Workday Announces Fiscal 2014 Second Quarter Financial Results

Total Revenue of $107.6 Million, Up 72% Year Over Year; Subscription Revenue of $81.1 Million, Up 92% Year Over Year

Marketwired

PLEASANTON, CA--(Marketwired - Aug 27, 2013) - Workday, Inc. (NYSE: WDAY), a leader in enterprise cloud applications for human resources and finance, today announced financial results for the fiscal second quarter ended July 31, 2013.

  • Total revenues for the second quarter were $107.6 million, an increase of 72% from the second quarter of fiscal 2013. Subscription revenues were $81.1 million, an increase of 92% from same period last year.

  • Operating loss for the second quarter was $32.3 million, compared to an operating loss of $26.4 million in the same period last year. Non-GAAP operating loss for the second quarter was $21.7 million, compared to a non-GAAP operating loss of $24.1 million last year.1

  • Net loss per basic and diluted share for the second quarter was $0.21, compared to a net loss per basic and diluted share of $0.78 in the second quarter of fiscal 2013. The second quarter non-GAAP net loss per basic and diluted share was $0.13, compared to a non-GAAP net loss per basic and diluted share of $0.71 during the same period last year.1

  • Operating cash flows were a negative $12.9 million in the second quarter. Free cash flows were a negative $42.6 million in the second quarter.2

  • Cash, cash equivalents and marketable securities were approximately $1.3 billion as of July 31, 2013 and include net proceeds from convertible notes issued in the second quarter. Unearned revenue was $325.6 million, a 32% increase from last year.

"Workday continues to be well positioned for strong growth as a leader in cloud applications for human capital management and financial management," said Aneel Bhusri, chairman, co-founder, and co-CEO, Workday. "We continue to execute well as we expand our global operations and new product initiatives. Workday's pace of innovation and very high levels of customer and employee satisfaction are important contributors to our growth."

"We are very pleased with our results for the second quarter of fiscal 2014," said Mark Peek, chief financial officer, Workday. "We generated record quarterly revenues and billings, made solid progress toward profitability, and strengthened our balance sheet raising $533 million net proceeds from our two convertible notes offerings. Looking ahead, we anticipate a strong second half of fiscal 2014 with third quarter revenues expected to be in the range of $115 to $118 million, or growth of 58% to 62% as compared to the prior year. Total revenues for the year are anticipated to be in the range of $436 to $446 million, or growth of 59% to 63%."

Recent Highlights

  • Workday raised $533 million from the issuance of two series of convertible notes due in 2018 and 2020, respectively, net of offering expenses and the costs of related warrant and hedge transactions.

  • Workday announced plans to deliver Workday Payroll for UK and Workday Payroll for France, designed to address the full spectrum of payroll needs. The applications are expected to be generally available in 2015 and 2016, respectively.

  • In an independent survey, Workday employees voted the company the #1 Top Workplace in the large company category on the Bay Area News Group's Top Workplaces list. This is the second consecutive year Workday has received the top recognition on the list.

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 the company's Investor Relations website at www.workday.com/investorrelations. The webcast will be available live, and a replay will be available following completion of the live broadcast for approximately 45 days.

1 Non-GAAP operating loss and net loss per share for the fiscal second quarters of 2013 and 2014 exclude share-based compensation, and for the fiscal second quarter of 2014, also exclude employer payroll taxes on employee stock transactions and non-cash interest expense 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 and property and equipment acquired under capital lease. 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 human resources and finance. Founded in 2005, Workday delivers human capital management, financial management, and analytics applications designed for the world's largest organizations. Hundreds of companies, 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."

Forward-Looking Statements
This press release contains forward-looking statements including, among other things, statements regarding Workday's third quarter and full year fiscal 2014 revenue projections, and our expectations for future applications. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," 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) adverse changes in general economic or market conditions; (ii) delays or reductions in information technology spending; (iii) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors and new applications and marketing initiatives by our competitors; (iv) our ability to manage our growth effectively; (v) our limited operating history, which makes it difficult to predict future results; (vi) the development of the market for enterprise cloud services; (vii) acceptance of our applications and services by customers; (viii) breaches in our security measures or unauthorized access to our customers' data; and (ix) 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, 2013 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.

© 2013. 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,     January 31,  
    2013     2013(1)  
                 
Assets                
Current assets:                
  Cash and cash equivalents   $ 437,432     $ 84,158  
  Marketable securities     857,169       706,181  
  Accounts receivable, net     66,972       67,437  
  Deferred costs     11,385       9,816  
  Prepaid expenses and other current assets     22,437       16,710  
Total current assets     1,395,395       884,302  
Property and equipment, net     64,097       44,585  
Deferred costs, noncurrent     18,871       18,575  
Goodwill and intangible assets, net     8,488       8,488  
Other assets     19,122       3,130  
Total assets   $ 1,505,973     $ 959,080  
                 
Liabilities and stockholders' equity                
Current liabilities:                
  Accounts payable   $ 6,337     $ 2,665  
  Accrued expenses and other current liabilities     14,619       13,558  
  Accrued compensation     31,725       27,203  
  Capital leases     10,720       12,008  
  Unearned revenue     247,320       199,340  
Total current liabilities     310,721       254,774  
Convertible senior notes, net     457,849       -  
Capital leases, noncurrent     7,687       12,972  
Unearned revenue, noncurrent     78,298       85,920  
Other liabilities     12,677       13,131  
Total liabilities     867,232       366,797  
Stockholders' equity:                
  Common stock     171       162  
  Additional paid-in capital     1,109,332       993,933  
  Accumulated other comprehensive income     111       68  
  Accumulated deficit     (470,873 )     (401,880 )
Total stockholders' equity     638,741       592,283  
Total liabilities and stockholders' equity   $ 1,505,973     $ 959,080  
                 

(1) Amounts as of January 31, 2013 were derived from the January 31, 2013 audited financial statements.

   
Workday, Inc.  
   
Condensed Consolidated Statements of Operations  
(in thousands, except per share data)  
(unaudited)  
   
    Three Months Ended     Six Months Ended  
July 31,     July 31,  
2013     2012     2013     2012  
  Revenues   $ 107,555     $ 62,702     $ 199,200     $ 119,520  
  Costs and expenses(1):                                
    Costs of revenues     40,754       28,265       77,453       53,355  
    Research and development     41,168       23,552       77,450       44,338  
    Sales and marketing     44,150       29,629       82,514       54,467  
    General and administrative     13,766       7,616       26,690       13,677  
  Total costs and expenses     139,838       89,062       264,107       165,837  
  Operating loss     (32,283 )     (26,360 )     (64,907 )     (46,317 )
  Other expense, net     (3,479 )     (637 )     (3,735 )     (672 )
  Loss before provision for (benefit from) income taxes     (35,762 )     (26,997 )     (68,642 )     (46,989 )
  Provision for (benefit from) income taxes     216       (116 )     351       (53 )
  Net loss     (35,978 )     (26,881 )     (68,993 )     (46,936 )
  Accretion of redeemable convertible preferred stock     -       (206 )     -       (407 )
  Net loss attributable to common stockholders   $ (35,978 )   $ (27,087 )   $ (68,993 )   $ (47,343 )
  Net loss per share attributable to common stockholders, basic and diluted   $ (0.21 )   $ (0.78 )   $ (0.40 )   $ (1.40 )
  Weighted-average shares used to compute net loss per share attributable to common stockholders     173,375       34,734       170,617       33,881  
                                 
                                 
                                 
  (1) Costs and expenses include share-based compensation as follows:  
      Costs of revenues   $ 1,202     $ 275     $ 1,939     $ 491  
      Research and development     3,465       552       5,372       927  
      Sales and marketing     1,805       502       2,848       869  
      General and administrative     3,311       954       7,040       1,441  
                                 
                                 
   
Workday, Inc.  
   
Condensed Consolidated Statements of Cash Flows  
(in thousands)  
(unaudited)  
   
    Three Months Ended     Six Months Ended  
    July 31,     July 31,  
2013     2012     2013     2012  
Cash flows from operating activities                                
Net loss   $ (35,978 )   $ (26,881 )   $ (68,993 )   $ (46,936 )
Adjustments to reconcile net loss to cash provided by (used in) operating activities:                                
  Depreciation and amortization     8,051       3,943       14,620       7,477  
  Share-based compensation expense     9,783       2,283       17,199       3,728  
  Amortization of deferred costs     2,756       2,334       5,238       5,586  
  Non-cash interest expense     2,790       -       2,790       -  
  Other     196       15       170       30  
  Changes in operating assets and liabilities:                                
    Accounts receivable     (6,808 )     (13,543 )     323       (14,014 )
    Deferred costs     (3,867 )     (3,127 )     (7,103 )     (6,753 )
    Prepaid expenses and other assets     (6,579 )     (1,525 )     (10,142 )     (4,349 )
    Accounts payable     1,251       760       3,672       326  
    Accrued and other liabilities     (9,191 )     3,258       6,262       10,163  
    Unearned revenue     24,680       34,407       40,358       59,374  
Net cash provided by (used in) operating activities     (12,916 )     1,924       4,394       14,632  
                                 
Cash flows from investing activities                                
Purchases of marketable securities     (441,860 )     (32,073 )     (729,701 )     (85,940 )
Maturities of marketable securities     170,159       36,519       576,867       52,940  
Purchases of property and equipment     (29,732 )     (3,805 )     (31,627 )     (6,002 )
Other     -       -       90       -  
Net cash provided by (used in) investing activities     (301,433 )     641       (184,371 )     (39,002 )
                                 
Cash flows from financing activities                                
Proceeds from borrowings on convertible senior notes, net of issuance costs     584,291       -       584,291       -  
Proceeds from issuance of warrants     92,708       -       92,708       -  
Purchase of convertible senior notes hedges     (143,729 )     -       (143,729 )     -  
Proceeds from exercise of stock options     2,110       6,425       6,675       7,130  
Principal payments on capital lease obligations     (2,935 )     (1,777 )     (6,688 )     (3,543 )
Other     72       -       80       -  
Net cash provided by financing activities     532,517       4,648       533,337       3,587  
Effect of exchange rate changes     -       (13 )     (86 )     (5 )
Net increase (decrease) in cash and cash equivalents     218,168       7,200       353,274       (20,788 )
Cash and cash equivalents at the beginning of period     219,264       29,541       84,158       57,529  
Cash and cash equivalents at the end of period   $ 437,432     $ 36,741     $ 437,432     $ 36,741  
                                 
                                 
   
Workday, Inc.  
   
Reconciliation of GAAP to Non-GAAP Data  
Three Months Ended July 31, 2013  
(in thousands, except per share data)  
(unaudited)  
   
    GAAP     Share-Based Compensation     Employer Payroll Taxes on Employee Stock Transactions     Non-cash Interest   Non-GAAP  
Costs and expenses:                                      
Costs of revenues:                                      
  Subscription services   $ 16,327     $ (401 )   $ -     $ -   $ 15,926  
  Professional services     24,427       (801 )     (54 )     -     23,572  
Total costs of revenues     40,754       (1,202 )     (54 )     -     39,498  
                                       
                                       
Research and development     41,168       (3,465 )     (318 )     -     37,385  
Sales and marketing     44,150       (1,805 )     (292 )     -     42,053  
General and administrative     13,766       (3,311 )     (172 )     -     10,283  
                                       
Operating loss     (32,283 )     9,783       836       -     (21,664 )
Operating margin     -30.0 %     9.1 %     0.8 %     -     -20.1 %
Other expense, net     (3,479 )     -       -       2,790     (689 )
                                       
                                       
Loss before provision for income taxes     (35,762 )     9,783       836       2,790     (22,353 )
Provision for income taxes     216       -       -       -     216  
Net loss   $ (35,978 )   $ 9,783     $ 836     $ 2,790   $ (22,569 )
Net loss per share attributable to common stockholders, basic and diluted (1)   $ (0.21 )   $ 0.06     $ 0.00     $ 0.02   $ (0.13 )
                                       

(1) Calculated based upon 173,375 basic and diluted weighted-average shares of common stock.

   
Workday, Inc.  
   
Reconciliation of GAAP to Non-GAAP Data  
Three Months Ended July 31, 2012  
(in thousands, except per share data)  
(unaudited)  
   
    GAAP     Share-Based Compensation     Non-GAAP  
Costs and expenses:                        
Costs of revenues:                        
  Subscription services   $ 8,994     $ (99 )   $ 8,895  
  Professional services     19,271       (176 )     19,095  
Total costs of revenues     28,265       (275 )     27,990  
                      -  
Research and development     23,552       (552 )     23,000  
Sales and marketing     29,629       (502 )     29,127  
General and administrative     7,616       (954 )     6,662  
                         
Operating loss     (26,360 )     2,283       (24,077 )
Operating margin     -42.0 %     3.6 %     -38.4 %
                         
                         
Loss before benefit from income taxes     (26,997 )     2,283       (24,714 )
Benefit from income taxes     (116 )     -       (116 )
Net loss   $ (26,881 )   $ 2,283     $ (24,598 )
Net loss per share attributable to common stockholders,
basic and diluted (1)
  $ (0.78 )   $ 0.07     $ (0.71 )
                         

(1) Calculated based upon 34,734 basic and diluted weighted-average shares of common stock.

   
Workday, Inc.  
   
Reconciliation of GAAP to Non-GAAP Data  
Six Months Ended July 31, 2013  
(in thousands, except per share data)  
(unaudited)  
   
    GAAP     Share-Based Compensation     Employer Payroll Taxes on Employee Stock Transactions     Non-cash Interest   Non-GAAP  
Costs and expenses:                                      
Costs of revenues:                                      
  Subscription services   $ 31,257     $ (663 )   $ (8 )   $ -   $ 30,586  
  Professional services     46,196       (1,276 )     (347 )     -     44,573  
Total costs of revenues     77,453       (1,939 )     (355 )     -     75,159  
                                       
                                       
Research and development     77,450       (5,372 )     (550 )     -     71,528  
Sales and marketing     82,514       (2,848 )     (383 )     -     79,283  
General and administrative     26,690       (7,040 )     (225 )     -     19,425  
                                       
Operating loss     (64,907 )     17,199       1,513       -     (46,195 )
Operating margin     -32.6 %     8.6 %     0.8 %     -     -23.2 %
Other expense, net     (3,735 )     -       -       2,790     (945 )
                                       
                                       
Loss before provision for income taxes     (68,642 )     17,199       1,513       2,790     (47,140 )
Provision for income taxes     351       -       -             351  
Net loss   $ (68,993 )   $ 17,199     $ 1,513     $ 2,790   $ (47,491 )
Net loss per share attributable to common stockholders, basic and diluted (1)   $ (0.40 )   $ 0.10     $ 0.01     $ 0.01   $ (0.28 )
                                       

(1) Calculated based upon 170,617 basic and diluted weighted-average shares of common stock.

   
Workday, Inc.  
   
Reconciliation of GAAP to Non-GAAP Data  
Six Months Ended July 31, 2012  
(in thousands, except per share data)  
(unaudited)  
   
    GAAP     Share-Based Compensation     Non-GAAP  
Costs and expenses:                        
Costs of revenues:                        
  Subscription services   $ 16,588     $ (177 )   $ 16,411  
  Professional services     36,767       (314 )     36,453  
Total costs of revenues     53,355       (491 )     52,864  
                         
                         
                         
Research and development     44,338       (927 )     43,411  
Sales and marketing     54,467       (869 )     53,598  
General and administrative     13,677       (1,441 )     12,236  
Operating loss     (46,317 )     3,728       (42,589 )
Operating margin     -38.8 %     3.2 %     -35.6 %
                         
                         
                         
Loss before benefit from income taxes     (46,989 )     3,728       (43,261 )
Benefit from income taxes     (53 )     -       (53 )
Net loss   $ (46,936 )   $ 3,728     $ (43,208 )
Net loss per share attributable to common stockholders,
basic and diluted (1)
  $ (1.40 )   $ 0.11     $ (1.29 )
                         

(1) Calculated based upon 33,881 basic and diluted weighted-average shares of common stock.

   
Workday, Inc.  
   
Revenue by Type  
(in thousands)  
(unaudited)  
   
    Three Months Ended     Six Months Ended  
    July 31,     July 31,  
    2013     2012     2013     2012  
Revenues:                                
Subscription services   $ 81,111     $ 42,200     $ 149,529     $ 79,122  
Professional services     26,444       20,502       49,671       40,398  
  Total revenues   $ 107,555     $ 62,702     $ 199,200     $ 119,520  
                                 
                                 
Revenues:                                
Subscription services     75.4 %     67.3 %     75.1 %     66.2 %
Professional services     24.6 %     32.7 %     24.9 %     33.8 %
  Total revenues     100.0 %     100.0 %     100.0 %     100.0 %
                                 
                                 
   
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,  
    2013     2012     2013     2012  
GAAP cash flows from operating activities   $ (12,916 )   $ 1,924     $ 4,394     $ 14,632  
Capital expenditures     (29,732 )     (3,805 )     (31,627 )     (6,002 )
Property and equipment acquired under capital lease     -       (3,990 )     (115 )     (4,224 )
  Free cash flows   $ (42,648 )   $ (5,871 )   $ (27,348 )   $ 4,406  
   
         

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 loss, non-GAAP net 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. These non-GAAP financial measures, other than free cash flows, differ from GAAP in that they exclude share-based compensation, employer payroll taxes on employee stock transactions 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 and assets acquired under a capital lease as a reduction to cash flows.

Workday's management uses these non-GAAP financial measures to understand and compare operating results across accounting periods, and 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 available to make strategic acquisitions and investments, to fund ongoing operations and to fund other capital expenditures.

Management believes these non-GAAP financial measures are useful to investors and others in assessing Workday's operating performance due to the following factors:

  • Share-based compensation. Although share-based compensation is an important aspect of the compensation of Workday's employees and executives, 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. Furthermore, unlike cash compensation, the value of stock options, which is an element of our ongoing share-based compensation expense, is determined using a complex formula that incorporates factors, such as market volatility, that are beyond our control. Management believes it is useful to exclude share-based compensation 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.

  • Employer payroll taxes on employee stock transactions. The amount of employer payroll taxes on employee stock transactions is dependent on Workday's stock price and other factors that are beyond our control and do not correlate to the operation of the business.

  • Non-cash interest expense. 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 effective interest expense on our convertible senior notes. The effective interest rates, including interest cost related to the amortization of debt issuance costs, were approximately 6.1% for the convertible senior notes due 2018 and approximately 6.4% for the convertible senior notes due 2020, while the contractual interest rates of the notes were 0.75% and 1.50%, respectively. The difference between the effective interest expense and the contractual interest expense is excluded from management's assessment of our operating performance because management believes that this non-cash expense is 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 capital expenditures, whether purchased or leased, due to the fact that these expenditures are considered to be an ongoing operational component of our business.

The use of non-GAAP financial 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.

Contact:
Investor Relations
Michael Haase
(925) 951-9005
Michael.Haase@Workday.com

Media
Eric Glass
(415) 432-3056
Eric.Glass@Workday.com

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