Press Release

Workday Announces Fiscal 2021 Second Quarter Financial Results

Second Quarter Total Revenues of $1.06 Billion, Up 19.6% Year Over Year
Subscription Revenue of $931.7 Million, Up 23.1% Year Over Year
Subscription Revenue Backlog of $8.60 Billion, Up 22.3% Year Over Year

PLEASANTON, Calif., Aug. 27, 2020 (GLOBE NEWSWIRE) -- Workday, Inc. (NASDAQ: WDAY), a leader in enterprise cloud applications for finance and human resources, today announced results for the fiscal 2021 second quarter ended July 31, 2020.

Fiscal 2021 Second Quarter Results

  • Total revenues were $1.06 billion, an increase of 19.6% from the second quarter of fiscal 2020. Subscription revenue was $931.7 million, an increase of 23.1% from the same period last year.

  • Operating loss was $16.8 million, or negative 1.6% of revenues, compared to an operating loss of $122.5 million, or negative 13.8% of revenues, in the same period last year. Non-GAAP operating income for the second quarter was $257.7 million, or 24.3% of revenues, compared to a non-GAAP operating income of $117.5 million, or 13.2% of revenues, in the same period last year.1

  • Net loss per basic and diluted share was $0.12, compared to a net loss per basic and diluted share of $0.53 in the second quarter of fiscal 2020. Non-GAAP net income per diluted share was $0.84, compared to a non-GAAP net income per diluted share of $0.44 in the same period last year.2

  • Operating cash flows were $157.2 million compared to $100.3 million in the prior year.

  • Cash, cash equivalents, and marketable securities were $2.75 billion as of July 31, 2020.

Comments on the News

“It was a strong quarter despite the environment, with continued demand for our products as more organizations realize how mission critical cloud-based systems are in supporting their people and businesses through continuous change,” said Aneel Bhusri, co-founder and co-CEO, Workday. “As we navigate this unique time, we will continue to deliver new solutions that extend the power of Workday to help customers make more informed people and finance decisions, including how to safely return to work. We also are more committed than ever to our culture and core values, prioritizing our employees – and the importance of equality in the workforce – as we look to emerge stronger together with our customers and communities.”

“We executed extremely well in the second quarter and delivered solid results, with subscription revenue growth of 23.1% and non-GAAP operating margin of 24.3%,” said Robynne Sisco, president and chief financial officer, Workday. “As a result of our strong Q2 performance, we are raising our fiscal 2021 subscription revenue guidance to a range of $3.73 billion to $3.74 billion. We expect third-quarter subscription revenue of $948.0 million to $950.0 million. We are also raising our fiscal 2021 non-GAAP operating margin guidance to 18.0%. Despite the near-term uncertainty that remains, our first-half performance has reinforced our confidence in the fundamental strength of our business, and in the long-term opportunity that we see ahead.”

Recent Highlights

  • Workday announced Chano Fernandez has been promoted to co-CEO, joining Workday Co-Founder Aneel Bhusri in overseeing the company. Robynne Sisco will serve as Workday’s president and chief financial officer.

  • Workday continues to support customers navigating the COVID-19 pandemic with the delivery of new solutions and partnerships focused on supporting organizations with the changing world of work. This includes the availability of Workday People Analytics to help organizations identify top workforce risks and opportunities as they revisit talent management, as well as the availability of Workday Help and Workday Journeys to help employers better engage and support employees. In addition, Workday and IBM announced an expanded partnership with a joint solution to help customers plan, schedule, and monitor a safe return to the workplace. 

  • Workday announced four principles that will guide its efforts to support greater belonging and diversity at the company, including hiring and developing diverse talent, cultivating a culture of belonging, strengthening its communities, and building inclusive products and technology.

  • Workday announced the expansion of Workday Launch, a pre-configured approach to help qualified customers deploy Workday more quickly and find faster time-to-value, to eligible large enterprises in the U.S.

  • Workday announced it has expanded its operations into Mexico, with services partners ready to assist Workday deployments in the country. 

  • For the fourth year in a row, Workday has been positioned by Gartner, Inc. in the Leaders quadrant of the 2020 Gartner Magic Quadrant for Cloud Core Financial Management Suites for Midsize, Large, and Global Enterprises.3

  • Workday sponsored the Workday Charity Open on July 6-12 at Muirfield Golf Club in Dublin, Ohio, in partnership with the PGA Tour. As part of its sponsorship, Workday committed $1 million in support of the Nationwide Children’s Hospital and donated $500,000 to the Eat. Learn. Play. Foundation.

Earnings Call Details

Workday plans to host a conference call today to review its fiscal 2021 second quarter financial results and to discuss its financial outlook. The call is scheduled to begin at 1:30 p.m. PT/4:30 p.m. ET and can be accessed via webcast. The webcast will be available live, and a replay will be available following completion of the live broadcast for approximately 90 days.

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

1Non-GAAP operating income excludes share-based compensation expenses, employer payroll tax-related items on employee stock transactions, and amortization expense for acquisition-related intangible assets. See the section titled “About Non-GAAP Financial Measures” in the accompanying financial tables for further details.
  
2Non-GAAP net income per share excludes share-based compensation expenses, employer payroll tax-related items on employee stock transactions, amortization expense for acquisition-related intangible assets, non-cash interest expense related to our convertible senior notes, and income tax effects. See the section titled “About Non-GAAP Financial Measures” in the accompanying financial tables for further details.
  
3Gartner “Magic Quadrant for Cloud Core Financial Management Suites for Midsize, Large, and Global Enterprises,” by Robert Anderson | John Van Decker | Greg Leiter, 29 June 2020.

Required Disclaimers

Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

About Workday

Workday is a leading provider of enterprise cloud applications for finance and human resources, helping customers adapt and thrive in a changing world. Workday applications for financial management, human resources, planning, spend management, and analytics have been adopted by thousands of organizations around the world and across industries – from medium-sized businesses to more than 60 percent of the Fortune 50. For more information about Workday, visit workday.com.

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.” A reconciliation of our forward outlook for non-GAAP operating margin with our forward-looking GAAP operating margin is not available without unreasonable efforts as the quantification of share-based compensation expense, which is excluded from our non-GAAP operating margin, requires additional inputs such as the number of shares granted and market prices that are not ascertainable.

Forward-Looking Statements

This press release contains forward-looking statements including, among other things, statements regarding Workday’s third quarter and full year fiscal 2021 subscription revenue, Workday’s full year fiscal 2021 non-GAAP operating margin, and Workday’s business, solutions, and long-term opportunity. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “seek,” “plan,” “project,” “looking ahead,” “look to,” “move into,” 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) the impact of the ongoing COVID-19 pandemic on our business, as well as our customers, prospects, partners, and service providers; (ii) our ability to implement our plans, objectives, and other expectations with respect to any of our acquired companies; (iii) breaches in our security measures, unauthorized access to our customers’ or other users’ personal data, or disruptions in our data center or computing infrastructure operations; (iv) service outages, delays in the deployment of our applications, and the failure of our applications to perform properly; (v) our ability to manage our growth effectively; (vi) competitive factors, including pricing pressures, industry consolidation, entry of new competitors and new applications, advancements in technology, and marketing initiatives by our competitors; (vii) the development of the market for enterprise cloud applications and services; (viii) acceptance of our applications and services by customers and individuals, including any new features, enhancements, and modifications, as well as the acceptance of any underlying technology such as machine learning, artificial intelligence, and blockchain; (ix) adverse changes in general economic or market conditions; (x) the regulatory, economic, and political risks associated with our domestic and international operations; (xi) the regulatory risks related to new and evolving technologies such as machine learning, artificial intelligence, and blockchain; (xii) delays or reductions in information technology spending; and (xiii) changes in sales, which may not be immediately reflected in our results due to our subscription model. Further information on these and additional 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, 2020, 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.

© 2020 Workday, Inc. All rights reserved. Workday and the Workday Logo are trademarks or registered trademarks of Workday, Inc. registered in the United States and elsewhere. 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, 2020 January 31, 2020
Assets   
Current assets:   
Cash and cash equivalents$1,239,696  $731,141 
Marketable securities1,513,842  1,213,432 
Trade and other receivables, net694,289  877,578 
Deferred costs105,350  100,459 
Prepaid expenses and other current assets161,004  172,012 
Total current assets3,714,181  3,094,622 
Property and equipment, net957,434  936,179 
Operating lease right-of-use assets324,655  290,902 
Deferred costs, noncurrent223,996  222,395 
Acquisition-related intangible assets, net276,847  308,401 
Goodwill1,819,261  1,819,261 
Other assets185,077  144,605 
Total assets$7,501,451  $6,816,365 
Liabilities and stockholders’ equity   
Current liabilities:   
Accounts payable$57,764  $57,556 
Accrued expenses and other current liabilities125,784  130,050 
Accrued compensation252,814  248,154 
Unearned revenue2,003,455  2,223,178 
Operating lease liabilities75,798  66,147 
Debt, current37,500  244,319 
Total current liabilities2,553,115  2,969,404 
Debt, noncurrent1,752,004  1,017,967 
Unearned revenue, noncurrent64,465  86,025 
Operating lease liabilities, noncurrent271,607  241,425 
Other liabilities21,782  14,993 
Total liabilities4,662,973  4,329,814 
Stockholders’ equity:   
Common stock238  231 
Additional paid-in capital5,954,738  5,090,187 
Treasury stock(303,201)  
Accumulated other comprehensive income (loss)646  23,492 
Accumulated deficit(2,813,943) (2,627,359)
Total stockholders’ equity2,838,478  2,486,551 
Total liabilities and stockholders’ equity$7,501,451  $6,816,365 
        

 

Workday, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
 Three Months Ended July 31,  Six Months Ended July 31,
 2020 2019 2020 2019
Revenues:       
Subscription services$931,698  $757,155  $1,813,654   $1,458,179 
Professional services130,269  130,597  266,698   254,628 
Total revenues1,061,967  887,752  2,080,352   1,712,807 
Costs and expenses (1):       
Costs of subscription services145,007  121,161  290,270   233,630 
Costs of professional services139,270  145,173  299,637   275,923 
Product development418,681  378,122  862,165   725,953 
Sales and marketing276,497  280,200  595,054   553,136 
General and administrative99,266  85,593  194,437   170,048 
Total costs and expenses1,078,721  1,010,249  2,241,563   1,958,690 
Operating income (loss)(16,754) (122,497) (161,211)  (245,883)
Other income (expense), net(11,453) (106) (22,426)  7,035 
Loss before provision for (benefit from) income taxes(28,207) (122,603) (183,637)  (238,848)
Provision for (benefit from) income taxes(191) (1,891) 2,747   (1,861)
Net loss$(28,016) $(120,712) $(186,384)  $(236,987)
Net loss per share, basic and diluted$(0.12) $(0.53) $(0.79)  $(1.05)
Weighted-average shares used to compute net loss per
share, basic and diluted
236,002  226,392  234,483   224,857 


(1)  Costs and expenses include share-based compensation expenses as follows:    
  Costs of subscription services$14,825  $12,001  $28,717  $22,416 
  Costs of professional services24,552  18,991  47,118  35,141 
  Product development128,505  105,758  250,527  196,995 
  Sales and marketing49,854  42,690  96,804  81,544 
  General and administrative33,500  29,781  64,742  58,360 
            

 

Workday, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
  Three Months Ended July 31,  Six Months Ended July 31,
  2020 2019 2020 2019
Cash flows from operating activities:        
Net loss $(28,016) $(120,712) $(186,384) $(236,987)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
        
Depreciation and amortization 73,178  67,754  144,692  128,919 
Share-based compensation expenses 251,236  208,912  487,908  394,147 
Amortization of deferred costs 27,349  22,002  53,409  42,882 
Amortization of debt discount and issuance costs 14,528  14,301  29,368  25,888 
Non-cash lease expense 19,879  16,252  38,248  32,074 
Other 12,430  (4,851) 16,800  (11,697)
Changes in operating assets and liabilities, net of business
combinations:
        
Trade and other receivables, net (109,316) (73,437) 181,586  83,942 
Deferred costs (41,841) (28,207) (59,901) (46,692)
Prepaid expenses and other assets (9,137) (1,679) 10,840  (6,786)
Accounts payable 9,307  1,047  (13,075) 2,550 
Accrued expenses and other liabilities (39,837) (56,524) (41,341) (35,121)
Unearned revenue (22,550) 55,461  (241,257) (63,637)
Net cash provided by (used in) operating activities 157,210  100,319  420,893  309,482 
Cash flows from investing activities:        
Purchases of marketable securities (602,546) (582,848) (1,156,531) (1,053,902)
Maturities of marketable securities 473,016  385,710  854,414  845,807 
Sales of marketable securities   4,551  5,279  55,499 
Owned real estate projects (1,764) (34,149) (4,251) (73,783)
Capital expenditures, excluding owned real estate projects (66,555) (75,576) (126,495) (141,111)
Business combinations, net of cash acquired   (12,885)   (12,885)
Purchases of non-marketable equity and other investments (6,350) (5,516) (58,600) (7,716)
Sales and maturities of non-marketable equity and other investments 1,561    6,199   
Other   (32)   (9)
Net cash provided by (used in) investing activities (202,638) (320,745) (479,985) (388,100)
Cash flows from financing activities:        
Proceeds from borrowings on term loan, net 250,000    747,795   
Payments on convertible senior notes (249,945) (27) (249,946) (27)
Proceeds from issuance of common stock from employee equity plans 70,940  58,085  74,517  61,540 
Other (215) (107) (2,255) (200)
Net cash provided by (used in) financing activities 70,780  57,951  570,111  61,313 
Effect of exchange rate changes 771  75  506  (252)
Net increase (decrease) in cash, cash equivalents, and
restricted cash
 26,123  (162,400) 511,525  (17,557)
Cash, cash equivalents, and restricted cash at the
beginning of period
 1,220,123  787,046  734,721  642,203 
Cash, cash equivalents, and restricted cash at the end
of period
 $1,246,246  $624,646  $1,246,246  $624,646 
                 

 

Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Three Months Ended July 31, 2020
(in thousands, except percentages and per share data)
(unaudited)
 GAAP Share-Based
Compensation
Expenses
 Other
Operating Expenses (2)
 Amortization
of Convertible
Senior Notes
Debt Discount
and Issuance
Costs
 Income Tax
and Dilution
Effects (3)
 Non-GAAP
Costs and expenses:           
Costs of subscription services$145,007  $(14,825) $(8,844) $  $  $121,338 
Costs of professional services139,270  (24,552) (918)     113,800 
Product development418,681  (128,505) (4,554)     285,622 
Sales and marketing276,497  (49,854) (7,913)     218,730 
General and administrative99,266  (33,500) (975)     64,791 
Operating income (loss)(16,754) 251,236  23,204      257,686 
Operating margin(1.6)% 23.7% 2.2% % % 24.3%
Other income (expense), net(11,453)     14,418    2,965 
Income (loss) before provision for (benefit from) income taxes(28,207) 251,236  23,204  14,418    260,651 
Provision for (benefit from) income taxes(191)       49,715  49,524 
Net income (loss)$(28,016) $251,236  $23,204  $14,418  $(49,715) $211,127 
Net income (loss) per share (1)$(0.12) $1.06  $0.10  $0.06  $(0.26) $0.84 


(1)GAAP net loss per share is calculated based upon 236,002 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share is calculated based upon 252,192 diluted weighted-average shares of common stock.
(2)Other operating expenses include amortization of acquisition-related intangible assets of $15.7 million and total employer payroll tax-related items on employee stock transactions of $7.5 million.
(3)We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision to provide better consistency across the reporting periods. For fiscal 2021, we determined the projected non-GAAP tax rate to be 19%. Included in this is a dilution impact of $0.05 from the conversion of basic net income (loss) per share to diluted net income (loss) per share.
  


Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Three Months Ended July 31, 2019
(in thousands, except percentages and per share data)
(unaudited)
 GAAP Share-Based Compensation Expenses Other
Operating
Expenses (2)
 Amortization
of Convertible
Senior Notes
Debt Discount
and Issuance
Costs
 Income Tax
and Dilution
Effects (3)
 Non-GAAP
Costs and expenses:           
Costs of subscription services$121,161  $(12,001) $(11,739) $  $   $97,421 
Costs of professional services145,173  (18,991) (1,233)      124,949 
Product development378,122  (105,758) (5,380)      266,984 
Sales and marketing280,200  (42,690) (10,449)      227,061 
General and administrative85,593  (29,781) (2,021)      53,791 
Operating income (loss)(122,497) 209,221  30,822       117,546 
Operating margin(13.8)% 23.6% 3.4% % %  13.2%
Other income (expense), net(106)     14,301     14,195 
Income (loss) before provision for (benefit from) income taxes(122,603) 209,221  30,822  14,301     131,741 
Provision for (benefit from) income taxes(1,891)       24,287   22,396 
Net income (loss)$(120,712) $209,221  $30,822  $14,301  $(24,287)  $109,345 
Net income (loss) per share (1)$(0.53) $0.92  $0.14  $0.06  $(0.15)  $0.44 


(1)GAAP net loss per share is calculated based upon 226,392 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share is calculated based upon 247,748 diluted weighted-average shares of common stock.
(2)Other operating expenses include amortization of acquisition-related intangible assets of $19.5 million and total employer payroll tax-related items on employee stock transactions of $11.3 million.
(3)We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision to provide better consistency across the reporting periods. For fiscal 2020, the projected non-GAAP tax rate was 17%. Included in the per share amount is a dilution impact of $0.04 from the conversion of basic net income (loss) per share to diluted net income (loss) per share.
  


Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Six Months Ended July 31, 2020
(in thousands, except percentages and per share data)
(unaudited)
 GAAP Share-Based
Compensation Expenses
 Other
Operating Expenses (2)
 Amortization
of Convertible
Senior Notes
Debt Discount
and Issuance
Costs
 Income Tax
and Dilution
Effects (3)
 Non-GAAP
Costs and expenses:           
Costs of subscription services$290,270  $(28,717) $(18,487) $  $  $243,066 
Costs of professional services299,637  (47,118) (4,019)     248,500 
Product development862,165  (250,527) (16,704)     594,934 
Sales and marketing595,054  (96,804) (18,489)     479,761 
General and administrative194,437  (64,742) (3,756)     125,939 
Operating income (loss)(161,211) 487,908  61,455      388,152 
Operating margin(7.7)% 23.4 % 3.0 % % % 18.7%
Other income (expense), net(22,426)     29,221    6,795 
Income (loss) before provision for (benefit from) income taxes(183,637) 487,908  61,455  29,221    394,947 
Provision for (benefit from) income taxes2,747        72,293  75,040 
Net income (loss)$(186,384) $487,908  $61,455  $29,221  $(72,293) $319,907 
Net income (loss) per share (1)$(0.79) $2.08  $0.26  $0.12  $(0.39) $1.28 


(1)GAAP net loss per share is calculated based upon 234,483 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share is calculated based upon 250,115 diluted weighted-average shares of common stock.
(2)Other operating expenses include amortization of acquisition-related intangible assets of $31.6 million and total employer payroll tax-related items on employee stock transactions of $29.9 million.
(3)We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision to provide better consistency across the reporting periods. For fiscal 2021, we have determined the projected non-GAAP tax rate to be 19%. Included in the per share amount is a dilution impact of $0.08 from the conversion of basic net income (loss) per share to diluted net income (loss) per share.
  


Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Six Months Ended July 31, 2019
(in thousands, except percentages and per share data)
(unaudited)
 GAAP Share-Based
Compensation
Expenses
 Other
Operating
Expenses (2)
 Amortization
of Convertible
Senior Notes
Debt Discount
and Issuance
Costs
 Income Tax
and Dilution
Effects (3)
 Non-GAAP
Costs and expenses:           
Costs of subscription services$233,630  $(22,416) $(24,399) $  $  $186,815 
Costs of professional services275,923  (35,141) (4,692)     236,090 
Product development725,953  (196,995) (19,011)     509,947 
Sales and marketing553,136  (81,544) (23,283)     448,309 
General and administrative170,048  (58,360) (5,319)     106,369 
Operating income (loss)(245,883) 394,456  76,704      225,277 
Operating margin(14.4)% 23.0% 4.6% % % 13.2%
Other income (expense), net7,035      25,888    32,923 
Income (loss) before provision for (benefit from) income taxes(238,848) 394,456  76,704  25,888    258,200 
Provision for (benefit from) income taxes(1,861)       45,755  43,894 
Net income (loss)$(236,987) $394,456  $76,704  $25,888  $(45,755) $214,306 
Net income (loss) per share (1)$(1.05) $1.75  $0.34  $0.12  $(0.29) $0.87 


(1)GAAP net loss per share is calculated based upon 224,857 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share is calculated based upon 246,610 diluted weighted-average shares of common stock.
(2)Other operating expenses include amortization of acquisition-related intangible assets of $38.9 million and total employer payroll tax-related items on employee stock transactions of $37.8 million.
(3)We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision to provide better consistency across the reporting periods. For fiscal 2020, the projected non-GAAP tax rate was 17%. Included in the per share amount is a dilution impact of $0.09 from the conversion of basic net income (loss) per share to diluted net income (loss) per share.

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) and non-GAAP net income (loss) per share. Workday has provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure. Non-GAAP operating income (loss) differs from GAAP in that it excludes share-based compensation expenses, employer payroll tax-related items on employee stock transactions, and amortization expense for acquisition-related intangible assets. Non-GAAP net income (loss) per share differs from GAAP in that it excludes share-based compensation expenses, employer payroll tax-related items on employee stock transactions, amortization expense for acquisition-related intangible assets, non-cash interest expense related to our convertible senior notes, and income tax effects.

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. 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. 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 prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies.

Management believes excluding the following items from the GAAP Condensed Consolidated Statements 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 to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies. Share-based compensation expenses are determined using a number of factors, including our stock price, volatility, and forfeiture rates, that are beyond our control and generally unrelated to operational decisions and performance in any particular period. Further, share-based compensation expenses are not reflective of the value ultimately received by the grant recipients.

  • 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 convertible senior notes 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 and September 2017. 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 Workday’s operational performance.

  • Income tax effects. We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision to provide better consistency across the reporting periods. In projecting this long-term non-GAAP tax rate, we utilize a three-year financial projection that excludes the direct impact of share-based compensation and related employer payroll taxes, amortization of acquisition-related intangible assets, and amortization of debt discount and issuance costs. The projected rate considers other factors such as our current operating structure, existing tax positions in various jurisdictions, and key legislation in major jurisdictions where we operate. For fiscal 2020, we determined the projected non-GAAP tax rate to be 17%. For fiscal 2021, we determined the projected non-GAAP tax rate to be 19%, which reflects currently available information, as well as other factors and assumptions. We will periodically re-evaluate this tax rate, as necessary, for significant events, based on our ongoing analysis of the 2017 U.S. Tax Cuts and Jobs Act, relevant tax law changes, material changes in the forecasted geographic earnings mix, and any significant acquisitions.

The use of non-GAAP operating income (loss) and non-GAAP net income (loss) per share measures have 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.

Investor Relations Contact:
Justin Furby
IR@Workday.com 

Media Contact:
Nina Oestlien
Media@Workday.com 


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