Workday Announces Fourth Quarter and Full Year Fiscal 2014 Financial Results

PLEASANTON, CA--(Marketwired - Feb 26, 2014) -  Workday, Inc. (NYSE: WDAY), a leader in enterprise cloud applications for human resources and finance, today announced financial results for the fourth quarter and full fiscal year ended January 31, 2014.

Fiscal Fourth Quarter Results:

• Total revenues were $141.9 million, an increase of 74% from the fourth quarter of fiscal 2013. Subscription revenues were $110.7 million, an increase of 86% from same period last year.
   
• Operating loss was $48.0 million, or negative 33.8% of revenues, compared to an operating loss of $30.7 million, or negative 37.6% of revenues, in the same period last year. Non-GAAP operating loss for the fourth quarter was $21.0 million, or negative 14.8% of revenues, compared to a non-GAAP operating loss of $25.2 million last year, or negative 30.9% of revenues.1
   
• Net loss per basic and diluted share was $0.32, compared to a net loss per basic and diluted share of $0.19 in the fourth quarter of fiscal 2013. The non-GAAP net loss per basic and diluted share was $0.13, compared to a non-GAAP net loss per basic and diluted share of $0.16 during the same period last year.1
   
• Operating cash flows were $34.8 million and free cash flows were $7.5 million.2
   

Fiscal Year 2014 Results:

• Total revenues were $468.9 million, an increase of 71% from fiscal 2013. Subscription revenues were $354.2 million, an increase of 86% from same period last year.
   
• Operating loss was $153.3 million, or negative 32.7% of total revenues, compared to an operating loss of $117.9 million, or negative 43.1% of total revenues, last year. Non-GAAP operating loss was $87.0 million, or negative 18.6% of total revenues, compared to a non-GAAP operating loss of $91.3 million, or negative 33.4% of total revenues, last year.1
   
• Net loss per basic and diluted share was $1.01, compared to a net loss per basic and diluted share of $1.62 in fiscal 2013. The non-GAAP net loss per basic and diluted share was $0.54, compared to a non-GAAP net loss per basic and diluted share of $1.26 last year.1
   
• Operating cash flows were $46.3 million and free cash flows were a negative $29.6 million.2
   
• Cash, cash equivalents and marketable securities were approximately $1.9 billion as of January 31, 2014. Unearned revenue was $413.6 million, a 45% increase from last year.
   

"Fiscal 2014 marked a significant year of growth with more than 200 new customers and 800 new employees joining Workday," said Aneel Bhusri, chairman, co-founder, and co-CEO, Workday. "During the year, we also accelerated adoption of our financials product, increased market presence in the education and government industries, and expanded our applications with the delivery of Workday Big Data Analytics. Moving forward, we are focused on continued growth across all areas of the business and remain committed to delivering the industry's highest levels of customer satisfaction and product innovation."

"Workday finished an outstanding fiscal 2014 with a very strong fourth quarter," said Mark Peek, chief financial officer, Workday. "Total revenues for the year increased 71% to $469 million and we generated positive operating cash flows. Looking ahead to our fiscal 2015, first quarter revenues are expected to be in the range of $148 to $153 million, or growth of 61% to 67% compared to the prior year period. Total revenues for the year are anticipated to be in the range of $710 and $740 million, or growth of 51% to 58%."

Recent Highlights

• Workday unveiled a new browser experience, designed in partnership with customers, that combines a redesigned visual interface built on HTML5, along with dozens of rich, intuitive features to enhance usability.
   
• The company announced its latest update, Workday 21, which is the first update to be released leveraging Workday's shift to a single code line for both development and production environments -- a transition that simultaneously increases the frequency of innovation delivered to customers, while minimizing disruption.
   
• Workday raised net proceeds of approximately $592 million from a follow-on public offering of 6,900,000 shares of its Class A common stock.
   
• In February, Workday acquired Identified, Inc., a San Francisco-based company, whose product development team is expected to enhance search capabilities and accelerate the delivery of predictive analytics and machine learning throughout Workday's suite of applications.
   

Workday plans to host a conference call today to review its fourth quarter and full year fiscal 2014 financial results and to discuss its financial outlook. The call is scheduled to begin at 2:00 p.m. PT/ 5:00 p.m. ET and can be accessed via webcast or through the company's Investor Relations website at www.workday.com/investorrelations. The webcast will be available live, and a replay will be available following completion of the live broadcast for approximately 45 days.

1 Non-GAAP operating loss and net loss per share for the fiscal fourth quarters and full years of 2013 and 2014 exclude share-based compensation, and for the fiscal fourth quarter and full year of 2014, also exclude employer payroll taxes on employee stock transactions and amortization expense for the debt discount and issuance costs associated with convertible notes. The fiscal full year 2013 non-GAAP operating loss and net loss per share also exclude a one-time charge related to our contribution of 500,000 shares of common stock to the Workday Foundation. See the section titled "About Non-GAAP Financial Measures" in the accompanying financial tables for further details.
2 Free cash flows are defined as operating cash flows minus capital expenditures, 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 organizations. Hundreds of companies, ranging from medium-sized businesses to Fortune 50 enterprises, have selected Workday.

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

Forward-Looking Statements
This press release contains forward-looking statements including, among other things, statements regarding Workday's first quarter and full year fiscal 2015 revenue projections, and our expectations for future applications. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks, uncertainties, and assumptions. If the risks materialize or assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. Risks include, but are not limited to: (i) adverse changes in general economic or market conditions; (ii) delays or reductions in information technology spending; (iii) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors and new applications and marketing initiatives by our competitors; (iv) our ability to manage our growth effectively; (v) our limited operating history, which makes it difficult to predict future results; (vi) the development of the market for enterprise cloud services; (vii) acceptance of our applications and services by customers; (viii) breaches in our security measures or unauthorized access to our customers' data; and (ix) changes in sales may not be immediately reflected in our results due to our subscription model. Further information on risks that could affect Workday's results is included in our filings with the Securities and Exchange Commission (SEC), including our Form 10-Q for the quarter ended October 31, 2013 and our future reports that we may file with the SEC from time to time, which could cause actual results to vary from expectations. Workday assumes no obligation to, and does not currently intend to, update any such forward-looking statements after the date of this release.

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

© 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)
			January 31,
			2014				2013(1)
Assets
Current assets:
	Cash and cash equivalents		$	581,326			$	84,158
	Marketable securities			1,305,253				706,181
	Accounts receivable, net			92,184				67,437
	Deferred costs			16,446				9,816
	Prepaid expenses and other current assets			28,449				16,710
Total current assets				2,023,658				884,302
Property and equipment, net				77,664				44,585
Deferred costs, noncurrent				20,797				18,575
Goodwill and acquisition related intangible assets, net				8,488				8,488
Other assets				45,658				3,130
Total assets			$	2,176,265			$	959,080
Liabilities and stockholders' equity
Current liabilities:
	Accounts payable		$	6,212			$	2,665
	Accrued expenses and other current liabilities			17,999				13,558
	Accrued compensation			55,620				27,203
	Capital leases			9,377				12,008
	Unearned revenue			332,682				199,340
Total current liabilities				421,890				254,774
Convertible senior notes, net				468,412				-
Capital leases, noncurrent				3,589				12,972
Unearned revenue, noncurrent				80,883				85,920
Other liabilities				14,274				13,131
Total liabilities				989,048				366,797
Stockholders' equity:
	Common stock			181				162
	Additional paid-in capital			1,761,156				993,933
	Accumulated other comprehensive income			269				68
	Accumulated deficit			(574,389	)			(401,880	)
Total stockholders' equity				1,187,217				592,283
Total liabilities and stockholders' equity			$	2,176,265			$	959,080

(1)	Amounts as of January 31, 2013 were derived from the January 31, 2013 audited financial statements.

Workday, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
				Three Months Ended								Year Ended
				January 31,								January 31,
				2014				2013				2014				2013
Revenues:
	Subscription services			$	110,715			$	59,622			$	354,169			$	190,320
	Professional services				31,151				21,897				114,769				83,337
Total revenues					141,866				81,519				468,938				273,657
Costs and expenses(1):
	Costs of subscription services				19,862				12,484				69,195				39,251
	Costs of professional services				30,904				20,502				107,615				77,284
	Product development				55,317				30,252				182,116				102,665
	Sales and marketing				60,808				36,389				197,373				123,440
	General and administrative				22,951				12,570				65,921				48,880
Total costs and expenses					189,842				112,197				622,220				391,520
Operating loss					(47,976	)			(30,678	)			(153,282	)			(117,863	)
Other expense, net					(6,921	)			(167	)			(17,549	)			(1,203	)
Loss before provision for income taxes					(54,897	)			(30,845	)			(170,831	)			(119,066	)
Provision for income taxes					1,085				99				1,678				124
Net loss					(55,982	)			(30,944	)			(172,509	)			(119,190	)
Accretion of redeemable convertible preferred stock					-				-				-				(568	)
Net loss attributable to common stockholders				$	(55,982	)		$	(30,944	)		$	(172,509	)		$	(119,758	)
Net loss per share attributable to common stockholders, basic and diluted				$	(0.32	)		$	(0.19	)		$	(1.01	)		$	(1.62	)
Weighted-average shares used to compute net loss per share attributable to common stockholders					175,194				161,916				171,297				74,011
(1) Costs and expenses include share-based compensation as follows:
		Costs of subscription services		$	962			$	200			$	2,408			$	601
		Costs of professional services			1,983				612				4,818				1,312
		Product development			9,240				1,301				21,644				3,528
		Sales and marketing			4,700				879				12,131				2,717
		General and administrative			8,084				2,456				20,850				7,170

Workday, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
			Three Months Ended								Year Ended
			January 31,								January 31,
			2014				2013				2014				2013
Cash flows from operating activities
Net loss			$	(55,982	)		$	(30,944	)		$	(172,509	)		$	(119,190	)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization				10,714				5,784				34,695				17,722
Share-based compensation expense				24,969				5,448				61,851				15,328
Amortization of deferred costs				3,770				3,032				12,219				11,368
Amortization of debt discount and issuance costs				5,841				-				14,395				-
Donation of common stock to Workday Foundation				-				-				-				11,250
Other				422				15				678				56
Changes in operating assets and liabilities:
	Accounts receivable			(5,363	)			(6,338	)			(25,037	)			(12,970	)
	Deferred costs			(8,622	)			(5,727	)			(21,071	)			(17,153	)
	Prepaid expenses and other assets			(13,082	)			(2,133	)			(25,876	)			(9,877	)
	Accounts payable			(2,016	)			(138	)			3,547				(65	)
	Accrued expense and other liabilities			12,346				3,844				35,066				17,582
	Unearned revenue			61,796				33,097				128,305				97,163
Net cash provided by operating activities				34,793				5,940				46,263				11,214
Cash flows from investing activities
Purchases of marketable securities				(357,752	)			(391,198	)			(1,587,240	)			(765,797	)
Maturities of marketable securities				150,135				38,792				983,242				111,577
Purchases of property and equipment				(12,341	)			(9,095	)			(60,725	)			(15,898	)
Purchase of cost method investment				(2,000	)			-				(2,000	)			-
Purchase of other intangible assets				(15,000	)			-				(15,000	)			-
Other				(1,000	)			-				(910	)			-
Net cash used in investing activities				(237,958	)			(361,501	)			(682,633	)			(670,118	)
Cash flows from financing activities
Proceeds from initial public offering, net of issuance costs				-				-				-				684,620
Proceeds from follow-on offering, net of issuance costs				592,241				-				592,241				-
Proceeds from borrowings on convertible senior notes, net of issuance costs				-				-				584,291				-
Proceeds from issuance of warrants				-				-				92,708				-
Purchase of convertible senior notes hedges				-				-				(143,729	)			-
Proceeds from issuance of common stock from employee equity plans				14,380				285				23,692				10,370
Principal payments on capital lease obligations				(2,624	)			(3,541	)			(12,129	)			(9,453	)
Other				(2,948	)			-				(3,464	)			-
Net cash provided by (used in) financing activities				601,049				(3,256	)			1,133,610				685,537
Effect of exchange rate changes				(18	)			(5	)			(72	)			(4	)
Net increase (decrease) in cash and cash equivalents				397,866				(358,822	)			497,168				26,629
Cash and cash equivalents at the beginning of period				183,460				442,980				84,158				57,529
Cash and cash equivalents at the end of period			$	581,326			$	84,158			$	581,326			$	84,158

Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Three Months Ended January 31, 2014
(in thousands, except per share data)
(unaudited)
		GAAP				Share-Based Compensation				Employer Payroll Taxes on Employee Stock Transactions				Amortization of Debt Discount and Issuance Costs			Non-GAAP
Costs and expenses:
Costs of subscription services		$	19,862			$	(962	)		$	(9	)		$	-		$	18,891
Costs of professional services			30,904				(1,983	)			(145	)			-			28,776
Product development			55,317				(9,240	)			(604	)			-			45,473
Sales and marketing			60,808				(4,700	)			(413	)			-			55,695
General and administrative			22,951				(8,084	)			(885	)			-			13,982
Operating loss			(47,976	)			24,969				2,056				-			(20,951	)
Operating margin			-33.8	%			17.6	%			1.4	%			-			-14.8	%
Other expense, net			(6,921	)			-				-				5,841			(1,080	)
Loss before provision for income taxes			(54,897	)			24,969				2,056				5,841			(22,031	)
Provision for income taxes			1,085				-				-				-			1,085
Net loss		$	(55,982	)		$	24,969			$	2,056			$	5,841		$	(23,116	)
Net loss per share attributable to common stockholders, basic and diluted (1)		$	(0.32	)		$	0.14			$	0.01			$	0.04		$	(0.13	)

(1)	Calculated based upon 175,194 basic and diluted weighted-average shares of common stock.

Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Three Months Ended January 31, 2013
(in thousands, except per share data)
(unaudited)
		GAAP				Share-Based Compensation				Non-GAAP
Costs and expenses:
Costs of subscription services		$	12,484			$	(200	)		$	12,284
Costs of professional services			20,502				(612	)			19,890
Product development			30,252				(1,301	)			28,951
Sales and marketing			36,389				(879	)			35,510
General and administrative			12,570				(2,456	)			10,114
Operating loss			(30,678	)			5,448				(25,230	)
Operating margin			-37.6	%			6.7	%			-30.9	%
Loss before provision for income taxes			(30,845	)			5,448				(25,397	)
Provision for income taxes			99				-				99
Net loss		$	(30,944	)		$	5,448			$	(25,496	)
Net loss per share attributable to common stockholders, basic and diluted (1)		$	(0.19	)		$	0.03			$	(0.16	)

(1)	Calculated based upon 161,916 basic and diluted weighted-average shares of common stock.

Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Year Ended January 31, 2014
(in thousands, except per share data)
(unaudited)
	GAAP				Share-Based Compensation				Employer Payroll Taxes on Employee Stock Transactions				Amortization of Debt Discount and Issuance Costs			Non-GAAP
Costs and expenses:
Costs of subscription services	$	69,195			$	(2,408	)		$	(17	)		$	-		$	66,770
Costs of professional services		107,615				(4,818	)			(656	)			-			102,141
Product development		182,116				(21,644	)			(1,544	)			-			158,928
Sales and marketing		197,373				(12,131	)			(883	)			-			184,359
General and administrative		65,921				(20,850	)			(1,298	)			-			43,773
Operating loss		(153,282	)			61,851				4,398				-			(87,033	)
Operating margin		-32.7	%			13.2	%			0.9	%			-			-18.6	%
Other expense, net		(17,549	)			-				-				14,395			(3,154	)
Loss before provision for income taxes		(170,831	)			61,851				4,398				14,395			(90,187	)
Provision for income taxes		1,678				-				-				-			1,678
Net loss	$	(172,509	)		$	61,851			$	4,398			$	14,395		$	(91,865	)
Net loss per share attributable to common stockholders, basic and diluted (1)	$	(1.01	)		$	0.36			$	0.03			$	0.08		$	(0.54	)

(1)	Calculated based upon 171,297 basic and diluted weighted-average shares of common stock.

Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Year Ended January 31, 2013
(in thousands, except per share data)
(unaudited)
		GAAP				Share-Based Compensation				Equity Grant to Workday Foundation				Non-GAAP
Costs and expenses:
Costs of subscription services		$	39,251			$	(601	)		$	-			$	38,650
Costs of professional services			77,284				(1,312	)			-				75,972
Product development			102,665				(3,528	)			-				99,137
Sales and marketing			123,440				(2,717	)			-				120,723
General and administrative			48,880				(7,170	)			(11,250	)			30,460
Operating loss			(117,863	)			15,328				11,250				(91,285	)
Operating margin			-43.1	%			5.6	%			4.1	%			-33.4	%
Loss before provision for income taxes			(119,066	)			15,328				11,250				(92,488	)
Provision for income taxes			124				-				-				124
Net loss		$	(119,190	)		$	15,328			$	11,250			$	(92,612	)
Net loss per share attributable to common stockholders, basic and diluted (1)		$	(1.62	)		$	0.21			$	0.15			$	(1.26	)

(1)	Calculated based upon 74,011 basic and diluted weighted-average shares of common stock.

Workday, Inc.
Reconciliation of GAAP Cash Flows from Operations to Free Cash Flows
(A Non-GAAP Financial Measure)
(in thousands)
(unaudited)
			Three Months Ended								Year Ended
			January 31,								January 31,
			2014				2013				2014				2013
GAAP cash flows from operating activities			$	34,793			$	5,940			$	46,263			$	11,214
Capital expenditures				(12,341	)			(9,095	)			(60,725	)			(15,898	)
Property and equipment acquired under capital lease				-				(830	)			(115	)			(18,717	)
Purchase of other intangible assets				(15,000	)			-				(15,000	)			-
	Free cash flows		$	7,452			$	(3,985	)		$	(29,577	)		$	(23,401	)

About Non-GAAP Financial Measures
To provide investors and others with additional information regarding Workday's results, we have disclosed the following non-GAAP financial measures: non-GAAP operating loss, non-GAAP net loss per share, and free cash flows. Workday has provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure. These non-GAAP financial measures, other than free cash flows, differ from GAAP in that they exclude share-based compensation, employer payroll taxes on employee stock transactions, a one-time charge related to our contribution of 500,000 shares of common stock to the Workday Foundation and amortization of debt discount and issuance costs, 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 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, for internal budgeting and forecasting purposes, for short- and long-term operating plans, and to evaluate Workday's financial performance and the ability of operations to generate cash. Management believes these non-GAAP financial measures reflect Workday's ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in Workday's business, as they exclude expenses that are not reflective of ongoing operating results. Management also believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating Workday's operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies. Additionally, management believes information regarding free cash flows provides investors and others with an important perspective on the cash available to make strategic acquisitions and investments, to fund ongoing operations and to fund other capital expenditures.

Management believes these non-GAAP financial measures are useful to investors and others in assessing Workday's operating performance due to the following factors:

• Share-based compensation. Although share-based compensation is an important aspect of the compensation of Workday's employees and executives, management believes it is useful to exclude share-based compensation in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies. Moreover, determining the fair value of certain of the share-based instruments we utilize involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the vesting or future exercise of the related share-based awards. Unlike cash compensation, the value of stock options, which is an element of our ongoing share-based compensation expense, is determined using a complex formula that incorporates factors, such as market volatility, that are beyond our control.
   
• Employer payroll taxes on employee stock transactions. The amount of employer payroll taxes on employee stock transactions is dependent on Workday's stock price and other factors that are beyond our control and do not correlate to the operation of the business.
   
• Amortization of debt discount and issuance costs. Under GAAP, we are required to separately account for liability (debt) and equity (conversion option) components of the convertible senior notes that were issued in private placements in June 2013. Accordingly, for GAAP purposes we are required to recognize the effective interest expense on our convertible senior notes and amortize the issuance costs over the term of the notes. The difference between the effective interest expense and the contractual interest expense and the amortization expense of issuance costs are excluded from management's assessment of our operating performance because management believes that these non-cash expenses are not indicative of ongoing operating performance. Management believes that the exclusion of the non-cash interest expense provides investors an enhanced view of the company's operational performance.
   
• Equity Grant to Workday Foundation. During the third quarter of fiscal 2013, Workday granted 500,000 shares of common stock to the Workday Foundation. The Workday Foundation is a non-profit organization established to provide grants, humanitarian relief and employee matching contributions and support volunteerism and social development projects. This grant resulted in a one-time charge of $11.3 million, which was recorded to the General and administrative expenses line of the statement of operations. Management does not expect to make future grants of shares to the Foundation and therefore considers this charge non-recurring. As such, management believes it is useful to exclude this one-time charge in order to better understand the ongoing expenses of our core business and to facilitate comparison of our results across periods.
   

Additionally, we believe that the non-GAAP financial measure, free cash flows, is meaningful to investors because we review cash flows generated from or used in operations after deducting capital expenditures, whether purchased or leased and other purchased intangible assets, due to the fact that these expenditures are considered to be an ongoing operational component of our business.

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