Form 8-K Workday, Inc. For: Aug 29
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
August 29, 2019
Date of Report (date of earliest event reported)
WORKDAY, INC.
(Exact name of Registrant as specified in its charter)
| Delaware | 001-35680 | 20-2480422 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(I. R. S. Employer Identification No.) |
6110 Stoneridge Mall Road
Pleasanton, California 94588
(Address of principal executive offices)
Registrant’s telephone number, including area code: (925) 951-9000
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Class A Common Stock, par value $0.001 | WDAY | The Nasdaq Stock Market LLC (Nasdaq Global Select Market) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Section 2 – Financial Information
Item 2.02 – Results of Operations and Financial Condition
On August 29, 2019, Workday, Inc. (“Workday”) issued a press release announcing its results for the quarter ended July 31, 2019. A copy of the press release is attached as Exhibit 99.1 to this current report on Form 8-K and is incorporated by reference herein.
Workday uses its blogs.workday.com website as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.
The information in this current report on Form 8-K and the exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing.
Section 9 – Financial Statements and Exhibits
Item 9.01 – Financial Statements and Exhibits
(d) Exhibits
| 99.1 | Press release entitled “Workday Announces Fiscal 2020 Second Quarter Financial Results” dated August 29, 2019 | |
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: August 29, 2019
| Workday, Inc. |
| /s/ Robynne D. Sisco |
| Robynne D. Sisco |
| Co-President and Chief Financial Officer |
Exhibit 99.1
Workday Announces Fiscal 2020 Second Quarter Financial Results
Second Quarter Total Revenues of $887.8 Million, Up 32.2% Year Over Year
Subscription Revenue of $757.2 Million, Up 33.9% Year Over Year
Subscription Revenue Backlog of $7.03 Billion, Up 27.2% Year Over Year
PLEASANTON, Calif., Aug. 29, 2019 — Workday, Inc. (NASDAQ: WDAY), a leader in enterprise cloud applications for finance and human resources, today announced results for the fiscal 2020 second quarter ended July 31, 2019.
Fiscal 2020 Second Quarter Results
| • | Total revenues were $887.8 million, an increase of 32.2% from the second quarter of fiscal 2019. Subscription revenue was $757.2 million, an increase of 33.9% from the same period last year. |
| • | Operating loss was $122.5 million, or negative 13.8% of revenues, compared to an operating loss of $89.0 million, or negative 13.2% of revenues, in the same period last year. Non-GAAP operating income for the second quarter was $117.5 million, or 13.2% of revenues, compared to a non-GAAP operating income of $68.1 million, or 10.1% of revenues, in the same period last year.1 |
| • | Net loss per basic and diluted share was $0.53, compared to a net loss per basic and diluted share of $0.40 in the second quarter of fiscal 2019. Non-GAAP net income per diluted share was $0.44 compared to a non-GAAP net income per diluted share of $0.31 in the same period last year.2 |
| • | Operating cash flows were $100.3 million compared to $57.6 million in the same period last year. |
| • | Cash, cash equivalents, and marketable securities were $1.93 billion as of July 31, 2019. Unearned revenues were $1.89 billion, a 27.1% increase from the same period last year. |
Comments on the News
“It was a strong quarter, with continued global customer momentum across the Fortune 500 and Global 2,000, as more organizations look to Workday for the ability to plan, execute, and analyze in one system powered by machine learning. In addition, we celebrated one year with Adaptive Insights and continue to make great progress on our integration vision,” said Aneel Bhusri, co-founder and CEO, Workday. “As we move into the second half of the year, we are continuing to invest in areas that leverage our strengths and open new opportunities.”
“We delivered strong Q2 results with subscription revenue up 34%, along with solid operating margins and cash flow,” said Robynne Sisco, co-president and chief financial officer, Workday. “Based on our second quarter results, we are raising our fiscal 2020 subscription revenue outlook and now expect subscription revenue of $3.06 to $3.07 billion. We expect our third quarter subscription revenue to be between $783 and $785 million. We continue to prioritize investing in long-term growth initiatives, while delivering solid operating margins and cash flow over time.”
Recent Highlights
| • | Workday opened its new headquarters in Pleasanton, Calif. The new 410,000-square-foot, six-story building was designed to encourage collaboration and will accommodate 2,200 employees as well as Workday’s new customer center. |
| • | Workday celebrated the one-year anniversary of its acquisition of Adaptive Insights. In the last year, the two organizations have seen continued business planning momentum, including the addition of more than 800 new Adaptive Insights customers, machine learning advancements, the completion of the first phase of the Adaptive Insights integration with Workday as part of the Power of One, and record attendance at Adaptive Live, the company’s annual customer conference. |
| • | Workday published its commitments to ethical artificial intelligence (AI), which includes six principles that guide how it develops machine learning – a subset of AI – for the enterprise responsibly. |
| • | Fast Company recognized Workday on its inaugural list of the 50 Best Workplaces For Innovators, which honors organizations that demonstrate a deep commitment to encouraging innovation at all levels. |
| • | Workday became the first organization to adhere to the EU Cloud Code of Conduct (CoC) by SCOPE Europe, underscoring the company’s continued commitment to global data protection. |
| • | Workday appointed Carolyn Horne as president of the EMEA region and David Webster as president of the APJ region. In addition, Workday promoted Josh DeFigueiredo to chief security officer. |
| • | Workday released its 2019 Global Impact Report, which provides an inside look into the company’s efforts to make a positive impact on the world — from implementing sustainable practices, to creating a better place to work, and empowering positive social impact. |
Earnings Call Details
Workday plans to host a conference call today to review its fiscal 2020 second quarter financial results and to discuss its financial outlook. The call is scheduled to begin at 1:30 p.m. PT/ 4:30 p.m. ET and can be accessed via webcast. The webcast will be available live, and a replay will be available following completion of the live broadcast for approximately 90 days.
Workday uses 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 income excludes share-based compensation expenses, employer payroll tax-related items on employee stock transactions, and amortization expense for acquisition-related intangible assets. See the section titled “About Non-GAAP Financial Measures” in the accompanying financial tables for further details.
2 Non-GAAP net income per share excludes share-based compensation expenses, employer payroll tax-related items on employee stock transactions, amortization expense for acquisition-related intangible assets, non-cash interest expense related to our convertible senior notes, and income tax effects. See the section titled “About Non-GAAP Financial Measures” in the accompanying financial tables for further details.
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, planning, 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 share-based compensation expense, which is excluded from our non-GAAP operating margin, requires additional inputs such as the number of shares granted and market prices that are not ascertainable.
Forward-Looking Statements
This press release contains forward-looking statements including, among other things, statements regarding Workday’s ability to integrate acquired companies; strategic investments; fiscal year and third quarter subscription revenue outlook; and ability to prioritize investing in long-term growth initiatives while delivering solid operating margins and cash flow over time. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “seek,” “plans,” “project,” “looking ahead,” “look to,” “move into,” 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) risks related to our ability to successfully integrate Adaptive Insights’ operations or failure to achieve the expected benefits of this or any other acquisition or transaction; (ii) our ability to implement our plans, objectives, and other expectations with respect to the Adaptive Insights business or that of any other acquired company; (iii) breaches in our security measures, unauthorized access to our customers’ data or disruptions in our data center operations; (iv) our ability to manage our growth effectively; (v) competitive factors, including pricing pressures, industry consolidation, entry of new competitors and new applications, advancements in technology, and marketing initiatives by our competitors; (vi) the development of the market for enterprise cloud applications and services; (vii) acceptance of our applications and services by customers, including any underlying technology such as machine learning and artificial intelligence; (viii) adverse changes in general economic or market conditions; (ix) the regulatory, economic, and political risks associated with our international operations; (x) delays or reductions in information technology spending; and (xi) 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 April 30, 2019 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.
© 2019. 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, 2019 | January 31, 2019 | |||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 619,514 | $ | 638,554 | ||||
| Marketable securities |
1,307,006 | 1,139,864 | ||||||
| Trade and other receivables, net |
613,425 | 704,680 | ||||||
| Deferred costs |
85,557 | 80,809 | ||||||
| Prepaid expenses and other current assets |
163,530 | 136,689 | ||||||
|
|
|
|
|
|||||
| Total current assets |
2,789,032 | 2,700,596 | ||||||
| Property and equipment, net |
919,523 | 796,907 | ||||||
| Operating lease right-of-use assets |
294,824 | — | ||||||
| Deferred costs, noncurrent |
182,580 | 183,518 | ||||||
| Acquisition-related intangible assets, net |
277,953 | 313,240 | ||||||
| Goodwill |
1,389,349 | 1,379,125 | ||||||
| Other assets |
138,895 | 147,360 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 5,992,156 | $ | 5,520,746 | ||||
|
|
|
|
|
|||||
| Liabilities and stockholders’ equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 32,540 | $ | 29,093 | ||||
| Accrued expenses and other current liabilities |
114,494 | 123,542 | ||||||
| Accrued compensation |
192,064 | 207,924 | ||||||
| Unearned revenue |
1,796,423 | 1,837,618 | ||||||
| Operating lease liabilities |
65,554 | — | ||||||
| Current portion of convertible senior notes, net |
1,233,189 | 232,514 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
3,434,264 | 2,430,691 | ||||||
| Convertible senior notes, net |
— | 972,264 | ||||||
| Unearned revenue, noncurrent |
89,219 | 111,652 | ||||||
| Operating lease liabilities, noncurrent |
243,863 | — | ||||||
| Other liabilities |
14,525 | 47,697 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
3,781,871 | 3,562,304 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock |
227 | 221 | ||||||
| Additional paid-in capital |
4,561,272 | 4,105,334 | ||||||
| Accumulated other comprehensive income (loss) |
32,458 | (809 | ) | |||||
| Accumulated deficit |
(2,383,672 | ) | (2,146,304 | ) | ||||
|
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|
|
|
|||||
| Total stockholders’ equity |
2,210,285 | 1,958,442 | ||||||
|
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|
|
|
|||||
| Total liabilities and stockholders’ equity |
$ | 5,992,156 | $ | 5,520,746 | ||||
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Workday, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
| Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Revenues: |
||||||||||||||||
| Subscription services |
$ | 757,155 | $ | 565,659 | $ | 1,458,179 | $ | 1,087,808 | ||||||||
| Professional services |
130,597 | 106,061 | 254,628 | 202,555 | ||||||||||||
|
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|
|
|
|
|
|
|
|||||||||
| Total revenues |
887,752 | 671,720 | 1,712,807 | 1,290,363 | ||||||||||||
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|
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|
|
|
|
|
|||||||||
| Costs and expenses (1): |
||||||||||||||||
| Costs of subscription services |
121,161 | 87,523 | 233,630 | 167,768 | ||||||||||||
| Costs of professional services |
145,173 | 112,707 | 275,923 | 210,433 | ||||||||||||
| Product development |
378,122 | 292,840 | 725,953 | 556,424 | ||||||||||||
| Sales and marketing |
280,200 | 202,464 | 553,136 | 395,235 | ||||||||||||
| General and administrative |
85,593 | 65,168 | 170,048 | 120,749 | ||||||||||||
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|
|||||||||
| Total costs and expenses |
1,010,249 | 760,702 | 1,958,690 | 1,450,609 | ||||||||||||
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|
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|
|||||||||
| Operating loss |
(122,497 | ) | (88,982 | ) | (245,883 | ) | (160,246 | ) | ||||||||
| Other income (expense), net |
(106 | ) | 1,613 | 7,035 | (2,235 | ) | ||||||||||
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|||||||||
| Loss before provision for (benefit from) income taxes |
(122,603 | ) | (87,369 | ) | (238,848 | ) | (162,481 | ) | ||||||||
| Provision for (benefit from) income taxes |
(1,891 | ) | (1,213 | ) | (1,861 | ) | (1,915 | ) | ||||||||
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| Net loss |
$ | (120,712 | ) | $ | (86,156 | ) | $ | (236,987 | ) | $ | (160,566 | ) | ||||
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| Net loss per share, basic and diluted |
$ | (0.53 | ) | $ | (0.40 | ) | $ | (1.05 | ) | $ | (0.75 | ) | ||||
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| Weighted-average shares used to compute net loss per share, basic and diluted |
226,392 | 215,932 | 224,857 | 214,517 | ||||||||||||
| (1) Costs and expenses include share-based compensation expenses as follows: |
| |||||||||||||||
| Costs of subscription services |
$ | 12,001 | $ | 8,521 | $ | 22,416 | $ | 16,398 | ||||||||
| Costs of professional services |
18,991 | 12,518 | 35,141 | 23,310 | ||||||||||||
| Product development |
105,758 | 75,354 | 196,995 | 143,865 | ||||||||||||
| Sales and marketing |
42,690 | 29,367 | 81,544 | 54,979 | ||||||||||||
| General and administrative |
29,781 | 21,303 | 58,360 | 41,170 | ||||||||||||
Workday, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Cash flows from operating activities |
||||||||||||||||
| Net loss |
$ | (120,712 | ) | $ | (86,156 | ) | $ | (236,987 | ) | $ | (160,566 | ) | ||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||||||||||
| Depreciation and amortization |
67,754 | 42,226 | 128,919 | 80,890 | ||||||||||||
| Share-based compensation expenses |
208,912 | 147,063 | 394,147 | 279,722 | ||||||||||||
| Amortization of deferred costs |
22,002 | 17,061 | 42,882 | 33,421 | ||||||||||||
| Amortization of debt discount and issuance costs |
14,301 | 17,490 | 25,888 | 35,629 | ||||||||||||
| Other |
11,401 | (4,894 | ) | 20,377 | (14,183 | ) | ||||||||||
| Changes in operating assets and liabilities, net of business combinations: |
||||||||||||||||
| Trade and other receivables, net |
(73,437 | ) | (104,758 | ) | 83,942 | 63,944 | ||||||||||
| Deferred costs |
(28,207 | ) | (23,943 | ) | (46,692 | ) | (36,549 | ) | ||||||||
| Prepaid expenses and other assets |
(1,679 | ) | (5,446 | ) | (6,786 | ) | 3,042 | |||||||||
| Accounts payable |
1,047 | 5,987 | 2,550 | 13,941 | ||||||||||||
| Accrued expenses and other liabilities |
(56,524 | ) | (15,182 | ) | (35,121 | ) | (3,555 | ) | ||||||||
| Unearned revenue |
55,461 | 68,168 | (63,637 | ) | (53,887 | ) | ||||||||||
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| Net cash provided by (used in) operating activities |
100,319 | 57,616 | 309,482 | 241,849 | ||||||||||||
| Cash flows from investing activities |
||||||||||||||||
| Purchases of marketable securities |
(582,848 | ) | (526,216 | ) | (1,053,902 | ) | (1,434,342 | ) | ||||||||
| Maturities of marketable securities |
385,710 | 655,205 | 845,807 | 1,341,881 | ||||||||||||
| Sales of marketable securities |
4,551 | 914,938 | 55,499 | 942,297 | ||||||||||||
| Owned real estate projects |
(34,149 | ) | (49,537 | ) | (73,783 | ) | (88,770 | ) | ||||||||
| Capital expenditures, excluding owned real estate projects |
(75,576 | ) | (53,346 | ) | (141,111 | ) | (102,208 | ) | ||||||||
| Business combinations, net of cash acquired |
(12,885 | ) | (26,737 | ) | (12,885 | ) | (26,737 | ) | ||||||||
| Purchase of other intangible assets |
— | (1,000 | ) | — | (1,000 | ) | ||||||||||
| Purchases of non-marketable equity and other investments |
(5,516 | ) | (1,000 | ) | (7,716 | ) | (3,400 | ) | ||||||||
| Other |
(32 | ) | — | (9 | ) | — | ||||||||||
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|
|||||||||
| Net cash provided by (used in) investing activities |
(320,745 | ) | 912,307 | (388,100 | ) | 627,721 | ||||||||||
| Cash flows from financing activities |
||||||||||||||||
| Payments on convertible senior notes |
(27 | ) | (350,005 | ) | (27 | ) | (350,005 | ) | ||||||||
| Proceeds from issuance of common stock from employee equity plans |
58,085 | 38,686 | 61,540 | 41,297 | ||||||||||||
| Other |
(107 | ) | (59 | ) | (200 | ) | (116 | ) | ||||||||
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|||||||||
| Net cash provided by (used in) financing activities |
57,951 | (311,378 | ) | 61,313 | (308,824 | ) | ||||||||||
| Effect of exchange rate changes |
75 | (162 | ) | (252 | ) | (582 | ) | |||||||||
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|||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash |
(162,400 | ) | 658,383 | (17,557 | ) | 560,164 | ||||||||||
| Cash, cash equivalents, and restricted cash at the beginning of period |
787,046 | 1,037,435 | 642,203 | 1,135,654 | ||||||||||||
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|||||||||
| Cash, cash equivalents, and restricted cash at the end of period |
$ | 624,646 | $ | 1,695,818 | $ | 624,646 | $ | 1,695,818 | ||||||||
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Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Three Months Ended July 31, 2019
(in thousands, except percentages and per share data)
(unaudited)
| GAAP | Share-Based Compensation Expenses |
Other Operating Expenses (2) |
Amortization of Debt Discount and Issuance Costs |
Income Tax Effects (3) |
Non-GAAP | |||||||||||||||||||
| Costs and expenses: |
||||||||||||||||||||||||
| Costs of subscription services |
$ | 121,161 | $ | (12,001 | ) | $ | (11,739 | ) | $ | — | $ | — | $ | 97,421 | ||||||||||
| Costs of professional services |
145,173 | (18,991 | ) | (1,233 | ) | — | — | 124,949 | ||||||||||||||||
| Product development |
378,122 | (105,758 | ) | (5,380 | ) | — | — | 266,984 | ||||||||||||||||
| Sales and marketing |
280,200 | (42,690 | ) | (10,449 | ) | — | — | 227,061 | ||||||||||||||||
| General and administrative |
85,593 | (29,781 | ) | (2,021 | ) | — | — | 53,791 | ||||||||||||||||
| Operating income (loss) |
(122,497 | ) | 209,221 | 30,822 | — | — | 117,546 | |||||||||||||||||
| Operating margin |
(13.8 | )% | 23.6 | % | 3.4 | % | — | % | — | % | 13.2 | % | ||||||||||||
| Other income (expense), net |
(106 | ) | — | — | 14,301 | — | 14,195 | |||||||||||||||||
| Income (loss) before provision for (benefit from) income taxes |
(122,603 | ) | 209,221 | 30,822 | 14,301 | — | 131,741 | |||||||||||||||||
| Provision for (benefit from) income taxes |
(1,891 | ) | — | — | — | 24,287 | 22,396 | |||||||||||||||||
| Net income (loss) |
$ | (120,712 | ) | $ | 209,221 | $ | 30,822 | $ | 14,301 | $ | (24,287 | ) | $ | 109,345 | ||||||||||
| Net income (loss) per share (1) |
$ | (0.53 | ) | $ | 0.92 | $ | 0.14 | $ | 0.06 | $ | (0.15 | ) | $ | 0.44 | ||||||||||
| (1) | GAAP net loss per share is calculated based upon 226,392 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share is calculated based upon 247,748 diluted weighted-average shares of common stock. |
| (2) | Other operating expenses include amortization of acquisition-related intangible assets of $19.5 million and total employer payroll tax-related items on employee stock transactions of $11.3 million. |
| (3) | We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision to provide better consistency across the interim reporting periods. For fiscal 2020, the projected non-GAAP tax rate is 17%. |
Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Three Months Ended July 31, 2018
(in thousands, except percentages and per share data)
(unaudited)
| GAAP | Share-Based Compensation Expenses |
Other Operating Expenses (2) |
Amortization of Debt Discount and Issuance Costs |
Income Tax Effects (3) |
Non-GAAP | |||||||||||||||||||
| Costs and expenses: |
||||||||||||||||||||||||
| Costs of subscription services |
$ | 87,523 | $ | (8,521 | ) | $ | (3,787 | ) | $ | — | $ | — | $ | 75,215 | ||||||||||
| Costs of professional services |
112,707 | (12,518 | ) | (519 | ) | — | — | 99,670 | ||||||||||||||||
| Product development |
292,840 | (75,354 | ) | (3,960 | ) | — | — | 213,526 | ||||||||||||||||
| Sales and marketing |
202,464 | (29,367 | ) | (1,039 | ) | — | — | 172,058 | ||||||||||||||||
| General and administrative |
65,168 | (21,303 | ) | (731 | ) | — | — | 43,134 | ||||||||||||||||
| Operating income (loss) |
(88,982 | ) | 147,063 | 10,036 | — | — | 68,117 | |||||||||||||||||
| Operating margin |
(13.2 | )% | 21.9 | % | 1.4 | % | — | % | — | % | 10.1 | % | ||||||||||||
| Other income (expense), net |
1,613 | — | — | 17,490 | — | 19,103 | ||||||||||||||||||
| Income (loss) before provision for (benefit from) income taxes |
(87,369 | ) | 147,063 | 10,036 | 17,490 | — | 87,220 | |||||||||||||||||
| Provision for (benefit from) income taxes |
(1,213 | ) | — | — | — | 16,004 | 14,791 | |||||||||||||||||
| Net income (loss) |
$ | (86,156 | ) | $ | 147,063 | $ | 10,036 | $ | 17,490 | $ | (16,004 | ) | $ | 72,429 | ||||||||||
| Net income (loss) per share (1) |
$ | (0.40 | ) | $ | 0.68 | $ | 0.05 | $ | 0.08 | $ | (0.10 | ) | $ | 0.31 | ||||||||||
| (1) | GAAP net loss per share is calculated based upon 215,932 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share is calculated based upon 237,404 diluted weighted-average shares of common stock. |
| (2) | Other operating expenses include amortization of acquisition-related intangible assets of $5.3 million and total employer payroll tax-related items on employee stock transactions of $4.7 million. |
| (3) | We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision to provide better consistency across the interim reporting periods. For fiscal 2019, the projected non-GAAP tax rate was 17%. |
Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Six Months Ended July 31, 2019
(in thousands, except percentages and per share data)
(unaudited)
| GAAP | Share-Based Compensation Expenses |
Other Operating Expenses (2) |
Amortization of Debt Discount and Issuance Costs |
Income Tax Effects (3) |
Non-GAAP | |||||||||||||||||||
| Costs and expenses: |
||||||||||||||||||||||||
| Costs of subscription services |
$ | 233,630 | $ | (22,416 | ) | $ | (24,399 | ) | $ | — | $ | — | $ | 186,815 | ||||||||||
| Costs of professional services |
275,923 | (35,141 | ) | (4,692 | ) | — | — | 236,090 | ||||||||||||||||
| Product development |
725,953 | (196,995 | ) | (19,011 | ) | — | — | 509,947 | ||||||||||||||||
| Sales and marketing |
553,136 | (81,544 | ) | (23,283 | ) | — | — | 448,309 | ||||||||||||||||
| General and administrative |
170,048 | (58,360 | ) | (5,319 | ) | — | — | 106,369 | ||||||||||||||||
| Operating income (loss) |
(245,883 | ) | 394,456 | 76,704 | — | — | 225,277 | |||||||||||||||||
| Operating margin |
(14.4 | )% | 23.0 | % | 4.6 | % | — | % | — | % | 13.2 | % | ||||||||||||
| Other income (expense), net |
7,035 | — | — | 25,888 | — | 32,923 | ||||||||||||||||||
| Income (loss) before provision for (benefit from) income taxes |
(238,848 | ) | 394,456 | 76,704 | 25,888 | — | 258,200 | |||||||||||||||||
| Provision for (benefit from) income taxes |
(1,861 | ) | — | — | — | 45,755 | 43,894 | |||||||||||||||||
| Net income (loss) |
$ | (236,987 | ) | $ | 394,456 | $ | 76,704 | $ | 25,888 | $ | (45,755 | ) | $ | 214,306 | ||||||||||
| Net income (loss) per share (1) |
$ | (1.05 | ) | $ | 1.75 | $ | 0.34 | $ | 0.12 | $ | (0.29 | ) | $ | 0.87 | ||||||||||
| (1) | GAAP net loss per share is calculated based upon 224,857 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share is calculated based upon 246,610 diluted weighted-average shares of common stock. |
| (2) | Other operating expenses include amortization of acquisition-related intangible assets of $38.9 million and total employer payroll tax-related items on employee stock transactions of $37.8 million. |
| (3) | We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision to provide better consistency across the interim reporting periods. For fiscal 2020, the projected non-GAAP tax rate is 17%. |
Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Six Months Ended July 31, 2018
(in thousands, except percentages and per share data)
(unaudited)
| GAAP | Share-Based Compensation Expenses |
Other Operating Expenses (2) |
Amortization of Debt Discount and Issuance Costs |
Income Tax Effects (3) |
Non-GAAP | |||||||||||||||||||
| Costs and expenses: |
||||||||||||||||||||||||
| Costs of subscription services |
$ | 167,768 | $ | (16,398 | ) | $ | (8,239 | ) | $ | — | $ | — | $ | 143,131 | ||||||||||
| Costs of professional services |
210,433 | (23,310 | ) | (2,220 | ) | — | — | 184,903 | ||||||||||||||||
| Product development |
556,424 | (143,865 | ) | (12,757 | ) | — | — | 399,802 | ||||||||||||||||
| Sales and marketing |
395,235 | (54,979 | ) | (3,619 | ) | — | — | 336,637 | ||||||||||||||||
| General and administrative |
120,749 | (41,170 | ) | (2,598 | ) | — | — | 76,981 | ||||||||||||||||
| Operating income (loss) |
(160,246 | ) | 279,722 | 29,433 | — | — | 148,909 | |||||||||||||||||
| Operating margin |
(12.4 | )% | 21.7 | % | 2.2 | % | — | % | — | % | 11.5 | % | ||||||||||||
| Other income (expense), net |
(2,235 | ) | — | — | 35,629 | — | 33,394 | |||||||||||||||||
| Income (loss) before provision for (benefit from) income taxes |
(162,481 | ) | 279,722 | 29,433 | 35,629 | — | 182,303 | |||||||||||||||||
| Provision for (benefit from) income taxes |
(1,915 | ) | — | — | — | 32,870 | 30,955 | |||||||||||||||||
| Net income (loss) |
$ | (160,566 | ) | $ | 279,722 | $ | 29,433 | $ | 35,629 | $ | (32,870 | ) | $ | 151,348 | ||||||||||
| Net income (loss) per share (1) |
$ | (0.75 | ) | $ | 1.30 | $ | 0.14 | $ | 0.17 | $ | (0.22 | ) | $ | 0.64 | ||||||||||
| (1) | GAAP net loss per share is calculated based upon 214,517 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share is calculated based upon 236,706 diluted weighted-average shares of common stock. |
| (2) | Other operating expenses include total employer payroll tax-related items on employee stock transactions of $19.0 million and amortization of acquisition-related intangible assets of $10.4 million. |
| (3) | We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision to provide better consistency across the interim reporting periods. For fiscal 2019, the projected non-GAAP tax rate was 17%. |
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) and non-GAAP net income (loss) per share. Workday has provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure. Non-GAAP operating income (loss) differs from GAAP in that it excludes share-based compensation expenses, employer payroll tax-related items on employee stock transactions, and amortization of acquisition-related intangible assets. Non-GAAP net income (loss) per share differs from GAAP in that it excludes share-based compensation expenses, employer payroll tax-related items on employee stock transactions, amortization of acquisition-related intangible assets, non-cash interest expense related to our convertible senior notes, and income tax effects.
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. 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 prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies.
Management believes excluding the following items from the GAAP Condensed Consolidated Statements 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 to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies. Share-based compensation expenses are determined using a number of factors, including our stock price, volatility, and forfeiture rates that are beyond our control and generally unrelated to operational decisions and performance in any particular period. Further, share-based compensation expenses are not reflective of the value ultimately received by the grant recipients. |
| • | Other operating expenses. Other operating expenses includes employer payroll tax-related items on employee stock transactions and amortization of acquisition-related intangible assets. The amount of employer payroll tax-related items on employee stock transactions is dependent on our stock price and other factors that are beyond our control and do not correlate to the operation of the business. For business combinations, we generally allocate a portion of the purchase price to intangible assets. The amount of the allocation is based on estimates and assumptions made by management and is subject to amortization. The amount of purchase price allocated to intangible assets and the term of its related amortization can vary significantly and are unique to each acquisition, and thus we do not believe it is reflective of ongoing operations. |
| • | 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 Workday’s operational performance. |
| • | Income tax effects. We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision to provide better consistency across the interim reporting periods. In projecting this long-term non-GAAP tax rate, we utilize a three-year financial projection that excludes the direct impact of share-based compensation and related employer payroll taxes, amortization of acquisition-related intangible assets, and amortization of debt discount and issuance costs. The projected rate considers other factors such as our current operating structure, existing tax positions in various jurisdictions, and key legislation in major jurisdictions where we operate. For fiscal 2020 and 2019, we determined the projected non-GAAP tax rate to be 17%. We will periodically re-evaluate this tax rate, as necessary, for significant events, based on our ongoing analysis of the 2017 U.S. Tax Cuts and Jobs Act, relevant tax law changes, material changes in the forecasted geographic earnings mix, and any significant acquisitions. |
The use of non-GAAP operating income (loss) and non-GAAP net income (loss) per share measures have 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
Media Contact:
Nina Oestlien
+1 (415) 828-3034