You should read the following discussion of our financial condition and results
of operations in conjunction with the condensed consolidated financial
statements and notes thereto included in Part I, Item 1 of this report.
Overview
Workday delivers applications for financial management, spend management, human capital management, planning, and analytics. With Workday, our customers have a unified system that can help them plan, execute, analyze, and extend to other applications and environments, thereby helping them continuously adapt how they manage their business and operations. Our diverse customer base includes medium-sized and large, global organizations within numerous industry categories, including professional and business services, financial services, healthcare, education, government, technology, media, retail, and hospitality. We have achieved significant growth since our inception in 2005, with a substantial amount of our growth coming from new customers. Our current financial focus is on growing our revenues and expanding both our customer base and our footprint within our existing customers. While we have a history of GAAP operating losses, we strive to invest in a disciplined manner across all of our functional areas to sustain continued near-term revenue growth and support our long-term initiatives. We expect our product development, sales and marketing, and general and administrative expenses as a percentage of total revenues will decrease over the longer term as we grow our revenues, and we anticipate that we will gain economies of scale by increasing our customer base without direct incremental development costs. We plan to reinvest a significant portion of our incremental revenues in future periods to grow our business. We have invested and expect to continue to invest heavily in our product development efforts to deliver additional compelling applications, enhance existing applications, and to address customers' evolving needs. In addition, we plan to continue to expand our ability to sell our applications globally, particularly inEurope andAsia-Pacific , by investing in product development and customer support to address the business needs of local markets, increasing our sales and marketing organizations, acquiring and 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 and third-party hosted infrastructure platforms as we plan for future growth. We are also investing in personnel to support our growing customer base. 25
——————————————————————————–
Table of Contents
We regularly evaluate acquisition and investment opportunities in complementary businesses, employee teams, services, technologies, and intellectual property rights in an effort to expand our product and service offerings. For example, in fiscal 2022, we acquiredPeakon ApS , a continuous listening platform that captures real-time employee sentiment, Zimit, a configure, price, quote solution built for services industries, and VNDLY, a cloud-based external workforce and vendor management technology. We expect to continue making such acquisitions and investments in the future. While we remain focused on improving operating margin, these acquisitions and investments will increase our costs on an absolute basis in the near term. Many of these investments will occur in advance of experiencing any direct benefit from them and could make it difficult to determine if we are allocating our resources efficiently. Since inception, we have also invested heavily in our professional services organization to help ensure that customers successfully deploy and adopt our applications. Additionally, we continue to expand our professional services partner ecosystem to further support our customers. We believe our investment in professional services, as well as partners building consulting practices around Workday, will drive additional customer subscriptions and continued growth in revenues. Due to our ability to leverage the expanding partner ecosystem, we expect the rate of professional services revenue growth to decline over time and continue to be lower than subscription revenue growth.
Impact of the COVID-19 Pandemic and Current Economic Conditions
The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption of financial markets. In addition, the Russian invasion ofUkraine in early fiscal 2023 has led to further economic disruption. While we do not operate inRussia and while our extended workforce inUkraine is not a material part of our workforce, the conflict has increased inflationary cost pressures and supply chain constraints which have negatively impacted the global economy. In response to the concerns over inflation risk, theU.S. Federal Reserve began to raise interest rates inMarch 2022 for the first time in over three years, and signaled they expect additional rate increases throughout the year. Despite the continuing uncertainty associated with the COVID-19 pandemic,Russia -Ukraine conflict, and other macroeconomic events, we are confident in the long-term overall health of our business, the strength of our product offerings, and our ability to continue to execute on our strategy and help our customers continue to embark on their human resources and finance digital transformation journeys. Demand for our products remains strong, and we continue to achieve solid new subscription bookings. At the beginning of the COVID-19 pandemic, we temporarily closed the majority of our offices; required most of our employees to work remotely; implemented travel restrictions; and postponed certain of our customer, industry, implementation partner, analyst, investor, and employee events and converted others to virtual-only experiences. As ofApril 30, 2022 , most of our offices have reopened and we have begun permitting travel and in-person events in accordance with applicable regional guidance. We continue to prioritize employee and community health and safety.
Our near-term revenues are relatively predictable as a result of our
subscription-based business model. However, if the economic uncertainty
increases, we may experience a negative impact on new business, customer
renewals, sales and marketing efforts, revenue growth rates, customer
deployments, customer collections, product development, or other financial
metrics, similar to what we experienced at the onset of the pandemic. Any of
these factors could harm our business, financial condition, and operating
results. For further discussion of the potential impacts of the COVID-19
pandemic,
business, financial condition, and operating results, see “Risk Factors”
included in Part II, Item 1A of this report.
26
——————————————————————————–
Table of Contents
Financial Results Overview
The following table provides an overview of our key metrics (in thousands,
except percentages and headcount data):
Three Months Ended April 30,
2022 2021 $ Change % Change
Total revenues $ 1,434,657 $ 1,175,033 $ 259,624 22 %
Subscription services revenues $ 1,272,076 $ 1,032,169 $ 239,907 23 %
GAAP operating income (loss) $ (72,843) $ (38,313) $ (34,530) 90 %
Non-GAAP operating income (1) $ 288,558 $ 288,513 $ 45 0 %
GAAP operating margin (5.1) % (3.3) % (2) %
Non-GAAP operating margin (1) 20.1 % 24.6 % (5) %
Operating cash flows $ 439,717 $ 452,428 $ (12,711) (3) %
As of April 30,
2022 2021 $ Change % Change
Total subscription revenue backlog $ 12,653,639 $ 10,081,579 $ 2,572,060 26 %
24-month subscription revenue backlog $ 7,968,631 $ 6,592,715 $ 1,375,916 21 %
Cash, cash equivalents, and marketable $ 3,260,826 109 %
securities $ 6,255,355 $ 2,994,529
Headcount 15,932 13,119 2,813 21 %
(1) See “Non-GAAP Financial Measures” below for further information.
Components of Results of Operations
Revenues
We derive our revenues from subscription services and professional services. Subscription services revenues primarily consist of fees that give our customers access to our cloud applications, which include related customer support. Professional services revenues include fees for deployment services, optimization services, and training. Subscription services revenues accounted for 89% of our total revenues for the three months endedApril 30, 2022 , and represented 96% of our total unearned revenue as ofApril 30, 2022 . Subscription services revenues are driven primarily by the number of customers, the number of workers at each customer, the specific applications subscribed to by each customer, and the price of our applications. The mix of applications to which 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 are recognized over time as services are delivered and consumed concurrently over the contractual term, beginning on the date our service is made available to the customer. Our subscription contracts typically have a term of three years or longer and are generally noncancelable. We generally invoice our customers annually in advance. Amounts that have been invoiced are initially recorded as unearned revenue. 27
——————————————————————————–
Table of Contents
Our consulting engagements are billed on a time and materials basis or a fixed price basis. For contracts billed on a time and materials basis, revenues are recognized over time as the professional services are performed. For contracts billed on a fixed price basis, revenues are recognized over time based on the proportion of the professional services performed. In some cases, we supplement our consulting teams by subcontracting resources from our service partners and deploying them on customer engagements. As the Workday-related consulting practices of our partner firms continues to develop, we expect these partners to increasingly contract directly with our subscription customers. As a result of this trend, and the increase of our subscription services revenues, we expect our professional services revenues as a percentage of total revenues to continue to decline over time. Subscription Revenue Backlog Our subscription revenue backlog, which is also referred to as remaining performance obligations for subscription contracts, represents contracted subscription services revenues that have not yet been recognized and includes billed and unbilled amounts. Subscription revenue backlog may fluctuate from period to period due to a number of factors, including the timing of renewals and overall renewal rates, new business growth, average contract duration, and seasonality. Costs and Expenses Costs of subscription services revenues. Costs of subscription services revenues consist primarily of employee-related expenses associated with hosting our applications and providing customer support, expenses related to data centers and computing infrastructure operated by third parties, and depreciation of computer equipment and software. Costs of professional services revenues. Costs of professional services revenues consist primarily of employee-related expenses associated with these services, subcontractor expenses, and travel expenses. Product development. Product development expenses consist primarily of employee-related expenses. We continue to focus our product development efforts on adding new features and applications, increasing functionality, and enhancing the ease of use of our cloud applications. Sales and marketing. Sales and marketing expenses consist primarily of employee-related expenses, sales commissions, marketing programs, and travel expenses. Marketing programs consist of advertising, events, corporate communications, brand awareness, brand ambassador campaigns, and product marketing activities. Sales commissions are considered incremental costs of obtaining a contract with a customer. Sales commissions for new revenue contracts are capitalized and amortized on a straight-line basis over a period of benefit that we have determined to be five years.
General and administrative. General and administrative expenses consist of
employee-related expenses for finance and accounting, legal, human resources,
information systems personnel, professional fees, and other corporate expenses.
Results of Operations Revenues
Our total revenues for the three months ended
follows (in thousands, except percentages):
Three Months Ended April 30,
2022 2021 % Change
Subscription services $ 1,272,076 $ 1,032,169 23 %
Professional services 162,581 142,864 14 %
Total revenues $ 1,434,657 $ 1,175,033 22 %
Total revenues were $1.4 billion for the three months ended April 30, 2022 ,
compared to $1.2 billion for the prior year period, an increase of $260 million ,
or 22%. Subscription services revenues were $1.3 billion for the three months
ended April 30, 2022 , compared to $1.0 billion for the prior year period, an
increase of $240 million , or 23%. The increase in subscription services revenues
was primarily due to an increased number of customer contracts and strong
customer renewals, with gross retention over 95%. Professional services revenues
were $163 million for the three months ended April 30, 2022 , compared to $143
million for the prior year period, an increase of $20 million , or 14%. The
increase in professional services revenues was primarily due to Workday
performing deployment and integration services for a greater number of
customers.
28
——————————————————————————–
Table of Contents
Subscription Revenue Backlog
Our total subscription revenue backlog for the three months endedApril 30, 2022 , was$12.7 billion , with$8.0 billion expected to be recognized in revenues over the next 24 months. For the three months endedApril 30, 2021 , our total subscription revenue backlog was$10.1 billion , with$6.6 billion expected to be recognized in revenues over the next 24 months. The increase in subscription revenue backlog was primarily driven by the addition of new customers, expansion of our product offerings with existing customers, and the timing of renewals.
Operating Expenses
GAAP operating expenses were$1.5 billion for the three months endedApril 30, 2022 , compared to$1.2 billion for the prior year period, an increase of$294 million , or 24%. The increase in GAAP operating expenses included$208 million in employee-related expenses due to higher headcount, additional share-based compensation, and a new performance-based cash bonus program for all employees not covered under an existing incentive plan of$32 million . Additionally, there were increases of$22 million in facilities and IT-related expenses,$16 million in third-party expenses for hardware maintenance and data center capacity,$15 million in travel expenses, and$14 million related to marketing programs. 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. 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 were 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. See "Non-GAAP Financial Measures" below for further information. Non-GAAP operating expenses were$1.1 billion for the three months endedApril 30, 2022 , compared to$887 million for the prior year period, an increase of$260 million , or 29%. The increase in non-GAAP operating expenses included$177 million in employee-related expenses due to higher headcount and a new performance-based cash bonus program for all employees not covered under an existing incentive plan of$32 million . Additionally, there were increases of$22 million in facilities and IT-related expenses,$16 million in third-party expenses for hardware maintenance and data center capacity,$15 million in travel expenses, and$14 million related to marketing programs.
Reconciliations of our GAAP to non-GAAP operating expenses were as follows (in
thousands):
Three Months Ended
Share-Based Non-GAAP
GAAP Operating Compensation Other Operating Operating
Expenses Expenses Expenses (1) Expenses (2)
Costs of subscription services $ 232,922 $
(26,230)
Costs of professional services
169,899 (27,584) (3,899) 138,416 Product development 541,509 (153,304) (13,011) 375,194 Sales and marketing 429,301 (59,169) (14,046) 356,086 General and administrative 133,869 (45,219) (2,613) 86,037 Total costs and expenses$ 1,507,500 $
(311,506)
Three Months Ended
Share-Based Non-GAAP
GAAP Operating Compensation Other Operating Operating
Expenses Expenses Expenses (1) Expenses (2)
Costs of subscription services $ 182,208 $
(20,717)
Costs of professional services
150,845 (27,692) (6,953) 116,200 Product development 441,616 (129,862) (19,542) 292,212 Sales and marketing 326,494 (50,308) (17,106) 259,080 General and administrative 112,183 (36,056) (4,386) 71,741 Total costs and expenses$ 1,213,346 $ (264,635) $ (62,191) $ 886,520 29
——————————————————————————–
Table of Contents
(1)Other operating expenses include employer payroll tax-related items on employee stock transactions of$28 million and$44 million for the three months endedApril 30, 2022 , and 2021, respectively. In addition, other operating expenses include amortization of acquisition-related intangible assets of$22 million and$18 million for the three months endedApril 30, 2022 , and 2021, respectively.
(2)See “Non-GAAP Financial Measures” below for further information.
Costs of Subscription Services
GAAP operating expenses in costs of subscription services were$233 million for the three months endedApril 30, 2022 , compared to$182 million for the prior year period, an increase of$51 million , or 28%. The increase in costs of subscription services included increases of$26 million in employee-related expenses, including share-based compensation, due to higher headcount,$12 million in third-party expenses for hardware maintenance and data center capacity, and$4 million in depreciation expense related to equipment in our data centers. Non-GAAP operating expenses in costs of subscription services were$190 million for the three months endedApril 30, 2022 , compared to$147 million for the prior year period, an increase of$43 million , or 29%. The increase in costs of subscription services included increases of$21 million in employee-related expenses due to higher headcount,$12 million in third-party expenses for hardware maintenance and data center capacity, and$4 million in depreciation expense related to equipment in our data centers. We expect GAAP and non-GAAP operating expenses in costs of subscription services will continue to increase in absolute dollars as we improve and expand our technical operations infrastructure, including our data centers and computing infrastructure operated by third parties.
Costs of Professional Services
GAAP operating expenses in costs of professional services were$170 million for the three months endedApril 30, 2022 , compared to$151 million for the prior year period, an increase of$19 million , or 13%. The increase in costs of professional services included increases of$12 million in employee-related expenses, including share-based compensation, due to higher headcount and$4 million in professional services and subcontractor expenses. Non-GAAP operating expenses in costs of professional services were$138 million for the three months endedApril 30, 2022 , compared to$116 million for the prior year period, an increase of$22 million , or 19%. The increase in costs of professional services included increases of$15 million in employee-related expenses due to higher headcount and$4 million in professional services and subcontractor expenses. We 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. Product Development GAAP operating expenses in product development were$542 million for the three months endedApril 30, 2022 , compared to$442 million for the prior year period, an increase of$100 million , or 23%. The increase in product development expenses was primarily due to an increase of$86 million in employee-related expenses, including share-based compensation, due to higher headcount. Non-GAAP operating expenses in product development were$375 million for the three months endedApril 30, 2022 , compared to$292 million for the prior year period, an increase of$83 million , or 28%. The increase in product development expenses was primarily due to an increase of$69 million in employee-related expenses due to higher headcount.
We expect 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.
Sales and Marketing
GAAP operating expenses in sales and marketing were$429 million for the three months endedApril 30, 2022 , compared to$326 million for the prior year period, an increase of$103 million , or 31%. The increase in sales and marketing expenses included increases of$69 million in employee-related expenses, including share-based compensation, due to higher headcount,$14 million related to marketing programs, and$10 million in travel expenses. Non-GAAP operating expenses in sales and marketing were$356 million for the three months endedApril 30, 2022 , compared to$259 million for the prior year period, an increase of$97 million , or 37%. The increase in sales and marketing expenses included increases of$64 million in employee-related expenses due to higher headcount,$14 million related to marketing programs, and$10 million in travel expenses. 30
——————————————————————————–
Table of Contents
We expect GAAP and non-GAAP sales and marketing expenses to increase in absolute dollars as we continue to invest in our domestic and international selling and marketing activities to expand brand awareness and attract new customers.
General and Administrative
GAAP operating expenses in general and administrative were$134 million for the three months endedApril 30, 2022 , compared to$112 million for the prior year period, an increase of$22 million , or 19%. The increase in general and administrative expenses included increases of$15 million in employee-related expenses, including share-based compensation, due to higher headcount and$2 million in travel expenses. Non-GAAP operating expenses in general and administrative were$86 million for the three months endedApril 30, 2022 , compared to$72 million for the prior year period, an increase of$14 million , or 20%. The increase in general and administrative expenses included increases of$8 million in employee-related expenses due to higher headcount and$2 million in 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 Margin
GAAP operating margin declined from (3.3)% for the three months endedApril 30, 2021 , to (5.1)% for the three months endedApril 30, 2022 , primarily due to increases in higher headcount, the rollout of a performance-based cash bonus program to all employees not covered under an existing incentive plan, a return to travel and in-person events, and other growth investments made across the business, offset by higher revenues. We use the non-GAAP financial measure of non-GAAP operating margin to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short- and long-term operating plans, and to evaluate our financial performance. We believe that non-GAAP operating margin reflects our ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business. We also believe that non-GAAP operating margin provides 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 margin was calculated using GAAP revenues and non-GAAP
operating expenses. See “Non-GAAP Financial Measures” below for further
information.
Non-GAAP operating margin declined from 24.6% for the three months endedApril 30, 2021 , to 20.1% for the three months endedApril 30, 2022 , primarily due to increases in higher headcount, the rollout of a performance-based cash bonus program to all employees not covered under an existing incentive plan, a return to travel and in-person events, and other growth investments made across the business, offset by higher revenues.
Reconciliations of our GAAP to non-GAAP operating income (loss) and operating
margin were as follows (in thousands, except percentages):
Three Months Ended April 30, 2022
Share-Based
Compensation Other Operating
GAAP Expenses Expenses Non-GAAP (1)
Operating income (loss) $ (72,843) $ 311,506 $ 49,895 $ 288,558
Operating margin (5.1) % 21.7 % 3.5 % 20.1 %
Three Months Ended
Share-Based
Compensation Other Operating
GAAP Expenses Expenses Non-GAAP (1)
Operating income (loss) $ (38,313) $ 264,635 $ 62,191 $ 288,513
Operating margin (3.3) % 22.5 % 5.4 % 24.6 %
(1)See “Non-GAAP Financial Measures” below for further information.
31
——————————————————————————–
Table of Contents
Other Income (Expense), Net
We had other expense, net of$20 million for the three months endedApril 30, 2022 , as compared to other expense, net of$9 million for the three months endedApril 30, 2021 . The increase in other expense, net was primarily related to additional contractual interest expense of$9 million for our Senior Notes issued in the current quarter.
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, non-GAAP operating income (loss), and non-GAAP operating margin meet the definition of non-GAAP financial measures.
Non-GAAP Operating Expenses, Non-GAAP Operating Income (Loss), and Non-GAAP
Operating Margin
Our non-GAAP operating expenses, non-GAAP operating income (loss), and non-GAAP operating margin exclude the components listed below. For the reasons set forth below, management believes that excluding these components provides useful information to investors and others in understanding and evaluating our operating results and prospects in the same manner as management, in comparing financial results across accounting periods and to those of peer companies, and to better understand the long-term performance of our core business. •Share-Based Compensation Expenses. 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 ongoing operations. Although we exclude the amortization of acquisition-related intangible assets from these non-GAAP measures, management believes that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.
Limitations on the Use of Non-GAAP Financial Measures
A limitation of our non-GAAP financial measures of non-GAAP operating expenses, non-GAAP operating income (loss), and non-GAAP operating margin 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 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 of Operations-Operating Expenses” and “Results of
Operations-Operating Margin” for reconciliations from the most directly
comparable GAAP financial measures, GAAP operating expenses, GAAP operating
income (loss), and GAAP operating margin, to the non-GAAP financial measures,
non-GAAP operating expenses, non-GAAP operating income (loss), and non-GAAP
operating margin, for the three months ended
32
——————————————————————————–
Table of Contents
Liquidity and Capital Resources
As ofApril 30, 2022 , our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling$6.3 billion , which were primarily held for working capital purposes. Our cash equivalents and marketable securities are composed primarily of, in order from largest to smallest,U.S. treasury securities, commercial paper,U.S. agency obligations, money market funds, corporate bonds, and marketable equity investments. We have financed our operations primarily through customer payments, issuance of debt, and sales of our common stock. We believe our existing cash, cash equivalents, marketable securities, cash provided by operating activities, unbilled amounts related to the remaining term of contracted noncancelable subscription agreements, which are not reflected on the Condensed Consolidated Balance Sheets, and, if necessary, our borrowing capacity under our 2022 Credit Agreement that provides for$1.0 billion of unsecured financing, are sufficient to meet our working capital, capital expenditure, and debt repayment needs over the next 12 months. As part of our strategy, we may enter into arrangements to acquire or invest in complementary businesses, services, technologies, or intellectual property rights in the future. We may also choose to seek additional debt or equity financing. Our long-term future capital requirements depend on many factors, including the effects of macroeconomic trends, customer growth rates, subscription renewal activity, headcount growth, timing and extent of development efforts, expansion of sales and marketing activities, introduction of new and enhanced services offerings, timing of construction or acquisition of additional facilities, investments, and acquisition activities. Our cash flows for the three months endedApril 30, 2022 , and 2021, were as follows (in thousands): Three Months Ended April 30, 2022 2021 Net cash provided by (used in): Operating activities$ 439,717 $ 452,428 Investing activities (1,470,741) (861,716) Financing activities 2,277,702 (11,008) Effect of exchange rate changes (685) 186
Net increase (decrease) in cash, cash equivalents, and restricted cash $
1,245,993
Operating Activities
Cash provided by operating activities was$440 million and$452 million for the three months endedApril 30, 2022 , and 2021, respectively. The decline in cash provided by operating activities resulted from increased payments made to support the return to office and in-person events, the new employee performance-based cash bonus program for all employees not covered under an existing incentive plan, and other growth investments across the business, offset by increases in sales and related cash collections.
We expect our business to continue to generate sufficient operating cash flows;
however, if the economic uncertainty caused by the COVID-19 pandemic and
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 endedApril 30, 2022 , was$1.5 billion , which was primarily related to purchases of marketable securities of$2.0 billion using the proceeds from the Senior Notes offering, capital expenditures for data center and office space projects of$59 million , and purchases of non-marketable equity and other investments of$15 million . These payments were partially offset by proceeds of$607 million from sales and maturities of marketable securities and proceeds of$7 million from sales and maturities of non-marketable securities. Cash used in investing activities for the three months endedApril 30, 2021 , was$862 million , which was primarily related to cash consideration for the acquisition of Peakon, net of cash acquired, of$679 million , the purchase of leased office space within our corporate headquarters from an affiliate of our Co-Founder and CEO Emeritus,David Duffield , of$171 million , capital expenditures primarily for data center projects of$70 million , purchases of non-marketable equity and other investments of$46 million , and the timing of purchases and maturities of marketable securities. These payments were partially offset by proceeds of$12 million from sales of marketable securities.
We expect capital expenditures will be approximately
2023. This includes investments in our office facilities, corporate IT
infrastructure, and customer data centers to support our continued growth.
33
——————————————————————————–
Table of Contents
Financing Activities
Cash provided by financing activities was$2.3 billion for the three months endedApril 30, 2022 , which was primarily due to proceeds of$3.0 billion from borrowings on the Senior Notes, net of debt discount of$22 million , offset by the repayment of the term loan under the 2020 Credit Agreement of$694 million and payments for debt issuance costs of$7 million . Cash used in financing activities was$11 million for the three months endedApril 30, 2021 , which was primarily due to a payment on the term loan under the 2020 Credit Agreement of$9 million . Our 2022 Notes are convertible at the option of the holders during the second quarter of fiscal 2023 since the trigger for early conversion was met. Through the date of this filing, the amount of the principal balance of the 2022 Notes that has been converted or for which conversion has been requested was not material. We may receive additional conversion requests that require settlement in the second quarter of fiscal 2023. Additionally, the 2022 Notes will become due in the third quarter of fiscal 2023, which will result in a cash outflow of approximately$1.15 billion . For further information, see Note 10, Debt,
of
the Notes to Condensed Consolidated Financial Statements included in Part I,
Item 1 of this report.
Contractual Obligations Except for the debt transactions discussed in Note 10, Debt, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report, which include the issuance of$3.0 billion of Senior Notes, the modification to our revolving credit facility, and the extinguishment of the term loan under the 2020 Credit Agreement, there were no material changes outside the ordinary course of business to our contractual obligations disclosed in our Annual Report on Form 10-K for the fiscal year endedJanuary 31, 2022 .
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, judgements, and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates, judgements, and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
We believe that the following critical accounting policies involve a high degree
of judgement and complexity, and are the most critical to aid in fully
understanding and evaluating our financial condition and operating results:
•Revenue recognition •Deferred commissions •Business combinations, goodwill, and acquisition-related intangible assets •Non-marketable equity investments For a further discussion of our critical accounting policies, refer to our Annual Report on Form 10-K for the fiscal year endedJanuary 31, 2022 . There were no significant changes to our critical accounting policies and estimates during the three months endedApril 30, 2022 . 34
——————————————————————————–
Table of Contents
© Edgar Online, source