employer payroll tax-related items on employee stock transactions			1.9		%				1.5		%
Amortization of acquisition-related intangible assets			0.9		%				1.3		%
Acquisition-related costs			0.2		%				0.0		%
Realignment costs			0.4		%				0.0		%
Non-GAAP operating margin			25.9		%				23.5		%

Other Income (Expense), Net

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

			Three Months Ended April 30,
			2024						2023
Total other income (expense), net			$	59					$	27

Other income, net increased by $33 million for the three months ended April 30, 2024, compared to the prior year period, primarily driven by an increase in interest income on our marketable securities from higher investment balances and increased interest rates.

Provision For (Benefit From) Income Taxes

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

			Three Months Ended April 30,
			2024						2023
Provision for (benefit from) income taxes			$	16					$	7

The income tax provision for the three months ended April 30, 2024, was primarily attributable to earnings in U.S. and profitable foreign jurisdictions, offset by the excess tax benefit from stock-based compensation.

The income tax provision for the three months ended April 30, 2023, was primarily attributable to income tax expenses in profitable foreign jurisdictions and an increase in U.S. taxes due to capitalized research and development expenditures.

The Organization for Economic Cooperation and Development (“OECD”) released Pillar Two model rules defining a 15% global minimum tax for large multinational corporations. The OECD continues to release additional guidance and countries are implementing legislation with widespread adoption of the Pillar Two Framework expected in the near future. We are in the process of evaluating the potential impacts of Pillar Two. While we do not currently expect Pillar Two to have a material impact on our effective tax rate, our analysis is ongoing and incomplete, and it is possible that Pillar Two could have a material adverse effect on our tax liability.

For further information, see Note 17, Income Taxes, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

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Liquidity and Capital Resources

As of April 30, 2024, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $7.2 billion, which were primarily held for working capital and general corporate purposes. Our cash equivalents and marketable securities are composed of, in order from largest to smallest, corporate bonds, U.S. treasury securities, commercial paper, money market funds, and U.S. agency obligations. We have financed our operations primarily through customer payments, issuance of debt, and sales of our common stock.

We believe our existing cash, cash equivalents, marketable securities, cash provided by operating activities, unbilled amounts related to the remaining term of contracted noncancelable subscription agreements, which are not reflected on the Condensed Consolidated Balance Sheets, and, if necessary, our borrowing capacity under our 2022 Credit Agreement that provides for $1.0 billion of unsecured financing, are sufficient to meet our working capital, capital expenditure, and debt repayment needs over the next 12 months and beyond.

Our long-term future capital requirements depend on many factors, including the effects of macroeconomic trends, customer growth rates, subscription renewal activity, headcount growth, the timing and extent of development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced services offerings, the timing and costs associated with the construction or acquisition of additional facilities, and our investment and acquisition activities. As part of our strategy, we may choose to seek additional debt or equity financing.

Our cash flows for the three months ended April 30, 2024, and 2023, were as follows (in millions):

			Three Months Ended April 30,
			2024						2023
Net cash provided by (used in):
Operating activities			$	372					$	277
Investing activities			(258)						(713)
Financing activities			(367)						(2)
Effect of exchange rate changes			0						(1)
Net increase (decrease) in cash, cash equivalents, and restricted cash			$	(253)					$	(439)

Operating Activities

Cash provided by operating activities was $372 million and $277 million for the three months ended April 30, 2024, and 2023, respectively. The improvement in cash flow provided by operating activities was primarily due to increases in sales and the related cash collections and interest received from marketable debt securities, offset by higher cash paid for employee-related expenses primarily due to higher average headcount.

Investing Activities

Cash used in investing activities for the three months ended April 30, 2024, was $258 million, which was primarily related to cash consideration of $512 million for the acquisition of HiredScore, net of cash acquired, and capital expenditures of $81 million for data center and office space projects, offset by proceeds of $335 million from net maturities and sales of marketable debt securities.

Cash used in investing activities for the three months ended April 30, 2023, was $713 million, which primarily resulted from a cash outflow of $656 million from the timing of purchases and maturities of marketable securities and capital expenditures of $59 million for data center and office space projects, offset by proceeds of $22 million from sales of marketable securities.

We expect capital expenditures will be approximately $330 million in fiscal 2025. This includes investments in our data centers, office facilities, and corporate IT infrastructure to support our continued growth.

Financing Activities

Cash used in financing activities was $367 million for the three months ended April 30, 2024, which consisted of taxes paid of $239 million related to net share settlement of equity awards and $128 million of repurchases of common stock under our share repurchase plans.

Cash used in financing activities was $2 million for the three months ended April 30, 2023.

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Free Cash Flows

In evaluating our performance internally, we focus on long-term, sustainable growth in free cash flows. We define free cash flows, a non-GAAP financial measure, as net cash provided by (used in) operating activities minus capital expenditures. See “Non-GAAP Financial Measures” below for further information.

Free cash flows improved to $291 million for the three months ended April 30, 2024, compared to $218 million for the prior year period. The improvement was primarily due to increases in sales and the related cash collections and interest received from marketable debt securities, offset by higher cash paid for employee-related expenses primarily due to higher average headcount and higher capital expenditures for data center and office space projects.

Reconciliation of our GAAP net cash provided by (used in) operating activities to non-GAAP free cash flows is as follows (in millions):

			Three Months Ended April 30,
			2024						2023
Net cash provided by (used in) operating activities			$	372					$	277
Less: Capital expenditures			(81)						(59)
Free cash flows			$	291					$	218

Share Repurchase Program

In November 2022, our Board of Directors authorized the 2022 Share Repurchase Program under which we were authorized to repurchase up to $500 million of our outstanding shares of Class A common stock. As of April 30, 2024, we had completed the repurchase authorization under this 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 Class A common stock. For further information, see Note 14, Stockholders’ Equity, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

Contractual Obligations

Our contractual obligations primarily consist of borrowings under our Senior Notes, agreements for third-party hosted infrastructure platforms for business operations, leases for office space and co-location facilities for data center capacity, and other purchase obligations entered into in the ordinary course of business. There have been no material changes outside the ordinary course of business to our contractual obligations disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024.

Non-GAAP Financial Measures

Regulation S-K Item 10(e), “Use of non-GAAP financial measures in Commission filings,” defines and prescribes the conditions for use of non-GAAP financial information. Our measures of non-GAAP operating income, non-GAAP operating margin, and free cash flows meet the definition of non-GAAP financial measures.

Change in Non-GAAP Financial Measures

Effective beginning fiscal 2025, we will exclude certain acquisition-related costs and realignment costs from our non-GAAP results as they may vary from period to period independent of the operating performance of our business. There was no impact to prior period amounts presented in this report as a result of this change since no qualifying costs were incurred in the first quarter of fiscal 2024.

Non-GAAP Operating Income and Non-GAAP Operating Margin

We use the non-GAAP financial measures of non-GAAP operating income and non-GAAP operating margin to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short- and long-term operating plans, and to evaluate our financial performance. We believe that these non-GAAP financial measures reflect our ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business.

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Our non-GAAP operating income and non-GAAP operating margin exclude the components listed below. For the reasons set forth below, we believe that excluding these components provides useful information to investors and others in understanding and evaluating our operating results and prospects in the same manner as management, in comparing financial results across accounting periods and to those of peer companies, and to better understand the long-term performance of our core business.

• Share-based compensation expenses. Share-based compensation primarily consists of non-cash expenses for employee RSUs and our ESPP, and includes share-based compensation associated with acquisitions. Although share-based compensation is an important aspect of the compensation of our employees and executives, this expense is determined using a number of factors, including our stock price, volatility, and forfeiture rates, that are beyond our control and generally unrelated to operational decisions and performance in any particular period. Further, share-based compensation expenses are not reflective of the value ultimately received by the grant recipients.

• Employer payroll tax-related items on employee stock transactions. We exclude the employer payroll tax-related items on employee stock transactions in order to show the full effect that excluding share-based compensation expenses has on our operating results. Similar to share-based compensation expenses, this tax expense is dependent on our stock price and other factors that are beyond our control and do not correlate to the operation of our business.

• Amortization of acquisition-related intangible assets. For business combinations, we generally allocate a portion of the purchase price to intangible assets. The amount of the allocation is based on estimates and assumptions made by management and is subject to amortization. The amount of purchase price allocated to intangible assets and the term of the related amortization can vary significantly and are unique to each acquisition and thus we do not believe it is reflective of our ongoing operations. Although we exclude the amortization of acquisition-related intangible assets from these non-GAAP financial measures, we believe that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.

*•*Acquisition-related costs. Acquisition-related costs include direct transaction costs, such as due diligence and advisory fees, and certain compensation and integration-related expenses. We exclude the effects of acquisition-related costs as we believe these transaction-specific expenses are inconsistent in amount and frequency and do not correlate to the operation of our business.

*•*Realignment costs. Realignment costs are associated with a formal restructuring plan and are primarily related to employee severance, the closure of facilities, and cancellation of certain contracts. We exclude these expenses because they are not reflective of ongoing business and operating results.

Free Cash Flows

We define free cash flows as net cash provided by (used in) operating activities minus capital expenditures. We use free cash flows as a measure of financial progress in our business, as it balances operating results, cash management, and capital efficiency. We believe information regarding free cash flows provides investors and others with an enhanced view of cash flow generation from the ongoing operations of our business.

Limitations on the Use of Non-GAAP Financial Measures

A limitation of our non-GAAP financial measures of non-GAAP operating income, non-GAAP operating margin, and free cash flows is that they do not have uniform definitions. Our definitions will likely differ from the definitions used by other companies, including peer companies, and therefore comparability may be limited. Further, these non-GAAP financial measures have certain limitations as they do not reflect all items of expense or cash that affect our operations and are reflected in the corresponding GAAP financial measures. In the case of share-based compensation, if we did not pay out a portion of compensation in the form of share-based compensation, the cash salary expense included in operating expenses would be higher, which would affect our cash position.

We compensate for these limitations by reconciling the non-GAAP financial measures to the most comparable GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, measures prepared in accordance with GAAP. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure, and to view our non-GAAP financial measures in conjunction with the most comparable GAAP financial measures.

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See “Results of Operations—Operating Income (Loss) and Operating Margin” for reconciliations from the most directly comparable GAAP financial measures of GAAP operating income (loss) and GAAP operating margin, to the non-GAAP financial measures of non-GAAP operating income and non-GAAP operating margin, for the three months ended April 30, 2024, and 2023.

See “Liquidity and Capital Resources—Free Cash Flows” for a reconciliation from the most comparable GAAP financial measure, net cash provided by (used in) operating activities, to the non-GAAP financial measure, free cash flows, for the three months ended April 30, 2024, and 2023.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates, judgments, and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

We believe that the following critical accounting policies involve a high degree of judgment and complexity, and are the most critical to aid in fully understanding and evaluating our financial condition and operating results:

• Revenue recognition

• Deferred commissions

• Income taxes

• Business combinations, goodwill, and acquisition-related intangible assets

• Non-marketable equity investments

For a further discussion of our critical accounting policies, refer to our Annual Report on Form 10-K for the fiscal year ended January 31, 2024. During the three months ended April 30, 2024, there were no significant changes to our critical accounting policies and estimates.

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Recent macroeconomic events have resulted in negative impacts on global economies and financial markets, which may increase our foreign currency exchange risk and interest rate risk. For further discussion of the potential impacts of these events on our business, financial condition, and operating results, see “Risk Factors” included in Part II, Item 1A of this report.

Foreign Currency Exchange Risk

We transact business globally in multiple currencies. As a result, our operating results and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. As of April 30, 2024, our most significant currency exposures were the euro, British pound, Canadian dollar, and Australian dollar.

Due to our exposure to market risks that may result from changes in foreign currency exchange rates, we enter into foreign currency derivative hedging transactions to mitigate these risks. For further information, see Note 10, Derivative Instruments, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

Interest Rate Risk on our Investments

We had cash, cash equivalents, and marketable securities totaling $7.2 billion and $7.8 billion as of April 30, 2024, and January 31, 2024, respectively. Cash equivalents and marketable securities were invested primarily in U.S. treasury securities, U.S. agency obligations, corporate bonds, commercial paper, and money market funds.. The cash, cash equivalents, and marketable securities are held primarily for working capital and general corporate purposes. Our investment portfolios are managed to preserve capital and meet liquidity needs. We do not enter into investments for trading or speculative purposes.

Our cash equivalents and our portfolio of debt securities are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely affected due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fluctuate due to changes in interest rates or we may suffer losses in principal if we sell securities that decline in market value due to changes in interest rates. Further, since our debt securities are classified as “available-for-sale,” if the fair value of the security declines below its amortized cost basis, then any portion of that decline attributable to credit losses, to the extent expected to be nonrecoverable before the sale of the impaired security, is recognized on the Condensed Consolidated Statements of Operations.

An immediate increase or decrease of 100 basis points in interest rates would have resulted in an approximately $54 million market value reduction or increase in our investment portfolio as of April 30, 2024. An immediate increase or decrease of 100 basis points in interest rates would have resulted in an approximately $57 million market value reduction or increase in our investment portfolio as of January 31, 2024. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur.

Interest Rate Risk on our Debt

The Senior Notes have fixed annual interest rates, and therefore we do not have economic interest rate exposure on these debt obligations. However, the fair values of the Senior Notes are exposed to interest rate risk. Generally, the fair values of the Senior Notes will increase as interest rates fall and decrease as interest rates rise.

Borrowings under our 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. Because the interest rates applicable to borrowings under the 2022 Credit Agreement are variable, we are exposed to market risk from changes in the underlying index rates, which affect our cost of borrowing.

For further information, see Note 11, Debt, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

(a) Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report.

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In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on management’s evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are designed to, and are effective to, provide assurance at a reasonable level that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.

(b) Changes in Internal Control Over Financial Reporting

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recently completed fiscal quarter. Based on that evaluation, our principal executive officer and principal financial officer concluded that there has not been any material change in our internal control over financial reporting during the quarter covered by this report that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are regularly involved with claims, suits, purported class or representative actions, and may be involved in regulatory and government investigations and other proceedings, involving competition, intellectual property, data security and privacy, bankruptcy, tax and related compliance, labor and employment, commercial disputes, and other matters. Such claims, suits, actions, regulatory and government investigations, and other proceedings can impose a significant burden on management and employees, could prevent us from offering one or more of our applications, services, or features to others, could require us to change our technology or business practices, or could result in monetary damages, fines, civil or criminal penalties, reputational harm, or other adverse consequences.

These claims, suits, actions, regulatory and government investigations, and other proceedings may include speculative, substantial, or indeterminate monetary amounts. We record a liability when we believe that it is probable that a liability has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both the likelihood of there being a liability and the estimated amount of a liability related to such matters. With respect to our outstanding matters, based on our current knowledge, we believe that the amount or range of reasonably possible liability will not, either individually or in aggregate, have a material adverse effect on our business, financial condition, operating results, or cash flows. However, the outcome of such matters is inherently unpredictable and subject to significant uncertainties.

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Investing in our securities involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this report, including the condensed consolidated financial statements and the related notes included elsewhere in this report, before making an investment decision. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that materially and adversely affect our business. If any of the following risks actually occurs, our business operations, financial condition, operating results, and prospects could be materially and adversely affected. The market price of our securities could decline due to the materialization of these or any other risks, and you could lose part or all of your investment.

Summary of Risk Factors

The following summary provides an overview of the material risks we are exposed to in the normal course of our business activities. This risk factor summary does not contain all of the information that may be important to you, and you should read these together with the more detailed discussion of risks set forth following this section, as well as elsewhere in this report under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Additional risks beyond those summarized below, or discussed elsewhere in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may apply to our activities or operations as currently conducted or as we may conduct them in the future, or to the markets in which we currently operate or may in the future operate. Consistent with the foregoing, we are exposed to a variety of risks, including those associated with the following:

• any compromise of our information technology systems or security measures (including of our critical suppliers and service partners), or the unauthorized access of customer or user data;

• any slowdown or failure of our technical operations infrastructure, including our data centers and computing infrastructure operated by third parties, or the impact of service outages or delays in the deployment of our applications, or the failure of our applications to perform properly;

• privacy concerns and evolving domestic or foreign laws and regulations;

• the impact of continuing global economic and geopolitical volatility;

• any loss of key employees or the inability to attract, develop, and retain highly skilled employees;

• our ability to compete effectively in the intensely competitive markets in which we participate;

• our reliance on our network of partners to drive additional growth of our revenues;

• exposure to risks inherent to sales to customers outside the United States or with international operations;

• any dissatisfaction of our users with the deployment, training, and support services provided by us and our partners;

• the fluctuation of our quarterly results;

• our ability to realize a return on our current development efforts or offer new features, enhancements, and modifications to our products and services, and our ability to realize a return on the investments we have made toward entering new markets and new lines of business;

• delays in the reflection of downturns or upturns in new sales in our operating results associated with long sales cycles and our subscription model;

• our ability to predict the rate of customer subscription renewals or adoptions;

• new and evolving technologies such as AI;

• any adverse litigation results;

• our ability to successfully integrate our applications with third-party technologies;

• our ability to realize the expected business or financial benefits of company, employee, or technology acquisitions;

• any failure to protect our intellectual property rights or any lawsuits against us for alleged infringement of third-party proprietary rights;

• government contracts and related procurement regulations;

• our existing and future debt obligations; and

• the limited ability of third parties to influence corporate matters due to our dual class structure and to seek a merger, tender offer, or proxy contest due to Delaware law and provisions in our organizational documents.

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Risks Related to Our Business and Industry

Any slowdown or failure in our technical operations infrastructure or applications may subject us to liabilities and adversely affect our reputation and operating results.

We have experienced significant growth in the number of users, transactions, and data that our operations infrastructure supports. If we do not accurately predict our infrastructure requirements or fail to adapt and scale, we may experience service outages or delays, or significant increases in operating costs, which may adversely affect our business and operating results.

We have experienced, and may in the future experience, defects, system disruptions, outages, and other performance problems, including the failure of our applications to perform properly. These problems may be caused by a variety of factors, including infrastructure and software or code changes, vendor issues, software and system defects, human error, viruses, worms, security attacks (internal and external), fraud, spikes in customer usage, and denial of service issues. All of these issues may result in increased operational costs, delays in new feature rollouts, customer loss, reputational damage, and legal or regulatory liability, including liability under customer contracts or for losses suffered by our customers.

Such issues have, and may in the future, result in certain parties having unauthorized access to data. For example, in November 2023, we discovered that an issue in our product affecting certain customers resulted in document notifications and PDF documents being sent to unintended recipients within the same organization. Because of the large amount of data that we collect and process in our systems, and the sensitive nature of such data, it is possible that these issues could result in significant disruption, data loss or corruption, or cause the data to be incomplete or contain inaccuracies that our customers and other users regard as significant.

Furthermore, our applications are essential to many of the business processes for our customers. For example, our financial management application is essential to our and our customers’ financial planning, reporting, and compliance programs. Any interruption in our service may affect the availability, accuracy, or timeliness of such programs and as a result could damage our reputation, cause our customers to terminate their use of our applications, require us to issue refunds for prepaid and unused subscription services, require us to compensate our customers for certain losses, and prevent us from gaining additional business from current or future customers. In addition, because we use Workday’s financial management application, any problems that we experience with financial reporting and compliance could be negatively perceived by prospective or current customers and negatively impact demand for our applications.

Our insurance policies, including our errors and omissions insurance, may be inadequate or may not be available in the future on acceptable terms, or at all, to protect against claims and other legal actions arising from breaches of our contracts, disruptions in our service, including those caused by cybersecurity incidents, failures or disruptions to our infrastructure, catastrophic events and disasters, or otherwise. In addition, our policy may not cover all claims made against us and defending a suit, regardless of its merit, could be costly and divert man

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Insider Trading Arrangements

There were no insider trading arrangements adopted or terminated during the quarter.

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The Exhibits listed below are filed as part of this Form 10-Q.

												Incorporated by Reference																								Filed Herewith
Exhibit No.						Exhibit						Form						File No.						Filing Date						Exhibit No.
31.1						Certification of Periodic Report by Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002																														X
31.2						Certification of Periodic Report by Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002																														X
32.1						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002																														X
32.2						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002																														X
101.INS						Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)																														X
101.SCH						Inline XBRL Taxonomy Schema Linkbase Document																														X
101.CAL						Inline XBRL Taxonomy Calculation Linkbase Document																														X
101.DEF						Inline XBRL Taxonomy Definition Linkbase Document																														X
101.LAB						Inline XBRL Taxonomy Labels Linkbase Document																														X
101.PRE						Inline XBRL Taxonomy Presentation Linkbase Document																														X
104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)																														X

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: May 29, 2024

			Workday, Inc.
			/s/ Zane Rowe
			Zane Rowe Chief Financial Officer (Principal Financial and Accounting Officer)