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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

SINGAPORE - Media OutReach - 5 September 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.

 

Additional Information


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

)

 

Total stockholders' equity

2,210,285

 

 

1,958,442

 

 

Total liabilities and stockholders' equity

$

5,992,156

 

 

$

5,520,746

 

 

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

 

Total revenues

887,752

 

 

671,720

 

 

1,712,807

 

 

1,290,363

 

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

 

Total costs and expenses

1,010,249

 

 

760,702

 

 

1,958,690

 

 

1,450,609

 

Operating loss

(122,497

)

 

(88,982

)

 

(245,883

)

 

(160,246

)

Other income (expense), net

(106

)

 

1,613

 

 

7,035

 

 

(2,235

)

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

)

Net loss

$

(120,712

)

 

$

(86,156

)

 

$

(236,987

)

 

$

(160,566

)

Net loss per share, basic and diluted

$

(0.53

)

 

$

(0.40

)

 

$

(1.05

)

 

$

(0.75

)

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

)

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

)

 

--

 

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

)

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

)

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

 

Cash, cash equivalents, and restricted cash at the end of period

$

624,646

 

 

$

1,695,818

 

 

$

624,646

 

 

$

1,695,818

 

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 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.

 

© 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.

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.

 

Forward-Looking Statements

This press release contains forward-looking statements including, among other things, statements regarding the expected performance and benefits of Workday's offerings. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "seek," "plan," "project," 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, risks described in our filings with the Securities and Exchange Commission (SEC), including our Form 10-K for the fiscal year ended January 31, 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, Inc. 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.

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