News

Workday Announces Fiscal 2020 Second Quarter Financial Results

By Miscw.com

Posted on September 5, 2019

Second
Quarter Total Revenues of $887.8 Million, Up 32.2% Year Over Year�

Subscription
Revenue of $757.2 Million, Up 33.9% Year Over Year�

Subscription
Revenue Backlog of $7.03 Billion, Up 27.2% Year Over Year

SINGAPORE -�Media OutReach�-�5 September 2019�-�Workday, Inc.�(NASDAQ: WDAY), a leader in enterprise cloud
applications for�finance�and�human resources, today announced results for the fiscal 2020
second quarter ended July 31, 2019.

�

Fiscal 2020 Second
Quarter Results

Total revenues were $887.8 million, an
increase of 32.2% from the second quarter of fiscal 2019. Subscription
revenue was $757.2 million, an increase of 33.9% from the same period last
year.
�
Operating loss was $122.5 million, or negative
13.8% of revenues, compared to an operating loss of $89.0 million, or
negative 13.2% of revenues, in the same period last year. Non-GAAP
operating income for the second quarter was $117.5 million, or 13.2% of
revenues, compared to a non-GAAP operating income of $68.1 million, or
10.1% of revenues, in the same period last year.¹
�
Net loss per basic and diluted share was
$0.53, compared to a net loss per basic and diluted share of $0.40 in the
second quarter of fiscal 2019. Non-GAAP net income per diluted share was
$0.44 compared to a non-GAAP net income per diluted share of $0.31 in the
same period last year.²
�
Operating cash flows were $100.3 million
compared to $57.6 million in the same period last year.
�
Cash, cash equivalents, and marketable
securities were $1.93 billion as of July 31, 2019. Unearned revenues were
$1.89 billion, a 27.1% increase from the same period last year.

Comments on the
News

"It was a strong quarter, with continued global customer momentum across
the Fortune 500 and Global 2,000, as more organizations look to Workday for the
ability to plan, execute, and analyze in one system powered by machine
learning. In addition, we celebrated one year with Adaptive Insights and
continue to make great progress on our integration vision," said Aneel Bhusri, co-founder and CEO, Workday.
"As we move into the second half of the year, we are continuing to invest in
areas that leverage our strengths and open new opportunities."

�

"We delivered strong Q2 results with subscription revenue up 34%, along
with solid operating margins and cash flow," said Robynne Sisco, co-president and chief financial officer, Workday.
"Based on our second quarter results, we are raising our fiscal 2020
subscription revenue outlook and now expect subscription revenue of $3.06 to
$3.07 billion.�We expect our third quarter subscription revenue to be
between $783 and $785 million. We continue to prioritize investing in long-term
growth initiatives, while delivering solid operating margins and cash flow over
time."

�

Recent Highlights

Workday�opened�its new headquarters in Pleasanton,
Calif. The new 410,000-square-foot, six-story building was designed to
encourage collaboration and will accommodate 2,200 employees as well as
Workday's new customer center.��
�
Workday�celebrated�the one-year anniversary of its
acquisition of Adaptive Insights. In the last year, the two organizations
have seen continued business planning momentum, including the addition of
more than 800 new Adaptive Insights customers, machine learning
advancements, the completion of the first phase of the Adaptive Insights
integration with Workday as part of the Power of One, and record
attendance at Adaptive Live, the company's annual customer
conference.�
�
Workday�published�its commitments to ethical artificial
intelligence (AI), which includes six principles that guide how it
develops machine learning -- a subset of AI -- for the enterprise
responsibly.�
�
Fast Company�recognized Workday on its inaugural list
of the�50 Best Workplaces For
Innovators, which
honors organizations that demonstrate a deep commitment to encouraging
innovation at all levels.
�
Workday
became the�first�organization to adhere to the EU Cloud
Code of Conduct (CoC) by SCOPE Europe, underscoring the company's
continued commitment to global data protection.
�
Workday
appointed Carolyn Horne as president of the EMEA region and David Webster
as president of the APJ region. In addition, Workday promoted Josh
DeFigueiredo to chief security officer.�
�
Workday
released its�2019 Global Impact Report, which provides an inside look into the
company's efforts to make a positive impact on the world -- from
implementing sustainable practices, to creating a better place to work,
and empowering positive social impact.

�

Additional
Information

Please visit the Workday blog for detailed results: Workday
Announces Fiscal 2020 Second Quarter Financial Results

Workday, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)

�	July 31, 2019		�			January 31, 2019
Assets	�		�			�
Current assets:	�		�			�
Cash and cash equivalents	$	619,514		�	�	$	638,554		�
Marketable securities	1,307,006			�	�	1,139,864			�
Trade and other receivables, net	613,425			�	�	704,680			�
Deferred costs	85,557			�	�	80,809		�	�
Prepaid expenses and other current assets	163,530			�	�	136,689		�	�
Total current assets	2,789,032			�	�	2,700,596		�	�
Property and equipment, net	919,523			�	�	796,907		�	�
Operating lease right-of-use assets	294,824			�	�	--		�	�
Deferred costs, noncurrent	182,580			�	�	183,518		�	�
Acquisition-related intangible assets, net	277,953			�	�	313,240		�	�
Goodwill	1,389,349			�	�	1,379,125		�	�
Other assets	138,895			�	�	147,360		�	�
Total assets	$	5,992,156		�	�	$	5,520,746	�	�
Liabilities and stockholders' equity	�		�			�			�
Current liabilities:	�		�			�			�
Accounts payable	$	32,540		�	�	$	29,093	�	�
Accrued expenses and other current liabilities	114,494			�	�	123,542		�	�
Accrued compensation	192,064			�	�	207,924		�	�
Unearned revenue	1,796,423			�	�	1,837,618		�	�
Operating lease liabilities	65,554			�	�	--		�	�
Current portion of convertible senior notes, net	1,233,189			�	�	232,514		�	�
Total current liabilities	3,434,264			�	�	2,430,691		�	�
Convertible senior notes, net	--			�	�	972,264		�	�
Unearned revenue, noncurrent	89,219			�	�	111,652		�	�
Operating lease liabilities, noncurrent	243,863			�	�	--		�	�
Other liabilities	14,525			�	�	47,697		�	�
Total liabilities	3,781,871			�	�	3,562,304		�	�
Stockholders' equity:	�		�			�			�
Common stock	227			�	�	221		�	�
Additional paid-in capital	4,561,272			�	�	4,105,334		�	�
Accumulated other comprehensive income (loss)	32,458			�	�	(809		)	�
Accumulated deficit	(2,383,672			)	�	(2,146,304		)	�
Total stockholders' equity	2,210,285			�	�	1,958,442		�	�
Total liabilities and stockholders' equity	$	5,992,156		�	�	$	5,520,746	�	�

Workday, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)

�	Three Months Ended July 31,							�	Six Months Ended July 31,
�	2019			�	2018			�	2019			�	2018
Revenues:	�			�	�			�	�			�	�
Subscription services	$	757,155	�	�	$	565,659	�	�	$	1,458,179	�	�	$	1,087,808	�
Professional services	130,597		�	�	106,061		�	�	254,628		�	�	202,555		�
Total revenues	887,752		�	�	671,720		�	�	1,712,807		�	�	1,290,363		�
Costs and expenses�⁽¹⁾:	�			�	�			�	�			�	�
Costs of subscription services	121,161		�	�	87,523		�	�	233,630		�	�	167,768		�
Costs of professional services	145,173		�	�	112,707		�	�	275,923		�	�	210,433		�
Product development	378,122		�	�	292,840		�	�	725,953		�	�	556,424		�
Sales and marketing	280,200		�	�	202,464		�	�	553,136		�	�	395,235		�
General and administrative	85,593		�	�	65,168		�	�	170,048		�	�	120,749		�
Total costs and expenses	1,010,249		�	�	760,702		�	�	1,958,690		�	�	1,450,609		�
Operating loss	(122,497		)	�	(88,982		)	�	(245,883		)	�	(160,246		)
Other income (expense), net	(106		)	�	1,613		�	�	7,035		�	�	(2,235		)
Loss before provision for (benefit from) income taxes	(122,603		)	�	(87,369		)	�	(238,848		)	�	(162,481		)
Provision for (benefit from) income taxes	(1,891		)	�	(1,213		)	�	(1,861		)	�	(1,915		)
Net loss	$	(120,712	)	�	$	(86,156	)	�	$	(236,987	)	�	$	(160,566	)
Net loss per share, basic and diluted	$	(0.53	)	�	$	(0.40	)	�	$	(1.05	)	�	$	(0.75	)
Weighted-average shares used to compute net loss per share, basic and diluted	226,392		�	�	215,932		�	�	224,857		�	�	214,517		�

�

⁽¹⁾

�

Costs and expenses include
share-based compensation expenses as follows:

�

Costs of subscription services

12,001

�

8,521

�

22,416

�

16,398

�

Costs of professional services

18,991

�

12,518

�

35,141

�

23,310

�

Product development

105,758

�

75,354

�

196,995

�

143,865

�

Sales and marketing

42,690

�

29,367

�

81,544

�

54,979

�

General and administrative

29,781

�

21,303

�

58,360

�

41,170

�

Workday, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

�	Three Months Ended July 31,							�	Six Months Ended July 31,
�	2019			�	2018			�	2019			�	2018
Cash flows from operating activities	�			�	�			�	�			�	�
Net loss	$	(120,712	)	�	$	(86,156	)	�	$	(236,987	)	�	$	(160,566	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:	�			�	�			�	�			�	�
Depreciation and amortization	67,754		�	�	42,226		�	�	128,919		�	�	80,890		�
Share-based compensation expenses	208,912		�	�	147,063		�	�	394,147		�	�	279,722		�
Amortization of deferred costs	22,002		�	�	17,061		�	�	42,882		�	�	33,421		�
Amortization of debt discount and issuance costs	14,301		�	�	17,490		�	�	25,888		�	�	35,629		�
Other	11,401		�	�	(4,894		)	�	20,377		�	�	(14,183		)
Changes in operating assets and liabilities, net of business combinations:	�			�	�			�	�			�	�
Trade and other receivables, net	(73,437		)	�	(104,758		)	�	83,942		�	�	63,944		�
Deferred costs	(28,207		)	�	(23,943		)	�	(46,692		)	�	(36,549		)
Prepaid expenses and other assets	(1,679		)	�	(5,446		)	�	(6,786		)	�	3,042		�
Accounts payable	1,047		�	�	5,987		�	�	2,550		�	�	13,941		�
Accrued expenses and other liabilities	(56,524		)	�	(15,182		)	�	(35,121		)	�	(3,555		)
Unearned revenue	55,461		�	�	68,168		�	�	(63,637		)	�	(53,887		)
Net cash provided by (used in) operating activities	100,319		�	�	57,616		�	�	309,482		�	�	241,849		�
Cash flows from investing activities	�			�	�			�	�			�	�
Purchases of marketable securities	(582,848		)	�	(526,216		)	�	(1,053,902		)	�	(1,434,342		)
Maturities of marketable securities	385,710		�	�	655,205		�	�	845,807		�	�	1,341,881		�
Sales of marketable securities	4,551		�	�	914,938		�	�	55,499		�	�	942,297		�
Owned real estate projects	(34,149		)	�	(49,537		)	�	(73,783		)	�	(88,770		)
Capital expenditures, excluding owned real estate projects	(75,576		)	�	(53,346		)	�	(141,111		)	�	(102,208		)
Business combinations, net of cash acquired	(12,885		)	�	(26,737		)	�	(12,885		)	�	(26,737		)
Purchase of other intangible assets	--		�	�	(1,000		)	�	--		�	�	(1,000		)
Purchases of non-marketable equity and other investments	(5,516		)	�	(1,000		)	�	(7,716		)	�	(3,400		)
Other	(32		)	�	--		�	�	(9		)	�	--		�
Net cash provided by (used in) investing activities	(320,745		)	�	912,307		�	�	(388,100		)	�	627,721		�
Cash flows from financing activities	�			�	�			�	�			�	�
Payments on convertible senior notes	(27		)	�	(350,005		)	�	(27		)	�	(350,005		)
Proceeds from issuance of common stock from employee equity plans	58,085		�	�	38,686		�	�	61,540		�	�	41,297		�
Other	(107		)	�	(59		)	�	(200		)	�	(116		)
Net cash provided by (used in) financing activities	57,951		�	�	(311,378		)	�	61,313		�	�	(308,824		)
Effect of exchange rate changes	75		�	�	(162		)	�	(252		)	�	(582		)
Net increase (decrease) in cash, cash equivalents, and restricted cash	(162,400		)	�	658,383		�	�	(17,557		)	�	560,164		�
Cash, cash equivalents, and restricted cash at the beginning of period	787,046		�	�	1,037,435		�	�	642,203		�	�	1,135,654		�
Cash, cash equivalents, and restricted cash at the end of period	$	624,646	�	�	$	1,695,818	�	�	$	624,646	�	�	$	1,695,818	�

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 Debt� Discount and� Issuance� Costs			�	Income Tax� Effects�⁽³⁾			�	Non-GAAP
Costs and expenses:	�			�	�			�	�			�	�			�	�			�	�
Costs of subscription services	$	121,161	�	�	$	(12,001	)	�	$	(11,739	)	�	$	--	�	�	$	--	�	�	$	97,421	�
Costs of professional services	145,173		�	�	(18,991		)	�	(1,233		)	�	--		�	�	--		�	�	124,949		�
Product development	378,122		�	�	(105,758		)	�	(5,380		)	�	--		�	�	--		�	�	266,984		�
Sales and marketing	280,200		�	�	(42,690		)	�	(10,449		)	�	--		�	�	--		�	�	227,061		�
General and administrative	85,593		�	�	(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 interim reporting periods. For fiscal 2020, the projected non-GAAP tax rate is 17%.

�

Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Three Months Ended July 31, 2018
(in thousands, except percentages and per share data)
(unaudited)

�	GAAP				�	Share-Based� Compensation� Expenses						�	Other� Operating� Expenses�⁽²⁾						�	Amortization� of Debt� Discount and� Issuance� Costs						�	Income Tax� Effects�⁽³⁾						�	Non-GAAP						�
Costs and expenses:	�				�	�						�	�						�	�						�	�						�	�						�
Costs of subscription services	$	87,523		�			�	$	(8,521		)			�	$	(3,787		)			�	$	--		�			�	$	--		�			�	$	75,215		�
Costs of professional services	112,707		�		�	(12,518				)		�	(519				)		�	--				�		�	--				�		�	99,670				�		�
Product development	292,840		�		�	(75,354				)		�	(3,960				)		�	--				�		�	--				�		�	213,526				�		�
Sales and marketing	202,464		�		�	(29,367				)		�	(1,039				)		�	--				�		�	--				�		�	172,058				�		�
General and administrative	65,168		�		�	(21,303				)		�	(731				)		�	--				�		�	--				�		�	43,134				�		�
Operating income (loss)	(88,982		)		�	147,063				�		�	10,036				�		�	--				�		�	--				�		�	68,117				�		�
Operating margin	(13.2		)%		�	21.9				%		�	1.4				%		�	--				%		�	--				%		�	10.1				%		�
Other income (expense), net	1,613		�		�	--				�		�	--				�		�	17,490				�		�	--				�		�	19,103				�		�
Income (loss) before provision for (benefit from) income taxes	(87,369		)		�	147,063				�		�	10,036				�		�	17,490				�		�	--				�		�	87,220				�		�
Provision for (benefit from) income taxes	(1,213		)		�	--				�		�	--				�		�	--				�		�	16,004				�		�	14,791				�		�
Net income (loss)	$	(86,156		)			�	$	147,063		�			�	$	10,036		�			�	$	17,490		�			�	$	(16,004		)			�	$	72,429		�
Net income (loss) per share�⁽¹⁾	$	(0.40		)			�	$	0.68		�			�	$	0.05		�			�	$	0.08		�			�	$	(0.10		)			�	$	0.31		�

�

(1)	�	GAAP net loss per share is calculated based upon 215,932 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share is calculated based upon 237,404 diluted weighted-average shares of common�stock.
(2)	�	Other operating expenses include amortization of acquisition-related intangible assets of $5.3 million and total employer payroll tax-related items on employee stock transactions of $4.7 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 interim reporting periods. For fiscal 2019, the projected non-GAAP tax rate was 17%.

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 Debt� Discount and� Issuance� Costs			�	Income Tax� Effects�⁽³⁾			�	Non-GAAP
Costs and expenses:	�			�	�			�	�			�	�			�	�			�	�
Costs of subscription services	$	233,630	�	�	$	(22,416	)	�	$	(24,399	)	�	$	--	�	�	$	--	�	�	$	186,815	�
Costs of professional services	275,923		�	�	(35,141		)	�	(4,692		)	�	--		�	�	--		�	�	236,090		�
Product development	725,953		�	�	(196,995		)	�	(19,011		)	�	--		�	�	--		�	�	509,947		�
Sales and marketing	553,136		�	�	(81,544		)	�	(23,283		)	�	--		�	�	--		�	�	448,309		�
General and administrative	170,048		�	�	(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), net	7,035		�	�	--		�	�	--		�	�	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 interim reporting periods. For fiscal 2020, the projected non-GAAP tax rate is 17%.

�

Workday, Inc.
Reconciliation of GAAP to Non-GAAP Data
Six Months Ended July 31, 2018
(in thousands, except percentages and per share data)
(unaudited)

�	GAAP			�	Share-Based� Compensation� Expenses			�	Other� Operating� Expenses�⁽²⁾			�	Amortization� of Debt� Discount and� Issuance� Costs			�	Income Tax� Effects�⁽³⁾			�	Non-GAAP
Costs and expenses:	�			�	�			�	�			�	�			�	�			�	�
Costs of subscription services	$	167,768	�	�	$	(16,398	)	�	$	(8,239	)	�	$	--	�	�	$	--	�	�	$	143,131	�
Costs of professional services	210,433		�	�	(23,310		)	�	(2,220		)	�	--		�	�	--		�	�	184,903		�
Product development	556,424		�	�	(143,865		)	�	(12,757		)	�	--		�	�	--		�	�	399,802		�
Sales and marketing	395,235		�	�	(54,979		)	�	(3,619		)	�	--		�	�	--		�	�	336,637		�
General and administrative	120,749		�	�	(41,170		)	�	(2,598		)	�	--		�	�	--		�	�	76,981		�
Operating income (loss)	(160,246		)	�	279,722		�	�	29,433		�	�	--		�	�	--		�	�	148,909		�
Operating margin	(12.4		)%	�	21.7		%	�	2.2		%	�	--		%	�	--		%	�	11.5		%
Other income (expense), net	(2,235		)	�	--		�	�	--		�	�	35,629		�	�	--		�	�	33,394		�
Income (loss) before provision for (benefit from) income taxes	(162,481		)	�	279,722		�	�	29,433		�	�	35,629		�	�	--		�	�	182,303		�
Provision for (benefit from) income taxes	(1,915		)	�	--		�	�	--		�	�	--		�	�	32,870		�	�	30,955		�
Net income (loss)	$	(160,566	)	�	$	279,722	�	�	$	29,433	�	�	$	35,629	�	�	$	(32,870	)	�	$	151,348	�
Net income (loss) per share�⁽¹⁾	$	(0.75	)	�	$	1.30	�	�	$	0.14	�	�	$	0.17	�	�	$	(0.22	)	�	$	0.64	�

�

(1)	�	GAAP net loss per share is calculated based upon 214,517 basic and diluted weighted-average shares of common stock. Non-GAAP net income per share is calculated based upon 236,706 diluted weighted-average shares of common�stock.
(2)	�	Other operating expenses include total employer payroll tax-related items on employee stock transactions of $19.0 million and amortization of acquisition-related intangible assets of $10.4 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 interim reporting periods. For fiscal 2019, the projected non-GAAP tax rate was 17%.

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,
planning, 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.

�

� 2019.
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.

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 of 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 of 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 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 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
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 interim 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 and 2019, we�determined the projected
non-GAAP tax rate to be 17%. 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.

�

Forward-Looking
Statements

This press
release contains forward-looking statements including, among other things,
statements regarding the expected performance and benefits of Workday's
offerings. The words "believe," "may," "will," "estimate," "continue,"
"anticipate," "intend," "expect," "seek," "plan," "project," 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, risks described
in our filings with the Securities and Exchange Commission (SEC), including our
Form 10-K for the fiscal year ended January 31, 2019 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, Inc. services
should make their purchase decisions based upon services, features, and
functions that are currently available.

�

Workday Announces Fiscal 2020 Second Quarter Financial Results

About Workday

About Non-GAAP Financial Measures

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