Workday Announces Fiscal 2018 Second Quarter Financial Results
PLEASANTON, CA -- (Marketwired) -- 08/30/17 -- Workday, Inc. (NYSE: 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)
January 31,
July 31, 2017 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 Six Months Ended
July 31, July 31,
------------------------ ------------------------
2016 2016
2017 *As 2017 *As
Adjusted 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 Six Months Ended
July 31, July 31,
-------------------------- --------------------------
2016 2016
2017 *As Adjusted 2017 *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 Six Months Ended
July 31, 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,
July 31, 2016
2017 *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)
Amortization
Other of Debt
Share-Based Operating Discount and
Compensation Expenses Issuance
GAAP Expenses (3) 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)
Amortization
Other of Debt
GAAP Share-Based Operating Discount and Non-GAAP
*As Compensation Expenses Issuance *As
Adjusted Expenses (3) Costs 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)
Amortization
Other of Debt
Share-Based Operating Discount and
Compensation Expenses Issuance
GAAP Expenses (3) 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)
Amortization
of Debt
Other Discount
GAAP Share-Based Operating and Non-GAAP
*As Compensation Expenses Issuance *As
Adjusted Expenses (3) Costs 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 Six Months Ended
July 31, July 31,
---------------------- ----------------------
2016 2016
2017 *As 2017 *As
Adjusted 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,
----------------------
2016
2017 *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 [email protected] Media Contact: Jeff Shadid +1 (405) 834-7777 [email protected]
Source: Workday, Inc.