Workday Announces Fiscal 2018 Third Quarter Financial Results

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Subscription Revenues of $463.6 Million, Up 37% Year Over Year; Total Revenues of $555.4 Million, Up 34% Year Over Year

PLEASANTON, CA–(Marketwired – Nov 29, 2017) – Workday, Inc. (NASDAQ: WDAY), a leader in enterprise cloud applications for finance and human resources, today announced results for the fiscal third quarter ended October 31, 2017.

  • Total revenues were $555.4 million, an increase of 34.3% from the third quarter of fiscal 2017. Subscription revenues were $463.6 million, an increase of 37.2% from the same period last year.
  • Operating loss was $80.1 million, or negative 14.4% of revenues, compared to an operating loss of $105.9 million, or negative 25.6% of revenues, in the same period last year. Non-GAAP operating profit for the third quarter was $50.1 million, or 9.0% of revenues, compared to a non-GAAP operating profit of $8.0 million, or 1.9% of revenues, in the same period last year.1
  • Net loss per basic and diluted share was $0.41, compared to a net loss per basic and diluted share of $0.55 in the third quarter of fiscal 2017. Non-GAAP net income per diluted share was $0.24, compared to a non-GAAP net income per diluted share of $0.05 in the same period last year.1
  • Operating cash flows for the third quarter were $144.0 million and free cash flows were $107.7 million. For the trailing twelve months, operating cash flows were $448.9 million and free cash flows were $311.2 million.2
  • Cash, cash equivalents and marketable securities were $3.2 billion as of October 31, 2017. Unearned revenues were over $1.2 billion, a 21.5% increase from the same period last year.

Comments on the News
“Workday had a great third quarter, driving demand across all product areas and geographies, expanding our value proposition with the delivery of new products, and once again demonstrating our commitment to keeping customer satisfaction among the highest in the industry,” said Aneel Bhusri, co-founder and CEO, Workday. “The outlook for the remainder of fiscal 2018 and beyond is bright as we continue to add new customers for HCM and Financial Management, and unlock new growth drivers such as Workday Prism Analytics and the Workday Cloud Platform.”

“We delivered another strong quarter with subscription revenue up 37%, driven by strong net new customer growth, continued add on sales with existing customers, and high renewal rates,” said Robynne Sisco, chief financial officer, Workday. “As we head into our seasonally strongest quarter, we are raising our fiscal 2018 outlook and are now expecting subscription revenue of $1.780 to $1.782 billion, or growth of 38%. We continue to invest for long-term growth, while delivering consistently solid operating and cash flow margins.”

Recent Highlights

  • Workday held its 11th annual customer conference, Workday Rising, bringing together more than 8,500 members of the Workday community for education and collaboration in Chicago.
  • Workday once again achieved its goal to maintain a customer satisfaction rating over 95%, announcing that the company earned a 98% customer satisfaction rating for this year.
  • Workday announced the availability of Workday Prism Analytics, which enables customers to bring together any data — including Workday data and data from any outside source — with leading edge analytics tools to make better business decisions.
  • Workday also announced the availability of Workday Benchmarking, the first offering delivered on Workday Data-as-a-Service. Workday Benchmarking provides key metrics to customers seeking a better understanding of their company's relative performance in comparison to peers to help achieve optimal performance in their respective markets.
  • Workday was positioned by Gartner, Inc. in the Leaders quadrant of “Magic Quadrant for Cloud Human Capital Management Suites for Midmarket and Large Enterprises.” Workday was acknowledged as a leader for the second year in a row and achieved the highest overall position for its ability to execute.3
  • Workday was also positioned as a leader in “The Forrester Wave™: SaaS Human Resource Management Systems, Q3 2017,” a new report published by Forrester Research, Inc. Workday received the highest score in the strategy category and earned the highest possible scores in 16 criteria, including business vision, usability, and mobile.

Workday plans to host a conference call today to review its third 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 90 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.

3 Magic Quadrant for Cloud Human Capital Management Suites for Midmarket and Large Enterprises, 15 August 2017.

Disclaimer – 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. 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.” 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 stock-based compensation expense, which is excluded from our non-GAAP operating margin, requires additional inputs such as number of shares granted and market price that are not ascertainable.

Forward-Looking Statements
This press release contains forward-looking statements including, among other things, statements regarding Workday's fourth quarter and fiscal year subscription revenue projections, investments, 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; and (viii) changes in sales, which 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 July 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)
 
 
 
October 31, 2017   January 31, 2017
*As Adjusted
 
 
Assets            
Current assets:            
  Cash and cash equivalents $ 1,336,984   $ 539,923  
  Marketable securities   1,874,139     1,456,822  
  Trade and other receivables, net   349,309     409,780  
  Deferred costs   56,304     51,330  
  Prepaid expenses and other current assets   77,036     66,590  
Total current assets   3,693,772     2,524,445  
Property and equipment, net   487,234     365,877  
Deferred costs, noncurrent   120,173     117,249  
Acquisition-related intangible assets, net   34,305     48,787  
Goodwill   158,418     158,354  
Other assets   70,814     53,570  
Total assets $ 4,564,716   $ 3,268,282  
Liabilities and stockholders' equity            
Current liabilities:            
  Accounts payable $ 35,837   $ 26,824  
  Accrued expenses and other current liabilities   108,074     61,582  
  Accrued compensation   139,668     110,625  
  Unearned revenue   1,129,031     1,086,212  
  Current portion of convertible senior notes, net   336,936      
Total current liabilities   1,749,546     1,285,243  
Convertible senior notes, net   1,136,494     534,423  
Unearned revenue, noncurrent   100,135     135,331  
Other liabilities   38,267     36,677  
Total liabilities   3,024,442     1,991,674  
Stockholders' equity:            
  Common stock   210     202  
  Additional paid-in capital   3,195,130     2,681,200  
  Accumulated other comprehensive income (loss)   (16,310 )   2,071  
  Accumulated deficit   (1,638,756 )   (1,406,865 )
Total stockholders' equity   1,540,274     1,276,608  
Total liabilities and stockholders' equity $ 4,564,716   $ 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 October 31,     Nine Months Ended October 31,  
2017     2016
*As Adjusted
    2017     2016
*As Adjusted
 
Revenues:                              
  Subscription services $ 463,568     $ 337,910     $ 1,297,831     $ 924,148  
  Professional services   91,821       75,612       262,739       210,708  
Total revenues   555,389       413,522       1,560,570       1,134,856  
Costs and expenses(1):                              
  Costs of subscription services   71,898       54,645       197,627       155,224  
  Costs of professional services   91,657       72,240       260,834       198,140  
  Product development   239,588       185,311       657,130       488,975  
  Sales and marketing   176,121       149,537       503,782       412,055  
  General and administrative   56,184       57,721       163,085       144,609  
Total costs and expenses   635,448       519,454       1,782,458       1,399,003  
Operating loss   (80,059 )     (105,932 )     (221,888 )     (264,147 )
Other income (expense), net   (3,742 )     (3,105 )     (4,467 )     (30,136 )
Loss before provision for (benefit from) income taxes   (83,801 )     (109,037 )     (226,355 )     (294,283 )
Provision for (benefit from) income taxes   1,745       1,077       5,767       2,147  
Net loss $ (85,546 )   $ (110,114 )   $ (232,122 )   $ (296,430 )
Net loss per share, basic and diluted $ (0.41 )   $ (0.55 )   $ (1.12 )   $ (1.50 )
Weighted-average shares used to compute net loss per share, basic and diluted   209,188       199,479       206,715       197,093  
                               
(1) Costs and expenses include share-based compensation expenses as follows:                  
  Costs of subscription services $ 6,899     $ 5,472     $ 19,170     $ 14,837  
  Costs of professional services   9,956       7,436       27,278       18,698  
  Product development   59,116       45,968       167,068       117,250  
  Sales and marketing   25,517       22,597       74,618       62,443  
  General and administrative   20,991       24,982       63,656       59,684  
*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 October 31,     Nine Months Ended October 31,  
2017     2016
*As Adjusted
 
 
 
 
2017     2016
*As Adjusted
 
 
Cash flows from operating activities                              
Net loss $ (85,546 )   $ (110,114 )   $ (232,122 )   $ (296,430 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                              
  Depreciation and amortization   34,982       30,453       102,380       83,239  
  Share-based compensation expenses   122,479       100,098       351,790       266,555  
  Amortization of deferred costs   14,519       11,561       42,165       32,917  
  Amortization of debt discount and issuance costs   12,257       6,782       25,992       20,071  
  Gain on sale of cost method investment   (194 )           (720 )     (65 )
  Impairment of cost method investment   100             100       15,000  
  Other   (1,294 )     78       3,317       1,678  
  Changes in operating assets and liabilities, net of business combinations:                              
    Trade and other receivables, net   19,070       (20,693 )     59,463       25,289  
    Deferred costs   (19,245 )     (13,040 )     (50,063 )     (41,807 )
    Prepaid expenses and other assets   (11,355 )     (3,686 )     (23,373 )     (11,368 )
    Accounts payable   (7,383 )     2,260       2,830       2,080  
    Accrued expenses and other liabilities   59,171       30,591       49,788       29,619  
    Unearned revenue   6,470       37,266       7,632       114,117  
Net cash provided by (used in) operating activities   144,031       71,556       339,179       240,895  
Cash flows from investing activities                              
Purchases of marketable securities   (930,783 )     (380,620 )     (1,829,231 )     (1,571,756 )
Maturities of marketable securities   372,389       449,592       1,185,730       1,614,495  
Sales of available-for-sale securities   32,886       63,340       222,823       92,192  
Business combinations, net of cash acquired         (144,209 )           (147,879 )
Owned real estate projects   (27,616 )     (59,705 )     (80,151 )     (85,479 )
Capital expenditures, excluding owned real estate projects   (36,356 )     (27,518 )     (105,477 )     (88,535 )
Purchases of cost method investments   (5,272 )           (10,722 )     (300 )
Sale and maturities of cost method investments   294             1,026       315  
Other   (1,000 )           (1,000 )     (296 )
Net cash provided by (used in) investing activities   (595,458 )     (99,120 )     (617,002 )     (187,243 )
Cash flows from financing activities                              
Proceeds from borrowings on convertible senior notes, net of issuance costs   1,132,101             1,132,101        
Proceeds from issuance of warrants   80,805             80,805        
Purchase of convertible senior notes hedges   (175,530 )           (175,530 )      
Proceeds from issuance of common stock from employee equity plans   1,974       4,491       36,501       33,267  
Other   (36 )     435       (112 )     1,006  
Net cash provided by (used in) financing activities   1,039,314       4,926       1,073,765      

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