Business Combination

On August 1, 2018, we acquired all outstanding stock of Adaptive Insights, Inc. (“Adaptive Insights”) for $1.5 billion. The acquisition of Adaptive Insights, a cloud-based provider of business planning software strengthens our product portfolio and will enable our customers to better plan, execute, and analyze in one system.

The purchase consideration transferred consisted of the following (in thousands):



	Purchase Consideration
Cash paid to common and preferred stockholders, warrant holders, and vested option holders	$	1,408,422
Debt repaid by Workday on behalf of Adaptive Insights	53,696
Transaction costs paid by Workday on behalf of Adaptive Insights	23,375
Fair value of assumed Adaptive Insights awards attributable to pre-combination services ⁽¹⁾	5,424
Total purchase consideration	$	1,490,917


⁽¹⁾	The assumed awards were primarily options, which were fair valued based upon the Black-Scholes option-pricing model.

The purchase consideration was preliminarily allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, with the excess recorded to goodwill as shown below. The fair values of assets acquired and liabilities assumed, including current income taxes payable and deferred taxes, may change as additional information is received during the measurement period. The measurement period will end no later than one year from the acquisition date.



Assets acquired:	(in thousands)
Cash and cash equivalents	$	37,892
Trade and other receivables, net	23,042
Prepaid expenses and other current assets and other assets	4,619
Property and equipment, net	2,246
Acquisition-related intangible assets, net	316,000
Total assets acquired	$	383,799

Liabilities assumed:
Accounts payable	$	3,115
Accrued expenses and other current liabilities	9,092
Accrued compensation	13,545
Unearned revenue ⁽¹⁾	67,754
Other liabilities	1,919
Total liabilities assumed	95,425
Net assets acquired, excluding goodwill	288,374
Total purchase consideration	1,490,917
Estimated goodwill⁽²⁾	$	1,202,543


⁽¹⁾	The cost build-up method was used to determine the fair value of unearned revenue.


⁽²⁾	The goodwill recognized was primarily attributable to the value of the acquired workforce, the opportunity to expand our customer base, and the ability to add breadth and depth to our product portfolio by accelerating our financial planning roadmap. The goodwill is not deductible for U.S. federal income tax purposes.

The fair value of the separately identifiable finite-lived intangible assets acquired and estimated useful lives are as follows (in thousands, except years):



	Estimated Fair Values		Estimated Useful Lives
Trade name	$	12,000	1.5
Developed technology	105,000		5.0
Customer relationships	188,000		9.0 - 10.0
Backlog	11,000		2.0
Total acquisition-related intangible assets	$	316,000

The fair values of the trade name and developed technology were determined utilizing the relief-from-royalty method, and the multi-period excess earnings method was utilized to fair value customer relationships and backlog. The valuation model inputs required the application of considerable judgment by management. The acquired finite-lived intangible assets have a total weighted-average amortization period of 7.6 years.

We have included the financial results of Adaptive Insights in our condensed consolidated financial statements from the date of acquisition. One-time acquisition related transaction costs of $23 million and $25 million were expensed as incurred during the three and nine months ended October 31, 2018, respectively, and were recorded within general and administrative expense in our condensed consolidated statements of operations.

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information shown below summarizes the combined results of operations for Workday and Adaptive Insights as if the closing of the acquisition had occurred on February 1, 2017, the first day of our fiscal year 2018. The unaudited pro forma financial information includes adjustments that are directly attributable to the business combination and are factually supportable. The adjustments primarily reflect the amortization of acquired intangible assets, share-based compensation expense for replacement awards, as well as the pro forma tax impact for such adjustments. The pro forma financial information reflects $67 million of nonrecurring expenses related to acquisition costs and certain compensation expenses.



	Three Months Ended October 31,						Nine Months Ended October 31,
	2018			2017			2018			2017

	(in thousands, except per share data)
Total revenues	$	743,189		$	578,551		$	2,097,429		$	1,620,094
Net loss	(92,417		)	(121,309		)	(320,908		)	(409,032		)
Net loss per share, basic and diluted	$	(0.42	)	$	(0.58	)	$	(1.49	)	$	(1.98	)

The unaudited pro forma condensed financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the acquisition had taken place on February 1, 2017.