Workday Announces Fiscal 2015 Second Quarter Financial Results

PLEASANTON, CA--(Marketwired - Aug 27, 2014) -Workday, Inc.(NYSE: WDAY), a leader in enterprise cloud applications forhuman resourcesandfinance, today announced results for the fiscal second quarter ended July 31, 2014.

• Total revenues were $186.8 million, an increase of 74% from the second quarter of fiscal 2014. Subscription revenues were $143.7 million, an increase of 77% from same period last year.
  
• Operating loss was $61.8 million, or negative 33.1% of revenues, compared to an operating loss of $32.3 million, or negative 30.0% of revenues, in the same period last year. Non-GAAP operating loss for the second quarter was $19.1 million, or negative 10.2% of revenues, compared to a non-GAAP operating loss of $21.7 million last year, or negative 20.1% of revenues.¹
  
• Net loss per basic and diluted share was $0.38, compared to a net loss per basic and diluted share of $0.21 in the second quarter of fiscal 2014. The non-GAAP net loss per basic and diluted share was $0.11, compared to a non-GAAP net loss per basic and diluted share of $0.13 during the same period last year.¹
  
• Operating cash flows were negative $9.0 million and free cash flows were negative $37.4 million. For the trailing twelve months, operating cash flows were $54.6 million and free cash flows were a negative $27.8 million.²
  
• Cash, cash equivalents and marketable securities were approximately $1.8 billion as of July 31, 2014. Unearned revenue was $481.5 million, a 48% increase from last year.

"We had a solid second quarter and continued to make strong progress with our investments in Workday Financial Management and our growth outside the U.S.," said Aneel Bhusri, co-founder and CEO, Workday. "As we execute on the second half of our fiscal year, we see significant momentum as customers continue to make the switch to the cloud for their HR and finance applications, and we remain tightly focused on delivering rapid product innovation with high levels of customer satisfaction to help them transform their businesses for the future."

"We are very pleased with our strong results for the second quarter of fiscal 2015," said Mark Peek, chief financial officer, Workday. "We generated record quarterly revenues and trailing twelve month operating cash flows. Looking ahead, we anticipate a strong second half of fiscal 2015 with third quarter revenues expected to be within a range of $200 and $205 million, or growth of 56% to 60% as compared to the prior year. Total revenues for the year are anticipated to be in the range of $760 and $770 million, or growth of 62% to 64%."

Recent Highlights

• Workday appointed former IBM executive Randy Hendricks as president of the company's Education and Government (E&G) business, responsible for sales, services, and strategy of HR, finance, and student applications.
  
• The company announced plans to create 200 new positions in Ireland over the next three years to continue its European expansion and to bring on new talent for key roles in product and technology development, customer support, services, data center operations, and sales.
  
• Two Workday customers, HP and CSC, joined the company's services partner ecosystem to help more customers make the transition to cloud applications for human resources (HR) and gain the full business value from Workday Human Capital Management (HCM).

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

¹Non-GAAP operating loss and net loss per share for the fiscal second quarters of 2015 and 2014 exclude share-based compensation, employer payroll taxes on employee stock transactions and debt discount and issuance costs associated with convertible notes, and for the fiscal second quarter of 2015, also exclude amortization expense for acquisition-related intangible assets. See the section titled "About Non-GAAP Financial Measures" in the accompanying financial tables for further details.
²自由现金流被定义为经营性现金流s minus capital expenditures, assets acquired under a capital lease and purchased other intangible assets. 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 companies, educational institutions, and government agencies. Hundreds of 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 third quarter and full year fiscal 2015 revenue projections. 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) 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 but not limited to 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-Q for the quarter ended April 30, 2014 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.

© 2014. 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,
				2014				2014(1)
Assets
Current assets:
		Cash and cash equivalents		$	262,634			$	581,326
		Marketable securities			1,559,748				1,305,253
		Accounts receivable, net			100,534				92,184
		Deferred costs			20,064				16,446
		Prepaid expenses and other current assets			37,830				28,449
Total current assets					1,980,810				2,023,658
Property and equipment, net					105,855				77,664
Deferred costs, noncurrent					18,702				20,797
Goodwill and acquisition-related intangible assets, net					35,379				8,488
Other assets					54,152				45,658
Total assets				$	2,194,898			$	2,176,265
Liabilities and stockholders' equity
Current liabilities:
		Accounts payable		$	6,561			$	6,212
		Accrued expenses and other current liabilities			30,180				17,999
		Accrued compensation			38,565				55,620
		Capital leases			5,133				9,377
		Unearned revenue			409,026				332,682
Total current liabilities					489,465				421,890
Convertible senior notes, net					479,293				468,412
Capital leases, noncurrent					671				3,589
预收收入,noncurrent					72,447				80,883
Other liabilities					14,181				14,274
Total liabilities					1,056,057				989,048
Stockholders' equity:
		Common stock			183				181
		Additional paid-in capital			1,841,688				1,761,156
		Accumulated other comprehensive income			(37	)			269
		Accumulated deficit			(702,993	)			(574,389	)
Total stockholders' equity					1,138,841				1,187,217
Total liabilities and stockholders' equity				$	2,194,898			$	2,176,265

(1)	Amounts as of January 31, 2014 were derived from the January 31, 2014 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,
					2014				2013				2014				2013
Revenues:
		Subscription services			$	143,652			$	81,111			$	267,059			$	149,529
		Professional services				43,128				26,444				79,458				49,671
Total revenues						186,780				107,555				346,517				199,200
Costs and expenses(1):
		Costs of subscription services				24,373				16,327				45,832				31,257
		Costs of professional services				41,267				24,427				77,227				46,196
		Product development				77,464				41,168				142,635				77,450
		Sales and marketing				78,523				44,150				146,690				82,514
		General and administrative				26,922				13,766				47,985				26690年
Total costs and expenses						248,549				139,838				460,369				264,107
Operating loss						(61,769	)			(32,283	)			(113,852	)			(64,907	)
Other expense, net						(6,953	)			(3,479	)			(13,952	)			(3,735	)
Loss before provision for income taxes						(68,722	)			(35,762	)			(127,804	)			(68,642	)
Provision for income taxes						493				216				800				351
Net loss					$	(69,215	)		$	(35,978	)		$	(128,604	)		$	(68,993	)
Net loss per share, basic and diluted					$	(0.38	)		$	(0.21	)		$	(0.70	)		$	(0.40	)
Weighted-average shares used to compute net loss per share, basic and diluted						184,319				173,375				183,733				170,617
(1) Costs and expenses include share-based compensation as follows:
			Costs of subscription services		$	1608年			$	401			$	2,663			$	663
			Costs of professional services			3,519				801				5,717				1,276
			Product development			16,737				3,465				27,605				5,372
			Sales and marketing			7,377				1,805				14,129				2,848
			General and administrative			11,541				3,311				19,542				7,040

Workday, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
				Three Months Ended								Six Months Ended
				July 31,								July 31,
				2014				2013				2014				2013
Cash flows from operating activities
Net loss				$	(69,215	)		$	(35,978	)		$	(128,604	)		$	(68,993	)
调整reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization					14,474				8,051				26,997				14,620
Share-based compensation expenses					40,782				9,783				69,656				17,199
递延费用的摊销					4,421				2,756				8,373				5,238
Amortization of debt discount and issuance costs					6,002				2,790				11,922				2,790
Other					242				196				846				170
Changes in operating assets and liabilities, net of business combinations:
		Accounts receivable			(1,441	)			(6,808	)			(8,454	)			323
		Deferred costs			(6,433	)			(3,867	)			(9,896	)			(7,103	)
		Prepaid expenses and other assets			(2,748	)			(6,579	)			(10,098	)			(10,142	)
		Accounts payable			(23	)			1,251				(2,453	)			3,672
		Accrued expense and other liabilities			(14,602	)			(9,191	)			(13,511	)			6,262
		Unearned revenue			19,530				24,680				67,908				40,358
Net cash provided by (used in) operating activities					(9,011	)			(12,916	)			12,686				4,394
Cash flows from investing activities
Purchases of marketable securities					(365,779	)			(441,860	)			(1,036,185	)			(729,701	)
Maturities of marketable securities					414,242				170,159				767,472				576,867
Sales of available-for-sale securities					8,138				-				8,138				-
Business combinations, net of cash acquired					-				-				(26317	)			-
Purchases of property and equipment					(28,409	)			(29,732	)			(38,282	)			(31,627	)
Purchase of cost method investment					(10,000	)			-				(10,000	)			-
Other					-				-				1,000				90
Net cash provided by (used in) investing activities					18,192				(301,433	)			(334,174	)			(184,371	)
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 issuance of common stock from employee equity plans					15,169				2,110				18,165				6,675
Principal payments on capital lease obligations					(4,418	)			(2,935	)			(7,162	)			(6,688	)
Shares repurchased for tax withholdings on vesting of restricted stock					(3,284	)			-				(8,291	)			-
Other					-				72				60				80
Net cash provided by financing activities					7,467				532,517				2,772				533,337
Effect of exchange rate changes					(15	)			-				24				(86	)
Net increase (decrease) in cash and cash equivalents					16,633				218,168				(318,692	)			353,274
Cash and cash equivalents at the beginning of period					246,001				219,264				581,326				84,158
Cash and cash equivalents at the end of period				$	262,634			$	437,432			$	262,634			$	437,432

Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Three Months Ended July 31, 2014
(in thousands, except per share data)
(unaudited)
	GAAP				Share-Based Compensation				Other Operating Expenses(2)				Amortization of Debt Discount and Issuance Costs			Non-GAAP
Costs and expenses:
Costs of subscription services	$	24,373			$	(1,608	)		$	(42	)		$	-		$	22,723
Costs of professional services		41,267				(3,519	)			(46	)			-			37,702
Product development		77,464				(16,737	)			(788	)			-			59,939
Sales and marketing		78,523				(7,377	)			(238	)			-			70,908
General and administrative		26,922				(11,541	)			(767	)			-			14,614
Operating loss		(61,769	)			40,782				1,881				-			(19,106	)
Operating margin		-33.1	%			21.9	%			1.0	%			-			-10.2	%
Other expense, net		(6,953	)			-				-				6,002			(951	)
Loss before provision for income taxes		(68,722	)			40,782				1,881				6,002			(20,057	)
Provision for income taxes		493				-				-				-			493
Net loss	$	(69,215	)		$	40,782			$	1,881			$	6,002		$	(20,550	)
Net loss per share, basic and diluted(1)	$	(0.38	)		$	0.22			$	0.01			$	0.04		$	(0.11	)

(1)	Calculated based upon 184,319 basic and diluted weighted-average shares of common stock.
(2)	其他操作经验enses include employer payroll taxes on employee stock transactions and amortization of acquisition-related intangible assets.

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				Other Operating Expenses(2)				Amortization of Debt Discount and Issuance costs			Non-GAAP
Costs and expenses:
Costs of subscription services	$	16,327			$	(401	)		$	-			$	-		$	15,926
Costs of professional services		24,427				(801	)			(54	)			-			23,572
Product 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, basic and diluted(1)	$	(0.21	)		$	0.06			$	-			$	0.02		$	(0.13	)

(1)	Calculated based upon 173,375 basic and diluted weighted-average shares of common stock.
(2)	其他操作经验enses include employer payroll taxes on employee stock transactions.

Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Six Months Ended July 31, 2014
(in thousands, except per share data)
(unaudited)
	GAAP				Share-Based Compensation				Other Operating Expenses(2)				Amortization of Debt Discount and Issuance costs			Non-GAAP
Costs and expenses:
Costs of subscription services	$	45,832			$	(2,663	)		$	(88	)		$	-		$	43,081
Costs of professional services		77,227				(5,717	)			(135	)			-			71,375
Product development		142,635				(27,605	)			(1,470	)			-			113560年
Sales and marketing		146,690				(14,129	)			(511	)			-			132,050
General and administrative		47,985				(19,542	)			(358	)			-			28,085
Operating loss		(113,852	)			69,656				2,562				-			(41,634	)
Operating margin		-32.9	%			20.1	%			0.8	%			-			-12.0	%
Other expense, net		(13,952	)			-				-				11,922			(2,030	)
Loss before provision for income taxes		(127,804	)			69,656				2,562				11,922			(43,664	)
Provision for income taxes		800				-				-				-			800
Net loss	$	(128,604	)		$	69,656			$	2,562			$	11,922		$	(44,464	)
Net loss per share, basic and diluted(1)	$	(0.70	)		$	0.38			$	0.01			$	0.07		$	(0.24	)

(1)	Calculated based upon 183,733 basic and diluted weighted-average shares of common stock.
(2)	其他操作经验enses include employer payroll taxes on employee stock transactions and amortization of acquisition-related intangible assets.

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				Other Operating Expenses(2)				Amortization of Debt Discount and Issuance costs			Non-GAAP
Costs and expenses:
Costs of subscription services	$	31,257			$	(663	)		$	(8	)		$	-		$	30,586
Costs of professional services		46,196				(1,276	)			(347	)			-			44,573
Product development		77,450				(5,372	)			(550	)			-			71,528
Sales and marketing		82,514				(2,848	)			(383	)			-			79,283
General and administrative		26690年				(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, 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.
(2)	其他操作经验enses include employer payroll taxes on employee stock transactions.

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,
				2014				2013				2014				2013
GAAP cash flows from operating activities				$	(9,011	)		$	(12,916	)		$	12,686			$	4,394
Capital expenditures					(28,409	)			(29,732	)			(38,282	)			(31,627	)
Property and equipment acquired under capital lease					-				-				-				(115	)
		Free cash flows		$	(37,420	)		$	(42,648	)		$	(25,596	)		$	(27,348	)
				Trailing Twelve Months Ended
				July 31,
				2014				2013
GAAP cash flows from operating activities				$	54,555			$	976
Capital expenditures					(67,380	)			(41,523	)
Property and equipment acquired under capital lease					-				(14,608	)
Purchase of other intangible assets					(15,000	)			-
		Free cash flows		$	(27,825	)		$	(55,155	)

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. The non-GAAP financial measures non-GAAP operating loss and non-GAAP net loss per share differ from GAAP in that they exclude share-based compensation, employer payroll taxes on employee stock transactions, amortization of acquisition-related intangible assets 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, assets acquired under a capital lease and purchased other (non-acquisition related) intangible assets 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 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.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 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 share 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 the Employee Stock Purchase Plan, which is an element 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.其他操作经验enses included employer payroll taxes on employee stock transactions for the three and six months ended July 31, 2014 and 2013 and amortization of acquisition-related intangible assets for the three and six months ended July 31, 2014. The amount of employer payroll taxes on share-based compensation 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 the 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 capital expenditures, whether purchased or leased, and purchased other intangible assets, due to the fact that these expenditures are considered to be an ongoing operational component of our business. This provides an enhanced view of cash available to make strategic acquisitions and investments, to fund ongoing operations and to fund other capital expenditures.

使用非公认会计原则营运亏损和净亏损体育r share 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.