SOURCE: Workday, Inc.

Workday, Inc.

June 01, 2017 16:07 ET

Workday Announces Fiscal 2018 First Quarter Financial Results

Subscription Revenues of $399.7 Million, Up 42.7% Year Over Year; Total Revenues of $479.9 Million, Up 38.0% Year Over Year

PLEASANTON, CA--(Marketwired - Jun 1, 2017) - Workday, Inc. (NYSE: WDAY), a leader in enterprise cloud applications for finance and human resources, today announced results for the fiscal first quarter ended April 30, 2017.

  • Total revenues were $479.9 million, an increase of 38.0% from the first quarter of fiscal 2017. Subscription revenues were $399.7 million, an increase of 42.7% from the same period last year.

  • Operating loss was $60.2 million, or negative 12.5% of revenues, compared to an operating loss of $71.5 million, or negative 20.6% of revenues, in the same period last year. Non-GAAP operating profit for the first quarter was $61.0 million, or 12.7% of revenues, compared to a non-GAAP operating profit of $13.2 million, or 3.8% of revenues, in the same period last year.1

  • Net loss per basic and diluted share was $0.31, compared to a net loss per basic and diluted share of $0.40 in the first quarter of fiscal 2017. Non-GAAP net income per diluted share was $0.29, compared to a non-GAAP net income per diluted share of $0.06 in the same period last year.1

  • Operating cash flows for the first quarter were $180.0 million and free cash flows were $149.4 million. For the trailing twelve months, operating cash flows were $367.8 million and free cash flows were $250.9 million.2

  • Cash, cash equivalents and marketable securities were $2.1 billion as of April 30, 2017. Unearned revenues were $1.2 billion, a 30.9% increase from the same period last year.

"Workday delivered a strong first quarter and achieved our highest net new ACV growth in nearly three years," said Aneel Bhusri, co-founder and CEO, Workday. "As we look to the rest of fiscal 2018 and beyond, we believe our relentless focus on innovation and customer satisfaction will continue to be the differentiators that drive further momentum for our growing family of applications."

"Our fiscal 2018 got off to a great start as we delivered strong top-line growth, and record non-GAAP operating profit and operating cash flow," said Robynne Sisco, chief financial officer, Workday. "Based on our strong first quarter results, we are raising our fiscal 2018 outlook and are now expecting subscription revenue of $1.705 to $1.720 billion, or growth of 32% to 33%. We expect our second quarter subscription revenue to be between $420 and $423 million, or growth of 37% to 38%. Our business model clearly demonstrates strong economics and as we continue to scale, we are confident in our ability to deliver strong future operating margin and cash flow growth."

Recent Highlights

  • Providing customers with even greater flexibility, Workday announced the availability of Workday Financial Performance Management (FPM), which enables organizations to perform financial reporting, analytics, and planning without having to replace their general ledgers or accounting systems of record.

  • Workday also unveiled Workday Prism Analytics, which will allow customers to blend and analyze Workday data and non-Workday data from multiple sources so they can better visualize and analyze critical business information to drive more informed decision making. Workday Prism Analytics is scheduled for general availability later this calendar year.

  • In its latest feature release, Workday 28, Workday expanded its global foundation and industry-specific capabilities in Workday Financial Management, and delivered a suite of new features in Workday HCM that equip customers with even more flexibility to meet their performance management needs.

  • Workday was named one of the 100 Best Companies to Work For by Fortune and Great Place to Work Institute for the third consecutive year, ranking #18 on this year's list.

  • Workday also was ranked #1 in the large company category of the San Francisco Business Times / Silicon Valley Business Journal's Best Places to Work in the Bay Area list.

Workday plans to host a conference call today to review its first quarter financial results and to discuss its financial outlook. The call is scheduled to begin at 2:00 p.m. PT/ 5:00 p.m. ET and can be accessed via webcast or through Workday's Investor Relations website. The webcast will be available live, and a replay will be available following completion of the live broadcast for approximately 45 days.

Workday intends to use the Workday Blog as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.

1 Non-GAAP operating profit (loss) and non-GAAP net income (loss) per share exclude share-based compensation expenses, employer payroll tax-related items on employee stock transactions, amortization expense for acquisition-related intangible assets, and debt discount and issuance costs associated with convertible notes. See the section titled "About Non-GAAP Financial Measures" in the accompanying financial tables for further details.

2 Free cash flows are defined as operating cash flows minus capital expenditures (excluding owned real estate projects). See the section titled "About Non-GAAP Financial Measures" in the accompanying financial tables for further details.

About Workday
Workday is a leading provider of enterprise cloud applications for finance and human resources. Founded in 2005, Workday delivers financial management, human capital management, and analytics applications designed for the world's largest companies, educational institutions, and government agencies. Organizations ranging from medium-sized businesses to Fortune 50 enterprises have selected Workday.

Use of Non-GAAP Financial Measures
Reconciliations of non-GAAP financial measures to Workday's financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section of the tables titled "About Non-GAAP Financial Measures."

Forward-Looking Statements
This press release contains forward-looking statements including, among other things, statements regarding Workday's second quarter and fiscal year subscription revenue projections, operating margins and cash flow growth. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "plans," and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks, uncertainties, and assumptions. If the risks materialize or assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. Risks include, but are not limited to: (i) breaches in our security measures, unauthorized access to our customers' data or disruptions in our data center operations; (ii) our ability to manage our growth effectively; (iii) competitive factors, including pricing pressures, industry consolidation, entry of new competitors and new applications and marketing initiatives by our competitors; (iv) the development of the market for enterprise cloud services; (v) acceptance of our applications and services by customers; (vi) adverse changes in general economic or market conditions; (vii) delays or reductions in information technology spending; (viii) our limited operating history, which makes it difficult to predict future results; 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-K for the fiscal year ended January 31, 2017 and our future reports that we may file with the SEC from time to time, which could cause actual results to vary from expectations. Workday assumes no obligation to, and does not currently intend to, update any such forward-looking statements after the date of this release.

Any unreleased services, features, or functions referenced in this document, our website or other press releases or public statements that are not currently available are subject to change at Workday's discretion and may not be delivered as planned or at all. Customers who purchase Workday services should make their purchase decisions based upon services, features, and functions that are currently available.

© 2017. Workday, Inc. All rights reserved. Workday and the Workday logo are registered trademarks of Workday, Inc. All other brand and product names are trademarks or registered trademarks of their respective holders.

 
Workday, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
             
    April 30, 2017     January 31, 2017
*As Adjusted
 
Assets                
Current assets:                
  Cash and cash equivalents   $ 498,931     $ 539,923  
  Marketable securities     1,616,770       1,456,822  
  Trade and other receivables, net     297,894       409,780  
  Deferred costs     51,819       51,330  
  Prepaid expenses and other current assets     68,406       66,590  
Total current assets     2,533,820       2,524,445  
Property and equipment, net     404,102       365,877  
Deferred costs, noncurrent     114,504       117,249  
Acquisition-related intangible assets, net     43,915       48,787  
Goodwill     158,193       158,354  
Other assets     54,207       53,570  
Total assets   $ 3,308,741     $ 3,268,282  
Liabilities and stockholders' equity                
Current liabilities:                
  Accounts payable   $ 28,182     $ 26,824  
  Accrued expenses and other current liabilities     71,161       61,582  
  Accrued compensation     110,227       110,625  
  Unearned revenue     1,079,874       1,086,212  
Total current liabilities     1,289,444       1,285,243  
Convertible senior notes, net     541,393       534,423  
Unearned revenue, noncurrent     120,389       135,331  
Other liabilities     36,658       36,677  
Total liabilities     1,987,884       1,991,674  
Stockholders' equity:                
  Common stock     205       202  
  Additional paid-in capital     2,791,520       2,681,200  
  Accumulated other comprehensive income (loss)     (190 )     2,071  
  Accumulated deficit     (1,470,678 )     (1,406,865 )
Total stockholders' equity     1,320,857       1,276,608  
Total liabilities and stockholders' equity   $ 3,308,741     $ 3,268,282  
*Prior-period information has been restated for the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which we adopted on February 1, 2017.
 
 
Workday, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
       
    Three Months Ended April 30,  
    2017     2016
*As Adjusted
 
Revenues:                
  Subscription services   $ 399,736     $ 280,168  
  Professional services     80,125       67,509  
Total revenues     479,861       347,677  
Costs and expenses(1):                
  Costs of subscription services     59,798       49,200  
  Costs of professional services     76,913       59,427  
  Product development     196,439       141,778  
  Sales and marketing     155,709       127,619  
  General and administrative     51,202       41,183  
Total costs and expenses     540,061       419,207  
Operating loss     (60,200 )     (71,530 )
Other expense, net     (1,663 )     (5,838 )
Loss before provision for income taxes     (61,863 )     (77,368 )
Provision for income taxes     2,181       1,135  
Net loss   $ (64,044 )   $ (78,503 )
Net loss per share, basic and diluted   $ (0.31 )   $ (0.40 )
Weighted-average shares used to compute net loss per share, basic and diluted     203,818       194,529  
                 
(1) Costs and expenses include share-based compensation expenses as follows:            
  Costs of subscription services   $ 5,691   $ 4,397
  Costs of professional services     8,021     5,293
  Product development     51,029     32,968
  Sales and marketing     23,159     19,002
  General and administrative     19,888     16,575
*Prior-period information has been restated for the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which we adopted on February 1, 2017.
 
   
Workday, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
   
    Three Months Ended April 30,  
    2017     2016
*As Adjusted
 
Cash flows from operating activities                
Net loss   $ (64,044 )   $ (78,503 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                
  Depreciation and amortization     33,377       26,124  
  Share-based compensation expenses     107,788       78,235  
  Amortization of deferred costs     13,637       10,439  
  Amortization of debt discount and issuance costs     6,950       6,599  
  Other     2,678       (318 )
  Changes in operating assets and liabilities:                
    Trade and other receivables, net     111,815       98,319  
    Deferred costs     (11,381 )     (9,226 )
    Prepaid expenses and other assets     (3,050 )     2,388  
    Accounts payable     (565 )     (1,722 )
    Accrued expenses and other liabilities     4,089       5,545  
    Unearned revenue     (21,272 )     24,937  
Net cash provided by (used in) operating activities     180,022       162,817  
Cash flows from investing activities                
Purchases of marketable securities     (613,251 )     (633,956 )
Maturities of marketable securities     441,870       625,588  
Sales of available-for-sale securities     9,074       200  
Owned real estate projects     (29,539 )     (18,986 )
Capital expenditures, excluding owned real estate projects     (30,593 )     (34,478 )
Purchases of cost method investments     (450 )     (100 )
Other     --       388  
Net cash provided by (used in) investing activities     (222,889 )     (61,344 )
Cash flows from financing activities                
Proceeds from issuance of common stock from employee equity plans     2,253       3,381  
Other     (44 )     376  
Net cash provided by (used in) financing activities     2,209       3,757  
Effect of exchange rate changes     (132 )     638  
Net increase (decrease) in cash, cash equivalents and restricted cash     (40,790 )     105,868  
Cash, cash equivalents and restricted cash at the beginning of period     541,894       300,087  
Cash, cash equivalents and restricted cash at the end of period   $ 501,104     $ 405,955  
                 
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets                
Cash and cash equivalents   $ 498,931     $ 404,604  
Restricted cash included in Prepaid expenses and other current assets     2,173       1,351  
Total cash, cash equivalents and restricted cash   $ 501,104     $ 405,955  
                 
Supplemental cash flow data                
Cash paid for interest   $ --     $ 4  
Cash paid for income taxes     1,346       581  
Non-cash investing and financing activities:                
  Vesting of early exercise stock options   $ 282     $ 460  
  Property and equipment, accrued but not paid     32,515       21,507  
  Non-cash additions to property and equipment     142       521  
*Prior-period information has been restated for the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and ASU No. 2016-18, Statement of Cash Flows, Restricted Cash (Topic 230), both of which we adopted on February 1, 2017.
 
 
Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Three Months Ended April 30, 2017
(in thousands, except per share data) (unaudited)
                               
    GAAP     Share-Based Compensation Expenses     Other Operating Expenses (2)     Amortization of Debt Discount and Issuance Costs     Non-GAAP  
Costs and expenses:                                        
Costs of subscription services   $ 59,798     $ (5,691 )   $ (546 )   $ --     $ 53,561  
Costs of professional services     76,913       (8,021 )     (906 )     --       67,986  
Product development     196,439       (51,029 )     (8,962 )     --       136,448  
Sales and marketing     155,709       (23,159 )     (1,674 )     --       130,876  
General and administrative     51,202       (19,888 )     (1,318 )     --       29,996  
Operating income (loss)     (60,200 )     107,788       13,406       --       60,994  
Operating margin     (12.5 )%     22.5 %     2.7 %     -- %     12.7 %
Other income (expense), net     (1,663 )     --       --       6,950       5,287  
Income (loss) before provision for (benefit from) income taxes     (61,863 )     107,788       13,406       6,950       66,281  
Provision for (benefit from) income taxes     2,181       --       --       --       2,181  
Net income (loss)   $ (64,044 )   $ 107,788     $ 13,406     $ 6,950     $ 64,100  
Net income (loss) per share (1)   $ (0.31 )   $ 0.53     $ 0.05     $ 0.02     $ 0.29  
(1) GAAP net loss per share calculated based upon 203,818 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share calculated based upon 222,065 diluted weighted-average shares of common stock.
(2) Other operating expenses include total employer payroll tax-related items on employee stock transactions of $8.5 million, and amortization of acquisition-related intangible assets of $4.9 million.
 
 
Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Three Months Ended April 30, 2016
(in thousands, except per share data) (unaudited)
                               
    GAAP
*As adjusted
    Share-Based Compensation Expenses     Other Operating Expenses (2)     Amortization of Debt Discount and Issuance Costs     Non-GAAP *As adjusted  
Costs and expenses:                                        
Costs of subscription services   $ 49,200     $ (4,397 )   $ (319 )   $ --     $ 44,484  
Costs of professional services     59,427       (5,293 )     (490 )     --       53,644  
Product development     141,778       (32,968 )     (3,794 )     --       105,016  
Sales and marketing     127,619       (19,002 )     (1,090 )     --       107,527  
General and administrative     41,183       (16,575 )     (812 )     --       23,796  
Operating income (loss)     (71,530 )     78,235       6,505       --       13,210  
Operating margin     (20.6 )%     22.5 %     1.9 %     -- %     3.8 %
Other income (expense), net     (5,838 )     --       --       6,599       761  
Income (loss) before provision for (benefit from) income taxes     (77,368 )     78,235       6,505       6,599       13,971  
Provision for (benefit from) income taxes     1,135       --       --       --       1,135  
Net income (loss)   $ (78,503 )   $ 78,235     $ 6,505     $ 6,599     $ 12,836  
Net income (loss) per share (1)   $ (0.40 )   $ 0.38     $ 0.04     $ 0.04     $ 0.06  
(1) GAAP net loss per share calculated based upon 194,529 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share calculated based upon 212,863 diluted weighted-average shares of common stock.
(2) Other operating expenses include total employer payroll tax-related items on employee stock transactions of $5.2 million, and amortization of acquisition-related intangible assets of $1.3 million.
 
*Prior-period information has been restated for the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which we adopted on February 1, 2017.
 
 
Workday, Inc.
Reconciliation of GAAP Cash Flows from Operations to Free Cash Flows
(A Non-GAAP Financial Measure)
(in thousands)
(unaudited)
 
    Three Months Ended April 30,  
          2016  
    2017     *As adjusted  
Net cash provided by (used in) operating activities   $ 180,022     $ 162,817  
Capital expenditures, excluding owned real estate projects     (30,593 )     (34,478 )
  Free cash flows   $ 149,429     $ 128,339  
                 
                 
    Trailing Twelve Months Ended
April 30,
 
          2016  
    2017     *As adjusted  
Net cash provided by (used in) operating activities   $ 367,831     $ 329,255  
Capital expenditures, excluding owned real estate projects     (116,928 )     (139,825 )
  Free cash flows   $ 250,903     $ 189,430  
*Prior-period information has been restated for the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and ASU No. 2016-18, Statement of Cash Flows, Restricted Cash (Topic 230), both of which we adopted on February 1, 2017.
 

About Non-GAAP Financial Measures

To provide investors and others with additional information regarding Workday's results, we have disclosed the following non-GAAP financial measures: non-GAAP operating income (loss), non-GAAP net income (loss) per share and free cash flows. Workday has provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure. The non-GAAP financial measures of non-GAAP operating income (loss) and non-GAAP net income (loss) per share differ from GAAP in that they exclude share-based compensation expenses, employer payroll tax-related items on employee stock transactions, amortization of acquisition-related intangible assets, and non-cash interest expense related to our convertible senior notes. Free cash flows differ from GAAP cash flows from operating activities in that it treats capital expenditures (excluding owned real estate projects) as a reduction to cash flows.

Workday's management uses these non-GAAP financial measures to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short- and long-term operating plans, and to evaluate Workday's financial performance and the ability of operations to generate cash. Management believes these non-GAAP financial measures reflect Workday's ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in Workday's business, as they exclude expenses that are not reflective of ongoing operating results. Management also believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating Workday's operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies. Additionally, management believes information regarding free cash flows provides investors and others with an important perspective on the cash flows generated by normal recurring activities to make strategic acquisitions and investments, to fund ongoing operations and to fund other capital expenditures, after our owned real estate projects.

Management believes excluding the following items from the GAAP Condensed Consolidated Statement of Operations is useful to investors and others in assessing Workday's operating performance due to the following factors:

  • Share-based compensation expenses. Although share-based compensation is an important aspect of the compensation of our employees and executives, management believes it is useful to exclude share-based compensation expenses in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies. For restricted stock unit awards, the amount of share-based compensation expenses is not reflective of the value ultimately received by the grant recipients. Moreover, determining the fair value of certain of the share-based instruments we utilize involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the vesting or future exercise of the related share-based awards. Unlike cash compensation, the value of stock options and shares offered under our Employee Stock Purchase Plan, which are elements of our ongoing share-based compensation expenses, is determined using a complex formula that incorporates factors, such as market volatility and forfeiture rates, that are beyond our control.

  • Other Operating Expenses. Other operating expenses includes employer payroll tax-related items on employee stock transactions and amortization of acquisition-related intangible assets. The amount of employer payroll tax-related items on employee stock transactions is dependent on our stock price and other factors that are beyond our control and do not correlate to the operation of the business. For business combinations, we generally allocate a portion of the purchase price to intangible assets. The amount of the allocation is based on estimates and assumptions made by management and is subject to amortization. The amount of purchase price allocated to intangible assets and the term of its related amortization can vary significantly and are unique to each acquisition and thus we do not believe it is reflective of ongoing operations.

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

Additionally, we believe that the non-GAAP financial measure, free cash flows, is meaningful to investors because we review cash flows generated from or used in operations after deducting certain capital expenditures that are considered to be an ongoing operational component of our business. Capital expenditures deducted from cash flows from operations do not include purchases of land and buildings, and construction costs of our new development center and of other owned buildings. We exclude these owned real estate projects as they are infrequent, non-recurring in nature and distinctly separate from our ongoing business operations. This provides an enhanced view of cash available to make strategic acquisitions and investments, to fund ongoing operations and to fund other capital expenditures, after our owned real estate projects.

The use of non-GAAP operating income (loss) and non-GAAP net income (loss) per share measures has certain limitations as they do not reflect all items of income and expense that affect Workday's operations. Workday compensates for these limitations by reconciling the non-GAAP financial measures to the most comparable GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, measures prepared in accordance with GAAP. Further, these non-GAAP measures may differ from the non-GAAP information used by other companies, including peer companies, and therefore comparability may be limited. Management encourages investors and others to review Workday's financial information in its entirety and not rely on a single financial measure.

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