Workday Announces Fiscal 2014 Third Quarter Financial Results

Total Revenue of $127.9 Million, up 76% Year Over Year; Subscription Revenue of $93.9 Million, up 82% Year Over Year

Marketwired

PLEASANTON, CA--(Marketwired - Nov 25, 2013) - Workday, Inc. (NYSE: WDAY), a leader in enterprise cloud applications for human resources and finance, today announced financial results for the fiscal third quarter ended October 31, 2013.

  • Total revenues for the third quarter were $127.9 million, an increase of 76% from the third quarter of fiscal 2013. Subscription revenues were $93.9 million, an increase of 82% from same period last year.

  • Operating loss for the third quarter was $40.4 million, compared to an operating loss of $40.9 million in the same period last year. Non-GAAP operating loss for the third quarter was $19.9 million, compared to a non-GAAP operating loss of $23.5 million last year.1

  • Net loss per basic and diluted share for the third quarter was $0.27, compared to a net loss per basic and diluted share of $0.67 in the third quarter of fiscal 2013. The third quarter non-GAAP net loss per basic and diluted share was $0.12, compared to a non-GAAP net loss per basic and diluted share of $0.39 during the same period last year.1

  • Operating cash flows were $7.1 million in the third quarter. Free cash flows were a negative $9.7 million in the third quarter.2

  • Cash, cash equivalents and marketable securities were approximately $1.3 billion as of October 31, 2013. Unearned revenue was $351.8 million, a 40% increase from last year.

"We continue to innovate rapidly across all initiatives," said Aneel Bhusri, chairman, co-founder, and co-CEO, Workday. "In the third quarter, we announced the availability of Workday Big Data Analytics, confirmed that Workday Recruiting is progressing well and on schedule, and we continued our investment in Workday Financial Management, broadening the scope and scale for the world's largest organizations."

"We had a solid third quarter, and we continue to be pleased with our progress as we build for the long term," said Mark Peek, chief financial officer, Workday. "We generated record quarterly revenues and continued our march toward profitability. We also continue to execute well as we expand our operations globally. Looking ahead to the fourth quarter, we expect total revenues to be in the range of $133 to $138 million, or growth of 63% to 69% as compared to the prior year period."

Recent Highlights

  • Workday held its seventh annual customer conference, Workday Rising, bringing together more than 3,500 attendees from the Workday community for education and collaboration in San Francisco.

  • Workday unveiled plans to build Workday Student, an end-to-end student application for the needs of modern-day higher education institutions.

  • The company also announced the availability of Workday Big Data Analytics, a new application that redefines how organizations unify diverse sources, sizes, and structures of data with Workday data to deliver insights business leaders need for critical workforce and financial decisions.

Workday plans to host a conference call today to review its third 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 third quarters of 2013 and 2014 exclude share-based compensation, and for the fiscal third quarter of 2014, also exclude employer payroll taxes on employee stock transactions and amortization expense for the debt discount and issuance costs associated with convertible notes. The fiscal third quarter of 2013 non-GAAP operating loss and net loss per share also exclude a one-time charge related to our contribution of 500,000 shares of common stock to the Workday Foundation. 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 fourth quarter 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 July 31, 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)  
   
  October 31,     January 31,  
  2013     2013(1)  
Assets              
Current assets:              
  Cash and cash equivalents $ 183,460     $ 84,158  
  Marketable securities   1,099,235       706,181  
  Accounts receivable, net   86,961       67,437  
  Deferred costs   14,352       9,816  
  Prepaid expenses and other current assets   21,594       16,710  
Total current assets   1,405,602       884,302  
               
Property and equipment, net   73,960       44,585  
Deferred costs, noncurrent   18,039       18,575  
Goodwill and intangible assets, net   8,488       8,488  
Other assets   22,096       3,130  
Total assets $ 1,528,185     $ 959,080  
               
Liabilities and stockholders' equity              
Current liabilities:              
  Accounts payable $ 8,228     $ 2,665  
  Accrued expenses and other current liabilities   17,890       13,558  
  Accrued compensation   46,250       27,203  
  Capital leases   10,044       12,008  
  Unearned revenue   279,290       199,340  
Total current liabilities   361,702       254,774  
Convertible senior notes, net   463,092       -  
Capital leases, noncurrent   5,546       12,972  
Unearned revenue, noncurrent   72,479       85,920  
Other liabilities   11,964       13,131  
Total liabilities   914,783       366,797  
               
Stockholders' equity:              
  Common stock   172       162  
  Additional paid-in capital   1,131,453       993,933  
  Accumulated other comprehensive income   184       68  
  Accumulated deficit   (518,407 )     (401,880 )
Total stockholders' equity   613,402       592,283  
Total liabilities and stockholders' equity $ 1,528,185     $ 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     Nine Months Ended  
October 31,     October 31,  
2013     2012     2013     2012  
Revenues $ 127,872     $ 72,618     $ 327,072     $ 192,138  
Costs and expenses(1):                              
  Costs of revenues   48,591       30,194       126,044       83,549  
  Research and development   49,349       28,075       126,799       72,413  
  Sales and marketing   54,051       32,584       136,565       87,051  
  General and administrative   16,280       22,633       42,970       36,310  
Total costs and expenses   168,271       113,486       432,378       279,323  
Operating loss   (40,399 )     (40,868 )     (105,306 )     (87,185 )
Other expense, net   (6,893 )     (364 )     (10,628 )     (1,036 )
Loss before provision for income taxes   (47,292 )     (41,232 )     (115,934 )     (88,221 )
Provision for income taxes   242       78       593       25  
Net loss   (47,534 )     (41,310 )     (116,527 )     (88,246 )
Accretion of redeemable convertible preferred stock   -       (161 )     -       (568 )
Net loss attributable to common stockholders $ (47,534 )   $ (41,471 )   $ (116,527 )   $ (88,814 )
Net loss per share attributable to common stockholders, basic and diluted $ (0.27 )   $ (0.67 )   $ (0.68 )   $ (2.06 )
Weighted-average shares used to compute net loss per share attributable to common stockholders   174,385       61,960       171,269       43,053  
                               
                               
  (1) Costs and expenses include share-based compensation as follows:                    
    Costs of revenues $ 2,342     $ 609     $ 4,281     $ 1,101  
    Research and development   7,032       1,300       12,404       2,227  
    Sales and marketing   4,583       970       7,431       1,838  
    General and administrative   5,726       3,273       12,766       4,714  
                               
                               
                               
Workday, Inc.  
Condensed Consolidated Statements of Cash Flows  
(in thousands)  
(unaudited)  
   
    Three Months Ended     Nine Months Ended  
    October 31,     October 31,  
2013     2012     2013     2012  
Cash flows from operating activities                                
Net loss   $ (47,534 )   $ (41,310 )   $ (116,527 )   $ (88,246 )
  Adjustments to reconcile net loss to cash provided by (used in) operating activities:                                
  Depreciation and amortization     9,361       4,461       23,981       11,938  
  Share-based compensation expense     19,683       6,152       36,882       9,880  
  Amortization of deferred costs     3,211       2,750       8,449       8,336  
  Amortization of debt discount and issuance costs     5,764       -       8,554       -  
  Donation of common stock to Workday Foundation     -       11,250       -       11,250  
  Other     86       11       256       41  
  Changes in operating assets and liabilities:                                
    Accounts receivable     (19,997 )     7,382       (19,674 )     (6,632 )
    Deferred costs     (5,346 )     (4,673 )     (12,449 )     (11,426 )
    Prepaid expenses and other assets     (2,652 )     (3,395 )     (12,794 )     (7,744 )
    Accounts payable     1,891       (253 )     5,563       73  
    Accrued expenses and other liabilities     16,458       3,575       22,720       13,738  
    Unearned revenue     26,151       4,692       66,509       64,066  
Net cash provided by (used in) operating activities     7,076       (9,358 )     11,470       5,274  
                                 
Cash flows from investing activities                                
Purchases of marketable securities     (499,787 )     (288,659 )     (1,229,488 )     (374,599 )
Maturities of marketable securities     256,240       19,845       833,107       72,785  
Purchases of property and equipment     (16,757 )     (801 )     (48,384 )     (6,803 )
Other     -       -       90       -  
Net cash used in investing activities     (260,304 )     (269,615 )     (444,675 )     (308,617 )
                                 
Cash flows from financing activities                                
Proceeds of initial public offering, net of issuances costs     -       684,620       -       684,620  
Proceeds from borrowings on convertible senior notes, net of issuance costs     -       -       584,291       -  
Proceeds from issuance of warrants     -       -       92,708       -  
Purchase of convertible senior notes hedges     -       -       (143,729 )     -  
Proceeds from exercise of stock options     2,637       2,955       9,312       10,085  
Principal payments on capital lease obligations     (2,817 )     (2,369 )     (9,505 )     (5,912 )
Other     (596 )     -       (516 )     -  
Net cash provided by (used in) financing activities     (776 )     685,206       532,561       688,793  
Effect of exchange rate changes     32       6       (54 )     1  
Net increase (decrease) in cash and cash equivalents     (253,972 )     406,239       99,302       385,451  
Cash and cash equivalents at the beginning of period     437,432       36,741       84,158       57,529  
Cash and cash equivalents at the end of period   $ 183,460     $ 442,980     $ 183,460     $ 442,980  
   
   
   
Workday, Inc.  
   
Reconciliation of GAAP to Non-GAAP Data  
Three Months Ended October 31, 2013  
(in thousands, except per share data)  
(unaudited)  
   
  GAAP     Share-Based Compensation     Employer Payroll Taxes on Employee Stock Transactions     Amortization of Debt Discount and Issuance Costs   Non-GAAP  
Costs and expenses:                                    
Costs of revenues:                                    
  Subscription services $ 18,076     $ (783 )   $ -     $ -   $ 17,293  
  Professional services   30,515       (1,559 )     (164 )     -     28,792  
Total costs of revenues   48,591       (2,342 )     (164 )     -     46,085  
                                     
Research and development   49,349       (7,032 )     (390 )     -     41,927  
Sales and marketing   54,051       (4,583 )     (87 )     -     49,381  
General and administrative   16,280       (5,726 )     (188 )     -     10,366  
                                     
Operating loss   (40,399 )     19,683       829       -     (19,887 )
Operating margin   -31.6 %     15.4 %     0.6 %     -     -15.6 %
Other expense, net   (6,893 )     -       -       5,764     (1,129 )
Loss before provision for income taxes   (47,292 )     19,683       829       5,764     (21,016 )
Provision for income taxes   242       -       -             242  
Net loss $ (47,534 )   $ 19,683     $ 829     $ 5,764   $ (21,258 )
Net loss per share attributable to common stockholders, basic and diluted (1) $ (0.27 )   $ 0.11     $ 0.00     $ 0.04   $ (0.12 )
                                     
(1) Calculated based upon 174,385 basic and diluted weighted-average shares of common stock.
   
   
   
Workday, Inc.  
   
Reconciliation of GAAP to Non-GAAP Data  
Three Months Ended October 31, 2012  
(in thousands, except per share data)  
(unaudited)  
   
  GAAP     Share-Based Compensation     Equity Grant to Workday Foundation     Non-GAAP  
Costs and expenses:                              
Costs of revenues:                              
  Subscription services $ 10,179     $ (224 )   $ -     $ 9,955  
  Professional services   20,015       (385 )     -       19,630  
Total costs of revenues   30,194       (609 )     -       29,585  
                               
Research and development   28,075       (1,300 )     -       26,775  
Sales and marketing   32,584       (970 )     -       31,614  
General and administrative   22,633       (3,273 )     (11,250 )     8,110  
                               
Operating loss   (40,868 )     6,152       11,250       (23,466 )
Operating margin   -56.2 %     8.4 %     15.5 %     -32.3 %
Loss before provision for income taxes   (41,232 )     6,152       11,250       (23,830 )
Provision for income taxes   78       -       -       78  
Net loss $ (41,310 )   $ 6,152     $ 11,250     $ (23,908 )
Net loss per share attributable to common stockholders, basic and diluted (1) $ (0.67 )   $ 0.10     $ 0.18     $ (0.39 )
                               
(1) Calculated based upon 61,960 basic and diluted weighted-average shares of common stock.
   
   
   
Workday, Inc.  
   
Reconciliation of GAAP to Non-GAAP Data  
Nine Months Ended October 31, 2013  
(in thousands, except per share data)  
(unaudited)  
   
  GAAP     Share-Based Compensation     Employer Payroll Taxes on Employee Stock Transactions     Amortization of Debt Discount and Issuance Costs   Non-GAAP  
Costs and expenses:                                    
Costs of revenues:                                    
  Subscription services $ 49,333     $ (1,446 )   $ (8 )   $ -   $ 47,879  
  Professional services   76,711       (2,835 )     (511 )     -     73,365  
Total costs of revenues   126,044       (4,281 )     (519 )     -     121,244  
                                     
Research and development   126,799       (12,404 )     (940 )     -     113,455  
Sales and marketing   136,565       (7,431 )     (470 )     -     128,664  
General and administrative   42,970       (12,766 )     (413 )     -     29,791  
                                     
Operating loss   (105,306 )     36,882       2,342       -     (66,082 )
Operating margin   -32.2 %     11.3 %     0.7 %     -     -20.2 %
Other expense, net   (10,628 )     -       -       8,554     (2,074 )
Loss before provision for income taxes   (115,934 )     36,882       2,342       8,554     (68,156 )
Provision for income taxes   593       -       -       -     593  
Net loss $ (116,527 )   $ 36,882     $ 2,342     $ 8,554   $ (68,749 )
Net loss per share attributable to common stockholders, basic and diluted (1) $ (0.68 )   $ 0.22     $ 0.01     $ 0.05   $ (0.40 )
                                     
(1) Calculated based upon 171,269 basic and diluted weighted-average shares of common stock.
   
   
   
Workday, Inc.  
   
Reconciliation of GAAP to Non-GAAP Data  
Nine Months Ended October 31, 2012  
(in thousands, except per share data)  
(unaudited)  
   
  GAAP     Share-Based Compensation     Equity Grant to Workday Foundation     Non-GAAP  
Costs and expenses:                              
Costs of revenues:                              
  Subscription services $ 26,767     $ (401 )   $ -     $ 26,366  
  Professional services   56,782       (700 )     -       56,082  
Total costs of revenues   83,549       (1,101 )     -       82,448  
                               
Research and development   72,413       (2,227 )     -       70,186  
Sales and marketing   87,051       (1,838 )     -       85,213  
General and administrative   36,310       (4,714 )     (11,250 )     20,346  
                               
Operating loss   (87,185 )     9,880       11,250       (66,055 )
Operating margin   -45.4 %     5.1 %     5.9 %     -34.4 %
Loss before provision for income taxes   (88,221 )     9,880       11,250       (67,091 )
Provision for income taxes   25       -       -       25  
Net loss $ (88,246 )   $ 9,880     $ 11,250     $ (67,116 )
Net loss per share attributable to common stockholders, basic and diluted (1) $ (2.06 )   $ 0.23     $ 0.26     $ (1.57 )
                               
(1) Calculated based upon 43,053 basic and diluted weighted-average shares of common stock.
   
   
   
Workday, Inc.  
   
Revenue by Type  
(in thousands)  
(unaudited)  
   
  Three Months Ended     Nine Months Ended  
  October 31,     October 31,  
  2013     2012     2013     2012  
Revenues:                              
Subscription services $ 93,925     $ 51,576     $ 243,454     $ 130,698  
Professional services   33,947       21,042       83,618       61,440  
  Total revenues $ 127,872     $ 72,618     $ 327,072     $ 192,138  
                               
Revenues:                              
Subscription services   73.5 %     71.0 %     74.4 %     68.0 %
Professional services   26.5 %     29.0 %     25.6 %     32.0 %
  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     Nine Months Ended  
  October 31,     October 31,  
  2013     2012     2013     2012  
GAAP cash flows from operating activities $ 7,076     $ (9,358 )   $ 11,470     $ 5,274  
Capital expenditures   (16,757 )     (801 )     (48,384 )     (6,803 )
Property and equipment acquired under capital lease   -       (13,663 )     (115 )     (17,887 )
  Free cash flows $ (9,681 )   $ (23,822 )   $ (37,029 )   $ (19,416 )
                                 

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, a one-time charge related to our contribution of 500,000 shares of common stock to the Workday Foundation and non-cash interest expense related to our convertible senior notes, as applicable. 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, 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. Moreover, determining the fair value of certain of the share-based instruments we utilize involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the vesting or future exercise of the related share-based awards. Unlike cash compensation, the value of stock options, 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. 

  • 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.    

  • Amortization of debt discount and issuance costs. Under GAAP, we are required to separately account for liability (debt) and equity (conversion option) components of the convertible senior notes that were issued in private placements in June 2013. Accordingly, for GAAP purposes we are required to recognize the effective interest expense on our convertible senior notes and amortize the issuance costs over the term of the notes. The difference between the effective interest expense and the contractual interest expense and the amortization expense of issuance costs are excluded from management's assessment of our operating performance because management believes that these non-cash expenses are not indicative of ongoing operating performance. Management believes that the exclusion of the non-cash interest expense provides investors an enhanced view of the company's operational performance.    

  • Equity Grant to Workday Foundation. During the third quarter of fiscal 2013, Workday granted 500,000 shares of common stock to the Workday Foundation. The Workday Foundation is a non-profit organization established to provide grants, humanitarian relief and employee matching contributions and support volunteerism and social development projects. This grant resulted in a one-time charge of $11.3 million, which was recorded to the General and administrative expenses line of the statement of operation. Management does not expect to make future grants of shares to the Foundation and therefore considers this charge non-recurring. As such, management believes it is useful to exclude this one-time charge in order to better understand the ongoing expenses of our core business and to facilitate comparison of our results across periods.

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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