WDAY
$113.80
Workday
$2.12
1.90%
Earnings Details
2nd Quarter July 2017
Wednesday, August 30, 2017 4:02:29 PM
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Summary

Workday Beats

Workday (WDAY) reported 2nd Quarter July 2017 earnings of $0.19 per share on revenue of $525.3 million. The consensus earnings estimate was $0.15 per share on revenue of $507.4 million. The Earnings Whisper number was $0.17 per share. Revenue grew 39.1% on a year-over-year basis.

The company said during its conference call said it expects third quarter revenue of $538.0 million to $540.0 million. The current consensus revenue estimate is $522.1 million for the quarter ending October 31, 2017. The company also said it now expects fiscal year revenue of $2.093 billion to $2.10 billion. The company's previous guidance was revenue of $2.038 billion to $2.053 billion and the current consensus estimate is revenue of $2.05 billion for the year 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
$0.19
Earnings Whisper
$0.17
Consensus Estimate
$0.15
Reported Revenue
$525.3 Mil
Revenue Estimate
$507.4 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Workday Announces Fiscal 2018 Second Quarter Financial Results

Subscription Revenues of $434.5 Million, Up 42% Year Over Year; Total Revenues of $525.3 Million, Up 41% Year Over Year

PLEASANTON, CA--(Marketwired - Aug 30, 2017) - Workday, Inc. (WDAY), a leader in enterprise cloud applications for finance and human resources, today announced results for the fiscal second quarter ended July 31, 2017.

Total revenues were $525.3 million, an increase of 40.6% from the second quarter of fiscal 2017. Subscription revenues were $434.5 million, an increase of 42.0% from the same period last year.

Operating loss was $81.6 million, or negative 15.5% of revenues, compared to an operating loss of $86.7 million, or negative 23.2% of revenues, in the same period last year. Non-GAAP operating profit for the second quarter was $49.0 million, or 9.3% of revenues, compared to a non-GAAP operating profit of $6.1 million, or 1.6% of revenues, in the same period last year.1

Net loss per basic and diluted share was $0.40, compared to a net loss per basic and diluted share of $0.55 in the second quarter of fiscal 2017. Non-GAAP net income per diluted share was $0.24, compared to a non-GAAP net loss per basic and diluted share of $0.04 in the same period last year.1

Operating cash flows for the second quarter were $15.1 million and free cash flows were negative $23.4 million. For the trailing twelve months, operating cash flows were $376.4 million and free cash flows were $247.5 million.2

Cash, cash equivalents and marketable securities were $2.1 billion as of July 31, 2017. Unearned revenues were $1.2 billion, a 26.2% increase from the same period last year.

Comments on the News "Our second quarter results underscore our belief that Workday is the leading provider of finance and HR in the cloud. Not only did we see continued traction in finance, but now more than 30% of the Fortune 500 have selected Workday for core HR," said Aneel Bhusri, co-founder and CEO, Workday. "Coupling this success with our increasing strength among medium enterprises and strong adoption of new products like Workday Planning gives us great confidence in our ability to continue growing market share globally while keeping customer satisfaction among the highest in the industry."

"We were pleased to deliver our fourth consecutive quarter of over 40% subscription revenue growth, along with solid operating margins," said Robynne Sisco, chief financial officer, Workday. "With the momentum from our second quarter results, we are raising our fiscal 2018 outlook and are now expecting subscription revenue of $1.750 to $1.757 billion, or growth of 36%. We expect our third quarter subscription revenue to be between $450 and $452 million, or growth of 33% to 34%. We continue to focus our investments on areas of the business that drive long-term growth, while delivering strong operating margins and cash flow expansion over time."

Recent Highlights

Workday announced its intent to open the Workday Cloud Platform, equipping customers and, eventually, a broader ecosystem of partners, ISVs, and developers with a Platform-as-a-Service (PaaS) offering to build custom extensions and applications for customers’ business needs.

Workday was positioned by Gartner, Inc. in the Leaders quadrant of the first-ever Magic Quadrant for Cloud Core Financial Management Suites for Midsize, Large, and Global Enterprises. Workday was recognized as a leader based on its ability to execute and completeness of vision.3 

Workday announced continued medium enterprise momentum with customers across industries deploying Workday and realizing business benefits including the ability to reduce risk, and rapidly scale and adjust their business.

Workday was named one of the Best Large Workplaces in Europe by the Great Place to Work Institute, ranking #3 on this year’s list. Workday was also ranked #1 in the Bay Area News Group’s top workplaces for the seventh consecutive year. 

Workday plans to host a conference call today to review its second 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 45 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 Gartner, Magic Quadrant for Cloud Core Financial Management Suites for Midsize, Large and Global Enterprises, 19 June 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 third quarter and fiscal year subscription revenue projections, 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 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 April 30, 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)
 
 
 
 
  July 31, 2017
    January 31, 2017
 
*As Adjusted
Assets
     
     
 
 
Current assets:
     
     
 
 
 
Cash and cash equivalents
  $
748,599
    $
539,923
 
 
Marketable securities
    1,349,191
     
1,456,822
 
 
Trade and other receivables, net
    370,557
     
409,780
 
 
Deferred costs
    54,015
     
51,330
 
 
Prepaid expenses and other current assets
    63,862
     
66,590
 
Total current assets
    2,586,224
     
2,524,445
 
Property and equipment, net
    438,754
     
365,877
 
Deferred costs, noncurrent
    117,736
     
117,249
 
Acquisition-related intangible assets, net
    39,110
     
48,787
 
Goodwill
    158,540
     
158,354
 
Other assets
    66,763
     
53,570
 
Total assets
  $
3,407,127
    $
3,268,282
 
Liabilities and stockholders’ equity
     
     
 
 
Current liabilities:
     
     
 
 
 
Accounts payable
  $
39,948
    $
26,824
 
 
Accrued expenses and other current liabilities
    80,410
     
61,582
 
 
Accrued compensation
    105,229
     
110,625
 
 
Unearned revenue
    1,118,565
     
1,086,212
 
 
Current portion of convertible senior notes, net     332,422
     
-
 
Total current liabilities
    1,676,574
     
1,285,243
 
Convertible senior notes, net
    216,038
     
534,423
 
Unearned revenue, noncurrent
    104,178
     
135,331
 
Other liabilities
    39,940
     
36,677
 
Total liabilities
    2,036,730
     
1,991,674
 
Stockholders’ equity:
     
     
 
 
 
Common stock
    208
     
202
 
 
Additional paid-in capital
    2,945,596
     
2,681,200
 
 
Accumulated other comprehensive income (loss)
    (22,197
)
   
2,071
 
 
Accumulated deficit
    (1,553,210 )
   
(1,406,865 )
Total stockholders’ equity
    1,370,397
     
1,276,608
 
Total liabilities and stockholders’ equity
  $
3,407,127
    $
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 July 31,
    Six Months Ended July 31,
 
 
  2017
    2016
    2017
    2016
 
*As Adjusted
*As Adjusted
Revenues:
     
       
       
       
 
 
Subscription services
  $
434,527     $
306,070
    $
834,263
    $
586,238
 
 
Professional services
    90,793
      67,587
      170,918
      135,096
 
Total revenues
    525,320       373,657
      1,005,181       721,334
 
Costs and expenses(1):
     
       
       
       
 
 
Costs of subscription services
    65,931
      51,379
      125,729
      100,579
 
 
Costs of professional services
    92,264
      66,473
      169,177
      125,900
 
 
Product development
    221,103       161,886
      417,542
      303,664
 
 
Sales and marketing
    171,952       134,899
      327,661
      262,518
 
 
General and administrative
    55,699
      45,705
      106,901
      86,888
 
Total costs and expenses
    606,949       460,342
      1,147,010       879,549
 
Operating loss
    (81,629 )
    (86,685
)
    (141,829
)
    (158,215 )
Other income (expense), net
    938
      (21,193
)
    (725
)
    (27,031
)
Loss before provision for (benefit from) income taxes
    (80,691 )
    (107,878 )
    (142,554
)
    (185,246 )
Provision for (benefit from) income taxes
    1,841
      (65
)
    4,022
      1,070
 
Net loss
  $
(82,532 )
  $
(107,813 )
  $
(146,576
)
  $
(186,316 )
Net loss per share, basic and diluted
  $
(0.40
)
  $
(0.55
)
  $
(0.71
)
  $
(0.95
)
Weighted-average shares used to compute net loss per share, basic and diluted
    207,028       197,223
      205,453
      195,887
 
(1) Costs and expenses include share-based compensation expenses as follows:
 
 
 
Costs of subscription services   $
6,580
    $
4,968
    $
12,271
    $
9,365
 
 
 
Costs of professional services     9,301
      5,969
      17,322
      11,262
 
 
 
Product development
    56,923
      38,314
      107,952
      71,282
 
 
 
Sales and marketing
    25,942
      20,844
      49,101
      39,846
 
 
 
General and administrative
    22,777
      18,127
      42,665
      34,702
 

* 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 July 31,
    Six Months Ended July 31,
 
 
  2017
    2016
    2017
    2016
 
*As Adjusted
*As Adjusted
Cash flows from operating activities
     
       
       
       
 
Net loss
  $
(82,532
)
  $
(107,813
)
  $
(146,576
)
  $
(186,316
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
     
       
       
       
 
 
Depreciation and amortization
    34,021
      26,662
      67,398
      52,786
 
 
Share-based compensation expenses
    121,523
      88,222
      229,311
      166,457
 
 
Amortization of deferred costs
    14,009
      10,917
      27,646
      21,356
 
 
Amortization of debt discount and issuance costs
    6,785
      6,690
      13,735
      13,289
 
 
Gain on sale of cost method investment
    (526
)
    (65
)
    (526
)
    (65
)
 
Impairment of cost method investment
    -
      15,000
      -
      15,000
 
 
Other
    1,933
      1,918
      4,611
      1,600
 
 
Changes in operating assets and liabilities, net of business combinations:
     
       
       
       
 
 
 
Trade and other receivables, net
    (71,422
)
    (52,337
)
    40,393
      45,982
 
 
 
Deferred costs
    (19,437
)
    (19,541
)
    (30,818
)
    (28,767
)
 
 
Prepaid expenses and other assets
    (8,968
)
    (10,070
)
    (12,018
)
    (7,682
)
 
 
Accounts payable
    10,778
      1,542
      10,213
      (180
)
 
 
Accrued expenses and other liabilities     (13,472
)
    (6,517
)
    (9,383
)
    (972
)
 
 
Unearned revenue
    22,434
      51,914
      1,162
      76,851
 
Net cash provided by (used in) operating activities
    15,126
      6,522
      195,148
      169,339
 
Cash flows from investing activities
     
       
       
       
 
Purchases of marketable securities
    (285,197
)
    (557,180
)
    (898,448
)
    (1,191,136
)
Maturities of marketable securities
    371,471
      539,315
      813,341
      1,164,903
 
Sales of available-for-sale securities
    180,863
      28,652
      189,937
      28,852
 
Business combinations, net of cash acquired
    -
      (3,670
)
    -
      (3,670
)
Owned real estate projects
    (22,996
)
    (6,788
)
    (52,535
)
    (25,774
)
Capital expenditures, excluding owned real estate projects
    (38,528
)
    (26,539
)
    (69,121
)
    (61,017
)
Purchases of cost method investments
    (5,000
)
    (200
)
    (5,450
)
    (300
)
Sale and maturities of cost method investments
    732
      315
      732
      315
 
Other
    -
      (684
)
    -
      (296
)
Net cash provided by (used in) investing activities
    201,345
      (26,779
)
    (21,544
)
    (88,123
)
Cash flows from financing activities
     
       
       
       
 
Proceeds from issuance of common stock from employee equity plans
    32,274
      25,395
      34,527
      28,776
 
Other
    (32
)
    195
      (76
)
    571
 
Net cash provided by (used in) financing activities
    32,242
      25,590
      34,451
      29,347
 
Effect of exchange rate changes
    715
      (144
)
    583
      494
 
Net increase (decrease) in cash, cash equivalents and restricted cash
    249,428
      5,189
      208,638
      111,057
 
Cash, cash equivalents and restricted cash at the beginning of period
      501,104         405,955         541,894         300,087  
Cash, cash equivalents and restricted cash at the end of period
  $
750,532
    $
411,144
    $
750,532
    $
411,144
 

*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.

 
 
 
   
 
 
Three Months Ended July 31,
  Six Months Ended July 31,
 
 
2017
 
2016
  2017
  2016
Supplemental cash flow data
 
 
 
 
 
 
     
     
Cash paid for interest, net of amounts capitalized
 
$
46
 
$
2,652
  $
46
  $
2,656
Cash paid for income taxes
 
 
1,262
 
 
3,566
    2,608
    4,147
Non-cash investing and financing activities:
 
 
 
 
 
 
     
     
 
Vesting of early exercise stock options
 
$
282
 
$
460
  $
564
  $
920
 
Property and equipment, accrued but not paid  
 
33,219
 
 
11,426
    33,219
    11,426
 
Non-cash additions to property and equipment  
 
485
 
 
394
    627
    915
 
 
 
 
 
 
 
     
     
 
  July 31, 2017
  July 31, 2016
*As Adjusted
Reconciliation of cash, cash equivalents and restricted cash as shown in the statement of cash flows
     
     
Cash and cash equivalents
  $
748,599   $
405,529
Restricted cash included in Other assets
    1,933
    1,615
Restricted cash included in Property and equipment, net
    -
    4,000
Total cash, cash equivalents and restricted cash
  $
750,532   $
411,144
 
 
 
 
 
 
 
     
     
 
 
Workday, Inc.
 
Reconciliation of GAAP to Non-GAAP Data
 
Three Months Ended July 31, 2017
 
(in thousands, except per share data) (unaudited)
 
 
 
 
  GAAP
    Share-Based Compensation Expenses     Other Operating Expenses (3)
    Amortization of Debt Discount and Issuance Costs
    Non-GAAP
 
Costs and expenses:
     
     
 
     
 
     
 
       
 
Costs of subscription services
  $
65,931
    $
(6,580
)
  $
(208
)
  $
-
    $
59,143
 
Costs of professional services
    92,264
     
(9,301
)
   
(379
)
   
-
      82,584
 
Product development
    221,103      
(56,923
)
   
(6,602
)
   
-
      157,578  
Sales and marketing
    171,952      
(25,942
)
   
(1,126
)
   
-
      144,884  
General and administrative
    55,699
     
(22,777
)
   
(754
)
   
-
      32,168
 
Operating income (loss)
    (81,629 )
   
121,523
     
9,069
     
-
      48,963
 
Operating margin
    (15.5
)%
   
23.1
%
   
1.7
%
   
-
%
    9.3
%
Other income (expense), net
    938
     
-
     
-
     
6,785
      7,723
 
Income (loss) before provision for (benefit from) income taxes     (80,691 )
   
121,523
     
9,069
     
6,785
      56,686
 
Provision for (benefit from) income taxes (1)
    1,841
     
-
     
-
     
-
      1,841
 
Net income (loss)
  $
(82,532 )
  $
121,523
    $
9,069
    $
6,785
    $
54,845
 
Net income (loss) per share (2)
  $
(0.40
)
  $
0.59
    $
0.04
    $
0.01
    $
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 207,028 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share calculated based upon 225,610 diluted weighted-average shares of common stock.
(3)
  Other operating expenses include total employer payroll tax-related items on employee stock transactions of $4.3 million, and amortization of acquisition-related intangible assets of $4.8 million.
     
 
 
Workday, Inc.
 
Reconciliation of GAAP to Non-GAAP Data
 
Three Months Ended July 31, 2016
 
(in thousands, except per share data) (unaudited)
 
 
 
 
  GAAP
    Share-Based Compensation Expenses     Other Operating Expenses (3)
    Amortization of Debt Discount and Issuance Costs
    Non-GAAP
 
*As Adjusted
*As Adjusted
Costs and expenses:
     
     
 
     
 
     
 
       
 
Costs of subscription services
  $
51,379
    $
(4,968
)
  $
(133
)
  $
-
    $
46,278
 
Costs of professional services
    66,473
     
(5,969
)
   
(226
)
   
-
      60,278
 
Product development
    161,886
     
(38,314
)
   
(2,566
)
   
-
      121,006  
Sales and marketing
    134,899
     
(20,844
)
   
(707
)
   
-
      113,348  
General and administrative
    45,705
     
(18,127
)
   
(924
)
   
-
      26,654
 
Operating income (loss)
    (86,685
)
   
88,222
     
4,556
     
-
      6,093
 
Operating margin
    (23.2
)%
   
23.6
%
   
1.2
%
   
-
%
    1.6
%
Other income (expense), net
    (21,193
)
   
-
     
-
     
6,690
      (14,503 )
Income (loss) before provision for (benefit from) income taxes     (107,878 )
   
88,222
     
4,556
     
6,690
      (8,410
)
Provision for (benefit from) income taxes (1)
    (65
)
   
-
     
-
     
-
      (65
)
Net income (loss)
  $
(107,813 )
  $
88,222
    $
4,556
    $
6,690
    $
(8,345
)
Net income (loss) per share (2)
  $
(0.55
)
  $
0.45
    $
0.02
    $
0.04
    $
(0.04
)
(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)   Calculated based upon 197,223 basic and diluted weighted-average shares of common stock.
(3)   Other operating expenses include total employer payroll tax-related items on employee stock transactions of $3.2 million, and amortization of acquisition-related intangible assets of $1.4 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
 
Six Months Ended July 31, 2017
 
(in thousands, except per share data) (unaudited)
 
 
 
 
  GAAP
    Share-Based Compensation Expenses     Other Operating Expenses (3)
    Amortization of Debt Discount and Issuance Costs
    Non-GAAP
 
Costs and expenses:
     
     
 
     
 
     
 
       
 
Costs of subscription services
  $
125,729
    $
(12,271
)
  $
(754
)
  $
-
    $
112,704  
Costs of professional services
    169,177
     
(17,322
)
   
(1,285
)
   
-
      150,570  
Product development
    417,542
     
(107,952
)
   
(15,564
)
   
-
      294,026  
Sales and marketing
    327,661
     
(49,101
)
   
(2,800
)
   
-
      275,760  
General and administrative
    106,901
     
(42,665
)
   
(2,072
)
   
-
      62,164
 
Operating income (loss)
    (141,829 )
   
229,311
     
22,475
     
-
      109,957  
Operating margin
    (14.1
)%
   
22.8
%
   
2.2
%
   
-
%
    10.9
%
Other income (expense), net
    (725
)
   
-
     
-
     
13,735
      13,010
 
Income (loss) before provision for (benefit from) income taxes     (142,554 )
   
229,311
     
22,475
     
13,735
      122,967  
Provision for (benefit from) income taxes (1)
    4,022
     
-
     
-
     
-
      4,022
 
Net income (loss)
  $
(146,576 )
  $
229,311
    $
22,475
    $
13,735
    $
118,945  
Net income (loss) per share (2)
  $
(0.71
)
  $
1.12
    $
0.11
    $
0.01
    $
0.53
 
(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 205,453 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share calculated based upon 223,825 diluted weighted-average shares of common stock.
(3)
  Other operating expenses include total employer payroll tax-related items on employee stock transactions of $12.8 million, and amortization of acquisition-related intangible assets of $9.7 million.
     
 
 
Workday, Inc.
 
Reconciliation of GAAP to Non-GAAP Data
 
Six Months Ended July 31, 2016
 
(in thousands, except per share data) (unaudited)
 
 
 
 
  GAAP
    Share-Based Compensation Expenses     Other Operating Expenses (3)
    Amortization of Debt Discount and Issuance Costs
    Non-GAAP
 
*As Adjusted
*As Adjusted
Costs and expenses:
     
     
 
     
 
     
 
       
 
Costs of subscription services
  $
100,579
    $
(9,365
)
  $
(452
)
  $
-
    $
90,762
 
Costs of professional services
    125,900
     
(11,262
)
   
(716
)
   
-
      113,922  
Product development
    303,664
     
(71,282
)
   
(6,360
)
   
-
      226,022  
Sales and marketing
    262,518
     
(39,846
)
   
(1,797
)
   
-
      220,875  
General and administrative
    86,888
     
(34,702
)
   
(1,736
)
   
-
      50,450
 
Operating income (loss)
    (158,215 )
   
166,457
     
11,061
     
-
      19,303
 
Operating margin
    (21.9
)%
   
23.1
%
   
1.5
%
   
-
%
    2.7
%
Other income (expense), net
    (27,031
)
   
-
     
-
     
13,289
      (13,742 )
Income (loss) before provision for (benefit from) income taxes     (185,246 )
   
166,457
     
11,061
     
13,289
      5,561
 
Provision for (benefit from) income taxes (1)
    1,070
     
-
     
-
     
-
      1,070
 
Net income (loss)
  $
(186,316 )
  $
166,457
    $
11,061
    $
13,289
    $
4,491
 
Net income (loss) per share (2)
  $
(0.95
)
  $
0.85
    $
0.06
    $
0.06
    $
0.02
 
(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 195,887 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share calculated based upon 206,531 diluted weighted-average shares of common stock. 
(3)   Other operating expenses include total employer payroll tax-related items on employee stock transactions of $8.3 million, and amortization of acquisition-related intangible assets of $2.7 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 July 31,
    Six Months Ended July 31,
 
 
  2017
    2016
    2017
    2016
 
*As Adjusted
*As Adjusted
Net cash provided by (used in) operating activities
  $
15,126
    $
6,522
    $
195,148     $
169,339  
Capital expenditures, excluding owned real estate projects
    (38,528
)
    (26,539
)
    (69,121 )
    (61,017 )
 
Free cash flows
  $
(23,402
)
  $
(20,017
)
  $
126,027     $
108,322  
 
     
       
       
       
 
 
     
       
       
       
 
 
  Trailing Twelve Months Ended
       
       
 
July 31,
 
  2017
    2016
       
       
 
*As Adjusted
Net cash provided by (used in) operating activities
  $
376,435
    $
320,589
       
       
 
Capital expenditures, excluding owned real estate projects
    (128,917 )
    (140,895 )
     
       
 
 
Free cash flows
  $
247,518
    $
179,694
       
       
 

*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. 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, and 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