Workday, Inc. - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - June 1, 2017

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Exhibit 99.1
Investor Relations Contact:
Michael Magaro
(925) 379-6000
Michael.Magaro@workday.com

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



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 - (June 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,
 
2017
 
2016
 
 
*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,
 
2017
 
2016
 
 
*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.



Workday, Inc. Reports