Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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 July 31, 20192020
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.WORKDAY, INC.
(Exact name of registrant as specified in its charter) 
Delaware20-2480422
(State or other jurisdiction of

incorporation or organization)
(IRSI.R.S Employer

Identification No.)
6110 Stoneridge Mall Road
Pleasanton,, California94588
(Address of principal executive offices)
Telephone Number (925) (925) 951-9000
(Registrant’s telephone number, including area code) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.001WDAYThe 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  x☒    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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x☒   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“large accelerated filer”, “accelerated filer, accelerated filer, smaller” “smaller reporting company,” and emerging“emerging growth companycompany” in Rule 12b-2 of the Exchange Act.
Large accelerated filerx☒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  x☒
As of August 28, 2019,26, 2020, there were approximately 164177 million shares of the registrant’s Class A common stock, net of treasury stock, and 6460 million shares of the registrant's Class B common stock outstanding.

Workday, Inc.
Page No.
PART I. FINANCIAL INFORMATION
Item 1.

Workday, Inc.
Page No.
PART I. FINANCIAL INFORMATION
Item 1.
Condensed Consolidated Balance Sheets as of July 31, 2019, 31, 2020, and January 31, 20192020
3
4
5
6
67
8
Notes to Condensed Consolidated Financial Statements
9
Item 2.
2728
Item 3.
3941
Item 4.
4042
PART II. OTHER INFORMATION
Item 1.
4143
Item 1A.
4244
Item 2.
6065
Item 6.
6066
6167

2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Workday, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
 July 31, 2019 January 31, 2019
Assets   
Current assets:   
Cash and cash equivalents$619,514
 $638,554
Marketable securities1,307,006
 1,139,864
Trade and other receivables, net613,425
 704,680
Deferred costs85,557
 80,809
Prepaid expenses and other current assets163,530
 136,689
Total current assets2,789,032
 2,700,596
Property and equipment, net919,523
 796,907
Operating lease right-of-use assets294,824
 —
Deferred costs, noncurrent182,580
 183,518
Acquisition-related intangible assets, net277,953
 313,240
Goodwill1,389,349
 1,379,125
Other assets138,895
 147,360
Total assets$5,992,156
 $5,520,746
Liabilities and stockholders’ equity   
Current liabilities:   
Accounts payable$32,540
 $29,093
Accrued expenses and other current liabilities114,494
 123,542
Accrued compensation192,064
 207,924
Unearned revenue1,796,423
 1,837,618
Operating lease liabilities65,554
 —
Current portion of convertible senior notes, net1,233,189
 232,514
Total current liabilities3,434,264
 2,430,691
Convertible senior notes, net—
 972,264
Unearned revenue, noncurrent89,219
 111,652
Operating lease liabilities, noncurrent243,863
 —
Other liabilities14,525
 47,697
Total liabilities3,781,871
 3,562,304
Stockholders’ equity:   
Common stock227
 221
Additional paid-in capital4,561,272
 4,105,334
Accumulated other comprehensive income (loss)32,458
 (809)
Accumulated deficit(2,383,672) (2,146,304)
Total stockholders’ equity2,210,285
 1,958,442
Total liabilities and stockholders’ equity$5,992,156
 $5,520,746

July 31, 2020January 31, 2020
Assets
Current assets:
Cash and cash equivalents$1,239,696 $731,141 
Marketable securities1,513,842 1,213,432 
Trade and other receivables, net694,289 877,578 
Deferred costs105,350 100,459 
Prepaid expenses and other current assets161,004 172,012 
Total current assets3,714,181 3,094,622 
Property and equipment, net957,434 936,179 
Operating lease right-of-use assets324,655 290,902 
Deferred costs, noncurrent223,996 222,395 
Acquisition-related intangible assets, net276,847 308,401 
Goodwill1,819,261 1,819,261 
Other assets185,077 144,605 
Total assets$7,501,451 $6,816,365 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$57,764 $57,556 
Accrued expenses and other current liabilities125,784 130,050 
Accrued compensation252,814 248,154 
Unearned revenue2,003,455 2,223,178 
Operating lease liabilities75,798 66,147 
Debt, current37,500 244,319 
Total current liabilities2,553,115 2,969,404 
Debt, noncurrent1,752,004 1,017,967 
Unearned revenue, noncurrent64,465 86,025 
Operating lease liabilities, noncurrent271,607 241,425 
Other liabilities21,782 14,993 
Total liabilities4,662,973 4,329,814 
Stockholders’ equity:
Common stock238 231 
Additional paid-in capital5,954,738 5,090,187 
Treasury stock(303,201)— 
Accumulated other comprehensive income (loss)646 23,492 
Accumulated deficit(2,813,943)(2,627,359)
Total stockholders’ equity2,838,478 2,486,551 
Total liabilities and stockholders’ equity$7,501,451 $6,816,365 

See Notes to Condensed Consolidated Financial Statements
3

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Workday, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended July 31,Six Months Ended July 31,
2020201920202019
Revenues:
Subscription services$931,698 $757,155 $1,813,654 $1,458,179 
Professional services130,269 130,597 266,698 254,628 
Total revenues1,061,967 887,752 2,080,352 1,712,807 
Costs and expenses (1):
Costs of subscription services145,007 121,161 290,270 233,630 
Costs of professional services139,270 145,173 299,637 275,923 
Product development418,681 378,122 862,165 725,953 
Sales and marketing276,497 280,200 595,054 553,136 
General and administrative99,266 85,593 194,437 170,048 
Total costs and expenses1,078,721 1,010,249 2,241,563 1,958,690 
Operating income (loss)(16,754)(122,497)(161,211)(245,883)
Other income (expense), net(11,453)(106)(22,426)7,035 
Loss before provision for (benefit from) income taxes(28,207)(122,603)(183,637)(238,848)
Provision for (benefit from) income taxes(191)(1,891)2,747 (1,861)
Net loss$(28,016)$(120,712)$(186,384)$(236,987)
Net loss per share, basic and diluted$(0.12)$(0.53)$(0.79)$(1.05)
Weighted-average shares used to compute net loss per share, basic and diluted236,002 226,392 234,483 224,857 
 Three Months Ended July 31, Six Months Ended July 31,
 2019 2018 2019 2018
Revenues:       
Subscription services$757,155
 $565,659
 $1,458,179
 $1,087,808
Professional services130,597
 106,061
 254,628
 202,555
Total revenues887,752
 671,720
 1,712,807
 1,290,363
Costs and expenses (1):
       
Costs of subscription services121,161
 87,523
 233,630
 167,768
Costs of professional services145,173
 112,707
 275,923
 210,433
Product development378,122
 292,840
 725,953
 556,424
Sales and marketing280,200
 202,464
 553,136
 395,235
General and administrative85,593
 65,168
 170,048
 120,749
Total costs and expenses1,010,249
 760,702
 1,958,690
 1,450,609
Operating loss(122,497) (88,982) (245,883) (160,246)
Other income (expense), net(106) 1,613
 7,035
 (2,235)
Loss before provision for (benefit from) income taxes(122,603) (87,369) (238,848) (162,481)
Provision for (benefit from) income taxes(1,891) (1,213) (1,861) (1,915)
Net loss$(120,712) $(86,156) $(236,987) $(160,566)
Net loss per share, basic and diluted$(0.53) $(0.40) $(1.05) $(0.75)
Weighted-average shares used to compute net loss per share, basic and diluted226,392
 215,932
 224,857
 214,517
(1) Costs and expenses include share-based compensation expenses as follows:
Costs of subscription services$14,825 $12,001 $28,717 $22,416 
Costs of professional services24,552 18,991 47,118 35,141 
Product development128,505 105,758 250,527 196,995 
Sales and marketing49,854 42,690 96,804 81,544 
General and administrative33,500 29,781 64,742 58,360 
(1)      Costs and expenses include share-based compensation expenses as follows:
Costs of subscription services$12,001
 $8,521
 $22,416
 $16,398
Costs of professional services18,991
 12,518
 35,141
 23,310
Product development105,758
 75,354
 196,995
 143,865
Sales and marketing42,690
 29,367
 81,544
 54,979
General and administrative29,781
 21,303
 58,360
 41,170


See Notes to Condensed Consolidated Financial Statements
4

Table of Contents

Workday, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
 Three Months Ended July 31, Six Months Ended July 31,
 2019 2018 2019 2018
Net loss$(120,712) $(86,156) $(236,987) $(160,566)
Other comprehensive income (loss), net of tax:       
Net change in foreign currency translation adjustment53
 (474) (593) (1,261)
Net change in unrealized gains (losses) on available-for-sale debt securities, net of tax provision of $212, $284, $431, and $284, respectively889
 1,439
 1,592
 906
Net change in market value of effective foreign currency forward exchange contracts, net of tax provision of $2,629, $2,481, $4,610, and $4,905, respectively18,403
 17,370
 32,268
 34,337
Other comprehensive income (loss), net of tax19,345
 18,335
 33,267
 33,982
Comprehensive loss$(101,367) $(67,821) $(203,720) $(126,584)

Three Months Ended July 31,Six Months Ended July 31,
2020201920202019
Net loss$(28,016)$(120,712)$(186,384)$(236,987)
Other comprehensive (loss) income, net of tax:
Net change in foreign currency translation adjustment1,684 53 437 (593)
Net change in unrealized gains (losses) on available-for-sale debt securities, net of tax provision of $0, $212, $0, and $431, respectively(728)889 2,246 1,592 
Net change in market value of effective foreign currency forward exchange contracts, net of tax provision of $0, $2,629, $0, and $4,610, respectively(57,836)18,403 (25,529)32,268 
Other comprehensive (loss) income, net of tax(56,880)19,345 (22,846)33,267 
Comprehensive loss$(84,896)$(101,367)$(209,230)$(203,720)

See Notes to Condensed Consolidated Financial Statements
5

Table of Contents
Workday, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
(unaudited)
Three Months Ended July 31,Six Months Ended July 31,
2020201920202019
Common stock:
Balance, beginning of period$235 $225 $231 $221 
Issuance of common stock under employee equity plans1 2 5 6 
Settlement of convertible senior notes2 — 2 — 
Balance, end of period238 227 238 227 
Additional paid-in capital:
Balance, beginning of period5,330,170 4,294,370 5,090,187 4,105,334 
Issuance of common stock under employee equity plans70,939 58,083 74,512 61,534 
Share-based compensation250,431 208,819 486,841 394,023 
Exercise of convertible senior notes hedges303,202 — 303,202 — 
Settlement of convertible senior notes(4)— (4)— 
Cumulative-effect of accounting changes— — — 381 
Balance, end of period5,954,738 4,561,272 5,954,738 4,561,272 
Treasury stock:
Balance, beginning of period— — — — 
Exercise of convertible senior notes hedges(303,201)— (303,201)— 
Balance, end of period(303,201)— (303,201)— 
Accumulated other comprehensive income (loss):
Balance, beginning of period57,526 13,113 23,492 (809)
Other comprehensive (loss) income(56,880)19,345 (22,846)33,267 
Balance, end of period646 32,458 646 32,458 
Accumulated deficit:
Balance, beginning of period(2,785,927)(2,262,960)(2,627,359)(2,146,304)
Net loss(28,016)(120,712)(186,384)(236,987)
Cumulative-effect of accounting changes— — (200)(381)
Balance, end of period(2,813,943)(2,383,672)(2,813,943)(2,383,672)
Total stockholders’ equity$2,838,478 $2,210,285 $2,838,478 $2,210,285 

Three Months Ended July 31,Six Months Ended July 31,
2020201920202019
Common stock (in shares):
Balance, beginning of period235,170,073 225,436,994 231,708,391 222,052,063 
Issuance of common stock under employee equity plans1,991,097 2,170,403 5,452,773 5,555,334 
Settlement of convertible senior notes1,654,302 197 1,654,308 197 
Purchase of treasury stock from the exercise of convertible senior notes hedges(1,654,757)— (1,654,757)— 
Balance, end of period237,160,715 227,607,594 237,160,715 227,607,594 
See Notes to Condensed Consolidated Financial Statements
6
Table of Contents
Workday, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Three Months Ended July 31,Six Months Ended July 31,
Three Months Ended July 31, Six Months Ended July 31,2020201920202019
2019 2018 2019 2018
Cash flows from operating activities       
Cash flows from operating activities:Cash flows from operating activities:
Net loss$(120,712) $(86,156) $(236,987) $(160,566)Net loss$(28,016)$(120,712)$(186,384)$(236,987)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:       Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization67,754
 42,226
 128,919
 80,890
Depreciation and amortization73,178 67,754 144,692 128,919 
Share-based compensation expenses208,912
 147,063
 394,147
 279,722
Share-based compensation expenses251,236 208,912 487,908 394,147 
Amortization of deferred costs22,002
 17,061
 42,882
 33,421
Amortization of deferred costs27,349 22,002 53,409 42,882 
Amortization of debt discount and issuance costs14,301
 17,490
 25,888
 35,629
Amortization of debt discount and issuance costs14,528 14,301 29,368 25,888 
Non-cash lease expenseNon-cash lease expense19,879 16,252 38,248 32,074 
Other11,401
 (4,894) 20,377
 (14,183)Other12,430 (4,851)16,800 (11,697)
Changes in operating assets and liabilities, net of business combinations:       Changes in operating assets and liabilities, net of business combinations:
Trade and other receivables, net(73,437) (104,758) 83,942
 63,944
Trade and other receivables, net(109,316)(73,437)181,586 83,942 
Deferred costs(28,207) (23,943) (46,692) (36,549)Deferred costs(41,841)(28,207)(59,901)(46,692)
Prepaid expenses and other assets(1,679) (5,446) (6,786) 3,042
Prepaid expenses and other assets(9,137)(1,679)10,840 (6,786)
Accounts payable1,047
 5,987
 2,550
 13,941
Accounts payable9,307 1,047 (13,075)2,550 
Accrued expenses and other liabilities(56,524) (15,182) (35,121) (3,555)Accrued expenses and other liabilities(39,837)(56,524)(41,341)(35,121)
Unearned revenue55,461
 68,168
 (63,637) (53,887)Unearned revenue(22,550)55,461 (241,257)(63,637)
Net cash provided by (used in) operating activities100,319
 57,616
 309,482
 241,849
Net cash provided by (used in) operating activities157,210 100,319 420,893 309,482 
Cash flows from investing activities       
Cash flows from investing activities:Cash flows from investing activities:
Purchases of marketable securities(582,848) (526,216) (1,053,902) (1,434,342)Purchases of marketable securities(602,546)(582,848)(1,156,531)(1,053,902)
Maturities of marketable securities385,710
 655,205
 845,807
 1,341,881
Maturities of marketable securities473,016 385,710 854,414 845,807 
Sales of marketable securities4,551
 914,938
 55,499
 942,297
Sales of marketable securities— 4,551 5,279 55,499 
Owned real estate projects(34,149) (49,537) (73,783) (88,770)Owned real estate projects(1,764)(34,149)(4,251)(73,783)
Capital expenditures, excluding owned real estate projects(75,576) (53,346) (141,111) (102,208)Capital expenditures, excluding owned real estate projects(66,555)(75,576)(126,495)(141,111)
Business combinations, net of cash acquired(12,885) (26,737) (12,885) (26,737)Business combinations, net of cash acquired— (12,885)— (12,885)
Purchase of other intangible assets—
 (1,000) —
 (1,000)
Purchases of non-marketable equity and other investments(5,516) (1,000) (7,716) (3,400)Purchases of non-marketable equity and other investments(6,350)(5,516)(58,600)(7,716)
Sales and maturities of non-marketable equity and other investmentsSales and maturities of non-marketable equity and other investments1,561 — 6,199 — 
Other(32) —
 (9) —
Other— (32)— (9)
Net cash provided by (used in) investing activities(320,745) 912,307
 (388,100) 627,721
Net cash provided by (used in) investing activities(202,638)(320,745)(479,985)(388,100)
Cash flows from financing activities       
Cash flows from financing activities:Cash flows from financing activities:
Proceeds from borrowings on term loan, netProceeds from borrowings on term loan, net250,000 — 747,795 — 
Payments on convertible senior notes(27) (350,005) (27) (350,005)Payments on convertible senior notes(249,945)(27)(249,946)(27)
Proceeds from issuance of common stock from employee equity plans58,085
 38,686
 61,540
 41,297
Proceeds from issuance of common stock from employee equity plans70,940 58,085 74,517 61,540 
Other(107) (59) (200) (116)Other(215)(107)(2,255)(200)
Net cash provided by (used in) financing activities57,951
 (311,378) 61,313
 (308,824)Net cash provided by (used in) financing activities70,780 57,951 570,111 61,313 
Effect of exchange rate changes75
 (162) (252) (582)Effect of exchange rate changes771 75 506 (252)
Net increase (decrease) in cash, cash equivalents, and restricted cash(162,400) 658,383
 (17,557) 560,164
Net increase (decrease) in cash, cash equivalents, and restricted cash26,123 (162,400)511,525 (17,557)
Cash, cash equivalents, and restricted cash at the beginning of period787,046
 1,037,435
 642,203
 1,135,654
Cash, cash equivalents, and restricted cash at the beginning of period1,220,123 787,046 734,721 642,203 
Cash, cash equivalents, and restricted cash at the end of period$624,646
 $1,695,818
 $624,646
 $1,695,818
Cash, cash equivalents, and restricted cash at the end of period$1,246,246 $624,646 $1,246,246 $624,646 

See Notes to Condensed Consolidated Financial Statements
6

Table of Contents

 Three Months Ended July 31, Six Months Ended July 31,
 2019 2018 2019 2018
Supplemental cash flow data       
Cash paid for interest, net of amounts capitalized$469
 $14
 $472
 $33
Cash paid for income taxes2,469
 1,492
 6,003
 3,206
Non-cash investing and financing activities:       
Purchases of property and equipment, accrued but not paid46,910
 63,052
 46,910
 63,052
 July 31,
 2019 2018
Reconciliation of cash, cash equivalents, and restricted cash as shown in the statements of cash flows   
Cash and cash equivalents$619,514
 $1,693,743
Restricted cash included in Prepaid expenses and other current assets5,002
 —
Restricted cash included in Other assets130
 2,075
Total cash, cash equivalents, and restricted cash$624,646
 $1,695,818

See Notes to Condensed Consolidated Financial Statements
7

Table of Contents

Three Months Ended July 31,Six Months Ended July 31,
2020201920202019
Supplemental cash flow data:
Cash paid for interest, net of amounts capitalized$4,939 $469 $6,377 $472 
Cash paid for income taxes4,641 2,469 7,586 6,003 
Non-cash investing and financing activities:
Purchases of property and equipment, accrued but not paid49,987 46,910 49,987 46,910 
Workday, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
As of July 31,
20202019
Reconciliation of cash, cash equivalents, and restricted cash as shown in the statements of cash flows:
Cash and cash equivalents$1,239,696 $619,514 
Restricted cash included in Prepaid expenses and other current assets6,421 5,002 
Restricted cash included in Other assets129 130 
Total cash, cash equivalents, and restricted cash$1,246,246 $624,646 
(in thousands)
(unaudited)
 Three Months Ended July 31, Six Months Ended July 31,
 2019 2018 2019 2018
Common stock:       
Balance, beginning of period$225
 $215
 $221
 $211
Issuance of common stock under employee equity plans1
 1
 2
 2
Vested restricted stock units1
 1
 4
 4
Settlement of convertible senior notes—
 1
 —
 1
Balance, end of period227
 218
 227
 218
Additional paid-in capital:       
Balance, beginning of period4,294,370
 3,489,690
 4,105,334
 3,354,423
Cumulative-effect adjustment to Accumulated deficit related to the adoption of ASU No. 2018-07—
 —
 381
 —
Issuance of common stock under employee equity plans58,084
 38,686
 61,538
 41,297
Vested restricted stock units(1) (1) (4) (4)
Share-based compensation208,819
 147,063
 394,023
 279,722
Exercise of convertible senior notes hedges—
 193,679
 —
 193,679
Settlement of convertible senior notes—
 (6) —
 (6)
Balance, end of period4,561,272
 3,869,111
 4,561,272
 3,869,111
Treasury stock:       
Balance, beginning of period—
 —
 —
 —
Exercise of convertible senior notes hedges—
 (193,679) —
 (193,679)
Balance, end of period—
 (193,679) —
 (193,679)
Accumulated other comprehensive income (loss):       
Balance, beginning of period13,113
 (30,766) (809) (46,413)
Other comprehensive income (loss)19,345
 18,335
 33,267
 33,982
Balance, end of period32,458
 (12,431) 32,458
 (12,431)
Accumulated deficit:       
Balance, beginning of period(2,262,960) (1,801,839) (2,146,304) (1,727,856)
Cumulative-effect adjustment to Accumulated deficit related to the adoption of ASU No. 2016-16—
 —
 —
 427
Cumulative-effect adjustment to Accumulated deficit related to the adoption of ASU No. 2018-07—
 —
 (381) —
Net loss(120,712) (86,156) (236,987) (160,566)
Balance, end of period(2,383,672) (1,887,995) (2,383,672) (1,887,995)
Total stockholders' equity$2,210,285
 $1,775,224
 $2,210,285
 $1,775,224

See Notes to Condensed Consolidated Financial Statements
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Workday, Inc.
Notes to Condensed Consolidated Financial Statements
Note 1. Overview and Basis of Presentation
Company and Background
Workday providesdelivers financial management, human capitalresources, planning, spend 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 capital 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, financial position,stockholders’ equity, and cash flows, and stockholders' equity.flows. All such adjustments are of a normal, recurring nature. The results of operations for the quarter ended July 31, 2019,2020, shown in this report are not necessarily indicative of the results to be expected for the full year ending January 31, 2020.2021. 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, 2019,2020, filed with the SEC on March 18, 2019.3, 2020.
There have been no material changes in our significant accounting policies as described in our Annual Report on Form 10-K for the year ended January 31, 2019,2020, other than the adoption of accounting pronouncements as described in Note 2, Accounting Standards. Certain prior period amounts reported in our condensed consolidated financial statements have been reclassified to conform to current period presentation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires us to make certain estimates, 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. These estimates, judgments, and assumptions include, but are not limited to the fair value of assets acquired and liabilities assumed through business combinations, the determination of the period of benefit for deferred commissions, certain assumptions used in the valuation of equity awards, and assumptions used in 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 position and results of operations.statements.
Segment Information
We operate in 1 operating segment, cloud applications. Operating segments are defined as components of an enterprise where separate financial information is evaluated regularly by the chief operating decision maker, who is our chief executive officer, in deciding how to allocate resources and assessing performance. Our chief operating decision maker allocates resources and assesses performance based upon discrete financial information at the consolidated level.

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Note 2. Accounting Standards
Recently Adopted Accounting Pronouncements
ASU No. 2016-022016-13
In FebruaryJune 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02,2016-13, Leases (Topic 842), which requires the recognition of right-of-use assets and lease liabilities on the balance sheet for those leases currently classified as operating leases under Accounting Standards Codification Topic 840 Leases. Accounting for finance leases remains substantially unchanged.
We adopted this standard effective February 1, 2019, using a modified retrospective method, under which financial results reported in periods prior to February 1, 2019, were not adjusted. We elected the package of transition practical expedients, which among other things, does not require reassessment of lease classifications. Additionally, we elected to combine lease and non-lease components for each of our existing underlying asset classes and to not include leases with a term of 12 months or less on our condensed consolidated balance sheets.
The most significant impact of adopting this standard was the recognition of $279 million of operating lease right-of-use assets and $307 million of operating lease liabilities on our condensed consolidated balance sheet as of February 1, 2019. Additionally, we reclassified $28 million in previously recognized deferred rent obligations and lease incentives to operating lease right-of-use assets. This adoption did not result in any cumulative-effect adjustments to Accumulated deficit, and there was no material impact on our condensed consolidated statement of operations. For further information, see Note 11, Leases.
ASU No. 2017-12
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. We adopted this new standard effective February 1, 2019. As a result of adopting the standard, the entire change in the fair value of our foreign currency forward contracts designated as cash flow hedges will be presented in the same income statement line item as the respective hedged items. This adoption did not result in any cumulative-effect adjustments to Accumulated deficit, and the amended presentation guidance was applied prospectively. For further information, see Note 9, Derivative Instruments.
ASU No. 2018-02
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which provides entities the option to reclassify tax effects stranded in accumulated other comprehensive income as a result of the 2017 Tax Cuts and Jobs Act to retained earnings. We adopted this new standard effective February 1, 2019. The adoption of this new standard did not have a material impact on our condensed consolidated financial statements.
ASU No. 2018-07
In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees, with certain exceptions. We adopted this standard effective February 1, 2019, and remeasured all outstanding equity-classified non-employee share-based payment awards at fair value as of the adoption date, which resulted in a $0.4 million cumulative-effect adjustment to Accumulated deficit.

Recently Issued Accounting Pronouncements
ASU No. 2016-13
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, including trade receivables. ASU No. 2016-13 replaces the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes may resultWe adopted this standard effective February 1, 2020, using a modified retrospective approach, which resulted in a cumulative-effect adjustment of $0.2 million to Accumulated deficit.
Under the new standard, we assess our allowance for credit losses on trade receivables by taking into consideration forecasts of future economic conditions, information about past events, such as our historical trend of write-offs, and customer-specific circumstances, such as bankruptcies and disputes. The allowance for credit losses on trade receivables is recorded in operating expenses on our condensed consolidated statements of operations.
With respect to available-for-sale debt securities, when the fair value of the security is below its amortized cost, the amortized cost should be written down to its fair value if i) it is more timely recognitionlikely than not that management is required to sell the impaired security before recovery of its amortized basis or ii) management has the intention to sell the security. If neither of the conditions are met, we must determine whether the impairment is due to credit losses. To determine the amount of credit losses. losses, we compare the present value of the expected cash flows of the security, derived by taking into account the issuers’ credit ratings and remaining payment terms, with its amortized cost basis. The amount of impairment recognized is limited to the excess of the amortized cost over the fair value of the security. An allowance for credit losses for the excess of amortized cost over the expected cash flows is recorded in Other income (expense), net on our condensed consolidated statements of operations. Non-credit related impairment losses are recorded in Other comprehensive income (loss) (“OCI”).
ASU No. 2018-15
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new standard requires capitalized costs to be amortized on a straight-line basis generally over the term of the arrangement, and the financial statement presentation for these capitalized costs would be the same as that of the fees related to the hosting arrangements.
We plan to adoptadopted this standard effective February 1, 2020, using a prospective approach. The adoption of this new standard in the first quarter ofdid not have a material impact on our fiscal 2021. We are evaluating the accounting, transition, and disclosure requirements of this standard. The effectcondensed consolidated financial statements. Subsequent impact on our condensed consolidated financial statements will largely depend on the compositionmagnitude of implementation costs to be incurred. Implementation costs capitalized subsequent to adoption will be recognized in operating expenses on our condensed consolidated statements of operations over the noncancelable period of the hosting arrangement plus any renewal periods reasonably certain to be taken.
ASU No. 2019-12
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies accounting guidance for certain tax matters including franchise taxes, certain transactions that result in a step-up in tax basis of goodwill, and credit qualityenacted changes in tax laws in interim periods. In addition, it eliminates a company’s need to evaluate certain exceptions relating to the incremental approach for intra-period tax allocation, accounting for basis differences when there are ownership changes in foreign investments, and interim period income tax accounting for year-to-date losses that exceed anticipated losses.
We adopted this standard effective February 1, 2020. We adopted the amendments in this update on a retrospective basis for the provision related to franchise taxes and prospectively for all other applicable amendments. The adoption of this new standard did not have a material impact on our investment portfoliocondensed consolidated financial statements.
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Recently Issued Accounting Pronouncements
ASU No. 2020-04
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 trade receivables as well asexceptions to GAAP guidance on contract modifications to ease the economic conditions atfinancial reporting burdens related to the timeexpected market transition from the London Interbank Offered Rate (“LIBOR”) to alternative reference rates. We may elect to apply the amendments prospectively through December 31, 2022. The impact on our condensed consolidated financial statements from the adoption of adoption.this standard is expected to be immaterial.
ASU No. 2020-06
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for certain convertible instruments, amends the guidance on derivative scope exceptions for contracts in an entity's own equity, and modifies the guidance on diluted earnings per share calculations as a result of these changes. This new standard is effective for our interim and annual periods beginning February 1, 2022, and earlier adoption is permitted. We may elect to apply the amendments on a retrospective or modified retrospective basis. We are currently evaluating the impact of the adoption of this standard on our condensed consolidated financial statements.
Note 3. Investments
Debt Securities
As of July 31, 2019,2020, debt securities consisted of the following (in thousands):
Amortized Cost Unrealized Gains Unrealized Losses Aggregate Fair ValueAmortized CostUnrealized GainsUnrealized LossesAggregate Fair Value
U.S. treasury securities$524,462
 $554
 $(31) $524,985
U.S. treasury securities$388,208 $881 $(1)$389,088 
U.S. agency obligations240,029
 229
 (40) 240,218
U.S. agency obligations517,996 231 (116)518,111 
Corporate bonds438,825
 1,232
 (134) 439,923
Corporate bonds430,071 4,269 — 434,340 
Commercial paper182,886
 —
 —
 182,886
Commercial paper267,241 — — 267,241 
$1,386,202
 $2,015
 $(205) $1,388,012
$1,603,516 $5,381 $(117)$1,608,780 
Included in cash and cash equivalents$81,003
 $3
 $—
 $81,006
Included in marketable securities$1,305,199
 $2,012
 $(205) $1,307,006
Included in Cash and cash equivalentsIncluded in Cash and cash equivalents$94,938 $— $— $94,938 
Included in Marketable securitiesIncluded in Marketable securities$1,508,578 $5,381 $(117)$1,513,842 
As of January 31, 2019,2020, debt securities consisted of the following (in thousands):
 Amortized Cost Unrealized Gains Unrealized Losses Aggregate Fair Value
U.S. treasury securities$396,347
 $61
 $(178) $396,230
U.S. agency obligations241,914
 73
 (151) 241,836
Corporate bonds419,784
 336
 (352) 419,768
Commercial paper254,175
 —
 (2) 254,173
 $1,312,220
 $470
 $(683) $1,312,007
Included in cash and cash equivalents$216,270
 $—
 $—
 $216,270
Included in marketable securities$1,095,950
 $470
 $(683) $1,095,737

Amortized CostUnrealized GainsUnrealized LossesAggregate Fair Value
U.S. treasury securities$312,183 $492 $(5)$312,670 
U.S. agency obligations169,613 99 (44)169,668 
Corporate bonds504,434 2,476 — 506,910 
Commercial paper364,701 — — 364,701 
$1,350,931 $3,067 $(49)$1,353,949 
Included in Cash and cash equivalents$140,517 $— $— $140,517 
Included in Marketable securities$1,210,414 $3,067 $(49)$1,213,432 
We do not believe the unrealized losses represent other-than-temporary impairments based on our evaluation of available evidence as of July 31, 2019, which includes an assessment of whether it is more likely than not that we will be required to sell the investment before recovery of the investment's amortized cost basis. The unrealized losses on debt securities that have been in a net loss position for 12 months or more were not material as of July 31, 2019. 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 inon the accompanying 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 July 31, 2020, and January 31, 2020, and we did not recognize any credit losses related to our debt securities during the three and six months ended July 31, 2020.
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During the three months ended July 31, 2020, we did 0t sell any debt securities. We sold $5 million and $915 million of our debt securities during the three months ended July 31, 2019, and 2018, respectively, and $5 million and $942 million of our debt securities during each of the six months ended July 31, 2019,2020, and 2018, respectively.2019. 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 July 31, 2019 January 31, 2019
Money market funds (1)
Cash and cash equivalents $348,109
 $237,071
Marketable equity investments (1)
Marketable securities —
 44,127
Non-marketable equity investments (2)
Other assets 47,060
 36,925
   $395,169
 $318,123
Condensed Consolidated Balance Sheets LocationJuly 31, 2020January 31, 2020
Money market fundsCash and cash equivalents$952,987 $386,909 
Equity investments accounted for under the equity methodOther assets48,228 — 
Non-marketable equity investments measured using the measurement alternativeOther assets65,610 59,026 
$1,066,825 $445,935 
We determine at the inception of each arrangement whether an investment or other interest is considered a variable interest entity (“VIE”). If the investment or other interest is determined to be a VIE, we must evaluate whether we are considered the primary beneficiary. For investments in VIEs in which we are considered the primary beneficiary, the assets, liabilities, and results of operations of the VIE are consolidated in our condensed consolidated financial statements. The primary beneficiary of a VIE is the party that meets both of the following criteria: (1) has the power to direct the activities that most significantly impact the VIE’s economic performance; and (2) has the obligation to absorb losses or the right to receive benefits from the VIE. As of July 31, 2020, there were no VIEs for which we were the primary beneficiary.
Equity Investments Accounted for Under the Equity Method
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. These investments are measured at cost less any impairment, plus or minus our share of earnings and losses, and are included in Other assets on the condensed consolidated balance sheets. Our share of earnings and losses are recorded in Other income (expense), net, on the condensed consolidated statements of operations.
During the first quarter of fiscal 2021, we made an equity investment of $50 million in a limited partnership, which represents an ownership interest of approximately 6%. We determined that the limited partnership is a variable interest entity because the at-risk equity holders, as a group, lack the characteristics of a controlling financial interest. We do not have majority voting rights nor the power to direct the activities of this entity, and therefore, we are not the primary beneficiary. The investment is accounted for under the equity method of accounting as it is considered to be more than minor, and we have the ability to exercise significant influence over the entity. The carrying value was $48 million as of July 31, 2020. There was 0 impairment loss recorded on this investment during the three and six months ended July 31, 2020.
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 have significant influence. We adjust the carrying values of non-marketable equity investments based on observable price changes from orderly transactions for identical or similar investments of the same issuer. NaN material adjustments were made to the carrying value of the non-marketable equity investments as measured under the measurement alternative during the three and six months ended July 31, 2020, and 2019.
Additionally, we assess our non-marketable equity investments quarterly for impairment. Our impairment analysis encompasses an assessment of the severity and duration of the impairment and a qualitative and quantitative analysis of other key factors including the investee’s financial metrics, market acceptance of the investee’s product or technology, other competitive products or technology in the market, general market conditions, and the rate at which the investee is using its cash. We also have considered the impacts of the coronavirus pandemic (“COVID-19 pandemic”) in our impairment analysis. These factors require significant judgment. We did 0t record any impairment losses on non-marketable equity investments for the three months ended July 31, 2020, and we recorded $3 million of impairment losses for the six months ended July 31, 2020. We did 0t record any such impairment losses during the three and six months ended July 31, 2019.
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.
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(1)
Investments with readily determinable fair values.
(2)
Investments in privately held companies without readily determinable fair values.
Marketable Equity Investments
We did 0t hold marketable equity investments as of July 31, 2020, and January 31, 2020. There were 0 sales of marketable equity investments during the three and six months ended July 31, 2020, or the three months ended July 31, 2019. We sold $51 million of marketable equity investments during the six months ended July 31, 2019, with a corresponding gain recognized of $7 million. There were 0 sales of marketable
Total realized and unrealized gains and losses associated with our equity investments during the three and six months ended July 31, 2018.
No material adjustments were made to the carrying valueconsisted of the non-marketable equity investments as measured under the measurement alternative during the three and six months ended July 31, 2019, and 2018.following (in thousands):
Three Months Ended July 31,Six Months Ended July 31,
2020201920202019
Net realized gains (losses) recognized on equity investments sold$— $— $1,591 $6,844 
Net unrealized gains (losses) recognized on equity investments held1,909 2,169 (2,187)2,169 
Total net gains (losses) recognized in Other income (expense), net$1,909 $2,169 $(596)$9,013 
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 that requires that we maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 — Other inputs that are directly or indirectly observable in the marketplace.
Level 3 — Unobservable inputs that are supported by little or no market activity.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents information about our assets and liabilities that are measured at fair value on a recurring basis and their assigned levels within the valuation hierarchy as of July 31, 20192020 (in thousands):
Level 1Level 2Level 3Total
U.S. treasury securities$389,088 $— $— $389,088 
U.S. agency obligations— 518,111 — 518,111 
Corporate bonds— 434,340 — 434,340 
Commercial paper— 267,241 — 267,241 
Money market funds952,987 — — 952,987 
Foreign currency derivative assets— 16,806 — 16,806 
Total assets$1,342,075 $1,236,498 $— $2,578,573 
Foreign currency derivative liabilities$— $20,986 $— $20,986 
Total liabilities$— $20,986 $— $20,986 
13
 Level 1 Level 2 Level 3 Total
U.S. treasury securities$524,985
 $—
 $—
 $524,985
U.S. agency obligations—
 240,218
 —
 240,218
Corporate bonds—
 439,923
 —
 439,923
Commercial paper—
 182,886
 —
 182,886
Money market funds348,109
 —
 —
 348,109
Foreign currency derivative assets—
 53,135
 —
 53,135
Total assets$873,094
 $916,162
 $—
 $1,789,256
Foreign currency derivative liabilities$—
 $518
 $—
 $518
Total liabilities$—
 $518
 $—
 $518
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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, 20192020 (in thousands):
 Level 1 Level 2 Level 3 Total
U.S. treasury securities$396,230
 $—
 $—
 $396,230
U.S. agency obligations—
 241,836
 —
 241,836
Corporate bonds—
 419,768
 —
 419,768
Commercial paper—
 254,173
 —
 254,173
Money market funds237,071
 —
 —
 237,071
Marketable equity investments44,127
 —
 —
 44,127
Foreign currency derivative assets—
 22,570
 —
 22,570
Total assets$677,428
 $938,347
 $—
 $1,615,775
Foreign currency derivative liabilities$—
 $3,135
 $—
 $3,135
Total liabilities$—
 $3,135
 $—
 $3,135

Level 1Level 2Level 3Total
U.S. treasury securities$312,670 $— $— $312,670 
U.S. agency obligations— 169,668 — 169,668 
Corporate bonds— 506,910 — 506,910 
Commercial paper— 364,701 — 364,701 
Money market funds386,909 — — 386,909 
Foreign currency derivative assets— 33,274 — 33,274 
Total assets$699,579 $1,074,553 $— $1,774,132 
Foreign currency derivative liabilities$— $3,996 $— $3,996 
Total liabilities$— $3,996 $— $3,996 
Fair Value Measurements of Other Financial Instruments
The following table presents the carrying amounts and estimated fair values of our financial instruments that are not recorded at fair value on the condensed consolidated balance sheets (in thousands):
 July 31, 2019 January 31, 2019
 Net Carrying Amount Estimated Fair Value Net Carrying Amount Estimated Fair Value
1.50% Convertible senior notes$238,317
 $662,362
 $232,514
 $557,074
0.25% Convertible senior notes994,872
 1,718,100
 972,264
 1,560,228

 July 31, 2020January 31, 2020
 Net Carrying AmountEstimated Fair ValueNet Carrying AmountEstimated Fair Value
1.50% Convertible senior notes$— $— $244,319 $571,057 
0.25% Convertible senior notes1,041,562 1,544,450 1,017,967 1,587,978 
In June 2013, we completed an offering of $250 million of 1.50% convertible senior notes due July 15, 2020 (“2020 Notes”)., which were subsequently converted during the three months ended July 31, 2020. In September 2017, we completed an offering of $1.15 billion of 0.25% convertible senior notes due October 1, 2022 (“2022 Notes” and together with the 2020 Notes, the “Notes”). The carrying amounts of the Notes represent the liability components of the principal balances as of July 31, 2020, and January 31, 2020. The estimated fair values of the Notes, which we have classified as Level 2 financial instruments, were determined based on the quoted bid prices of the Notes in an over-the-counter market on the last trading day of each reporting period. The if-converted value of the 2020 Notes exceeded the principal amount by $362 million. The if-converted value of the 2022 Notes exceeded the principal amount by $413$264 million. The if-converted values werevalue was determined based on the closing price of our common stock of $199.98$180.92 on July 31, 2019.2020. For further information, see Note 10, Convertible Senior Notes, Net.Debt.
In April 2020, we entered into a credit agreement (“Credit Agreement”) pursuant to which the lenders would extend 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”). As of July 31, 2020, the carrying value of the Term Loan was $748 million, and there were 0 outstanding borrowings under the Revolving Credit Facility. The estimated fair value of the Term Loan, which we have classified as a Level 2 financial instrument, approximates the carrying value because it is a floating rate facility. For further information, see Note 10, Debt.
Note 5. Deferred Costs
Deferred costs, which consist of deferred sales commissions, were $268$329 million and $264$323 million as of July 31, 2019,2020, and January 31, 2019,2020, respectively. Amortization expense for the deferred costs was $22$27 million and $17$22 million for the three months ended July 31, 2019,2020, and 2018,2019, respectively, and $43$53 million and $33$43 million for the six months ended July 31, 2019,2020, and 2018,2019, respectively. There was no0 impairment loss in relation to the costs capitalized for the periods presented.

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Note 6. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
July 31, 2019 January 31, 2019July 31, 2020January 31, 2020
Land and land improvements$37,060
 $22,694
Land and land improvements$37,065 $38,737 
Buildings480,089
 433,863
Buildings491,571 489,028 
Computers, equipment, and software645,905
 539,090
Computers, equipment, and software831,593 723,482 
Furniture and fixtures52,235
 38,840
Furniture and fixtures53,814 51,917 
Leasehold improvements185,303
 162,657
Leasehold improvements199,347 189,668 
Property and equipment, gross (1)
1,400,592
 1,197,144
Property and equipment, grossProperty and equipment, gross1,613,390 1,492,832 
Less accumulated depreciation and amortization(481,069) (400,237)Less accumulated depreciation and amortization(655,956)(556,653)
Property and equipment, net$919,523
 $796,907
Property and equipment, net$957,434 $936,179 

(1)
Property and equipment, gross included construction-in-progress for owned real estate projects of $2 million and $355 million that had not yet been placed in service as of July 31, 2019, and January 31, 2019, respectively. The decrease in construction-in-progress was due to the completion of our development center in the second quarter of fiscal 2020.
Depreciation expense totaled $47$57 million and $36$47 million for the three months ended July 31, 2019,2020, and 2018,2019, respectively, and $88$112 million and $69$88 million for the six months ended July 31, 2020, and 2019, respectively. NaN interest costs were capitalized to Property and 2018, respectively.equipment, net during the three and six months ended July 31, 2020. Interest costs capitalized to propertyProperty and equipment, net totaled $2 million and $2$6 million for the three months ended July 31, 2019, and 2018, respectively, and $6 million and $4 million for the six months ended July 31, 2019, and 2018, respectively.
Note 7. Acquisition-relatedAcquisition-Related Intangible Assets, Net
Acquisition-related intangible assets, net consisted of the following (in thousands):
 July 31, 2019 January 31, 2019
Developed technology$190,400
 $186,800
Customer relationships189,000
 189,000
Trade name12,000
 12,000
Backlog11,000
 11,000
Acquisition-related intangible assets, gross402,400
 398,800
Less accumulated amortization(124,447) (85,560)
Acquisition-related intangible assets, net$277,953
 $313,240

In the second quarter of fiscal 2020, acquisition activity resulted in an increase of $4 million and $9 million in acquired developed technology and goodwill, respectively.
July 31, 2020January 31, 2020
Developed technology$218,400 $218,400 
Customer relationships224,000 224,000 
Trade name12,400 12,400 
Backlog11,000 11,000 
Acquisition-related intangible assets, gross465,800 465,800 
Less accumulated amortization(188,953)(157,399)
Acquisition-related intangible assets, net$276,847 $308,401 
Amortization expense related to acquisition-related intangible assets was $20$16 million and $5$20 million for the three months ended July 31, 2019,2020, and 2018,2019, respectively, and $39$32 million and $10$39 million for the six months ended July 31, 2019,2020, and 2018,2019, respectively.
As of July 31, 2019,2020, our future estimated amortization expense related to acquisition-related intangible assets is as follows (in thousands):
Fiscal Period:
Remainder of 2021$28,221 
202252,833 
202350,109 
202438,933 
202527,500 
Thereafter79,251 
Total$276,847 
Fiscal period: 
Remainder of 2020$31,369
202150,342
202243,733
202341,009
202429,833
Thereafter81,667
Total$277,953
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Note 8. Other Assets
Other assets consisted of the following (in thousands):
July 31, 2020January 31, 2020
Non-marketable equity and other investments (1)
$78,239 $75,004 
Equity investments accounted for under the equity method48,228 — 
Prepayments for goods and services22,711 27,928 
Technology patents and other intangible assets, net16,282 17,898 
Net deferred tax assets7,450 6,912 
Deposits5,847 6,335 
Derivative assets4,440 9,529 
Other1,880 999 
Total$185,077 $144,605 
 July 31, 2019 January 31, 2019
Non-marketable equity and other investments$61,258
 $50,546
Prepayments for computing infrastructure platforms11,612
 16,976
Technology patents and other intangible assets, net18,702
 20,335
Deposits4,010
 4,383
Net deferred tax assets4,495
 4,544
Other38,818
 50,576
Total$138,895
 $147,360

(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 $13 million and $16 million as of July 31, 2020, and January 31, 2020, respectively. As of July 31, 2020, the allowance for credit losses on this balance was immaterial.
Technology patents and other intangible assets with estimable useful lives are amortized on a straight-line basis. As of July 31, 2019,2020, the future estimated amortization expense is as follows (in thousands):
Fiscal period: 
Remainder of 2020$1,621
20212,926
20222,512
20232,246
20241,943
Thereafter7,454
Total$18,702

Fiscal Period:
Remainder of 2021$1,437 
20222,620 
20232,348 
20242,040 
20251,569 
Thereafter6,268 
Total$16,282 
Note 9. 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 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. Prior to the adoptionAs of ASU No. 2017-12, the changes in valueJuly 31, 2020, we estimate that $12 million of these contracts resulting from changes in forward points were excluded from the assessment of hedge effectiveness and were recorded as incurred in Other income (expense), net on the condensed consolidated statements of operations. Upon adoption of ASU No. 2017-12, we elected to prospectively include changes in the value of these contracts resulting from changes in forward points in the assessment of hedge effectiveness. These changes aregains recorded in AOCI on the condensed consolidated balance sheets andrelated to our foreign currency forward contracts designated as cash flow hedges will be subsequently reclassified tointo income within the related revenue line item on the condensed consolidated statements of operations in the same period that the underlying revenues are earned. Cash flows from such forward contracts are classified as operating activities.next 12 months.
As of July 31, 2019,2020, and January 31, 2019,2020, we had outstanding foreign currency forward contracts designated as cash flow hedges with total notional values of $822$1.1 billion and $908 million, and $717 million, respectively. All contracts have maturities not greater than 49 months. The notional value represents the amount that will be bought or sold upon maturity of the forward contract. All such contracts have maturities not greater than 49 months.

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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 sheetsheets at fair value. TheThese forward contracts are not designated as hedging instruments under applicable accounting guidance, and therefore all changes in the fair value of thethese 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 July 31, 2019,2020, and January 31, 2019,2020, we had outstanding forward contracts not designated as hedges with total notional values of $127$119 million and $198$246 million, respectively.
The fair values of outstanding derivative instruments were as follows (in thousands):
  Condensed Consolidated Balance Sheets Location July 31, 2019 January 31, 2019
Derivative assets:      
Foreign currency forward contracts designated as cash flow hedges Prepaid expenses and other current assets $28,469
 $12,076
Foreign currency forward contracts designated as cash flow hedges Other assets 21,656
 10,015
Foreign currency forward contracts not designated as hedges Prepaid expenses and other current assets 2,823
 459
Foreign currency forward contracts not designated as hedges Other assets 187
 20
Total derivative assets   $53,135
 $22,570
Derivative liabilities:      
Foreign currency forward contracts designated as cash flow hedges Accrued expenses and other current liabilities $85
 $983
Foreign currency forward contracts designated as cash flow hedges Other liabilities 80
 706
Foreign currency forward contracts not designated as hedges Accrued expenses and other current liabilities 276
 1,446
Foreign currency forward contracts not designated as hedges Other liabilities 77
 —
Total derivative liabilities   $518
 $3,135

Condensed Consolidated Balance Sheets LocationJuly 31, 2020January 31, 2020
Derivative assets:
Foreign currency forward contracts designated as cash flow hedgesPrepaid expenses and other current assets$11,996 $20,944 
Foreign currency forward contracts designated as cash flow hedgesOther assets4,437 9,529 
Foreign currency forward contracts not designated as hedgesPrepaid expenses and other current assets370 2,801 
Foreign currency forward contracts not designated as hedgesOther assets3 — 
Total derivative assets$16,806 $33,274 
Derivative liabilities:
Foreign currency forward contracts designated as cash flow hedgesAccrued expenses and other current liabilities$8,964 $1,211 
Foreign currency forward contracts designated as cash flow hedgesOther liabilities9,498 1,809 
Foreign currency forward contracts not designated as hedgesAccrued expenses and other current liabilities2,524 976 
Foreign currency forward contracts not designated as hedgesOther liabilities— — 
Total derivative liabilities$20,986 $3,996 
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 LocationThree Months Ended July 31,Six Months Ended July 31,
2020201920202019
Total revenuesRevenues$1,061,967 $887,752 $2,080,352 $1,712,807 
Amount of gains (losses) related to foreign currency forward contracts designated as cash flow hedgesRevenues5,278 896 9,764 912 
  Condensed Consolidated Statements of Operations Location Three Months Ended July 31, 2019 Six Months Ended July 31, 2019
Total revenues Revenues $887,752
 $1,712,807
Amount of gains (losses) related to foreign currency forward contracts designated as cash flow hedges Revenues 896
 912
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Pre-tax gains (losses) associated with foreign currency forward contracts designated as cash flow hedges were as follows (in thousands):
Condensed Consolidated Statements of Operations and Statements of Comprehensive Loss LocationsThree Months Ended July 31,Six Months Ended July 31,
2020201920202019
Gains (losses) recognized in OCINet change in market value of effective foreign currency forward exchange contracts$(52,558)$21,928 $(15,765)$37,790 
Gains (losses) reclassified from AOCI into income (effective portion)Revenues5,278 896 9,764 912 
  Condensed Consolidated Statements of Operations and Statements of Comprehensive Loss Locations Three Months Ended July 31, Six Months Ended July 31,
   2019 2018 2019 2018
Gains (losses) recognized in OCI (1)
 Net change in market value of effective foreign currency forward exchange contracts $21,928
 $17,891
 $37,790
 $36,165
Gains (losses) reclassified from AOCI into income Revenues 896
 (1,960) 912
 (3,077)
Gains (losses) recognized in income (amount excluded from effectiveness testing and ineffective portion) Other income (expense), net —
 4,027
 —
 6,258
(1)
Of the total value accumulated in OCI from foreign currency forward contracts designated as cash flow hedges as of July 31, 2019, net gains of $14 million are expected to be reclassified out of AOCI within the next 12 months.
Gains (losses) associated with foreign currency forward contracts not designated as cash flow hedges were as follows (in thousands):
  Condensed Consolidated Statements of Operations Location Three Months Ended July 31, Six Months Ended July 31,
Derivative Type  2019 2018 2019 2018
Foreign currency forward contracts not designated as hedges Other income (expense), net $2,229
 $1,884
 $4,627
 $3,678

Condensed Consolidated Statements of Operations LocationThree Months Ended July 31,Six Months Ended July 31,
2020201920202019
Foreign currency forward contracts not designated as hedgesOther income (expense), net$(4,040)$2,229 $1,373 $4,627 
We are subject to master netting agreements with certain 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 July 31, 2019,2020, information related to these offsetting arrangements was as follows (in thousands):
Gross Amounts of Recognized AssetsGross Amounts Offset on the Condensed Consolidated Balance SheetsNet Amounts of Assets Presented on the Condensed Consolidated Balance SheetsGross Amounts Not Offset on the Condensed Consolidated Balance SheetsNet Assets Exposed
Financial InstrumentsCash Collateral Received
Derivative assets:
Counterparty A$289 $— $289 $(289)$— $— 
Counterparty B15,113 — 15,113 (15,113)— — 
Counterparty C1,404 — 1,404 (1,404)— — 
Total$16,806 $— $16,806 $(16,806)$— $— 
  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 $4,101
 $—
 $4,101
 $—
 $—
 $4,101
Counterparty B 44,336
 —
 44,336
 (102) —
 44,234
Counterparty C 4,698
 —
 4,698
 (416) —
 4,282
Total $53,135
 $—
 $53,135
 $(518) $—
 $52,617

Gross Amounts of Recognized LiabilitiesGross Amounts Offset on the Condensed Consolidated Balance SheetsNet Amounts of Liabilities Presented on the Condensed Consolidated Balance SheetsGross Amounts Not Offset on the Condensed Consolidated Balance SheetsNet Liabilities Exposed
Financial InstrumentsCash Collateral Pledged
Derivative liabilities:
Counterparty A$2,086 $— $2,086 $(289)$— $1,797 
Counterparty B8,504 — 8,504 (15,113)— (6,609)
Counterparty C10,396 — 10,396 (1,404)— 8,992 
Total$20,986 $— $20,986 $(16,806)$— $4,180 
  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 $—
 $—
 $—
 $—
 $—
 $—
Counterparty B 102
 —
 102
 (102) —
 —
Counterparty C 416
 —
 416
 (416) —
 —
Total $518
 $—
 $518
 $(518) $—
 $—
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Note 10. Convertible Senior Notes, NetDebt
Outstanding debt consisted of the following (in thousands):
July 31, 2020January 31, 2020
2020 Notes, net of unamortized debt discounts of $0 and $5,319, respectively, and unamortized debt issuance costs of $0 and $307, respectively$— $244,319 
2022 Notes, net of unamortized debt discounts of $102,238 and $124,403, respectively, and unamortized debt issuance costs of $6,200 and $7,630, respectively1,041,562 1,017,967 
Term Loan, net of unamortized debt discounts of $1,885 and $0, respectively, and unamortized debt issuance costs of $173 and $0, respectively747,942 — 
Total debt$1,789,504 $1,262,286 
Less: current maturities$(37,500)$(244,319)
Total debt, noncurrent$1,752,004 $1,017,967 
As of July 31, 2020, expected future principal payments on our outstanding debt are as follows (in thousands):
Fiscal Period:
Remainder of 2021$18,750 
202237,500 
20231,225,000 
202475,000 
202575,000 
Thereafter468,750 
Total$1,900,000 
Convertible Senior Notes
In June 2013, we issued 0.75% convertible senior notes due July 15, 2018, with a principal amount of $350 million (“2018 Notes”). The 2018 Notes were unsecured, unsubordinated obligations, and interest was payable in cash in arrears at a fixed rate of 0.75% on January 15 and July 15 of each year. During the second quarter of fiscal 2019, the 2018 Notes were converted by note holders and we repaid the $350 million principal balance in cash. We also distributed approximately 1.5 million shares of our Class A common stock to note holders during the second quarter of fiscal 2019, which represents the conversion value in excess of the principal amount.
In June 2013, we issued 1.50% convertible senior notes due July 15, 2020, with a principal amount of $250 million. The 2020 Notes arewere unsecured, unsubordinated obligations, and interest iswas payable in cash in arrears at a fixed rate of 1.50% on January 15 and July 15 of each year. TheDuring the three months ended July 31, 2020, Notes mature on July 15, 2020, unless repurchased or converted in accordance with their terms prior to such date. We cannot redeem the 2020 Notes priorwere 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 maturity.note holders during the three months ended July 31, 2020, 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. 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 Indenturesan Indenture by and between us and Wells Fargo Bank, National Association, as Trustee (the “Indentures”(“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.
For the 2020 Notes, theThe initial conversion rate is 12.2340 shares of Class A common stock per $1,000 principal amount, which is equal to an initial conversion price of approximately $81.74 per share of Class A common stock, subject to adjustment. Prior to the close of business on March 13, 2020, conversion of the 2020 Notes is subject to the satisfaction of certain conditions, as described below. Forfor the 2022 Notes the initial conversion rate 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 Indentures)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 Indentures)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 2020 Notes and 2022 Notes may convert all or a portion of their 2022 Notes prior to the close of business on March 13, 2020 and May 31, 2022, respectively, 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 respective2022 Notes on each applicable trading day;
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•during the 5 business day period after any five5 consecutive trading day period in which the trading price per $1,000 principal amount of the respective2022 Notes for each day of that 5 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 respective2022 Notes on such trading day; or
•upon the occurrence of specified corporate events, as noted in the Indentures.Indenture.
On or after March 15, 2020, for the 2020 Notes and June 1, 2022, for the 2022 Notes, holders of the respective2022 Notes may convert their 2022 Notes at any time until the close of business on the second scheduled trading day immediately preceding the respective maturity date of theirthe 2022 Notes. As of July 31, 2020, and January 31, 2020, the 2022 Notes are classified as noncurrent on the condensed consolidated balance sheets since the criteria for conversion was not met.
In accounting for the issuance of the Notes, we separated each of the Notes into liability and equity components. The carrying amounts of the liability components were calculated by measuring the fair value of similar liabilities that do not have associated convertible features. The carrying amountamounts of the equity components representing the conversion option were determined by deducting the fair value of the liability components from the par value of the respective Notes. These differences represent debt discounts that are amortized to interest expense over the respective terms of the Notes using the effective interest rate method. The gross carrying amounts of the equity components recorded were $68 million and $223 million for the 2020 Notes and 2022 Notes, respectively, and were included in Additional paid-in capital on the condensed consolidated balance sheets upon issuance. The equity components are not remeasured as long as they continue to meet the conditions for equity classification. The effective interest rate of the liability component of the 2020 Notes was 6.25%, and the effective interest rate of the liability component of the 2022 Notes is 4.60%. The interest rates were based on the interest rates of similar liabilities at the time of issuance that did not have associated convertible features.
In accounting for the issuance costs related to the Notes, we allocated the total amount of issuance costs incurred to liability and equity components based on their relative values. Issuance costs attributable to the liability components are being amortized on a straight-line basis, which approximates the effective interest rate method, to interest expense over the respective terms of the Notes. The issuance costs attributable to the equity components were netted against the respective equity components in Additional paid-in capital. For the 2018 Notes, we recorded liabilityUpon issuance costs of $7 million and equity issuance costs of $2 million. Amortization expense for the liability issuance costs was $0.3 million and $0.6 million for the three- and six-month periods ended July 31, 2018. There was 0 related amortization expense for the three and six months ended July 31, 2019, as the 2018 Notes were converted and repaid during the second quarter of fiscal 2019. For the 2020 Notes, we recorded liability issuance costs of $5 million and equity issuance costs of $2 million. Amortization expense for the liability issuance costs was $0.2 million, and $0.3 million for eachupon issuance of the three- and six-month periods ended July 31, 2019, and 2018, respectively. For the 2022 Notes, we recorded liability issuance costs of $14 million and equity issuance costs of $4 million. Amortization expense for the liability issuance costs was $0.7 million and $1.4 million for each of the three- and six-month periods ended July 31, 2019, and 2018, respectively.
The Notes, net consisted of the following (in thousands):
 July 31, 2019 January 31, 2019
 2020 Notes 2022 Notes 2020 Notes 2022 Notes
Principal amounts:       
   Principal$249,948
 $1,150,000
 $249,975
 $1,150,000
   Unamortized debt discount(10,987) (146,070) (16,480) (167,249)
   Unamortized debt issuance costs(644) (9,058) (981) (10,487)
   Net carrying amount$238,317
 $994,872
 $232,514
 $972,264
Carrying amount of the equity component (1)
$66,007
 $219,702
 $66,007
 $219,702
(1)
Included on the condensed consolidated balance sheets within Additional paid-in capital, net of $2 million and $4 million for the 2020 Notes and 2022 Notes, respectively, in equity issuance costs.
As of July 31, 2019, the 2020 Notes and 2022 Notes have remaining lives of approximately 11 months and 38 months, respectively.

For more than 20 trading days during the 30 consecutive trading days ended April 30, 2018, July 31, 2018, October 31, 2018, January 31, 2019, April 30, 2019, and July 31, 2019, the last reported sale price of our Class A common stock exceeded 130% of the conversion price of the 2020 Notes. As a result, the 2020 Notes were convertible at the option of the holders during the second, third, and fourth quarter of fiscal 2019, the first and second quarter of fiscal 2020, and will continue to be convertible during the third quarter of fiscal 2020. Accordingly, the 2020 Notes are classified as current on the condensed consolidated balance sheet as of July 31, 2019. From August 1, 2019, through the date of this filing, the amount of the principal balance of the 2020 Notes that has been converted or for which conversion has been requested was not material.
For more than 20 trading days during the 30 consecutive trading days ended July 31, 2019, the last reported sale price of our Class A common stock exceeded 130% of the conversion price of the 2022 Notes. As a result, the 2022 Notes are convertible at the option of the holders during the third quarter of fiscal 2020. Accordingly, the 2022 Notes are classified as current on the condensed consolidated balance sheet as of July 31, 2019. From August 1, 2019, through the date of the filing, the note holders of 2022 Notes have not submitted requests for conversion.
The effective interest rates of the liability components of the 2018 Notes, 2020 Notes, and 2022 Notes are 5.75%, 6.25%, and 4.60%, respectively. These interest rates were based on the interest rates of similar liabilities at the time of issuance that did not have associated convertible features. The following table sets forth total interest expense recognized related to the Notes (in thousands):
 Three Months Ended July 31, Six Months Ended July 31,
 2019 2018 2019 2018
 2020 Notes 2022 Notes 2018 Notes 2020 Notes 2022 Notes 2020 Notes 2022 Notes 2018 Notes 2020 Notes 2022 Notes
Contractual interest expense$938
 $719
 $540
 $938
 $719
 $1,875
 $1,438
 $1,196
 $1,875
 $1,438
Interest cost related to amortization of debt issuance costs168
 715
 289
 169
 715
 337
 1,429
 641
 337
 1,429
Interest cost related to amortization of the debt discount2,768
 10,650
 3,567
 2,601
 10,175
 5,493
 21,179
 7,850
 5,162
 20,236

We capitalized interest costs related to the Notes of $2 million for each of the three-month periods ended July 31, 2019, and 2018, and $6 million and $4 million for the six months ended July 31, 2019, and 2018, respectively.
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 relatingare intended to the 2018 Notes gave us the optionoffset potential economic dilution to purchase, subject to anti-dilution adjustments substantially identical to those in the 2018 Notes, approximately 4.2 million shares of our Class A common stock for $83.28 per share, exercisable upon any conversion of the 2018 Notes. DuringThe Purchased Options are separate transactions and are not part of the second quarterterms of fiscal 2019, we received approximately 1.5 million shares of our Class A common stock from the exercise ofNotes. The amounts paid for the Purchased Options relating toare included in Additional paid-in capital on the 2018 Notes. These shares were recorded as treasury stock.condensed consolidated balance sheets.
The Purchased Options relating to the 2020 Notes givegave 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 three months ended July 31, 2020, we received approximately 1.7 million shares of our Class A common stock from the exercise of the Purchased Options relating to the 2020 Notes. These shares are held as treasury stock as of July 31, 2020.
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 2020 for the 2020 Notes and in 2022, for the 2022 Notes, if not exercised earlier.
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.
We paid an aggregate amount of $144 million for the Purchased Options relating to the 2018 Notes and 2020 Notes, and $176 million for the Purchased Options relating to the 2022 Notes. The amount paid for the Purchased Options is included in Additional paid-in capital on the condensed consolidated balance sheets.

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 4.2 million shares over 60 scheduled trading days beginning in October 2018, 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, $107.96 and $213.96 per share, respectively. If the Warrants are not exercised on their exercise dates, they will expire. 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.
We received aggregate proceeds of $93 million from the sale of the Warrants related to the 2018 Notes and the 2020 Notes, and $81 million from the sale of the Warrants related to the 2022 Notes. The proceeds from the sale of the Warrants are recorded in Additional paid-in capital on the condensed consolidated balance sheets.
During
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Credit Agreement
In April 2020, we entered into a credit agreement pursuant to which the thirdlenders would extend to Workday a senior unsecured term loan facility in an aggregate principal amount of $750 million and fourth quartersan unsecured revolving credit facility in an aggregate principal amount of fiscal 2019, Warrants related$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 2018 Notes were exercised, and we distributed approximately 1.1 million sharesbase 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 our Class A common stock(i) Bank of America’s prime rate, (ii) the federal funds rate plus 0.50% or (iii) a per annum rate equal to warrant holders primarily utilizing treasury stock. The numberthe rate at which dollar deposits are offered in the London interbank market for a period of net shares distributed was determinedone month (but not less than zero) plus 1.00%. Actual margins under either election will be based on the number of Warrants exercised multipliedour consolidated leverage ratio, which is measured by the difference between the exercise pricedividing (a) our consolidated funded indebtedness as of the Warrantsfiscal quarter end 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 their daily volume weighted-average stock price.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 July 31, 2019,2020, we were in compliance with all covenants.
Term Loan
The Term Loan was funded in two individual tranches. On April 2, 2020, $500 million of the Term Loan was funded, and the remaining $250 million was funded on July 13, 2020.
The Term Loan matures on April 2, 2025, and provides for quarterly repayment in installments of the principal amount, beginning October 2020, 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.
We incurred fees of approximately $2 million in connection with entering into the agreement for the Term Loan. The fees paid to lenders on the issuance of the debt are accounted for as a debt discount, while the remaining fees paid to third parties are accounted for as debt issuance costs. The debt discount and issuance costs are amortized on a straight-line basis, which approximates the effective interest rate method, to interest expense over the contractual term of the arrangement.
As of July 31, 2020, the Term Loan had a carrying value of $748 million, of which $38 million is classified as current and $710 million is classified as noncurrent on the condensed consolidated balance sheet. As of July 31, 2020, the interest rate on the Term Loan was 2.12% and the effective interest rate was 2.46%.
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 by 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.
We are required to pay each revolving lender a commitment fee on a quarterly basis based on amounts committed but unused under the Revolving Credit Facility that ranges from 0.090% to 0.225% per annum, depending on our consolidated leverage ratio. The commitment fee is expensed as incurred and included within Other income (expense), net on the condensed consolidated statement of operations.
We incurred fees of approximately $2 million in connection with entering into the agreement for the Revolving Credit Facility. The fees are recorded in Other assets on the condensed consolidated balance sheet and are amortized on a straight-line basis over the contractual term of the arrangement.
As of July 31, 2020, there were 0 Warrants outstanding borrowings under the Revolving Credit Facility.
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Interest Expense on Debt
The following table sets forth total interest expense recognized related to the 2018 Notes.our debt (in thousands):
Three Months Ended July 31,Six Months Ended July 31,
2020201920202019
Contractual interest expense$4,799 $1,657 $7,430 $3,313 
Interest cost related to amortization of debt discount13,665 13,418 27,620 26,672 
Interest cost related to amortization of debt issuance costs863 883 1,750 1,766 
Total interest expense$19,327 $15,958 $36,800 $31,751 
Note 11. Leases
We have entered into operating lease agreements for our office space, data centers, and other property and equipment. Operating lease right-of-use assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. Right-of-use assets also include adjustments related to prepaid or deferred lease payments and lease incentives. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on information available at the lease commencement date to determine the present value of lease payments. As of July 31, 2019, total2020, and January 31, 2020, operating lease right-of-use assets were $325 million and $291 million, respectively, and operating lease liabilities were approximately $295$347 million and $309$308 million, respectively.
Options to extend or terminate a We have also entered into finance lease are included in the lease term when it is reasonably certain that we will exercise such options. The remaining lease termagreements for other property and equipment. As of ourJuly 31, 2020, and January 31, 2020, finance leases generally ranges from less than one year to ten years.were not material.
The components of operating lease expense were as follows (in thousands):
 Three Months Ended July 31, 2019 Six Months Ended July 31, 2019
Operating lease cost$18,961
 $37,475
Short-term lease cost4,205
 7,845
Variable lease cost5,138
 8,564
Total operating lease cost$28,304
 $53,884

Three Months Ended July 31,Six Months Ended July 31,
2020201920202019
Operating lease cost$22,336 $18,961 $43,235 $37,475 
Short-term lease cost4,080 4,205 8,432 7,845 
Variable lease cost4,886 5,138 9,336 8,564 
Total operating lease cost$31,302 $28,304 $61,003 $53,884 
InformationSupplemental cash flow information related to our operating lease right-of-use assets and operating lease liabilitiesleases was as follows (in thousands, except periodsthousands):
Three Months Ended July 31,Six Months Ended July 31,
2020201920202019
Cash paid for operating lease liabilities$21,153 $19,324 $42,165 $35,508 
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities (1)
32,216 31,071 70,503 327,021 
(1)Prior year activity includes $279 million for operating leases existing on February 1, 2019, and percentages):$48 million for operating leases that commenced in the first half of fiscal 2020.
Other information related to our operating leases was as follows:
 Three Months Ended July 31, 2019 Six Months Ended July 31, 2019
Cash paid for operating lease liabilities$19,324
 $35,508
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities (1)
31,071
 327,021
    
    
   As of July 31, 2019
Weighted average remaining lease term (in years)  6
Weighted average discount rate  3.53%

(1)
Includes $279 million for operating leases existing on February 1, 2019, and $48 million for operating leases that commenced in the first half of fiscal 2020.

July 31, 2020January 31, 2020
Weighted average remaining lease term (in years)66
Weighted average discount rate3.08%3.36%
As of July 31, 2019,2020, maturities of operating lease liabilities wereare as follows (in thousands):
Fiscal period: 
Remainder of 2020$34,512
202177,259
202266,814
202353,607
202444,483
Thereafter76,409
Total lease payments353,084
Less imputed interest(43,667)
Total$309,417

Fiscal Period:
Remainder of 2021$41,143 
202286,814 
202378,328 
202469,058 
202554,457 
Thereafter57,261 
Total lease payments387,061 
Less imputed interest(39,656)
Total$347,405 
As of July 31, 2019,2020, we have additional operating leases, primarily for office space and data centers, that have not yet commenced with total undiscounted lease payments of $33$22 million. These operating leases will commence between fiscal 2020 andin the remaining months of fiscal 2021, with lease terms ranging from threeone to sixfive years.
Related Party
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Related-Party Lease Transactions
We lease certain office space from an affiliate of our Chairman, Mr. Duffield, adjacent to our corporate headquarters in Pleasanton, California, under various lease agreements. As of July 31, 2019, theThe operating lease right-of-use assets and operating lease liabilities related to these agreements were $53$55 million and $64$67 million, respectively.respectively, as of July 31, 2020, and $57 million and $70 million, respectively, as of January 31, 2020. The weighted average remaining lease term of these agreements is fivefour years. The total rent expense under these agreements was $3$4 million and $2$3 million for the three months ended July 31, 2019,2020, and 2018,2019, respectively, and $6$7 million and $5$6 million for the six months ended July 31, 2019,2020, and 2018,2019, respectively.
Note 12. Commitments and Contingencies
Computing Infrastructure-relatedThird-Party Hosted Infrastructure Platform-Related Commitments
We have entered into non-cancelablenoncancelable agreements with computingthird-party hosted infrastructure platform vendors with various expiration dates. In June 2019, we entered into a $500 million agreement for the use of cloud services that superseded a previous agreement and expires in June 2025. As of July 31, 2019,2020, future non-cancelablenoncancelable minimum payments under these agreements were approximately $500$466 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 July 31, 2019,2020, there was not at least a reasonable possibility that we had incurred a material loss, or a material loss in excess of a recorded accrual, with respect to such loss contingencies.
Note 13. Common Stock and Stockholders’ Equity
Common Stock
As of July 31, 2019,2020, there were 164177 million shares of Class A common stock, net of treasury stock, and 6460 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 1 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”). Pursuant to the terms of the EIP, the share reserve increased by 11 million shares in March 2019. As of July 31, 2019,2020, we had approximately 7163 million shares of Class A common stock available for future grants.

In connection with the acquisition of Adaptive Insights in fiscal 2019, we assumed unvested awards that had been granted under the Adaptive Insights 2013 Equity Incentive Plan.
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 exercisable on or about the succeeding November 30, and May 31, respectively, of each year. As of July 31, 2019, approximately 62020, 5 million shares of Class A common stock were available for issuance under the ESPP.
Restricted Stock Units
The Stock Plans provide for the issuance of restricted stock units (“RSUs”) to employees and non-employees. RSUs generally vest over four years. A summary of information related to RSU activity during the six months ended July 31, 2019,2020, is as follows: 
Number of SharesWeighted-Average Grant Date Fair Value
Balance as of January 31, 202011,914,064 $147.96 
RSUs granted7,609,940 148.12 
RSUs vested(3,264,103)139.82 
RSUs forfeited(565,835)145.37 
Balance as of July 31, 202015,694,066 149.82 
 Number of Shares Weighted-Average Grant Date Fair Value
Balance as of January 31, 201913,013,289
 $108.12
RSUs granted4,623,949
 191.13
RSUs vested(3,426,770) 103.56
RSUs forfeited(511,962) 119.05
Balance as of July 31, 201913,698,506
 136.87
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As of July 31, 2019,2020, there was a total of $1.7$2.2 billion in unrecognized compensation cost 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 2019, 0.52020, 0.6 million shares of performance-based restricted stock units (“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, 2019.2020. During the six months ended July 31, 2019,2020, we recognized $15$19 million in compensation cost related to these PRSUs.
Additionally, during the second quarter of fiscal 2020, 0.52021, 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. We expect to grant additional shares related to this program for employees hired in fiscal 2020.2021. These PRSU awards will vest if the performance conditions are achieved for the fiscal year ended January 31, 20202021, and if the individual employee continues to provide service through the vesting date of March 15, 2020.2021. During each of the three and six months ended July 31, 2019,2020, we recognized $19 million in compensation cost related to these PRSUs, and there is aPRSUs. A total of $94$90 million in unrecognized compensation cost which is expected to be recognized over a weighted-average period of approximately seven months.
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 six months ended July 31, 2019,2020, is as follows (in millions, except share and per share data):
 Outstanding Stock Options Weighted-Average Exercise Price Aggregate Intrinsic Value
Balance as of January 31, 20195,780,742
 $7.96
 $1,003
Stock options granted—
 —
  
Stock options exercised(1,250,557) 5.62
  
Stock options canceled(18,568) 22.23
  
Balance as of July 31, 20194,511,617
 8.55
 864
Vested and expected to vest as of July 31, 20194,467,012
 8.31
 856
Exercisable as of July 31, 20193,947,066
 5.67
 767

Outstanding Stock OptionsWeighted-Average Exercise PriceAggregate Intrinsic Value
Balance as of January 31, 20203,435,577 $9.78 $601 
Stock options exercised(1,155,404)6.19 
Stock options canceled(18,719)42.92 
Balance as of July 31, 20202,261,454 11.34 383 
Vested and expected to vest as of July 31, 20202,251,777 11.23 382 
Exercisable as of July 31, 20202,030,205 8.91 349 
As of July 31, 2019,2020, there was a total of $52$19 million in unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of approximately two years.one year.
Note 14. Unearned Revenue and Performance Obligations
$677Subscription services revenue of $824 million and $507$677 million of subscription services revenue was recognized during the three months ended July 31, 2019,2020, and 2018,2019, respectively, that was included in the unearned revenue balances as of April 30, 2020, and 2019, and 2018, respectively. $1.2Subscription services revenue of $1.46 billion and $899 million of subscription services revenue$1.18 billion was recognized during the six months ended July 31, 2019,2020, and 2018,2019, respectively, that was included in the unearned revenue balances as of January 31, 2019,2020, and 2018,2019, respectively. Professional services revenue recognized in the same periods from unearned revenue balances at the beginning of the respective periods was not material.
Transaction Price Allocated to the Remaining Performance Obligations
As of July 31, 2019,2020, approximately $7.03$8.60 billion of revenue is expected to be recognized from remaining performance obligations for subscription contracts. We expect to recognize revenue on approximately $4.77$5.78 billion of these remaining performance obligations over the next 24 months, with the balance recognized thereafter. Revenue from remaining performance obligations for professional services contracts as of July 31, 2019,2020, was not material.
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Note 15. Other Income (Expense), Net
Other income (expense), net consisted of the following (in thousands):
Three Months Ended July 31,Six Months Ended July 31,
2020201920202019
Interest income$4,978 $11,239 $12,845 $21,589 
Interest expense (1)
(19,302)(14,473)(36,841)(26,074)
Other (2)
2,871 3,128 1,570 11,520 
Other income (expense), net$(11,453)$(106)$(22,426)$7,035 
 Three Months Ended July 31, Six Months Ended July 31,
 2019 2018 2019 2018
Interest income$11,239
 $14,692
 $21,589
 $26,928
Interest expense (1)
(14,473) (17,515) (26,074) (35,817)
Other (2)
3,128
 4,436
 11,520
 6,654
Other income (expense), net$(106) $1,613
 $7,035
 $(2,235)
(1)Interest expense includes the contractual interest expense of the Notes and Term Loan, and the related non-cash interest expense attributable to amortization of the debt discounts and debt issuance costs, net of capitalized interest costs. For further information, see Note 10, Debt.
(2)Other includes the net gains (losses) from our equity investments, the commitment fee on the Revolving Credit Facility, and amortization of issuance costs on the Revolving Credit Facility. For further information, see Note 3, Investments, and Note 10, Debt.
(1)
Interest expense includes the contractual interest expense related to the 2018 Notes, 2020 Notes, and 2022 Notes and non-cash interest expense related to amortization of the debt discount and debt issuance costs, net of capitalized interest costs. For further information, see Note 10, Convertible Senior Notes, Net.
(2)
Other includes the net gains (losses) from our equity investments. For further information, see Note 3, Investments.
Note 16. Income Taxes
We compute the year-to-date income tax provision by applying the estimated annual effective tax rate to the year-to-date pre-tax income or loss and adjust for discrete tax items in the period. We reported aan income tax expense of $3 million and an income tax benefit of $2 million for each of the six-month periods ended July 31, 2020, and 2019, and 2018.respectively. The income tax benefitsexpense for the six months ended July 31, 2020, was primarily attributable to state taxes and income tax expenses in profitable foreign jurisdictions. There were no intra-period tax allocations for the gains from comprehensive income due to the adoption of ASU No. 2019-12 on February 1, 2020. The income tax benefit for the six months ended July 31, 2019, and 2018, werewas primarily attributable to the application of intra-period tax allocation rules for the gains from comprehensive income and the excess tax benefits in certain foreign jurisdictions from share-based compensation. The income tax benefits werecompensation, partially offset by state taxes and income tax expenses in profitable foreign jurisdictions.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law in response to the COVID-19 pandemic. The CARES Act includes temporary changes to income and non-income based tax laws. We evaluated the applicable provisions of the CARES Act and determined that there is no material impact to our financial results.
On June 22, 2020, the U.S. Supreme Court declined to hear the appeal of a ruling by the U.S. Court of Appeals for the Ninth Circuit regarding the treatment of stock-based compensation expenses in a cost-sharing agreement (Altera Corporation & Subsidiaries v. Commissioner). The U.S. Supreme Court decision resulted in an immaterial reduction in our deferred tax assets relative to the total gross deferred tax assets, which was fully offset by our valuation allowance. As a result, there was no net impact on our condensed consolidated financial statements.
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 July 31, 2019,2020, we continue to maintain a full valuation allowance on our deferred tax assets except in certain jurisdictions.
Note 17. Net Loss Per Share
Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.period, net of treasury stock. Diluted net loss per share is computed by giving effect to all potential shares of common stock, including our outstanding stock options, outstanding warrants, common stock related to unvested RSUs and PRSUs, common stock related to convertible senior notes to the extent dilutive, outstanding warrants, and common stock issuable pursuant to the ESPP. Basic and diluted net loss per share was the same for each period presented, as the inclusion of all potential common shares outstanding would have been anti-dilutive.

The net 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 loss for the period had been distributed. As the liquidation and dividend rights are identical, the net loss attributable to common stockholders is allocated on a proportionate basis.
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The following table presents the calculation of basic and diluted net loss attributable to common stockholders per share (in thousands, except per share data):
 Three Months Ended July 31, Six Months Ended July 31,
 2019 2018 2019 2018
 Class A Class B Class A Class B Class A Class B Class A Class B
Net loss per share, basic and diluted:               
Numerator:               
Allocation of distributed net loss$(86,481) $(34,231) $(58,776) $(27,380) $(169,067) $(67,920) $(108,888) $(51,678)
Denominator:               
Weighted-average common shares outstanding162,193
 64,199
 147,310
 68,622
 160,414
 64,443
 145,475
 69,042
Basic and diluted net loss per share$(0.53) $(0.53) $(0.40) $(0.40) $(1.05) $(1.05) $(0.75) $(0.75)

Three Months Ended July 31,Six Months Ended July 31,
2020201920202019
Class AClass BClass AClass BClass AClass BClass AClass B
Net loss per share, basic and diluted:
Numerator:
Allocation of distributed net loss$(20,732)$(7,284)$(86,481)$(34,231)$(137,980)$(48,404)$(169,067)$(67,920)
Denominator:
Weighted-average common shares outstanding175,441 60,561 162,193 64,199 173,590 60,893 160,414 64,443 
Basic and diluted net loss per share$(0.12)$(0.12)$(0.53)$(0.53)$(0.79)$(0.79)$(1.05)$(1.05)
The anti-dilutivePotentially dilutive securities excluded fromthat are not included in the weighted-average shares used to calculate thecalculation of diluted net loss per common share werebecause doing so would be antidilutive are as follows (in thousands):
 As of July 31,
 2019 2018
Outstanding common stock options4,512
 5,832
Unvested RSUs and PRSUs14,288
 14,629
Shares related to the convertible senior notes10,876
 15,079
Shares subject to warrants related to the issuance of convertible senior notes10,876
 15,079
Shares issuable pursuant to the ESPP394
 418
 40,946
 51,037

 As of July 31,
 20202019
Outstanding common stock options2,261 4,512 
Unvested RSUs and PRSUs16,326 14,288 
Shares related to the convertible senior notes7,818 10,876 
Shares subject to warrants related to the issuance of convertible senior notes10,876 10,876 
Shares issuable pursuant to the ESPP463 394 
Total37,744 40,946 
Note 18. Geographic Information
Disaggregation of Revenue
We sell our subscription contracts and related services in 2 primary geographical markets: to customers located in the United States and to customers located outside of the United States. Revenue by geography is generally based on the address of the customer as specified in our master subscription agreement. The following table sets forth revenue by geographic area (in thousands):
 Three Months Ended July 31, Six Months Ended July 31,
 2019 2018 2019 2018
United States$676,568
 $515,257
 $1,305,097
 $995,339
Other countries211,184
 156,463
 407,710
 295,024
Total$887,752
 $671,720
 $1,712,807
 $1,290,363

 Three Months Ended July 31,Six Months Ended July 31,
 2020201920202019
United States$805,056 $676,568 $1,567,396 $1,305,097 
Other countries256,911 211,184 512,956 407,710 
Total$1,061,967 $887,752 $2,080,352 $1,712,807 
No single country other than the United States had revenues greater than 10% of total revenues for the three and six months ended July 31, 2019,2020, and 2018.2019. No customer individually accounted for more than 10% of our trade and other receivables, net as of July 31, 2019,2020, or January 31, 2019.2020.

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Long-Lived Assets
We attribute ourOur 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. The following table sets forthAggregate Property and equipment, net, and Operating lease right-of-use assets by geographic area was as follows (in thousands):
 July 31, 2020January 31, 2020
United States$1,084,136 $1,064,292 
Ireland126,021 122,619 
Other countries71,932 40,170 
Total$1,282,089 $1,227,081 
 July 31, 2019 January 31, 2019
United States$835,303
 $726,801
Ireland68,252
 55,306
Other countries15,968
 14,800
Total$919,523
 $796,907
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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 of operations and financial position, our business strategy and plans, and our 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 and projections about future events and trends that we believe may affect our financial condition, operating results, of operations, 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, and assumptions, including those arising from the impact of the coronavirus pandemic (“COVID-19 pandemic”), as well as those described in the “Risk Factors”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, and assumptions, the future events 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.
You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. 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.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 elsewhere in Part I, Item 1 of this report.Quarterly Report on Form 10-Q.
Overview
Founded in 2005, Workday providesdelivers financial management, human capitalresources, planning, spend 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 tohelp organizations better manage complex and dynamic operating environments. We provide our customers with highly adaptable, accessible, and reliable applications to manage critical business functions that enable them to optimize their financial and human capital resources.resources with one system that helps enable them to plan, execute, analyze, and extend — all powered by machine learning.
We were founded in 2005 to deliver cloud applications toOur diverse customer base includes medium and large global enterprises. Our applications are designed around the way people work today—in an environmentcompanies as well as smaller organizations that is global, collaborative, fast-paced, and mobile.primarily use our planning product. Our cycle of frequent updates has facilitated rapid innovation and the introduction of new applications throughout our history. We began offering our HCM application in 2006 and our Financial Management application in 2007. Since then we have continued to invest in innovation and have consistently introduced new services to our customers.
We offer Workday applications to our customers on an enterprise-wide subscription basis, typically with contract terms of three years or longer and with subscription fees largely based on the size of the customer’s workforce. We generally recognize revenues from subscription fees ratably over the term of the contract. We currently derive a substantial majority of our subscription services revenues from subscriptions to our HCM application. We market our applications primarily through our direct sales force.
Our diverse customer base includes medium-sized and large, global companies, as well as smaller organizations that primarily use our planning product. We have achieved significant growth in a relatively short period of time with a substantial amount of our growth coming from new customers. Our current financial focus is on growing our revenues and expanding our customer base. While we are incurring net losses today, 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 offer Workday applications to our customers on an enterprise-wide subscription basis, typically with contract terms of three years or longer and with subscription fees largely based on the size of the customer’s workforce. We generally recognize revenue from subscription fees ratably over the term of the contract. We currently derive a substantial majority of our subscription services revenue from subscriptions to our HCM application. We market our applications primarily through our direct sales force.
Our operating expenses have increased significantly in absolute dollars in recent periods, primarily due to the significant growth of our employee population. We had approximately 11,40012,300 and 9,10011,400 employees as of July 31, 2020, and 2019, respectively. Excluding the impact of certain COVID-19 factors further described below, we expect our product development, sales and 2018, respectively.marketing, and general and administrative expenses as a percentage of total revenues to 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.
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We intend to continue investing for long-term growth. We have invested and expect to continue to invest heavily in our product development efforts to deliver additional compelling applications and to address customers’ evolving needs. In addition, we plan to continue to expand our ability to sell our applications globally, particularly in Europe and Asia, by investing in product development and customer support to address the business needs of local markets, increasing our sales and marketing organizations, acquiring, building and/or leasing additional office space, and expanding our ecosystem of service partners to support local deployments. We expect to make further significant investments in our data center capacity and equipment as we plan for future growth. We are also investing in personnel to service our growing customer base.

We also regularly evaluate acquisitions orand investment opportunities in complementary businesses, joint ventures,employee teams, services, technologies, and intellectual property rights in an effort to expand our product and service offerings. We expect to continue to makemaking such acquisitions and investments in the future, and we plan to reinvest a significant portion of our incremental revenuerevenues in future periods to grow our business and continue our leadership role in the industry. While we remain focused on improving operating margins, these acquisitions and investments will increase our costs on an absolute basis in the near-term.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. We expect our product development, sales and marketing, and general and administrative expenses as a percentage of total revenues to decrease over time 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 and by utilizing more of the capacity of our data centers.
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 service partner ecosystem to further support our customers. We believe our investment in professional services, as well as partners building consulting practices around Workday, will drive additional customer subscriptions and continued growth in revenues. Due to our ability to leverage the expanding partner ecosystem, we expect that the rate of professional services revenue growth will decline over time and continue to be lower than subscription services revenue growth.
Impact of the COVID-19 Pandemic
In December 2019, a novel strain of coronavirus disease (“COVID-19”) was reported, and in March 2020, the World Health Organization characterized COVID-19 as a pandemic (“COVID-19 pandemic”). The COVID-19 pandemic is having widespread, rapidly evolving, and unpredictable impacts on global societies, economies, financial markets, and business practices. In response to COVID-19, we have temporarily closed the majority of our global offices, required most of our employees to work remotely, implemented travel restrictions, and have decided to postpone certain of our customer, industry, implementation partner, analyst, investor, and employee events and convert others to virtual-only experiences. Despite the economic challenges brought on by the COVID-19 pandemic, we are committed to the long-term overall health of our business, the strength of our product offerings, and our ability to continue to execute on our strategy.
During the three months ended July 31, 2020, we experienced a favorable impact to our new subscription bookings as compared to the first quarter of fiscal 2021, as companies are adapting to the COVID-19 uncertain environment and are increasingly realizing the need to move forward with their digital transformation initiatives and the migration to cloud-based solutions. Our operating margins for the three months ended July 31, 2020, have been favorably impacted by our revenue growth outpacing headcount growth as well as moderation of operating expenses in response to the COVID-19 pandemic, including reduced travel, marketing and event spending. We do not anticipate the extent of the favorable margin impact experienced for the three months ended July 31, 2020 to continue long-term as we remain committed to investing in our strategic initiatives across all functional areas.
Our near-term revenues are relatively predictable as a result of our subscription-based business model. However, if the economic uncertainty remains for a prolonged period, we may experience a negative impact on our ability to win new business, renew existing customers, sales and marketing efforts, revenue growth rates, customer deployment, customer solvency, product development, or other financial metrics, any of which could harm our business, operating results, and financial condition.
For further discussion of the potential impacts of the COVID-19 pandemic on our business, operating results, and financial condition, see Risk Factors included in Part II, Item 1A of this Quarterly Report on Form 10-Q.
Components of Results of Operations
Revenues
We primarily derive our revenues from subscription services and professional services. Subscription services revenues primarily consistrevenue principally consists of fees that give our customers access to our cloud applications, which include related customer support. Professional services revenue includes fees includefor deployment services, optimization services, and training.
Subscription services revenuesrevenue accounted for 85%88% and 87% of our total revenues duringfor the three and six months ended July 31, 2019,2020, respectively, and represented 96%97% of our total unearned revenue as of July 31, 2019.2020. Subscription services revenues arerevenue is 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.
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The mix of the applications to which a 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 arerevenue is recognized over time as theyservices 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 non-cancelable.noncancelable. We generally invoice our customers annually in advance. Amounts that have been invoiced are initially recorded as unearned revenue.
Our consulting engagements are generally billed on a time and materials basis or fixed feeprice basis. For contracts billed on a time and materials basis, and revenues are typicallyrevenue is recognized over time as the professional services are performed. For contracts billed on a fixed price basis, revenue is 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 our professional services organization and the Workday-related consulting practices of our partner firms continue to develop, we expect thethese partners to increasingly contract directly with our subscription customers. As a result of this trend, and the increase of our subscription services revenues,revenue, we expect our professional services revenuesrevenue as a percentage of total revenues to decline over time.
Costs and Expenses
Costs of subscription services revenues.revenue. Costs of subscription services revenues consistrevenue consists primarily of employee-related expenses related to hosting our applications and providing customer support, the costs of data center capacity,expenses, and depreciation of computer equipment and software.
Costs of professional services revenuesrevenue. Costs of professional services revenues consistrevenue consists primarily of employee-related expenses associated with these services, the cost of subcontractors,subcontractor expenses, and travel.travel expenses.
Product development. Product development expenses consist primarily of employee-related costs.expenses. We continue to focus our product development efforts on adding new features and applications, increasing the functionality, and enhancing the ease of use of our cloud applications.

Sales and marketing. Sales and marketing expenses consist primarily of employee-related costs,expenses, sales commissions, marketing programs, and travel.travel expenses. Marketing programs consist of advertising, events, corporate communications, brand building,awareness, and product marketing activities. Sales commissions are considered incremental costs of obtaining a contract with a customer and are deferred and amortized. Sales commissions for initial contracts are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be five years. Sales commissions for renewal contracts are deferred and then amortized on a straight-line basis over the related contractual renewal period.
General and administrative. General and administrative expenses consist of employee-related costsexpenses 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 and six months ended July 31, 2019,2020, and 2018,2019, were as follows (in thousands, except percentages):
Three Months Ended July 31, Six Months Ended July 31, 
Three Months Ended July 31,   Six Months Ended July 31,   20202019% Change20202019% Change
2019 2018 % Change 2019 2018 % Change
Revenues:        
Subscription services$757,155
 $565,659
 34% $1,458,179
 $1,087,808
 34%Subscription services$931,698 $757,155 23%$1,813,654 $1,458,179 24%
Professional services130,597
 106,061
 23% 254,628
 202,555
 25%Professional services130,269 130,597 —%266,698 254,628 5%
Total revenues$887,752
 $671,720
 32% $1,712,807
 $1,290,363
 33%Total revenues$1,061,967 $887,752 20%$2,080,352 $1,712,807 21%
Total revenues were $888 million$1.1 billion for the three months ended July 31, 2019,2020, compared to $672$888 million during the prior year period, an increase of $216$174 million, or 32%20%. Subscription services revenues were $757revenue was $932 million for the three months ended July 31, 2019,2020, compared to $566$757 million for the prior year period, an increase of $191$175 million, or 34%23%. The increase in subscription services revenuesrevenue was due primarily to an increased number of customer contracts as compared to the prior year period. Professional services revenues were $131revenue was $130 million for the three months ended July 31, 2019,2020, compared to $106$131 million for the prior year period, an increasea slight decrease of $25less than $1 million or 23%. The increase in professional services revenues was due primarily to Workday performing deployment and integration services forthe timing of deployments as a greater numberresult of customers than in the prior year period.COVID-19 pandemic.
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Total revenues were $1.7$2.1 billion for the six months ended July 31, 2019,2020, compared to $1.3$1.7 billion during the prior year period, an increase of $0.4 billion, or 33%21%. Subscription services revenues were $1.5revenue was $1.8 billion for the six months ended July 31, 2019,2020, compared to $1.1$1.5 billion for the prior year period, an increase of $0.4 billion, or 34%24%. The increase in subscription services revenuesrevenue was due primarily to an increased number of customer contracts as compared to the prior year period. Professional services revenues were $255revenue was $267 million for the six months ended July 31, 2019,2020, compared to $203$255 million for the prior year period, an increase of $52$12 million, or 25%5%. The increase in professional services revenuesrevenue was due primarily to Workday performing deployment and integration services for a greater number of customers than in the prior year period.
Operating Expenses
GAAP operating expenses were $1.0$1.1 billion for the three months ended July 31, 2019,2020, compared to $0.8$1.0 billion for the prior year period, an increase of $0.2$0.1 billion, or 33%7%. The increase was primarily due to an increase of $0.2 billion$80 million in employee-related costsexpense driven by higher headcount.headcount, offset by a decrease of $28 million in reduced travel expenses due to the COVID-19 pandemic.
GAAP operating expenses were $2.0$2.2 billion for the six months ended July 31, 2019,2020, compared to $1.5$2.0 billion for the prior year period, an increase of $0.5$0.3 billion, or 35%14%. The increase was primarily due to an increaseincreases of $0.4 billion$204 million in employee-related costsexpenses driven by higher headcount.headcount, $79 million related to a one-time cash bonus paid to non-executive employees to help accommodate unforeseen costs brought on by the COVID-19 pandemic (“COVID-19 one-time employee bonus”), and $36 million in facilities and IT related expenses, offset by a decrease of $45 million in reduced travel expenses.
We use the non-GAAP financial measure of non-GAAP operating expenses 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 non-GAAP operating expenses reflect our ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business, as they exclude expenses that are not reflective of ongoing operating results.business. We also believe that non-GAAP operating expenses provide useful information to investors and others in understanding and evaluating our operating results and prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies.
Non-GAAP operating expenses are calculated by excluding share-based compensation expenses, and certain other expenses, which consist of employer payroll tax-related items on employee stock transactions and amortization of acquisition-related intangible assets.

Non-GAAP operating expenses were $0.8 billion$804 million for the three months ended July 31, 2019,2020, compared to $0.6$770 million for the prior year period, an increase of $34 million, or 4%. The increase was primarily due to an increase of $42 million in employee-related expenses driven by higher headcount, offset by a decrease of $28 million in reduced travel expenses.
Non-GAAP operating expenses were $1.7 billion for the six months ended July 31, 2020, compared to $1.5 billion for the prior year period, an increase of $0.2 billion, or 28%14%. The increase was primarily due to an increaseincreases of $0.1 billion$118 million in employee-related costsexpenses driven by higher headcount.
Non-GAAP operatingheadcount, $79 million related to the COVID-19 one-time employee bonus, and $36 million in facilities and IT related expenses, were $1.5 billion for the six months ended July 31, 2019, compared to $1.1 billion for the prior year period, an increaseoffset by a decrease of $0.4 billion, or 30%. The increase was primarily due to an increase of $0.2 billion$45 million in employee-related costs driven by higher headcount.reduced travel expenses.
Reconciliations of our GAAP to non-GAAP operating expenses were as follows (in thousands):
 Three Months Ended July 31, 2020
 GAAP Operating Expenses
Share-Based Compensation Expenses (1)
Other Operating Expenses (2)
Non-GAAP Operating Expenses (3)
Costs of subscription services$145,007 $(14,825)$(8,844)$121,338 
Costs of professional services139,270 (24,552)(918)113,800 
Product development418,681 (128,505)(4,554)285,622 
Sales and marketing276,497 (49,854)(7,913)218,730 
General and administrative99,266 (33,500)(975)64,791 
Total costs and expenses$1,078,721 $(251,236)$(23,204)$804,281 

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Three Months Ended July 31, 2019Three Months Ended July 31, 2019
GAAP Operating Expenses 
Share-Based Compensation Expenses (1)
 
Other Operating Expenses (2)
 
Non-GAAP Operating Expenses (3)
GAAP Operating Expenses
Share-Based Compensation Expenses (1)
Other Operating Expenses (2)
Non-GAAP Operating Expenses (3)
Costs of subscription services$121,161
 $(12,001) $(11,739) $97,421
Costs of subscription services$121,161 $(12,001)$(11,739)$97,421 
Costs of professional services145,173
 (18,991) (1,233) 124,949
Costs of professional services145,173 (18,991)(1,233)124,949 
Product development378,122
 (105,758) (5,380) 266,984
Product development378,122 (105,758)(5,380)266,984 
Sales and marketing280,200
 (42,690) (10,449) 227,061
Sales and marketing280,200 (42,690)(10,449)227,061 
General and administrative85,593
 (29,781) (2,021) 53,791
General and administrative85,593 (29,781)(2,021)53,791 
Total costs and expenses$1,010,249
 $(209,221) $(30,822) $770,206
Total costs and expenses$1,010,249 $(209,221)$(30,822)$770,206 

Three Months Ended July 31, 2018Six Months Ended July 31, 2020
GAAP Operating Expenses 
Share-Based Compensation Expenses (1)
 
Other Operating Expenses (2)
 
Non-GAAP Operating Expenses (3)
GAAP Operating Expenses
Share-Based Compensation Expenses (1)
Other Operating Expenses (2)
Non-GAAP Operating Expenses (3)
Costs of subscription services$87,523
 $(8,521) $(3,787) $75,215
Costs of subscription services$290,270 $(28,717)$(18,487)$243,066 
Costs of professional services112,707
 (12,518) (519) 99,670
Costs of professional services299,637 (47,118)(4,019)248,500 
Product development292,840
 (75,354) (3,960) 213,526
Product development862,165 (250,527)(16,704)594,934 
Sales and marketing202,464
 (29,367) (1,039) 172,058
Sales and marketing595,054 (96,804)(18,489)479,761 
General and administrative65,168
 (21,303) (731) 43,134
General and administrative194,437 (64,742)(3,756)125,939 
Total costs and expenses$760,702
 $(147,063) $(10,036) $603,603
Total costs and expenses$2,241,563 $(487,908)$(61,455)$1,692,200 

Six Months Ended July 31, 2019 Six Months Ended July 31, 2019
GAAP Operating Expenses 
Share-Based Compensation Expenses (1)
 
Other Operating Expenses (2)
 
Non-GAAP Operating Expenses (3)
 GAAP Operating Expenses
Share-Based Compensation Expenses (1)
Other Operating Expenses (2)
Non-GAAP Operating Expenses (3)
Costs of subscription services$233,630
 $(22,416) $(24,399) $186,815
Costs of subscription services$233,630 $(22,416)$(24,399)$186,815 
Costs of professional services275,923
 (35,141) (4,692) 236,090
Costs of professional services275,923 (35,141)(4,692)236,090 
Product development725,953
 (196,995) (19,011) 509,947
Product development725,953 (196,995)(19,011)509,947 
Sales and marketing553,136
 (81,544) (23,283) 448,309
Sales and marketing553,136 (81,544)(23,283)448,309 
General and administrative170,048
 (58,360) (5,319) 106,369
General and administrative170,048 (58,360)(5,319)106,369 
Total costs and expenses$1,958,690
 $(394,456) $(76,704) $1,487,530
Total costs and expenses$1,958,690 $(394,456)$(76,704)$1,487,530 
(1)Share-based compensation expenses were $251 million and $209 million for the three months ended July 31, 2020, and 2019, respectively, and $488 million and $394 million for the six months ended July 31, 2020, and 2019, respectively. The increase in share-based compensation expenses includes the impact of restricted stock units (“RSUs”) granted to existing and new employees.
 Six Months Ended July 31, 2018
 GAAP Operating Expenses 
Share-Based Compensation Expenses (1)
 
Other Operating Expenses (2)
 
Non-GAAP Operating Expenses (3)
Costs of subscription services$167,768
 $(16,398) $(8,239) $143,131
Costs of professional services210,433
 (23,310) (2,220) 184,903
Product development556,424
 (143,865) (12,757) 399,802
Sales and marketing395,235
 (54,979) (3,619) 336,637
General and administrative120,749
 (41,170) (2,598) 76,981
Total costs and expenses$1,450,609
 $(279,722) $(29,433) $1,141,454
(2)Other operating expenses include employer payroll tax-related items on employee stock transactions of $7 million and $11 million for the three months ended July 31, 2020, and 2019, respectively, and $30 million and $38 million for the six months ended July 31, 2020, and 2019, respectively. In addition, other operating expenses include amortization of acquisition-related intangible assets of $16 million and $20 million for the three months ended July 31, 2020, and 2019, respectively and $32 million and $39 million for the six months ended July 31, 2020, and 2019, respectively.

(1)(3)See “Non-GAAP Financial Measures” below for further information.
Share-based compensation expenses were $209 million and $147 million for the three months ended July 31, 2019, and 2018, respectively, and $394 million and $280 million for the six months ended July 31, 2019, and 2018, respectively. The increase in share-based compensation expenses includes the impact of restricted stock units (“RSUs”) granted to existing and new employees and assumed Adaptive Insights awards.
(2)
Other operating expenses include amortization of acquisition-related intangible assets of $20 million and $5 million for the three months ended July 31, 2019, and 2018, respectively and $39 million and $10 million for the six months ended July 31, 2019. and 2018, respectively. In addition, other operating expenses include employer payroll tax-related items on employee stock transactions of $11 million and $5 million for the three months ended July 31, 2019, and 2018, respectively and $38 million and $19 million for the six months ended July 31, 2019, and 2018, respectively.
(3)
See “Non-GAAP Financial Measures” below for further information.
Costs of Subscription Services
See the table above for a reconciliation of GAAP to non-GAAP operating expenses.
GAAP operating expenses in costs of subscription services were $121$145 million for the three months ended July 31, 2019,2020, compared to $88$121 million for the prior year period, an increase of $33$24 million, or 38%20%. The increase was primarily due to increases of $13 million in depreciation and amortization expense including our acquisition-related intangible assets, $9$7 million in employee-related costsexpenses driven by higher headcount, and $7$5 million in third-party costsexpenses for hardware maintenance and data center capacity.capacity, and $4 million in depreciation expense related to equipment in our data centers.
GAAP operating expenses in costs of subscription services were $234$290 million for the six months ended July 31, 2019,2020, compared to $168$234 million for the prior year period, an increase of $66$56 million, or 39%24%. The increase was primarily due to increases of $27 million in depreciation and amortization expense including our acquisition-related intangible assets, $17$16 million in employee-related costsexpenses driven by higher headcount, and $14$11 million in third-party costsexpenses for hardware maintenance and data center capacity.capacity, $6 million in depreciation expense related to equipment in our data centers, and $5 million related to the COVID-19 one-time employee bonus.
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Non-GAAP operating expenses in costs of subscription services were $97$121 million for the three months ended July 31, 2019,2020, compared to $75$97 million for the prior year period, an increase of $22$24 million, or 25%. The increase was primarily due to increases of $7 million in depreciation expense related to equipment in our data centers, $5 million in third-party expenses for hardware maintenance and data center capacity, and $4 million in employee-related expenses driven by higher headcount.
Non-GAAP operating expenses in costs of subscription services were $243 million for the six months ended July 31, 2020, compared to $187 million for the prior year period, an increase of $56 million, or 30%. The increase was primarily due to increases of $7 million in third-party costs for hardware maintenance and data center capacity, $5 million in employee-related costs driven by higher headcount, and $5 million in depreciation expense related to equipment in our data centers.
Non-GAAP operating expenses in costs of subscription services were $187 million for the six months ended July 31, 2019, compared to $143 million for the prior year period, an increase of $44 million, or 31%. The increase was primarily due to increases of $14 million in third-party costs for hardware maintenance and data center capacity, $12 million in depreciation expense related to equipment in our data centers, $11 million in third-party expenses for hardware maintenance and data center capacity, $10 million in employee-related costsexpenses driven by higher headcount.headcount, and $5 million related to the COVID-19 one-time employee bonus.
We expect that GAAP and non-GAAP operating expenses in costs of subscription services will continue to increase in absolute dollars as we improve and expand our data center capacity and operations.
Costs of Professional Services
See the table above for a reconciliation of GAAP to non-GAAP operating expenses.
GAAP operating expenses in costs of professional services were $145$139 million for the three months ended July 31, 2019,2020, compared to $113$145 million for the prior year period, an increasea decrease of $32$6 million, or 29%4%. The increasedecrease was primarily due to additional costsdecreases of $5 million in reduced travel expenses due to staff our deploymentthe COVID-19 pandemic and integration engagements.$6 million due to converting an implementation partner event to a virtual-only experience, offset by an increase of $8 million in employee related expenses driven by higher headcount.
GAAP operating expenses in costs of professional services were $276$300 million for the six months ended July 31, 2019,2020, compared to $210$276 million for the prior year period, an increase of $66$24 million, or 31%9%. The increase was primarily due to additional costsincreases of $31 million in employee-related expenses driven by higher headcount and $12 million related to staff our deployment and integration engagements.the COVID-19 one-time employee bonus, offset by a decrease of $9 million in reduced travel expenses.
Non-GAAP operating expenses in costs of professional services were $125$114 million for the three months ended July 31, 2019,2020, compared to $100$125 million for the prior year period, an increasea decrease of $25$11 million, or 25%9%. The increase was primarilydecrease includes $5 million related to reduced travel expenses due to additional coststhe COVID-19 pandemic, and $6 million due to staff our deployment and integration engagements.converting an implementation partner event to a virtual-only experience.
Non-GAAP operating expenses in costs of professional services were $236$249 million for the six months ended July 31, 2019,2020, compared to $185$236 million for the prior year period, an increase of $51$13 million, or 28%5%. The increase was primarily due to additional costsincreases of $20 million in employee-related expenses driven by higher headcount and $12 million related to staff our deployment and integration engagements.the COVID-19 one-time employee bonus, offset by a decrease of $9 million in reduced travel expenses.
Going forward, weWe expect GAAP and non-GAAP 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 the number of our customers continues to grow. For fiscal 2020, we anticipate GAAP and non-GAAP professional services margins to be lower than fiscal 2019, as we invest in programs to ensure ongoing customer success.

Product Development
See the table above for a reconciliation of GAAP to non-GAAP operating expenses.
GAAP operating expenses in product development were $378$419 million for the three months ended July 31, 2019,2020, compared to $293$378 million for the prior year period, an increase of $41 million, or 11%. The increase was primarily due to an increase of $39 million in employee-related expenses driven by higher headcount.
GAAP operating expenses in product development were $862 million for the six months ended July 31, 2020, compared to $726 million for the prior year period, an increase of $136 million, or 19%. The increase was primarily due to increases of $97 million in employee-related expenses driven by higher headcount and $31 million related to the COVID-19 one-time employee bonus.
Non-GAAP operating expenses in product development were $286 million for the three months ended July 31, 2020, compared to $267 million for the prior year period, an increase of $19 million, or 7%. The increase was primarily due to an increase of $17 million in employee-related expenses driven by higher headcount.
Non-GAAP operating expenses in product development were $595 million for the six months ended July 31, 2020, compared to $510 million for the prior year period, an increase of $85 million, or 29%17%. The increase was primarily due to an increaseincreases of $73$46 million in employee-related costsexpenses driven by higher headcount.
GAAP operating expenses in product development were $726headcount and $31 million forrelated to the six months ended July 31, 2019, compared to $556 million for the prior year period, an increase of $170 million, or 31%. The increase was primarily due to an increase of $145 million in employee-related costs driven by higher headcount.
Non-GAAP operating expenses in product development were $267 million for the three months ended July 31, 2019, compared to $214 million for the prior year period, an increase of $53 million, or 25%. The increase was primarily due to an increase of $40 million in employee-related costs driven by higher headcount.
Non-GAAP operating expenses in product development were $510 million for the six months ended July 31, 2019, compared to $400 million for the prior year period, an increase of $110 million, or 28%. The increase was primarily due to an increase of $85 million in employee-related costs driven by higher headcount.COVID-19 one-time employee bonus.
We expect that GAAP and non-GAAP product development expenses will continue to increase in absolute dollars as we improve and extend our applications and develop new technologies.
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Sales and Marketing
See the table above for a reconciliation of GAAP to non-GAAP operating expenses.
GAAP operating expenses in sales and marketing were $280$276 million for the three months ended July 31, 2019,2020, compared to $202$280 million for the prior year period, a decrease of $4 million, or 1%. The decrease was primarily due to decreases of $16 million in reduced travel expenses due to the COVID-19 pandemic and $6 million in marketing and event spending, offset by an increase of $15 million in employee-related expenses driven by higher headcount.
GAAP operating expenses in sales and marketing were $595 million for the six months ended July 31, 2020, compared to $553 million for the prior year period, an increase of $78$42 million, or 38%8%. The increase was primarily due to increases of $53$42 million in employee-related costsexpenses driven by higher headcount and higher commissionable sales volume,$25 million related to the COVID-19 one-time employee bonus, offset by decreases of $25 million in reduced travel expenses and $7 million in amortization expense related to our acquisition-related intangible assets,marketing and $6 million related to marketing programs.event spending.
GAAPNon-GAAP operating expenses in sales and marketing were $553$219 million for the three months ended July 31, 2020, compared to $227 million for the prior year period, a decrease of $8 million, or 4%. The decrease was primarily due to decreases of $16 million in reduced travel expenses and $6 million in marketing and event spending, offset by an increase of $9 million in employee-related expenses driven by higher headcount.
Non-GAAP operating expenses in sales and marketing were $480 million for the six months ended July 31, 2019,2020, compared to $395$448 million for the prior year period, an increase of $158$32 million, or 40%7%. The increase was primarily due to increases of $113$29 million in employee-related costsexpenses driven by higher headcount and higher commissionable sales volume, $14 million in amortization expense related to our acquisition-related intangible assets, and $10$25 million related to marketing programs.
Non-GAAP operating expenses in sales and marketing were $227 million for the three months ended July 31, 2019, compared to $172 million for the prior year period, an increaseCOVID-19 one-time employee bonus, offset by decreases of $55 million, or 32%. The increase was primarily due to increases of $37$25 million in employee-related costs driven by higher headcountreduced travel expenses and higher commissionable sales volume, and $6 million related to marketing programs.
Non-GAAP operating expenses in sales and marketing were $448 million for the six months ended July 31, 2019, compared to $337 million for the prior year period, an increase of $111 million, or 33%. The increase was primarily due to increases of $80$7 million in employee-related costs driven by higher headcountmarketing and higher commissionable sales volume, and $10 million related to marketing programs.event spending.
We expect that GAAP and non-GAAP sales and marketing expenses will increase in absolute dollars as we continue to invest in our domestic and international selling and marketing activities to expand brand awareness and attract new customers.
General and Administrative
See the table above for a reconciliation of GAAP to non-GAAP operating expenses.
GAAP operating expenses in general and administrative were $86$99 million for the three months ended July 31, 2019,2020, compared to $65$86 million for the prior year period, an increase of $21$13 million, or 31%16%. The increase was primarily due to additionalan increase of $12 million in employee-related costsexpenses driven by higher headcount.
GAAP operating expenses in general and administrative were $170$194 million for the six months ended July 31, 2019,2020, compared to $121$170 million for the prior year period, an increase of $49$24 million, or 41%14%. The increase was primarily due to additionalincreases of $19 million in employee-related costsexpenses driven by higher headcount and $6 million related to the COVID-19 one-time employee bonus, offset by a decrease of $4 million in reduced travel expenses due to the COVID-19 pandemic.
Non-GAAP operating expenses in general and administrative were $65 million for the three months ended July 31, 2020, compared to $54 million for the prior year period, an increase of $11 million, or 20%. The increase was primarily due to an increase of $9 million in employee-related expenses driven by higher headcount.
Non-GAAP operating expenses in general and administrative were $54$126 million for the threesix months ended July 31, 2019,2020, compared to $43$106 million for the prior year period, an increase of $11$20 million, or 25%18%. The increase was primarily due to additionalincreases of $14 million in employee-related costsexpenses driven by higher headcount.

Non-GAAP operating expensesheadcount and $6 million related to the COVID-19 one-time employee bonus, offset by $4 million in general and administrative were $106 million for the six months ended July 31, 2019, compared to $77 million for the prior year period, an increase of $29 million, or 38%. The increase was primarily due to additional employee-related costs driven by higher headcount.reduced travel expenses.
We expect GAAP and non-GAAP general and administrative expenses will continue to increase in absolute dollars as we further invest in our infrastructure and support our global expansion.
Operating Margins
GAAP operating margins declinedimproved from (13.2)% for the three months ended July 31, 2018, to (13.8)% for the three months ended July 31, 2019. The reduction in our GAAP operating margins in2019, to (1.6)% for the three months ended July 31, 2019, was primarily due to higher share-based compensation and other2020. Our GAAP operating margins for the three months ended July 31, 2020, have been favorably impacted by our revenue growth outpacing headcount growth as well as moderation of operating expenses from increased headcountin response to the COVID-19 pandemic, including reduced travel, marketing and higher acquisition-related amortization expenses, partially offset by higher revenues.event spending.
GAAP operating margins declinedimproved from (12.4)% for the six months ended July 31, 2018, to (14.4)% for the six months ended July 31, 2019. The reduction in our GAAP operating margins in2019, to (7.7)% for the six months ended July 31, 2019, was primarily due to higher share-based compensation and other2020. Our GAAP operating margins for the six months ended July 31, 2020, have been favorably impacted by our revenue growth outpacing headcount growth as well as moderation of operating expenses from increased headcountin response to the COVID-19 pandemic, including reduced travel, marketing and higher acquisition-related amortization expenses, partially offset by higher revenues.event spending.
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We use the non-GAAP financial measure of non-GAAP operating margins 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 non-GAAP operating margins reflect our ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business, as they exclude expenses that are not reflective of ongoing operating results.business. We also believe that non-GAAP operating margins provide useful information to investors and others in understanding and evaluating our operating results and prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies.
Non-GAAP operating margins are calculated using GAAP revenues and non-GAAP operating expenses. See “Non-GAAP Financial Measures” below for further information.
Non-GAAP operating margins improved from 10.1% for the three months ended July 31, 2018, to 13.2% for the three months ended July 31, 2019. The improvement in our non-GAAP operating margins in2019, to 24.3% for the three months ended July 31, 2019, was primarily due2020. Our non-GAAP operating margins for the three months ended July 31, 2020, have been favorably impacted by our revenue growth outpacing headcount growth as well as moderation of operating expenses in response to higher subscriptionthe COVID-19 pandemic, including reduced travel, marketing and professional services revenues, and improvements in operating leverage, which includes timing of expenses.event spending.
Non-GAAP operating margins improved from 11.5% for the six months ended July 31, 2018, to 13.2% for the six months ended July 31, 2019. The improvement in our non-GAAP operating margins in2019, to 18.7% for the six months ended July 31, 2019, was primarily due2020. Our non-GAAP operating margins for the six months ended July 31, 2020, have been favorably impacted by our revenue growth outpacing headcount growth as well as moderation of operating expenses in response to higher subscriptionthe COVID-19 pandemic, including reduced travel, marketing and professional services revenues, and improvements in operating leverage, which includes timing of expenses.


event spending.
Reconciliations of our GAAP to non-GAAP operating margins were as follows:
 Three Months Ended July 31, 2020
 GAAP Operating ExpensesShare-Based Compensation ExpensesOther Operating Expenses
Non-GAAP Operating Expenses (1)
Operating margin(1.6)%23.7%2.2%24.3%
 Three Months Ended July 31, 2019
 GAAP Operating Expenses Share-Based Compensation Expenses Other Operating Expenses 
Non-GAAP Operating Expenses (1)
Operating margin(13.8)% 23.6% 3.4% 13.2%
 Three Months Ended July 31, 2019
 GAAP Operating ExpensesShare-Based Compensation ExpensesOther Operating Expenses
Non-GAAP Operating Expenses (1)
Operating margin(13.8)%23.6%3.4%13.2%

 Three Months Ended July 31, 2018
 GAAP Operating Expenses Share-Based Compensation Expenses Other Operating Expenses 
Non-GAAP Operating Expenses (1)
Operating margin(13.2)% 21.9% 1.4% 10.1%
Six Months Ended July 31, 2020
GAAP Operating ExpensesShare-Based Compensation ExpensesOther Operating Expenses
Non-GAAP Operating Expenses (1)
Operating margin(7.7)%23.4%3.0%18.7%

 Six Months Ended July 31, 2019
 GAAP Operating Expenses Share-Based Compensation Expenses Other Operating Expenses 
Non-GAAP Operating Expenses (1)
Operating margin(14.4)% 23.0% 4.6% 13.2%
Six Months Ended July 31, 2019
GAAP Operating ExpensesShare-Based Compensation ExpensesOther Operating Expenses
Non-GAAP Operating Expenses (1)
Operating margin(14.4)%23.0%4.6%13.2%
 Six Months Ended July 31, 2018
 GAAP Operating Expenses Share-Based Compensation Expenses Other Operating Expenses 
Non-GAAP Operating Expenses (1)
Operating margin(12.4)% 21.7% 2.2% 11.5%
(1)(1)See “Non-GAAP Financial Measures” below for further information.
See “Non-GAAP Financial Measures” below for further information.
Other Income (Expense), Net
Other expense, net increased $2was $11 million for the three months ended July 31, 2019,2020, as compared to other expense, net of $0.1 million for the prior year period. The increase in other expense, net was due primarily due to a decrease$6 million reduction in interest income.income on marketable securities as a result of lower prevailing interest rates during the three months ended July 31, 2020. In addition, interest expense increased by $5 million primarily related to our term loan entered into in April 2020.
Other income,expense, net increased $9was $22 million for the six months ended July 31, 2019,2020, as compared to other income, net of $7 million for the prior year period. The increaseDuring the six months ended July 31, 2019, we recognized a gain from the sale of marketable equity investment of $7 million gain and we capitalized interest costs of $6 million, which reduced interest expense. Additionally, during the six months ended July 31, 2020, there was primarily due to a $10$9 million decrease in interest expenseincome on marketable securities as a result of lower prevailing interest rates, and a $7 million gain resulting from sales of marketable equity investments, partially offset by a $5 million decreaseincrease in interest income.expense related to the term loan.
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Liquidity and Capital Resources
As of July 31, 2019,2020, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $1.9$2.8 billion, which were primarily held for working capital purposes. Our cash equivalents and marketable securities are composed primarily of U.S. treasury securities, U.S. agency obligations, corporate bonds, commercial paper, and money market funds.
In April 2020, we entered into a credit agreement (“Credit Agreement”) pursuant to which the lenders would extend 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”). On April 2, 2020, $500 million of the Term Loan was funded, and the remaining $250 million of the Term Loan was funded on July 13, 2020. We can also borrow up to $750 million under the Revolving Credit Facility until April 2, 2025. For further information, see Note 10, Debt, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
We have financed our operations primarily through customer payments, issuance of debt, and sales of equity securities, and issuance of debt.securities. Our long-term future capital requirements will depend on many factors, including our customer growth rate, subscription renewal activity, the timing of construction of facilities in Pleasanton, California, and the acquisition of additional facilities, the timing and extent of development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced services offerings, the continuing market acceptance of our services, the timing of construction of facilities in Pleasanton, California and the acquisition of additional facilities, and investment and acquisition activities. We may enter into arrangements to acquire or invest in complementary businesses, services, technologies, or intellectual property rights in the future. We also may choose to seek additional equity or debt financing.

Our cash flows for the three and six months ended July 31, 2019,2020, and 2018,2019, were as follows (in thousands):
Three Months Ended July 31, Six Months Ended July 31, Three Months Ended July 31,Six Months Ended July 31,
2019 2018 2019 2018 2020201920202019
Net cash provided by (used in):       Net cash provided by (used in):
Operating activities$100,319
 $57,616
 $309,482
 $241,849
Operating activities$157,210 $100,319 $420,893 $309,482 
Investing activities(320,745) 912,307
 (388,100) 627,721
Investing activities(202,638)(320,745)(479,985)(388,100)
Financing activities57,951
 (311,378) 61,313
 (308,824)Financing activities70,780 57,951 570,111 61,313 
Effect of exchange rate changes75
 (162) (252) (582)Effect of exchange rate changes771 75 506 (252)
Net increase (decrease) in cash, cash equivalents, and restricted cash$(162,400) $658,383
 $(17,557) $560,164
Net increase (decrease) in cash, cash equivalents, and restricted cash$26,123 $(162,400)$511,525 $(17,557)
Operating Activities
Cash provided by operating activities was $100$157 million and $58$100 million for the three months ended July 31, 2019,2020, and 2018,2019, respectively. The improvement in cash flow provided by operating activities was primarily due to increases in sales and the related cash collections, moderation of operating expenses in response to the COVID-19 pandemic, including reduced travel, marketing and event spending, partially offset by higher cash operating expenses driven by increased headcount.
Cash provided by operating activities was $309$421 million and $242$309 million for the six months ended July 31, 2019,2020, and 2018,2019, respectively. The improvement in cash flow provided by operating activities was primarily due to increases in sales and the related cash collections, moderation of operating expenses in response to the COVID-19 pandemic, including reduced travel, marketing and event spending, partially offset by higher cash operating expenses driven by increased headcount.headcount and the COVID-19 one-time employee bonus.
We expect our business to continue to generate sufficient operating cash flows; however, if the COVID-19 pandemic worsens or is prolonged, our customers may continue to request payment timing concessions, which could materially impact the timing and predictability of our operating cash flows in any given period.
Investing Activities
Cash used in investing activities for the three months ended July 31, 2020, was $203 million, which was primarily the result of data center and office space projects of $67 million and the timing of purchases and maturities of marketable securities.
Cash used in investing activities for the three months ended July 31, 2019, was $321 million, which was primarily the result of capital expenditures for data center and office space projects of $76 million, capital expenditures related to the construction of our development center of $34 million, a net outflow related to acquisition activity of $13 million, and the timing of purchases and maturities of marketable securities.
Cash provided by investing activities for the three months ended July 31, 2018, was $912 million, which was primarily the result
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Table of the timing of purchases and maturities of marketable securities, and proceeds of $915 million from the sale of marketable securities. The sale of marketable securities during the three months ended July 31, 2018, was to prepare for the Adaptive Insights acquisition. These receipts were partially offset by capital expenditures for data center and office space projects of $53 million, capital expenditures related to the construction of our development center of $43 million, and a net cash outflow related to acquisition activity of $27 million.Contents
Cash used in investing activities for the six months ended July 31, 2019,2020, was $388$480 million, which was primarily the result of capital expenditures for data center and office space projects of $141$126 million, purchases of non-marketable equity and other investments of $59 million, and the timing of purchases and maturities of marketable securities.
Cash used in investing activities for the six months ended July 31, 2019, was $388 million, which was primarily the result of capital expenditures for data center and office space projects of $141 million, capital expenditures related to the construction of our development center of $74 million, a net outflow related to acquisition activity of $13 million, and the timing of purchases and maturities of marketable securities. These payments were partially offset by proceeds of $55 million from sales of marketable equity investments.
Cash provided by investing activities for the six months ended July 31, 2018, was $628 million, which was primarily the result of proceeds of $942 million from the sale of marketable securities. These receipts were partially offset by the timing of purchases and maturities of marketable securities, capital expenditures for data center and office space projects of $102 million, capital expenditures related to the construction of our development center of $75 million, and a net cash outflow related to acquisitions of $27 million.
We expect capital expenditures related to owned real estate projects will be approximately $130 million for fiscal 2020, of which approximately $95 million relates to our development center. We also expect capital expenditures, excluding owned real estate projects, will be approximately $280 million for fiscal 2020.2021. These capital outlays will largely be used to expand the infrastructure of our data centers andcenters. We do not expect to build outmake additional office space to support our growth.

investments in owned real estate projects during fiscal 2021.
Financing Activities
Cash provided by financing activities was $71 million for the three months ended July 31, 2020, which was primarily due to proceeds of $250 million from borrowings on the Term Loan and $71 million from the issuance of common stock from employee equity plans, offset by the principal payment of $250 million in connection with the conversion of our 1.50% convertible senior notes (“2020 Notes”) during the quarter.
Cash provided by financing activities was $58 million for the three months ended July 31, 2019, which was primarily due to proceeds from the issuance of common stock from employee equity plans.
Cash used inprovided by financing activities was $311$570 million for the threesix months ended July 31, 2018,2020, which was primarily due to proceeds of $748 million from borrowings on the principal payment of $350Term Loan and $75 million of the 2018 Notes, offset by proceeds from the issuance of common stock from employee equity plans.plans, offset by the principal payment of $250 million in connection with the conversion of the 2020 Notes.
Cash provided by financing activities was $61 million for the six months ended July 31, 2019, which was primarily due to proceeds from the issuance of common stock from employee equity plans.
Cash used in financing activities was $309 million for the six months ended July 31, 2018, which was primarily due to the principal payment
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Table of $350 million of the 2018 Notes, offset by proceeds from the issuance of common stock from employee equity plans.Contents

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 expenses and non-GAAP operating margins meet the definition of a non-GAAP financial measure.
Non-GAAP Operating Expenses and Non-GAAP Operating Margins
We defineOur non-GAAP operating expenses as our total operating expenses excluding the following components, which we believe are not reflective of our ongoing operational expenses. Similarly, the same components are also excluded from the calculation ofand non-GAAP operating margins. In each case, formargins exclude the components listed below. For the reasons set forth below, management believes that excluding the component 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. Although share-based compensation is an important aspect of the compensation of our employees and executives, management believes it is useful to exclude share-based compensation expenses to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies. Share-based compensation expenses are 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.
•Although share-based compensation is an important aspect of the compensation of our employees and executives, management believes it is useful to exclude share-based compensation expenses to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies. Share-based compensation expenses are 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.
•
Other Operating Expenses. Other operating expenses includes employer payroll tax-related items on employee stock transactions and amortization of acquisition-related intangible assets. The amount of employer payroll tax-related items on employee stock transactions is dependent on our stock price and other factors that are beyond our control and do not correlate to the operation of the business. 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 its related amortization can vary significantly and are unique to each acquisition and thus we do not believe it is reflective of our ongoing operations.
Limitations on the Use of Non-GAAP Financial Measures
A limitation of our non-GAAP financial measures of non-GAAP operating expenses and non-GAAP operating margins 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, the non-GAAP financial measure of non-GAAP operating expenses has certain limitations because it does not reflect all items of expense that affect our operations and are reflected in the GAAP financial measure of total operating expenses. In the case of share-based compensation, if we did not pay out a portion of compensation in the form of share-based compensation and related employer payroll tax-related items, the cash salary expense included in costs of revenues and 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.
See Results“Results of Operations—Operating Expenses and Results of Operations—Operating MarginsMargins” for reconciliations from the most directly comparable GAAP financial measures, GAAP operating expenses and GAAP operating margins, to the non-GAAP financial measures, non-GAAP operating expenses and non-GAAP operating margins, for the three and six months ended July 31, 2019,2020, and 2018.2019.
Contractual Obligations
Our contractual obligations primarily consist of our convertible senior notes, as well as obligationsborrowings under our Credit Agreement, leases for office space and co-location facilities for data center capacity, and computingthird-party hosted infrastructure platforms for business operations. operations, and agreements to purchase data center equipment. We do not consider outstanding purchase orders to be contractual obligations as they represent authorizations to purchase rather than binding agreements.
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Convertible Senior Notes
In June 2019,2013, we entered into a $500completed an offering of $250 million agreement forof 1.50% convertible senior notes due July 15, 2020, which were subsequently converted during the usethree months ended July 31, 2020. In September 2017, we completed an offering of cloud services that superseded a previous agreement and expires in June 2025.
During the remainder$1.15 billion of fiscal 2020, we anticipate leasing additional office space near our headquarters and in various other locations around the world to support our growth. In addition, our existing lease agreements often provide us with an option to renew. We expect our future operating lease obligations will increase as we expand our operations.

0.25% convertible senior notes due October 1, 2022 (“2022 Notes”). We are not required to make principal payments under the 2022 Notes prior to maturity. If the 2022 Notes are not converted to Class A common stock prior to their maturity dates, we are required to repay $250 million in principal on July 15, 2020 and $1.15 billion in principal on October 1, 2022. We are also required to make interest payments on a semi-annual basis at the interest rates described in Note 10, Convertible Senior Notes, Net,Debt, of the notesNotes to condensed consolidated financial statements.Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Credit Agreement
In April 2020, we entered into a credit agreement pursuant to which the lenders extended to Workday a senior unsecured term loan facility 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 matures on April 2, 2025, and provides for quarterly repayment in installments of the principal amount, beginning October 2020, 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 Revolving Credit Facility may be borrowed, repaid, and reborrowed until April 2, 2025, at which time all amounts borrowed must be repaid. The Term Loan and Revolving Credit Facility bear interest at the interest rates described in Note 10, Debt, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
The following table summarizes our contractual cash obligations under the Credit Agreement as of July 31, 2020, and assumes interest rates consistent with those in effect for our Term Loan as of July 31, 2020. The Revolving Credit Facility is excluded as there were no outstanding borrowings as of July 31, 2020.
Payments Due by Period
(in thousands)
TotalRemainder of Fiscal 2021Fiscal 2022 - Fiscal 2023Fiscal 2024 - Fiscal 2025Thereafter
Term Loan$750,000 $18,750 $112,500 $150,000 $468,750 
Interest obligation on Term Loan65,327 9,295 29,747 23,826 2,459 
Total$815,327 $28,045 $142,247 $173,826 $471,209 
Leases
We do not consider outstanding purchase ordershave entered into operating lease agreements for our office space, data centers, and other property and equipment with various expiration dates. These lease agreements often provide us with an option to be contractual obligations as they represent authorizationsrenew.
Third-Party Hosted Infrastructure Platforms for Business Operations
We have entered into noncancelable agreements with third-party hosted infrastructure platform vendors with various expiration dates. As of July 31, 2020, future noncancelable minimum payments under these agreements were approximately $466 million.
Data Center Equipment
As of July 31, 2020, we have entered into noncancelable agreements to purchase rather than binding agreements.$110 million of data center equipment during the second half of fiscal 2021.
Off-Balance Sheet Arrangements
Through July 31, 2019,2020, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
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 and assumptions that affect the reported amounts of certain assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
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Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require further updates to our estimates or judgments or require us to further revise the carrying value of our assets or liabilities as of July 31, 2020. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
During the six months ended July 31, 2019,2020, there were no significant changes to our critical accounting policies and estimates as described in the consolidated financial statements contained in the Annual Report on Form 10-K for the year ended January 31, 2019,2020, filed with the Securities and Exchange Commission (“SEC”) on March 18, 2019.3, 2020.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The ongoing COVID-19 pandemic has 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 the COVID-19 pandemic on our business, operating results, and financial condition, see Risk Factors included in Part II, Item 1A of this Quarterly Report on Form 10-Q.
Foreign Currency Exchange Risk
We transact business globally in multiple currencies. As a result, our operating results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. As of July 31, 2019, and 2018,2020, our most significant currency exposures were the euro, Canadian dollar, 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 9, Derivative Instruments, of the notesNotes to condensed consolidated financial statements.Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Interest Rate SensitivityRisk on our Investments
We had cash, cash equivalents, and marketable securities totaling $1.9$2.8 billion and $1.8$1.9 billion as of July 31, 2019,2020, and January 31, 2019,2020, 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 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 are forced to sell securities that decline in market value due to changes in interest rates. However, because we classify ourOur debt securities are classified as “available for sale,” no gains orsale”. When the fair value of the security declines below its amortized cost basis, any portion of that decline attributable to credit losses, areto the extent expected to be nonrecoverable before the sale of the impaired security, is recognized in the income due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary.statement.
An immediate increase of 100 basis points in interest rates would have resulted in a $8$9 million and $5$7 million market value reduction in our investment portfolio as of July 31, 2019,2020, and January 31, 2019, respectively. An immediate decrease of 100 basis points in interest rates would have increased the market value by $8 million and $5 million as of July 31, 2019, and January 31, 2019,2020, respectively. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur. Fluctuations in the value of
Interest Rate Risk on our investment securities caused by a change in interest rates (gains or losses on the carrying value) are recorded in Accumulated other comprehensive income (loss) and are realized only if we sell the underlying securities before maturity.Debt
Market Risk and Market Interest Risk
In June 2013, we completed an offering of $350 million of 0.75% convertible senior notes due July 15, 2018, which were subsequently converted by note holders during the second quarter of fiscal 2019. In June 2013, concurrent with the 2018 Notes offering, we issued $250 million of 1.50% convertible senior notes due July 15, 2020 (“2020 Notes”). In September 2017, we completed an offering of $1.15 billion of 0.25% convertible senior notes due October 1, 2022 (“2022 Notes” and together with the 2020 Notes, referred to as the “Notes”).
Holders may convert the Notes prior to maturity upon the occurrence of certain circumstances. Upon conversion, holders of the 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.
Concurrently with the issuance of the Notes, we entered into separate note hedge and warrant transactions. These separate transactions were completed to reduce the potential economic dilution from the conversion of the Notes.
2022. The 2020 Notes and 2022 Notes have a fixed annual interest ratesrate of 1.50% and 0.25%, respectively, and therefore we do not have economic interest rate exposure on the 2022 Notes. However, the valuesvalue of the 2022 Notes areis exposed to interest rate risk. Generally, the fair valuesvalue of the fixed interest rate2022 Notes will increase as interest rates fall and decrease as interest rates rise. In addition, the fair valuesvalue of the 2022 Notes areis affected by our stock price. The carrying valuesvalue of the 2020 Notes and 2022 Notes were $238 million and $995 million, respectively,was $1.0 billion as of July 31, 2019.2020. The carrying values representvalue represents the liability componentscomponent of the principal balancesbalance of the 2022 Notes as of July 31, 2019.2020. The estimated fair valuesvalue of the 2020 Notes and 2022 Notes were $662 million and $1.7was $1.5 billion respectively, as of July 31, 2019.2020. The estimated fair values werevalue was determined based on the quoted bid pricesprice of the 2020 and 2022 Notes in an over-the-counter market as of the last trading day forof the current fiscal quarter, which was $134.30.
In April 2020, we entered into a credit agreement pursuant to which the lenders would extend to Workday a senior unsecured term loan facility 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 0.000% 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.
As of July 31, 2020, the Term Loan had a carrying value of $748 million, and there were $265.00 and $149.40, respectively. no outstanding borrowings under the Revolving Credit Facility. The interest rate on the Term Loan was 2.12% as of July 31, 2020.
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Because the interest rates applicable to borrowings under the Credit Agreement are variable, we are exposed to market risk from changes in the underlying index rates, which affect our cost of borrowing. A hypothetical immediate increase of 100 basis points in interest rates would not have had a significant impact on our results of operations.
For further information, see Note 10, Convertible Senior Notes, Net,Debt, of the notesNotes to condensed consolidated financial statements.Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officerofficers 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 Securities Exchange Act of 1934, as amended (the “Exchange(“Exchange Act”), as of the end of the period covered by this report.
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 officerofficers 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 officerofficers 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 officerofficers 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 officerofficers 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.reporting, despite the fact that the majority of our employees are continuing to work remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to understand the potential impact on their design and operating effectiveness.

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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, weWe are or may beregularly involved in various legal proceedings arising from the normal course of business including matters related to alleged infringement of third-party patentswith claims, suits, regulatory and government investigations, and other proceedings involving competition, intellectual property, rights,data security and privacy, tax and related compliance, labor and employment, commercial employment,disputes, and other claims. We are not presently a party to any litigation the outcome of which we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows, or financial condition. Defending suchmatters. Such claims, suits, regulatory and government investigations, and other proceedings is costly and can impose a significant burden on management and employees, we may receive unfavorable preliminary or interim rulings in the course of litigation, and there can be no assurances that favorable final outcomes will be obtained. The resolution of legal matters 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, payor could result in monetary damages, fines, civil or enter into short-criminal penalties, reputational harm, or long-term royaltyother adverse consequences.
These claims, suits, regulatory and government investigations, and other proceedings may include speculative, substantial, or licensing agreements, or could otherwiseindeterminate monetary amounts. We record a liability when we believe that it is probable that a liability has been incurred and the amount can be materialreasonably 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 financial conditionoutstanding 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, operating results, cash flows, or both, or adversely affect our operating results.financial condition. However, the outcome of such matters is inherently unpredictable and subject to significant uncertainties.

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ITEM 1A. RISK FACTORS
Investing in our securities involves a high degree of risk. You should consider carefully 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 Part I, Item 1 of this report,Quarterly Report on Form 10-Q, 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, of operations, 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.
Risk Factors Related to Our Business
The extent to which the ongoing COVID-19 pandemic, the resulting global economic uncertainty, and measures taken in response to the pandemic will continue to impact our business, operating results, and financial condition will depend on future developments, which are highly uncertain and difficult to predict.
The COVID-19 pandemic has disrupted the flow of the economy and put unprecedented strains on governments, healthcare systems, educational institutions, businesses, and individuals around the world. The impact on the global population and the duration of the COVID-19 pandemic is difficult to assess or predict. It is even more difficult to predict the impact on the global economic markets, which will be highly dependent upon the actions of governments, businesses, and other enterprises in response to the pandemic as well as the effectiveness of those actions. As a result of the COVID-19 pandemic, the trading prices for our Class A common stock and the stock of other technology companies have been highly volatile, and such volatility may continue for the duration of and possibly beyond the COVID-19 pandemic. Any sustained adverse impacts from the spread of COVID-19 could materially and adversely affect our business, operating results, financial condition, and earnings guidance that we may issue from time to time, which could have a material effect on the value of our Class A common stock.
In response to COVID-19, as many other companies have done, we have temporarily closed the majority of our global offices, required most of our employees to continue to work remotely, implemented travel restrictions, have decided to postpone certain of our customer, industry, implementation partner, analyst, investor, and employee events and convert others to virtual-only experiences. These precautionary measures that have been adopted, particularly if the COVID-19 pandemic worsens or is prolonged, could have increasingly negative effects on our sales and marketing efforts, customer success efforts, and revenue growth rates or other financial metrics, or create operational or other challenges, any of which could adversely impact our business, operating results, and financial condition in any given period. We may also continue to experience impacts to productivity and other operational and business impacts if our employees, executives, or their family members experience health issues, or if there are continued delays in our hiring and onboarding of new employees. The COVID-19 pandemic could also impact our data center and computing infrastructure operations, including potential disruptions to, among other things, the supply chain required to maintain these systems, construction projects designed to expand our data center capacity, and primary vendors who provide critical products and services.
Our future revenues rely on new customer acquisition, and we have experienced and may continue to experience an increase in delayed purchasing decisions from prospective customers and a reduction in customer demand, particularly in the industries most impacted by the COVID-19 pandemic, such as travel and hospitality and healthcare. We also may continue to experience a reduction in renewal rates, particularly within our subset of small and medium-sized planning customers, as well as reduced customer spend and delayed payments that could materially impact our business, operating results, and financial condition in future periods. In addition, some of our competitors may offer their products and services at a lower price, or may offer price concessions, delayed payment terms, financing terms, or other terms and conditions that are more enticing to potential customers. While our subscription services revenue is relatively predictable in the near term as a result of our subscription-based business model, the effect of the COVID-19 pandemic may not be fully reflected in our operating results and overall financial performance until future periods.
It is not possible for us to estimate the duration or magnitude of the adverse results of the COVID-19 pandemic and its effects on our business, operating results, or financial condition at this time, as the impact will depend on future developments, which are highly uncertain and cannot be predicted. To the extent the COVID-19 pandemic adversely affects our business, operating results, and financial condition, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
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If our security measures are breached or unauthorized access to customer or user data is otherwise obtained, our applications may be perceived as not being secure, customers and end users may reduce the use of or stop using our applications, and we may incur significant liabilities.
Our applications involve the storage and transmission of our customers’ sensitive and proprietary information, including personal or identifying information regarding our customers, their employees, customers, and suppliers, as well as their financefinancial and payroll data and other sensitive business and personal information. As a result, unauthorized access, acquisition, use, or usedestruction of this data, or unavailability of data, could expose us to regulatory actions, litigation, investigations, remediation obligations, damage to our reputation and brand, supplemental disclosure obligations, loss of customer, consumer, and partner confidence in the security of our applications, destruction of information, indemnity obligations, impairment to our business, and resulting fees, costs, expenses, loss of revenues, and other potential liabilities. We devote significant financial and personnel resources to implement and maintain security measures. While we have security measures in place that are designed to protect against these risks, preserve the integrity of customer and personal information, and prevent data loss, misappropriation, and other security breaches, our security measures may be compromised as a result of third-party action, including intentional misconduct, including by computer hackers, employees, contractors, vendors or other malfeasance,vendors, as well as software bugs, human error, technical malfunctions, or other technical malfunctions. If someone obtains unauthorized access to or use of our customers’ data, our reputation could be damaged, our business may suffer, and we could sustain significant liabilities as well as incur significant costs to remediate any incidents.malfeasance.
Cybersecurity challenges, including threats to our own IT infrastructure or those of our customers or third-party providers,and attacks are often targeted at companies such as ours and may take a variety of forms ranging from individual andindividuals or groups of hackers, including those who appear to offer a solution to a vulnerability, to sophisticated organizations, including state-sponsored actors. Key cybersecurity risks range from viruses, worms, and other malicious software programs, including phishing attacks or ransomware, to exploitation of software bugs or other defects, to “mega breaches” targeted against cloud services and other hosted software, any of which can result in disclosure of confidential information and intellectual property, defective products, production downtimes, supply shortages,reputational harm, compromised data, and compromised data.an increase in costs to the business. As the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniquesattacks or to implement adequate preventative measures. Although we have developed systems and processes that are designed to protect our systems, software and data, as well as customer data and other user data and to prevent data loss and detect security breaches, there can be no assurance that such measures will be effective against all cybersecurity threats or perceived threats.
Additionally, during the ongoing COVID-19 pandemic, and potentially beyond as remote work and resource access expand, there is an increased risk that we may experience cybersecurity-related events such as COVID-19 themed phishing attacks, exploitation of any cybersecurity flaws that may exist, an increase in the number cybersecurity threats or attacks, and other security challenges as a result of most of our employees and our service providers continuing to work remotely from non-corporate managed networks.
Furthermore, we have acquired or partnered with a number of companies, products, services, and technologies over the years.years, as well as incorporated third-party products, services and technologies into our products and services. Although we devote significant resources to address any known security issues with respect to such acquisitions, partnerships, and incorporated technologies, we may still inherit additional risks when we integrate these companiesthey are integrated within Workday. In addition, if a high-profile security breach occurs with respect to an industry peer, our customers and potential customers may generally lose trust in the security of financial management, HCM, andhuman resources, planning, applications,spend management, or analytics platforms,applications, or in cloud applications for enterprises in general. Any or all of these issues could negatively affect our ability to attract new customers, cause existing customers to elect to terminate or not renew their subscriptions, result in reputational damage, cause us to pay remediation costs and/or issue service credits or refunds to customers for prepaid and unused subscription services, require us to compensate our customers or other users for certain losses, or result in lawsuits, regulatory fines, or other action or liabilities, which could adversely affect our business and operating results.
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If we fail to properly manage our technical operations infrastructure, experience service outages, or delays in the deployment of our applications, or our applications fail to perform properly, we may be subject to liabilities and our reputation and operating results may be adversely affected.
We have experienced significant growth in the number of users, transactions, and data that our operations infrastructure supports. We seek to maintain sufficient excess capacity in our operations infrastructure to meet the needs of all of our customers and users, as well as our own needs, and to ensure that our services and solutions are accessible within an acceptable load time. We also seek to maintain excess capacity to facilitate the rapid provision of new customer deployments and the expansion of existing customer deployments. In addition, we need to properly manage our technological operations infrastructure in order to support version control, changes in hardware and software parameters, updates, the evolution of our applications, and to reduce infrastructure latency associated with dispersed geographic locations. However, the provision of new hosting infrastructure requires significant lead time. If we do not accurately predict our infrastructure requirements, we may experience service outages. In addition, the COVID-19 pandemic could also impact our data center and computing infrastructure operations, including potential disruptions to, among other things, the supply chain required to maintain these systems, construction projects designed to expand our data center capacity, and primary vendors who provide critical products and services. Furthermore, if our operations infrastructure fails to scale, we may experience delays in providing service as we seek to obtain additional capacity, and no assurance can be made that we will be able to secure such additional capacity on the same or similar terms as we currently have, which could result in a significant increase in our operating costs. Moreover, any failure to scale and secure additional capacity could result in delays in new feature rollouts, reduce the demand for our applications, result in customer and end user dissatisfaction, and adversely affect our business and operating results.
We have experienced, and may in the future experience, 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 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. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. Because of the large amount of data that we collect and process in our systems, it is possible that these issues could result in data loss or corruption, or cause the data to be incomplete or contain inaccuracies that our customers and other users regard as significant. Furthermore, the availability or performance of our applications could also be adversely affected by our customers’ and other users’ inability to access the internet. For example, our customers and other users access our applications through their internet service providers. If a service provider fails to provide sufficient capacity to support our applications or otherwise experiences service outages, such failure could interrupt our customers’ and other users’ access to our applications, which could adversely affect their perception of our applications’ reliability and our revenues.
Our customer agreements typically provide for monthly service level commitments. If we are unable to meet the stated service level commitments or suffer extended periods of unavailability for our applications as a result of the foregoing or otherwise, we may be contractually obligated to issue service credits or refunds to customers for prepaid and unused subscription services, our customers may make warranty or other claims against us, or we could face contract terminations, which would adversely affect our attrition rates. Any extended service outages could result in customer losses and adversely affect our reputation, business, and operating results.
Furthermore, our errors and omissions insurance may be inadequate or may not be available in the future on acceptable terms, or at all. 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 management’s attention.
We depend on data centers and computing infrastructure operated by third parties, and any disruption in these operations could adversely affect our business.business and operating results.
We host our applications and serve our customers from data centers located in the United States, Europe, and Canada. While we control and have access to our servers and all of the components of our network that are located in our externalthese data centers, we do not control thecertain aspects of these facilities, including their operation and security of these facilities.security. The owners of ourthese data center facilities have limited or no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable terms, or if oneany of ourthese data center operators isare acquired or ceasescease to do business, we may be required to transfer our servers and other infrastructure to new data center facilities, and we may incur significant costs and experience possible service interruptioninterruptions in connection with doing so.

In addition, we also rely upon third-party hosted infrastructure partners globally, including Amazon Web Services (“AWS”), Dimension Data, and Dimension Data,Microsoft Azure to serve customers and operate certain aspects of our services, such as environments for development testing, training, sales demonstrations, and production usage. Given this, anyAny disruption of or interference at our hosted infrastructure partners would impact our operations and our business could be adversely impacted.
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Problems faced by our third-partythese data center operationsoperators or hosted infrastructure partners, with the telecommunications network providers with whom we or they contract, or with the systems by which our telecommunications providers allocate capacity among their customers, including us, could adversely affect the experience of our customers. Our third-partycustomers or other users. In addition, the ongoing COVID-19 pandemic could have a significant adverse operational impact on these data center operators and hosted infrastructure partners on which we rely, as they continue to navigate their own challenges resulting from their employee base continuing to work remotely and other impacts from the pandemic. Furthermore, these data center operators or hosted infrastructure partners could decide to close their facilities or cease operations without adequate notice. In addition, any financial difficulties, such as bankruptcy, faced by our third-partythese data center operators, our hosted infrastructure partners, or any of the other service providers with whom we or they contract may have negative effects on our business, the nature and extent of which are difficult to predict.
Additionally, if ourthese data centerscenter operators or hosted infrastructure partners are unable to keep up with our needs for capacity, this could have an adverse effect on our business. Any changes in third-party service levels at ourthese data centers or at our hosted infrastructure partners or any errors, defects, disruptions, or other performance problems with our applications or the hosted infrastructure on which they run could adversely affect our reputation and may damage our customers’ or other users’ stored files or result in lengthy interruptions in our services. Interruptions in our services might adversely affect our reputation and operating results, cause us to issue refunds or service credits to customers for prepaid and unused subscription services, subject us to potential liabilities, result in contract terminations, or adversely affect our renewal rates.
Furthermore, our financial management application is essential to Workday’s and our customers’ financial projections, reporting, and compliance programs, particularly customers who are public reporting companies. Any interruption in our service may affect the availability, accuracy or timeliness of such projections, reporting and compliance 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 as well as impact our ability to accurately and timely meet our reporting and other compliance obligations.
If we fail to manage our technical operations infrastructure or experience service outages or delays in the deployment of our applications, we may be subject to liabilities and our reputation and operating results may be adversely affected.
We have experienced significant growth in the number of users, transactions, and data that our operations infrastructure supports. We seek to maintain sufficient excess capacity in our operations infrastructure to meet the needs of all of our customers, as well as our own needs, and to ensure that our services and solutions are accessible within an acceptable load time. We also seek to maintain excess capacity to facilitate the rapid provision of new customer deployments and the expansion of existing customer deployments. In addition, we need to properly manage our technological operations infrastructure in order to support version control, changes in hardware and software parameters, updates, the evolution of our applications, and to reduce infrastructure latency associated with dispersed geographic locations. However, the provision of new hosting infrastructure requires significant lead time. If we do not accurately predict our infrastructure requirements, our existing customers may experience service outages. If our operations infrastructure fails to scale, new customers may experience delays as we seek to obtain additional capacity, and no assurance can be made that we will be able to secure such additional capacity at the same or similar terms we currently have, which could result in a significant increase in our operating costs. Furthermore, any failure to scale and secure additional capacity could result in delays in new feature rollouts, reduce the demand for our applications, result in customer dissatisfaction, and adversely affect our business and results of operations.
We have experienced, and may in the future experience, system disruptions, outages, and other performance problems. These problems may be caused by a variety of factors, including infrastructure changes, vendor issues, human or software errors, viruses, security attacks (internal and external), fraud, spikes in customer usage, and denial of service issues. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. Our customer agreements typically provide service level commitments on a monthly basis. If we are unable to meet the stated service level commitments or suffer extended periods of unavailability for our applications, we may be contractually obligated to issue service credits or refunds to customers for prepaid and unused subscription services, our customers may make warranty or other claims against us, or we could face contract terminations, which would adversely affect our attrition rates. Any extended service outages could result in customer losses and adversely affect our reputation, business, and operating results.

Privacy concerns and domestic or foreign laws and regulations may reduce the effectiveness of our applications, result in significant costs and compliance challenges, and adversely affect our business.business and operating results.
Our customers can use our applications to collect, use, and store personal or identifying information regarding a variety of individuals in connection with their operations, including but not limited to their employees, contractors, students, job applicants, customers, and suppliers. Additionally, individuals using our WayToTM by Workday application may store, manage, and share with certain organizations credentials such as employment history, education, skills, and compensation information. National, state and local governments and agencies in the countries in which our customers operate have adopted, are considering adopting, or may adopt laws and regulations regarding the collection, use, storage, transfer, processing, protection, and disclosure of personal information obtained from consumers and individuals, which could impact our ability to offer our services in certain jurisdictions or our customers’ ability to deploy our solutions globally. Privacy-relatedPrivacy and data protection laws are particularly stringent, in Europe. Theand the costs of compliance with and other burdens imposed by privacy-relatedsuch laws, regulations, and standards may limit the use and adoption of our services, reduce overall demand for our services, lead to significant fines, penalties, or liabilities for noncompliance, or slow the pace at which we close sales transactions, any of which could harm our business. Even the perception of privacy concerns, whether or not valid, may inhibit the adoption, effectiveness, or use of our applications. Moreover, if we or our subprocessors fail to adhere to adequate data protection practices around the usage of and access to our customers’ and other users’ personal data or fail to report security breachesa data breach or other loss of data within timeframes mandated by law or our customer contracts, we may be liable for certain losses, of our customers, and it may damage our reputation and brand.
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Additionally, we expect that existing laws, regulations, and standards may be interpreted in new and differing manners in the future and may be inconsistent among jurisdictions. Future laws, regulations, standards, and other obligations, and changes in the interpretation of existing laws, regulations, standards, and other obligations could result in increased regulation, increased costs of compliance and penalties for non-compliance, and limitations on data collection, use, disclosure, and transfer for Workday and our customers. In 2016, the European Union (“EU”) adopted a new regulation governing data privacy called the General Data Protection Regulation (“GDPR”), which became effective in May 2018. The GDPR establishes new requirements applicable to the handling of personal data and imposes penalties for non-compliance of up to 4% of worldwide revenue. Customers, particularly in the EU, are seeking assurances from their suppliers, including us, that their processing of personal data of EU nationals is in accordance with the GDPR. If we are unable to provide adequate assurances to such customers, demand for our applications could be adversely affected. In addition, we must continue to seek assurances from our subprocessors that they are handling personal data in accordance with GDPR requirements in order to meet our own obligations under the GDPR. In addition, in June 2018, the California Consumer Privacy Act (“CCPA”), which takes took effect on January 1, 2020, was enacted.2020. The CCPA gives California consumers certain rights similar to those provided by the GDPR, and customers and other users may seek similar assurances from suppliers regarding compliance. Moreover, there are a number of other legislative proposals worldwide, including in the EU, the United States at both the federal and state level, as well as other jurisdictions that could impose additional and potentially conflicting obligations in areas affecting our business.
In addition to government activity, privacy advocacy and other industry groups have established or may establish various new, additional, or different self-regulatory standards that may place additional burdens on us. Our customers may expect us to meet voluntary certifications or adhere to other standards established by third parties. If we are unable to maintain these certifications or meet these standards, it could reduce demand for our applications and adversely affect our business and operating results.
The costs of compliance with, and other burdens imposed by, privacy laws and regulations that are applicable to the businesses of our customers may adversely affect our customers’ ability and willingness to process, handle, store, use, and transmit demographic and personal data, which in turn could limit the use, effectiveness, and adoption of our applications and reduce overall demand. In addition, the other bases on which we and our customers rely on for the transfer of data, such as model contracts, continue to be subjected to regulatory and judicial scrutiny. In 2016,July 2020, the EU and United States agreed toCourt of Justice of the European Union invalidated the Privacy Shield framework for data transferred from the EUEuropean Economic Area to the United States, but this new framework has been challenged by private parties and may face additional challenges by national regulators or additional private parties. In 2017, another legal challenge toStates. While the validitysame court upheld the use of the EU Standard Contractual Clauses (a(“SCCs”), which we offer to our customers to enable data transfer mechanism) was referredtransfers, the decision has led to some uncertainty regarding the use of SCCs as the mechanism for data transfers to the Court of Justice of the EU for review.United States. If we or our customers are unable to transfer data between and among countries and regions in which we operate, it could decrease demand for our applications, require us to restrict our business operations, and impair our ability to maintain and grow our customer base and increase our revenue. Even the perception
The markets in which we participate are intensely competitive, and if we do not compete effectively, our operating results could be adversely affected.
The markets for financial management and HCM applications are highly competitive, with relatively low barriers to entry for some applications or services. Our primary competitors are Oracle and SAP, well-established providers of privacy concerns, whetherfinancial management and HCM applications, which have long-standing relationships with many customers. Some customers may be hesitant to switch vendors or not valid,to adopt cloud applications such as ours and may inhibit the adoption, effectiveness,prefer to maintain their existing relationships with competitors. Oracle and SAP are larger and have greater name recognition, significantly longer operating histories, larger marketing budgets, and significantly greater resources than we do. These vendors, as well as other competitors, could offer financial management and HCM applications on a standalone basis at a low price or usebundled as part of a larger sale. In order to take advantage of customer demand for cloud applications, legacy vendors are expanding their cloud applications through acquisitions, strategic alliances, and organic development. We also face competition from other enterprise software vendors, from regional competitors that only operate in certain geographic markets, and from vendors of specific applications that address only one or a portion of our applications.
applications, some of which offer cloud-based solutions. These vendors include, without limitation: The Ultimate Software Group, Inc., Automatic Data Processing, Inc., Infor, Inc., Ceridian HCM Holding Inc., Microsoft Corporation, Anaplan, Inc., and Coupa Software Inc. In addition, other cloud companies that provide services in different target markets may develop applications or acquire companies that operate in our target markets, and some potential customers may elect to government activity, privacy advocacydevelop their own internal applications. As the market matures and other industry groupsas existing and new market participants introduce new types of technologies and different approaches that enable organizations to address their human capital management and financial needs, we expect this competition to intensify in the future.
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Many of our competitors are able to devote greater resources to the development, promotion, and sale of their products and services. This may allow our competitors to respond more effectively than us to new or emerging technologies and changes in market conditions. Furthermore, our current or potential competitors may be acquired by, or merge with, third parties with greater available resources and the ability to initiate or withstand substantial price competition, such as the recent merger between Kronos Incorporated and The Ultimate Software Group, Inc.. In addition, many of our competitors have established marketing relationships, access to larger customer bases, and major distribution agreements with consultants, system integrators, and resellers. Our competitors may also establish cooperative relationships among themselves or may establish various new, additional, or different self-regulatory standardswith third parties that may place additional burdens on us. Our customersfurther enhance their offerings or resources. If our competitors’ products, services, or technologies become more accepted than our products, if they are successful in bringing their products or services to market earlier than ours, or if their products or services are more technologically capable than ours, then our revenues could be adversely affected. In addition, our competitors may expect usoffer their products and services at a lower price, or, particularly during the ongoing COVID-19 pandemic, may offer price concessions, delayed payment terms, financing terms, or other terms and conditions that are more enticing to meet voluntary certificationspotential customers. Pricing pressures and increased competition could result in reduced sales, reduced margins, losses, or adhere to other standards established by third parties. If we are unablea failure to maintain these certifications or meet these standards, itimprove our competitive market position, any of which could adversely affect our business and operating results.
Adverse economic conditions may negatively impact our business.
Our business depends on the overall demand for enterprise software and on the economic health of our current and prospective customers. Any significant weakening of the economy in the United States or abroad, limited availability of credit, reduction in business confidence and activity, decreased government spending, or economic uncertainty, all of which are being impacted by the ongoing COVID-19 pandemic, and its effects such as unemployment, may continue to affect one or more of the sectors or countries in which we sell our applications. Alternatively, a strong dollar could reduce demand for our applications and services in countries with relatively weaker currencies.
Also, the withdrawal of the UK from the EU (“Brexit”) has created economic and political uncertainty, including volatility in the value of foreign currencies. The impact of Brexit depends on the terms of the UK’s future trade agreements with the EU and other countries and such impact may not be fully realized for several years or more. This uncertainty may cause some of our customers or potential customers to curtail spending and may ultimately result in new regulatory, operational, and cost challenges to our UK and global operations.
These adverse conditions could continue to result in reductions in sales of our applications, longer sales cycles, reductions in subscription duration and value, customer bankruptcies, slower adoption of new technologies, and increased price competition. Any of these events would likely have an adverse effect on our business, operating results, and financial position.
Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business.
Our quarterly operating results, including the levels of our revenues, operating margin, profitability, cash flow, unearned revenue, and remaining subscription services revenue performance obligations, which we also refer to as backlog, may vary significantly in the future and period-to-period comparisons of our operating results may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control, and as a result, may not fully reflect the underlying performance of our business. As discussed above, the extent to which the ongoing COVID-19 pandemic, the resulting global economic uncertainty, and measures taken in response to the pandemic could continue to impact our operating results will depend on future developments, which are highly uncertain and difficult to predict. Fluctuations in our quarterly results and related impacts to any earnings guidance we may issue from time to time, including any modification or withdrawal thereof, may negatively impact the value of our securities. For example, beginning in March 2020, we began experiencing and continue to experience unfavorable impacts to our new subscription bookings, causing us to reduce our fiscal 2021 subscription revenue outlook. Additionally, as we sign a significantly higher percentage of agreements with new customers as well as renewal agreements with existing customers in the fourth quarter of each year, if the economic uncertainty is prolonged, we may experience a greater impact on our business and quarterly results.
Additional factors that may cause fluctuations in our quarterly financial results include, without limitation, those listed below:
•our ability to attract new customers;
•the timing and rate at which we sign agreements with customers;
•the financial condition and creditworthiness of our customers;
•the addition or loss of large customers, including through acquisitions or consolidations;
•customer renewal rates;
•the timing of operating expenses and recognition of revenues;
•the amount and timing of operating expenses related to the maintenance and expansion of our business, operations, and infrastructure;
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•network outages or security breaches;
•general economic and market conditions, including the impact of the ongoing COVID-19 pandemic;
•increases or decreases in the number of elements of our services or pricing changes upon any renewals of customer agreements;
•changes in our pricing policies or those of our competitors;
•the mix of applications sold during a period;
•seasonal variations in sales of our applications, which have historically been highest in our fiscal fourth quarter;
•the timing and success of new application and service introductions by us or our competitors;
•changes in the competitive dynamics of our industry, including consolidation among competitors, customers, or strategic partners;
•changes in laws and regulations that impact our business or reported financial results, including changes in accounting principles generally accepted in the United States; and
•the timing of expenses related to acquisitions and potential future charges for impairment of goodwill.
If we are not able to realize a return on our current development efforts or offer new features, enhancements, and modifications to our services, our business and operating results could be adversely affected.
Developing software applications and related enhancements, features, and modifications is expensive, and the investment in product development often involves a long return on investment cycle. Accelerated application introductions and short application life cycles require high levels of expenditures that could adversely affect our business.operating results if not offset by revenue increases, and we believe that we must continue to dedicate a significant amount of resources to our development efforts to maintain our competitive position. However, we may not receive significant revenues from these investments for several years, if at all. Furthermore, the COVID-19 pandemic could have an impact on our plans to offer certain new features, enhancements, and modifications of our applications in a timely manner, particularly if we experience impacts to productivity due to our employees or their family members experiencing health issues, if our employees continue to work remotely for extended periods, or if there are continuing delays in our hiring and onboarding of new employees. If we are unable to provide new features, enhancements, and modifications in a timely and cost-effective manner that achieve market acceptance or that keep pace with rapid technological developments, our business and operating results could be adversely affected. For example, we are focused on enhancing the features and functionality of our applications to improve their utility to larger customers with complex, dynamic, and global operations. The success of enhancements, new features, and applications depends on several factors, including their timely completion, introduction, and market acceptance as well as access to the technologies required to build and improve our applications, such as the datasets required to train our machine learning models. As a result, we may not be successful in developing these new features, enhancements, modifications, and applications, and bring them to market timely, if at all. Failure in this regard may significantly impair our revenue growth by negatively impacting our customer renewal rates or our ability to attract new customers.

Our growth depends on the success of our strategic relationships with third parties as well as our ability to successfully integrate our applications with a variety of third-party technologies.
We depend on relationships with third parties such as deployment partners, technology and content providers, and other key suppliers, and are also dependent on third parties for the license of certain software and development tools that are incorporated into or used with our applications. If the operations of these third parties are disrupted as a direct or indirect result of the ongoing COVID-19 pandemic, our own operations may suffer, which could adversely impact our operating results. In addition, we rely upon licensed third-party software to help improve our internal systems, processes, and controls. Identifying partners, and negotiating and documenting relationships with them, requires significant time and resources. We may be at a disadvantage if our competitors are effective in providing incentives to third parties to favor their products or services or to prevent or reduce subscriptions to our services, or in negotiating better rates or terms with such third parties. In addition, acquisitions of our partners by our competitors could end our strategic relationship with the acquired partner and result in a decrease in the number of our current and potential customers, or the support services available for third-party technology may be negatively affected by mergers and consolidation in the software industry. If we are unsuccessful in establishing or maintaining our relationships with these third parties, or in monitoring the quality of their products or performance, our ability to compete in the marketplace or to grow our revenues could be impaired and our operating results may suffer.
To the extent that our applications depend upon the successful operation of third-party software in conjunction with our software, any undetected errors or defects in this third-party software, as well as cybersecurity threats or attacks related to such software, could prevent the deployment or impair the functionality of our applications, delay new application introductions, result in a failure of our applications, result in increased costs, and injure our reputation. Furthermore, software may not continue to be available to us on commercially reasonable terms. Although we believe that there are commercially reasonable alternatives to the third-party software we currently license, this may not always be the case, or it may be difficult or costly to replace. Integration of new software into our applications may require significant work and require substantial investment of our time and resources.
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We also need to continuously modify and enhance our applications to keep pace with changes in third-party internet-related hardware, iOS, Android, other mobile-related technologies, and other third-party software, communication, browser, and database technologies. We must also appropriately balance the application capability demands of our current customers with the capabilities required to address the broader market. Furthermore, uncertainties about the timing and nature of new network platforms or technologies, or modifications to existing platforms or technologies, could increase our product development expenses. Any failure of our applications to operate effectively with future network platforms and other third-party technologies could reduce the demand for our applications, result in customer and end user dissatisfaction, and adversely affect our business and operating results. We may experience difficulties in managing improvements to our systems, processes, and controls or in connection with third-party software, which could materially impair our ability to provide solutions or professional services to our customers in a timely manner, cause us to lose customers, limit us to smaller deployments of our solutions, or increase our technical support costs.
Our historic revenue growth rates should not be viewed as indicative of our future performance.
Our revenue growth rates have declined and may decline again in the future as the size of our customer base and market penetration increases. In addition, our future rate of growth is subject to a number of uncertainties, including general economic and market conditions, including those caused by the ongoing COVID-19 pandemic, as well as risks associated with growing companies in rapidly changing industries. Other factors may also contribute to declines in our growth rates, including slowing demand for our services, increasing competition, a decrease in the growth of our overall market, our failure to continue to capitalize on growth opportunities, and the maturation of our business, some of which may be magnified by the COVID-19 pandemic. As our growth rates decline, investors’ perceptions of our business and the trading price of our securities could be adversely affected.
Additionally, our ability to accurately forecast our future rate of growth is limited. It is difficult to predict customer and other user adoption rates and demand for our applications, the future growth rate and size of the cloud computing market for financial management and HCM services, or the entry of competitive applications. Moreover, it has been and, until the effects of the COVID-19 pandemic are contained, will continue to be, even more difficult for us to forecast our operating results. We plan our expense levels and investments on estimates of future revenue and anticipated rates of growth. If our growth does not meet estimates, we may not be able to adjust our spending quickly enough to avoid an adverse impact on our financial results as a consequence of spending that is not aligned with our actual performance.
Moreover, we have encountered and will encounter risks and uncertainties frequently experienced by growing companies in rapidly changing industries, including the risks and uncertainties described herein. If our assumptions regarding these risks and uncertainties (which we use to plan our business) are incorrect or change due to changes in our markets, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations and our business could suffer.
We have experienced rapid growth. Ifgrowth, and if we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service and operational controls, or adequately address competitive challenges.
We have experienced and are continuing to experience, a period of rapid growth in our customers, headcount, and operations. For example, we grew from approximately 9,100 employees as of July 31, 2018, to approximately 11,400 employees as of July 31, 2019,operations and we have also significantly increased the size of our customer base. We anticipate that we will continue to expand our operationscustomer base, headcount, and headcount in the near term, and to expand our customer base.operations. This growth has placed, and future growth will place, a significant strain on our management, generaladministrative, operational, and administrative resources, and operationalfinancial infrastructure. Our success will depend in part on our ability to manage this growth effectively and to scale our operations. To manage the expected growth of our operations and personnel, we will need to continue to improve our operational, financial, and management controls as well as our reporting systems and procedures. As we continue to grow, we also need to ensure that our policies and procedures evolve to reflect our current operations and are appropriately communicated to and observed by employees, and that we appropriately manage our corporate information assets, including confidential and proprietary information. Failure to effectively manage growth could result in difficulty or delays in deploying customers, declines in quality or customer satisfaction, increases in costs, difficulties in introducing new features, or other operational difficulties, and any of these difficulties could adversely impact our business performance and results of operations.operating results.
We depend on our senior management team and the loss of one or moremay lose key employees could adversely affect our business.or be unable to attract, train, and retain highly skilled employees.
Our success and future growth depend largely upon the continued services of our executive officers, other members of senior management, and other key employees. We also rely on our leadership team in the areas of product development, marketing, sales, services, and general and administrative functions and on mission-critical individual contributors in product development. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business. We do not have employment agreements with our executive officers or other key personnel that require them to continue to work for us for any specified period, and they could terminate their employment with us at any time. The loss of one or more ofFrom time to time, there may be changes in our executive officersmanagement team and to other key employee roles resulting from organizational changes or the hiring or departure of executives or other key employees, and any failure to develop an appropriate succession plan for these personswhich could have a serious adverse effect on our business and results of operations.
The failureoperating results. Moreover, if key personnel become ill due to attractthe ongoing COVID-19 pandemic, we may not be able to manage our business effectively and, retain highly skilled employees could adversely affectas a result, our business and our future growth prospects.operating results could be harmed.
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To execute our growth plan, we must attract, train, and retain highly qualified personnel,personnel. In the technology industry, and our managers must be successfulparticularly in hiring employees who share our values and have the competencies to succeed at Workday. Competition for these personnelSan Francisco Bay Area, the competition is intense for highly skilled employees, especially for engineers with high levels ofsignificant experience in designing and developing software and internet-related services, including in the areas of machine learning and artificial intelligence, for cybersecurity professionals, and for senior sales executives. In addition, the expansion of our sales infrastructure, both domestically and internationally, is necessary to grow our customer base and business. Identifying and recruiting qualified personnel and training them in our sales methodology, our sales systems, and the use of our software requires significant time, expense, and attention. Our business may be adversely affected if our efforts to attract and train new members of our direct sales force do not generate a corresponding increase in revenues. From time to time, we have experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications, and we may not be able to fill positions in desired geographic areas or at all.
Many of the companies with which we compete for experienced personnel have greater resources than we have and some of these companies may offer more lucrative compensation packages. Particularly in the San Francisco Bay Area, jobpackages than we offer. Our business may be adversely affected if we are unable to retain our highly skilled employees, especially our senior sales executives. Job candidates and existing employees carefully consider the value of the equity awards they receive in connection with their employment. If the perceived or actual value of our equity awards declines, or if the mix of equity and cash compensation that we offer is unattractive, it may adversely affect our ability to recruit and retain highly skilled employees. JobOur recruiting efforts may also be limited by laws and regulations, such as restrictive immigration laws, and restrictions on travel or availability of visas (including during the ongoing COVID-19 pandemic). Additionally, job candidates may also be threatened with legal action under agreements with their existing employers if we attempt to hire them, which could have a chilling effect on hiring and result in a diversion of our time and resources. Additionally, laws and regulations, such as restrictive immigration laws, and restrictions on travel or availability of visas, may limit our ability to recruit internationally. We must also continue to retain and motivate existing employees through our compensation practices, company culture, and career development opportunities. If we fail to attract new personnel or to retain our current personnel, our business and future growth prospects could be adversely affected.
If we cannot maintain our corporate culture, we could lose the innovation, teamwork, and passion that we believe contribute to our success, and our business may be harmed.
We believe that a critical component of our success has been our corporate culture, as reflected in our core values: employees, customer service, innovation, integrity, fun, and profitability. We have invested substantial timealso believe that our commitment to our corporate culture, as well as our commitment to building products and resources in buildingservices that help provide our team.customers with information regarding their own workforce and corporate culture, is part of the reason why our customers choose us. As we continue to grow, both organically and through acquisitions of employee teams, and develop the infrastructure associated with being a more mature public company, we will need to maintain our corporate culture among a larger number of employees who are dispersed inthroughout various geographic regions. The COVID-19 pandemic requires significant action to preserve culture with an employee base temporarily working remotely and facing unique personal and professional challenges. Any failure to preserve our culture could negatively affect our future success, including our ability to retain and recruit personnel and to effectively focus on and pursueachieve our corporate objectives.

The markets in which we participate are intensely competitive, and if we do not compete effectively, our operating results could be adversely affected.
The markets for financial management and HCM applications are highly competitive, with relatively low barriers to entry for some applications or services. Our primary competitors are SAP and Oracle, well-established providers of financial management and HCM applications, which have long-standing relationships with many customers. Some customers may be hesitant to switch vendors or to adopt cloud applications such as ours and may prefer to maintain their existing relationships with competitors. SAP and Oracle are larger and have greater name recognition, significantly longer operating histories, larger marketing budgets, and significantly greater resources than we do. These vendors, as well as other competitors, could offer financial management and HCM applications on a standalone basis at a low price or bundled as part of a larger sale. In order to take advantage of customer demand for cloud applications, legacy vendors are expanding their cloud applications through acquisitions, strategic alliances, and organic development. We also face competition from vendors of specific applications, some of which offer cloud-based solutions. These vendors include, without limitation: The Ultimate Software Group, Inc., Automatic Data Processing, Inc., Infor, Inc., Ceridian HCM Holding Inc., Microsoft Corporation, and Anaplan, Inc. We may also face competition from a variety of vendors of cloud-based and on-premise software applications that address only one or a portion of our applications. In addition, other companies that provide cloud applications in different target markets may develop applications or acquire companies that operate in our target markets, and some potential customers may elect to develop their own internal applications. With the introduction of new technologies and market entrants, we expect this competition to intensify in the future.
Many of our competitors are able to devote greater resources to the development, promotion, and sale of their products and services. This may allow our competitors to respond more effectively than us to new or emerging technologies and changes in market conditions. Furthermore, our current or potential competitors may be acquired by third parties with greater available resources and the ability to initiate or withstand substantial price competition. In addition, many of our competitors have established marketing relationships, access to larger customer bases, and major distribution agreements with consultants, system integrators, and resellers. Our competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their offerings or resources. If our competitors’ products, services, or technologies become more accepted than our products, if they are successful in bringing their products or services to market earlier than ours, or if their products or services are more technologically capable than ours, then our revenues could be adversely affected. In addition, some of our competitors may offer their products and services at a lower price. If we are unable to achieve our target pricing levels, our operating results would be negatively affected. Pricing pressures and increased competition could result in reduced sales, reduced margins, losses, or a failure to maintain or improve our competitive market position, any of which could adversely affect our business.
We may expand the capabilities of our cloud applications, seek to operate in new markets, and/or seek to enter new lines of business. As an entrant to new markets, we may not be effective in convincing prospective customers that our solutions will address their needs, and we may not accurately estimate our infrastructure needs, human resource requirements, or operating expenses. We may also fail to accurately anticipate adoption rates of these applications or their underlying technology. For example, machine learning and artificial intelligence are propelling advancements in technology, but if they are not widely adopted and accepted or fail to operate as expected, our business and reputation may be harmed. Also, we may not be able to properly price our solutions in these markets, which could negatively affectobjectives, including our ability to sell to customers or reach profitability. Furthermore, customers may demand more featuresquickly develop and professional services, which may require us to devote greater researchdeliver new and development, sales, support, and professional services resources to these customers. This could strain our resources and result in increased costs. If we are not able to address these challenges, or if our investments in selling and marketing our solutions to new markets are unsuccessful, our business and results of operations will suffer.
If the market for enterprise cloud computing grows more slowly than in recent years, our business could be adversely affected.
Our success will depend to a substantial extent on the continued growth of cloud computing in general, and of financial management and HCM services in particular. Many enterprises have invested substantial personnel and financial resources to integrate traditional enterprise software into their businesses, and therefore may be reluctant or unwilling to migrate to cloud computing. It is difficult to predict customer adoption rates and demand for our applications, the future growth rate and size of the cloud computing market, or the entry of competitive applications. The continued expansion of the cloud computing market depends on a number of factors, including the cost, performance, and perceived value associated with cloud computing as well as the ability of cloud computing companies to address security and privacy concerns. Further, the cloud computing market is less developed in many jurisdictions outside of the United States. If we or other cloud computing providers experience security incidents, loss of customer data, disruptions in delivery, or other problems, the market for cloud computing applications as a whole, including our applications, may be negatively affected. If there is a reduction in demand for cloud computing caused by a lack of customer acceptance, technological challenges, weakening economic conditions, security or privacy concerns, competing technologies and applications, decreases in corporate spending, or otherwise, it could result in decreased revenues or growth rates and our business could be adversely affected.

If we are not able to provide successful enhancements, new features, and modifications, our business and results of operations could be adversely affected.
If we are unable to provide enhancements and new features for our existing or new applications in a cost-effective manner that achieve market acceptance or that keep pace with rapid technological developments, our business and results of operations could be adversely affected. For example, we are focused on enhancing the features and functionality of our applications to improve their utility to larger customers with complex, dynamic, and global operations. The success of enhancements, new features, and applications depends on several factors, including their timely completion, introduction, and market acceptance as well as access to the technologies required to build and improve our applications, such as the datasets required to train our machine learning models. Failure in this regard may significantly impair our revenue growth by negatively impacting customer renewal rates or result in an inability to attract new customers.
Our applications must integrate with or incorporate a variety of third-party technologies, and if we are unable to ensure that our solutions integrate with or incorporate such technologies, demand for our applications and our operating results could be adversely affected.
Our applications must integrate with and operate on a variety of systems. Therefore, we will need to continuously modify and enhance our applications to keep pace with changes in internet-related hardware, iOS, Android, and other mobile-related technologies and software, communication, browser, and database technologies. We may not be successful in either developing these modifications and enhancements or in bringing them to market in a timely fashion. We must also appropriately balance the application capability demands of our current customers with the capabilities required to address the broader market. Furthermore, uncertainties about the timing and nature of new network platforms or technologies, or modifications to existing platforms or technologies, could increase our product development expenses. Any failure of our applications to operate effectively with future network platforms and technologies could reduce the demand for our applications, result in customer dissatisfaction, and adversely affect our business and results of operations.
If our applications fail to perform properly, our reputation could be adversely affected, our market share could decline, and we could be subject to warranty and other claims.
Our applications are inherently complex and may contain material defects or errors. Any defects in functionality or that cause interruptions in the availability of our applications could result in:
loss or delayed market acceptance and sales;
legal claims, including breach of warranty claims;
issuance of refunds or service credits to customers for prepaid and unused subscription services;
loss of customers;
diversion of development and customer service resources; and
injury to our brand and reputation.
The costs incurred in correcting any material defects or errors might be substantial and could adversely affect our operating results.innovative products.
Because of the large amount of data that we collect and process in our systems, it is possible that hardware failures or errors in our systems could result in data loss or corruption, or cause the data to be incomplete or contain inaccuracies that our customers regard as significant. Furthermore, the availability or performance of our applications could be adversely affected by a number of factors, including customers’ inability to access the internet, the failure of our network or software systems, security breaches, or variability in user traffic for our services. For example, our customers access our applications through their internet service providers. If a service provider fails to provide sufficient capacity to support our applications or otherwise experiences service outages, such failure could interrupt our customers’ access to our applications, which could adversely affect their perception of our applications’ reliability and our revenues. We may be required to issue credits or refunds for prepaid amounts related to unused services or otherwise be liable to our customers for damages they may incur resulting from certain of these events. In addition to potential liability, if we experience interruptions in the availability of our applications, our reputation could be adversely affected, and we could lose customers.
Our errors and omissions insurance may be inadequate or may not be available in the future on acceptable terms, or at all. 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 management’s attention.

Catastrophic events may disrupt our business.
Our corporate headquarters are located in Pleasanton, California, and we have data centers located in the United States, Europe, and Canada. We also rely on AWS’s and Dimension Data’s distributed computing infrastructure platforms. The west coast of the United States contains active earthquake zones and the southeast is subject to seasonal hurricanes. Additionally, we rely on our network and third-party infrastructure and enterprise applications, internal technology systems, and our website for our development, marketing, operational support, hosted services, and sales activities. In the event of a major earthquake, hurricane, or other natural disaster or a catastrophic event such as fire, power loss, telecommunications failure, vandalism, civil unrest, cyber-attack, geopolitical instability, war, terrorist attack, or the effects of climate change (such as drought, flooding, wildfires, increased storm severity, and sea level rise), we may be unable to continue our operations and may endure system interruptions, delays in our product development, lengthy interruptions in our services, breaches of data security, and loss of critical data, all of which could cause reputational harm or otherwise have an adverse effect on our business and operating results.
Because we sell applications to manage complex operating environments of large customers, we encounter long sales cycles which could adversely affectwhen selling to large customers and we recognize subscription services revenue over the term of the contract, downturns or upturns in new sales will not be immediately reflected in our operating results and may be difficult to discern.
We generally recognize subscription services revenue over time as services are delivered to the customer, which typically occurs over a period of three years or longer. As a result, most of the subscription services revenue we report in each quarter is derived from the recognition of unearned revenue relating to subscriptions entered into during previous quarters. Consequently, a given period.
Our ability to increase revenues and achieve and maintain profitability depends,decline in large part,new or renewed subscription contracts in any single quarter will likely have a minor impact on widespread acceptanceour revenue results for that quarter. However, such a decline will negatively affect our revenue in future quarters. Additionally, because much of our applications by large businesses and other organizations. Salessales efforts are targeted at these large enterprise customers, our sales cycles involve greater costs, longer sales cycles, the provision of greater levels of education regarding the use and benefits of our applications, less predictability in completing some of our sales. Our customers’sales, and varying deployment timeframes vary based on many factors including the number, type, and typeconfiguration of applications being deployed, the complexity, scale, and geographic dispersion of the customers’ businessesbusiness and operations, the configuration requirements, the number of integrations with other systems, and other factors, many of which are beyond our control. In
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The ongoing COVID-19 pandemic and related precautionary measures we and other companies are taking are impacting our sales activity. For example, like many other companies, including our customers and prospects, our employees are continuing to work remotely, and we have limited all non-essential business travel. Restrictions on travel and in-person meetings have and could continue to interrupt our sales activity, and we cannot predict whether, for how long, or the large enterprise market,extent to which the customer’s decision to useCOVID-19 pandemic may have an impact. Our salesforce has historically met with our applications may be an enterprise-wide decisioncustomers and therefore, these types of sales require us to provide greater levels of education regardingpotential customers face-to-face when selling our solutions, and while the use and benefitsmajority of our applications. In addition,deployment activities are completed remotely, many of our target customers may prefer to purchase applications that are critical to their business from onehave certain deployment activities such as project kick-off and go-live activities completed on-site. Furthermore, because our future revenue growth relies, in large part, on new customer acquisition, any inability of our larger, more established competitors.salesforce to establish relationships with potential customers during the current environment, as well as prospects deferring buying decisions due to the economic uncertainty, is likely to have a negative impact on our future revenue growth and other financial measures. Our typical sales cycles are six to twelve months but can extend for eighteen months or more, including as a result of the ongoing COVID-19 pandemic, and we expect that this lengthy sales cycle may continue or expand as customers increasingly adopt our applications beyond HCM. Longer sales cycles could cause our operating and financial results to suffer in a given period.
The loss Accordingly, the effect of one or moresignificant downturns in sales and market acceptance of our key customers,applications, including those caused by the ongoing COVID-19 pandemic, as well as potential changes in our pricing policies or rate of renewals, may not be fully reflected in our operating results until future periods. Additionally, we may be unable to adjust our cost structure to reflect any such changes in revenue. In addition, a failure to renew our subscription agreements with one or moremajority of our key customers, could negatively affect our ability to market our applications.
We rely on our reputation and recommendations from key customerscosts are expensed as incurred, while revenue is recognized over the life of the customer agreement. As a result, increased growth in order to promote subscriptions to our applications. The loss of, or failure to renew by, any of our key customers could have a significant impact on our revenues, reputation, and our ability to obtain new customers. In addition, acquisitionsthe number of our customers could lead to cancellationresult in our recognition of more costs than revenue in the earlier periods of the terms of our contracts with thoseagreements. Our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as subscription services revenue from new customers or bygenerally is recognized over the acquiring companies, thereby reducingapplicable subscription term. Furthermore, our subscription-based model is largely based on the numbersize of our existingcustomers’ employee headcount. Therefore, the addition or loss of employees by our customers, including any significant reductions in force by our customers during the COVID-19 pandemic, or customer insolvencies resulting from severe economic hardship during the COVID-19 pandemic, could have an impact on our subscription services revenue in any given period. Although we have downside protection in our customer agreements in the form of base minimums, should there be any prolonged decrease in our customers’ headcounts, we could experience reduced subscription services revenue upon renewal or potentially outside of the renewal period, which could materially impact our business and potential customers.operating results in any given period.
Our business could be adversely affected if our customersusers are not satisfied with the deployment, training, and support services provided by us orand our partners.
Our business depends on our ability to satisfy our customers and end users, both with respect to our application offerings and the professional services that are performed to help our customersthem use features and functions that address their business needs. High customer satisfaction requires that our customers undergo a successful implementation and be properly trained on our applications to effectively implement and increase their level of adoption of such applications. Incorrect or improper implementation or use of our applications could result in customer and user dissatisfaction and harm our business and operating results.
Professional services may be performed by our own staff, by a third party, or by a combination of the two. Our strategy is to work with third parties to increase the breadth of capability and depth of capacity for delivery of these services to our customers, and third parties provide a majority of deployment services for our customers. The work performed by us or these third parties that we rely on, including any work related to the on-site components of deployment services requested by a customer, might be adversely impacted directly or indirectly by the ongoing COVID-19 pandemic, including as a result of restrictions in accessing customer sites. Additionally, if our customers’ personnel are unable to participate in deployment activities as a direct or indirect result of the ongoing COVID-19 pandemic, this could result in delays in customer go-live dates for our applications. If customers are not satisfied with the quality and timing of work performed by us or a third party or with the type of professional services or applications delivered, then we could incur additional costs to address the situation, the revenue recognition of the contract could be impacted, and the dissatisfaction with our services could damage our ability to expand the applications subscribed to by our customers. We must also align our product development and professional services operations in order to ensure that customers’ evolving needs are met. Negative publicity related to our customer relationships, regardless of its accuracy, may further damage our business by affecting our ability to compete for new business with current and prospective customers.
Any failure
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Additionally, in order to offer high-quality technical support services may adversely affectmaximize the value of our relationships withapplications, we must continue to educate and train our customers and end users to develop the skills necessary to harness the power of our financial results.
Our customersapplications. If we are not able to effectively educate and train our users, they may choose not to renew their subscriptions, market perceptions of our company and our applications may be impaired, and our reputation and brand may suffer. Customers and other users also depend on our support organization to provision the environments used by our customers and to resolve technical issues relating to our applications. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services. We also may be unable to modify the format of our support services to compete with changes in support services provided by our competitors. Increased customer demand for these services, without corresponding revenues, could increase costs and adversely affect our operating results. In addition, our sales process is highly dependent on our applications and business reputation and on positive recommendations from our existing customers. Any failureFailure to maintain high-quality technical support and training, or a market perception that we do not maintain high-quality support or training, could adversely affect our reputation, our ability to offer and sell our applications, our renewal rates, and our business and operating results.
Our ability to predict the rate of customer subscription renewals or adoptions and the impact these renewals and adoptions will have on our revenues or operating results is limited.
As the markets for our applications mature, or as new competitors introduce new products or services that compete with ours, we may be unable to attract new customers at the same price or based on the same pricing model as we have used historically. From time to time, we may also change our pricing structure, which could adversely impact demand for our products. Moreover, large customers, which are a primary focus of our sales efforts, have and may continue to demand greater price concessions and delayed payment terms. Our customers may also increasingly defer purchasing decisions, demand price concessions and delayed payment terms, and request other terms and conditions if the COVID-19 pandemic worsens or is prolonged. As a result, in the future we may be required to reduce our prices or accept onerous terms and conditions, including delayed payment terms, which could adversely affect our revenues, profitability, financial position, and cash flows in any given period.
In addition, our customers have no obligation to renew their subscriptions for our applications after the expiration of either the initial or renewed subscription period. Our customers may renew for fewer elements of our applications or on different pricing terms. Our customers’ renewal rates may decline or fluctuate as a result of a number of factors, including their level of satisfaction with our pricing or our applications and their ability to continue their operations and spending levels. If our customers do not renew their subscriptions for our applications on similar pricing terms, our revenues may decline, and our business could suffer. In addition, over time the average term of our contracts could change based on renewal rates or for other reasons.
Our future success also depends, in part, on our ability to sell additional products to our current customers, and the success rate of such endeavors is difficult to predict, especially during the ongoing COVID-19 pandemic and with regard to any new lines of business that we may introduce from time to time. This may require increasingly costly marketing and sales efforts that are targeted at senior management, and if these efforts are not successful, our business and operating results may suffer. Additionally, acquisitions of our customers have and could continue to lead to cancellation of our contracts with those customers or by the acquiring companies, thereby reducing the number of our existing and prospectivepotential customers.
If we fail to develop widespread brand awareness cost-effectively, our business may suffer.
We believe that developing and maintaining widespread positive awareness of our brand is critical to achieving widespread acceptance of our applications, retaining and attracting customers, renewal ratesand hiring and retaining employees. However, brand promotion activities may not generate the customer awareness or increased revenues we anticipate, and even if they do, any increase in revenues may not offset the significant expenses we incur in building our brand. Moreover, the ongoing COVID-19 pandemic has made it more difficult to develop and maintain positive awareness of our brand. For example, we have decided not to hold our two largest annual customer conferences for existingfiscal year 2021, Workday Rising and Workday Rising Europe. We also transitioned Adaptive Live, our customer experience for Workday Adaptive Planning customers as well as our global event series, Workday Elevate, from in-person to digital event experiences. In addition, we have and may continue to delay certain corporate advertising programs. These precautionary measures that have been adopted, particularly if extended for prolonged periods, could have increasingly negative effects on our ability to develop and maintain widespread positive awareness of our brand, which could harm our business, operating results, and financial position.condition. In addition, positions we take on social and ethical issues from time to time may impact our brand, reputation, or ability to attract or retain customers.

If we fail to successfully promote and maintain our brand, we may fail to attract or retain customers necessary to realize a sufficient return on our brand-building efforts, or to achieve the widespread brand awareness that is critical for broad customer adoption of our applications. Additionally, the loss of one or more of our key customers, or a failure to renew our subscription agreements with one or more of our key customers, could significantly impair our ability to market our applications which, in turn, could have a negative impact on our revenues, reputation, and our ability to obtain new customers. In addition, if our brand is negatively impacted, it may be more difficult to hire and retain employees.
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We have acquired, and may in the future acquire, other companies, employee teams, or technologies, which could divert our management’s attention, result in additional dilution to our stockholders, and otherwise disrupt our operations and adversely affect our operating results.
We have acquired, and may in the future acquire, other companies, employee teams, or technologies to complement or expand our applications, enhance our technical capabilities, obtain personnel, or otherwise offer growth opportunities. For example, during the third quarter of fiscal 2019, we acquired Adaptive Insights, and during the fourth quarter of fiscal 2020, we acquired Scout. The pursuit of acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated.
We may not be able to integrate acquired personnel, operations, and technologies successfully, or effectively manage the combined operations following any acquisition. We also may not achieve the anticipated benefits from an acquisition due to a number of factors, including:
•inability to integrate or benefit from an acquisition in a profitable manner;
•acquisition-related costs, liabilities, or tax impacts, some of which may be unanticipated;
•difficulty in integrating the intellectual property, technology infrastructure, and operations of the acquired business, including difficulty in addressing security issues of the acquired business;
•difficulty in integrating and retaining the personnel of the acquired business, including integration of the culture of the acquired company and Workday;
•difficulty in leveraging the data of the acquired business if it includes personal data;
•ineffective or inadequate controls, procedures, or policies at the acquired company;
•multiple product lines or service offerings, as a result of our acquisitions, that are offered, priced, and supported differently;
•difficulties and additional expenses associated with synchronizing product offerings, customer relationships, and contract portfolio terms and conditions between Workday and the acquired business;
•potential unknown liabilities or risks associated with the acquired businesses, including those arising from existing contractual obligations or litigation matters;
•adverse effects on our existing business relationships with business partners and customers as a result of the acquisition;
•potential write-offs of acquired assets and potential financial and credit risks associated with acquired customers;
•inability to maintain relationships with key customers, suppliers, and partners of the acquired business;
•difficulty in predicting and controlling the effect of integrating multiple acquisitions concurrently;
•lack of experience in new markets, products, or technologies;
•difficulty in integrating operations and assets of an acquired foreign entity with differences in language, culture, or country-specific regulatory risks;
•diversion of management’s attention from other business concerns;
•use of resources that are needed in other parts of our business; and
•use of substantial portions of our available cash to consummate the acquisition.
In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our operating results.
Acquisitions could also result in dilutive issuances of equity securities or the issuance of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our business, operating results, and financial position may suffer.
Sales to customers outside the United States or with international operations expose us to risks inherent in global operations.
A key element of our growth strategy is to develop a worldwide customer base. Operating globally requires significant resources and management attention and will subject us to regulatory, economic, and political risks that are different from those in the United States. Our international expansion efforts may not be successful in creating demand for our applications outside of the United States or in effectively selling subscriptions to our applications in all of the markets we enter. In addition to navigating the challenges related to the ongoing COVID-19 pandemic in foreign jurisdictions, we will face other risks in doing business on a global scale that could adversely affect our business, including:
•the need to localize and adapt our applications for specific countries, including translation into foreign languages, localization of contracts for different legal jurisdictions, and associated expenses;
•the need for a go-to-market strategy that aligns application management efforts and the development of supporting infrastructure;
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•stricter data privacy laws including requirements that customer data be stored and processed in a designated territory and obligations on us as a data processor;
•difficulties in appropriately staffing and managing foreign operations and providing appropriate compensation for local markets;
•difficulties in leveraging executive presence and company culture globally;
•different pricing environments, longer sales cycles, and longer trade receivables payment cycles, and collections issues;
•new and different sources of competition;
•potentially weaker protection for intellectual property and other legal rights than in the United States and practical difficulties in enforcing intellectual property and other rights;
•laws, customs, and business practices favoring local competitors;
•restrictive governmental actions focused on cross-border trade, such as import and export restrictions, duties, quotas, tariffs, trade disputes, and barriers or sanctions that may prevent us from offering certain portions of our products or services to a particular market, may increase our operating costs or may subject us to monetary fines or penalties in case of unintentional noncompliance due to factors beyond our control;
•compliance challenges related to the complexity of multiple, conflicting, and changing governmental laws and regulations, including employment, tax, privacy, intellectual property, and data protection laws and regulations;
•increased compliance costs related to government regulatory reviews or audits, including those related to international cybersecurity requirements;
•increased financial accounting and reporting burdens and complexities;
•restrictions on the transfer of funds;
•ensuring compliance with anti-corruption laws, including the Foreign Corrupt Practices Act and UK Bribery Act;
•the effects of currency fluctuations on our revenues and expenses and customer demand for our services, including any fluctuations caused by uncertainties relating to the UK leaving the EU (“Brexit”);services;
•the cost and potential outcomes of any international claims or litigation;
•adverse tax consequences and tax rulings; and
•unstable economic and political conditions.
Any of the above factors may negatively impact our ability to sell our applications and offer services globally, reduce our competitive position in foreign markets, increase our costs of global operations, and reduce demand for our applications and services from global customers. Additionally, the majority of our international costs are denominated in local currencies and we anticipate that over time an increasing portion of our sales contracts outside the U.S. may be denominated in local currencies. Therefore, fluctuations in the value of the U.S. dollar and foreign currencies may impact our operating results when translated into U.S. dollars. Such fluctuations may also impact our ability to predict our future results accurately. WeAlthough we have a hedging program but we cannot ensureto help mitigate some of this volatility and related risks, there can be no assurance that thisthe hedging program will be effective in offsetting the adverse financial impacts that may result from unfavorable movements in foreign currency exchange rates, including any such movements caused by the COVID-19 pandemic.
If we are not able to realize a return on the investments we have made toward entering new markets and new lines of business, our business and operating results could be adversely affected.
We continue to seek opportunities to enter into new markets and/or new lines of business, some of which we may have very limited or no experience in. As an entrant to new markets and new lines of business, we may not be effective in convincing prospective customers that our solutions will address their needs, and we will continuemay not accurately estimate our infrastructure needs, human resource requirements, or operating expenses with regard to have riskthese new markets and new lines of exchange rate fluctuations.
business. We have acquired, and may in the future acquire, other companies, employee teams,also fail to accurately anticipate adoption rates of these new lines of business or technologies, which could divert our management’s attention, result in additional dilution to our stockholders, and otherwise disrupt our operations and adversely affect our operating results.
We have acquired, and may in the future acquire, other companies, employee teams, or technologies to complement or expand our applications, enhance our technical capabilities, obtain personnel, or otherwise offer growth opportunities.their underlying technology. For example, during the third quarter of fiscal 2019, we acquired Adaptive Insights. The pursuit of acquisitions may divert the attention of managementmachine learning, artificial intelligence, and cause us to incur various expensesblockchain are propelling advancements in identifying, investigating, and pursuing suitable acquisitions, whether or nottechnology, but if they are consummated.

Wenot widely adopted and accepted or fail to operate as expected, our business and reputation may be harmed. Also, we may not be able to integrate acquired personnel, operations,properly price our solutions in these new markets, which could negatively affect our ability to sell to customers. Furthermore, customers in these new markets or of the new lines of business may demand more features and technologies successfully, or effectively manage the combined operations following any acquisition. We also may not achieve the anticipated benefits from an acquisition due to a number of factors, including:
inability to integrate or benefit from an acquisition in a profitable manner;
acquisition-related costs, liabilities, or tax impacts, some ofprofessional services, which may be unanticipated;require us to devote even greater research and development, sales, support, and professional services resources to such customers. If we fail to generate adequate revenue from these new markets and lines of business, or if we fail to do so within the envisioned timeframe, it could have an adverse effect on our business or financial condition.
difficulty
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Unfavorable laws, regulations, interpretive positions or standards governing new and evolving technologies that we incorporate into our products and services could result in integrating the intellectual property, technology infrastructure,significant cost and operations of the acquiredcompliance challenges and adversely affect our business including difficulty in addressing security issues of the acquired business;and operating results.
difficulty in integrating and retaining the personnel of the acquired business;
difficulty in leveraging the data of the acquired business if it includes personal data;
ineffective or inadequate controls, procedures, or policies at the acquired company;
multiple product lines or service offerings, as a resultSome of our acquisitions, that are offered, priced,products and supported differently;
difficultiesservices currently utilize or will utilize new and additional expenses associatedevolving technologies such as machine learning, artificial intelligence, and blockchain. While existing laws and regulations may apply to these types of technologies, the overall regulatory environment governing these types of technologies is still currently undeveloped and likely to evolve as government interest in these technologies increases. Regulation of these technologies also varies greatly among international, federal, state, and local jurisdictions and is subject to significant uncertainty. Governments and agencies may in the future change or amend existing laws, or adopt new laws, regulations, or guidance, or take other actions which may severely impact the permitted uses of these technologies. Any failure by us to comply with synchronizing product offerings, customer relationships,applicable laws, regulations, guidance, or other rules could result in costly litigation, penalties, or fines. In addition, these regulations could establish and contract portfolio termsfurther expand our obligations to customers, individuals, and conditions between Workdayother third parties with respect to these types of products and services, limit the acquired business;
potential unknown liabilities or risks associated withcountries in which such products and services may be used, restrict the acquired businesses, including those arising from existing contractual obligations or litigation matters;
adverse effects onway we structure and operate our existing business, relationships with business partners and reduce the types of customers as a resultand individuals who can use our products and services. Increased regulation and oversight of the acquisition;
potential write-offs of acquired assets and potential financial and credit risks associated with acquired customers;
inability to maintain relationships with key customers, suppliers, and partners of the acquired business;
difficulty in predicting and controlling the effect of integrating multiple acquisitions concurrently;
lack of experience in new markets, products or technologies;
diversion of management’s attention from other business concerns;
use of resources that are neededservices which utilize or rely on these new technologies may result in other parts ofcostly compliance burdens or otherwise increase our business;operating costs, detrimentally affecting our business. These new technologies could subject us to additional litigation brought by private parties, which could be costly, time-consuming, and
use of distracting to management and could result in substantial portions of our available cash to consummate the acquisition.expenses and losses.
In addition, as with many innovations, machine learning and artificial intelligence present additional risks and challenges that could affect their adoption and therefore our business. For example, the development of machine learning and artificial intelligence present emerging ethical issues, and if we enable or offer solutions on this front that are controversial, due to their impact, or perceived impact, on human rights, privacy, employment, or in other social contexts, we may experience brand or reputational harm, competitive harm, or legal liability. Also, our positions on social and ethical issues may impact our ability to attract or retain customers and other users. In particular, our brand and reputation are associated with our public commitments to sustainability, equality, and ethical use, and any perceived changes in our dedication to these commitments could impact our relationships with potential and current customers and other users.
We have a history of cumulative net losses, and we do not expect to be profitable on a GAAP basis for the foreseeable future.
We have incurred significant portionnet losses on a GAAP basis in each period since our inception in 2005. These net losses and our accumulated deficit reflect the substantial investments we make to acquire new customers and develop our applications. We expect our operating expenses to increase in the future due to anticipated increases in sales and marketing expenses, product development expenses, operations costs, and general and administrative costs, and therefore we expect our net losses on a GAAP basis to continue for the foreseeable future. Furthermore, to the extent we are successful in increasing our customer base, we also expect to incur increased net losses in the acquisition period because costs associated with acquiring customers are generally incurred up front, while subscription services revenue is generally recognized ratably over the terms of the purchase priceagreements, which are typically three years or longer. You should not consider our recent growth in revenues as indicative of companiesour future performance. We cannot ensure that we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. Inwill achieve GAAP profitability in the future or that, if our acquisitionswe do not yield expected returns,become profitable, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our results of operations.
Acquisitions could also result in dilutive issuances of equity securities or the issuance of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business, and financial position may suffer.will sustain profitability.
We are subject to risks associated with our equity investments including partial or complete loss of invested capital, and significant changes in the fair value of this portfolio could negativelyadversely impact our financial results.
We invest in early-to-lateearly to late stage companies for strategic reasons and to support key business initiatives, and we may not realize a return on our equity investments. Many such companies generate net losses and the market for their products, services, or technologies may be slow to develop or never materialize. These companies are often dependent on the availability of later rounds of financing from banks or investors on favorable terms to continue their operations. The financial success of our investment in any company is typically dependent on a liquidity event, such as a public offering, acquisition, or other favorable market event reflecting appreciation to the cost of our initial investment. The capital markets for public offerings and acquisitions are dynamic and the likelihood of liquidity events for the companies we have invested in could deteriorate, which could result in a loss of all or a substantial part of our investment in these companies.
Further, valuations of non-marketable equity investments are inherently complex due to the lack of readily available market data. In addition, we may experience additional volatility to our statements of operations due to changes in market prices of our marketable equity investments, and the valuation and timing of observable price changes or impairments of our non-marketable equity investments.investments, including impairments to such investments due to the COVID-19 pandemic, and changes in the proportionate share of earnings and losses or impairment of our equity investments accounted for under the equity method. This volatility could be material to our results in any given quarter and may cause our stock price to decline.

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We have a history
Table of cumulative losses, and we do not expect to be profitable on a GAAP basis for the foreseeable future.Contents
We have incurred significant losses in each period since our inception in 2005. These losses and our accumulated deficit reflect the substantial investments we made to acquire new customers and develop our applications. We expect our operating expenses to increase in the future due to anticipated increases in sales and marketing expenses, product development expenses, operations costs, and general and administrative costs, and therefore we expect our losses on a GAAP basis to continue for the foreseeable future. Furthermore, to the extent we are successful in increasing our customer base, we will also incur increased losses in the acquisition period because costs associated with acquiring customers are generally incurred up front, while subscription services revenues are generally recognized ratably over the terms of the agreements, which are typically three years or longer. You should not consider our recent growth in revenues as indicative of our future performance. We cannot assure you that we will achieve GAAP profitability in the future, nor that, if we do become profitable, we will sustain profitability.
We may not receive significant revenues from our current development efforts for several years, if at all.
Developing software applications is expensive and the investment in product development often involves a long return on investment cycle. We have made and expect to continue to make significant investments in development and related opportunities. Accelerated application introductions and short application life cycles require high levels of expenditures that could adversely affect our operating results if not offset by revenue increases. We believe that we must continue to dedicate a significant amount of resources to our development efforts to maintain our competitive position. However, we may not receive significant revenues from these investments for several years, if at all.
If we experience significant fluctuations in our rate of anticipated growth and fail to balance our expenses with our revenue forecasts, our results could be harmed.
Our ability to forecast our future rate of growth is limited and subject to a number of uncertainties, including general economic and market conditions. We plan our expense levels and investment on estimates of future revenue and future anticipated rates of growth. We may not be able to adjust our spending quickly enough if our growth rates fall short of our expectations.
Moreover, we have encountered and will encounter risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as the risks and uncertainties described herein. If our assumptions regarding these risks and uncertainties (which we use to plan our business) are incorrect or change due to changes in our markets, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations and our business could suffer.
We may not be able to sustain our revenue growth rates in the future.
You should not consider our historical revenue growth rates as indicative of our future performance. Our revenue growth rates have declined, and may decline in future periods, as the size of our customer base increases and as we achieve higher market penetration rates. Other factors may also contribute to declines in our growth rates, including slowing demand for our services, increasing competition, a decrease in the growth of our overall market, our failure to continue to capitalize on growth opportunities, and the maturation of our business, among others. As our growth rates decline, investors’ perceptions of our business and the trading price of our securities could be adversely affected.
Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business.
Our quarterly results of operations, including the levels of our revenues, gross margin, operating margin, profitability, cash flow, unearned revenue, and remaining subscription services revenue performance obligations, which we also refer to as backlog, may vary significantly in the future and period-to-period comparisons of our operating results may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control, and as a result, may not fully reflect the underlying performance of our business. Fluctuation in quarterly results may negatively impact the value of our securities. Factors that may cause fluctuations in our quarterly financial results include, without limitation, those listed below:
our ability to attract new customers;
the timing and rate at which we sign agreements with customers;
the financial condition and creditworthiness of our customers;
the addition or loss of large customers, including through acquisitions or consolidations;
customer renewal rates;
the timing of operating expenses and recognition of revenues;
the amount and timing of operating expenses related to the maintenance and expansion of our business, operations, and infrastructure;
network outages or security breaches;
general economic and market conditions;

increases or decreases in the number of elements of our services or pricing changes upon any renewals of customer agreements;
changes in our pricing policies or those of our competitors;
the mix of applications sold during a period;
seasonal variations in sales of our applications, which have historically been highest in our fiscal fourth quarter;
the timing and success of new application and service introductions by us or our competitors;
changes in the competitive dynamics of our industry, including consolidation among competitors, customers, or strategic partners;
changes in laws and regulations that impact our business; and
the timing of expenses related to acquisitions and potential future charges for impairment of goodwill.
Because we recognize subscription services revenues over the term of the contract, downturns or upturns in new sales will not be immediately reflected in our operating results and may be difficult to discern.
We generally recognize subscription services revenues over time as services are delivered to the customer, which typically occurs over a period of three years or longer. As a result, most of the subscription services revenues we report in each quarter are derived from the recognition of unearned revenue relating to subscriptions entered into during previous quarters. Consequently, a decline in new or renewed subscription contracts in any single quarter will likely have a minor impact on our revenue results for that quarter. However, such a decline will negatively affect our revenues in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our applications, and potential changes in our pricing policies or rate of renewals may not be fully reflected in our results of operations until future periods. We may be unable to adjust our cost structure to reflect the changes in revenues. In addition, a majority of our costs are expensed as incurred, while revenues are recognized over the life of the customer agreement. As a result, increased growth in the number of our customers could result in our recognition of more costs than revenues in the earlier periods of the terms of our agreements. Our subscription model also makes it difficult for us to rapidly increase our revenues through additional sales in any period, as subscription services revenues from new customers generally are recognized over the applicable subscription term.
Our ability to predict the rate of customer subscription renewals or adoptions, and the impact these renewals and adoptions will have on our revenues or operating results, is limited.
As the markets for our applications mature, or as new competitors introduce new products or services that compete with ours, we may be unable to attract new customers at the same price or based on the same pricing model as we have used historically. Moreover, large customers, which are the focus of our sales efforts, may demand greater price concessions. As a result, in the future we may be required to reduce our prices, which could adversely affect our revenues, gross margin, profitability, financial position, and cash flow.
In addition, our customers have no obligation to renew their subscriptions for our applications after the expiration of either the initial or renewed subscription period. Our customers may renew for fewer elements of our applications or on different pricing terms. Our customers’ renewal rates may decline or fluctuate as a result of a number of factors, including their level of satisfaction with our pricing or our applications and their ability to continue their operations and spending levels. If our customers do not renew their subscriptions for our applications on similar pricing terms, our revenues may decline, and our business could suffer. In addition, over time the average term of our contracts could change based on renewal rates or for other reasons.
Our future success also depends in part on our ability to sell additional products to our current customers, and the success rate of such endeavors is difficult to predict. This may require increasingly costly marketing and sales efforts that are targeted at senior management, and if these efforts are not successful, our business and results of operations may suffer.
Failure to adequately expand and optimize our direct sales force will impede our growth.
We will need to continue to expand and optimize our sales infrastructure, both domestically and internationally, in order to grow our customer base and our business. Identifying and recruiting qualified personnel and training them in our sales methodology, our sales systems, and the use of our software requires significant time, expense, and attention. It can take significant time before our sales representatives are fully trained and productive. Our business may be adversely affected if our efforts to expand and train our direct sales force do not generate a corresponding increase in revenues. In particular, if we are unable to hire, develop, and retain talented sales personnel or if new direct sales personnel are unable to achieve desired productivity levels in a reasonable period of time, we may not be able to realize the expected benefits of this investment or increase our revenues.

If we fail to develop widespread brand awareness cost-effectively, our business may suffer.
We believe that developing and maintaining widespread positive awareness of our brand is critical to achieving widespread acceptance of our applications, attracting new customers, and hiring and retaining employees. Brand promotion activities may not generate customer awareness or increase revenues, and even if they do, any increase in revenues may not offset the significant expenses we incur in building our brand. If we fail to successfully promote and maintain our brand we may fail to attract or retain customers necessary to realize a sufficient return on our brand-building efforts, or to achieve the widespread brand awareness that is critical for broad customer adoption of our applications. In addition, if our brand is negatively impacted, it may be more difficult to hire and retain employees.
Our growth depends in part on the success of our strategic relationships with third parties.
In order to grow our business, we anticipate that we will continue to depend on relationships with third parties, such as deployment partners, technology and content providers, and other key suppliers. Identifying partners, and negotiating and documenting relationships with them, requires significant time and resources. Our competitors may be effective in providing incentives to third parties to favor their products or services or to prevent or reduce subscriptions to our services, or in negotiating better rates or terms with such third parties. In addition, acquisitions of our partners by our competitors could result in a decrease in the number of our current and potential customers, as our partners may no longer facilitate the adoption of our applications by potential customers.
If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our revenues could be impaired and our operating results may suffer. Even if we are successful, we cannot assure you that these relationships will result in increased customer usage of our applications or increased revenues.
Adverse economic conditions may negatively impact our business.
Our business depends on the overall demand for enterprise software and on the economic health of our current and prospective customers. Any significant weakening of the economy in the United States or Europe and of the global economy, more limited availability of credit, a reduction in business confidence and activity, decreased government spending, economic uncertainty and other difficulties, such as rising interest rates and increased inflation, may affect one or more of the sectors or countries in which we sell our applications. Alternatively, a strong dollar could reduce demand for our applications and services in countries with relatively weaker currencies.
Also, Brexit has created economic and political uncertainty, including volatility in global financial markets and the value of foreign currencies. The impact of Brexit depends on the terms of the UK’s withdrawal from the EU and such impact may not be fully realized for several years or more. This uncertainty may cause some of our customers or potential customers to curtail spending and may ultimately result in new regulatory, operational, and cost challenges to our UK and global operations. These adverse conditions could result in reductions in sales of our applications, longer sales cycles, reductions in subscription duration and value, slower adoption of new technologies, and increased price competition. Any of these events would likely have an adverse effect on our business, operating results, and financial position.
Any failure to protect our intellectual property rights domestically and internationally could impair our ability to protect our proprietary technology and our brand.
Our success and ability to compete depend in part upon our intellectual property. We rely on patent, copyright, trade secret and trademark laws, trade secret protection, and confidentiality or license agreements with our employees, customers, suppliers, partners, and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be inadequate. While we have patent applications pending in the United States and throughout the world, we may be unable to obtain patent protection for the technology covered in our patent applications. In addition, any patents issued to us in the future may not provide us with competitive advantages or may be successfully challenged by third parties. Furthermore, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties, including those affiliated with state-sponsored actors, to copy or reverse engineer our applications, including with the assistance of insiders, and use information that we regard as proprietary to create products and services that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer, and disclosure of our technology may be unenforceable under the laws of jurisdictions outside the United States. In addition, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States.
We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances. No assurance can be given that these agreements will be effective in controlling access to and distribution of our applications and proprietary information. Further, these agreements do not prevent our competitors or partners from independently developing technologies that are substantially equivalent or superior to our applications.

We may be required to spend significant resources to monitor and protect our intellectual property rights. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Our failure to secure, protect, and enforce our intellectual property rights could seriously adversely affecthave a serious adverse effect on our brand and our business.
We may be sued by third parties for alleged infringement of their proprietary rights.
There is considerable patent and other intellectual property development activity in our industry. Our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our industry. From time to time, third parties may claim that we are infringing upon their intellectual property rights, and we may be found to be infringing upon such rights. In the future, they may claim that our applications and underlying technology infringe or violate their intellectual property rights, even if we are unaware of the intellectual property rights that others may claim cover some or all of our technology or services. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our services, require us to change our products, technology, or business practices, or require that we comply with other unfavorable terms. We may also be obligated to indemnify our customers or business partners or pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to obtain licenses, modify applications, or refund fees, which could be costly. Even if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations. Furthermore, from time to time we may introduce or acquire new products, including in areas where we historically have not competed, which could increase our exposure to patent and other intellectual property claims.
Some of our applications utilize open source software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.
Some of our applications include software covered by open source licenses, which may include, by way of example, GNU General Public License and the Apache License. The terms of various open source licenses have not been interpreted by United States courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our applications. By the terms of certain open source licenses, we could be required to release the source code of our proprietary software, and to make our proprietary software available under open source licenses, if we combine our proprietary software with open source software in a certain manner. In the event that portions of our proprietary software are determined to be impacted by an open source license, we could be required to publicly release the affected portions of our source code, re-engineer all or a portion of our technologies, or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our technologies and services. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software. Many of the risks associated with usage of open source software cannot be eliminated and could negatively affect our business.
We employ third-party licensed software for use
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Catastrophic events may disrupt our business.
Our corporate headquarters are located in or with our applicationsPleasanton, California, and for improving our internal systems, processes,we have data centers located in the United States, Canada, and controls,Europe. The west coast of the United States contains active earthquake zones and the inabilitysoutheast is subject to maintain these licensesseasonal hurricanes. Additionally, we rely on our network and third-party infrastructure and enterprise applications, internal technology systems, and our website for our development, marketing, operational support, hosted services, and sales activities. We also rely on AWS’s, Dimension Data’s, and Microsoft Azure’s distributed computing infrastructure platforms that are located in a wide variety of regions. In the event of a major earthquake, hurricane, or errorsother natural disaster or a catastrophic event such as fire, power loss, telecommunications failure, vandalism, civil unrest, cyber-attack, geopolitical instability, war, terrorist attack, pandemics or other public health emergencies (including the ongoing COVID-19 pandemic), or the effects of climate change (such as drought, flooding, wildfires, increased storm severity, and sea level rise), we may be unable to continue our operations and may endure system interruptions, delays in the software we licenseour product development, lengthy interruptions in our services, breaches of data security, and loss of critical data, all of which could cause reputational harm or otherwise have an adverse effect on our business and operating results.
We are subject to risks related to government contracts and related procurement regulations, which may adversely impact our business and operating results.
Our contracts with federal, state, local, and foreign government entities are subject to various procurement regulations and other requirements relating to their formation, administration and performance. We may be subject to audits and investigations relating to our government contracts, and any violations could result in increased costs,various civil and criminal penalties and administrative sanctions, including termination of contracts, refunding or reduced service levels, which would adversely affect oursuspending of payments, forfeiture of profits, payment of fines, and suspension or debarment from future government business.
Our applications incorporate certain third-party software obtained under licenses from other companies. We anticipate that we will continue to rely on such third-party software and development tools from third parties in the future. Although we believe that there are commercially reasonable alternatives to the third-party software we currently license, this may not always be the case, or it may be difficult or costly to replace. Our use of additional or alternative third-party software would require us to enter into license agreements with third parties. In addition, integrationsuch contracts may provide for termination by the government at any time, without cause, and termination of the software used inany such contract may adversely impact our applications with new third-party software may require significant work and require substantial investmentother existing or prospective government contracts. Any of our time and resources. To the extent that our applications depend upon the successful operation of third-party software in conjunction with our software, any undetected errors or defects in this third-party software could prevent the deployment or impair the functionality of our applications, delay new application introductions, result in a failure of our applications, and injure our reputation.
Furthermore, we have also licensed third-party software to help us improve our internal systems, processes, and controls. The support services available for such third-party technology may be negatively affected by mergers and consolidation in the software industry, and support services for such technology may not be available to us in the future. Additionally, we may experience difficulties in managing improvements to our systems, processes, and controls or in connection with third-party software, which could materially impair our ability to provide our solutions or professional services to our customers in a timely manner, cause us to lose customers, limit us to smaller deployments of our solutions, or increase our technical support costs.

Changes in laws and regulationsthese risks related to the internet or changes in the internet infrastructure itself may diminish the demand forcontracting with governmental entities could adversely impact our applicationsbusiness and could have a negative impact on our business.
Federal, state, or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations relating to internet usage. Changes in these laws or regulations could require us to modify our applications in order to comply with these laws or regulations. In addition, government agencies or private organizations may begin to impose taxes, fees, or other charges for accessing the internet or commerce conducted via the internet. These laws or charges could limit the growth of internet-related commerce or communications, or negatively impact demand for internet-based applications such as ours.
In addition, businesses could be adversely affected due to delays in the development or adoption of new standards and protocols to handle increased demands of internet activity, security, reliability, cost, ease of use, accessibility, and quality of service. Businesses have been adversely affected by “viruses,” “worms,” and similar malicious programs and have experienced a variety of outages and other delays as a result of damage to internet infrastructure. These issues could negatively impact demand for our cloud-based applications.operating results.
We may discover weaknesses in our internal controls over financial reporting, which may adversely affect investor confidence in the accuracy and completeness of our financial reports and consequently the market price of our securities.
As a public company, we are required to design and maintain proper and effective internal controls over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and determine the effectiveness of our internal controls over financial reporting and provide a management report on the internal controls over financial reporting, which must be attested to by our independent registered public accounting firm. If we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated.
The process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404 is challenging and costly. In the future, we may not be able to complete our evaluation, testing, and any required remediation in a timely fashion. If we identify material weaknesses in our internal controls over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal controls over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our securities could be negatively affected, and we could become subject to investigations by the Financial Industry Regulatory Authority, the SEC, or other regulatory authorities, which could require additional financial and management resources. 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.
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We may not be able to utilize a portion of our net operating loss or research tax credit carryforwards, which could adversely affect our profitability.
As of July 31, 2019,2020, we had federal and state net operating loss carryforwards due to prior period losses. If not utilized, the pre-fiscal 2018 federal and the state net operating loss carryforwards expire in varying amounts between fiscal 20202022, and 2039.2041. The federal net operating losses generated in and after fiscal 2018 do not expire and may be carried forward indefinitely. We also have federal research tax credit carryforwards, which if not utilized will begin to expire in fiscal 2023.2022. These net operating loss and research tax credit carryforwards could expire unused and be unavailable to reduce future income tax liabilities, which could adversely affect our profitability. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, our ability to utilize net operating loss carryforwards or other tax attributes, such as research tax credits, in any taxable year may be limited if we experience an “ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. It is possible that an ownership change, or any future ownership change, could have a material effect on the use of our net operating loss carryforwards or other tax attributes, which could adversely affect our profitability.
Adverse tax laws or regulations could be enacted or existing laws could be applied to us or our customers, which could increase the costs of our services and adversely impact our business.
We operate and are subject to taxes in the United States and numerous other jurisdictions throughout the world. Changes to federal, state, local, or international tax laws on income, sales, use, indirect, or other tax laws, statutes, rules, regulations, or ordinances on multinational corporations are currently being considered by the United States and other countries where we do business. These contemplated legislative initiatives include, but are not limited to, changes to transfer pricing policies and definitional changes to permanent establishment that could be applied solely or disproportionately to services provided over the internet. These contemplated tax initiatives, if finalized and adopted by countries, may ultimately impact our effective tax rate and could adversely affect our sales activity resulting in a negative impact on our operating results and cash flows.

In addition, existing tax laws, statutes, rules, regulations, or ordinances could be interpreted, changed, modified, or applied adversely to us (possibly with retroactive effect), which could require us to pay additional tax amounts, fines or penalties, and interest for past amounts. Existing tax laws, statutes, rules, regulations, or ordinances could also be interpreted, changed, modified, or applied adversely to our customers (possibly with retroactive effect), which could require our customers to pay additional tax amounts with respect to services we have provided, fines or penalties, and interest for past amounts. If we are unsuccessful in collecting such taxes from our customers, we could be held liable for such costs, thereby adversely impacting our operating results and cash flows. If our customers must pay additional fines or penalties, it could adversely affect demand for our services.
The 2017 Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017, and significantly affected U.S. tax law by changing how the U.S. imposes income tax on multinational corporations. The U.S. Department of Treasury has broad authority to issue regulations and interpretative guidance that may significantly impact how we will apply the law and impact our results of operations in the period issued. The Tax Act requires complex computations not previously provided in U.S. tax law. As such, the application of accounting guidance for such items is currently uncertain. Further, compliance with the Tax Act and the accounting for such provisions require accumulation of information not previously required or regularly produced. As additional regulatory guidance is issued by the applicable taxing authorities and as accounting treatment is clarified, we will perform additional analysis on the application of the law and refine estimates in calculating the effect, which may produce different results and will be reflected in the period the analysis is completed.
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.
Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and may even affect the reporting of transactions completed before the announcement or effectiveness of a change.
We have broad discretion in the use of our cash balances and may not use them effectively.
We have broad discretion in the use of our cash balances and may not use them effectively. The failure by our management to apply these funds effectively could adversely affect our business and financial condition. Pending their use, we may invest our cash balances in a manner that does not produce income or that loses value. Our investments may not yield a favorable return to our investors and may negatively impact the price of our securities.
Risks Related to Our Class A Common Stock
Our Chairman and CEOco-CEO have control over key decision making as a result of their control of a majority of our voting stock.
As of July 31, 2019,2020, our co-founder and Chairman David Duffield, together with his affiliates, held voting rights with respect to approximately 5350 million shares of Class B common stock and 0.40.3 million shares of Class A common stock. As of July 31, 2019,2020, our co-founder and CEOco-CEO Aneel Bhusri, together with his affiliates, held voting rights with respect to approximately 8 million shares of Class B common stock and 0.20.3 million shares of Class A common stock. In addition, Mr. Bhusri holds exercisable stock options to acquire approximately 1.00.2 million shares of Class B common stock and 0.20.1 million RSUs, which will be settled in an equivalent number of shares of Class A common stock. Further, Messrs. Duffield and Bhusri have entered into a voting agreement under which each has granted a voting proxy with respect to certain Class B common stock beneficially owned by him effective upon his death or incapacity as described in our registration statement on Form S-1 filed in connection with our initial public offering. Messrs. Duffield and Bhusri have each initially designated the other as their respective proxies. Accordingly, upon the death or incapacity of either Mr. Duffield or Mr. Bhusri, the other would individually continue to control the voting of shares subject to the voting proxy. Collectively, the shares described above represent a substantial majority of the voting power of our outstanding capital stock. As a result, Messrs. Duffield and Bhusri have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets. In addition, they have the ability to control the management and affairs of our company as a result of their positions as our Chairman and CEO,co-CEO, respectively, and their ability to control the election of our directors. Mr. Duffield, in his capacity as a board member, and Mr. Bhusri, in his capacity as a board member and officer, each owe a fiduciary duty to our stockholders and must act in good faith in a manner they reasonably believe to be in the best interests of our stockholders. As stockholders, even as controlling stockholders, they are entitled to vote their shares in their own interests, which may not always be in the interests of our stockholders generally.

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The dual class structure of our common stock has the effect of concentrating voting control with our Chairman and CEO,co-CEO, and also with other executive officers, directors, and affiliates; this will limit or preclude the ability of non-affiliates to influence corporate matters.
Our Class B common stock has 10 votes per share and our Class A common stock, which is the stock that is publicly traded, has one vote per share. Stockholders who hold shares of Class B common stock, including our executive officers, directors, and other affiliates, together hold a substantial majority of the voting power of our outstanding capital stock as of July 31, 2019.2020. Because of the ten-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock and therefore be able to control all matters submitted to our stockholders for approval until the conversion of all shares of all Class A and Class B shares to a single class of common stock on the date that is the first to occur of (i) October 11,17, 2032, (ii) such time as the shares of Class B common stock represent less than 9% of the outstanding Class A and Class B common stock, (iii) nine months following the death of both Mr. Duffield and Mr. Bhusri, or (iv) the date on which the holders of a majority of the shares of Class B common stock elect to convert all shares of Class A common stock and Class B common stock into a single class of common stock. This concentrated control will limit or preclude the ability of non-affiliates to influence corporate matters for the foreseeable future.
Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning purposes. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. If, for example, our Chairman and CEO retain a significant portion of their holdings of Class B common stock for an extended period of time, they could, in the future, continue to control a majority of the combined voting power of our Class A common stock and Class B common stock.
Our stock price has been volatile in the past and may be subject to volatility in the future.
The trading price of our Class A common stock has been volatile historically and could be subject to wide fluctuations in response to various factors described below. These factors, as well as the volatility of our Class A common stock, could also impact the price of our convertible senior notes. Further, the trading price of our Class A common stock has fluctuated significantly and may continue to fluctuate as a result of the COVID-19 pandemic and associated economic downturn. The extent to which, and for how long the COVID-19 pandemic may continue to impact the trading price of our Class A common stock is uncertain. Additional risk factors that may affect the trading price of our securities, some of which are beyond our control and further magnified by the ongoing COVID-19 pandemic, include:
•
overall performance of the equity markets;
•fluctuations in the valuation of companies perceived by investors to be comparable to us, such as high-growth or cloud companies, or in valuation metrics, such as our price to revenues ratio;
•guidance as to our operating results that we provide to the public, differences between our guidance and market expectations, our failure to meet our guidance, or changes in recommendations by securities analysts that follow our securities;
•announcements of technological innovations, new applications or enhancements to services, acquisitions, strategic alliances, or significant agreements by us or by our competitors;
•announcements of negative corporate developments by our competitors and other high-growth or cloud companies including, among other things, any announcements related to security incidents;
•disruptions in our services due to computer hardware, software, or network problems;
•announcements of customer additions and customer cancellations or delays in customer purchases;
•recruitment or departure of key personnel;
•the economy as a whole, political and regulatory uncertainty, and market conditions in our industry, and the industries of our customers;
•trading activity by directors, executive officers and significant stockholders, or the perception in the market that the holders of a large number of shares intend to sell their shares;
•the exercise of rights held by certain of our stockholders, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or our stockholders;
•the size of our market float and significant stock option exercises;
•any future issuances of securities;
•sales and purchases of any Class A common stock issued upon conversion of our convertible senior notes or in connection with the convertible note hedge and warrant transactions related to such convertible senior notes;
•our operating performance and the performance of other similar companies; and
•the sale or availability for sale of a large number of shares of our Class A common stock in the public market.
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Additionally, the stock markets have at times experienced extreme price and volume fluctuations that have affected and may in the future affect the market prices of equity securities of many companies. These fluctuations have, in some cases, been unrelated or disproportionate to the operating performance of these companies. Further, the trading prices of publicly traded shares of companies in our industry have been particularly volatile and may be very volatile in the future.
In the past, some companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could harm our business.

We have substantial indebtedness in the form of convertible senior notes, which may adversely affect our financial condition and operating results.
In June 2013, we completed an offering of $250 million of 1.50% convertible senior notes due July 15, 2020. In September 2017, we completed an offering of $1.15 billion of 0.25% convertible senior notes due October 1, 2022. As a result of these convertible notes offerings,this offering, we incurred $250 million principal amount of indebtedness, which we may be required to pay at maturity in 2020, and $1.15 billion principal amount of indebtedness, which we may be required to pay at maturity in 2022, or upon the occurrence of a fundamental change (as defined in the applicable indenture). In addition, in April 2020, we entered into a credit agreement that provided for a term loan in an aggregate original principal amount of $750 million and a revolving credit facility in an aggregate principal amount of $750 million. As of July 31, 2020, there was $750 million outstanding under the term loan facility.
We may incur substantial additional debt in the future, some of which may be secured debt. There can be no assurance that we will be able to repay this indebtedness when due, or that we will be able to refinance this indebtedness on acceptable terms or at all. Our ability to pay cash upon conversion or repurchase of the 2020 Notes or the 2022 Notes may be limited by law, regulatory authority, or agreements governing our future indebtedness and is dependent on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. Any future debt may also contain limitations on our ability to pay cash upon a conversion request or repurchase upon a fundamental change.
In addition, thisour indebtedness could, among other things:
•make it difficult for us to pay other obligations;
•make it difficult to obtain favorable terms for any necessary future financing for working capital, capital expenditures, debt service requirements, or other purposes;
•adversely affect our liquidity and result in a material adverse effect on our financial position upon repayment of the indebtedness;
•require us to dedicate a substantial portion of our cash flow from operations to service and repay the indebtedness, reducing the amount of cash flow available for other purposes;
•limit our flexibility in planning for and reacting to changes in our business; and
•negatively impact our credit rating, which could affect our business.
Our credit agreement also imposes restrictions on us and requires us to maintain compliance with specified covenants, including a specific leverage ratio. Our ability to comply with these covenants may be affected by events beyond our control. If we breach any of the covenants and do not obtain a waiver from the lenders, then, subject to applicable cure periods, any outstanding indebtedness may be declared immediately due and payable.
The convertible note hedge and warrant transactions may affect the value of our Class A common stock.
In connection with the sale of our convertible notes, we entered into convertible note hedge transactions with institutions that we refer to as the option counterparties. We also entered into warrant transactions with the option counterparties pursuant to which we sold warrants for the purchase of our Class A common stock. The convertible note hedge transactions are expected to offset the potential dilution to our Class A common stock upon any conversion of the convertible notes. The warrant transactions could separately have a dilutive effect to the extent that the market price per share of our Class A common stock exceeds the exercise price of the relevant warrants.
The option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our Class A common stock and/or purchasing or selling our Class A common stock or other securities of ours in secondary market transactions prior to the maturity of the convertible notes. This activity could suppress or inflate the market price of our Class A common stock.
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We will also be subject to the risk that these option counterparties may default under the convertible note hedge transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. If one or more of the option counterparties to one or more of our convertible note hedge transactions becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under those transactions. Our exposure will depend on many factors but, generally, the increase in our exposure will be correlated to the increase in the market price of our Class A common stock during the related settlement period. In addition, upon a default by one of the option counterparties, we may suffer dilution with respect to our Class A common stock as well as adverse financial consequences.
Delaware law and provisions in our restated certificate of incorporation and amended and restated bylaws could make a merger, tender offer, or proxy contest difficult, thereby depressing the market price of our Class A common stock.
Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law (“DGCL,”) may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our restated certificate of incorporation and amended and restated bylaws contain provisions that may make the acquisition of our company more difficult, including the following:
•any transaction that would result in a change in control of our company requires the approval of a majority of our outstanding Class B common stock voting as a separate class;
•our dual class common stock structure, which provides our chairman and CEOco-founders with the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the shares of our outstanding Class A and Class B common stock;

•our board of directors is classified into three classes of directors with staggered three-year terms and directors are only able to be removed from office for cause;
•when the outstanding shares of our Class B common stock represent less than a majority of the combined voting power of common stock:
–certain amendments to our restated certificate of incorporation or restated bylaws will require the approval of two-thirds of the combined vote of our then-outstanding shares of Class A and Class B common stock;
–our stockholders will only be able to take action at a meeting of stockholders and not by written consent; and
–vacancies on our board of directors will be able to be filled only by our board of directors and not by stockholders;
◦certain amendments to our restated certificate of incorporation or amended and restated bylaws will require the approval of two-thirds of the combined vote of our then-outstanding shares of Class A and Class B common stock;
◦our stockholders will only be able to take action at a meeting of stockholders and not by written consent; and
◦vacancies on our board of directors will be able to be filled only by our board of directors and not by stockholders;
•only our chairman of the board, chiefco-chief executive officer, either co-president,officers, president, or a majority of our board of directors are authorized to call a special meeting of stockholders;
•certain litigation against us can only be brought in Delaware;
•we will have two classes of common stock until the date that is the first to occur of (i) October 11,17, 2032, (ii) such time as the shares of Class B common stock represent less than 9% of the outstanding Class A and Class B common stock, (iii) nine months following the death of both Mr. Duffield and Mr. Bhusri, or (iv) the date on which the holders of a majority of the shares of Class B common stock elect to convert all shares of Class A common stock and Class B common stock into a single class of common stock;
•our restated certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established, and shares of which may be issued, without the approval of the holders of Class A common stock; and
•advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.
In addition, Section 203 of the DGCL may discourage, delay or prevent a change in control of our company. Section 203 imposes certain restrictions on mergers, business combinations and other transactions between us and holders of 15% or more of our common stock.
These anti-takeover defenses could discourage, delay, or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and to cause us to take other corporate actions they desire, any of which, under certain circumstances, could depress the market price of our securities.
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The exclusive forum provision in our organizational documents may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits with respect to such claims.
Our restated certificate of incorporation, to the fullest extent permitted by law, provides that the Court of Chancery of the State of Delaware is the exclusive forum for: any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the DGCL, our restated certificate of incorporation, or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. There is uncertainty as to whether a court would enforce this exclusive forum provision with respect to claims under the Securities Act of 1933, as amended (“Securities Act”). If a court were to find the choice of forum provisions contained in our restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations and financial condition.
In April 2020, we amended and restated our bylaws to provide that the federal district courts of the United States of America will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act (“Federal Forum Provision”). Our decision to adopt a Federal Forum Provision followed a decision by the Supreme Court of the State of Delaware holding that such provisions are facially valid under Delaware law. While there can be no assurance that federal or state courts will follow the holding of the Delaware Supreme Court or determine that the Federal Forum Provision should be enforced in a particular case, application of the Federal Forum Provision means that suits brought by our stockholders to enforce any duty or liability created by the Securities Act must be brought in federal court and cannot be brought in state court.
In addition, neither the exclusive forum provision nor the Federal Forum Provision applies to suits brought to enforce any duty or liability created by the Securities Exchange Act of 1934, as amended (“Exchange Act”). Accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder must be brought in federal court, and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder.
Any person or entity purchasing or otherwise acquiring or holding any interest in any of our securities shall be deemed to have notice of and consented to our exclusive forum provisions, including the Federal Forum Provision. These provisions may limit a stockholders’ ability to bring a claim in a judicial forum of their choosing for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees.
If securities or industry analysts publish inaccurate or unfavorable research about our business, or discontinue publishing research about our business, the price and trading volume of our securities could decline.
The trading market for our securities will depend in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, the price of our securities would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our securities could decrease, which might cause the price and trading volume of our securities to decline.
We do not intend to pay dividends for the foreseeable future.
We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. Consequently, stockholders must rely on sales of their common stock after price appreciation as the only way to realize any future gains on their investment.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
During the three months ended July 31, 2019,2020, we issued 1971,654,302 shares of our unregistered Class A common stock to holders of our 2020 Notes upon settlement of conversion of an aggregate principal amount of less than $0.1$250 million of such notes. This share amount represents the conversion value of the 2020 Notes in excess of the principal amount of notes converted.
For further information regarding the above transactions, see Note 10, Convertible Senior Notes, Net,Debt, of the notesNotes to condensed consolidated financial statements.Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. These shares of our Class A common stock were issued in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended.
Issuer Purchases of Equity Securities
The table below sets forth information regarding our purchases of our Class A common stock during the three months ended July 31, 2020:
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2020 - July 31, 2020 (1)
1,654,757$183.23 ——
(1)The shares purchased represent the exercise of the convertible note hedges relating to the 2020 Notes. For further information, see Note 10, Debt, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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ITEM 6. EXHIBITS
The Exhibits listed below are filed as part of this Form 10-Q.
  Incorporation by Reference
Exhibit NumberFormFile NumberFiling DateExhibit NumberFiled Herewith
3.18-K 001-35680August 27, 20203.1
10.1X
31.1X
31.2X
31.3X
32.1X
32.2X
32.3X
101.INSInline 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.SCHInline XBRL Taxonomy Schema Linkbase DocumentX
101.CALInline XBRL Taxonomy Calculation Linkbase DocumentX
101.DEFInline XBRL Taxonomy Definition Linkbase DocumentX
101.LABInline XBRL Taxonomy Labels Linkbase DocumentX
101.PREInline XBRL Taxonomy Presentation Linkbase DocumentX
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)X
66
Incorporation by Reference
Exhibit NumberFormFile No.Filing DateExhibit No.Filed Herewith
31.1
Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended
X
31.2
Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended
X
32.1
Certification of Principal 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 Principal 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.INSInline 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.SCHInline XBRL Taxonomy Schema Linkbase DocumentX
101.CALInline XBRL Taxonomy Calculation Linkbase DocumentX
101.DEFInline XBRL Taxonomy Definition Linkbase DocumentX
101.LABInline XBRL Taxonomy Labels Linkbase DocumentX
101.PREInline XBRL Taxonomy Presentation Linkbase DocumentX
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)X

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: August 30, 2019
28, 2020
Workday, Inc.
Workday, Inc.
/s/ Robynne D. Sisco
Robynne D. Sisco
Co-PresidentPresident and Chief Financial Officer

(Principal Financial Officer)

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