WDAY
$113.28
Workday
$1.02
.91%
Earnings Details
3rd Quarter October 2017
Wednesday, November 29, 2017 4:02:19 PM
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Summary

Workday Beats

Workday (WDAY) reported 3rd Quarter October 2017 earnings of $0.22 per share on revenue of $555.4 million. The consensus earnings estimate was $0.15 per share on revenue of $540.8 million. The Earnings Whisper number was $0.17 per share. Revenue grew 35.6% on a year-over-year basis.

The company said during its conference call it expects fourth quarter revenue of $571.0 million to $573.0 million. The current consensus revenue estimate is $556.1 million for the quarter ending January 31, 2018.

Workday Inc is a provider of enterprise cloud-based applications for human capital management, payroll, financial management, time tracking, procurement and employee expense management.

Results
Reported Earnings
$0.22
Earnings Whisper
$0.17
Consensus Estimate
$0.15
Reported Revenue
$555.4 Mil
Revenue Estimate
$540.8 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Workday Announces Fiscal 2018 Third Quarter Financial Results

Subscription Revenues of $463.6 Million, Up 37% Year Over Year; Total Revenues of $555.4 Million, Up 34% Year Over Year

PLEASANTON, CA--(Marketwired - Nov 29, 2017) - Workday, Inc. (WDAY), a leader in enterprise cloud applications for finance and human resources, today announced results for the fiscal third quarter ended October 31, 2017.

Total revenues were $555.4 million, an increase of 34.3% from the third quarter of fiscal 2017. Subscription revenues were $463.6 million, an increase of 37.2% from the same period last year.

Operating loss was $80.1 million, or negative 14.4% of revenues, compared to an operating loss of $105.9 million, or negative 25.6% of revenues, in the same period last year. Non-GAAP operating profit for the third quarter was $50.1 million, or 9.0% of revenues, compared to a non-GAAP operating profit of $8.0 million, or 1.9% of revenues, in the same period last year.1

Net loss per basic and diluted share was $0.41, compared to a net loss per basic and diluted share of $0.55 in the third quarter of fiscal 2017. Non-GAAP net income per diluted share was $0.24, compared to a non-GAAP net income per diluted share of $0.05 in the same period last year.1

Operating cash flows for the third quarter were $144.0 million and free cash flows were $107.7 million. For the trailing twelve months, operating cash flows were $448.9 million and free cash flows were $311.2 million.2

Cash, cash equivalents and marketable securities were $3.2 billion as of October 31, 2017. Unearned revenues were over $1.2 billion, a 21.5% increase from the same period last year.

Comments on the News "Workday had a great third quarter, driving demand across all product areas and geographies, expanding our value proposition with the delivery of new products, and once again demonstrating our commitment to keeping customer satisfaction among the highest in the industry," said Aneel Bhusri, co-founder and CEO, Workday. "The outlook for the remainder of fiscal 2018 and beyond is bright as we continue to add new customers for HCM and Financial Management, and unlock new growth drivers such as Workday Prism Analytics and the Workday Cloud Platform."

"We delivered another strong quarter with subscription revenue up 37%, driven by strong net new customer growth, continued add on sales with existing customers, and high renewal rates," said Robynne Sisco, chief financial officer, Workday. "As we head into our seasonally strongest quarter, we are raising our fiscal 2018 outlook and are now expecting subscription revenue of $1.780 to $1.782 billion, or growth of 38%. We continue to invest for long-term growth, while delivering consistently solid operating and cash flow margins."

Recent Highlights

Workday held its 11th annual customer conference, Workday Rising, bringing together more than 8,500 members of the Workday community for education and collaboration in Chicago.

Workday once again achieved its goal to maintain a customer satisfaction rating over 95%, announcing that the company earned a 98% customer satisfaction rating for this year.

Workday announced the availability of Workday Prism Analytics, which enables customers to bring together any data -- including Workday data and data from any outside source -- with leading edge analytics tools to make better business decisions.

Workday also announced the availability of Workday Benchmarking, the first offering delivered on Workday Data-as-a-Service. Workday Benchmarking provides key metrics to customers seeking a better understanding of their company’s relative performance in comparison to peers to help achieve optimal performance in their respective markets.

Workday was positioned by Gartner, Inc. in the Leaders quadrant of "Magic Quadrant for Cloud Human Capital Management Suites for Midmarket and Large Enterprises." Workday was acknowledged as a leader for the second year in a row and achieved the highest overall position for its ability to execute.3

Workday was also positioned as a leader in "The Forrester Wave™: SaaS Human Resource Management Systems, Q3 2017," a new report published by Forrester Research, Inc. Workday received the highest score in the strategy category and earned the highest possible scores in 16 criteria, including business vision, usability, and mobile.

Workday plans to host a conference call today to review its third quarter financial results and to discuss its financial outlook. The call is scheduled to begin at 2:00 p.m. PT/ 5:00 p.m. ET and can be accessed via webcast or through Workday’s Investor Relations website. The webcast will be available live, and a replay will be available following completion of the live broadcast for approximately 90 days.

Workday intends to use the Workday Blog as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.

1 Non-GAAP operating profit (loss) and non-GAAP net income (loss) per share exclude share-based compensation expenses, employer payroll tax-related items on employee stock transactions, amortization expense for acquisition-related intangible assets, and debt discount and issuance costs associated with convertible notes. See the section titled "About Non-GAAP Financial Measures" in the accompanying financial tables for further details.

2 Free cash flows are defined as operating cash flows minus capital expenditures (excluding owned real estate projects). See the section titled "About Non-GAAP Financial Measures" in the accompanying financial tables for further details.

3 Magic Quadrant for Cloud Human Capital Management Suites for Midmarket and Large Enterprises, 15 August 2017.

Disclaimer - Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

About Workday Workday is a leading provider of enterprise cloud applications for finance and human resources. Founded in 2005, Workday delivers financial management, human capital management, and analytics applications designed for the world’s largest companies, educational institutions, and government agencies. Organizations ranging from medium-sized businesses to Fortune 50 enterprises have selected Workday.

Use of Non-GAAP Financial Measures Reconciliations of non-GAAP financial measures to Workday’s financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section of the tables titled "About Non-GAAP Financial Measures." A reconciliation of our forward outlook for non-GAAP operating margin with our forward-looking GAAP operating margin is not available without unreasonable efforts as the quantification of stock-based compensation expense, which is excluded from our non-GAAP operating margin, requires additional inputs such as number of shares granted and market price that are not ascertainable.

Forward-Looking Statements This press release contains forward-looking statements including, among other things, statements regarding Workday’s fourth quarter and fiscal year subscription revenue projections, investments, operating margins and cash flow growth. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "plans," and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks, uncertainties, and assumptions. If the risks materialize or assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. Risks include, but are not limited to: (i) breaches in our security measures, unauthorized access to our customers’ data or disruptions in our data center operations; (ii) our ability to manage our growth effectively; (iii) competitive factors, including pricing pressures, industry consolidation, entry of new competitors and new applications and marketing initiatives by our competitors; (iv) the development of the market for enterprise cloud services; (v) acceptance of our applications and services by customers; (vi) adverse changes in general economic or market conditions; (vii) delays or reductions in information technology spending; and (viii) changes in sales, which may not be immediately reflected in our results due to our subscription model. Further information on risks that could affect Workday’s results is included in our filings with the Securities and Exchange Commission (SEC), including our Form 10-Q for the quarter ended July 31, 2017 and our future reports that we may file with the SEC from time to time, which could cause actual results to vary from expectations. Workday assumes no obligation to, and does not currently intend to, update any such forward-looking statements after the date of this release.

Any unreleased services, features, or functions referenced in this document, our website or other press releases or public statements that are not currently available are subject to change at Workday’s discretion and may not be delivered as planned or at all. Customers who purchase Workday services should make their purchase decisions based upon services, features, and functions that are currently available.

© 2017. Workday, Inc. All rights reserved. Workday and the Workday logo are registered trademarks of Workday, Inc. All other brand and product names are trademarks or registered trademarks of their respective holders.

 
Workday, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
 
 
October 31, 2017
  January 31, 2017
 
 
*As Adjusted
 
Assets
 
 
   
 
 
Current assets:
 
 
   
 
 
 
Cash and cash equivalents
$
1,336,984
  $
539,923
 
 
Marketable securities
 
1,874,139
   
1,456,822
 
 
Trade and other receivables, net
 
349,309
   
409,780
 
 
Deferred costs
 
56,304
   
51,330
 
 
Prepaid expenses and other current assets
 
77,036
   
66,590
 
Total current assets
 
3,693,772
   
2,524,445
 
Property and equipment, net
 
487,234
   
365,877
 
Deferred costs, noncurrent
 
120,173
   
117,249
 
Acquisition-related intangible assets, net
 
34,305
   
48,787
 
Goodwill
 
158,418
   
158,354
 
Other assets
 
70,814
   
53,570
 
Total assets
$
4,564,716
  $
3,268,282
 
Liabilities and stockholders’ equity
 
 
   
 
 
Current liabilities:
 
 
   
 
 
 
Accounts payable
$
35,837
  $
26,824
 
 
Accrued expenses and other current liabilities
 
108,074
   
61,582
 
 
Accrued compensation
 
139,668
   
110,625
 
 
Unearned revenue
 
1,129,031
   
1,086,212
 
 
Current portion of convertible senior notes, net  
336,936
   
--
 
Total current liabilities
 
1,749,546
   
1,285,243
 
Convertible senior notes, net
 
1,136,494
   
534,423
 
Unearned revenue, noncurrent
 
100,135
   
135,331
 
Other liabilities
 
38,267
   
36,677
 
Total liabilities
 
3,024,442
   
1,991,674
 
Stockholders’ equity:
 
 
   
 
 
 
Common stock
 
210
   
202
 
 
Additional paid-in capital
 
3,195,130
   
2,681,200
 
 
Accumulated other comprehensive income (loss)
 
(16,310
)
 
2,071
 
 
Accumulated deficit
 
(1,638,756 )
 
(1,406,865 )
Total stockholders’ equity
 
1,540,274
   
1,276,608
 
Total liabilities and stockholders’ equity
$
4,564,716
  $
3,268,282
 
* Prior-period information has been restated for the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which we adopted on February 1, 2017.
 
 
Workday, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
 
 
Three Months Ended October 31,
    Nine Months Ended October 31,
 
2017
 
 
2016
    2017
    2016
 
*As Adjusted
*As Adjusted
Revenues:
 
 
 
 
 
 
       
       
 
 
Subscription services
$
463,568
 
 
$
337,910
    $
1,297,831     $
924,148
 
 
Professional services
 
91,821
 
 
 
75,612
      262,739
      210,708
 
Total revenues
 
555,389
 
 
 
413,522
      1,560,570       1,134,856  
Costs and expenses(1):
 
 
 
 
 
 
       
       
 
 
Costs of subscription services
 
71,898
 
 
 
54,645
      197,627
      155,224
 
 
Costs of professional services
 
91,657
 
 
 
72,240
      260,834
      198,140
 
 
Product development
 
239,588
 
 
 
185,311
      657,130
      488,975
 
 
Sales and marketing
 
176,121
 
 
 
149,537
      503,782
      412,055
 
 
General and administrative
 
56,184
 
 
 
57,721
      163,085
      144,609
 
Total costs and expenses
 
635,448
 
 
 
519,454
      1,782,458       1,399,003  
Operating loss
 
(80,059
)
 
 
(105,932
)
    (221,888
)
    (264,147
)
Other income (expense), net
 
(3,742
)
 
 
(3,105
)
    (4,467
)
    (30,136
)
Loss before provision for (benefit from) income taxes
 
(83,801
)
 
 
(109,037
)
    (226,355
)
    (294,283
)
Provision for (benefit from) income taxes
 
1,745
 
 
 
1,077
      5,767
      2,147
 
Net loss
$
(85,546
)
 
$
(110,114
)
  $
(232,122
)
  $
(296,430
)
Net loss per share, basic and diluted
$
(0.41
)
 
$
(0.55
)
  $
(1.12
)
  $
(1.50
)
Weighted-average shares used to compute net loss per share, basic and diluted  
209,188
 
 
 
199,479
      206,715
      197,093
 
 
 
 
 
 
 
 
       
       
 
(1) Costs and expenses include share-based compensation expenses as follows:
       
       
 
 
Costs of subscription services
$
6,899
 
 
$
5,472
    $
19,170
    $
14,837
 
 
Costs of professional services
 
9,956
 
 
 
7,436
      27,278
      18,698
 
 
Product development
 
59,116
 
 
 
45,968
      167,068
      117,250
 
 
Sales and marketing
 
25,517
 
 
 
22,597
      74,618
      62,443
 
 
General and administrative
 
20,991
 
 
 
24,982
      63,656
      59,684
 
*Prior-period information has been restated for the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which we adopted on February 1, 2017.
 
 
Workday, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
 
Three Months Ended October 31,
    Nine Months Ended October 31,
 
 
 
2017
    2016
    2017
    2016
 
*As Adjusted
   
*As Adjusted
 
Cash flows from operating activities
   
       
       
       
 
Net loss
$
(85,546
)
  $
(110,114 )
  $
(232,122
)
  $
(296,430
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
   
       
       
       
 
 
Depreciation and amortization
  34,982
      30,453
      102,380
      83,239
 
 
Share-based compensation expenses
  122,479
      100,098
      351,790
      266,555
 
 
Amortization of deferred costs
  14,519
      11,561
      42,165
      32,917
 
 
Amortization of debt discount and issuance costs
  12,257
      6,782
      25,992
      20,071
 
 
Gain on sale of cost method investment
  (194
)
    --
      (720
)
    (65
)
 
Impairment of cost method investment
  100
      --
      100
      15,000
 
 
Other
  (1,294
)
    78
      3,317
      1,678
 
 
Changes in operating assets and liabilities, net of business combinations:
   
       
       
       
 
 
 
Trade and other receivables, net
  19,070
      (20,693
)
    59,463
      25,289
 
 
 
Deferred costs
  (19,245
)
    (13,040
)
    (50,063
)
    (41,807
)
 
 
Prepaid expenses and other assets
  (11,355
)
    (3,686
)
    (23,373
)
    (11,368
)
 
 
Accounts payable
  (7,383
)
    2,260
      2,830
      2,080
 
 
 
Accrued expenses and other liabilities   59,171
      30,591
      49,788
      29,619
 
 
 
Unearned revenue
  6,470
      37,266
      7,632
      114,117
 
Net cash provided by (used in) operating activities
  144,031
      71,556
      339,179
      240,895
 
Cash flows from investing activities
   
       
       
       
 
Purchases of marketable securities
  (930,783
)
    (380,620 )
    (1,829,231 )
    (1,571,756 )
Maturities of marketable securities
  372,389
      449,592
      1,185,730
      1,614,495
 
Sales of available-for-sale securities
  32,886
      63,340
      222,823
      92,192
 
Business combinations, net of cash acquired
  --
      (144,209 )
    --
      (147,879
)
Owned real estate projects
  (27,616
)
    (59,705
)
    (80,151
)
    (85,479
)
Capital expenditures, excluding owned real estate projects
  (36,356
)
    (27,518
)
    (105,477
)
    (88,535
)
Purchases of cost method investments
  (5,272
)
    --
      (10,722
)
    (300
)
Sale and maturities of cost method investments
  294
      --
      1,026
      315
 
Other
  (1,000
)
    --
      (1,000
)
    (296
)
Net cash provided by (used in) investing activities
  (595,458
)
    (99,120
)
    (617,002
)
    (187,243
)
Cash flows from financing activities
   
       
       
       
 
Proceeds from borrowings on convertible senior notes, net of issuance costs
  1,132,101       --
      1,132,101
      --
 
Proceeds from issuance of warrants
  80,805
      --
      80,805
      --
 
Purchase of convertible senior notes hedges
  (175,530
)
    --
      (175,530
)
    --
 
Proceeds from issuance of common stock from employee equity plans
  1,974
      4,491
      36,501
      33,267
 
Other
  (36
)
    435
      (112
)
    1,006
 
Net cash provided by (used in) financing activities
  1,039,314       4,926
      1,073,765
      34,273
 
Effect of exchange rate changes
  (322
)
    (137
)
    261
      357
 
Net increase (decrease) in cash, cash equivalents and restricted cash
  587,565
      (22,775
)
    796,203
      88,282
 
Cash, cash equivalents and restricted cash at the beginning of period
  750,532
      411,144
      541,894
      300,087
 
Cash, cash equivalents and restricted cash at the end of period
$
1,338,097     $
388,369
    $
1,338,097
    $
388,369
 
 
   
   
 
  Three Months Ended October 31,
  Nine Months Ended October 31,
 
  2017
  2016
  2017
  2016
Supplemental cash flow data
                       
Cash paid for interest, net of amounts capitalized
  $
18
  $
48
  $
64
  $
2,704
Cash paid for income taxes
    651
    655
    3,259
    4,802
Non-cash investing and financing activities:
                       
 
Vesting of early exercise stock options
  $
106
  $
445
  $
670
  $
1,365
 
Property and equipment, accrued but not paid     47,055     25,917     47,055     25,917
 
Non-cash additions to property and equipment     649
    67
    1,276
    982
 
   
   
 
  October 31, 2017
  October 31, 2016
*As Adjusted
Reconciliation of cash, cash equivalents and restricted cash as shown in the statement of cash flows    
 
   
 
Cash and cash equivalents
  $
1,336,984   $
386,557
Restricted cash included in Other assets
   
1,113
   
1,712
Restricted cash included in Property and equipment, net
   
--
   
100
Total cash, cash equivalents and restricted cash
  $
1,338,097   $
388,369
*Prior-period information has been restated for the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and ASU No. 2016-18, Statement of Cash Flows, Restricted Cash (Topic 230), both of which we adopted on February 1, 2017.
 
 
Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Three Months Ended October 31, 2017
(in thousands, except per share data)
(unaudited)
 
 
GAAP
  Share-Based Compensation
  Other
  Amortization
  Non-GAAP
 
Expenses
Operating Expenses(3)
of Debt
Discount and
 Issuance
Costs
Costs and expenses:
   
   
 
   
 
   
 
     
 
Costs of subscription services
$
71,898
  $
(6,899
)
$
(2,468
)
$
--
  $
62,531
 
Costs of professional services
  91,657
   
(9,956
)
 
(200
)
 
--
    81,501
 
Product development
  239,588    
(59,116
)
 
(3,780
)
 
--
    176,692  
Sales and marketing
  176,121    
(25,517
)
 
(598
)
 
--
    150,006  
General and administrative
  56,184
   
(20,991
)
 
(683
)
 
--
    34,510
 
Operating income (loss)
  (80,059 )
 
122,479
   
7,729
   
--
    50,149
 
Operating margin
  (14.4
)%
 
22.1
%
 
1.3
%
 
--
%
  9.0
%
Other income (expense), net
  (3,742
)
 
--
   
--
   
12,257
    8,515
 
Income (loss) before provision for (benefit from) income taxes   (83,801 )
 
122,479
   
7,729
   
12,257
    58,664
 
Provision for (benefit from) income taxes (1)
  1,745
   
--
   
--
   
--
    1,745
 
Net income (loss)
$
(85,546 )
$
122,479
  $
7,729
  $
12,257
  $
56,919
 
Net income (loss) per share (2)
$
(0.41
)
$
0.59
  $
0.04
  $
0.02
  $
0.24
 
(1) The Company’s GAAP tax provision is primarily related to state taxes and income tax in profitable foreign jurisdictions. We maintain a full valuation allowance against our deferred tax assets in the US. Accordingly, there is no tax impact associated with the non-GAAP adjustments.
(2) GAAP net loss per share calculated based upon 209,188 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share calculated based upon 235,341 diluted weighted-average shares of common stock.
(3) Other operating expenses include total employer payroll tax-related items on employee stock transactions of $2.9 million, and amortization of acquisition-related intangible assets of $4.8 million.
 
 
Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Three Months Ended October 31, 2016
(in thousands, except per share data)
(unaudited)
 
  GAAP
  Share-Based
  Other
  Amortization
  Non-GAAP
 
*As Adjusted
 Compensation
 Operating
 of Debt
*As Adjusted
 Expenses
 Expenses(3)
 Discount and
 Issuance
 Costs
Costs and expenses:
     
   
 
   
 
   
 
     
 
Costs of subscription services
  $
54,645
  $
(5,472
)
$
(118
)
$
--
  $
49,055
 
Costs of professional services
    72,240
   
(7,436
)
 
(171
)
 
--
    64,633
 
Product development
    185,311
   
(45,968
)
 
(5,792
)
 
--
    133,551  
Sales and marketing
    149,537
   
(22,597
)
 
(661
)
 
--
    126,279  
General and administrative
    57,721
   
(24,982
)
 
(713
)
 
--
    32,026
 
Operating income (loss)
    (105,932 )
 
106,455
   
7,455
   
--
    7,978
 
Operating margin
    (25.6
)%
 
25.7
%
 
1.8
%
 
--
%
  1.9
%
Other income (expense), net
    (3,105
)
 
--
   
--
   
6,782
    3,677
 
Income (loss) before provision for (benefit from) income taxes     (109,037 )
 
106,455
   
7,455
   
6,782
    11,655
 
Provision for (benefit from) income taxes (1)
    1,077
   
--
   
--
   
--
    1,077
 
Net income (loss)
  $
(110,114 )
$
106,455
  $
7,455
  $
6,782
  $
10,578
 
Net income (loss) per share (2)
  $
(0.55
)
$
0.53
  $
0.04
  $
0.03
  $
0.05
 
(1) The Company’s GAAP tax provision is primarily related to state taxes and income tax in profitable foreign jurisdictions. We maintain a full valuation allowance against our deferred tax assets in the US. Accordingly, there is no tax impact associated with the non-GAAP adjustments.
(2) GAAP net loss per share calculated based upon 199,479 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share calculated based upon 209,924 diluted weighted-average shares of common stock.
(3) Other operating expenses include total employer payroll tax-related items on employee stock transactions of $2.6 million, and amortization of acquisition-related intangible assets of $4.9 million recorded as part of product development expenses.
*Prior-period information has been restated for the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which we adopted on February 1, 2017.
 
 
Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Nine Months Ended October 31, 2017
(in thousands, except per share data)
(unaudited)
 
 
  GAAP
  Share-Based
  Other
  Amortization
  Non-GAAP
 
 Compensation
 Operating
 of Debt
 Expenses
 Expenses(3)
 Discount and
 Issuance
 Costs
Costs and expenses:
     
   
 
   
 
   
 
     
 
Costs of subscription services
  $
197,627
  $
(19,170
)
$
(3,222
)
$
--
  $
175,235  
Costs of professional services
    260,834
   
(27,278
)
 
(1,485
)
 
--
    232,071  
Product development
    657,130
   
(167,068
)
 
(19,344
)
 
--
    470,718  
Sales and marketing
    503,782
   
(74,618
)
 
(3,398
)
 
--
    425,766  
General and administrative
    163,085
   
(63,656
)
 
(2,755
)
 
--
    96,674
 
Operating income (loss)
    (221,888 )
 
351,790
   
30,204
   
--
    160,106  
Operating margin
    (14.2
)%
 
22.5
%
 
2.0
%
 
--
%
  10.3
%
Other income (expense), net
    (4,467
)
 
--
   
--
   
25,992
    21,525
 
Income (loss) before provision for (benefit from) income taxes     (226,355 )
 
351,790
   
30,204
   
25,992
    181,631  
Provision for (benefit from) income taxes (1)
    5,767
   
--
   
--
   
--
    5,767
 
Net income (loss)
  $
(232,122 )
$
351,790
  $
30,204
  $
25,992
  $
175,864  
Net income (loss) per share (2)
  $
(1.12
)
$
1.70
  $
0.15
  $
0.03
  $
0.76
 
(1) The Company’s GAAP tax provision is primarily related to state taxes and income tax in profitable foreign jurisdictions. We maintain a full valuation allowance against our deferred tax assets in the US. Accordingly, there is no tax impact associated with the non-GAAP adjustments.
(2) GAAP net loss per share calculated based upon 206,715 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share calculated based upon 232,918 diluted weighted-average shares of common stock.
(3) Other operating expenses include total employer payroll tax-related items on employee stock transactions of $15.7 million, and amortization of acquisition-related intangible assets of $14.5 million.
 
 
Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Nine Months Ended October 31, 2016
(in thousands, except per share data)
(unaudited)
 
 
GAAP
  Share-Based
  Other
    Amortization
  Non-GAAP
 
*As Adjusted
 Compensation
 Operating
 of Debt
*As Adjusted
 Expenses
 Expenses(3)
 Discount and
 Issuance
 Costs
Costs and expenses:
   
   
 
   
 
     
 
     
 
Costs of subscription services
$
155,224
  $
(14,837
)
$
(570
)
  $
--
  $
139,817  
Costs of professional services
  198,140
   
(18,698
)
 
(887
)
   
--
    178,555  
Product development
  488,975
   
(117,250
)
 
(12,152
)
   
--
    359,573  
Sales and marketing
  412,055
   
(62,443
)
 
(2,458
)
   
--
    347,154  
General and administrative
  144,609
   
(59,684
)
 
(2,449
)
   
--
    82,476
 
Operating income (loss)
  (264,147 )
 
272,912
   
18,516
     
--
    27,281
 
Operating margin
  (23.3
)%
 
24.0
%
 
1.7
%
   
--
%
  2.4
%
Other income (expense), net
  (30,136
)
 
--
   
--
     
20,071
    (10,065 )
Income (loss) before provision for (benefit from) income taxes   (294,283 )
 
272,912
   
18,516
     
20,071
    17,216
 
Provision for (benefit from) income taxes (1)
  2,147
   
--
   
--
     
--
    2,147
 
Net income (loss)
$
(296,430 )
$
272,912
  $
18,516
    $
20,071
  $
15,069
 
Net income (loss) per share (2)
$
(1.50
)
$
1.38
  $
0.09
    $
0.10
  $
0.07
 
(1) The Company’s GAAP tax provision is primarily related to state taxes and income tax in profitable foreign jurisdictions. We maintain a full valuation allowance against our deferred tax assets in the US. Accordingly, there is no tax impact associated with the non-GAAP adjustments.
(2) GAAP net loss per share calculated based upon 197,093 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share calculated based upon 207,685 diluted weighted-average shares of common stock.
(3) Other operating expenses include total employer payroll tax-related items on employee stock transactions of $10.9 million, and amortization of acquisition-related intangible assets of $7.6 million recorded as part of product development expenses.
*Prior-period information has been restated for the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which we adopted on February 1, 2017.
 
 
Workday, Inc.
Reconciliation of GAAP Cash Flows from Operations to Free Cash Flows
(A Non-GAAP Financial Measure)
(in thousands)
(unaudited)
 
 
Three Months Ended October 31,
    Nine Months Ended October 31,
 
 
 
2017
    2016
    2017
    2016
 
*As Adjusted
*As Adjusted
Net cash provided by (used in) operating activities
$
144,031
    $
71,556
    $
339,179
    $
240,895  
Capital expenditures, excluding owned real estate projects
  (36,356
)
    (27,518
)
    (105,477 )
    (88,535 )
 
Free cash flows
$
107,675
    $
44,038
    $
233,702
    $
152,360  
 
   
       
       
       
 
 
Trailing Twelve Months Ended
       
       
 
 
October 31,
 
   
 
   
 
 
   
 
   
 
2017
    2016
*As Adjusted
Net cash provided by (used in) operating activities
$
448,910
    $
339,386
       
       
 
Capital expenditures, excluding owned real estate projects
  (137,755 )
    (130,520 )
     
       
 
 
Free cash flows
$
311,155
    $
208,866
       
       
 
*Prior-period information has been restated for the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and ASU No. 2016-18, Statement of Cash Flows, Restricted Cash (Topic 230), both of which we adopted on February 1, 2017.

About Non-GAAP Financial Measures To provide investors and others with additional information regarding Workday’s results, we have disclosed the following non-GAAP financial measures: non-GAAP operating income (loss), non-GAAP net income (loss) per share and free cash flows. Workday has provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure. The non-GAAP financial measures of non-GAAP operating income (loss) and non-GAAP net income (loss) per share differ from GAAP in that they exclude share-based compensation expenses, employer payroll tax-related items on employee stock transactions, amortization of acquisition-related intangible assets, and non-cash interest expense related to our convertible senior notes. Free cash flows differ from GAAP cash flows from operating activities in that it treats capital expenditures (excluding owned real estate projects) as a reduction to cash flows.

Workday’s management uses these non-GAAP financial measures 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 Workday’s financial performance and the ability of operations to generate cash. Management believes these non-GAAP financial measures reflect Workday’s ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in Workday’s business, as they exclude expenses that are not reflective of ongoing operating results. Management also believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating Workday’s operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies. Additionally, management believes information regarding free cash flows provides investors and others with an important perspective on the cash flows generated by normal recurring activities to make strategic acquisitions and investments, to fund ongoing operations and to fund other capital expenditures, after our owned real estate projects.

Management believes excluding the following items from the GAAP Condensed Consolidated Statement of Operations is useful to investors and others in assessing Workday’s operating performance due to the following factors:

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 in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies. For restricted stock unit awards, the amount of share-based compensation expenses is not reflective of the value ultimately received by the grant recipients. Moreover, determining the fair value of certain of the share-based instruments we utilize involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the vesting or future exercise of the related share-based awards. Unlike cash compensation, the value of stock options and shares offered under our Employee Stock Purchase Plan, which are elements of our ongoing share-based compensation expenses, is determined using a complex formula that incorporates factors, such as market volatility and forfeiture rates, that are beyond our control.

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.

Amortization of debt discount and issuance costs. Under GAAP, we are required to separately account for liability (debt) and equity (conversion option) components of the convertible senior notes that were issued in private placements in June 2013 and September 2017. Accordingly, for GAAP purposes we are required to recognize the effective interest expense on our convertible senior notes and amortize the issuance costs over the term of the notes. The difference between the effective interest expense and the contractual interest expense, and the amortization expense of issuance costs are excluded from management’s assessment of our operating performance because management believes that these non-cash expenses are not indicative of ongoing operating performance. Management believes that the exclusion of the non-cash interest expense provides investors an enhanced view of the Company’s operational performance.

Additionally, we believe that the non-GAAP financial measure, free cash flows, is meaningful to investors because we review cash flows generated from or used in operations after deducting certain capital expenditures that are considered to be an ongoing operational component of our business. Capital expenditures deducted from cash flows from operations do not include purchases of land and buildings or construction costs of our new development center and of other owned buildings. We exclude these owned real estate projects as they are infrequent in nature. For the current fiscal year, these costs primarily represent the construction of our new development center, which is anticipated to be completed in fiscal 2020. This provides an enhanced view of cash available to make strategic acquisitions and investments, to fund ongoing operations and to fund other capital expenditures, after our owned real estate projects.

The use of non-GAAP operating income (loss) and non-GAAP net income (loss) per share measures has certain limitations as they do not reflect all items of income and expense that affect Workday’s operations. Workday compensates 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. Further, these non-GAAP measures may differ from the non-GAAP information used by other companies, including peer companies, and therefore comparability may be limited. Management encourages investors and others to review Workday’s financial information in its entirety and not rely on a single financial measure.

Investor Relations Contact: Michael Magaro +1 (925) 379-6000 Michael.Magaro@Workday.com Media Contact: Jeff Shadid +1 (405) 834-7777 Jeff.Shadid@Workday.com