Fiscal Third Quarter Total Revenues of $1.87 Billion, Up 16.7% Year Over Year
Subscription Revenues of $1.69 Billion, Up 18.1% Year Over Year
12-Month Subscription Revenue Backlog of$6.05Billion, Up 21.9% Year Over Year
PLEASANTON, Calif.,Nov. 28, 2023/PRNewswire/ --Workday, Inc.(NASDAQ: WDAY), a leader in enterprise cloud applications forfinanceandhuman resources, today announced results for the fiscal 2024 third quarter ended October31, 2023.
Fiscal 2024 Third Quarter Results
- Total revenues were $1.87 billion, an increase of 16.7% from the third quarter of fiscal 2023. Subscription revenues were $1.69 billion, an increase of 18.1% from the same period last year.
- Operating income was $87.9 million, or 4.7% of revenues, compared to an operating loss of $26.3 million, or negative 1.6% of revenues, in the same period last year. Non-GAAP operating income for the third quarter was $462.1 million, or 24.8% of revenues, compared to a non-GAAP operating income of $314.2 million, or 19.7% of revenues, in the same period last year.1
- Basic and diluted net income per share was $0.43, compared to basic and diluted net loss per share of $0.29 in the third quarter of fiscal 2023. Non-GAAP basic and diluted net income per share was $1.56 and $1.53, respectively, compared to non-GAAP basic and diluted net income per share of $1.01 and $0.99, respectively, in the same period last year.2
- Total subscription revenue backlog was $18.45 billion, up 30.9% from the same period last year. 12-month subscription revenue backlog was $6.05 billion, and 24-month subscription revenue backlog was $10.58 billion, up 21.9% and 22.7% year over year, respectively.
- Operating cash flows were $450.8 million compared to $408.7 million in the prior year. Free cash flows were $390.8 million compared to $349.8 million in the prior year.3
- Cash, cash equivalents, and marketable securities were $6.88 billion as of October 31, 2023.
Comments on the News
"Workday delivered a strong quarter, demonstrating how organizations across industries and geographies are continuing to place their trust in Workday," said Carl Eschenbach, co-CEO, Workday. "The momentum across our business is palpable, powered by our AI innovation, strength in full platform deals, expanding partner ecosystem, and international growth – with EMEA surpassing $1 billion annual recurring revenue in the quarter. Now with over 5,000 core Workday HCM customers, more companies around the world are turning to Workday to manage their most precious assets: their people and money."
"Our strategy to build AI directly into the core of our products continues to resonate with our customers and is fueled by our platform strategy, unrivaled dataset, and emphasis on being human-centric," said Aneel Bhusri, co-founder, co-CEO, and chair, Workday. "We unveiled a series of new AI capabilities at Workday Rising – including investments in generative AI and conversational AI – that will benefit all users with an emphasis on increasing productivity, growing and retaining talent, streamlining business processes, and driving better decision-making. With a commitment to delivering responsible and trustworthy solutions, we are providing the innovation our customers need to thrive in today's dynamic business environment."
"Our strong third-quarter results demonstrate the durability of our business and the ongoing market adoption for cloud Financials and Human Capital Management," said Zane Rowe, chief financial officer, Workday. "Following our continued momentum in the third quarter, we are raising our fiscal 2024 subscription revenue guidance to $6.598 billion, representing 19% year-over-year growth. We are also raising our fiscal 2024 non-GAAP operating margin guidance to 23.8%. Our focus is centered on investing to drive durable long-term growth while expanding margins."
Recent Highlights
- Workday announced new full platform customers forWorkday Financial ManagementandWorkday Human Capital Management (HCM), with new wins including AdventHealth, Aurelius Group, Bentley Systems, Globe Life, Houston Methodist, and Kern County.
- Workday surpassed 5,000 coreWorkday Human Capital Management (HCM)customers in Q3.
- Workday announced several AI updates, including multiplegenerative AI capabilities; new AI capabilities inWorkday Adaptive Planning; aManager Insights Hubthat surfaces automated insights for managers to develop their teams; and enhancements toWorkday Extendto enable developers to leverage Workday AI services.
- Workday demonstrated continued expansion of its global partner ecosystem with several updates including a newWorkday AI Marketplaceto help customers easily find and deploy trusted AI apps within the Workday ecosystem, an expandedpartnership with ADPto help deliver an enhanced frictionless global payroll, compliance, and HR experience for joint customers, and an expandedpartnership with Accentureto help companies accelerate their adoption of skills-based talent strategies.
- Workday celebrated its customers with more than 15,000 attendees at Workday Rising and more than 4,000 attendees at Workday Rising EMEA.
- Workday was named a Leader in theGartner®Magic Quadrant™ for Cloud HCM Suites for 1,000+ Employee Enterprises4andGartner®Magic Quadrant™ for Cloud ERP for Service-Centric Enterprises.5
- Workday VNDLY was named a2023 Top HR Product of the Yearby Human Resource Executive.
Earnings Call Details
Workday plans to host a conference call today to review its fiscal 2024 third 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 viawebcast. The webcast will be available live, and a replay will be available following completion of the live broadcast for approximately 90 days.
Workday uses theWorkday Blogas a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.
1 | Non-GAAPoperating income and non-GAAP operating margin exclude share-based compensation expenses, employer payrolltax-relateditems 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. |
2 | Non-GAAPnet income per share excludes share-based compensation expenses, employer payrolltax-relateditems on employee stock transactions, amortization expense for acquisition-related intangible assets, and income tax effects. See the section titled "About Non-GAAP Financial Measures" in the accompanying financial tables for further details. |
3 | Free cash flows are defined as net cash provided by (used in) operating activities minus total capital expenditures. See the section titled "About Non-GAAP Financial Measures" in the accompanying financial tables for further details. |
4 | Gartner, "Magic Quadrant for Cloud HCM Suites for 1,000+ Employee Enterprises," Ranadip Chandra, Sam Grinter, Ron Hanscome, Chris Pang, Anand Chouksey, Josie Xing, Harsh Kundulli, David Bobo, Laura Gardiner, Hiten Sheth, Jackie Watrous, Travis Wickesberg, October 18, 2023. |
5 | Gartner, "Magic Quadrant for Cloud ERP for Service-Centric Enterprises," Denis Torii, Sam Grinter, Tim Faith, Naveen Mahendra, Neha Ralhan, Robert Anderson, August 29, 2023. |
Gartner 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. GARTNER is a registered trademark and service mark, and MAGIC QUADRANT is a registered trademark of Gartner, Inc., and/or its affiliates in the U.S. and internationally and are used herein with permission. All rights reserved.
About Workday
Workdayis a leading provider of enterprise cloud applications forfinanceandhuman resources, helping customers adapt and thrive in a changing world. Workday applications for financial management, human resources, planning, spend management, and analytics are built with artificial intelligence and machine learning at the core to help organizations around the world embrace the future of work. Workday is used by more than 10,000 organizations around the world and across industries – from medium-sized businesses to more than 50% of the Fortune 500. For more information about Workday, visitworkday.com.
© 2023 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.
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." The Company has not provided a reconciliation of its forward outlook for non-GAAP operating margin with its forward-looking GAAP operating margin in reliance on the unreasonable efforts exception provided under Item 10(e)(1)(i)(B) of Regulation S-K. The Company is unable, without unreasonable efforts, to quantify share-based compensation expense, which is excluded from our non-GAAP operating margin, as it 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 full-year fiscal 2024 subscription revenues and non-GAAP operating margin, growth and expansion, innovation, momentum, market adoption, demand, strategy, and investments. These forward-looking statements are based only on currently available information and our current beliefs, expectations, and assumptions. Because forward-looking statements relate to the future, they are subject to risks, uncertainties, assumptions, and changes in circ*mstances that are difficult to predict and many of which are outside of our control. If the risks materialize, assumptions prove incorrect, or we experience unexpected changes in circ*mstances, actual results could differ materially from the results implied by these forward-looking statements, and therefore you should not rely on any forward-looking statements. Risks include, but are not limited to: (i) breaches in our security measures or those of our third-party providers, unauthorized access to our customers' or other users' personal data, or disruptions in our data center or computing infrastructure operations; (ii) service outages, delays in the deployment of our applications, and the failure of our applications to perform properly; (iii) the impact of recent macroeconomic events, including inflation and rising interest rates, on our business, as well as our customers, prospects, partners, and service providers; (iv) privacy concerns and evolving domestic or foreign laws and regulations; (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) any loss of key employees or the inability to attract, train, and retain highly skilled employees; (viii) adoption of our applications and services by customers and individuals, including any new features, enhancements, and modifications, as well as our customers' and users' satisfaction with the deployment, training, and support services they receive; (ix) our reliance on our network of partners to drive additional growth of our revenues; (x) adverse changes in general economic or market conditions; (xi) the regulatory risks related to new and evolving technologies such as AI and our ability to realize a return on our development efforts; (xii) our ability to realize the expected business or financial benefits of any acquisitions of or investments in companies; (xiii) adverse changes in general economic or market conditions; (xiv) the regulatory, economic, and political risks associated with our domestic and international operations; (xv) delays or reductions in information technology spending; and (xvi) 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 fiscal quarter ended October31, 2023, and other reports that we have filed and will 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, except as required by law.
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.
Workday, Inc. Condensed Consolidated Balance Sheets (in thousands) (unaudited) | |||
October 31, 2023 | January 31, 2023 | ||
Assets | |||
Current assets: | |||
Cash and cash equivalents | $ 1,563,939 | $ 1,886,311 | |
Marketable securities | 5,316,045 | 4,235,083 | |
Trade and other receivables, net | 1,224,818 | 1,570,086 | |
Deferred costs | 207,566 | 191,054 | |
Prepaid expenses and other current assets | 261,795 | 225,690 | |
Total current assets | 8,574,163 | 8,108,224 | |
Property and equipment, net | 1,206,564 | 1,201,254 | |
Operating lease right-of-use assets | 265,963 | 249,278 | |
Deferred costs, noncurrent | 432,275 | 420,988 | |
Acquisition-related intangible assets, net | 249,242 | 305,465 | |
Goodwill | 2,846,464 | 2,840,044 | |
Other assets | 351,262 | 360,985 | |
Total assets | $ 13,925,933 | $ 13,486,238 | |
Liabilities and stockholders' equity | |||
Current liabilities: | |||
Accounts payable | $ 79,333 | $ 153,751 | |
Accrued expenses and other current liabilities | 234,906 | 260,131 | |
Accrued compensation | 420,178 | 563,548 | |
Unearned revenue | 3,196,648 | 3,559,393 | |
Operating lease liabilities | 98,325 | 91,343 | |
Total current liabilities | 4,029,390 | 4,628,166 | |
Debt, noncurrent | 2,978,800 | 2,975,934 | |
Unearned revenue, noncurrent | 62,148 | 74,540 | |
Operating lease liabilities, noncurrent | 198,843 | 181,799 | |
Other liabilities | 31,835 | 40,231 | |
Total liabilities | 7,301,016 | 7,900,670 | |
Stockholders' equity: | |||
Common stock | 264 | 259 | |
Additional paid-in capital | 9,981,756 | 8,828,639 | |
Treasury stock | (471,481) | (185,047) | |
Accumulated other comprehensive income (loss) | 33,207 | 53,051 | |
Accumulated deficit | (2,918,829) | (3,111,334) | |
Total stockholders' equity | 6,624,917 | 5,585,568 | |
Total liabilities and stockholders' equity | $ 13,925,933 | $ 13,486,238 | |
Workday, Inc. Condensed Consolidated Statements of Operations (in thousands, except per share data) (unaudited) | |||||||
Three Months Ended October 31, | Nine Months Ended October 31, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
Revenues: | |||||||
Subscription services | $ 1,691,116 | $ 1,432,393 | $ 4,842,964 | $ 4,071,804 | |||
Professional services | 174,559 | 166,710 | 493,789 | 497,754 | |||
Total revenues | 1,865,675 | 1,599,103 | 5,336,753 | 4,569,558 | |||
Costs and expenses(1): | |||||||
Costs of subscription services | 263,840 | 259,397 | 758,551 | 737,301 | |||
Costs of professional services | 181,400 | 176,396 | 552,233 | 524,398 | |||
Product development | 618,736 | 565,727 | 1,828,870 | 1,655,071 | |||
Sales and marketing | 537,816 | 470,196 | 1,580,639 | 1,358,198 | |||
General and administrative | 176,028 | 153,708 | 512,148 | 427,832 | |||
Total costs and expenses | 1,777,820 | 1,625,424 | 5,232,441 | 4,702,800 | |||
Operating income (loss) | 87,855 | (26,321) | 104,312 | (133,242) | |||
Other income (expense), net | 41,388 | 4,163 | 113,652 | (48,789) | |||
Income (loss) before provision for (benefit from) income taxes | 129,243 | (22,158) | 217,964 | (182,031) | |||
Provision for (benefit from) income taxes | 15,534 | 52,563 | 25,459 | 59,021 | |||
Net income (loss) | $ 113,709 | $ (74,721) | $ 192,505 | $ (241,052) | |||
Net income (loss) per share, basic | $ 0.43 | $ (0.29) | $ 0.74 | $ (0.95) | |||
Net income (loss) per share, diluted | $ 0.43 | $ (0.29) | $ 0.73 | $ (0.95) | |||
Weighted-average shares used to compute net income (loss) per share, basic | 262,153 | 255,753 | 260,747 | 253,975 | |||
Weighted-average shares used to compute net income (loss) per share, diluted | 266,377 | 255,753 | 264,087 | 253,975 | |||
(1) Costs and expenses include share-based compensation expenses as follows: | |||||||
Three Months Ended October 31, | Nine Months Ended October 31, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
Costs of subscription services | $ 30,543 | $ 25,598 | $ 89,793 | $ 76,918 | |||
Costs of professional services | 28,738 | 26,577 | 87,532 | 79,999 | |||
Product development | 162,025 | 149,279 | 493,934 | 449,764 | |||
Sales and marketing | 64,805 | 61,186 | 211,560 | 180,233 | |||
General and administrative | 63,146 | 51,556 | 187,810 | 146,795 | |||
Total share-based compensation expenses | $ 349,257 | $ 314,196 | $ 1,070,629 | $ 933,709 | |||
Workday, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) | |||||||
Three Months Ended October 31, | Nine Months Ended October 31, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ 113,709 | $ (74,721) | $ 192,505 | $ (241,052) | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||
Depreciation and amortization | 68,614 | 91,854 | 210,470 | 274,395 | |||
Share-based compensation expenses | 349,257 | 314,196 | 1,070,629 | 933,709 | |||
Amortization of deferred costs | 54,450 | 44,830 | 155,432 | 126,515 | |||
Non-cash lease expense | 24,454 | 23,359 | 72,611 | 68,318 | |||
(Gains) losses on investments | 9,488 | (3,833) | 16,764 | 20,746 | |||
Accretion of discounts on marketable debt securities, net | (39,379) | (13,121) | (111,180) | (15,797) | |||
Other | (10,037) | 16,372 | (19,696) | 31,170 | |||
Changes in operating assets and liabilities, net of business combinations: | |||||||
Trade and other receivables, net | 37,719 | 61,885 | 327,647 | 200,008 | |||
Deferred costs | (79,927) | (56,552) | (183,231) | (163,023) | |||
Prepaid expenses and other assets | 71,644 | 2,435 | 78,279 | (31,447) | |||
Accounts payable | (6,525) | 18,116 | (62,352) | 20,884 | |||
Accrued expenses and other liabilities | (32,159) | 47,061 | (219,470) | 41,253 | |||
Unearned revenue | (110,533) | (63,213) | (375,053) | (302,936) | |||
Net cash provided by (used in) operating activities | 450,775 | 408,668 | 1,153,355 | 962,743 | |||
Cash flows from investing activities: | |||||||
Purchases of marketable securities | (1,272,864) | (2,310,915) | (4,746,086) | (5,651,005) | |||
Maturities of marketable securities | 1,124,276 | 2,181,147 | 3,595,718 | 3,767,509 | |||
Sales of marketable securities | 45,690 | 19,988 | 93,368 | 53,355 | |||
Owned real estate projects | (1,424) | (181) | (3,112) | (446) | |||
Capital expenditures, excluding owned real estate projects | (58,524) | (58,665) | (181,053) | (286,013) | |||
Business combinations, net of cash acquired | (8,517) | — | (8,517) | — | |||
Purchase of other intangible assets | (700) | (700) | (10,200) | (700) | |||
Purchases of non-marketable equity and other investments | — | (3,250) | (10,500) | (20,173) | |||
Sales and maturities of non-marketable equity and other investments | 54 | 4,513 | 54 | 11,674 | |||
Net cash provided by (used in) investing activities | (172,009) | (168,063) | (1,270,328) | (2,125,799) | |||
Cash flows from financing activities: | |||||||
Proceeds from issuance of debt, net of debt discount | — | — | — | 2,978,077 | |||
Repayments and extinguishment of debt | — | (1,149,622) | — | (1,843,605) | |||
Payments for debt issuance costs | — | — | — | (7,220) | |||
Repurchases of common stock | (144,686) | — | (283,333) | — | |||
Proceeds from issuance of common stock from employee equity plans, net of taxes paid for shares withheld | (4,803) | 710 | 82,493 | 85,002 | |||
Other | (69) | (161) | (474) | (538) | |||
Net cash provided by (used in) financing activities | (149,558) | (1,149,073) | (201,314) | 1,211,716 | |||
Effect of exchange rate changes | (787) | (920) | (698) | (1,750) | |||
Net increase (decrease) in cash, cash equivalents, and restricted cash | 128,421 | (909,388) | (318,985) | 46,910 | |||
Cash, cash equivalents, and restricted cash at the beginning of period | 1,447,834 | 2,497,043 | 1,895,240 | 1,540,745 | |||
Cash, cash equivalents, and restricted cash at the end of period | $ 1,576,255 | $ 1,587,655 | $ 1,576,255 | $ 1,587,655 | |||
Workday, Inc. Reconciliation of GAAP to Non-GAAP Data Three Months Ended October 31, 2023 (in thousands, except percentages and per share data) (unaudited) | |||||||||
GAAP | Share-Based | Other | Income Tax | Non-GAAP | |||||
Costs and expenses: | |||||||||
Costs of subscription services | $ 263,840 | $ (30,543) | $ (9,140) | $ — | $ 224,157 | ||||
Costs of professional services | 181,400 | (28,738) | (1,097) | — | 151,565 | ||||
Product development | 618,736 | (162,025) | (3,006) | — | 453,705 | ||||
Sales and marketing | 537,816 | (64,805) | (10,438) | — | 462,573 | ||||
General and administrative | 176,028 | (63,146) | (1,305) | — | 111,577 | ||||
Operating income (loss) | 87,855 | 349,257 | 24,986 | — | 462,098 | ||||
Operating margin | 4.7% | 18.7% | 1.4% | —% | 24.8% | ||||
Other income (expense), net | 41,388 | — | — | — | 41,388 | ||||
Income (loss) before provision for (benefit from) income taxes | 129,243 | 349,257 | 24,986 | — | 503,486 | ||||
Provision for (benefit from) income taxes | 15,534 | — | — | 80,129 | 95,663 | ||||
Net income (loss) | $ 113,709 | $ 349,257 | $ 24,986 | $ (80,129) | $ 407,823 | ||||
Net income (loss) per share, basic(1) | $ 0.43 | $ 1.33 | $ 0.10 | $ (0.30) | $ 1.56 | ||||
Net income (loss) per share, diluted(1) | $ 0.43 | $ 1.31 | $ 0.09 | $ (0.30) | $ 1.53 | ||||
(1) | GAAP and non-GAAP net income per share are both calculated based upon 262,153 basic and 266,377 diluted weighted-average shares of common stock. |
(2) | Other operating expenses include amortization of acquisition-related intangible assets of $16.0 million and employer payroll tax-related items on employee stock transactions of $9.0 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 2024, the non-GAAP tax rate is 19%. |
Workday, Inc. Reconciliation of GAAP to Non-GAAP Data Three Months Ended October 31, 2022 (in thousands, except percentages and per share data) (unaudited) | |||||||||
GAAP | Share-Based | Other | Income Tax | Non-GAAP | |||||
Costs and expenses: | |||||||||
Costs of subscription services | $ 259,397 | $ (25,598) | $ (14,100) | $ — | $ 219,699 | ||||
Costs of professional services | 176,396 | (26,577) | (623) | — | 149,196 | ||||
Product development | 565,727 | (149,279) | (1,899) | — | 414,549 | ||||
Sales and marketing | 470,196 | (61,186) | (9,206) | — | 399,804 | ||||
General and administrative | 153,708 | (51,556) | (531) | — | 101,621 | ||||
Operating income (loss) | (26,321) | 314,196 | 26,359 | — | 314,234 | ||||
Operating margin | (1.6)% | 19.6% | 1.7% | —% | 19.7% | ||||
Other income (expense), net | 4,163 | — | — | — | 4,163 | ||||
Income (loss) before provision for (benefit from) income taxes | (22,158) | 314,196 | 26,359 | — | 318,397 | ||||
Provision for (benefit from) income taxes | 52,563 | — | — | 7,933 | 60,496 | ||||
Net income (loss) | $ (74,721) | $ 314,196 | $ 26,359 | $ (7,933) | $ 257,901 | ||||
Net income (loss) per share, basic(1) | $ (0.29) | $ 1.23 | $ 0.10 | $ (0.03) | $ 1.01 | ||||
Net income (loss) per share, diluted(1) | $ (0.29) | $ 1.23 | $ 0.10 | $ (0.05) | $ 0.99 | ||||
(1) | GAAP net loss per share is calculated based upon 255,753 basic and diluted weighted-average shares of common stock. Non-GAAP net incomeper share is calculated based upon 255,753 basic and 261,777 diluted weighted-average shares of common stock. The numerator used to computenon-GAAP diluted net income per share was increased by $0.9 million for after-tax interest expense on our convertible senior notes in accordancewith the if-converted method. |
(2) | Other operating expenses include amortization of acquisition-related intangible assets of $21.2 million and employer payroll tax-related items on employee stock transactions of $5.2 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 2023, the non-GAAP tax rate was 19%. Included in the per share amount is a dilution impact of $0.02 from the conversionof GAAP diluted net loss per share to non-GAAP diluted net income per share. |
Workday, Inc. Reconciliation of GAAP to Non-GAAP Data Nine Months Ended October 31, 2023 (in thousands, except percentages and per share data) (unaudited) | |||||||||
GAAP | Share-Based | Other | Income Tax | Non-GAAP | |||||
Costs and expenses: | |||||||||
Costs of subscription services | $ 758,551 | $ (89,793) | $ (39,500) | $ — | $ 629,258 | ||||
Costs of professional services | 552,233 | (87,532) | (5,537) | — | 459,164 | ||||
Product development | 1,828,870 | (493,934) | (18,806) | — | 1,316,130 | ||||
Sales and marketing | 1,580,639 | (211,560) | (35,222) | — | 1,333,857 | ||||
General and administrative | 512,148 | (187,810) | (5,468) | — | 318,870 | ||||
Operating income (loss) | 104,312 | 1,070,629 | 104,533 | — | 1,279,474 | ||||
Operating margin | 2.0% | 20.1% | 1.9% | —% | 24.0% | ||||
Other income (expense), net | 113,652 | — | — | — | 113,652 | ||||
Income (loss) before provision for (benefit from) income taxes | 217,964 | 1,070,629 | 104,533 | — | 1,393,126 | ||||
Provision for (benefit from) income taxes | 25,459 | — | — | 239,235 | 264,694 | ||||
Net income (loss) | $ 192,505 | $ 1,070,629 | $ 104,533 | $ (239,235) | $ 1,128,432 | ||||
Net income (loss) per share, basic(1) | $ 0.74 | $ 4.11 | $ 0.40 | $ (0.92) | $ 4.33 | ||||
Net income (loss) per share, diluted(1) | $ 0.73 | $ 4.05 | $ 0.40 | $ (0.91) | $ 4.27 | ||||
(1) | GAAP and non-GAAP net income per share are both calculated based upon 260,747 basic and 264,087 diluted weighted-average shares of commonstock. |
(2) | Other operating expenses include amortization of acquisition-related intangible assets of $58.4 million and employer payroll tax-related items onemployee stock transactions of $46.2 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 thereporting periods. For fiscal 2024, the non-GAAP tax rate is 19%. |
Workday, Inc. Reconciliation of GAAP to Non-GAAP Data Nine Months Ended October 31, 2022 (in thousands, except percentages and per share data) (unaudited) | |||||||||
GAAP | Share-Based | Other | Income Tax | Non-GAAP | |||||
Costs and expenses: | |||||||||
Costs of subscription services | $ 737,301 | $ (76,918) | $ (45,022) | $ — | $ 615,361 | ||||
Costs of professional services | 524,398 | (79,999) | (5,297) | — | 439,102 | ||||
Product development | 1,655,071 | (449,764) | (17,146) | — | 1,188,161 | ||||
Sales and marketing | 1,358,198 | (180,233) | (32,640) | — | 1,145,325 | ||||
General and administrative | 427,832 | (146,795) | (3,772) | — | 277,265 | ||||
Operating income (loss) | (133,242) | 933,709 | 103,877 | — | 904,344 | ||||
Operating margin | (2.9)% | 20.4% | 2.3% | —% | 19.8% | ||||
Other income (expense), net | (48,789) | — | — | — | (48,789) | ||||
Income (loss) before provision for (benefit from) income taxes | (182,031) | 933,709 | 103,877 | — | 855,555 | ||||
Provision for (benefit from) income taxes | 59,021 | — | — | 103,534 | 162,555 | ||||
Net income (loss) | $ (241,052) | $ 933,709 | $ 103,877 | $ (103,534) | $ 693,000 | ||||
Net income (loss) per share, basic(1) | $ (0.95) | $ 3.68 | $ 0.41 | $ (0.41) | $ 2.73 | ||||
Net income (loss) per share, diluted(1) | $ (0.95) | $ 3.68 | $ 0.41 | $ (0.49) | $ 2.65 | ||||
(1) | GAAP net loss per share is calculated based upon 253,975 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share is calculated based upon 253,975 basic and 262,742 diluted weighted-average shares of common stock. The numerator used to computenon-GAAP diluted net income per share was increased by $3.5 million for after-tax interest expense on our convertible senior notes in accordancewith the if-converted method. |
(2) | Other operating expenses include amortization of acquisition-related intangible assets of $64.3 million and employer payroll tax-related items on employee stock transactions of $39.5 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 2023, the non-GAAP tax rate was 19%. Included in the per share amount is a dilution impact of $0.08 from the conversionof GAAP diluted net loss per share to non-GAAP diluted net income per share. |
Workday, Inc. Reconciliation of GAAP Cash Flows from Operations to Free Cash Flows (A Non-GAAP Financial Measure) (in thousands) (unaudited) | |||||||
Three Months Ended October 31, | Nine Months Ended October 31, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
Net cash provided by (used in) operating activities | $ 450,775 | $ 408,668 | $ 1,153,355 | $ 962,743 | |||
Less: Total capital expenditures(1) | (59,948) | (58,846) | (184,165) | (286,459) | |||
Free cash flows | $ 390,827 | $ 349,822 | $ 969,190 | $ 676,284 | |||
(1) | Total capital expenditures consists of Capital expenditures, excluding owned real estate projects of $59 million, $59 million, $181 million,and $286million for the three and nine months ended October 31, 2023, and 2022, respectively, and Owned real estate projects of $1 million,$0.2 million,$3 million, and $0.4 million for the three and nine months ended October 31, 2023, and 2022, respectively. |
About Non-GAAP Financial Measures
To provide investors and others with additional information regarding Workday's results, we have disclosed the following non-GAAP financial measures: non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP net income (loss) per share, and free cash flows. Workday has provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure. Non-GAAPoperating income (loss) and non-GAAP operating margin differ from GAAP in that they exclude share-based compensation expenses, employer payrolltax-relateditems on employee stock transactions, and amortization expense for acquisition-related intangible assets.Non-GAAPnet income (loss) per share differs from GAAP in that it excludes share-based compensation expenses, employer payrolltax-relateditems on employee stock transactions, amortization expense for acquisition-related intangible assets, and income tax effects. Free cash flows differ from GAAP cash flows from operating activities in that it treats total capital expenditures 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. 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. Although we exclude the amortization of acquisition-related intangible assets from these non-GAAP measures, management believes that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.
- 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 2024 and 2023, 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.
Additionally, with regards to free cash flows, Workday's management believes that reducing cash provided by (used in) operating activities by capital expenditures is meaningful to investors and others because it provides an enhanced view of cash flow generation from the ongoing operations of our business, and it balances operating results, cash management, and capital efficiency.
The use of the non-GAAP measures of non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP net income (loss) per share, and free cash flows have certain limitations as they do not reflect all items of expense or cash 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.
