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Workday Announces Fourth Quarter and Full Year Fiscal 2013 Financial Results


Workday Announces Fourth Quarter and Full Year Fiscal 2013 Financial Results

Fiscal Year 2013 Total Revenue of $274 Million, Up 104% Year Over Year; Q4 Total Revenue of $81.5 Million, Up 89% Year Over Year; Fiscal Year 2013 Subscription Revenue of $190 Million, Up 115% Year Over Year; Q4 Subscription Revenue of $59.6 Million, Up 105% Year Over Year; Generates Positive Operating Cash Flows for the Year

PLEASANTON, CA -- (Marketwire) -- 03/07/13 -- 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 year fiscal ended January 31, 2013.

Fiscal Fourth Quarter Results:


 
--  Total revenues for the fourth quarter were $81.5 million, an increase
    of 89% from the fourth quarter of 2012. Subscription revenues were
    $59.6 million, an increase of 105% from same period last year.
    
    
--  Operating loss for the fourth quarter was $30.7 million, compared to
    an operating loss of $23.1 million in the same period last year.
    Non-GAAP operating loss for the fourth quarter was $25.2 million,
    compared to a non-GAAP operating loss of $21.7 million last year.(1)
    
    
--  Net loss per basic and diluted share for the fourth quarter was $0.19,
    compared to a net loss per basic and diluted share of $0.77 in the
    fourth quarter of fiscal 2012. The fourth quarter non-GAAP net loss
    per basic and diluted share was $0.16, compared to a non-GAAP net loss
    per basic and diluted share of $0.73 during the same period last
    year.(1)
    
    
--  Operating cash flows were $5.9 million in the fourth quarter. Free
    cash flows were a negative $4.0 million in the fourth quarter.(2)

Fiscal Year 2013 Results:


 
--  Total revenues were $273.7 million, an increase of 104% from 2012.
    Subscription revenues for the full year were $190.3 million, up 115%
    year over year.
    
    
--  Operating loss was $117.9 million, compared to an operating loss of
    $78.4 million last year. Non-GAAP operating loss was $91.3 million,
    compared to a non-GAAP operating loss of $74.3 million last year.(1)
    
    
--  Net loss per basic and diluted share was $1.62, compared to a net loss
    pe
r basic and diluted share of $2.71 last year. The non-GAAP net loss
    per basic and diluted share was $1.26, compared to a non-GAAP net loss
    per basic and diluted share of $2.57 last year.(1)
    
    
--  Workday generated operating cash flows of $11.2 million in 2013. Free
    cash flows were a negative $23.4 million.(2)
    
    
--  Cash, cash equivalents, and marketable securities were $790.3 million
    as of January 31, 2013. Unearned revenue was $285.3 million, a 52%
    increase from last year.

"Our fourth quarter ended a remarkable year for us with significant expansion in our customer base, suite of applications, and our global workforce," said Aneel Bhusri, chairman, co-founder, and co-CEO, Workday. "Heading into fiscal 2014, we are focused on growth across Europe and APAC as enterprises everywhere look to move HR and Finance operations to the cloud. We remain committed to delivering the highest levels of customer satisfaction and product innovation, while extending our unique employee-centric culture to Workday offices worldwide."

"Workday finished an outstanding fiscal 2013 with a very strong fourth quarter," said Mark Peek, chief financial officer, Workday. "Total revenues for the year were $274 million, and we generated positive operating cash flows. Looking ahead to our fiscal 2014, first quarter revenues are expected to be in the range of $83 and $87 million or growth of 46-53% as compared to the prior year. Total revenues for the year are anticipated to be in the range of $420 and $435 million or growth of 53-59%."

Recent Highlights


 
--  In the fourth quarter, Workday added significant customers globally,
    including Del Monte Corporation, Nissan Motor Company, Ltd., Primark,
    SunTrust Banks, Thiess Pty, Ltd., and Travelex.
    
    
--  In December 2012, all customers moved to Workday 18. This was the
    third update during fiscal 2013, and it delivered substantial global
    capabilities to Workday Financial Management. Workday 18 also included
    new performance management features for Workday Human Capital
    Management as well as advancements in collaboration and mobile.

Workday plans to host a conference call today to review its fourth quarter and full year fiscal 2013 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, net loss, and net loss per share for the fiscal fourth quarters of 2012 and 2013 and fiscal years 2012 and 2013 exclude share-based compensation, and for fiscal year 2013, also exclude a one-time charge related to our contribution of 500,000 shares 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 and property and equipment acquired under capital lease. 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 2014 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, including our Form 10-Q for the quarter ended October 31, 2012, that we may file 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.

Copyright 2013. 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, except share and per share data)               
                                                                            
                                                January 31,    January 31,  
                                                    2013           2012     
                                               -------------  ------------- 
                                                (unaudited)                 
Assets                                                                      
Current assets:                                                             
  Cash and cash equivalents                    $      84,158  $      57,529 
  Marketable securities                              706,181         53,634 
  Accounts receivable, net of allowance for                                 
   doubtful accounts of $613 and $261 at                                    
   January 31, 2013 and 2012, respectively            67,437         54,467 
  Deferred costs                                       9,816          9,450 
  Prepaid expenses and other current assets           16,710          8,092 
                                               -------------  ------------- 
Total current assets                                 884,302        183,172 
                                                                            
Property and equipment, net                           44,585         25,861 
Deferred costs, noncurrent                            18,575         13,156 
Goodwill and intangible assets, net                    8,488          8,578 
Other assets                                           3,130          1,871 
                                               -------------  ------------- 
Total assets                                   $     959,080  $     232,638 
                                               =============  ============= 
                                                                            
Liabilities, redeemable convertible preferred                               
 stock and stockholders' equity (deficit)                                   
Current liabilities:                                                        
  Accounts payable                             $       2,665  $       2,730 
  Accrued expenses and other current                                        
   liabilities                                        13,558          6,808 
  Accrued compensation                                27,203         13,891 
  Capital leases                                      12,008          7,075 
  Unearned revenue                                   199,340        114,734 
                                               -------------  ------------- 
Total current liabilities                            254,774        145,238 
Capital leases, noncurrent                            12,972          8,641 
Unearned revenue, noncurrent                          85,920         73,363 
Other liabilities                                     13,131         10,051 
                                               -------------  ------------- 
Total liabilities                                    366,797        237,293 
Commitments and contingencies                                               
Redeemable convertible preferred stock, $0.001                              
 par value; no shares and 31 million shares                                 
 authorized as of January 31, 2013 and January                              
 31, 2012; no shares and 30 million shares                                  
 issued and outstanding as of January 31, 2013                              
 and January 31, 2012                                      -        170,906 
                                                                            
Stockholders' equity (deficit):                                             
  Convertible preferred stock, $0.001 par                                   
   value; no shares and 68 million shares                                   
   authorized as of January 31, 2013 and                                    
   January 31, 2012; no shares and 68 million                               
   shares issued and outstanding as of January                              
   31, 2013 and January 31, 2012                           -             68 
                                                                            
  Class A common stock, $0.001 par value; 750                               
   million shares authorized as of January 31,                              
   2013 and 26 million shares issued and                                    
   outstanding as of January 31, 2013                     26              - 
  Class B common stock $0.001 par value; 240                                
   million shares authorized as of January 31,                              
   2013 and 140 million shares issued and                                   
   outstanding as of January 31, 2013                                       
   (including 3 million shares, subject to                                  
   repurchase, legally issued and outstanding                               
   as of January 31, 2013)                               136              - 
  Common stock, $0.001 par value; no shares                                 
   and 200 million shares authorized as of                                  
   January 31, 2013 and January 31, 2012; no                                
   shares and 36 million shares issued and                                  
   outstandi
ng as of January 31, 2013 and                                   
   January 31, 2012 (including 3 million                                    
   shares, subject to repurchase, legally                                   
   issued and outstanding as of January 31,                                 
   2012)                                                   -             33 
  Additional paid-in capital                         993,933        106,457 
  Accumulated other comprehensive income                  68              3 
  Accumulated deficit                               (401,880)      (282,122)
                                               -------------  ------------- 
Total stockholders' equity (deficit)                 592,283       (175,561)
                                               -------------  ------------- 
Total liabilities, redeemable preferred stock                               
 and stockholders' equity (deficit)            $     959,080  $     232,638 
                                               =============  ============= 
                                                                            
                                                                            
                                                                            
                               Workday, Inc.                                
              Condensed Consolidated Statements of Operations               
                   (in thousands, except per share data)                    
                                (unaudited)                                 
                                                                            
                                  Three Months Ended        Year Ended      
                                      January 31,           January 31,     
                                 --------------------  -------------------- 
                                    2013       2012       2013       2012   
                                 ---------  ---------  ---------  --------- 
Revenues                         $  81,519  $  43,158  $ 273,657  $ 134,427 
Costs and expenses(1):                                                      
  Costs of revenues                 32,986     20,330    116,535     65,368 
  Research and development          30,252     18,287    102,665     62,014 
  Sales and marketing               36,389     22,582    123,440     70,356 
  General and administrative        12,570      5,050     48,880     15,133 
                                 ---------  ---------  ---------  --------- 
Total costs and expenses           112,197     66,249    391,520    212,871 
                                 ---------  ---------  ---------  --------- 
Operating loss                     (30,678)   (23,091)  (117,863)   (78,444)
Other expense, net                    (167)      (444)    (1,203)    (1,018)
                                 ---------  ---------  ---------  --------- 
Loss before provision for income                                            
 taxes                             (30,845)   (23,535)  (119,066)   (79,462)
Provision for income taxes              99         51        124        167 
                                 ---------  ---------  ---------  --------- 
Net loss                           (30,944)   (23,586)  (119,190)   (79,629)
                                 ---------  ---------  ---------  --------- 
 
Accretion of redeemable                                                     
 convertible preferred stock             -       (257)      (568)      (342)
                                 ---------  ---------  ---------  --------- 
Net loss attributable to Class A                                            
 and Class B common stockholders $ (30,944) $ (23,843) $(119,758) $ (79,971)
                                 =========  =========  =========  ========= 
Net loss per share attributable                                             
 to Class A and Class B common                                              
 stockholders, basic and diluted $   (0.19) $   (0.77) $   (1.62) $   (2.71)
                                 =========  =========  =========  ========= 
Weighted-average shares used to                                             
 compute net loss per share                                                 
 attributable to Class A and                                                
 Class B common stockholders       161,916     30,818     74,011     29,478 
                                 =========  =========  =========  ========= 
(1) Costs and expenses include                                              
 share-based compensation as                                                
 follows:                                                                   
                                                                            
  Costs of revenues              $    (812) $    (212) $  (1,913) $    (628)
  Research and development          (1,301)      (373)    (3,528)    (1,124)
  Sales and marketing                 (879)      (306)    (2,717)      (839)
  General and administrative        (2,456)      (535)    (7,170)    (1,591)
                                                                            
                                                                            
                                                                            
                               Workday, Inc.                                
              Condensed Consolidated Statements of Cash Flows               
                               (in thousands)                               
                                (unaudited)                                 
                                                                            
                                  Three Months Ended        Year Ended      
                                      January 31,           January 31,     
                                 --------------------  -------------------- 
                                    2013       2012       2013       2012   
                                 ---------  ---------  ---------  --------- 
Cash flows from operating                                                   
 activities                                                                 
Net loss                         $ (30,944) $ (23,586) $(119,190) $ (79,629)
Adjustments to reconcile net                                                
 loss to net cash provided by                                               
 (used in) operating activities:                                            
Depreciation and amortization        5,784      3,069     17,722      9,319 
Share-based compensation             5,448      1,427     15,328      4,182 
Donation of common stock to                                                 
 Workday Foundation                      -          -     11,250          - 
Amortization of deferred costs       3,032      2,004     11,368      7,099 
Other                                   15         15         56         60 
Changes in operating assets and                                             
 liabilities:                                                               
    Accounts receivable             (6,338)   (22,144)   (12,970)   (39,025)
    Deferred costs                  (5,727)    (4,894)   (17,153)   (12,036)
    Prepaid expenses and other                                              
     assets                         (2,133)      (388)    (9,877)    (4,909)
    Accounts payable                  (138)     1,804        (65)     2,195 
    Accrued and other                                                       
     liabilities                     3,844      1,822     17,582      9,260 
    Unearned revenue                33,097     34,228     97,163     89,710 
                                 ---------  ---------  ---------  --------- 
Net cash provided by (used in)                                              
 operating activities                5,940     (6,643)    11,214    (13,774)
                                                                            
                                                                            
Cash flows from investing                                                   
 activities                                                                 
Purchases of marketable                                                     
 securities                       (391,198)   (51,358)  (765,797)   (63,282)
Maturities of marketable                                                    
 securities                         38,792      4,480    111,577     13,086 
Purchase of cost method                                                     
 investment                              -          -          -     (1,000)
Purchases of property and                                                   
 equipment                          (9,095)    (1,257)   (15,898)    (4,999)
                                 ---------  ---------  ---------  --------- 
Net cash used in i
nvesting                                                  
 activities                       (361,501)   (48,135)  (670,118)   (56,195)
                                                                            
                                                                            
Cash flows from financing                                                   
 activities                                                                 
Proceeds of initial public                                                  
 offering, net of issuance costs         -          -    684,620          - 
Proceeds from exercise of stock                                             
 options                               285      2,067     10,370      6,265 
Proceeds from issuance of                                                   
 redeemable convertible                                                     
 preferred stock, net of                                                    
 issuance costs                          -     13,536          -     95,009 
Principal payments on capital                                               
 lease obligations                  (3,541)    (1,348)    (9,453)    (4,296)
                                 ---------  ---------  ---------  --------- 
Net cash provided by financing                                              
 activities                         (3,256)    14,255    685,537     96,978 
Effect of exchange rate changes         (5)         1         (4)         8 
                                 ---------  ---------  ---------  --------- 
Net increase in cash and cash                                               
 equivalents                      (358,822)   (40,522)    26,629     27,017 
Cash and cash equivalents at the                                            
 beginning of period               442,980     98,051     57,529     30,512 
                                 ---------  ---------  ---------  --------- 
Cash and cash equivalents at the                                            
 end of period                   $  84,158  $  57,529  $  84,158  $  57,529 
                                 =========  =========  =========  ========= 
                                                                            
                                                                            
                                                                            
                               Workday, Inc.                                
                  Reconciliation of GAAP to Non-GAAP Data                   
                For the Three Months Ended January 31, 2013                 
                   (in thousands, except per share data)                    
                                (unaudited)                                 
                                                                            
                                                                  Non-GAAP  
                                                    Share-Based      as     
                                          GAAP     Compensation   adjusted  
                                       ----------  ------------  ---------- 
Costs and expenses:                                                         
  Costs of revenues:                                                        
    Subscription services              $   12,484  $       (200) $   12,284 
    Professional services                  20,502          (612)     19,890 
  Total costs of revenues                  32,986          (812)     32,174 
                                                                            
  Research and 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, for Class A and                                       
 Class B, basic and diluted (1)        $    (0.19) $       0.03  $    (0.16)

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


 
                                                                            
                                                                            
                                                                            
                               Workday, Inc.                                
                  Reconciliation of GAAP to Non-GAAP Data                   
                For the Three Months Ended January 31, 2012                 
                   (in thousands, except per share data)                    
                                (unaudited)                                 
                                                                            
                                                                  Non-GAAP  
                                                    Share-Based      as     
                                          GAAP     Compensation   adjusted  
                                       ----------  ------------  ---------- 
Costs and expenses:                                                         
  Costs of revenues:                                                        
    Subscription services              $    6,711  $        (81) $    6,630 
    Professional services                  13,619          (131)     13,488 
  Total costs of revenues                  20,330          (212)     20,118 
                                                                            
  Research and development                 18,287          (373)     17,914 
  Sales and marketing                      22,582          (306)     22,276 
  General and administrative                5,050          (535)      4,515 
                                                                            
Operating loss                            (23,091)        1,426     (21,665)
Operating margin                           (53.5%)         3.3%      (50.2%)
                                                                            
Loss before provision for income taxes    (23,535)        1,426     (22,109)
                                                                            
Provision for income taxes                     51          
   -          51 
                                                                            
Net loss                               $  (23,586) $      1,426  $  (22,160)
                                                                            
Net loss per share attributable to                                          
 common stockholders, for Class A and                                       
 Class B, basic and diluted (1)        $    (0.77) $       0.04  $    (0.73)

(1) Calculated based upon 30,818 basic and diluted weighted-average shares of Class A and Class B common stock


 
                                                                            
                                                                            
                                                                            
                               Workday, Inc.                                
                  Reconciliation of GAAP to Non-GAAP Data                   
                    For the Year Ended January 31, 2013                     
                   (in thousands, except per share data)                    
                                (unaudited)                                 
                                                                            
                                                        Equity              
                                                       Grant to    Non-GAAP 
                                         Share-Based    Workday       as    
                                GAAP    Compensation  Foundation   adjusted 
                             ---------  ------------  ----------  --------- 
Costs and expenses:                                                         
  Costs of revenues:                                                        
    Subscription services    $  39,251  $       (601) $        -  $  38,650 
    Professional services       77,284        (1,312)          -     75,972 
  Total costs of revenues      116,535        (1,913)          -    114,622 
                                                                            
  Research and 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, for Class A                                                  
 and Class B, basic and                                                     
 diluted (1)                 $   (1.62) $       0.21  $     0.15  $   (1.26)

(1) Calculated based upon 74,011 basic and diluted weighted-average shares for Class A and Class B common stock


 
                                                                            
                                                                            
                                                                            
                               Workday, Inc.                                
                  Reconciliation of GAAP to Non-GAAP Data                   
                      For Year Ended January 31, 2012                       
                   (in thousands, except per share data)                    
                                (unaudited)                                 
                                                                            
                                                                   Non-GAAP 
                                                     Share-Based      as    
                                            GAAP    Compensation   adjusted 
                                         ---------  ------------  --------- 
Costs and expenses:                                                         
  Costs of revenues:                                                        
    Subscription services                $  22,342  $       (230) $  22,112 
    Professional services                   43,026          (398)    42,628 
  Total costs of revenues                   65,368          (628)    64,740 
                                                                            
  Research and development                  62,014        (1,124)    60,890 
  Sales and marketing                       70,356          (839)    69,517 
  General and administrative                15,133        (1,591)    13,542 
                                                                            
Operating loss                             (78,444)        4,182    (74,262)
Operating margin                            (58.3%)         3.1%     (55.2%)
                                                                            
Loss before provision for income taxes     (79,462)        4,182    (75,280)
                                                                            
Provision for income taxes                     167             -        167 
                                                                            
Net loss                                 $ (79,629) $      4,182  $ (75,447)
                                                                            
Net loss per share attributable to                                          
 common stockholders, for Class A and                                       
 Class B, basic and diluted (1)          $   (2.71) $       0.14  $   (2.57)

(1) Calculated based upon 29,478 basic and diluted weighted-average shares for Class A and Class B common stock


 
                                                                            
                                                                            
                               Workday, Inc.                                
                              Revenue by Type                               
            
                   (in thousands)                               
                                (unaudited)                                 
                                                                            
                                  Three Months Ended        Year Ended      
                                      January 31,           January 31,     
                                 --------------------  -------------------- 
                                    2013       2012       2013       2012   
                                 ---------  ---------  ---------  --------- 
Revenues:                                                                   
Subscription services            $  59,622  $  29,031  $ 190,320  $  88,634 
Professional services               21,897     14,127     83,337     45,793 
                                 ---------  ---------  ---------  --------- 
  Total revenues                 $  81,519  $  43,158  $ 273,657  $ 134,427 
                                 =========  =========  =========  ========= 
                                                                            
                                                                            
Revenues:                                                                   
Subscription services                 73.1%      67.3%      69.5%      65.9%
Professional services                 26.9%      32.7%      30.5%      34.1%
                                 ---------  ---------  ---------  --------- 
  Total revenues                     100.0%     100.0%     100.0%     100.0%
                                 =========  =========  =========  ========= 
                                                                            
                                                                            
                                                                            
                                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,     
                                 --------------------  ---------------------
                                    2013       2012       2013       2012   
                                 ---------  ---------  ---------  ----------
                                                                            
GAAP cash flows from operating                                              
 activities                      $   5,940  $  (6,643) $  11,214  $ (13,774)
Capital expenditures                (9,095)    (1,257)   (15,898)    (4,999)
Property and equipment acquired                                             
 under capital lease                  (830)    (4,841)   (18,717)   (15,983)
                                 ---------  ---------  ---------  ----------
  Free cash flows                $  (3,985) $ (12,741) $ (23,401) $ (34,756)
                                 =========  =========  =========  ==========

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 expenses, non-GAAP operating loss, non-GAAP operating margin, non-GAAP net 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 and, for the year ended January 31, 2013, a one-time charge related to the contribution of 500,000 shares of common stock to the Workday Foundation. Free cash flows differ from GAAP cash flows from operating activities in that it treats capital expenditures and assets acquired under a capital lease 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, 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. Furthermore, 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. 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.
--  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 income statement. 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 operations after deducting capital expenditures, whether purchased or leased, 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.

Investor Relations Contact: Michael Haase (925) 951-9005 Michael.Haase@Workday.com

Media Contact: Eric Glass (415) 432-3056 Eric.Glass@Workday.com

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